Eldorado Gold Annual Report 2009

Plain-text annual report

2009 A N N U A L R E P O R T 20 09 A N N UA L R E P O R T Company Directory Directors Mr Stephen Gerlach, AM, LLB Chairman Mr Mark C Allison, BAgrSc, BEcon, GDM, FAICD Mr Charles E Bright, BA MA(Oxon) Dr James C Fox, BE MEngSci PhD Mr Raymond G Grigg, FSAE-I FAICD Mr James H (Hutch) Ranck, BS Econ Mr Malcolm G Jackman, BSc BCom Mr Ian G MacDonald, SF Fin Mr Graham D Walters, AM FCA Mr Rob H Wylie, FCA Secretaries Ms Sonya C Furey, BEc(Acc), LLM, FCA Mr Ross E Mallett, JD BBus, FCIS, FCPA Registered office Level 3, 27 Currie Street Adelaide, South Australia, 5000 Telephone: (08) 8425 4999 Facsimile: (08) 8410 1597 Email: information@elders.com.au Website: www.elders.com.au Share Registry Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia, 5000 Telephone: 1300 55 61 61 Facsimile: +61 (0)8 8236 2305 Website: www.computershare.com.au Auditors Ernst & Young Bankers Australia & New Zealand Banking Group BNP Paribas Citigroup Commonwealth Bank of Australia HSBC Bank National Australia Bank Westpac Banking Corporation Stock exchange listings Elders Limited ordinary shares and subordinated convertible unsecured notes (Elders Hybrids) are listed on the Australian Securities Exchange under the ticker codes “ELD” and “ELDPA” trustee for elders Hybrids Permanent Trustee Company Limited 151 Rathdowne Street Carlton South, Victoria, 3053 with the concentration of resources and management effort around the Elders Brand and Network and the Australian primary production sector with a strong balance sheet and expanded shareholder base with the completion of structural reform, the introduction of new management and the identiﬁ cation of opportunities and strategies to unlock improved performance and value for shareholders 20 09 20 09 A N N UA L A N N UA L R E P O R T R E P O R T 1 2 OUR BUSINESS Rural Services Forestry Futuris Automotive (cid:129) (cid:129) (cid:129) One of Australia’s largest hardwood plantation managers (by estate size) Manages over 165,000 hectares across Western Australia, Victoria, South Australia and Queensland Provider of MIS plantation grown hardwood (cid:129) (cid:129) Design, manufacture and supply of automotive interior systems (seating, steering, trims, carpets etc) 35% minority stake in Air International Thermal Systems (65% held by Unitas), a supplier of automotive air-conditioning and cooling systems (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 391 Australian and 22 New Zealand points of presence Farm inputs – supply of agricultural chemicals, fertilisers, animal health and general rural merchandise Production advice Farm outputs – marketing and sale of livestock, wool and grain Financial and real estate services, including Elders’ 40% interest in Rural Bank Network related – supply chain assets to leverage the network distribution/accumulation capability Revenue*: $2,186 million Employees†: 2,393 Revenue*: $185 million Employees†: 106 Revenue*: $270 million Employees†: 566 *12 months to 30 June 2009 † Full time equivalent employees at 30 September 2009 20 09 A N N UA L R E P O R T 3 2009 THE YEAR IN BRIEF REPORTING • Adoption of 30 September balance date with 15-month transition year to 30 September 2009 FINANCIAL RESULTS • Underlying loss after tax of $51.8 million versus underlying proﬁ t of $84.2 million in 2008 • Non-recurring items totalling ($414.7) million: > Gain on divested assets $55.3 million > Results from discontinued operations ($153.8) million > Impairment of assets retained ($101.4) million > Restructuring, redundancy, reﬁ nancing, relocation and major project costs ($115.3) million > Write-down of assets to be divested or discontinued ($99.5) million • Reported loss after tax of $466.4 million • Reﬁ nancing and recapitalisation completed subsequent to year-end: > Cash of $550 million raised through equity raising > Net proceeds applied to debt reduction > Bank debt reﬁ nanced with core debt term extended to 3 years • Pro forma gearing 30 September post recapitalisation of 32% • Dividend suspended (previously 9.5 cents per share fully franked) CORPORATE • Appointment of new Chief Executive Ofﬁ cer • Announcement and implementation of Agenda for Change program: > Company name changed from Futuris Corporation Limited to Elders Limited > Organisational and management restructure to single company structure built around Elders brand and network > Change in business model to “owner-operator focus” with divestment of non-core minority shareholdings in AAco, Webster, Amcom and other smaller interests • Adoption of Aligned Partnerships model for ﬁ nancial services: > Joint venturing of insurance distribution > Sale of insurance underwriting > Rural Bank shareholding reduced from 50% to 40% RURAL SERVICES • Underlying EBIT of $8.8 million; down from $57.5 million • Completion of Phase 1 of Elders Business Transformation Project • Successful entry into deregulated export wheat market by Elders Toepfer Grain • Poised for recovery as markets stabilise and Elders Business Transformation Project gains emerge FINANCIAL SERVICES • Equity accounted income of $27.7 million from Rural Bank versus $20.5 million in 2008 • Income from banking and insurance distribution to be reported within Rural Services from 2010 4 FORESTRY • Underlying EBIT of $5.9 million, compared with $61.4 million in 2008: > Excludes EBIT of $4.2 million for 2009 from Timber processing operations divested subject to regulatory approval • 2009 MIS project sales of $23.7 million, market share increased in signiﬁ cantly contracted MIS market • Plantation woodchip price maintained • Named Forest Manager of the Year by Forestry Stewardship Council • Contract signed for sale of timber processing assets for $100 million, subject to regulatory approval • Improvement expected in 2010 with MIS market recovery AUTOMOTIVE • Underlying EBIT of ($15.1) million, compared with 2008 underlying proﬁ t of $26.2 million: > Underlying EBIT of $6.8 million from Futuris Automotive > Underlying EBIT of ($21.9) million from associates • Named winner of global automotive industry awards for product and supply chain management excellence • Chinese operations achieve critical mass and positive earnings • Improvement expected in 2010 as a result of 2009 restructuring and stabilisation of industry conditions ELDERS LIMITED ABN 34 004 336 636 Reporting Period, Terms and Abbreviations This Report uses terms and abbreviations relevant to the Company and its accounts. The terms “the Company”, “Elders Limited”, “Elders” and “the Group” are used in this report to refer to Elders Limited and/or its subsidiaries. In 2009 Elders secured ASIC approval to change its balance date to 30 September. The change from a 30 June balance date to a 30 September balance date has been effected through a 15 month transition period ending 30 September 2009. This document reports on that period. Comparative ﬁ gures provided are from the last audited annual accounts, the 12 months ended 30 June 2008. Accordingly the terms “2009” or “2009 ﬁ nancial year” refer to the 15 months ended 30 September 2009 unless otherwise stated. ‘Year-end’ refers to 30 September 2009 unless otherwise stated. References to 2008 or preceding years refer to the 12 months ended 30 June of that year. References to 2010 or subsequent years refer to the 12 months ended 30 September of that year. Negative numbers are designated by brackets, for example ($7.0) million unless otherwise indicated. Annual General Meeting This document has been prepared to provide shareholders with an overview of Elders Limited’s performance for the 2009 ﬁ nancial year and its outlook. The Annual Report is mailed to shareholders who elect to receive a copy and is available free of charge on request (see Shareholder Information printed in this Report). The Annual Report can be accessed via the Company’s website at www.elders.com.au. Notice of Meeting The 2009 Annual General Meeting of Elders Limited will be held on Friday, 18 December 2009, commencing at 10.00am in Hall A, Adelaide Convention Centre, North Terrace, Adelaide, South Australia. A formal Notice of Meeting has been mailed to shareholders. Additional copies can be obtained from the Company’s registered ofﬁ ce or downloaded from its website at www.elders.com.au. 20 09 A N N UA L R E P O R T 5 FROM THE CHAIRMAN Stephen Gerlach This is the ﬁ rst Annual Report issued by the Company since it adopted the name of its principal business, Elders, and changed its balance date to 30 September. The change to balance date has been effected through the 15 month transition year from 1 July 2008 to 30 September 2009 (“2009”) which is reported on in this document. Subsequent reports will address the 12 months to 30 September. The change in name and date are among the more prominent outcomes of the realignment and acceleration of strategy to which the Directors committed the Company at the conclusion of the previous ﬁ nancial year. More speciﬁ cally, Directors identiﬁ ed two avenues to be addressed for improved performance: ﬁ rstly, the concentration of resources and effort around the Elders brand and network; and secondly, the reduction of debt to sustainable levels. This strategy has been pursued with vigour, through a wide ranging program that commenced with the recruitment and appointment of an experienced and capable new Chief Executive Ofﬁ cer, Mr Malcolm Jackman in September 2008. As at the date of this report, the objective of rebuilding the business around Elders has been substantially advanced and the objective of low sustainable debt levels has been achieved. There is no doubt that Elders has completed the year in a stronger position than which it began, and is much better equipped to perform and to attract investor support. Reaching this position in the midst of the volatile trading conditions and reticent ﬁ nance markets brought by the Global Financial Crisis has been challenging and complex. The task of securing of the Company’s ongoing ﬁ nancing proved to be more demanding and protracted than originally anticipated. Poor trading conditions in each of the Company’s markets saw cash ﬂ ow deteriorate and indebtedness rise, while the Company’s ﬁ nanciers moved to require a restructure rather than the simple facility rollover that was previously contemplated. In these circumstances, which were reﬂ ected in a sharply reduced share price, the securing of commitments from lenders and equity underwriters ultimately required the Company to issue equity at values that were lower than would have been reasonably expected earlier in the year. The Company also committed to a tight cash management regime under which it has agreed to suspend payment of hybrid distributions for a period of two years and agreed to not pay ordinary dividends until after 31 March 2012. 6 The objective of rebuilding the business around Elders has been substantially advanced and the objective of low sustainable debt levels has been achieved. The Board appreciates that shareholders would clearly have preferred a package featuring a smaller, higher priced, issue with a rights component and without restriction on the ability to pay dividends and distributions. However, this was not an option available to the Company and the package employed was that which was necessary to win the support needed from Elders’ lenders and equity underwriters for the completion of the reﬁ nancing and recapitalisation exercises. The $400 million conditional placement has substantially upgraded the depth and range of institutional involvement on the Company’s share register. The $150 million Share Purchase Plan (SPP) gave shareholders the opportunity to purchase shares on the same terms as the placement. The SPP was successful in this regard, with 100% of applications up to the $20,000 cap being met in full and 99% of all shareholders who held 15,000 shares or more being granted all of the new shares for which they applied. A cornerstone element of the re-capitalisation was the partnership with QBE Limited which involved the sale of Elders’ underwriting operations, the joint venturing of insurance distribution under the Elders’ brand and a $55 million equity investment by QBE in Elders. QBE has been a long-term investor in the Company and on behalf of the board, I welcome QBE as a major shareholder. The recapitalisation was completed on 2 November. The recapitalisation has substantially strengthened the Company’s balance sheet with pro-forma gearing as at that date estimated to be 32% compared with 128% as at 30 September 2009. Further reduction is due to occur with the completion of asset sales under contract or subject to sales process. As a result of the equity issue the Company’s shares on issue have expanded to 4,486 million, a larger volume than is preferable. The share consolidation proposed in the Notice of Meeting for the Company’s forthcoming Annual General Meeting will result in a more manageable share base with less price volatility. Elders’ Reported Loss of $466.4 million for 2009 (which includes $415.4 million for the 12 months to June) includes non-recurring items totalling ($414.7) million. By and large, these non-recurring items have either resulted from the program to rebuild the Company around Elders’ core operations, discontinue non-core and non-performing operations or from actions taken to bring asset values or operations into line with markets which featured lower demand, lower prices and buyer uncertainty. Results prior to non-recurring items reﬂ ect the impact of these markets on operating results, with Rural Services, Automotive and Forestry all recording signiﬁ cantly lower underlying EBIT than the previous year. The drivers responsible for the lower ﬁ nancial results in 2009 are expected to either reverse or wane during 2010 and thereby support improved market conditions and earnings. Elders approaches this new year with conﬁ dence, a stronger balance sheet and a structured program for the delivery of ﬁ nancial improvement and better returns for shareholders. Board renewal is an ongoing process and two Directors have indicated they will step down from the Board. The Company’s Deputy Chairman, Dr Jim Fox will retire after 24 years service, while Mr Anthoni Salim has retired after serving on the board for over six years. Both directors have made valuable contributions to the Company and on behalf of shareholders I would like to record our appreciation for their efforts. I welcome new appointees Mr Robert Wylie and Mr Mark Allison to the Board of Directors. Mr Wylie and Mr Allison, both of whom joined the Board after year-end, bring experience and expertise in accounting, ﬁ nancial management, rural distribution and farm services that is highly relevant to the Company. In closing I also acknowledge the work of the Company’s employees in what has been a demanding year. Thank you for your efforts. You have the Board’s best wishes for the New Year. Stephen Gerlach Chairman 20 09 A N N UA L R E P O R T 7 CHIEF EXECUTIVE OFFICER’S REPORT Elders has emerged from a year of extraordinary volatility in the world’s ﬁ nancial markets, and those for our own goods and services, in a sound ﬁ nancial position and with the expectation of strong improvement in the new year. However, these costs will be more than outweighed by the expected beneﬁ ts from these programs as well as the reﬁ nancing and recapitalisation of the Company completed shortly after year end. In particular, the reforms delivered by the Agenda for Change program proved pivotal to securing the necessary commitments from debt and equity capital providers. Through these commitments, Elders issued $550 million of new equity in the months of October and November, almost all of which has been applied to debt reduction. The end result of the Company’s efforts in 2009 is that Elders is now refocused, recapitalised and reenergised, possessing the structure and balance sheet with which it can effectively pursue its plans for lifting shareholder returns. SAFETY Safety performance improved over the year with each business unit recording improvement. The Lost Time Injury Frequency Rate for 2009 was 5.62 well down on the corresponding ﬁ gure of 8.64 as at 30 June 2008. While this improvement is positive, the only acceptable safety outcome is an incident-free and injury-free performance and the Company is committed to the achievement of that outcome. With this objective, the Company commissioned a comprehensive external survey of safety perceptions during the year. Implementation of the Report resulted in management, induction and training, communication, performance measurement and incentivisation practices being reviewed for their effectiveness in supporting the achievement of our safety objectives. As a result, a range of initiatives will be implemented in 2010 to reinforce the importance of safety as the ﬁ rst and foremost concern of each employee in their workplace. The years results have been largely shaped by three events: 1) The consequences of the global ﬁ nancial crisis that commenced in September 2008 on capital markets, and on the farm supply, real estate, automotive and forestry markets in which the Company operates. 2) The Company’s implementation of the Agenda for Change company renewal program from 1 December 2008. 3) The execution of the ﬁ rst stage of the Elders Business Transformation Program, which aims to lift the sales and earnings performance of the Company’s Rural Services operations. While the impact of the former is evident in the years operating and underlying results, the Agenda for Change has brought fundamental change to, and throughout, the Company. These changes include a new: (cid:129) identity (cid:129) structure (cid:129) ﬁ nancial and operating paradigm (cid:129) strategy (cid:129) reporting period (cid:129) capital structure. The Elders Business Transformation program has reformed the operating and cost structure and day-to-day management of the Rural Services operations. This three to ﬁ ve year program is totally re-orienting the Rural Services operations around its customers, and has as its objective the delivery of a low-cost, leading organisation with a better service proposition for clients, increased market share and substantially improved returns for shareholders. The implementation of both the Agenda for Change and the Transformation Program has brought short term cost, with the programs accounting for the overwhelming majority of the non-recurring items that adversely affected the reported proﬁ t for 2009. 8 Elders has emerged from a year of extraordinary volatility in the world’s ﬁ nancial markets, and those for our own goods and services, in a sound ﬁ nancial position and with the expectation of strong improvement in the new year. Malcolm Jackman PROFIT Elders’ results for 2009 feature substantially reduced underlying and reported proﬁ ts. After interest, tax and minority interests the Company recorded an underlying loss to shareholders of $51.8 million for the 15 months to 30 September 2009. This ﬁ gure includes an underlying loss of $26.9 million for the 12 months to 30 June. In comparison the FY2008 underlying net proﬁ t to shareholders was $84.2 million. After inclusion of non-recurring items totalling a charge of $414.7 million Elders has recorded a reported loss after tax and minority interests of $466.4 million. The non-recurring items which are detailed further in the Discussion and Analysis of the Financial Statements on page 54 of this report, essentially relate to discontinued or divested assets and project, impairments and restructuring and transformation costs. The loss was generated from sales revenue of $3,540.1 million ($2,902.0 million for the 12 months to June) compared with $3,312.1 million in 2008. The reduction in revenue for the 12 months to June reﬂ ects lower sales by each of the Company’s operations, with the exception of Financial Services. REVIEW OF OPERATIONS All operations, with the exception of Financial Services, generated signiﬁ cantly less earnings than in the previous year. To a large extent this can be attributed to the volatility and general downturn in trading conditions and prices across the world economy during the year. However, each of our operations were affected differently, with their ﬁ nal outcomes for 2009 reﬂ ecting their particular circumstances. Rural Services experienced sharp contraction in sales and earnings but made substantial progress in its Business Transformation Project. Underlying EBIT generated from Rural Services of $8.8 million for the year ($9.6 million for the 12 months to 30 June) compares with $57.5 million in 2008. The earnings outcome can be attributed to the combination of signiﬁ cantly reduced demand across its product and service range, lower prices, especially on key product lines such as fertiliser and agricultural chemicals and the disruption to operations incurred in the implementation of ﬁ rst stage of the Business Transformation Project. The ﬁ rst stage of the project has brought major changes to the totality of Rural Services operations: (cid:129) The old State-Ofﬁ ce-based management structure has been replaced with a regional system where management focus is applied to regions of common agricultural activity rather than by state boundaries. The 20 management regions that have resulted have enabled a tighter management focus than was possible under the previous six state ofﬁ ces. Regional management has been relocated from capital cities to the regions they serve. (cid:129) Support services have been restructured and centralised, to be more relevant to the needs of the network and lower cost. (cid:129) The ‘Go to Market’ model has been redesigned and restructured to maximise the relevance of the Elders to its clients, and the effectiveness of its sales proposition. (cid:129) Reﬁ nement of role responsibilities and recognition systems for better alignment with organisational objectives. (cid:129) Reduced network operation and support service costs. Having largely addressed the structural requirements for improved performance in Phase 1, the transformation project has now moved to speciﬁ c measures to improve the sales, cost and margins. These include reform of supply chain and procurement systems and practices, the standardisation of processes across the network and ongoing cost improvement. While the transformation project is anticipated to take three to ﬁ ve years to complete, the ﬁ nancial beneﬁ ts of the project are expected to emerge from 2010. FINANCIAL SERVICES The Company moved to a more capital efﬁ cient Financial Services model during the 2009. Elders has moved from an ‘ownership and control’ focus to ‘aligned partnerships’ focussed on sales and distribution through relationships with leading specialist ﬁ nancial services companies. The new structure has enabled Elders to realise capital and value from within the Financial Services businesses it has developed whilst retaining involvement in distribution through the network. 9 FORESTRY Forestry operations contributed underlying EBIT of $5.9 million ($10.6 million for the 12 months to 30 June) compared with $61.4 million in 2008. The movement in annual results can largely be attributed to the reduced establishment income resulting from lower MIS sales and the loss recorded by associate Forest Enterprises Australia Limited (FEA). 2009 was an extraordinarily difﬁ cult year for MIS with industry sales of forestry schemes falling by 76 per cent in the wake of uncertainty created by global ﬁ nancial markets and the collapse of two of the sector’s two companies. ITC’s performance in this climate was creditable, increasing market share and restricting its reduction in sales to 37 per cent. Improved results are expected from MIS and plantation operations in 2010 due to recovery in the MIS market as the investor focus which was captured by the aforementioned corporate failures shifts to successful operators such as ITC. Commercial forestry is characterised by long lead times. ITC is now 10 years into a 12-year estate establishment cycle. It is expected that, within two to three years, harvest volumes and plantation rotation will see the business transform from being cash negative to being a net generator of cash for the medium to long term. This outlook, together with the anticipated demand for woodﬁ bre and other timber products, and the value of ITC’s landholdings, highlight the long term value and signiﬁ cance of ITC. Initiatives taken to implement the new model comprised: > Reduction of Elders’ interest in Elders Rural Bank from 50% to 40% through sale of 10% to fellow shareholder Bendigo and Adelaide Bank. The sell down enabled Elders to realise capital of $33.9 million and provided the bank, renamed Rural Bank, with a level of independence that will facilitate growth that would otherwise not be available under the existing structure. Rural Bank will continue to hold preferred distribution rights for banking products through the Elders network. > Sale of Elders’ insurance underwriting operations to QBE accompanied by joint venturing of insurance distribution with QBE. Elders will hold a 25% interest in the Elders Insurance Managed General Insurance Agency, which will continue to distribute through the Elders network. The partnership with QBE has been accompanied by a major investment in Elders by QBE through subscription to $55 million in new shares in Elders to acquire a substantial shareholding interest in the Company. Gross proceeds from the sale of the Elders Insurance underwriting and distribution operations were $270 million. > The signing of Heads of Agreement for the sale of a 51% interest in Elders’ wealth management operations to M3, a subsidiary of ING Australia Limited for a net $5 million. In total, these transactions realised capital exceeding $360 million, a critical element in the Company’s recapitalisation. Importantly, the new ﬁ nancial services model will present reduced capital demands and is expected to support the growth of ﬁ nancial services in the Elders network through access to products from specialist ﬁ nancial services providers. Financial results from the distribution of ﬁ nancial services products will be reported within Rural Services henceforth. The 2009 result includes increased income from banking which rose from $20.5 million after tax in 2008 to $27.7 million after tax ($22.2 million for the 12 months to June). Agenda for Change Program Overview Company Structure Refocus on Elders Financial performance Engage the market (cid:129) Owner operator instead of (cid:129) Back the Elders holding company transformation program (cid:129) Manage the company as a whole rather than in silos (cid:129) Simplify and clarify strategy (cid:129) Leadership at the farm gate (cid:129) Concentrate resources on core assets P Reorganised around Elders with single management structure P Sale of non-core minority interests P Subsidiary boards removed P New and re-invigorated management team P Change in company name and identity to Elders P New go-to-market strategy implemented P Operations and support centres restructured P Reinvesting in the distribution network (cid:129) Act immediately on non-performing and non-core assets (cid:129) Signiﬁ cantly reduce (cid:129) Clear communication of strategy (cid:129) Transparency in ﬁ nancial reporting leverage in the business and strengthen the balance sheet (cid:129) Engage openly with all key stakeholders (cid:129) Present clear proposition (cid:129) Cash returns rather than for investors equity accounted earnings P Signiﬁ cant asset P Agenda for Change divestments completed, agreed or expected P Signiﬁ cant reduction in future capital demands through Rural Bank and insurance transactions P Independent review of forestry completed P Application of stringent cash and return metrics announced P Adoption of a more conservative management and measurement of gearing P Change of balance date to 30 September s e v i t c e j b O s t n e m e v e i h c A 10 AGENDA FOR CHANGE PROGRAM As noted by the Chairman in his opening comments, the Agenda for Change program has seen the Company commit to being a world class agribusiness leveraging the power of the Elders’ brand and network. Apart from the more conspicuous changes such as Company name and reporting date, the embracing of the program means that Elders has committed to wide-ranging changes in its approach to shareholder value generation, investment allocation, performance measurement and reporting and engagement with markets. The program and progress is detailed in the text box opposite. The central element of the program is the transition from the investment orientated holding company structure that prevailed previously to a single company structure with a single integrated management team and an owner operator focus on cash and shareholder value creation. This transition has effectively been made. Remaining items for completion under the Agenda for Change essentially comprise the divestment of a limited number of minority interests and non-core assets. With the appropriate structures, balance sheet and ﬁ nancing now in place, the focus of our efforts has shifted to the delivery of sustainable improvements in shareholder returns. 2009 has been an extremely demanding year for all associated with the Company. Elders is now in a position to move forward. I am conscious that this position has only been reached through the ongoing support of shareholders, as well as our clients and the efforts of our team of employees, many of whom are also shareholders. Thank you all for your contribution in 2009. ITC’s Timber processing operations have steadily improved their performance in recent years despite the ﬂ at demand levels for timber products in Australia. However, as a manufacturing operation, the timber processing operations fell outside Elders’ business strategy. A contract for sale of the Timber processing operations for $100 million was agreed with Gunns Limited on 31 August 2009 and is awaiting regulatory approval for completion. AUTOMOTIVE The world’s automotive sector has been particularly affected by the economic volatility of the 12 months to 30 September. Futuris Automotive’s results evidence this impact, with its underlying EBIT contribution falling from $26.2 million in 2008 to a loss of $15.1 million for 2009 (a loss of $15.5 million for the 12 months to June). The loss result is attributable to 35% owned associate Air International Thermal Systems which recorded an underlying loss of $17.6 million ($17.6 million for 12 months to June). Given the severity of the downturn in vehicle build, Futuris Automotive’s result from its Australian operations represent a solid performance. Chinese operations are developing satisfactorily and are now contributing positively to Company earnings and cash ﬂ ow. Improved and proﬁ table results are expected from automotive operations in 2010. Operations are now restructured to sustainable cost levels and demand levels appear to have stabilised, and in some areas are improving. Automotive operations fall outside our stated focus on agribusiness. Futuris Automotive is performing relatively well in the circumstances, and growing as a successful niche automotive component supplier in the Asia Paciﬁ c region. However, transaction valuations in the current climate are not giving appropriate recognition for the underlying asset values. Accordingly, Elders anticipates continuing to hold and support the ongoing development of this successful business until shareholder value considerations make sale to a natural owner a suitable course of action. FINANCIAL POSITION At 30 September Elders was poised to realise a total transformation in its ﬁ nancial and capital position as a result of its reﬁ nancing and recapitalisation. Malcolm Jackman Chief Executive Net debt at 30 September of $900.7 million compares with the corresponding ﬁ gure of $976.4 million as at 30 June and $698.4 million at the beginning of the year. However, post recapitalisation pro forma net debt at 30 September was $387.9 million. Further debt reduction is expected in the ﬁ rst half of the 2010 ﬁ nancial year through the completion of the ITC Timber processing sale and the securing of contracts for the sale of the Company’s shareholding in HiFert. The Company’s debt has been reﬁ nanced into a syndicated secured facility with a three year term expiring in September 2012. 20 09 A N N UA L R E P O R T 11 RURAL SERVICES 12 Rural Services Financial Results Major features and outcomes $ million Sales EBIT Network: Australia New Zealand Network related Support centres & other Underlying EBIT Non-recurring items: Reported EBIT 2009 12 months June 2009 • Underlying EBIT fell from $57.5 million 2008 to $8.8 million 2,665.0 2,185.6 2,472.3 • Non-recurring items of $(295.8) million 78.9 (8.4) 25.2 (86.9) 8.8 (295.8) (287.0) 62.4 (5.7) 21.1 (68.2) 9.6 (231.0) (221.4) 119.2 from business restructuring, transformation and discontinuation or sale of operations (2.3) • Business Transformation progresses to 8.7 (68.1) 57.5 (36.6) 20.9 second stage • Successful entry into deregulated Australian wheat market • Operational review, restructuring and business improvement underway DESCRIPTION OF OPERATIONS Elders is one of the leading suppliers of rural services to the Australian and New Zealand farm sectors. Through a network that includes a network of 285 branches and approximately 410 points of presence, Elders provides Australian and New Zealand farmers with the ﬁ nancial, physical and technical and advisory inputs for successful farming. Network operations encompass the following product and service offerings: (cid:129) Farm supplies: Elders is one of Australia’s leading suppliers of rural farm inputs, including seeds, fertilisers, agricultural chemicals, animal health products and general rural merchandise, backed by professional advice on agronomy, genetics and animal health to primary producers. (cid:129) Livestock: Elders provides a range of marketing activities from agency sales at the farm gate through to feedlot and export options backed by animal health advice, production management solutions and breeding services. (cid:129) Wool: Elders is the largest seller of Australian greasy wool and has an extensive range of products, services, facilities and alliances to help growers maximise returns from their wool. These include wool handling, buying and selling greasy wool, marketing and selling options and risk management solutions. (cid:129) Grain: Elders exclusively accumulates grain for Elders Toepfer Grain (“ETG”), a joint venture between Elders and Toepfer International, offering growers a range of cash-based grain marketing options. The joint venture combines Rural Services’ strength in grain accumulation with Toepfer’s expertise in risk management and global trading. (cid:129) Real Estate: Elders primarily operates in the broadacre, rural residential and lifestyle property markets via 177 branches, 44 stand alone and 33 franchise locations across rural and regional Australia. Elders also operates in the metropolitan residential market via 132 franchises. (cid:129) Insurance: Elders is a 25% shareholder in Elders Insurance; an insurance distribution joint venture that utilises the Elders network. Elders Insurance distributes a wide range of insurance cover including home contents, motor vehicles, business and farm, and a range of specialist insurance such as crop, livestock and landlord. (cid:129) Banking: Elders distributes banking products under an exclusive distribution agreement with Rural Bank. Elders network operations are supported by supply chain interests that leverage or support its relationships with the Australian farm sector. These network related operations include: (cid:129) Australian Wool Handlers (“AWH”): Elders holds a 50% interest in AWH, Australia’s largest wool logistics company, which handles approximately half of the national clip. (cid:129) Elders Toepfer Grain: ETG is a 50:50 joint venture between Elders and Toepfer International. ETG leverages the accumulation capability of the Rural Services network and the international trading and risk management capabilities of Toepfer International. (cid:129) Livestock Export & Trading: Elders’ operations consist of live export and feedlots, which provides additional sales and marketing options for clients. (cid:129) Live export: Conducted through North Australian Cattle Company and Universal Live Exports, which facilitate the trade of feeder and breeding cattle respectively to international markets, including Indonesia, Mexico, China and Russia. (cid:129) Feedlots and associated meat trading are conducted at three feedlots: Charlton, Killara (53% interest) and PT Elders Indonesia. (cid:129) China operations: Elders Fine Foods is involved in the importation and distribution of Australian products in China. (cid:129) Rural Bank: Elders holds a 40% interest in Rural Bank (formerly known as Elders Rural Bank), a joint venture with Bendigo and Adelaide Bank. Rural Bank is an APRA regulated authorised deposit taking institution that specialises in rural lending and also provides a range of depository products tailored to meet the needs of rural and metropolitan customers. (cid:129) Elders Insurance: A 75:25 joint venture between QBE and Elders which distributes insurance products in rural and regional Australia under the Elders brand for a 20 year term. 13 Australian network sales revenue From continuing operations $ million Farm supplies Livestock Wool Real Estate Financial services Other Total 2009 12 months June 2009 1,424.5 1,169.0 127.3 102.7 58.4 76.9 38.9 2.4 49.0 62.1 31.9 2.2 2008 1,241.4 132.9 66.9 87.8 40.9 0.5 1,728.4 1,416.9 1,570.4 Results from New Zealand network operations, which recorded an EBIT loss of $8.4 million (loss of $5.7 million in 12 months to June), are consistent with the development of the business and the severe downturn in trading conditions experienced by the New Zealand farm sector during the year. New Zealand operations recorded sales revenue of $103.6 million ($86.3 million in 12 months to June); comprising farm supplies sales $60.6 million, wool sales $26.4 million, livestock $11.5 million, real estate $1.5 million and ﬁ nancial services distribution $3.6 million. Network related operations generated sales of $540.4 million ($416.0 million in 12 months to June) compared with $308.4 million in FY08 (exclusive of discontinued operations). Network related sales for 2009 included: (cid:129) revenue of $526.3 million (12 months to June: $404.4 million) from livestock and other trading (FY08:$302.9 million), with the growth sourced from increased live export and to a lesser extent feedlots. (cid:129) revenue of $14.1 million attributable to the Elders Fine Foods operations in China which imports and distributes Australian agricultural produce (12 months to June: $11.6 million). (cid:129) Equity accounted earnings from: > AWH of $2.6 million ($2.3 million in 12 months to June versus $2.8 million in FY08). AWH earnings contracted as wool bales handled fell due to smaller wool clip. > Elders Toepfer Grain of $1.4 million, being Elders’ 50% share of ETG’s earnings from the purchase and sale of grain. ETG sold 3.8 million tonnes of grain in 2009 (3.1 million in the year to 30 June). Elders generated revenue of $2.1 million ($2.0 million in 12 months to June) from accumulation of grain for ETG through the Elders network. Elders has undertaken to concentrate its rural service operations around core network and network related activities under the Elders Business Transformation and Agenda for Change programs. As a result, Elders divested a number of interests and assets considered non-core In 2009. These included interests in the fodder production, citrus packing and horticulture sectors. Elders also initiated a sales process for its 50% interest in fertiliser distributor HiFert. RESULTS Results for 2009 highlight the volatility and uncertainty that prevailed in rural services markets during the year and the costs incurred in restructuring the Elders Rural Services business during the year under the Agenda for Change and Elders Business Transformation programs. The reported EBIT loss of $287.0 million from Rural Services for the year includes non-recurring items totalling a charge of $295.8 million. These items, which are detailed further in the Discussion and Analysis of the Proﬁ t and Loss statement, include: the results from discontinued operations ($158.4 million); writedown of assets to be divested or discontinued ($85.2 million); impairment of assets to be retained ($19.4 million); major project costs written off ($28.1 million); Business Transformation Program costs ($32.8 million) offset by a net gain of $28.1 million on the sale of assets. Underlying EBIT from Rural Services operations for the year was $8.8 million ($9.6 million in the 12 months to 30 June) compared with $57.5 million in the previous year. The movement in underlying EBIT generation is attributable to a sharp contraction in Australian network earnings, consolidation of New Zealand network earnings for the ﬁ rst time, offset in part by strong growth from livestock export and trading. Australian network earnings were adversely affected by the contraction in demand and prices, particularly in farm supply markets. Australian network sales from continuing operations were $1,728.4 million ($1,416.9 million for 12 months to June) compared with $1,570.4 million in 2008. Features of the Australia network revenue result by product include: (cid:129) Farm supplies revenue was lower on a like-period-basis due to lower volumes and sharp contraction in prices of key lines such as agricultural chemicals and fertiliser. Revenue from the sale of farm supplies for the 12 months to 30 June was down 6% to $1,169 million; gross margin down 27%. Elders sold 656,000 tonne (t) of fertiliser (548,000 (t) for 12 months to June, 763,000 (t) in FY08). (cid:129) Livestock: Impact of lower volumes was partly offset by higher average price for cattle and sheep. (cid:129) Wool sales revenue declined as sales and receival volumes were affected by lower wool production and market uncertainty and lower prices. (cid:129) Real Estate sales revenue fell following contraction in vendor and buyer activity. (cid:129) Financial Services distribution revenue fell as demand for credit eased during the year and new banking distribution fee arrangements were applied. 14 BUSINESS TRANSFORMATION PROJECT Elders committed its Rural Service operations to a Business Transformation process shortly before the beginning of the 2009 ﬁ nancial year. The program aims to achieve a substantial improvement in the ﬁ nancial performance of the business and, as at 30 September, Elders had progressed into the second year of a three to four year program. The ﬁ rst phase, which concentrated on the restructure of operations, is largely complete. Actions completed during this phase included restructuring of network management from a state capital city-based model to a regional management system, reform of the Company’s ‘Go-to-Market’ strategy, centralisation and rationalisation of support centre functions under a new organisation structure. The current (second phase) will focus on implementation of reforms to drive improvement in performance through addressing supply chain and procurement, the implementation of standard management processes, cost reduction and Go-to-Market initatives. SUSTAINABILITY Environment Elders feedlots at Charlton (Victoria) and Killara (New South Wales) are subject to local, state and federal government environmental and animal welfare legislation. Operations at both feedlots are quality assured under the National Feedlot Accreditation Scheme, which is independently administered and audited annually by Aus-Meat. Charlton Feedlot is also ISO9001:2004 (Quality Business Management) and ISO14001:2008 (Environmental Management) accredited and externally audited by NCSI. In addition, the operations are conducted under the provisions of the Australian Code of Practice for the Welfare of Cattle in Beef Feedlots (1996) and the Australian Model Code of Practice for the Welfare of Animals – Cattle (1992). No breaches of any of the relevant acts, codes of practice or accreditation schemes under which Killara or Charlton feedlots are approved and operate were reported during the year ended 30 June 2009 or to the date of this Report. Certain states have state and local government regulations that apply to saleyards owned and/or operated by Elders, in particular, in relation to efﬂ uent run-off, dust and noise. These regulations vary from state to state and generally only apply to saleyards above a prescribed size. No breaches of these environmental regulations were reported during the year ended 30 June 2009 or to the date of this Report. Elders’ farm supplies operations are subject to state environmental regulations governing the storage, handling and transportation of dangerous goods such as agricultural and veterinary chemicals and fertilisers. The majority of Elders farm supplies operations are accredited under the Agsafe co-regulatory accreditation program. The program provides accreditation for premises and training and accreditation for individuals in the safe transport, handling and storage of agricultural and veterinary chemicals. Licences for the handling and storage of dangerous goods are obtained and maintained by Elders wherever necessary as part of the Agsafe process. No material incidents were reported in relation to the handling and storage of dangerous goods during the year. Human Resources Elders’ employee numbers decreased in 2009 as a result of the streamlining of business operations under the Elders Business Transformation and Agenda for Change programs. Elders Rural Services employs 3,187 employees representing full time equivalent (FTE) 2,393 employees compared with employment of 4,400 people, representing 2,752 FTE employees at the start of the year. Elders continues to invest to support the development and productivity of its employees and maintain a workplace that is progressive and fair for all. Training is a critical element of this commitment. In 2009 this included employment of 34 Trainees in regional Australia as part of its new regionally focussed organisation structure. Elders supports its commitment to occupational health and safety with training, workshops and communications programs. The incidence of lost time injuries per million hours worked was reduced from 3.30 to 2.94 during the year. Elders maintain a large vehicle ﬂ eet to conduct its operations throughout rural and regional Australia. A range of initiatives including a duty of care program, driver education programs, incident reporting and accident management systems support the safe operation of the vehicle ﬂ eet. Community As a rural service organisation, Elders is committed to supporting the communities which it serves. Elders provides employment and a range of services to its network of branches throughout Australia. Elders branches support local initiatives and charities and Elders staff members participate in community service organisations. At a corporate level, Elders’ initiatives supported a number of charities and a number of non-government organisations and initiatives of relevance to its client base. Elders’ major commitments are its 5-year partnership with Landcare Australia to promote environmental sustainability on Australian farms and the McGrath Foundation. Elders fund raising for the Foundation raised over $100,000 per annum for rural and regional breast care nurses. 15 FORESTRY 16 Elders conducts its forestry operations through ITC; a forestry company engaged in plantation establishment and management, the harvest, handling and export sale of woodﬁ bre and the sustainable production of value- added hardwood timber products. ITC’s forestry operations have Forestry Stewardship Council certiﬁ cation and as of 30 September 2009 comprised an area under management in excess of 165,000 hectares. Approximately 28% of the ITC estate is owned with the balance leased. Plantation operations consist of hardwood forests, managed on behalf of investors, who have funded the estate through subscription to managed investment schemes (MIS) or through direct investment. MIS sales presently account for the large majority of plantation funding raised. The plantations are predominantly eucalypt, with smaller plantings in sandalwood, teak and red mahogany. They are located in south-west Western Australia, Kununurra, the Green Triangle region of south-west Victoria and south-east South Australia and in both central and northern Queensland. ITC exports wood chips to Japanese customers from Albany, Western Australia through its investment in Plantation Pulpwood Terminals (trading as Albany Chipping Terminal), a 50/50 joint venture with Timbercorp Limited (Liquidators appointed), Plantation Pulpwoods Terminals owns and operates a 1 million tonne per annum capacity woodchip handling and loading facility. ITC has a 13.5% interest in FEA, an ASX listed integrated MIS forestry and timber company. Earnings from FEA are equity accounted earnings within ITC’s ﬁ nancial results. Value adding timber processing was conducted through ITC hardwood sawmilling operations during 2009. These operations are the subject of a sales contract announced 31 August 2009, which is subject regulatory approval. Forestry Financial Results Major features and outcomes $ million Total Revenue Underlying EBITDA Depreciation & Amortisation Equity accounted income Underlying EBIT Non-recurring items Reported EBIT MIS sales 2009 181.2 7.6 6.6 (2.7) 5.9 (106.6) (100.6) 23.7 12 months June 2009 198.2 16.8 6.2 (1.4) 10.6 (74.0) (63.4) 23.7 2008 231.3 66.6 • Total revenue lower due to lower equity accounted income, & lower sales • Underlying EBIT of $5.9 million, down from $61.4 million 5.2 • Reported EBIT loss affected by 12.2 61.4 0.1 61.4 37.6 non-recurring items of $(106.6) million, • MIS market share increased in difﬁ cult market: project sales of $23.7 million • Sale of Timber processing operations • Export Woodchip price maintained • Winner of FSC Large Forestry Manager of the Year Award 2009 PERFORMANCE ITC recorded a reported EBIT loss of $100.6 million in 2009 and an underlying EBIT proﬁ t of $5.9 million ($10.6 million in the 12 months to June). The reported loss includes non-recurring items totalling $106.6 million being impairment to the value of ITC’s shareholding in FEA and to the value of timber processing assets. Notwithstanding the generally reduced demand for commodities during the year, ITC succeeded in negotiating maintenance of the export price for certiﬁ ed plantation grown woodﬁ bre to Japan at $207.40 per bone dry metric tonne. Subsequent to year end, ITC was named the Large Forest Manager of the Year for 2009 by the Forestry Stewardship Council, an internationally recognised award for environmental excellence. The deterioration in total revenue and EBIT results in the three months to September 2009 is due to greater than anticipated operating losses by FEA in the period to 30 June 2009 and impairments arising from reduction to the value of the net asset backing per share of ITC’s FEA shares following the decision to not participate in a FEA equity raising. Underlying EBIT for the year was adversely affected by the loss of $3.4 million incorporated to recognise ITC’s share of FEA’s after tax loss. The 2008 accounts incorporated a proﬁ t of $11.0 million in respect of the shareholding in FEA. ITC generated sales revenue of $211.4 million in 2009 ﬁ nancial year ($184.9 million in 12 months to June) compared with $191.3 million in 2008. Sales during the period were affected by the reduction to establishment income resulting from lower MIS sales. SUSTAINABILITY Environment ITC, as a matter of policy seeks to prevent, or otherwise minimise, mitigate or remediate any adverse impacts of its operations on the environment and the broader communities in which it operates. No signiﬁ cant breaches of relevant environmental legislation or regulations occurred during the period covered by this report. ITC holds ISO14001:1996 accreditation in respect of its environmental management system for its Forestry operations. The Heyﬁ eld operations of ITC’s Timber division in eastern Victoria also secured ISO14001 accreditation in June 2006. ITC was successfully audited under its Forest Stewardship Council (FSC) certiﬁ cation during the year. Approximately 80% of the Company’s plantations under management are now FSC certiﬁ ed. ITC’s 2009 MIS projects generated sales of $23.7 million which compares to $37.6 million in the previous year. The 2009 MIS sales will fund the plantation of approximately 3,700 hectares of hardwood forest. ITC harvested and sold woodﬁ bre from 2,994 hectares of plantation in the Albany and Bunbury region in 2009 (2,300 in 2008). Income from value appreciation in Investment Property and SGARA for 2009 was $12.4 million ($12.4 million in the 12 months to June) compared with $25.6 million in the previous year. The movement is reﬂ ective of a larger value uplift in 2008 as a result of land sale and leaseback transactions conducted in that year. The combination of the lower sales, investment property and SGARA income and equity accounted income resulted in a reduction in total revenue. ITC continued its corporate partnership with leading environmental organisation, WWF-Australia. The partnership seeks to encourage sustainable forestry management practices across the forestry sector whilst also jointly pursuing the uptake of credible forest certiﬁ cation by forest owners across Australia, including the public authorities who license ITC Timbers harvesting from state-owned native regrowth forests. Human resources and safety management ITC had 106 Full Time Equivalent employees as at 30 September compared with 426 at the beginning of the year. ITC’s achieved a substantial improvement in safety performance compared with the previous year, recording a lost time injury frequency rate of 20.98 for 2009 compared with 46.4 in the previous year. 17 AUTOMOTIVE OPERATIONS Futuris Automotive’s primary operations encompass the design, manufacturing and supply of automotive interiors solutions (Interiors) and a 35% investment in Air International Thermal Systems (Thermal). Interiors is Australia’s leading domestic based supplier of automotive interior solutions. The Interiors business designs and supplies automotive seating and interior solutions. Interiors’ product range includes seating, steering, pedals, window regulators, door trims, headliners, ﬂ oor carpets, parcel shelves, acoustic and aftermarket products. These products are supplied to high proﬁ le automotive manufacturers including GM Holden, Ford, Toyota and Chery Automobile. The supply of these products is assisted through a number of joint venture partnerships with automotive market participants globally including: (cid:129) Anhui JV: a joint venture in Anhui province (China), whose operations involve the manufacture of seating systems for supply to Chery and JAC. (cid:129) Feltex JV: a joint venture in South Africa, whose operations involve the manufacture of ﬂ oor carpet and mats for Daimler (Mercedes Benz). (cid:129) Plexicor: a 50% interest in MCK Paciﬁ c in Australia, a manufacturer of soft trim and acoustic trim products for supply to Toyota, Ford and GM Holden. All of these joint ventures are equity accounted by Elders and the Company incorporates their ﬁ nancial results according to its equity share of their after-tax results. The Thermal business is engaged in the design and manufacturing of HVAC (air conditioning) and Power Train Cooling systems in the US, Asia and Australia. Thermal’s products are supplied to global automotive manufacturers including GM, Suzuki, Ford, Mitsubishi and Mazda. The business has been restructured to align with substantial reductions to automotive build schedules arising from current economic conditions and as a result is expected to deliver positive cash ﬂ ow. Management of the business will continue to focus on the maintenance of positive cash ﬂ ow, leveraging returns on volume turnaround and positioning for a favourable sale outcome when market conditions improve. 18 Automotive Financial Results Major features and outcomes $ million Sales Underlying EBITDA Depreciation & Amortisation Underlying EBIT: Futuris Automotive Associates (equity account) Underlying EBIT Non-recurring items Reported EBIT 2009 333.0 4.3 19.4 6.8 (21.9) (15.1) (44.3) (59.4) 12 months June 2009 270.1 0.0 15.5 5.6 (21.1) (15.5) (44.3) (59.8) 2008 384.2 42.3 16.1 23.9 2.3 26.2 - 26.2 • Sales and earnings down due to signiﬁ cantly lower vehicle demand and build • Business restructured to meet lower volume market • EBIT loss incurred due to results from associate Thermal Systems • Chinese operations fully operational, proﬁ table after ﬁ rst full year • Non-recurring items for restructuring, impairments to meet market conditions • Futuris Automotive named winner of a number of global automotive industry awards Results Results from Automotive operations show the impact of a severe contraction to vehicle build schedules during the year. The downturn in motor vehicle industry activity brought lower supply requirements for Futuris Automotive’s existing programs and delay or cancellation of new supply programs. The major operating and ﬁ nancial impact was experienced by 35%-owned associate Thermal, through its exposure to US vehicle production. The realignment of business structure, costs and valuations to levels appropriate for the new market conditions resulted in non-recurring items totalling $44.3 million. However, the measures taken have seen costs and operations brought to sustainable levels, with the business recording a positive operating cash ﬂ ow of $14.9 million for the year ($4.0 million for the 12 months to 30 June). Underlying EBIT for the year was a loss of $15.1 million ($15.5 million loss for the 12 months to June) which compares to the proﬁ t of $26.2 million in 2008. The loss incorporates an underlying proﬁ t of $6.8 million ($5.6 million in 12 months to 30 June) from Futuris Automotive operations and an underlying loss of $21.9 million from associates (loss of $21.1 million in 12 months to 30 June). The improvement in underlying EBIT results between the 12 months to June and the full year ﬁ gure are considered indicative of the improving market conditions in the motor vehicle sector. In China, Futuris Automotive Interiors (Anhui) completed its ﬁ rst full year of operation. The joint venture’s activities increased with the addition of contracts for the supply of seating to JAC, supplementing existing supply agreements with Chery. Results improved over the course of the year with ramp-up in production volumes, and by the third quarter the joint venture had reached proﬁ table operation levels. Futuris Automotive received a number of globally recognised automotive industry awards during the year. These included 3 awards at the 2009 Automotive News PACE™ awards ceremony in Michigan, USA recognising the innovation in its PET enviroTUF™ automotive carpet solutions, which is manufactured from post-consumer PET bottles. The businesses’ supply chain management capabilities were recognised with the Boston Strategies International 2008 award. The award, which was made after a global supply chain benchmark study in which 500 diverse companies responded. SUSTAINABILITY Futuris Automotive conducts its operations within the parameters of management plans to ensure its day-to-day activities are completed safely and in an environmentally and socially responsible manner. Environment Futuris Automotive’s key manufacturing plants in Australia are all accredited to ISO 14001 certiﬁ cation. The organisation’s operating facilities are subject to relevant environmental protection legislation and regulation in the areas in which they operate. There were no reportable incidents or breaches of applicable environmental legislation arising from Futuris Automotive’s operations during the year. Safety Safety is managed through a series of safety committees at each operation which report to senior management on performance. Futuris Automotive recorded a lost time injury frequency rate of 6.35 per million hours worked during the year compared to the preceding years rate of 10.98 per million hours worked. Human Resources Futuris Automotive employed a total of 744 people in Australia at 30 June 2009 compared with 1,044 at the same time in the previous year. The 2009 employment represents 566 Full Time Equivalent employees. In addition 300 people are employed by Futuris Automotive and its offshore joint ventures (268 as at 30 June 2008). 19 BOARD OF DIRECTORS Mr Stephen Gerlach, AM, LLB Chairman Mr Gerlach age 64 – Non-executive member of the Board since November 1996 and Chairman since July 2003. He chairs the Company’s Nomination & Prudential and Remuneration Committees. Formerly Managing Partner of Adelaide legal ﬁ rm Finlaysons, Mr Gerlach has extensive experience as a corporate advisor and company director. Mr Gerlach also holds directorships at Santos Limited (Chairman) and Santos Finance Ltd (Chairman). He is the Chairman of Foodbank SA Inc., a director of Foodbank Australia Ltd and a Trustee of the Australian Cancer Research Foundation. Mr Gerlach previously served as a director of Southcorp Limited from 1994 to 2005. Mr Gerlach is a resident of South Australia. Mr Mark C Allison, BAgrSc, BEcon, GDM, FAICD Mr Allison age 48 – was appointed a Non-executive director of the Board on 10 November 2009. He has extensive experience spanning 25 years in the agribusiness sector. He is a former Managing Director of Wesfarmers Landmark Limited and Wesfarmers CSBP Limited. Prior to his appointment at Wesfarmers in 2001, Mr Allison held senior positions with Orica Limited as General Manager of Crop Care Australasia and with Incitec Limited as General Manager – Fertilisers. Between 1982 and 1996 Mr Allison performed a series of senior sales, marketing and technical roles in the Crop Protection, Animal Health and Fertiliser industries. Mr Allison was the Managing Director of Makhteshim Agan Australasia Pty Ltd from 2005 to 2007 and Managing Director and Chief Executive Ofﬁ cer of Jeminex Limited from 2007 to 2008. Mr Allison is a resident of New South Wales. Mr Charles E Bright, BA, MA(Oxon) Mr Bright age 64 – Non-executive member of the Board since May 2002. He is a member of the Nomination & Prudential Committee and Chairman of BWK AG Supervisory Board. Mr Bright has over 30 years’ experience in investment banking with positions including Chairman of Potter Warburg Securities and Head of Corporate Finance for HSBC in Australia. Mr Bright also served as Chairman of Australian Agricultural Company Limited until January 2009 and a director of Tassal Group Limited (August 2005 – September 2009) and Webster Limited (August 2005 – February 2009). Mr Bright is a resident of Victoria. Dr James C Fox, BE, MEngSci, PhD Dr Fox age 58 – Non-executive director and Deputy Chairman, Chairman of the Occupational Health, Safety and Environment Committee and member of the Remuneration and Nomination & Prudential Committees. He resigned as director of Elders Rural Services Ltd in April 2009. A non-executive director of Elders since July 1985, Dr Fox has more than 25 years experience as a public company director across a range of internationally based businesses. His particular track record is in the building of innovative, technology based companies in competitive international markets. After eight years working with a large international management consulting company, he started his own technology based product and service company in 1987. Following the merger of Dr Fox’s company with the then listed Vision Systems Limited in 1993, he was appointed CEO of the combined group until his retirement in 2006 following a heavily competed takeover of the company. Dr Fox is Chairman of Biota Ltd and also a director of Air New Zealand Ltd, MS Research Australia Ltd, Altitude Ltd, iSoft Group Ltd and TTP Group Plc (UK), and was a director of Optiscan Ltd from 1 July to 30 November 2009. Dr Fox is a resident of Victoria. Mr Raymond G Grigg, FSAE-I, FAICD Mr Grigg age 68 – Non-executive director of the Board since February 2004. He is also Non- executive director of the Futuris Automotive Group of companies, and a member of the Elders Audit & Compliance Committee. Mr Grigg has extensive experience and leadership in senior management within the automotive industry, having joined the Board following a 47 year career with General Motors Corporation where he held a number of senior positions both in Australia and overseas. At retirement Mr Grigg was President and Representative Director, General Motors Asia Paciﬁ c (Japan) as well as Chairman, CEO and Representative Director of GM Japan. Previous positions held include General Manager-Operations at GM Holden in Australia and Executive Director, GM International CKD Operations in Germany. Mr Grigg is also Vice President of the Royal Automobile Association of SA Inc and a non-executive director of Adtrans Group Limited and Bedford Industries Inc. Mr Grigg is a resident of South Australia. Mr James H (Hutch) Ranck, BS Econ Mr Ranck age 61 – Non-executive director of the Board since June 2008. He is Managing Director of DuPont Australia & New Zealand and Group Managing Director for DuPont operations in ASEAN. Mr Ranck has had a long and distinguished career with Du Pont where he has held senior management positions in Australia and overseas in ﬁ nance, chemicals, pharmaceuticals and agricultural products. He is currently Chair of the BCA Education, Skills and Innovation Task Force and a director of the Business Council of Australia and the Australian Bush Heritage Foundation. Mr Ranck is a resident of New South Wales. Mr Malcolm G Jackman, BSc, BCom Mr Jackman age 57 – Executive Director of the Board since October 2008. He is the Chief Executive and Managing Director of the Elders Group. Prior to joining the Company Mr Jackman was Chief Executive Ofﬁ cer and Managing Director of Coates Hire Ltd, an ASX 200 listed company, from 2003 until its sale in January 2008. Prior to Coates Mr Jackman was Chief Executive Ofﬁ cer of Manpower Australia/New Zealand from 1996-2003. Mr Jackman was also a non-executive director of Rubicor Group Ltd from 2005 until 2008. Mr Jackman is a resident of South Australia. Mr Ian G MacDonald, SF Fin Mr MacDonald age 55 – Non-executive member of the Board since November 2006 and a member of the Audit & Compliance Committee. He is a director of Rural Bank Ltd and Elders Trustees Ltd. He was a director of Elders Insurance Ltd and Elders Insurance Agencies Pty Ltd until the sale of these companies on 30 September 2009. He is a member of the Australian Institute of Company Directors and a Senior Fellow of the Financial Services Institute of Australasia. Mr MacDonald has had an extensive career in banking both in Australia and internationally, having served National Australia Bank Ltd for 34 years including performance of a number of senior management roles, including Chief Operating Ofﬁ cer, Yorkshire Bank, Executive General Manager, Financial Services Australia, and Group Chief Information Ofﬁ cer. Mr MacDonald is a director of Arab Bank Australia Ltd and CPT Global Ltd. Mr MacDonald is a resident of Victoria. Mr Graham D Walters, AM, FCA Mr Walters age 67 – Non-executive member of the Board since January 2002. He is the Chairman of the Audit & Compliance Committee and was a director of the Elders Financial Services Group until 1 September 2008 and Elders Rural Services Ltd from November 2007 until April 2009. Mr Walters has extensive experience in accounting, having formerly held roles as Chairman of Partners at KPMG South Australia and as a Member of the National Board of KPMG. Mr Walters also holds directorships of Australian Rail Track Corporation Limited, BioInnovation SA and the Adelaide Festival of Arts. He is also the local Chairman of Westpac Banking Corporation in South Australia. Mr Walters is a resident of South Australia. Mr Rob H Wylie, FCA Mr Wylie age 59 – was appointed a Non-executive director of the Board on 10 November 2009. A Chartered Accountant with over 30 years of experience in accounting, audit and corporate governance, including experience in mergers, acquisitions and corporate advisory work. Mr Wylie’s past executive positions and non-executive directorships include Executive Partner (Ofﬁ ce of the Chief Executive Ofﬁ cer) and National Managing Director Corporate Governance Services (New York), Deloitte & Touche USA; Deputy Managing Partner, Deloitte Asia Paciﬁ c; and Chairman, Director – Board of Partners, Chief Executive Ofﬁ cer, Deloitte Australia. Mr Wylie is currently a non- executive director of MaxiTRANS Industries and Centro Properties Group. Mr Wylie is also a former National President and State Chairman – Victoria for the Institute of Chartered Accountants in Australia and former Victorian Board Member of the Australian Institute of Company Directors. Mr Wylie is a resident of Victoria. Company Secretaries Ms Sonya C Furey, BEc(Acc), LLM, FCA Ms Furey was appointed Group Tax Manager in December 1999 and Company Secretary in December 2002. Prior to joining the Company, Ms Furey held a management role at KPMG, Corporate Tax Consulting. Ms Furey holds a Bachelor of Economics (Accounting) from Flinders University of South Australia and a Master of Laws (Corporate and Commercial) from the University of Adelaide. She is a Fellow of the Institute of Chartered Accountants and a Fellow of the Taxation Institute of Australia. Mr Ross E Mallett, JD, BBus, FCIS, FCPA Mr Mallett was appointed Company Secretary in March 2008. Before joining the Company Mr Mallett was Deputy Company Secretary of BHP Billiton Ltd and prior to that held senior company secretarial roles at WMC Resources Ltd and CRA Limited (now Rio Tinto Ltd). Mr Mallett holds a Juris Doctor from Monash University and a Bachelor of Business from Deakin University. He is a Fellow, National Councillor, Director and former National President of Chartered Secretaries Australia and a Fellow of CPA Australia. 20 CORPORATE GOVERNANCE STATEMENT The 2009 ﬁ nancial period represented a period of considerable challenge and change for the Company. As set out on page 11 of this Annual Report, in December 2008 the Company’s new Chief Executive announced the Agenda for Change Program. During this period of operational change the Board has also made a number of changes to the governance framework and policies in place throughout the Group to improve their effectiveness. The Board has driven these changes to ensure that the Company’s corporate governance framework is in accordance with best practice. The directors believe that good corporate governance contributes long term value to stakeholders and are therefore committed to enhancing corporate values and culture and continuous improvement in governance. This corporate governance statement summarises the key changes made to the governance framework during the 2009 ﬁ nancial year and sets out the key elements of the Company’s governance framework and practices. The Board is committed to acting in the best long-term interest of shareholders, customers, employees and the community. The Board has in place a Board Charter that consolidates the principles, policies and practices of its governance framework as reﬂ ected in this statement. (cid:129) Provide clear accountability. (cid:129) Protect the rights and interests of shareholders and other stakeholders. (cid:129) Provide for proper management of the Company’s assets; (cid:129) Support the achievement of the Company’s ﬁ duciary, environmental, safety, social and other obligations. (cid:129) Preserve and enhance the Company’s reputation and standing in the community. (cid:129) Support the achievement of shareholder value within a framework of appropriate risk assessment and management. The corporate governance policies and practices are reinforced by a commitment by the Company to the highest standards of legislative compliance and ﬁ nancial integrity and ethical behaviour. Management and Oversight The Board Charter deﬁ nes those duties that are reserved for the Board and its Committees and those that are delegated to management. Board In developing our governance framework we have taken into account the Corporate Governance Principles and Recommendations (Best Practice Recommendations) published by the ASX Corporate Governance Council (ASXCGC). We believe that the Company’s governance practices are consistent with the ASXCGC’s Corporate Governance Principles and Recommendations, which were revised in August 2007. Published on our website at www.elders.com.au is a table comparing the Company’s governance practices with the ASXCGC’s Corporate Governance Principles and Recommendations. The main responsibilities of the Board as set out in the Board Charter are to: (cid:129) Provide input into, and adopt, the strategic plan and budget of the Company as prepared by management. (cid:129) Monitor performance against the business plan and budget; (cid:129) Approve and monitor the progress of all material acquisitions, divestments, contracts and capital expenditure; (cid:129) Approve capital raisings (debt or equity) by the Company; OPERATION OF THE BOARD Relevant polices and charters: – Board Charter – Company constitution Role of the Board The Board is ultimately responsible for the governance of the Company. It has implemented governance policies and practices that are designed to: (cid:129) Oversee the audit, compliance and ﬁ nancial and operational risk management functions of the Company; (cid:129) Oversee the Company’s ﬁ nancial reporting and communication to the Company’s shareholders and the investment community and shareholder-relations generally; (cid:129) Appoint and remove the Chief Executive and determine that person’s remuneration (including termination beneﬁ ts); (cid:129) Review the performance of the Board as a whole and of individual directors; and (cid:129) Monitor and assess the performance of the Chief Executive and the Company’s senior executive team. 21 Committees The Board has established a number of Board Committees (Nomination & Prudential Committee, Remuneration Committee, Occupational, Health, Safety and Environment Committee and Audit and Compliance Committee) to increase the Board’s efﬁ ciency and effectiveness in fulﬁ lling these responsibilities. The role and responsibilities of these Committees are detailed in formal charters. In addition, a Group Risk Committee comprising members of the Company’s Executive Committee operates under a Board-endorsed risk management policy and reports to the Board on a regular basis. The responsibilities and composition of these committees are detailed on pages 25 to 29. BOARD STRUCTURE COMPOSITION, INDEPENDENCE, TRAINING AND ASSESSMENT Relevant policies and charters: – Board Charter – Company Constitution – Prudential Criteria – Director Independence Policy – Board Performance Assessment – Director Induction and On-going Education Delegation of Responsibility to Management Board Composition The Board delegates responsibility for the day-to-day operation and administration of the Company to the Chief Executive. Mr Malcolm Jackman was appointed as Chief Executive of the Company on 29 September 2008 and Managing Director on 20 October 2008 following the resignation of former Chief Executive Mr Les Wozniczka on 26 September 2008. The Board monitors the Chief Executive’s performance on an ongoing basis through regular management reporting and through the reporting of the various Board Committees and Group Risk Committee. The Company has in place a comprehensive delegation of authority under which the Chief Executive and the Executive Committee operate. The Board regularly reviews the obligations set out in the Board Charter and the delegations of authority. The composition of the Board is determined by the Company’s Constitution and by Board Policy, which includes the following requirements: (cid:129) The number of directors may be not less than three and not more than 12; (cid:129) The majority of directors must be independent non- executive directors; (cid:129) The Chairman should be an independent director; and (cid:129) Directors (and prospective directors) must satisfy prudential criteria arising from the Company’s undertaking to comply with all requirements of speciﬁ ed regulators in respect of licences the Company holds. Fit and Proper Person Policy The process for evaluating the performance of senior executives is set out in the Remuneration Report on pages 39 and 40. Executive Committee In January 2009 the Company disbanded the independent subsidiary boards that had oversight over the key operating business units and reformed the Group’s management structure into a single integrated executive management team, the Executive Committee, comprising business unit managing directors and senior functional corporate managers who report directly to the CEO. One of the functions of the Executive Committee is to assist in the oversight function and to comply with obligations of prudentially regulated entities within the Group. Company Secretary Under the Board Charter, the Company Secretary is accountable to, and reports directly to, the Board (through the Chairman where appropriate) on all governance matters. 22 The Company has a ﬁ t and proper person policy and process to provide directors with assurance that existing and potential directors and persons appointed to senior executive positions within the Group are able to satisfy appropriate ﬁ tness and proprietary standards that will enable them to discharge their prudential responsibilities throughout the term of their appointment. The Company has made an undertaking to comply with all requirements of speciﬁ ed regulators in respect of licences the company holds including the Company’s undertaking to comply with APRA Policy Statements, Policy Framework and Prudential Standards relating to the prudential supervision of conglomerates in respect of its ownership interest in Rural Bank Ltd. The prudential criteria set down in the Company’s Fit and Proper Policy are set out below and on the Company’s website at www.elders.com.au: (cid:129) Any director or proposed director of the Company must comply with appropriate prudential standards formulated by the Company which reﬂ ect APRA’s or another speciﬁ ed regulators prudential standards and guidelines (Prudential Criteria); (cid:129) Any director who does not comply with those Prudential Criteria (or who is the subject of an adverse determination by APRA) is disqualiﬁ ed from continuing to hold the ofﬁ ce of director; (cid:129) Limits are imposed on board representation by directors afﬁ liated with any one substantial shareholder to prevent any substantial shareholder from exercising an undue measure of control and inﬂ uence over the policies or operations of the Company and Rural Bank Limited; (cid:129) A standing committee of the Board (the Nomination and Prudential Committee) formulates, reviews and administers appropriate Prudential Criteria; and (cid:129) The key principles of the Prudential Criteria adopted by the Company are that directors and certain senior executives of the Group should be able to meet the following compliance requirements: > possess the conﬁ dence, character, diligence, honesty, integrity and judgement to perform properly the duties of the responsible person position held; > the person is not disqualiﬁ ed under the Banking Act 1959, the Insurance Act 1973 or the Superannuation Industry (Supervision) Act 1993 from holding their position; and > the person has either no conﬂ ict of interest in performing their duties or if the person has a conﬂ ict of interest, it would be prudent for the Company to conclude that the conﬂ ict will not create a material risk that the person will fail to perform properly their duties. (cid:129) In addition to these general criteria, the Company will also apply (but not be restricted to) the following speciﬁ c criteria for an individual to qualify as a “ﬁ t and proper” person. That they have never: > failed to discharge responsibilities as a director or manager of, or a professional service provider to, a body corporate, statutory body, partnership, trust, or commercial or professional enterprise of any kind (entity) with diligence, honesty, integrity or judgement; > been the subject of justiﬁ able criticism, discipline, punishment, adverse ﬁ ndings, directions or orders, by a court, tribunal, ofﬁ cial inquiry, regulatory agency, complaints handling body, dispute resolution body, or professional or industry body concerning conduct in relation to: – the management of an entity; or – commercial or professional activities. > been the subject of civil or criminal proceedings, or enforcement action, in relation to: – the management of an entity; or – commercial or professional activities. > been expelled or excluded from, or refused admission to, a professional or industry body, or a clearing house or exchange; > been involved with the affairs of an entity that was expelled or excluded from, or refused admission to, a professional or industry body, or a clearing house or exchange; > been refused a licence or authorisation relating to a commercial or professional activity, or had such a licence or authorisation revoked; > been involved with the affairs of an entity that was refused a licence or authorisation relating to a commercial or professional activity, or had such a licence or authorisation revoked; > had their appointment terminated, or resigned or been asked to resign, from a position as director or manager of, or professional service provider to, an entity in circumstances which reﬂ ected adversely on their competence, character, diligence, honesty, integrity or judgement in discharging their responsibilities in the position; > seriously or persistently failed to manage their debts or ﬁ nancial affairs in accordance with contractual or other legal obligations in circumstances where such failure caused loss to others; > been, or acted as, a director or manager of, or professional advisor to, an entity that: – was, or later came to be, insolvent; – was, or later came to be, under insolvency administration; – was, or later came to be, under statutory or judicial management; or – failed to repay, or otherwise failed to meet its ﬁ nancial obligations to, creditors or beneﬁ ciaries; and engaged in unreasonable or unlawful conduct that caused or contributed to the insolvency, placement under insolvency administration or statutory or judicial management, or failure to repay or otherwise meet obligations to creditors or beneﬁ ciaries; > contravened any regulatory requirement or professional standard relating to: – the management of an entity; or – commercial or professional activities; > been unreasonably or improperly obstructive of, or misleading or untruthful in dealing with, a court, tribunal, ofﬁ cial inquiry, regulator, complaints handling body, dispute resolution body, or professional or industry body; > breached a ﬁ duciary obligation or other legal or professional obligation involving trust or conﬂ ict of interest or perpetrated or participated in negligent, deceitful or otherwise discreditable business or professional practices; or > failed to comply with a ﬁ t and proper policy of an APRA-regulated institution. Director skills and experience The Board is to be comprised of individuals with an appropriate mix and depth of skills, experience and knowledge in order to meet the Board’s responsibilities and objectives. The Board of Directors currently comprises an independent non-executive chairman who is elected by the full Board, eight other independent non-executive directors and a managing director/chief executive. The qualiﬁ cations, experience, special responsibilities and period of ofﬁ ce of each director may be found on page 20 of this report. Director Independence The Company has adopted an Independence Policy that is published on the website. The policy states that the majority of the Board must comprise independent directors. In determining whether or not a director is to be considered independent, the Board will have regard to whether the director: (cid:129) Is a substantial shareholder in the Company; (cid:129) Within the last three years, has been an employee of the Company, a material adviser to the Company or a principal or employee of any material adviser to the Company; (cid:129) Is a material supplier to, or a material customer of, the Company; (cid:129) Is directly or indirectly associated with any of the above persons; (cid:129) Is otherwise free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company; and (cid:129) Is of independent character and judgment. 23 In assessing materiality, the Company takes a qualitative approach rather than setting strict quantitative thresholds. Whether an interest, relationship or business is ‘material’ is considered having regard to the nature, circumstances and activities of the director and from the perspective of the Company, the persons and entities with whom the director has an afﬁ liation, and the director. Group’s businesses and industry or technical issues impacting the Group and at least one meeting a year is held in conjunction with a tour of one of the Company’s operations. Other Non-executive Director Activities/ Involvement The Board does not believe that the period of service of a director necessarily hinders the director’s ability to exercise independent thought and judgement and to act in the best interests of the Company. The directors believe that experience and knowledge of the Company’s operations are important contributors to the efﬁ cient working of the Board and the best interests of the Company. In addition to the time spent in preparation for and attendance at Board and committee meetings, non-executive directors visit operational sites and assist the Company in local, national and international industry matters. Non-executive directors are also involved in business and strategic planning meetings. Board Performance Assessment Chairman The Board Charter prescribes that the Chairman should be an independent director and details his responsibilities. Mr Stephen Gerlach was appointed Chairman on 1 July 2003. The Board has determined that Mr Gerlach is an independent non-executive director. The Chairman’s role includes: (cid:129) Providing effective leadership to the Board in all Board matters; (cid:129) Publicly representing the Board’s views to stakeholders; (cid:129) Promoting effective relations between the Board and management; (cid:129) Leading the process of review of the performance of the Board, Committees and individual directors; (cid:129) Guiding the setting of agenda items and conduct of Board and shareholder meetings; and (cid:129) Overseeing succession of non-executive directors and the Chief Executive. Access to Independent Professional Advice and Other Resources Directors may obtain independent, professional advice, at the Company’s expense, on matters relevant to the Company’s affairs to assist them in carrying out their duties as directors, subject to providing prior notice to the Chairman. All directors have direct access to and may seek information directly from the Company’s External and Internal Auditors provided that all such enquiries are ﬁ rst advised to the Chairman and the Chief Executive. The Board reviews its own performance and that of its Committees on an ongoing basis. The Chairman also holds individual discussions with each director to discuss their performance on a needs basis. The non-executive directors are responsible for evaluating the performance of the Chief Executive, who in turn evaluates the performance of all other senior executives. The evaluations are based on speciﬁ c criteria, including the Company’s business performance, whether long-term strategic objectives are being achieved and the achievement of individual performance objectives. This process was followed in respect of the 2009 ﬁ nancial year. During the 2009 ﬁ nancial year a formal board review was conducted by an external board performance consultant (Colin Carter & Associates). The review of the Board and Board Committees collectively and of individual directors, including the Chairman, was conducted by means of survey and individual interviews of directors and senior management on board performance issues. Board members received a written report on the review ﬁ ndings and recommendations which was then used as a basis for discussion at meetings of the Board in September and November 2009. The Board Charter prescribes that before a director is recommended for re-election, the Chairman consults with the other directors regarding the director’s effectiveness. Based upon the outcome of these consultations, the Board shall then determine whether or not to recommend the director for re-election. Directors have access to the Company’s management and company information through the Chief Executive to assist them in carrying out their duties as directors. The Nomination & Prudential Committee assists in this review process. Appointment of Directors and Re-election Director Induction and Training Upon appointment, new directors are given a detailed brieﬁ ng by the Chairman on key board issues and by the Chief Executive and senior executives on the nature of the Company’s business and its key drivers. New directors are also provided with appropriate background documentation. Issues covered in the induction include: (cid:129) The Company’s ﬁ nancial, strategic, operational and risk management position; (cid:129) Directors’ rights, duties and responsibilities; and (cid:129) The role of the Board and the Board committees. Directors undertake training and development on an as needs basis. Directors are also regularly briefed on the 24 The composition of the Board is reviewed on an annual basis coinciding with the annual general meeting cycle to ensure that the Board has the appropriate mix of expertise and experience. At each annual general meeting (AGM) of the Company, one third of directors (other than the managing director and directors who have been appointed since the previous AGM) and any other director who will at the conclusion of the meeting have been in ofﬁ ce for three or more years and AGMs since they were last elected to ofﬁ ce are required to retire and may stand for re-election. Directors who have ﬁ lled casual vacancies are required to be elected at the ﬁ rst annual general meeting following their appointment to the Board. When a vacancy exists, or when it is considered that the Board would beneﬁ t from the services of a new director with particular skills, the Nomination & Prudential Committee selects candidates with appropriate expertise and experience for consideration by the full Board. The Committee also takes into account the Prudential Criteria and may seek advice from external consultants if necessary in selecting candidates for board positions. The Board then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders and re-election at three yearly intervals. Formal letters of appointment setting out key terms and conditions are in place for all directors. The process of Board renewal continued during the course of the year with the appointments of Mr Rob Wylie and Mr Mark Allison as directors on 10 November 2009. Mr Anthoni Salim resigned as a director of the Company on 30 October 2009. Dr Jim Fox has also indicated his intention to stand down as director at the December 2009 AGM. BOARD COMMITTEES Relevant policies and charters: – Nomination & Prudential Committee Charter – Audit & Compliance Committee Charter – Remuneration Committee Charter – Occupational Health, Safety & Environment Committee Charter Nomination & Prudential Committee Objective The Board’s objective in relation to Board nomination and review is to ensure that: (cid:129) The Company has adopted selection, appointment and review practices that result in a board: > with an effective composition, size, mix of skill sets and experience and commitment to adequately discharge its responsibilities and duties and add value to the Company and its shareholders; > that has a proper understanding of, and competence to deal with, the current and emerging issues of the businesses of the Company; and > can effectively review and challenge the performance of management and exercise independent judgement. (cid:129) Shareholders and other stakeholders understand and have conﬁ dence in those selection, appointment and review practices; and (cid:129) The prudential criteria that directors must satisfy at all times, arising out of the Company’s undertaking to comply with the requirements of Speciﬁ ed Regulators to protect the value of the Company’s substantial assets allocated to ﬁ nancial services activities, are met. The prudential criteria is set out in the Fit and Proper Person Policy section on pages 22 and 23. The Nomination & Prudential Committee assists the Board in meeting its prudential objectives. Membership The members of the Nomination & Prudential Committee at the date of this Report are: Mr S Gerlach (Chairman) Mr C E Bright Dr J C Fox The Nomination & Prudential Committee currently comprises three independent directors and includes the Chairman of the Board and Deputy Chairman. The Chief Executive Ofﬁ cer has a standing invitation to attend the Committee meetings and may participate in discussions on matters concerning the main Board, but has no voting rights with respect to such matters. Members are appointed for an initial term of three years, but are eligible for re-appointment. From time to time the full Board meets to consider nomination issues. Role The Nomination & Prudential Committee operates under a formal charter adopted by the Board which can be viewed on the Company’s website at www.elders.com.au. The Committee’s principal responsibilities are to regularly review and make recommendations to the Board on: (cid:129) The necessary and desirable competencies of members of the Boards of the Company and its subsidiaries and their committees; (cid:129) Appropriate processes for the review of the performance of the Boards of the Company and its subsidiaries; (cid:129) Appropriate policies with respect to the maximum period of service and retirement age for directors; (cid:129) Appropriate succession plans for the Boards of the Company and its subsidiaries and the Chief Executive Ofﬁ cer; (cid:129) The appropriate size of the Board so as to encourage efﬁ cient decision-making; (cid:129) Recommendations for the appointment (including re-appointment in the case of directors retiring by rotation) and removal of directors of the Company and its subsidiaries; (cid:129) The scope and content of letters of appointment of non-executive directors; (cid:129) Skills development and continuing education programs for directors of the Company and its subsidiaries; (cid:129) Appropriate induction procedures designed to allow new directors to participate fully and actively in board decision-making at the earliest opportunity and the effectiveness of those procedures; and (cid:129) Fulﬁ llment of the Company’s prudential obligations. Key Activities During the Year The Committee oversaw the following signiﬁ cant activities during the reporting period: (cid:129) Appointment of new CEO during the year following the completion of an international search; (cid:129) Completion of a comprehensive review of the effectiveness of the Board conducted by an external board performance consultant; and (cid:129) Continuation of the process of Board renewal with the appointment of two new directors and impending departure of two long standing directors. Remuneration Committee Objective The board’s objective is to ensure that the Company has adopted remuneration policies that meet the needs of the Company and encourage a performance oriented culture. A summary of the Company’s remuneration policies and practices is set out in the Remuneration Report on pages 36 to 53. 25 Membership The members of the Remuneration Committee at the date of this Report are: Mr S Gerlach (Chairman) Dr J C Fox Mr J H Ranck Membership The members of the Audit and Compliance Committee at the date of this Report are: Mr G D Walters (Chairman) Mr I G MacDonald Mr R G Grigg The Remuneration Committee comprises three independent directors and includes the Chairman of the Board and Deputy Chairman. The Chief Executive Ofﬁ cer has a standing invitation to attend Committee meetings but leaves the meeting during those periods in which consideration is being given to his compensation arrangements. Committee members are appointed for an initial term of three years, but are eligible for re-appointment. Role The Remuneration Committee operates under a formal charter adopted by the Board which can be viewed on the Company’s website at www.elders.com.au. The Committee’s principal responsibilities are to: (cid:129) Ensure that appropriate policies are in place for compensation arrangements for the Chief Executive Ofﬁ cer, senior management, the Company and its employees generally and the Board itself; (cid:129) Advise and make recommendations to the Board on employee share and option schemes, executive option plans, performance incentive packages, superannuation entitlements, retirement and termination beneﬁ ts and policies; (cid:129) Review the Chief Executive Ofﬁ cer’s recommendations with respect to the remuneration of key executives, including members of the Executive Committee, and his plans for the remuneration of employees in general to ensure that the Company’s remuneration policies are sufﬁ ciently competitive and equitable to retain and motivate a high quality workforce; (cid:129) Review any equity plans and make recommendations to the Board on equity plans for Directors and the Chief Executive Ofﬁ cer, in particular. Committee approval is required for key executive equity plans and for the terms of any broadly based Group equity plan; and (cid:129) Review and recommend for Board approval, where appropriate, any employment contracts outside normal parameters. Key Activities During the Year The Committee oversaw the following signiﬁ cant activities during the reporting period: (cid:129) Setting of termination beneﬁ ts for the former CEO and contract terms and remuneration beneﬁ ts for the incoming CEO; (cid:129) Appointment of Mr R Tanti reporting directly to the CEO with responsibility for human resources and support services; and (cid:129) Review of the remuneration arrangements, policy and structure for the Group. The review is discussed in detail in the Remuneration Report on pages 37 and 45. Audit and Compliance Committee Objective The Board is concerned to ensure the integrity of the Company’s ﬁ nancial reporting is independently veriﬁ ed and has established the Audit and Compliance Committee to assist it in achieving this objective. 26 All members of the Audit and Compliance Committee are independent, non-executive directors. At least one member of the Committee is required to be a qualiﬁ ed accountant or other ﬁ nancial professional with experience in accounting and ﬁ nancial matters. The Committee Chairman Mr G Walters has extensive experience in accounting and ﬁ nancial matters having formerly held the role of Chairman of Partners at KPMG South Australia. Committee members are appointed for an initial term of three years but are eligible for re-appointment. Details of the members’ qualiﬁ cations can be found on page 20 of this report. Representatives of Company’s management attend meetings from time to time at the discretion and invitation of the Committee. Role The Audit and Compliance Committee operates under a formal charter adopted by the Board which can be viewed on the Company’s website at www.elders.com.au. Its primary functions are to: (cid:129) Assist the Board in meeting its oversight responsibility in relation to: > integrity of ﬁ nancial statements and ﬁ nancial accounting policies and practices; > external auditor’s qualiﬁ cations, performance and independence; > oversight and performance of the internal audit function; > integrity and effectiveness of internal controls and regulatory compliance; and > credibility and objectivity of the accountability process; (cid:129) Improve the effectiveness of the internal and external audit functions and provide a forum for improving communication between the Board and the external auditors and, where applicable, the internal auditors; (cid:129) Facilitate the maintenance of the independence of the external auditor; (cid:129) Provide a structured reporting line for internal audit facilitating the maintenance of the objectivity of the internal audit functions; (cid:129) Improve the quality of external reporting of ﬁ nancial information and reports; and (cid:129) Assist in establishing the objectives, and the assessment of the performance, of the internal audit function. Key Activities During the Year The Committee oversaw the following signiﬁ cant activities during the reporting period: (cid:129) Change in ﬁ nancial year end from 30 June to 30 September through the use of a 15 month transitional ﬁ nancial period to 30 September 2009. The change was introduced to bring the Company’s reporting into line with seasonal cycles and that of other agriculture focused companies; (cid:129) Signiﬁ cant revaluations were made to the assets of the Group’s businesses following a restructuring of the Group that emanated from the Company’s “Agenda for Change” program; and (cid:129) The Company moved from a substantially outsourced internal audit model to a substantially in-house model allowing development of a skill set and capability that may more effectively meet business needs. Occupational Health, Safety and Environment (OHSE) Committee The Board is committed to fulﬁ lling the Company’s obligation to operate its business in a safe, ethically responsible and sustainable manner and has established the Occupational Health, Safety and Environment Committee to assist in meeting this objective. Membership The members of the OHSE Committee at the date of this Report are: Dr J C Fox (Chairman) Mr R G Grigg Mr J H Ranck The OHSE Committee comprises three independent directors and is chaired by the Deputy Chairman of the Board. Committee members are appointed for an initial term of three years but are eligible for re-appointment. Role The OHSE Committee operates under a formal charter adopted by the Board which can be viewed on the Company’s website at www.elders.com.au. Its primary functions are to: (cid:129) Establish the strategic direction and targets for health, safety and environmental management; (cid:129) Provide a forum for discussion between the Board and management on health, safety and environment issues; (cid:129) Review the Company’s performance in relation to health, safety and environment matters; (cid:129) Review the adequacy and performance of the Company’s Health, Safety & Environment functions and management; (cid:129) Review the effectiveness of the Company’s Health, Safety & Environment policy framework, management systems and internal controls including any health, safety and environment standards, plans and audit process; (cid:129) Monitor the social, environmental and ethical impact of the Company’s operations and set standards for social, environmental and ethical practices; (cid:129) Consider the key risks arising from Health, Safety & Environment issues; (cid:129) Monitor progress in the achievement of health, safety and environment targets; (cid:129) Monitor and consider the impact of changes and emerging issues in health, safety and environment legislation, community expectations, research ﬁ ndings and technology; (cid:129) Consider reports submitted by Company management on health, safety and environment performance and issues including reports on material issues such as serious injury or death or signiﬁ cant environmental incidents associated with the Company’s operations; (cid:129) Receive and consider presentations from business unit managers on the health, safety and environment management and performance of their operations; and (cid:129) Visit the Company’s operational sites to familiarise committee members with health, safety and environment issues associated with the operations on those sites and to assure members that appropriate systems and controls have been implemented. Key Activities During the Year The Committee oversaw the following signiﬁ cant activities during the reporting period: (cid:129) Survey on employee safety perceptions; (cid:129) Development of Group OH&S Framework Implementation Plan to improve the safety framework; and (cid:129) Introduction of more effective Group OH&S reporting to management and Board. ATTENDANCE AT MEETINGS BY DIRECTORS Nine to ten formal Board meetings are scheduled each year with meetings generally held over one to two days. 19 formal Board meetings were held during the current ﬁ nancial period to accommodate the extended (15 month) reporting period and additional meeting requirements associated with the restructuring of the Company’s debt and equity structure. Additional meetings are convened to consider speciﬁ c or urgent matters, as required. Attendance by directors at Board and Committee meetings held during the period ended 30 September 2009 is detailed on the following page. On eight occasions during the ﬁ nancial period the non-executive directors met without management being present. Where directors are unable to attend meetings either in person or by telephone (for example if they are overseas) the Chairman or the Chief Executive endeavours to canvass their views on key matters prior to the meeting in order to represent their views at the meeting. EXTERNAL AUDIT INDEPENDENCE POLICY Relevant policies and charters: – Non-Audit Services Policy The Company has in place a formal policy that: (cid:129) Details the Group’s position in respect of the key issues which may impair, or appear to impair, external audit independence; (cid:129) Details the internal procedures implemented to ensure the independence of auditors; and (cid:129) Establishes a framework that enables the Audit and Compliance Committee to evaluate compliance with the policy and report to the Board on compliance. The key principles in the policy are: (cid:129) An auditor is not independent if: > an employment relationship exists or could be deemed to exist, between the Company and the auditor, its ofﬁ cers or former ofﬁ cers, employees or former employees, or certain relatives; > a ﬁ nancial relationship exits between the auditor and the Company; and > speciﬁ c non-audit services (including information technology and human resources services) are provided to the Company by the auditor. 27 (cid:129) In relation to the provision of other non-audit services the following guidelines must be followed: > management must consider the actual, perceived and potential impact upon the independence of external auditors prior to engaging external auditors to undertake any non-audit service; > the outsourcing of any internal audit project to the external auditors or the undertaking of any joint internal/external audit review, will require prior Audit and Compliance Committee approval; > the Audit and Compliance Committee must consider whether the provision of such non-audit services is compatible with maintaining the external auditors’ independence, by obtaining assurance and conﬁ rmation that the additional services provided by the external auditor are not in conﬂ ict with the audit process. In order to assist with this assessment, management will provide the Audit and Compliance Committee with details of the amount of non-audit services undertaken by the external auditors as a proportion of all audit and non-audit engagements, entered into by the Group for the period; and > as a general rule, the Company does not utilise external auditors for internal audit purposes or consulting matters, other than services which are in the nature of audit, such as review of tax compliance and acting as independent accountants preparing a report on forecast ﬁ nancial information for inclusion in the Company’s capital raising prospectus. RISK MANAGEMENT Relevant policies and charters: – Risk Management Policy – Group Risk Committee Charter The Board has in place a Risk Management Policy and Framework to assist the Company in achieving its risk management objectives – to ensure the Group’s assets are protected against ﬁ nancial loss, legal and regulatory obligations are satisﬁ ed, and business risks are identiﬁ ed and properly managed, and appropriately monitored by the Board. Under the Risk Management Policy the Board is responsible for oversight of the risk management process and framework. Senior executive management have primary responsibility for identiﬁ cation and management of signiﬁ cant risks within the Group’s businesses and are accountable to the board for designing, implementing and monitoring the process of risk management and integrating it into the day to day activities of the Group’s businesses. Business Unit Managers are responsible for monitoring and managing key business risks for the respective businesses. All personnel are responsible for managing risks in their own areas. The Audit and Compliance Committee is responsible for ongoing review of the External Audit Independence Policy and reports to the Board on the continuing suitability of the policy and recommended changes to the existing policy as and when required. The Audit and Compliance Committee is responsible for assessing the effectiveness of internal processes for determining and managing key ﬁ nancial and compliance obligations and the OHSE Committee is responsible for assessing the effectiveness of internal process for determining and managing key OHSE risks. Director Attendance at Meetings Board of Directors Audit and Compliance Committee Nomination and Prudential Committee+ Remuneration Committee Occupational Health, Safety and Environment Committee Other Committees** Attended Held Attended Held Attended Held Attended Held Attended Held Attended Held S Gerlach C E Bright J C Fox R G Grigg M G Jackman# I G MacDonald J H Ranck A Salim* G D Walters L Wozniczka^ 19 19 16 18 12 18 19 5 19 6 19 19 19 19 12 19 19 19 19 6 12 14 14 14 14 14 4 4 4 2 2 2 1 2 4 4 4 2 2 2 2 2 4 4 3 1 4 4 3 1 2 2 2 2 2 2 12 12 8 7 3 26 25 12 8 7 3 30 29 12 18 18 * Mr Salim resides in Jakarta and owing to business commitments was unable to attend a number of meetings ^ Resigned from the Board 26/09/08 # Joined the Board 20/10/08 ** Includes Reﬁ nance Committee, AAco Sub-Committee and Equity Raising Due Diligence Committee meetings + Nomination via Prudential Committee met as the full Board on two occasions 28 Group Risk Committee Management Certiﬁ cates During the year the Group Risk Committee (GRC) was established to assist the Board in the application of the Company’s Risk Management Policy and monitoring of compliance with the policy. The GRC took over this role from the former Corporate Risk and Compliance Committee. The GRC reports to the Board on risk management on a regular basis through the Chief Executive. Membership The Group Risk Committee comprises the Chief Executive/ Managing Director, Group Executive team, Company Secretary and General Manager Risk, Compliance and Audit. Specialist support to the committee is provided by internal experts as required, including the General Counsel, General Manager Taxation, Group Safety Manager and National Risk Manager. The GRC reports to the Board through the Chief Executive and copies of all GRC minutes are provided to the next Board meeting and Audit and Compliance Committee meeting. In accordance with the Board Charter, prior to approving the ﬁ nancial reports of the Company in respect of the 2009 ﬁ nancial year, the Board received from the Chief Executive and the Chief Financial Ofﬁ cer a certiﬁ cate stating that: (cid:129) The declaration provided under section 295A of the Corporations Act is based on a sound system of risk management and internal control; and (cid:129) That the system is operating effectively in all material respects in relation to ﬁ nancial reporting risks. Treasury Policy The Company’s treasury operation is responsible for managing currency and interest rate risks together with managing the Company’s ﬁ nance facilities. Treasury operates within formal policies and compliance with key policies is regularly reported to the Board. The primary objectives are to have an appropriate debt maturity proﬁ le to fund on-going working capital and liquidity needs and to prudently manage exposures to variable interest rates and foreign exchange movements. During 2009 the GRC reviewed the Group’s material business risks and reported to the Board on the effectiveness of the Company’s management of those material business risks. CONDUCT AND ETHICS Code of Conduct Responsibilities The Committee operates under the Risk Management Policy and is responsible for: (cid:129) Oversight of the risk management process; (cid:129) Considering and, where appropriate, making recommendations to the Board with respect to risk appetite, risk framework and policy; (cid:129) Establishing, approving and reviewing corporate risk management strategy in-line with the Risk Management Policy; (cid:129) Reviewing and monitoring Elders’ risk proﬁ le and adherence to the Elders risk management framework; (cid:129) Receiving, considering and endorsing business trading charters for submission to Elders Board of Directors for approval; (cid:129) Reviewing credit limits, mark-to-market trading positions, and credit committee functions of Elders and its subsidiaries; (cid:129) Monitoring the risk management activities of business divisions and subsidiaries through receipt and consideration of risk reports from the Company; (cid:129) Overseeing compliance by Elders with applicable Australian Prudential Regulation Authority compliance obligations and signiﬁ cant related internal policies; (cid:129) Providing regular advice to the Board about GRC activities and making appropriate recommendations; and (cid:129) Providing an escalation point for identiﬁ cation of matters (material business risks) to be drawn to the attention of the CEO, Board Audit and Compliance Committee and/or Board. The Committee is also responsible for ongoing review of the risk management framework and policy and reports to the Board on the continuing suitability of the framework and policy and for recommending changes to the framework and policy as and when required. The Board is committed to promoting conduct and behaviour that is honest, fair, legal and ethical and respects the rights of the Company’s shareholders and other stakeholders in the Company, including clients and customers, suppliers, creditors and employees. The Board has adopted a code of conduct that details the conduct and behaviour it expects from its members and the employees of the Company. The Code, which may be accessed from the Company’s website, details the Company’s position with respect to dealings with parties with whom the Company engages, use of position and company information, gifts and gratuities and conﬂ icts of interest and the principles the Company promotes with respect to honesty and integrity, occupational health and safety, equal opportunity, legal compliance, competition, privacy, environment and community. The Board has also adopted a Reporting of Unacceptable Conduct Policy to encourage and facilitate disclosure of unacceptable conduct, including fraud or illegal activity, occurring in the Company. The Policy and the associated reporting process addresses the issues associated with alleged improper conduct including reporting, responsibility, conﬁ dentiality and effective investigation. Share Trading Policy The Board encourages non-executive directors to own the Company’s securities to further align their interests with the interests of other shareholders. Details of directors’ shareholdings in the Company can be found on page 34 of this report. 29 During the year the Company adopted a revised Share Trading Policy that prescribes black out periods during which directors and senior executives may not trade. Black out periods generally run from the end of the Company’s full year and half year to the date of the release of the Company’s full year results or half year results. Senior executives are prohibited from entering into arrangements to hedge their exposure to unvested options awarded under the Employee Share Option Plan. Directors or senior executives must not deal in the Company’s securities during black out periods or at any time when directors or senior executives are in possession of unpublished information that, if generally available, might materially affect the price of the Company’s securities. Prior to dealing, a director must seek clearance from the Chairman and senior executives must seek clearance from the Company Secretary. The Share Trading Policy also prohibits employees and contractors from trading in the Company’s securities if they are in possession of price-sensitive information. The Share Trading Policy can be found on the Company’s website at www.elders.com.au. Continuous Disclosure and Communication with Shareholders The Board is committed to timely disclosure of information and communicating effectively with its shareholders. This commitment is effected through the application of the External Disclosure and Market Communications Policy and a Communications strategy which includes process to ensure that directors and management are aware of, and fulﬁ ll, their obligations. Each year the Company communicates to its shareholders and the investment markets through a program of regular announcements In addition: (cid:129) The Company releases brieﬁ ngs on Company developments and events to the market as a whole; (cid:129) The Company’s senior management interacts with members of the investment community and ﬁ nancial and business media through a variety of forums including results brieﬁ ngs, ‘one on one’ meetings and discussions; and (cid:129) Background and technical information is provided to institutional investors, market analysts and the ﬁ nancial and business media to support major announcements made to the ASX and minor announcements made about the Company’s on-going business activities. External Disclosure and Market Communications Policy Under the Policy the Company has instituted (and monitors) procedures designed to ensure: (cid:129) The Company’s compliance with continuous disclosure obligations contained in applicable ASX Listing Rules and the Corporations Act 2001. Procedures followed to achieve this include the formation of a Disclosure Advisory Group that works with the Chief Executive in the consideration of disclosure issues, the communication of disclosure requirements and procedures to senior management together with procedures to facilitate the timely ﬂ ow of relevant information to the Disclosure Advisory Group; (cid:129) The timely release and dissemination of information (within the requirements of continuous disclosure obligations) necessary for the formation of an informed and balanced view of the Company; (cid:129) Information disclosed in investor or media brieﬁ ngs is not “market sensitive”. If market sensitive information is inadvertently disclosed during a brieﬁ ng it will immediately be released to the market at large through the ASX; and (cid:129) That stakeholders have equal opportunity, subject to reasonable means, to access information issued externally by the Company. This is addressed through a broad range of media including the Company’s website, webcasts of the Company’s Annual General Meeting and full year and half year results brieﬁ ngs (which are also archived and available for view on the Company’s website), and an information subscription service through which interested parties can register for electronic advice of announcements. All public releases are archived and available for view on the Company’s website at www.elders.com.au. The Board is also concerned to ensure that shareholders are in a position to participate effectively in general meetings and to this end: (cid:129) The Company has adopted in all substantial respects the ASX Corporate Governance Council guidelines for communication with shareholders and improving shareholder participation at general meetings; and (cid:129) It is a term of engagement of the Company’s external auditors that they attend the Company’s Annual General Meetings and are available to answer questions about the conduct of the audit of the Company and the preparation and content of the auditor’s report in respect of the relevant reporting period. Disclosure of Governance Information Information concerning the Company’s governance framework and practices, principles and policies is posted on the Company’s website at www.elders.com.au in the section marked: About Us: Corporate Governance. 30 DIRECTORS’ REPORT The Directors present their report for the 15 months ended 30 September 2009. Directors Signiﬁ cant Changes in the State of Affairs The Directors of the Group in ofﬁ ce at the date of this report are: Non-Executive Directors: Stephen Gerlach (Chairman) James Charles Fox (Deputy Chairman) Charles Ernest Bright Raymond George Grigg Ian Graham MacDonald James Hutchison Ranck Graham Douglas Walters Robert Harvey Wylie Mark Charles Allison Executive Director: Malcolm Geoffrey Jackman (Chief Executive Ofﬁ cer and Managing Director) Mr M G Jackman was appointed Chief Executive Ofﬁ cer on 29 September 2008 and Managing Director on 20 October 2008. He replaced Mr Les Wozniczka who resigned as Chief Executive Ofﬁ cer and Managing Director effective from 26 September 2008. All other directors held their position as director for the whole of the year and up to the date of this report. Mr A Salim resigned as director on 30 October 2009. Messrs M C Allison and R H Wylie were appointed non-executive directors on 10 November 2009. Company Secretaries: Sonya Catherine Furey Ross Edwin Mallett A summary of the experience, qualiﬁ cations and special responsibilities of each director and each Company Secretary is provided on page 20. Principal Activities The principal activities of the Elders Group during the 15 month period were the: (a) Provision of services and inputs to the rural sector; (b) Provision of ﬁ nancial and other services to rural and regional customers; (c) Management of investor-funded hardwood plantations and manufacture of quality sawn timber products; and (d) Supply of automotive components. Results and Review of Operations The Group recorded a loss for the 15 month period, after tax and outside equity interest, of $466.4 million (2008: proﬁ t of $36.5 million). A review of the operations and results of the consolidated entity and its principal businesses during the 15 month period is contained in pages 3 to 19 of this report. There were a number of signiﬁ cant changes in the state of affairs of the consolidated entity during the 15 month period which are referred to on pages 4 to 19 of this report. Events Subsequent to Balance Date No matter or circumstance has arisen since 30 September 2009 which is not otherwise dealt with in this report or in the consolidated ﬁ nancial statements, that has signiﬁ cantly affected or may signiﬁ cantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent ﬁ nancial years. Likely Developments and Future Results Discussion on likely developments in the operations of the consolidated entity and the expected results for those operations in future ﬁ nancial years is included in the information on pages 6 to 11 of this report. Further information about the likely developments in the operations of the consolidated entity and the expected results for those operations in subsequent ﬁ nancial years has not been included in this report because, in the opinion of the directors, their inclusion would prejudice the interests of the consolidated entity. Share and Other Equity Issues During the Year The following information summarises the equity issues made by the Company during the 15 months to 30 September 2009: (cid:129) No employee options were exercised during the year; (cid:129) No fully paid ordinary shares were issued under the Company’s employee share plan during the year. The Company’s employee share plan was suspended in March 2009; (cid:129) 14,461,482 fully paid ordinary shares were issued in accordance with the terms of the Company’s dividend reinvestment plan (DRP). A further 23,812,167 ordinary shares were issued in accordance with the terms of the underwriting agreement in respect of the DRP; (cid:129) A conditional placement of 2,666,666,667 ordinary shares was made at $0.15 per fully paid share on 19 October 2009 to institutional investors as part of an equity raising to reduce Elders’ debt obligations and to build a stronger balance sheet; and (cid:129) 1,000,004,393 ordinary shares were issued under the Company’s Share Purchase Plan (SPP) to participating shareholders on 2 November 2009 at $0.15 per fully paid share. Funds raised from the SPP were used to retire existing debt. 31 Dividends and Other Equity Distributions Details of dividends paid or payable in respect of the year are as follows: Dividends paid on fully paid ordinary shares: Final 2008 dividend of 5.5 cents paid on 28 October 2008 (franked to 100%) Distributions paid on Elders Hybrids: Quarterly distribution of 1.7663 cents paid on 30 September 2008 (franked to 100%) Quarterly distribution of 1.6754 cents paid on 31 December 2008 (franked to 100%) Quarterly distribution of 1.0960 cents paid on 31 March 2009 (franked to 100%) Quarterly distribution of 0. 9316 cents paid on 30 June 2009 (franked to 100%) $000 42,949 $000 2,649 2,513 1,643 1,397 On 4 September 2009 the Company announced that directors had resolved not to declare a ﬁ nal dividend for the year ending 30 September 2009. It is the Board’s intention that the Company will resume distribution of dividends as soon as practicable subject to satisfaction of its balance sheet, cash ﬂ ow management and ﬁ nancial performance objectives. The payment of dividends is subject to the discretion of the directors and will depend on many factors, including Elders’ results of operations, ﬁ nancial condition, general business conditions, restrictions imposed by ﬁ nancing facilities and Elders Hybrid securities and legal restrictions on the payment of dividends. In particular, Elders’ restructured ﬁ nancing arrangements impose restrictions on the payment of distributions on Elders Hybrids until and including 30 September 2011. These restrictions activate a “dividend stop” under the terms of the Elders Hybrids which prevents Elders from paying dividends on its shares until the stop is lifted under the terms of the Elders Hybrids. Elders’ restructured ﬁ nancing arrangements also prevent Elders from paying dividends on shares until after 31 March 2012 (and, thereafter, more limited restrictions apply). Share Options Share options are issued to company executives as part of the Group’s remuneration policy. Information on this policy and associated procedures is provided in the Remuneration Report commencing on page 36 of this annual report. The total quantity of options on issue as at 30 September 2009 represented 2.81% of the Group’s issued ordinary shares. Details of options over unissued shares at the date of this report are as follows: (1) Options on Issue: All options listed in this table are subject to minimum tenure restrictions of three years. Date Options Granted Number of Options Granted Issue Price Option Expiry Date 31/03/05 26/07/06 4/10/05 4/10/05 25/10/06 25/10/06 25/10/06 25/07/06 25/07/06 31/08/07 26/09/08 1/10/07 1/03/08 1/07/03 26/09/08 31/10/08 31/10/08 26/09/08 24/10/05 32 200,000 108,000 1,655,000 625,000 150,000 100,000 2,530,000 1,950,000 200,000 1,000,000 750,000 2,225,000 750,000 1,000,000 1,250,000 2,360,000 3,450,000 2,000,000 750,000 23,053,000 $2.00 $2.25 $2.06 $2.06 $1.83 $1.92 $2.02 $2.17 $2.17 $2.54 $1.32 $2.45 $2.45 $1.37 $1.32 $1.29 $1.29 $1.32 $2.06 31/03/10 8/08/10 4/10/10 4/10/10 31/10/11 31/10/11 25/10/11 31/10/11 31/10/11 18/08/12 26/09/12 1/10/12 1/03/13 1/07/13 26/09/13 31/10/13 31/10/13 26/09/14 25/10/15 (2) Options issued since the end of the previous ﬁ nancial year: Date Options Granted Number of Options Granted Issue Price Option Expiry Date 26/09/08 26/09/08 28/11/08 28/11/08 26/09/08 750,000 1,250,000 2,880,000 4,200,000 2,000,000 11,080,000 1.32 1.32 1.29 1.29 1.32 26/09/12 26/09/13 28/11/13 28/11/13 26/09/14 (3) Options exercised since the end of the previous ﬁ nancial year: No options have been exercised since the end of the previous ﬁ nancial year. (4) Options lapsed since the end of previous ﬁ nancial year: Date Options Granted Number of Lapsed Options Option Issue Price Option Expiry Date 7/10/03 1/10/04 8/08/05 4/10/05 4/10/05 25/10/06 1/10/07 1/07/08 31/10/08 28/11/08 28/11/08 31/10/08 25/10/06 25/10/06 250,000 775,000 120,000 125,000 910,000 990,000 1,325,000 1,000,000 1,500,000 750,000 520,000 1,500,000 750,000 1,500,000 12,015,000 $1.71 $1.68 $2.25 $2.06 $2.06 $2.02 $2.45 $1.37 $2.36 $1.29 $1.29 $2.36 $2.06 $2.06 7/10/08 27/10/09 8/08/10 4/10/10 4/10/10 25/10/11 1/10/12 1/07/13 31/10/13 28/11/13 28/11/13 31/10/14 25/10/15 25/10/16 33 Directors’ Interests At the date of this report, the interests of the directors in shares and other equity securities of the Group are: No. of ordinary shares No. of hybrids Beneﬁ cial Interest Non-beneﬁ cial Interest Beneﬁ cial Interest Non-beneﬁ cial Interest Non-Executive Directors C E Bright J C Fox S Gerlach R G Grigg I G MacDonald J H Ranck G D Walters Executive Directors M G Jackman 236,826 160,099 740,156 164,894 393,334 373,334 294,334 396,668 - - - - - - - At the date of this report, the following options are on issue to directors. M G Jackman M G Jackman M G Jackman No. of options(a) Exercise Price 750,000 1,250,000 2,000,000 1.32 1.32 1.32 (a) Each option issue is subject to performance hurdles. Directors’ Meetings - - - - - - 1,000 Expiry 26/09/12 26/09/13 26/09/14 - - - - - - - No. of options exercised in year nil nil nil Details of the number of meetings held by the Board of Directors and Board committees and director attendance at those meetings is provided in the Corporate Governance section of this report on page 28. Indemniﬁ cation of Ofﬁ cers and Auditors Insurance arrangements established in the previous year concerning ofﬁ cers of the consolidated entity were renewed during the period. The consolidated entity paid an insurance premium in respect of a contract insuring each of the directors of the Company named earlier in this report and each full time executive ofﬁ cer, director and secretary of Australian Group entities against all liabilities and expenses arising as a result of work performed in their respective capacities, to the extent permitted by law. The terms of the policy prohibit the disclosure of the premiums paid. Each director has entered into a Deed of Access, Insurance and Indemnity which provides: (cid:129) That the Company will maintain an insurance policy insuring the director against any liability incurred by the director in the director’s capacity as an ofﬁ cer of the Company to the maximum extent allowed by law; (cid:129) For indemnity against liability as a director, except to the extent of indemnity under the insurance policy or where prohibited by law; and (cid:129) For access to company documents and records, subject to undertakings as to conﬁ dentiality. The consolidated entity has not entered into any agreement to indemnify its auditor. Remuneration of Directors and Senior Executives Details of the remuneration arrangements in place for directors and senior executives of the Group are set out in the Remuneration Report commencing on page 36 of this Annual Report. In compiling this report the Group has met the disclosure requirements prescribed in the Australian accounting standards and the Corporations Act 2001. 34 Environmental Regulation Performance The Elders Group is subject to a range of environmental legislation in the places that it operates. Details of the Group’s Environmental Regulation Performance can be found on pages 15, 17 and 19. Rounding of Amounts The parent entity is a Group of the kind speciﬁ ed in Australian Securities and Investments Commission class order 98/0100. In accordance with that class order, amounts in the ﬁ nancial report and directors’ report have been rounded to the nearest thousand dollars unless speciﬁ cally stated to be otherwise. Non-Audit Services and Auditor Independence Non-audit services provided by the Group’s auditor, Ernst & Young, to the Group during the course of the ﬁ nancial year are disclosed below. Based on advice received from the Audit Committee the directors are satisﬁ ed that the provision of non-audit services is compatible with the general standard of independence for auditors imposed under the Corporations Act for the following reasons: (cid:129) All non-audit services have been reviewed by the Audit Committee to ensure they do not impact on the impartiality or objectivity of the auditor; and (cid:129) The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services: Tax services (primarily compliance) Other compliance and assurance services Fees in relation to independent accounts report and preparation of prospectus $141,268 $242,062 $1,764,345 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out below. This report has been made in accordance with a resolution of directors. S Gerlach Chairman 16 November 2009 M G Jackman Managing Director Auditor’s Independence Declaration to the Directors of Elders Limited and the consolidated entity In relation to our audit of the ﬁ nancial report of Elders Limited for the ﬁ nancial 15 month period ended 30 September 2009, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Alan Herald Partner Adelaide 16 November 2009 35 ELDERS LIMITED REMUNERATION REPORT 2009 This Remuneration Report forms part of the Directors’ Report and details the remuneration arrangements in place for directors and senior executives of the Group. In compiling this report the Group has met the remuneration disclosure requirements prescribed in the Australian Accounting Standards, the Corporations Act 2001 and the revised ASX Corporate Governance Principles and Recommendations (“ASX Corporate Governance Principles”). SECTION 1 BOARD REMUNERATION COMMITTEE SECTION 2 NON-EXECUTIVE DIRECTORS’ REMUNERATION SECTION 3 EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION SECTION 4 NOMINATED EXECUTIVES’ CONTRACT TERMS SECTION 5 REMUNERATION DISCLOSURE TABLES 37 37 39 47 49 SECTION 6 EQUITY INSTRUMENTS IN RELATION TO DIRECTORS AND EXECUTIVES 50 36 SECTION 1 BOARD REMUNERATION COMMITTEE The Company’s overall objective is to generate strong returns for shareholders and to deliver enhanced shareholder value through performance in the short and longer terms. To achieve those objectives the Company needs to have the best, brightest, most experienced and committed people available to it. The Company’s remuneration strategy is a key factor in delivering the Company’s overall objective. Role of Remuneration Committee The Remuneration Committee assists the Board to ensure that Elders establishes and maintains remuneration strategies and policies that are aligned with the Company’s overall objectives and accord with best practice as set down in the ASX Corporate Governance Principles. The role and responsibilities of the Remuneration Committee are set out in the Corporate Governance Statement on pages 25 and 26 of this Annual Report and the Committee’s Charter is published on the Company’s website at www.elders.com.au. Group Remuneration Strategy The Elders Group remuneration strategy seeks to encourage a performance orientated culture that will: (cid:129) Provide competitive reward opportunities to attract and retain high calibre executives and to motivate them to pursue sustainable long term growth and success for Elders, its employees and shareholders; (cid:129) Align the rewards and interests of directors and senior executives with the long term growth and success of the Group within an appropriate control framework; (cid:129) Demonstrate a clear relationship between senior executive performance and remuneration; and (cid:129) Be consistent and responsive to the needs of each operating business and the Group as a whole. The Group remuneration strategy has been developed to allow each operating business the autonomy to manage remuneration policies and procedures within the framework established for the Group and in line with budget targets. All remuneration determinations for executives above a predetermined level of seniority within the Group, or those which would otherwise fall outside the established framework, must be individually approved by the Chief Executive, the Elders’ Remuneration Committee or the Board, as appropriate. During the year Mr Robert Tanti was appointed Group General Manager Human Resources & Corporate Services. Mr Tanti is in the process of reforming the remuneration policy and structure into a more streamlined, consistent and principle based system reﬂ ecting the “one company” approach referred to in the Agenda for Change. The new policy and structure that will be rolled out in the 2010 ﬁ nancial period will include Short Term Incentive Plan (STIP) and Long Term Incentive Plan (LTIP) arrangements and contract terms for Elders Limited executives. SECTION 2 NON-EXECUTIVE DIRECTORS’ REMUNERATION A. Board Policy Non-executive directors are remunerated by way of fees in the form of cash and superannuation, as a consequence of the superannuation guarantee levy, and generally in accordance with Recommendation 8.2 of the ASX Corporate Governance Principles. No directors’ fees are paid to executive directors. Non-executive directors do not participate in the Company’s cash or equity incentive plans and directors appointed after 30 June 2004 do not receive retirement beneﬁ ts other than superannuation contributions disclosed in this report. Directors appointed to the Board prior to 30 June 2004 are entitled to receive $150,000 on retirement. Only two directors are eligible for this retirement beneﬁ t. Non-executive directors have formal letters of appointment with the Company. Length of tenure is governed by the Company’s Constitution and the ASX Limited Listing Rules, which provides that all non-executive directors are subject to re-election by shareholders every three years. B. Non-executive Directors’ Remuneration Non-executive director fees are reviewed by the Board on an annual basis, taking into account the qualiﬁ cations and time commitment of each director, supported by advice from external remuneration consultants. The fees paid are generally consistent with those paid to non-executive directors of comparable companies, while remaining within the aggregate fee limit of $1,800,000 per annum approved by shareholders at the Company’s 2006 Annual General Meeting. Statutory superannuation guarantee contribution amounts are included in the aggregate fee limit. As at the date of this report, the annual base fee amount paid to each non-executive director, other than the Chairman and the Deputy Chairman, is $90,000 per annum. The Chairman receives an annual composite fee of $350,000 and the Deputy Chairman receives a fee of $130,000. Additional fees are payable to non-executive directors who sit on the Board Committees. Members of the Audit and Compliance Committee are paid $16,000 per annum with the chairman of that committee receiving $24,000 per annum. In April 2009 following a review of director fees, based on input from independent remuneration advisers, the Board resolved that members of the Occupational Health, Safety and Environment Committee, Remuneration Committee and Nomination & Prudential Committee should receive $10,000 per annum as part compensation for time spent on committee matters. The chairmen of these committees during the ﬁ nancial period (Messrs Gerlach and Fox) did not receive an additional fee for sitting on these committees as such a fee is incorporated into their composite base fees. As a consequence of the review of directors’ fees it was decided not to increase base director fees set in 2006 during the 2009 ﬁ nancial year. Until February 2009 it was Board policy that a non-executive director would sit on boards of the Company’s main operating businesses to extend oversight to those subsidiary boards. Additional fees were paid to non-executive directors who sat on subsidiary boards, with fees ranging from $60,000 to $75,000 per annum depending on the size and complexity of the operating divisions and the estimated time commitment. 37 In February 2009 it was decided to collapse the independent boards of Elders Rural Services Ltd and ITC Limited to streamline the reporting framework and from that time, management of those businesses reported exclusively to the Elders’ Chief Executive. Additional fees are paid to three non-executive directors (Messrs Grigg, MacDonald and Walters) who continue to sit on subsidiary and associated boards and board committees. The Board encourages non-executive directors to own securities in the Group to further align their interests with the interests of other shareholders. Details of directors’ shareholdings in the Group can be found in table 6a of this Report. All shares held by directors were acquired by the directors on market. Details of non-executive directors’ remuneration for the 2008 and 2009 ﬁ nancial years are set out in the following table: Non-Executive Directors’ Remuneration 2008 and 2009 Table 2a (A$) Short Term Payments (7) Post Employment Total Base Board Fee Board Committee Fees Subsidiary Fees & Other Fees Superannuation S Gerlach (Chairman) (7)(8) J C Fox (Deputy Chairman)(8) C E Bright R G Grigg (7) W H Johnson I G MacDonald J H Ranck A Salim G D Walters Total 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 2009 (15mths) 2009 (12mths) 2008 (12mths) 437,500 350,000 350,000 (3) (3) 162,500 130,000 130,000 112,500 90,000 90,000 112,500 90,000 90,000 - - 42,045 112,500 90,000 90,000 112,500 90,000 2,077 112,500 90,000 90,000 112,500 90,000 90,000 1,275,000 1,020,000 974,122 - - - - - - (2) (2) 5,000 2,500 - (4) (4) 25,000 18,500 16,000 - - - (3) (3) 37,734 37,734 68,333 (2) (2) 43,333 43,333 60,000 (4) (4) 62,500 50,000 50,000 - - - - - 150,000 (5) (5) 20,000 16,000 9,333 (1) (1) 10,000 5,000 - - - - 33,125 27,125 24,000 (6) 93,125 69,125 49,333 (5) (5) 175,650 140,520 132,400 - - - - - - 72,734 65,234 137,500 (6) (6) 391,951 336,821 598,233 17,181 13,745 12,686 17,181 13,745 17,850 14,475 12,225 12,686 17,181 13,745 14,040 - - 6,590 17,181 13,745 20,856 11,212 8,737 - - - - 17,181 13,745 22,635 111,592 89,687 107,343 454,681 363,745 362,686 217,415 181,479 216,183 175,308 148,058 162,686 217,181 172,245 170,040 - - 198,635 325,331 260,265 252,589 133,712 103,737 2,077 112,500 90,000 90,000 235,540 196,104 274,135 1,871,668 1,515,633 1,729,031 Notes: (1) J H Ranck was paid a pro-rata fee of $10,000 for the six months to 30 September ($5,000 to 30 June) as a member of the Elders Remuneration Committee and OHSE Committee. (2) C E Bright was an Elders Board representative on the main operating subsidiary board, Integrated Tree Cropping Ltd (ITC) until February 2009, and received ITC subsidiary board fees of $33,333 and ITC Research and Development Committee fees of $10,000. Mr Bright is also a member of the Nominations Committee and received pro-rata fee of $5,000 for the six months to 30 September ($2,500 to 30 June) for being a member. (3) J C Fox received a Deputy Chairman fee of $162,500 for the ﬁ nancial period ($130,000 to 30 June) and sat on the main operating subsidiary board Elders Rural Services Ltd until February 2009 and received fees of $37,734 (pro-rata for eight months). (4) R G Grigg is a member of the Elders Board Audit & Compliance Committee and received an Elders Board Audit Committee fee of $20,000 for the ﬁ nancial period ($16,000 to 30 June). R Grigg is also an Elders Board representative on the main operating subsidiary board Futuris Automotive Group Ltd and received a Futuris Automotive subsidiary board fee of $62,500 for the ﬁ nancial period ($50,000 to 30 June). Mr Grigg is also a member of the OHSE Committee and received a pro-rata fee of $5,000 for six months to 30 September ($2,500 to 30 June). (5) I G MacDonald is an Elders Board representative on the main operating subsidiary board Elders Financial Services Group Pty Ltd for which he received a subsidiary board fee of $93,750 for the ﬁ nancial period ($75,000 to 30 June). Mr MacDonald is also an Elders representative on the board of Rural Bank Ltd (RB) in which Elders holds a 40% interest. Mr MacDonald received a RB board fee of $81,900 for the ﬁ nancial period ($65,520 to 30 June). Mr MacDonald also received a fee of $20,000 to 30 September ($16,000 to 30 June) as a member of the Elders Board Audit & Compliance Committee (6) G D Walters is Chairman of the Elders Board Audit & Compliance Committee and received an Elders Board Audit & Compliance Committee fee of $30,000 for the ﬁ nancial period ($24,000 to 30 June). Mr Walters was also an Elders Board representative on the main operating subsidiary board Elders Financial Services Group Pty Ltd (EFSG) until 1 September 2008 and received a pro-rata EFSG subsidiary board fee of $12,500 (for three months) and for his role as Chairman of the EFSG Audit Committee (until 1 September 2008) received a pro-rata fee of $3,125. He was also an Elders Board representative on the main operating subsidiary board Elders Rural Services Ltd until December 2008 and received pro-rata fees of $27,734 (for six months) and received a fee of $32,500 for the ﬁ nancial period ($25,000 to 30 June) for his role as Chairman and trustee director on the Mastersuper Board. (7) In addition to statutory superannuation guarantee contributions, directors may salary sacriﬁ ce their short term payments into superannuation. A number of directors have chosen to do so and are marked (7). For simplicity we have not split the short term payments to disclose the salary sacriﬁ ced superannuation portion. (8) Each director marked (8) has an entitlement of $150,000 to be paid on retirement. Retirement beneﬁ ts ceased from 30 June 2004. 38 Name S Gerlach J C Fox C E Bright R G Grigg SECTION 3 EXECUTIVE DIRECTOR AND SENIOR EXECUTIVE REMUNERATION The disclosure in this section relates to the remuneration of key management personnel of both the Company and the consolidated entity (being those persons with authority and responsibility for planning, directing and controlling the activities of the Company during the ﬁ nancial year). Key management personnel for the purposes of this report include the following persons who were non-executive directors and senior executives during the ﬁ nancial year: Non-executive Directors Senior Executives Position held Name Position held Chairman M G Jackman Chief Executive (appointed 29 September 08) and Managing Director (appointed 20 October 08) Deputy Chairman M G De Wit Managing Director Futuris Automotive Director Director V Erasmus B A Grifﬁ ths J H Ranck Director M S Guerin I G MacDonald Director T P Plant Managing Director Integrated Tree Cropping Executive Chairman Futuris Automotive (until 30 September 09) Managing Director Rural Services (until 17 August 09) Chief Operating Ofﬁ cer (from 18 August 09) Managing Director Financial Services (until 30 September 09) A Salim G D Walters Director Director M G Hosking Chief Financial Ofﬁ cer (Appointed 14 April 09) Former Executives L P Wozniczka Former Chief Executive Ofﬁ cer and Managing Director (resigned 26 September 08) P Zachert Former Chief Financial Ofﬁ cer (resigned 30 June 2009) A. Board policy The Board seeks to align employee remuneration with the commercial needs and performance of each operating business and the objectives of the consolidated entity as a whole. The Board has delegated to the Remuneration Committee oversight of the Company’s remuneration policies and practices. Remuneration policies and practices are benchmarked to the market by external, independent consultants to ensure that remuneration for executives meets a range of criteria, including: (cid:129) That executives are appropriately rewarded having regard to their role and responsibilities; (cid:129) An appropriate balance between ﬁ xed and “at risk” remuneration components is maintained and in relation to the “at risk” component, an appropriate balance between short term and long term incentives; (cid:129) Performance measures reﬂ ect long term drivers of shareholder value; (cid:129) Paying for performance, where superior or upper quartile remuneration is only paid for demonstrable superior performance; and (cid:129) Remuneration is competitive when compared to both internal and external relativities. The Board reviews and approves the performance and remuneration plans and outcomes for the CEO on the recommendation of the Chairman and the Remuneration Committee on an annual basis. The plans and outcomes for the business unit Managing Directors are reviewed and approved annually by the Remuneration Committee on the recommendation of the CEO and the CEO approves the plans and outcomes for senior executives on the recommendation of the business unit Managing Directors. The Remuneration Committee reviews the key elements of employment contracts for business unit Managing Directors, any non-standard contracts and the CEO’s recommendations for equity incentives to senior executives. B. Remuneration structure The remuneration structure has been designed to support the Board’s remuneration policy. Executives’ remuneration is made up of the following three main elements: (cid:129) Fixed remuneration – including salary, non-monetary beneﬁ ts (including Fringe Beneﬁ ts Tax (FBT) grossed-up) and superannuation; (cid:129) Short-term incentives; and (cid:129) Long-term incentives. A description of each component is set out below. Remuneration packages are strategically structured to ensure a portion of an executive’s reward depends on meeting individual, business unit or group targets and objectives, including maximising returns for shareholders. Generally, the portion of ‘at risk’ remuneration (being short and long-term incentive elements) increases with seniority. 39 Table 3a. Target Remuneration Structure n o i t a r e n u m e R f o % 10 0% 80% 60% 40% 20% 0% 42% 29% 29% 13% 36% 51% 13% 20% 67% CEO CFO and Business Unit MDs Senior Management Threshold long-term incentive Budgeted short-term incentive Fixed Remuneration The above table highlights the targeted proportion of ﬁ xed and ’at risk’ remuneration components at different executive levels. C. Fixed Remuneration Fixed remuneration is made up of base salary, retirement beneﬁ ts and any other beneﬁ ts that the executive has nominated to receive as part of his or her package. These beneﬁ ts may include motor vehicle leases, car parking and any additional superannuation contributions beyond the mandatory 9% Company contributions. Executives may also receive non-monetary beneﬁ ts in addition to their stated total remuneration. These may include product allowances and other miscellaneous beneﬁ ts, and FBT associated with such beneﬁ ts. The level of ﬁ xed remuneration is set by reference to the market and is determined by the scope of the role and the level of knowledge, skill and experience required of the individual. Fixed remuneration is reviewed annually and is adjusted to reﬂ ect each executive’s performance over the previous year, as assessed through each business unit’s Performance Management Evaluation (PME) program. The PME program assesses employee performance against a number of agreed key performance objectives. D. Short-term incentives All executives participate in either an Elders’ Group or a business unit Short Term Incentive (STI) plan. A summary of the key features of the STI plan currently in place are set out in the table below: Objective of STI STI objectives are to: (cid:129) focus participants on achieving calendar year performance goals which contribute to sustainable shareholder value; and (cid:129) provide signiﬁ cant bonus differential based on performance against challenging commercial, personal, people and safety targets. What KPIs are used? The KPIs used to assess group performance may vary from year to year and from business to business, depending on changing business objectives. Both ﬁ nancial and non-ﬁ nancial KPIs include a target and stretch component to drive performance. Group wide performance goals are set for the CEO and CFO and corporate ofﬁ ce executives and business unit speciﬁ c performance goals are established for executives in each of the business units. What ﬁ nancial KPIs are used? Business ﬁ nancial KPIs include Budgeted Net Proﬁ t After Tax (NPAT), Cashﬂ ow, Budgeted Earnings Before Interest and Tax (EBIT) and Return on Net Assets (RONA). A minimum of 50% of KPIs at CEO, CFO and Business Unit Managing Director level are based on ﬁ nancial KPIs. What non-ﬁ nancial KPIs are used? Non-ﬁ nancial KPIs may include performance measures relating to safety, business excellence, continuous improvement and delivery of long term strategic initiatives. How and when is performance assessed? Following the signing of the Group’s accounts at the end of each ﬁ nancial year each executive’s performance is assessed by his or her immediate manager against the ﬁ nancial results of the Group and/or the relevant businesses and against the achievement of personal non-ﬁ nancial KPIs established at the start of the ﬁ nancial period. Assessments are made on the basis of whether threshold targets or stretch targets are met and then recommendations for STI payments are referred to the Chief Executive to ensure a consistent approach and to the Remuneration Committee for review and approval. Exercise of discretion The Chief Executive, in conjunction with the Chairman, the Remuneration Committee and the Board, has the authority to make discretionary bonus payments to executives (except in relation to himself) when superior performance warrants additional reward. Service Condition Executives who become eligible to participate in the STIs during the course of the year, either through joining the Group or being promoted within the Group may be eligible to receive pro rata entitlements as long as they have been in the role for at least three months. Election to take STI as Deferred Shares Payments of short-term incentives are generally cash based, however, selected senior executives are required to take part of their incentive in the form of fully paid shares. Other executives may elect to take part or all of the incentive in the form of fully paid ordinary shares in lieu of cash. The shares may be new shares issued by the Company or may be purchased on-market. If the shares are purchased they are issued at their average market cost and in accordance with the terms of the Company’s Employee Share – Save As You Earn Plan. 40 While the Corporate and Business Unit STIs share a number of common features the incentive opportunity and application of performance KPIs varies across the various levels in the executive group. The differences are highlighted below: CEO CFO Business Unit MDs Senior Executives STI Opportunities (as % of base salary) Threshold: 0% Max 100% Threshold: 0% Max 100% Threshold: 0% Max 60-80% Threshold: 0% Max 30-60% Financial versus Non-ﬁ nancial KPIs (1) STI Rewards paid in respect of 2009 ﬁ nancial year Financial 60% (Budgeted Group EBIT, Balance Sheet & Cash ﬂ ow) Non-ﬁ nancial 40% Financial 60% (Budgeted Group EBIT, Balance Sheet & Cash ﬂ ow) Non-ﬁ nancial 40% Decision made not to pay STI Decision made not to pay STI Discretionary Bonus $300,000 bonus paid for the signiﬁ cant effort required to successfully complete the Company’s reﬁ nancing, asset sales and recapitalisation activities $65,000 bonus paid for the signiﬁ cant effort required to successfully complete the Company’s reﬁ nancing, asset sales and recapitalisation activities (1) STI’s are only paid when performance KPIs of the Company and/or businesses are met. E. Long-term incentives Financial 50-62% (Budgeted Business EBIT/NPAT & RONA) Non-ﬁ nancial 10-38% Mix of Business Unit Budgeted EBIT, NPAT, RONA and individual non-ﬁ nancial KPIs STI of $118,125 paid to Tim Plant (MD EFSG) and $128,000 paid to Vince Erasmus for meeting business KPIs set by former subsidiary boards. No STI payment was awarded to Mike Guerin STIs were paid to executives of EFSG and ITC for meeting business KPIs set by former subsidiary boards. Elders Rural Services and Elders Limited executives did not receive an STI payment Bonuses were paid to Tim Plant ($65,000), Vince Erasmus ($65,000) and Mike Guerin ($50,000) for their signiﬁ cant contribution to the Company’s reﬁ nancing, recapitalisation and asset sales Special bonuses were awarded to key executives involved in management of the Group’s reﬁ nancing, recapitalisation and asset sales Elders Limited has a number of long term equity participation and incentive programs in place. These plans are summarised below. Name of Plan Purpose Eligibility Criteria Number of Current Participants as at 30 June 2009 Number of Current Participants as at 30 Sept 2009 Number of Shares/Options Outstanding as at 30 June 2009 Number of Shares/Options Outstanding as at 30 Sept 2009 103 94 25,523,000 24,403,000 3,277 3,276 20,192,643 20,192,643 Elders Employee Share Option Plan (EESOP) Elders Loan Share Plan (ELSP) Invitation only for eligible group executives Invitation only. Offers range from $3,000 to $17,500 per annum per employee depending on seniority and current year performance EESOP is a qualifying Division 13A (ITAA 36) employee option scheme. Options to acquire Elders shares are granted to selected eligible group executives at market (or premium) price, subject to a minimum of three years’ service and performance conditions (see below) determined by the Board at the time of grant. The ELSP is designed to provide an equity participation opportunity for all selected eligible group employees, including executives. Shares are provided and paid for by way of a non-recourse, interest-free loan. Dividends are used to repay the loan. Shares do not vest for three years. There are no performance conditions once issued. Operation of the ELSP was suspended in February 2009 following signiﬁ cant deterioration in the Elders share price. No shares were issued under the ELSP during the ﬁ nancial year. 41 Eligibility Criteria Number of Current Participants as at 30 June 2009 Number of Current Participants as at 30 Sept 2009 Number of Shares/Options Outstanding as at 30 June 2009 Number of Shares/Options Outstanding as at 30 Sept 2009 All permanent employees 64 64 964,972 964,972 E. Long-term incentives (continued) Name of Plan Purpose Elders ‘Save as You Earn’ Plan (SAYE) The SAYE plan is a qualifying Division 13A (ITAA 36) deferred beneﬁ t employee share scheme, designed to enable employees to ‘sacriﬁ ce’ remuneration entitlements on a pre-tax basis and receive Elders shares in-lieu. Tax on these shares can be deferred for up to 10 years. Elders makes no contribution to this plan other than supporting the costs of administration. Operation of the SAYE was suspended in February 2009 following signiﬁ cant deterioration in the Elders share price. No shares were issued under the SAYE Plan after February 2009. The EESOP is the principal Long Term Incentive Plan (LTIP) for executives and is designed to reward executives for delivering long-term shareholder returns. The plan was last approved by shareholders in October 2007. Under the plan, participants are issued with employee options which may create an entitlement to newly issued ordinary shares in the Company if certain performance conditions are met (and subject to continued employment). EESOP option allocations are generally approved by the Remuneration Committee following the signing of the Company’s annual accounts with options being issued following the annual general meeting. The Company is presently evaluating the most appropriate form of LTIP equity incentive for 2009 and the future as part of the restructuring of Group remuneration arrangements. Refer to section (d) on page 45 for further information on the review of the Long Term incentives. Participation in all plans is at the Board’s discretion, and, with the exception of the CEO, CFO and Business Unit managing directors, no individual has a contractual right to participate in the plan or to receive any guaranteed beneﬁ t under any plan. In the case of the CEO and Managing Director, options are only issued after shareholder approval is given unless issued prior to being appointed Managing Director, as was the case with options issued to Malcolm Jackman on 26 September 2008. The Company’s Securities Trading Policy prohibits senior executives from entering into arrangements to protect the value of unvested EESOP awards. This includes entering into contracts to hedge their exposure to options granted under the EESOP. Key Management Personnel are not permitted to deal in the Company’s securities without prior permission from the Company and are required to disclose all dealings on an annual basis. Adherence to the Policy is monitored on an annual basis by the Company Secretary. The speciﬁ c performance hurdles and option allocations vary with grants to the three classes of executive (CEO, CFO and Business Unit Managing Directors and key functional and other key managers). The relationship between the LTIP rewards and Elders’ ﬁ nancial performance are set out on the next page. The Company has adopted a relative Total Shareholder Return performance hurdle to align the interests of the Chief Executive Ofﬁ cer with those of shareholders. This performance measure was selected following consultation with external remuneration experts as being the most appropriate and widely used measure of shareholder value. 42 Performance Conditions under Elders Employee Share Option Plan (EESOP) Issue Date Number of Options Granted Issue Price Hurdle Description CEO EESOP Grants 26 September 2008 4,000,000 options in three tranches $1.32 Tranche 1 750,000 options Tranche 2 1,250,000 options Tranche 3 2,000,000 options As part of his employment contract the CEO was granted four million options issued in three tranches and exercisable over the period 26 September 2010 to 26 September 2012 subject to the meeting of speciﬁ ed Total Shareholder Return (TSR) performance hurdles Tranche 1 TSR performance is measured over the two years from 26 September 2008 to 26 September 2010 Tranche 2 TSR performance is measured over the three years from 26 September 2008 to 26 September 2011 Tranche 3 TSR performance is measured over the four years from 26 September 2008 to 26 September 2012 For options to vest the percentile ranking of Elders growth in its Accumulation Index relative to such growth in the ASX/S&P 200 Accumulation Index must equal or exceed the prescribed ranking, as follows: Hurdle Rate % of Tranche options that vest Less than 50th percentile (median) Nil At the 50th percentile 50% 50th to 75th percentile Pro-rata At 75th percentile 100% CFO and Business Unit Managing Directors EESOP Grants The CFO and Business Unit Managing Directors may be offered, at the discretion of the Board, three equal tranches of up to 250,000 options with each tranche being subject to Group or business unit RONA,NPAT and/or EBIT performance hurdles, as follows: Tranche 1 (33%) – with performance assessed initially over the ﬁ rst ﬁ nancial year after options are issued Tranche 2 (33%) – with performance assessed over the second ﬁ nancial year after options are issued Tranche 3 (33%) – with performance assessed over the third ﬁ nancial year after options are issued The performance hurdles are cumulative across the three years over which the hurdles are measured. Therefore, if the hurdle is not met in respect of the ﬁ rst ﬁ nancial year, and, for example, the ﬁ rst and second ﬁ nancial year performance when added together exceeds the sum of the ﬁ rst and second year ﬁ nancial hurdle, the Tranche 1 hurdle will be satisﬁ ed. If the performance hurdle in respect of each tranche is met, the options may only be exercisable during the period 3 to 5 years following their date of issue. All unvested and unexercised options will lapse on their ﬁ fth anniversary. Key Functional Managers and Other Key Managers EESOP Grants Options may be issued within strict limits, at the discretion of the Board, to selected deserving employees based on excellent performance over the preceding 12 months. No future performance conditions are imposed in respect of these options. However, for the options to vest, employees must continue to be employed by the Company for at least three years from the date of issue. Allocation of long term incentives to key managers encourages future performance, improves the retention rate for these important contributors and increases alignment of their interests with those of shareholders. Relationship between Elders’ Financial Performance and Executive Rewards Short Term Incentives Short Term Incentives (STIs) are paid to executives on achievement of a range of ﬁ nancial and non-ﬁ nancial performance targets. The following table shows the Company’s performance in relation to a number of ﬁ nancial and operational performance measures over a ﬁ ve year period. Performance Measure ($ millions) 2009 (to 30/9/09) 2009 (to 30/6/09) 2008 2007 2006 2005 Sales Revenue Underlying EBIT Statutory Proﬁ t Cashﬂ ow from Operating Activities 3,540.1 2,902.0 3,312.1 3,228.5 3,355.8 3,174.7 12.8 (466.4) (523.3) 16.8 (415.4) (370.8) 171.7 36.4 (14.1) 169.4 105.4 85.0 157.1 87.4 127.4 131.3 58.6 (9.3) 43 The Financial Services Group and ITC were the only business units that met performance targets set by the former independent subsidiary boards for the ﬁ nancial period. As a consequence only senior executives from these business were allocated STIs in respect of the period. At the beginning of 2009 as a result of the global ﬁ nancial crisis and its impact on economic conditions in Australia and the operating results being experienced by the Company, the Board decided to freeze all salaries for employees for a period of at least 12 months and similarly agree not to make any adjustment to director’s Fees. The operational performance of the Company during our ﬁ nancial year (15 months to 30 September 2009) has not been satisfactory and no discretionary corporate and personal performances bonuses have been paid to employees other than where previous performance commitments have been made under the general STI program for the Company. That has included the CEO and Senior Executives. However, the Board Remuneration Committee and the Board have considered at length the position of the CEO and certain Executives who were responsible for managing the bank reﬁ nancing process, asset sales and the recent equity raising together with all the other corporate restructuring processes and activities which have been put in place surrounding those matters. These were all vital measures required to be effected in a short time frame in order to enable the Company to meet the future requirements of its shareholders in its now very changed strategic, ﬁ nancial, banking and economic circumstances. In all cases those measures were completed and signiﬁ cant progress has been made in regard to the issues arising out of the Agenda for Change, including the reﬁ nancing, recapitalisation and asset sales. As a consequence of those considerations the Board decided to pay a number of smaller one-off bonuses to the CEO and certain Senior Executives to reﬂ ect the enormous commitment and effort required of them to meet those objectives. The CEO special bonus in that regard amounted to $300,000. Long Term Incentives Long Term Incentives (LTIs) only vest when the Company achieves superior returns for shareholders as measured by relative Total Shareholder Return (TSR) for the CEO and RONA, NPAT and/or EBIT for other senior executives. (a) Total Shareholder Return (TSR) Elders’ TSR has underperformed the ASX/S&P 200 Accumulation Index (All and Industrials) and the selected Peer Group* over the most recent ﬁ nancial period and on a cumulative basis over the period from 2004 to 2009. While none of the CEOs LTI performance options are due to be measured until at least September 2010 it is unlikely that the CEO’s 2008 Tranche 1 options will vest as the TSR performance hurdles over the period 26 September 2008 to the present will not be met. Elders’ relative TSR performance against two comparator groups (ASX 200/S&P ) and the selected Peer Group* is set out as follows: 80% 40% % R S T e t u l o s b A 0% (40%) (80%) 120% 80% 40% ) % ( R S T e v i t a l u m u C 0% (40%) (80%) 2004 Year 2005 2006 2007 2008 2009 2004 Year 2005 2006 2007 2008 2009 Elders ASX200 ASX200 Industrials Peer Companies (mean) Elders ASX200 ASX200 Industrials Peer Companies (mean) *The selected Peer Group comprised Bendigo and Adelaide Bank Limited, AWB Limited, Bank of Queensland Limited, Gunns Limited, GrainCorp Ltd and Ruralco Holdings Ltd. Data presented for 2009 in the graphs is based on a 15 month ﬁ nancial period compared with 12 month ﬁ nancial periods for 2004 to 2008. 44 (b) Other LTI Performance Hurdles for Senior Executives Because the RONA, NPAT and/or EBIT performance hurdles were not met for the Group and all businesses, no LTI performance options vested in respect of the current ﬁ nancial period. (c) Futuris Automotive Exit Incentive Plan During the year the Company established a new long term incentive plan for Futuris Automotive Interiors (FAI) which seeks to reward the FAI executive team for increases in the market value of the business over the ﬁ ve years to 30 September 2013. LTI awards vest either at the end of the plan period or on the sale of the business and can range from 0.5 to 5 times the ﬁ xed salary of an executive should maximum target increase in value be achieved for the business. (d) Review of Long Term Incentives The Board and Remuneration Committee are aware that for an incentive plan to be effective in retaining and motivating executives it must reward senior executives for delivering superior results. The exercise prices of options issued under the Company’s existing option plan will range from $12.90 to $25.40 (if the proposed 10:1 share consolidation is approved by shareholders at the 2009 AGM) leaving little or no opportunity for executives to beneﬁ t from the plans even if they achieve their respective performance hurdles. Accordingly, the Remuneration Committee is proposing to replace the existing option plan with a new LTI for senior executives based on performance rights. The directors propose to discontinue issuances of options under the existing option plan and implement a new Long Term Incentive Plan for senior executives under which performance rights, being rights to acquire securities on terms established by the directors (“Performance Rights”) will be issued. The Company will seek the approval of shareholders to grant to Mr Jackman Performance Rights during November of each of 2009, 2010 and 2011 to acquire ordinary shares in the Company. Each Performance Right will constitute the right to acquire 1 ordinary share in the Company if it becomes exercisable as described below. The number of Performance Rights to be issued in a given year will be determined in accordance with the following formula: N = (150% x TFR) ÷ Share Price Denominator where fractions are rounded up and: N = the number of Performance Rights issued in the applicable year, subject to meeting the performance hurdles associated with the Performance Rights TFR = Mr Jackman’s total ﬁ xed remuneration in Australian dollars for the year during which the calculation is made Share Price Denominator = the greater of (i) the volume weighted average of the closing price of the Company’s shares on ASX for the 10 trading days immediately preceding the issue date of the Performance Rights (which, if the share consolidation resolution is passed by shareholders at the 2009 AGM, will be calculated on a post-consolidated basis) and (ii) $1.776 (or, $0.1776 if the share consolidation resolution is not passed). Given that the ‘Share Price Denominator’ is subject to a ﬂ oor, the number of Performance Rights that may be issued over the 3 years (and, therefore, the number of ordinary shares in the Company for which they might become exercisable) will not exceed 2,570,425 if the share consolidation Resolution is passed (or 25,704,249 on a pre-consolidation basis), assuming a TFR of $1,014,461. The Company intends to issue the Performance Rights to Mr Jackman, subject to shareholder approval, as of 10 November 2009 and on or about 10 November 2010 and 10 November 2011. No price is payable by Mr Jackman for the grant or exercise of the Performance Rights. Mr Jackman has agreed that if the share consolidation Resolution is passed, he will forego the options granted to him under the Company’s existing option plan. The directors consider that, in order to align Mr Jackman’s interests with those of the shareholders, an appropriate Long Term Incentive Plan which rewards him for performance excellence must be implemented. Accordingly, the performance conditions attached to the Performance Rights are linked to the achievement of sustainable shareholder returns (measured by a relative Total Shareholder Return (“TSR”) target). This performance measure will focus Mr Jackman’s attention on building and maintaining the solid ﬁ nancial performance of the Company, in order to deliver sustained growth in long-term shareholder value. 45 The Performance Rights granted to Mr Jackman in a given year will become exercisable (and the performance hurdle will be measured): (cid:129) as to the ﬁ rst third of the relevant Performance Rights, at the completion of the 2 year period commencing on the date of issue of the Performance Rights; (cid:129) as to the second third of the relevant Performance Rights, at the completion of the 3 year period commencing on the date of issue of the Performance Rights; and (cid:129) as to the ﬁ nal third of the relevant Performance Rights, at the completion of the 4 year period commencing on the date of issue of the Performance Rights, and, in each case, subject to meeting the performance hurdles associated with the Performance Rights. TSR Performance Hurdles The TSR performance hurdles measure the Company’s relative growth of the TSR performance from 10 November 2009, compared with that of the ASX200 Accumulation Index (including the Company but excluding resources and property trusts) (“TSR Benchmark” ) (1) to 10 November in each year of measurement. In the event that the Company’s TSR performance in a given measurement period is greater than the performance of the 50th percentile of the TSR Benchmark, the Performance Rights will be exercisable as set out in the table below (and otherwise, will not be exercisable): Percentile of the Company’s growth in its TSR relative to growth for the TSR Benchmark over the measurement period for the relevant tranche of Performance Rights % of the TSR Performance Rights of the relevant tranche of Performance Rights that become exercisable At 50th percentile 50th to 75th percentile At 75th percentile 50% Pro-rata 100% Worked example: An illustration of how the new Long Term Incentive Plan will operate is as follows: (cid:129) on 10 November 2010, the Company will issue the number of Performance Rights determined on that date in accordance with the above formula (the “2010 Example Performance Rights”). That calculation will occur as follows: > on 10 November 2010, the Company will calculate the volume weighted average of the closing price of the Company’s shares on ASX for the immediately preceding 10 trading days. For the purposes of this example, assume that the share consolidation resolution is passed and the result of the calculation is $2.00; > since this is greater than $1.776, that volume weighted average price will be used as the ‘Share Price Denominator’ in the formula; and > assuming a TFR of $1,014,461 for the year during which 10 November 2010 falls, the formula applies so that N = 760,846. That is, the number of 2010 Example Performance Rights issuable will be 760,846 (N) (and they will, subject to meeting the performance hurdles associated with the Performance Rights, be exercisable for a maximum of 760,846] ordinary shares in the Company); (cid:129) the performance hurdle for the ﬁ rst third of the 2010 Example Performance Rights (ie 253,616 Performance Rights being a third of 760,846) will be measured on 10 November 2012. Assuming the Company’s growth in its TSR relative to the Benchmark TSR between 10 November 2010 and 10 November 2012 is in the 72nd percentile, 182,604 of the ﬁ rst third of the 2010 Example Performance Rights will be exercisable for 182,604 ordinary shares in the Company, being a number of ordinary shares equal to 72% of 253,616, the maximum number into which that third of the 2010 Example Performance Rights could have converted; and (cid:129) the performance hurdle for, and number of ordinary shares issuable, if any, in respect of, the second and ﬁ nal thirds of the 2010 Example Performance Rights will be measured in the same manner on 10 November 2013 and 10 November 2014, respectively (in each case, in respect of the Company’s growth in its TSR relative to the Benchmark TSR between 10 November 2010 and that date). (1) Directors will retain discretion to apply a different TSR Benchmark if the ASX 200 Accumulation Index ceases to be appropriate. 46 SECTION 4. NOMINATED EXECUTIVES’ CONTRACT TERMS Formal employment contracts have been entered into with the Chief Executive and each of the 6 key management personnel. A summary of the key terms of employment contracts for nominated executives applying during the 15 months to 30 September 2009 is outlined in table 4a below. Contracts for nominated executives have no ﬁ xed term. Participation in various Short Term Incentive Plans is at the Board’s discretion. Participation in the Long Term Incentive Plans is also at the Board’s discretion and subject to shareholder approval in the case of the Chief Executive. Participants who cease employment before either the performance or service conditions have been met will forfeit all unvested entitlements, unless otherwise determined by the Board in circumstances such as death, redundancy, total and permanent disability and retirement. Elders may terminate employment contracts immediately for cause, in which case the executive is not entitled to any payment other than the value of ﬁ xed remuneration up to the termination date. The Board, following the recommendation of the Remuneration Committee, may amend the terms of the Chief Executive’s employment contract. The Chief Executive, in consultation with the Chairman, has the authority to amend the terms of employment contracts of his direct reports, where circumstances warrant. Table 4a. Summary of the Key Terms of Employment Contracts for Nominated Executives Name Employing Company Date of Contract Termination by Elders (without cause) Termination by Employee Termination Payments (only where Termination by Company) Short and Long Term Incentives (refer to sections 3D and 3E above) M G Jackman (1) Elders Ltd 29 September 2008 12 months’ notice 12 months’ notice M G De Wit Futuris Automotive Group Ltd 1 January 2009 3 months’ notice 3 months’ notice V Erasmus Integrated Tree Cropping Ltd 23 March 2006 (as amended) 12 months’ notice 12 months’ notice Payment in lieu of notice based on Base Salary Discretion of Board to pay portion of STI and LTI Payment in lieu of notice based on Base Salary. Discretion of Board to pay portion of STI and LTI STI: May earn up to 100% of ﬁ xed remuneration if CEO achieves ﬁ nancial and non-ﬁ nancial KPIs LTI: Refer section 3E above STI: May earn up to 50% of ﬁ xed remuneration plus superannuation if business unit achieves budget EBIT LTI: May earn from 0.5 to 5 times ﬁ xed salary under Futuris Auto Exit Incentive Scheme based on maximum increase in value of business over ﬁ ve years to 30 September 2013 Payment in lieu of notice based on Base Salary Discretion of CEO to pay portion of STI and LTI STI: May earn up to 80% of ﬁ xed remuneration if business unit achieves agreed KPIs LTI: Awarded 750,000 options (250,000 pa) under EEOP with vesting subject to meeting budget NPAT performance hurdle ($1 million NPAT outperformance in 2010) B A Grifﬁ ths (2) Futuris Automotive Group Ltd 30 August 2005 (as amended) 12 weeks’ notice 4 weeks’ notice Payment of $2 million STI: May earn up to 50% of ﬁ xed remuneration if business unit achieves quantitative and qualitative ﬁ nancial KPIs set by CEO LTI: May earn 2-3% of any increase in value of Company’s automotive operations under special value creation incentive M S Guerin Elders Rural Services Ltd 1 March 2008 12 months’ notice 6 months’ notice M G Hosking (3) Elders Ltd 14 April 2009 6 months’ notice 3 months’ notice Payment in lieu of notice based on Base Salary. Discretion of CEO to pay portion of STI and LTI STI: May earn up to 60% of ﬁ xed remuneration if business unit achieves agreed KPIs and outperforms budget EBIT LTI: Awarded 750,000 options (250,000 pa) under EEOP with vesting subject to meeting budget EBIT performance hurdle Payment in lieu of notice based on Base Salary Discretion of CEO to pay portion of STI and LTI STI: May earn up to 100% of ﬁ xed remuneration if business unit achieves agreed KPIs and outperforms budget EBIT LTI: Yet to be determined 47 Table 4a. Summary of the Key Terms of Employment Contracts for Nominated Executives (continued) Name Employing Company Date of Contract Termination by Elders (without cause) Termination by Employee Termination Payments (only where Termination by Company) Short and Long Term Incentives (refer to sections 3D and 3E above) T P Plant (4) 9 August 2006 (as amended) Elders Financial Services Group Pty Ltd 12 months’ notice 6 months’ notice L P Wozniczka (5) Elders Ltd 26 February 2004 (as amended) 12 months’ notice 12 months’ notice P Zachert (6) Elders Ltd 18 December 2002 (as amended) 12 months’ notice 6 months’ notice Payment in lieu of notice based on Base Salary Discretion of CEO to pay portion of STI and LTI STI: May earn up to 60% of ﬁ xed remuneration if business unit achieves agreed KPIs and outperforms budget EBIT LTI: Awarded 750,000 options (250,000 pa) under EEOP with vesting subject to meeting budget EBIT performance hurdle. All options were cancelled following cessation of employment Payment in lieu of notice based on Base Salary. Discretion of Board to pay portion of STI and LTI. (refer below for details of actual termination arrangements) Payment in lieu of notice based on Base Salary STI: Could earn up to 150% of ﬁ xed remuneration if he achieved agreed KPIs and Group outperformed budget EBIT LTI: Awarded 3,000,000 options (1,500,000 pa) under EEOP with vesting subject to meeting TSR and EPS growth performance hurdles. All unvested options were cancelled following cessation of employment STI: Could earn up to 60% of ﬁ xed remuneration if Group achieved budget NPAT LTI: Awarded 750,000 options (250,000 pa) under EEOP with vesting subject to meeting budget NPAT performance hurdle. All unvested options were cancelled following cessation of employment Notes: (1) Mr Jackman was appointed Chief Executive on 29 September 2008 and Managing Director on 20 October 2008. (2) Mr Grifﬁ th role as Executive Chairman of Futuris Automotive was terminated by agreement on 30 September 2009. As part of his termination it was agreed that he be paid $2 million as speciﬁ ed in his employment contract with such payment reﬂ ecting his accrued entitlements over 35 years with the Company. (3) Mr Mark Hosking was appointed Chief Financial Ofﬁ cer on 14 April 2009. (4) Mr Tim Plant ceased employment on 30 September 2009 following the sale of EFSG’s insurance business to QBE. Tim’s accrued entitlements were transmitted with the business to the QBE/Elders joint venture where he has taken the role of Managing Director Elders Insurance. (5) Mr Les Wozniczka resigned as Chief Executive Ofﬁ cer and Managing Director effective on 26 September 2008. Details of his termination payment are set out below. (6) Mr Zachert resigned as Chief Financial Ofﬁ cer effective 30 June 2009. Mr Zachert was paid a termination payment comprising 12 months pay in lieu of notice and leave entitlements. Termination Beneﬁ ts Paid to Former Chief Executive On 29 September 2008 the Company announced that the resignation of former Chief Executive Ofﬁ cer Mr Les Wozniczka became effective on 26 September 2008 following completion of the search for his successor. Mr Wozniczka’s termination arrangements were as follows. Payment in lieu of notice: Under the terms of his contract Mr Wozniczka was required to give 12 months’ notice of termination. The Board exercised its discretion under the contract to pay Mr Wozniczka 12 months’ salary ($1,391,300) in lieu of notice. Short Term Incentive: No short term incentive was paid as performance criteria were not met Long Term Incentive: Mr Wozniczka was entitled to exercise 1,750,000 options that have previously vested under the terms of the Elders Employee Share Option Plan following the achievement of performance hurdles. Details of vested options were disclosed in the 2008 Elders Limited Remuneration Report published in the Company’s 2008 Annual Report. The 1,750,000 options comprise: 1,000,000 options issued in 2003 with an exercise price of $1.37 and 750,000 options issued in 2005 with an exercise price of $2.06. Ex Gratia Payment: The Board resolved to exercise its discretion to pay Mr Wozniczka an ex-gratia payment of $500,000 in recognition of his contribution to the Company generally, and as part compensation for agreeing to relinquish unvested performance options. Other Entitlements: In addition to the above beneﬁ ts, Mr Wozniczka was entitled to be paid his normal accrued holiday leave, long service leave and other contractual and statutory entitlements, amounting to $584,704. 48 SECTION 5. REMUNERATION DISCLOSURE TABLES Table 5a: Details of Executive Directors’, Key Management personnel and the Five Highest Paid Executives Remuneration for the 2008 and 2009 ﬁ nancial year. (A$) Short Term Payments Value of Share Based Incentives Long Term Payments Post Employment Total Remuneration (7) Total Performance Related Base Salary Bonus Other Non Monetary Options (6) Shares Long Service Leave Superannuation M G Jackman (1) 2009 (15 months) 952,899 300,000 2009 (12 months) 702,899 2008 (12 months) - M G De Wit 2009 (15 months) 2009 (12 months) 2008 (12 months) V Erasmus 2009 (15 months) 2009 (12 months) 2008 (12 months) 731,885 605,556 439,947 689,332 548,588 510,734 B A Griffiths (3) 2009 (15 months) 2,738,973 2009 (12 months) 2008 (12 months) 595,449 608,839 - - - - 312,500 193,000 - 271,500 - - 200,000 M S Guerin 2009 (15 months) 738,975 50,000 2009 (12 months) 2008 (12 months) 588,975 175,841 - 105,000 M G Hosking (4) 2009 (15 months) T P Plant 2009 (12 months) 2008 (12 months) 2009 (15 months) 2009 (12 months) 2008 (12 months) 277,836 128,753 - 807,763 642,505 574,371 P Zachert (2) 2009 (15 months) 1,186,568 2009 (12 months) 1,186,568 65,000 - - 183,125 - 315,000 - - 2008 (12 months) 555,801 115,000 - - - 472,917 408,227 - 44,229 37,668 49,738 62,131 60,649 77,666 27,827 24,546 39,310 14,827 11,862 58,463 - - - (121,197) 61,490 88,665 (988) (988) 43,791 40,742 - 15,167 15,167 26,063 - - - 57,007 50,757 8,333 - - - - - - - - - - - - - - 7,810 - - 7,810 - - 7,810 - - - - - - - - 7,810 - - 88,646 7,810 L P Wozniczka (5) 2009 (15 months) 2009 (12 months) 2,219,087 2,219,087 2008 (12 months) 1,427,592 - - - 4,283 (689,843) 4,283 (689,843) 21,651 624,477 Total 2009 (15 months) 10,343,318 791,125 120,249 (190,097) 2009 (12 months) 7,629,836 - 110,949 (86,390) - - - - - 2008 (12 months) 4,293,125 1,319,000 56,047 1,026,965 39,050 - - - 26,394 17,563 - 11,094 8,580 - 17,106 14,327 - - - - - - - - - - 103,251 103,251 - - - - 157,845 143,721 - 13,277 1,739,093 9,661 1,120,787 - - 53,294 46,564 48,592 17,360 13,745 13,129 899,593 748,093 858,587 988,084 646,729 906,902 120,175 2,904,081 100,002 72,391 63,500 50,000 15,826 25,005 11,588 - 17,360 13,745 13,129 13,797 13,797 13,129 734,324 928,350 924,309 701,594 363,463 367,841 140,341 - 887,051 717,740 998,975 1,302,628 1,302,628 780,386 257,818 257,818 1,791,345 1,791,345 204,280 2,278,000 581,586 11,804,026 516,920 380,476 7,903,580 7,114,663 44% 36% - 5% 5% 43% 26% 9% 39% 1% 3% 27% 7% 2% 45% 18% - - 7% 9% 41% - - 27% (39%) (39%) 27% Notes: (1) M G Jackman was appointed CEO on 29 September 2008. (2) P Zachert resigned as CFO on 30 June 2009. On termination, in accordance with the terms of his employment agreement, Mr Zachert received a termination payment amounting to $603,750. Mr Zachert was also paid leave entitlements of $185,700 expensed in current and previous years These leave entitlements are not included in the remuneration table above. (3) B A Grifﬁ ths role as Executive Chairman of Futuris Automotive was terminated by agreement on 30 September 2009. As part of his termination it was agreed that he be paid $2 million as speciﬁ ed in his employment contract with such payment reﬂ ecting his accrued entitlements over 35 years with the Company. Mr Grifﬁ ths was also paid leave entitlements of $637,581 expensed in the current and previous years. These leave entitlements are not included in the remuneration table above. (4) M G Hosking was appointed CFO on 14 April 2009. (5) L P Wozniczka resigned as Chief Executive and Managing Director on 26 September 2008. Mr Wozniczka received a termination package amounting to $1,891,300. Mr Wozniczka was also paid leave entitlements of $584,704 expensed in previous years. These leave entitlements are not included in the remuneration table above. (6) In accordance with AASB 2, the accounting value represents a proportion of the fair value of options that had not yet fully vested as at the commencement of the ﬁ nancial year. Where applicable this value includes an assumption that options will vest at the end of their vesting period even though the executive only receives this value if performance hurdles are met. The amount included as remuneration does not represent a cash payment, is not related to, nor indicative of the beneﬁ t (if any) that may ultimately be realised by each Senior Executive should the options become exercisable. The accounting value is determined at the date the options were granted when Company share prices and option exercise prices were in excess of $1.29. As required under the accounting standards, accounting expense that was previously recognised as remuneration has been reversed where a Key Management Person has left Elders, resulting in equity instruments being forfeited. (7) Not all remuneration is paid in cash. Remuneration also includes value attributed to share and option incentive awards, accrued long service leave, superannuation contributions and other forms of non-monetary remuneration. 49 Balance of shares held at reporting date 740,156 606,822 492,522 160,099 26,765 26,765 236,826 103,492 103,492 164,894 31,560 31,560 393,334 260,000 60,000 373,334 240,000 20,000 606,822 606,822 492,522 26,765 26,765 26,765 103,492 103,492 103,492 31,560 31,560 31,560 260,000 260,000 60,000 240,000 170,000 - 33,545,578 33,545,578 33,545,578 33,545,578 33,545,578 33,545,578 161,000 161,000 21,000 294,334 161,000 21,000 34,975,217 34,905,217 34,280,917 35,908,555 34,905,917 34,300,917 SECTION 6. EQUITY INSTRUMENTS IN RELATION TO DIRECTORS AND EXECUTIVES Table 6a. Share Movements Non-Executive Directors and Executives Shares held at start of year Shares acquired during the year as part of remuneration Shares acquired during the year through the vesting of LTIP Other shares acquired/ (disposed of) during the year Other changes during the year Balance of shares held at end of ﬁ nancial period (30 June/ 30 Sep 09) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 114,300 114,300 14,031 - - - - - - - - - 200,000 200,000 - 240,000 170,000 - - - - 140,000 140,000 - 694,300 624,300 14,031 - - - - - - - - - - - - - - - - - - - - - - - - - - - Non-executive Directors S Gerlach J C Fox C E Bright R G Grigg 2009 (15 months) 2009 (12 months) 2008 2009 (15 months) 2009 (12 months) 2008 2009 (15 months) 2009 (12 months) 2008 2009 (15 months) 2009 (12 months) 2008 I G MacDonald(1) 2009 (15 months) 2009 (12 months) 2008 492,522 492,522 478,491 26,765 26,765 26,765 103,492 103,492 103,492 31,560 31,560 31,560 60,000 60,000 60,000 - - - 2009 (15 months) 2009 (12 months) 2008 2009 (15 months) 2009 (12 months) 2008 33,545,578 33,545,578 33,545,578 2009 (15 months) 2009 (12 months) 2008 21,000 21,000 21,000 2009 (15 months) 2009 (12 months) 2008 34,280,917 34,280,917 34,266,886 J H Ranck A Salim G D Walters Total 50 Table 6a. Share Movements Non-Executive Directors and Executives (continued) Shares held at start of year Shares acquired during the year as part of remuneration Shares acquired during the year through the vesting of LTIP Other shares acquired/ (disposed of) during the year Other changes during the year Balance of shares held at end of year Executives M G Jackman(1) (3) 2009 (15 months) 2009 (12 months) 2008 M G De Wit V Erasmus B A Grifﬁ ths M S Guerin M G Hosking T P Plant P Zachert 30,000 30,000 - 51,980 51,980 41,694 19,955 19,955 9,669 2009 (15 months) 2009 (12 months) 2008 2009 (15 months) 2009 (12 months) 2008 2009 (15 months) 2009 (12 months) 2008 1,173,019 1,173,019 1,540,439 2009 (15 months) 2009 (12 months) 2008 270,698 270,698 - 2009 (15 months) 2009 (12 months) 2008 - - - 2009 (15 months) 2009 (12 months) 2008 247,554 247,554 115,175 2009 (15 months) 2009 (12 months) 2008 1,430,043 1,430,043 1,323,606 - - - - - 10,286 (2) - - 10,286 (2) - - 10,286 (2) - - 40,698 (2) - - - - - 132,379 (2) - - 106,437 (2) L P Wozniczka (4) 2009 (15 months) 2009 (12 months) 2008 4,521,341 4,521,341 4,521,341 - - - Total 2009 (15 months) 2009 (12 months) 2008 7,744,590 7,744,590 8,261,453 - - 310,372 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 100,000 100,000 - - - - - - - (463,917) (463,917) (377,706) - - 230,000 - - - - - - - - - - - - (363,917) (363,917) (147,706) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 130,000 130,000 - 51,980 51,980 51,980 19,955 19,955 19,955 709,102 709,102 1,173,019 270,698 270,698 270,698 - - - 247,554 247,554 247,554 1,430,043 1,430,043 1,430,043 4,521,341 4,521,341 4,521,341 7,380,673 7,380,673 8,424,119 Balance of shares held at reporting date 396,668 130,000 - 185,314 51,980 51,980 19,955 19,955 19,955 963,338 709,102 1,173,019 537,365 270,698 270,698 - - - 247,554 247,554 247,554 2,896,710 1,430,043 1,430,043 4,521,341 4,521,341 4,521,341 9,914,011 7,380,673 8,424,119 Notes: (1) Shares are held in name of spouse or family superannuation company in which the director is a beneﬁ ciary. (2) The 2008 comparative ﬁ gure has been amended to replace the estimate of shares acquired as part of the STI with actual shares acquired. (3) M G Jackman held 30,000 shares when appointed Chief Executive Ofﬁ cer on 29 September 2008. He also holds 1,000 Elders Hybrid convertible unsecured notes acquired on 11 September 2009. (4) L P Wozniczka resigned from the Company effective on 26 September 2008. Shares shown at year end and reporting date reﬂ ect his holding on 26 September 2008. 51 Table 6b. Aggregate Long Term Incentive Plan Opportunities Received and Changes Option holdings of Directors and Key Management Personnel Vested at 30 September 2009 Options Lapsed or Surrendered 3 months to 30 September 2009 Balance at 30 September (2) 2009 Exercisable Balance at beginning of period Options Granted Options Lapsed or Surrendered to 30 June 2009 Balance at 30 June (2) 2009 2009 (Number) Directors M G Jackman (1) - 4,000,000 - 4,000,000 (6,250,000) 1,750,000 L P Wozniczka 8,000,000 Key Management Personnel M G De Wit 500,000 - - V Erasmus 750,000 750,000 B A Grifﬁ ths 400,000 - M S Guerin 750,000 750,000 M G Hosking (1) - - T P Plant 1,100,000 750,000 - - - - - - - 4,000,000 - 1,750,000 1,750,000 500,000 200,000 1,500,000 - 400,000 200,000 1,500,000 - - - - - 500,000 1,500,000 400,000 1,500,000 - - - - - - - 1,850,000 (1,850,000) Not exercisable - - - - - 250,000 - - - P Zachert 750,000 750,000 (875,000) 625,000 - 625,000 625,000 Total 12,250,000 7,000,000 (7,125,000) 12,125,000 (1,850,000) 10,275,000 2,775,000 250,000 (1) Messrs Jackman and Hosking were not Key Management Personnel in 2008. (2) The value of options lapsed or surrendered was $812,028. No options were exercised in the 15 months to 30 September. Balance at beginning of period Options Exercised Options Granted Options Lapsed or Surrendered Balance at 30 June 2008 Vested at 30 June 2008 Exercisable Not Exercisable 2008 (Number) Directors L P Wozniczka (1) 5,000,000 Key Management Personnel M G De Wit V Erasmus B A Grifﬁ ths (1) M S Guerin 300,000 750,000 300,000 - T P Plant 1,100,000 P Zachert (1) 750,000 Total 8,200,000 - - - - - - - - 3,000,000 200,000 - 100,000 750,000 - - 4,050,000 - - - - - - - - 8,000,000 1,000,000 750,000 500,000 100,000 - 750,000 - 400,000 400,000 100,000 300,000 750,000 - 250,000 1,100,000 100,000 500,000 750,000 - 625,000 12,250,000 1,300,000 2,825,000 (1) Messrs L P Wozniczka, P Zachert and B A Grifﬁ ths, reported as Key Management Personnel in 2008, are no longer employees of the Group. 52 Table 6c. Current Long Term Incentive Plan Opportunities Granted Options (Number) Vested Options (1) (Number) Grant Date Value at Grant Date ($) per share Value at Grant Date (2) ($) Exercise Price ($) First Exercise Date Expiry and Last Exercise Date Options as % of Remuneration 2009 Directors M G Jackman (Tranche 1 TSR) M G Jackman (Tranche 2 TSR) M G Jackman (Tranche 3 TSR) 750,000 1,250,000 2,000,000 Key Management Personnel M G De Wit - V Erasmus 750,000 B A Grifﬁ ths - M S Guerin 750,000 M G Hosking - T P Plant P Zachert 2008 Directors L P Wozniczka (Tranche 1 TSR) L P Wozniczka (Tranche 2 TSR) L P Wozniczka (Tranche 1 EPS) L P Wozniczka (Tranche 2 EPS) 750,000 750,000 750,000 750,000 750,000 750,000 Key Management Personnel M G De Wit V Erasmus B A Grifﬁ ths - - - - - - - - - - - - - - - - - - 200,000 - 26 Sep 08 0.33 247,500 1.32 26 Sep 10 26 Sep 12 14.2 26 Sep 08 0.37 462,500 1.32 26 Sep 11 26 Sep 13 26.6 26 Sep 08 0.39 780,000 1.32 26 Sep 12 26 Sep 14 44.9 - - - - - - 28 Nov 08 0.047 35,250 1.29 28 Nov 11 28 Nov 13 - - - - - - 28 Nov 08 0.047 35,250 1.29 28 Nov 11 28 Nov 13 - - - - - - 28 Nov 08 0.047 35,250 1.29 28 Nov 11 28 Nov 11 28 Nov 08 0.047 35,250 1.29 28 Nov 11 28 Nov 13 - 3.4 - 1.2 - 4.0 2.7 24 Oct 07 0.25 187,500 2.36 30 Jun 10 30 Jun 13 8.2 24 Oct 07 0.37 277,500 2.36 30 Jun 11 30 Jun 14 12.2 24 Oct 07 0.39 292,500 2.36 30 Jun 10 30 Jun 13 12.8 24 Oct 07 0.42 315,000 2.36 30 Jun 11 30 Jun 14 13.8 - - - - - - - - - - - - - - - - - - - - - M S Guerin 750,000 250,000 1 Mar 08 0.42 315,000 2.45 1 Mar 11 1 Mar 13 86.7 G Hunt T P Plant P Zachert - - - 187,500 250,000 125,000 - - - - - - - - - - - - - - - - - - (1) Exercisable subject to meeting performance hurdles. (2) The valuation of the options issued to Messrs Wozniczka and Jackman was prepared independently based on the Trinomial methodology. Valuation of options issued to other KMPs were based on the Black Scholes methodology. All equity transactions with directors and key executives other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arms’ length. - - - 53 DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS 1. Income statement Elders has reported a statutory loss of $466.4 million for the 15 months to 30 September 2009 (loss of $415.4 million for 12 months to 30 June). The reported loss includes signiﬁ cant and non-recurring items totalling a loss of $414.7 million after tax. Exclusive of these non-recurring items the Company recorded an underlying loss after tax of $51.8 million (loss of $26.9 million for 12 months to 30 June). In comparison, Elders reported a statutory proﬁ t of $36.5 million and underlying proﬁ t after tax of $84.2 million in 2008. The non-recurring items include: (cid:129) Write-down of assets to be divested or discontinued totalling $99.5 million after tax comprising: > The Company’s 50% shareholding in HiFert has been written down by $57.0 million to reﬂ ect current fertiliser market valuations. > Abattoir interests were written down ($4.6 million). One interest was divested, with the remaining interest subject to an ongoing sales process. > Horticulture and Fodder interests ($4.3 million). Divestment of these assets was completed during the year. > Shareholding in Aspen Development Trust ($14.9 million) which is to be sold. > Shareholdings in Aquaculture investments to be divested ($17.9 million of which $14.4 million was made in the June accounts). > PlantTech, written-down as at June 30 based on discounted cash ﬂ ows ($0.9 million). (cid:129) Net gain on sale of assets divested during the year totalling $55.3 million after tax. Relevant assets include Australian Agricultural Company, Amcom, Webster, Run Corp, Broadwater Hospitality Management, Elders Insurance and ITC’s timber processing operations. (cid:129) Results from discontinued or discontinuing assets totalling a loss of $153.8 million after tax. This ﬁ gure includes results from BWK Wool processing in Germany and Turkey which are being closed, horticulture and aquaculture interests, AAco, PlantTech, ITC Timber, Amcom and the HiFert fertiliser business which is subject to a sales process. (cid:129) Impairments to assets to be retained ($101.4 million) The impairments relate to the Company’s shareholdings in FEA, Agricultural Land Trust, Australian Wool Handlers, Air International Thermal Systems and impairment to the of the MV Torrens following a revision to estimated life. (cid:129) Rural Services major projects and transformation costs ($42.7 million) incorporating expenditure, redundancy costs and write-offs of capitalised costs. (cid:129) Automotive write-offs and restructuring costs totalling $27.8 million including redundancies, write-off of stock, design and development expenditure, tooling and provision for onerous leases. (cid:129) Other ($44.7 million) includes mark-to-market on the Company’s employee share plan and payments and provisions relating to executive management changes and reﬁ nancing costs ($32.0 million). Of this ﬁ gure, ($24.8 million) was incurred in the three months to 30 September. Signiﬁ cant revenue and expense items for the year include: (cid:129) Sales revenue from continuing operations of $2,853.9 million (12 months to June: $2,627.6 million) compared with $3,274.7 million. Discontinued operations generated sales revenue of $686.2 million. All business units recorded lower sales from their continuing operations. (cid:129) Income from associates and joint ventures of $3.8 million ($0.5 million proﬁ t at 30 June) compared with $51.2 million in 2008. The chief factors in the movement compared with 2008 were: losses incurred by automotive joint ventures and associates (total of $(28.3) million); a $14.6 million reduction in income from FEA; a $15.5 million reduction in income from HiFert; and the cessation of income from divested interests in Webster and iiNet. Income from Rural Bank rose from $20.5 million to $27.7 million. (cid:129) Borrowing costs for continuing operations of $112.2 million ($75.2 million for 12 months to 30 June) compared with $72.3 million for 2008. Interest attributable to discontinuing operations for 2009 was $4.5 million. The increase in interest reﬂ ects terms applied to debt under an extension to the Company’s debt from 30 June to 30 September 2009 under the reﬁ nancing process. Completion of the reﬁ nancing has resulted in the negotiation of competitive new terms. 54 (cid:129) Interest revenue from continuing operations was (cid:129) Intangibles reduced from $306.8 million to $13.0 million. Interest revenue from discontinued operations of $13.7 million essentially relates to the divested insurance underwriting business. $228.5 million with the sale of Amcom, insurance and timber processing operations and impairments contributing to the movement. Statement of cash ﬂ ows Elders’ cash ﬂ ow has strong seasonal inﬂ uence, with cash outﬂ ows in the six months to December usually offset by equal or greater cash inﬂ ows in the six months to June. Operating cash ﬂ ow was signiﬁ cantly weaker than customary, with the size of the outﬂ ow reported for the year being exacerbated by the fact that the 15 month transitional year period adopted in 2009 incorporated 9 months when the business typically experiences signiﬁ cant cash outﬂ ow. Operating activities generated a cash outﬂ ow of $523.3 million for 2009 (outﬂ ow of $370.8 million in 12 months to June). The result featured a larger than normal outﬂ ow in the period to December due to working capital build up, followed by a weaker than normal inﬂ ow in the period to June and a customary outﬂ ow in the three months to September. Segmental analysis of cash ﬂ ows is provided in Note 30 of the 2009 ﬁ nancial statements. (cid:129) Depreciation and amortisation from continuing operations for 2009 of $36.2 million ($34.0 million in 12 months to June) compares with $42.6 million in 2008. The reduction is attributable to the sale of Amcom and discontinuation of BWK. 2. Balance sheet Gearing as at 30 September was 128% (131% at 30 June) compared with 54% at 30 June 2008. The increase in gearing compared with the start of the year is the result of higher net debt and the reduction to shareholders equity resulting from the years ﬁ nancial results. Net debt at 30 September of $900.7 million compared with $976.4 million at 30 June and $698.4 million at the beginning of the year. The growth in net debt over 2009 reﬂ ects increased gross debt. However, gross debt has since been reduced substantially by the recapitalisation subsequent to year end. Year-end cash of $367.9 million includes the proceeds from the sale of Elders Insurance Limited totalling $270 million which was used to retire debt subsequent to 30 September. Other signiﬁ cant movements in the balance sheet during the year included: (cid:129) Current inventories were reduced from $396.8 million to $225.5 million due to the sale of the timber processing operations and inventory reduction in Elders Rural Services. (cid:129) Investments accounted for using the equity method reduced from $694.5 million to $283.2 million. The movement is largely attributable to the divestment, or in the case of Elders Rural Bank, sell down of shareholdings in associates, during the period. Divestments included iiNet, AAco, Run Corporation and Webster. In addition the value of the Company’s shareholding in FEA was written down by $66.2 million. (cid:129) Property, plant and equipment reduced from $313.0 million to $114.4 million with the major factors being the divestment of Amcom, the sale of timber processing operations and writedowns to automotive assets. 55 10 YEAR SUMMARY FINANCIAL RESULTS $ million unless otherwise indicated 15 Months Sept 2009 12 months June 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 3,540.1 2,902.0 3,312.1 3,798.2 3,049.3 3,496.1 3,228.5 3,366.9 3,355.8 3,422.6 3,174.7 3,232.0 2,707.3 2,791.0 2,464.3 2,844.8 2,145.8 2,537.6 1,968.4 1,759.7 2,177.7 1,832.6 Proﬁ tability Sales revenue Total revenue Reported EBIT* by Segment Rural Services 1 Financial Services 1 Forestry Automotive Systems Property Other Total EBIT Underlying** EBIT Underlying** proﬁ t before tax Abnormal & non-recurring items after tax Tax expense Minority interests Statutory proﬁ t -287.0 162.9 -100.6 -59.4 - -221.4 22.3 -63.4 -59.8 - -92.3 -61.7 -376.4 -384.0 12.8 -77.9 16.8 -35.0 20.9 22.4 61.4 26.2 - -36.9 94.0 171.7 114.8 -414.7 -388.5 -47.8 -24.7 -1.5 -6.2 -1.9 -466.4 -415.4 21.0 9.6 36.4 84.2 56.3 27.2 61.6 9.5 30.4 -16.2 168.8 169.4 129.4 -1.0 20.2 -2.8 105.4 106.4 65.8 26.9 39.9 16.3 16.3 -8.4 156.8 157.1 118.2 -0.9 -21.4 -9.0 87.4 88.3 Underlying proﬁ t after tax -51.8 -26.9 Cash ﬂ ow from operating activities Shareholders’ equity Share information Dividend per share (cents) Interim Final Total Dividend provided for or paid# Hybrid distribution Share price^ ($ per share) -523.3 701.7 -370.8 -14.1 85.0 127.4 747.8 1,296.2 1,196.6 1,227.9 - - - - 8.2 0.2 - - - - 8.2 0.3 4.0 5.5 9.5 73.4 8.9 1.10 4.0 5.5 9.5 65.4 8.9 2.78 4.0 5.0 9.0 59.9 1.8 2.1 Market capitalisation^ 196,599.6 233,462.0 858.4 Number of shareholders^ 36,042 33,361 32,187 2,045 31,956 1,514 33,337 26.8 - 32.2 99.3 -3.3 -11.8 143.2 131.3 106.4 -13.2 -47.9 -11.8 58.6 71.8 -9.3 970.3 4.0 5.0 9.0 53.7 - 1.82 1,207 19.0 - 10.9 19.5 7.5 -5.0 51.9 96.1 86.1 -44.2 -12.2 -5.9 23.8 62.8 121.1 961.2 4.0 4.0 8.0 52.3 - 1.58 1,041 152.3 47.3 101.0 86.7 - - 19.3 0.3 -5.5 166.4 84.0 65.0 82.4 -38.5 -6.9 102.0 48.0 -55.6 843.6 4.0 4.0 8.0 50.6 - 1.68 1,096 - - 30.7 4.8 17.1 99.9 91.9 71.2 8.0 -13.9 -2.9 62.4 56.5 113.8 749.1 4.0 4.0 8.0 48.7 - 1.36 836 - - 22.4 1.4 3.2 128 88.6 65.2 39.4 -18.1 -6.5 80.0 55.8 188.8 723.0 4.0 4.0 8.0 48.4 - 2.64 1,595 - - 21.1 - 11.6 119.4 108.9 81.1 10.5 -12.3 -5.1 74.2 61.5 64.7 692.4 4.0 4.0 8.0 47.9 - 1.8 1,087 35,394 40,028 42,625 45,508 30,844 28,233 Ordinary shares on issue^ 819,165,045 819,165,045 780,545,644 735,640,128 720,911,089 663,243,696 659,138,427 652,293,766 614,870,776 605,136,707 604,159,207 Share issues Dividend reinvestment plan, (fully underwritten) Dividend reinvestment plan, (fully underwritten) Dividend reinvestment plan, (fully underwritten), conversion of options and convertible notes Dividend reinvestment plan, conversion of options convertible Convertible notes conversion Dividend reinvestment plan, conversion of options institutional placement Dividend reinvestment plan, conversion of options Dividend reinvestment plan, conversion of options Dividend reinvestment plan, private placement conversion of options Dividend reinvestment plan, conversion of options Dividend reinvestment plan, conversion of options Dividend reinvestment plan, conversion of options Ratios and statistics Reported earnings per share (cents) Return on shareholders’ equity % - Underlying proﬁ t - Reported proﬁ t Net tangible assets per share ($) Gearing %† Dividend payout ratio % -57.65 -51.51 4.82 14.5 13.1 8.9 3.6 16.2 10.2 13.2 12.9 - 1.8 -66.5 0.37 128 - - 2.2 -55.6 0.37 104 - 6.5 2.8 1.14 40 197 8.9 8.8 1.22 31 68 7.2 7.1 1.17 16 69 7.4 6.0 0.82 32 65 6.5 2.5 0.94 0 222 5.7 12.1 0.88 0 49 7.5 8.3 0.8 16 78 7.7 11.1 0.85 47 61 8.9 10.7 0.84 54 62 Reported earnings before interest and tax (inclusive of non-recurring and abnormal items). 1 Prior to 2006 Financial services result reported within Rural Services. * ** Underlying proﬁ t and earnings results excluding abnormal and non-recurring items (includes material proﬁ t/loss on asset disposal). # ^ As at period end. † As measured by ratio of net interest-bearing debt/shareholders equity. In respect of dividends declared for the ﬁ nancial year. 56 ELDERS LIMITED ANNUAL FINANCIAL REPORT 30 SEPTEMBER 2009 INCOME STATEMENT BALANCE SHEET CASH FLOW STATEMENT STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION INDEPENDENT AUDIT REPORT 58 59 60 61 64 154 155 57 INCOME STATEMENT FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Continuing operations Sales revenue Cost of sales Other revenues Expenses Share of net proﬁ ts/(losses) of associates and joint ventures accounted for using the equity method Proﬁ t/(loss) on sale of non current assets Proﬁ t/(loss) from continuing operations before net ﬁ nance costs and income tax expense Interest revenue Finance costs Proﬁ t/(loss) from continuing operations before income tax expense Income tax (expense)/beneﬁ t Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 Note 3 3 3 11 3 3 3 4 2,853,917 3,274,659 (2,281,434) (2,426,096) - - - - 47,264 112,510 6,694 166,780 (969,408) (869,750) (67,924) (31,056) 3,766 120,846 51,236 (2,369) - 1,204 6,358 - (225,049) 140,190 (54,872) 136,928 13,045 15,422 48,891 20,545 (112,230) (72,320) (72,180) (32,404) (324,234) 83,292 (78,161) 125,069 10,125 (7,712) 19,003 (15,093) Proﬁ t/(loss) from continuing operations after income tax expense (314,109) 75,580 (59,158) 109,976 Net proﬁ t/(loss) of discontinued operations, net of tax 40 (153,391) (29,490) - - Net proﬁ t/(loss) for the year Attributable to: Minority interest Members of the parent Reported Operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Continuing Operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Discontinued Operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) (467,500) 46,090 (59,158) 109,976 (1,074) 22 (466,426) 9,643 36,447 - - (59,158) 109,976 35 35 35 35 35 35 (57.65)¢ (57.65)¢ (38.64)¢ (38.64)¢ 4.82¢ 4.40¢ 8.71¢ 7.96¢ (19.01)¢ (19.01)¢ (3.89)¢ (3.56)¢ The accompanying notes form an integral part of this income statement. 58 BALANCE SHEET AS AT 30 SEPTEMBER 2009 Current Assets Cash and cash equivalents Trade and other receivables Current tax receivable Livestock Inventories Derivative ﬁ nancial instruments Non current assets classiﬁ ed as held for sale Other Total Current Assets Non Current Assets Receivables Forestry Other ﬁ nancial assets Investments in associates and joint ventures Property, plant and equipment Investment properties Intangibles Deferred tax assets Other Total Non Current Assets Total Assets Current Liabilities Trade and other payables Interest bearing loans and borrowings Current tax payable Provisions Total Current Liabilities Non Current Liabilities Interest bearing loans and borrowings Derivative ﬁ nancial instruments Deferred tax liabilities Provisions Total Non Current Liabilities Total Liabilities Net Assets Equity Contributed equity Hybrid equity Reserves Retained earnings Total Parent Entity Interest In Equity Minority interest Total Equity The accompanying notes form an integral part of this balance sheet. 5 4 6 8 9 11 15 5 7 10 11 12 13 14 4 15 16 17 4 18 17 9 4 18 19 20 21 22 24 Consolidated Parent September 2009 $000 Note June 2008 $000 September 2009 $000 June 2008 $000 25(b) 367,868 244,043 293,100 42,162 535,785 633,782 1,147,872 1,213,663 - - 43,752 37,023 225,524 396,846 7,820 16,599 23,202 706 - - - - - - 13,315 - - - - - 132,277 632 1,220,550 1,444,677 1,441,604 1,269,140 232,689 241,328 11,183 25,628 27,014 17,549 25,716 27,232 - - 374,590 204,592 283,224 694,492 75,562 101,758 114,381 312,983 236 236 283,797 256,417 228,520 306,836 115,040 18,459 79,178 27,058 - - - - 76,198 35,019 - - 1,320,673 1,971,240 537,769 367,233 2,541,223 3,415,917 1,979,373 1,636,373 362,731 966,726 802,479 299,979 854,069 164,905 149,594 38,047 32,000 - - - 107,197 208,136 2,238 6,450 1,362,044 1,371,767 954,311 306,429 345,204 550,657 100,028 320,614 49,924 69,186 13,206 52,366 53,802 91,149 38,143 4,145 - 51,456 5,933 - 477,520 747,974 142,316 378,003 1,839,564 2,119,741 1,096,627 684,432 701,659 1,296,176 882,746 951,941 737,513 145,151 694,118 145,151 (30,765) 16,190 737,513 145,151 9,984 694,118 145,151 12,263 (158,012) 353,991 (9,902) 100,409 693,887 1,209,450 882,746 951,941 7,772 86,726 - - 701,659 1,296,176 882,746 951,941 59 CASH FLOW STATEMENT FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Consolidated Parent 15 months September 2009 $000 Inﬂ ows (Outﬂ ows) 12 months June 2008 $000 Inﬂ ows (Outﬂ ows) 15 months September 2009 $000 Inﬂ ows (Outﬂ ows) 12 months June 2008 $000 Inﬂ ows (Outﬂ ows) Note 9,089,951 8,979,463 23,723 4,261 (9,525,238) (8,890,863) (46,446) (57,270) 20,719 21,318 28,840 13,635 14,749 1,676 21,450 6,809 Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Dividends received Interest received Interest and other costs of ﬁ nance paid (110,826) (72,318) (53,883) (43,611) GST (paid)/refunded Income taxes (paid)/refunded Other operating inﬂ ows/(outﬂ ows) Net operating cash ﬂ ows Cash Flows from Investing Activities Payment for property, plant and equipment and investment properties Payment for investments Payment for design and development Proceeds from sale of property, plant and equipment and investment properties Proceeds from sale of investments Loans to controlled entities Loans to associated entities Repayment of loans by related parties Loans to growers Loans repaid by growers Loans repaid by third parties Payment for controlled entities, net of cash acquired 39(a) Proceeds from disposal of controlled entity Net investing cash ﬂ ows Cash Flows from Financing Activities Proceeds from issue of shares and other equity Proceeds from borrowings Repayment of borrowings Principal repayments of lease liabilities Partnership Proﬁ ts Dividends and Distributions paid Dividends underwritten Net ﬁ nancing cash ﬂ ows Net increase/(decrease) in cash held Cash/(overdraft) at the beginning of the ﬁ nancial year (22,914) (15,299) - (2,411) (9,058) (30,291) (6,624) (30,939) 12,722 (27,261) - - 25(a) (523,326) (14,094) (66,805) (101,711) (64,758) (129,847) - - (20,134) (107,461) (14,500) (43,010) (4,422) (7,124) 10,774 231,633 - 97,835 23,079 - - - - 33,862 36,686 - 414,584 277,615 (36,999) (28,017) (8,004) (3,813) 8,383 - (16,352) (5,219) 7,284 - - 94,583 4,299 52,266 2,323 15,437 - - - - - - - - - 53,545 - - 209,992 (82,429) 425,942 321,023 - 7,082 522,709 250,186 - - 2,415 - (69,442) (148,156) (100,000) (136,132) (1,464) (3,242) (1,331) - - - - - (38,281) (58,340) (35,078) (56,590) 26,879 437,159 123,825 244,043 46,815 96,256 26,879 46,815 (108,199) (143,492) (267) 250,938 75,820 244,310 42,162 (33,658) Cash/(overdraft) at the end of the ﬁ nancial year 25(b) 367,868 244,043 293,100 42,162 The accompanying notes form an integral part of this cash ﬂ ow statement. 60 STATEMENT OF CHANGES IN EQUITY 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Consolidated ($000) Issued Capital Convertible Notes Reserves Hybrid Equity Retained Earnings Minority Interest Total Equity As at 1 July 2008 694,118 Currency translation differences Cash ﬂ ow hedge reserve and fair value of derivatives Partnership proﬁ ts Total income and expense for the period recognised directly in equity Proﬁ t for period Total income and expense for the period Attributable to: Equity holders of the parent Minority Interest Equity Transactions: Business combinations Sale of Investment - - - - - - - - Cost of share based payments Shares vested to employees (net) 446 - Dividend Reinvestment Plan 16,070 Dividends to shareholders Dividends Underwritten Hybrid Equity Distribution Recognition of minority interests in controlled entity Recognition of share of reserve for losses in associate - 26,879 - - - As at 30 September 2009 737,513 - - - - - - - - - - - - - - - - - - 16,190 145,151 353,991 86,726 1,296,176 (196) (10,303) - (10,499) - (10,499) (38,159) - 9,404 - - - - - - (7,701) - - - - - - - - - - - - - - - - - - - - 155 (41) - (10,303) (3,242) (3,242) (3,087) (13,586) (466,426) (1,074) (467,500) (466,426) (4,161) (481,086) (476,925) (4,161) - - - - - (75,912) (114,071) - - - - 9,850 - 16,070 (42,949) (3,198) (46,147) - (8,204) - - 26,879 (8,204) - 4,317 4,317 5,576 - (2,125) (30,765) 145,151 (158,012) 7,772 701,659 The accompanying notes form an integral part of this statement of changes in equity. 61 STATEMENT OF CHANGES IN EQUITY 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Consolidated ($000) Issued Capital Convertible Notes Reserves Hybrid Equity Retained Earnings Minority Interest Total Equity As at 1 July 2007 608,493 54,263 (22,408) 145,151 403,063 8,039 1,196,601 - - - - - - Currency translation differences Cash ﬂ ow hedge reserve Partnership proﬁ ts Total income and expense for the period recognised directly in equity Proﬁ t for year Total income and expense for the period Attributable to: Equity holders of the parent Minority Interest Equity Transactions: Issue of share capital, employee share plan Exercise of options Business combinations Sale of Investment Cost of share based payments Shares vested to employees (net) 11,453 2,415 - - - - Dividend Reinvestment Plan 23,988 Dividends to shareholders Dividends Underwritten Hybrid Equity Distribution Convertible notes converted Convertible notes matured Acquisition of minority interests in controlled entity Recognition of share of reserve for losses in associate - 46,815 - 954 - - - As at 30 June 2008 694,118 - - - - - - - - - - - - - - - (378) (53,885) - - - 3,615 3,415 - 7,030 - 7,030 - - 27,501 - 2,449 (1,274) - - - - - - - 2,892 - - - - - - - - - - - - - - - - - - - - - - - - - - 3,615 3,415 (1,653) (1,653) (1,653) 5,377 36,447 9,643 46,090 36,447 7,990 51,467 43,477 7,990 11,453 2,415 99,661 (768) 2,449 (1,274) 23,988 (72,848) 46,815 (9,779) 576 (53,885) - - 72,160 (768) - - - - - - - - (695) (695) - - - - - - - (72,848) - (9,779) - - - (2,892) - - 16,190 145,151 353,991 86,726 1,296,176 The accompanying notes form an integral part of this statement of changes in equity. 62 STATEMENT OF CHANGES IN EQUITY 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Parent ($000) Issued Capital Convertible Notes Reserves Hybrid Equity Retained Earnings Total Equity As at 1 July 2008 694,118 Currency translation differences Cash ﬂ ow hedge reserve Total income and expenses for the period recognised directly in equity Proﬁ t for period Total income and expense for the period Attributable to: Equity holders of the parent Minority interest Equity transactions: Issue of share capital, employee share plan Exercise of options Cost of share based payments Shares vested to employees (net) Dividend Reinvestment Plan Dividends to shareholders Dividends underwritten Hybrid Equity Distribution Convertible notes converted Convertible notes matured - - - - - - - 446 - 16,070 - 26,879 - - - As at 30 September 2009 737,513 - - - - - - - - - - - - - - - - - 12,263 145,151 100,409 951,941 (12,395) 3,007 (9,388) - (9,388) - - 7,109 - - - - - - - - - - - - - - - - - - - - - - - - - (12,395) 3,007 (9,388) (59,158) (59,158) (59,158) (68,546) (68,546) - - 7,555 - 16,070 - - - - - (42,949) (42,949) - 26,879 (8,204) (8,204) - - - - 9,984 145,151 (9,902) 882,746 As at 1 July 2007 608,493 54,263 4,355 145,151 71,011 883,273 Currency translation differences Cash ﬂ ow hedge reserve Total income and expenses for the period recognised directly in equity Proﬁ t for year Total income and expense for the period Attributable to: Equity holders of the parent Minority interest Equity transactions: Issue of share capital, employee share plan Exercise of options Cost of share based payments Shares vested to employees (net) Dividend Reinvestment Plan Dividends to shareholders Dividends underwritten Hybrid Equity Distribution Convertible notes converted Convertible notes matured - - - - - 11,453 2,415 - - 23,988 - 46,815 - 954 - - - - - - - - - - - - - - (378) (53,885) 74 7,638 7,712 - 7,712 - - 522 (326) - - - - - - - - - - - - - - - - - - - - - - - - 109,976 109,976 - - - - - 74 7,638 7,712 109,976 117,688 117,688 - 11,453 2,415 522 (326) 23,988 (70,799) (70,799) - (9,779) - - 46,815 (9,779) 576 (53,885) As at 30 June 2008 694,118 - 12,263 145,151 100,409 951,941 The accompanying notes form an integral part of this statement of changes in equity. 63 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 1. Corporate Information The Group changed its name from Futuris Corporation Limited to Elders Limited as at 30 April 2009. This is the ﬁ rst Annual Report provided with the reporting date of 30 September 2009, providing ﬁ nancial results for the 15 month period to 30 September 2009. The ﬁ nancial report of Elders Limited for the 15 month period ended 30 September 2009 was authorised for issue in accordance with a resolution of the Directors on 16 November 2009. Elders Limited is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. The nature of the operations and principal activities of the Group are described in Note 29. Note 2. Statement of Signiﬁ cant Accounting Policies (a) Basis of accounting The ﬁ nancial report is a general-purpose ﬁ nancial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. This report has been prepared on a historical cost basis, except for investment properties, derivative ﬁ nancial instruments and available for sale ﬁ nancial assets that have been measured at fair value, and biological assets that are measured at fair value less estimated point of sale costs. The carrying values of recognised assets and liabilities that are hedged with fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged. This report has been prepared on the basis that the sale of ITC Timber Pty Ltd, an entity which holds Elders’ hardwood timber processing operations as well as its 50% stake in Smartﬁ bre Pty Ltd proceeds. Refer to Note 28. The ﬁ nancial report is presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000) unless otherwise stated under the option available to the Company under ASIC Class Order 98/0100. The Company is an entity to which the class order applies. The accounting policies and disclosures are consistent with those of the previous ﬁ nancial year. (b) Statement of compliance The ﬁ nancial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Australian Accounting Standards and Interpretations that have recently been issued or amended, but are not yet effective, have not been adopted by the Group for the annual reporting period ending 30 September 2009. These are outlined in the table below. 64 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement Of Signiﬁ cant Accounting Policies (continued) Application date for Group 1 October 2009 Application date of standard 1 October 2008 Impact on Group ﬁ nancial report The Group does not currently hedge any of its net investments in foreign operations. The application of AASB Int. 16 is not expected to have any impact on the Group’s ﬁ nancial report. 1 July 2009 The application of AASB Int. 17 is not expected to have any impact on the Group’s ﬁ nancial report. 1 October 2009 The application of AASB Int. 18 is not expected to have any impact on the Group’s ﬁ nancial report. 1 October 2009 Applies prospectively to transfer of assets from customers received on or after 1 July 2009 (b) Statement of compliance (continued) Reference Title Summary AASB Int. 16 Hedges of a Net Investment in a Foreign Operation AASB Int. 17 and AASB 2008-13 AASB Int. 18 Distributions of Non-cash Assets to Owners and consequential amendments to Australian Accounting Standards AASB 5 and AASB 110 Transfers of Assets from Customers This Interpretation requires that the hedged risk in a hedge of a net investment in a foreign operation is the foreign currency risk arising between the functional currency of the net investment and the functional currency of any parent entity. This also applies to foreign operations in the form of joint ventures, associates or branches. The Interpretation outlines how an entity should measure distributions of assets, other than cash, as a dividend to its owners acting in their capacity as owners. This applies to transactions commonly referred to as spin-offs, split offs or demergers and in-specie distributions. This Interpretation provides guidance on the transfer of assets such as items of property, plant and equipment or transfers of cash received from customers. The Interpretation provides guidance on when and how an entity should recognise such assets and discusses the timing of revenue recognition for such arrangements and requires that once the asset meets the condition to be recognised at fair value, it is accounted for as an ‘exchange transaction’. Once an exchange transaction occurs the entity is considered to have delivered a service in exchange for receiving the asset. Entities must identify each identiﬁ able service within the agreement and recognise revenue as each service is delivered. AASB 8 and AASB 2007- 3 Operating Segments and consequential amendments to other Australian Accounting Standards New Standard replacing AASB 114 Segment Reporting, which adopts a management reporting approach to segment reporting. 1 January 2009 1 October 2009 AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s ﬁ nancial statements, although it may indirectly impact the level at which goodwill is tested for impairment. In addition, the amendments may have an impact on the Group’s segment disclosures. 65 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary AASB 123 (Revised) and AASB 2007-6 Borrowing Costs and consequential amendments to other Australian Accounting Standards The amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. Application date of standard 1 January 2009 AASB 101 (Revised), AASB 2007-8 and AASB 2007-10 Presentation of Financial Statements and consequential amendments to other Australian Accounting Standards Introduces a statement of comprehensive income. 1 January 2009 Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassiﬁ cations of items in the ﬁ nancial statements, changes in the presentation requirements for dividends and changes to the titles of the ﬁ nancial statements. AASB 2008-1 AASB 2008-2 Amendments to Australian Accounting Standard – Share- based Payments: Vesting Conditions and Cancellations The amendments clarify the deﬁ nition of “vesting conditions”, introducing the term “non-vesting conditions” for conditions other than vesting conditions as speciﬁ cally deﬁ ned and prescribe the accounting treatment of an award that is effectively cancelled because a non- vesting condition is not satisﬁ ed. Amendments to Australian Accounting Standards – Puttable Financial Instruments and Obligations arising on Liquidation The amendments provide a limited exception to the deﬁ nition of a liability so as to allow an entity that issues puttable ﬁ nancial instruments with certain speciﬁ ed features, to classify those instruments as equity rather than ﬁ nancial liabilities. 1 January 2009 1 January 2009 Impact on Group ﬁ nancial report These amendments to AASB 123 require that all borrowing costs associated with a qualifying asset be capitalised. The Group has previously elected to capitalise borrowing costs associated with qualifying assets and as such the amendments are not expected to have any ﬁ nancial impact. These amendments are only expected to affect the presentation of the Group’s ﬁ nancial report and will not have a direct impact on the measurement and recognition of amounts disclosed in the ﬁ nancial report. The Group has not determined at this stage whether to present a single statement of comprehensive income or two separate statements. The Group has share- based payment arrangements that may be affected by these amendments. The Group is in the process of determining the impact of these amendments, if any. These amendments are not expected to have any impact on the Group’s ﬁ nancial report as the Group does not have on issue or expect to issue any puttable ﬁ nancial instruments as deﬁ ned by the amendments. AASB 3 (Revised) Business Combinations 66 1 July 2009 The Group has not entered into any business combinations since balance date. Any impact will depend on whether the Group enters into a business combination subsequent to the adoption of the standard. The revised Standard introduces a number of changes to the accounting for business combinations, the most signiﬁ cant of which includes the requirement to have to expense transaction costs and a choice (for each business combination entered into) to measure a non-controlling interest (formerly a minority interest) in the acquiree either at its fair value or at its proportionate interest in the acquiree’s net assets. This choice will effectively result in recognising goodwill relating to 100% of the business (applying the fair value option) or recognising goodwill relating to the percentage interest acquired. The changes apply prospectively. Application date for Group 1 October 2009 1 October 2009 1 October 2009 1 October 2009 1 October 2009 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary AASB 127 (Revised) Consolidated and Separate Financial Statements There are a number of changes arising from the revision to AASB 127 relating to changes in ownership interest in a subsidiary without loss of control, allocation of losses of a subsidiary and accounting for the loss of control of a subsidiary. Speciﬁ cally in relation to a change in the ownership interest of a subsidiary (that does not result in loss of control) – such a transaction will be accounted for as an equity transaction. Application date for Group 1 October 2009 Application date of standard Impact on Group ﬁ nancial report 1 July 2009 If the Group changes its ownership interest in existing subsidiaries in the future, without loss of control, the change will be accounted for as an equity transaction. This will have no impact on goodwill, nor will it give rise to a gain or loss in the Group’s income statement. AASB 2008-3 AASB 2008-5 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 Amendments to Australian Accounting Standards arising from the Annual Improvements Project AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project Amending Standard issued as a consequence of revisions to AASB 3 and AASB 127. Refer above. 1 July 2009 Refer to AASB 3 (Revised) and AASB 127 (Revised) above. 1 October 2009 The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identiﬁ ed resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact. This was the ﬁ rst omnibus of amendments issued by the IASB arising from the Annual Improvements Project and it is expected that going forward, such improvements will be issued annually to remove inconsistencies and clarify wording in the standards. The AASB issued these amendments in two separate amending standards; one dealing with the accounting changes effective from 1 January 2009 and the other dealing with amendments to AASB 5, which will be applicable from 1 July 2009 [refer below AASB 2008-6]. This was the second omnibus of amendments issued by the IASB arising from the Annual Improvements Project. Refer to AASB 2008-5 above for more details. 1 January 2009 These amendments are not expected to have any material impact on the Group’s ﬁ nancial report. 1 October 2009 1 October 2009 1 July 2009 The amendments in AASB 2008-6 are disclosure related and so will have no impact on the amount included in the Group’s ﬁ nancial statements. 67 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) Application date for Group 1 October 2009 Application date of standard 1 January 2009 Impact on Group ﬁ nancial report Recognising all dividends received from subsidiaries, jointly controlled entities and associates as income will likely give rise to greater income being recognised by the parent entity after adoption of these amendments. In addition, if the Group enters into any group reorganisation establishing new parent entities, an assessment will need to be made to determine if the reorganisation meets the conditions imposed to be effectively accounted for on a ‘carry-over basis’ rather than at fair value. 1 October 2009 1 October 2009 1 July 2009 The application of hedge accounting is currently limited to the Automotive Segment. The Group is in the process of determining the impacts of AASB 2008-8, if any. The amendments in AASB 2009-2 are disclosure related and will have no direct impact on the amounts included in the Group’s ﬁ nancial statements. Annual reporting periods beginning on or after 1 January 2009 that end on or after 30 April 2009 (b) Statement of compliance (continued) Reference Title Summary AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate The main amendments of relevance to Australian entities are those made to AASB 127 deleting the “cost method” and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in proﬁ t or loss in an entity’s separate ﬁ nancial statements (i.e., parent company accounts). The distinction between pre- and post-acquisition proﬁ ts is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been amended to effectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value. Amendments to Australian Accounting Standards – Eligible Hedged Items The amendment to AASB 139 clariﬁ es how the principles underlying hedge accounting should be applied when (i) a one-sided risk in a hedged item is being hedged and (ii) inﬂ ation in a ﬁ nancial hedged item existed or was likely to exist. Amendments to Australian Accounting Standards – Improving Disclosures about Financial Instruments [AASB 4, AASB 7, AASB 1023 & AASB 1038] The main amendment to AASB 7 requires fair value measurements to be disclosed by the source of inputs, using the following three-level hierarchy: > quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); > inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and > inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). These amendments arise from the issuance of Improving Disclosures about Financial Instruments (Amendments to IFRS 7) by the IASB in March 2009. The amendments to AASB 4, AASB 1023 and AASB 1038 comprise editorial changes resulting from the amendments to AASB 7. AASB 2008-8 AASB 2009-2 68 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) Application date for Group 1 October 2009 Application date of standard Impact on Group ﬁ nancial report 1 July 2009 The Group does not currently hedge any of its net investments in foreign operations. The amendments in AASB 2009-4 are not expected to have any impact on the Group’s ﬁ nancial report. 1 January 2010 The Group has not yet determined the extent of the impact of the amendments, if any. 1 October 2010 (b) Statement of compliance (continued) Reference Title Summary AASB 2009-4 Amendments to Australian Accounting Standards arising from the Annual Improvements Project The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting. [AASB 2 and AASB 138 and AASB Interpretations 9 & 16] AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 5, 8, 101, 107, 117, 118, 136 and 139] The main amendment of relevance to Australian entities is that made to IFRIC 16 which allows qualifying hedge instruments to be held by any entity or entities within the group, including the foreign operation itself, as long as the designation, documentation and effectiveness requirements in AASB 139 that relate to a net investment hedge are satisﬁ ed. More hedging relationships will be eligible for hedge accounting as a result of the amendment. These amendments arise from the issuance of the IASB’s Improvements to IFRSs. The amendments pertaining to IFRS 5, 8, IAS 1,7, 17, 36 and 39 have been issued in Australia as AASB 2009-5 (refer below). The amendments to some Standards result in accounting changes for presentation, recognition or measurement purposes, while some amendments that relate to terminology and editorial changes are expected to have no or minimal effect on accounting. The main amendment of relevance to Australian entities is that made to AASB 117 by removing the speciﬁ c guidance on classifying land as a lease so that only the general guidance remains. Assessing land leases based on the general criteria may result in more land leases being classiﬁ ed as ﬁ nance leases and if so, the type of asset which is to be recorded (intangible v property, plant and equipment) needs to be determined. These amendments arise from the issuance of the IASB’s Improvements to IFRSs. The AASB has issued the amendments to IFRS 2, IAS 38, IFRIC 9 as AASB 2009-4 (refer above). 69 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (b) Statement of compliance (continued) Reference Title Summary AASB 2009-7 Amendments to Australian Accounting Standards These comprise editorial amendments and are expected to have no major impact on the requirements of the amended pronouncements. AASB 2009-8 [AASB 5, 7, 107, 112, 136 & 139 and Interpretation 17] Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions (AASB 2) AASB 2009-10 Amendments to Australian Accounting Standards – Classiﬁ cation of rights issues [AASB 132] The Standard makes amendments to Australian Accounting Standard AASB 2 Share-based Payment and supersedes Interpretation 8 Scope of AASB 2 and Interpretation 11 AASB 2 – Group and Treasury Share Transactions. The amendments clarify the accounting for group cash-settled share-based payment transactions in the separate or individual ﬁ nancial statements of the entity receiving the goods or services when the entity has no obligation to settle the share-based payment transaction. The amendments clarify the scope of AASB 2 by requiring an entity that receives goods or services in a share- based payment arrangement to account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. The Standard makes amendments to Australian Accounting Standard AASB 132 Financial Instruments: Presentation as a consequence of the issuance of Classiﬁ cation of Rights Issues. The amendments clarify that rights, options or warrants to acquire a ﬁ xed number of an entity’s own equity instruments for a ﬁ xed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all existing owners of the same class of its own non- derivative equity instruments. Application date for Group 1 October 2009 Application date of standard Impact on Group ﬁ nancial report 1 July 2009 The amendments in AASB 2009-7 are editorial in nature and are not expected to have any direct impact on the amounts in the Group’s ﬁ nancial report. 1 January 2010 The Group has not yet determined the extent of the impact of the amendments, if any. 1 October 2010 1 February 2010 The Group has not yet determined the extent of the impact of the amendments, if any. 1 October 2010 70 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (c) Basis of consolidation The consolidated ﬁ nancial statements include the ﬁ nancial statements of the parent entity, Elders Limited, and its controlled entities, referred to collectively throughout these ﬁ nancial statements as the “Group”. All inter-entity balances and transactions have been eliminated. Where an entity either began or ceased to be controlled during the year, the results are included only from the date control commenced or up to the date control ceased. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. Investments in subsidiaries held by the Group are accounted for at cost in the separate ﬁ nancial statements of the parent entity. Financial statements of foreign controlled entities presented in accordance with overseas accounting principles are, for consolidation purposes, adjusted to comply with Group policy and generally accepted accounting principles in Australia. (d) Signiﬁ cant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Impairment of goodwill and intangibles with indeﬁ nite useful lives The Group determines whether goodwill and intangibles with indeﬁ nite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units to which the goodwill and intangibles with indeﬁ nite useful lives are allocated. The assumptions used in this estimation of recoverable amount are discussed in note 2(r). Share based payment transactions The Group measures the cost of equity settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined using both an external valuer for certain instruments and internally with a Black-Scholes model, refer further to information on share based payments transactions at note 2(x) and note 37. Other signiﬁ cant accounting estimates and assumptions are disclosed elsewhere in the ﬁ nancial statements where relevant. (e) Cash and cash equivalents For the purposes of the cash ﬂ ow statement, cash includes cash on hand and in banks and money market investments, net of outstanding bank overdrafts. For the purpose of the balance sheet bank overdrafts are included within interest bearing loans and borrowings in current liabilities and cash only includes cash on hand and in banks and money market investments. (f) Trade and other receivables Trade and other receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identiﬁ ed. (g) Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on the ﬁ rst in, ﬁ rst out basis, and comprises the cost of purchase including costs of bringing the inventories to sale location. In the case of manufactured goods, direct materials, direct labour costs, variable overhead and a portion of ﬁ xed overhead costs allocated on the basis of normal operating capacity are included. Where commodity inventories are acquired principally for the purpose of selling in the near term and generating a proﬁ t, such commodities are measured at fair value less costs to sell with changes in fair value less costs to sell recognised in the income statement. 71 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (h) Livestock The Group holds biological assets in the form of livestock, primarily beef cattle and sheep. These assets are measured at fair value, which has been determined based upon various assumptions, including livestock prices, less point of sale costs and other incidental costs, mortality rates, average daily weight gain, average daily feed price and the dress percentage. These assumptions are updated monthly and reﬂ ect the different categories of livestock held. The market value increments or decrements are recorded in the net proﬁ t. (i) Forestry The Group has interests in forestry plantations through plantation areas established and maintained on its own account and interests in the forestry managed investment schemes, which have reverted to the consolidated entity as a result of default by an original grower and forfeiture of their plantation interest. Forestry plantation timber owned by the Group is valued at each reporting date at fair value and increments and decrements in fair value are recognised in the income statement in the ﬁ nancial period in which they occur. Fair value is determined as follows: • Up until the time at which the initial inventory of the plantation is conducted (expected to be between four to six years) by applying historical costs; and • After initial inventory and up until harvest of the timber – anticipated fair value less estimated point of sale costs. As there is no active and liquid market for immature forestry plantation timber, fair value less estimated point of sales costs is based on forecast plantation growth and yields at the current average annual growth rates, prices based on the current price plus indexation of between 2.5% and 5% per annum and forecast of the net present values of future net cash ﬂ ows from harvest at a discount rate of 9% and costs of maintaining plantations to maturity. (j) Investments and other ﬁ nancial assets Financial assets are classiﬁ ed as either ﬁ nancial assets at fair value through the proﬁ t or loss, loans and receivables, held to maturity investments, or available for sale investments, as appropriate. When ﬁ nancial assets are recognised initially, they are measured at fair value. In the case of investments not at fair value through proﬁ t or loss they include directly attributable transaction costs. The Group determines the classiﬁ cation of its ﬁ nancial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each ﬁ nancial year end. (i) Financial assets at fair value through proﬁ t or loss Financial assets classiﬁ ed as held for trading are included in the category “ﬁ nancial assets at fair value through proﬁ t or loss”. Financial assets are classiﬁ ed as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classiﬁ ed as held for trading unless they are designated as effective hedging instruments. Gains or losses on investments held for trading are recognised in proﬁ t or loss based on quoted market bid prices at the close of business on the balance date. (ii) Held to maturity investments Non derivative ﬁ nancial assets with ﬁ xed or determinable payments and ﬁ xed maturity are classiﬁ ed as held to maturity when the Group has the positive intention and ability to hold to maturity. Investments that are held for an undeﬁ ned period are not included in this classiﬁ cation. Held to maturity investments are subsequently measured at amortised cost. For investments carried at amortised cost, gains and losses are recognised in proﬁ t or loss when the investments are derecognised or impaired, as well as through the amortisation process. (iii) Loans and receivables Loans and receivables are non derivative ﬁ nancial assets with ﬁ xed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in proﬁ t and loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. (iv) Available for sale investments Available for sale investments are those non derivative ﬁ nancial assets that are designated as available for sale or are not classiﬁ ed as any of the preceding categories. After initial recognition, available for sale investments are measured at fair value with gains or losses being recognised in proﬁ t or loss. The fair value of investments that are actively traded in organised ﬁ nancial markets are determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments with no active market, fair values are determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of similar instruments, or discounted cash ﬂ ow analysis. 72 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (k) Investment in associates Interests in associated entities are brought to account using the equity method. Associates are entities over which the Group has signiﬁ cant inﬂ uence and that are neither subsidiaries nor joint ventures. Under this method, the investment in associates is initially recognised at cost. Subsequently the investment is carried at cost plus post-acquisition changes in the Group’s share of net assets of the associate, less any impairment in value and adjusted for any differences in accounting policies. The consolidated income statement reﬂ ects the Group’s share of the results of operations of the associate. Where there has been a change recognised directly in the associate’s equity, the Group recognises its share of any changes and discloses this, when applicable in the consolidated statement of changes in equity. (l) Investment in joint ventures Interests in joint venture entities are accounted for by applying the equity method of accounting. The Group identiﬁ es joint venture entities where the Group is in a position of joint control over the entity. Investments in joint venture entities are carried at the equity accounted amount less any impairment in value. (m) Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Property, plant and equipment, excluding freehold land and assets under construction, are depreciated over their useful economic lives as follows: Buildings Leasehold improvements Plant and equipment – owned Plant and equipment – leased Livestock carrier Network Infrastructure Life 50 years Lease term 3 to 10 years Lease term 2.5 years 5 to 25 years The useful lives are consistent with those of the prior year. Method Straight line Straight line Straight line and units of production Straight line Straight line Straight line An item of property, plant and equipment is derecognised upon disposal or when no future economic beneﬁ ts are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period the item is derecognised. (n) Investment properties Investment properties are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. Gains or losses arising from changes in the fair values of investment properties are included in the income statement in the period in which they arise. For plantation land, the basis of valuation is changed to fair value when a sub-lease is granted on the property. Fair value for plantation land is determined using a discounted cash ﬂ ow (DCF) valuation model. The DCF valuation model incorporates the following factors: - recent external indicators including current purchase price of equivalent land or independent land valuations, - the Future Land Price Index to the year after harvest, - estimation of the present value of future rental income, either as annuity income or as a portion of deferred harvest proceeds, - the number of years to harvest the current plantation, - the land discount rate, - the terminal land value derived from unencumbered land value after harvest. The DCF valuation model and assumptions are reviewed on a half yearly basis. All plantation land held for more than 12 months is subject to a three year rotational assessment by an independent valuer. Investment properties are derecognised when they have either been disposed of or, when the investment property is permanently withdrawn from use and no future beneﬁ t is expected from its disposal. Any gains or losses on derecognition of an investment property are recognised in the income statement in the period of derecognition. 73 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (n) Investment properties (continued) Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale. Investment properties disposed of during the year are revalued prior to disposal with the revaluation recognised as a fair value change in the income statement rather than a loss or gain on disposal. (o) Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identiﬁ able assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortised but is reviewed annually for impairment, or more frequently if there is any indication that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash generating units expected to beneﬁ t from the combination’s synergies. Each unit or group of units to which the goodwill is so allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes, and is not larger than a segment based on either the Group’s primary or secondary reporting format determined in accordance with AASB114 Segment Reporting. (p) Intangible assets Intangible assets acquired separately are capitalised at cost and from a business combination are capitalised at fair value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either ﬁ nite or indeﬁ nite. Intangible assets with ﬁ nite lives are amortised on a straight line basis over their useful lives (5-15 years). Brand names, which are considered to have an indeﬁ nite life, are not amortised but are regularly tested for impairment. Expenditure incurred in developing, maintaining or enhancing brand names is expensed in the year in which it is incurred. Intangible assets, excluding development costs, created within the business are not capitalised and expenditure is charged against proﬁ ts in the period in which the expenditure is incurred. (q) Design and development Research costs are expensed as incurred. Development expenditure incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured and the Group can demonstrate the technical feasibility of completing the asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic beneﬁ ts, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the asset during its development. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Any expenditure carried forward is amortised from the commencement of commercial production on a straight-line basis over the period of the expected beneﬁ t, which is over a 3 year period. These development costs are Automotive related and primarily represent engineering costs incurred in developing products under awarded contracts. (r) Impairment Non-ﬁ nancial assets The carrying values of all assets, other than inventories and deferred tax assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. For an asset that does not generate largely independent cash inﬂ ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. 74 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (r) Impairment (continued) If any indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value using a pre-tax discount rate that reﬂ ects current market assessments of the time value of money and the risks speciﬁ c to the asset. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in proﬁ t or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Assumptions used by each cash generating unit for cash ﬂ ow projections when determining the value in use is to use the budgeted results for the following three years, after which a growth rate was added, and discounted based on an appropriate weighted average cost of capital. The weighted average cost of capital is a more reﬂ ective rate of each cash generating units position in terms of the time value of money and the risks it faces and therefore considered more appropriate than an incremental borrowing rate or other market borrowing rate. Impairment for goodwill is determined by assessing the recoverable amount of the cash generating unit to which the goodwill relates. When the recoverable amount of the cash-generating unit (or group of cash generating units) is less than the carrying amount, and impairment loss is recognised. Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash generating unit retained. Impairment losses for goodwill are not subsequently reversed. Intangible assets are tested for impairment where an indicator of impairment exists, and in the case of indeﬁ nite life intangibles annually, either individually or at the cash generating unit level. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. The carrying value of development costs is reviewed for impairment annually when the asset is not yet in use, or more frequently when an indicator of impairment arises during the reporting year indicating that the carrying value may not be recoverable. Financial Assets If there is objective evidence that an impairment loss on ﬁ nancial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash ﬂ ows (excluding future credit losses that have not been incurred) discounted at the ﬁ nancial asset’s original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through use of an allowance account. The amount of the loss is recognised in the income statement. The Group ﬁ rst assesses whether objective evidence of impairment exists individually for ﬁ nancial assets that are individually signiﬁ cant, and individually or collectively for ﬁ nancial assets that are not individually signiﬁ cant. If it is determined that no objective evidence of impairment exists for an individually assessed ﬁ nancial asset, whether signiﬁ cant or not, the asset is included in a group of ﬁ nancial assets with similar credit risk characteristics and that group of ﬁ nancial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred on ﬁ nancial assets carried at cost (because its fair value cannot be reliably measured) the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash ﬂ ows, discounted at the current market rate of return for a similar ﬁ nancial asset. If there is objective evidence that an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in proﬁ t or loss, is transferred from equity to the income statement. Reversals of impairment losses for equity instruments classiﬁ ed as available-for-sale are not recognised in proﬁ t. Reversals of impairment losses for debt instruments are reversed through proﬁ t or loss if the increase in an instrument’s fair value can be objectively related to an event occurring after the impairment loss was recognised in proﬁ t or loss. (s) Trade and other payables Trade and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the ﬁ nancial year that remain unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. 75 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (t) Interest bearing loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process. (u) Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outﬂ ow of resources embodying economic beneﬁ ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Certain subsidiaries are affected by warranty claims. Claims are covered by a provision for warranty, which has been calculated based on past experience of the level of repairs and returns. Where subsidiaries have entered into leasing arrangements that require the leased asset to be returned at the end of the lease term in its original condition an estimate is made of the costs of restoration or dismantling of any improvements and a provision is raised. A provision for dividend is not recognised as a liability unless the dividends are declared, on or before, reporting date. Provisions for restructuring or termination beneﬁ ts are only recognised when a detailed plan has been approved and the restructuring or termination beneﬁ ts have either commenced or been publicly announced, or when ﬁ rm contracts have been entered into. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash ﬂ ows at a pre-tax rate that reﬂ ects current market assessments of the time value of money and, where appropriate, the risks speciﬁ c to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. (v) Provision for employee entitlements (i) Wages, salaries, and annual leave Liabilities for wages and salaries, including non-monetary beneﬁ ts and annual leave expected to be settled within 12 months of the reporting date are recognised in provisions in respect of employee’s services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. (ii) Long service leave The liability for long service leave is recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outﬂ ows. (w) Pensions and other post employment beneﬁ ts The Group maintains an Australian-based superannuation fund comprising both an accumulation section and a deﬁ ned beneﬁ ts section. The deﬁ ned beneﬁ ts section of the fund has been closed since December 1996 and all employees after that date must join the accumulation section. With respect to the accumulation section of the fund, employees are entitled to accumulated beneﬁ ts on retirement, resignation, disability or death. During the year, Group contributions are paid in accordance with legislative requirements, the fund’s rules and employee salary packages. Employees may also contribute to the fund. The assets of the accumulation section of the fund are sufﬁ cient to satisfy all beneﬁ ts that would be vested in the event of termination. With respect to the deﬁ ned beneﬁ t section of the fund, relevant Group entities are obliged to contribute to the fund as set out in the Trust Deed and in accordance with legal requirements. During the year, superannuation entitlements are paid in accordance with legislative requirements at levels necessary to ensure that there are sufﬁ cient assets to meet the liabilities determined by actuarial valuations undertaken at regular intervals not exceeding three years. Member contributions are at a set rate. 76 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (w) Pensions and other post employment beneﬁ ts (continued) The Group’s subsidiary, BWK AG, also maintains a deﬁ ned beneﬁ t fund, referred to as provision for pensions. This provision is calculated by applying the projected unit credit method. This calculation is based on no growth in the fund, an interest rate for accounting purposes of 4.5% as well as mortality tables provided by an independent actuary. Actuarial gains and losses for the deﬁ ned beneﬁ ts section of the fund are recognised in the income statement. (x) Share based payment The Group provides beneﬁ ts to employees in the form of share-based payment transactions, which may include shares or rights over shares (equity-settled transaction such as options). There are currently two share based plans in place to provide these beneﬁ ts: (i) Employee Share Option Plan (ESOP), which provides beneﬁ ts to senior executives; and (ii) Employee Share Loan Plan (ESLP), which provides beneﬁ ts to all employees. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using a trinomial model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulﬁ lled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reﬂ ects: (i) the extent to which the vesting period has expired; and (ii) the number of awards that, in the opinion of the directors of the Group, will ultimately vest. This opinion is formed based on the best available information at balance date. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition. The dilutive effect, if any, of outstanding options is reﬂ ected as additional share dilution in the computation of earnings per share. Shares in the Group re-acquired on market and held by the Employee Share Plan at the reporting date are classiﬁ ed in reserves. (y) Contributed equity Ordinary shares are classiﬁ ed as equity. Incremental costs directly attributable to the issue of new shares or options are included in equity as a deduction, net of tax, from the proceeds. (z) Hybrid notes Hybrid notes are classiﬁ ed as equity. Incremental costs directly attributable to the issue of the Hybrid notes are included in equity as a deduction, net of tax, from the proceeds. Distributions to note holders are made quarterly at the discretion of Directors. (aa) Earnings per share Basic earnings per share amounts are calculated by dividing net proﬁ t for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net proﬁ t attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year (adjusted for the effects of dilutive options, dilutive convertible notes and dilutive hybrid notes). 77 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ab) Revenue Revenue is recognised to the extent that it is probable that economic beneﬁ ts will ﬂ ow to the Group and the revenue can be reliably measured. The following speciﬁ c recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised when the signiﬁ cant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Rendering of services – non insurance related Where the contract can be reliably measured, it is probable that the economic beneﬁ ts associated with the transaction will ﬂ ow to the Group and the stage of completion can be reliably measured. Stage of completion is measured by reference to the labour hours incurred to date as a percentage of total estimated labour hours for each contract. Where the contract outcome cannot be reliably measured, revenue is recognised only to the extent of the expenses recognised that are recoverable. Interest and dividend income Dividend revenue is recognised when the shareholder’s right to receive the payment is established. Interest revenue is recognised as it accrues using the effective interest rate method. This is a method of calculating the amortised cost of a ﬁ nancial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the ﬁ nancial asset to the net carrying amount of the ﬁ nancial asset. Forestry revenue Revenue from the provision of forestry services is recognised by reference to the ﬁ nancial period during which the relevant services are provided. Any unearned portion of these fees at ﬁ nancial year end is brought to account in the balance sheet as a liability and recognised in subsequent periods. (ac) Leases Leases are classiﬁ ed at their inception as either operating or ﬁ nance leases based on the economic substance of the agreement so as to reﬂ ect the risks and rewards incidental to ownership. Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the ﬁ nance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Leases where the lessor retains substantially all the risks and rewards of ownership of the asset are classiﬁ ed as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. (ad) General insurance activities Signiﬁ cant accounting estimates and assumptions The ultimate liability arising from claims made under insurance contracts Provision is made for the estimated cost of claims incurred but not settled at the balance date. This provision consists of estimates of both the expected ultimate cost of claims notiﬁ ed to the Group as well as the expected ultimate cost of claims incurred but not reported to the Group (“IBNR”). The estimated cost of claims includes direct expenses that are expected to be incurred in settling those claims. The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimate of the cost of settling claims already notiﬁ ed to the Group, where more information about the claims is generally available. Liability and other long tail classes of business, where claims settlement may not happen for many years after the event giving rise to the claim, typically display greater variability between initial estimates and ﬁ nal settlement due to delays in reporting claims, uncertainty in respect of court awards and future claims inﬂ ation. Claims in respect of property and other short tail classes are typically reported and settled sooner after the claim event, giving rise to more certainty. The estimation techniques and assumptions used in determining the outstanding claims provision and the associated reinsurance and other recoveries are described below. 78 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ad) General insurance activities (continued) In calculating the estimated cost of unpaid claims the Group uses a variety of estimation techniques, generally based upon statistical analyses of historical experience, which assumes that the development pattern of the current claims will be consistent with past experience. Allowance is made, however, for changes or uncertainties which may create distortions in the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims including: • Changes in Group processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; • Changes in the legal environment; • The effects of inﬂ ation; • Changes in the mix of business; • The impact of large losses; and • Movements in industry benchmarks. A component of these estimation techniques is usually the estimation of the current cost of notiﬁ ed but not paid claims. In estimating the cost of these the Group has regard to the claim circumstances as reported, any information available from loss adjusters and information on the cost of settling claims with similar characteristics in the previous period. Large claims impacting each relevant business class are generally assessed separately, being measured on a case by case basis or projected separately in order to allow for the possible distortive effect of the development and incidence of these large claims. Where possible the Group adopts multiple techniques to estimate the required level of provisions. This assists in giving greater understanding of the trends inherent in the data being projected. The projections given by the various methodologies also assist in setting the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year. Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provisions. Details of speciﬁ c assumptions used in deriving the outstanding claims liability at year end are detailed below. Assets Arising from Reinsurance Contracts Assets arising from contracts with the Group’s reinsurers are determined using the same methods described above. In addition, the recoverability of these assets is assessed at each balance date to ensure that the balances properly reﬂ ect the amounts that will ultimately be received, taking into account counterparty and credit risk. Impairment is recognised where there is objective evidence that the Group may not receive amounts due to it and these amounts can be reliably measured. Accounting policies in relation to general insurance activities are as follows: Premium Revenue Premium comprises amounts charged to policyholders, excluding taxes collected on behalf of third parties. The earned portion of premium received and receivable, including unclosed business, is recognised as revenue. Premium on unclosed business is brought to account based upon the pattern of booking of renewals and new business. Unearned Premium Unearned premium is calculated based on the term of the risk which closely approximates the pattern of risks underwritten based on the 365th method. At each balance date, the adequacy of the unearned premium liability is assessed on a net of reinsurance basis against the present value of the expected future cash ﬂ ows relating to potential future claims in respect of the relevant insurance contracts, plus an additional risk margin to reﬂ ect the inherent uncertainty of the central estimate. The assessment is carried out at the divisional level, being a portfolio of contracts that are broadly similar and managed together as a single portfolio. If the unearned premium liability, less related intangible assets and deferred acquisition costs, is deﬁ cient, then the resulting deﬁ ciency is recognised in the income statement of the Group. The deﬁ ciency is recognised ﬁ rst by writing down any related intangible assets and then related deferred acquisition costs, with any excess being recorded in the balance sheet as an unexpired risk liability. Outwards Reinsurance Premiums Premium ceded to reinsurers is recognised as an expense in accordance with the pattern of reinsurance service received. Accordingly, a portion of outwards reinsurance premium is treated as a prepayment at the balance sheet date. 79 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ad) General insurance activities (continued) Outstanding Claims Liability The provision for outstanding claims is measured as the central estimate of the present value of expected future claims payments plus a risk margin. The expected future payments include those in relation to claims reported but not yet paid; claims incurred but not reported (“IBNR”); claims incurred but not enough reported (“IBNER”); and estimated claims handling costs. The expected future payments are discounted to present value using a risk free rate. A risk margin is applied to the central estimate, net of reinsurance and other recoveries, to reﬂ ect the inherent uncertainty in the central estimate. Reinsurance and Other Recoveries Receivable Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid, IBNR and unexpired risk liabilities are recognised as revenue. Amounts recoverable are assessed in a manner similar to the assessment of outstanding claims. Recoveries are measured as the present value of the expected future receipts, calculated on the same basis as the provision for outstanding claims. Acquisition Costs A portion of acquisition costs relating to unearned premium revenue is deferred in recognition that it represents future beneﬁ ts to the organisation. Deferred acquisition costs are measured at the lower of cost and recoverable amount. A write-down to recoverable amount is recognised where the present value of expected future claims (including settlement costs) in relation to business written to the reporting date exceeds related unearned premiums. Deferred acquisition costs are amortised over the period expected to beneﬁ t from the expenditure. Fire Brigade and Other Charges Fire service levies and other charges received or receivable from policyholders are included in premiums. A liability for ﬁ re brigade and other charges is recognised on business written to the reporting date, regardless of whether assessments have been issued by the appropriate authority. Levies and charges payable by the organisation are expensed on the same basis as the recognition of premium revenue, with the portion relating to unearned premium being recorded as a prepayment. Assets Backing General Insurance Liabilities The Group has determined that all assets are held to back general insurance liabilities and are valued at fair value in the balance sheet. The following policies apply to assets held to back general insurance liabilities: Financial Assets Financial assets are designated at fair value through proﬁ t or loss. Initial recognition is at cost in the balance sheet and subsequent measurement is at fair value with any resultant unrealised proﬁ ts and losses recognised in the income statement. Details of fair values of different types of assets are listed below: • Cash assets and bank overdrafts are carried at face value of the amounts deposited or drawn. The carrying amount of cash assets and bank overdrafts approximate to their fair value. For the purposes of the cash ﬂ ow statement, cash includes cash on hand, deposits held at call with banks and investments in money market instruments, net of bank overdrafts; • Fixed interest securities are initially recognised at cost and the subsequent fair value is taken as the quoted bid price of the instrument at the balance sheet date; and • Unlisted ﬁ xed interest securities are recorded at amounts based on valuations using rates of interest equivalent to the yields obtainable on comparable investments at balance date. Financial assets are derecognised when the rights to receive future cash ﬂ ows from the assets have expired, or have been transferred, and Elders Insurance Limited has transferred substantially all the risks and rewards of ownership. Receivables Amounts due from policyholders are initially recognised at face value, being the amounts due. They are subsequently measured at fair value which is approximated by taking the initially recognised amount and reducing it for impairment as appropriate. A provision for impairment of receivables is established when there is objective evidence that Elders Insurance Limited will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash ﬂ ows. The discount is calculated using a risk free rate. The impairment charge is recognised in the income statement. 80 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ad) General insurance activities (continued) Actuarial Assumptions and Methods Short Tail Classes With short tail classes, there is not a signiﬁ cant delay between the occurrence of the claim and the claim being reported to the Group. The costs of claims notiﬁ ed to the Group at the balance sheet date are estimated on a case by case basis to reﬂ ect the individual circumstances of each claim. The ultimate expected cost of claims is projected from this data by reference to statistics which show how estimates of claims incurred in previous periods have developed over time to reﬂ ect changes in the underlying estimates of the cost of notiﬁ ed claims and late notiﬁ cations. Liability Claims estimates for the Group’s liability business are derived from analysis of the results of several different actuarial methods. Ultimate numbers of claims are projected based on the past reporting patterns. Payments experience is analysed based on averages paid per claim incurred and averages paid per claim ﬁ nalised. Historic case estimate development is also used to develop a model of future payments. The resulting average claim sizes from these models are analysed, along with the loss ratios and other statistics, in order to determine a ﬁ nal estimate of outstanding claims. Claims inﬂ ation is incorporated into the resulting projected payments, to allow for both general economic inﬂ ation as well as any superimposed inﬂ ation detected in the modelling of payments experience. Superimposed inﬂ ation arises from non-economic factors such as developments of legal precedent. Projected payments are discounted to allow for the time value of money. The liability class of business is also subject to the possible emergence of new types of latent claims, but no speciﬁ c allowance is included for this as at the balance sheet date. Such uncertainties are considered when setting the risk margin appropriate for this class. The following assumptions have been made in determining the outstanding claims liabilities: Discount Rate Discount Mean Term (Years) Claims Handling Expense Ratio Ultimate Gross Loss Ratio Latest Accident Year Sept 2009 Short-Tail June 2008 Short-Tail Sept 2009 Liability June 2008 Liability 4.80% 0.36 5.0% 80% 6.9% 0.35 5.0% 74% 4.80% 2.46 6.0% 50% 6.9% 2.50 6.0% 47% Process Used to Determine Assumptions A description of the processes used to determine these assumptions is provided below: Average Weighted Term to Settlement The average weighted term to settlement is calculated separately by class of business based on historic settlement patterns. Expense Rate Claims handling expenses were calculated by reference to past experience of claims handling costs as a percentage of past payments. Discount Rate Discount rates derived from market yields on Commonwealth Government securities as at the balance date have been adopted. Insurance Contracts - Risk Management Policies and Procedures The ﬁ nancial condition and operation of the Group are affected by a number of key risks including insurance risk, interest rate risk, currency risk, credit risk, market risk, liquidity risk, ﬁ nancial risk, compliance risk and operational risk. Objectives in Managing Risks Arising from Insurance Contracts and Policies for Mitigating those Risks The Group has the objective to control insurance risk thus reducing the volatility of operating proﬁ ts. In addition to the inherent uncertainty of insurance risk, which can lead to signiﬁ cant variability in the loss experience, proﬁ ts from insurance business are affected by market factors, particularly competition and movements in asset values. Short-term variability is, to some extent, a feature of insurance business. In accordance with Prudential Standards GPS220 Risk Management and GPS230 Reinsurance Management issued by the Australian Prudential Regulation Authority (APRA), the Board and senior management of the Group have developed, implemented and maintained a sound and prudent Risk Management Strategy (RMS) and Reinsurance Management Strategy (REMS). 81 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ad) General insurance activities (continued) The RMS and REMS identify the Group’s policies and procedures, processes and controls that comprise its risk management and control systems. These systems address all material risks, ﬁ nancial and non-ﬁ nancial, likely to be faced by the Group. Annually, the Board certiﬁ es to APRA that adequate strategies have been put in place to monitor those risks, that the Group has systems in place to ensure compliance with legislative and prudential requirements and that the Board has satisﬁ ed itself as to the compliance with RMS and REMS. The RMS and REMS have been approved by the Board and submitted to APRA. Key aspects of the processes established in the RMS to mitigate risks include: • The maintenance and use of sophisticated management information systems, which provide up to date, reliable data on the risks to which the business is exposed at any point in time; • Actuarial models, using information from the management information systems, are used to calculate premiums and monitor claims patterns. Past experience and statistical methods are used as part of the process; • Documented procedures are followed for underwriting and accepting insurance risks; • Natural disasters such as bushﬁ res are more challenging to manage. The Group monitors exposure to such risks through special modelling techniques involving the collation of data on weather patterns which support decisions on limiting exposure; • Reinsurance is used to limit the Group’s exposure. When selecting a reinsurer the Group only consider those companies that provide high security. In order to assess this, the Group uses rating information from the public domain or gathered through internal investigations; • In order to limit concentrations of credit risk, in purchasing reinsurance the Group has regard to existing reinsurance assets and seeks to limit excess exposure to any single reinsurer or group of related reinsurers; and • The mix of assets in which the Group invests is driven by the nature and term of the insurance liabilities. The management of assets and liabilities is closely monitored to attempt to match the maturity dates of assets with the expected pattern of claim payments. Terms and Conditions of Insurance Business The terms and conditions attaching to insurance contracts affect the level of insurance risk accepted by the Group. The majority of direct insurance contracts written are entered into on a standard form basis. There are no special terms and conditions in any non standard contracts that have a material impact on the ﬁ nancial statements. Concentration of Insurance Risk The Group’s exposure to concentrations of insurance risk is mitigated by a diversiﬁ ed portfolio. Speciﬁ c processes for monitoring identiﬁ ed key concentrations are set out below: Risk Source of Concentration Risk Management Measures Natural Catastrophes Properties concentrated in regions that are subject to: • Earthquakes • Bushﬁ res • Cyclones • Hail Storms The Group’s underwriting strategy requires individual risk premiums to be differentiated in order to reﬂ ect the higher loss frequency in particular geographical areas. The Group has modelled aggregated risk by postcode using commercially available catastrophe models. The Group’s exposure data across the Australian portfolio encompasses all ﬁ re risks. Based on the probable maximum loss per the models, the Group purchases catastrophe reinsurance cover to limit exposure to any single event. (ae) Income tax Income tax disclosed in the income statement comprises of current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at balance date, and any adjustments to tax payable in respect of previous years. Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for ﬁ nancial reporting purposes. 82 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ae) Income tax (continued) Deferred income tax liabilities are recognised for all taxable temporary differences: • except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁ t nor taxable proﬁ t or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable proﬁ t will be available against which the deductible temporary differences and the carry forward of unused tax assets and unused tax losses can be utilised: • except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting proﬁ t nor taxable proﬁ t or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable proﬁ t will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufﬁ cient taxable proﬁ t will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. (af) Other taxes Revenues, expenses and assets are recognised net of the amount of GST except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet. Cash ﬂ ows are included in the cash ﬂ ow statement on a gross basis and the GST component of cash ﬂ ows arising from investing and ﬁ nancing activities, which is recoverable from, or payable to, the taxation authority are classiﬁ ed as operating cash ﬂ ows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. (ag) Foreign currency translation Both the functional and presentation currency of Elders Limited and its Australian subsidiaries is Australian dollars (AUD). Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All exchange differences in the consolidated ﬁ nancial report are taken to the income statement with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in the income statement. Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. As at the reporting date the assets and liabilities of overseas subsidiaries are translated into the presentation currency of Elders Limited at the rate of exchange ruling at the balance sheet date, and the income statements are translated at the weighted average exchange rates for the period. The exchange differences arising on the retranslation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement. 83 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ah) Derivative ﬁ nancial instruments The Group uses derivative ﬁ nancial instruments to manage its exposure to foreign exchange, commodity price and interest rate risks. Such derivative ﬁ nancial instruments are stated at fair value. The fair value of derivative ﬁ nancial instruments is determined by reference to quoted market prices. Where a quoted market price is not available, the fair value is the estimated amount the consolidated entity would receive or pay to terminate the derivative ﬁ nancial instrument taking into account available market information. The gain or loss arising from changes in fair value is recognised immediately in the income statement, unless the derivative qualiﬁ es for hedge accounting, in which case the accounting treatment is set out below. For the purposes of hedge accounting, hedges are classiﬁ ed as either fair value hedges when they hedge the exposure to changes in the fair value of a recognised asset or liability; or cash ﬂ ow hedges where they hedge exposure to variability in cash ﬂ ows that is either attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction. In relation to fair value hedges which meet the conditions for special hedge accounting, any gain or loss from re-measuring the hedging instrument at fair value is recognised immediately in the income statement. Any gain or loss attributable to the hedged risk on re-measurement of the hedged item is adjusted against the carrying amount of the hedged item and recognised in the income statement. Where the adjustment is to the carrying amount of a hedged interest-bearing ﬁ nancial instrument, the adjustment is amortised to the income statement such that it is fully amortised by maturity. In relation to cash ﬂ ow hedges to hedge ﬁ rm commitments which meet the conditions for special hedge accounting, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity and the ineffective portion is recognised in the income statement. When the hedged ﬁ rm commitment results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash ﬂ ow hedges, the gains or losses that are recognised in equity are transferred to the income statement in the same year in which the hedged ﬁ rm commitment affects the net proﬁ t and loss, for example when the future sale actually occurs. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualiﬁ es for hedge accounting. At that point in time, any cumulative gain or loss recognised in equity is kept in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement. (ai) Derecognition of ﬁ nancial assets and ﬁ nancial liabilities A ﬁ nancial asset (or, where applicable, a part of a ﬁ nancial asset or part of a group of similar ﬁ nancial assets) is derecognised when: • the rights to receive cash ﬂ ows from the asset have expired; • the Group retains the right to receive cash ﬂ ows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or • the Group has transferred its rights to receive cash ﬂ ows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash ﬂ ows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration received that the Group could be required to repay. 84 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 2. Statement of Signiﬁ cant Accounting Policies (continued) (ai) Derecognition of ﬁ nancial assets and ﬁ nancial liabilities (continued) When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. A ﬁ nancial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing ﬁ nancial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modiﬁ ed, such an exchange or modiﬁ cation is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. (aj) Business combinations The purchase method of accounting is used to account for all business combinations regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the combination. Where equity instruments are issued in a business combination, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and calculation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Except for non current assets or disposal groups classiﬁ ed as held for sale (which are measured at fair value less costs to sell), all identiﬁ able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the business combination over the fair value of the Group’s share of the identiﬁ able net assets acquired is recognised as goodwill. If the cost of acquisition is less than the Group’s share of the net fair value of the identiﬁ able net assets of the subsidiary, the difference is recognised as a gain in the income statement, but only after reassessment of the identiﬁ cation and measurement of the net assets acquired. Where settlement of any part of the consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which similar borrowing could be obtained from an independent ﬁ nancier under comparable terms and conditions. (ak) Non current assets and disposal groups held for sale and discontinued operations Non current assets and disposal groups are classiﬁ ed as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset or disposal group to be classiﬁ ed as held for sale, it must be available for immediate sale in its present condition and its sale must be highly probable. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non current asset (or disposal group) is recognised at the date of de-recognition. A discontinued operation is a component of the entity that has been disposed of or is classiﬁ ed as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the income statement. 85 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 3. Revenue and Expenses Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 Note 2,300,502 2,302,774 181,612 275,390 - 96,413 407,776 280,463 193,144 90,502 26 2,853,917 3,274,659 40 686,166 37,456 3,540,083 3,312,115 - - - - - - - - - - - - - - - - Sales revenue: Continuing operations Sale of goods Sale of biological assets Commission and other selling charges Insurance premium revenue Other sales related income Discontinued operations Other revenue: Continuing operations Change in fair value of ﬁ nancial assets designated as fair value through proﬁ t and loss 8,459 30,290 (2,282) 4,706 - 406 38,399 47,264 60,643 107,907 - 4,660 8,385 13,045 13,731 26,776 - 3,920 78,300 112,510 4,826 117,336 - 3,396 12,026 15,422 - - 150,000 8,976 - 6,694 - - 12,074 166,780 - 6,694 166,780 47,089 723 1,079 48,891 - 20,509 - 36 20,545 - 15,422 48,891 20,545 40 40 Dividends - Controlled entities - Other persons Other Discontinued operations Interest revenue: Continuing operations - Controlled entities - Associated entities - Other persons Discontinued operations 86 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 3. Revenue and Expenses (continued) Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 Note Expenses: Continuing operations Distribution expenses Marketing expenses Occupancy expenses Administrative expenses Insurance claims & related expenses Impairment losses Other expenses Discontinued operations 40 Depreciation and amortisation: Property, plant and equipment Leased assets Design and development Patents, trademarks and other Discontinued operations Finance costs: Interest expense – other entities Finance lease charges Other ﬁ nance costs Discontinued operations Speciﬁ c net gains and (expenses): Proﬁ t/(loss) on sale of non current assets - Property, plant and equipment - Proﬁ t on sale of investments - Proﬁ t on sale of controlled entities Discontinued operations 453,020 487,006 16,926 12,010 168,515 - 165,548 153,389 969,408 543,063 1,512,471 14,666 17,492 154,713 128,981 - 66,892 869,750 53,535 923,285 24,713 34,901 44 6,314 5,232 36,303 9,239 45,542 678 4,046 2,959 42,584 - 42,584 - - - 67,924 - - - 67,924 - - - 1,096 26,835 - - 3,125 31,056 - 67,924 31,056 - - - - - - - 72 - - - 72 - 72 101,342 70,344 61,298 31,168 6 10,882 112,230 4,521 116,751 (101) 38,401 82,546 120,846 3,263 124,109 40 40 404 1,572 72,320 11 - 10,882 72,180 - - 1,236 32,404 - 72,331 72,180 32,404 (553) (1,816) - (2,369) - (2,369) - 6,358 - 6,358 - 6,358 - - - - - - 87 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 3. Revenue and Expenses (continued) Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 Note Reported Proﬁ t/(loss) before tax: Add back: Non-recurring gains/(losses): Telco operations closure costs Horticulture operations closure costs Loss on sale of Rail and Bus division Seed and Fodder impairments Restructuring, redundancy and relocation costs Write off/impairment other projects and activities Discount on acquisition Derivative fair value gain Proﬁ t on sale/Discount on acquisition Impairment losses on telecommunications closure Impairment losses on assets retained Impairment losses on intangibles Write down of assets to be divested/discontinued Results from assets to be divested/discontinued Reﬁ nancing costs Net non-recurring loss before tax Underlying proﬁ t/(loss) before tax Reported tax beneﬁ t/(expense) Add back: Tax beneﬁ t/(expense) on non-recurring items Net Proﬁ t attributable to minority interest Underlying proﬁ t/(loss) after tax Non-recurring losses Tax beneﬁ t/(expense) on non-recurring items Minority interest Non-recurring losses after tax Employee beneﬁ t expense: - Wages and salaries - Post employment beneﬁ ts including superannuation - Workers compensation - Share based payments Discontinued operations Other Impairment Losses: Impairment losses Impairment reversals Impairment losses (net) - - - - - - - - - - - - - - - - - - - - - - - - - - (466,330) 37,075 (78,161) - (4,668) (2,802) (4,861) (70,738) (36,101) - - 109,070 - (99,928) - (223,613) (9,158) (45,669) (12,948) (6,710) (16,189) (1,278) (22,472) (13,134) 6,042 3,853 4,441 (6,453) (6,300) (6,581) - - - (388,468) (77,729) (77,862) 114,804 - - - - (14,305) - - - - - - - - - (45,669) (59,974) (18,187) - 9,015 (29,965) (15,467) (9,643) 84,211 (77,729) 29,965 - - (33,654) (59,974) 15,467 - (414,674) (47,764) (44,507) (1,170) 25,788 1,492 (51,752) (388,468) (25,788) (418) 305,701 26,638 2,482 7,161 341,982 17,788 359,770 99,928 - 99,928 287,332 23,345 4,337 3,009 10,956 13,040 - - - 473 57 522 318,023 10,956 14,092 - - - 318,023 10,956 14,092 2,332 (989) 1,343 - - - 556 (69) - - - - 574 - - Operating leases - minimum lease payments 123,467 67,253 Foreign exchange net gains/(losses) Provision for doubtful debts and bad debts written off (484) 5,955 (251) 1,026 88 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 4. Income Tax Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 (21,551) (583) (5,752) (5,335) (11,837) (368) 1,692 42,980 (a) Major components of income tax expense are: Income Statement Current income tax Current income tax charge/(beneﬁ t) Adjustments in respect of current income tax of previous years Deferred income tax Origination and reversal of temporary differences 23,304 2,072 (6,798) (29,579) Income tax expense/(beneﬁ t) reported in income statement 1,170 (9,015) (19,003) 15,093 Statement of Changes in Equity Deferred income tax Net loss on revaluation of cash ﬂ ow hedges Income tax expense/(beneﬁ t) reported in equity (b) A reconciliation of income tax expense applicable to accounting proﬁ t before income tax at the statutory income tax rate to income tax expense at the Group’s effective income tax rate is as follows: (4,024) (4,024) 3,274 3,274 (4,024) (4,024) 3,274 3,274 Accounting proﬁ t/(loss) before tax from: - Continuing operations - Discontinued operations (324,234) 83,292 (78,161) 125,069 (142,096) (46,217) - - Total Accounting proﬁ t/(loss) before tax (466,330) 37,075 (78,161) 125,069 Income tax expense/(beneﬁ t) at 30% (2008: 30%) (139,899) 11,123 (23,448) 37,521 Adjustments in respect of current income tax of previous years Share of associate (proﬁ ts)/losses Non assessable (proﬁ ts)/losses Non deductible depreciation and amortisation Non deductible other expenses Impairment expense Non assessable dividends Employee share plan costs Non transferrable foreign losses Losses recognised by Parent entity Other Income tax expense/(beneﬁ t) as reported in income statement Aggregate Income tax expense is attributable to: - Continuing Operations - Discontinued Operations (583) 2,522 10,405 71 1,115 107,488 - 2,248 16,678 - 1,125 1,170 (10,125) 11,295 1,170 (5,335) (12,151) (4,062) 1,852 1,843 - (596) 924 - - (2,613) (9,015) (368) 42,980 - 1,912 - 81 - - 2,190 - - 630 (361) 252 - 29 - (45,000) 141 - (20,406) (63) (19,003) 15,093 7,712 (19,003) 15,093 (16,727) (9,015) - - (19,003) 15,093 Current tax payable/(receivable) 38,047 32,000 - (13,315) 89 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 4. Income Tax (continued) Balance Sheet Income Statement 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 Deferred income tax at 30 September (2008: 30 June) relates to the following: Consolidated Deferred income tax liabilities Revaluations of investment properties to fair value (10,799) (8,269) 2,528 1,175 Revaluations of foreign exchange contracts (cash ﬂ ow hedges) to fair value Shares in associated entities Exchange rates to fair value Non assessable accrued income Forestry assets (standing timber) Plant and equipment temporary differences Prepayments Research and development Other debtors Other (1,202) (4,124) (2,408) (33,929) (5,398) - - (5,524) (3,325) (2,477) (5,669) (8) (835) (19,022) (5,669) 1,404 (52) (8,182) (4,915) (2,585) Gross deferred income tax liabilities (69,186) (53,802) Deferred income tax assets Losses available to offset against future taxable income Provision for employee entitlements Other provisions Forestry product investment income Accrued expenditure Deferred borrowing costs Other capitalised expenses Plant and equipment temporary differences Other Gross deferred income tax assets Deferred income tax charge Parent Deferred income tax liabilities 63,030 11,733 12,360 4,290 2,613 9,249 8,294 3,189 282 115,040 33,109 14,794 13,607 9,822 1,450 988 4,220 - 1,188 79,178 1,224 3,161 1,363 14,907 301 - - (2,580) (1,751) (1,514) 17,639 4,121 2,053 (129) 5,533 (257) (8,693) (4,679) 7,945 (229) 5,665 307 1,034 (1,142) 10,753 1,131 (2,757) (3) 935 1,046 (7,694) 4,785 (578) (80) (1,837) 2,252 268 210 (2,261) - (687) (2,713) 23,304 2,072 Unrealised gain/loss on ﬁ nancial instruments (4,145) (5,891) 2,277 Other debtors Shares in associated entities Other - - - - (29) (13) - - - 235 589 - 218 Gross deferred income tax liabilities (4,145) (5,933) 2,277 1,042 90 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 4. Income Tax (continued) Balance Sheet Income Statement 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 Deferred income tax assets Losses available to offset against future taxable income (i) 63,030 30,470 - (30,470) Accrued expenditure Deferred borrowing costs Prepayments Other debtors Provisions Other Gross deferred income tax assets Deferred income tax charge 23 9,246 - 80 2,559 1,260 76,198 15 975 - 506 1,927 1,126 35,019 (136) (8,703) - 156 (624) 232 (80) 201 (3) - (727) 458 (9,075) (30,621) (6,798) (29,579) (i) Group losses not previously recognised in the Parent entity. Estimated deferred tax assets attributable to tax losses not recognised in the ﬁ nancial statements of $14.50 million (2008: $19.09 million) that are available indeﬁ nitely for offset against future taxable proﬁ ts of the companies in which the losses arose. At 30 September 2009, there is no recognised or unrecognised deferred income tax liability (2008: $Nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, associates or joint venture, as the Group has no liability for additional taxation should these amounts be remitted. Tax Consolidation Elders and its 100% owned subsidiaries are in a tax consolidated group. Members of the group have entered into a tax sharing arrangement in order to allocate income tax expense to wholly owned subsidiaries. Wholly owned Australian subsidiaries are required to make contributions to the head entity for tax liabilities and deferred tax balances arising from external transactions occurring after the implementation of tax consolidations. The contributions are calculated as a percentage of taxable income as if each subsidiary is a stand alone entity. Contributions are payable following payment of the liabilities by Elders. 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 or beneﬁ t. In addition the agreement provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations or upon leaving the Group. The head entity of the tax consolidated group is Elders Limited. 91 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 5. Receivables Current Trade debtors (i) Allowance for doubtful debts Amounts receivable from: - controlled entities - associated entities Finance debtors Allowance for doubtful debts Reinsurance and other recoveries receivable Deferred settlements Other receivables Allowance for non-recovery Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 333,912 421,781 (10,759) 323,153 (7,636) 414,145 - - - - - - - 34,228 34,228 11,965 - 11,965 - 23,194 143,823 (578) 166,439 535,785 - 1,132,565 1,198,435 36,821 36,821 8,667 964 1,141,232 1,199,399 825 - 825 69,689 36,450 78,225 (2,373) 181,991 - - - - 5,750 892 (2) - - - - - 14,266 (2) 6,640 14,264 633,782 1,147,872 1,213,663 Movements in the allowance for doubtful debts – trade debtors Opening balance of allowance for doubtful debts Trade debts written off Trade debts provided for during the year 7,636 (2,185) 5,308 11,082 (4,771) 1,325 Closing balance of allowance for doubtful debts 10,759 7,636 Movements in allowance for non-recovery – other receivables Opening balance of allowance for non-recovery Other receivables written off Other receivables provided for during the year 2,373 (1,795) - 2,638 (304) 39 Closing balance of allowance for non-recovery 578 2,373 Non Current Reinsurance and other recoveries receivable Deferred settlements Other receivables Allowance for non recovery Amounts receivable from associated entities - 5,375 29,974 20,187 180,689 130,525 - - 186,064 130,525 5,375 20,186 46,625 232,689 60,642 241,328 5,808 11,183 5,442 25,628 (i) Included in trade debtors is $76.29 million (2008: $118.19 million) which is subject to credit insurance with various terms and conditions. 92 - - - - 2 - - 2 - 5,375 - - - - - - - - 2 2 - - 20,186 - NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 5. Receivables (continued) Trade receivables are non interest bearing and are generally on 30 to 90 day terms. An allowance for doubtful debts is made when there is objective evidence that a trade receivable is impaired. An allowance of $5.31 million (2008: provision recovery of $1.03 million) has been recognised in the Income Statement for the current year for speciﬁ c debtors for which such evidence exists. These amounts have been measured as the difference between the carrying amount of the trade receivables and the estimated future cash ﬂ ows expected to be received. Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 The ageing analysis of trade debtors is as follows: 0-30 days 273,998 326,229 Trade debtors past due but not considered impaired 31-60 days 61-90 days +91 days Trade debtors past due and considered impaired 31-60 days 61-90 days +91 days 22,087 5,519 21,549 49,155 13 29 10,717 10,759 47,548 6,567 33,801 87,916 - 922 6,714 7,636 Total trade debtors 333,912 421,781 The ageing analysis of other current receivables is as follows: 0-30 days +31 days not past due Other current receivables past due but not considered impaired 31-60 days 61-90 days +91 days Other current receivables past due and considered impaired 31-60 days 61-90 days +91 days 130,655 - 130,655 733 722 11,135 12,590 - - 578 578 31,561 33,616 65,177 - - 10,675 10,675 - - 2,373 2,373 - - - - - - - - - - 890 - 890 - - - - - - 2 2 - - - - - - - - - - - 14,266 14,266 - - - - - - - - Total other current receivables 143,823 78,225 892 14,266 Other balances within trade and other receivables do not contain impaired assets and are not past due. It is expected that these other balances will be received when due. Due to the short term nature of these receivables, their carrying value is assumed to approximate their fair value. For terms and conditions relating to related party receivables refer to note 34. Details regarding the effective interest rate and credit risk of non current receivables are disclosed in note 36. 93 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 6. Livestock Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Current Fair value at start of the period (note 2(h)) Purchases during the year Cost of sales during the year Fair value increment/(decrement) in period Fair value at the end of the period 37,023 55,121 336,486 244,882 (329,822) (261,634) 65 43,752 (1,346) 37,023 At balance date 49,240 head of beef cattle (2008: 41,856) are included in livestock. Note 7. Forestry Non Current Fair value at start of the period (note 2(i)) Purchases during the year Costs incurred in respect of forestry plantations Harvest Fair value increment in period Fair value at the end of the period 25,716 1,474 1 (1,785) 1,608 27,014 21,421 526 829 - 2,940 25,716 - - - - - - - - - - - Physical quantity of forestry plantation timber at the end of the year is 519,639 m3 (2008: 550,000 m3). The fair value methodology for Forestry Assets is detailed in Note 2(i). The assumptions used in the valuation model to determine fair value less point of sale costs are as follows: • CPI 2.5% to 5% (2008: 2.5% to 5%); • Discount rate 9% (2008: 9%); • Period to harvest – between 2 to 12 years depending upon year of establishment and current harvest schedule for the individual property; and • Current woodchip FOB price $207.40 per bone dry metric tonne (BDMT) (2008: $207.40). Note 8. Inventories Current Raw materials and bulk stores – at net realisable value 47,172 64,884 Work in progress – at cost 1,229 32,504 Finished goods – at net realisable value – at fair value less cost to sell (i) 177,123 - 270,689 28,769 177,123 299,458 225,524 396,846 - - - - - - (i) The Group’s commodities are measured at fair value less costs to sell. Inventory write-downs recognised as an expense totalled $9.06 million (2008: $2.82 million) for the Group and $Nil for the parent entity (2008: $Nil). - - - - - - - - - - - - - - - - - 94 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 9. Derivative Financial Instruments Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Current Asset Forward exchange contracts 7,820 706 - - Non Current Liability Forward exchange contracts 49,924 52,366 38,143 51,456 Derivative ﬁ nancial instruments are used by the Group in the normal course of business in order to hedge exposure to ﬂ uctuations in interest and foreign exchange rates. For ﬁ nancial risk management policies of the Group, refer to note 36. Note 10. Other Financial Assets Non Current Unlisted investments Other entities, at cost (i) Controlled entities, at cost (i) Provision for diminution 17,549 27,332 60 60 - - - - 382,845 212,847 (8,315) (8,315) 17,549 27,332 374,590 204,592 (i) These investments are measured at cost less impairment as fair value cannot be reliably measured, due to the equity instruments not being traded in a liquid market environment. 95 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 11. Investments in Associates and Joint Ventures Associates * - listed - unlisted Investment in Joint ventures: - unlisted Contribution to net proﬁ t / (loss) for Associates: - listed - unlisted Contribution to net proﬁ t / (loss) for Joint ventures: - unlisted Aggregate Associate or Joint Venture contribution to net proﬁ t/(loss) is attributable to: - Continuing Operations - Discontinued Operations Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 49,031 226,341 275,372 7,852 283,224 (2,434) (15,765) (18,199) 17,502 (697) 3,766 (4,463) (697) 342,790 169,647 512,437 182,055 694,492 13,596 18,760 32,356 18,880 51,236 51,236 - 51,236 - 75,562 75,562 - 75,562 - - - - - - - - June 2008 $000 - 3,523 3,523 98,235 101,758 - 1,204 1,204 - 1,204 1,204 - 1,204 * The Group’s investments in Hi-Fert, Aqa Oysters Ltd, Seafood Delicacies Ltd and Kilcoy are held for sale and have therefore been re-classiﬁ ed in the balance sheet to “Non current assets held for sale” for $16.599m. 96 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 11. Investments in Associates and Joint Ventures (continued) (a) Interests In Associates (i) Details of material interests in associated entities are as follows: Name of Associate Principal activity of Associate Balance date of Associate Ownership Interest Consolidated Entity Investment Sept 2009 % June 2008 % Sept 2009 $000 June 2008 $000 Air International Thermal (US) Holdings Inc (i) Automotive Air International Thermal (Belgium) NC (ii) Automotive Futuris Automotive Interiors (Anhui) Company Ltd (iii) (a) Automotive MCK Holdings Pty Ltd (Plexicor) (b) Automotive Rural Bank Limited (f) Banking Elders Rural Holdings Limited(iv) Agribusiness 31 Dec 31 Dec 31 Dec 31 Dec 30 Jun 30 Jun Australian Agricultural Company Ltd (c) Beef production 31 Dec AWH Pty Ltd (formerly Australian Wool Handlers Pty Ltd) Wool processing 30 Jun Forest Enterprises Australia Ltd Forestry ELF Pty Ltd (Hi-Fert Pty Ltd) (d) Fertiliser 30 Jun 30 Jun Agricultural Land Trust (formerly Westralia Property Trust) Webster Ltd (e) iiNet Limited (g) Other – non strategic investments Land management 30 Jun Agribusiness 30 Jun Telecommunications 30 Jun 35 35 70 50 40 50 - 50 27 50 50 - - 35 35 70 50 50 50 43 50 31 50 51 33 22 - - 4,096 - 11,786 12,114 21,819 23,948 148,017 - - - 3,931 126,026 38,224 36,769 32,405 105,149 - 71,436 16,626 20,985 - - 21,164 68,530 6,495 18,289 275,372 512,437 All associates other than (i) to (iv) are Australian resident companies. Air International Thermal (US) Holdings Inc is incorporated in the USA, Air International Thermal (Belgium) NC is incorporated in Belgium, Futuris Automotive Interiors (Anhui) Company Ltd is incorporated in Mauritius and Elders Rural Holdings Limited is incorporated in New Zealand. (a) Futuris Automotive Interiors (Anhui) Company Ltd is considered a jointly controlled entity due to the control provided in the shareholders’ agreement to the minority parties. (b) The consolidated entity has entered into an agreement with MCK Holdings Pty Ltd which includes a put option for the remaining 50% of the equity not held by the Elders Limited Group, contingent on certain events occurring, including the takeover of all or part of the Group. (c) On 14 April 2009 the shares in Australian Agricultural Company Limited (AACo) were sold, resulting in Elders Limited having nil ownership interest in AACo Limited. (d) Hi-Fert Pty Ltd is in the process of being sold, therefore it has been reclassiﬁ ed in the balance sheet to ‘Non current assets classiﬁ ed as held for sale’ and is now stated at lower of cost and fair value less costs to sell. (e) On 19 December 2009 the shares in Webster Limited were sold, resulting in Elders Limited having nil ownership interest in Webster Limited. (f) On 8 May 2009 the Group’s investment in Rural Bank Limited was reduced from 50% to 40%, therefore the nature of the investment has been reclassiﬁ ed from a joint venture to an associate. (g) Investment in iiNet Limited was reduced to nil with the sale of the Group’s Amcom investment. Refer to note 39 for more details. There are impairment losses relating to the following investments in associates that have been taken to account: > Forest Enterprises Australia $66.2m > AWH Pty Ltd $1.149m > Agricultural Land Trust $4.202m > Air International Thermal $9.116m. 97 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 11. Investments in Associates and Joint Ventures (continued) Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 (ii) Share of associates’ proﬁ t or loss (i) Revenue Proﬁ t before income tax Income tax (expense)/beneﬁ t Proﬁ t after income tax Outside minority equity interests Share of net results of associates (iii) Share of associates’ balance sheet Current assets Non current assets Current liabilities Non current liabilities Net assets 363,630 414,231 (18,357) 158 (18,199) - 45,717 (12,882) 32,835 (469) (18,199) 32,366 1,538,921 555,649 462,365 879,233 2,094,570 1,341,598 1,659,588 210,287 1,869,875 224,695 311,593 423,269 734,862 606,736 (iv) Commitments and contingent liabilities Share of associates’ capital expenditure commitments (contracted) 6,451 7,279 Share of associates’ operating lease commitments 19,823 16,846 Share of associates’ contingent liabilities 1,802 - (i) Share of associates’ proﬁ t or loss includes Rural Bank Limited results from May to September 2009. (b) Interests in Joint Ventures (i) Interest in Rural Bank Limited - - - - - - 3,377 3,300 6,677 442 2,712 3,154 3,523 - - - 6,816 1,528 (324) 1,204 - 1,204 3,560 952 4,512 538 147 685 3,827 - - - On 8 May 2009 the Group reduced its shareholding in Rural Bank Limited from 50% to 40%. The Group has sold a 10% stake holding to the other holding party, Bendigo and Adelaide Bank Limited. The Group’s investment in Rural Bank Limited is recorded as an investment in associate for 30 September 2009 (2008: recorded as a joint venture). 98 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 11. Investments in Associates and Joint Ventures (continued) a. Summary of balance sheet of Rural Bank Limited Finance receivables Other assets Total assets Finance deposits Other liabilities Total liabilities Net assets Share of net assets Reconciling items: Dividend Origination fees b. Summary of share of proﬁ t of Rural Bank Limited Proﬁ t before income tax Tax expense Timing variance in origination fees recognised, due to dissimilar accounting policies Share of net results c. Share of commitments and contingent liabilities of Rural Bank Limited (ii) Interest in other joint ventures a. Share of other joint ventures’ balance sheet Current assets Non current assets Current liabilities Non current liabilities Net assets b. Share of other joint ventures’ proﬁ t or loss Revenue Proﬁ t before income tax Income tax expense Share of net results of joint venture c. Share of commitments and contingent liabilities of other joint ventures Consolidated 15 months September 2009 $000 3,631,433 717,578 4,349,011 3,723,836 277,388 4,001,224 347,787 12 months June 2008 $000 3,639,631 676,910 4,316,541 3,729,305 273,216 4,002,521 314,020 139,114 157,010 10,244 (1,341) 148,017 38,884 (11,738) 27,146 576 27,722 1,397 44,833 15,840 60,673 (41,000) - (41,000) 19,673 - - 157,010 29,334 (8,803) 20,531 - 20,531 20 35,461 25,002 60,463 35,257 465 35,722 24,741 378,673 119,596 1,911 (602) 1,309 92 (1,050) (611) (1,661) 442 99 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 12. Property, Plant and Equipment Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Non Current Freehold land – cost Buildings Cost Accumulated depreciation and impairment Leasehold improvements Cost Accumulated amortisation and impairment Plant and equipment (owned) Cost Accumulated depreciation and impairment Plant and equipment (leased) Cost Accumulated amortisation and impairment Livestock Carrier Cost Accumulated depreciation and impairment 11,261 13,727 18,249 (7,576) 10,673 28,020 (13,994) 14,026 30,627 (4,934) 25,693 26,076 (12,493) 13,583 283,639 489,428 (214,384) (281,658) 69,255 207,770 1,547 (520) 1,027 28,789 (24,270) 4,519 8,363 (2,478) 5,885 27,203 (8,378) 18,825 Assets under construction – cost 3,620 27,498 - 11 - 11 - - - 225 - 225 - - - - - - - - 11 - 11 - - - 225 - 225 - - - - - - - Total property, plant and equipment 114,381 312,983 236 236 Refer to note 17 for interest bearing loans and borrowings secured by property, plant and equipment. 100 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 12. Property, Plant and Equipment (continued) Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Freehold land Carrying amount at 1 July Additions Disposals Reversal of impairment Exchange ﬂ uctuations Transfers Carrying amount at period end Buildings Carrying amount at 1 July Additions Disposals Depreciation Impairment Exchange ﬂ uctuation Transfers Carrying amount at period end Leasehold improvements Carrying amount at 1 July Additions Disposals Amortisation Acquisition through entity acquired Impairment Transfers Carrying amount at period end Plant and equipment Carrying amount at 1 July Additions Acquisition through entity acquired Disposals Depreciation Impairment Transfers Exchange ﬂ uctuation Carrying amount at period end Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 13,727 1,652 (2,453) - (13) (1,652) 11,261 25,693 1,378 (9,868) (2,166) (3,140) (127) (1,097) 10,673 13,583 2,755 (2,652) (2,861) - - 3,201 14,026 207,770 12,890 - (130,372) (25,500) (10,171) 14,236 402 15,141 153 (2,036) 989 14 (534) 13,727 25,464 3,648 (6,138) (1,799) - 395 4,123 25,693 17,824 1,677 (334) (2,485) 458 (48) (3,509) 13,583 120,077 26,001 98,854 (13,171) (28,205) (6,334) 9,787 761 - - - - - - - - - - - - - - 11 11 - - - - - - 11 - - - - - - - - - - - - - - 11 25 - - (25) - - - - 225 272 - - - - - - - - - - (47) - - - 69,255 207,770 225 225 101 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 12. Property, Plant and Equipment (continued) Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Leased plant and equipment Carrying amount at 1 July Additions Disposals Transfers Amortisation Carrying amount at period end Livestock Carrier Carrying amount at 1 July Additions Depreciation Impairment Disposals Carrying amount at period end Assets under construction Carrying amount at 1 July Additions Disposals Exchange ﬂ uctuation Impairment Transfers Carrying amount at period end Note 13. Investment Properties Non Current 5,885 330 (4,220) (250) (718) 1,027 18,825 97 (1,923) (12,480) - 4,519 27,498 4,433 (671) 4 (15,604) (12,040) 3,620 8,125 193 (2,316) 561 (678) 5,885 21,176 61 (2,412) - - 18,825 12,641 24,017 (39) 43 (777) (8,387) 27,498 Investment properties as per valuation 283,797 256,417 Investment properties – at fair value Carrying amount at 1 July Transfer from other property, plant, equipment Fair value adjustments, net Impairment adjustment Acquisition of investment properties Disposal of investment properties Foreign exchange variation Carrying amount at period end (a) Amounts recognised in proﬁ t and loss for investment properties Land and Buildings Rental income Direct operating expenses from property that generated rental income Direct operating expenses from property that did not generate rental income 102 256,417 248,257 2,663 10,672 (25,626) 39,975 (985) 681 - 22,324 - 77,810 (92,070) 96 283,797 256,417 286 - - 286 227 - - 227 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 13. Investment Properties (continued) Plantation Land The Group does not separately recognise rental income from plantation land in proﬁ t and loss. This income is embedded within the harvest proceeds from plantations. Therefore it is not possible to provide a deﬁ nitive rental income value and associated direct expenses generated from rental income to disclose. Rental income is not considered to be a signiﬁ cant revenue item. The Plantation Land not yet used to generate income has some immaterial expenses associated with the land. These costs are not separately recorded and therefore cannot be separately identiﬁ ed. (b) Valuation basis The fair value represents the amount at which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date of valuation, in accordance with Australian Valuation Standards. The fair value methodology for plantation land investments is detailed in Note 2(n). The independent land valuation expert is Colliers Jardine using a desktop approach. Plantation Land The assumptions used for the Plantation Land DCF valuation model are as follows: Future Land Price Index CPI Land discount rate (post-tax) Future land rental income Lease period 4.5% (2008: 4.5%) 2.5% (2008: 2.5%) 9% (2008: 9%) Between 0% and 30% of ﬁ nal net harvest proceeds Between 1 and 20 years depending upon the individual property Land and Buildings Land and Buildings have been impaired by $25.6m (2008:nil). The impairment of this property is a direct result of the Board’s decision during the current ﬁ nancial reporting period, to exit the wool processing business in Bremen, Germany. Fair value was determined with reference to advice received from an external sales agent expert engaged in facilitating the sale of this property. In 2008, the fair value was determined based on valuations performed by Robert C Spiess as at 30 June 2007. Robert C Spiess are independent, certiﬁ ed property valuers and developers. 103 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 14. Intangibles Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Non Current Patents, trade marks and licences – (gross carrying amount) Accumulated amortisation and impairment Net carrying amount Goodwill – (gross carrying amount) Accumulated impairment Net carrying amount 3,224 (3,078) 146 12,623 (7,295) 5,328 168,341 225,444 (22,854) 145,487 (17,558) 207,886 Brand names – (gross carrying amount) 60,400 60,519 Development costs, rent roll & other – (gross carrying amount) Accumulated amortisation and impairment Net carrying amount 29,662 (7,175) 22,487 37,242 (4,139) 33,103 Total intangibles 228,520 306,836 Reconciliation of movement: Patents, trade marks and licences As at 1 July Additions Disposal/Transfers Amortisation/Impairment As at period end Goodwill As at 1 July Acquisition of subsidiary Additions Impairment Disposal/Transfers As at period end Brand names As at 1 July Additions Impairment Disposal/Transfers As at period end Development costs, rent rolls and other As at 1 July Additions Disposal /Transfers Amortisation/Impairment As at period end 104 5,328 - (4,310) (872) 146 9,243 - (2,866) (1,049) 5,328 207,886 196,698 - 18,371 (13,380) (67,390) 14,615 8,721 (6,484) (5,664) 145,487 207,886 60,519 60,400 - - (119) 60,400 33,103 1,117 (6,546) (5,187) 22,487 228 (109) - 60,519 21,982 16,754 1,232 (6,865) 33,103 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 14. Intangibles (continued) Refer Note 2 (o) and (p) for the accounting policy in relation to goodwill and other intangible assets. Goodwill acquired through business combinations and acquisitions has been allocated to the respective cash generating unit (CGU) for impairment testing based on a value in use calculation. Impairment tests for goodwill and intangible assets with indeﬁ nite useful lives Goodwill acquired through business combinations and brand names have been allocated to CGU according to business segments and operations within those segments. The carrying amount of goodwill and brand names attributed to each of these cash generating units is as follows: Goodwill Brand Names Rural Services Network Rural Services New Zealand Forestry Timber Other CGU’s Parent: nil (2008: nil) Goodwill September 2009 $000 69,204 17,366 43,764 - 15,153 June 2008 $000 September 2009 $000 June 2008 $000 95,850 60,400 60,400 - 43,764 32,725 35,547 - - - - - - - 119 60,519 145,487 207,886 60,400 Rural Services Network CGU The recoverable amount for Goodwill for Rural Services Network CGU has been determined based on a value in use calculation using cash ﬂ ow projections approved by management that covers a period of 5 years. Future cash ﬂ ows are based on budgets and forecasts taking into account current market conditions and known future business events that will impact cash ﬂ ows. The discount rate applied to the cash ﬂ ow projections is 9.1% pre-tax (2008: 14.5% pre-tax) which has been determined based on a weighted average cost of capital calculation. The calculation of value in use for the Rural Services Network CGU was based on the following key assumptions: Gross margins • General trading conditions for farm supplies are expected to normalise with stable commodity prices and rainfall returning to average seasonal timing; • Rural conﬁ dence is expected to recover in line with strong and improving farmer terms of trade; • Stronger livestock prices are expected consistent with data released by the Australian Bureau of Agricultural and Resource Economics (ABARE); • Real estate activity in both broadacre and residential markets are expected to increase over the forecast period; and • Slight decline in wool earnings with weaker demand resulting from the global economic downturn. Selling, general and administrative expenses • Signiﬁ cant reduction in expenses is expected through restructure initiatives undertaken by management over the 2009 ﬁ nancial year. Growth rate estimates • Growth for years 1-3 is based on a three year forecast incorporating transformation and restructure beneﬁ ts as recently announced in the ‘Agenda for Change’ strategy. These forecasted beneﬁ ts were completed with extensive external consultation and are based on various assumptions for each individual product group within the Rural Services Network; and • The growth rate assumption for years 4 and 5 is 3% based on nominal growth. Discount rates • Discount rates reﬂ ect management’s estimate of the time value of money and the risk speciﬁ c to each unit that are not already reﬂ ected in the cash ﬂ ows. Post tax discount rates have been applied as the entity has substantial tax losses that can be utilised up to year 5. Management has determined there is no impairment in the current year for the Rural Services CGU (2008: $nil). Rural Services New Zealand CGU The recoverable amount for Goodwill for Rural Services New Zealand CGU has been determined based on a value in use calculation using cash ﬂ ow projections approved by management that covers a period of 5 years. Future cash ﬂ ows are based on budgets and forecasts taking into account current market conditions and known future business events that will impact cash ﬂ ows. The discount rate applied to the cash ﬂ ow projections is 9.1% pre-tax (2008: 14.5% pre-tax) which has been determined based on a weighted average cost of capital calculation. 105 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 14. Intangibles (continued) The calculation of value in use for the Rural Services New Zealand CGU was based on the following key assumptions: Gross margins • General trading conditions for farm supplies are expected to normalise with stable commodity prices and rainfall returning to average seasonal timing; • Rural conﬁ dence is expected to recover in line with strong and improving farmer terms of trade; • Real estate activity in both broadacre and residential markets are expected to increase over the forecast period; and • Stable wool prices and volumes throughout the forecast period. Selling, general and administrative expenses • Signiﬁ cant reduction in expenses is expected through restructure initiatives undertaken by management over the 2009 ﬁ nancial year. Growth rate estimates • Growth for years 1 – 3 is based on a three year forecast incorporating transformation and restructure beneﬁ ts identiﬁ ed through a review performed by an external consultant. These initiatives have been substantially implemented by management in 2009; and • The growth rate assumption for years 4 and 5 is 3% based on nominal growth. Discount rates • Discount rates reﬂ ect management’s estimate of the time value of money and the risk speciﬁ c to each unit that are not already reﬂ ected in the cash ﬂ ows. Post tax discount rates have been applied as the entity has substantial tax losses that can be utilised up to year 5. Management has recorded an impairment of $1,001,000 (2008: $nil) for the Rural Services New Zealand CGU. Forestry CGU The recoverable amount for Goodwill for Forestry CGU has been determined based on a value in use calculation using cash ﬂ ow projections approved by management that covers a period of 20 years. Future cash ﬂ ows are based on budgets and forecasts for 2010 and then keeping quantities consistent and increasing sales price and costs by inﬂ ation of 2.5%, after taking into account current market conditions and known business events that will impact future cash ﬂ ows. The discount rate applied to the cash ﬂ ow projections is 12.0% pre-tax (2008: 14.5% pre tax) which has been determined based on a weighted average cost of capital calculation. Management has determined there is no impairment in the current year for the Forestry CGU (2008: $nil). Brand Names The brand name value represents the value attributed to the Elders brand when acquired. The carrying amount of the brand name is supported by an independent valuation. An independent valuation was undertaken in June 2005 and was reviewed and conﬁ rmed in June 2009. The recoverable amount for Brand Names for the Rural Services CGU has been determined based on a value in use calculation using cash ﬂ ow projections approved by management. Future cash ﬂ ows are based on budgets and forecasts taking into account current market conditions and known future business events that will impact cash ﬂ ows. The discount rate applied to the cash ﬂ ow projections is 9.1% pre-tax (2008: 14.5% pre-tax) which has been determined based on a weighted average cost of capital calculation. The calculation of value in use for the Rural Services Network CGU was based on the following key assumptions: Gross margins • General trading conditions for farm supplies are expected to normalise with stable commodity prices and rainfall returning to average seasonal timing; • Rural conﬁ dence is expected to recover in line with strong and improving farmer terms of trade; • Stronger livestock prices are expected consistent with data released by the Australian Bureau of Agricultural and Resource Economics (ABARE); • Real estate activity in both broadacre and residential markets are expected to increase over the forecast period; and • Slight decline in wool earnings with weaker demand resulting from the global economic downturn. Selling, general and administrative expenses • Signiﬁ cant reduction in expenses is expected through restructure initiatives undertaken by management over the 2009 ﬁ nancial year. Growth rate estimates • Growth for years 1 – 3 is based on a three year forecast incorporating transformation and restructure beneﬁ ts as recently announced in the ‘Agenda for Change’ strategy. These forecasted beneﬁ ts were completed with extensive external consultation and are based on various assumptions for each individual product group within the Rural Services Network; and • The growth rate assumption for years 4 and 5 is 3% based on nominal growth. 106 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 15. Other Assets Current Insurance deferred acquisition costs Reinsurance premium ceded Deferred expenses Prepayments Non Current Deferred design and development expenditure - as at 1 July - current period costs Accumulated amortisation Note 16. Payables Current Trade creditors (i) Other creditors and accruals Unearned insurance premium Unearned forestry income Loans from controlled entities (ii) Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 - - 2,063 21,139 23,202 27,019 84,550 1,919 18,790 132,277 53,016 (5,300) 47,716 64,936 (11,920) 53,016 (29,257) (25,958) 18,459 27,058 199,828 145,587 - 17,316 - 458,960 274,905 193,227 39,634 - 362,731 966,726 - - - 632 632 - - - - - - - - - - - - - - - - - 12,667 4,450 - - - - 789,812 802,479 295,529 299,979 (i) Trade and other creditors are non interest bearing and are normally settled on 30 day terms. (ii) Loans from controlled entities are interest bearing based on commercial rates and repayable on demand. Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value. Details regarding the effective interest rate and credit risk of non-current payables are disclosed in note 36. 107 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 17. Interest Bearing Loans and Liabilities Current Secured loans (a) Unsecured loans Lease liabilities (b) Secured notes (a) (d) Non Current Secured loans (a) Unsecured loans Lease liabilities (b) Unsecured notes (c) Secured notes (a) (d) Total Current and Non Current Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 702,419 30,704 1,603 453 149,594 133,006 1,196 - 854,069 164,905 245,064 - 112 - 100,028 345,204 1,199,273 22,107 301,501 6,435 220,614 - 550,657 715,562 - - - 149,594 149,594 - - - - 100,028 100,028 249,622 - - - - - - 100,000 - 220,614 - 320,614 320,614 (a) Secured loans and secured notes are secured by various ﬁ xed and ﬂ oating charges over the assets of the controlled entities concerned. The total assets pledged as security are as follows: Total Current assets Total Non Current assets 930,110 1,366,630 2,296,740 - - - 1,441,604 537,769 1,979,373 - - - (b) Lease liabilities are secured by a charge over the leased assets. (c) For 2008 comparative purposes, unsecured notes are issued in the United States of America ﬁ nancial markets and are denominated in United States dollars. Terms of maturity vary between November 2009 and May 2015. The notes have been swapped into Australian dollars as noted in Note 36(g). (d) Secured notes are issued in the United States of America ﬁ nancial markets and are denominated in United States dollars. Refer to (h) below for further information. (e) The carrying amount of the Group’s current and non current borrowings are held at their fair value. (f) During the current and prior years, there were no defaults or breaches of any of the loans. (g) Details regarding the liquidity, effective interest rate and credit risk of interest bearing liabilities are disclosed in note 36. 108 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 17. Interest Bearing Loans and Liabilities (continued) (h) Financing arrangements. The Group has access to the following ﬁ nancing facilities with a number of ﬁ nancial institutions. Consolidated Parent Maturity Accessible $000 Drawn $000 Unused $000 Accessible $000 Drawn $000 Unused $000 2009 Secured Loans Tranche A1 Term Loan Sep ‘12 127,214 127,214 Tranche B1 Asset Sales Bridge Sep ‘10 344,737 344,737 - - - - 316,272 316,272 116,777 116,777 35,000 28,105 19,414 23,069 15,586 5,036 968,105 947,483 20,622 - - - - - - - - - - - - - - 19,366 37,919 14,450 28,293 78,018 71,576 30,691 19,366 37,919 14,450 28,293 78,018 71,576 30,691 280,313 280,313 Nov ‘14 (30,691) (30,691) 249,622 249,622 2,168 2,168 - - - - - - - - - - - 19,366 37,919 14,450 28,293 78,018 71,576 30,691 19,366 37,919 14,450 28,293 78,018 71,576 30,691 280,313 280,313 (30,691) (30,691) 249,622 249,622 - - 1,219,895 1,199,273 20,622 249,622 249,622 Oct ‘09 Mar ‘11 Mar ‘11 Various Nov ‘14 May ‘15 Nov ‘14 May ’15 Sep ‘10 Nov ‘09 Nov ‘14 Tranche C1 Equity Bridge Tranche D1 Revolver Tranche D2 Ancillary Other Secured Notes - Tranche A2 – Series A - Tranche A2 – Series B - Tranche A3 – Series C - Tranche A3 – Series D - Tranche B2 – Series F - Tranche C2 – Series G - Tranche A4 – Series D Costs to be amortised over the period of the loan Other unsecured loans and lease liabilities Total 2008 Multi-option facilities 975,000 428,502 546,498 100,000 100,000 Other 84,046 58,811 25,235 - - 1,059,046 487,313 571,733 100,000 100,000 Unsecured Notes - November 2009 - November 2014 - May 2015 48,294 30,184 48,294 30,184 142,136 142,136 220,614 220,614 - - - - 48,294 30,184 48,294 30,184 142,136 142,136 220,614 220,614 • Tranches B1, C1, B2 & C2 are to be repaid from asset sales and equity proceeds; and • Tranches A2, A3 & A4 maturities are subject to “Note Holder Put Rights” to September 2012. For 2008 • $100 million of the multi option facilities are provided on a ﬁ ve year bullet basis with ability to refresh (current maturity December 2012) and are subject to compliance with various banking covenants; • $475 million of the multi option facilities are provided on a three year evergreen basis with annual review/extension (current maturity December 2010) and are subject to compliance with various banking covenants; • $400 million of the multi option facilities are provided on a 364 day evergreen basis with biannual review/extension (current maturity June 2009) and are subject to compliance with various banking covenants. A further $100 million is available for leasing, contingent instruments, and other facilities; and • $100.8 million being the balance of the facilities are provided to controlled entities on varying terms. 109 - - - - - - - - - - - - - - - - - - - - - - - - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 18. Provisions Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Employee entitlements (a) As at 1 July Arising during year Utilised Unused amounts reversed Discount rate adjustment As at Period End Insurance claims (b) As at 1 July Arising during year Utilised or disposed of Unused amounts reversed Discount rate adjustment As at Period End Warranty (d) As at 1 July Arising during year Utilised Unused amounts reversed As at Period End Restructuring (e) As at 1 July Arising during year Utilised As at Period End Redundancy (g) As at 1 July Arising during year Utilised Unused amounts reversed As at Period End Make good provision (c) As at 1 July Arising during year Utilised Discount rate adjustment As at Period End Other (f) As at 1 July Arising during year Utilised Unused amounts reversed As at Period End 110 67,559 35,111 (38,619) (753) 241 63,539 71,312 20,525 (20,770) (2,880) (628) 67,559 191,285 401,671 184,357 216,419 (362,885) (208,778) (234,370) 4,299 - (713) - 191,285 2,722 1,866 (1,187) (1,159) 2,242 6,889 57,086 (27,796) 36,179 917 3,353 (1,806) (464) 2,000 5,977 3,234 (2,248) (4,261) 2,722 4,811 7,242 (5,164) 6,889 2,319 1,027 (2,429) - 917 6,306 5,532 137 (14) 599 404 - 546 7,028 6,306 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 23,607 13,414 18,436 21,790 (26,175) (12,579) (1,431) 9,415 (4,040) 23,607 6,450 2,887 (7,099) - 2,238 7,000 6.450 (6,456) (544) 6,450 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 18. Provisions (continued) Total Current Total Non Current Consolidated Parent September 2009 $000 107,197 13,206 120,403 June 2008 $000 208,136 91,149 299,285 September 2009 $000 2,238 - 2,238 June 2008 $000 6,450 - 6,450 (a) All employee entitlements for parent entity employees are recognised in a controlled entity’s balance sheet. (b) The weighted average term to settlement from balance date of outstanding claims is expected to be less than 12 months. Refer to note 26 for more details about Insurance activities for the Group. On 30 September 2009, the Insurance business was sold, therefore there is no Insurance Claim provision. Refer to Note 39 for more details. (c) A make good provision is recorded at the commencement of a lease or operation being the present value of restoration obligations, while the cost of future restoration is capitalised as part of the asset. The capitalised cost is depreciated over the life of the lease or project and the provision is increased as the discounting of the liability unwinds. (d) A provision is recognised for expected warranty claims on products sold during the last ﬁ ve years, based on past experience of the level of repairs and returns. It is expected that most of these costs will be incurred in the next ﬁ nancial year and all will have been incurred within two years of the balance sheet date. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the two-year warranty period for all products sold. (e) The restructuring provision relates to the Group’s exit from its wool processing and trading operations (BWK). This provision was recognised on announcement of the exit strategy in December 2008. The most signiﬁ cant part of the restructure, being the exit of the operation in Germany and Turkey, is expected to be substantially completed by June 2010. (f) The remaining provision balance in ‘other’ includes provision for onerous leases ($5.3m), legal claims ($1.3m) and other items. (g) The redundancy provision relates to redundancies communicated to staff during the year and that will be paid by December 2009. 111 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 19. Contributed Equity Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Issued and paid up capital 819,165,045 ordinary shares (2008: 780,545,644) 737,513 694,118 737,513 694,118 Movements during year: September 2009 June 2008 Opening balance, 1 July Conversion of options Issued capital, employee share plan Employee Bonus Shares Dividends underwritten Dividend reinvestment plan Convertible notes converted Closing balance Number $000 Number $000 780,545,644 694,118 735,640,128 608,493 - - 345,752 23,812,167 14,461,482 - - 446 26,879 16,070 1,387,500 5,746,830 - 24,609,680 12,757,050 - - 404,456 819,165,045 737,513 780,545,644 2,415 11,453 - 46,815 23,988 954 694,118 Effective 1 July 1998, the Corporations legislation abolished the concepts of authorised capital and par value shares. Accordingly the Company does not have authorised capital nor par value in respect of its issued capital. Capital management When managing capital, management’s objective is to ensure the entity continues as a going concern as well as to maintain optimal returns to shareholders and beneﬁ ts for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the entity. Management are constantly adjusting the capital structure to take advantage of favourable costs of capital or high returns on assets. As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. In accordance with the APRA requirements of Elders Insurance Limited, there was an imposed Minimum Capital Requirement (“MCR”) of 150%, Management had a target MCR of 175%, and managed capital to that level by paying dividends or obtaining capital from the parent (Refer to Note 2). Management monitored the achievement of the MCR Management Target on a monthly basis, in addition the calculation was incorporated into the Budget and was monitored as part of that budgeting process. During the year the MCR at all times exceeded 150%. With the sale of Elders Insurance Limited this is no longer a requirement for the Elders Limited Group. Note 20. Hybrid Equity Hybrid equity Issued and fully paid up Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 145,151 145,151 145,151 145,151 1,500,000 perpetual, subordinated, convertible unsecured notes (“Hybrids”) were issued in April 2006 at $100 each. If the Board resolves to pay them, distributions will be paid quarterly in arrears on 31 March, 30 June, 30 September and 31 December each year. Distributions are frankable. Until 30 June 2011 (the ﬁ rst remarking date) the distribution rate will be the 3 month bank bill swap rate plus a margin of 2.20% pa. On a remarking date, Elders has discretion to either redeem the Hybrid for cash or convert the Hybrid into ordinary shares. Alternatively, Elders can accept a one-off step up of 250 bps in margin or pursue a remarking process to set a new margin. Elders’ current restructured ﬁ nancing arrangements restricts Elders from paying distributions on Elders Hybrids until and including 30 September 2011. 112 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 21. Reserves Business combination reserve: Opening balance, 1 July Arising during the year Closing balance Employee equity beneﬁ ts reserve: Opening balance, 1 July Current year share option expense Current year share plan expense Other share plan transfers Closing balance Foreign currency translation reserve: Opening balance, 1 July Currency translation differences Currency translation differences realised Closing balance Net unrealised gains reserve: Opening balance, 1 July Application of AASB 132 and 139 Cash ﬂ ow hedge reserve Closing balance Share of reserve for losses in joint venture: Opening balance, 1 July Current year movement Closing balance Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 27,501 (38,159) (10,658) - 27,501 27,501 (23,605) (24,780) (1,378) 8,734 2,048 734 1,715 (1,274) (14,201) (23,605) (4,747) (503) 307 (8,362) 3,541 74 (4,943) (4,747) 3,907 (12,425) 2,122 (6,396) 13,134 (7,701) 5,433 492 3,618 (203) 3,907 10,242 2,892 13,134 - - - 2,622 (1,479) 8,415 175 9,733 - - - - 9,641 (12,397) 3,007 251 - - - - - - 2,426 434 88 (326) 2,622 (74) - 74 - 2,003 - 7,638 9,641 - - - Total Reserves (30,765) 16,190 9,984 12,263 Nature and purpose of reserves: Business combination reserve This reserve is used to record fair value adjustments to those assets acquired by the Group in a business combination. Employee equity beneﬁ ts reserve This reserve is used to record the value of equity beneﬁ ts (both options and share loans) provided to employees and Directors as part of their remuneration. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the ﬁ nancial statements of foreign subsidiaries. It is also used to record the effect of hedging net investments in foreign operations. Net unrealised gains reserve This reserve records fair value changes on available-for-sale investments and the portion of the gain or loss on a hedging instrument in a cash ﬂ ow hedge that is determined to be an effective hedge. Share of reserve for losses in joint venture Rural Bank (RB) has APRA reporting requirements for a general provision for credit losses to be recognised directly in equity. The Group therefore is required to recognise the proportionate interest in RB’s reserve for credit losses directly in equity. 113 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 22. Retained Earnings Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 Retained earnings at the beginning of the ﬁ nancial year 353,991 403,063 100,409 Net proﬁ t/(loss) attributable to members Dividends provided for or paid Movements in equity (refer to Statement of Changes in Equity) (466,426) (51,153) 5,576 36,447 (82,627) (2,892) (59,158) (51,153) - June 2008 $000 71,011 109,976 (80,578) - Retained earnings at the end of the ﬁ nancial year (158,012) 353,991 (9,902) 100,409 Note 23. Dividends a) Dividends proposed No ﬁ nal dividend will be paid (2008: 5.5¢ per share, fully franked) b) Dividends paid during the year Current year interim - No interim dividend will be paid (2007: 4¢ per share, partly franked) Previous year ﬁ nal - fully franked dividend of 5.5¢ per share (2007: 5¢ per share, fully franked) Hybrid distribution fully franked Subsidiary Equity dividends on ordinary shares: Dividends paid to external parties during the year - B&W Rural Pty Ltd fully franked dividend paid 31 October 2008 of $4,460 per share - Killara Feedlot Pty Ltd unfranked dividend paid 26 August 2008 of 0.2¢ per share - Killara Feedlot Pty Ltd unfranked dividend paid 17 February 2009 of $0.17 per share - Amcom fully franked dividend paid November 2007 of 0.5¢ per share and paid April 2008 of 0.3¢ per share - - 42,930 30,515 - - 42,930 30,515 42,949 40,284 42,949 40,284 8,204 51,153 9,779 80,578 8,204 51,153 9,779 80,578 2,186 107 905 - 54,351 - - - 2,049 82,627 - - - - - - - - 51,153 80,578 Elders’ current restructured ﬁ nancing arrangements restricts Elders from paying dividends on shares until after 31 March 2012. c) Franking credit balance Franking credits available for subsequent ﬁ nancial years based on tax rate of 30% (2008: 30%) Parent September 2009 $000 Parent June 2008 $000 15,790 22,501 The above amounts represent the balance of the franking account as at the end of the ﬁ nancial year, adjusted for: (a) franking credits that will arise from the payment of the amount of the provision for income tax; (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date; (d) franking credits that may be prevented from being distributed in subsequent ﬁ nancial years; and (e) franking credits that have been added to the Parent due to the acquisition of Integrated Tree Cropping Ltd. The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of: 114 - (18,399) NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 24. Minority Interests Minority interests comprise interests in the following items: Contributed equity Retained earnings Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 13,332 (5,560) 7,772 58,323 28,403 86,726 - - - - - - Note 25. Notes to Cash Flow Statement (a) Reconciliation of net proﬁ t /(loss) after tax to net cash ﬂ ows from operations Proﬁ t after income tax expense (466,426) 36,447 (59,158) 109,976 Depreciation and amortisation Share of associates and joint venture (proﬁ t) Dividends from associates Dividend received as DRP Dividend from controlled entities Interest income from controlled entities Fair value adjustments to ﬁ nancial assets Impairment of assets Movement in provision for: - doubtful debts - employee entitlements - other provisions Other write downs Deferred tax asset Deferred income tax Provision for tax Net (proﬁ t)/loss on sale of non-current assets Net (proﬁ t)/loss on sale of controlled entity Cost of share based payments Other non cash items Operational cash ﬂ ow generated Change in operating assets and liabilities net of effects of acquisitions and disposals of entities and the consolidation of controlled entities: - (Increase)/decrease in receivables and other assets - (Increase)/decrease in inventories - Increase/(decrease) in payables and accruals Net cash ﬂ ows from operating activities 45,542 697 19,900 (7,703) - - 42,584 (51,236) 33,527 - - - - - 14,749 - - 72 (1,204) 12,085 - (143,000) (24,763) (20,509) (18,853) (26,094) 2,282 (783) 99,928 21,955 5,065 10,937 33,179 220,406 (35,862) 15,384 15,105 (41,563) (82,546) 7,548 7,335 (3,711) (4,492) 11,014 - (635) (4,063) (29,341) 2,369 18,525 2,449 7,429 - - - 2,169 - - - - - (6,358) 8,587 (9,774) - - - (550) - (29,234) (2,258) (38,026) - - 522 (7,812) (171,927) 56,727 (72,266) (120,721) (150,184) (136,640) 23,434 26,378 93,277 (294,492) (523,326) (12,395) 78,214 (14,094) - (17,973) (66,805) - (7,368) (101,711) 115 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 25. Notes to Cash Flow Statement (continued) (b) Non cash ﬁ nancing and investing activities During the ﬁ nancial year the following non-cash transactions occurred. These transactions are not reﬂ ected in the cash ﬂ ow statement: • the issue of 14,461,482 ordinary shares for the value of $16.1 million under the terms of the dividend reinvestment plan (2008: 12,757,050 ordinary shares for $24.0 million); and • no receivables were settled by way of conversion into an equity interest in 2009 (2008: nil). Cash and Cash Equivalents Cash at bank and in hand Short-term deposits Consolidated Parent 15 months September 2009 $000 12 months June 2008 $000 15 months September 2009 $000 12 months June 2008 $000 367,868 244,043 293,100 42,162 - - - - 367,868 244,043 293,100 42,162 Cash at year end includes $nil (2008: $158.15 million) of insurance cash, the use of which is subject to restrictions in accordance with the Insurance Act and the Insurance (Agents and Brokers) Act. Cash also includes $0.54 million (2008: $17.31 million) of cash held in trust on behalf of certain controlled entities. Note 26. Results of Insurance Activities The summary of ﬁ nancial position below reﬂ ects the contribution to the Group of the general insurance activities of Elders Insurance Limited (EIL). EIL was a wholly owned entity of the parent entity and was subject to prudential supervision by the Australian Prudential Regulatory Authority until its disposal on 30 September 2009. Proﬁ t from ordinary activities includes the following results from general insurance activities: Direct premium revenue Outward reinsurance premiums Claims expense Reinsurance and other recoveries Claims handling costs Net claims incurred (a) Underwriting expenses - Amortisation of deferred acquisition costs - Recurring acquisition costs - Other underwriting costs Other underwriting revenue Net underwriting result Investment revenue General and administration expenses Proﬁ t from ordinary activities before income tax Income tax (expense) Net proﬁ t 116 535,451 339,037 (241,326) (145,893) 294,125 193,144 (399,220) (243,975) 213,839 121,432 (9,323) (6,438) (194,704) (128,981) (104,843) (25,737) (6,326) (64,254) (15,495) (3,279) (136,906) (83,028) 54,918 17,433 12,510 (17,521) 12,422 (4,527) 7,895 35,709 16,844 11,886 (12,801) 15,929 (4,880) 11,049 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 26. Results of Insurance Activities (continued) (a) Net claims incurred comprises: September 2009 June 2008 Current Year $000 Prior Year $000 Total $000 Current Year $000 Prior Year $000 Total $000 Gross claims incurred and related expenses -undiscounted Reinsurance and other recoveries - undiscounted (440,693) 35,305 (405,388) (279,792) 27,086 (252,706) 227,696 (15,308) 212,388 133,677 (10,371) 123,306 Net claims incurred – undiscounted (212,997) 19,997 (193,000) (146,115) 16,715 (129,400) Discount and discount movement - gross claims Discount and discount movement 9,070 (12,225) (3,155) 9,409 (7,116) 2,293 - reinsurance and other recoveries (5,078) 6,529 1,451 (5,004) 3,130 (1,874) Net discount movement 3,992 (5,696) (1,704) 4,405 (3,986) 419 Total direct claims incurred (209,005) 14,301 (194,704) (141,710) 12,729 (128,981) Process for Determining Risk Margin The overall risk margin was determined allowing for diversiﬁ cation between different APRA business classes and the relative uncertainty of the outstanding claims estimate for each class. Uncertainty was analysed for each class taking into account potential uncertainties relating to the actuarial models and assumptions, the quality of underlying data used in the models, the general insurance environment and the impact of legislative reform. The assumptions regarding uncertainty for each class were applied to the net central estimates and the results were aggregated, allowing for diversiﬁ cation in order to arrive at an overall provision which is intended to have a 90% probability of sufﬁ ciency. Risk Margins Applied (Net of Diversiﬁ cation) Long Tail Classes Short Tail Classes Overall Margin Allowing for Diversiﬁ cation September 2009 % June 2008 % 16.5 8.9 12.0 27.1 15.0 19.9 117 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 27. Expenditure Commitments Lease Commitments Finance leases: - not later than one year - later than one year but not later than ﬁ ve years - later than ﬁ ve years Minimum lease payments Future ﬁ nance charges Lease liabilities Disclosed in the ﬁ nancial statements as: - current (note 17) - non current (note 17) Operating leases: - not later than one year - later than one year but not later than ﬁ ve years - later than ﬁ ve years Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 495 116 - 611 (46) 565 453 112 565 1,520 7,047 - 8,567 (936) 7,631 1,196 6,435 7,631 - - - - - - - - - - - - - - - - - - 74,387 176,758 134,145 385,290 66,740 167,936 132,931 367,607 556 1,390 - 1,946 574 2,297 2,871 5,742 The Group has ﬁ nance leases and hire purchase contracts for various items of plant and machinery with a carrying amount of $1.03 million (2008: $5.89 million). These lease contracts expire within 1 to 4 years. The leases have terms of renewal but no purchase options and escalation clauses. Renewals are at the option of the speciﬁ c entity that holds the lease. The Group leases the majority of its branch networks and capital city properties under operating leases. The lease commitments comprise base amounts adjusted where necessary for escalation clauses primarily based on inﬂ ation rates. Leases generally provide the Group with a right of renewal at the end of the lease term. The extent of lease commitments is a factor that is considered in the calculation of certain borrowing covenants. Capital Expenditure Commitments Capital expenditure contracted for but not otherwise provided for in these accounts: - not later than one year - later than one year but not later than ﬁ ve years - over ﬁ ve years 14,649 38,878 - - - - 14,649 38,878 - - - - - - - - 118 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 28. Contingent Liabilities Contingent liabilities at balance date, not otherwise provided for in these ﬁ nancial statements, are as follows: Claims lodged for damages resulting from the use of products or services (e) Discounted Trade Bills Guarantees issued to third parties arising in the normal course of business 797 - 67,830 68,627 3,258 550 93,881 97,689 - - - - 67,830 67,830 93,881 93,881 Unquantiﬁ able contingent liabilities (a) The Group has contingent obligations in respect of leased premises, which have been sub-let to associated entities. (b) The Group has provided a guarantee for the performance of an associated entity under a lease agreement. (c) Beneﬁ ts are payable under service agreements with executive directors and ofﬁ cers of the Group under certain circumstances such as termination or achievement of prescribed performance hurdles. (d) There have been various legal claims lodged for damages resulting from the use of products or services of the Group for which no provision has been raised as it is not currently probable that these claims will succeed and it is not practical to estimate the potential effect of these claims. The directors’ are of the view that none of these claims are likely to be material. (e) ITC Project Management Ltd (“ITCPM”) is the responsible entity of the ITC Group’s forestry management investment schemes. ITCPM has established a large plantation estate in central Queensland which has been impacted by a fungal disease which causes tree mortality and growth impairment. The impacted plantations have been established as part of various schemes promoted between 2000 and 2007. The directors are unable at this point to quantify the ﬁ nancial effect that the disease may have on Elders and are undertaking further review and analysis. Other contingent liabilities (a) The consolidated entity has entered into an agreement with MCK Holdings Pty Ltd which includes a put option for the remaining 50% of the equity of Plexicor not held by the Elders Limited Group, contingent on certain events occurring, including the takeover of all or part of the Group. If the put option is exercised, the purchase price would be approximately $27 million and the Elders Limited Group would become responsible for Plexicor’s $70 million debt. (b) As previously disclosed the Group has received amended income tax assessments from the Australian Taxation Ofﬁ ce (“ATO”) relating to three separate matters which are disputed. The ﬁ rst matter relates to the capital gain arising on the disposal of the Group’s interest in its Building Products division in October 1997. The Group has appealed the amended assessments increasing the capital gain. Management consider the current provisioning in relation to this matter to be adequate and will vigorously defend the assessments through the appeal process. The second matter relates to the utilisation of a capital loss arising on the disposal of the Elders wool handling business in 1998 and utilised during the years 1998 to 2003. The amended assessments deny the capital loss. The Group continues to be of the view that current provisioning is adequate in respect of these assessments. The Group is conﬁ dent of the position it has adopted and intends to defend vigorously the losses claimed. The third matter relates to the utilisation of losses arising from the funding activities of the Group’s in-house ﬁ nancier. The amended assessments are attributable to the 2003 year denying the losses claimed. A provision has been raised against this potential exposure. The Group is conﬁ dent of the position it has adopted and intends to defend vigorously the deductions claimed Other guarantees (a) As disclosed in Note 32, the parent entity has entered into a Deed of Cross Guarantee with certain controlled entities. The effect of this Deed is that Elders Limited and each of these controlled entities has guaranteed to pay any deﬁ ciency of any of the companies party to the Deed in the event of any of those companies being wound up. (b) The parent entity and certain entities in the Group are parties to various guarantees and indemnities pursuant to bank facilities and operating lease facilities extended to the Group and commitments under the convertible and unsecured notes. Other matters On 28 October 2009 the Australian Competition and Consumer Commission (ACCC) issued a Statement of Issues in relation to the proposed sale of ITC Timber Pty Ltd, an entity which holds Elders’ hardwood timber processing operations as well as its 50% stake in Smartﬁ bre Pty Ltd to Gunns Limited. The ACCC has raised issues of concern with a small part of the overall transaction. The ACCC has also identiﬁ ed other issues which may be of concern and which require further analysis. Elders intends to work with Gunns to address all the issues identiﬁ ed by the ACCC and is conﬁ dent that a transaction with Gunns can be completed. Gunns have provided an “in principle” agreement to acquire those assets to which the ACCC gives ﬁ nal approval. In the event the entire transaction was not to proceed, total assets of $152 million and total liabilities of $14.2 million would need to be consolidated into the Group’s balance sheet as at 30 September 2009 and the receivable for the sale proceeds of $96.2 million would be eliminated. The loss on sale of $4.2 million including costs (after impairments of $40.0 million) would also not be recognised. 119 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 29. Segment Information The Group is organised and managed separately according to the nature of the products and services provided. The consolidated entity comprises the following distinguishable components; Rural Services, Financial Services, Forestry, Automotive Components and Investment & Other. Rural Services include the provision of a range of agricultural products and services through a common distribution channel. Financial Services include the provision of a range of ﬁ nancial services through a common distribution channel and the associate Rural Bank. Forestry includes the Group’s interests in forestry plantations and processing. Automotive Components include the manufacturing and sales of Automotive components of which the key components are seating, heating ventilating and air-conditioning systems. The Investment & Other segment includes the general investment activities not associated with the other business segments and the administrative corporate ofﬁ ce activities. Segment results have been determined on a consolidated basis and represent the earnings before corporate net borrowing costs and income tax expense. The Group operates predominantly within Australia. All other geographical operations are not material to the ﬁ nancial statements. Business Segments 15 months September 2009 External sales Other revenue Share of net proﬁ t/(loss) of associates Total revenue Underlying EBIT Signiﬁ cant items Segment Result Earnings before interest, tax, depreciation & amortisation Rural (i) Services $000 Financial Services Forestry Automotive Components Investment & Other Total $000 $000 $000 $000 $000 2,664,984 322,612 211,416 333,020 8,051 3,540,083 41,807 229,194 (27,513) 19,954 (4,650) 258,792 (724) 27,722 (2,668) (25,986) 959 (697) 2,706,067 579,528 181,235 326,988 4,360 3,798,178 8,804 23,733 5,943 (15,057) (10,642) 12,781 (295,800) 139,181 (106,566) (44,348) (81,603) (389,136) (286,996) 162,914 (100,623) (59,405) (92,245) (376,355) (268,596) 164,023 (94,040) (39,974) (92,226) (330,813) Depreciation & amortisation (18,400) (1,109) (6,583) (19,431) (19) (45,542) Segment Result (286,996) 162,914 (100,623) (59,405) (92,245) (376,355) Corporate net interest expense Proﬁ t from ordinary activities before tax Segment assets Unallocated assets (including tax assets) Segment liabilities Unallocated liabilities (including tax liabilities) (89,975) (466,330) 842,055 166,692 726,160 194,279 129,129 2,058,315 - - - - - 482,908 358,995 11,428 30,718 61,174 70,744 533,059 - - - - - 1,306,505 Carrying value of equity investments 48,972 148,017 32,505 33,582 20,148 283,224 Acquisition of property, plant & equipment, intangible assets and other non current assets, including design and development Non cash expenses other than depreciation and amortisation Proﬁ t/(loss) on sale of investments and controlled entities 120 17,201 15,984 45,816 10,259 54 89,314 263,664 (2,038) 65,881 16,453 21,234 365,194 41,041 137,986 (42,932) (7) (14,346) 121,742 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 29. Segment Information (continued) Business Segments 12 months June 2008 $000 $000 $000 $000 $000 $000 Rural Services Financial Services Forestry Automotive Components Investment & Other Total External sales Other revenue Share of net proﬁ t (loss) of associates Total revenue Underlying EBIT Signiﬁ cant items Segment Result 2,472,331 218,534 191,344 384,241 45,665 3,312,115 13,965 9,460 49,909 20,531 27,714 12,200 21,374 2,269 19,796 132,758 6,776 51,236 2,495,756 288,974 231,258 407,884 72,237 3,496,109 57,537 22,407 61,351 26,168 4,250 171,713 (36,668) - 87 - (41,148) (77,729) 20,869 22,407 61,438 26,168 (36,898) 93,984 Earnings before interest, tax, depreciation & amortisation 36,201 23,019 66,634 42,268 (31,554) 136,568 Depreciation & amortisation (15,332) (612) (5,196) (16,100) (5,344) (42,584) Segment Result 20,869 22,407 61,438 26,168 (36,898) 93,984 Corporate net interest expense Proﬁ t from ordinary activities before tax Segment assets Unallocated assets (including tax assets) Segment liabilities Unallocated liabilities (including tax liabilities) (56,909) 37,075 1,190,632 711,580 734,380 258,719 371,892 3,267,203 - - - - - 148,714 583,383 465,782 71,337 96,071 101,803 1,318,376 - - - - - 811,549 Carrying value of equity investments 296,771 156,943 106,202 40,239 94,337 694,492 Acquisition of property, plant & equipment, intangible assets and other non current assets, including design and development Non cash expenses other than depreciation and amortisation Proﬁ t/(loss) on sale of investments 67,104 28,333 88,601 17,145 40,880 242,063 16,852 (1,816) 9 - - - (6,540) 2,446 12,767 - - (1,816) (i) The proﬁ t made by Rural Services as a result of providing distribution services to the Insurance Division during the 15 month period to 30 September 2009 has been treated as continuing in the Rural Services segment. This is because Rural Services will continue to receive part of this income as reimbursements for distribution costs under the new joint venture arrangement. 121 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 30. Supplementary Statement of Net Debt by Segment (a) Statement of Net Debt 15 months September 2009 Rural Services $000 Financial Services Forestry Automotive Components Investment & Other Total $000 $000 $000 $000 $000 Earnings before interest & tax (286,996) 162,914 (100,623) (59,405) (92,245) (376,355) Depreciation and amortisation Equity accounted earnings Dividends received from associates Dividends received under DRP Proﬁ t/(loss) on sale of property, plant & equipment Proﬁ t/(loss) on sale of investments Proﬁ t/(loss) on sale of controlled entities Proﬁ t on sale of investment properties Interest (net) Tax (paid)/refund Share based payments Impairment losses and write downs Fair value adjustments on ﬁ nancial assets Provisions and other Operating cash ﬂ ow before movements in working capital 18,400 724 940 (7,703) (2,570) (41,041) - - 224,146 (6,953) 31,025 1,109 (27,722) 14,749 - 5 335 6,583 2,668 3,153 - (5) - (138,321) 42,932 - - - 236 (1,178) 1,332 85 66,200 (10,672) (6,496) 13,739 (16,194) (7,810) (589) 229 19,431 25,986 - - (35) 7 - - 19 45,542 (959) 1,058 - 2 697 19,900 (7,703) (2,603) 1,503 (39,196) 12,843 (82,546) - 236 (241) (95,332) (89,508) 7,957 399 5,657 7,424 (9,058) 7,548 19,084 10,902 320,332 - 679 (16,946) 14,720 (945) (5,981) 18,914 57,733 (93,307) 33,947 9,766 7,202 (129,535) (171,927) Movement in working capital (267,223) (11,584) (94,706) 7,736 14,378 (351,399) Operating cash ﬂ ow (360,530) 22,363 (84,940) 14,938 (115,157) (523,326) Capital expenditure (12,574) (817) (45,816) (5,551) Proceeds on sale of property, plant and equipment Proceeds sale of investments Proceeds sale of controlled entity 7,130 195,073 - - 3,337 34,442 65,715 Payments for investments and other (4,627) (15,167) D&D capitalised Loans to associated parties (net) Loans to/from growers (net) Loans to employees - (3,375) - 1,928 - - - - - (193) - - 3,049 (9,068) 258 307 - - (286) (4,422) - - - - - (64,758) 10,774 2,118 231,633 29,061 94,583 (54) (20,134) - (4,422) (30,476) (30,802) - - (9,068) 2,186 Investing cash ﬂ ow 183,555 84,173 (48,433) (9,952) 649 209,992 Dividends paid Dividends underwritten Other Other ﬂ ows Opening net debt Total ﬂ ows De-consolidation of Amcom debt De-consolidation of Broadwater debt De-consolidation of Timber debt Consolidation of Elders Rural Holdings debt Fair value adjustments to debt Closing net debt (3,198) - (3,242) (6,440) - - - - - - - - - - - - (51,153) (54,351) 42,949 - 42,949 (3,242) (8,204) (14,644) (522,975) (327,978) 23,027 15 3,980 (29,231) (16,386) (869,548) Capitalised borrowing costs of $30.7m have been offset against interest bearing liabilities and will be expensed over the life of the debt. 122 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 30. Supplementary Statement of Net Debt by Segment (continued) (a) Statement of Net Debt (continued) Equity accounted earnings (9,460) (20,531) (12,200) Dividends received from associates 6,394 12,085 2,490 12 months June 2008 Earnings before interest & tax Depreciation and amortisation Rural Services $000 20,869 15,332 Proﬁ t/(loss) on sale of property, plant & equipment Proﬁ t on sale of investments Proﬁ t on sale of controlled entities Proﬁ t on sale of investment properties Discount on acquisition Interest (net) Tax (paid)/refund Share based payments Impairment losses/(reversals) Fair value adjustments on ﬁ nancial assets (1,133) 1,816 - - (1,743) (354) (8,393) 1,003 4,588 (830) Financial Services Forestry Automotive Components Investment & Other Total $000 $000 $000 $000 $000 21,957 612 61,438 5,196 25,548 16,100 (2,269) 4,185 (35,828) 5,344 93,984 42,584 (6,776) (51,236) 2,994 28,148 (2) (998) 726 1,960 - - - - 13,312 (8,658) 410 64 - - - 479 (1,351) (543) 2,525 342 - (25,264) 553 1,816 - 479 - - - - - - - (6,042) (9,136) (60) (71,038) (58,683) (1,227) (14,538) (30,291) 172 - - 522 134 2,449 4,786 (3,824) (29,918) Provisions and other 15,003 35,832 (39,490) 15,907 10,835 38,087 Operating cash ﬂ ow before movements in working capital 43,092 55,081 (7,376) 59,082 (116,257) 33,622 Movement in working capital 5,152 (38,370) (4,041) 1,165 (11,622) (47,716) Operating cash ﬂ ow 48,244 16,711 (11,417) 60,247 (127,879) (14,094) Capital expenditure (28,842) (100) (86,427) (7,326) (7,152) (129,847) Proceeds on sale of property, plant and equipment Proceeds sale of investments Proceeds sale of controlled entity 2,939 7,877 - 24 4,715 - 94,324 548 - - - - - 25,924 - 97,835 38,516 - Payments for investments and other (32,775) (28,234) (829) (22,573) (23,050) (107,461) D&D capitalised Loans to associated parties (net) Loans repaid from third parties (net) Loans from growers (net) Loans to employees Acquisition of controlled entity (net) - (16,973) - - - - - - - - - - - 591 - (920) - - (7,124) - (7,124) - - - - - (11,635) (28,017) 52,266 52,266 - - (920) - 2,323 2,323 Investing cash ﬂ ow (67,774) (23,595) 6,739 (36,475) 38,676 (82,429) Proceeds from issue of shares and other equity Dividends paid Dividends underwritten Repayment of matured equity instrument Other Other ﬂ ows Total - (974) - - - (974) - - - - - - - - - - - - - - - - - - 7,082 7,082 (57,366) (58,340) 46,815 46,815 (53,885) (53,885) (131) (131) (57,485) (58,459) (20,504) (6,884) (4,678) 23,772 (146,688) (154,982) 123 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 30. Supplementary Statement of Net Debt by Segment (continued) (a) Statement of Net Debt (continued) June 2008 Opening net debt Total ﬂ ows Consolidation of Amcom debt Convertible notes classiﬁ ed as debt converted to equity during the year (non cash movement) Fair value adjustments to debt Closing net debt Rural Services $000 Financial Services Forestry Automotive Components Investment & Other Total $000 $000 $000 $000 $000 (364,948) (154,982) (15,318) 576 11,697 (522,975) (b) Reconciliation of Net Debt balance to Balance Sheet Cash and cash equivalents Interest Bearing Loans and Borrowings Derivatives on Interest Bearing Loans and Borrowings Note 31. Auditors Remuneration Consolidated 15 months September 2009 $000 12 months June 2008 $000 367,868 244,043 (1,199,273) (715,562) (38,143) (51,456) (869,548) (522,975) Consolidated Parent 15 months September 2009 $ 12 months June 2008 $ 15 months September 2009 $ 12 months June 2008 $ The auditor of Elders Limited is Ernst & Young. Amounts received or due and receivable by Ernst & Young (Australia) for: - auditing or review of ﬁ nancial statements (i) 2,647,524 2,113,296 446,644 - tax services (primarily compliance) 141,268 253,662 92,100 - fees in relation to investigative accountants report and preparation of prospectus 1,764,345 - 1,764,345 - other compliance and assurance services 242,062 272,316 74,903 4,795,199 2,639,274 2,377,992 265,776 221,027 - 158,779 645,582 - - - - - - 432,650 432,650 265,048 265,048 21,000 474,091 669,442 30,000 156,274 741,634 216,671 - 124,624 87,758 5,817,176 2,090,494 4,217,182 412,688 6,981,709 3,018,402 4,433,853 625,070 Amounts received or due and receivable by related practices of Ernst & Young (Australia) for: - auditing or review of ﬁ nancial statements Amounts received or due and receivable by non Ernst & Young audit ﬁ rms for: - auditing or review of ﬁ nancial statements - tax services - internal audit - other services (ii) (i) This includes full statutory audit as at 30 June 2009 and as at 30 September 2009. (ii) Other services including speciﬁ c projects. 124 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities % Held by Group September 2009 June 2008 A Top Pty Ltd Abbino Pty Ltd Acehill Investments Pty Ltd ACN 073 323 038 Pty Ltd Active Leisure (Sports) Pty Ltd Agribusiness Insurance Brokers Pty Ltd Agricultural Land Management Limited AI Asia Paciﬁ c Operations Holding Limited AI China Operations Holding Limited AIM Metals Pty Ltd Air International (China) Pty Ltd Air International (India) Pty Ltd Air International (Ventures) No 2 Pty Ltd Air International Asia Paciﬁ c Operations Pty Ltd Air International (Malaysia) Pty Ltd Air International Vehicle Air Conditioning (Shanghai) Co Ltd Albany Woolstores Pty Ltd Aldetec Pty Ltd Aldetec Unit Trust Amcom Pty Ltd Amcom Telecommunications Limited Amnet Internet Services Pty Ltd Amnet IT Services Pty Ltd Amnet IX Pty Ltd AMG Marketing & Research Pty Ltd APO Administration Limited APT Finance Pty Ltd APT Forestry Pty Ltd APT Projects Ltd APT Land Pty Ltd APT Nurseries Pty Ltd Artreal Pty Ltd Ashwick (Vic) No 102 Pty Ltd Austech Ventures Ltd Australian Combined Meat Processors Pty Ltd Australian Plantation Timber Ltd Australian Retirement Managers Pty Ltd (formerly Australian Retirement Managers Limited) AR Finance Pty Ltd (in liquidation) Australian Topmaking Services Limited B & W Rural Pty Ltd Balcooma Pty Ltd (in liquidation) Banks Marsden Pty Ltd Bedcell Pty Ltd BHC Sales & Marketing Pty Ltd Brimhall Pty Ltd Broadwater Hospitality Pty Ltd (g) (g) (a) (g) (a) (j) (c)(e) (c)(e) (a) (a) (g) (a) (a) (a) (c) (g) (a) (f) (j) (j) (j) (j) (j) (g) (c)(e) (a) (a) (g) (a) (a) (g) (a) (a) (i) (a) (a) (g) (a) (h) (g) (g) (j) (g) (j) (j) 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 66 100 100 - - - - - 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 51 100 100 - 100 - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 66 100 100 50 50 50 50 50 100 100 100 100 100 100 100 100 100 100 50 100 100 100 100 51 100 100 100 100 100 100 125 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) % Held by Group September 2009 June 2008 Broadwater Hospitality Management Pty Ltd Bremer Woll Kämmerei AG BWK Australia Pty Ltd BWK Elders Australia Pty Ltd BWK Elders Europe GmbH BWK Holdings Pty Ltd BWK Elders Europtop GmbH BWK Elders Industry and Trade BWK Chemifraser GmbH BWK Eastern Wool Industrial & Trading Joint Stock Corporation BREWA Umwelt Service GmbH Carbon Bid Co Pty Ltd Canosac Limited Caversham Investments Pty Ltd Caversham Landscape D. & C. Pty Ltd Caversham Projects Pty Ltd Caversham Property (Sales) Pty Ltd Caversham Property Holdings Pty Ltd Charlton Feedlot Pty Ltd Colotti Pty Ltd Costilla Pty Ltd CP Ventures Ltd Danny F11 Investments Pte Ltd Dawley Pty Ltd Domeni Pty Ltd E. & R. Steeden Pty Ltd E Globulus Pty Ltd Elders Australia Aktien Holding GmbH & Co KG Elders Australia Beteiligungs GmbH Elders Burnett Moore WA Pty Ltd Elders China Trading Company Elders Communications Pty Ltd Elders Distribution Company Pty Ltd Elders Finance Pty Ltd (formerly Futuris Administration Pty Ltd) Elders Financial Services Group Pty Ltd Elders Financial Solutions Pty Ltd Elders Fine Foods (Shanghai) Company Elders Global Wool Holdings Pty Ltd Elders-GM Properties (SA) Pty Ltd Elders-GM Properties (Vic) Pty Ltd Elders Hycube Pty Ltd Elders Insurance Ltd Elders Insurance Agencies Pty Ltd Elders International Australia Limited Elders Meat Processing Pty Ltd (formerly Harvey Meat Processing Pty Ltd) Elders Mortgage Brokers Pty Ltd Elders Project Management Pty Ltd 126 (j) (c)(e) (g) (a) (c)(e)(i) (a) (c) (c) (c) (c) (c) (g) (c)(f) (a) (g) (g) (g) (a) (a) (j) (j) (a) (c) (g) (g) (a) (g) (c) (c)(h) (g) (c) (a) (j) (a) (a) (g) (c) (a) (a) (a) (g) (j) (j) (a) (g) (g) (g) - 100 100 100 100 100 51 100 100 91 100 100 100 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 90 100 100 100 100 100 100 100 100 100 100 100 70 100 100 100 100 100 100 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) % Held by Group September 2009 June 2008 Elders Property Management Pty Ltd Elders Real Estate (NSW) Pty Ltd Elders Real Estate (Qld) Pty Ltd Elders Real Estate (Tasmania) Pty Ltd Elders Real Estate (WA) Pty Ltd Elders Real Estate Franchise (Vic) Pty Ltd Elders Risk Management Pty Ltd Elders Rural Holdings Limited Elders Rural Services Limited (formerly Elders Australia Limited) Elders Rural Services Australia Limited (formerly Elders Limited) Elders Services Company Pty Ltd Elders Telecommunications Infrastructure Pty Ltd Elders Trustees Limited Elders Underwriting Agency Pty Ltd Elders Webster Pty Ltd Elders Wool International Pty Ltd EREF Pty Ltd Ezesoftwrite Pty Ltd Family Hospitals Pty Ltd Fares Exports Pty Ltd Fares Exports Management Mexico, S.A. de C.V. Fares Exports Trading Mexico, S.A. de C.V. Farmers Investment Trust FGSF Pty Ltd Future Proof Technologies (WA) Pty Ltd Futuris Agencies Pty Ltd Futuris Automotive Pty Ltd Futuris Automotive Group Ltd Futuris Automotive Interiors (Australia) Pty Ltd Futuris Automotive Interiors (Barbados) Inc Futuris Automotive Interiors Holdings Pty Ltd Futuris Automotive Interiors Trading (Shanghai) Co Ltd Futuris Automotive Interiors (US) Inc Futuris Rural Pty Ltd Futuris Ventures Pty Ltd Futuris/Tamper Joint Venture Unit Trust Geelong Wool Combing Ltd George Moss (Qld) Pty Ltd George Moss Pty Limited Grouville Pty Ltd H W Hayes & Sons (Ipswich) Pty Ltd Hallette Pty Ltd Hollymont Ltd Hose & Pipe Pty Ltd IMA Investment Management Australia (ADF) Pty Ltd IMA Investment Management Australia Pty Ltd Innerhadden Ltd (g) (g) (g) (g) (g) (g) (j) (c) (a) (d) (g) (g) (g) (g) (g) (j) (a) (a) (c) (c) (f) (g) (j) (a) (a) (a) (a) (c) (a) (c) (c) (a) (a) (f) (a) (a) (a) (g) (g) (g) (a) (a) (a) (a) (a) 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 50 100 100 - 100 100 100 100 100 100 50 100 100 100 100 100 100 50 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 127 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) % Held by Group September 2009 June 2008 Integrated Tree Cropping Ltd ITC Ltd ITC Esperance Woodchip Terminal Pty Ltd ITC Fibre Pty Ltd ITC Finance Pty Ltd ITC Land Holdings Pty Ltd ITC Portland Woodchip Terminal Pty Ltd ITC Project Management Ltd ITC Timber Pty Ltd ITC Timber Alexandra Pty Ltd ITC Timber China Pty Ltd ITC Timber Heyﬁ eld Pty Ltd ITC Timber Seymour Pty Ltd ITC Timber Tasmania Pty Ltd ITC Timberlands Ltd J.A. Gilmour & Sons (NSW) Pty Ltd JSB New Zealand Limited JS Brooksbank & Co Australasia Ltd J.S. Brooksbank Pty Ltd Jetoleaf Pty Ltd Kentlake Holdings Pty Ltd Keratin Holdings Pty Ltd Killara Feedlot Pty Ltd Kojonup Farm Pty Ltd Leisure Industries International Pty Ltd M.E. Deniliquin Pty Ltd Manet Holdings Pty Ltd Manor Hill Pty Ltd Marybrook Development Company Pty Ltd Marybrook Investments Ltd Milltoc Pty Ltd Miranda Bay Pty Ltd Mutual Beneﬁ t Consulting Pty Ltd Mylang Pty Ltd New Ashwick Pty Ltd Neues Wolkontor GmbH North Australian Cattle Company Pty Ltd Pacrim Meat & Livestock Trading Pty Ltd (in liquidation) Pakenham Properties Pty Ltd Pernatty Pty Ltd (in liquidation) Pitt Son & Keene Pty Ltd PlantTech Pty Ltd Prestige Property Holdings Pty Ltd Primac Elders Real Estate Pty Ltd Primac Exports Pty Ltd Primac Holdings Pty Ltd Primac Pty Ltd 128 (g) (a) (a) (a) (g) (g) (j) (j) (j) (j) (j) (j) (j) (g) (c) (c) (i) (g) (g) (a) (i) (g) (a) (j) (a) (a) (g) (a) (a) (g) (g) (a) (g) (c) (a) (g) (g) (g) (g) (a) (a) (g) (a) (a) (a) 100 100 100 - 100 100 100 100 - - - - - - - 100 100 100 100 100 100 100 53 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 53 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) % Held by Group September 2009 June 2008 Primac Pastoral Co Pty Ltd Primac Superannuation No. 1 Pty Ltd Primac Superannuation No. 2 Pty Ltd Primac Superannuation Nominees Pty Ltd (in liquidation) Primac Travel Pty Ltd PT Elders Indonesia Rachid Fares Enterprises of Australia Pty Ltd Rescue Technology Group Pty Ltd Redray Enterprises Pty Ltd Relatran Pty Ltd SA Bid Co Pty Ltd Southern Wool Services (Goulburn) Pty Ltd Steeden Holdings Pty Ltd Steering Systems Australia Pty Ltd Sycamore Enterprises Pty Ltd Sydney Woolbrokers Limited Tashmore Pty Ltd Therm Air Australia Pty Ltd Tomkins Financial Services Pty Ltd Topsoils of Australia Pty Ltd Torrens Investments Pte Ltd Treecrop Pty Ltd Trend-to-Zero Pty Ltd Ultra Enterprises Pty Ltd (in liquidation) Ultrasound Australia Pty Ltd Ultrasound International Pty Ltd Ultrasound Technical Services Pty Ltd United Alliance Group Ltd Victorian Investment Corporation Pty Ltd Victorian Producers Co-operative Company Pty Ltd Victorian Group of Companies Pty Ltd Vickner Pty Ltd Vision Group of Companies Pty Ltd Vockbay Pty Limited VP Services Pty Ltd VP Travel Pty Ltd WA Bid Co Pty Ltd Wool Exchange (WA) Pty Ltd Wooltech Marketing Pty Ltd Yenley Pty Ltd (g) (g) (g) (g) (g) (c) (g) (j) (a) (g) (g) (g) (a) (a) (a) (i) (g) (a) (g) (c) (g) (a) (g) (a) (a) (a) (g) (a) (a) (g) (g) (d) (a) (j) (j) (g) (g) (g) (g) 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - 100 67 100 100 100 100 100 100 100 100 100 50 100 100 100 100 100 100 100 66 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 67 100 100 129 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) (i) Pursuant to Australian Securities and Investments Commission Class Order 98/1418 dated 13 August 1998, relief has been granted to these controlled entities of Elders Limited from the Corporations Act 2001 requirements for preparation, audit and publication of accounts. As a condition of the Class Order, Elders Limited, and the controlled entities subject to the Class Order, entered into a deed. The effect of the deed is that Elders Limited has guaranteed to pay any deﬁ ciency in the event of the winding up of any member of the Closed Group, and each member of the Closed Group has given a guarantee to pay any deﬁ ciency, in the event that Elders Limited or any other member of the closed group is wound up. (ii) The parties that comprise the Closed Group are denoted by (a) above. Parties added to the Closed Group during the year are denoted by (b) above. Parties removed from the Closed Group during the year are denoted by (k) above. The consolidated income statement and balance sheet of the entities which are members of the Closed Group are as follows: Consolidated income statement of the Closed Group Proﬁ t/(loss) from continuing operations before income tax Income tax beneﬁ t/(expense) Proﬁ t/(loss) after income tax from continuing operations Proﬁ t/(loss) after tax from discontinued operation (refer note 40) Net proﬁ t for the period Retained earnings at the beginning of the period Impact of acquisitions/disposals Dividends provided for or paid Retained earnings at the end of the period Consolidated balance sheet of the Closed Group Current Assets Cash assets Receivables Inventories Other Total current assets Non Current Assets Receivables Investments in associates and joint ventures Other ﬁ nancial assets Inventories Property, plant and equipment Investment properties Intangibles Deferred tax assets Other Total non current assets Total assets 130 Parent 15 months September 2009 $000 12 months June 2008 $000 38,502 (3,098) 35,404 (153,391) (117,987) (32,660) (11,342) (51,153) (213,142) 297,823 198,948 68,176 10,186 575,133 238,480 242,824 563,987 27,014 58,758 273,921 70,661 76,857 18,459 80,773 6,804 87,577 (29,490) 58,087 (16,600) 4,422 (78,569) (32,660) 229,225 494,856 142,466 121,938 988,485 231,082 441,593 573,711 25,720 110,583 221,597 119,273 58,555 27,058 1,570,961 2,146,094 1,809,172 2,797,657 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) Current Liabilities Payables Interest bearing liabilities Current tax liabilities Derivative ﬁ nancial instruments Provisions Total current liabilities Non Current Liabilities Interest bearing liabilities Derivative Financial Instruments Deferred tax liabilities Provisions Total non current liabilities Total liabilities Net Assets Equity Contributed equity Hybrid equity Reserves Retained earnings Outside Equity Interest Shareholder equity attributable to members of Elders Limited Parent 15 months September 2009 $000 104,804 830,017 65,877 38,733 24,118 1,063,549 344,019 - 12,713 5,194 361,926 1,425,475 720,619 737,513 145,151 47,408 (213,142) 3,689 720,619 12 months June 2008 $000 898,678 134,055 18,063 - 167,425 1,218,221 526,079 52,366 38,783 67,361 684,589 1,902,810 894,847 694,118 145,151 88,238 (32,660) - 894,847 Certain members of the Closed Group, in addition to certain controlled entities, are guarantors in connection with the consolidated entity’s borrowings facilities disclosed at note 17 and in connection with the unsecured and convertible notes disclosed at note 19. (iii) Certain branch locations are subject to agreements whereby proﬁ ts are shared on a proportionate 50% basis albeit under the control of the controlled entities within the Group. (iv) All companies are incorporated and carry on business in Australia except for the companies designated by (c) above which are incorporated in the following countries: Company Country of Incorporation AI Asia Paciﬁ c Operations Holdings Limited Hong Kong SAR Air International Vehicle Air Conditioning (Shanghai) Co Ltd China APO Administration Limited Bremer Woll Kämmerei AG BWK Elders Europe GmbH BWK Elders Europtop GmbH BWK Elders Industry and Trade BWK Chemifraser GmbH BWK Eastern Wool Industrial & Trading Joint Stock Corporation BREWA Umwelt Service GmbH Canosac Limited Hong Kong SAR Germany Germany Germany Germany Germany Turkey Germany Hong Kong SAR 131 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) Company Country of Incorporation Danny F11 Investments Pte Ltd Elders Australia Aktien Holding GmbH & Co KG Elders Australia Beteiligungs GmbH Elders China Trading Company Ltd Elders Fine Foods (Shanghai) Company Elders Rural Holdings Limited (xi) Fares Exports Management Mexico, S.A. de C.V. Fares Exports Trading Mexico, S.A. de C.V. Futuris Automotive Interiors (Barbados) Inc Futuris Automotive Interiors Trading (Shanghai) Co Ltd Futuris Automotive Interiors (US) Inc JSB New Zealand Limited JS Brooksbank & Co Australasia Ltd Neues Wolkontor GmbH PT Elders Indonesia Torrens Investments Pte Ltd Singapore Germany Germany China China New Zealand Mexico Mexico Barbados China USA New Zealand New Zealand Germany Indonesia Singapore (iv) Entities acquired during the period are denoted by (d). (v) Entities audited by ﬁ rms other than the parent entity auditors or by afﬁ liates of the parent entity auditor are denoted by (e). (vi) Entities exempted from audit requirements due to overseas legislation or non-corporate status are denoted by (f). (vii) Entities classiﬁ ed by the Corporations Act 2001 as small proprietary companies relieved from audit requirements are denoted by (g). In addition, a number of small proprietary companies are party to the Class Order deed referred to in (i). (viii) Entities denoted by (h) are controlled entities, as the Group has the capacity to control via a dominance of ﬁ nancial, management and technological control. (ix) Entities denoted by (i) are entities where an entity controlled by the parent entity holds a controlling interest in the entity. (x) Entities denoted by (j) are entities that were disposed of or liquidated during the year. An equity interest has been retained in some of these entities. (xi) The following entities are subsidiaries of Elders Rural Holdings Limited (incorporated in New Zealand). All of these subsidiaries are also incorporated in New Zealand, and the ultimate shareholding held by the Group is as follows: % Held by Group September 2009 June 2008 25 50 50 50 50 25 50 35 35 - - - - - - - - - Company AWE McNicol Transport (2005) Ltd Elders Card Ltd Elders Direct Ltd Elders insurance Ltd Elders Merchandise Limited Elders Primary Wool Limited Elders Real Estate Ltd Elders Stock (SI) Ltd Elderstock Ltd 132 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 32. Investments in Controlled Entities (continued) Company Elders Wairarapa Vet Services Ltd EPW Southland Woolbrokers Ltd Evia Rural Finance Ltd Gisbourne Farmers Ltd Hawkes Bay Wool Processors (2005) Ltd Seed Production (NZ) Ltd Wool Marketing Enterprises Ltd Note 33. Key Management Personnel (a) Details of Key Management Personnel % Held by Group September 2009 June 2008 50 25 50 34 25 50 25 - - - - - - - Directors S Gerlach C E Bright J C Fox R G Grigg A Salim G D Walters I G MacDonald J H Ranck M G Jackman L P Wozniczka Chairman Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Non Executive Director Director and Chief Executive Ofﬁ cer (appointed 29 September 2008) Director and Chief Executive Ofﬁ cer (resigned 26 September 2008) Other Key Management Personnel M G De Wit B A Grifﬁ ths M S Guerin V Erasmus T P Plant P Zachert M G Hosking Managing Director – Futuris Automotive Group Ltd Executive Chairman – Futuris Automotive Group Ltd Chief Operating Ofﬁ cer – Elders Ltd Managing Director – ITC Ltd Managing Director – Elders Financial Services Group (resigned 30 September 2009) Chief Financial Ofﬁ cer (resigned 30 June 2009) Chief Financial Ofﬁ cer (appointed 14 April 2009) (b) Remuneration of Speciﬁ ed Directors and other Key Management Personnel For information on Group Remuneration Policy, Structure and the relationship between remuneration payment and performance please refer to the Remuneration Report on pages 36 to 53 of the Annual Report. Compensation by Category Short term Long term Post employment Share based payments Consolidated Parent September 2009 $ June 2008 $ September 2009 $ June 2008 $ 13,014,767 9,814,591 5,005,673 2,120,042 157,845 693,178 (190,097) - 505,525 1,066,013 103,251 309,897 (217,914) - 217,409 720,932 13,675,693 11,386,129 5,200,907 3,058,383 133 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 33. Key Management Personnel (continued) (c) Option holdings of Directors and other Key Management Personnel Options Exercised Options Granted Options Lapsed Balance at end of period Vested at 30 Sept 2009(1) Exercisable Not exercisable 4,000,000 - 4,000,000 - (6,250,000) 1,750,000 1,750,000 - - - - - - - - - - - - - - - - - - - 250,000 - - - - - 750,000 - 750,000 - - - - - - 500,000 200,000 1,500,000 - 400,000 200,000 1,500,000 - - - - - 750,000 (1,850,000) 750,000 (875,000) 625,000 625,000 7,000,000 (8,975,000) 10,275,000 2,775,000 250,000 3,000,000 200,000 - 100,000 - - - - 8,000,000 1,000,000 750,000 500,000 100,000 - 750,000 - 400,000 400,000 100,000 300,000 September 2009 (Number) Directors M G Jackman L P Wozniczka Balance at beginning of period - 8,000,000 Key Management Personnel 500,000 750,000 400,000 750,000 - 1,100,000 750,000 12,250,000 M G De Wit V Erasmus B A Grifﬁ ths M S Guerin M G Hosking T P Plant P Zachert Total June 2008 (Number) Directors L P Wozniczka 5,000,000 Key Management Personnel 300,000 750,000 300,000 M G De Wit V Erasmus B A Grifﬁ ths G Hunt M S Guerin T P Plant P Zachert Total 1,250,000 (687,500) - (562,500) - - 1,100,000 750,000 - - - 750,000 - - - - - 750,000 - - - 250,000 1,100,000 100,000 500,000 750,000 - 625,000 9,450,000 (687,500) 4,050,000 (562,500) 12,250,000 1,300,000 2,825,000 (1) Options vested in respect of performance conditions, length of service conditions still required to be met. (d) Shareholdings of Directors and other Key Management Personnel September 2009 Ordinary shares Balance at beginning of period On Exercise of Options Granted as Remuneration Net Change Other Balance at end of period Directors S Gerlach C E Bright J C Fox R G Grigg A Salim G D Walters I G MacDonald J H Ranck M G Jackman L P Wozniczka 134 492,522 103,492 26,765 31,560 33,545,578 21,000 60,000 - 30,000 4,521,341 - - - - - - - - - - - - - - - - - - - - 114,300 - - - - 140,000 200,000 240,000 100,000 606,822 103,492 26,765 31,560 33,545,578 161,000 260,000 240,000 130,000 - 4,521,341 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 33. Key Management Personnel (continued) (d) Shareholdings of Directors and other Key Management Personnel (continued) September 2009 Ordinary shares Balance at beginning of period On Exercise of Options Granted as Remuneration Net Change Other Balance at end of period Key Management Personnel M G De Wit B A Grifﬁ ths M S Guerin V Erasmus T P Plant P Zachert Total 51,980 1,173,019 270,698 19,955 247,554 1,430,043 42,045,507 Convertible Notes & Hybrid Instruments Directors M G Jackman L P Wozniczka June 2008 Ordinary shares Directors S Gerlach C E Bright J C Fox R G Grigg W H Johnson A Salim G D Walters I G MacDonald J H Ranck L P Wozniczka Key Management Personnel M G De Wit B A Grifﬁ ths G Hunt M S Guerin V Erasmus T P Plant P Zachert Total Directors - 1,500 478,491 103,492 26,765 31,560 23,548,181 33,545,578 21,000 60,000 - 4,521,341 41,694 1,540,439 709,529 - 9,669 115,175 1,323,606 66,076,520 L P Wozniczka 51,100 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 10,286 10,286 - 40,698 10,286 132,379 106,437 310,372 - (463,917) - - - - 51,980 709,102 270,698 19,955 247,554 1,430,043 330,383 42,355,890 1,000 - 1,000 1,500 14,031 - - - - - - - - - - (377,706) - 230,000 - - - 492,522 103,492 26,765 31,560 23,548,181 33,545,578 21,000 60,000 - 4,521,341 51,980 1,173,019 709,529 270,698 19,955 247,554 1,430,043 (133,675) 66,253,217 - (49,600) 1,500 All equity transactions with directors and key executives other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more favourable than those the Group would have adopted if dealing at arms length. 135 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 33. Key Management Personnel (continued) (e) Loans to Directors and other Key Management Personnel Balance at beginning period Interest Charged $000 Interest not Charged (i) Loan Written Off Loan Repaid/ Advanced Balance at end of period Highest owing in period $000 $000 $000 $000 $000 Directors September 2009 June 2008 Executives (ii) September 2009 June 2008 Total September 2009 June 2008 - - 806 696 806 696 - - 27 10 27 10 - - - - - - - - - - - - - - (827) 100 (827) 100 - - 6 806 6 806 - - 821 1,593 821 1,593 (i) Interest not charged includes employee share scheme interest (ii) There are 2 key executives within the loan group (2008: 3) Details of individuals with loans above $100,000 in the reporting period are as follows: Executives P Zachert J V M Erasmus 689 117 18 9 - - - - (707) (120) - 6 704 117 Terms and Conditions The loan to Mr Zachert was made in June 2008 and was a short term personal loan with interest being charged at a commercial interest rate of 9%. The loan was unsecured, however the Company had sufﬁ cient lien over the annual leave, salary and bonus entitlements of Mr Zachert to ensure the loan was repaid in full. The loan was repaid in full in November 2008. The loan to Mr Erasmus relates to a bridging loan to purchase a house and other assets pending foreign house sale. Interest is charged at the Australian Taxation Ofﬁ ce deemed rate for Fringe Beneﬁ ts Tax purposes of 9% for 2007/08 and 5.85% for 2008/2009. 136 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 33. Key Management Personnel (continued) (f) Other Transactions and Balances with Directors and other Key Management Personnel The aggregate amounts recognised in respect of the following types of transactions with directors of entities in the Group and their director-related entities were: Transaction type Director concerned Sales through rural agency services Purchase of merchandise Purchases through rural agency services W H Johnson C E Bright W H Johnson C E Bright W H Johnson C E Bright Consolidated September 2009 $000 - 717 - 28 - 240 June 2008 $000 381 390 658 75 7 8 The above transactions were made on commercial terms and conditions and at market rates. In addition, directors of the parent entity or its controlled entities, or their director-related entities, may purchase goods and services from the Group in their domestic dealings and within normal customer or employee relationships on terms and conditions no more favourable than those available in similar arms length dealings. The amounts involved are immaterial to the Group and include the following: (i) Sales of goods (ii) Provision of insurance services (iii) Provision of rural agency services (iv) Provision of deposit facilities Note 34. Related Party Disclosures (a) Ultimate Controlling Entity The ultimate controlling entity of the Group is Elders Limited. (b) Transactions with related parties in the wholly owned group Transactions between the parent entity and related parties in the wholly owned group during the ﬁ nancial periods ended 30 September 2009 and 30 June 2008 consisted of: loans advanced by Elders Limited; loans repaid by Elders Limited; the receipt and payment of interest on the above loans; the payment of dividends to Elders Limited; the receipt of management fees by Elders Limited; the provision of accounting and administrative services; (i) (ii) (iii) (iv) (v) (vi) (vii) the provision of transport services; (viii) the provision of guarantees and credit facilities; and (ix) the transfer of tax losses as permitted by the Income Tax Assessment Act. These transactions were undertaken on commercial terms and conditions. 137 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 34. Related Party Disclosures (continued) (c) Transactions with controlled entities not wholly owned Transactions between the wholly owned Group and partly owned controlled entities consisted of: Dividend income Interest income Recharges – other Sales Consolidated 15 months September 2009 $000 12 months June 2008 $000 3,423 2 612 5,838 1,079 - 352 3,725 All transactions with controlled entities not wholly owned are conducted on commercial terms and conditions. Balances with controlled entities not wholly owned. Owing to the Group Owing from the Group 20,948 (5,990) 17,059 (4,008) (d) Transactions with other partly owned related parties consisted of: Consolidated Parent Class of related party September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Transaction type Loans to other related parties Loans advanced Loans advanced Loan repayments received Loan repayments received Loan repayments made Interest received or receivable Interest paid or payable Other transactions Dividends received Dividend received Distribution fees received Distribution fees received Associate Joint Venture Associate Joint Venture Associate Associate Associate Associate Joint Venture Joint Venture Associate Management fee paid on transfer of cash accounts Joint Venture Reimbursement of expenses Transfer of cash accounts Capital contributions Purchases Purchases Sale of inventory Sale of inventory Sale of plant & equipment Other services & recharges Other services & recharges Acquisition of investments 138 Joint Venture Joint Venture Joint Venture Associate Joint Venture Associate Joint Venture Associate Associate Joint Venture Associate (27,825) (12,475) (6,200) (1,083) 5,609 - (6,081) 2,267 (220) 12,404 31,749 20,840 8,265 - 13,858 - - 1,431 1,748 - 1,237 - 21,167 12,085 34,590 - (104) 15,743 72 - - - - 362 - 4 - - - - - - - - 31,749 12,085 - - - - - - - - - - (31,500) (19,000) (31,500) (19,000) (102,433) (133,456) (561) 35,712 42 7 43,185 190 (666) 58,536 157 - 24,770 420 (10,801) (39,794) - - - - - - - - - - - - - - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 34. Related Party Disclosures (continued) (d) Transactions with other partly owned related parties (continued) All transactions with other related parties are conducted on commercial terms and conditions. Transaction type Balances with other partly owned related parties Owing to the Group Owing from the Group Owing to the Group Owing from the Group Note 35. Earnings Per Share Consolidated Parent Class of related party September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Associate Associate Joint Venture Joint Venture 79,843 65,887 (2) 3,725 (1) - 4,242 - - - - - - - - - The following reﬂ ects the net proﬁ t and share data used in the calculations of earnings per share (EPS) Reported Operations Basic Consolidated 15 months September 2009 $000 12 months June 2008 $000 Net proﬁ t attributable to members (after tax) (466,426) 36,447 Dilutive Operating proﬁ t/(loss) after tax Interest on convertible notes (466,426) 36,447 - - Net proﬁ t/(loss) attributable to members (after tax) adjusted for the effect of convertible notes (466,426) 36,447 Continuing Operations Basic Net proﬁ t/(loss) attributable to members (after tax) Less: Net proﬁ t/(loss) of discontinued operations (net of tax) Net proﬁ t/(loss) of continuing operations (net of tax) Dilutive Net proﬁ t/(loss) of continuing operations (net of tax) Interest on convertible notes (466,426) 153,809 (312,617) 36,447 29,490 65,937 (312,617) 65,937 - - Net proﬁ t/(loss) of continuing operations (net of tax) adjusted for the effect of convertible notes (312,617) 65,937 Discontinued Operations Net proﬁ t/(loss) of discontinued operations (net of tax) (153,809) (29,490) Weighted average number of ordinary shares (‘000) used in calculating basic EPS 809,056 756,662 Dilutive share options (‘000) 214,784 71,864 Adjusted weighted average number of ordinary shares used in calculating dilutive EPS (‘000) 1,023,840 828,526 Hybrid notes have been included in the calculation of dilutive EPS, as they are believed to be dilutive. Basic underlying earnings per share (cents per share) Diluted underlying earnings per share (cents per share) (6.40) ¢ (6.40) ¢ 11.13¢ 10.16¢ Underlying earnings are earnings from ordinary activities adjusted for speciﬁ c non recurring items. Non recurring items (net of tax) used in calculating underlying basic and dilutive EPS is $414.674 million (2008: $47.764 million). See note 3 for reconciliation between reported loss and underlying loss. 139 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 36. Financial Instruments Exposure to commodity, interest rate, credit and foreign exchange risks arise in the normal course of business. The Group has policies in place to manage these exposures within Board approved limits. (a) Commodity risk exposures The Group enters into contracts for the purchase and sale of various commodities, in the ordinary course of business operations. Differences in the timing of purchase and sale contracts create an exposure to commodity price risk. All business units that have exposure to commodity price risk operate within the conﬁ nes of a Board approved risk management policy. The Group enters into futures, swaps and option contracts to manage commodity price risk within the established Board approved limits. The Group classiﬁ es ﬁ nancial instrument commodity purchase and sale contracts, commodity futures, swaps and option contracts as fair value derivatives. All open contracts are fair valued at balance date with any gains and losses on these contracts, together with the associated costs to completion of these contracts, being recognised immediately through the income statement. The Group has elected not to apply hedge accounting for the ﬁ nancial reporting of commodity contracts classed as ﬁ nancial instruments. The sensitivity analysis below estimates the impact of a +/- 10% movement in the price of wool, with all other variables held constant. This analysis excludes the impact of these price movements on agency commission related to these commodities. Consolidated +/- 10% Parent +/- 10% Post Tax Proﬁ t/Equity Higher/(Lower) September 2009 $000 June 2008 $000 +/- 1,111 +/- 787 - - The impact on equity incorporates the impact on proﬁ t and is therefore of the same magnitude. (b) Interest rate risk exposures The Group is exposed to interest rate risk through primary ﬁ nancial assets and liabilities, modiﬁ ed through derivative ﬁ nancial instruments. Cross currency interest swaps are used to hedge the Australian dollar value of cash ﬂ ows associated with the payment of principal and interest on long term ﬁ xed rate borrowings and to swap a ﬁ xed rate exposure into an Australian ﬂ oating interest rate exposure. Interest rate swap agreements are used to convert ﬂ oating interest rate exposures on certain debt to ﬁ xed rates. These swaps entitle the Group to receive, or oblige it to pay, the amounts, if any, by which actual interest payments on nominated loan amounts exceed or fall below speciﬁ ed interest amounts. At balance date, the Group had the following mix of ﬁ nancial assets and liabilities exposed to Australian variable interest rate risk that are not designated in cash ﬂ ow hedges: 140 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 36. Financial Instruments (continued) (b) Interest rate risk exposures (continued) Financial Assets Non current receivables - Debtors - Other debtors - Receivables from associates - Reinsurance and other recoveries receivable Cash and cash equivalents Financial Liabilities Bank loans Loan from associate Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 - 10,216 34,569 - 367,868 412,653 2,179 5,715 30,668 29,974 244,043 312,579 (947,483) (451,846) - (6,081) (947,483) (457,927) - 5,375 5,808 - 293,100 304,283 - - - - - 5,442 - 42,162 47,604 - - - Net Exposure (534,830) (145,348) 304,283 (47,604) The Group’s policy is to manage its ﬁ nance costs using a mix of ﬁ xed and variable rate debt. The Group constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative ﬁ nancing, alternative hedging positions and the mix of ﬁ xed and variable interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the balance sheet date. At 30 September 2009, if interest rates had moved as illustrated in the table below, with all other variables held constant, post tax proﬁ t and equity would have been affected as follows: Consolidated + 100 basis points - 100 basis points Parent + 100 basis points - 100 basis points Post Tax Proﬁ t/Equity Higher/(Lower) September 2009 $000 June 2008 $000 (5,348) 5,348 (1,453) 1,453 3,043 (3,043) (476) 476 The impact on equity is not materially different to the post tax proﬁ t impact given the loans are fair valued to the extent they are hedged. Movements in proﬁ t are due to higher/lower interest costs from variable rate debt and cash balances. The sensitivity is higher in 2009 than 2008 because of higher debt levels. 141 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 36. Financial Instruments (continued) (c) Liquidity risk exposures The Group’s objective is to maintain a balance between continuity of funding and ﬂ exibility through the use of bank overdrafts, bank loans and committed available lines of credit. Consolidated Maturing In 1 Year or Less $000 Over 1 to 5 Years More than 5 Years $000 $000 Total $000 710,528 1,603 278,994 - - - - - 78,888 71,965 - - 453 236,640 125,687 38,047 26,814 53,669 20,007 40,046 - - 36,752 (36,752) 112 406 - - 1,263,811 420,048 30,704 133,006 - - - 1,193 966,726 32,000 22,107 301,496 48,294 - - 6,438 - - - - - - - - - - - - - - - - - - - - 30,184 142,136 - - - 989,522 1,603 26,814 53,669 20,007 40,046 78,888 71,965 36,752 (36,752) 565 237,046 125,687 38,047 1,683,859 52,811 434,502 48,294 30,184 142,136 7,631 966,726 32,000 1,163,629 378,335 172,320 1,714,284 September 2009 Financial liabilities Secured loans Unsecured loans Secured Notes - Tranche A2 – Series A - Tranche A2 – Series B - Tranche A3 – Series C - Tranche A3 – Series D - Tranche B2 – Series F - Tranche C2 – Series G - Tranche A4 – Series D - Costs to be amortised over the period of the loan Finance leases Payables Other payables Tax payables June 2008 Financial liabilities Secured loans Unsecured loans Unsecured notes 1999 (A) Unsecured notes 1999 (B) Unsecured notes 2005 Finance leases Payables Taxation payable 142 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 36. Financial Instruments (continued) (c) Liquidity risk exposures (continued) Parent Maturing In 1 Year or Less $000 Over 1 to 5 Years More than 5 Years $000 $000 Total $000 September 2009 Financial liabilities Secured Notes - Tranche A2 – Series A - Tranche A2 – Series B - Tranche A3 – Series C - Tranche A3 – Series D - Tranche B2 – Series F - Tranche C2 – Series G - Tranche A4 – Series D - Costs to be amortised over the period of the loan Payables June 2008 Financial liabilities Unsecured loans Unsecured notes 1999 (A) Unsecured notes 1999 (B) Unsecured notes 2005 Payables - - - - 78,888 71,965 - - 802,476 953,329 - - - - 299,979 299,979 26,814 53,669 20,007 40,046 - - 36,752 (36,752) - 140,536 100,000 48,294 - - - - - - - - - - - - - - - 30,184 142,136 - 148,294 172,320 26,814 53,669 20,007 40,046 78,888 71,965 36,752 (36,752) 802,476 1,093,865 100,000 48,294 30,184 142,136 299,979 620,593 143 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 36. Financial Instruments (continued) (d) Credit risk exposures The Group’s exposures to credit risk on the balance sheet are indicated by the carrying amounts of its ﬁ nancial assets. The Group minimises concentrations of credit risk by undertaking transactions with a large number of debtors in various locations and industries. The credit risk amounts do not take into account the value of any collateral or security. The creditworthiness of counterparties is regularly monitored and subject to deﬁ ned credit policies, procedures and limits. The following amounts disclosed do not reﬂ ect expected losses and are shown gross of provisions. Location of credit risk Australia Asia (excluding China) China Europe Japan North America Other Total gross receivables Industry classiﬁ cation Rural Automotive Financial Services Forestry Other (i) Total gross receivables September 2009 $000 June 2008 $000 676,093 803,122 3,259 16,034 19,432 - 1,656 63,337 779,811 304,221 61,453 2,604 322,127 89,406 779,811 5,446 28,257 35,002 20,919 24 3,213 895,982 245,395 91,863 254,331 170,503 133,890 895,982 (i) includes $14.86 million (2008: $56.64 million) in relation to deferred settlement of the property sale transaction. The credit risk associated with cash is located primarily in Australia. (e) Foreign Exchange Risk The Group is exposed to movements in the exchange rates of a number of currencies, in the ordinary course of business operations. The predominant exposure is to movements in the AUD/USD and AUD/EUR exchange rates. These are primarily generated from the following activities: (i) Purchase and sale contracts written in foreign currency, or priced in AUD but determined from a foreign currency value at a future date; (ii) Receivables and payables denominated in foreign currencies; (iii) Commodity derivatives traded in a currency other than AUD; (iv) Commodity cash prices that are partially determined by movements in exchange rates; (v) Costs to sale such as transportation and commission denominated in foreign currency; and (vi) Funding raised in foreign currency. Foreign exchange risk is managed within Board approved limits using forward foreign exchange and foreign currency option contracts. Where possible, exposures are netted off against each other to minimise the cost of hedging. In managing foreign exchange risk, hedge accounting will be applied for ﬁ nancial reporting purposes for selected exposures based upon the size and duration of the exposure. Where hedge accounting is not applied, foreign currency contracts are fair valued at balance date with gains and losses recognised immediately through the income statement. 144 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 36. Financial Instruments (continued) (e) Foreign Exchange Risk (continued) At 30 September 2009, the Group had the following exposures to foreign currencies that were not designated in cash ﬂ ow hedges: Consolidated Parent September 2009 $000 June 2008 $000 September 2009 $000 June 2008 $000 Financial Assets Cash and cash equivalents – EUR Cash and cash equivalents – USD Cash and cash equivalents – NZD Cash and cash equivalents – GBP Cash and cash equivalents – RMB Cash and cash equivalents – IDR Cash and cash equivalents – Other Debtors – EUR Debtors – USD Debtors – NZD Debtors – ZAR Debtors – JPY Debtors – RMB Debtors – TRL Debtors – Other Loans – NZD Loans – CNY Loans – ZAR Other debtors – EUR Other debtors – NZD Other debtors – CNY Other debtors – RMB Other debtors – TRL Other debtors – Other Receivables from associates – EUR Receivables from associates – NZD Financial Liabilities Trade and other payables – EUR Trade and other payables – USD Trade and other payables – NZD Trade and other payables – Other Bank Overdrafts – MYR Interest bearing loans and borrowings – EUR Interest bearing loans and borrowings – USD Interest bearing loans and borrowings – CNY Interest bearing loans and borrowings – RMB Interest bearing loans and borrowings – NZD Loans from related parties – NZD 19,273 20,436 2,241 24 2,034 525 35 16,308 17,809 26,142 93 51 1,185 - 1,390 11,965 1,858 1,768 801 984 - 524 - 15 - 13,293 138,754 (4,105) (1,183) (19,910) (323) - (10,215) - - (3,796) (9,058) (1,603) 1,950 1,003 - 40 939 151 247 16,779 3,963 - 1,242 23 493 2,166 331 - - - 1,777 - 225 - 1,160 73 1,151 1,079 - 13 - - - - - - - - - - - - - - - - - - - - - - - - 34,792 13 (1,395) (3,769) - (631) - (36,890) (10,099) (81) (1,698) - - - - - - - - - - - - - - (50,193) (54,563) Net exposure 88,561 (19,771) 13 Given the Group effectively hedges its overall foreign currency position in relation to ordinary business activities, exchange rate movements will have an insigniﬁ cant impact on proﬁ t and equity and therefore no sensitivity analysis has been provided. The foreign exchange risk in relation to the secured USD notes is considered at (g). 145 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 36. Financial Instruments (continued) (f) Fair value of ﬁ nancial assets and liabilities The fair value of derivative ﬁ nancial instruments is determined by reference to quoted market prices. Where a quoted market price is not available, the fair value is the estimated amount the consolidated entity would receive or pay to terminate the derivative ﬁ nancial instrument taking into account available market information. All ﬁ nancial assets and liabilities have been recognised in the balance sheet at their net fair values, except for the following: Carrying Amount Fair Value 2009 $000 2008 $000 2009 $000 2008 $000 Financial Assets Listed shares (equity accounted - refer note 11) 49,031 342,790 18,406 449,786 (g) Hedging activities At 30 September 2009, the Group had a number of interest rate swap agreements and cross currency swap agreements in place. These swaps are used to hedge the movements in interest rates and the changes in fair value of borrowings denominated in a foreign currency (USD). The Group also held a number of forward exchange contracts designated as hedges of contracted future sales to customers and contracted future purchases from suppliers for which the Group has ﬁ rm commitments. The foreign currency contracts are being used to hedge the foreign currency risk of the ﬁ rm commitments. In respect of the previous unsecured USD notes, the Group effectively hedged its overall foreign currency position and exchange rate movements had an insigniﬁ cant impact on proﬁ t and equity and therefore no sensitivity analysis was performed. In respect of the new debt, the Group has not yet achieved hedge effectiveness and Elders is currently working with the ﬁ nanciers to achieve this. Given that the debt position of the Group is dependant on various factors, including the capital raising and ﬁ nalisation of the sale of assets, sensitivity analysis has not been performed. The terms of these swap agreements and forward contracts are as follows: Amount in Total $AUD’000 Maturity Pay Rate/Exchange Rate Number of Contracts At 30 September 2009 Interest Rate Swaps Cross Currency Swaps At 30 June 2008 Interest Rate Swaps Cross Currency Swaps 429,054 291,709 379,054 291,709 Oct 2009 to June 2015 5.49% to 7.42% Nov 2009 to June 2015 BBSW + Margin Sep 2009 to June 2015 5.49% to 6.67% Nov 2009 to May 2015 BBSW + Margin 10 5 5 5 Note 37. Share Based Payment Plans The number of full time equivalents employed at 30 September are: Consolidated Parent September 2009 June 2008 September 2009 June 2008 3,088 4,317 18 23 146 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 37. Share Based Payment Plans (continued) (a) Employee option ownership scheme The parent entity issues from time to time options over ordinary shares to senior employees of the Group. These options are issued at the sole discretion of the Directors as part of employees’ remuneration packages. The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in, share options issued during the year: Outstanding at the beginning of the year Issued during the year Lapsed during the year Exercised during the year Outstanding at the end of the year September 2009 No. (‘000) September 2009 WAEP $ June 2008 No. (‘000) 25,338 11,080 (12,015) - 24,403 2.09 1.30 2.01 - 1.78 18,488 10,000 (1,762) (1,388) 25,338 June 2008 WAEP $ 1.91 2.36 1.97 1.74 2.09 The range of exercise prices for options outstanding at the end of the year was $1.29 - $2.54. The weighted average remaining contractual life for the share options outstanding as at 30 September 2009 is 3.06 years (2008: 4.13 years). The expense recognised in the income statement in relation to these options is disclosed in note 3. (b) Employee share plan (ESP) Shareholders approved the implementation of an ESP at a general meeting in November 1989 and October 1998. Within the ESP, two schemes exist. The general terms and conditions of these schemes comprise: (i) General Employee Scheme under which permanent employees may acquire shares in the parent company with a market value ranging from $3,000 to $17,500 per year per employee; and (ii) Incentive Scheme under which selected employees will be eligible to acquire shares in the parent company on such terms as the Directors decide are appropriate in the circumstances of the employee. During the ﬁ nancial year no ordinary shares (2008: nil) in the parent company were transferred to eligible employees for nil consideration under the Incentive Scheme. Shares are issued to eligible employees by way of an interest free loan and are subject to holding restrictions, which prevent the employee dealing in the shares until the restriction period has expired. All shares issued under the plan rank equally with other shares of their class and participants enjoy all rights attaching to that class of shares. Any loan is repayable from dividends and the proceeds of sale of shares issued under the plan but is otherwise non-recourse to the employee, the shares being held by the Trustee as security for repayment of loan. This plan is accounted for and valued as an option plan, with the contractual life of each option equivalent to the estimated loan life. The ESP was suspended in 2009 and no new shares were issued. 147 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 37. Share Based Payment Plans (continued) (c) Option pricing model The fair value of the share options is estimated as at the date of grant using either Trinomial or Black-Scholes valuation model and taking into account the terms and conditions upon which the options were granted, (options with external market conditions are valued using the Trinomial method). The following table lists the inputs to the model used for the period. Given no share options were issued under the ESP, no valuation inputs were required in 2009: Dividend Yield (%) Expected Volatility (%) Risk-free interest rate (%) Expected life of options (years) Option exercise price ($) Weighted average share price at measurement date ($) Note 38. Superannuation Commitments September 2009 - - - - - - June 2008 - 32.00 6.89 3.00 1.99 1.97 Details of the Group’s superannuation fund (accumulation and deﬁ ned beneﬁ t) as extracted from the plan’s most recent ﬁ nancial reports, being 30 June 2009, are as follows: Net market value of plan assets Accrued beneﬁ ts as at 30 June 2009 (2008) Excess of plan assets over accrued beneﬁ ts June 2009 $000 June 2008 $000 594,699 680,945 (594,699) (680,945) - - Contributions to the accumulation section of the fund by the employer are paid in accordance with legislative requirements, the fund’s rules and employee salary packages. Employees may also contribute. The assets of the accumulation section of the fund are sufﬁ cient to satisfy all beneﬁ ts that would be vested in the event of termination. Funding recommendations made by the actuary are based on assumptions of various matters such as future salary levels, mortality rates, membership turnover and interest rates. Comprehensive actuarial valuations are made at three yearly intervals, and the last such assessment was made as at 30 June 2007, by S Mules, F.I.A.A from Mercer Investment Nominees Ltd. The next actuarial valuation is to be conducted as at 30 June 2010. The objective of the valuation is to ensure that the beneﬁ t entitlements of employees are fully funded by the time they become payable. To achieve this objective, the actuary has used the aggregate funding method, which entails contributions to be paid out as a constant percentage of members’ salaries over their working lifetimes. The deﬁ ned beneﬁ t fund does not comprise a material portion of the fund and thus disclosure of the components of the net beneﬁ t income recognised in the Group income statement in accordance with AASB 119 Employee Beneﬁ ts has not been made. 148 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 39. Business Combinations Changes in the Composition of the Entity (a) Controlled Entities Acquired There were no controlled entities acquired during the September 2009 ﬁ nancial year. During the 2008 ﬁ nancial year, the Group acquired an additional 1.06% share in Amcom Limited, resulting in Amcom becoming a controlled entity on 19 December 2007 (subsequent to this acquisition, the Group disposed of its share in Amcom, refer to Note 39 part (b) for further details). Equity and consideration paid in current period Amcom Limited - Purchase consideration - Fair Value of identiﬁ able assets acquired (refer below) Goodwill on acquisition relating to step acquisitions Discount relating to Amcom Limited purchased from step acquisitions Discount relating to other immaterial business combinations Total discount recognised on business combinations The aggregate amounts of assets and liabilities acquired by major class: Cash Receivables Inventories Investments Property, plant and equipment Intangibles Other assets Tax assets and liabilities Creditors and provisions Borrowings Net identiﬁ able assets acquired Minority interests 49.96% Less interest already acquired at 49.09% Outﬂ ow of cash to acquire the entities, net of cash acquired: Cash consideration Cash balance acquired Net Inﬂ ow/(Outﬂ ow) of cash Date Control Acquired Proportion of Shares June 2008 $000 19/12/07 0.95% Acquiree’s carrying amount $000 3,862 4,731 1,452 30,843 61,467 14,802 1,931 1,539 (1,372) 167 (6,042) (3,094) (9,136) Fair value $000 3,862 4,731 1,452 55,391 101,427 14,802 1,931 16 (11,972) (11,871) (15,318) (11,871) (15,318) 91,915 144,435 - - 91,915 (72,160) (70,903) 1,372 (1,539) (1,539) 3,862 2,323 3,862 2,323 A discount was recognised on the acquisition of Amcom Ltd representing the excess of fair value over book value of the iiNet equity investment and the fair value of Amcom’s ﬁ bre network, taken at each step of the acquisition process. Amcom was equity accounted through to 30 November 2007 after which Amcom was consolidated. 149 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 39. Business Combinations (continued) (b) Controlled Entities Disposed The Group disposed of its controlling interest in Amcom Limited in two tranches. The initial tranche of 170 million shares were sold on 1 September 2008, resulting in Amcom Limited no longer being a controlled entity of the Group. The remaining 100 million shares were sold on 10 December 2008. On 31 August 2009, the Group entered into binding contracts to effect the sale of the Elders Insurance Ltd and Elders Insurance Agencies Pty Ltd companies to QBE, inclusive of the insurance distribution operations, which will be conducted by a joint venture between QBE and Elders (25% interest) under a 20 year exclusive distribution agreement. Settlement of the sale occurred on 30 September 2009. On 31 August 2009, the Group entered into a binding purchase and sale agreement with Gunns Limited for the sale of the Timber group of companies listed below (effective 31 July 2009): ITC Fibre Pty Ltd ITC Timber Pty Ltd ITC Timber Alexandra Pty Ltd ITC Timber China Pty Ltd ITC Timber Heyﬁ eld Pty Ltd ITC Timber Seymour Pty Ltd ITC Timber Tasmania Pty Ltd This sale has not yet settled and accordingly the proceeds are shown as a receivable as at 30 September 2009. On 11 September 2007, the Group sold the following Transit companies: Air International Transit Pty Ltd Air International (UK) Holdings Ltd Air International Coachair Pty Ltd Air International (Ventures) No 3 Pty Ltd Clima Air Conditioning Pty Ltd Clima Air Conditioning (SA) Pty Ltd Air International Transit (China) Co Ltd Transit Systems (US) Inc Air International Transit (Taiwan) Co Ltd Air International (UK) Ltd Air International Coachair Sdn Bhd Air International (Malaysia) Sdn Bhd APM-Coachair Sdn Bhd Coachair (Thailand) Company Ltd AI Coachair Holdings Limited 150 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 39. Business Combinations (continued) (b) Controlled Entities Disposed (continued) Proceeds received on disposal of shares: Cash Receivables Cash balance disposed Less costs of disposal Net Proceeds The carrying amounts of assets and liabilities disposed of by major class are: Receivables Inventories Other Assets Property, plant and equipment Capitalised costs Intangibles Investments Tax assets and liabilities Payables Provisions Unearned revenue/billings in advance Other Liabilities External borrowings Net assets/(liabilities) of entity sold Minority Interests Proﬁ t/(loss) on disposal (before tax) Loss on disposal of other controlled entities Consolidated September 2009 $000 308,454 96,213 (209,356) (7,277) 188,034 325,421 73,683 145,313 101,597 - 51,644 47,090 (4,367) (361,092) (213,499) (6,565) (1,798) (25,289) 132,138 (48,511) 104,407 (932) June 2008 $000 15,437 - - (3,400) 12,037 17,865 18,212 690 2,943 2,186 - - - (11,842) 8,722 - - (8,214) 30,562 - (18,525) - Total proﬁ t/(loss) on disposal of controlled entities 103,475 (18,525) 151 Sales revenue Cost of sales Other revenues Other expenses Share of net proﬁ ts/(loss) of associates and joint ventures accounted for using the equity method Proﬁ t/(loss) on sale of non current assets Proﬁ t/(loss) before net borrowing costs and tax expense NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 40. Discontinued Operations and Businesses Disposed Operations within Horticulture, Wool Processing, Insurance broking, Timber and Telecommunications division were disposed of during the 15 month period ended 30 September 2009 and are reported as discontinued operations. This note shows the results of the continuing businesses and the discontinued business for comparative purposes only. Continuing 15 months September 2009 $000 Discontinued 15 months September 2009 $000 Consolidated 15 months September 2009 $000 Continuing 12 months June 2008 $000 Discontinued 12 months June 2008 $000 Consolidated 12 months June 2008 $000 2,853,917 686,166 3,540,083 3,274,659 37,456 3,312,115 (2,281,434) (353,852) (2,635,286) (2,426,096) (34,953) (2,461,049) 47,264 60,643 107,907 112,510 4,826 117,336 (969,408) (543,063) (1,512,471) (869,750) (53,535) (923,285) 51,236 (2,369) 93,984 15,422 (72,331) 37,075 9,015 46,090 3,766 (4,463) (697) 51,236 120,846 3,263 124,109 (2,369) - - (225,049) (151,306) (376,355) 140,190 (46,206) Interest revenue Borrowing costs 13,045 13,731 26,776 (112,230) (4,521) (116,751) Proﬁ t/(loss) before tax expense (324,234) (142,096) (466,330) Income tax beneﬁ t/(expense) 10,125 (11,295) (1,170) 15,422 (72,320) 83,292 (7,712) - (11) (46,217) 16,727 Net proﬁ t/(loss) for year (314,109) (153,391) (467,500) 75,580 (29,490) Net proﬁ t/(loss) attributable to minority interest Net proﬁ t/(loss) attributable to members of the parent entity Revenue and Expenses Sales revenue: Sale of goods (1,492) 418 (1,074) 9,643 - 9,643 (312,617) (153,809) (466,426) 65,937 (29,490) 36,447 2,300,502 373,388 2,673,890 2,302,774 37,456 2,340,230 Sale of biological assets 181,612 1,565 183,177 407,776 Commission and other selling charges 275,390 17,088 Insurance premium revenue - 294,125 Other sales related income 96,413 - 292,478 294,125 96,413 280,463 193,144 90,502 - - - - 407,776 280,463 193,144 90,502 2,853,917 686,166 3,540,083 3,274,659 37,456 3,312,115 Other expenses: Distribution expenses Marketing expenses Occupancy expenses 453,020 142,578 595,598 487,006 10,909 497,915 16,926 12,010 8,336 1,622 25,262 13,632 14,666 17,492 603 374 15,269 17,866 Administrative expenses 168,515 66,925 235,440 154,713 7,823 162,536 Insurance claims and related expenses Impairment losses Other expenses 152 - 194,704 46,019 82,879 194,704 211,567 236,268 543,063 1,512,471 165,548 153,389 969,408 128,981 - 66,892 869,750 - - 33,826 53,535 128,981 - 100,718 923,285 NOTES TO THE FINANCIAL STATEMENTS FOR THE 15 MONTH PERIOD ENDED 30 SEPTEMBER 2009 Note 40. Discontinued Operations and Businesses Disposed (continued) Continuing 15 months September 2009 $000 Discontinued 15 months September 2009 $000 Consolidated 15 months September 2009 $000 Consolidated 12 months June 2008 $000 Discontinued 12 months June 2008 $000 Consolidated 12 months June 2008 $000 Revenue and Expenses (continued) Proﬁ t/(loss) on sale of non current assets - property, plant and equipment (101) 2,468 - investments - controlled entities 38,401 82,546 795 - 2,367 39,196 82,546 (553) (1,816) - 120,846 3,263 124,109 (2,369) - - - - (553) (1,816) - (2,369) Cash ﬂ ow information – discontinued operations The net cash ﬂ ow of the discontinued operations: Operating activities Investing activities Financing activities Net cash inﬂ ow Note 41. Subsequent Events 15 months September 2009 $000 12 months June 2008 $000 59,912 (14,947) (12,058) 32,907 - - - - Anticipated sale of Hi-Fert Pty Ltd As at 30 September 2009, Elders treated the investment in Hi-Fert Pty Ltd as an asset held for sale. At the date of these ﬁ nancial statements, Elders is undertaking a sale process and the investment has been written down to its fair value less costs to sell. These negotiations are not complete. Equity Raising On 4 September 2009, Elders announced an equity raising comprising the following offering of $550 million of new ordinary shares in Elders (New Shares) at an offer price of $0.15 per New Share. The offering, as detailed below, was approved by ordinary resolution at the Extra-ordinary General Meeting held on 15 October 2009. The offering comprised of: • $400 million fully underwritten conditional placement to institutional investors; and • $150 million Share Purchase Plan (“SPP”). As a consequence of approval of this offering, an additional 2.67 billion ordinary shares were issued on 19 October 2009 under the conditional placement and 1.00 billion ordinary shares were issued on 2 November 2009 under the SPP. Elders’ current restructured ﬁ nancing arrangements has resulted in the majority of the interest bearing liabilities being classiﬁ ed as current (refer Note 17). This has resulted in total current liabilities exceeding total current assets as at 30 September 2009. Once the funds raised through the equity raising detailed above are applied against the interest bearing liabilities this situation will be reversed. Securitisation On 1 October 2009, Elders completed negotiations in respect of its trade receivables securitisation programme (RSP). As a result of the new RSP, the assets and liabilities of the RSP will be consolidated with the Group. The RSP has the capacity to purchase receivables from Elders and related entities of Elders up to an aggregate level of $320 million, with a forecast average utilisation of around $200 million. Forest Enterprises Australia Pty Ltd (FEA) As announced on 9 October 2009, Elders did not participate in the capital raising announced by FEA on 16 September 2009. As a result of not participating in the FEA capital raising, Elders’ FEA interest has been diluted from 27% to 13.5%. Other There is no other matter or circumstance that has arisen since 30 September 2009 which is not otherwise dealt with in this report or in the consolidated ﬁ nancial statements, that has signiﬁ cantly affected or may signiﬁ cantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent ﬁ nancial periods. 153 DIRECTORS’ DECLARATION (1) In the opinion of the directors: (a) the ﬁ nancial statements and notes of the company and of the Group are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and Group’s ﬁ nancial position as at 30 September 2009 and of their performance for the year ended on that date; and (ii) complying with Accounting Standards and Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. (2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the 15 month period ending 30 September 2009. (3) In the opinion of the directors, as at the date of this declaration, there are reasonable grounds to believe that the members of the closed group identiﬁ ed in note 32, will be able to meet any obligations or liabilities to which they are, or may become subject by virtue of the deed of cross guarantee. Signed in accordance with a resolution of the directors. G D Walters Director M G Jackman Director Adelaide 16 November 2009 154 (cid:37)(cid:50)(cid:46)(cid:51)(cid:52)(cid:0)(cid:6)(cid:0)(cid:57)(cid:47)(cid:53)(cid:46)(cid:39) Ernst & Young Building 121 King William Street Adelaide SA 5000 Australia GPO Box 1271 Adelaide SA 5001 Tel: +61 8 8 417 1600 Fax: +61 8 8 417 1775 www.ey.com/au 155 (cid:37)(cid:50)(cid:46)(cid:51)(cid:52)(cid:0)(cid:6)(cid:0)(cid:57)(cid:47)(cid:53)(cid:46)(cid:39) 156 ASX ADDITIONAL INFORMATION (a) Distribution of Equity Securities as at 2 November 2009 No of Shares No of Holders No of Hybrids No of Holders 1 1,001 5,001 10,001 100,001 - - - - - 1,000 5,000 2,509,003 28,799,480 10,000 39,926,737 100,000 426,553,452 maximum 3,988,047,433 4,485,836,105 The number of holders holding less than a marketable parcel (b) Voting rights (i) Ordinary Shares: all ordinary shares carry one vote per share without restriction. (ii) Elders Hybrids: Hybrids do not carry any voting rights under the Company’s constitution. 7,196 10,280 5,204 11,025 5879 39,584 660,909 282,204 120,474 436,413 0 1,500,000 Ordinary Shares 12,677 2,522 142 17 17 0 2,698 Hybrids 3 (c) Stock Exchange quotation The company’s ordinary shares and Elders Hybrids are listed on the Australian Securities Exchange. The Home Exchange is Melbourne. (d) Twenty Largest Shareholders as at 2 November 2009 The twenty largest holders of Elders Ordinary Shares were as follows: No of Shares % of Shares Citicorp Nominees Pty Limited HSBC Custody Nominees Australia Limited J P Morgan Nominees Australia Limited National Nominees Limited ANZ Nominees Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA UBS Nominees Pty Ltd Cogent Nominees Pty Limited RBC Dexia Investor Services Australia Nominees Pty Limited Paciﬁ c Agrifoods Investments Pty Ltd Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited Queensland Investment Corporation Ecapital Nominees Pty Limited Invia Custodian Pty Limited HSBC Custody Nominees (Australia) Limited - A/C 2 CS Fourth Nominees Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Netherhill Pty Ltd Invia Custodian Pty Limited Total 619,011,732 506,118,014 284,860,771 281,680,431 174,040,869 138,474,530 110,915,729 90,633,720 52,567,281 33,545,578 31,567,778 23,886,831 22,003,706 20,547,684 19,129,662 19,011,560 18,751,472 16,801,302 16,500,000 16,000,000 2,496,048,650 13.80 11.28 6.35 6.28 3.88 3.09 2.47 2.02 1.17 0.75 0.70 0.53 0.49 0.46 0.43 0.42 0.42 0.37 0.37 0.36 55.64 Total held by twenty largest ordinary shareholders as a percentage of this class is 55.64% The twenty largest holders of Elders Hybrids were as follows: Hybrids % of Hybrids ANZ Nominees Limited The Australian National University UBS Wealth Management Australia Nominees Pty Ltd M F Custodians Ltd RBC Dexia Investor Services Australia Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Luton Pty Ltd Equity Trustees Limited HSBC Custody Nominees (Australia) Limited-GSCO ECA RBC Dexia Investor Services Australia Nominees Pty Limited National Nominees Limited J P Morgan Nominees Australia Limited Cogent Nominees Pty Limited Mr Stephen Philip Goldberg + Mrs Janine Heather Goldberg Jilliby Pty Ltd Di Iulio Homes Pty Limited Dahlonega Pty Ltd Tree Pot Pty Ltd Mr Orlando Berardino Di Iulio + Ms Catharina Maria Koopman Mrs Janine Heather Goldberg 90,868 50,000 46,947 31,237 28,090 25,197 22,000 20,056 18,360 18,205 16,346 14,521 12,640 12,250 11,500 11,100 10,095 10,000 9,257 8,500 6.06 3.33 3.13 2.08 1.87 1.68 1.47 1.34 1.22 1.21 1.09 0.97 0.84 0.82 0.77 0.74 0.67 0.67 0.62 0.57 Total 467,169 31.14 Total held by twenty largest hybrid holders as a percentage of this class is 31.14% (e) The number of shares held by the substantial shareholders listed in the Company’s register of substantial shareholder as at 2 November 2009 were: Shareholder QBE Insurance Group Limited ING Group Number of shares 371,166,667 265,666,667 157 SHAREHOLDER INFORMATION Share Registry Dividends and Distributions Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street, Adelaide, South Australia, 5000 Telephone: 1300 55 61 61 Facsimile: +61 (0)8 8236 2305 Website: www.computershare.com.au Enquiries and share registry address Shareholders with enquiries about their shareholdings should contact the Company’s share registry, Computershare Investor Services Pty Ltd, on telephone: 1300 55 61 61. Online shareholder information Shareholders can obtain information about their holdings or view their account instructions online, as well as download forms to update their holder details. For identiﬁ cation and security purposes, you will need to know your Holder Identiﬁ cation Number (HIN/SRN), Surname/Company Name and Post/Country Code to access. This service is accessible via the Investor Centre on the Company’s website or direct via the Computershare website. On 4 September 2009 the Company announced that it would not declare a ﬁ nal dividend for the year ending 30 September 2009. When and whether Elders resumes paying dividends depends on many factors, including contractual restrictions. Under the terms of the Elders Hybrids, Elders will not be permitted to pay a distribution on the Elders Hybrids due on 30 September 2009. In addition, Elders’ restructured ﬁ nancing arrangements will restrict Elders from paying distributions on Elders Hybrids until and including 30 September 2011. As a consequence of non-payment of Elders Hybrid distributions for any reason, under the Elders Hybrids terms, Elders will be prevented from paying a dividend on its Shares until such time as the “dividend stop” is lifted in accordance with those terms. Also, Elders’ restructured ﬁ nancing arrangements restrict Elders from paying dividends on Shares until after 31 March 2012 (and thereafter, more limited restrictions apply). Tax and dividend/interest payments Elders is obliged to deduct tax from dividend/interest payments (which are not fully franked) to holders registered in Australia who have not quoted their tax ﬁ le number (TFN) to the Company. Shareholders who have not already quoted their TFN can do so by contacting Computershare. A notiﬁ cation form is available from either the Company’s or Computershare’s website. Change of address Shareholders who have changed their address should advise Computershare in writing. Written notiﬁ cation can be mailed or faxed to Computershare at the address given above and must include both old and new addresses and the security holder reference number (SRN) of the holding. Change of address forms are available for download from either the Company’s or Computershare’s website. Alternatively, holders can amend their details on-line via Computershare’s website. Shareholders who have broker sponsored holdings should contact their broker to update these details. 158 Annual Report mailing list Investor information Shareholders who wish to vary their annual report mailing arrangements should advise Computershare in writing. Electronic versions of the report are available to all via the Company’s website. Annual Reports will be mailed to all shareholders who have elected to be placed on the mailing list for this document. Report election forms can be downloaded from either the Company’s or Computershare’s website. Forms for download All forms relating to amendment of holding details and holder instructions to the Company are available for download from either the Company’s or Computershare’s website. Shareholders’ Calendar* 2009 1 October 16 November 18 December 2010 10 May 30 September 15 November *Dates may be subject to change Information about the Company is available from a number of sources: • Website: www.elders.com.au • E-news: Shareholders can nominate to receive company information electronically. This service is hosted by Computershare and holders can register via the Investor Centre on the Company’s website or direct via Computershare’s website. • Publications: the annual report is the major printed source of company information. Other publications include the Half-yearly report, company press releases, presentations and Open Brieﬁ ngs. All publications can be obtained either through the Company’s website or by contacting the Company. • Direct enquiry with the General Manager, Investor Relations, Mr Don Murchland by telephone 08 8425 4617 or via email dmurchland@elders.com.au. Securities analysts, institutional and other potential investors seeking information about the Company should contact Don Murchland. Start of 2010 ﬁ nancial year Announcement of full year result and ﬁ nal dividend Annual General Meeting Announcement of half-year ﬁ nancial results End of ﬁ nancial year Announcement of 2010 full year results 159 Notes 160 Company Directory Directors Mr Stephen Gerlach, AM, LLB Chairman Mr Mark C Allison, BAgrSc, BEcon, GDM, FAICD Mr Charles E Bright, BA MA(Oxon) Dr James C Fox, BE MEngSci PhD Mr Raymond G Grigg, FSAE-I FAICD Mr James H (Hutch) Ranck, BS Econ Mr Malcolm G Jackman, BSc BCom Mr Ian G MacDonald, SF Fin Mr Graham D Walters, AM FCA Mr Rob H Wylie, FCA Secretaries Ms Sonya C Furey, BEc(Acc), LLM, FCA Mr Ross E Mallett, JD BBus, FCIS, FCPA Registered Office Level 3, 27 Currie Street Adelaide, South Australia, 5000 Telephone: (08) 8425 4999 Facsimile: (08) 8410 1597 Email: information@elders.com.au Website: www.elders.com.au Share Registry Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia, 5000 Telephone: 1300 55 61 61 Facsimile: +61 (0)8 8236 2305 Website: www.computershare.com.au Auditors Ernst & Young Bankers Australia & New Zealand Banking Group BNP Paribas Citigroup Commonwealth Bank of Australia HSBC Bank National Australia Bank Westpac Banking Corporation Stock Exchange Listings Elders Limited ordinary shares and subordinated convertible unsecured notes (Elders Hybrids) are listed on the Australian Securities Exchange under the ticker codes “ELD” and “ELDPA” Trustee for Elders Hybrids Permanent Trustee Company Limited 151 Rathdowne Street Carlton South, Victoria, 3053 2009 A N N U A L R E P O R T 20 09 A N N UA L R E P O R T

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