NOTES TO THE
FINANCIAL STATEMENTS 30 June 2006
1 BASIS OF PREPARATION OF THE CONCISE FINANCIAL REPORT
This concise financial report relates to the consolidated entity consisting of BlueScope Steel Limited and the entities it controlled at the end, or during, the year ended 30 June 2006. The accounting policies adopted have been consistently applied to all years presented, unless otherwise stated.
The concise financial report has been prepared in accordance with the Corporations Act 2001 and Accounting Standard AASB 1039 Concise Financial Reports.
The concise financial report is an extract from the full financial report for the year ended 30 June 2006. The financial statements and specific disclosures included in the concise financial report have been derived from the full financial report.
The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities as the full financial report. Further financial information can be obtained from the full financial report.
The full financial report on which this concise financial report is based is the first annual BlueScope Steel Limited financial report to be prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRSs). AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing the full financial report.
Financial statements of BlueScope Steel Limited until 30 June 2005 had been prepared in accordance with previous Australian Generally Accepted Accounting Principles (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing BlueScope Limited 2006 financial statements, management has amended certain accounting and valuation methods applied in the AGAAP financial statements to comply with AIFRS. With the exception of financial instruments, the comparative figures in respect of 2005 were restated to reflect these adjustments. The Group has taken the exemption available under AASB 1 to only apply AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement from 1 July 2005.
Reconciliations and descriptions of the effect of transition from previous AGAAP to AIFRS on the Group's equity and its net income are provided in note 8 of this concise report.
Rounding of Amounts
The company is of a kind referred to in Class order 98/0100, issued by the Australian Securities and Investments Commission, relating to the "rounding off" of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest hundred thousand dollars.
2 PRESENTATION CURRENCY
The presentation currency used in the concise financial report is Australian dollars.
3 FULL FINANCIAL REPORT
Further financial information can be obtained from the full financial report which is available from the company, free of charge, on request. A copy may be requested by contacting the company's share registrar whose details appear in the Corporate Directory. Alternatively, both the full financial report and the concise financial report can be accessed at www.bluescopesteel.com.
4 SEGMENT INFORMATION
Description of segments
Business segments
The consolidated entity has six business reporting segments: Hot Rolled Products Australia, Coated and Building Products Australia, New Zealand and Pacific Steel Products (formerly New Zealand Steel), Coated and Building Products Asia, Hot Rolled Products North America and Coated and Building Products North America.
Hot Rolled Products Australia
Hot Rolled Products includes the Port Kembla Steelworks, a steel making operation with an annual production capacity of approximately 5.1 million tonnes of crude steel. The Port Kembla Steelworks manufactures and distributes slab, hot rolled coil and plate. Slab and hot rolled coil is supplied to Coated and Building Products Australia for further processing, as well as to other domestic and export customers.
Coated and Building Products Australia
Coated and Building Products Australia markets a range of products and material solutions to the Australian building and construction industry and is also a key supplier to the Australian automotive sector, packaging industry, major white goods manufacturers and general manufacturers. Coated and Building Products Australia is a leader in metallic coating and painting technologies supplying a wide range of branded products such as COLORBOND® pre-painted steel, ZINCALUME® zinc/aluminium alloy coated steel and the LYSAGHT® range of building products.
The Coated and Building Products business comprises two main metallic coating production facilities at Springhill in New South Wales and Western Port in Victoria together with a network of manufacturing and distribution facilities throughout Australia. The Company has announced its intention to close its tin mill facility at Springhill, which supplies tinplate to the Australian packaging industry.
New Zealand and Pacific Steel Products
The New Zealand Steel operation at Glenbrook, New Zealand, produces a full range of flat steel products for both domestic and export markets. It has an annual production capacity of 0.6 million tonnes. The segment also includes facilities in New Caledonia, Fiji and Vanuatu which manufacture and distribute the LYSAGHT® range of products.
Coated and Building Products Asia
Coated and Building Products Asia manufactures and distributes a range of metallic coated, painted steel products and pre engineered steel building systems primarily to the building and construction industry and to some sections of the manufacturing industry across Asia.
Hot Rolled Products North America
Hot Rolled Products North America includes a 50% interest in the North Star BlueScope Steel joint venture, a steel mini mill in the United States, a 47.5% shareholding in Castrip LLC, and North American export trading activities.
Coated and Building Products North America
Coated and Building Products North America includes two main divisions: the North American Buildings Group, which designs, manufactures and markets pre engineered steel buildings and component systems; and Vistawall, which manufactures and sells extruded aluminium and glass products for the building and construction sector.
Corporate and Group
Corporate and Group relates primarily to logistics and corporate activities.
Geographical segments
The Group's geographical segments are determined based on the location of its market and customers. The Group operates in four main geographical areas being Australia, New Zealand, Asia and North America.
SEGMENT INFORMATION
Primary reporting format - business segments
| 2006 | Hot Rolled Products Australia | Coated and Building Products Australia | New Zealand and Pacific Steel Products | Coated and Building Products Asia |
Hot Rolled Products North America | Coated and Building Products North America | Corporate and Group | Inter-segment eliminations/ unallocated |
Total |
|---|---|---|---|---|---|---|---|---|---|
| $M | $M | $M | $M | $M | $M | $M | $M | $M | |
| Sales to external customers | 1,634.6 | 2,950.8 | 575.0 | 1,045.9 | 486.0 | 1,210.9 | 109.4 | - | 8,012.6 |
| Intersegment sales | 1,837.3 | 113.6 | 133.9 | 29.1 | 14.4 | 2.3 | 311.0 | (2,441.6) | - |
| Total sales revenue | 3,471.9 | 3,064.4 | 708.9 | 1,075.0 | 500.4 | 1,213.2 | 420.4 | (2,441.6) | 8,012.6 |
| Other revenue | 0.6 | 1.3 | 5.5 | 3.2 | 0.3 | 7.7 | 3.5 | (3.2) | 18.9 |
| Total segment revenue | 3,472.5 | 3,065.7 | 714.4 | 1,078.2 | 500.7 | 1,220.9 | 423.9 | (2,444.8) | 8,031.5 |
| Segment result | 456.4 | (198.1) | 101.7 | (3.7) | 18.6 | 23.5 | (77.5) | 56.4 | 377.3 |
| Share of net profits of associates and joint venture partnerships | - | - | 2.9 | (0.5) | 169.0 | 3.6 | - | - | 175.0 |
| Share of gain (loss) on sales of investments | - | - | - | 3.4 | - | - | - | 3.4 | |
| Segment EBIT | 456.4 | (198.1) | 104.6 | (0.8) | 187.6 | 27.1 | (77.5) | 56.4 | 555.7 |
| Unallocated revenue less unallocated expenses | (87.1) | ||||||||
| Profit before income tax | 468.6 | ||||||||
| Income tax expense | (125.8) | ||||||||
| Profit for the year | 342.8 | ||||||||
| Segment assets | 2,451.5 | 1,891.6 | 570.5 | 1,511.2 | 166.9 | 507.7 | 69.2 | (394.7) | 6,773.9 |
| Investments in associates and joint venture partnership | - | - | 4.5 | 35.7 | 256.4 | 6.2 | - | - | 302.8 |
| Allocated assets | 2,451.5 | 1,891.6 | 575.0 | 1,546.9 | 423.3 | 513.9 | 69.2 | (394.7) | 7,076.7 |
| Unallocated assets | 183.9 | ||||||||
| Total assets | 7,260.6 | ||||||||
| Segment liabilities | 614.9 | 551.7 | 233.1 | 331.8 | 165.4 | 282.9 | 68.3 | (366.0) | 1,882.1 |
| Unallocated liabilities | 2,293.6 | ||||||||
| Total liabilities | 4,175.7 | ||||||||
| Acquisitions of property, plant and equipment, intangibles and other non-current segment assets | 206.7 | 244.5 | 55.3 | 290.1 | 0.4 | 28.7 | 14.1 | - | 839.8 |
| Depreciation and amortisation expense | 132.6 | 74.6 | 27.1 | 36.5 | 0.4 | 19.9 | 2.4 | - | 293.5 |
| Impairment of associates and joint venture partnerships | - | - | - | - | 1.3 | - | - | - | 1.3 |
| Impairment of property, plant and equipment | - | 50.9 | - | 3.0 | - | 0.4 | - | - | 54.3 |
SEGMENT INFORMATION
Primary reporting format - business segments continued
| 2005 | Hot Rolled Products Australia | Coated and Building Products Australia | New Zealand and Pacific Steel Products | Coated and Building Products Asia |
Hot Rolled Products North America | Coated and Building Products North America | Corporate and Group | Inter-segment eliminations/ unallocated |
Total |
|---|---|---|---|---|---|---|---|---|---|
| $M | $M | $M | $M | $M | $M | $M | $M | $M | |
| Sales to external customers | 1,744.6 | 2,984.9 | 615.5 | 997.2 | 370.2 | 1,132.1 | 96.2 | - | 7,940.7 |
| Intersegment sales | 1,986.6 | 205.4 | 129.9 | 26.8 | 6.4 | 2.3 | 267.9 | (2,625.3) | - |
| Total sales revenue | 3,731.2 | 3,190.3 | 745.4 | 1,024.0 | 376.6 | 1,134.4 | 364.1 | (2,625.3) | 7,940.7 |
| Other revenue | 0.5 | 1.4 | 6.4 | 2.4 | 1.3 | 10.7 | 4.8 | (2.9) | 24.6 |
| Total segment revenue | 3,731.7 | 3,191.7 | 751.8 | 1,026.4 | 377.9 | 1,145.1 | 368.9 | (2,460.4) | 7,965.3 |
| Segment result | 1,149.3 | (182.7) | 186.0 | 81.1 | 5.4 | (19.2) | (53.2) | (9.1) | 1,157.6 |
| Share of net profits of associates and joint venture partnerships | - | - | 3.3 | 1.5 | 194.0 | 1.2 | - | - | 200.0 |
| Segment EBIT | 1,149.3 | (182.7) | 189.3 | 82.6 | 199.4 | (18.0) | (53.2) | (9.1) | 1,357.6 |
| Unallocated revenue less unallocated expenses | (41.3) | ||||||||
| Profit before income tax | 1,316.3 | ||||||||
| Income tax expense | (334.3) | ||||||||
| Profit for the year | 982.0 | ||||||||
| Segment assets | 2,267.0 | 1,745.5 | 572.4 | 1,162.8 | 85.5 | 469.3 | 48.2 | (358.1) | 5,992.6 |
| Investments in associates and joint venture partnership | - | - | 4.4 | 1.9 | 246.9 | 4.7 | - | - | 257.9 |
| Allocated assets | 2,267.0 | 1,745.5 | 576.8 | 1,164.7 | 332.4 | 474.0 | 48.2 | (358.1) | 6,250.5 |
| Unallocated assets | 135.2 | ||||||||
| Total assets | 6,385.7 | ||||||||
| Segment liabilities | 497.4 | 490.4 | 271.2 | 286.1 | 71.2 | 278.2 | 59.0 | (272.9) | 1,680.6 |
| Unallocated liabilities | 1,444.7 | ||||||||
| Total liabilities | 3,125.3 | ||||||||
| Acquisitions of property, plant and equipment, intangibles and other non-current segment assets | 139.5 | 175.2 | 35.6 | 344.1 | 0.6 | 50.5 | 1.7 | - | 747.2 |
| Depreciation and amortisation expense | 131.5 | 91.4 | 27.6 | 24.8 | 0.2 | 19.9 | 1.9 | - | 297.3 |
| Impairment of associates and joint venture partnerships | - | - | - | - | 1.6 | - | - | - | 1.6 |
| Impairment of property, plant and equipment | - | 82.3 | - | - | - | - | - | - | 82.3 |
5 REVENUE SUMMARY
| 2006 $M | 2005 $M | ||
|---|---|---|---|
| Sale of goods | 7,898.5 | 7,842.0 | |
| Services | 114.1 | 98.7 | |
| Other revenue | 18.9 | 24.6 | |
| 8,031.5 | 7,965.3 |
6 DIVIDENDS
| 2006 $M |
2005 $M |
|||
|---|---|---|---|---|
| a) Ordinary shares | ||||
| Final dividend for the year ended 30 June 2005 of 44 cents (2004: 28 cents) per fully paid share paid on 24 October 2005 (2004: 18 October 2004) | ||||
| Final fully franked based on tax paid @ 30% – 24 cents (2004: 18 cents) per share | 170.9 | 134.9 | ||
| Special fully franked based on tax paid @ 30% – 20 cents (2004: 10 cents) per share | 142.5 | 74.9 | ||
| 313.4 | 209.8 | |||
| Interim dividend for the year ended 30 June 2006 of 20 cents (2005: 18 cents) per fully paid share paid on 3 April 2006 (2005: 4 April 2005) | ||||
| Fully franked based on tax paid @ 30% | 139.8 | 133.2 | ||
| Total dividends provided for or paid | 453.2 | 343.0 | ||
| (b) Dividends not recognised at year end | ||||
| In addition to the above dividends, since year end the directors have recommended the payment of a final dividend of 24 cents (2005: 24 cents plus 20 cents special dividend) per fully paid ordinary share, fully franked based on tax paid at 30%. The aggregat amount of the proposed dividend expected to be paid on 24 October 2006 out of retained profits at 30 June 2006, but not recognised as a liability at year end, is | 168.3 | 313.5 | ||
| (c) Franked dividends | ||||
| The franked portions of the final dividends recommended after 30 June 2006 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 30 June 2006. | ||||
| Actual franking account balance as at the reporting date | 148.1 | 54.2 | ||
| Franking credits that will arise from the payment of income tax payable as at the reporting date | 10.3 | 203.7 | ||
| Franking credits available for subsequent financial years based on a tax rate of 30% (2005: 30%) | 158.4 | 257.9 | ||
The impact on the franking account of the dividend recommended by the directors since year end, but not recognised as a liability at year end, will be a reduction in the franking account of $72.1 million (2005: $134.3 million).
7 EARNINGS PER SHARE
| 2006 Cents |
2005 Cents |
|||
|---|---|---|---|---|
| (a) Basic earnings per share | ||||
| Profit attributable to the ordinary equity holders of the Company | 47.9 | 134.0 | ||
| (b) Diluted earnings per share | ||||
| Profit attributable to the ordinary equity holders of the Company | 47.7 | 131.0 | ||
| (c) Reconciliations of earnings used in calculating earnings per share | ||||
| 2006 $M |
2005 $M |
|||
| Basic Earnings per share | ||||
| Profit from continuing operations | 342.8 | 982.0 | ||
| Profit from continuing operations attributable to minority interests | (5.2) | (0.1) | ||
| Profit attributable to the ordinary equity holders of the company used in calculating earnings per share | 337.6 | 981.9 | ||
| d) Weighted average number of shares used as the denominator | ||||
| 2006 Number |
2005 Number |
|||
| Weighted average number of ordinary shares used in calculating basic earnings per share | 704,064,627 | 733,031,445 | ||
| Adjustments for the effect of dilution: | ||||
| Weighted average number of share rights | 3,809,488 | 14,478,101 | ||
| Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share | 707,874,115 | 747,509,546 |
e) Earnings per share calculation
(i) Basic earnings per share
Basic earnings per share is calculated by dividing net profit attributable to the ordinary equity holders of the company by the weighted average number of ordinary shares outstanding during the period.
(ii) Diluted earnings per share
Diluted earnings per share is calculated by dividing the net profit attributable to the ordinary equity holders of the company by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued upon the conversion of all dilutive potential ordinary shares into ordinary shares.
Share rights granted to eligible senior managers under the Long Term Incentive Plan are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. Details relating to the share rights are set out in the 30 June 2006 Remuneration Report.
8 EXPLANATION OF TRANSITION TO AUSTRALIAN EQUIVALENTS TO IFRS
1) Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles (AGAAP) to equity under Australian equivalents to IFRS (AIFRS)
a) At the date of transition to AIFRS: 1 July 2004
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Notes | Previous AGAAP $M |
Effect of transition $M |
AIFRS $M |
|||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents | 119.4 | - | 119.4 | |||
| Receivables | 989.2 | - | 989.2 | |||
| Inventories | 891.4 | - | 891.4 | |||
| Other | (d) | 43.7 | (1.4) | 42.3 | ||
| Total current assets | 2,043.7 | (1.4) | 2,042.3 | |||
| Non-current assets | ||||||
| Receivables | (l) | 7.1 | 6.7 | 13.8 | ||
| Inventories | 71.1 | - | 71.1 | |||
| Investments accounted for using the equity method | (h) | 236.3 | 5.3 | 241.6 | ||
| Other financial assets | (h) | 4.6 | (4.5) | 0.1 | ||
| Property, plant and equipment | (d) (e) | 3,288.6 | (163.4) | 3,125.2 | ||
| Deferred tax assets | (i) | 58.0 | 87.5 | 145.5 | ||
| Intangible assets | (d) | 60.1 | 65.3 | 125.4 | ||
| Other | (d) | 12.6 | (2.9) | 9.7 | ||
| Total non-current assets | 3,738.4 | (6.0) | 3,732.4 | |||
| Total assets | 5,782.1 | (7.4) | 5,774.7 | |||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Payables | 728.3 | - | 728.3 | |||
| Interest bearing liabilities | 416.0 | - | 416.0 | |||
| Current tax liabilities | 154.3 | - | 154.3 | |||
| Provisions | (n) | 281.5 | 160.2 | 441.7 | ||
| Retirement benefit obligations | (f) | 13.2 | (13.2) | - | ||
| Deferred income | 92.5 | - | 92.5 | |||
| Total current liabilities | 1,685.8 | 147.0 | 1,832.8 | |||
| Non-current liabilities | ||||||
| Interest bearing liabilities | 176.7 | - | 176.7 | |||
| Deferred tax liabilities | (i) | 388.3 | (30.5) | 357.8 | ||
| Provisions | (l)(n) | 291.7 | (153.5) | 138.2 | ||
| Retirement benefit obligations | (f) | 46.0 | 150.4 | 196.4 | ||
| Total non-current liabilities | 902.7 | (33.6) | 869.1 | |||
| Total liabilities | 2,588.5 | 113.4 | 2,701.9 | |||
| Net assets | 3,193.6 | (120.8) | 3,072.8 | |||
| EQUITY | ||||||
| Contributed equity | 1,914.9 | - | 1,914.9 | |||
| Reserves | (a) (g) | (77.5) | 80.0 | 2.5 | ||
| Retained profits | (j) | 1,302.9 | (200.8) | 1,102.1 | ||
| Parent entity interest | 3,140.3 | (120.8) | 3,019.5 | |||
| Minority interest | 53.3 | - | 53.3 | |||
| Total equity | 3,193.6 | (120.8) | 3,072.8 | |||
8 EXPLANATION OF TRANSITION TO AUSTRALIAN EQUIVALENTS TO IFRS (continued)
b) At the end of the last reporting period under previous AGAAP: 30 June 2005
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Notes | Previous AGAAP $M |
Effect of transition $M |
AIFRS $M |
|||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents | 84.6 | - | 84.6 | |||
| Receivables | 1,052.8 | - | 1,052.8 | |||
| Inventories | 1,152.2 | - | 1,152.2 | |||
| Other | (b) | 39.5 | (0.1) | 39.4 | ||
| Total current assets | 2,329.1 | (0.1) | 2,329.0 | |||
| Non-current assets | ||||||
| Receivables | (l) | 7.5 | 4.9 | 12.4 | ||
| Retirement benefit assets | (f) | - | 0.5 | 0.5 | ||
| Inventories | 58.6 | - | 58.6 | |||
| Investments accounted for using the equity method | (h) | 253.5 | 4.4 | 257.9 | ||
| Other financial assets | (h) | 4.5 | (4.5) | - | ||
| Property, plant and equipment | (d) (e) | 3,629.0 | (254.6) | 3,374.4 | ||
| Deferred tax assets | (i) | 61.6 | 86.3 | 147.9 | ||
| Intangible assets | (c) (d) | 112.4 | 87.7 | 200.1 | ||
| Other | (d) | 7.5 | (2.6) | 4.9 | ||
| Total non-current assets | 4,134.6 | (77.9) | 4,056.7 | |||
| Total assets | 6,463.7 | (78.0) | 6,385.7 | |||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Payables | 818.6 | - | 818.6 | |||
| Interest bearing liabilities | 255.7 | - | 255.7 | |||
| Current tax liabilities | 215.6 | - | 215.6 | |||
| Provisions | (n) | 263.0 | 167.0 | 430.0 | ||
| Deferred income | 60.5 | - | 60.5 | |||
| Total current liabilities | 1,613.4 | 167.0 | 1,780.4 | |||
| Non-current liabilities | ||||||
| Payables | 5.0 | - | 5.0 | |||
| Interest bearing liabilities | 620.2 | - | 620.2 | |||
| Deferred tax liabilities | (i) | 351.9 | (51.6) | 300.3 | ||
| Provisions | (l) (n) | 319.6 | (162.1) | 157.5 | ||
| Retirement benefit obligations | (f) | 53.1 | 208.8 | 261.9 | ||
| Total non-current liabilities | 1,349.8 | (4.9) | 1,344.9 | |||
| Total liabilities | 2,963.2 | 162.1 | 3,125.3 | |||
| Net assets | 3,500.5 | (240.1) | 3,260.4 | |||
| EQUITY | ||||||
| Contributed equity | 1,747.5 | - | 1,747.5 | |||
| Reserves | (a) (b) (f) (g) (i) | (131.2) | 65.9 | (65.3) | ||
| Retained profits | (j) | 1,841.0 | (306.0) | 1,535.0 | ||
| Parent entity interest | 3,457.3 | (240.1) | 3,217.2 | |||
| Minority interest | 43.2 | - | 43.2 | |||
| Total equity | 3,500.5 | (240.1) | 3,260.4 | |||
8 EXPLANATION OF TRANSITION TO AUSTRALIAN EQUIVALENTS TO IFRS (continued)
2) Reconciliation of profit for the year ended 30 June 2005
| Consolidated | ||||||
|---|---|---|---|---|---|---|
| Notes | Previous AGAAP $M |
Effect of transition $M |
AIFRS $M |
|||
| Revenue | (h) | 7,967.4 | (2.1) | 7,965.3 | ||
| Other income | (m) | 14.2 | (12.7) | 1.5 | ||
| Changes in inventories of finished goods and work in progress | 146.7 | - | 146.7 | |||
| Raw materials and consumables used | (3,296.8) | - | (3,296.8) | |||
| Employee benefits expense | (f) (g) | (1,347.0) | 13.4 | (1,333.6) | ||
| Depreciation and amortisation expense | (c)(d) (e) | (306.1) | 8.8 | (297.3) | ||
| Impairment of non-current assets | (e) | (1.6) | (82.3) | (83.9) | ||
| Freight on external despatches | (484.3) | - | (484.3) | |||
| External services | (1,093.0) | - | (1,093.0) | |||
| Carrying amount of non-current assets sold | (m) | (9.9) | 9.9 | - | ||
| Finance costs - net | (k) | (37.5) | (6.9) | (44.4) | ||
| Other expenses | (b) (d) (h) (k) (m) | (394.7) | 30.8 | (363.9) | ||
| Share of net profits of associates and joint venture partnership accounted for using the equity method | (h) | 196.7 | 3.3 | 200.0 | ||
| Profit before income tax | 1,354.1 | (37.8) | 1,316.3 | |||
| Income tax expense | (b)(c) (e) (f) (i) | (347.0) | 12.7 | (334.3) | ||
| Profit for the year | 1,007.1 | (25.1) | 982.0 | |||
| Profit attributable to minority interest | (0.1) | - | (0.1) | |||
| Profit attributable to members of BlueScope Steel Ltd | 1,007.0 | (25.1) | 981.9 | |||
3) Reconciliation of cash flows under previous AGAAP to cash flows under AIFRS
The adoption of AIFRS has not resulted in any material adjustments to the cash flow statements.
4) Notes to the reconciliations
a) Foreign currency translation reserve:
Under AIFRS, upon disposal of a foreign operation, the cumulative translation differences for that operation are recognised in the income statement as part of the gain or loss on disposal. Under previous Australian Accounting Standards this amount was transferred directly to retained profits.
The Group has elected to apply the exemption available in AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards whereby the cumulative translation differences for all foreign operations represented in the foreign currency translation reserve are deemed to be zero and transferred to retained profits at the date of transition to AIFRS. The effect is:
(i) At 1 July 2004
The balance of the $77.5 million debit in the foreign currency translation reserve is reduced to zero with a corresponding decrease in retained profits.
(ii) At 30 June 2005
The debit balance of the foreign currency translation reserve is reduced by $77.5 million with a corresponding decrease in retained profits.
b) Foreign currency translation: foreign currency loans
AASB 121 Effect of Changes in Foreign Exchange Rates requires exchange gains and losses arising from loan balances, including intercompany loans, to remain in the consolidated income statement unless they form part of a net investment in a foreign operation, subject to stringent hedge accounting requirements. If these requirements are met, the exchange fluctuation and any associated tax effects are able to be reported in a separate component of equity and would be realised upon disposal of the foreign operation.
The Company's foreign currency loans, including intercompany loans, not denominated in the functional currency of the business do not meet the tests required under AASB 121 for a hedge of a net investment of a foreign operation resulting in exchange fluctuations on loan balances, and the associated tax effects being taken to the income statement. Under previous accounting standards these items were recorded against the foreign currency translation reserve. As a result of the foreign currency translation reserve being reduced to zero as at 1 July 2004 in accordance with AASB 1 as set out at Note 8 (4)(a) above, any deferred tax balances recorded are also transferred to retained profits.
Management has undertaken a thorough review of the future impact on the income statement from foreign currency exposures arising from the changes identified above. From 1 July 2005, foreign currency exposure has been managed through balancing foreign exchange debt with foreign exchange intercompany balances and no material earnings volatility is expected.
The effect of the transition to AIFRS is:
(i) At 1 July 2004
There is an increase of $6.8 million in deferred tax liabilities, and a corresponding decrease in retained profits.
(ii) At 30 June 2005
There is an increase of $12.6 million in deferred tax liabilities, an increase of $9.3 million in retained profits, a decrease of $0.1 million in other current assets, and a decrease of $22.0 million in the foreign currency translation reserve.
(iii) For the year ended 30 June 2005
There has been a decrease of $21.9 million in other expenses and an increase of $5.7 million in income tax expense.
c) Business combinations
Under AASB 3 Business Combinations goodwill is no longer amortised but is subject to annual impairment testing.
This has resulted in the reversal of accumulated goodwill amortisation previously recognised under Australian Accounting Standards. Current impairment tests have confirmed no impairment of goodwill.
The Group has adopted the exemption available under AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards not to restate pre 1 July 2004 business combinations.
Under AIFRS, guidance provided for identifying acquired intangible assets is more prescriptive than under AGAAP. As a result, identifiable intangible assets have increased with a corresponding decrease in goodwill on post 1 July 2004 business combinations.
Consistent with the AIFRS income tax methodology, business combinations post 1 July 2004 are required to incorporate the tax effect of fair value adjustments, therefore impacting the amount of goodwill recognised.
The effect of transition to AIFRS is:
(i) At 1 July 2004
No adjustments due to the exemption adopted under AASB 1 to not restate pre 1 July 2004 business combinations.
(ii) At 30 June 2005
For the Group there has been a decrease in retained profits of $5.1 million and deferred tax liabilities of $4.9 million. Intangible assets arising from business combinations have increased by $10.0 million of which $4.7 million represents the reversal of amortisation on existing goodwill. The remainder is the net effect of the recognition of separately identifiable intangibles at fair value on post 1 July 2004 business combinations, the resulting tax effect of the fair value adjustments.
(iii) For the year ended 30 June 2005
For the Group depreciation and amortisation expense has decreased by $5.0 million and income tax expense has decreased by $0.1 million.
d) Computer software and non compete intangible assets
AASB 138 Intangible Assets requires computer software that is not an integral part of computer hardware or is not integral to a piece of machinery to be classified as an intangible asset. Previously under Australian Accounting Standards, the Group classified all capitalised computer software as property, plant and equipment.
Under Australian Accounting Standards in force at that time, the Group classified deferred non compete agreement costs arising from the Butler Manufacturing Company acquisition as other assets. AASB 138 requires this to be classified as an intangible asset.
The transition to AIFRS has resulted in a reclassification of both deferred non compete agreement costs and capitalised non-operating computer software to intangible assets. The effect of this is:
(i) At 1 July 2004
For the Group there has been a decrease of $1.4 million in other current assets, a decrease of $2.9 million in other non current assets, a decrease of $61.0 million in property, plant and equipment, and an increase of $65.3 million in intangible assets.
(ii) At 30 June 2005
For the Group there has been a decrease of $2.6 million in other non-current assets, a decrease of $75.1 million in property, plant and equipment, and an increase of $77.7 million in intangible assets.
(iii) For the year ended 30 June 2005
For the Group amortisation of the non compete agreement, $1.3 million has been reclassified from other expenses to depreciation and amortisation expense.
e) Impairment of assets
Previously under Australian Accounting Standards, operations were grouped into income generating units (IGUs) for the purposes of impairment testing. IGUs were defined as a group of assets working together to generate cashflows. AIFRS requires that assets be tested for impairment based on cash generating units (CGUs). CGUs are defined as the smallest group of assets that generate cash flows from continuing use that are largely independent. The CGU approach requires certain assets to be tested for impairment on a stand alone basis rather than being grouped into an IGU. In addition, the discount rate is required to include a country risk premium. Both of these differences have increased the possibility of certain assets being impaired.
The transition to AIFRS has resulted in an impairment write-down for the Packaging Products CGU, which under previous Australian Accounting Standards, was grouped and tested with other Australian steel manufacturing assets (Port Kembla Steelworks, Springhill and Western Port operations). Packaging Products is impaired on a stand alone basis primarily as a result of low growth and margin compression since the facility was upgraded in the 1990s and further impaired at 30 June 2005 due to increases in unit costs following the withdrawal from export tinplate. The Company has since announced its intention to close the tinplate producing assets but will continue to operate the cold rolling mill.
The effect of the transition to AIFRS is:
(i) At 1 July 2004
For the Group there has been a decrease of $102.3 million in property, plant and equipment and a decrease of $71.6 million in retained profits. Deferred tax liabilities have decreased by $30.7 million.
(ii) At 30 June 2005
For the Group there has been a decrease of $179.5 million in property, plant and equipment and a decrease of $125.7 million in retained profits. Deferred tax liabilities have decreased by $53.8 million.
(iii) For the year ended 30 June 2005
For the Group diminution in value of non current assets expense has increased by $82.3 million, depreciation and amortisation expense has decreased by $5.1 million and income tax expense has decreased by $23.2 million.
f) Retirement benefit obligations
BlueScope Steel Ltd has superannuation funds consisting of both defined benefit plans and defined contribution plans. The Group's defined benefit plans consist of the BlueScope Steel Superannuation Fund (Australia), the New Zealand Steel Pension Fund, and the Butler Manufacturing Company defined benefit plans (US and United Kingdom).
Under AIFRS, employer sponsors are required to recognise the net surplus or deficit in employer sponsored defined benefit superannuation funds as an asset or liability. This asset or liability is measured as the present value of the defined benefit obligation at the reporting date plus unrecognised actuarial losses (less recognised actuarial gains) less the fair value of the superannuation fund's assets at the date. The present value of the defined benefit obligation is based on expected future payments which arise from membership of the fund to the reporting date, calculated half yearly by independent actuaries. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. The accrued benefit liability is required to be discounted using the corporate bond rate.
Under previous Australian Accounting Standards, cumulative actuarial gains and losses on defined benefit plans were not recognised on the balance sheet unless a legal obligation existed. At the date of transition, the Group recognised an actuarially determined liability for the combined net deficit of the defined benefit superannuation plans in shortfall, and an asset for the defined benefit superannuation plan in surplus, reflecting the difference between the present value of employee accrued benefits and the market value of the superannuation fund's assets at that date. The resulting liability and asset are not able to be offset as they relate to different plans.
Previously under Australian Accounting Standards, due to existing legal obligations, a liability was recognised for the Butler Manufacturing Company US defined benefit plans. Upon transition to AIFRS, this liability increased as a lower discount rate was used, being a corporate bond rate with similar maturity terms, rather than the expected rate of return on fund assets.
An actuarially determined employment expense is now recognised rather than the Company contributions under previous AGAAP. The associated employee benefits expense is lower under AIFRS as the Company's contributions are in excess of the actuarially determined expense.
In December 2004, AASB 119 Employee Benefits was reissued to provide options in accounting for actuarial gains and losses by allowing either a direct adjustment against retained profits, a progressive profit and loss 'corridor' approach or immediate recognition in the profit and loss. The Group has early adopted the revised standard with all actuarial gains and losses recorded directly in retained profits.
The effect of the transition to AIFRS is:
(i) At 1 July 2004
For the Group there has been an increase of $137.2 million in retirement benefit obligations, a decrease of $6.6 million in deferred tax liabilities, and a decrease of $130.5 million in opening retained profits.
(ii) At 30 June 2005
For the Group there has been an increase of $208.8 million in retirement benefit obligations, an increase of $0.5 million in retirement benefit assets, a decrease of $15.5 million in deferred tax liabilities, and a decrease of $194.8 million in retained profits. The foreign currency translation reserve balance has been credited by $1.6 million.
(iii) For the year ended 30 June 2005
For the Group employee benefits expense has decreased by $19.9 million, and income tax expense has increased by $3.9 million.
g) Share-based payments
Under AASB 2 Share-based Payment from 1 July 2004 the Group is required to recognise an expense and a corresponding increase in reserves for the fair value of share rights and awards granted to employees after 7 November 2002 that had not vested by 1 January 2005. Upon transition to AIFRS, the Group is required to expense the fair value of share rights awarded to senior executives under the 2003 and 2004 Long Term Incentive Plans (LTIP) and any future awards. In addition, the fair value of any shares provided under Employee Share Plans from 1 January 2005 onwards are required to be expensed. Under AGAAP, the shares under all these plans would have been issued at nil cost with no expense recognised.
For details of share rights and awards granted refer to the 30 June 2006 Remuneration Report.
The effect of the transition to AIFRS is:
(i) At 1 July 2004
For the Group there has been a decrease of $2.5 million in opening retained profits and a corresponding increase in reserves.
(ii) At 30 June 2005
For the Group there has been a decrease of $9.0 million in retained profits and a corresponding increase in reserves.
(iii) For the year ended 30 June 2005
For the Group there has been an increase in employee benefits expense of $6.5 million.
h) Equity accounting of associates
Under AASB 128 Investments in Associates where an investor holds 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. The Group holds some minor investments in New Zealand Steel whereby equity accounting was not previously applied under Australian Accounting Standards with revenue being brought to account when dividends were received.
The effect of the transition to AIFRS is:
(i) At 1 July 2004
For the Group there has been an increase of $5.3 million in investments accounted for using the equity method, a decrease of $4.5 million in other financial assets and an increase of $0.8 million in opening retained profits.
(ii) At 30 June 2005
For the Group there has been an increase of $4.4 million in investments accounted for using the equity method, a decrease of $4.5 million in other financial assets and a decrease of $0.1 million in retained profits.
(iii) For the year ended 30 June 2005
For the Group there has been a decrease of $2.1 million in other revenue (dividend income), an increase of $1.9 million in other expenses and an increase of $3.3 million in share of net profits of associates and joint venture partnership accounted for using the equity method.
(i) Income tax methodology
Under AGAAP income tax expense was calculated by reference to the accounting profit after allowing for permanent differences. AASB 112 Income Taxes focuses on the taxation of transactions and other events that effect amounts recognised in either the balance sheet or a tax-based balance sheet.
Deferred tax is now recognised in relation to fair value adjustments arising from business combinations (refer to point c). In addition, current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.
Deferred tax assets
Under AIFRS, all tax assets must be recognised when they are probable of realisation. Probable is defined as more likely than not. Under AGAAP income tax losses were only recognised when they were virtually certain of realisation.
Upon transition to AIFRS an additional tax benefit was recognised in relation to New Zealand Steel tax losses. As a result, the Group has commenced recognising a tax expense on New Zealand Steel's profit during the second half of FY 2006.
The effect of this on tax assets is:
(i) At 1 July 2004
For the Group there has been an increase of $87.5 million in deferred tax assets and a corresponding increase in retained profits.
(ii) At 30 June 2005
For the Group there has been an increase of $86.3 million in deferred tax assets, an increase of $86.6 million in retained profits and a decrease of $0.3 million in the foreign currency translation reserve.
(iii) For the year ended 30 June 2005
For the Group, income tax expense has increased by $0.9 million.
Deferred tax liabilities
At 1 July 2004 and at 30 June 2005
The effects on the deferred tax liability of the adoption of AIFRS are as follows (tax rate of 30%):
| Notes | 1 July 2004 $M |
30 June 2005 $M |
||
|---|---|---|---|---|
| Application of AASB 112 to adjustments arising from adoption of other AASBs | ||||
| Foreign currency translation | (b) | 6.8 | 12.6 | |
| Business combinations and intangibles | (c) (d) | - | 4.9 | |
| Impairment of assets | (e) | (30.7) | (53.8) | |
| Retirement benefit obligations | (f) | (6.6) | (15.5) | |
| Rounding adjustment | - | 0.2 | ||
| Increase (decrease) in deferred tax liability | (30.5) | (51.6) | ||
| j) Retained profits | ||||
| The effect on retained profits of the adoption of AIFRS are as follows: | ||||
| Opening exchange fluctuation reserve | (a) | (77.5) | (77.5) | |
| Foreign currency translation | (b) | (6.8) | 9.3 | |
| Business combinations | (c) | - | 5.1 | |
| Impairment of assets | (e) | (71.6) | (125.7) | |
| Retirement benefit obligations | (f) | (130.5) | (194.8) | |
| Share-based payments | (g) | (2.5) | (9.0) | |
| Equity accounting | (h) | 0.8 | (0.1) | |
| Income tax methodology | (i) | 87.5 | 86.6 | |
| Rounding adjustment | (0.2) | 0.1 | ||
| Total adjustment | (200.8) | (306.0) |
k) Borrowing costs
AASB 137 Provisions, Contingent Liabilities and Contingent Assets requires that the expense arising from the unwinding of material provisions discounted to present value, excluding employee benefits, be classified as a borrowing cost. Previously, under AGAAP the Group did not separate this borrowing cost.
The Group has provisions relating to workers compensation self insurance and product claims that have been discounted to present value.
Upon transition to AIFRS, reclassification in the income statement from other expenses to finance costs amounted to $6.9 million for the Group for the year ending 30 June 2005. There has been no effect on the balance sheet.
l) Set-off of assets and liabilities - third party reimbursements
AASB 137 Provisions, Contingent Liabilities and Contingent Assets requires that recoveries expected from third parties to settle a provision be recognised as a separate asset. As a result, upon transition the Group's expected future workers compensation recoveries have been recognised as a non current receivable rather than an offset against non current workers compensation provisions.
The reclassification amounted to $6.7 million at 1 July 2004, and $4.9 million at 30 June 2005. There has been no effect on the income statement.
m) Revenue recognition on sale of non-current assets
Under AIFRS, a distinction is made between revenue and gains, which has resulted in a change in the presentation of the Group's revenues and expenses. Gains or losses arising from non current asset sales must be recognised as a net amount in the income statement, either as a gain or as an expense. Previously under Australian Accounting Standards recognition occurred on a gross basis, with proceeds as revenue and the carrying amount of disposed assets as an expense.
This change from gross to net recognition has had the effect of decreasing both revenues and expenses in the income statement, with a nil net impact. Gross proceeds from the sale of non current assets and their associated carrying value amounted to $14.2 million and $9.9 million respectively for the year ended 30 June 2005.
n) Reclassification of non-current employee entitlement provisions
AASB 101 Presentation of Financial Statements requires a liability to be classified as current when it satisfies one of four criteria. One of the criteria requiring classification as a current liability is if the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date and hence all annual leave and long service leave has been classified as current. The Group's classification of employee leave entitlements under previous Australian Accounting Standards was based on whether the liability was expected to be settled within a twelve month period from reporting date. For the Group, the provisions reclassified totalled $160.2 million at 1 July 2004 and $167.0 million at 30 June 2005.
o) Financial Instruments - Adjustments on transition to AASB 132 and AASB 139: 1 July 2005
The Group has elected to apply the exemption from restatement of comparatives for AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement. It has therefore continued to apply the previous AGAAP rules to derivatives, financial assets and financial liabilities and also to hedge relationships for the year ended 30 June 2005. The adjustments required for differences between previous AGAAP and AASB 132 and AASB 139 at 1 July 2005 were as follows:
(i) Set-off of assets and liabilities - Sale of receivables program
AASB 139 Financial Instruments: Recognition and Measurement only allows financial assets to be derecognised where an entity transfers substantially all the risks and rewards of ownership of the financial asset. The Group's sale of receivables program does not currently meet the derecognition requirements. As a result, from 1 July 2005 the program has been shown as a current interest bearing liability rather than an offset against receivables and the expense of running the program will be shown as a finance cost cost rather than as other expenses. Under previous AGAAP, the offset against receivables was permitted.
At 1 July 2005:
For the Group there has been an increase in current interest bearing liabilities of $140.0 million with a corresponding increase in current receivables.
If the principles were applied from the date of transition, for the Group current receivables and current interest bearing liabilities would both have increased by $152.1 million at 1 July 2004. The reclassification from other expenses to finance costs would have amounted to $6.5 million for the year ended 30 June 2005.
(ii) Derivative financial instruments - Cash flow hedges
The Group has certain derivative instruments designated as cash flow hedges, the treatment of which differs under AIFRS from previous AGAAP.
For derivative contracts that are designated as a cash flow hedge under AASB 139, the effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised in profit or loss. Amounts taken to equity are transferred to the income statement when the forecast purchase occurs. Under previous AGAAP, all derivative gains or losses were deferred until the underlying hedged transaction occurred at which point they were included in the measurement of purchase.
At 1 July 2005:
For the Group a pre-tax net adjustment of a $0.1 million decrease in net assets was recognised representing the reclassification of aluminium cash flow hedges from deferred exchange losses and costs to equity.
9 EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
On 17 August 2006, BlueScope Steel announced it has acquired approximately 19.9% of the shares in Smorgon Steel. The intention of acquiring this strategic stake is to ensure that the proposed Onesteel/Smorgon Steel merger does not proceed in its current form. The total cost of this purchase was $319 million.
The Company has noted the concerns identifi ed by the ACCC in its initial review of the proposed merger and has no intention to acquire further Smorgon Steel shares, but reserves the right to do so in different circumstances.
