Boral Limited 2006 Annual Report

Boral creating value for 60 years Annual Review 2006 Boral Limited Boral BORAl liMiteD ABN 13 008 421 761 Level 39, AMP Centre 50 Bridge Street Sydney NSW 2000 GPO Box 910 Sydney NSW 2001 Telephone: (02) 9220 6300 International: +61 2 9220 6300 Facsimile: (02) 9233 6605 International: +61 2 9233 6605 Internet: www.boral.com.au Email: info@boral.com.au StOCK eXCHAnGe liStinG Australian Stock Exchange Limited SHARe ReGiStRy c/- Link Market Services Level 12 680 George Street Sydney NSW 2000 Locked Bag A14 Sydney South NSW 1235 Telephone: (02) 8280 7133 International: +61 2 8280 7133 Facsimile: (02) 9287 0303 International: +61 2 9287 0303 Internet: www.linkmarketservices.com.au Email: registrars@linkmarketservices.com.au CeO AnD MAnAGinG DiReCtOR Rod Pearse CHieF FinAnCiAl OFFiCeR Ken Barton COMpAny SeCRetARy Michael Scobie AuDitORS KPMG The Annual Review includes a concise report containing abbreviated financial statements. Detailed financial statements are available in the separate 2006 Financial Report, which shareholders may access on Boral’s website www.boral.com.au or request free of charge by phoning Boral’s share registry on (02) 8280 7133 or via email to registrars@linkmarketservices.com.au or by writing to Link Market Services, Locked Bag A14 Sydney South NSW 1235. Boral Limited is a company limited by shares, incorporated and domiciled in Australia. FinAnCiAl CAlenDAR* Ex dividend share trading commences 24 August 2006 Record date for final dividend 30 August 2006 Final dividend payable 18 September 2006 Annual General Meeting 27 October 2006 Half year 31 December 2006 Half year profit announcement 7 February 2007 Ex dividend share trading commences 26 February 2007 Record date for interim dividend 2 March 2007 Interim dividend payable 21 March 2007 Year end 30 June 2007 * Timing of events is subject to change AnnuAl Review 2006 Financial Calendar, website and Company information Inside Front Cover Creating value Over 60 years 1 Announcements to the ASX 7 Financial Highlights 8 Chairman’s Report 10 Managing Director’s Review 12 Summary of Reporting Groups 16 Review of Operating Divisions 18 Australian Construction Materials 18 Cement 20 Clay & Concrete Products 22 Timber 24 Plasterboard 26 USA 28 Management Committee 30 Financial Review 31 Board of Directors 33 Corporate Governance 34 Directors’ Report 39 lead Auditor’s independence Declaration 49 Concise Financial Report 50 Shareholder information 66 Financial History 68 Glossary and Abbreviations 72 SuStAinABility RepORt 2006 Our Business, Key Fy2006 Statistics, Key Fy2006 events Inside Front Cover Sustainability s1 Our people s9 Health and Safety s14 environment s18 Suppliers s23 Customers and Sustainable Products s24 Community Investment s26 Public Engagement s28 Divisional performance s30 Australian Construction Materials s30 Cement s32 Clay & Concrete Products s34 Timber s36 Plasterboard s38 USA s40 KpMG independent Review Report s42 Glossary and Abbreviations s43 the Annual General Meeting of Boral limited will be held at the City Recital Hall, Angel place, Sydney on Friday 27 October at 10.30am. Cover, left to right: Kerrie Rindermann, Delfin Sousa (crouching), Ted Dickson, Mai Lan Alnimer (holding sign), Phill King, Shane Kelly, Ruben Calleeuw  Over 60 years, Boral has evolved into an integrated resource based manufacturing company with strong upstream reserves and downstream market positions, around which we continue to perform and grow. Boral’s core competencies are: • securing and extending our cost competitive natural resource positions close to market, and • utilising our manufacturing, logistics and marketing expertise to create cost and quality competitive materials and products which meet the needs of building and construction markets. Boral relies on dedicated people whose creativity and persistence has built the solid foundations that define Boral today. In 2006, Boral’s performance reflects strength in some key markets offset by the effects of a continued downturn in Australian housing activity and higher energy and fuel-related costs. Favourable pricing outcomes, operational cost savings and a very strong US profit contributed to a solid result. We are also seeing the benefits of growth initiatives progressively flowing through to Boral’s results. • • • • • • Net profit after tax down 2% to $362 million Sales revenue up 11% to $4.8 billion EBITDA up 4% to $823 million EBITDA to sales margin of 17.3% Earnings per share down 3% to 61.7 cents Full year fully franked dividend of 34 cents per share Boral Limited Annual Review 2006 LEADERsHIP 2 Bitumen and Oil Refineries (Australia) Limited (BORAL) was incorporated in 1946 and started operations with a refinery to manufacture bitumen in Matraville in Sydney. The majority of Boral’s workforce consisted of ex-navy men, many of whom spent six months in the USA training with Boral’s part-owner, Caltex. 60 years on, Boral’s workforce has grown from this small team to around 15,800 employees working across 828 operating and distribution sites throughout Australia, the USA and Asia. Pictured above are employees of Boral Plasterboard at Camellia, NSW. Left to right in the back row are: Maurice Langendam, John Davies, Luke Holman, James Katoa, Stephen Moore and in the front row are: Rebecca Brennan, Richard Twiss, Annette Benham (holding photo), Vince Condoluci and Judy Osborne. The Plasterboard division prides itself on its strong safety record and extensive participation and successful outcomes from the Boral BWell employee program. Inset: The first employees just before they embarked on their training trip to the United States in 1947. f  focus Boral’s first fleet of delivery trucks consisted of ex-army tankers converted to carry bitumen. After the war, Boral acquired 30 trucks at auction in Darwin. Only 22 made it as far as Matraville. Today, Boral owns or manages thousands of company-owned and contracted heavy vehicles including concrete agitators, asphalt tankers, quarry trucks and cement powder tankers. In Australia, we recently acquired five new “compressed natural gas” concrete agitators, the first of their kind in Australia, as part of our program to find efficient, lower emission fuels. Joe Anderson is pictured supplying asphalt to the EastLink project in Victoria, Australia’s largest single road development. Boral will supply some 600,000 tonnes of quarry materials, 280,000 cubic metres of concrete and 600,000 tonnes of asphalt into the development over two years. Inset: Road surfacing equipment used by Boral Road Services in New South Wales in the 1960s. Boral Limited Annual Review 2006  REsPEct Quarrying at Prospect in Sydney commenced in the late 1800s. Boral’s Prospect Quarry became a part of the Blue Metal Industries in 1919, which Boral acquired in 1982. Today, the Prospect quarry is reaching the end of its extraction life and is now a part of Boral’s Greystanes redevelopment program. By 2010, the Greystanes site will see the completion of all three development stages – the Northern Employment Lands, Nelsons Ridge residential development and the Southern Employment Lands, which will be redeveloped over the next few years. David and Marilyn Taylor and their children Tracey and Adam are pictured at their new home at Nelsons Ridge. David works with Boral Asphalt and his original Boral workplace was on the site where he now lives. Inset: Quarrying activities at Prospect Quarry in the 1960s PER  RfoRMANcE Boral entered the USA in 1979. Growing through acquisition, Boral has the number one position in Roof Tiles and Bricks in the US market, and the US operations contribute more than one-quarter of Boral’s total earnings. Boral’s US growth strategy is focused on organic growth around new markets and capacity expansions. Boral has been strengthening its leading position with new capacity in Oklahoma, Indiana, California, Texas and Florida. Inset: A Merry Brothers Brick kiln from 1968. Merry Companies, which Boral acquired in 1980, started its first brickyard in 1899 in Augusta, Georgia. Boral Limited Annual Review 2006 PERsIstENcE 6 Over 60 years Boral has become a well recognised leading brand. Our focus is on Creating Better Living for our customers – whether they be major developers of infrastructure, home builders, or smaller “do-ityourself” customers, Boral has built a reputation of service and product solutions. Through our network of Boral Select centres retail consumers can view a range of Boral’s clay, concrete and timber products and receive expert advice. Darren Walker, Retail Manager for Boral Clay & Concrete Products manages the newest Boral Select Centre at Castle Hill in NSW. Over 250 products are on display including a lifestyle focused garden area showing Boral products in simulated “outdoor room” settings. Inset: Boral acquired Blue Metal Industries (BMI) in 1982, which impressively marketed its broad product range used in the construction of the Sydney Opera House from 1959 to 1973. 7 ANNouNcEMENts to tHE Asx 21 October 2005 Boral Expands its Plasterboard Capacity in Queensland Boral announces it is to establish a new Brisbane plasterboard manufacturing and distribution base close to the Brisbane River in the suburb of Pinkenba, at a net investment cost of around $06 million. 22 November 2005 Lafarge Boral Plasterboard JV in Asia Invests in Vietnam Lafarge Boral Gypsum (LBGV), a wholly owned subsidiary of the 0/0 joint venture Lafarge Boral Gypsum in Asia Limited (LBGA) advises construction of a plasterboard plant in the Ho Chi Minh City area of Vietnam has commenced. The plant will be the first plasterboard plant to be built and operated in Vietnam. 12 December 2005 Boral to Build New Clay Brick Plant in Terre Haute, Indiana This investment will increase Boral’s overall clay brick manufacturing capacity in the USA by around 7% and demonstrates Boral’s commitment to better serving the important Midwest markets. The new facility will produce a variety of brick sizes and colours, with a capacity to produce 20 million standard brick equivalents (SBE) annually. 6 February 2006 MonierLifetile to Build New Concrete Roof Tile Plants in Las Vegas, Nevada and Lake Wales, Florida Boral Limited and Lafarge Roofing announce that its joint venture roof tile business MonierLifetile will invest US$69 million to build new roof tile plants in Las Vegas, Nevada and Lake Wales, Florida. 6 February 2006 Boral to Build New Clay Roof Tile Plant in Ione, California Boral announces that it will invest US$27 million to build a new clay tile . facility in Ione, California. The new plant will produce 0,000 squares of tile annually and is expected to be operational in the December 2007 quarter. This investment will result in a 0% increase in clay roof tile manufacturing capacity in Western US markets. 8 February 2006 Boral Limited Announces a First Half Profit of $172 million Boral announces an after tax profit of $72 million for the half year ended  December 200, a 9% decrease on the A-IFRS restated profit after tax (PAT) for the six months to  December 200. 15 August 2006 Boral Announces a Full Year Profit of $362 million Boral announces a profit after tax (PAT) of $62 million for the year ended 0 June 2006 a 2% decrease on the A-IFRS restated PAT. Boral Limited Annual Review 2006 8 fINANcIAL HIgHLIgHts A$ million unless stated YEAR ENDED 0 JUNE 2006 200 % CHANGE EBIT by Segment 4,767 823 614 98 516 153 362 449 5,587 4,333 2,832 1,578 307 207 209 15,802 0.302 4.07 17.3 12.9 14.2 13.2 57 6.3 61.7 34.0 3.1 27.4 ,0 79 60 7 2 62 70  ,00 ,800 2,9 ,9 90 28 9 ,79 0.28 .7 8. .0 .9 . 8 8. 6. .0 .2 .   2 8 () () (2) 8 2  9  (7) () 9  6  (7) (8) () () Australian dwellings 3 Revenue EBITDA EBIT Net interest Profit before tax Tax Profit after tax Cash flow from operating activities Gross assets Funds employed Liabilities Net debt Growth and acquisition capital expenditure Stay-in-business capital expenditure Depreciation Employees Sales per employee, $ million Net tangible asset backing, $ per share EBITDA margin on sales, % EBIT margin on sales, % EBIT return on funds employed, % Return on equity, % Gearing (net debt/equity), % Interest cover, times Earnings per share, ¢ Dividend per share, ¢ Safety: (per million hours worked) Lost time injury frequency rate Recordable injury frequency rate Construction Materi Building Products, A USA Asia Construction Materials, Australia Building Products, Australia USA Asia Share of Revenue2 by Market Australian dwellings Australian non-dwel Australian engineeri Other Australian USA dwellings USA non-dwellings USA engineering an Asia () – Australian non-dwellings Australian engineering and construction Other Australian USA dwellings USA non-dwellings USA engineering and construction Asia Sales Revenue $m 4,767 EBIT1 $m Profit after Tax1 $m Earnings per Share1 c 362 370 370 63.8 4,305 4,150 3,914 4,012 3,489 3,831 600 603 614 3,280 360 478 343 192 169 29.7 262 FY06 150 153 FY06 26.3 27 .0 33.7 353 49.1 283 FY06 FY00 FY01 FY01 FY99 FY02 FY03 FY04  FY200 Results restated to reflect transition to A-IFRS accounting standards. Six months to Dec-0 includes a one-off pre-tax cost of $6.2 million or $. million after tax for the Adelaide Brighton bid. 2 Includes Boral’s share of revenues from Asian Plasterboard and MonierLifetile joint ventures  Includes alterations and additions. . FY05 FY06 FY00 FY03 FY04 FY99 FY02 FY05 FY00 FY00 FY01 FY01 FY99 FY02 FY03 FY04 FY05 FY99 FY02 FY03 FY04 FY05 61.7 63.4 9 SHARE PRICE $8.00 $7.00 $6.00 $5.00 $4.00 Boral share price 5,000 EBIT Variance Analysis FY2005 EBIT 1 Boral Volume $603m 4,500 4,000 $3.00 $2.00 $1.00 $0.00 + PRICE + VOLUME ASX100 Price Australian bricks, roofing and masonry volumes were down due to the 3,500 housing downturn. Volumes in other businesses lifted due to market lifts and/or growth benefits. 3,000 ASX 100 index Price strength was a feature of the result, despite Australian 2,500 housing pressures. Cement and concrete prices lifted %, quarry prices were up .%, clay and concrete products 2,000 were up 2-% and US brick prices gained 0%. May 04 May 05 Nov 04 Aug 04 Feb 05 May 00 Nov 00 Feb 00 Aug 00 Nov 01 May 02 May 03 Nov 02 Nov 03 Feb 02 Feb 03 May 01 Aug 02 Aug 03 Feb 04 - COST ESCALATION Despite cost savings of $2 million from the Performance Enhancement Program (PEP), equal to .2% of compressible costs, costs increased by around 6% due in part to direct and indirect fuel cost increases. + PEP Growth and QEU + QEU + GROWTH - PLANT ONE-OFFS + OTHER 8 7 6 5 4 3 2 1 0 5000 4500 4000 3500 3000 2500 2000 1500 $614m The benefits of recent growth activities together with a lift in Quarry End Use earnings contributed $ million to the result. Benefits of growth will progressively enhance Boral’s profitability. Plant one-offs One-off commissioning/production costs at Waurn Ponds cement and Galong lime kilns ($ million) together with extended temporary plant shutdowns in bricks in Australia impacted the result. Other Other items includes the effect of $6.2 million of costs associated with the Adelaide Brighton bid in the prior year. FY2006 EBIT Aug 05 Feb 01 Aug 01 Costs and PEP 1,500 Share Price SHARE PRICE $10.00 Boral 10,000 8.00 8,000 10 9 8 7 6 5 4 3 2 1 ASX 100 index 6.00 6,000 Boral share price 4.00 ASX 100 4,000 2.00 2,000 Aug 02 Aug 03 Aug 04 Aug 05 Aug 00 Aug 06 Feb 00 Feb 02 Feb 03 Feb 04 Feb 05 Aug 01 Feb 06 Feb 01 Boral Limited Annual Review 2006 0 cHAIRMAN’s REPoRt occurred in Boral-related operations during the year. Sadly, in May 2006, an employee of our Thailand concrete business was Boral delivered a net after tax profit of fatally injured in a tragic accident on a $62 million for the 200/06 financial year, construction site involving the collapse of a which was 2% below the A-IFRS restated nearby mobile crane lifting concrete precast net profit for the year ended 0 June 200. panels. Earlier in the year, in October 200, Boral’s sales revenues for the year of an employee of a sub-contractor working $.8 billion were % higher than the on a Boral asphalt project in Sydney was prior year. tragically killed in a vehicle-related accident. Boral’s sales revenue was stronger due to These tragedies are a stark reminder of favourable pricing outcomes, the benefits the risks we must manage every day in our of growth initiatives and volume lifts in business and the ongoing focus we must the USA and in Australian non-dwellings place on managing contractor safety as and major projects. Our reported profit, well as employee safety in all of our global however, was lower than last year due operations. to fuel and energy-related cost increases Members of the Board review in detail all across all divisions, lower volumes in fatalities, including the corrective actions Australian housing activity and $ million taken, that occur on Boral sites and in of one-off costs due to commissioning/ Boral’s safety and sustainable related operations such as joint venture production issues at Waurn Ponds cement development progress businesses. The Board reviews all divisional and Galong lime kilns. We remain committed to delivering ongoing Health and Safety Management Plans, Earnings per share for the year decreased improvements to Boral’s sustainability we approve safety improvement targets by % from 6. cents to 6.7 cents. performance in an environmental, social and we regularly monitor performance Boral’s return on equity (ROE) of .2% and economic sense. We continue to against target for all divisions. Boral’s was below last year’s ROE of .%. acknowledge the importance of and Directors have confidence that safety is A 00% franked final dividend of 7 cents deliver improvements in reporting our non.0 being managed in the Company with the per share was declared, taking the full year financial achievements and impacts. Boral’s appropriate level of senior management franked dividend to .0 cents per share. Sustainability Report, which forms part of focus and employee commitment. The full year dividend has held steady this Annual Review, details the progress we compared with the prior year and when Resourcing for growth have made over the past year, our current grossed up for the impact of franking Boral’s CEO and Managing Director, Rod sustainability priorities and objectives, and credits, the .0 cent dividend represents, Pearse, who became CEO-elect of Boral in how we work to manage and govern our for most shareholders, an annualised sustainability activities. October 999, continued to provide strong dividend yield of .9% per annum on I encourage shareholders to review Boral’s and effective leadership in 200/06. The Boral’s average share price for the year Board has considerable confidence both in Sustainability Report and to provide to 0 June 2006. Dividends declared in feedback to Boral’s management (using the Mr Pearse’s ability to continue to deliver respect of the year ended 0 June 2006 Boral’s strategy and in the Management contact details on the inside front cover of total $200. million, representing a Committee, which remains a stable team this report). dividend payout ratio of % of after of senior executives. Throughout Boral’s operations safety tax profits. remains the highest of priorities. During the Boral’s effective succession planning and Combining the benefits of share price and year ended 0 June 2006, Boral’s lost time performance management processes dividend growth, Boral has delivered a continue to support internal promotion, injury frequency rate (LTIFR) per million Total Shareholder Return (TSR) of 27% per cross-fertilisation, and executive hours worked reduced by 26%, from .2 annum since Boral’s demerger in February development, which is an important part of in 200/0 to .. The recordable injury 2000, through to 0 June 2006, which Boral’s Perform & Grow strategy. frequency rate (RIFR) reduced by % continues to rank our performance in the top to 27 (following a % improvement in . Remuneration and governance 2% of the top 00 companies in Australia the prior year) and percentage hours lost The Board, which comprises six Non(ASX 00) over that period. Over the past remained steady at 0. (following a % executive Directors and one Executive six years Boral’s share price appreciation improvement in the prior year). Director, acknowledges the importance of has been underpinned by earnings per appropriate Corporate Governance controls share compound growth of % per annum Despite this continued pleasing improvement in Boral’s safety statistics, and by dividends that have grown at a we sincerely regret that two fatalities compound rate of % per annum. The Company’s 2006 financial performance Boral has continued to buy back shares to offset the dilutive effect of the issue of shares through the dividend reinvestment plan (DRP) and the executive option plan (EOP). During the year, .9 million shares were bought back for an average share price of $8.62. Boral retains its 9.9% strategic shareholding in Adelaide Brighton Limited which was acquired in December 200 at a cost of $. per share, when we announced an intention to make a takeover offer for the company. Whilst Boral’s takeover of Adelaide Brighton did not eventuate, our 9.9% investment in Adelaide Brighton has performed well with an unrealised capital appreciation of around $09 million since acquisition.  A-IFRS – Australian equivalents to International Financial Reporting Standards.  and embraces transparent governance processes and controls in line with ASX Corporate Governance Guidelines and CLERP 9 reforms. The separate Remuneration Report for shareholders as part of the Directors’ Report (on pages 9 to 8) provides extensive information on the Company’s remuneration structures. The Directors embrace the opportunity to meet with Boral’s customers, to talk to our shareholders and market analysts and to meet with Boral’s managers and employees. We do this through site visits, dinners, meetings and presentations. In March 2006, my fellow Directors and I toured Boral’s brick, roof tile and construction materials operations in the USA. It was a busy trip but most rewarding for us to see first hand our leading brick and roof tile businesses. Our offshore businesses currently contribute around one-third of the Company’s earnings and we have been growing our offshore position at a faster rate than we have been locally. Towards the end of the financial year, in June 2006, we spent time touring clay and concrete products plants as well as quarry operations in South Australia. The Directors feel that the Company is well equipped to meet the challenges ahead and to take advantage of the opportunities that Boral will face. The organisation is continuing to learn from its past and to grow value. It is delivering improvements that are benefiting our customers, our shareholders and our communities. “Through the objectives of Boral’s Perform & Grow strategy, the Company is delivering improvements and growing for value. The organisation is well equipped to meet the challenges ahead and to take advantage of the opportunities that Boral will face.” Ken Moss CHAIRMAN KEN MOSS CHAIRMAN Performance Against Objectives OBJECTIVES PERFORMANCE 1. Exceed weighted average cost of capital (WACC) through the cycle 2. Deliver better financial returns than the competition in comparable markets 3. Deliver superior total shareholder returns 4. Achieve superior returns in a sustainable way  Return on funds employed. ROFE of .2% exceeds WACC. Focus remains on delivery of price, PEP and growth outcomes Returns from Australia, Asia and USA compare well against competitors in like markets TSR since demerger (6. years) of 27% p.a. in top quartile of ASX 00 companies listed for that period Focus on sustainable margins and sustainability Boral Limited Annual Review 2006 2 MANAgINg DIREctoR’s REVIEW On  March 2006, Boral celebrated 60 years since its incorporation. Entrepreneur David Craig started Bitumen and Oil Refineries (Australia) Limited in 96. Since then Boral has become an iconic Australian brand and an increasingly global Company. In its early days, Boral was involved in the manufacture of bitumen from crude oil imported into Sydney. Sir Elton Griffin was Boral’s first Managing Director, holding the position for 27 years. In the press release announcing his retirement, the Chairman stated: “It was the hard work and genius of Sir Elton which had projected the Group from its small beginnings to the position it occupies today, during which time the assets of the Group have increased from $3.27 million to $118.6 million and the profit before tax in 1949 (its first full year of operation) of $81,494 to a profit before tax of $12.6 million in 1973. ” Another three decades on and the assets have continued to grow to over $.6 billion and the profit before tax has grown to $6 million. In 97, Sir Eric Neal became Boral’s second Managing Director. In 986, he was voted as Australia’s best corporate leader and a year later Australia’s Businessman of the Year. Another  years on, in 987 Bruce Kean took over the reins. , By then Boral had been totally redefined to incorporate building and construction materials supply, building services, building maintenance, gas and other manufacturing. Bruce Kean retired in 99 and was succeeded by Tony Berg, who ran the Company for five years and prepared Boral for its next transformational step, the demerger of the building and construction materials operations from the energy group in February 2000. So in the Company’s 60 year history I am only Boral’s fifth Managing Director, a position I very proudly hold. I am mindful of Boral’s long and successful history and I am committed to ensuring that the Company continues to strengthen its performance in a sustainable way well into the future. Celebrating 60 years Building Products businesses in Australia experienced the most difficult market conditions (particularly in New South Wales), with dwelling approvals 7% lower than last year (following an % decline in FY200). EBITDA from Building Products, Australia was down % to $62 million as a result of the reduced activity levels and related manufacturing cost increases. Nevertheless, Building Products businesses delivered favourable price outcomes and $2 million of PEP operational cost savings. In Construction Materials, Australia, Sustaining historically strong stronger non-dwelling activity, an performance increase in major road and infrastructure Boral’s full year profit result for the year ended 0 June 2006 remains at high levels. projects, and several bolt-on acquisitions underpinned a 7% lift in Boral’s concrete This is despite experiencing high fuel and volumes. However, Construction Materials, energy-related costs and historically low Australia EBITDA of $0 million was levels of housing demand in New South Wales (the lowest in over 0 years), where $6 million lower than the prior year primarily due to the $ million impact from we derive some 0% of our Australian Waurn Ponds cement plant and Galong revenues. lime kiln, together with unrecovered fuel For the 200/06 year, we reported an % and other inflationary cost increases. increase in sales revenue to $.8 billion, This was despite price increases and a % lift in earnings before interest, tax, $2 million of PEP cost savings. Quarry depreciation and amortisation (EBITDA) End Use earnings of $7 million were up to $82 million, and a solid net profit of around $0 million on last year and were $62 million, which was 2% lower than predominantly sourced from the Nelsons last year. Ridge (Greystanes) and Moorebank Growth initiatives, operational developments and the Deer Park Western improvements and solid pricing outcomes Landfill operation. underpinned the strong growth in revenue. A year ago our total offshore EBITDA However, the impact of the cyclical earnings, from the USA and Asia, downturn in the Australian housing market, accounted for a quarter of Boral’s total an overall average 0-% increase in EBITDA. Today they account for closer Boral’s fuel costs, and a one-off cost of to one-third. This lift is attributed to the $ million associated with production very strong performance in the USA problems in our Cement division adversely during the year. impacted earnings. In addition, Boral’s Boral’s US operations benefited from recent capital investments have led to a favourable market conditions (a % lift in $7 million lift in depreciation charges to total housing starts in “Boral’s US States” $209 million together with a $27 million increase in interest expense to $98 million, and a 6% lift in non-dwelling activity), price increases and US$26 million of PEP cost which has contributed to the 2% year on reductions, as well as growth projects. year decline in reported net profit. EBITDA increased in all USA businesses Boral’s EBIT to sales margin reduced compared to the prior year, with total US to 2.9% from .0% in the prior year; EBITDA up 2% to a record US$6 million EBITDA to sales margin reduced from or in Australian dollar terms, up 2% 8.% to 7 .%. This margin compression to A$29 million. occurred because Boral’s total costs increased by around 6% largely attributed to cost increases in fuel/energy, raw materials and wages and were not fully recovered by price increases and by $2 million of cost savings from performance enhancement programs (PEP). I recognise that the Company’s position is based on the creativity and hard work of both past and present employees, many of whom have long and loyal tenures with the Company. On average, current employees at Boral have been working with the Company for around nine years. I thank them for their commitment and hard work and congratulate them on the 200/06 result which has consolidated Boral’s strong and improved financial position over recent years.  Our businesses in Asia faced market challenges. Whilst Asian operations delivered a full year EBITDA of $0 million, which was an 8% lift on last year, they benefited from a one-off compensation payment from the government for land resumed in Shanghai. Underlying results were weaker, reflecting difficult plasterboard market conditions in Korea and Thailand and a significant fuel-related cost/price squeeze in construction materials. In Indonesian construction materials, price increases of close to 0% were not sufficient to fully recover fuel and cement cost increases. Boral’s financial position remains strong. Gearing (net debt/equity) at 0 June 2006 of 7% compares with 8% a year earlier and remains within Boral’s targeted gearing range of 0% to 70%. Net debt at 0 June 2006 was $,78 million compared with $,6 million at December 200 (and $,9 million at 0 June 200). Operating cash flows (before capex) of $9 million were 8% above the prior year. Capital expenditure for the year was $ million, consisting of $207 million of stay-in-business capital and $07 million of growth and acquisition capital expenditure. Strong balance sheet “In Boral’s 60 year history I am only the Company’s fifth Managing Director, a position I very proudly hold. I am mindful of the Company’s long and successful history and I am committed to ensuring that the Company performs and grows in a sustainable way well into the future.” Rod Pearse CEO AND MANAGING DIRECTOR Boral’s growth performance During the year, Boral’s EBITDA earnings benefited from recently completed growth projects, including the Berrima cement kiln #6 upgrade, growth in US Brick distribution, Denver concrete and quarry businesses, the new Union City brick plant and the timber acquisitions of Fennings/ Davis & Herbert. The benefits of growth in 200/06 were, however, partially offset by higher operational costs at the Waurn Ponds cement works and the Galong lime operation. The Waurn Ponds cement kiln upgrade should impact more favourably on results in 2006/07 . Benefits from the Engineered Flooring plant at Murwillumbah, the Herons Creek Timber Mill upgrade, Midland Brick Kiln #, the Wetcast Masonry plant in Queensland, US Brick plant upgrades at Salisbury and Augusta, the Trinidad Clay Roof Tile plant and East Coast Australian concrete and quarry upgrades are expected to favourably impact on earnings from 2006/07 . In 200/06, Boral invested $07 million of growth and acquisition capital and announced $20 million of new growth capital projects. The expected timing of phased benefits from these newly committed projects, and from previously announced projects of some $80 million which are yet to benefit Boral’s earnings, is listed in the accompanying table. Growth benefits from these projects and others will continue to enhance Boral’s profitability over time as organic growth projects are completed, new businesses are integrated, and more favourable market conditions are experienced. Looking forward I remain confident that Boral can continue to invest in valuecreating growth at a rate of around $00 million or more each year, albeit that this expenditure may vary from year to year. Boral Limited Annual Review 2006  Ongoing and New Growth Activities STATUS DURING yEAR ENDED JUNE 2006 PHASED BENEFITS FROM: • Completion of US$0 million brick capacity upgrades at the Salisbury plant (South Carolina) and Augusta 6 plant (Georgia), resulting in an additional 9m SBE of capacity. • Completed construction by Concrite of a new plant at Blacktown in NSW. • $2 million upgrades of Bacchus Marsh sand quarry in Victoria, expansion of Peats Ridge quarry on the NSW Central Coast and Dunmore quarry (up to 2.m tpa) on the NSW South Coast. • Bolt-on acquisitions of Midway Minimix in Brisbane, Numix concrete in NSW, and the remaining 0% of Go-Crete (WA). • Through the LBGA JV with Lafarge, doubling capacity in China to 70m m2 of plasterboard, for a total investment of US$0 million, by expanding in Shanghai and Chongqing. During the period the new Chongqing plant was commissioned in line with plan with the first benefits delivered in CY200. The Shanghai expansion program was delayed, however, due to resumption of land by the Chinese government. LBGA has been fairly compensated for the land being resumed and intends to pursue its original intention once an alternative site has been secured. • Completion of Stage 2 of the Waurn Ponds (Vic) cement works upgrade. • $9 million reinvestment in concrete network plant construction at Coomera, Lawnton and Ipswich in Qld. • Completion of a new US$ million, 00m SBE brick plant at Union City, Oklahoma, in the USA. • Completion of a US$6 million (96k squares) upgrade of the Katy, Texas MonierLifetile concrete roof tile plant. • Commissioning of Midland Brick’s (WA) new $ million, 0m SBE state-of-the-art Kiln #, which will manufacture a wide range of bricks, pavers and facing tiles, will deliver a wide range of improved environmental and OH&S outcomes, and will eventually replace the aging Kiln . • Completion of a $28 million upgrade of the cement bagging plant at Maldon; the new bagging line is now in operation and the relocation of bagging operations from Seven Hills to Maldon allowed the closure of the Seven Hills facility in June 2006. • Commissioning of the new $2 million automated “wetcast” paving plant at Wacol (Qld). The plant is the most highly automated of its type in Australia and is now supplying eastern state markets. • Commissioning of the new Gepps Cross asphalt plant in SA. • Construction of a new 0m m2 plasterboard plant in Vietnam commenced during the period involving a total JV investment of US$ million. The plant is expected to be operational in calendar year 2006 and is progressing in line with budgeted timelines and costs. • Commissioning and ramp-up from March 2006 of a US$2 million (2k squares) clay roof tile plant in Trinidad to serve the Florida market, the USA’s second largest clay tile market, in JV with ANSA McAL. • Commissioning of a $2 million upgrade of the Herons Creek Timber mill, with ramp-up through 2H06. It is likely that the plant will achieve the targeted run rate in the first quarter of 2006/07. • Commencement of a $27 million upgrade of Berrima’s cement mill #7 to 800k tpa cement ball mill capacity (which will result in a 00k tpa net increase in grinding capacity by March 2007). • In October 200, Boral announced a net $06 million plasterboard investment in Qld. Construction of the new 0m m2 plasterboard plant has now commenced with commissioning anticipated before October 2007. • Announced construction of a new US$ million, 20m SBE clay brick plant at Terre Haute, Indiana, with construction commencing in August 2006, completion is anticipated in the Dec – 2007 quarter. • Commencement of site works on new US$27. million, 0k squares p.a., clay roof tile plant at Ione, California. • Announcement of a total US$69 million investment through 0/0 Lafarge JV MonierLifetile to build two new concrete roof tile plants, one in Las Vegas, Nevada and one in Lake Wales, Florida, increasing MonierLifetile’s capacity by 900k squares p.a. Lake Wales will benefit from Dec-07 quarter. The new concrete roof tile plant in Las Vegas, Nevada has experienced some delays in commencement of construction due to land negotiations, with benefits expected from June – 2008 quarter. • A US$2 million upgrade (total investment) of LBGA’s Dangjin plant, near Seoul, to double its plasterboard capacity to 7m m2 has been approved and the new capacity will be commissioned late in CY2007. • Hard rock reserves and additional buffer lands adjacent to Boral’s Marulan limestone quarry on the NSW south coast for $ million. • Hard rock reserves and buffer lands at Reedy Creek on the Gold Coast, Qld for an investment of $ million. • Extension of Boral’s Deer Park (Vic) quarry licence from  to 0 years, confirming Boral’s leading position in the Western Melbourne quarry market. Sep-2005 quarter Dec-2005 quarter Mar-2006 quarter June-2006 quarter Sep-2006 quarter Mar-2007 quarter Dec-2007 quarter Mar-2008 quarter Longer term  One square = 00 square feet.  We anticipate that Australian non-dwelling and infrastructure activity will continue to favourably impact Construction Materials businesses during 2006/07 Price increases . of around -% for cement and concrete price increases of $ per cubic metre have Delivering a Perform & Grow strategy been announced effective October 2006 in in a sustainable way most Australian markets. We are committed to pursuing industryQuarry End Use earnings of around specific best practice in the area of $0 million are expected, which will again sustainability including best practice in our be weighted heavily to the second half of reporting. Our 2006 Sustainability Report the year. (published on the reverse side of this The USA housing market should soften Annual Review) provides shareholders, employees, customers and other interested in 2006/07 from record levels of activity; however, the extent to which markets slow parties with considerable information will vary between regions. According to on Boral’s sustainability performance FW Dodge March 2006 forecasts, and priority areas. We provide more residential starts in “Boral States” are detailed comments on our sustainability forecast to decrease by 7% in 2006/07 . management on pages S2-S. However, non-residential value of work Boral’s 200/06 safety performance was commenced in Boral States is estimated to a solid improvement on the prior year and be 8% up in 2006/07 . delivered record low rates of lost time Plasterboard market conditions in Korea, and medical treatment injuries. Lost time Thailand and China are expected to remain injury frequency rate (LTIFR) per million competitive over the next year. The benefits hours worked improved by 26%, reducing of possible volume increases and growth from .2 to . and the recordable injury benefits in our Asian Construction Materials frequency rate (RIFR) reduced from . businesses in 2006/07 will be largely offset to 27 a % improvement. Percentage ., by increased cement and fuel costs and hours lost, which reflects the severity of very competitive markets. injuries sustained, was maintained at a record low 0., consolidating the % Fuel-related costs will inflate in all markets improvement delivered last year. and will erode margins. Operating cost improvements from performance Safety performance at our “Boralenhancement programs of at least % are managed” operations, particularly in expected to continue to largely offset nonAustralia, has shown a strong and ongoing fuel related inflation impacts in 2006/07 . improvement over recent years. However, in operations that we do not directly Growth initiatives will continue to control, such as joint ventures, in recently progressively deliver improved benefits acquired businesses, or on projects that (particularly in the USA and Cement). we have sub-contracted out, we recognise We expect Boral’s EBITDA to improve in that there is further room for improvement. 2006/07 However, interest expense and . The LTIFR for Boral’s Australian based depreciation charges will also be higher. contractors in 200/06 was 7 which is ., Overall, subject to US and Australian more than twice as high as the rate of interest rates and activity levels, we expect . for employees. Percentage hours that Boral’s profit after tax in 2006/07 will lost for contractors was in line with be comparable to the $62 million PAT employees at 0.. reported for 200/06. Our current focus is to deliver on our growth promises, whilst maintaining a strong price and cost discipline focus. This is the essence of our Perform & Grow strategy. Outlook We anticipate that in 2006/07 dwelling commencements in Australia will decline by around -6% below 200/06 levels to around 0,000 to ,000 starts. This will impact negatively on our Building Products businesses in Australia and will see us extend our program of temporary plant closures to better manage inventory levels, particularly in Clay & Concrete Products. Effective price and cost management should mitigate some of the volume related impacts. ROD PEARSE CEO AND MANAGING DIRECTOR Boral Limited Annual Review 2006 6 SUMMARY OF REPORTING GROUPS coNstRuctIoN MAtERIALs, AustRALIA Share of External Revenue Quarries Concrete Asphalt Transport QEU Contracting Cement* buILDINg PRoDucts, AustRALIA Share of External Revenue Bricks Roofing Masonry Windows Timber Australian Plasterboard * Cement division includes Blue Circle Southern Cement (external revenues), concrete placement and scaffolding. Revenue $m 2,410 EBIT1 $m 307 305 286 EBIT/Revenue % 14.6 14.1 12.9 Revenue $m 1,355 EBIT1 $m 159 151 EBIT/Revenue % 13.1 10.3 118 9.7 8.0 6.9 8.5 12.7 1,217 1,748 1,523 1,640 1,846 2,099 2,164 1,169 1,156 11.9 1,187 1,213 12.5 132 238 1,729 216 9.5 8.7 955 999 166 94 143 7 .5 114 65 85 119 FY06 FY00 FY01 FY02 FY03 FY04 FY99 FY06 FY06 FY00 FY01 FY02 FY03 FY04 FY99 FY00 FY01 FY02 FY03 FY04 FY06 FY06 FY00 FY01 FY02 FY03 FY04 FY99 FY05 FY99 FY00 FY01 FY02 FY03 FY04 FY99 FY05 FY00 FY01 FY02 FY03 FY04 FY99 YEAR ENDED 0 JUNE 2006 200 % CHANGE FY05 YEAR ENDED 0 JUNE FY05 FY05 2006 200 % CHANGE A$ million unless stated A$ million unless stated Sales revenue EBITDA EBIT Capital expenditure2 Funds employed2 EBITDA return on sales, % EBIT return on sales, % EBIT return on funds employed, % Employees, number Revenue per employee 2,410 410 286 273 2,202 17.0 11.9 13.0 5,754 0.419 2,6 6 0 22 2,0 9.2 . .0 ,662 0.82  (2) (6) () 8 2 0 Sales revenue EBITDA EBIT Capital expenditure2 Funds employed2 EBITDA return on sales, % EBIT return on sales, % EBIT return on funds employed, % Employees, number Revenue per employee 1,213 162 118 119 1,001 13.4 9.7 11.8 4,143 0.293 ,87 9   908 6. 2.7 6.6 ,099 0.290 FY05 FY06 9.7 2 () (22) () 0   • Strong cement, concrete and quarry volumes and price gains. Concrete volumes up 7% reflecting bolt-on acquisitions and stronger non-dwellings and major projects. • Fuel, cement and other cost increases not fully recovered. • Waurn Ponds and Galong kiln production issues ($ million). • $0 million lift in Quarry End Use (QEU) EBIT to $7 million largely from Nelsons Ridge, Moorebank and Western Landfill operations. • $2 million of PEP cost reductions. • Continued strength in non-dwellings and infrastructure. • Cement and concrete price increases announced effective October 2006. • QEU earnings of ~$0 million weighted heavily to June half. • PEP of at least % to largely offset non-fuel inflation; fuelrelated costs expected to be high. • Progressive benefits from growth – particularly in Cement. Performance • Revenue lift due to growth initiatives and price gains. • Lower housing-related volumes, higher manufacturing costs associated with temporary plant shuts and inflationary cost increases resulted in lower earnings. • WA performed significantly better than east coast markets, particularly NSW which remains at 0-year low for detached housing. • $2 million of PEP cost reductions. Performance FY2007 Outlook FY2007 Outlook • Expect ~0,000 -,000 dwelling starts. • Effective price and cost management should mitigate some volume-related impacts, however, extended program of temporary plant closures will further impact manufacturing costs. 7 usA Share of External Revenue US Bricks AsIA ** MonierLifetile joint venture is equity Concrete Roof Tiles** accounted – Boral’s Clay Roof Tiles share of revenue does not appear in Construction Materials consolidated accounts but is included in the Fly Ash revenue pie chart. Includes Boral’s Asian plasterboard joint venture with Lafarge and Boral’s Indonesian and Thailand construction materials businesses. Revenue $m3 364 EBIT1 $m EBIT/Revenue3 % 241 300 20 186 116 103 9.4 10.4 11.9 7 .4 Revenue $m 957 EBIT1 $m EBIT/Revenue % 98 210 227 24 29 22 23 147 18.1 19.4 756 793 761 755 810 13.9 14.4 647 110 90 98 99 13.1 13.9 662 111 112 14.6 14.8 -14 4 -30 -25.9 -13.6 4.0 FY06 FY06 FY00 FY01 FY02 FY03 FY04 FY99 FY06 FY06 FY00 FY01 FY02 FY03 FY04 FY99 FY00 FY01 FY02 FY03 FY04 FY00 FY01 FY02 FY03 FY04 FY99 FY05 FY99 YEAR ENDED 0 JUNE 2006 200 % CHANGE FY05 YEAR ENDED 0 JUNE FY05 FY06 FY00 FY01 FY02 FY03 FY04 FY99 FY00 FY01 FY02 FY03 FY04 FY99 FY05 FY05 2006 200 % CHANGE US$m A$ million unless stated Sales revenue EBITDA EBIT 714 163 139 6   80 77 7 77 7 2.8 8. 9.7 2,8 0.8 7 2 2 8 2 27 ()  A$m Sales revenue 957 EBITDA 219 EBIT 186 Capital expenditure2 100 Funds employed2 848 EBITDA return on sales, % 22.8 EBIT return on sales, % 19.4 EBIT return on funds employed, % 21.9 Employees, number 2,679 Revenue per employee 0.357 Sales revenue EBITDA EBIT Funds employed Return on funds employed, % 177 30 23 377 6.0 6 28 22  7 .2 FY05 FY06 6.2 0 8   2 • Record EBIT of US$9 million. • Favourable market conditions – value of construction work in dwellings up % and in non-dwellings up 6%. • Price increases of 0% in bricks, % in clay roof tiles and 2% in concrete roof tiles. • Full year contribution from Denver Construction Materials. • US$26 million of PEP cost reductions. Performance • Equity accounted income of $20 million from Asia plasterboard JV was higher due to one-off land compensation payment for land resumed in Shanghai. Underlying result steady. • Improvement in trading conditions in South Korea not yet commenced – volume and price pressures continuing. • Price pressures continuing in Thailand due to industry capacity additions. • Construction Materials profits lower. In Indonesia, significant impact on economy from substantially higher diesel prices. Fuel and cement cost increases, largely recovered by ~0% price increase. Thailand faced similar challenges; rising cost pressures compounded by political uncertainty, dampening overall growth in activity. • Plasterboard market conditions in Korea, Thailand and China to remain competitive. • Benefits of volume increases and growth in construction materials largely offset by cement and fuel cost increases and very competitive markets. Performance FY2007 Outlook FY2007 Outlook • Expect weaker dwellings (-% brick States; -7% tile States) but non-residential value of work in Boral States up ~8%. • Effective price and cost management but fuel costs will inflate. • Benefits from growth will progressively be delivered.  2   FY0 result onward has been adjusted for adoption of A-IFRS. Including acquisitions. 200 onwards includes Boral’s share of the Asian plasterboard joint venture revenues. Boral’s share of revenues from the Asian Plasterboard joint venture do not appear in Boral’s consolidated accounts. Boral’s profits from this business are equity accounted and are after financing and tax. Boral Limited Annual Review 2006 18 australian construction materials The Australian Construction Materials (ACM) division employs around 4,500 employees and 1,300 contractors in quarry, concrete, asphalt, transport, contracting and land development activities throughout Australia. With around 400 operating sites, ACM has a regional focus to serve Boral’s local markets. contracts in Western Australia (many of which have now been exited) and unrecovered diesel fuel increases. Boral Transport is well positioned and fully supportive of the increasing transport industry safety standards that are likely to flow from the Chain of Responsibility legislation. Boral’s Quarry End Use (QEU) business contributed $47 million of EBIT (up around $10 million on last year) predominantly sourced from the Nelsons Ridge (Greystanes) and Moorebank developments in New South Wales and the Deer Park Western Landfill operation in Victoria. Western Landfill benefited from a strong increase in landfill volumes and the generation of electricity for the Victorian grid from the new landfill gas turbines. Moorebank and Greystanes QEU earnings were in line with expectations and largely flowed from contractual revenue streams from our development partners because of the downturn in Sydney residential land sales. Results from ACM’s Contract Mining business were better than last year and plans are well advanced to exit this business. Widespread cost control programs exist within the division and every business unit worked hard to achieve cost reductions during the year. ACM continues to invest in its core business in key markets through improvements in our existing networks, expansion by acquisition and substantial investments in our core concrete operating systems. REVIEW OF OPERATING DIVISIONS Quarries Performance Despite a sizable drop in ACM’s largest market of New South Wales, where detached dwelling activity is at a 30-year low, ACM’s FY2006 national sales were around 10% higher than the prior year. This strong performance was underpinned by good market conditions in the “resource driven” states of Queensland and Western Australia, together with effective price management across most businesses. Our national quarry, concrete and internal transport businesses experienced strong volumes throughout the year. Boral’s concrete volumes were 7% higher, reflecting a number of bolt-on acquisitions and stronger activity levels in non-dwellings and major projects, which more than offset the softer housing market. Aggregate volumes were up 5% on the prior period. Average prices for quarry products increased by around 3.5% and average concrete prices increased by around 3% compared with last year. Despite these price increases operating margins were under pressure due to significant cost increases, in particular fuel, which has risen by some 35% over the period. ACM has several non-Boral branded concrete businesses, including Concrite, Alsafe, and Q-Crete (formally Brisbane Mini-Mix). These businesses continue to perform well as have our interests in the concrete panels market. Asphalt performed well during the year with stronger volumes underpinning an 18% lift in revenues and margins improving despite significant cost pressures from bitumen and fuel price escalation. Key projects during the year included the Kiama Bypass in New South Wales, the offshore Norfolk Island project completed by the Queensland region and the early stages of the EastLink project in Victoria. ACM continues to invest in this business with the successful completion of the Gepps Cross plant upgrade in South Australia during the year. Boral Transport’s earnings were lower than last year mainly due to under-performing Boral has leading quarry resource positions close to market and is Australia’s leading quarry operator with around 90 quarries, sand pits and gravel operations producing products such as concrete aggregates, crushed rock, asphalt and sealing aggregates, road base materials, sands and gravels. Concrete The network of around 240 premix concrete plants produces a wide range of mixes in metropolitan and country areas. Boral’s acquisition of Go-Crete in Western Australia and 50% of Girotto Precast on the East Coast gives it interests in precast concrete plants in key markets. Asphalt Boral is a national supplier of asphalt with around 50 plants producing asphalt and other materials for the surfacing and maintenance of road networks. Transport The company-owned fleet totals around 400 vehicles providing bulk transport and logistics solutions to the construction materials businesses, other Boral divisions, the coal industry and other external specialised bulk materials and freight markets. Boral Transport manages approximately a further 300 contracted vehicles and drivers. Quarry End Use Outlook We anticipate that non-dwelling and infrastructure activity will continue to favourably impact ACM during 2006/07 . Whilst fuel-related costs will inflate and erode margins, October concrete price increases of around $5 per cubic metre have been announced and operating cost improvements from performance enhancement programs are expected to largely offset non-fuel-related inflation impacts. John DouglAs ExECUTIVE GENERAL MANAGER QEU focuses on realising appropriate end uses for quarry properties and other Boral land assets that are nearing the end of their extractable life. Current major QEU activities include development of the Greystanes Estate and the Moorebank brick plant redevelopment in Sydney and a 40% share in the Penrith Lakes Development Scheme. 19 ACM continues to invest in new strategic reserves to ensure strong quarry market positions around the country. Of significance are the achievement of Life of Reserve extraction approvals for Deer Park Quarry in Melbourne and the acquisition of Reedy Creek to service Australia’s fastest growth corridor in South East Queensland. Upgrades totalling $12m at Bacchus Marsh sand quarry in Victoria and at Peats Ridge and Dunmore Quarries in NSW were completed in 2005/06. DARWIN Asphalt is a growth opportunity for Boral. We have recently commissioned a new $3m plant at Gepps Cross in South Australia. We are also investing heavily in Queensland to ensure we are well positioned for emerging projects such as the North South Tunnel and the Gateway Upgrade. In Victoria, Boral is a key provider of asphalt to EastLink, Australia’s largest single road development project. BRISBANE PERTH SYDNEY ADELAIDE ASPHALT CONCRETE QUARRIES TRANSPORT CANBERRA MELBOURNE HOBART Complementing Boral’s long term commitment to an improved sustainable environment is the Recycling business which this year reported earnings 30% ahead of expectations. The newly established St Peters site in New South Wales was an important contributor to this improved performance. The increased exposure to major infrastructure projects in recent years has helped to offset a softening of residential markets, particularly in New South Wales. These large scale projects allow ACM to leverage its broad quarry, concrete and asphalt networks and leading technical capabilities to provide outstanding customer service on projects such as EastLink, in Victoria the Pacific Highway upgrade in New South Wales and the Albury Wodonga Bypass crossing both states. Boral limited Annual Review 2006 20 REVIEW OF OPERATING DIVISIONS cement The Cement division is a portfolio of businesses comprising Blue Circle southern Cement (BCsC), Boral Formwork & scaffolding, De Martin & gasparini, Dowell Windows, PT Jaya Readymix (Indonesia) and Boral Thailand Concrete & Quarries. The division operates across 144 operating sites in Australia, Indonesia and Thailand and employs approximately 4,900 people (with around 2,900 working in Asia). CONCRETE QUARRIES METAL PRODUCTS (PRODUCTION) SOUTH KOREA CHINA Performance In a challenging year, the Cement division’s earnings performance was mixed. Overall earnings were down, despite a number of the businesses in the portfolio producing pleasing results. Cement volumes for the year grew by 6%. New South Wales and Victorian volumes were both up and Sunstate Cement in Queensland continued its solid and consistent growth. Average cement prices were 3% higher than the prior year. Berrima’s Kiln #6 produced a steady performance and consolidated the gains flowing from the upgrade in 2005. The Waurn Ponds upgrade achieved practical completion in December 2005 and plant availability of around 70% in the June half year. During commissioning the plant demonstrated that it can perform at or above design capability and the focus is now on increasing availability. During the year, one-off commissioning costs at Waurn Ponds of around $10 million adversely impacted the result. Lime volumes were 25% lower during the year, driven by reduced lime usage in the steel sector. Lower lime demand coupled with production issues at Galong, which resulted in a $5 million one-off cost impact during the year, significantly reduced the returns from the lime business. The downward pressure on Formwork & Scaffolding earnings continued with the industry experiencing intense competition and low prices due to scaffolding overcapacity generated by the influx of imported hire stock in recent years. De Martin & Gasparini, the Sydney concrete placing business, produced significantly better returns as a result of improved contracting disciplines and higher volumes from an increased tender win rate. Boral’s windows business, Dowell Windows, generated a credible result given volatile and significantly higher global aluminium costs. Although volumes and prices were modestly up this did not offset the significant aluminium-related cost increases. In Indonesia, construction activity fell due to the significant negative impact on the economy of substantially higher diesel prices brought about by the reduction in government fuel subsidies. The fuel cost increases, together with higher cement costs, were largely recovered by an increase in average selling prices of close to 40%. The Indonesian quarry business continued to develop during the year and a second concrete pipe manufacturing plant was opened in Surabaya. The Concrete & Quarry business in Thailand faced similar challenges to the Indonesian business. Rising cost pressures were compounded by the negative effect of political uncertainty which has dampened overall growth in construction activity. Against that background, the business made positive moves to strengthen its underlying competitive position through further investment in quarry development and in improved business systems and controls. PHILIPPINES THAILAND VIETNAM MALAYSIA SINGAPORE INDONESIA Blue Circle Southern Cement (BCSC) Outlook We anticipate that non-dwelling and infrastructure activity will continue to favourably impact cement demand during 2006/07 Cement price increases of around . 4-5%, effective October 2006, have been announced and should largely offset cost increases. Asian volumes are likely to remain subdued moving into 2006/07 but could improve later in the year, although fuel-related margin squeeze remains an issue. Cement growth initiatives will continue to progressively deliver improved benefits. PhIl JoBe ExECUTIVE GENERAL MANAGER This leading Australian cement company has 19 sites and around 700 employees. The major operations are in the Southern Highlands of NSW at Berrima where the dry process cement capacity is 1.4m tpa. At Maldon, up to 300k tpa of off-white and grey cement can be produced and development of a larger scale and lower cost bagging and dry mix facility has been completed. BCSC markets fly ash acquired from power stations in NSW and has a 50% shareholding in Fly Ash Australia. In Victoria, at Waurn Ponds near Geelong, the upgraded dry process kiln has a capacity of 800k tpa. BCSC also has a 50% interest in Sunstate Cement which operates a cement milling facility in Brisbane. BCSC is a large producer of limestone for both internal and external customers from our substantial reserves at Marulan and at Galong in NSW. Lime is produced at Marulan and at Galong. Boral Formwork & Scaffolding (BFS) Boral is a leader in the hire and sale of formwork and scaffolding, providing engineering expertise to the Australian construction industry. BFS has 31 depots around Australia with an increasing focus on new formwork products. De Martin & Gasparini (DMG) DMG is a specialist concrete placing business which has been servicing Sydney’s construction industry for over 50 years. DMG has built its expertise in large pours, detailed formwork design and high strength concrete. 21 The Grand Hotel is one of the largest construction projects undertaken in Jakarta in recent years. Two large capacity Jayamix DARWIN concrete plants have been established on the Grand Hotel site in the city to supply high strength concrete to the project for a two year period. High quality stone from Jaya Readymix’s own quarry near Bogor was used in the concrete mix. A $27m upgrade of Berrima’s cement mill #7 to 800k tpa of cement ball mill capacity commenced during the year. This will result in a 400k tpa net increase in grinding capacity by March 2007. BRISBANE PERTH SYDNEY ADELAIDE CEMENT SCAFFOLDING WINDOWS CANBERRA MELBOURNE Dowell Windows Dowell operates nationally through 15 window fabrication businesses employing around 800 people, focusing on supplying the residential builder market. Indonesian Construction Materials PT Jaya Readymix is the largest producer of premixed concrete in Indonesia, employing around 1,700 people on 28 sites, predominantly located on the main island of Java. Its hard rock quarries produce aggregates for the Jakarta market. The business is expanding its concrete pipe and precast panels business. HOBART Boral Thailand Construction Materials This business is one of Thailand‘s leading concrete and quarry businesses and operates around 50 concrete batch plants and quarries throughout the country. A growing and well located quarry position will enable the business to barge aggregates into the large Bangkok market and better integrate with existing concrete batch plants. DMG was able to add value and satisfy client expectations at Westfield’s Liverpool shopping centre expansion in Sydney. The project involved three new levels, in excess of 28,000 m3 of concrete and over 100,000 m2 of floor area. The project commenced in June 2005 and completion of the subcontract works is expected later in 2006. Construction of a large scale, low cost, world class bagging facility was completed at BCSC’s Maldon Works and has enabled the relocation of the Seven Hills dry mix, grout and specialty sand operations, as well as consolidating the bagging of low volume cement products from Kooragang. Boral limited Annual Review 2006 22 clay & concrete products The Clay & Concrete Products division (C&C) manufactures and markets clay and concrete bricks, blocks, roof tiles and landscaping products. These products are widely used in a range of domestic and commercial walling, roofing and landscaping applications. There are a total of 44 Australian locations with 23 operating sites and the division employs around 1,800 people and over 500 contractors. The products are sold in Australia, new Zealand and Asia. shifts. The division’s calcium silicate (“Calsil”) brick plant located in Kurnell, New South Wales was permanently closed at year end. Improved manufacturing performance from the recently upgraded Darra clay brick and Carole Park concrete roof tile plants in Queensland and better performance from the aging Springvale concrete tile plant in Victoria, offset efficiency declines at the Wyee clay roof tile plant in New South Wales. These declines were associated with the introduction of an expanded product range. Performance Australian dwelling construction, particularly A major business improvement program which has seen a successful delivery detached housing, is the primary source of results in Bricks East has commenced of demand for the division’s products. The 2005/06 financial year saw a 7% decline in in Masonry. Several new product releases and an overall lift in the fashionability of Australian dwelling approvals, following an the division’s product range has assisted 11% decline in the previous year. Dwelling demand. starts were around 149,300 for the year, Commissioning of a new state-of-the-art which is well below underlying demand brick plant at Midland Brick in Perth, levels of around 165,000 starts. Included Western Australia commenced during the in this total were significant variations in fourth quarter of the financial year. The conditions between regions including near new Kiln 11 will manufacture a wide range peak conditions in Western Australia and of bricks, pavers and facing tiles. It will record 30-year lows in detached housing also deliver a wide range of improved activity in New South Wales. environmental and OH&S outcomes. In line with market conditions, overall Also during the June 2006 quarter, demand for the division’s products was lower which resulted in declining revenues commissioning commenced on a new “wetcast” paver plant in Wacol, and lower earnings on the prior year. Queensland. It is the most highly Despite the pressure from lower volumes; automated of its type in Australia and bricks down 2%, roof tiles down 7% and will secure Boral an industry leading cost masonry products down 10%, pricing position in this relatively fast growing outcomes were positive as a result of the segment. improved price management systems introduced in recent years. Average brick Outlook prices improved by 2-3%, roofing prices Dwelling activity is expected to continue were up around 2% and masonry prices to decline in 2006/07 with , lifted by 3%. Market shares were broadly commencements of around 140,000 to stable throughout the year although 145,000 expected. Effective price and increased competition was experienced cost management should mitigate some in Masonry where smaller players and volume-related impacts, however, an new market entrants sought to more full extended program of temporary plant utilise the recently expanded capacity in closures to better manage inventory New South Wales and Queensland. Clay levels, will further adversely impact brick competitors targeted the concrete manufacturing costs. brick share of wall in Victoria and in KeITh MITChelhIll ExECUTIVE GENERAL MANAGER New Zealand, competitors have recently increased clay brick capacity. Lower sales volumes resulted in a series of plant slowdowns or extended temporary shutdowns across the east coast. To manage inventories, five clay products manufacturing plants had extended shuts and multiple concrete products manufacturing plants operated on reduced REVIEW OF OPERATING DIVISIONS Bricks Boral is Australia’s second largest producer of clay bricks and pavers. Boral is also an exporter of clay products to New Zealand, Japan and increasingly other Asian countries. Bricks East comprises seven brick manufacturing sites in Victoria, New South Wales and Queensland. Bricks West includes Midland Brick which is the largest clay brick manufacturer on one site in the world. Midland was established in 1945 and acquired by Boral in 1990 Roofing As Australia’s second largest roof tile supplier, Boral competes in both the supply-only and supply-and-fix market segments. We operate four concrete roof tile plants, in the cities of Brisbane, Sydney, Melbourne and Adelaide and one clay roof tile plant at Wyee, on the New South Wales Central Coast. Masonry Boral is the largest manufacturer of concrete masonry products in Australia with manufacturing sites in five states. We are a recognised leader in the paving, landscaping and retaining wall segments and have an industry-leading range of products. 23 An automated wetcast paving plant has been commissioned at Wacol in Queensland. This plant will supply eastern states markets with paving products with a fashionable hand-moulded appearance. A small “Calsil” Masonry plant at Kurnell in New South Wales was closed at year end. DARWIN BRISBANE PERTH SYDNEY ADELAIDE BRICKS ROOF TILES MASONRY CANBERRA MELBOURNE Every home should make an individual statement and Boral Clay & Concrete Products is helping its customers do just that through a range of innovative brick, roofing and paving products including new products like Nuvo™ bricks, seamless roof capping systems, the terracotta shingle tile and the fashionable Abode™ large format paver. HOBART A range of brick, roofing and masonry products are being sold through the new Boral Select display centres which have opened in Wyong and Castle Hill in New South Wales. Further centres are planned. In Western Australia, the new $53m Kiln 11 was opened at Midland Brick. The kiln is one of the most technologically and environmentally advanced in the southern hemisphere and has a production capacity of 50m SBE a year. This will allow the closure of the 40 year old Kiln 4 which has 20% less capacity. Boral limited Annual Review 2006 24 REVIEW OF OPERATING DIVISIONS timber The Timber division employs around 860 people in its hardwood, softwood and plywood operations, located on the east coast of Australia. Timber operates across 16 manufacturing locations and seven sales and distribution outlets. Timber products are used in residential construction, renovation and commercial applications and are sold in domestic and export markets. full capacity in 2006/07 The result from . the Engineered Flooring operation was better than last year and manufacturing performance improved significantly in the last quarter of the year. Profitability from the newly acquired Davis & Herbert business was below expectation due to market and production issues. Significant manufacturing improvements have been achieved in Softwood which partially offset pricing volatility in the market. The Oberon mill upgrade has been completed but production volumes have not increased due to weak housing market conditions. Plywood profitability is up significantly on the prior year. Sales volumes have increased while cost savings have also contributed strongly to the improved result. Performance Timber’s revenues were up in 2005/06, as a result of the inclusion of revenues from the newly acquired Davis & Herbert/ Fennings operations and from the new engineered flooring plant in Murwillumbah. However, earnings were down during the year due to significantly softer markets, particularly in New South Wales and higher manufacturing and log harvest and haulage costs which were partially offset by growth benefits. Nationally, activity levels were down by around 4% and volumes were impacted across all businesses. Underlying hardwood volumes were down but softwood volumes were up 6% due to an increase in interstate volumes and lower margin products. Hardwood prices were marginally weaker, down 1%, while softwood prices were under pressure throughout the year, declining by 9% year on year. Plywood volumes increased by around 13% and prices lifted 3%, reflecting Boral’s ability to supply additional markets. Overall, Timber margins were weaker during the period due to pricing pressure in Softwood and higher unit production costs in some key Hardwood plants. Hardwood inventory levels were high due to softer markets. Following the commissioning of the $24 million upgrade at Herons Creek, two plants were closed (at Kempsey and Bostobrick) and production was slowed in other mills resulting in higher production costs. Increased manufacturing costs were coupled with higher log haulage costs. Production at the Herons Creek mill increased in the last quarter of 2005/06, and should result in lower manufacturing costs. The plant is expected to reach Hardwood Outlook We expect the domestic housing market to remain relatively weak in 2006/07 with , dwelling commencements of around 140,000 to 145,000 starts, resulting in continued pressure on volumes and prices across all businesses. Market volume impacts will be offset by the implementation of major Performance Enhancement Programs (PEP) and the completion of capital projects. It is expected that Engineered Flooring will improve, from both a sales and manufacturing perspective, in 2006/07 . PeTeR BoyD ExECUTIVE GENERAL MANAGER Boral’s hardwood business operates 14 manufacturing facilities in New South Wales and distributes product to domestic and export markets. The business is in a strong position in both structural and flooring markets. Boral exports small quantities of woodchips processed from sawmill waste, forest residues and plantation stock from the hardwood operations in northern New South Wales. Softwood Softwood’s single manufacturing facility is located at Oberon in New South Wales and operates through a joint venture with Carter Holt Harvey. The mill has a capacity of around 725,000 m3 following a recent capital upgrade. The mill has not produced to full capacity due to a weak detached housing market. Softwood products are primarily sold in east coast markets. Plywood Boral is Australia’s leading plywood producer and operates one large plywood operation at Ipswich in Queensland. Products are sold in all major Australian markets. 25 During the year, commissioning and ramp-up at Boral’s new Engineered Flooring plant at Murwillumbah continued with productivity and sales of our new Silkwood Flooring product increasing. At year end, production volumes were close to the required run rate while sales are building steadily in a market traditionally captured purely by imported products. DARWIN BRISBANE PERTH SYDNEY ADELAIDE HARDWOOD SALES OFFICE HARDWOOD MILLS PLYWOOD MILL AND SALES OFFICE SOFTWOOD MILL ENGINEERED FLOORING TIMBER FLOORING RETAIL SHOWROOM CANBERRA MELBOURNE The upgrade of Boral’s softwood manufacturing facility at Oberon, a joint venture with Carter Holt Harvey, has been completed and the mill now has the capacity to process 725,000 m3 of incoming log. Due to market issues, the mill is not producing at full capacity at present. HOBART The Davis & Herbert business, acquired in June 2005, achieved a satisfactory return in 2005/06 although results were below expectation due to a combination of market and production issues. It is anticipated that results will improve in FY2007. The $24m upgrade of the Herons Creek plant is broadly on track with production increasing in the last quarter of FY2006. The new plant has improved safety features and is designed to operate more efficiently with the smaller diameter regrowth log resource available from Forests NSW. Boral limited Annual Review 2006 26 REVIEW OF OPERATING DIVISIONS plasterboard CHINA SOUTH KOREA The Plasterboard division is an integrated manufacturing, distribution and installation business with 54 company-owned distribution and operating sites around Australia and employing around 700 people. It has 50% shares in gypsum supply and metal products manufacturing businesses in Australia with CsR and a 50% share of a gypsum products joint venture across Asia with the French company lafarge sA. trucks on local roads. It will service Queensland and other markets and allow our existing facility to be taken out of service. Our Asian Plasterboard JV with Lafarge, LBGA, recorded an equity accounted after tax profit of $20 million, which was above the same period last year, due to a one-off compensation payment from the Chinese government for land resumed in Shanghai. The underlying result was steady. The expected lift in the South Korean domestic economy did not come through in 2005/06 Performance and residential construction activity We estimate Australian demand for was weaker than expected, adversely plasterboard fell by around 2% in the year. impacting plasterboard volumes and prices. This reflects an easing in new dwelling Government action to minimise speculation construction activity in most Australian with residential construction, coupled with states, although the impact was greatest in New South Wales. Imports, mainly from energy-related cost increases, suppressed construction activity in a number of Asia Thailand, supplied around 1% of overall countries. The latter also hurt plasterboard demand, little change year on year. Higher sea freight costs have constrained imports supply costs which could only partially be offset by cost reduction programs. As a but surplus production from new plants in result, margins were generally weaker in Thailand, Malaysia and China represents a the period. potential new threat. LBGA successfully brought its new Despite the slowdown in Australian 10 million m2 per annum plant at Chongqing dwelling activity and lower average selling in Central China into commercial production prices, Australian sales revenue and in the year and its new plant outside EBITDA earnings were relatively steady Ho Chi Minh City in Vietnam was being during the period. The result was helped commissioned at year end. Investments by buoyant markets in Queensland and totalling US$42 million were announced in Western Australia, resilient plasterboard South Korea to add a second plasterboard demand from non-residential markets, line at the Dangjin facility close to Seoul, improved non-plasterboard sales through where a new ceiling tile plant is also to be our own direct distribution channels and constructed. These investments strengthen ® stronger sales of Boral’s new PartiWALL LBGA’s supply position in these markets and EurekaWALL™ partitioning systems. Ongoing cost reduction programs helped to for growth. offset the impact of lower prices. Outlook Average plasterboard prices fell by around Plasterboard demand lags other products 3% year on year although some stability in the construction process, which impacts was evident in the six months ending demand movements versus housing June 2006. The unfavourable margin impact activity. Potential for plasterboard imports of lower prices and cost inflation was offset into Australia from Asia remains a threat by the results of continued cost reduction to Australian prices and margins but our programs and margins from new sales. cost competitiveness, product range and As a result, underlying margins held year segment tailored channels to market on year. position us well to meet this threat. Plasterboard market conditions in Korea, Construction of the new 40 million m2 per Thailand and China are expected to remain annum plasterboard plant in Brisbane is competitive over the next year. However, well advanced and on schedule. This plant strong underlying plasterboard demand will be state-of-the-art in its automation is expected to underpin longer term and energy efficiency and is capable of Asian returns. using recycled water. Located next to the Brisbane River it will allow gypsum Ross BATsTone ExECUTIVE GENERAL MANAGER feedstock to be taken directly from ship by conveyor to plant, further reducing expected operating costs and reducing PHILIPPINES THAILAND VIETNAM MALAYSIA SINGAPORE INDONESIA Australia Boral specialises in the manufacture, distribution and installation of plasterboard based wall and ceiling lining systems and aims to be Australia’s leading supplier of wall and ceiling lining solutions. This is backed by design and training support services for a national customer base of resellers, interior linings contractors and builders. We have plasterboard manufacturing plants in Queensland, New South Wales, Victoria and South Australia, a specialty plasters and jointing compounds plant in Victoria, cornice plants in New South Wales and Victoria, an integrated national network of over 54 specialist trade centres and Australia’s largest residential wall and ceiling installation service. Boral is a 50% shareholder in Gypsum Resources Australia and in Rondo Building Systems, the leading metal products supplier for wall and ceiling lining systems. Asia Joint Venture Boral has a 50% shareholding of the Lafarge Boral Gypsum Asia (LBGA) JV, the leading plasterboard producer in Asia (outside Japan). Around one in every three square metres of plasterboard sold in this region comes from LBGA. The JV has 288 million m2 of plasterboard capacity, specialist ceiling tile plants, a metal roll forming mill and production capacity for jointing compounds and industrial plasters, all feeding established distribution networks. Boral and Lafarge intend that LBGA continues to profitably grow its leadership position across Asia in a manner which substantially increases markets for plasterboard systems and associated products and delivers value. 27 DARWIN The construction of the new Queensland Plasterboard plant is progressing extremely well. At a net investment of $106m, this 40m m2 plant is adjacent to the river in the suburb of Pinkenba and will be Australia’s largest plasterboard plant when completed. Commissioning is anticipated before October 2007. BRISBANE PERTH SYDNEY ADELAIDE CANBERRA PLASTERBOARD (PRODUCTION) PLASTERBOARD (DISTRIBUTION) GYPSUM MINE MELBOURNE HOBART Through LBGA, we are continuing to strengthen our leading plasterboard position in Asia. Our Asian Plasterboard JV has commissioned the first plasterboard plant in Vietnam located in the Ho Chi Minh City area for a total investment of around US$13m. Capacity is expected to be 10m m2 p.a. and the site allows flexibility to increase capacity in the future. A new US$42m total investment is being made at LBGA’s Dangjin plant near Seoul, South Korea to double capacity to 75m m2 . The new capacity will be commissioned in CY2007. Strong results are continuing from the division’s impressive R&D and product development activities. While products such as EurekaWALL and CinemaZone enjoy great success, there are many more coming through the innovation pipeline. Boral limited Annual Review 2006 28 REVIEW OF OPERATING DIVISIONS usa Boral employs around 2,700 people at almost 143 operating and distribution sites across the usA. The us operations include the country’s largest brick manufacturer, the largest clay tile manufacturer, one of the largest fly ash suppliers, and the group holds a strong position in the Denver construction materials market. Through the 50% owned Monierlifetile, Boral is the largest concrete roof tile manufacturer in the united states. Line 4 upgrade completed in 2004/05, as well as 5% higher prices. As in the concrete roof tile business, existing capacity constraints continue to be addressed through various operational improvements and capacity expansion programs. The commissioning of a new plant in Trinidad to service the Florida market and plans to construct a new clay tile plant in Ione, California were progressed during the year. Revenue from the Boral Materials Technology Inc. (BMTI) fly ash business Performance was higher due to stronger volumes In the USA, EBITDA earnings of and higher average fly ash prices, which US$163 million increased by 23% on were supported by strong cement price the prior year. This record result was increases across the USA during 2005 underpinned by continued favourable and 2006. market conditions, price increases and operational improvements in all businesses. Despite volume constraints due to cement shortages experienced in the early part of In addition, a full year contribution was the year, the full year contribution from the made by the construction materials Denver Construction Materials business business in Denver, Colorado, which was was in line with expectations. Integration acquired in September 2004 as well as and synergy benefits were delivered ahead other growth programs. of schedule. Price increases for aggregates, The Brick business delivered a record concrete and block were sufficient to profit. Revenue was up by 14% due to 10% higher prices, a 1% volume lift and an recover increases in costs, including increased proportion of Boral manufactured cement and fuel. bricks that were sold through direct Outlook distribution (now up to approximately 70%) The USA housing market is expected as well as the associated resale revenue. to soften in 2006/07 from current record Higher fuel, energy and raw material levels of activity; however, market costs were largely offset by the 10% conditions are quite region specific. price increases achieved as well as by According to FW Dodge March 2006 cost savings made through various fuel forecasts, residential starts in Boral States efficiency initiatives. The operational are forecast to decrease by 7% in 2006/07 . “step change” program in Boral Bricks Value of residential work commenced in contributed to increased efficiencies and Boral’s brick States is forecast to decline reduced operating costs in 2005/06, with by 5% and by 7% in Boral’s tile States. continued benefits expected in 2006/07 . However, non-residential value of work commenced in Boral States is estimated Boral’s 50% owned concrete roof tile to be 8% up in 2006/07 . joint venture with Lafarge, MonierLifetile, delivered another record profit contribution US growth initiatives are anticipated to for Boral of US$28 million (A$38 million). continue to progressively deliver improved The business benefited from continued benefits including benefits from the new strong volumes and price increases of Union City brick plant and Trinidad roof around 12%, which were sufficient to tile plant, as well as recently completed recover increases in cement and other raw capacity upgrades at the Salisbury and material costs. The business is benefiting Augusta brick plants and Katy concrete from recent capital investment projects, roof tile plant. with current capacity constraints continuing eMeRy seveRIn PRESIDENT, BORAL USA to be addressed through the construction of new plants in Lake Wales, Florida and Las Vegas, Nevada. US Clay Tile’s plant in Southern California delivered a record profit contribution, benefiting from 9% higher volumes and operational efficiencies as a result of the Bricks Boral’s brick business operates 24 plants across 15 locations in eight States, primarily in the south-eastern and south-western areas of the country. Boral sells over 70% of its clay bricks and pavers through a network of 57 company-owned direct selling locations with the remainder via a strong network of independent distributors. Roof Tiles Boral owns 50% of MonierLifetile with Lafarge. The joint venture has 14 concrete roof tile plants in the western and southwestern States and also in Florida. US Tile, the country’s largest clay roof tile producer, operates from a plant in Southern California. Through a 50% interest in a joint venture, US Tile recently commissioned a new plant in Trinidad producing roof tiles for importation into the Florida market. Fly Ash BMTI is one of the largest marketers and distributors of coal combustion products in the USA. It has 40 locations around the country including operations at electrical utility plants, fly ash terminals and sales offices. Fly ash has cementitious properties and is used as a cement substitute in construction materials markets. Denver Construction Materials Boral has a strong number three position in the growing Denver market with eight concrete batching plants, more than 115 trucks, three sand and gravel deposits and two concrete masonry plants. 29 US Tile will build a US$27m clay roof tile plant at Ione, California to produce 130,000 squares1 per annum, with completion anticipated in 2007. In addition, a 130,000 squares1 per annum 50% joint venture clay roof tile plant in Trinidad has been commissioned, producing product for importation into the Florida market. 1 One square = 100 square feet. Washington Oregon Michigan Ohio Nevada Colorado Missouri California Tennessee South Carolina Arizona Arkansas Oklahoma Mississippi Georgia Alabama Texas Kentucky North Carolina Florida Mexico BMTI (FLY ASH) CONSTRUCTION MATERIALS USA BRICK (CORPORATE) USA BRICK (DISTRIBUTION) USA BRICK (PRODUCTION) MONIERLIFETILE CONCRETE ROOF TILES US TILE CLAY ROOF TILES A US$6m upgrade of the MonierLifetile concrete roof tile plant at Katy, Texas was completed during the year. A US$69m investment will be made to build two new concrete roof tile plants, one in Las Vegas, Nevada and one in Lake Wales, Florida. This will increase MonierLifetile’s capacity by 900,000 squares p.a. The new Las Vegas plant has experienced some delays due to land negotiations but the Lake Wales plant is expected to be completed by December 2007. Boral Bricks’ new US$35m Union City, Oklahoma Brick plant was commissioned during the year and with an output of 100 million standard brick equivalents the plant increases manufacturing capacity by around 6% and services the key south-western growth markets. A new US$55m, 120 million standard brick equivalent plant will be constructed at Terre Haute, Indiana due for completion by December 2007. Boral limited Annual Review 2006 30 management committee Rod Pearse 1 CEO and Managing dirECtOr He holds chemical engineering and commerce degrees from Queensland university. Biography on p.33 Emery Severin 7 PrEsidEnt, BOral usa John Douglas 2 ExECutivE gEnEral ManagEr, australian COnstruCtiOn MatErials 1 2 3 John is 44 and has been in his current position for two years. He has been working for Boral since 1995 and has held roles as regional general Manager of Boral’s nsW Construction Materials business, general Manager of nsW Metropolitan Quarries and general Manager strategic Planning for Boral’s Construction Materials group. Prior to joining Boral, John held various positions with the Boston Consulting group, Pioneer Concrete uK, John Mowlem international and douglas Partners. He holds a civil engineering degree (First Class Honours) from the university of adelaide and an MBa from london Business school. Emery is 50 and was previously Executive general Manager of the australian Construction Materials division from 1999-2004 before being appointed as President of Boral usa in august 2004. He was previously national general Manager of Blue Circle southern Cement from 1998 to 1999. He was previously regional general Manager of Boral’s nsW Construction Materials group from 1996-1998. Prior to joining Boral he held various management roles at BHP steel from 1986-1995. Emery has a doctorate of philosophy in physical chemistry from Oxford university and a science degree (First Class Honours) from the university of nsW. Ken Barton 8 CHiEF FinanCial OFFiCEr Phil Jobe 3 4 5 Ken is 40 and has been Boral’s Chief Financial Officer since december 2002. He was previously vice President and Chief Financial Phil is 52 and has been Executive general Officer of Boral industries inc in the usa from Manager of the Cement division since late 1999. august 2000. Prior to joining Boral, he was Prior to this he was regional general Manager vice President Finance, Pioneer usa from for Boral’s nsW Construction Materials business 1997–2000 and prior to that he was a Partner and general Manager of Boral’s Construction in the Corporate Finance division of arthur related Businesses from 1995 to 1999. Before andersen based in sydney. Ken has a Bachelor joining Boral, Phil was Managing director of of Economics degree from the university of the stegbar group of Companies from 1987sydney and is an associate of the institute of 1994. He holds a commerce degree from the Chartered accountants in australia and a fellow university of nsW. of the Financial services institute of australia. ExECutivE gEnEral ManagEr, CEMEnt 6 7 Keith Mitchelhill 4 ExECutivE gEnEral ManagEr, Clay & COnCrEtE PrOduCts Michael Scobie 9 gEnEral ManagEr, COrPOratE sErviCEs and COMPany sECrEtary 8 9 10 11 Keith is 43 and rejoined Boral as Executive general Manager of Clay & Concrete Products in august 2002 from sirius telecommunications where he was CEO of the Phoneware division. He was previously Executive general Manager of Boral timber from 2000-2001, general Manager, Boral Masonry from 1997-1999 and general Manager Marketing, Boral Building Products group from 1996-1997 Prior to that . he held positions with laminex Btr nylex and nEC australia. He holds an economics degree (Honours) and an MBa from Monash university. Michael is 60 and is general Manager, Corporate services and Company secretary of Boral. He joined the Boral group as a corporate lawyer and has 33 years’ service. He became the Company secretary in 1983 and has also held general counsel and other corporate roles since then. Michael holds a law degree from the university of sydney. Bryan Tisher 10 gEnEral ManagEr, COrPOratE dEvElOPMEnt Peter Boyd 5 ExECutivE gEnEral ManagEr, tiMBEr Peter is 43 and is Executive general Manager for Boral timber. He was divisional general Manager of Boral Masonry from 1999-2001 and prior to that was nsW general Manager, Boral Plasterboard from 1997-1999. Before joining Boral, Peter worked as a management consultant with the Boston Consulting group from 1994-1996 and prior to that worked in a variety of operational roles with Csr from 19861992. He holds a mechanical engineering degree from the university of technology (sydney) and an MBa from Melbourne university. Bryan is 43 and is general Manager, Corporate development. He was previously general Manager, strategic Planning for Boral’s Construction Materials group from 19981999. Prior to joining Boral he held a variety of positions at rio tinto (1985-1998) including roles in project finance, business development and engineering design and construction. He holds a civil engineering degree (First Class Honours) from Monash university and an MBa from Harvard Business school. Robin Town 11 gEnEral ManagEr, HuMan rEsOurCEs Ross Batstone 6 ExECutivE gEnEral ManagEr, PlastErBOard ross is 58 and was Boral’s divisional general Manager Plasterboard australia from 1996-2000 before becoming Executive general Manager of the Plasterboard division. He was previously Boral’s divisional general Manager roofing from 1991-1995, Chief Executive Montoro resources ltd from 1988-1990 and held various roles at shell Company of australia from 1970-1987 . robin is 54 and has been Boral’s general Manager Human resources since June 2001. He was previously President of Boral Material technologies in the usa from 1999-2001 and regional general Manager of Boral’s Construction Materials business in Queensland from 1996-1999. Prior to joining Boral, he worked in the cement industry with Queensland Cement for 23 years. He holds a chemical engineering degree from the university of Queensland. 31 financial review Financial Performance the 2006 year financial results reflected a further difficult year in the australian East Coast residential markets as well as significant cost pressures across most businesses. in a number of key australian and asian businesses cost increases were not able to be fully offset by either focused cost reduction programs or price increases. Overall, Boral’s net profit for the year (on a restated a-iFrs basis) decreased by 2% to $362.4 million. this net profit is equivalent to 61.7 cents per share, a decrease of around 1.7 cents per share compared with the prior year. a final dividend of 17 cents per share has been declared which will be fully franked bringing the full year dividends to 34 cents. the dividends remained unchanged from the 2005 dividends which were also fully franked. the group’s revenue from operating activities increased by 11% compared with the previous year to $4.8 billion. the increase in revenues can be largely attributed to increased prices across most businesses and the impact of acquisitions. revenues increased modestly in the australian businesses due to price and volume increases, particularly in the construction materials segment. revenue increased modestly in the building products segment due to price increases and the volume impacts of growth initiatives. us revenues in local currency increased by 17% largely due to price increases in all businesses as well as some volume increases. the australian dollar was slightly weaker against the us dollar, around 1%, which resulted in the reported australian dollar revenue from the us operations increasing by around 18%. revenues in asia, which consists of the indonesian and thailand concrete and quarry businesses, rose 30% largely due to price increases. indonesian building activity was slightly weaker due to the impact of higher energy costs. this resulted in lower volumes in the indonesian concrete business. in thailand, while volumes were higher, overall activity was weaker than expected and capacity additions resulted in downward pressure on pricing. the group’s underlying operating profit before interest and tax for the year increased by 2% compared to the previous year to $614 million. the australian operations generated operating profits of $403.6 million during the year, down 11.5% compared to the prior year. the decline in earnings was due to a combination of reduced levels of residential activity in a number of key markets as well as the inflationary effects of cost increases across the australian businesses which, in most cases, were not recovered through higher pricing. some of the australian businesses, most notably the Cement business, experienced production disruptions associated with planned upgrades. the Construction Materials operations reported an operating profit of $286.0 million, which compares to $305.3 million in the prior year. strength in the non-residential building markets and in the infrastructure segments underpinned increased volumes across most construction materials businesses. Prices increased across most of the construction materials businesses, however, these increases were not sufficient to offset increased costs, particularly fuel costs. despite price increases of 3-4% and $52 million in cost savings, margins contracted during the year from 14% to 12%. the result from the construction materials segment also included start-up costs arising from newly constructed plants and major plant upgrades. this includes the commissioning and ramp-up of the upgrade to the Waurn Ponds, victorian cement plant which occurred progressively through the first half and the new galong lime plant which encountered manufacturing difficulties and low demand from the local steel industry. the construction materials results were also adversely affected by declining scaffolding prices. despite these adverse impacts, the overall result was positively impacted by the price and volume benefits noted above, cost reduction efforts and improved profitability from quarry end use property sales. a pleasing feature of the year was the performance of the australian Building Products businesses. this segment includes bricks, roof tiles, masonry, plasterboard, timber and windows which are all heavily reliant on the new residential construction market as a driver of demand. the australian Building Income Statement FOr tHE yEar EndEd 30 JunE Products businesses in most cases achieved increased prices compared to the prior year, a notable achievement given the softer residential market conditions on the east coast. volume declines were the major cause of lower profits. the continuing strength of the us housing market underpinned another record performance from all us businesses. in the us, profits translated to australian dollars were 27% higher than the prior year. in us dollar terms, profits increased by 25%. the improved us results were due to increased prices across all products, higher brick, fly ash and concrete roof tile volumes and the full year benefits of the denver construction materials acquisitions. revenue in bricks remained higher than the prior year due to the impact of price increases as well as a higher proportion of brick sales through the direct sales business. Costs were well controlled with the benefit of 12 month forward gas purchases providing some relief from escalations in natural gas prices, a key cost for most of the us brick kilns. the fly ash business benefited from increased prices for cement in most markets which usually provides the opportunity for fly ash price increases. the denver construction materials operations acquired in september 2004 delivered integration and synergy benefits ahead of schedule. the group’s net profit includes equity accounted profits of $85.8 million, an increase of 31% from the prior year. the Monierlifetile joint venture in the us benefited from the strength of residential construction in all of its markets resulting in both price and volume increases compared to the prior year. in asia, price and volume declines in thailand and Korea had an adverse impact on profitability of the plasterboard joint venture, lBga. a compensation payment from the shanghai government for land resumed from lBga improved the result. 2006 $ millions 20051 $ millions revenue EBitda depreciation and amortisation EBIT net financing expense Profit before income tax expense income tax expense net profit attributable to minority interests Net profit attributable to members of the parent entity Earnings per share (cents) 1 2005 results restated to reflect transition to a-iFrs accounting standards. 4,767.4 822.6 208.6 614.0 (98.2) 515.8 (153.1) (0.3) 362.4 61.7 4,304.8 794.3 191.3 603.0 (71.1) 531.9 (161.9) (0.5) 369.5 63.4 2005 includes a one-off pre-tax cost of $16.2 million or $11.3 million after tax for the adelaide Brighton bid. Boral Limited annual review 2006 32 net interest expense increased from $71 million to $98 million. this increase was predominantly due to an increase in closing net debt from $1,394 million in June 2005 to $1,578 million in June 2006. underlying EBit interest cover declined from 8.5 times to 6.3 times as a result of the higher interest expense. the average underlying tax rate for the year was consistent with the prior year at 30%. the interim and final dividends for the year totalled $200.5 million which represent a payout ratio of 55% of profit after tax, up slightly compared to the prior year. Boral continued its dividend reinvestment Plan (drP) during the fiscal year. this resulted in proceeds of $61.9 million being applied to the issue of 8.2 million new ordinary shares. Boral will continue to offer a drP and will continue its on-market buy-back to reduce earnings per share dilution. in addition, shares issued under the executive option plan may also be bought back during the year. Financial Position the net financial position of the group strengthened during the year with total equity increasing by 15% to $2,755 million, whilst net borrowings increased by 13% to $1,578 million. the change in net borrowings was due to approximately $307 million of growth capital and investments during the year. net debt also increased as a result of an unfavourable currency adjustment of around $26 million due to the depreciation of the australian dollar and translation of our significant us dollar borrowings. the group’s gearing (measured as net debt to equity) reduced from 58% to 57%. this was within the stated target range of 40% to 70%. Boral’s long term and short term credit ratings continued at BBB+/a2 with standard & Poor’s and Baa1/P2 with Moody’s investors service. at 30 June 2006, the group had available undrawn committed and uncommitted debt facilities of $2,455 million. Boral’s average debt maturity profile at 30 June 2006 was 6.1 years compared with 7 .6 years at 30 June 2005. Boral has hedged its foreign exchange exposures (primarily us dollar denominated) arising from investments in overseas operations. Earnings from foreign operations are not hedged. Boral is exposed to financial risk in its operations as a result of fluctuations occurring in interest/foreign exchange rates and certain commodity prices. Boral uses financial instruments to manage such risks. Balance Sheet as at 30 JunE 2006 $ millions 20051 $ millions Current assets non-current assets Total assets Current liabilities non-current liabilities Total liabilities Net assets Total equity 1,400.8 4,186.2 5,587.0 863.2 1,968.8 2,832.0 2,755.0 2,755.0 2006 $ millions 1,296.0 3,704.8 5,000.8 908.7 1,685.3 2,594.0 2,406.8 2,406.8 20051 $ millions Debt and Gearing as at 30 JunE total debt total cash and cash equivalents Net debt total shareholders’ equity Gearing ratios % net debt:equity (%) net debt:equity plus net debt (%) interest cover (times) 1 2005 results restated to reflect transition to a-iFrs accounting standards. 1,654.4 76.2 1,578.2 2,755.0 1,435.6 42.1 1,393.5 2,406.8 57% 36% 6.3 times 58% 37% 8.5 times Boral’s return on shareholders’ funds declined from 15.4% to 13.2% during the period as shareholders’ funds increased with retained earnings and other equity movements while earnings declined by around 2%. Cash Flow the group generated operating cash flows of $449 million after payment of interest and income tax. this represents an increase of 8% or $34 million compared to the cash flow reported last year. the increase in operating cash flow reflects the higher earnings (before depreciation) and lower increases in working capital. these cash flows were used to fund around $514 million of capital and acquisition expenditure. this largely related to major capital projects in the us and australia, the largest being the construction of new brick plants in union City, Oklahoma and Western australia. . 33 board of directors Kenneth J Moss 1 Richard A Longes 5 nOn-ExECutivE CHairMan, agE 61. nOn-ExECutivE dirECtOr, agE 61. dr Moss joined the Boral Board in 1999 and became the Chairman of directors in 2000. dr Moss is the Chairman of Centennial Coal Company limited and a director of adsteam Marine limited, gPt rE limited (the responsible entity for the general Property trust) and Macquarie Capital alliance group (the responsible entity for the Macquarie Capital alliance trust). dr Moss was previously the Managing director of Howard smith limited and is experienced in building materials businesses. He is a Board Member of australian Maritime safety authority. He has an engineering degree (Honours) and a doctorate of philosophy in mechanical engineering from newcastle university. dr Moss is a member of the Compensation Committee. Mr longes joined the Boral Board in september 2004. He is a director of austbrokers Holdings limited, Metcash limited and viridis investment Management limited (the responsible entity for the viridis Clean Energy trust i and the viridis Clean Energy trust ii). Mr longes is a lawyer and a non-executive director of investec Bank (australia) limited. He was previously an executive of investec Bank, a principal of Wentworth associates, the corporate advisory and private equity group, and a partner of Freehills, a leading law firm. He has arts and law degrees from the university of sydney and a MBa from the university of new south Wales. Mr longes is a member of the audit Committee. Rodney T Pearse 2 Mark R Rayner 6 Managing dirECtOr, agE 59. nOn-ExECutivE dirECtOr, agE 68. Mr Pearse became the Managing director and Chief Executive Officer of Boral in January 2000. He joined the Boral group as the Managing director, Construction Materials group in 1994. Mr Pearse had previously held senior management positions in shell international, shell australia and Csr limited. He is a Board Member of the Business Council of australia, a member of the advisory Panel of the australian graduate school of Management, the Chairman of Outward Bound australia and serves as a Councillor for the australian Business arts Foundation. He has a commerce degree (Honours) from the university of new south Wales and a MBa (High distinction) from Harvard university. Mr rayner joined the Boral Board in 1996. Mr rayner is a director of alumina limited. He was previously the Chief Executive of Comalco from 1979 to 1989 and an executive director of Cra limited. Mr rayner has a chemical engineering degree (Honours) from the university of new south Wales. Mr rayner is a member of the Compensation Committee. 1 J Roland Williams, CBE 7 nOn-ExECutivE dirECtOr, agE 67 . Elizabeth A Alexander, AM 3 nOn-ExECutivE dirECtOr, agE 63. Ms alexander joined the Boral Board in 1994. Ms alexander is a director of Csl limited and dB rrEEF Funds Management limited (the responsible entity for the dB rrEEF trust). a chartered accountant, she was a partner in PricewaterhouseCoopers in Melbourne until 2002. Ms alexander is a member of the takeovers Panel and the Financial reporting Council. she has a commerce degree from the university of Melbourne. Ms alexander is the chair of the audit Committee. dr Williams joined the Boral Board in 1999. He is a director of Origin Energy limited. dr Williams had an international career with the royal dutch/shell group from which he retired as Chairman and Chief Executive of shell australia. He has a chemical engineering degree (Honours) and a doctorate of philosophy from the university of Birmingham. dr Williams is a member of the audit Committee. 2 3 4 5 6 7 E John Cloney 4 nOn-ExECutivE dirECtOr, agE 65. Mr Cloney joined the Boral Board in 1998. Mr Cloney is the Chairman of QBE insurance group limited and a director of Maple-Brown abbott limited and aBn aMrO australia Holdings Pty limited. He is a member of the advisory Council in australia of aBn aMrO. His career was in international insurance and he was previously the Managing director of QBE insurance group limited. Mr Cloney is a fellow of the australian institute of Management and the australia and new Zealand institute of insurance and Finance. Mr Cloney is the Chairman of the Compensation Committee. Boral Limited annual review 2006 34 corporate governance this section of the annual review discloses the key details of Boral’s governance framework. Boral is committed to ensuring its policies and practices reflect good governance and compliance with all requirements applying to australian listed companies. the directors consider that its governance framework and adherence to that framework are fundamental in demonstrating that they are accountable to shareholders and are appropriately overseeing the management of risk and the future direction of the Company. Functions and Responsibilities of the Board the Board of directors is responsible for setting the strategic direction of the Company and for overseeing and monitoring its businesses and affairs. directors are accountable to the shareholders for the Company’s performance. the Board reviews and approves the Company’s strategic and business plans and guiding policies. day to day management of the Company’s affairs and implementation of its strategy and policy initiatives are delegated to the chief executive officer and senior executives. the functions of the Board include:– oversight of the Company including its conduct and accountability systems. – reviewing and approving overall financial goals for the Company. – approving strategies and plans for Boral’s businesses to achieve these goals. – approving financial plans and annual budgets. – monitoring implementation of strategy, business performance and results and ensuring appropriate resources are available. – approving key management recommendations (such as major capital expenditure, acquisitions, divestments, restructuring and funding). – appointing, rewarding and determining the duration of the appointment of the chief executive officer and ratifying the appointments of senior executives including the chief financial officer and the company secretary. – reviewing the performance of the chief executive officer and senior management. – reviewing and verifying systems of risk management and internal compliance and control, codes of conduct and legal compliance. – reviewing sustainability performance and overseeing occupational health and safety and environmental management and performance. – approving and monitoring financial reporting and reporting to shareholders on the Company’s direction and performance. – meeting legal requirements and ensuring that the Company acts responsibly and ethically and prudently manages business risks and Boral’s assets. in fulfilling these functions, directors seek to enhance shareholder value. Structure of the Board the Board of directors comprises six non-executive directors (including the Chairman) and one executive director, the Managing director and Chief Executive Officer (CEO). the roles of Chairman and CEO are separate. the skills, experience and expertise of each director are set out on page 33 of the annual review. the Board has assessed the independence of non-executive directors in light of their interests and relationships and considers all of them to be independent. it is considered that none of the interests of directors with other firms or companies having a business relationship with Boral could materially interfere with the ability of those directors to act in Boral’s best interests. the criteria considered in assessing the independence of non-executive directors includes: – the director is not a member of management. – the director is not a substantial shareholder of the Company or otherwise associated with a substantial shareholder. – within the last 3 years, the director has not been employed in an executive capacity by a Boral company or been a director after ceasing to hold any such employment. – within the last 3 years, the director has not been a principal of a professional adviser or consultant to a Boral company or an employee of an adviser or consultant materially associated with any service provided by it. – the director is not a significant supplier or customer of Boral or otherwise associated with a significant supplier or customer. – the director has no significant contractual relationship with Boral other than as a director. – the director is 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. the Board periodically undertakes an evaluation of its own performance. the evaluation encompasses a review of the structure and operation of the Board, the skills and characteristics required by the Board to maximise its effectiveness and whether the blending of skills, experience and expertise and the Board’s practices and procedures are appropriate for the present and future needs of the Company. the Board has considered establishing a nomination Committee and decided in view of the relatively small number of directors that such a Committee would not be a more efficient mechanism than the full Board for detailed selection and appointment practices. When directors consider appointing a new non-executive director, a process is followed during which the full Board 35 assesses the necessary and desirable competencies of potential candidates and considers a number of candidates before it decides on the most suitable candidate for appointment. the selection process may include obtaining assistance from an external consultant to identify suitable candidates meeting the specification determined by the Board and in assessing those candidates. Confirmation is sought from prospective directors that they would have sufficient time to fulfil their duties as a director. the key terms and conditions relative to the appointment of directors and the Company’s expectations of them are set out in a letter when a new non-executive director is appointed. the Company’s Constitution requires one third of the directors to retire from office at the annual general Meeting each year. retiring directors are eligible for re-election. When a vacancy is filled by the Board during a year, the new director must stand for election at the next annual general Meeting. the requirements relating to retirement from office do not apply to the managing director of the Company. the directors believe that limits on tenure may cause loss of experience and expertise that are important contributors to the efficient working of the Board. as a consequence, the Board does not support arbitrary limits on tenure and regards nominations for re-election as not being automatic but based on the individual performance of directors and the needs of the Company. Before the business to be conducted at the annual general Meeting is finalised, the Board discusses the tenure of directors standing for re-election in the absence of those directors. directors are required to declare the nature of any interest they have in business to be dealt with by the Board. Except as permitted by the Corporations act, directors leave Board Meetings and do not vote when business in which they are interested is considered. after consultation with the Chairman, directors may seek independent professional advice in furtherance of their duties at the Company’s expense. Pursuant to the Company’s Constitution and agreements with directors and to the extent permitted by law, the Company must indemnify directors and executive officers against liabilities to third parties incurred in their capacity as officers of the Company and against certain legal costs incurred in defending an action for such a liability. Ethical Standards and Dealings in Boral Shares the Board’s policy is that Boral companies and employees must observe both the letter and spirit of the law, and adhere to high standards of business conduct and comply with best practice. Boral’s Management guidelines contain a Code of Corporate Conduct and other guidelines and policies which set out legal and ethical standards for employees. as part of performance management, employees are assessed against the Boral values of leadership, respect, focus, performance and persistence. this policy and code guide the directors, the CEO, the chief financial executive, the company secretary and other key executives as to the practices necessary to maintain confidence in the Company’s integrity and as to the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. the code also guides compliance with legal and other obligations to legitimate stakeholders. Boral directors must hold a minimum shareholding of 1,000 shares. the Board has a policy that Boral limited group directors, officers and senior executives may not buy or sell Boral shares except within a period of one month after any major public announcement regarding the Company’s results and trading prospects (such as the yearly and half yearly profit announcements and the Chairman’s and Managing director’s addresses to the annual general Meeting). the policy has recently been amended to clarify that executives are precluded from entering into any hedge or derivative transactions relating to options or share rights granted to them as long term incentives, regardless of whether or not the options or share rights have vested. the policy supplements the Corporations act provisions precluding directors and officers from trading in securities when they are in possession of price sensitive “insider” information. share dealings by directors are promptly notified to asx. Work of Directors on Strategy and Other Matters the Board reviews the strategic action plan, approves the annual budget and monitors the Company’s performance against them. initiatives have included disciplined growth strategies, strengthening capital management and implementing cost efficiencies and other aspects of an extensive operational improvement program. directors and senior management meet annually for two days to discuss in detail the strategic direction of the Company’s businesses. the Board’s focus is on improving shareholder returns and pursuing disciplined growth. Each month, directors receive a detailed operating review from the CEO regardless of whether or not a Board Meeting is being held. non-executive directors would spend more than 30 days each year on Board business and activities including Board and Committee meetings, the strategy meeting, visits to operations and meeting employees, customers, business associates and other stakeholders. during the year, the Board visited a number of sites in south australia including the linwood hard rock quarry and the Pooraka concrete roof tile and masonry operations. the Board also spent a week in March 2006 in the usa Boral Limited annual review 2006 36 corporate governance visiting Boral’s brick, clay roof tile and construction materials operations and the business of Monierlifetile llC, the 50% owned joint venture. the Chairman regularly communicates with the CEO to review key issues and performance trends. Disclosure and Communication the Company complies with all relevant disclosure laws and listing rules in australia and has policies and procedures designed to ensure accountability at a senior management level for that compliance. the company secretary is accountable to the CEO and to the Board, through the Chairman, on compliance and governance matters. Boral is committed to effective communication with its investors so as to give them ready access to balanced and understandable information. Board Committees a Compensation Committee and an audit Committee assist the effective operation of the Board. Both Committees are wholly comprised of independent nonexecutive directors. Copies of Minutes of Committee Meetings are provided to the full Board. Compensation Committee the current members of the Committee are John Cloney (Chairman), Ken Moss and Mark rayner. the functions of the Committee are:– remuneration and incentive policies and practices (including performance appraisal methodology) for Boral generally. – remuneration arrangements for the CEO and other senior executives (including incentives) and the annual review of those arrangements. – recruitment, retention and termination policies and practices. – any Company share plan or other incentive scheme. – superannuation arrangements insofar as they are relevant to remuneration policies and practices. – review from time to time remuneration framework and the structure of the arrangements for non-executive directors. the Committee reviews all of the above matters and makes recommendations to the full Board on remuneration arrangements for the CEO and senior executives and as appropriate, on other aspects arising from its functions. audit Committee the audit Committee is chaired by Elizabeth alexander with richard longes and roland Williams being the other members. the members possess sufficient technical expertise to fulfil the functions of the Committee. the Committee meets at least four times each year. the audit Committee has a formal charter which sets out its role and responsibilities, composition, structure and membership requirements. the Committee has the necessary power and resources to meet the charter including rights of access to management and auditors (internal and external) and to seek explanations and additional information. the Committee also reviews the Company’s compliance with applicable accounting standards and generally accepted accounting principles. accounting and financial control policies and procedures have been established and are monitored by the Committee to ensure the accounts and other records are accurate and reliable. any new accounting policies are reviewed by the Committee. Compliance with these procedures and policies and limits of authority delegated by the Board to management are subject to review by the external and internal auditors. When considering the yearly and half yearly financial reports, the audit Committee reviews the carrying value of assets, provisions and other accounting issues. Questionnaires completed by divisional management are reviewed by the Committee half yearly. as required by the Corporations act for year end financial reports, the CEO and the chief financial officer give a declaration to the directors that the Company’s financial records have been properly maintained and that the financial reports give a true and fair view before the Board resolves that the directors’ declarations accompanying the financial reports be signed. at each scheduled meeting of the Committee, both external and internal auditors report to the Committee on the outcome of their audits and the quality of controls throughout Boral. as part of its agenda, the audit Committee meets with the external and internal auditors in the absence of management twice during the year. the scope of the external audit is reviewed by the audit Committee each year. the internal audit function is outsourced with PricewaterhouseCoopers being the Company’s internal audit service provider. the internal audit program is approved by the audit Committee before the start of each year and the effectiveness of the function is kept under review. the Chair of the audit Committee ordinarily reports to the full Board after Committee Meetings. Audit Independence the audit Committee has approved a process for the monitoring and reporting of non-audit work to be undertaken by the external auditor. services by the external auditor which are prohibited because they have the potential or appear to impair independence include the participation in activities normally 37 undertaken by management, being remunerated on a “success fee” structure and where the external auditor would be required to review their work as part of the audit. an independence declaration by the external auditor is now required to form part of the directors’ report and is set out on page 49. Recognising and Managing Risk the managers of Boral’s businesses are responsible for identifying and managing risks. the Board (in the case of financial risk as noted above, through the audit Committee) is responsible for satisfying itself that a sound system of risk oversight and management exists and that internal controls are effective. in particular, the Board ensures that: – the principal strategic, operational, financial reporting and compliance risks are identified. – systems are in place to assess, manage, monitor and report on these risks. these matters are analysed and discussed by the Board at least annually as part of the detailed business planning process for each of the operating divisions and the corporate group (with respect to corporate-wide risks) and more frequently if required. in addition to maintaining appropriate insurance and other risk management measures, identified risks are managed through: – established policies and procedures for the managing of funding, foreign exchange and financial instruments (including derivatives) including the prohibition of speculative transactions. the Board has approved treasury policies regarding exposures to foreign currencies, interest rates, commodity price, liquidity and counterparty risks which include limits and authority levels. Compliance with these policies is reported to the Board monthly and certified by treasury management to the audit Committee twice yearly. – key business risks being identified on a divisional basis and reported to the Board as part of the strategic planning process. – standards and procedures in relation to environmental and health and safety matters. – training programs in relation to legal and compliance issues such as trade practices/antitrust, intellectual property protection, occupational health and safety and environmental. – procedures requiring that significant capital and revenue expenditure and other contractual commitments are approved at an appropriate level of management or by the Board. – comprehensive management guidelines setting out the standards of behaviour expected of employees in the conduct of the Company’s business. the internal audit function is involved in risk assessment and management and the measurement of effectiveness. the internal and external audit functions are separate and independent of each other. in addition to an overall risk management policy, Boral has numerous risk management systems and policies that govern the management of risk. the CEO and the chief financial officer provide written statements to the audit Committee confirming that the Company’s yearly and half yearly financial reports present a true and fair view, in all material respects, of the Company’s financial condition and operational results and are in accordance with relevant accounting standards. the CEO and the chief financial officer also confirm that the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board and that the Company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. Compliance the Company has adopted policies requiring compliance with occupational health and safety, environmental and trade practices laws. there are also procedures providing employees with alternative means to usual management communication lines through which to raise concerns relating to suspected illegal or unethical conduct. the Company acknowledges that whistleblowing can be an appropriate means to protect Boral and individuals and to ensure that operations and businesses are conducted within the law. there are ongoing programs for audit of the large number of Boral operating sites. Occupational health and safety, environmental and other risks are covered by these audits. Boral also has staff to monitor and advise on workplace health and safety and environmental issues and in addition, education programs provide training and information on regulatory issues. despite the Company’s policies and actions to avoid occurrences which infringe regulations, there have been a small number of prosecutions against subsidiary companies for breach of occupational health and safety legislation. Human Resources the directors place emphasis on Boral’s people and its human resource practices. there are ongoing reviews of recruitment (including graduate recruitment), training, management development and succession planning for executives. Boral has a performance management system in place for all managers and staff. the system includes processes for the setting of objectives and the annual assessment of performance against objectives and workplace style and effectiveness. Boral Limited annual review 2006 38 corporate governance Remuneration Part of the role of the Compensation Committee is to advise the Board on the remuneration policies and practices for Boral generally and the remuneration arrangements for senior executives. Boral’s remuneration policy and practices are designed to attract, motivate and retain high quality people. the policy is built around principles that: – executive rewards be competitive in the markets in which Boral operates. – executive remuneration has an appropriate balance of fixed and variable reward. – remuneration be linked to Boral’s performance and the creation of shareholder value. – variable remuneration for executives has both short and long term components. – a significant proportion of executive reward be dependent upon performance assessed against key business measures, both financial and non-financial. these principles ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to corporate and individual performance is defined. a detailed remuneration report is set out in clause (19) of the directors’ report on pages 42 to 48. as required by the Corporations act, a resolution that the remuneration report be adopted will be put to the vote at the annual general Meeting however the vote will be advisory only and will not bind the directors or the Company. ASX Corporate Governance Council Guidelines Corporate governance has been reported on in this section of the annual review in accordance with the Principles of good Corporate governance and Best Practice recommendations of the australian stock Exchange (asx) Corporate governance Council. Boral complied with the guidelines in all substantial respects throughout the 2005/06 financial year. in the few instances where Boral has an alternative approach to a recommendation, this has been disclosed and explained. the corporate governance framework of the Company will be kept under review to respond to changes in Boral’s businesses and applicable regulations. Corporate governance information on Boral’s website at www.boral.com.au contains more information on corporate governance within Boral and copies of relevant policies and charters. 39 directors’ report the directors of Boral limited (“the Company”) report on the consolidated entity, being the Company and its controlled entities (“Boral”), for the financial year ended 30 June 2006: (1) Review of Operations the directors review the operations during the year of Boral and the results of those operations as stated in the Chairman’s report and Managing director’s review on pages 10 to 15. (2) State of Affairs there were no significant changes in Boral’s state of affairs during the year. (3) Principal Activities and Changes Boral’s principal activities are the manufacture and supply of building and construction materials in australia, the usa and asia. there were no significant changes in the nature of those activities during the year. (4) Events After End of Financial Year there are no matters or circumstances that have arisen since the end of the year that have significantly affected, or may significantly affect: (a) Boral’s operations in future financial years; or (b) the results of those operations in future financial years; or (c) Boral’s state of affairs in future financial years. (5) Future Developments and Results Other than matters referred to under the heading “Outlook” in the Managing director’s review on page 15, the directors have no reference to make to likely developments in Boral’s operations in future financial years and the expected results of those operations. (6) Environmental Performance details of Boral’s performance in relation to environmental regulation are set out under Environment on pages s18 to s22 of the sustainability report which is a supplement to the annual review. (7) Other Information Other than information in the annual review, there is no information that members of the Company would reasonably require to make an informed assessment of: (a) the operations of Boral; and (b) the financial position of Boral; and (c) Boral’s business strategies and its prospects for future financial years. (8) Dividends Paid or Declared dividends paid to members during the year were: total dividend $million the final dividend of 17 cents per ordinary share (fully franked at the 30% corporate tax rate) for the year ended 30 June 2005 was paid on 16 september 2005 the interim dividend of 17 cents per ordinary share (fully franked at the 30% corporate tax rate) for the year was paid on 20 March 2006 98.6 100.2 the final dividend of 17 cents per ordinary share (fully franked at the 30% corporate tax rate) for the year has been declared by the directors and will be paid on 18 september 2006. (9) Names of Directors the names of persons who have been directors of the Company during or since the end of the year are: Elizabeth a alexander E John Cloney richard a longes Kenneth J Moss rodney t Pearse Mark r rayner J roland Williams all of those persons have been directors at all times during and since the end of the year. (10) Options details of options that are granted over unissued shares of the Company, options that lapsed during the year and shares of the Company that were issued during the year as a result of the exercise of options are: Balance at Options Options beginning issued during lapsed during of year the year the year number number number shares issued during the year as a result of exercise of options number tranche grant date Expiry date Exercise price Options at end of year issued vested (x) (xi) (xii) (xiii) (xiv) (xv) 08/12/2000 06/11/2001 04/11/2002 29/10/2003 29/10/2004 31/10/2005 08/12/2005 06/11/2006 04/11/2009 29/10/2010 29/10/2011 31/10/2012 $1.97 $3.35 $4.12 $5.57 $6.60 $7 .70 68,500 1,114,500 3,699,500 4,662,300 2,099,500 – 11,644,300 – – – – – 3,353,100 3,353,100 – – – – – – – 68,500 958,400 3,018,600 – – – 4,045,500 – 156,100 680,900 4,662,300 2,099,500 3,353,100 10,951,900 – 156,100 680,900 – – – 837,000 the abovementioned options were held by 139 persons. since the end of the year, a further 46,200 shares of the Company have been issued at the price of $3.35 each as a result of the exercise of options in tranche (xi) and 215,300 such shares have been issued at a price of $4.12 each as a result of the exercise of options in tranche (xii). tranche (xv) was issued during the year pursuant to the Boral senior Executive Option Plan. the number of options in that tranche granted to each of Mr r t Pearse, the Managing director and Chief Executive Officer, and the executives named in the remuneration report in clause (19) as part of their emoluments for the year and certain other details of the terms of the options are set out in the remuneration report on page 48. Boral Limited annual review 2006 40 directors’ report (10) Options (continued) the grant of options to Mr Pearse was approved by shareholders at the Company’s annual general Meeting held on 21 October 2004. Each option granted over unissued shares of the Company entitles the holder to subscribe for one fully paid share in the capital of the Company. Optionholders have no rights under any options to participate in any share issue or interest issue of any body corporate other than the Company. no unissued shares and interests of the Company or any controlled entity are under option other than as set out in this clause. (11) Indemnities and Insurance for Officers and Auditors during or since the end of the year, Boral has not given any indemnity to a current or former officer or auditor against a liability or made any agreement under which an officer or auditor may be given any indemnity of the kind covered by sub-section 199a(2) or (3) of the Corporations act 2001. during the year, Boral paid premiums in respect of directors’ and Officers’ liability and legal Expenses insurance contracts for the year ended 30 June 2006 and since the end of the year, Boral has paid, or agreed to pay, premiums in respect of such contracts for the year ending 30 June 2007 the insurance contracts . insure against certain liability (subject to exclusions) persons who are or have been directors or officers of the Company and controlled entities. a condition of the contracts is that the nature of the liability indemnified and the premium payable not be disclosed. (12) Directors’ Qualifications, Experience and Special Responsibilities and Directorships of Other Listed Companies in the Last Three Financial Years Each director’s qualifications, experience and special responsibilities are set out on page 33. details for each director of all directorships of other listed companies held at any time in the three years before the end of the year and the period for which such directorships has been held are: E A Alexander lend lease Corporation limited from 1986 to november 2005 Metcash trading limited from 2000 to January 2006 Metcash limited from april 2005 (current) viridis investment Management limited from september 2005 (current) K J Moss amcor limited from 1994 to October 2005 Csl limited from 1991 (current) dB rrEEF Funds Management limited from January 2005 (current) Patrick Corporation limited from 2003 to May 2006 QBE insurance group limited from 1981 (current) R A Longes E J Cloney adsteam Marine limited from 2001 (current) Centennial Coal limited from 2000 (current) gPt Management limited from 2000 to June 2005 gPt rE limited from June 2005 (current) Macquarie Capital alliance group (being Macquarie Capital alliance limited, Macquarie Capital alliance Management limited and Macquarie Capital alliance Bermuda limited) from March 2005 (current) national australia Bank limited from 2000 to august 2004 R T Pearse nil M R Rayner alumina limited from december 2002 (current) J R Williams austbrokers Holdings limited from november 2005 (current) gPt Management limited from 1984 to november 2004 australian Magnesium Corporation limited from 2001 to november 2003 Origin Energy limited from 2000 (current) united group limited from 1999 to november 2003 (13) Meetings of Directors the number of Meetings of the Board of directors and each Board Committee held during the year and each director’s attendance at those Meetings was: Board of directors Meetings held while a director Meetings attended audit Committee Meetings held while a Member Meetings attended Compensation Committee Meetings held while a Member Meetings attended E a alexander E J Cloney r a longes K J Moss r t Pearse M r rayner J r Williams 10 10 10 10 10 10 10 9 10 10 10 10 10 10 5 – 5 – – – 5 5 – 4 – – – 5 – 2 – 2 – 2 – – 2 – 2 – 2 – Mr Pearse, the Managing director, is not a member of the audit and Compensation Committees but attended all of the Meetings held by those Committees. (14) Company Secretary the qualifications and experience of the Company secretary, Michael B scobie, are set out on page 30. 41 (15) Directors’ Shareholdings details of each director’s interests in the shares and other securities of the Company are: shares non-Executive directors‘ a share Plan Options and share acquisition rights (sars) E a alexander E J Cloney r a longes K J Moss r t Pearse M r rayner J r Williams 14,897 14,392 12,721 21,000 3,509,556 20,000 43,029 3,905 20,934 2,648 9,035 – 27,379 16,624 – – – – b – – the shares are held in the name of the director except in the case of Mr E J Cloney, 534 shares are held by lizzey investments Pty limited and 12,500 shares are held by the Cloney superannuation Fund, in the case of Mr r a longes, 10,000 shares are held by richard longes superannuation Fund, in the case of dr K J Moss, 21,000 shares are held by K J and g a Moss, in the case of Mr Pearse, 37 ,884 shares are held by Pearse nominees (nsW) Pty. limited and in the case of Mr M r rayner, 19,000 shares are held by Mokanger Personal superannuation Fund. shares or other securities with rights of conversion to equity in the Company or in a related body corporate are not otherwise held by any directors of the Company. there were no disposals of such securities by any directors or their director-related entities during the financial year. a shares in the Company allocated to the director’s account in the non-Executive directors’ share Plan. directors will only be entitled to a transfer of the shares in accordance with the terms and conditions of the Plan. b Options and sars held by Mr Pearse are:number of Options Expiry date 700,000 350,000 939,800 29 October 2010 29 October 2011 31 October 2012 Exercise Price $5.57 $6.60 $7.70 number of sars 120,000 247,036 Expiry date 29 October 2011 31 October 2012 the sars are rights to acquire shares in the Company under the Boral senior Executive Performance share Plan and will only vest to the extent to which the performance hurdle, which is measured by comparing the tsr of the Company to the tsr of the companies comprising the asx 100 during the vesting period, is satisfied. (16) No Officers are Former Auditors no officer of the Company has been a partner in an audit firm, or a director of an audit company, that is an auditor of the Company during the year or was such a partner or director at a time when the audit firm or the audit company undertook an audit of the Company. (17) Non-Audit Services amounts paid or payable to Boral’s auditor, KPMg, for non-audit services provided, during the year, by KPMg totalled $512,000. these services consisted of: taxation compliance/advisory services in australia $97,000 taxation compliance/advisory services in jurisdictions other than australia (predominantly the usa and Europe) $359,000 assurance related services $56,000 Fees for audit and audit related services during the year totalled $1,799,000. the audit related services component of that amount was $115,000 consisting of other regulatory audits and accounting advice in australia and overseas. in accordance with advice from the Company’s audit Committee, directors are satisfied that the provision of the above non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations act 2001. also in accordance with advice from the audit Committee, directors are satisfied that the provision of those non-audit services, during the year, by the auditor did not compromise the auditor independence requirements of the Corporations act 2001 because: – directors are not aware of any reason to question the auditor’s independence declaration under section 307C of the Corporations act 2001; – the total amounts paid or payable to the auditor for non-audit services are not material; – the nature of the non-audit services provided is not inconsistent with those requirements; and – provision of the non-audit services is consistent with the processes in place for the audit Committee to monitor the independence of the auditor. (18) Auditor’s Independence Declaration the auditor’s independence declaration made under section 307C of the Corporations act 2001 is set out on page 49 and forms part of this report. Boral Limited annual review 2006 42 directors’ report (19) Remuneration Report this remuneration report: – explains the Board’s policies relating to remuneration of directors, secretaries and executives within Boral. – discusses the relationship between such policies and the Company’s performance. – provides details of Boral’s performance condition. – sets out remuneration details for the Company’s key management personnel including non-executive directors, the Executive director and other executives. (i) Compensation Committee (iii) exeCutive RemuneRation stRuCtuRe the functions of the Compensation Committee, which oversees remuneration issues, are set out on page 36. Management support for the Committee and advice from specialist remuneration advisers is provided primarily through Boral’s general Manager, Human resources. (ii) RemuneRation poliCy Boral’s remuneration policy and practices are designed to attract, motivate and retain high quality people. the policy is built around principles that: – executive rewards be competitive in the markets in which Boral operates. – executive remuneration has an appropriate balance of fixed and variable reward. – remuneration be linked to Boral’s performance and the creation of shareholder value. – variable remuneration for executives has both short and long term components. – a significant proportion of executive reward be dependent upon performance assessed against key business measures, both financial and non-financial. Current practice is to target fixed remuneration at market median levels paid by comparable companies for similar positions with scope of role, performance and competence determining level of remuneration relative to market. through variable remuneration, executives are rewarded at the market median level for “target” performance and at the upper quartile level for delivery of “stretch” performance. Boral makes extensive use of market data to benchmark remuneration levels. remuneration for Boral executives includes both fixed and variable (incentive) components. Fixed remuneration includes base salary, any non-cash benefits such as provision of a vehicle (including any FBt charges) and in most instances, superannuation contributions. remuneration levels are reviewed annually by the Compensation Committee through a process that considers individual and company performance. External market advice is also considered to ensure remuneration levels remain competitive in the market place. variable remuneration for executives includes both short-term and long-term incentives and is designed to reward executives for meeting or exceeding their financial and personal objectives. the short term incentive (sti) is provided in the form of cash while the long term incentive (lti) is currently provided as options over ordinary Boral shares and/or share acquisition rights (sars). Participation by executives in the sti and lti schemes is at the discretion of the Board. stis are provided for employees who have significant influence over the annual outcomes of business units. Currently, about 5.3% of Boral employees participate in the sti scheme. salaried staff in australia participate in an annual staff incentive scheme which is performance related. Currently, about 21% of Boral’s australian employees participate in the staff incentive scheme. the average incentive represents 2.6% of base remuneration. ltis are provided for senior executives who are determined by the Board as having significant influence over the longterm outcomes of Boral. about 1% of employees participate in ltis. short term incentive assessed relative to three measurement levels (minimum, target and stretch). a percentage of the maximum amount is awarded, depending on results, between 20% for minimum performance and 100% for stretch performance. target performance achieves 60% of maximum. no incentive is awarded where performance falls below minimum. in the year to 30 June 2006, the maximum sti levels for members of the senior executive team were 50% to 90% of fixed remuneration. the financial performance objective is “Profit after Funding” which is a measure of profit related to assets employed. the non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes, safety performance, workers’ compensation cost reduction, operational improvement and performance enhancement, customer satisfaction and staff development. these performance measures have been chosen to focus executives on adding shareholder value and demonstrating the Boral values. Financial and non-financial objectives each typically account for 50% of the maximum sti for the majority of executives. For divisional Executive general Managers, financial objectives account for 67% of the maximum sti. stis in 2006 are higher than 2005 for most senior executives because of better performance against financial objectives. long term incentive the sti amount awarded to an executive is determined at the end of the financial year when results are available, as a proportion of a pre-determined maximum amount which varies with job size. the maximum amount is set by the Board based on market data. the actual incentive awarded is determined by assessment of the executive’s performance against specific objectives, both financial and nonfinancial. the executive’s performance is the lti award relates to a maximum amount, which is set by the Board based on market data and the executive’s position within the Company. the number of options or sars to be awarded is calculated using the fair market value of those options or sars determined in accordance with the applicable accounting standard and based on the average Boral share price for the five trading days following the annual general Meeting. in the year to 30 June 2006, the maximum lti levels for members of the senior executive team were 30% to 40% of fixed remuneration. Options over ordinary Boral shares and sars awarded to senior executives as ltis are issued under the rules of the Boral senior Executive Option Plan and Boral 43 senior Executive Performance share Plan respectively. the number of options and/or rights that may be offered to executives when aggregated, together with the number of shares held in the Company’s Employee share Plan and senior Executive Performance share Plan and the number of shares that would be issued on exercise or vesting of outstanding options and rights, shall not exceed 5% of the total number of issued shares at the time of any such offer. subject to an exercise hurdle being attained, the exercise period during which options may be exercised and sars may vest commences after three years and ends after seven years. the options and vested shares lapse or forfeit if they are not exercised or released during such period. generally the options and sars do not remain available to executives who resign unless the Board exercises a discretion. Options may only be exercised and sars may only vest if the exercise hurdle, which is set by the Board and is dependent on Boral shares performing favourably with the overall return of shares in companies in the asx 100, is met. Full details of the current hurdle which has applied since 2001 are as follows: Exercise hurdle tsr at any time during the exercise period affords executives the same opportunity as shareholders to review the performance of the Company progressively during the exercise period. the percentage of options or sars capable of exercise is based on a sliding scale as follows: if at any time during the exercise period the tsr of the Company: the percentage of options or sars which become exercisable is: does not reach the 50th percentile of the tsr of the asx 100 reaches the 50th percentile of the tsr of the asx 100 reaches or exceeds the 75th percentile of the tsr of the asx 100 0% 50% following similar principles to those of the Option Plan. sars can be granted in lieu of options, with the number granted calculated in the same way i.e. based on a percentage of fixed remuneration and the fair market value of a sar. no consideration is payable by the executive for the sars or on transfer of shares after the sars vest. the ltis and the Option and Performance share Plans are designed to align participants’ interests with those of shareholders. Boral’s earnings improved substantially in 2002, 2003 and 2004 and the level of earnings has been sustained in 2005 and 2006. shareholder wealth has benefited in years since 2002 as follows: year ended 30 June Full year’s dividend Boral share Price at year End return on Equity 100% the exercise hurdle for both options and sars is measured by comparing the performance of the Company with the performance of other companies in which shareholders may potentially invest. this is in line with the approach of other major australian companies. accordingly, the exercise of the options and vesting of sars will depend on the maximum total shareholder return (“tsr”) of the Company relative to the tsr of the companies from time to time comprising the asx 100. determination of the tsr will be made on the basis of movements in the share price and dividends, calculated in a similar manner to the accumulation index of asx. the period over which the tsr of the Company is compared with the tsr of the asx 100 commences on the date of grant of the options and the sars and is measured at any time during the exercise period. Measuring Boral’s the percentage of options or sars which become exercisable increases from the 50th percentile up to the 75th percentile by 2% for each 1% increase in the percentile of the tsr of the Company, compared to the tsr of the asx 100. the measurement of Boral’s tsr from the 2004 grant onwards requires the exercise hurdle to be maintained for a minimum of 10 consecutive business days. the percentile measurement of Boral’s tsr will be based on the lowest share price during the 10 day period. the number of options to be granted to an executive under the Option Plan in respect of a financial year is determined by the Board after considering the level of responsibility and accountability of the executive. the award is based on a percentage of fixed remuneration (dependent upon position within the Company) and the fair market value of a market priced option as determined independently using a valuation method defined by the applicable australian accounting standard. the exercise price of the options is the average of the last sale price of Boral ordinary shares traded on asx on each of the five trading days immediately after the date of the annual general Meeting. sars were introduced in 2004 to provide an alternative lti vehicle to options. sars are granted to executives under the Boral senior Executive Performance share Plan 2002 2003 2004 2005 2006 19 cents 23 cents 30 cents 34 cents 34 cents $3.75 $5.06 $6.46 $6.48 $8.14 9.9% 13.2% 15.7% 15.4% 13.2% 2005 figures restated to reflect adoption of australian equivalents to international Financial reporting standards Boral’s tsr performance was such that the exercise hurdle for options granted as ltis in 2002 was satisfied to the extent that 100% of those options became exercisable on 4 november 2005. a number of executives have benefited from exercising those options. Boral’s tsr performance in recent years is detailed as follows: lti grant in year ended 30 June average annual tsr Performance over 3 years 2001 2002 2003 45% 31% 39% Whether executives will benefit from vesting of ltis awarded in 2004 and subsequent years will be determined by whether or not exercise hurdles are satisfied during applicable exercise periods which commence three years after an award. Boral Limited annual review 2006 44 directors’ report (19) Remuneration Report (continued) Boral has a policy on share trading which applies to directors, officers and senior executives including key management personnel. this policy prohibits executives entering hedge and other derivative transactions regarding options or sars granted to them as ltis. refer to the sub-heading “Ethical standards and dealings in Boral shares” on page 35. (iv) non-exeCutive diReCtoRs’ RemuneRation $17 ,625 to the chairs of Committees. the Board has approved an increase in base remuneration (fees) for non-executive directors to $107 ,000 and for the Chairman to $294,250 from 1 July 2006. the additional Committee remuneration will remain unchanged at $11,750 for members and $17 ,625 for the chairs. the remuneration of the non-executive directors is fixed and they do not receive any options, variable remuneration or other performance related incentives. non-executive directors’ Remuneration the remuneration of non-executive directors is determined by the full Board upon the recommendation of its Compensation Committee within a maximum amount approved by shareholders in general meeting. the maximum amount was increased to $1,000,000 per annum in total remuneration at the Company’s 2003 annual general Meeting. the remuneration of non-executive directors has been structured from 1 January 2004 on a total remuneration basis which may be in the form of cash, superannuation contributions or Boral shares acquired through the nonExecutive directors’ share Plan. the Board has agreed that as a matter of guidance rather than by way of requirement, an appropriate proportion of non-executive directors’ remuneration to be taken in Boral shares through the non-Executive directors’ share Plan would be 10%. retiring allowances which were accruing for non-executive directors were frozen at 31 december 2003. those directors could choose to have the allowances with interest accrued at bank rates paid out on retirement, converted to Boral shares through the non-Executive directors’ share Plan or allocated to his or her account in Boral’s defined contribution superannuation plan. in considering the level of remuneration for directors, the Board takes account of survey and other information on remuneration being paid by peer group companies. For the year, base remuneration (fees) of $102,500 was payable to non-executive directors. the base remuneration for the Chairman was $281,875. in addition, remuneration of $11,750 was payable to members of Board Committees and the remuneration of the non-executive directors is set out in the Key Management Personnel remuneration table on page 46. (v) Ceo’s RemuneRation Mr Pearse is the Managing director and Chief Executive Officer (CEO) of Boral limited. Mr Pearse was appointed to this position effective 1 January 2000 for a five year term and agreed to a new five year contract which commenced on 1 January 2005. Mr Pearse’s base remuneration is set by the Board annually and may be taken as cash salary, company provided motor vehicle and superannuation contributions. He is entitled to annual sti payments of up to 100% of base remuneration. the amount of the sti in any year will be determined by the Board in consultation with Mr Pearse by assessment of Mr Pearse’s performance against financial and non-financial targets agreed by the Board in consultation with Mr Pearse at the start of each financial year. Mr Pearse will also be entitled to ltis in the form of options granted under the Boral senior Executive Option Plan and/or sars granted under the Boral senior Executive Performance share Plan with a fair market value intended to represent, so far as practicable, 75% of the aggregate base remuneration payable over the five year term of the contract. this will be achieved by the Company granting to Mr Pearse in each of november 2005, november 2006 and november 2007 options under the Boral senior Executive Option Plan and sars under the Boral senior Executive share Plan so that the aggregate fair market value of the options and sars granted to him is equal to 125% of the base remuneration payable in respect of the period ending on 31 august immediately prior to the date of grant. in effect, Mr Pearse will therefore receive three long term incentive grants worth 125% of base remuneration in each of years one, two and three of the contract, instead of five long term incentive grants worth 75% of base remuneration in each of years one to five of the contract. For these purposes, fair market value means the fair market value of options or rights to shares measured in accordance with the accounting standards applicable to the Company at the time. if the service contract is terminated before the expiry of the 5 year term other than for breach by the Company, fundamental change or termination by the Company without notice then part of the ltis granted to Mr Pearse will be cancelled so that the aggregate ltis which Mr Pearse retains following termination represent 75% of base remuneration received over the term for which Mr Pearse actually served. shareholders at the Company’s annual general Meeting held on 21 October 2004 approved the above contemplated grants of options and sars to Mr Pearse in respect of the five year period of his service contract from 1 January 2005. Mr Pearse’s aggregate annual remuneration, including base remuneration, sti and lti, will be reviewed by the Board annually taking into account the performance of Mr Pearse in the preceding year and a comparison against the remuneration payable to chief executives of an appropriate comparator group of companies determined by the Board and drawn from the top 50 asx companies and international companies of appropriate size and industry. 45 directors’ report (19) Remuneration Report (continued) termination events and calculation of payments shareholders at the Company’s annual general Meeting held on 21 October 2004 approved the payment of any termination payments which may become payable to Mr Pearse under his contract. set out below are the circumstances in which Mr Pearse’s contract may be terminated and details of payments and other benefits that he may be entitled to receive as a result of such termination. For these purposes, the “total annual reward” in respect of any year is the base remuneration payable in that year plus the amount of any short term incentive payable in that year. Payment on expiry of term – upon Mr Pearse entering a no compete condition for 15 months, the Company will pay him 1.25 times his total annual reward. Payment on resignation – upon Mr Pearse resigning by giving 6 months’ written notice and entering into a no compete condition for 15 months, the Company will pay him 1.25 times his total annual reward. Termination for illness or incapacity – Either Mr Pearse or the Company may, by giving 6 months’ written notice, terminate his employment by reason of illness or incapacity. Termination for cause – no termination payment is payable to Mr Pearse if he is dismissed for misconduct, wilful neglect, serious or persistent breach of the service contract or other serious causes. Termination for breach by the Company or fundamental change – if Mr Pearse terminates his employment because the Company is in breach of its obligations under the service contract or either party terminates the employment if there is a fundamental change which removes or diminishes his status, duties or authority, the Company will pay him an amount equal to twice the total annual reward in the year of termination. Termination by Company for poor performance – if the Company terminates the employment of Mr Pearse because his performance is not at the level reasonably required, the Company will pay him an amount equal to his base remuneration in the year of termination. Termination by Company without notice – if the Company terminates the employment of Mr Pearse without notice, the Company will pay him: (a) an amount equal to one half of his total annual reward in the year of termination (in lieu of 6 months’ notice); and (b) an amount equal to total annual reward in the year of termination or where there is less than one year between the date of termination and the agreed expiry date, that amount multiplied by the number of days remaining until the expiry date divided by 365; and, upon his entering into a no compete condition for 15 months, the Company will also pay him 1.25 times his total annual reward. Ceo’s Remuneration (vi) exeCutives’ RemuneRation the remuneration of the most highly remunerated company executives and relevant group executives is determined in accordance with Boral’s remuneration structure detailed above. termination Periods of notice to be given by the executive upon resignation are from 1 to 3 months. there are no contractual pre-set termination benefits for these executives and in the event that an executive’s service is terminated by the employer whether for cause, poor performance, redundancy or otherwise, payments are made to satisfy Boral’s legal obligations. general employment terms and conditions are set out for each executive in their respective letters of employment/ appointment. a limited number of us senior executives have entered Executive transition agreements with Boral industries inc. pursuant to which benefits are payable in the event of termination in certain circumstances and within a specified period following a change of control of Boral limited or Boral industries inc. any such benefit which becomes payable is two times annual salary plus sti. executives’ Remuneration the remuneration of the CEO, Mr Pearse, is set out in the Key Management Personnel remuneration table on page 46. the remuneration of the most highly remunerated company executives and relevant group executives is set out in the Key Management Personnel remuneration table on page 46. Boral Limited annual review 2006 46 Key management personnel Remuneration short-term non Monetary Benefits Post-employment superannuation retireContri- ment butions Benefitsa Other long term share-based payments total remuneration value of Proportion of Options as remuneration proportion performance of remrelated uneration a$ % % salary and fees short term incentive (Cash Bonus) long term incentivesb share Plan a$ a$ % vested % Forfeited share c acquisition rights vested Options (sars) Benefit a$ a$ a$ a$ a$ a$ a$ diReCtoRs non-executive E a alExandEr E J ClOnEy r a lOngEs K J MOss Chairman M r raynEr J r WilliaMs executive 2005 1,973,867 976,000 48.80% r t PEarsE Managing director and CEO 2006 2,208,333 1,337,175 59.43% total Total exeCutives E s sEvErin President, Boral industries inc. 2005 2006 576,904 623,166 517,405 587,300 606,503 659,612 535,100 581,633 460,133 489,274 410,972 461,583 530,365 576,493 403,212 422,231 472,002 74.12% 576,474 82.92% 48,069 19.60% 220,000 60.07% 97,581 34.43% 136,804 33.52% 129,450 51.47% 276,858 76.80% 80,870 32.97% 259,930 74.99% 49,509 25.35% 85,962 29.74% 75,421 30.24% 222,107 62.15% 71,112 37.50% 163,026 65.50% 25.88% 222,853 101,333 17.08% 243,191 102,783 80.40% 39.93% 65.57% 66.48% 48.53% 23.20% 67.03% 25.01% 74.65% 70.26% 69.76% 37.85% 62.50% 34.50% 16,564 18,070 – 18,070 10,993 18,070 18,070 18,070 – – 18,070 18,070 18,070 18,070 11,650 12,200 11,650 12,200 11,650 12,200 78,034 82,976 11,650 12,200 11,650 12,200 67,105 71,607 – 9,615 – 10,386 – – 7,389 9,788 127,195 116,177 41,743 43,273 115,525 95,522 50,802 67,683 100,424 84,486 67,487 58,829 78,634 68,166 82,927 67,256 10,443 34,813 3,460 17,823 7,509 25,848 7,904 24,793 7,589 24,000 5,144 17,766 5,913 21,703 5,908 18,268 535 1,520,880 855 1,707,845 – – 535 855 535 855 535 855 535 855 535 855 535 855 646,280 908,454 848,117 959,905 754,825 991,786 753,324 967,746 551,482 644,888 728,581 929,202 655,589 768,350 40.08% 42.60% 14.43% 30.94% 26.01% 26.90% 24.93% 37.24% 25.07% 38.07% 22.15% 25.21% 21.96% 33.57% 24.40% 32.35% 8.36% 6.80% 6.46% 4.76% 13.62% 9.95% 6.73% 6.82% 13.33% 8.73% 12.24% 9.12% 10.79% 7.34% 12.65% 8.75% 2005 2,588,715 976,000 2006 2,937,102 1,337,175 51.20% 40.57% 18,070 18,070 18,070 18,070 – – 47,213 60,192 – 32,898 – 36,806 33,716 32,898 29,331 36,806 566,809 59,844 567,428 255,274 – 3,627,488 – 4,423,086 44.18% 48.83% 15.63% 12.83% 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 88,142 99,185 88,142 99,185 66,982 94,335 201,000 242,442 86,775 99,287 83,807 94,335 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,933 8,927 7,933 8,927 6,029 8,490 13,200 21,820 4,575 3,538 7,543 8,490 11,825 12,484 – – – – 12,754 13,540 9,137 3,307 – – – – – – – – – – – – – – – – – – – – – – – – – – – 10,675 – 12,013 – 10,675 – 12,013 – 8,064 – 11,425 – 23,800 – 29,363 – 10,150 – 11,425 – 10,150 – 11,425 118,575 132,609 106,750 120,125 81,075 114,250 250,754 307,165 110,637 117,557 101,500 114,250 – – – – – – – – – – – – – – – – – – – – – – – – 566,809 59,844 73,514 4,396,779 567,428 255,274 87,664 5,329,042 2005 J M dOuglas Executive general Manager, 2006 aCM 2005 P J JOBE Executive general Manager, 2006 Cement 2005 K a MitCHElHill Executive general Manager, 2006 Clay & Concrete Products 2005 W r BatstOnE Executive general Manager, 2006 Plasterboard 2005 P J BOyd Executive general Manager, 2006 timber K M BartOn Chief Financial Officer M B sCOBiE general Manager, Corporate services & Company secretary B M tisHEr general Manager, Corporate development r J tOWn general Manager, Human resources total Total 2005 2006 2005 2006 – 8,814 – 10,994 – – – – – – – – – – 8,391 9,694 7,669 8,155 6,185 7,693 7,993 9,608 6,720 7,037 2005 2006 2005 2006 421,327 449,603 342,902 367,845 68,689 39.20% 157,227 67.40% 52,729 32.30% 134,155 61.73% 60.80% 32.60% 67.70% 38.27% 18,070 18,070 18,070 18,070 11,650 12,200 58,153 62,383 – – – – 7,022 7,493 5,207 6,131 77,535 60,058 57,550 50,612 5,525 16,979 4,655 15,081 535 855 535 855 610,353 722,485 539,801 655,132 24.86% 32.42% 21.29% 30.50% 12.70% 8.31% 10.66% 7.73% 2005 4,804,823 1,145,432 2006 5,218,740 2,232,543 340,760 374,525 387,751 392,949 – 75,005 – 86,979 799,822 64,050 712,062 217,074 4,815 7,609,232 7,695 9,255,793 a the accrued retiring allowances of non-executive directors were frozen at 31 december 2003. the accrued retiring allowances of E a alexander and K J Moss of $238,763 and $257 ,596 respectively were paid as superannuation contributions to the Boral super subplan of the Plum superannuation Fund during the 2006 financial year. the accrued retiring allowance for M r rayner of $178,154 was converted to Boral shares through the non-Executive directors’ share Plan during the 2006 financial year and 23,665 shares were purchased through the Plan and allocated to his account in it. all of the accrued retiring allowances have now been converted to Boral shares through the non-Executive directors’ share Plan or paid as superannuation contributions to the Boral super sub-plan. the retirement benefits which comprise remuneration in the 2005 and 2006 financial years were interest on retiring allowances at bank rates. b the fair value of the options is calculated at the date of grant using a Monte Carlo simulation analysis in 2005 and 2004, a Binomial model in 2003 and a modified Black scholes model in 2002. For 2002 and 2003, the value is allocated to each reporting period evenly over the period of 3 years from grant date. From 2004, the value is allocated to each reporting period evenly over the period of 5 years from grant date. the value disclosed above is the portion of the fair value of the options allocated to this reporting period. the fair value of the sars is calculated at the date of grant using the Monte Carlo simulation analysis in 2005 and 2004. the value is allocated to each reporting period evenly over the period of 5 years from the grant date. the value disclosed above is the portion of the fair value of the sars allocated to this reporting period. c For non-executive directors, the benefit is the value of Boral shares acquired through the non-Executive directors’ share Plan and for executives, the benefit arose through participation in the Employee share Plan. the 2005 comparisons have been amended to disclose benefits on a similar basis as 2006. 47 (vii) details of long teRm inCentives gRanted as RemuneRation the vesting profile and other details of ltis being options and sars granted as remuneration to the CEO and the above executives are: Options granted share acquisition rights granted % vested in year % forfeited in year Financial year in which grant vests value yet to vesta Option Max a$ sar Max a$ total Max a$ no. date no. date Min diReCtoRs non-executive director E a alExandEr E J ClOnEy r a lOngEs K J MOss M r raynEr J r WilliaMs executive director r t PEarsE Managing director & Chief Executive Officer 700,000 700,000 350,000 939,800 exeCutives E s sEvErin President Boral industries usa 148,200 178,600 78,100 108,800 J M dOuglas Executive general Manager – aCM 55,100 53,300 25,900 71,700 P J JOBE Executive general Manager – Cement 150,500 146,000 56,200 82,900 K a MitCHElHill Executive general Manager – Clay & Concrete Products W r BatstOnE Executive general Manager – Plasterboard 117,000 59,100 73,500 124,700 128,500 56,800 71,700 P J BOyd Executive general Manager – timber 88,200 86,200 38,500 57,100 K M BartOn Chief Financial Officer 96,600 98,500 44,200 72,900 M B sCOBiE general Manager Corporate services & Company secretary B M tisHEr general Manager Corporate development 110,800 101,200 44,200 53,500 107,800 86,000 41,300 49,400 r J tOWn general Manager Human resources 75,700 74,800 34,800 46,000 4 november 2002 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 4 november 2002 29 October 2003 29 October 2004 31 October 2005 9,335 12,098 29 October 2004 31 October 2005 11,080 12,986 29 October 2004 31 October 2005 11,847 14,054 29 October 2004 31 October 2005 11,857 19,162 29 October 2004 31 October 2005 10,315 15,010 29 October 2004 31 October 2005 15,218 18,849 29 October 2004 31 October 2005 15,849 19,330 29 October 2004 31 October 2005 15,057 21,782 29 October 2004 31 October 2005 6,938 18,849 29 October 2004 31 October 2005 20,940 28,603 29 October 2004 31 October 2005 100% 0% 0% 0% 100% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 100% 0% 0% 0% 100% 0% 0% 0% 100% 0% 0% 0% 100% 0% 0% 0% 100% 0% 0% 0% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 30 June 2007 30 June 2008 30 June 2009 0 nil nil nil 0 nil nil nil 0 nil nil nil nil nil nil 0 nil nil nil 0 nil nil nil 0 nil nil nil 0 nil nil nil 0 nil nil nil 0 nil nil nil 81,532 2,088 0 0 62,171 80,573 81,532 64,259 80,573 93,740 2,478 0 0 73,793 86,487 93,740 76,271 86,487 110,308 2,652 0 0 78,901 93,600 110,308 81,553 93,600 107,365 2,652 0 0 78,968 127,619 107,365 81,620 127,619 93,958 2,310 0 0 68,698 99,967 93,958 71,008 99,967 140,065 3,408 0 0 101,352 125,534 140,065 104,760 125,534 159,140 3,372 0 127,530 3,546 0 0 100,280 145,068 0 105,554 128,738 159,140 103,652 145,068 127,530 109,100 128,738 58,097 1,554 0 0 46,207 125,534 58,097 47,761 125,534 194,674 4,686 0 0 139,460 190,496 194,674 144,146 190,496 4 november 2002 29 October 2003 29 October 2004 31 October 2005 120,000 247,036 29 October 2004 31 October 2005 100% 0% 0% 0% 0% 0% 0% 0% 30 June 2007 30 June 2008 30 June 2009 0 nil nil nil 763,000 21,000 0 0 799,200 1,645,260 763,000 820,200 1,645,260 0 0 0 0 0 0 0 0 0 0 0 0 a Maximum values yet to vest are based on the last sale price of Boral shares on 24 august 2006 of $6.66 Boral Limited annual review 2006 48 directors’ report (19) Remuneration Report (continued) options details of the movement during the year of options held by the CEO and the above executives are: total value of options granted, exercised and lapsed during the year $ Balance at 1 July 2005 number executive director granted during the year as remunerationa number Exercised during the year number value of options exercisedb $ lapsed during the year number Balance at 30 June 2006 number r t PEarsE executives 2,450,000 939,800 (700,000) (700,000) (148,200) (55,100) – – (124,700) (30,000) (96,600) (110,800) (107,800) (75,700) (31,600) 2,569,000 3,087,000 649,116 239,134 – – 546,186 129,000 451,122 418,824 465,696 292,959 169,376 – 1,989,800 6,905,934 E s sEvErin J M dOuglas P J JOBE K a MitCHElHill W r BatstOnE P J BOyd K M BartOn M B sCOBiE B M tisHEr r J tOWn 404,900 134,300 352,700 176,100 310,000 265,200 239,300 256,200 235,100 216,900 108,800 71,700 82,900 73,500 71,700 57,100 72,900 53,500 49,400 46,000 – – – – – – – – – – 365,500 150,900 435,600 249,600 257,000 292,300 215,600 198,900 176,700 155,600 793,820 334,495 110,257 97,755 641,547 204,943 548,079 489,979 531,398 523,515 a the fair value of the options granted during the year calculated at the date of the grant using a Monte Carlo simulation analysis is $1.33 per option. the options expire on 31 October 2012. b Calculated per option as the last sale price of Boral shares on the date of exercise less the exercise price. shaRe aCquisition Rights details of the movement during the year of sars held by the CEO and the above executives are: total value of sar’s granted, exercised and lapsed during the year $ Balance at 1 July 2005 number executive director granted during the year as remunerationa number Exercised during the year number value of sars exercised $ lapsed during the year number Balance at 30 June 2006 number r t PEarsE executives 120,000 20,940 6,938 15,057 15,849 15,218 10,315 11,857 11,847 11,080 9,335 247,036 28,603 18,849 21,782 19,330 18,849 15,010 19,162 14,054 12,986 12,098 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 367,036 49,543 25,787 36,839 35,179 34,067 25,325 31,019 25,901 24,066 21,433 1,250,002 144,731 95,376 110,217 97,810 95,376 75,951 96,960 71,113 65,709 61,216 E s sEvErin J M dOuglas P J JOBE K a MitCHElHill W r BatstOnE P J BOyd K M BartOn M B sCOBiE B M tisHEr r J tOWn a the fair value of the sars granted during the year calculated at the date of the grant using a Monte Carlo simulation analysis is $5.06 per right. the sars expire on 31 October 2012. (20) Proceedings on behalf of the Company no application under section 237 of the Corporations act 2001 has been made in respect of the Company and there are no proceedings that a person has brought or intervened in on behalf of the Company under that section. (21) Rounding of Amounts the Company is of a kind referred to in asiC Class Order 98/100 and in accordance with that Class Order, amounts in the financial report and directors’ report have been rounded off to the nearest one hundred thousand dollars unless otherwise indicated. signed in accordance with a resolution of the directors. Kenneth J Moss director sydney, 31 august 2006 Rodney T Pearse director 49 Lead auditor’s independence decLaration under Section 307c of the corporationS act 2001 To: the Directors of Boral Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2006 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG TrenT van veen PArTner Sydney, 31 August 2006 Boral Limited Annual review 2006 50 income statement BoraL LiMited and controLLed entitieS COnSOLIDATeD for the year ended 30 June note 2006 $ millions 2005 $ millions revenue Cost of sales Distribution expenses Selling and marketing expenses Administrative expenses 3 4,767.4 (2,963.0) (755.4) (209.5) (325.1) (4,253.0) 4,304.8 (2,583.7) (695.5) (185.0) (295.9) (3,760.1) 9.3 (16.4) 65.4 603.0 3.6 (74.7) (71.1) 531.9 (161.9) 370.0 (0.5) 369.5 63.4c 63.2c Other income Other expenses Share of net profit of associates and joint ventures Profit before net financing expense and income tax Financial income Financial expenses net financing expense Profit before income tax expense Income tax expense net profit net profit attributable to minority interests net profit attributable to members of the parent entity Basic earnings per share – ordinary shares Diluted earnings per share – ordinary shares The income statement should be read in conjunction with the accompanying notes which form an integral part of the financial statements. 14.2 (0.4) 7 85.8 614.0 4.2 (102.4) (98.2) 515.8 (153.1) 362.7 (0.3) 362.4 5 5 61.7c 61.5c 51 BaLance sheet BoraL LiMited and controLLed entitieS COnSOLIDATeD as at 30 June note 2006 $ millions 2005 $ millions CUrrenT aSSeTS Cash and cash equivalents receivables Inventories Other TOTaL CUrrenT aSSeTS nOn-CUrrenT aSSeTS receivables Inventories Investments accounted for using the equity method Other financial assets Property, plant and equipment Intangible assets Other TOTaL nOn-CUrrenT aSSeTS TOTaL aSSeTS CUrrenT LIaBILITIeS Payables Interest bearing loans and borrowings Current tax liabilities Provisions TOTaL CUrrenT LIaBILITIeS nOn-CUrrenT LIaBILITIeS Payables Interest bearing loans and borrowings Deferred tax liabilities Provisions TOTaL nOn-CUrrenT LIaBILITIeS TOTaL LIaBILITIeS neT aSSeTS eQUITY Issued capital reserves retained earnings Total parent entity interest Minority interests TOTaL eQUITY The balance sheet should be read in conjunction with the accompanying notes which form an integral part of the financial statements. 76.2 759.7 528.5 36.4 1,400.8 42.1 745.9 468.2 39.8 1,296.0 28.2 120.7 418.4 9 289.1 2,908.1 352.9 68.8 4,186.2 5,587.0 39.2 108.0 360.1 167.1 2,649.1 336.4 44.9 3,704.8 5,000.8 608.8 1.0 63.5 189.9 863.2 572.6 25.1 119.3 191.7 908.7 39.0 1,653.4 227.6 48.8 1,968.8 2,832.0 2,755.0 21.6 1,410.5 191.0 62.2 1,685.3 2,594.0 2,406.8 10 11 1,622.7 81.9 1,048.5 2,753.1 1.9 2,755.0 1,556.0 (32.5) 881.3 2,404.8 2.0 2,406.8 Boral Limited Financial report 2006 52 statement of recognised income and expense BoraL LiMited and controLLed entitieS COnSOLIDATeD for the year ended 30 June 2006 $ millions 2005 $ millions Actuarial gain/(loss) on defined benefit plans, net of tax net exchange differences from translation of foreign operations taken to equity, net of tax Fair value adjustment on cash flow hedges, net of tax Fair value adjustment on available for sale financial assets, net of tax net income/(expense) recognised directly in equity net profit Total recognised income and expense for the financial year Total recognised income and expense for the financial year is attributable to: Members of the parent entity Minority interests Total recognised income and expense for the financial year Impact of change in accounting policy: Adjustment on adoption of AASB 132 and AASB 139, net of tax 3.6 37.5 1.2 52.1 94.4 362.7 457.1 (0.3) (34.8) – – (35.1) 370.0 334.9 456.8 0.3 457.1 334.4 0.5 334.9 20.5 – The statement of recognised income and expense should be read in conjunction with the accompanying notes which form an integral part of the financial statements. 53 cash fLow statement BoraL LiMited and controLLed entitieS COnSOLIDATeD for the year ended 30 June note 2006 $ millions 2005 $ millions CaSH FLOWS FrOM OPeraTInG aCTIvITIeS receipts from customers Payments to suppliers and employees Dividends received Financial income received Financial expenses paid Income taxes paid neT CaSH PrOvIDeD BY OPeraTInG aCTIvITIeS CaSH FLOWS FrOM InveSTInG aCTIvITIeS Payments for purchase of property, plant and equipment Payments for intangibles Payments for purchase of controlled entities and businesses (net of cash acquired) Payments for purchase of other investments Loans to associates Proceeds on disposal of controlled entities, businesses and non-current assets neT CaSH USeD In InveSTInG aCTIvITIeS CaSH FLOWS FrOM FInanCInG aCTIvITIeS Proceeds from issue of shares Share buy-back (on-market) Dividends paid (net of dividends reinvested under the Dividend reinvestment Plan of $61.9 million (2005: $61.5 million)) Proceeds from borrowings repayment of borrowings neT CaSH PrOvIDeD BY FInanCInG aCTIvITIeS neT CHanGe In CaSH anD CaSH eQUIvaLenTS Cash and cash equivalents at the beginning of the year effects of exchange rate fluctuations on the balances of cash held in foreign currencies Cash and cash equivalents at the end of the year 14 18.9 (16.3) (136.9) 289.1 (68.3) 86.5 54.2 18.6 3.4 76.2 13.4 (116.0) (131.1) 932.4 (418.0) 280.7 (17.4) 37.8 (1.8) 18.6 (479.0) (4.7) (26.6) (3.6) (0.4) 32.5 (481.8) (456.5) (12.0) (245.4) (13.7) (8.4) 22.7 (713.3) 5,084.4 (4,409.1) 64.9 4.1 (95.5) (199.3) 449.5 4,618.2 (4,035.9) 53.2 3.5 (78.2) (145.6) 415.2 The cash flow statement should be read in conjunction with the accompanying notes which form an integral part of the financial statements. Boral Limited Financial report 2006 54 notes to the concise financiaL report BoraL LiMited and controLLed entitieS 1. BaSIS OF PreParaTIOn OF COnCISe FInanCIaL rePOrT The concise financial report has been prepared in accordance with the Corporations Act 2001 and Accounting Standard AASB 1039 “Concise Financial reports” The financial statements and specified disclosures . required by AASB 1039 have been derived from the consolidated entity’s full financial report for the financial year. Other information included in the concise financial report is consistent with the consolidated entity’s full financial report. The concise financial report does not, and cannot be expected to, provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report. The accounting policies adopted have been applied consistently to all periods presented in the consolidated financial report and in preparing an opening Australian equivalents to International Financial reporting Standards (A-IFrS) balance sheet as at 1 July 2004 for the purposes of the transition to A-IFrS. However, AASB 132 “Financial Instruments: Disclosure and Presentation” and AASB 139 “Financial Instruments: recognition and Measurement” have been applied from 1 July 2005, as the Group has elected not to restate comparative information for these standards, as permitted in AASB 1 “First-time Adoption of International Financial reporting Standards” . The financial report has been prepared on the basis of historical cost, except for derivative financial instruments and financial instruments classified as available for sale which have been measured at fair value. The carrying value of recognised assets and liabilities that are hedged with fair value hedges are adjusted to record changes in the fair value attributable to the risks that are being hedged. The report is presented in Australian dollars. A full description of the accounting policies adopted by the Group may be found in the consolidated entity’s full financial report. aUSTraLIan aDOPTIOn OF a-IFrS The Group changed its accounting policies on 1 July 2005 to comply with Australian equivalents to International Financial reporting Standards (A-IFrS). The transition to A-IFrS is accounted for in accordance with AASB 1 “First-time Adoption of International Financial reporting Standards” with 1 July 2004 as the date of transition. The superseded , policies were in accordance with Australian Generally Accepted Accounting Principles (AGAAP). The principal ongoing impact of A-IFrS on reported results is the reduction in goodwill amortisation expense to zero. Prior to the adoption of A-IFrS the Group’s goodwill amortisation was expensed. reconciliations and descriptions of the effect of the transition from previous AGAAP to A-IFrS on the Group’s equity and profit are given in note 15. COMParaTIve InFOrMaTIOn To ensure comparability with the current reporting period, certain comparative items may have been reclassified in the financial statements to conform with changes in presentation in the current financial year. 55 notes to the concise financiaL report BoraL LiMited and controLLed entitieS 2. SeGMenTS BUSIneSS SeGMenTS 2006 $ millions revenUe* 2005 $ millions 2006 $ millions 2005 $ millions 2006 $ millions 2005 $ millions Building products – Australia Construction materials – Australia United States of America Asia Other 1,212.6 2,410.4 956.5 176.6 11.3 4,767.4 1,186.9 2,163.5 810.0 136.3 8.1 4,304.8 eqUITy ACCOUnTeD reSULTS OF ASSOCIATeS OPerATInG PrOFIT BeFOre TAx** OPerATInG PrOFIT (exCLUDInG ASSOCIATeS) Building products – Australia Construction materials – Australia United States of America Asia Other Corporate Adelaide Brighton bid costs net financing expense 107.4 267.8 148.0 2.9 10.5 536.6 (8.4) – 528.2 (98.2) 430.0 142.1 291.8 116.0 9.8 6.8 566.5 (12.7) (16.2) 537.6 (71.1) 466.5 10.2 18.2 37.7 19.7 – 85.8 – – 85.8 – 85.8 8.6 13.5 30.7 12.6 – 65.4 – – 65.4 – 65.4 117.6 286.0 185.7 22.6 10.5 622.4 (8.4) – 614.0 (98.2) 515.8 150.7 305.3 146.7 22.4 6.8 631.9 (12.7) (16.2) 603.0 (71.1) 531.9 SeGMenT ASSeTS (exCLUDInG InveSTMenTS In ASSOCIATeS) eqUITy ACCOUnTeD InveSTMenTS In ASSOCIATeS TOTAL ASSeTS Building products – Australia Construction materials – Australia United States of America Asia Other Corporate Cash and cash equivalents 1,211.1 2,588.5 841.9 151.5 279.7 5,072.7 19.7 5,092.4 76.2 5,168.6 1,112.3 2,429.8 740.3 116.4 170.5 4,569.3 29.3 4,598.6 42.1 4,640.7 LIABILITIeS 12.1 23.8 130.7 251.8 – 418.4 – 418.4 – 418.4 9.7 25.0 110.0 215.4 – 360.1 – 360.1 – 360.1 1,223.2 2,612.3 972.6 403.3 279.7 5,491.1 19.7 5,510.8 76.2 5,587.0 1,122.0 2,454.8 850.3 331.8 170.5 4,929.4 29.3 4,958.7 42.1 5,000.8 ACqUISITIOn OF SeGMenT ASSeTS*** DePreCIATIOn AnD AMOrTISATIOn Building products – Australia Construction materials – Australia United States of America Asia Other Corporate Interest bearing loans and borrowings Tax liabilities * 222.4 410.5 124.7 26.5 1.4 785.5 101.0 886.5 1,654.4 291.1 2,832.0 214.0 421.5 105.3 18.9 1.2 760.9 87.2 848.1 1,435.6 310.3 2,594.0 117.0 248.1 96.7 20.0 – 481.8 1.9 483.7 – – 483.7 107.5 277.5 53.5 20.1 – 458.6 9.9 468.5 – – 468.5 44.5 123.8 32.8 7.0 – 208.1 0.5 208.6 – – 208.6 40.7 111.0 29.8 5.1 – 186.6 4.7 191.3 – – 191.3 revenue represents external sales from operating activities. It excludes intersegment sales as they are considered not material. ** Operating profit represents profit before income tax expense. *** Acquisition of segment assets excludes purchases of controlled entities, businesses and other investments. no significant non-cash expenses other than depreciation and amortisation. Primary segments Building products – Australia Construction materials – Australia United States of America Asia Other Bricks, plasterboard, timber products, roof tiles, aluminium products and concrete products. quarries, road surfacing, premix concrete, precast concrete, fly ash, cement, quarry end use, transport, concrete placing and scaffolding. Bricks, roof tiles, fly ash, premix concrete, quarries and masonry. Plasterboard, premix concrete and quarries. Investments in listed shares and non-trading operations. Boral Limited Financial report 2006 56 notes to the concise financiaL report BoraL LiMited and controLLed entitieS 2. SeGMenTS (COnTInUeD) GeOGrAPHICAL SeGMenTS 2006 $ millions revenUe* 2005 $ millions 2006 $ millions 2005 $ millions 2006 $ millions 2005 $ millions ACqUISITIOn OF SeGMenT ASSeTS*** Australia United States of America Asia Other Corporate 3,623.0 956.5 176.6 11.3 4,767.4 – 4,767.4 3,350.4 810.0 136.3 8.1 4,304.8 – 4,304.8 365.1 96.7 20.0 – 481.8 1.9 483.7 385.0 53.5 20.1 – 458.6 9.9 468.5 OPerATInG PrOFIT BeFOre TAx** OPerATInG PrOFIT (exCLUDInG ASSOCIATeS) eqUITy ACCOUnTeD reSULTS OF ASSOCIATeS Australia United States of America Asia Other Corporate Adelaide Brighton bid costs net financing expenses 375.2 148.0 2.9 10.5 536.6 (8.4) – 528.2 (98.2) 430.0 433.9 116.0 9.8 6.8 566.5 (12.7) (16.2) 537.6 (71.1) 466.5 28.4 37.7 19.7 – 85.8 – – 85.8 – 85.8 22.1 30.7 12.6 – 65.4 – – 65.4 – 65.4 403.6 185.7 22.6 10.5 622.4 (8.4) – 614.0 (98.2) 515.8 456.0 146.7 22.4 6.8 631.9 (12.7) (16.2) 603.0 (71.1) 531.9 SeGMenT ASSeTS (exCLUDInG InveSTMenTS In ASSOCIATeS) eqUITy ACCOUnTeD InveSTMenTS In ASSOCIATeS TOTAL ASSeTS Australia United States of America Asia Other Corporate Cash and cash equivalents * 3,799.6 841.9 151.5 279.7 5,072.7 19.7 5,092.4 76.2 5,168.6 3,542.1 740.3 116.4 170.5 4,569.3 29.3 4,598.6 42.1 4,640.7 35.9 130.7 251.8 – 418.4 – 418.4 – 418.4 34.7 110.0 215.4 – 360.1 – 360.1 – 360.1 3,835.5 972.6 403.3 279.7 5,491.1 19.7 5,510.8 76.2 5,587.0 3,576.8 850.3 331.8 170.5 4,929.4 29.3 4,958.7 42.1 5,000.8 revenue represents external sales from operating activities. It excludes intersegment sales as they are considered not material. ** Operating profit represents profit before income tax expense. *** Acquisition of segment assets excludes purchases of controlled entities, businesses and other investments. Geographic segments Australia United States of America Asia Other Bricks, plasterboard, timber products, roof tiles, aluminium products, concrete products, quarries, road surfacing, premix concrete, precast concrete, fly ash, cement, quarry end use, transport, concrete placing and scaffolding. Bricks, roof tiles, fly ash, premix concrete, quarries and masonry. Plasterboard, premix concrete and quarries. Investments in listed shares and non-trading operations. 57 notes to the concise financiaL report BoraL LiMited and controLLed entitieS COnSOLIDATeD 2006 $ millions 2005 $ millions 3. PrOFIT FOr THe PerIOD revenUe Sale of goods rendering of services 4,647.6 108.5 4,756.1 OTHer revenUe Dividends from other parties 11.3 4,767.4 DePreCIaTIOn anD aMOrTISaTIOn eXPenSeS Land and buildings Plant and equipment Timber licences and mineral reserves Leased assets capitalised Other intangibles 8.4 197.8 1.4 0.4 0.6 208.6 7.3 182.9 0.5 0.2 0.4 191.3 8.1 4,304.8 4,177.1 119.6 4,296.7 4. InDIvIDUaLLY SIGnIFICanT ITeMS net profit includes the following expenses whose disclosure is relevant in explaining the financial performance of the entity: Significant items before tax: Adelaide Brighton bid costs Income tax applicable to significant items: Tax benefit on Adelaide Brighton bid costs Tax benefit from restatement of deferred tax balances on entry into tax consolidation Deferred tax liability arising from foreign tax – – – – – 4.9 9.0 (16.8) (2.9) (19.1) – – (16.2) (16.2) 5. earnInGS Per SHare CLaSSIFICaTIOn OF SeCUrITIeS aS OrDInarY SHareS Only ordinary shares have been included in basic earnings per share (ePS). CLaSSIFICaTIOn OF SeCUrITIeS aS POTenTIaL OrDInarY SHareS Options outstanding under the executive Share Option Plan and Share Performance rights have been classified as potential ordinary shares and are included in diluted earnings per share only. COnSOLIDATeD for the year ended 30 June 2006 $ millions 2005 $ millions earnings reconciliation net profit attributable to members of the parent entity 362.4 369.5 COnSOLIDATeD 2006 2005 Weighted average number of ordinary shares used as the denominator number for basic earnings per share effect of potential ordinary shares number for diluted earnings per share Basic earnings per share – ordinary shares Diluted earnings per share – ordinary shares 587,114,891 1,995,183 589,110,074 61.7c 61.5c 582,692,166 1,528,770 584,220,936 63.4c 63.2c Boral Limited Financial report 2006 58 notes to the concise financiaL report BoraL LiMited and controLLed entitieS 6. DIvIDenDS Dividends recognised by Boral Limited and the consolidated entity are: Amount per share Total amount $ millions Franked amount per share Date of payment 2006 2005 final – ordinary 2006 interim – ordinary Total 2005 2004 final – ordinary 2005 interim – ordinary Total Amount per share 17.0 cents 17.0 cents 98.6 100.2 198.8 17.0 cents 17.0 cents 16 September 2005 20 March 2006 16.0 cents 17.0 cents 93.3 99.0 192.3 Total amount $ millions 16.0 cents 17.0 cents 17 September 2004 18 March 2005 Franked amount per share Date of payment Subsequent events Since the end of the financial year, the Directors declared the following dividend: 2006 final – ordinary 17.0 cents 100.3 17.0 cents 18 September 2006 The financial effect of the final dividend for June 2006 has not been brought to account in the financial statements for the year ended 30 June 2006 but will be recognised in subsequent financial reports. DIvIDenD FranKInG aCCOUnT The balance of the franking account of Boral Limited as at 30 June 2006 is $108.2 million (2005: $123.9 million) after adjusting for franking credits/ (debits) that will arise from: – the payment/refund of the amount of the current tax liability; – the receipt of dividends recognised as receivables at year end; and before taking into account the franking credits associated with payment of the final dividend declared subsequent to year end. DIvIDenD reInveSTMenT PLan The Company’s dividend reinvestment plan will operate in respect of the payment of the final dividend and the last date for the receipt of an election notice for participation in the plan is 30 August 2006. 7. InveSTMenTS aCCOUnTeD FOr USInG THe eQUITY MeTHOD OWnerSHIP InTereST COnSOLIDATeD name Principal activity Country of incorporation Balance date 2006 % 2005 % DeTaILS OF InveSTMenTS In aSSOCIaTeS are aS FOLLOWS: Caribbean roof Tile Company Limited Flyash Australia Pty Ltd Girotto Precast Pty Ltd Go Crete Pty Ltd* Gypsum resources Australia Pty Ltd Highland Pine Products Pty Ltd Lafarge Boral Gypsum in Asia Ltd MonierLifetile LLC MonierLifetile S.r.L. de C.v. Penrith Lakes Development Corporation Pty Ltd rondo Building Services Pty Ltd South east Asphalt Pty Ltd Sunstate Cement Ltd Tile Service Company LLC US Tile LLC * Go Crete Pty Ltd became a controlled entity during the period. rooftiles Fly ash collection Precast concrete Concrete manufacture Gypsum mining Timber Plasterboard rooftiles rooftiles quarrying rollform system Asphalt Cement manufacturer rooftiles rooftiles Trinidad Australia Australia Australia Australia Australia Malaysia USA Mexico Australia Australia Australia Australia USA USA 31-Dec 30-Jun 30-Jun 30-Jun 30-Jun 30-Jun 31-Dec 31-Dec 31-Dec 30-Jun 30-Jun 30-Jun 30-Jun 31-Dec 31-Dec 50 50 50 – 50 50 50 50 50 40 50 50 50 50 50 50 50 50 50 50 50 50 50 50 40 50 50 50 50 50 59 notes to the concise financiaL report BoraL LiMited and controLLed entitieS COnSOLIDATeD 2006 $ millions 2005 $ millions 7. InveSTMenTS aCCOUnTeD FOr USInG THe eQUITY MeTHOD (COnTInUeD) reSULTS OF aSSOCIaTeS: Share of associates’ profit before income tax expense Share of associates’ income tax expense Share of associates’ net profit – equity accounted results of associates include the following: Share of associates’ net profit – equity accounted: Lafarge Boral Gypsum in Asia Ltd MonierLifetile LLC* and MonierLifetile S.r.L. de C.v. * Taxed as a partnership in the USA. COnSOLIDATeD 99.7 (13.9) 85.8 78.0 (12.6) 65.4 19.7 38.1 12.6 30.7 2006 2005 8. nTa BaCKInG net tangible asset backing per ordinary security $4.07 $3.57 COnSOLIDATeD 2006 $ millions 2005 $ millions 9. OTHer FInanCIaL aSSeTS nOn-CUrrenT Listed shares – at cost Listed shares – at fair value* Financial instruments* – 276.0 13.1 289.1 Market value of shares in listed corporations at the end of the year * 167.1 – – 167.1 201.6 276.0 During the period the Group adopted the requirements of AASB 132 “Financial Instruments: Disclosure and Presentation” and AASB 139 “Financial Instruments: recognition and Measurement”. In accordance with AASB 1 “First-time Adoption of Australian equivalents to International Financial reporting Standards” comparatives have not been restated (refer note 1). COnSOLIDATeD 2006 $ millions 2005 $ millions 10. ISSUeD CaPITaL ISSUeD anD PaID-UP CaPITaL 589,814,236 (2005: 578,768,952) ordinary shares, fully paid MOveMenTS In OrDInarY SHare CaPITaL Balance at the beginning of the year 658,600 (2005: 700,900) shares issued under the employee share plan 8,233,548 (2005: 9,238,259) shares issued under the dividend reinvestment plan 4,045,500 (2005: 4,168,250) shares issued upon the exercise of executive options 1,892,364 (2005: 17,965,834) shares bought back Balance at the end of the year 1,556.0 5.3 61.9 15.8 (16.3) 1,622.7 1,595.0 4.0 61.5 11.5 (116.0) 1,556.0 1,622.7 1,556.0 During the year the Company completed the buy-back of 1,892,364 shares. The total consideration of shares bought back on-market was $16,317 ,081 and at an average price of $8.62. The consideration paid was allocated to share capital. Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings. In the event of a winding up of Boral Limited, ordinary shareholders rank after creditors and are fully entitled to any proceeds of liquidation. Boral Limited Financial report 2006 60 notes to the concise financiaL report BoraL LiMited and controLLed entitieS COnSOLIDATeD 2006 $ millions 2005 $ millions 11. reTaIneD earnInGS retained earnings at the beginning of the year net profit attributable to members of the parent entity Dividends recognised during the year Actuarial gain/(loss) on defined benefit plans, net of tax retained earnings at the end of the year 881.3 362.4 (198.8) 3.6 1,048.5 704.4 369.5 (192.3) (0.3) 881.3 12. COnTInGenT LIaBILITIeS Details of contingent liabilities and contingent assets where the probability of future payments/receipts is not considered remote are set out below. Unsecured contingent liabilities: Bank guarantees Other items 8.3 1.2 9.5 6.9 1.2 8.1 Boral Limited has given to its bankers letters of responsibility in respect of accommodation provided from time to time by the banks to controlled entities. A number of sites within the Boral Group have been identified as contaminated, generally as a result of prior activities conducted at the sites, and review and appropriate implementation of clean-up requirements for these is ongoing. For sites where the requirements can be assessed, estimated clean-up costs have been expensed or provided for. For some sites, the requirements cannot be reliably assessed at this stage. Certain entities within the consolidated entity are subject to various lawsuits and claims in the ordinary course of business. Consistent with other companies of the size and diversity of Boral, the Group is the subject of periodic information requests, investigations and audit activity by the Australian Taxation Office (ATO) and tax authorities in other jurisdictions in which Boral operates. In the period February to March 2006 Australian subsidiaries of the Group received assessments and amended assessments from the ATO relating to the utilisation of tax losses and capital gains arising from the demerger in 2000. The amounts assessed include primary tax of $56.5 million, general interest charge of $37 million and penalties of $6.9 million. All assessments have been objected to and, to date, there has .4 been no response from the ATO to those objections. In accordance with ATO administrative practice on disputed assessments, the Group has made payments totalling 50% of the amounts owing. A deed was entered into at the time of the demerger which contained certain indemnities and other agreements between the Group and Origin energy Limited and their respective controlled entities covering the transfer of the businesses, investments, tax, other liabilities, debt and assets of the Group and some temporary shared arrangements. A wholly owned subsidiary of Origin has received an amended assessment from the ATO for the year ended 30 June 1999. The amounts assessed consist of $27 million of primary tax and a general interest charge of $24.7 million. This .5 assessment has been objected to by Origin. Origin has indicated that if the ATO’s claim is ultimately successful it may seek to rely on indemnities contained in the demerger deed. Similarly, should the ATO be successful in its claims against the Group, this may give rise to a claim by the Group against Origin. The Group has considered these claims and, where appropriate, sought independent advice, and believes it holds appropriate provisions. 13. aCQUISITIOn/DISPOSaL OF COnTrOLLeD enTITIeS The following controlled entities were acquired or disposed of during the financial year ended 30 June 2006: Date acquired/ disposed Consideration paid/received $ millions Interest acquired/ disposed % entities acquired: Go Crete Pty Ltd Sawmillers exports Pty Ltd entities disposed: Boral Leasing nv Dec 2005 13.0 100 Sep 2005 Dec 2005 5.9 1.6 50 10 61 notes to the concise financiaL report BoraL LiMited and controLLed entitieS COnSOLIDATeD 2006 $ millions 2005 $ millions 14. nOTeS TO CaSH FLOW STaTeMenT (i) reconciliation of cash and cash equivalents. Cash includes cash on hand, at bank and short term deposits at call, net of outstanding bank overdrafts. Cash as at the end of the financial period as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows: Cash and cash equivalents Bank overdrafts 76.2 – 76.2 (ii) The following non-cash financing and investing activities have not been included in the cash flow statement: Dividends reinvested under the dividend reinvestment plan 61.9 61.5 42.1 (23.5) 18.6 15. eXPLanaTIOn OF TranSITIOn TO a-IFrS As stated in note 1, these are the Group’s first consolidated full year financial statements prepared in accordance with A-IFrS. The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended 30 June 2006. The comparative information presented in the financial statements has been restated as follows: (i) income statement comparatives are restated for the year ended 30 June 2005; (ii) balance sheet comparatives are restated for the year ended 30 June 2005 and in the preparation of the opening A-IFrS balance sheet at 1 July 2004 (the Group’s date of transition). In preparing its opening A-IFrS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordance with AGAAP. An explanation of how the transition from AGAAP to A-IFrS has affected the Group’s income statement, balance sheet and cash flows is set out in the following tables and accompanying notes. (I) reCOnCILIaTIOn OF neT PrOFIT aS aT 30 JUne 2005 Previous AGAAP $ millions effect of transition to A-IFrS $ millions note A-IFrS $ millions revenue Cost of sales Distribution expenses Selling and marketing expenses Administrative expenses Other income Other expenses Share of net profit of associates and joint ventures attributable to members Profit before net financing expense and income tax Financial income Financial expenses net financing expense Profit before income tax expense Income tax expense net profit net profit attributable to minority interests net profit attributable to members of the parent entity Basic earnings per share – ordinary shares Diluted earnings per share – ordinary shares (e) (d) (c),(f) (a) (a),(b) 4,304.8 (2,630.3) (695.5) (185.0) (295.3) (3,806.1) 43.3 (16.4) 62.3 587.9 3.6 (74.7) (71.1) 516.8 (139.5) 377.3 (0.5) 376.8 64.7c 64.5c – 46.6 – – (0.6) 46.0 (34.0) – 3.1 15.1 – – – 15.1 (22.4) (7.3) – (7.3) (1.3)c (1.3)c 4,304.8 (2,583.7) (695.5) (185.0) (295.9) (3,760.1) 9.3 (16.4) 65.4 603.0 3.6 (74.7) (71.1) 531.9 (161.9) 370.0 (0.5) 369.5 63.4c 63.2c Boral Limited Financial report 2006 62 notes to the concise financiaL report BoraL LiMited and controLLed entitieS 15. eXPLanaTIOn OF TranSITIOn TO a-IFrS (COnTInUeD) (II) reCOnCILIaTIOn OF eQUITY 1 JULy 2004 30 JUne 2005 note Previous AGAAP $ millions effect of transition to A-IFrS $ millions A-IFrS $ millions Previous AGAAP $ millions effect of transition to A-IFrS $ millions A-IFrS $ millions CUrrenT aSSeTS Cash and cash equivalents receivables Inventories Other TOTaL CUrrenT aSSeTS nOn-CUrrenT aSSeTS receivables Inventories Investments accounted for using the equity method Other financial assets Property, plant and equipment Intangible assets Other TOTaL nOn-CUrrenT aSSeTS TOTaL aSSeTS CUrrenT LIaBILITIeS Payables Interest bearing loans and borrowings Current tax liabilities Provisions TOTaL CUrrenT LIaBILITIeS nOn-CUrrenT LIaBILITIeS Payables Interest bearing loans and borrowings Deferred tax liabilities Provisions TOTaL nOn-CUrrenT LIaBILITIeS TOTaL LIaBILITIeS neT aSSeTS eQUITY Issued capital reserves retained earnings Total parent entity interest Minority interests TOTaL eQUITY (c),(g) (III) 1,595.0 102.9 659.6 2,357.5 2.2 2,359.7 – (102.2) 44.8 (57.4) – (57.4) 1,595.0 0.7 704.4 2,300.1 2.2 2,302.3 1,556.0 70.1 844.1 2,470.2 2.0 2,472.2 – (102.6) 37.2 (65.4) – (65.4) 1,556.0 (32.5) 881.3 2,404.8 2.0 2,406.8 (e) (f) (a) – 975.4 154.1 37.9 1,167.4 2,043.7 2,359.7 10.3 – (1.4) 25.3 34.2 34.2 (57.4) 10.3 975.4 152.7 63.2 1,201.6 2,077.9 2,302.3 – 1,410.5 170.4 37.5 1,618.4 2,527.1 2,472.2 21.6 – 20.6 24.7 66.9 66.9 (65.4) 21.6 1,410.5 191.0 62.2 1,685.3 2,594.0 2,406.8 553.4 11.5 113.9 197.5 876.3 – – – – – 553.4 11.5 113.9 197.5 876.3 572.6 25.1 119.3 191.7 908.7 – – – – – 572.6 25.1 119.3 191.7 908.7 (b),(f) (b) (d) (d) 63.1 90.8 342.4 167.3 2,304.7 231.0 38.7 3,238.0 4,403.4 (31.1) – 3.4 – (6.0) 10.5 – (23.2) (23.2) 32.0 90.8 345.8 167.3 2,298.7 241.5 38.7 3,214.8 4,380.2 70.5 108.0 353.7 167.1 2,667.5 291.6 44.9 3,703.3 4,999.3 (31.3) – 6.4 – (18.4) 44.8 – 1.5 1.5 39.2 108.0 360.1 167.1 2,649.1 336.4 44.9 3,704.8 5,000.8 48.7 690.7 395.5 30.5 1,165.4 – – – – – 48.7 690.7 395.5 30.5 1,165.4 42.1 745.9 468.2 39.8 1,296.0 – – – – – 42.1 745.9 468.2 39.8 1,296.0 63 notes to the concise financiaL report BoraL LiMited and controLLed entitieS 15. eXPLanaTIOn OF TranSITIOn TO a-IFrS (COnTInUeD) (III) reTaIneD earnInGS The effect of the adjustments on retained earnings are as follows: 1 JUL 2004 30 JUn 2005 note Increase/ (decrease) $ millions Increase/ (decrease) $ millions retained earnings under AGAAP previously reported adjustments to retained earnings, net of tax: 1 July 2004 opening balance adjustments Cessation of amortisation of goodwill Investments accounted for using the equity method recognition of deferred income recognition of defined benefit obligations recognition of defined benefit obligations directly to retained earnings recognition of share based payments recognition of tax adjustments recognition of restoration and environmental rehabilitation obligations Other reclassifications: restatement of foreign currency reserve restatement of asset revaluation reserve Total A-IFrS adjustments revised retained earnings under a-IFrS (Iv) reCOnCILIaTIOn OF CaSH FLOW The adoption of A-IFrS has not resulted in any material adjustments to the cash flow statement. (v) nOTeS TO THe reCOnCILIaTIOnS (a) Other revenue (i) Government grants (g) (g) (b) (d) (a) (f) (f) (c) (e) (f) 659.6 844.1 – – (27.7) (7.2) (2.6) – (0.7) (7.9) (12.0) – (15.1) 118.0 44.8 704.4 44.8 20.6 3.1 (7.9) 0.7 (0.3) (1.6) (21.9) (0.3) – – – 37.2 881.3 Under AGAAP contributions towards the acquisition of assets were recognised as revenue at the fair value of the grant received, when the , consolidated entity gains control of the contribution. Under A-IFrS, grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight line basis over the expected lives of the related assets. − Upon transition, liabilities recorded in the balance sheet relating to deferred income will increase by $10.3 million; deferred tax assets will increase by $3.1 million and retained earnings will reduce by a net $7 million. .2 − For the year ended 30 June 2005 other revenue will reduce by $11.3 million in the income statement and a further increase in deferred income in the balance sheet of $11.3 million will be recorded. The period’s income tax expense will reduce by $3.4 million with a corresponding increase in deferred tax assets. (ii) proceeds on sale of assets Under previous AGAAP proceeds arising on the sale of property, plant and equipment were included as a component of “other revenue” Under , . A-IFrS, proceeds are no longer recognised as revenue. The effect on the Group is to reduce revenue by $22.7 million in the 30 June 2005 comparative. Other operating expenses have been reduced by a corresponding amount. (b) Intangibles Under AGAAP goodwill was amortised over the period that benefits were expected to be received to a maximum of twenty (20) years. Under , A-IFrS, goodwill is not amortised but subject to annual impairment testing. The Group has applied the exemption provided in AASB 1 and elected not to restate acquisitions prior to transition to A-IFrS at 1 July 2004. Goodwill amortised under AGAAP for the year ended 30 June 2005 has been reversed. The effect on the Group is reversal of goodwill amortisation of $24.3 million in the income statement. Under A-IFrS, certain assets (software development costs) are characterised as intangibles and have therefore been reclassified from property, plant and equipment to intangibles. The effect at transition was to decrease property, plant and equipment by $10.5 million and increase intangibles. The impact at 30 June 2005 is $22.5 million. Boral Limited Financial report 2006 64 notes to the concise financiaL report BoraL LiMited and controLLed entitieS 15. eXPLanaTIOn OF TranSITIOn TO a-IFrS (COnTInUeD) (v) nOTeS TO THe reCOnCILIaTIOnS (COnTInUeD) (c) Share based payments Under AGAAP the Group was not required to expense share-based , payments. Under A-IFrS, such payments are now recognised at fair value and amortised over the appropriate vesting period. The Group has applied AASB 2 “Share-based Payments” to its share based payment arrangements at 1 July 2004, except for share based payment arrangements granted before 7 november 2002 or granted after 7 november 2002 but which had vested by 1 January 2005. The impact on the Group is as follows: − upon transition at 1 July 2004 an increase in reserves will be recognised for $0.7 million, with an offsetting decrease in retained earnings in respect of amortisation of share based payments prior to 1 July 2004; − for the year ended 30 June 2005 other expenses in the income statement will increase by $1.6 million to recognise amortisation of share based payments with a corresponding increase in reserves. (d) Investments accounted for using the equity method Investments in associates are accounted for under the equity method where the Group has significant influence over the investees. Adjusting entries have been made on transition and to comparative results to reflect the adoption of A-IFrS changes by the associates. The increase in associates’ net profit represents the consolidated entity’s share of associates’ impact of adoption of A-IFrS, primarily resulting from the cessation of goodwill amortisation under A-IFrS, recognition of quarry rehabilitation provisions and adjustments to deferred tax balances. (e) Deferred tax asset and liabilities AASB 112 “Income Taxes” adopts a balance sheet approach to accounting for income taxes. each of the adjusting entries made on transition or during the comparative year were required to be tax effected. On transition, adjustments were made against retained earnings. In the comparative year, for transactions recognised in the income statement, any related tax effects are also recognised in the income statement. For transactions recognised directly in equity, any related tax effects are also recognised directly in equity. For the period to 30 June 2005, income tax expense includes an amount of $21.9 million which reflects the effect of a revaluation for tax purposes which was unrelated to an accounting revaluation of an earlier period or an expected future accounting revaluation. Under A-IFrS, the tax effect of this revaluation is required to be reflected in the income statement. (f) non-current provisions (i) employee benefits The Group has superannuation plans in Australia and overseas established for the benefit of employees. The Boral Industries Inc Pension Plan is a defined benefit plan and Boral Super is a sub-plan of Plum Superannuation Fund. Boral Super has a defined benefit section and an accumulation section. Under previous AGAAP cumulative , actuarial gains and losses on the defined benefit section were not recognised on the balance sheet. At the date of transition, a liability is recognised in the provision for employee benefits. It is measured as the difference between the present value of the employee’s accrued benefits at that date and the net market value of the superannuation fund’s assets at that date. The effect on the Group at transition is to recognise the defined benefit obligation of $3.7 million as a liability and as a decrease in retained earnings of $2.6 million. Deferred tax assets have increased by $1.1 million. The impact on the Group at 30 June 2005 is to recognise a decrease in defined benefit liability of $0.6 million, a decrease in deferred tax assets of $0.2 million and a reduction directly in retained earnings of $0.3 million. Other expenses include a $1.0 million benefit and income tax expense increases by $0.3 million. (ii) restoration and environmental provisions Under AGAAP restoration and environmental rehabilitation costs were , recognised over the period over which quarry reserves were extracted. Under A-IFrS, the present value of the estimated costs of restoring a site and dismantling and removing assets are recognised as a provision and an associated asset retirement cost is capitalised within property, plant and equipment which is amortised over the economic life of the relevant site. At transition, an initial entry was raised against retained earnings to reflect recognition of a provision for rehabilitation of $21.6 million and the capitalisation of the associated unamortised asset retirement cost of $4.4 million net of appropriate tax entries. The income statement adjustments for the year ended 30 June 2005 reflect depreciation of the capitalised asset retirement cost, accretion of the restoration provision and reversal of the operating expenses recognised under AGAAP . (g) reserves The Group has elected to apply the exemption in AASB 1 in regard to the foreign currency translation reserve (FCTr). The cumulative translation differences for all foreign operations represented in the FCTr are deemed to be zero at the date of transition to A-IFrS. At the date of transition, the balance of the FCTr of $15.1 million was reclassified to retained earnings for the Group. Foreign currency gains or losses on future disposals will only include gains or losses post transition. Post transition tax effected differences on foreign operations will continue to be recorded in equity (via the FCTr) and recognised as part of the gain or loss on disposal. AASB 1 also allows for an one off adjustment on transition to allow the use of the existing AGAAP valuation of land and buildings to represent “deemed cost” This has resulted in resetting the Asset revaluation . reserve relating to land and buildings to zero. This note should be read in conjunction with note 15(c) for the impact of share based payment upon adoption of A-IFrS. (h) Changes in accounting policy In the current financial year the Group adopted AASB 132 “Financial Instruments: Disclosure and Presentation” and AASB 139 “Financial Instruments: recognition and Measurement” This change in accounting . policy has been adopted in accordance with the transition rules contained in AASB 1, which does not require the restatement of comparative information for financial instruments within the scope of AASB 132 and AASB 139. The adoption of AASB 139 has resulted in the Group recognising all derivative financial instruments as assets or liabilities at fair value and available for sale securities at fair value. This change has been accounted for by adjusting the opening balance of reserves in equity at 1 July 2005, as disclosed in the consolidated statement of recognised income and expense. There was no impact to retained earnings at 1 July 2005 from this change in accounting policy. 65 statutory statements BoraL LiMited and controLLed entitieS DIreCTOrS ‘ DeCLaraTIOn In the opinion of the Directors of Boral Limited, the accompanying concise financial report of the consolidated entity, comprising Boral Limited and its controlled entities, for the year ended 30 June 2006 set out on pages 50 to 64: (a) has been derived from or is consistent with the full financial report for the financial year; and (b) complies with Accounting Standard AASB 1039 “Concise Financial reports”; and (c) the Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive officer and chief financial officer for the financial year ended 30 June 2006. Signed in accordance with a resolution of the Directors: InDePenDenT aUDIT rePOrT On COnCISe FInanCIaL rePOrT TO THe MeMBerS OF BOraL LIMITeD SCOPe The financial report and Directors’ responsibility The concise financial report comprises the income statement, statement of recognised income and expense, balance sheet, cash flow statement and accompanying notes 1 to 15 and the directors’ declaration for Boral Limited (“the Company”) and its controlled entities (the “Consolidated entity”) for the year ended 30 June 2006. The Directors of the Company are responsible for the preparation of the concise financial report in accordance with Australian Accounting Standard AASB 1039 “Concise Financial reports” This includes . responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the concise financial report. audit approach KenneTH J MOSS, DIreCTOr rODneY T PearSe, DIreCTOr Sydney, 31 August 2006 We conducted an independent audit in order to express an opinion to members of the Company. Our audit was conducted in accordance with Australian Auditing Standards in order to provide reasonable assurance as to whether the concise financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore an audit cannot guarantee that all material misstatements have been detected. We have also performed an independent audit of the full financial report of the Company and its controlled entities for the year ended 30 June 2006. Our audit report on the full financial report was signed on 31 August 2006, and was not subject to any qualification. We performed procedures in respect of the audit of the concise financial report to assess whether, in all material respects, the concise financial report is presented fairly in accordance with Australian Accounting Standard AASB 1039 “Concise Financial reports” . We formed our audit opinion on the basis of these procedures, which included: • testing that the information in the concise financial report is consistent with the full financial report, and • examining, on a test basis, information to provide evidence supporting the amounts, discussion and analysis, and other disclosures, which were not directly derived from the full financial report. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. audit opinion In our opinion, the concise financial report of Boral Limited and its controlled entities for the year ended 30 June 2006 complies with Australian Accounting Standard AASB 1039 “Concise Financial reports” . KPMG TrenT van veen, PArTner Sydney, 31 August 2006 Boral Limited Financial report 2006 66 sharehoLder information BoraL LiMited and controLLed entitieS SHareHOLDer COMMUnICaTIOnS enquiries or notifications by shareholders regarding their shareholdings or dividends should be directed to Boral’s share registry: Link Market Services Limited Locked Bag A14 Sydney South nSW 1235 Australia Hand deliveries to: Level 12, 680 George Street, Sydney nSW 2000 Telephone: (02) 8280 7133 Facsimile: (02) 9287 0303 International: +61 2 8280 7133 International: +61 2 9287 0303 UnCerTIFICaTeD FOrMS OF SHareHOLDInG Two forms of uncertificated holdings are available to Boral shareholders: Issuer Sponsored Holdings: This type of holding is sponsored by Boral and provides shareholders with the advantages of uncertificated holdings without the need to be sponsored by any particular stockbroker. Broker Sponsored Holdings (CHeSS): Shareholders may arrange to be sponsored by a stockbroker (or certain other financial institutions) and are required to sign a sponsorship agreement appointing the sponsor as their “controlling participant” for the purposes of CHeSS. This type of holding is likely to attract regular stock market traders or those shareholders who have their share portfolio managed by a stockbroker. Holding statements are issued to shareholders not later than five business days after the end of any month in which transactions alter the balance of a holding. Shareholders requiring replacement holding statements should be directed to their controlling participant. Shareholders communicating with the share registry should have handy their Security Holder reference number (Srn) or Holder Identification number (HIn) as it appears on the Issuer Sponsored/CHeSS holding statements or dividend advices. For security reasons, shareholders should keep their Security Holder reference numbers confidential. Shareholders can also send queries to the share registry via email. Internet: www.linkmarketservices.com.au email: registrars@linkmarketservices.com.au OnLIne ServICeS you can access information and update information about your holdings in Boral Limited via the Internet by visiting Link Market Services’ website www.linkmarketservices.com.au or Boral’s website www.boral.com.au Some of the services available online include: check current and previous holding balances, choose your preferred Annual report option, update address details, update bank details, confirm whether you have lodged your TFn, ABn or exemption, check the share prices and graphs or download a variety of forms. annUaL rePOrT MaILInG LIST Shareholders (whether Issuer or Broker Sponsored) not wishing to receive the Annual report should advise the share registry in writing so that their names can be removed from the mailing list. Shareholders are also able to update their preference via the Link Market Services or Boral websites. Unless shareholders have advised the share registry that they require no Annual report or the full Annual report, they will be sent the concise (short form) Annual review. Alternatively, shareholders can nominate to receive email notification of the release of the Annual report and then access it via a link. The share registry can provide forms for making Annual report delivery elections. DIvIDenDS The final dividend for the 2005/06 year of 17 cents per share will be paid by Boral on 18 September 2006. The dividend will be fully franked. Dividend reinvestment Plan (DrP) As an alternative to receiving cash dividends, shareholders may elect to participate in the DrP The DrP enables shareholders to use cash . dividends to purchase additional fully paid Boral shares. If a shareholder wishes to participate in the DrP or alter their participation, they must notify the share registry in writing. DrP election forms can be obtained from Link Market Services’ website. Features of the DrP can be found on Boral’s website. Tax File number (TFn), australian Business number (aBn) or exemption you are strongly advised to lodge your TFn, ABn or exemption. If you choose not to lodge these details with the share registry, then Boral Limited is obliged to deduct tax at the highest marginal rate (plus the Medicare levy) from the unfranked portion of any distribution payment. Certain pensioners are exempt from supplying their TFns. you can confirm whether you have lodged your TFn, ABn or exemption via the Internet at www.linkmarketservices.com.au Shareholders are reminded to bank dividend cheques as soon as possible. Dividend cheques that are not banked are required to be handed over to the State Trustee under the Unclaimed Monies Act. If you wish your dividends to be paid directly to a bank, building society or credit union accounts in Australia contact the share registry or visit their website at www.linkmarketservices.com.au for an application form. The payments are electronically credited on the dividend payment date and confirmed by payment advices mailed to the shareholder’s registered address. All instructions received remain in force until amended or cancelled in writing. CHanGe OF aDDreSS Shareholders who are Issuer Sponsored should notify any change of address to the share registry promptly in writing quoting their Security Holder reference number, previous address and new address. Application forms for Change of Address are also available for download via the Link Market Services or Boral websites. Broker Sponsored (CHeSS) holders must advise their sponsoring broker of the change. InFOrMaTIOn On BOraL Boral has a comprehensive Internet site featuring news items, announcements, corporate information and a wide range of product and service information. Boral’s Internet address is www.boral.com.au The Annual review is the main source of information for shareholders. Other sources of information include: february – the interim results announcement for the December half year. This announcement is sent to shareholders in mid-March at the time of payment of the interim dividend. august – the annual results announcement for the year ended 30 June. october – the Annual General Meeting. The Chairman’s and Managing Director’s Addresses to the Meeting are sent to shareholders shortly after the Meeting. requests for publications and other enquiries about Boral’s affairs should be addressed to: the Manager, corporate affairs Boral Limited Gpo Box 910 SYdneY nSW 2001 enquiries can also be made via email: info@boral.com.au or visit Boral’s website at www.boral.com.au 67 sharehoLder information BoraL LiMited and controLLed entitieS SHare TraDInG anD PrICe Boral shares are traded on Australian Stock exchange Limited (ASx). The stock code under which they are traded is “BLD” and the details of trading activity are published in most daily newspapers under that abbreviation. aMerICan DePOSITarY reCeIPTS (aDr) In the USA, Boral shares are traded in the over-the-counter market in the form of ADrs issued by the depositary, The Bank of new york. each ADr represents four ordinary Boral shares. SHare SaLe FaCILITY A means for Issuer Sponsored shareholders, particularly small shareholders, to sell their entire Boral shareholding is to use the share registry’s sale facility by contacting Link Market Services’ Share Sale Centre on (02) 8280 7133. share information aS at 29 auGuSt 2006 SUBSTanTIaL SHareHOLDerS Perpetual Trustees Australia Limited, by a notice of change of interests of substantial shareholder dated 15 May 2006, advised that it and its associates were entitled to 36,467 ,299 ordinary shares. MIr Investment Management Limited, by a notice of initial substantial holder dated 13 June 2006, advised that it and its associates were entitled to 29,667 ,988 ordinary shares. Balanced equity Management Pty Limited, by a notice of change of interests of substantial shareholder dated 4 August 2006, advised that it and its associates were entitled to 59,137 ,005 ordinary shares. Capital Group Companies Inc., by a notice of change of interests of substantial shareholder dated 8 August 2006, advised that it and its associates were entitled to 41,629,187 ordinary shares. national Australia Bank Limited, by a notice of initial substantial holder dated 29 August 2006, advised that it and its associates were entitled to 30,463,107 ordinary shares. On-MarKeT BUY-BaCK An on-market buy-back of ordinary shares is current. The buy-back is in a number of shares approximately equal to the number to be issued under the Dividend reinvestment Plan at the time of payment of the 2006 final dividend and 2007 interim dividend and the estimated number which might be issued upon exercise of executive options during 2006/07 The maximum number of shares which the Company . intends to buy back is 14,000,000. TWenTY LarGeST SHareHOLDerS Ordinary shares % of ordinary shares JP Morgan nominees Australia Limited Westpac Custodian nominees Limited national nominees Limited AnZ nominees Limited 85,409,772 79,773,076 62,317,905 21,464,477 14.47 13.52 10.56 3.64 3.35 2.44 2.39 1.67 1.30 1.18 0.98 0.79 0.68 0.61 0.60 0.59 0.50 0.49 0.49 0.32 60.57 DISTrIBUTIOn SCHeDULe OF SHareHOLDerS Size of shareholding number of shareholders % of ordinary shares rBC Dexia Investor Services Australia 19,763,028 nominees Pty Limited Citicorp nominees Pty Limited Cogent nominees Pty Limited UBS nominees Pty Limited Australian reward Investment Alliance Warbont nominees Pty Limited AMP Life Limited Australian reward Investment Alliance 1 Merrill Lynch (Australia) nominees Pty Limited Australian Foundation Investment Company Limited AnZ nominees Limited rodney Taunton Pearse rBC Dexia Investor Services Australia nominees Pty Limited Argo Investments Limited Citicorp nominees Pty Limited 14,417,943 14,092,359 9,853,929 7,660,793 6,992,012 5,764,773 4,682,001 4,012,679 3,599,712 3,519,266 3,471,672 2,935,646 (a) in the categories – 1 1,001 5,001 100,001 – – – 1,000 5,000 10,000 100,000 and over 45,650 35,615 5,501 2,774 122 89,662 (b) holding less than a marketable parcel (76 shares) 5,176 3.68 13.69 6.56 9.87 66.20 100.00 0.03 10,001 – vOTInG rIGHTS – OrDInarY SHareS On a show of hands every person present, who is a member or proxy, attorney or representative of a member, shall have one vote and on a poll every member who is present in person or by proxy, attorney or representative shall have one vote for each share held by him or her. HSBC Custody nominees (Australia) Limited 2,896,287 2,866,907 1,895,600 357 ,389,837 Boral Limited Financial report 2006 68 financiaL history BoraL LiMited and controLLed entitieS Proforma* 2000 $ millions Proforma* 1999 $ millions as at 30 June 2006 $ millions 2005 $ millions 2004 $ millions 2003 $ millions 2002 $ millions 2001 $ millions revenue earnings before interest, tax, depreciation and amortisation (eBITDA)1 Depreciation and amortisation earnings before interest and tax1 Profit/(loss) from disposal of businesses Profit before interest and tax net financing expense Profit before tax Income tax expense Minority interests net profit attributable to members of Boral Limited Total assets Total liabilities net assets Shareholders’ funds Dividends paid or declared Statistics Dividend per ordinary share Dividend payout ratio Dividend cover earnings per ordinary share return on equity eBIT to sales eBIT to funds employed net interest cover (times) Gearing (net debt to equity) Gearing (net debt to net debt plus equity) net tangible asset backing per share 4,767 823 209 614 – 614 (98) 516 (153) – 362 5,587 2,832 2,755 2,755 200 4,305 794 191 603 – 603 (71) 532 (162) (1) 370 5,001 2,594 2,407 2,407 197 4,150 794 195 600 – 600 (66) 534 (163) (1) 370 4,511 2,151 2,360 2,360 175 3,831 672 194 478 – 478 (68) 410 (126) (1) 283 4,038 1,898 2,140 2,140 133 3,489 531 188 343 – 343 (63) 280 (87) – 192 3,915 1,966 1,950 1,950 109 3,280 451 189 262 39 301 (70) 232 (78) – 153 3,950 2,096 1,855 1,855 102 4,012 563 203 360 (33) 327 (90) 238 (70) – 169 3,873 2,096 1,777 1,777 102 3,914 569 216 353 – 353 (120) 233 (87) 3 150 4,172 2,455 1,717 1,717 102 34c 55% 1.8 61.7c 13.2% 12.9% 14.2% 6.3 57% 36% $4.07 34c 53% 1.9 63.4c 15.4% 14.0% 15.9% 8.5 58% 37% $3.57 30c 47% 2.1 63.8c 15.7% 14.4% 18.2% 9.1 40% 28% $3.65 23c 47% 2.1 49.1c 13.2% 12.5% 16.4% 7 .1 36% 26% $3.27 19c 57% 1.8 33.7c 9.9% 9.8% 12.1% 5.4 45% 31% $3.02 18c 67% 1.5 27 .0c 8.3% 8.0% 9.2% 4.3 53% 35% $2.89 18c 61% 1.7 29.7c 9.5% 9.0% 13.2% 3.7 54% 35% $2.78 18c 68% 1.5 26.3c 8.7% 9.0% 11.2% 2.9 83% 45% $2.62 June 2006 and 2005 reflect results prepared under Australian equivalents to International Financial reporting Standards (A–IFrS). The years prior to June 2005 represent results under previous Australian Generally Accepted Accounting Principles (AGAAP). The comparative figures for the year ended June 2000 and June 1999 have been prepared on a proforma basis to reflect the results of operations of the Boral building and construction businesses for the full twelve month period. Amounts have been restated where appropriate to reflect the change in Australian Accounting Standards that requires abnormal items no longer to be shown separately. * Proforma consolidated accounts were not audited but were subject to an independent review by KPMG 1. 2005 includes impact of Adelaide Brighton bid costs $16.2 million ($11.3 million after tax) 69 gLossary Cement A building material made of a mixture of calcined limestone and clay; used with water and sand or gravel to make concrete A building material composed of sand and gravel and cement and water The separation of Boral’s building and construction materials business and energy business, which occurred in February 2000. The energy business is now a separate Australian listed company, Origin energy remuneration and value of any benefits given to a director or officer in connection with the management of the Boral Group’s affairs Fly ash is a by-product of coal-fired electricity generating plants; it has cementitious properties and is therefore used as an important (cost-reducing) additive in cement A mineral consisting of the hydrous sulphate of lime (calcium). When calcined, it forms Plaster of Paris used in plasterboard production Oxide of calcium (CaO) produced by heating limestone A rock consisting chiefly of calcium carbonate (CaCO 2 ) Def 1: A Lost Time Injury (LTI) is one which causes an employee to be absent from work for one or more full days or shifts on any day subsequent to the injury occurring Def 2: Long-term incentives (LTI) referred to in the remuneration report Operating sites Squares Total shareholder return Wholly owned or at least 50% owned Jv operating site excluding sales, administration and distribution offices A measure of area used in roofing in the USA; one square = 100 square feet An annualised total shareholder return calculation which takes into consideration returns both capital and dividend returns to shareholders Wholly owned or at least 50% owned Jv operating sites and sales, administration and distribution offices Additional securities/loans based on a common attribute such as date issued aBBreViations ACM BCSC BMTI C&C DrP eBIT eBITDA eOP ePS FACT Fy Jv LBGA LTI LTIFr PeP PLDC qeU rOFe SArs SBe SIB STI TSr WACC Australian Construction Materials division Blue Circle Southern Cement Boral Materials Technology Inc Clay & Concrete Products division Dividend reinvestment plan earnings before interest and tax earnings before interest, tax, depreciation and amortisation executive Option Plan earnings per share Fly ash carbon treatment Financial year Joint venture Lafarge Boral Gypsum in Asia Lost time injury or long-term incentive Lost time injury frequency rate Performance enhancement Program Penrith Lakes Development Corporation (40% owned by Boral) quarry end Use return on funds employed Share Acquisition rights Standard brick equivalent Stay in business Short-term incentive Total shareholder returns Weighted average cost of capital (including the cost of debt and the cost of equity Concrete Demerger emoluments Fly ash Gypsum Lime Limestone LTI Total sites Tranches Boral Limited Financial report 2006