Amerisourcebergen
Annual Report 2014

Plain-text annual report

Adelaide Brighton Ltd 2014 Annual Report 1 2 4 8 10 11 12 14 16 18 19 20 25 27 34 36 37 38 45 46 47 62 63 64 65 66 67 Performance summary Chairman’s Report Chief Executive Officer’s Report Finance Report Map of operations Review of operations Cement and Lime Concrete and Aggregates Concrete Products Joint ventures Sustainability Sustainability Report People, health and safety Corporate governance statement Diversity report Directors Financial statements index Directors’ report Remuneration report introductory letter Remuneration report contents Remuneration report Income statement Statement of comprehensive income Balance sheet Statement of changes in equity Statement of cash flows Notes to the consolidated financial statements 107 107 108 109 110 Directors’ declaration Auditor’s independence declaration Independent audit report Financial history Information for shareholders Company profile Adelaide Brighton is a leading integrated construction materials and lime producer which supplies a range of products into building, construction, infrastructure and mineral processing markets throughout Australia. The Company’s principal activities include the production, importation, distribution and marketing of clinker, cement, industrial lime, premixed concrete, construction aggregates and concrete products. Adelaide Brighton originated in 1882 and is now an S&P/ASX100 company with 1,400 employees and operations in all Australian states and territories. Cement Adelaide Brighton is the second largest supplier of cement and clinker products in Australia with major production facilities and market leading positions in the resource rich states of South Australia and Western Australia. It is also market leader in the Northern Territory. In addition to domestic production, the Company is the largest importer of cement, clinker and slag into Australia with an unmatched supply network that enables efficient access to every mainland capital city market. This network includes significant distribution joint ventures in Victoria and Queensland. Lime Adelaide Brighton is the largest producer of lime in Australia, with production assets in Western Australia, South Australia and Northern Territory. Lime is an important product for the mineral processing industry in resource rich markets, particularly for the production of alumina and gold, of which Australia is a leading producer. Concrete and Aggregates Adelaide Brighton has a growing presence in the premixed concrete and aggregates industry extending from South Australia, through Victoria and New South Wales to south east and northern Queensland. It has strategic aggregates reserves west of Sydney in regional New South Wales, south east Queensland, South Australia and regional Victoria through its wholly owned and joint venture operations. Concrete Products Adelaide Brighton holds the leading position in the Australian concrete products market, with operations in Queensland, New South Wales, Victoria, Tasmania and South Australia. Joint ventures and associates Adelaide Brighton has a number of significant investments in joint ventures and associates in construction materials production and distribution. These include major cement distribution joint ventures in Queensland (Sunstate Cement), Victoria (Independent Cement and Lime) and New South Wales; regional concrete and aggregates positions in Victoria, Queensland and New South Wales; and a 30% investment in a Malaysian white cement and clinker producer (Aalborg Portland Malaysia), which supplies the Australian market. Sustainability Adelaide Brighton’s commitment to sustainable development is demonstrated through a range of actions implemented across a balanced program of initiatives. Adelaide Brighton believes that setting and achieving sustainability objectives throughout the organisation assists long term competitive business performance. FRONT COVER : SOUTHERN QUAR RIES NORTHERN PIT A ND SE CONDARY CRUS HING PLA NT AT SEL LI CKS HILL QUARRY Performance summary Revenue Underlying EBIT1 $1,337.8m $245.2m 2013: $1,228.0 8.9% 2013: $226.0m 8.5% Underlying NPAT1 Attributable to members $166.5m Underlying ROFE2 17.5% 2013: $153.4 8.5% 2013: 17.2% 0.3ppts Basic EPS Final ordinary dividend 26.9c 9.5c 2013: 23.7c 13.5% 2013: 9.0c 5.6% 1 Underlying results have been adjusted for significant items. An explanation of the adjustments and NPAT reconciliation to statutory results is provided on page 42. 2 Return on funds emplyed = underlying EBIT/average monthly funds employed. C/SHARE DIVIDENDS 25 20 15 10 5 0 RETURN ON FU NDS EMPLOYED % 25 20 15 10 5 0 GE AR ING: NET DE BT TO EQUIT Y % 50 40 30 20 10 0 $M 250 200 150 100 50 0 CASH F LOW FR OM INT EREST COVER OPER AT IONS TIMES EB IT DA BASIS 25 20 15 10 5 0 10 11 12 13 14 10 11 12 * 13 14 10 11 12 * 13 14 10 11 12 * 13 14 10 11 12* 13 14 INTERIM FINAL SPECIAL * In line with changes to accounting policies effective 1 January 2013, comparative numbers for 2012 have been restated A DEL A ID E BRIGH TON LTD ANNUAL R EPOR T 2 014 1 Chairman’s Report In 2014 Adelaide Brighton recorded strong growth in sales and earnings and continued to reward shareholders through higher dividends. The Company increased net profit after tax (NPAT) by 14.3% over 2013, to a record $172.7 million. We also reported record revenue of $1,337.8 million, 8.9% higher than the previous corresponding period (pcp). LES HOSKIN G CHAIR MAN NET PROFIT AFTER TAX $M 200 160 120 80 40 0 10 11 12 * 13 14 * In line with changes to accounting policies effective 1 January 2013, comparative numbers for 2012 have been restated Year in review This very pleasing result was based on increased volumes in most divisions and markets, price increases and savings from operational efficiencies. Volumes and revenue increased in our cement division on the back of healthy demand from residential and Our operational improvement program has vastly enhanced our competitive position in the last decade, substantially reducing costs and streamlining the business, and enabling us to compete more effectively in our key markets. In the past three years alone we have saved $50 million through this program. resources projects in Western Australia, the Our acquisition strategy continues to Northern Territory, New South Wales and strengthen our vertically integrated business Queensland. South Australian demand was model, enabling us to participate throughout subdued while Victorian demand eased. the entire value chain, from the raw material Lime volumes reduced in the first half of stage through to finished products in buildings 2014 due to a decline in demand from gold and infrastructure projects. We spent miners and the suspension of operations at $172 million in 2014 securing highly a major customer in the Northern Territory, valuable and strategic aggregate and which resumed production in the second half concrete businesses in South Australia and of the year. The Concrete Products Division Queensland which will deliver synergies and achieved very strong earnings growth after enhance future earnings. Organic growth much hard work to optimise this business. and growth through profitable acquisitions Adelaide Brighton declared a fully franked final dividend of 9.5 cents per share, 0.5 cents higher than the pcp, which made for a full year dividend of 17 cents a share, also fully franked. The Group’s balance sheet remains strong, aided by healthy cash flows in 2014, which enabled us to keep gearing at a lower than expected ratio of 31.7%. Strategy remain important strategies for increasing shareholder value and we will continue to seek out opportunities in a measured and low risk manner. Adelaide Brighton also continues to be a leading, low cost supplier of lime to the resources sector. We have very strong, long term supply relationships in the alumina sector and are well positioned to take advantage of the next upswing in the non alumina sector. We have made a significant investment in the past two years to improve In 2014 Adelaide Brighton made important production capacity and environmental strides in furthering its long term growth performance in our lime business. The strategy, which is reflected in the strength of upgrade of our lime kilns in Munster, Western our financial results and shareholder returns. Australia, has led to an increase in our This strategy has three complementary production capacity by 250,000 tonnes elements: operational improvement, per annum in 2014. increasing vertical integration through value accretive acquisitions and development of the highly efficient lime business. 2 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014($ million) Revenue 2014 2013 1,337.8 1,228.0 1 2 Includes impairment charge of $2.0 million. Net finance cost is the net of finance costs shown gross in the Income Statement with Depreciation, amortisation and impairments (75.0)1 (70.6) interest income included in revenue. 3 Return on funds employed = EBIT/average monthly funds employed. 4 Includes special dividend of 3.0 cents per share in 2013. 5 Net debt is calculated as total borrowings less cash and cash equivalents. Earnings before interest and tax Net finance cost2 Profit before tax Tax expense Net profit after tax Non-controlling interests Net profit attributable to members Return on funds employed3 (%) Basic earnings per share (‘EPS’) (cents) Dividends per share - fully franked (cents) Net debt5 ($ million) Net debt/equity (%) 247.5 (15.0) 232.5 (59.9) 172.6 0.1 172.7 17.7 26.9 17.0 359.8 31.7 222.7 (14.1) 208.6 (57.5) 151.1 - 151.1 17.0 23.7 19.54 248.0 23.4 Leadership Board and governance In addition to the benefits from this In May 2014 Martin Brydon, a long term The Board is committed to conducting serving executive of the Company, was business ethically and in accordance with high promoted to the position of Chief Executive standards of corporate governance. Adelaide Officer (CEO) following the retirement of Brighton believes its policies and practices Managing Director, Mark Chellew. Martin are consistent in all substantial respects investment, further work on the site has been undertaken in the areas of odour and noise. Similar initiatives are underway at other sites and further details are contained in our Sustainability Report. has brought more than 30 years industry with good corporate governance practice in The Company believes that a proactive experience to the role, including nine years Australia appropriate for the circumstances of approach to sustainability, working with our as Executive General Manager of the the Company, including the ASX Corporate local communities, government and regulatory Group’s Cement and Lime business. Governance Council’s Principles and bodies optimises outcomes for both our The transition of leadership responsibilities has been smooth. Martin has taken the The Company has reviewed and refreshed reins of the business firmly while continuing its Code of Conduct, Board Charter to implement our proven strategy. He is and Relationship with Management, in mind, the Company continually challenges its performance in order to achieve improved results. Recommendations (2nd Edition). stakeholders and Adelaide Brighton. With this supported in this by an experienced and Independence of Directors, Group Delegated talented senior management team. Authorities and the Health, Safety and Risk management Safety performance corporate governance practices, including framework is a key factor in sustaining the Environment Policy. It continues to review its Adelaide Brighton’s risk management We put the safety and health of our employees and contractors at the forefront of everything we do. The Company is committed to achieving a safe, productive and healthy work environment through the continued to take into account the ASX Corporate Group’s ongoing performance. The Board’s Governance Council’s Principles and Audit, Risk and Compliance Committee Recommendations (3rd Edition). oversees the Company’s risk management Sustainability and the environment regulatory and environmental risks. These framework, encapsulating financial, operating, enhancement of our safety standards and Adelaide Brighton understands the systems and through cultural change. In 2014 importance of operating its business we recorded a lost time injury frequency rate sustainably, working with its employees, (LTIFR) of 1.8, reflective of a sound safety supply chain, customers and local culture across the business. communities in a manner that is consistent risks are reviewed and mitigation strategies modified on a regular basis to ensure that changes in risk are managed appropriately. In conclusion We are also ensuring this safety culture is embedded in our recently acquired businesses. with this objective. During 2014, Adelaide On behalf of your Directors, I acknowledge Brighton worked on consolidating the the hard work and commitment of the benefits from our sustainability efforts. executive management team and all Following the completion of the investment in dust filters at the Munster site, 2014 represents the first full year that the environmental benefits have been achieved. employees over the last year during what has been challenging market conditions. I also thank our customers, shareholders and joint venture partners for their continuing loyalty and support. ADELAID E BRIGH T ON LTD AN N UA L R EP OR T 2 014 3 Chief Executive Officer’s Report Record earnings before interest and tax (EBIT) and net profit after tax (NPAT) assisted by earnings growth in cement, concrete and aggregates, and concrete products. MARTIN BRYDON CHIE F EXECUTIVE OF FI CER Performance It is a pleasure to be able to tell you in my first Annual Report as Chief Executive Officer that Adelaide Brighton has delivered record earnings for shareholders and made important strategic achievements that enhance our Due to strong second half cash flow our net debt increased by less than was expected at the time of the major acquisitions announced in August 2014. Net debt to equity gearing of 31.7% ended the year well within the target range of 25% to 45%. ability to grow earnings into the future. Cement and clinker sales volume increased Demand conditions across our businesses were generally favourable in 2014 and these combined with a significant contribution from operational improvement to grow earnings. We saw a recovery in residential demand for our products, particularly in New South Wales and Queensland, and ongoing strength in resource sector demand in Western Australia and the Northern Territory. Revenue increased 8.9% to a record $1,337.8 million and NPAT increased 14.3% to $172.7 million, also a record result. Underlying NPAT of $166.5 million was 8.5% higher than the underlying figure in 2013. 3% supported by continued demand from projects in the resources sector in Western Australia and the Northern Territory, and a residential recovery in New South Wales and Queensland. Activity in the non-residential building sector remained subdued. Cement volume declined slightly in South Australia and Victoria. Higher volume, lower costs and improved prices led to increased earnings in cement and clinker, concrete and aggregates, and concrete products. The recovery in earnings in concrete products is particularly encouraging given the significant effort that has been put into improving this business Reported earnings before interest in the last few years. and tax increased 11.1% to a record $247.5 million on an EBIT margin of 18.5%. Earnings before tax were aided by net significant items of $2.3 million. Excluding these items underlying EBIT increased 8.5% to $245.2 million. Our underlying EBIT margin was stable overall at 18.3% on the expanded The recent concrete and aggregates acquisitions in South Australia and Queensland contributed to revenue in line with expectations. Excluding these acquisitions, concrete and aggregates volumes were up, led by the stronger residential market. revenue base. Return on funds employed Lime sales volume declined approximately increased slightly to 17.5%. One-off items and the acceleration of income tax payments caused operating cash flow to decline to $194.0 million in 2014. However, despite these items, cash flow was ahead of expectations in the second half. 7% affected by the downturn in the gold sector and a production suspension by a major customer in the first half, impacting revenue and EBIT, although the business improved in the second half of the year. 4 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014HY-TEC ME LBOURNE SUPPLIED APP R OXIMATELY 25,000M 3 OF S PE CIAL CON CRETE MI X FO R ‘PRIMA TOWE R’ - A 72 LEVE L APARTMENT TOWER IN SOUTHBA NK , MELBOURNE ADELAID E BRIGHT ON LT D AN NU A L R EP OR T 2 014 5 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Corporate restructure $4.0m Energy efficiency programs $4.9m 2015: $2.0m further benefits 2015: continued focus Operational improvement remained a key The capacity rationalisation delivered EBIT Efficiency gains partially offset the impact focus of management in 2014 with corporate improvements of $5.0 million in 2014 and a of lower volumes and increased energy restructuring, rationalisation of operations, further $5.0 million is expected in 2015. costs during 2014. Despite a decline in lime energy efficiency and other initiatives adding $19.7 million to EBIT. Adelaide Brighton has an ongoing focus on the management of its power and fuel costs. The contribution from our joint ventures Benefits of $4.9 million were delivered in volumes in 2014 following the 2013 closure of some gold mines, the long term prospects for lime demand remain strong. was lower overall with improvement in the 2014 through the increased use of alternative While the threat of imports remained, the Queensland operations offset by a lower fuels, electricity demand management, fuel falling Australian dollar increases the cost contribution from the Victorian business. switching and plant efficiency. of imported product. Strategy Further benefits of $5.8 million were delivered through a variety of other measures, including Adelaide Brighton continues its successful transport efficiencies, raw materials sourcing Concrete and Aggregates acquisitions in South Australia and Queensland long term strategy of growing shareholder and a range of procurement initiatives. Adelaide Brighton continues to make value through three key areas: > Cost reduction and continuous Import strategy underpins The Group now produces more than progress on its downstream strategic plan. improvement across the Company; competitive supply into key markets 1.5 million cubic metres per annum of premix > Growth in the lime business to supply the resources sector in Western Australia, South Australia and Northern Territory; and > Focused and relevant vertical integration into downstream concrete, aggregates and concrete products businesses. Following the rationalisation of clinker manufacture at Munster, Adelaide Brighton’s imports of cementitious products, including clinker, cement and blast furnace slag, increased to more than two million tonnes concrete and more than 6 million tonnes per annum of aggregates. The footprint of this business now reaches from South Australia through Victoria and New South Wales, to south east and northern Queensland. in 2014, which represents approximately In 2014, Adelaide Brighton acquired During 2014, the Group delivered on a 20% of Australian industry demand. BM Webb Construction Materials in significant number of initiatives in line with its long term strategy. Operational improvement Since the mid 1990s, the growth of import capacity to replace ageing, less efficient domestic manufacturing has been a key element of Adelaide Brighton’s strategy to During the first half, a group wide review of secure its long term position in the Australian operational, human resources, information market and grow value for shareholders. Queensland, and Penrice Quarry & Minerals and Direct Mix/Southern Quarries in South Australia at an overall enterprise value of $172 million. These acquisitions are consistent with the strategy of focused and relevant vertical integration. technology and administration functions was The use of imported materials allows The assets acquired include strategic undertaken. This resulted in restructuring Adelaide Brighton to supply customers with quarrying operations producing approximately costs of $5.4 million for the year. Pre-tax competitively priced product into a range 2 million tonnes per annum of aggregates. benefits from the corporate restructure were of markets where demand exceeds the The acquired businesses also produce more $4.0 million in 2014 and are anticipated to Company’s manufacturing capacity. than 250,000 cubic metres of concrete be $2.0 million in 2015. In line with the strategy to grow shareholder returns through improving efficiency and Efficient lime operations with the Company’s cement sales in the South strong competitive position Australian market. annually, securing a significant volume of leveraging an industry leading import capability, Adelaide Brighton largely ceased Following the completion of major upgrades to both Munster (Western Australia) lime kilns Integration of the acquisitions, including the information systems, has been completed the production of clinker at Munster, Western in 2013, improvements in production capacity, on an accelerated time frame delivering Australia, in December 2014. efficiency and environmental performance synergy benefits in logistics operations, of the kilns have been realised. procurement and back office functions. The estimated $4.4 million synergies per annum are expected to be realised in 2015. ADELAIDE BRIGHTON LT D AN NU A L R EP OR T 2 014 6 Munster rationalisation EBIT benefit $5.0m Other initiatives $5.8m 2015: $5.0m additional 2015: ongoing focus Earnings from the acquisitions were in > Sales of other cementitious products There are a number of benefits which line with expectations for the period to to that customer; will flow through to 2015: 31 December 2014. Strategic attractions of Sydney aggregates > > Increased sales in Western Australia; and > The unwinding of the carbon tax to benefit Improved demand in Victoria, New South circa $3 million compared to 2014; Wales and Queensland. > Potential transport cost savings of Lime sales volume in 2015 is anticipated to Adelaide Brighton has a significant investment be similar to, or slightly higher than 2014 and in aggregates in the Sydney market through average realised prices are likely to increase. its Austen Quarry at Hartley, New South The threat of small scale lime imports in Wales. Aggregates earnings increased in Western Australia and the Northern Territory 2014 in New South Wales supported by a remains, however the weaker Australian $4 million from lower fuel costs assuming current oil prices and exchange rate; > Further Munster rationalisation benefits of $5 million; and > Full year benefits from the 2014 corporate rationalisation of $2 million. recovery in the Sydney construction materials dollar is likely to reduce the competitiveness market.The Sydney market is transitioning to of imports relative to Adelaide Brighton’s Our people aggregate sources supplied from outside the low cost operations. metropolitan area, following the exhaustion of reserves at existing competitor quarries. Due to this structural change it is expected that Sydney aggregate prices will increase above This past year has been a challenging and rewarding one for our Company. Price increases have already been announced for March and April 2015 in cement, clinker, We have performed well and strengthened concrete, aggregates, and concrete products. the foundations for future growth in earnings and rewards for shareholders. the CPI rate in the short to medium term. Price increases achieved in 2015 are Land sales releasing capital year. A number of factors are supportive of team and all employees of Adelaide Brighton expected to exceed those achieved last I would like to thank the senior management Adelaide Brighton has a land portfolio that is expected to release a total of $130 million in cash in the medium to long term. The Group is actively engaged in preparing these properties for sale to maximise value. The program has delivered approximately $16 million in revenue since the beginning of 2013, including a sale that contributed $9 million in cash and $1 million profit before tax in 2014. Outlook The outlook for Adelaide Brighton remains positive. Sales volume of cement and clinker in 2015 is expected to be similar to or greater than 2014. Demonstrating the benefits of a vertically integrated business, reduced cement sales from January 2015 to a major customer in South Australia are expected to be offset by: higher prices including strengthening demand for their dedication and skill. Our success is and capacity utilisation and the weakening built on years of hard work and incremental Australian dollar, which increases the cost improvement. of import substitutes. I am particularly grateful for the support I have Aggregate prices are anticipated to increase received from the Board since commencing significantly above CPI, particularly in Sydney as Chief Executive Officer in May 2014. I am proud to be leading this 132 year old Company and its people and believe we have a positive future ahead of us. where average delivered costs have increased significantly as the industry moves to supply from further afield as traditional sources have depleted. First half 2015 imports have been fully hedged, however, the deterioration in the Australian dollar will increase the direct cost of imported materials for Adelaide Brighton. Assuming the Australian dollar remains at around Yen90 and USD0.75, costs are expected to increase by approximately $7 million in a full year, prior to their mitigation through price increases. Gas related fuel costs in South Australia are now expected to increase by $2 million pre-tax in 2015. ADELAID E BRIGH T ON LTD AN N UA L R EP OR T 2 014 77 Finance Report In 2014 Adelaide Brighton enjoyed healthy growth in revenue, earnings before interest and tax (EBIT) and net profit after tax attributable to members (NPAT). Revenue increased 8.9% to $1,337.8 million. N PAT increased 14.3% to a record $172.7 million. EBIT grew by 11.1% to $247.5 million. M IC HA EL K ELLY CHIE F FINANCIAL OFFIC ER Sales and profits Sales growth was achieved on rising volumes and prices in cement, clinker, concrete, aggregates and concrete products. Earnings Net profit was assisted by a lower effective tax rate due to the non-taxable accounting gain. Excluding this item, the effective tax rate was 27.9%. declined in lime due to lower sales volumes. Adelaide Brighton’s underlying average tax Input costs continued to increase but this rate approximates the Australian corporate was largely offset by excellent outcomes from rate of 30%. Equity accounted after tax operational improvement programs. earnings from joint ventures and associate Contribution from joint ventures and associate entities declined due to difficult markets affecting Independent Cement and Lime (ICL) in Victoria, offset by a better contribution from Sunstate Cement in Queensland. Competitive entities reported in the Group results reduces the reported tax rate to the range of 27% to 28% in most years. EBIT margin pressures in Victoria inhibited price increases Group underlying EBIT margin was stable by ICL to recover rising costs. at 18.3% compared with 18.4% in 2013. Underlying NPAT increased 8.5% to $166.5 million and underlying EBIT also rose by 8.5% to $245.2 million. ‘Underlying’ measures of profit exclude significant items of revenue and expenses in order to highlight the underlying financial performance across reporting periods. The items excluded from underlying measures in EBIT margins remained healthy on a revenue base in 2014 that was significantly larger than the prior year. In the wholly owned operations, EBIT margins improved in cement and clinker, concrete and aggregates and concrete products, supported by volume and price growth in these businesses. 2014 contributed a net gain of $6.2 million Margins in lime declined due to a 7% after tax and $2.3 million before tax: reduction in volume and a lower average price > Rationalisation of clinker production as the mix shifted away from higher priced at the Munster site non-alumina sector volume, although margins > > > > Corporate restructuring costs stabilised in the second half of the year. Acquisition costs Gain on acquisition from fair value accounting Successful litigation outcome. The contribution from the equity accounted joint ventures declined $2.5 million due largely to weakness in our joint venture, Independent Interest costs increased only marginally on Cement and Lime Pty Ltd, in the challenging higher debt related to acquisitions. This was Victorian market. due to the combination of lower borrowing margins and underlying interest rates. The devaluation of the Australian Dollar against Adelaide Brighton’s major trading currencies of the US Dollar and the Japanese Yen reduced import profitability by approximately $5 million in 2014 compared to 2013. 8 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014REVENUE AN D NET PRO FIT AFTER TAX $BN 1500 1200 900 600 300 0 $M 180 170 160 150 140 130 EARNINGS C/SHARE PE R SHAR E 30 24 18 12 6 0 % 100 90 80 70 60 50 PAY OUT RATIO *In line with changes to accounting policies effective 1 January 2013, comparative numbers for 2012 have been restated 10 11 12 * 13 14 10 11 12 * 13 14 10 11 12 * 13 14 NPAT REVENUE OR DIN ARY DIVIDEN D SP EC IA L DIV IDE ND Operational improvement programs Cash flow and debt delivered benefits of $19.7 million in 2014. Key initiatives were a corporate restructure, the Munster clinker rationalisation and energy efficiency programs. Cash flow was ahead of expectations in the second half and, as such, gearing finished the year lower than anticipated. The Group is actively engaged in preparing these properties for sale to maximise value. The program has delivered approximately $16 million in revenue since the beginning of 2013, including a sale that contributed While operating cash flow declined by $9 million in cash and $1 million profit Shareholder returns $33.3 million to $194.0 million in 2014, this before tax in 2014. A final ordinary dividend of 9.5 cents per share (fully franked) was declared, an increase of 0.5 cents per share on the 2013 final ordinary was largely due to non-recurring items from an acceleration of the income tax payments system and carbon tax related payments. Due to strong second half cash flow, net debt increased by a lower than expected $111.8 million to $359.8 million. Net debt to dividend. Fully franked dividends totalled Development capital expenditure of equity gearing of 31.7% at year end was well 17.0 cents per share in 2014 compared to $174.4 million in 2014 included $155.6 million within the targeted range of 25% to 45%. 19.5 cents in 2013, which included a special in acquisitions in concrete and aggregates in dividend of 3.0 cents per share. north Queensland and South Australia. The Company refinanced debt facilities during 2014, increasing the term and Underlying return on funds employed Excluding acquisitions, capital expenditure lowering borrowing margins. Total facilities improved from 17.2% to 17.5% in 2014. totalled $60.4 million in 2014, a decline were increased by $40 million to $540 million Adelaide Brighton’s returns continue to of $6.5 million from 2013 following the with the following maturity profile: exceed the cost of capital. completion of organic growth projects. Adelaide Brighton has maintained strong total One of the benefits of the rationalisation and shareholder return (capital appreciation plus improvement program is the release of surplus dividends) over the last decade compared land assets. Adelaide Brighton has a land to its peer group, which has supported portfolio that is expected to release a total S&P/ASX 100 Index inclusion since 2012. of $130 million in cash in the medium to The Dividend Reinvestment Plan has been suspended given better than expected cash flow and gearing outcomes since the major acquisitions were completed in 2014. long term. January 2018 January 2019 $330 million $210 million To maximise shareholder returns, Adelaide Brighton seeks to ensure the balance sheet is efficiently utilised while retaining the flexibility to fund the long term growth strategy as opportunities are identified. REVENUE BY STATE RE VE NUE BY SE GME NT RE VE NUE BY PR ODUCT GR OUP WESTERN AUSTRALIA NO N-RES IDE NTIAL VICTORIA NEW SOUTH WALES SOUTH AUSTRALIA QUEENSLAND OTHER RE SIDENT IAL EN GINE ERING MIN ING 9 CE ME NT LIME CO NCR ETE PR ODUCT S CO NCR ETE AN D AG GRE GAT ES ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Map of operations Cement Lime Concrete and aggregates Concrete products ADELAIDE BRIGHTON LT D AN NU A L R EP OR T 2 014 10 Review of operations Market position Market position #1 Lime producer in the minerals processing industry #1 Cement and clinker importer with unmatched channels to market Market position Market position #1 Market share in concrete products #2 Cement and clinker supplier to the Australian construction industry Market position #4 Market share in concrete and aggregates ADELAI DE BR IGHT ON LTD AN N UAL R EPOR T 2014 11 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Cement and Lime Cement and clinker sales, which represent more than half of Adelaide Brighton’s annual revenue, were 3% higher in 2014 than in the prior year. Supported by higher volumes and margins, the cement and clinker business delivered solid earnings growth, despite increases in energy costs and the impact of production issues in the first half. MICHAE L MILLER REGIONA L EXEC UTIVE GENE RAL MANAGER CEME NT AND LIME SA/N SW BRAD LEMMON REGIONA L EXEC UTIVE GENE RAL MANAGER CEME NT AND LIME WA/N T Sales volumes of lime declined in the Western The $60 million investment to upgrade and Australia gold market, impacting revenue expand cement milling capacity at Birkenhead and margin. However, margins and volumes (South Australia) delivered incremental stabilised in the second half. benefits of $1.1 million in 2014 in addition to Cement and clinker Sales revenue rose in all mainland states and territories except in Victoria, where construction demand weakened, and in South Australia, where cement sales declined the $8.0 million received in 2013. Total returns on the project in 2014 at $9.1 million (pre-tax) represent a return on funds employed of 15.3%, which exceeds the cost of capital. Cement supply contracts slightly because of lower sales of back fill In March 2014, Adelaide Brighton announced binder to the mining sector. The construction the expected loss of supply of approximately market was stable, with an increase in 120,000 tonnes of cement per annum to a residential activity offsetting lower sales to major South Australian customer. In line with major projects. guidance, this did not impact 2014 volumes. While average cement and clinker selling As a result of Adelaide Brighton’s capability prices increased by more than CPI, energy to supply innovative alternative cementitious costs also increased and production issues products, an agreement has now been at the Birkenhead (South Australia) plant reached with that customer to supply up adversely affected first half earnings. However, to approximately 25% of their ongoing production rationalisation and operational requirements for cementitious materials improvements made a significant contribution in South Australia. This new agreement is to margins and earnings in the year and effective from 1 January 2015. the repeal of the carbon tax from July 2014 augmented second half earnings and will deliver further benefits in 2015. Production Leveraging off our leading import capability, rationalisation of clinker production at Munster (Western Australia) began in early 2014 and largely ceased at the end of 2014. This rationalisation yielded cost savings of $5 million in 2014 with further savings expected in 2015. In Western Australia, a new contract was secured with the same major customer to supply at least 50% of their required volume in that State until the end of 2017, with a 12 month notice period. In July 2014, Adelaide Brighton secured a contract with a major independent customer in South Australia and, in December, agreed a one year supply contract with another major customer in the same market. These agreements and the integrated operations underpin the utilisation at the efficient Birkenhead cement works. 12 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014CEMENT MI LL ED ‘000 (INC. IM POR TED ‘000 LIME TONNES CLINKER) TONNES PR ODUCTION 3500 2800 2100 1400 700 0 1500 1200 900 600 300 0 10 11 12 13 14 10 11 12 13 14 Imports and currency issues Lime Adelaide Brighton is Australia’s largest While demand for lime in the alumina sector importer of cement and clinker, and supplies was consistent in 2014, national sales of competitively priced product into all major lime declined approximately 7% compared Australian markets. Imported cementitious with the prior year. This was due primarily to products, which include clinker, cement a significant reduction in demand from the Contract prices to a major alumina customer in Western Australia increased in June 2014. This major contract price reset, combined with stabilisation of demand, led to an improvement in margins in the second half of 2014 versus the second half of 2013. and blast furnace slag, increased to circa non-alumina sector in Western Australia, With expanded production capacity and two million tonnes in 2014, representing where a number of gold mines closed in better environmental performance following approximately 20% of the Australian market. 2013. Disruption to a customer’s operations recent upgrades, the lime production assets However, the devaluation of the Australian in the Northern Territory in the first half also are very well positioned to capitalise on dollar against Adelaide Brighton’s major adversely affected lime sales. However, ongoing strength in alumina sector demand trading currencies of the US Dollar and the average lime selling prices increased last and any recovery in the non-alumina Japanese Yen reduced import profitability year, albeit at slightly less than CPI, despite resources sector. by approximately $5 million in 2014 the reduction in sales to the higher compared to the prior year. priced gold sector. Impact of acquisitions Lower sales of lime overall impeded fixed cost recovery, compressing full year The acquisition of the BM Webb Construction margins and earnings. Materials business, including its cement import operations, has expanded the Group’s cement distribution footprint into north Queensland. Cement supply has been switched to a major domestic supplier. THE AD ELAIDE B RIG HTON CEM ENT BIR KE NH EAD PLAN T SUPP LIED 3,500 TONNE S OF GENERAL P URPOS E CEM ENT FOR THE R IV ER BAN K BR IDG E ACROS S TH E RIV ER TORR EN S IN ADELAIDE 13 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Concrete and Aggregates Sales volumes of concrete and aggregates continued to grow in 2014, underpinned by stronger residential demand in New South Wales and Queensland and volumes from acquisitions.The Pacific Highway upgrade, pull-through demand from concrete operations and the benefits of successful acquisitions combined to improve aggregate sales and margins. GEORGE AG RIOGIANN IS EXE CUT IVE GENERAL MANAGER CONCRETE AND AGG RE GATES Just two years ago the Concrete and The acquisitions were consistent with Aggregates Division was classed as an Adelaide Brighton’s vertical integration emerging force in the industry but today, strategy and, following full and rapid following significant growth by acquisition, integration of logistics, procurement, it is the fourth largest Australian producer accounting, IT and administration functions, in its sector. In 2014 the division contributed it is expected that synergistic benefits of almost 25% of total Adelaide Brighton $4.4 million will be realised during 2015. Group revenue. Higher sales volumes, price increases The total cost of the acquisitions was $172 million (on an enterprise value basis). (particularly in New South Wales) and cost Adelaide Brighton maintains a significant reductions from operational improvements investment in aggregates in the Sydney combined to enhance the profitability market through the Austen Quarry at Hartley, of the division in 2014. Following the acquisition last year of downstream businesses in Queensland (BM Webb Construction Materials) and in New South Wales. Aggregates earnings increased in that State in 2014, supported by a recovery in the Sydney construction materials market. South Australia (Penrice Quarry & Mineral and The New South Wales aggregates market is Direct Mix/Southern Quarries), the Division transitioning to sources supplied from outside now produces more than 1.5 million cubic the Sydney metropolitan area, following the metres of premix concrete and more than depletion of reserves at competitor quarries. 6 million tonnes of aggregates annually. The This structural change, leading to higher assets acquired include strategic quarrying average delivered costs, will facilitate price operations producing approximately 2 million increases significantly above CPI in the tonnes of aggregates and 250,000 cubic short to medium term. metres of concrete each year, thus securing a significant volume of the Group’s cement sales in the South Australian market. Adelaide Brighton expects price rises in concrete and aggregates in 2015 to be greater than in previous years and earnings As a result of the acquisitions, the are expected to exceed the results operational footprint of the Division now achieved last year. extends from South Australia, through Victoria and New South Wales to south east and northern Queensland. 14 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014DIR ECT MIX PREM IX CONC RE TE BATCH PLANT AT SE LLICKS HILL IN SOUTH A US TRALIA ADELAID E BRIGHT ON LT D AN NU A L R EP OR T 2 014 15 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Concrete Products The Concrete Products division saw a very strong lift in earnings in 2014 as it enjoyed the fruits of years of hard work to make this business more efficient and responsive to the needs of the market. STE VE ROG ER S EXE CUT IVE GENERAL MANAGER CONCRETE PRODUCTS Adbri Masonry is Australia’s largest Production tolling on behalf of other manufacturer of concrete masonry products, distributors has also been an important factor servicing key eastern seaboard residential in improving earnings, enabling us to offer our and commercial markets. Operational improvements combined with a strong increase in revenue lifted Concrete Products EBIT 190% to $6.1 million in 2014. Sales revenue increased by 10.5% on higher demand across most regions and prices increased slightly above the rate of CPI. innovative products cost effectively in new markets. We have also licensed a range of our products overseas, in New Zealand and South Africa. New products and new methods of installation, such as our Versaloc technology, have opened up valuable new markets. Versaloc, a dry-stack walling system, opened Demand from the residential sector was opportunities in the residential and multi- strong and activity in the commercial sector storey dwelling market, for example, and also improved. In 2014, restructuring and operational improvements delivered cost savings while our automated process for laying pavers has made their use viable in large scale applications such as ports and truck yards. maintaining our ability to participate in the The trend of growth in higher end masonry market recovery. This included the mothballing products continues, with the business of excess capacity and a simplified focused on development of value added organisational structure. products that match consumer demand for quality products of distinction. Integrated into this product development is the use of alternative raw materials to improve the sustainability outcomes of our operations. These changes are part of a strategic program that began several years ago and that we expect will continue to realise further benefits in 2015 and beyond. In 2014 we completed the upgrade of our production plant at Stapylton in Queensland. The installation of a latest generation HESS masonry machine has lowered production costs and, with its fast product change over times, improves production flexibility to meet customer demand. 16 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014ADELAID E BRIGHT ON LT D AN NU A L R EP OR T 2 014 17 A S EL ECTI ON OF ADBR I MASONRY CONCRETE PROD UCTS ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Joint Ventures Adelaide Brighton’s Joint Ventures in conjunction with our own operations, provide an unmatched network for the effi cient supply and distribution of products across Australia. Sunstate Cement Limited (50%) Mawson Group (50%) Burrell Mining Services (50%) Sunstate Cement Limited (Sunstate) is a Mawson Group (Mawsons) is a joint venture Burrell Mining Services is an unincorporated joint venture between Adelaide Brighton and between Adelaide Brighton and BA Mawson joint venture between Adelaide Brighton and Boral. A leading supplier to Queensland’s Pty Ltd. Mawsons is the largest premixed Burrell Mining Products. With operations in construction industry, Sunstate has a cement concrete and quarry operator in northern New South Wales and Queensland, Burrell milling, storage and distribution facility at regional Victoria. Mawsons also operates in Mining Services manufactures a range of Fisherman Islands, Port of Brisbane. Clinker is southern regional New South Wales where concrete products exclusively for the supplied to Sunstate via seaborne shipments it holds leading market positions. coal mining industry. from the Adelaide Brighton Angaston plant and imports from Asia. Earnings from Mawsons have more than Earnings from Burrell declined as a result doubled since the 2007 acquisition of of the moderation in coal mining activity in Sunstate’s contribution to Group EBIT the 50% interest. Following a stronger New South Wales and Queensland during increased from $6.7 million in 2013 to second half, the 2014 EBIT contribution the year which led to lower demand for $8.1 million in 2014. Although the south east of $3.0 million was in line with 2013. Burrell’s products. Queensland market remains competitive, improved demand in the region led to higher Batesford Quarry (50%) sales volume, margins and earnings in 2014. Batesford Quarry is an unincorporated joint Aalborg Portland Malaysia Sdn. Bhd. (30%) Independent Cement and Lime Pty Ltd (50%) venture between Adelaide Brighton, E&P Aalborg Portland Malaysia Sdn. Bhd. (APM) Partners and Geelong Lime Pty Ltd. Batesford is a joint venture between Cementir (70%) Quarry, situated at Fyansford Quarry near and Adelaide Brighton. APM manufactures Independent Cement and Lime Pty Ltd (ICL), Geelong in Victoria, undertakes quarrying and and sells white cement and clinker. It sells a joint venture between Adelaide Brighton manufacturing, marketing and distribution of products to the domestic Malaysian market and Barro Group Pty Ltd, is a specialist various limestone and quarry products. and exports to markets throughout supplier of cement and cement blended products throughout Victoria and New South Wales and is the exclusive distributor of cement for Adelaide Brighton and any related body corporate in these states. ICL’s earnings declined in 2014 due to lower volume, rising input costs, and limited opportunity to recover those cost increases. Volume increased in New South Wales through the year, demand for slag-based products remained resilient and Victorian demand strengthened late in the second half. Despite this, contribution to EBIT was down from $13.1 million in 2013 to $9.2 million in 2014. Batesford Quarry experienced a modest southeast Asia and Australia. decline in sales volumes from 2013, which Equity accounted earnings from APM were was offset by improved pricing and operations similar to the prior year and in line with performance, resulting in stable earnings. expectations. The US$18.6 million capacity expansion was completed on budget in the second half of 2014. While demand for product was strong, the benefi t from the capacity expansion was not available until late in the year. Shipment of white clinker to Adelaide Brighton’s operations in Western Australia commenced late in 2014. ADELAIDE BRIGHTON LT D AN NU A L R EP OR T 2 014 18 Sustainability Sustainability is about managing our business to ensure success for the long term.Our commitment to sustainability is built on sound business strategy that supports continuous improvement in the social, environmental and economic performance of the Company.We do this by continually analysing our activities and considering the needs of all stakeholders to identify key opportunities for improvement and sustainable development. ADELAI DE BR IGHT ON LTD AN N UAL R EPOR T 2014 19 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Sustainability Report This Sustainability Report should be read in conjunction with other sections of this Annual Report and its financial statements. The Directors’ Report, Corporate Governance Statement and reports on Remuneration and People, Health and Safety all contain information relevant to the sustainability performance of the Group. The Adelaide Brighton Group includes Key performance indicator Discussion in Annual Report Adelaide Brighton Limited and the entities it controls (the Group). This report excludes Alternative fuels and energy consumption information about the Group’s joint ventures Alternative raw materials as their operations are not material to our sustainability reporting. While the Group’s financial year ends Carbon emissions Energy by source Page 21 Page 21 Page 22 Page 21 on 31 December, most government Participation of women in the Company Page 35 - Diversity Report sustainability-related reporting requires information to be provided for the year to Restricted duties injury frequency rate 30 June. So that statistical and graphical Lost time injury frequency rate data provided in this Sustainability Report can be compared with other publicly Employment by geography available information, the information in the Employment by employment status report relates to the year ended 30 June 2014, unless otherwise indicated. In developing this report, the following Employment by contract type Employee turnover by age group have been taken into account: Employee turnover by gender > The Global Reporting Initiative G4 Sustainability Reporting Guidelines. Employee turnover by geography > ESG Reporting Guide for Australian % of employees on EBAs vs staff Companies prepared by the Australian Council of Superannuation Investors Page 24 Page 24 Page 26 Page 26 Page 26 Page 24 Page 24 Page 26 Page 26 and the Financial Services Council. Other reports Discussion in Annual Report > The Cement Sustainability Initiative of the World Business Council for Sustainable Coverage of organisation’s defined benefit plan obligations Page 86 - 88 - Note 20 > > Development. Direct economic value added (sales, costs, employee Page 62 - Income Statement Relevant industry practice. compensation, retained earnings) Page 76 - Note 3 and 4 The definitions and boundaries in the National Greenhouse and Energy Reporting Act, in relation to the reporting of energy use and greenhouse gas emissions. Monetary value of fines and total number of non-monetary Page 43 - Directors’ Report sanctions for non-compliance with laws and regulations Environmental Performance For further information about the sustainability report The Chief Executive Officer, under direction email adelaidebrighton@adbri.com.au from the Board, implements the Company’s or telephone 08 8223 8005. sustainability framework and approves the Group’s key performance indicators and the scope of this report. The key performance indicators listed below have been assessed to be material to the Group’s sustainability performance. 20 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014ENE RGY BY SOURC E ALTERNAT IVE FUELS ENERG Y TERAJOULES CO NSUMPTION 1200 900 600 300 0 LIQUID FUELS COAL NATUR AL GAS DEMO LITI ON MATERIAL IND USTRI AL WASTE WASTE OIL ELEC TRICITY % 10 8 6 4 2 % ALT ERNAT IVE ‘000t GHG SUBSTITUTION RAW MAT ERIAL S SAVING 18 16 14 12 10 600 500 400 300 200 09 10 11 12 13 14 09 10 11 12 13 14 DEMOLITION MATE RIA L INDUST RIAL WAST E WAST E OIL % ALTE RNAT IVE FUELS OF TOTAL E NERG Y % S CM 1 S UB ST ITUTION GH G S AVIN G 1 By-products of industrial processes - slag from the steel manufacturing industry and fly ash from coal fired power stations Sustainable principles and practises, Throughout the year Adelaide Brighton Benefits include increased resources innovation and continuous improvement in worked towards reducing its total greenhouse efficiency, minimisation of the use of non- environmental performance are a natural gas emissions from all business units. renewable natural resources, reduction in part of business at Adelaide Brighton and As shown by the graph on page 22 the waste being sent to landfill and reduction of help to ensure the Company’s long term Company reduced overall emissions by our emissions footprint. We use a variety of success in a changing world. We are aware 10%. This reduction was attributed to the alternative fuels in our processes, primarily that our operations are fuelled by natural rationalisation of clinker production at the recycled demolition and construction timber, resources from the environment in which we Munster site, greater energy efficiency, use waste oil and carbon powder. In addition, live and we are always respectful of the local of lower emission fuels and use of alternative we utilise slag and fly ash as alternative communities we operate in close proximity to. raw materials. Initiatives in fuel and raw raw materials in our production processes. The business adheres to strict licensing and material use remain central to our continued The following specific projects were mandatory reporting conditions but, just as efforts to reduce greenhouse gas emissions. undertaken during the year. importantly, continually undertakes voluntary measures to ensure the natural environment Co-processing and local communities we operate within are not adversely affected by our activities. Carbon emissions Construction and demolition timber used as an alternative fuel at Birkenhead Co-processing is a term used to describe the use of alternative fuels and alternative The use of construction and demolition timber raw materials in the production process. displaces the use of natural gas in the kiln This continues to be a focus for the and reduces our emissions footprint. As a The Australian Government’s mechanism Company and provides significant benefits result of major improvements made to the fuel for carbon pricing, known as the carbon tax, not only for our business, but for the industry firing process at the Birkenhead plant in the was introduced on 1 July 2012 and repealed and the natural environment. previous year, the volume of construction and demolition fuel used increased during 2014. A second firing facility at the site is planned to facilitate a further increase in the use of this alternative fuel in future years. Slag dryer installed at Port Kembla Commissioning and installation of a slag dryer during the year at the Port Kembla site in New South Wales will increase the use of alternative raw materials. The increased use of slag will reduce the site’s clinker usage, which will reduce its overall emissions footprint. effective 1 July 2014. To satisfy our final liability under the carbon tax scheme, the Group chose to meet its obligations through the purchase of Australian Carbon Credit Units. Units amounting to five per cent of our emissions, the maximum allowable under the scheme, were sourced from native forest protection projects in two areas of NSW. The balance of the units were acquired from the Clean Energy Regulator. The carbon tax has been replaced by the Direct Action Plan Emissions Reduction Fund. The aim of this fund is to provide incentives for businesses to adopt new practices and technologies that reduce emissions. The Government will then purchase those reductions at the least cost. Adelaide Brighton intends to thoroughly investigate all the Group’s activities to find ways to participate in this new scheme. SOURCE OF G REE NHOUSE GAS EMISSION IN A CEMENT PLANT 50% OF GRE EN HOUSE GA S E MIS S ION OC CUR A S TH E RAW MEAL IS H EAT ED A ND C AR BON DIO XIDE IS DR IVEN OFF IN ORDE R T O FOR M THE NE CE SS A RY C HE MIC A L CONVERSION OF LIMEST ONE T O C A LC IUM O XIDE: CaCO3 > CaO + CO2. AS LON G AS CE ME NT MA KING R E LIE S ON THE CALCINATION OF LIME ST ON E ,TH ES E E MISS ION S WILL BE IMPO SSIB LE TO AVO ID. 35% OF GREE NHOUS E GA S EMIS SION S O CCU R A S A RESULT OF BURN IN G FUE LS (C OA L,G AS A N D D IES EL) TO CREATE T HE RMA L E NE RGY 15% IS PRODUC ED AS A RES ULT O F TH E INDIREC T EMISSIONS R ES ULTING FROM T HE USE OF ELE CT RIC IT Y. CEMENT GR IN DING IS TH E L AR GE ST SIN GL E E LE CTR ICIT Y USER IN THE CE ME NT PLA NT. R AW ME AL GRIN DING AND MOVING MAT ER IA L A ROUN D T H E PLA NT AR E OT H ER SIGNIFICANT SO UR CES OF E LEC T R ICITY USE . Source: Cement Industry Federation 21 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014 ‘000 CARBON TONNES EMISSIONS 4000 3600 3200 2800 2400 09 10 11 12 13 14 BIRKENHEAD PLANT WETL AND EXPANSION - NEW PL ANTINGS HAVE DO UB LED THE SIZE OF THE W ETLANDS TO OVER 1.6 HECTARES 22 MAINS WATER ‘000 PRO CESS WASTE MEGALITRES USAGE TONNES TO LAND FIL L 800 600 400 200 0 160 120 80 40 0 09 10 11 12 13 14 09 10 11 12 13 14 CEMENT AND LIM E CEME NT AND LIME CON CRETE AND AGGREGATES CONCR ETE AN D AG GRE GATE S CON CRETE PRODUCTS CONCR ETE PR ODUCT S Angaston waste oil Installation of solar power Annual mandatory reporting Waste oil became a major source of energy In a trial to reduce power consumption, a In addition to site based reporting under for the Angaston plant in South Australia solar power plant was installed at our Penrose operating licences, the Group has reported following successful trials during 2013. In Quarry in New South Wales. The outcome under three national environmental schemes: excess of 1.9 million litres of this alternative of this project is being monitored to evaluate > In October 2014, Adelaide Brighton reported fuel was consumed during 2014. The the suitability of expanding the use of solar under the National Greenhouse and Energy increased use of this waste product reduced power to other quarries as a replacement for Reporting (NGER) scheme for the sixth the amount of natural gas the plant required. generators and for use in concrete plants. year. This includes reporting of greenhouse The ongoing use of this alternative fuel is dependent on continued access to a Dust reduction initiatives reliable supply. Improvement initiatives Fugitive dust at sites across the business is monitored and reduction initiatives actioned where appropriate. During the year, a As well as using alternative fuels and foam suppression system was installed at raw materials to improve our production Birkenhead in South Australia. This system processes, there are many other projects has reduced fugitive dust loads generated occurring at our sites which help our during tipping and unloading (by front end overall sustainability performance, on loaders and trucks) of materials into the raw both a large and small scale. Reduction of the Munster plant carbon footprint The rationalisation of the plant’s operations was announced during the year and involved moving to an import model to replace domestic production of clinker used in the materials feed system. The patented dust suppression solution is used to essentially ‘weigh down’ dust particles, preventing them from becoming airborne. Any dust captured in the foam will fall back into the hopper and into the materials delivery system. Recognition of improvement initiatives gas emissions, energy consumption and energy production data from all business units, as well as data required for the carbon tax scheme. Due to the size of the Group, independent certifi cation of the reported carbon tax data was required and the Company again received an unqualifi ed audit opinion on this data. Reporting of NGER information has not been impacted by the repeal of the carbon tax. > The National Pollutant Inventory reports emissions at a site level where certain thresholds are reached at the site. This is made publically available, which improves transparency regarding the impact of site operations on communities. Reports for the 12 months to June 2014 were submitted to the regulators, with public release of the data expected in early 2015. manufacture of cement. The Munster clinker The $46 million investment in bag house > The Energy Effi ciency Opportunities kilns used ineffi cient wet process technology fi lter systems for Kilns 5 and 6 at Munster program encouraged large energy users with a large carbon footprint. The replacement was recognised with the Environmental to identify, evaluate and implement energy imported product is manufactured by Innovation Award from the Cement, saving opportunities. The program was producers with more advanced, effi cient Concrete and Aggregate Association. This repealed effective June 2014 and there are equipment. award recognises excellence in developing no further reporting requirements. Despite and implementing an innovative solution to the repeal of the program, Adelaide Brighton an identifi ed environmental issue or process continues to investigate potential energy that has positive environmental outcomes. effi ciency opportunities as part of day-to-day The installation of the two state-of-the-art business operations. systems has resulted in a dramatic reduction in particulate emissions. ADELAID E BRIGH T ON LTD AN N UA L R EP OR T 2 014 23 Re-use of cement and lime kiln dust Munster rehabilitation Cement kiln dust (CKD) and lime kiln dust Over two hectares of new rehabilitation (LKD) both waste products of cement and works occurred within the quarry at Munster lime production, have traditionally been during 2014, with more than five hectares % EMPL OY EE TURNOVER disposed of in our quarries. Efforts to re-use now rehabilitated. In total, over 17,000 trees, TURNOVER BY AGE GR OUP these products have been under investigation with all species planted being native to the for a number of years, either by incorporating local area. The site is on track to being a them into our processes or finding other seed collection point for other rehabilitation industries which have a use for them. activities that are being undertaken in Birkenhead CKD re-use project The Birkenhead site began a project in 2013 the local community. Community support to implement the use of CKD into all cement Adelaide Brighton is committed to positive mills, diverting it from landfill. The project engagement, consultation and openness commenced by converting cement mill 1 to with local communities. accept CKD and continued into 2014 with conversion of cement mill 6. Following these successful projects, work is underway in 2015 to expand the use of CKD to cement mill 7. The re-use of CKD in cement products not only reduces the amount going to landfill but directly displaces the volume of clinker In addition to our corporate partnerships we directly assist a broad range of organisations and community groups with selective and considered support, including education groups, health facilities and organisations which provide assistance to those in need. required for production of cement, saving on In 2014 our support included assistance non-renewable resources and reducing the to the following: carbon footprint of the site. > Ear Science Institute Australia - researching Munster LKD Project In a joint effort with the Curtin University PhD program, the Company is investigating the use of LKD in the road and construction industry. Successful identification of uses for the material would reduce the quantity of material being disposed of in landfill each year. Landcare and rehabilitation > > causes of and treatments for ear, hearing and balance disorders Camp Quality South Australian Indigenous Law Student Mentoring Program to support indigenous law students during study and to facilitate transition as graduates to legal practice > Sydney Children’s Hospital Foundation - children’s therapist in the Outpatients and Emergency Departments > Variety, the Children’s Charity - benefitting sick, disabled and disadvantaged children Looking after the land on which our (also supported through Adelaide Brighton’s businesses operate and on which they are workplace giving program) dependant is an area of constant focus > Undergraduate Scholarship in the School of for Adelaide Brighton. Rehabilitation and Engineering at the University of Wollongong revegetation of areas used for quarrying - targeted towards a female as part of our activities is ongoing. long term strategy to encourage a higher proportion of women into engineering in Birkenhead Wetlands industry The expansion of the wetlands at the Birkenhead plant was completed during 2014. Thousands of native plants were planted and previously planted reeds have now established themselves in the ponds. The expansion project has doubled the size of the wetlands to over 1.6 hectares. > University of Adelaide Engineering Scholarship > Barossa Council - support for Barossa Aquatic Centre > City of Port Adelaide Enfield Community Christmas parade > Indigenous scholarship for secondary schooling program. 100 75 50 25 0 0 2 < 5 2 - 1 2 0 3 - 6 2 5 3 - 1 3 0 4 - 6 3 5 4 - 1 4 0 5 - 6 4 5 5 - 1 5 0 6 - 6 5 5 6 - 1 6 0 7 - 6 6 + 0 7 LOST TIME INJURY FREQUENCY FR EQUE NCY RATE 8 6 4 2 0 09 10 11 12 13 14 CE ME NT AN D LIME CO NCR ET E A ND AGG REG AT ES CO NCR ET E P RODUCTS TO TAL ABL RE STR ICTE D DUTIES INJURY FREQUENCY FR EQUE NCY RATE 40 30 20 10 0 % 100 80 60 40 20 0 09 10 11 12 13 14 CE ME NT AN D LIME CO NCR ET E A ND AGG REG AT ES CO NCR ET E P RODUCTS TO TAL ABL EMPL OYE E TURNOVER BY G ENDER MALE FEMALE CO NTIN UE RS TUR NOV ER 24 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014 People, health and safety Adelaide Brighton employs a diverse workforce of around 1400 people across about 90 locations throughout Australia. At Adelaide Brighton our commitment to health and safety is an essential and integral part of the way we do business. Our employee Code of Conduct is based > A Safety Leadership Workshop Program, In addition, we have also provided a four on the key values that guide and define how aimed at helping employees understand year scholarship to enable an indigenous business is conducted and provides a set their role in shaping safety culture, was student to successfully complete high school, of guiding principles to help us make the completed with the delivery of the program providing them with more choices for their right decision every time. They key values to approximately 300 employees within future career. underpinning the Code of Conduct are: our Concrete Products Division. > > We act with fairness, honest and integrity; > Implementation of Adelaide Brighton’s safety We provide a safe and healthy work practices within the concrete and aggregate environment for all employees; business acquisitions in South Australia > We are aware of and abide by laws and Queensland. and regulations; > We maintain the highest standards of professional behaviour; > We identify and manage conflicts of interest responsibly; and In 2014 we recoded a lost time injury frequency rate of 1.8 (1.7 in 2013) and restricted duty injury frequency rate of 17.8, an increase from 11.7 in the previous year. Our focus on indigenous diversity has included active participation in the South Australian Indigenous Law Student Mentoring program. Our workforce profile shows that the average age of our workforce is 46 with an average tenure of nine years. With such a stable and experienced workforce, we have introduced a strong focus on mentoring and > We strive to be a good corporate citizen, The increase in the restricted duty injury succession planning to support knowledge and to achieve community respect frequency rate is attributable to our strong transfer and development of skills. Mentoring (by individually and collectively contributing focus on early intervention injury management and coaching supplement our core training to the well being of shareholders, customers, approach. This practice ensures that even regime, which ensures job appropriate skills the economy and the community). minor injuries are treated by a doctor as soon are developed, as well as overall leadership as is possible. While the negative outcome capability. Safety and health During 2014 our Health, Safety and Environment Policy was revised to align with our current vision and safety culture. Our goal of “Safe, Sustainable Production” is core to how we work and conduct our business. We continually work on improving our safety of this can be an increase in short duration restricted duty injuries, the positive outcomes are a reduction in injury severity, duration and most importantly a demonstrated “we care for our people” attitude. Developing a diverse workforce Our student vacation program employs undergraduate student engineers typically for a period of two to three months. During this time students are assigned a business related project that is operationally important as well as meeting the requirements of their degree. The students are supervised and mentored systems and safety culture. Adelaide Brighton recognises the need during their placement. Our overall aim is Focus areas in 2014 included: > Safety strategy workshops led by the Chief Executive Office and senior management team to review safety performance and protocols and develop a safety vision for 2015 -2018 with actions and leadership behaviours to achieve a mature safety system and culture. to continually build a diverse and capable to make working with the team at Adelaide workforce to meet the needs of our business. Brighton their preference when they We are committed to the promotion of complete their studies. Adelaide Brighton is an active participant in the Australia Brick and Blocklaying Training Foundation, which supports the skills development of apprentices in the industry ensuring future skilled labour supply. diversity within our organisation, and recognise that removing barriers to diversity enables us to attract and retain the best people with the appropriate skills to contribute to the continuing success of our business. We have continued our focus on expanding gender diversity in our business and the industry through the sponsorship of the Women in Engineering program at Wollongong University and an Undergraduate Engineering Scholarship for female engineers. 25 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014EM PLOYMENT BY EM PLOYMENT STATUS EMPLOYMENT BY CO NTRAC T TYPE % E MPL OY EES ON EB A v s STAFF PAR T TIME FULL TIME CA SU AL PERM ANENT FIXED TERM EMPL OYEE TURN OVER BY GE OGRA PHY EMPLOYMEN T BY GEOG RAPHY EB A STAFF WESTERN AUSTRALIA QU EENSLAN D NEW SOUTH WALES S O U T H AUSTR ALIA VIC TO RIA SOUTH AUSTRA LIA NEW SOUTH WALES WESTERN AUSTRALIA QUEENSLAND VICTORIA NOR THERN TER RITORY NOR THERN TERRITORY TAS MA NIA TASMANIA ROBE RT CHANGWO, LIME PROCESS ENGINEER AT THE MUNS TER PLANT 26 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Corporate Governance Statement The Board is committed to conducting the Company’s business ethically and in accordance with high standards of corporate governance. To this end, the Board (together with the Company’s management) regularly reviews the Company’s policies, practices and other arrangements governing and guiding the conduct of the Company and those acting on its behalf. MARCUS CLAYTON GENER AL CO UN SEL AN D COMPAN Y SECRETARY This statement provides an outline of the main corporate governance practices that the Company had in place during the past financial year. The Board believes that the Company’s policies and practices are consistent in all substantial respects with good corporate governance practice in Australia appropriate for the circumstances of the Company, including the ASX Corporate Governance Council Principles and Recommendations (2nd edition). ASX Corporate Governance Council Principles and Recommendations (ASX Principles) The following table summarises how the Company complies with the ASX Principles (as applicable to the Company for the 2014 financial year), and provides reference to where the specific recommendations are dealt with in this statement: ASX Principle/Recommendation Compliance Reference Principle 1 Lay solid foundations for management and oversight 1.1 1.2 1.3 Establish the functions reserved to the Board and those reserved to management Disclose the process for evaluating the performance of senior executives Provide the information indicated in the Guide to reporting on Principle 1 Principle 2 Structure the Board to add value 2.1 2.2 2.3 2.4 2.5 2.6 A majority of the Board should be independent Directors The chair should be an independent Director The roles of chair and chief executive officer should not be exercised by the same individual The Board should establish a nomination committee Disclose the process for evaluating the performance of the Board, its committees and individual Directors Provide the information indicated in the Guide to reporting on Principle 2 Section 1.1 Section 1.2.3 Section 1.2.1 Section 1.2 Section 1.2 Section 2.1 Section 1.2.3 3 3 3 3 3 3 3 3 3 Principle 3 Promote ethical and responsible decision-making 3.1 3.2 3.3 3.4 3.5 Establish a code of conduct and disclose the code or a summary of the code 3 Section 4.1 Establish a diversity policy and disclose the policy or a summary of that policy. The policy should include requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them. Disclose the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress towards them. Disclose the proportion of women employees in the whole organisation, women in senior executive positions and women on the Board. Provide the information indicated in the Guide to reporting on Principle 3 Section 1.2.6 and pages 34, 35 Pages 34, 35 Page 35 3 3 3 3 ADELAID E BRIGH T ON LTD AN N UA L R EP OR T 2 014 27 ASX Principle/Recommendation Compliance Reference Principle 4 Safeguard integrity in financial reporting 4.1 4.2 4.3 4.4 The Board should establish an audit committee The audit committee should be structured so that it: > consists only of non-executive Directors > consists of a majority of independent Directors > is chaired by an independent chair, who is not chair of the Board, and > has at least three members The audit committee should have a formal charter Provide the information indicated in the Guide to reporting on Principle 4 Principle 5 Make timely and balanced disclosure 5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies 5.2 Provide the information indicated in the Guide to reporting on Principle 5 Principle 6 Respect the rights of shareholders 6.1 6.2 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose their policy or a summary of that policy Provide the information indicated in the Guide to reporting on Principle 6 Principle 7 Recognise and manage risk Section 2.1 Section 2.1 Section 2 Section 5.1 Section 5.2 3 3 3 3 3 3 3 3 Establish policies for the oversight and management of material business risks and disclose a summary of those policies 3 Section 3.1 The Board should require management to design and implement the risk management and internal control system to manage the Company’s material business risks and report to it on whether those risks are being managed effectively. The Board should disclose that management has reported to it as to the effectiveness of the Company’s management of its material business risks The Board should disclose whether it has received assurance from the chief executive officer and the chief financial officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks 7.4 Provide the information indicated in the Guide to reporting on Principle 7 Principle 8 Remunerate fairly and responsibly The Board should establish a remuneration committee The remuneration committee should be structured so that it: > consists of a majority of independent Directors > is chaired by an independent chair, and > has at least three members 3 Section 3.1 Section 3.1 3 3 3 Section 2.1 3 Section 2.1 7.1 7.2 7.3 8.1 8.2 8.3 8.4 Clearly distinguish the structure of non-executive Directors’ remuneration from that of executive Directors and senior executives 3 Section 2.1 Provide the information indicated in the Guide to reporting on Principle 8 3 1 The Board lays solid foundations The Board operates in accordance with The Board and CEO are supported by for management and oversight the general principles set out in its charter, senior management who report to the CEO. 1.1 Role of the Board The role of the Board of Directors is to protect and optimise the performance of which is available from the corporate The respective roles and responsibilities of governance section of the Company’s the Board and management are outlined website at www.adbri.com.au. further in the Board charter. the Group and, accordingly, the Board In accordance with the provisions of the takes accountability for reviewing and Company’s constitution, the Board has approving strategic direction, establishing delegated a number of powers to Board policy, overseeing the financial position and committees (see section 2), and responsibility monitoring the business and affairs of the for the day-to-day management of the Group on behalf of shareholders. Company’s business affairs and development and implementation of the Company’s strategy to the Chief Executive Officer (CEO). 28 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014 The Board has also reserved for itself the following specifi c responsibilities: Strategy and monitoring Monitoring the business and Risk management, compliance affairs/relations with management and internal controls Input into and approval of management’s Selecting, appointing and evaluating from Reviewing, guiding and monitoring systems development of corporate strategy, including time to time the performance of, determining of risk management and internal control setting performance objectives and approving the remuneration of, and planning for the and ethical and legal compliance. operating budgets. successor of, the CEO. Monitoring and reviewing processes aimed Monitoring and reviewing corporate Reviewing procedures for appointment of at ensuring integrity of fi nancial and other performance and implementation of senior management, monitoring performance reporting, and providing assurance to strategy and policy. and reviewing executive development approve the Group’s fi nancial reports. 1.2 The Board is structured to add value The Board ensures that its members have the time and commitment to devote to the role Prior to appointment, Directors provide details of other commitments and acknowledge that they will have adequate time to meet expectations. Directors to consult with the Chairman before accepting outside appointments. Letter of appointment sets out Director’s term of appointment, powers, expectations and rights and obligations. The Board is committed to a majority of independent views being brought to bear in decision-making (see 1.2.1) Directors expected to bring independent views and judgment to discussions. Majority of Board members are independent. Board has adopted Financial Services Council Blue Book defi nition of director independence. > > > > > > activities. This includes ratifying the appointment and the removal of the Chief Financial Offi cer, the Company Secretary and all the Company’s senior executives who report to the CEO. Approval of the Company’s capital structure and gearing targets. Monitoring and reviewing policies and processes in place relating to occupational health and safety, compliance with laws, and the maintenance of high ethical standards. Input into and approval of the Company’s policy in relation to, and monitoring implementation of, sustainable resource use Approval of specifi ed matters exceeding and the impact of the Company’s operations delegated authority levels, including major on the environment, community and capital expenditure and major acquisitions stakeholders. and divestitures. > > > > > > > Board keeps informed of regulatory and industry developments to challenge status quo and strengthen knowledge base (see 1.2.4) Directors expected to participate in ongoing education/development. Directors keep themselves informed and up to date, of their own initiative, with general developments relevant to the role of a non-executive Director in an S&P/ASX100 company. Board and Director performance is regularly evaluated to facilitate continuous improvement (see 1.2.3) Board, Committee and individual Director performance reviewed annually. Directors to undergo a performance appraisal before standing for re-election. One third of the non-executive Directors retire (and are eligible for re-election) at each AGM. > > > The Board is structured to add value and Board decision-making is enhanced through education and support Broad mix of skills, diversity and experience refl ecting the character of the Group’s business to best guide, review and challenge management. Independent Chairman leads the Board, facilitates constructive decision-making, and manages Board/management relationship. To maintain independent oversight, roles of Chairman and CEO are undertaken by different individuals. Comprehensive induction processes equip Directors to perform in their role Comprehensive induction process upon appointment. Obligation on new Directors to familiarise themselves with Company’s practices through induction process or by making enquiries of the Chairman, the Company Secretary or management. Board members have access to management and independent advice to assist in discharge of their duties Access to senior executives and to any further information required to make informed decisions. Right to seek independent professional advice at the Company’s expense to assist in effective discharge of duties. > > > > Confl icts are managed (see 1.2.2) Actual and perceived confl icts considered and managed on an ongoing basis. Protocols around disclosure, and procedures around management of potential confl icts have been adopted. ADELAID E BRIGH T ON LTD AN N UA L R EP OR T 2 014 29 1.2.1 Directors’ independence the relevant Director to participate in Board 1.2.4 Director induction, training and ongoing discussion and decision-making in relation to education The Board reviews, at least annually, the independence of Directors. In general, Directors are considered independent where they are free of any interest and any business or other relationship which could, or could reasonably be perceived, to interfere materially with the Director’s ability to act in the best interests of the Company. An assessment will be made on a case-by-case basis of whether the issue. Where there was a real potential for a conflict of interest, information was not provided to the Director, and, in accordance with the Corporations Act 2001, the Director did not participate in, or vote at, the meeting where the matter was considered. 1.2.3 Performance evaluation All newly appointed Directors are provided with an induction, which includes information relevant to their new role, attendances at key sites and introductions to key staff, which is provided or coordinated by the CEO, the Chief Financial Officer and the Company Secretary. This induction includes briefings on the Company’s business, strategy, financial, the Director’s ability to act in the best interests The Board reviews its performance annually, operational and risk management matters of the Company has been materially impaired. as well as the performance of individual and factors relevant to the sectors and In ensuring that the Board comprises Directors with a broad range of skills and experience reflecting the character of the Group’s Committees and individual Directors environments in which the Company operates. (including the performance of the Chairman as Chairman of the Board). Ongoing Director education is provided throughout the year. The Board and its business, the Board may from time to time For the 2014 financial year, a performance Committees are provided with updates and appoint Directors who are not considered to evaluation was led internally by the Chairman information from both management and be independent. It is, however, the Board’s to assess the performance of individual external experts on various topics relevant policy that it should comprise a majority Directors, the Board as a whole, various to the Company’s circumstances. The Board of independent Directors to ensure that aspects of the Board committees such as is informed by expertise from within the independent oversight is maintained. their performance, membership, roles and Company on matters such as energy supply Having regard to the guidelines of independence adopted by the Board, the charters, and the Board’s and Directors’ arrangements and business and product interaction with management. development. Directors are of the view that Mr R D Barro As part of this comprehensive review of 1.2.5 Board and CEO succession planning is the only non-executive Director who is the Board’s performance, processes and not considered “independent”, by virtue of operations, the Chairman facilitates individual his position as the Managing Director and a discussions with each Director which also shareholder of Barro Group Pty Ltd (which reviews their individual performance. The has a 50% interest in the joint venture, discussions also included a peer review of The Board regularly reviews the size and composition of the Board to ensure the appropriate skills, perspective and expertise are represented. Independent Cement & Lime Pty Ltd (ICL), and the Board Chairman’s performance by During 2014, the Board led by the Chairman is a substantial shareholder in the Company). the other Directors. and the Chairman of the Nomination, 1.2.2 Conflicts of interest Executives and managers are also subject and reviewed during 2015. ICL has an ongoing trading relationship with the Barro Group of companies. The Chairman reports to the Board concerning the performance evaluation The Board has also considered the length process and the findings of these reviews. of service of each Director on the Board As a result of recommendations arising and concluded that no Director has been a from the internal Board review, initiatives Director of the Company for such a period that are introduced to ensure the continued their independence may be compromised. effectiveness of the Board’s performance and Details of each Director’s period of office is to enable its sustained focus on key issues set out on page 36 of this report. for the Company. The implementation of these initiatives is overseen by the Chairman. Determinations regarding independence to an annual performance review in which do not change any Director’s obligations in performance is measured against agreed managing any conflict of interest. Directors business objectives. The performance of have a continuing obligation to avoid any the CEO is assessed by the Board against action, position or interest which conflicts objectives related to the Company’s strategy, (or may be perceived to conflict) with their business plans and the financial and other position as a Director of the Company. performance of the business. During the year, in order to avoid actual and/ the agreed objectives was reviewed by the or perceived conflicts of interest in Board Chairman, the Nomination, Remuneration decision-making, Board procedures were followed such that where the possibility of a and Governance Committee and the Board. The performance of the Company’s senior material conflict arose, the Board considered executives during 2014 was reviewed by the the nature and extent of the potential conflict CEO, the Nomination, Remuneration and and whether it would be appropriate for Governance Committee and the Board. 30 Remuneration and Governance Committee, reviewed the Board’s composition, and utilised a Board skills matrix in doing this (details of the Board skills matrix will be disclosed when the Company adopts the 3rd edition of the ASX Principles). The Board is satisfied that its present composition is appropriate for the circumstances of the Company. It recognises that consideration of Board renewal is an ongoing process, and accordingly the Board’s composition will continue to be monitored The Board’s long term management succession plan for the CEO was implemented during 2014, leading to Martin Brydon assuming the Chief Executive Officer role upon Mark Chellew’s retirement following the Annual General Meeting in May 2014, ensuring a smooth transition of leadership The Nomination, Remuneration and Governance Committee and the Board also reviewed the succession plans for the senior management team during the year, to ensure that appropriate plans have been implemented for the mid to long term. In particular, the Board is cognisant of Mr Barro’s interest in Barro Group Pty Ltd. For the 2014 financial year, the performance responsibilities within the Company. of the CEO and the CEO’s achievement of ADELAIDE BRIGHTON LTD ANNUAL REPORT 20141.2.6 Diversity Audit, Risk and Compliance Committee Nomination, Remuneration and Governance Committee Roles and responsibilities The Board, having adopted a Diversity Policy for the Group in 2011, established measurable diversity objectives (which are reviewed and assessed annually) to enhance gender and other diversity across the organisation. Further information about the Group’s diversity objectives and progress achieved (in accordance with the ASX Corporate Governance Council Principles and Recommendations) is set out on pages 34 to 35. The Group’s overarching Diversity Policy will be reviewed during 2015. 2 Composition and responsibilities of Board Committees To assist the Board in fulfilling its responsibilities, the Board has established a number of committees with responsibility for particular areas: > > Audit, Risk and Compliance Committee; Nomination, Remuneration and Governance Committee; > Safety, Health and Environment Committee; and > Independent Directors’ Committee. Each committee has a specific charter or Composition constitution. The charters for the Audit, Risk and Compliance Committee and the Nomination, Remuneration and Governance Committee are available on the corporate governance section of the Company’s website at www.adbri.com.au. The Board periodically reviews each Board committee’s charter, role and responsibilities. Details on the number of meetings held by the Board and its Committees during 2014, and attendance by Board members, can be found on page 43 of this report. Information on the relevant skills, experience and expertise of each Director can also be found on page 36 of this report. 2.1 Key standing committees - Audit, Risk and Compliance and Nomination, Remuneration and Governance The composition and responsibilities of the Audit, Risk and Compliance and Nomination, Remuneration and Governance Committees are set out in the following table. > > > > > > > > The Audit, Risk and Compliance Committee: assists the Board in relation to the reporting of financial information, the appropriate application and amendment of accounting policies, the appointment, independence and remuneration of the external auditor, and performance of the internal audit function (including independence, effectiveness and appropriate coordination with external auditors). provides a forum for communication between the Board, management and both the internal and external auditors. reviews and reports to the Board on the effectiveness of the Company’s ongoing risk management program and policies and procedures. reviews and reports to the Board regarding the appropriateness of the Company’s compliance procedures. provides a conduit to the Board for external advice on audit, risk management and compliance matters. Composition requirements include: there must be a minimum of three independent non-executive Directors on the Committee. the Chair must be an independent non-executive Director who is not Chairman of the Board. Committee members shall, between them, have sufficient accounting and financial knowledge to allow them to discharge their duties and actively challenge information presented by management, internal and external auditors. Membership as at 31 December 2014 GF Pettigrew (Chairman) LV Hosking AM Tansey Consultation Members of management may attend meetings of the Committee at the invitation of the Committee Chairman. It is practice of the Committee that the CEO, the Chief Financial Officer and the Company Secretary attend all Committee meetings. The Group Risk Manager generally attends meetings of the Committee when non-financial risk management matters are considered. In fulfilling its responsibilities, the Committee has rights of access to management and to internal and external auditors in the absence of management and may seek explanations and additional information. It is the practice of the Committee to meet with the Company’s external auditors, without any member of management present. A DEL A ID E BRIGH T ON LTD AN N UAL R EPOR T 2 014 31 > > > > > > The Nomination, Remuneration and Governance Committee: assists and advises the Board on matters relating to the appointment, remuneration and processes for review of the performance of the non- executive Directors, the CEO and other senior executives, and best practice corporate governance appropriate to the circumstances of the Company. oversees the implementation of the Company’s short term and long term incentive arrangements, including reviewing performance targets for senior executives, reviewing recommendations from the CEO on senior executives’ participation in short and long term incentive schemes, making relevant awards and assessing the extent to which performance conditions are satisfied. reviews management and Board succession planning and assesses the appropriate mix of skills, experience and expertise required on the Board. oversees the implementation of diversity measures to facilitate the achievement of the Company’s diversity objectives. Composition requirements include: there must be a minimum of three independent non-executive Directors on the Committee. each Committee member is expected to be familiar with the legal and regulatory disclosure requirements in relation to remuneration and have adequate knowledge of executive remuneration issues, including executive retention and termination policies, and short term and long term incentive arrangements. AM Tansey (Chairman) LV Hosking GF Pettigrew KB Scott-Mackenzie It is practice of the Committee, on occasions when relevant, to invite other Directors to attend Committee meetings. Additionally, two Committee meetings in 2014 were held concurrently with Board meetings. Members of management, particularly the CEO, the General Manager HR, the Chief Financial Officer or the Company Secretary, may also attend meetings of the Committee at the invitation of the Committee Chairman, whenever particular matters arise that require management participation, such as reviewing senior executive performance, succession planning or the CEO’s recommendations to the Committee. The Committee obtains external advice from independent remuneration consultants in determining the Company’s remuneration practices and executive service agreements where considered appropriate. 2.2 Other Board committees Committee meetings are also attended The members of the Committee during 2.2.1 Safety Health and Environment Committee by the CEO and the Company’s General 2014 were LV Hosking (Chairman), GF Manager-HSE, Chief Financial Pettigrew and KB Scott-Mackenzie. There The members of the Safety, Health and Offi cer and its General Counsel. was no requirement for this Committee to Environment Committee (SH&E Committee) meeting during 2014. during 2014 were KB Scott-Mackenzie 2.2.3 Independent Directors’ Committee (Chairman), GF Pettigrew, and RD Barro. The role of the Independent Directors’ The Committee has a broad role in reviewing Committee is to investigate and consider general and specifi c occupational health corporate proposals made to the and safety and environmental matters Company. The Committee comprises across the Group. Directors who do not have any confl ict of interest concerning the matters considered by the Committee. 3 The Board recognises and manages risk and safeguards the integrity of fi nancial reporting 3.1 Framework The Board has approved the following framework within which the Company discharges its risk management function: Leading culture of compliance and ensuring that risk management practices are appropriate and effective in the context of the Company’s business objectives Oversight: The Board, through the Audit, Risk and Compliance Committee, is responsible for reviewing and guiding the Company’s risk management policies and compliance and control systems. These policies and systems provide for management to identify and manage both fi nancial and non-fi nancial risks to the Company’s businesses. The Board, through the Committee, regularly reviews the effectiveness of the Company’s risk management system and management of identifi ed business risks. Purpose: The Company’s risk management framework is designed to ensure strategic, operational, legal, reputation and fi nancial risks are identifi eid, assessed, effectively and effi ciently managed and monitored to enable achievement of the Company’s business objectives. > > > Internal controls framework A robust control environment is fundamental to the effectiveness of the Company’s risk management framework. Delegations of authority and Board and management accountability is clearly demarcated. All Directors, executives and employees are required to adhere to the Code of Conduct (described below) and the Board actively promotes a culture of quality and integrity. Accounting, fi nancial reporting and internal control policies and procedures designed to manage business risks (both fi nancial and non-fi nancial) have been established at the Board and executive management levels. These are designed to safeguard the assets and interest of the Company, and ensure the integrity of fi nancial reporting. The Board nonetheless acknowledges that it has ultimate responsibility for the accuracy and approval of the Group’s fi nancial reports. The Board acknowledges that it is also responsible for the overall internal control framework, and to assist in discharging this responsibility, the Board has instigated an internal control framework that can be described as follows: Financial risk The CEO and Chief Financial Offi cer have made the following certifi cations to the Board: That the Company’s fi nancial reports present a true and fair view, in all material respects, of the fi nancial position and performance of the Company and the consolidated entity and are in accordance with accounting standards in all material respects; That the Company has a sound system of risk management and internal control which implements the policies adopted by the Board and forms the basis for the statement given above; and That the Company’s risk management and internal control system to the extent it relates to fi nancial reporting, is operating effi ciently in all material respects. > > > Non-fi nancial risk Management regularly reports to the Board, including through reports to the Audit, Risk and Compliance Committee, on strategic and operational issues, including an assessment of the material business risks facing the Company and the effectiveness of the system and policies in place to manage those risks. > > > Financial reporting Comprehensive budgeting system with an annual budget reviewed and approved by the Board. Monthly actual results are reported against budget and revised forecasts for the year are prepared regularly. Procedures to ensure that price sensitive information is reported to the ASX in a timely manner (see section 5 below). Investment appraisal Clearly defi ned guidelines for capital expenditure e.g. annual budgets, detailed appraisal and review procedures, and levels of delegated authority where businesses are being acquired or divested. > > > > > > Operating unit controls Financial controls and procedures including information systems controls are in operation throughout the consolidated entity. Operating units confi rm compliance with these procedures to the Board annually. Functional specialty reporting The Group has identifi ed a number of key areas which are subject to regular reporting to the Board, such as safety and environment, risk management, taxation, fi nance and administration. Delegated authorities and restrictions Comprehensive procedure which provides a framework that enables employees to operate and act within clearly defi ned and communicated parameters. Internal audit Assists the Board in ensuring compliance with internal controls. The Audit, Risk and Compliance Committee reviews and approves the selection and engagement of internal auditors, the internal audit program to be conducted, and the scope of the work to be performed. Internal auditors provide the Committee with comments and recommendations about the identifi cation of areas perceived to be of a greater level of risk than others, and any areas requiring particular scrutiny. The Committee receives and reviews the reports of the internal auditors. ADELAIDE BRIGHT ON LT D AN NU A L R EP OR T 2 014 32 3.2 Audit Services The Company has also adopted policies The Company’s Continuous Disclosure Policy The Company and Audit, Risk and Compliance Committee policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is considered annually. PricewaterhouseCoopers remains the requiring compliance with (among others) is available on the Company’s website at occupational health and safety, environmental, www.adbri.com.au and sets out guidelines privacy, diversity, equal employment and processes to be followed in order to opportunity, harassment, fair treatment, and ensure that the Company’s continuous competition and consumer law. The Company disclosure obligations are met. Material monitors the effectiveness of these policies. information must not be selectively disclosed external auditor of the Company for the Employees are encouraged to attend training Group’s financial report for the year ended or seminars presented by the Company, or 31 December 2014. The Board has adopted a policy in relation to the provision of non-audit services by external service providers, to ensure that they remain up-to-date with relevant industry and regulatory developments. prior to being announced to the ASX. These policies and procedures are supplemented by the Shareholder Communications Policy (also published on the Company’s website) which includes arrangements the Company has in place to promote communication the Company’s external auditor. It is based The Code requires all officers, employees, with shareholders and encourage effective on the principle that work that may detract contractors, agents or people associated participation at general meetings. from the external auditor’s independence with the Company to report any potential and impartiality (or that may be perceived as breaches to the Company Secretary under doing so) should not be carried out by the the whistleblower program. This may be external auditor. Details and the break down done anonymously. of fees for non-audit services and an analysis of fees paid or payable to external auditors 4.2 Shareholdings of Directors are provided in Note 29 to the Financial and employees The Company Secretary has been nominated as the person responsible for communicating with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements and overseeing and coordinating (with the Group Corporate Affairs Adviser) information disclosure to the Statements. 4 The Board is committed to promoting ethical and responsible decision-making 4.1 Code of conduct and whistleblower program The Board has a policy that in general, ASX, analysts, brokers, shareholders, the Directors and Officers may not buy or sell media and the public. Adelaide Brighton Ltd shares except during periods (known as ‘Trading Windows’) 5.2 Communication with shareholders provided that prior approval is obtained. The Trading Windows cover the period of one month following the annual and half year results announcements in addition to the The Company is committed to upholding period from the release of the Company’s the highest ethical standards of corporate annual report until one month after the annual behaviour. A Code of Conduct has been general meeting. The policy also defines adopted, which requires that all Directors, certain periods where trading is not permitted senior management and employees act with under any circumstances (known as ‘Blackout the utmost integrity and honesty. It aims to Periods’), which cover the two months further strengthen the Company’s ethical preceding lodgement of half year and annual climate by promoting practices that foster results announcements, in addition to any The Company’s website contains copies of annual reports, financial accounts, presentations, media releases and other investor relations publications. All relevant announcements made to the market, and any related information, are also posted on the Company’s website. Shareholders can elect to receive communications from the Company by electronic means. Shareholders can communicate with the share registry and the Company by electronic means. > > the Company’s key values of: instance when a Director is trading for short- The Board encourages full participation of Acting with fairness, honesty and integrity; term gain. In all cases, Directors and Officers shareholders at the Annual General Meeting Providing a safe and healthy work are prohibited from trading in securities when in order to promote a high level of environment for all employees; they are in possession of “inside information”. accountability and discussion of the > Being aware of and abiding by laws and regulations; > Individually and collectively contributing to the wellbeing of shareholders, customers, the economy and the community; The Board also has a policy that prohibits Group’s strategy and goals. executives from hedging (or otherwise locking The external auditor will attend the Annual in a profit over) unvested securities issued General Meeting and be available to answer under the Company’s Share Plans. shareholder questions about the conduct of the audit and the preparation and content of the auditors’ report. > Maintaining the highest standards of The Company’s Share Trading Policy and the professional behaviour; Award/Share Hedging Policy are available on > Avoiding or managing conflicts of interest; the Company’s website at www.adbri.com.au. and > Striving to be a good corporate citizen, 5 The Board is committed to timely and to achieve community respect. and balanced disclosure and The Code of Conduct is publicly available on the Company’s website at www.adbri.com.au. The Code of Conduct was reviewed during the year to ensure that it remains relevant to the Company’s values and practices. The outcomes from this review are currently being considered by the Company. respects the rights of shareholders 5.1 Continuous disclosure The Company is committed to providing relevant and timely information to its shareholders and to the broader market, in accordance with its obligations under the Corporations Act 2001 and the ASX continuous disclosure regime. ADELAID E BRIGH T ON LTD AN N UA L R EP OR T 2 014 33 Diversity Report Adelaide Brighton is committed to the promotion of diversity within our organisation, and recognises that removing barriers to diversity enables us to attract and retain the best people with the appropriate skills to contribute to the continuing success of our business. Our Diversity Policy outlines five core objectives which form the foundations of our approach to diversity and upon which we measure our performance in this area. An overview of these objectives, and our progress towards achieving these objectives for the 2014 financial year, are set out below. Objectives Diversity measures to facilitate achievement of objectives Progress To promote a culture of diversity (which includes gender, skills, experience, and cultural background) Leadership programs targeted at our female management and frontline employees focusing on their strengths and contribution to the broader workplace to be rolled out across the organisation. Leadership programs and coaching continue to be available for female employees. In 2014, we implemented a broader program aimed at our managers and supervisors. Company-wide training in workplace policies (including diversity, bullying and harassment, Equal Employment Opportunity). Employee inductions include information on Company policies such as equal employment opportunity and bullying. Introduced assessable compliance training for management. The Board and Nomination, Remuneration and Governance Committee review Adelaide Brighton’s diversity achievements relative to the industry structure in which the Company operates. In 2014, the Board and then Nomination and Remuneration Committee discussed the Company’s diversity measures and the need to develop a positive workplace culture. To ensure that recruitment and selection processes are based on merit Internal review of Adelaide Brighton’s recruitment practices and systems to ensure that employment decisions are made without regard to factors that are not applicable to the inherent requirements of a position and that unconscious gender bias does not influence outcomes. To provide talent management and development opportunities for all employees Ongoing talent recognition and in-house leadership programs for employees. Recruitment mentoring training continues across the business with a view to eliminate any unconscious bias that may occur. 16% of all new hires in 2014 were female. Selection of recruitment agencies employed by Adelaide Brighton is based on their commitment to providing diverse candidate pools. Various development programs provided for recognised employees and tailored to individual needs ranging from external training and education, mentoring and/or specific on the job training. Sponsor or encourage professional networking, coaching and mentoring programs to give female employees the opportunity to connect with other professionals. Where identified, these programs continue to be supported across the organisation. Sponsor MBA or post-graduate studies for high potential female employees. Adelaide Brighton supports external study and development for high potential employees. In recognition of the low numbers of females entering into engineering and manufacturing vocations: implement programs designed to engage female graduate engineers; offer undergraduate scholarship opportunities and sponsor vacation work programs to engage female students who are entering tertiary education to consider engineering as a career option; and strive for gender balance in the recruitment of graduates each year. > > > Continued sponsorship of the Women in Engineering program at the University of Wollongong in 2014 that provides both a financial benefit and work placement opportunity. The Company has attended career expos at the University of Adelaide and sponsored Engineering awards at University of Wollongong. Support the creation of employment opportunities for Indigenous and Torres Strait Islanders. Support and participation in the South Australian Indigenous Law Student Mentoring Program. Support for a scholarship for aboriginal students to complete Year 12 High School at Prince Alfred College. 34 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Objectives Diversity measures to facilitate achievement of objectives Progress To reward and remunerate fairly Adelaide Brighton has a policy to provide equal pay for equal work. The gender pay parity review was completed in 2014 as part of Adelaide Brighton’s annual remuneration review processes. As part of the annual salary review process, Adelaide Brighton undertakes a review of pay parity. Pay parity is also considered at the time of hiring new employees, to eliminate potential gaps in pay arising from hiring decisions. To provide flexible work practices Adelaide Brighton seeks to provide suitable working arrangements for employees returning from maternity leave. As per previous years, 100% of the women who commenced and finished maternity leave in 2014 have returned to work in either a full or part time capacity. Flexible working arrangements are available to all employees under our flexible work policy, to recognise that employees may have different domestic responsibilities throughout their career. This includes opportunities to work part time and from home or a remote location. We also offer 12 weeks’ paid parental leave for the primary carer. Formal review of all part time work arrangements to ensure roles are appropriate to maintain career development. Adelaide Brighton is committed to the regular We believe that, over time, our diversity In 2014, following the retirement of the review of its objectives to ensure that these objectives and measures will achieve Managing Director and appointment of a continue to be appropriate and relevant. an improvement in the level of female new CEO position, a management restructure This commitment includes the completion representation across the organisation. occurred which resulted in there no longer of the workplace profile report as required by being female representation among the the Workplace Gender Equality Act 2012. Going forward increasing focus on expanding senior executives. This is expected to be A copy of the workplace profile report is opportunities for indigenous Australian addressed in 2015. available in the investor relations section will form part of the Company’s diversity of our website at www.adbri.com.au/ objectives. investorinformation.html. The Board is A copy of Adelaide Brighton’s Diversity Policy is available in the corporate governance committed to build upon the achievements The following table shows the proportional section of Adelaide Brighton’s website. to date and reinforce the continued efforts representation of women employees at in promoting and cultivating a culture of various levels within the Adelaide Brighton diversity and inclusiveness. Group (as at 31 December 2014): The proportion of women across Adelaide Male Female Brighton’s workforce is reflective of the Board 20% generally low level of female representation in the building, manufacturing and construction Senior executives 0% 4 6 materials industries in which we operate. Senior managers 16% 31 1 0 6 We recognise that the available pool of female (direct reports to candidates in engineering roles relevant to senior executives) Total workforce 12% 1245 164 our business operations is limited, and this impacts our ability to increase the number of female new hires in the short term. In an effort to make our Company (and industry) more attractive to women, we have focused on measures designed to increase the proportion of female graduates and to support the leadership development of female employees who are recognised as having future potential. 35 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Directors Les Hosking Age 70 Raymond Barro BBus, CPA, FGIA, FCIS Age 53 Graeme Pettigrew FIPA, FAIM, FAICD Age 66 Ken Scott-Mackenzie BE(Mining), Dip Law Age 64 Arlene Tansey FAICD, MBA, JD, BBA Age 57 Experience Non-executive Director since August 2008. Over 24 years experience in the premixed concrete and construction materials industry. Managing Director of Barro Group Pty Ltd. Special responsibilities Member, Safety, Health and Environment Committee. Experience Independent non-executive Director since June 2003. Extensive experience in commercial and financial matters with 16 years experience as Chief Executive of the Sydney Futures Exchange and former Chief Executive Officer of Axiss Australia, and Managing Director of National Electricity Market Management Company (NEMMCO). Director, AGL Energy Limited (appointed November 2008) and Australian Energy Market Operator Limited (appointed July 2009 and retired 6 November 2014) and Chairman, Carbon Market Institute Limited (appointed October 2010 and retired 27 November 2014). Special responsibilities Appointed Chairman 17 May 2012. Member, Audit, Risk and Compliance Committee; Nomination, Remuneration and Governance Committee; and Independent Directors’ Committee. Experience Independent non-executive Director since August 2004. Extensive experience in the building materials industry and former Chief Executive Officer of CSR Building Products and broad management experience gained in South East Asia and the United Kingdom through former positions as Managing Director of Chubb Australia Limited and Wormald Security Australia Pty Ltd. Director, Capral Ltd (appointed June 2010) and Holocentric Pty Ltd (appointed 18 September 2012 and retired 19 August 2014). Former Director, Bisalloy Steel Group Ltd (formerly Atlas Group Holdings Ltd) (appointed April 2006 and resigned 30 September 2013), Knauf Plasterboard Pty Limited (formerly Lafarge Plasterboard Pty Ltd) (appointed June 2005 and resigned November 2012). Special responsibilities Chairman, Audit, Risk and Compliance Committee. Member, Nomination, Remuneration and Governance Committee; Safety, Health and Environment Committee; and Independent Directors’ Committee. Experience Independent non-executive Director since July 2010. Mining Engineer with over 40 years experience in infrastructure, construction and mining services gained in Australia and Africa, as well as extensive experience in financial, legal and commercial aspects of projects. Chairman, Linking Melbourne Authority (appointed May 2013). Former Chairman, Macmahon Holdings Limited (appointed Chairman in November 2009 and a Director in May 2009 and retired 21 March 2014) and former Chairman, Murchison Metals Ltd (appointed Director in May 2011 and Chairman in July 2011. Resigned November 2012). Special responsibilities Chairman, Safety, Health and Environment Committee; Member, Nomination, Remuneration and Governance Committee; and Independent Directors’ Committee. Experience Independent non-executive Director since April 2011. Extensive experience as a senior executive in business and the financial services industry gained in Australia and the United States with a background in investment banking and securities law. Director, Primary Health Care (appointed August 2012), Lend Lease Funds Management Limited (appointed October 2010), Lend Lease Real Estate Investments Limited (appointed October 2010), Hunter Phillip Japan Limited (appointed March 2013), Urbanise.com Limited (appointed 27 June 2014) and Australian Research Alliance for Children and Youth Limited (appointed September 2013). External member of Infrastructure New South Wales (appointed June 2014). Former Director, Pacific Brands Limited (appointed March 2010 and retired October 2013) and Police Citizens Youth Clubs NSW Ltd (appointed June 2004 and retired in July 2012). External Member, Serco Asia Pacific Advisory Board. Special responsibilities Chairman, Nomination, Remuneration and Governance Committee; and Member, Audit, Risk and Compliance Committee. 36 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014Financial statements Directors’ report .......................................................................................................... 38 Remuneration report introductory letter ................................................................ 45 Remuneration report contents ................................................................................. 46 Remuneration report .................................................................................................. 47 Income statement ....................................................................................................... 62 Statement of comprehensive income ..................................................................... 63 Balance sheet .............................................................................................................. 64 Statement of changes in equity ............................................................................... 65 Statement of cash flows ............................................................................................ 66 Notes 1 Summary of significant accounting policies ............................................................. 67 2 Critical accounting estimates and assumptions....................................................... 75 3 Revenue and other income ...................................................................................... 76 4 Expenses .................................................................................................................. 76 5 Income tax expense ................................................................................................. 77 6 Cash and cash equivalents ...................................................................................... 78 7 Trade and other receivables ..................................................................................... 78 8 Inventories ................................................................................................................ 79 9 Assets classified as held for sale.............................................................................. 79 10 Joint arrangements and associate ........................................................................... 80 11 Property, plant and equipment ................................................................................. 81 12 Deferred tax assets................................................................................................... 82 13 Intangible assets ....................................................................................................... 82 14 Carbon asset and liability ..........................................................................................83 15 Trade and other payables ......................................................................................... 84 16 Borrowings ............................................................................................................... 84 17 Provisions ................................................................................................................. 85 18 Other liabilites ........................................................................................................... 85 19 Deferred tax liabilities ............................................................................................... 85 20 Retirement benefit obligations .................................................................................. 86 21 Contributed equity .................................................................................................... 89 22 Reserves and retained earnings ............................................................................... 90 23 Dividends .................................................................................................................. 91 24 Financial risk management ....................................................................................... 91 25 Fair value measurements.......................................................................................... 94 26 Contingencies ........................................................................................................... 94 27 Commitments for expenditure .................................................................................. 94 28 Share-based payment plans .................................................................................... 95 29 Remuneration of auditors ......................................................................................... 96 30 Related parties ......................................................................................................... 97 31 Subsidiaries and transactions with non-controlling interests ................................... 99 32 Deed of cross guarantee ........................................................................................ 100 33 Reconciliation of profit after income tax to net cash inflow from operating activities 102 34 Earnings per share .................................................................................................. 102 35 Events occurring after the balance sheet date ....................................................... 103 36 Segment reporting .................................................................................................. 103 37 Parent entity financial information .......................................................................... 105 38 Business combinations .......................................................................................... 105 Directors’ declaration .............................................................................................. 107 Auditor’s independence declaration ..................................................................... 107 Independent audit report ........................................................................................ 108 Financial history ........................................................................................................ 109 Information for shareholders ...................................................................................110 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014 37 Directors’ report Directors’ report Statutory Results The Directors present their report on the ($ Million) consolidated entity (the Group) consisting of Adelaide Brighton Ltd (the Company) and the Revenue entities it controlled at the end of, or during, Depreciation, amortisation and impairments the year ended 31 December 2014. Directors The Directors of the Company, at any time during or since the end of the financial year and up to the date of this report, are: LV Hosking RD Barro GF Pettigrew KB Scott-Mackenzie AM Tansey Earnings before interest and tax (“EBIT”) Net finance cost Profit before tax Income tax expense Net profit after tax Attributable to: Members of Adelaide Brighton Ltd (“NPAT”) Non-controlling interests Basic earnings per share (cents) Ordinary dividends per share (cents) MP Chellew (retired 21 May 2014) Special dividend per share (cents) Principal activities During the year the principal activities of the Franking (%) Net debt ($ million) Net debt/equity (%) 2014 2013 1,337.8 1,228.0 (75.0 ) 247.5 (15.0 ) 232.5 (59.9 ) (70.6 ) 222.7 (14.1 ) 208.6 (57.5 ) 172.6 151.1 172.7 (0.1 ) 26.9 17.0 - 100% 359.8 31.7 151.1 - 23.7 16.5 3.0 100% 248.0 23.4 Group consisted of the manufacture and 2014 net profit after tax attributable to members of the Company increased 14.3% compared to distribution of cement and cementitious the prior year to $172.7 million. The results were impacted by a number of significant items. The products, lime, premixed concrete, table below sets out the underlying financial results for the year ended 31 December 2014 which aggregates, sand and concrete products. have adjusted for the significant items. An explanation of the significant items and reconciliation to statutory results is provided on page 42. Review of operations A summary of the financial results for the year Underlying Results ended 31 December 2014 is set out below: ($ Million) Revenue Underlying depreciation and amortisation Underlying earnings before interest and tax (“Underlying EBIT”) Net finance cost Underlying profit before tax Underlying income tax expense Underlying net profit after tax Attributable to: Members of Adelaide Brighton Ltd (“Underlying NPAT”) Non-controlling interests Underlying basic earnings per share (cents) 2014 2013 1,337.8 1,228.0 (73.0 ) 245.2 (15.0 ) 230.2 (63.8 ) (70.6 ) 226.0 (14.1 ) 211.9 (58.5 ) 166.4 153.4 166.5 (0.1 ) 26.0 153.4 - 24.0 ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 38  Underlying net profit after tax attributable to EBIT margins increased as improved volumes Contracted prices to a major alumina members of the Company (Underlying NPAT) and higher than inflation increases to selling customer in Western Australia increased of $166.5 million was $13.1 million (8.5%) prices offset higher energy costs and the in June 2014. Average lime selling prices higher than 2013. Revenue of $1,337.8 million impact of production issues in the first half at increased at slightly less than inflation despite increased by 8.9% due to the contribution the Birkenhead (South Australia) plant. The the sharp decline in sales to the higher priced from recent acquisitions, continued demand repeal of the carbon tax from 1 July 2014, gold sector. Nonetheless, lower volumes from the resources sector in Western Australia rationalisation of clinker production and impeded fixed cost recovery, compressing and the Northern Territory, a recovery in operational improvements assisted full year margins and earnings for lime. residential construction in the eastern states earnings in the period. and higher pricing, particularly for cement and lime. Revenue growth was partially offset by weaker demand for cement in South Australia and Victoria, and a slight decline in lime volumes. Rationalisation of clinker production at Concrete and Aggregates Recent acquisitions and stronger residential the Munster facility began in early 2014. demand in New South Wales and Queensland Production of clinker largely ceased in the first lifted concrete and aggregate volumes quarter of 2014, with manufacture of specialty in 2014. Excluding acquisitions, volumes products continuing until December 2014. increased which were led by the stronger Underlying earnings before interest and The rationalisation delivered cost savings residential market. tax (Underlying EBIT) increased by 8.5% to of $5 million in 2014, with further savings $245.2 million, resulting in an Underlying anticipated in 2015. Demand for aggregate was assisted by the Pacific Highway upgrade and pull through EBIT margin (Underlying EBIT divided by revenue) of 18.3% compared to 18.4% in 2013. The decline in Underlying EBIT margin was the result of contributions from lower margin businesses acquired in 2014 as part of the strategy to focus on vertical integration. On a heritage basis, where the impact of acquisitions is removed, Underlying EBIT margins were stable. Higher cement, concrete, aggregates and concrete products volumes, combined with improved pricing across most markets and products, offset the The rationalisation of clinker manufacture demand from concrete operations. at Munster led to an increase in Adelaide Brighton’s importation of cementitious material to over two million tonnes in 2014, representing approximately 20% of the Australian market. Adelaide Brighton is Australia’s largest importer of cement and Prices remained under pressure in some markets, particularly Victoria and south east Queensland. However meaningful price increases were realised in New South Wales for both concrete and aggregates. clinker and has an unmatched network of Full integration of the Webb, Penrice Quarry import terminals that provide cost competitive & Mineral and Direct Mix / Southern Quarries access to all mainland capital city markets acquisitions was completed during 2014. and regional north west Western Australia. The integration encompassed governance, impact of input cost pressures, particularly The devaluation of the Australian Dollar energy, and a reduction in contribution from against Adelaide Brighton’s major trading joint ventures. Operational improvement currencies of the US Dollar and Japanese initiatives delivered $19.7 million in benefits Yen reduced profitability of imports by in the year, including $5.0 million from the approximately $5 million in 2014 compared rationalisation of clinker manufacture at the to 2013. Munster, Western Australia, site. The $60 million investment to upgrade the Underlying profit before tax increased 8.6% Birkenhead plant delivered further incremental to $230.2 million. Net finance cost increased benefits of $1.1 million in 2014 over and by 6.4% to $15.0 million due to higher above the $8.0 million of benefits delivered borrowing levels. Cement Cement and clinker sales volumes increased by 3% in 2014. Demand from the residential in 2013. Total returns on the project in 2014 of $9.1 million represent a return on funds employed of 15.3%, which exceeds the cost of capital. management, back office functions, accounting, information systems, and health, safety and environment processes. Realisation of synergies from the acquisitions is well progressed. Overall the financial benefit from these acquisitions was in line with initial expectations. Concrete Products Higher volumes and prices lifted Concrete Products sales revenue by 10.5% in 2014. Price growth was slightly ahead of inflation. Sales volumes increased due to an improvement in demand across the majority of regions and an increase in toll production on behalf of other distributors. Demand from sector in New South Wales and Queensland, In July 2014, Adelaide Brighton secured a the residential sector was strong and activity and resource projects in the Northern Territory contract with a major independent customer in the commercial sector also improved. and Western Australia offset a decline in in South Australia and, in December 2014, general construction in Victoria and softer a contract with another major customer demand for back fill binder in the South in the same market for 12 months. These Australian mining sector. A reduction in agreements and the integrated operations demand from projects in the South Australian underpin the utilisation of the efficient market was offset by an improvement in the Birkenhead cement works. residential sector. In March 2014 Adelaide Brighton announced the expected loss of supply of approximately 120,000 tonnes of cement per annum to a major South Australian customer. In line with guidance, this did not impact 2014 volumes. Lime Lime sales volumes declined by approximately 7% in 2014. Demand from the non-alumina sector was lower due to gold mine closures in 2013 and a disruption at a Northern Territory customer in the first half of the year. Mothballing of excess capacity and simplifying the organisation structure delivered significant cost savings while maintaining flexibility to participate in the market recovery. Operational improvements, together with stronger revenue, combined to lift Concrete Products EBIT 190% to $6.1m in 2014. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 39  Joint Arrangements and Associate Independent Cement and Lime’s (ICL) earnings declined in 2014 due to lower volume, rising input costs and limited opportunity to recover those cost increases. Volumes increased in New South Wales through the year, demand for slag-based products remained resilient and Victorian 1. Cost reduction and continuous improvement Import strategy underpins competitive supply Operational improvement Operational improvement programs delivered benefits of $19.7 million in 2014. Key initiatives were a corporate restructure, Munster clinker rationalisation and energy efficiency programs. into key markets Following the rationalisation of clinker manufacture at Munster, Adelaide Brighton’s imports of cementitious products, including clinker, cement and blast furnace slag, increased to more than two million tonnes in 2014, which represents approximately 20% demand strengthened in the second half. > Corporate restructure delivers savings of of Australian industry demand. Despite this, contribution to EBIT was down $4.0 million from $13.1 million in 2013 to $9.1 million in 2014. During the first half, a group wide review of capacity to replace ageing, less efficient operational, human resources, information domestic manufacturing has been a key Since the mid-1990s, the growth of import Sunstate Cement’s contribution to EBIT technology and administration functions was element of Adelaide Brighton’s strategy to increased from $6.7 million in 2013 to undertaken. This resulted in restructuring secure its long term position in the Australian $8.1 million in 2014. Although the south east costs of $5.4 million for the year. Pre-tax market and grow value for shareholders. Queensland market remains competitive, benefits from the corporate restructure were The use of imported materials allows improved demand in the region led to higher $4.0 million in 2014. Adelaide Brighton to supply customers with sales volume, margins and earnings in 2014. > Munster clinker rationalisation delivers Earnings from the Mawsons Group have more savings of $5.0 million than doubled since the acquisition of a 50% interest in 2007. Following a stronger second half, the 2014 EBIT contribution of $3.0 million was in line with 2013. In line with the strategy to grow shareholder returns through improving efficiency and leveraging an industry leading import capability, Adelaide Brighton ceased the Equity accounted earnings from Aalborg production of all clinker at Munster, Western Portland Malaysia Sdn. Bhd. (APM) were Australia, in December 2014. competitively priced product into a range of markets where demand exceeds the Company’s manufacturing capacity. Today the Company is Australia’s largest importer of cementitious materials (cement, clinker and blast furnace slag) and has an unmatched network of import terminals that provide highly competitive access to all mainland capital city markets as well as similar to the prior year and in line with expectations. The US$18.6 million capacity expansion was completed on budget in the second half of 2014. While demand for product was strong, the benefit from the capacity expansion was not available until late in the year. Shipment of white clinker to Adelaide Brighton’s operations in Western Australia commenced in late 2014. Strategic Developments Adelaide Brighton continues its successful The capacity rationalisation delivered EBIT regional north Western Australia and north improvements of $5.0 million in 2014. Results Queensland. for 2014 include redundancy costs of $5.6 million, related to the reduction of 42 full time equivalent positions at Munster, and an impairment charge of $2.0 million relating to plant and equipment associated with clinker production at the site. Adelaide Brighton’s industry leading import scale delivers supply chain efficiencies in procurement, transport, storage and distribution. The strategy is supported by unique long term agreements with two Japanese suppliers for grey clinker; Aalborg > Energy efficiency programs benefit of Portland Malaysia (30% owned by Adelaide $4.9 million Brighton) for white clinker; and a major Japanese trading house for the supply of granulated blast furnace slag. long term strategy of growing shareholder Adelaide Brighton has an ongoing focus on value through three key areas: the management of its power and fuel costs. 1. Cost reduction and continuous improvement across the Company; Benefits of $4.9 million were delivered in Given limited clinker capacity expansion 2014 through the increased use of alternative by the Australian industry in the last two fuels, electricity demand management, fuel decades, cement and clinker demand growth 2. Growth in the lime business to supply the switching and plant efficiency. has been largely met by increased imports. resources sector in WA, SA and NT; and > Other initiatives $5.8 million Imports are now estimated to represent more than 50% of the Australian market for cement 3. Focused and relevant vertical integration into downstream aggregates, concrete and concrete products businesses. Further benefits of $5.8 million were delivered and clinker and as such domestic prices can through a variety of other initiatives, including be influenced by import costs. transport efficiencies, raw materials sourcing During 2014, the Group delivered on a and a range of procurement initiatives. significant number of initiatives in line with its long term strategy. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 40 Land sales releasing capital One of the benefits of the rationalisation and improvement program is the release of surplus land assets. The Group is actively engaged in preparing these properties for sale to maximise value. The program has delivered approximately $16 million in revenue since the beginning of 2013, including a sale that contributed $9 million in cash and $1 million profit before tax in 2014.  2. Lime growth Operational results Following the completion of major upgrades Cash flow to both Munster (Western Australia) kilns in Operating cash flow declined by $33.3 million 2013, improvements in production capacity, to $194.0 million in 2014. The decline was efficiency and environmental performance of largely due to non-recurring items from an To maximise shareholder returns, Adelaide Brighton seeks to ensure the balance sheet is efficiently utilised while retaining the flexibility to fund the long term growth strategy as opportunities are identified. the kilns have been realised. acceleration of the income tax payments The Company refinanced debt facilities during Efficiency gains partially offset the impact of lower volumes and increased energy costs during 2014. Despite a decline in lime system and carbon tax related payments. 2014, increasing the term and lowering Excluding these items, cash flow was borrowing margins. Total facilities were ahead of expectations in the second half. increased by $40 million to $540 million with volumes in 2014, following the 2013 closure Income tax paid increased $23.2 million the following maturity profile: of some gold mines, the long term prospects primarily due to: Facility expiry date Jan 2018 Jan 2019 for lime demand remain strong. > The Federal Government’s introduction of Facility value $330 million $210 million 3. Downstream integration - Concrete and monthly tax instalments (previously quarterly), Aggregates added $11 million to payments in 2014. Income statement Payments will revert to normal levels in 2015; Other income increased by $21.4 million Acquisitions in South Australia and Queensland > The timing of payments related to the carbon In 2014, Adelaide Brighton acquired BM tax which increased income tax payments in Webb Construction Materials in Queensland, 2014 by $6 million. This will reverse in 2015 and Penrice Quarry & Minerals and Direct Mix following the repeal of the carbon tax; to $26.1 million in 2014 primarily due to the recognition of a gain of $17.8 million as a result of the fair value accounting of an acquisition and the receipt of $4.7 million relating to the settlement of a legal claim with / Southern Quarries in South Australia at an overall enterprise value of $172 million. These acquisitions are consistent with the strategy of > Tax instalments related to revenue from the an equipment supplier. 2014 acquisitions of $1.5 million; and Despite higher borrowings following the major focused and relevant vertical integration. The > Increased tax instalments due to higher acquisitions, net finance costs increased only overall year one acquisition multiple is 2014 earnings. 7.8 times EBITDA after synergies. Excluding acquisitions, capital expenditure The assets acquired include strategic totalled $60.4 million in 2014, a decline quarrying operations producing approximately of $6.5 million from 2013 following the 2 million tonnes per annum of aggregates. completion of organic growth projects. Cash The acquired businesses also produce more proceeds from asset sales of $13.6 million modestly to $15.0 million in 2014. Interest costs benefited from lower borrowing margins on the new facilities and lower underlying interest rates. Capitalised interest was lower due to the completion of major capital expenditure projects. than 250,000 cubic metres of concrete primarily related to the sale of land in north Tax expense of $59.9 million, an increase of annually, securing a significant volume of Queensland. The profit impact of these $2.4 million in 2014, represents an effective the Company’s cement sales in the South sales was circa $1 million. tax rate of 25.8% (2013 - 27.6%). The lower Australian market. Balance sheet Integration of the acquisitions, including the The balance sheet was impacted by information systems, has been completed on acquisitions in 2014, increasing asset and an accelerated time frame delivering synergy liability balances compared to 2013. benefits in logistics operations, procurement and back office functions. Earnings from the acquisitions were in line with expectations for the period to December 2014. Excluding acquisitions, working capital increased by $12.8 million or 6.0% which was less than revenue growth in 2014. Inventory and trade debtors increased $13.9 million and Strategic attractions of Sydney aggregates $9.5 million respectively, while trade and other Adelaide Brighton has a significant investment payables increased $4.7 million. Outstanding in aggregates in the Sydney market through debtor days averaged 44.3 days compared its Austen Quarry at Hartley, New South to 47.6 days in 2013. Payments for the now Wales. Aggregates earnings increased in repealed carbon tax increased $14.3 million 2014 in New South Wales supported by in 2014. a recovery in the Sydney construction materials market. Due to strong second half cash flow net debt increased a lower than expected Emerging Concrete and Aggregates position $111.8 million to $359.8 million. Net debt to Adelaide Brighton continues to make equity gearing of 31.7% at year end was well progress on its downstream strategic plan. within the targeted range of 25% to 45%. The Group now produces more than 1.5 million cubic metres per annum of premix concrete and more than 6 million tonnes per annum of aggregates. The footprint of this business now reaches from South Australia through Victoria and New South Wales, to south east and northern Queensland. tax rate was largely due to a $17.8 million non-taxable gain on fair value accounting. Adjusting for the impact of this item, the effective tax rate of 27.9% was within the expected range of 27% to 28%. An actuarial loss of $1.2 million related to the defined benefit liability was recognised through other comprehensive income compared to an actuarial gain of $7.6 million in 2013. The current year loss was primarily due to the reduction in discount rate used to calculate the defined superannuation benefit liability, which partially reversed the position from 2013 where the discount rate increased. Reconciliation of Underlying Profit “Underlying” measures of profit exclude significant items of revenue and expenses, such as the costs related to restructuring, rationalisation and acquisitions, in order to highlight the underlying financial performance of the business across reporting periods. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 41  The following table reconciles underlying earnings’ measures to statutory results. > Sales of other cementitious products Year ended 31 December ($ Million) 2014 2013 > Increased sales in Western Australia; and to that customer; Profit before Income Statutory profit Rationalisation of clinker production Corporate restructuring costs Acquisition expenses Gain on bargain purchase Claim settlement tax 232.5 7.6 5.4 6.2 (17.8) (3.7) tax (59.9) (2.3) (1.6) (1.1) - 1.1 Profit after tax 172.6 5.3 3.8 5.1 (17.8) (2.6) Profit Profit > Improved demand in Victoria, New South before Income tax tax after tax 208.6 (57.5 ) 151.1 - 3.3 - - - - (1.0 ) - - - - 2.3 - - - Wales and Queensland. Lime sales volume is anticipated to be similar to or slightly higher than 2014 and average realised prices are likely to increase. The threat of small scale lime imports in Western Australia and the Northern Territory remains, however the weaker Australian dollar is likely to reduce the competitiveness of imports Underlying profit 230.2 (63.8) 166.4 211.9 (58.5 ) 153.4 relative to Adelaide Brighton’s low cost operations. Price increases have been announced for March and April 2015 in cement, clinker, > Rationalisation of clinker production Dividends paid or declared by the The Group announced the rationalisation Company of clinker production at the Munster site in February 2014. As part of the rationalisation, a number of employees were made redundant During the 2014 financial year, the following aggregates, concrete and concrete products. dividends were paid: Price increases achieved in 2015 are at a cost of $5.6 million. In addition, assets > A final dividend in respect of the year ended expected to exceed those achieved last not required following the cessation of clinker 31 December 2013 of 12.0 cents per share year. A number of factors are supportive of manufacture at the site were considered (fully franked) was paid on 15 April 2014. higher prices including strengthening demand impaired and an impairment charge of This dividend totalled $76,614,803; and and capacity utilisation and the weakening $2.0 million was recognised. > An interim dividend in respect of the year > Corporate restructuring costs ended 31 December 2014 of 7.5 cents per Australian dollar, which increases the cost of import substitutes. Redundancies and one-off employment share (fully franked) was paid on 20 October First half 2015 imports have been fully costs were $5.4 million for the year which 2014. This dividend totalled $48,040,159. hedged, however, the deterioration in the included the retirement of the previous Managing Director and restructuring across the Company. Savings, in the form of reduced costs, were realised during the year. Since the end of the financial year the Directors have approved the payment of a final ordinary dividend of 9.5 cents per share (fully franked). The final dividend is to be paid > Acquisition expenses on 16 April 2015. The costs associated with acquisitions, including stamp duty, legal and other State of affairs Australian dollar will increase the direct cost of imported materials for Adelaide Brighton. Assuming the Australian dollar remains at around Yen90 and USD0.75, costs are expected to increase by approximately $7 million in a full year, prior to any off-set through price increases. Gas costs in South Australia are now expected to increase by consulting costs, fluctuate with transaction activity. External costs relating to acquisitions and potential acquisitions recognised as an expense in the income statement totalled $6.2 million during the year. Other than set out in the Review of $2 million pre-tax in 2015. Operations, no significant changes occurred in the state of affairs of the Group during the financial year. There are a number of items which are anticipated to support EBIT: > The repeal of the carbon tax to benefit circa > Acquisition fair value gain Events subsequent to the end of the $3 million compared to 2014; A gain of $17.8 million relating to acquisition financial year fair value accounting has been recognised as other income in the income statement. > Claim settlement As at the date of this report, no matter or $4 million from lower fuel costs; circumstance has arisen since 31 December 2014 that has significantly affected, or may > Further Munster rationalisation benefits of $5 million; and > Potential transport costs savings of Adelaide Brighton settled a long standing significantly affect the Group’s operations, the litigation claim and received a payment of results of those operations, or the Group’s > Full year benefits from the 2014 corporate $4.7 million in the year, which has been state of affairs in future financial years. rationalisation of $2 million. recognised as other income. The settlement amount, less legal costs of $1.0 million, is Likely developments and expected included in the significant items. results of operations Adelaide Brighton has a land portfolio that is expected to release a total of $130 million in cash in the medium to long term. The In 2015, Adelaide Brighton anticipates sales Group is actively engaged in preparing these volumes of cement and clinker to be similar to properties for sale to maximise value. or greater than 2014. Reduced cement sales from January 2015 to a major customer in South Australia are expected to be offset by: ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 42  The Sydney market is transitioning to Directors’ meetings aggregate sources supplied from outside the metropolitan area, following the reserves at existing competitor quarries being exhausted. Due to the structural change it is expected that Sydney aggregate prices will increase well above CPI in the short to medium The number of Directors’ meetings and meetings of committees of Directors held during the financial year and the number of meetings attended by each Director is as follows: Audit, Risk Nomination, and Remuneration Independent Board Compliance and Governance Directors’ SH&E term. Adelaide Brighton’s Austen Quarry is Director Meetings Committee Committee Committee Committee expected to benefit from growth in prices and demand, which could increase annual EBIT by $8 million to $10 million over the next three to five years. LV Hosking RD Barro GF Pettigrew Environmental performance KB Scott-Mackenzie AM Tansey MP Chellew2 A H 10 10 10 1191 10 4 10 10 10 10 10 4 A 4 4 4 H 4 4 4 A 5 5 141 5 H 5 5 5 5 A H 2 2 2 2 2 2 A 0 0 0 0 H 0 0 0 0 A Number of meetings attended. H Number of meetings held during period of office. 1 Apology - on leave overseas. 2 MP Chellew retirement effective from the conclusion of the Company’s AGM on 21 May 2014. Particulars of the Company’s corporate governance practices, including the roles of each Board Committee are set out on pages 27 to 33 of this report. Director profiles Director and executive remuneration Information relating to Directors’qualifications, Details of the Company’s remuneration experience and special responsibilities are set policies and the nature and amount of out on page 36 of the Annual Report. the remuneration of the Directors and Directors’ interests The relevant interest of each Director in the share capital of the Company at the date of this report is as follows: certain senior executives are set out in the Remuneration Report on pages 47 to 61 of this report. Company Secretaries LV Hosking RD Barro GF Pettigrew KB Scott-Mackenzie AM Tansey Ordinary shares The Company’s principal Company Secretary is Marcus Clayton, who has been employed 4,851 by the Company in the two separate offices 217,869,876 of General Counsel and Company Secretary 7,739 5,000 since 24 February 2003. He is a legal practitioner admitted in South Australia with 10,000 27 years experience. Full details of the interests in share capital of Two other employees of the Company also Directors of the Company are set out in the hold the office of Company Secretary to Remuneration Report on pages 47 to 61 of assist with secretarial duties should the this report. principal Company Secretary be absent: the Company’s Chief Financial Officer, Michael Kelly, a Certified Practising Accountant who has been a Company Secretary since 23 November 2010 and the Group’s Corporate Affairs Adviser, Luba Alexander, who has been a Company Secretary since 22 March 2001. The Group is subject to various Commonwealth, State and Territory laws concerning the environmental performance of Adelaide Brighton’s operations. Environmental performance is monitored by site and business division, and information about the Group’s performance is reported to and reviewed by the Group’s senior management, the Board’s Safety, Health & Environment Committee, and the Board. The Group’s major operations have ongoing dialogue with the relevant authorities responsible for monitoring or regulating the environmental impact of Group operations. As part of this, Group entities respond as required to requests, including requests for information and site inspections. During 2014, seven minor matters concerning environmental performance were raised with regulatory authorities. Four of these concerned the minor escape or spillage of materials, two related to blasting, and one related to noise. All of these minor incidents were quickly addressed and, where applicable, reviews were undertaken to minimise the risk of recurrence. No fines or penalties were incurred arising from the Group’s environmental performance, and no prosecutions for breach of environmental requirements were commenced against any Group entity in 2014. In 2011, the WA Department of Environment Regulation commenced a prosecution against Cockburn Cement Ltd (“Cockburn”) alleging non-compliance with Cockburn’s environmental licence and alleging breaches of the Environment Protection Act 1986 (WA), arising from the conduct of a contractor at Munster in 2010. The prosecution discontinued one of the two charges in December 2013. During May 2014 a trial was held at the Magistrates Court in Perth, and all the charges brought were dismissed and Cockburn was fully acquitted. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 43  Indemnification and insurance of officers Proceedings on behalf of the Company Rounding off Rule 9 of the Company’s constitution provides No person has applied for leave of the The Company is of a kind referred to in ASIC that the Company indemnifies each person Court to bring proceedings on behalf of the Class Order 98/100 relating to the “rounding who is or who has been an “officer” of the Company or to intervene in any proceedings off” of amounts in the Directors’ report. In Company on a full indemnity basis and to the to which the Company is a party for the accordance with that Class Order, amounts in full extent permitted by law, against liabilities purpose of taking responsibility on behalf the financial report and Directors’ report have incurred by that person in their capacity as an of the Company for all or any part of those been rounded off to the nearest one hundred officer of the Company or of a related body proceedings. The Company was not a party thousand dollars, unless otherwise stated. corporate. to any such proceedings during the year. Rule 9.1 of the constitution defines “officers” to mean: Non-audit services Shares under option The details of shares under option at the > Each person who is or has been a Director, alternate Director or executive officer of the Company or of a related body corporate of the Company who in that capacity is or was a nominee of the Company; and > Such other officers or former officers of the Company or of its related bodies corporate as the Directors in each case determine. The Company may decide to employ the date of this report are set out in Note 28. auditor on assignments additional to their statutory audit duties where the auditor’s Registered Office experience and expertise with the Company and the Group are important. The registered office of the Company is Level 1, 157 Grenfell Street, Adelaide, Details of the amounts paid or payable to South Australia 5000. PricewaterhouseCoopers for audit and non- audit services provided during the year are set Dated 12 March 2015 out in Note 29 to the Financial Statements on Signed in accordance with a resolution Additionally the Company has entered into page 96 of this report. of the Directors Deeds of Access, Indemnity and Insurance with all Directors of the Company and its wholly owned subsidiaries. These deeds provide for indemnification on a full indemnity basis and to the full extent permitted by law against all losses or liabilities incurred by the person as an officer of the relevant company. The indemnity is a continuing obligation and is enforceable by an officer even if he or she has ceased to be an officer of the relevant company or its related bodies corporate. The Board of Directors has considered the position and, in accordance with the advice received from the Audit, Risk and Compliance Committee, is satisfied that the provision of LV Hosking the non-audit services is compatible with Chairman the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set in Note 29, did not compromise the auditor’s independence requirements of The Company was not liable during 2014 the Corporations Act 2001 for the following under such indemnities. reasons: Rule 9.5 of the constitution provides that > All non-audit services have been reviewed by the Company may purchase and maintain the Audit, Risk and Compliance Committee to insurance or pay or agree to pay a premium ensure they do not impact the impartiality and for insurance for “officers” (as defined in objectivity of the auditor; and > None of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 107. the constitution) against liabilities incurred by the officer in his or her capacity as an officer of the Company or of a related body corporate, including liability for negligence or for reasonable costs and expenses incurred in defending proceedings, whether civil or criminal. During the year the Company paid the premiums in respect of Directors’ and Officers’ Liability Insurance to cover the Directors and Secretaries of the Company and its subsidiaries, and the General Managers of each of the divisions of the Group, for the period 1 May 2014 to 30 April 2015. Due to confidentiality obligations under that policy, the premium payable and further details in respect of the nature of the liabilities insured against cannot be disclosed. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 44 Level 1 157 Grenfell Street Adelaide SA 5000 GPO Box 2155 Adelaide SA 5001 Level 1 157 Grenfell Street Adelaide SA 5000 GPO Box 2155 Adelaide SA 5001 Telephone (08) 8223 8000 Telephone (08) 8223 8000 International +618 8223 8000 International +618 8223 8000 Facsimile (08) 8215 0030 www.adbri.com.au Facsimile (08) 8215 0030 www.adbri.com.au Ad e laid e B rig h to n Ltd ACN 007 596 018 Adelaide Brighton Ltd ACN 007 596 018 Ad e laid e B rig h to n Ltd ACN 007 596 018 Dear Shareholder Dear Shareholder On behalf of the Board, I am pleased to introduce by way of this letter the 2014 Remuneration Report of Adelaide Brighton. The remuneration policies of Adelaide Brighton continue to focus on retaining a strong management team and rewarding that team in a way that is consistent with creating shareholder value. In that regard I am pleased to present the results for 2014 which are relevant to, and consistent with those remuneration policies. On behalf of the Board, I am pleased to introduce by way of this letter the 2014 Remuneration Report of Adelaide Brighton. Dear Shareholder The remuneration policies of Adelaide Brighton continue to focus on retaining a strong management team and rewarding that team in On behalf of the Board, I am pleased to introduce by way of this letter the 2014 Remuneration Report of Adelaide Brighton. a way that is consistent with creating shareholder value. In that regard I am pleased to present the results for 2014 which are relevant to, and consistent with those remuneration policies. The remuneration policies of Adelaide Brighton continue to focus on retaining a strong management team and rewarding that team in a way that is consistent with creating shareholder value. In that regard I am pleased to present the results for 2014 which are relevant to, and consistent with those In 2014, Adelaide Brighton continued to perform well with the Company posting record revenue of $1,337.8 million. At the same time In 2014, Adelaide Brighton continued to perform well with the Company posting record revenue of $1,337.8 million. At the same time reported earnings before interest and tax (EBIT) rose 11.1% to $247.5 million, and reported net profit after tax (NPAT) increased reported earnings before interest and tax (EBIT) rose 11.1% to $247.5 million, and reported net profit after tax (NPAT) increased remuneration policies. 14.3% to $172.7 million, both records for the Company. 14.3% to $172.7 million, both records for the Company. In 2014, Adelaide Brighton continued to perform well with the Company posting record revenue of $1,337.8 million. At the same time reported Over the four year measurement period of the long term incentive (January 2010 to December 2013) Adelaide Brighton delivered Over the four year measurement period of the long term incentive (January 2010 to December 2013) Adelaide Brighton delivered earnings before interest and tax (EBIT) rose 11.1% to $247.5 million, and reported net profit after tax (NPAT) increased 14.3% to $172.7 million, Total Shareholder Return (TSR) of 75.2%, including share price growth of 40.8%. This strong performance in shareholder returns Total Shareholder Return (TSR) of 75.2%, including share price growth of 40.8%. This strong performance in shareholder returns resulted in half of the long term incentive Award vesting associated with the TSR. However, notwithstanding continued improvement resulted in half of the long term incentive Award vesting associated with the TSR. However, notwithstanding continued improvement both records for the Company. in earnings per share (EPS) over this period, the rate of growth achieved was just below the threshold level required for vesting of in earnings per share (EPS) over this period, the rate of growth achieved was just below the threshold level required for vesting of Over the four year measurement period of the long term incentive (January 2010 to December 2013) Adelaide Brighton delivered Total Shareholder any part of the Award under the EPS performance condition and therefore half of the long term incentive Award tested in 2014 any part of the Award under the EPS performance condition and therefore half of the long term incentive Award tested in 2014 subject to the EPS performance condition lapsed (and cannot be re-tested). subject to the EPS performance condition lapsed (and cannot be re-tested). Return (TSR) of 75.2%, including share price growth of 40.8%. This strong performance in shareholder returns resulted in half of the long term Adelaide Brighton’s financial performance resulted in profit before tax (PBT) growth of more than 10%. This met Group and Adelaide Brighton’s financial performance resulted in profit before tax (PBT) growth of more than 10%. This met Group and incentive Award vesting associated with the TSR. However, notwithstanding continued improvement in earnings per share (EPS) over this period, the Divisional STI financial targets. In its annual assessment of STI’s the Board may adjust for exceptional, abnormal or extraordinary Divisional STI financial targets. In its annual assessment of STI’s the Board may adjust for exceptional, abnormal or extraordinary rate of growth achieved was just below the threshold level required for vesting of any part of the Award under the EPS performance condition and items which affected results for the year. In 2014 this process resulted in downward adjustments to the PBT for STI purposes for the items which affected results for the year. In 2014 this process resulted in downward adjustments to the PBT for STI purposes for the therefore half of the long term incentive Award tested in 2014 subject to the EPS performance condition lapsed (and cannot be re-tested). Group and one Division. The Board set relevant and challenging non-financial targets for the individual KMP in 2014. Performance Group and one Division. The Board set relevant and challenging non-financial targets for the individual KMP in 2014. Performance against these non-financial targets was assessed impacting individual KMP outcomes. The overall result was short term incentives against these non-financial targets was assessed impacting individual KMP outcomes. The overall result was short term incentives Adelaide Brighton’s financial performance resulted in profit before tax (PBT) growth of more than 10%. This met Group and Divisional Short Term for KMP vested in the range of 86.9% to 89.8% of their potential maximum, down from the previous year. I would also point out that for KMP vested in the range of 86.9% to 89.8% of their potential maximum, down from the previous year. I would also point out that Incentive (STI) financial targets. In its annual assessment of STIs the Board may adjust for exceptional, abnormal or extraordinary items which affected no short term incentive payment was made to the former Managing Director, Mark Chellew, for the 2014 year. no short term incentive payment was made to the former Managing Director, Mark Chellew, for the 2014 year. results for the year. In 2014 this process resulted in downward adjustments to the PBT for STI purposes for the Group and one Division. The Board set The Board recognises its responsibility to maintain shareholder confidence in Adelaide Brighton’s leadership and remuneration The Board recognises its responsibility to maintain shareholder confidence in Adelaide Brighton’s leadership and remuneration practices, and to implement new practices as appropriate for the Group’s circumstances, strategy and direction. The Board remains practices, and to implement new practices as appropriate for the Group’s circumstances, strategy and direction. The Board remains relevant and challenging non-financial targets for the individual Key Management Personnel (KMP) in 2014. Performance against these non-financial focused on delivering sustainable value for our shareholders and aligning the Group’s executive remuneration framework to this focused on delivering sustainable value for our shareholders and aligning the Group’s executive remuneration framework to this targets was assessed impacting individual KMP outcomes. The overall result was short term incentives for KMP vested in the range of 86.9% to objective. objective. 89.8% of their potential maximum, down from the previous year. I would also point out that no short term incentive payment was made to the former As part of that process in 2014 the Board revised some KMP service agreements (where required) to provide for a new form of Managing Director, Mark Chellew, for the 2014 year. executive contract. The key goal of this was to align executives and shareholders. It provides for: The Board recognises its responsibility to maintain shareholder confidence in Adelaide Brighton’s leadership and remuneration practices, and to Board discretion for short term and long term incentive arrangements; • • Termination on six months’ notice by either party (or payment in lieu by the Company); • • implement new practices as appropriate for the Group’s circumstances, strategy and direction. The Board remains focused on delivering sustainable Immediate termination by the Company for cause; • • value for our shareholders and aligning the Group’s executive remuneration framework to this objective. Post employment restraint of up to six months; • • As part of that process in 2014 the Board revised some KMP service agreements (where required) to provide for a new form of executive contract. Clawback of incentives paid due to the executive’s material non-compliance with any financial reporting requirement, • • or misconduct, including fraud, dishonesty, or breach of duty; and The key goal of this was to align executives and shareholders. It provides for: Other provisions commonly found in contemporary executive service agreements. • • Board discretion for short term and long term incentive arrangements; Termination on six months’ notice by either party (or payment in lieu by the Company); Immediate termination by the Company for cause; Post employment restraint of up to six months; Clawback of incentives paid due to the executive’s material non-compliance with any financial reporting requirement, or misconduct, including fraud, dishonesty, or breach of duty; and Other provisions commonly found in contemporary executive service agreements. As part of that process in 2014 the Board revised some KMP service agreements (where required) to provide for a new form of executive contract. The key goal of this was to align executives and shareholders. It provides for: > Board discretion for short term and long term incentive arrangements; > Termination on six months’ notice by either party (or payment in lieu by the Company); The Board is currently conducting a holistic review of the Group’s remuneration structure over the next 12 months. In 2016, we will consider implementing the deferral of a portion of the STI consistent with claw back provisions, and assess any further changes resulting from that review. The Board is currently conducting a holistic review of the Group’s remuneration structure over the next 12 months. In 2016, we will consider implementing the deferral of a portion of the STI consistent with claw back provisions, and assess any further changes resulting from that review. > Immediate termination by the Company for cause; > Post employment restraint of up to six months; Succession planning continues to be a key priority for the Board, including developing internal candidates as well as reviewing and Succession planning continues to be a key priority for the Board, including developing internal candidates as well as reviewing and assessing appropriate external candidates. This process led to the promotion of Martin Brydon (a long term serving executive of the assessing appropriate external candidates. This process led to the promotion of Martin Brydon (a long term serving executive of the Company) to the position of CEO from 21 May 2014. The transition of leadership responsibilities has been smooth and the Company Company) to the position of CEO from 21 May 2014. The transition of leadership responsibilities has been smooth and the Company > Clawback of incentives paid due to the executive’s material non-compliance with any financial reporting requirement, or misconduct, including fraud, has continued to deliver shareholder value. has continued to deliver shareholder value. dishonesty, or breach of duty; and The Directors recognise that Board renewal is an ongoing process. During 2014, Directors reviewed the Board’s composition utilising a Board skills matrix. The Board’s composition will continue to be monitored and reviewed during 2015. The Directors recognise that Board renewal is an ongoing process. During 2014, Directors reviewed the Board’s composition utilising a Board skills matrix. The Board’s composition will continue to be monitored and reviewed during 2015. > Other provisions commonly found in contemporary executive service agreements. During 2014, the Board has been focused on driving alignment of KMP with long term shareholder value, resulting in change to remuneration practices as outlined above. During 2014, the Board has been focused on driving alignment of KMP with long term shareholder value, resulting in change to The Board is currently conducting a holistic review of the Group’s remuneration structure over the next 12 months. In 2016, we will consider remuneration practices as outlined above. implementing the deferral of a portion of the STI consistent with claw back provisions, and assess any further changes resulting from that review. The Board is pleased to present the 2014 Remuneration Report to shareholders. The Board is pleased to present the 2014 Remuneration Report to shareholders. Succession planning continues to be a key priority for the Board, including developing internal candidates as well as reviewing and assessing appropriate external candidates. This process led to the promotion of Martin Brydon (a long term serving executive of the Company) to the position of CEO from 21 May 2014. The transition of leadership responsibilities has been smooth and the Company has continued to deliver shareholder value. The Directors recognise that Board renewal is an ongoing process. During 2014, Directors reviewed the Board’s composition utilising a Board skills Arlene Tansey Arlene Tansey Chairman of Nomination, Remuneration and Governance Committee Chairman of Nomination, Remuneration and Governance Committee matrix. The Board’s composition will continue to be monitored and reviewed during 2015. During 2014, the Board has been focused on driving alignment of KMP with long term shareholder value, resulting in change to remuneration practices as outlined above. The Board is pleased to present the 2014 Remuneration Report to shareholders. Arlene Tansey Chairman of Nomination, Remuneration and Governance Committee ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 45 Remuneration report contents .................................................................................................................................. Page Remuneration summary ............................................................................................. 47 Financial highlights for the 2014 financial year ................................................................ 47 Long term financial highlights ......................................................................................... 47 Strategy highlights ......................................................................................................... 48 Remuneration highlights for 2014 .................................................................................. 48 Changes during the 2014 financial year ......................................................................... 49 Looking forward ............................................................................................................. 50 Executive remuneration framework .......................................................................... 50 Key management personnel .......................................................................................... 50 Remuneration framework ............................................................................................... 50 Company performance and remuneration outcomes for 2014 .............................. 52 Overview of Company performance ............................................................................... 52 Linking remuneration to Company performance ............................................................. 53 1 1.1 1.2 1.3 1.4 1.5 1.6 2 2.1 2.2 3 3.1 3.2 3.2.1 Short Term Incentive - key performance outcomes ........................................................ 53 3.2.2 Short Term Incentive - actual outcomes ......................................................................... 54 3.2.3 Long Term Incentive - key performance outcomes ......................................................... 54 3.2.4 Long Term Incentive - actual outcomes .......................................................................... 55 4 4.1 4.2 5 5.1 5.2 5.3 6 7 Remuneration governance ........................................................................................ 55 Responsibility for setting remuneration ........................................................................... 55 Remuneration policy ...................................................................................................... 56 Executive remuneration ............................................................................................. 56 Fixed annual remuneration ............................................................................................. 56 At-risk remuneration - Short Term Incentive.................................................................... 56 At-risk remuneration - Long Term Incentive .................................................................... 57 Executive Service Agreements .................................................................................. 59 Non-executive Directors’ fees ................................................................................... 59 7.1 Policy and approach to setting fees ............................................................................... 59 8 8.1 8.2 8.3 Key Management Personnel disclosure tables ....................................................... 60 Non-executive Directors’ statutory remuneration ............................................................ 60 Executive statutory remuneration ................................................................................... 61 Equity holdings of Key Management Personnel .............................................................. 61 ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 46 Remuneration report The Directors of Adelaide Brighton Limited 2014 reported Group PBT was 112% of As can be seen in the graph below Adelaide (the Company) present the Remuneration budget, while underlying Group PBT was Brighton‘s EBIT performance compares Report (Report) for the Company and the 111% of budget. Taking into account a favourably to its listed peers. Group for the financial year ended range of considerations, including budget 31 December 2014. The Report outlines the assumptions and management initiatives, the remuneration arrangements in place for the Board adjusted Group PBT and one Division’s Key Management Personnel (KMP) of the financial outcomes used for STI purposes Company and is prepared in accordance downwards to $223.5 million, which was with section 300A of the Corporations Act 108% of budget. 2001. This Report, which forms part of the Directors’ Report, has been audited by 1.2 Long term financial highlights PricewaterhouseCoopers. Adelaide Brighton has delivered 7.0% Section 1 - Remuneration Summary over the last five years. Through our strategy compound annual growth in reported NPAT 1.1 Financial highlights for the 2014 financial year of operational improvement, downstream investment and growth in the lime business, Adelaide Brighton has managed to increase The Directors are pleased to present Adelaide profitability over this period delivering value 150 140 130 120 110 100 90 80 70 60 50 40 30 COMPAR ABL ES EARNINGS EB IT ( UNDE RLY ING) IND EX (2 00 9 = 1 00) 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 Brighton Ltd’s strong financial performance to shareholders in what has been challenging ABC for 2014, with the Company posting record market conditions. s t r o p e r y n a p m o C : e c r u o S s t r o p e r y n a p m o C : e c r u o S NE T PROFIT AFTE R TAX (REP ORT ED VS UNDE RLYING ) n o t h g i r i B e d a e d A l CSR (BUILDING PRODUCTS DIVISION) BORAL (CONSTRUCTION MATERIALS AUSTRALIA) The Company has also maintained its leading EBIT margin %. COMPARAB LES EARNINGS EB IT MARGIN (UNDERLY ING) % 25 20 15 10 5 0 2009 2010 2011 2012 2013 2014 REPORTED UNDERLYING : e c r u o S 2009 2010 2011 2012 2013 2014 ABC CSR (BUILDING PRODUCTS DIVISION) BORAL (CONSTRUCTION MATERIALS AUSTRALIA) $m 180 170 160 150 140 130 120 110 100 revenue, earnings before interest and tax (EBIT) and profit before tax (PBT). In summary: > Net profit after tax (NPAT) increased by $21.6 million or 14.3% on 2013. > Revenue increased by $110 million, up 8.9% on 2013. > Earnings before interest and tax (EBIT) was up $24.8 million, or 11.1% on 2013. These results have been driven by the implementation of a clear strategic plan delivering: > Improved construction materials volumes. > Increased pricing for construction materials and lime. > Tight control of costs, with: - Operational improvement programs delivering a benefit of $19.7 million in 2014. - Major initiatives including rationalisation of the Western Australian cement operations and a corporate restructuring program. > Successful completion of a major acquisition program in South Australia and north Queensland. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 47  Over this period, Adelaide Brighton’s total return to shareholders has outperformed the Comparator Group1 and as can be seen in the graph below, outperformed the ASX200 Accumulation Index. 1 Comparator Group is the companies in the S&P/ASX200 Accumulation Index, excluding all GICS financial companies and selected resources companies TOTAL SHAREH OLDE R RETUR NS (SHARE PRIC E + DIVIDEND REIN VESTED) & S& P/AS X2 0 0 AC C U M U LATION IND EX RET URNS % 100 80 60 40 20 0 -20 d t L y t P s r e s v d A i t s r i F / X S A : e c r u o S 0 1 n a J 0 1 r p A 0 1 l u J 0 1 t c O 1 1 n a J 1 1 r p A 1 1 l u J 1 1 t c O 2 1 n a J 2 1 r p A 2 1 l u J 2 1 t c O 3 1 n a J 3 1 r p A 3 1 l u J 3 1 t c O 4 1 n a J 4 1 r p A 4 1 l u J 4 1 t c O 4 1 c e D ABC S&P/ASX200 ACCUM 1.3 Strategy highlights Adelaide Brighton is focused on delivering long term shareholder value. During 2014, management undertook a range of initiatives that delivered cost savings of $19.7 million. These initiatives included a restructure of its Western Australian cement operations and its corporate functions. These two initiatives delivered benefits of $9.0 million in 2014, and are expected to deliver further incremental savings of $7.0 million in 2015 (total benefits of $16.0 million). Management also secured and acquisitive growth. The acquisitions have strengthened our position in the South Australian market and have given the Company an important position for cement distribution in north Queensland. During the year, management has been focused on the integration of these acquisitions. The Company is now realising synergy benefits ahead of initial expectations through successful back office integration including governance, safety, health and environment, procurement and information systems. long term contracts for the supply of essential 1.4 Remuneration highlights for 2014 business inputs of raw materials and energy; successfully delivered capital expenditure projects within budget and renewed supply contracts with major customers on favourable terms. The Company’s success growing profit over an extended period has been achieved by a long term stable management team. This was exemplified by the internal promotion of Martin Brydon to the position of Chief Adelaide Brighton has a consistent approach Executive Officer (CEO), succeeding long term of investing for operational improvement Managing Director and CEO Mark Chellew, and growth while returning surplus capital, and various internal promotions made as a a strategy which has supported strong consequence of Martin Brydon’s promotion. total shareholder returns for more than a Our Company has continued to perform well decade. The acquisition of three construction in challenging market conditions, with our materials businesses during 2014 in South NPAT growing strongly in 2014. Australia and Queensland for $172 million (on an enterprise value basis) is consistent with our strategy of downstream investment and strengthens our capacity for organic Our remuneration policies focus on rewarding achievement and stabilising our management team through long term incentives which are consistent with shareholders’ returns. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 48  An overview of the key 2014 remuneration related matters is set out below: 1.5 Changes during the 2014 financial year Executive remuneration The CEO’s fixed remuneration was set at $1.3 million per annum The overall structure and philosophy of upon his appointment to that role during the 2014 financial year. Adelaide Brighton’s approach to remuneration This was materially lower than for the previous long serving CEO. remained consistent throughout 2014. Following annual remuneration reviews concluded in late 2013, Martin Brydon replaced the Company’s long some senior executives received a 2% increase over 2013 fixed serving Managing Director and CEO Mark remuneration, to address internal relativities and reflecting the fact Chellew at the Company’s Annual General that fixed remuneration for these executives was originally set a Meeting on 21 May 2014. As disclosed in little below market while the executives gained experience in their last year’s Remuneration Report, the Board current roles. Fixed remuneration for other senior executives for the reviewed the terms of employment for the 2014 financial year were held at the same level as 2013. CEO at the time of his appointment and Short term incentive The annual short term incentive for the CEO and Chief Financial outcomes Officer (CFO) is split 80% Group financial target and 20% non- financial targets. Martin Brydon has been employed as the Company’s CEO on terms embodying best practice, which superseded and replaced his previous executive service agreement (as For executives other than the CEO and CFO the split is 60% Group Executive General Manager, Cement and financial target, 20% Divisional financial target and 20% non- Lime). financial targets. Martin Brydon’s smooth succession to CEO 2014 Reported Group PBT was 112% of budget, while Underlying is indicative of the inherent value of a long Group PBT was 111% of budget. The Board adjusted the PBT standing senior executive team at Adelaide used for STI purposes downwards to $223.5 million, which was Brighton. 108% of budget. The Company has also taken the opportunity The Board considered items individually taking account of a range to ensure that all KMP have now transitioned of matters, including budget assumptions and management to a new form of executive service agreement, initiatives, making the following adjustments: > the impact of acquisitions which were unbudgeted were excluded (fair value gain and acquisition earnings less transaction costs); and removing older style termination benefit arrangements and replacing them with provisions that provide alignment between executives and shareholders by more > restructuring charges, net of benefits derived during the year were closely linking the rewards which accrue to excluded. The same approach was taken to the Divisional Financial targets. Overall this resulted in the Divisional financial target being met at 100%. Non-financial targets for the CEO and Executives were met at between 73% and 83%. Long term incentive During 2014, Tranche 3 of the 2010 Awards was tested for earliest outcomes - Total exercise in May 2014. These Awards vested at 50%: senior executives to the creation of value for shareholders. A new form of executive service agreement will be used for all new senior executive appointments. It provides for: > Board discretion for short term and long term incentive arrangements; > Termination on six months’ notice by either party (or payment in lieu by the Company); > Immediate termination by the Company for cause; > While operating conditions remained challenging, the senior executive team was effective in delivering Total Shareholder Return of 75.2% over the measurement period. > Post employment restraint of up to six > The Total Shareholder Return component (representing 50% of the months (paid); long term incentive) fully vested with the Total Shareholder Return > Clawback of incentives paid due to the of 75.2% which was at the 81st percentile of the Comparator executive’s material non-compliance with Group. > The Earnings Per Share (EPS) component (representing 50% of the long term incentive) did not vest as the EPS target was not any financial reporting requirement, or misconduct, including fraud, dishonesty, or breach of duty; and met. This is despite continued growth in EPS over the performance > Other provisions commonly found in period and notwithstanding challenging trading conditions that contemporary executive service agreements. resulted in some competitors suffering declines in earnings. Shareholder Return of 75.2% over the measurement period (2010 - 2013) Non-executive Director There were no increases in Board or Committee fees in financial remuneration year 2014. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 49  Our senior executives’ remuneration levels Section 2 - Executive remuneration framework were benchmarked during the year, and generally sit around the median percentile of 2.1 Key Management Personnel (KMP) similar roles within comparable companies The KMP of Adelaide Brighton comprises all Directors and those Executives who have authority in the ASX 51-150. Actual salaries at any and responsibility for the planning, directing and controlling of the activities of the Group. In this time may reflect individual experience and Report, ‘Executives’ refers to members of the Group executive team identified as KMP. knowledge and so may deviate from the median percentile. The KMP detailed in this report are: The Board again considered the Company’s Table 1 LTI arrangements in 2014. While the four year Name Role performance period and Total Shareholder Return (TSR) and EPS targets continued as the current structure of the LTI for the 2014 financial year, the level of participation in the LTI was reduced for all senior executives. Executives M Brydon(1) M Kelly G Agriogiannis SB Rogers Chief Executive Officer (CEO) Chief Financial Officer (CFO) Executive General Manager, Concrete and Aggregates Executive General Manager, Concrete Products 1.6 Looking forward The Board is alert to the need to keep up with shareholder and community expectations concerning executive remuneration, and to implement new practices as appropriate for the Group’s circumstances, strategy and direction. In the interests of ensuring that our senior executive remuneration and incentive arrangements are fit for purpose and reflect the Company’s future plans and strategies, rather than implementing change on an ad Former Managing Director (MD) and CEO MP Chellew(2) Former MD and CEO Directors LV Hosking GF Pettigrew KB Scott-Mackenzie AM Tansey RD Barro Non-executive Chairman Non-executive Director Non-executive Director Non-executive Director Non-executive Director (1) Deputy CEO until 21 May 2014, Executive General Manager, Cement and Lime until 1 February 2014 (2) MD and CEO until 21 May 2014 hoc basis, the Board has resolved to conduct 2.2 Remuneration framework a holistic review of our senior executive pay levels, pay mix, short term incentives and Our executive remuneration framework consists of the following components: long term incentives over the next 12 months. > Fixed annual remuneration Any changes that are determined appropriate as a result of this review will be introduced in the 2016 financial year, including, as we have previously foreshadowed to the market, deferring a component of the Group’s short term incentive. The governance of remuneration outcomes remains a key focus of the Board and the Nomination, Remuneration and Governance (NRG) Committee, and we regularly review our policies to ensure that remuneration for our executives continues to be aligned with Company performance and that it appropriately motivates, rewards and retains our senior executive team in the context of the broader community sentiment regarding executive pay. > An annual short term incentive > A long term incentive Adelaide Brighton’s mix of fixed and at risk components for the Executives disclosed in this Report, as a percentage of potential maximum total annual remuneration for the 2014 financial year, is as follows: CH IEF EXEC U TIVE OFF ICER KMP 39% - FIXED REMUNERATION 41% - FIXED REMUNERATION 39% - AT RISK PAY - ANNUAL INCENTIVE (STI) 33% - AT RISK PAY - ANNUAL INCENTIVE (STI) 22% - AT RISK PAY - LONG TERM INCENTIVE (LTI) 26% - AT RISK PAY - LONG TERM INCENTIVE (LTI) ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 50  The diagram below provides a summary of our remuneration framework, and illustrates the way in which each element of remuneration has been structured to support our Group business objectives and to align with the generation of shareholder wealth. Component Performance measure Strategic objective/performance link FIXED ANNUAL REMUNERATION (FAR) Salary and other benefi ts Considerations: > Long term individual performance (including statutory superannuation) > Role, responsibility and potential > Remuneration set at competitive levels in the market to attract, retain and engage key talent > Motivate to achieve outstanding + ANNUAL SHORT TERM INCENTIVE (STI) Cash for target performance + > Benchmarked to competitive market rate performance Financial targets - using Profi t Before > Alignment to Group budget through PBT Tax (PBT) as fi nancial measure CEO and CFO - 80% relating to Group performance against budget Division Executive General Managers - 60% relating to Group performance and 20% relating to Divisional performance against budget Non-fi nancial targets (20%) relating to personal performance > Non-fi nancial targets drive leadership performance and behaviours consistent with achieving the Group’s short and long term objectives and commitments including safety, strategic plans, individual business profi t targets and other specifi c personal or non-fi nancial performance objectives which align the interest of Company executives and shareholders LONG TERM INCENTIVE (LTI) Rights to receive fully paid ordinary shares Earnings Per Share (EPS) (50%) > Ensure strong link with the creation of long and term shareholder value to encourage the achievement of growth of the Company’s Total Shareholder Return (TSR) (50%) business Measured over a four year performance > EPS was chosen as a performance period hurdle as it: - Links executive reward to a fundamental indicator of fi nancial performance; and - Links directly to the Group’s long term objectives of maintaining and improving earnings > TSR was chosen because it: - Ensures alignment between comparative shareholder return and reward for the executive; and - Provides a relative, external market performance measure having regard to a peer group of companies (ASX200 with exclusions) with which the Group competes for capital, customers and talent = TOTAL REMUNERATION The total remuneration mix is designed to attract, retain and motivate a highly capable executive team, encourage and drive leadership performance that reinforces the Group’s short and long term strategic objectives and provides a common interest between executives and shareholders by linking the rewards that accrue to executives to the creation of value for shareholders ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R END ED 31 D ECE M BER 2 01 4 51  Section 3 - Company performance and remuneration outcomes for 2014 3.1 Overview of Company performance As can be seen from the table below, the key profit measures for 2014 versus 2013 show an improvement of between 7% and 14% (depending on the metric), on revenue growth of 9%. This represents a record year for Adelaide Brighton in respect to all metrics including revenue, EBIT, PBT and NPAT, both on a reported and underlying profit basis. Table 2 2013 2013 2014 2014 Reported Underlying Reported Underlying Reported Underlying $m $m $m $m Revenue 1,228.0 1,228.0 1,337.8 1,337.8 EBITDA 293.3 296.6 322.5 318.2 EBIT PBT NPAT 222.7 226.0 247.5 245.2 208.6 211.9 232.5 230.2 151.1 153.4 172.6 166.4 vs LY % 9% 10% 11% 11% 14% vs LY % 9% 7% 8% 9% 8% Adelaide Brighton has performed well against the S&P/ASX200 Accumulation Index delivering total shareholder return of 75.2% against the Comparator Group over the measurement period of the long term incentive tested in 2014 (Tranche 3 of the 2010 Award). As per the graph below this shareholder value has been delivered through a combination of share price growth and dividends. ABC SHAREHOLDE R RE TURN S - SHAR E PRI CE GRO WT H AN D T S R (JAN 2010 to DEC 2014) Index = 100 190 180 170 160 150 140 130 120 110 100 90 80 d t L y t P s r e s v d A i t s r i F / X S A : e c r u o S 0 1 n a J 0 1 r p A 0 1 l u J 0 1 t c O 1 1 n a J 1 1 r p A 1 1 l u J 1 1 t c O 2 1 n a J 2 1 r p A 2 1 l u J 2 1 t c O 3 1 n a J 3 1 r p A 3 1 l u J 3 1 t c O 4 1 n a J 4 1 r p A 4 1 l u J 4 1 t c O 4 1 c e D ABC SHARE PRICE GROWTH ABC TSR (SHARE PRICE GROWTH + DIVS REINVESTED) ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 52  The table below provides an overall view of the Company’s financial performance and operating cash flow over the past six financial years to 31 December 2014. Table 3 - Shareholders’ wealth improvement from year 2009 to year 2014 Financial year ended 31 December Closing share price ($) as at 31 December Total dividends per share (cash) 2009* 2.75 13.55 2010* 3.30 21.5(2) 2011* 2.89 16.55 2012 3.12 2013 3.67 16.55 19.5(1) 2014 3.57 17.05 Franked dividends Operating cash flow Earnings per share (cents) (1) Includes 3.0 cent special dividend (2) Includes 5.0 cent special dividend 100%5 100%5 100%5 100%5 100%5 100%5 $188.1m $188.5m $151.3m $186.9m $227.3m $194.0m 20.45 23.95 23.35 24.05 23.75 26.95 *Comparative information for these years has not been restated to reflect changes to accounting policies. Refer Note 42 to the 2013 Financial Statements. 3.2 Linking remuneration to Company performance This section explains how the Group’s performance has driven Short Term Incentive and Long Term Incentive outcomes for our Executives during 2014. Strong Company performance across key indicators is reflected in the remuneration outcomes during the year. 3.2.1 Short Term Incentive - key performance outcomes Performance measure Outcome Financial The annual short term incentive for the CEO and Chief Financial Officer (CFO) is split 80% Group financial target and 20% non-financial targets. For executives other than the CEO and CFO the split is 60% Group financial target, 20% Divisional financial target and 20% non-financial targets. The adjusted Group PBT for STI purposes was approximately 108% of budget, while divisional PBTs exceeded 110% of budget. This resulted in the financial target being met at 100.0%. Non-financial Non-financial targets (being the remaining 20% of the potential STI opportunity) for the Executives were met at between 73% and 83% during 2014. Examples of personal non-financial target objectives achieved by the CEO and Executives during 2014 included: > Development and execution of Adelaide Brighton’s strategic plan. > Acquiring targeted concrete and aggregates businesses within value parameters. Successful integration of these businesses into ABL systems and delivery of synergies. > Successful restructure of the Munster cement operations: incorporating workforce downsizing without disruption; obtaining relevant Government approvals; securing long term port access for imports. > Successful completion of Malaysian joint venture kiln upgrade and transition of Western Australian operations to import of specialty off-white clinker from Malaysia. > Successful commissioning of capacity expansion projects within budget. > Renegotiation of long term business critical and strategic supply contracts on favourable terms. > Securing strategic supply contracts with major customers on favourable terms. A number of these objectives and projects contributed to the Group’s performance in 2014 and will reinforce future performance. Overall STI outcomes Overall, the achievement of the Financial and Non-financial Targets resulted in the STI opportunity being awarded at 86.9% to 89.8% of the potential STI. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 53  3.2.2 Short Term Incentive - actual outcomes 3.2.3 Long Term Incentive - key performance The short term incentive payments shown in the table below reflect the performance achieved and amounts payable for Executives for the 2014 financial year. Table 4 outcomes During 2014, Tranche 3 of the 2010 Awards was tested for earliest exercise in May 2014 and vested at 50%: Maximum % of the % of the STI Maximum > The Total Shareholder Return component fully For the financial potential STI maximum STI maximum potential STI Actual STI vested with the Company achieving a Total year ended opportunity 31 December 2014 as % of FAR opportunity opportunity achieved not achieved(1) opportunity $(1) payment $(2) Shareholder Return of 75.2% being the 81st percentile of the Comparator Group. Executives M Brydon M Kelly G Agriogiannis SB Rogers Former MD & CEO 100 80 80 80 86.9 87.5 87.8 89.8 13.1 12.5 12.2 10.2 1,255,147 1,091,041 553,186 386,808 383,853 484,178 339,594 344,677 MP Chellew(3) 100 - 100 671,701 - (1) Where the actual STI payment is less than the maximum potential, the difference is forfeited and does not become payable in subsequent years. (2) The 2014 STI was determined in conjunction with the finalisation of 2014 results and paid in February 2015. (3) No short term incentive payment was made to Mr Chellew for the 2014 year. > The average EPS growth over the 2009 to 2013 financial period was 4.2% which was less than the minimum EPS target of 5.2% (2.5% + CPI). Therefore, the EPS component did not vest. This is despite continued growth in EPS over the performance period and notwithstanding challenging trading conditions that resulted in some competitors suffering declines in earnings. The chart below illustrates Adelaide Brighton’s Total Shareholder Return over the measurement period for Tranche 3 of the 2010 Award. The Total Shareholder Return of 75.2% resulted from share price growth and payment of ordinary and special dividends totalling 70.0 cents fully franked over the period. ABC SHAREHOLDE R RETURN S - SHAR E PRI CE GRO WT H AN D T S R (JAN 2010 to DEC 2013) Index = 100 Dividends = 34.4% Share price growth = 40.8% ABC TSR = 75.2% 180 170 160 150 140 130 120 110 100 90 80 0 1 n a J 0 1 r p A 0 1 l u J 0 1 t c O 1 1 n a J 1 1 r p A 1 1 l u J 1 1 t c O 2 1 n a J 2 1 r p A 2 1 l u J 2 1 t c O 3 1 n a J 3 1 r p A 3 1 l u J 3 1 t c O 3 1 c e D ABC SHARE PRICE GROWTH ABC TSR (SHARE PRICE GROWTH + DIVIDENDS REINVESTED) Source: ASX/First Advisers Pty Ltd ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 54  3.2.4 Long Term Incentive - actual outcomes Details of the movement in Awards held by Executives during the 2014 fi nancial year are set out below. Table 5 For the fi nancial year ended 31 Dec 2014 Number held at 1 Jan 2014 Number granted during the year(1) Number exercised/ vested during the year Number lapsed/ forfeited during the year(3) Number held at 31 Dec 2014 Value of Awards at grant date(4) $ Value per share at the date of exercise(5) $ Value at lapse date(6) $ Executives M Brydon M Kelly G Agriogiannis SB Rogers Former MD & CEO 1,032,040 763,897 427,628 425,355 354,223 131,890 65,873 65,370 120,000(2) 100,000(2) 65,000(2) 65,000(2) 120,000 100,000 65,000 65,000 1,146,263 695,787 363,501 360,725 665,941 247,953 123,843 125,184 3.55 3.89 3.89 3.34 3.90 3.90 3.90 3.90 MP Chellew 2,847,568 - 1,498,466(7) 1,349,102 N/A - 3.80 3.80 (1) This represents the maximum number of Awards granted in 2014 that may vest to each Executive. As the Awards granted in 2014 only vest on satisfaction of performance conditions which are to be tested in future fi nancial periods, none of the Awards as set out above vested or were forfeited during the year. At the end of the applicable performance period, any Awards that have not vested will expire. (2) These Awards which were exercisable during 2014 were in fact exercised, being Tranche 3 of the 2010 Awards. The number of Awards that vested during the period and exercisable at 31 December 2014 is nil. The number of Awards that vested but not yet exercisable at 31 December 2014 is nil. (3) This includes the portion of Tranche 3 of the 2010 Awards that reached the end of its performance period on 31 December 2013 that did not meet the performance conditions and was forfeited. (4) Fair value of Awards granted during 2014 as at grant date. (5) The value per share at the date of exercise is the Volume Weighted Closing Price which is the average of the closing price and number of Adelaide Brighton Limited shares traded on the Australian Securities Exchange for the fi ve trading days before the exercise date, but not including the day of exercise. The aggregate value of Awards that vested during the year is $6,968,355 based on the Volume Weighted Closing Price. (6) The value at lapse date of Awards that were granted as part of remuneration and that lapse during the year because a vesting condition was not satisfi ed. The value is determined at the time of lapsing, but assuming the condition was satisfi ed. (7) All Awards that remained outstanding under the Plan as at Mr Chellew’s retirement date of 21 May 2014 vested on a pro-rated basis. This included 728,324 Awards comprising Tranche 1 of the 2012 grant, 728,324 Awards comprising Tranche 2 of the 2012 grant and 670,920 Awards comprising the 2013 grant. The total number of Awards that vested during the year and which were exercisable by Mr Chellew also included Tranche 3 of the 2010 grant. Section 4 - Remuneration governance 4.1 Responsibility for setting remuneration Our governance framework for determining executive remuneration is outlined below: BOARD The Board approves: > The overall remuneration policy > Non-executive Director remuneration and senior executive remuneration; and > The remuneration of the CEO, including his participation in the short term and long term incentive schemes NOMINATION, REMUNERATION AND GOVERNANCE (NRG) COMMITTEE The NRG Committee is delegated responsibility by the Board to review and make recommendations on: > The remuneration policies and framework for the Group > Non-executive Director remuneration > Remuneration for senior executives and > Executive incentive arrangements MANAGEMENT Provides information relevant to remuneration decisions and makes recommendations to the NRG Committee Obtains remuneration information from external advisors to assist the NRG Committee (i.e. factual information, legal advice, accounting advice, tax advice) ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R END ED 31 D ECE M BER 2 01 4 55 CONSULTATION WITH SHAREHOLDERS AND OTHER STAKEHOLDERS REMUNERATION CONSULTANTS AND OTHER EXTERNAL ADVISORS > Provide independent advice, information and recommendations relevant to remuneration decisions > In performing its duties and making recommendations to the Board, the Chairman of the NRG Committee seeks independent advice from external advisers on various remuneration related matters > Any advice or recommendations provided by external advisers are used to assist the Board - they do not substitute for the Board and NRG Committee process  Details on the composition of the NRG motivate and retain a highly capable executive individual, his or her future potential within the Committee are set out on page 31 of this team and each individual’s remuneration is Group and market practice. The Company’s Annual Report. The NRG Committee’s Charter set with reference to the degree of individual stated approach is also to set fixed is available on the Corporate Governance performance, role, responsibility and future remuneration levels at relatively modest levels section of the Company’s website at potential within the Group and in the context compared to peers for executives who are www.adbri.com.au. of the broader community sentiment new to their roles and to then progressively From time to time during the financial year ended 31 December 2014, the Company > Drive leadership performance and behaviours performance in that role. regarding executive pay. increase remuneration based on individual engaged external consultants to provide that reinforce the Group’s short and long term Fixed remuneration is reviewed annually insights on remuneration trends, regulatory strategic and operational objectives having regard to relevant factors including and governance updates and market data in relation to the remuneration of non-executive Directors, the CEO and other executives. No remuneration recommendations as defined in section 9B of the Corporations Act 2001 were > Provide a common interest between executives and shareholders by linking the rewards that accrue to executives to the creation of long term value for shareholders performance, market conditions (both generally and in the markets in which the Group operates), growth and comparable roles within peer companies and similar roles across a Comparator Group comprising those obtained during the financial year ended > Have regard to market practice and market companies in the ASX 51-150. Section 1.4 31 December 2014. conditions; and 4.2 Remuneration policy > Provide transparency and clarity on what The Company’s remuneration strategy and policy are set by the Board and overseen by the NRG Committee. The Board ensures remuneration policies are clearly aligned is paid, to whom and on what basis remuneration has been paid. Section 5 - Executive remuneration with the Group strategy, which is focused 5.1 Fixed annual remuneration on maintaining and growing long term shareholder value. The amount of fixed remuneration for an individual executive (expressed as a total details the changes for Executives arising from the review of fixed remuneration by the Board and NRG Committee for the 2014 financial year. 5.2 At-risk remuneration - Short Term Incentive Adelaide Brighton’s STI is the Company’s at risk short term incentive component of the remuneration mix for senior executives, including Executives. In determining executive remuneration, the amount of salary and other benefits, including A summary of the key features of the 2014 Board has adopted a policy that aims to: superannuation contributions) is set with STI is as follows: > Be competitive in the markets in which the Group operates in order to attract, reward, Form and purpose of the STI regard to the size and nature of an executive’s role, the long term performance of an Who participates in the STI? Participation in the STI is generally offered to the CEO and senior executives who are able to have a direct impact on the Group’s performance against the relevant performance hurdles. Why does the Board consider the STI an The STI is designed to put a meaningful proportion of senior executives’ remuneration at risk, to appropriate incentive? be delivered on the achievement of performance targets linked to the Group’s annual business objectives, ensuring senior executives create sustainable value for shareholders. Does the STI comprise a deferred component? The Board has determined that it would be appropriate to introduce a deferred component to the STI for the 2016 STI (see section 1.6). The NRG Committee has considered this in the context of Adelaide Brighton’s current remuneration framework, including the long term incentive which is subject to a four year performance period. On the basis that, at any time, senior executives have at least four years’ worth of LTI opportunity subject to share price fluctuations, the Committee considers that senior executives’ interests are sufficiently aligned to those of our shareholders. Performance conditions When and how are the STI performance The performance criteria are set by the Board and agreed with the executive, in general, by the conditions set? end of February in each year. In approving Financial Targets under the STI, the Board considers a number of factors, including the industry in which we operate and the extraneous factors including market conditions that impact our financial performance and those of our competitors. These include the dynamics of the construction and resources industries, exchange rates and energy considerations. Our management team has responded well to external pressures over recent years, and has generated positive return for longer term shareholders in a challenging environment with the Company outperforming our industry competitors. Accordingly, the Board strongly believes that our STI targets need to be set in this context in order to continue to attract and motivate a highly capable senior executive team who can drive the continued delivery of strong results for shareholders over the longer term. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 56 Reward opportunity What level of reward can be earned under The maximum STI opportunities able to be earned are expressed as a percentage of fixed the STI? remuneration: Potential - % of fixed remuneration Financial Non-financial Total % of PBT achieved CEO Executives CEO Executives CEO Executives Other Other Other Below 95% 0% 0% 20% 16% 20% 16% 95% - 100% 40% - 48% 32% - 38% 20% 16% 60% - 68% 48% - 54% 100% - 105% 48% - 60% 38% - 48% 20% 16% 68% - 80% 54% - 64% 105% - 110 % 60% - 80% 48% - 64% 20% 16% 80% - 100% 64% - 80% Governance How is performance against the performance All performance conditions under the STI are clearly defined and measurable. conditions assessed? In respect of the Financial Targets, the Board compares the actual PBT earned against the budgeted PBT for the year, and assesses the degree to which the Group met these targets. The Board may adjust for exceptional, abnormal or extraordinary factors which may have affected the Group’s performance during the year. In assessing the 2014 STI, the Board adjusted the PBT used for STI purposes to a level that was lower than both reported and underlying PBT. The Board considered items individually taking account of a range of matters, including budget assumptions and management initiatives. The Board also considers the NRG Committee’s assessment of the CEO’s performance against the agreed non-financial targets, and that of the senior executives (based on the recommendation of the CEO). When is performance against the performance Assessment of performance against the performance hurdles for the relevant year is determined at conditions determined and the cash award paid? the February meeting of the NRG Committee and the Board, in conjunction with finalisation of the Group’s full year results, and is normally paid to the executive following release of the Company’s full year results in February. 5.3 At-risk remuneration - Long Term Incentive The Company makes annual grants of Awards under the Executive Performance Share Plan (Plan) to all senior executives who are eligible to participate. A summary of the key features of the Plan as it applies to the 2014 LTI Award is as follows: Driving performance Who participates and how does the Plan drive The LTI is offered to senior executives whose behaviour and performance have a direct impact on performance and align participants’ interests the Group’s long term performance. Its purpose is to focus executives on the Group’s long term with shareholders? business strategy to create and protect shareholder value over a four year performance period, thus aligning executives’ interests more closely with shareholders. Vesting, performance conditions and reward opportunity What is the vesting / performance period? The 2014 Awards will be tested and become exercisable to the extent of any vesting from 1 May 2018. What happens on the exercise of Awards? Shares are delivered to the executive on the exercise of the Awards. Awards are granted at no cost to the executive and no amount is payable by the executive on the exercise of the Awards. Any unexercised 2014 Awards will expire on 30 September 2018. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 57 How is the TSR performance condition The Company’s TSR performance must equal or exceed the growth in the returns of the median measured and what amount can be earned? companies of the S&P / ASX 200 Accumulation Index (XJO Al), excluding all GICS Financial companies and selected resources companies over the period from 31 December 2013 to 31 December 2017. The 2014 Awards vest progressively in accordance with the following scale: TSR growth relative percentile ranking % of Awards subject to TSR hurdle to vest Below 50% 50% Between 50% and 75% 75% or above Nil 50% Pro rata 100% How is the EPS performance condition The EPS performance hurdle requires the compound annual growth in EPS of the Company over calculated and what amount can be earned? the relevant performance period to equal or exceed 5% per annum before any Awards will vest. Awards under the 2014 Award are to vest progressively in accordance with the following scale: Compound annual growth in EPS % of Awards subject to EPS hurdle to vest Below 5% per annum 5% per annum Between 5% and 10% per annum 10% per annum or above Nil 50% Pro rata 100% Is re-testing permitted? No. Re-testing of either of the performance conditions applicable to a tranche of Awards Structure of Awards is not permitted. What are the participation levels in the 2014 The Executives participated in the 2014 Awards at the following levels: Awards for Executives? Governance Target Maximum (% of fixed remuneration) (% of fixed remuneration) M Brydon M Kelly G Agriogiannis and SB Rogers 50% 35% 25% 100% 70% 50% Participation levels were reviewed during 2013 and have been reduced for all senior executives for the 2014 Award. Is there ability to ‘claw back’ in appropriate Yes. The rules of the Plan have, for some time, provided the Board with a broad ability to claw circumstances? back Awards on offer to an executive and to make adjustments to any unvested Awards, if considered appropriate. The Board continues to review these arrangements in light of contemporary practice and is considering the need for an additional formal Clawback Policy (in addition to the provisions of the Plan Rules). What other conditions apply to the Awards? An executive’s entitlement to shares under an Award may also be adjusted to take account of capital reconstructions and bonus issues. The rules of the Plan contain a restriction on removing the ‘at-risk’ aspect of the instruments granted to executives. Plan participants may not enter into any transaction designed to remove the ‘at-risk’ aspect of an instrument before it becomes exercisable (eg. hedging the Awards). Until the Awards vest, executives have no legal or beneficial interest in Adelaide Brighton Ltd shares, no entitlement to receive dividends and no voting rights in relation to any securities granted under the 2014 Award, or any of the other Awards. Any shares allocated to the executive following exercise of an Award may only be dealt with in accordance with the Company’s Share Trading Policy and subject to the generally applicable insider trading prohibitions. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 58 Cessation of employment or a change of control What happens to Awards that are not yet If an Executive resigns or is terminated for cause, the Awards in respect of any tranche that is not exercisable on cessation of employment? exercisable will generally be forfeited. The rules of the Plan provide that in other circumstances, and at the discretion of the Board, a pro rata number of Awards, reflecting the part of the LTI earned or accrued up to termination, may become exercisable either at the time of termination of employment or at the end of the original performance period applicable to a tranche. How would a change of control of the Group In the event of a takeover bid (or other transaction likely to result in a change in control of impact on LTI entitlements? the Company), an executive will only be allowed to exercise his or her Awards to the extent determined by the Board as provided under the rules of the Plan. Section 6 - Executive Service Agreements The remuneration and other terms of employment for Executives are set out in formal employment contracts referred to as Service Agreements. All Service Agreements are for an unlimited duration and details of Executives’ entitlements on termination are set out below. All Service Agreements may be terminated immediately for serious misconduct, in which case Executives are not entitled to any payment on termination other than remuneration and leave entitlements up to the date of termination. As discussed in section 1.5 above, all Executives have now been transitioned to the new general form of Service Agreement embodying best current practice. Table 6 Name Notice periods Separation payments(1) M Brydon 6 months’ notice by either party 6 months fixed annual remuneration where the Company (or payment in lieu) terminates on notice. M Kelly 3 months’ notice by either party (or payment in lieu) 12 months fixed annual remuneration where the Company terminates on notice.(2) G Agriogiannis 3 months’ notice by either party 9 months fixed annual remuneration where the Company (or payment in lieu) terminates on notice. SB Rogers 6 months’ notice by either party 6 months fixed annual remuneration where the Company (or payment in lieu) terminates on notice. (1) In the case of resignation, no separate payment is made to the Executive (only amounts due and payable up to the date of ceasing employment including accrued leave entitlements and unpaid salary). (2) No separation payment will exceed the limit under the Corporations Act 2001. On termination of employment for any reason, the CEO and other Executives are prohibited from engaging in any activity that would compete with the Group for a period of six months in order to protect the Group’s business interests. In the event of resignation, at the option of the Company, Mr Brydon, Mr Kelly and Mr Rogers may be paid a monthly amount equivalent to the Executive’s monthly fixed remuneration at the time of termination during the period of restraint to support the enforceability of the restraint. Section 7 - Non-executive Directors’ fees 7.1 Policy and approach to setting fees Overview of policy Non-executive Directors receive a base fee in relation to their service as a Director of the Board, and an additional fee for membership of, or for chairing a committee. The Chairman, taking into account the greater time commitment required, receives a higher fee but does not receive any additional payment for service on the respective committees. The total amount of fees paid to non-executive Directors is determined by the Board on the recommendation of its NRG Committee within the maximum aggregate amount approved by shareholders. The remuneration of the non-executive Directors consists of Directors’ fees, committee fees and superannuation contributions. These fees are not linked to the performance of the Group in order to maintain the independence and impartiality of the non-executive Directors. In setting fee levels, the NRG Committee takes into account: > Independent professional advice; > Fees paid by comparable companies; > The general time commitment and responsibilities involved; and > The level of remuneration necessary to attract and retain Directors of a suitable calibre. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 59 Aggregate fees approved by shareholders Total fees, including committee fees, were set within the maximum aggregate amount of $1,300,000 per annum approved at the 2013 Annual General Meeting. Base fees for 2014 As set out in the 2013 Remuneration Report, following a review of the fees paid to non-executive Directors, the Chairman’s annual fee (at his request) has been reduced by 12.5% in the 2014 year (previously $354,756). The base fee for non-executive Directors remains at the same level as for 2013. Base fees (Board) Non-executive Chairman(1) Non-executive Director $ 310,500 103,500 $ Committee fees Committee chair Committee member Audit, Risk and Compliance Committee Nomination, Remuneration and Governance Committee Safety, Health and Environment Committee 24,840 24,840 15,525 13,973 13,973 10,350 (1) The Chairman of the Board receives no additional fee for Committee work. In accordance with the Company’s constitution, Directors are also permitted to be paid additional fees for special duties or exertions. Such fees may or may not be included in the aggregate amount approved by shareholders, as determined by the Directors. No such fees were paid during the year. Directors are also entitled to be reimbursed for all business related expenses, including travel, as may be incurred in the discharge of their duties. Section 8 - Key Management Personnel disclosure tables 8.1 Non-executive Directors’ statutory remuneration Details of non-executive Directors’ remuneration are set out in the following table: Table 7 Non-executive Director LV Hosking(2) (Chairman) RD Barro GF Pettigrew KB Scott-Mackenzie AM Tansey(3) Fees and allowances Post-employment benefits Directors’ Committee fees base fees (incl. (incl. Year superannuation) superannuation) Superannuation Total contributions(1) $ $ $ $ 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 310,500 354,746 103,500 103,500 103,500 103,500 103,500 103,500 103,500 103,500 724,500 768,746 - 310,500 - 354,746 10,350 113,850 10,350 113,850 49,163 152,663 49,163 152,663 29,498 132,998 29,498 132,998 38,813 142,313 45,506 149,006 127,824 852,324 134,517 903,263 23,449 23,449 9,758 9,520 13,878 13,878 11,400 11,121 12,198 12,463 70,683 70,431 Total non-executive 2014 Directors’ remuneration 2013 (1) Superannuation contributions are made on behalf of non-executive Directors which satisfy the Group’s obligations under applicable Superannuation Guarantee Charge legislation. (2) Following a review of the fees paid to non-executive Directors, the Chairman’s annual fee (at his request) was reduced by 12.5% in 2014. (3) Ms Tansey’s fees have reduced for 2014 as the Corporate Governance Committee (of which she was Chairman) has been dissolved. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 60  8.2 Executive statutory remuneration Table 8 Short term employee benefits Post employment benefits Share based payment expense(3) STI payment(1) Other benefits Super- annuation benefits(2) Termination Long term benefits incentive FAR $ $ $ $ Year 2014 2013 2014 2013 2014 2013 2014 2013 Executives M Brydon M Kelly G Agriogiannis SB Rogers Former MD & CEO MP Chellew 1,243,194 935,078 1,091,041 752,619 166,667(5) - 663,566 652,925 463,510 454,030 454,816 445,408 484,178 532,036 339,594 371,640 344,677 368,800 - - - - 100,000(6) - 27,823 17,122 27,917 25,000 20,000 20,000 25,000 25,000 $ - - - - - - - - $ 270,053 217,527 179,279 170,157 99,828 155,049 94,276 102,107 Total $ 2,798,778 1,922,346 1,354,940 1,380,118 922,932 1,000,719 1,018,769 941,315 % of remuneration consisting of Awards(4) % 10 11 13 12 11 15 9 11 38 18 2014 2013 665,560 1,713,800 - 1,697,069 869,000(7) - Total executive 2014 2013 remuneration 3,490,646 4,201,241 2,259,490 3,722,164 1,135,667 - 6,250 25,000 106,990 112,122 291,877 - 291,877 - 1,126,198 752,820 2,958,885 4,188,689 1,769,634 1,397,660 9,054,304 9,433,187 (1) STI payment includes payments relating to 2014 performance accrued but not paid as at 31 December 2014. (2) Includes Company contributions to superannuation and allocations by employees made by way of salary sacrifice of fixed remuneration. (3) In accordance with the requirements of the Accounting Standards, remuneration includes a proportion of the notional value of equity compensation granted or outstanding during the year. The notional value of equity instruments is determined as at the grant date and is progressively allocated over the vesting period. The amount included as remuneration is not related to or indicative of the benefit (if any) that the individual Executives may ultimately realise should the equity instruments vest. The notional value of Awards as at the date of their grant has been determined in accordance with the accounting policy Note 1(v)(iv). (4) % of remuneration for the financial year which consists of the amortised annual value of Awards issued under the Adelaide Brighton Limited Executive Performance Share Plan. (5) Living Away from Home Allowance payment made pursuant to Mr Brydon’s Service Agreement to assist him in discharging his duties from the Company’s Sydney office. (6) Payment made to Mr Rogers to cash out certain entitlements as part of Mr Roger’s transition to a new fully compliant Service Agreement. (7) Payment made pursuant to Mr Chellew’s Service Agreement to support enforceability of the restraint of trade for the period 22 May 2014 to 22 November 2014. 8.3 Equity holdings of Key Management Table 9 Personnel A summary of Executives’ and non-executive Directors’ current shareholdings in the Company as at 31 December 2014 is Executives set out below. While the Board has considered minimum M Brydon M Kelly shareholding guidelines for non-executive G Agriogiannis Directors, it has determined that it does not SB Rogers currently consider it to be appropriate to require a particular holding, given that this Former MD & CEO Granted as Net movement Balance at remuneration beginning of year(1) during the year due to Balance at end other changes of year 8,400 - - - 120,000 100,000 65,000 65,000 (120,000 ) (100,000 ) (65,000 ) (65,000 ) 8,400 - - - - is a matter for individual preference. MP Chellew(2) 448,366 1,498,466 (1,946,832 ) On the basis that Executives have four years’ Non-executive Directors worth of LTI opportunity (as set out in section 5.3 of this Remuneration Report), the Board has decided not to introduce minimum shareholding guidelines for Executives. The Board considers that Executives’ interests are sufficiently aligned (through the LTI as the LTI is subject to share price fluctuation) to those of our shareholders. LV Hosking RD Barro(3) GF Pettigrew KB Scott-Mackenzie AM Tansey 4,739 209,875,800 7,739 5,000 10,000 - - - - - 112 4,851 7,994,076 217,869,876 - - - 7,739 5,000 10,000 (1) The balances reported in this Table 9 include shares held directly, indirectly or beneficially by each KMP or close members of their family or an entity over which the person or the family member has either direct or indirect control, joint control or significant influence as at 31 December 2014. (2) MP Chellew retired 21 May 2014, therefore his equity holding has been reduced to nil at 31 December 2014 through “Net movement due to other changes”. (3) The balances relating to Raymond Barro include shares owned by entities over which Raymond Barro has a significant influence, or which he jointly controls, but he does not control these entities himself. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 61 Income statement For the year ended 31 December 2014 ($ Million) Revenue from continuing operations Cost of sales Freight and distribution costs Gross profit Other income Marketing costs Administration costs Finance costs Share of net profits of joint ventures and associate accounted for using the equity method Profit before income tax Income tax expense Profit for the year Profit attributable to: Owners of the Company Non-controlling interests Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share Consolidated Notes 2014 2013 3 3 4 10(a) 5(a) 1,337.8 (823.5 ) (217.0 ) 1,228.0 (745.6 ) (196.1 ) 297.3 26.1 (20.2 ) (75.6 ) (16.8 ) 21.7 232.5 (59.9 ) 286.3 4.7 (21.3 ) (69.4 ) (15.9 ) 24.2 208.6 (57.5 ) 172.6 151.1 172.7 (0.1 ) 172.6 Cents 34 34 26.9 26.8 151.1 - 151.1 Cents 23.7 23.4 ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 THE ABOVE INCOM E S TATEM EN T S H OU L D B E RE AD I N C O NJ UN CT I ON W I TH THE NOTES TO THE FIN A NCI AL STAT EM EN T S 62 Statement of comprehensive income For the year ended 31 December 2014 Consolidated ($ Million) Profit for the year Other comprehensive income Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Income tax relating to these items Items that will not be reclassified to profit or loss Actuarial (losses)/gains on retirement benefit obligation Income tax relating to these items Other comprehensive income for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year attributable to: Owners of the Company Non-controlling interests Total comprehensive income for the year Notes 2014 172.6 0.5 - (1.2 ) 0.4 (0.3 ) 5(c) 20(b) 5(c) 2013 151.1 1.0 - 7.6 (2.3 ) 6.3 172.3 157.4 172.4 (0.1 ) 157.4 - 172.3 157.4 ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 THE ABOVE STATEM EN T OF C OM PR E H EN SI VE I NC OME SH O ULD B E R E AD IN CONJU NC TION W ITH T HE NO T ES T O T HE FI NAN C I AL STATEME NTS 63 Balance sheet As at 31 December 2014 ($ Million) Current assets Cash and cash equivalents Trade and other receivables Inventories Carbon units Assets classified as held for sale Total current assets Non-current assets Receivables Joint arrangements and associate Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Current tax liabilities Provisions Provision for carbon emissions Other liabilities Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Retirement benefit obligations Provision for carbon emissions Other non-current liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Capital and reserves attributable to owners of the Company Non-controlling interests Total equity ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 THE ABOVE BALAN CE SH EET S HO U L D B E RE AD I N CON JUNC TI ON W I TH THE NOTES TO TH E F IN AN C IA L S TAT EM EN T S 64 Consolidated Notes 2014 2013 6 7 8 14(b) 9 7 10 11 13 15 16 17 14(b) 18 16 19 17 20(b) 14(b) 21 22(a) 22(b) 31.7 199.3 154.7 - 385.7 1.5 387.2 32.7 139.9 989.6 263.9 11.1 182.4 136.3 52.5 382.3 7.9 390.2 31.4 138.5 889.7 183.9 1,426.1 1,243.5 1,813.3 1,633.7 120.4 1.4 1.3 24.7 14.0 4.2 166.0 390.1 76.8 41.4 2.2 - 0.1 510.6 676.6 105.4 - 19.0 26.7 39.7 20.4 211.2 259.1 64.3 28.5 0.5 8.2 0.1 360.7 571.9 1,136.7 1,061.8 727.9 3.3 402.8 1,134.0 2.7 699.1 4.3 355.6 1,059.0 2.8 1,136.7 1,061.8 Statement of changes in equity For the year ended 31 December 2014 Attributable to owners of Adelaide Brighton Ltd Contributed Notes equity Reserves Retained earnings Non-controlling Total interests Consolidated ($ Million) Balance at 1 January 2014 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividend reinvestment plan share issues Dividends provided for or paid 23 Executive performance share plan 21(b)/22(a) Balance at 31 December 2014 Balance at 1 January 2013 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners: Dividends provided for or paid 23 Executive performance share plan 21(b)/22(a) Balance at 31 December 2013 699.1 - - - 24.6 - 4.2 28.8 727.9 696.6 - - - - 2.5 2.5 699.1 4.3 - 0.5 0.5 - - (1.5 ) (1.5 ) 3.3 2.1 - 1.0 1.0 - 1.2 1.2 4.3 355.6 172.7 (0.8 ) 171.9 1,059.0 172.7 (0.3 ) 172.4 - (124.7 ) - 24.6 (124.7 ) 2.7 (124.7 ) (97.4 ) 402.8 1,134.0 304.4 151.1 5.3 156.4 1,003.1 151.1 6.3 157.4 (105.2 ) - (105.2 ) 3.7 (105.2 ) (101.5 ) 2.8 (0.1 ) - (0.1 ) - - - - 2.7 2.8 - - - - - - 355.6 1,059.0 2.8 1,061.8 Total equity 1,061.8 172.6 (0.3 ) 172.3 24.6 (124.7 ) 2.7 (97.4 ) 1,136.7 1,005.9 151.1 6.3 157.4 (105.2 ) 3.7 (101.5 ) ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 THE ABOVE STATEM EN T OF C H AN G ES I N EQUI T Y SHO ULD BE R E AD IN CONJU NC TION W ITH T HE NO T ES T O T HE FI N ANCI AL STATE MEN TS 65 Statement of cash flows For the year ended 31 December 2014 Consolidated ($ Million) Notes 2014 2013 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Joint venture distributions received Interest received Interest paid Receipts from sale of carbon units Other income Income taxes paid Income taxes refunded 1,460.1 (1,227.1 ) 21.0 1.8 (16.0 ) 20.0 7.1 (72.9 ) - 1,334.0 (1,084.6 ) 16.4 1.8 (16.0 ) 20.0 5.0 (49.7 ) 0.4 Net cash inflow from operating activities 33 194.0 227.3 Cash flows from investing activities Payments for property, plant, equipment and intangibles Payments for acquisition of businesses, net of cash acquired Payments for acquisition of interest in associate Proceeds from sale of property, plant and equipment Loans to joint venture entities Repayment of loans from other parties Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Dividends paid to Company’s shareholders Net cash inflow/(outflow) from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the year (60.4 ) (155.6 ) - 13.6 (1.9 ) 0.6 (203.7 ) 8.1 122.2 - (100.1 ) 30.2 20.5 11.1 0.1 31.7 (66.9 ) (0.6 ) (0.4 ) 6.5 (1.9 ) 0.1 (63.2 ) 3.7 - (60.2 ) (105.2 ) (161.7 ) 2.4 8.8 (0.1 ) 11.1 23 6 ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 THE ABOVE STATEM EN T OF C A SH FLOW S S H OU L D B E R EAD IN CONJUNCTION W ITH T H E N OT ES T O T H E F I N A N CI AL STATEM EN TS 66 Notes to the consolidated financial statements 1 Summary of significant Company and its subsidiaries together are (iv) Joint arrangements accounting policies referred to in this financial report as Investments in joint arrangements are Adelaide Brighton Ltd (the Company) is a “the Group”. company limited by shares, incorporated Subsidiaries are all those entities over which and domiciled in Australia whose shares are the Group has control. The Group controls an publicly traded on the Australian Securities entity when the Group is exposed to, or has classified as either joint operations or joint ventures depending on the contractual rights and obligations of the Group to the joint arrangement. Exchange (ASX). rights to, variable returns from its involvement Joint operations The financial report was authorised for issue by the Directors on 12 March 2015. The Directors have the power to amend and activities of the entity. reissue the financial statements. Subsidiaries are fully consolidated from the with the entity and has the ability to affect Interests in joint operations are accounted for those returns through its power to direct the using the proportionate consolidation method. Under this method, the Group has recognised its share of assets, liabilities, revenues and expenses. Details of the joint operations are set out in Note 10. date on which control is transferred to the Group. They are deconsolidated from the date The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented. The financial statements are for the consolidated entity consisting of Adelaide Note 1(h)). Brighton Ltd and its subsidiaries. Intercompany transactions, balances that control ceases. The acquisition method Joint ventures of accounting is used to account for business Interests in joint ventures are accounted for combinations by the Group (refer to using the equity method. Under this method, (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. The Company is a for-profit entity for the purpose of preparing and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have When the Group’s share of losses in a joint been changed where necessary to ensure venture equals or exceeds its interests in the consistency with the policies adopted joint venture (which includes any long term by the Group. the interests are initially recognised in the consolidated balance sheet at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income in the income statement and other comprehensive income respectively. interests that, in substance, form part of the Group’s net investment in the joint venture), the Group does not recognise further losses unless it has incurred obligations or made payments on behalf of the joint venture. the financial statements. (ii) Employee Share Trust Comparative information has been re-stated where appropriate to enhance comparability. The Group has formed a trust to administer the Group’s employee share scheme. The company that acts as the Trustee is Historical cost convention consolidated as the company is controlled by Unrealised gains on transactions between the These financial statements have been the Group. The Adelaide Brighton employee Group and its joint ventures are eliminated prepared under the historical cost convention, share plan trust is not consolidated as it is not to the extent of the Group’s interest in the except for the circumstances when fair value controlled by the Group. method has been applied as detailed in the accounting policies below. Compliance with IFRS (iii) Associate entity The interest in associate is accounted for using the equity method, after initially The consolidated financial statements of being recorded at cost. Under the equity Adelaide Brighton Limited also comply with method, the share of the profits or losses of International Financial Reporting Standards the associate is recognised in the income joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. (IFRS) as issued by the International statement, and the share of post-acquisition (v) Non-controlling interests Accounting Standards Board (IASB). movements in reserves is recognised in other Non-controlling interests in the results and comprehensive income. Profits or losses on equity of subsidiaries are shown separately (b) Principles of consolidation transactions establishing the associate and in the consolidated income statement and (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries controlled by Adelaide Brighton Ltd as at 31 December 2014 and the results of all subsidiaries for the year then ended. The transactions with the associate are eliminated balance sheet respectively. The Group treats to the extent of the Group’s ownership transactions with non-controlling interests interest until such time as they are realised by that do not result in a loss of control as the associate on consumption or sale, unless they relate to an unrealised loss that provides transactions with equity owners of the Group. For purchases from or sales to non- evidence of the impairment of an asset controlling interests, the difference between transferred. any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 NOTES T O AND FORM I NG PA R T O F T H E FI N ANCI AL STATEM EN TS 67 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting On consolidation, exchange differences (f) Income tax policies (continued) (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to maker. The chief operating decision maker, When a foreign operation is sold or any temporary differences between the tax bases who is responsible for allocating resources borrowings forming part of the net investment of assets and liabilities and their carrying and assessing performance of the operating are repaid, a proportionate share of such amounts in the financial statements, and to segments, has been identified as the Chief exchange differences is reclassified to profit unused tax losses. Executive Officer. or loss, as part of the gain or loss on sale (d) Foreign currency translation (i) Functional and presentation currency where applicable. (e) Revenue recognition Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based Items included in the financial statements of Revenue is measured at the fair value of on those tax rates which are enacted or each of the Group’s entities are measured consideration received or receivable. Amounts substantively enacted for each jurisdiction. using the currency of the primary economic disclosed as revenue are net of returns, The relevant tax rates are applied to the environment in which the entity operates trade allowances and duties and taxes paid. cumulative amounts of deductible and (‘the functional currency’). The consolidated Revenue is recognised for the major business taxable temporary differences to measure the financial statements are presented in activities as follows: Australian dollars, which is Adelaide Brighton Ltd’s functional and presentation currency. (ii) Transactions and balances (i) Sales revenue Revenue from the sale of goods is measured at the fair value of the consideration received Foreign currency transactions are translated or receivable, net of returns, trade discounts into the functional currency using the and volume rebates. Revenue is recognised exchange rates prevailing at the dates of the when the significant risks and rewards of transactions. Foreign exchange gains and ownership have been transferred to the buyer, losses resulting from the settlement of such recovery of the consideration is considered deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting or taxable profit or loss. transactions and from the translation at year probable, the associated costs and Deferred tax assets are recognised for end exchange rates of monetary assets and possible return of goods can be estimated deductible temporary differences and liabilities denominated in foreign currencies reliably, there is no continuing management unused tax losses only if it is probable that are recognised in the income statement. involvement with the goods and the amount future taxable amounts will be available (iii) Foreign operations The results and financial position of all the foreign operations that have a functional of revenue can be measured reliably. Sales to utilise those temporary differences and of services are recognised in the accounting losses. Deferred tax liabilities and assets are period in which the services are rendered. not recognised for temporary differences currency different from the presentation (ii) Deferred income currency are translated into the presentation Income received in advance in relation to currency as follows: > Assets and liabilities for each balance sheet presented are translated at the closing rate at contracts is deferred in the balance sheet and recognised as income on a straight-line basis over the period of the contract. the date of that balance sheet; (iii) Interest income > Income and expenses for each income statement and statement of comprehensive Interest income is recognised using the effective interest rate method. income are translated at average exchange (iv) Dividends between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the rates (unless this is not a reasonable Dividends are recognised as revenue when same taxation authority. Current tax assets approximation of the cumulative effect of the right to receive payment is established. and tax liabilities are offset where the entity the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and > All resulting exchange differences are recognised in other comprehensive income. has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. 68 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting Deferred tax balances relating to assets that (h) Business combinations policies (continued) (f) Income tax (continued) Current and deferred tax is recognised in profit and loss, except to the extent it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Tax consolidation Adelaide Brighton Ltd and its wholly owned Australian subsidiaries implemented the tax consolidation legislation as of 1 January 2004. Adelaide Brighton Ltd, as the head entity in the tax consolidated Group, recognises current tax liabilities and tax losses (subject to meeting the “probable test”) relating to all transactions, events and balances of the tax consolidated Group as if those transactions, events and balances were its own. had their tax values reset on joining the tax consolidated Group have been remeasured based on the carrying amount of those assets in the tax consolidated Group and their reset tax values. The adjustment to these deferred tax balances is recognised in the consolidated financial statements against income tax expense. (g) Leases The acquisition method of accounting is used to account for all business combinations, including business combinations involving equities or businesses under common control, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. Leases of property, plant and equipment The consideration transferred also includes where the Group, as lessee, has substantially the fair value of any contingent consideration all the risks and rewards of ownership are arrangement and the fair value of any pre- classified as finance leases. Finance leases existing equity interest in the subsidiary. are capitalised at the lease’s inception at the Acquisition-related costs are expensed as lower of the fair value of the leased property incurred. Identifiable assets acquired and and the present value of the minimum liabilities and contingent liabilities assumed lease payments. The corresponding rental in a business combination are, with limited obligations, net of finance charges, are exceptions, measured initially at their included in borrowings. Each lease payment fair values at the acquisition date. On an is allocated between the liability and finance acquisition-by-acquisition basis, the Group The entities in the tax consolidated Group are charges so as to achieve a constant rate recognises any non-controlling interest in the part of a tax sharing agreement which, in the on the finance balance outstanding. The acquiree either at fair value or at the non- opinion of the Directors, limits the joint and property, plant and equipment acquired under controlling interest’s proportionate share of several liability of the wholly-owned entities finance leases is depreciated over the asset’s the acquiree’s net identifiable assets. in the case of default by the head entity, useful life or over the shorter of the asset’s Adelaide Brighton Ltd. Amounts receivable or payable under an accounting tax sharing agreement with the useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the tax consolidated entities are recognised The interest element of the finance cost is acquiree over the fair value of the Group’s separately as tax-related amounts receivable charged to the income statement over the share of the net identifiable assets acquired or payable. Expenses and revenues arising lease period so as to produce a constant is recorded as goodwill. If those amounts are under the tax sharing agreement are periodic rate of interest on the remaining less than the fair value of the net identifiable recognised as a component of income tax balance of the liability for each period. assets of the subsidiary acquired and the expense. Leases in which a significant portion of the The wholly-owned entities fully compensate risks and rewards of ownership are retained Adelaide Brighton Ltd for any current tax by the lessor are classified as operating measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase. payable assumed and are compensated by leases. Payments made under operating Where settlement of any part of cash Adelaide Brighton Ltd for any current tax leases (net of any incentives received from the consideration is deferred, the amounts receivable and deferred tax assets relating to lessor) are charged to the income statement payable in the future are discounted to their unused tax losses or unused tax credits that on a straight line basis over the period of the present value as at the date of exchange. The are transferred to Adelaide Brighton Ltd under lease. the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements. Individual tax consolidated entities recognise tax expenses and revenues and current and deferred tax balances in relation to their own taxable income, temporary differences and tax losses using the separate taxpayer within the group method. Entities calculate their current and deferred tax balances on the basis that they are subject to tax as part of the tax consolidated Group. discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in the income statement. 69 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting The collectability of trade receivables is (i) Loans and receivables policies (continued) reviewed regularly. Debts which are known Loans and receivables are non-derivative (i) Impairment of assets the carrying amount directly. A provision payments that are not quoted in an active to be uncollectible are written off by reducing financial assets with fixed or determinable for doubtful receivables is established market. They are included in current assets, when there is objective evidence that the except for those with maturities greater than Group will not be able to collect all amounts 12 months after the balance sheet date. Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is An impairment loss is recognised for the the difference between the asset’s carrying amount by which the asset’s carrying amount and the estimated cash flows. Cash amount exceeds its recoverable amount. The flows relating to short term receivables are recoverable amount is the higher of an asset’s not discounted if the effect of discounting is fair value less costs to sell and value in use. immaterial. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash flows from other assets or groups of assets (cash generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. The amount of the provision is recognised in the income statement. When a trade (n) Derivatives receivable for which a provision for doubtful receivables has been recognised becomes uncollectible in a subsequent period, it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited against expenses in the income statement. (ii) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading unless they are designated as hedges. Assets in this category are classified as current assets where they are expected to be realised within 12 months of balance sheet date. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. Derivative instruments entered into by the Group do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income (j) Cash and cash equivalents (l) Inventories For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, term deposits and deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. Bank overdrafts are shown within borrowings in Raw materials and stores, work in progress statement and are included in finance costs. and finished goods are stated at the lower of cost and net realisable value. Cost (o) Non-current assets (or disposal groups) comprises direct materials, direct labour and held for sale an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory on the basis of weighted average costs. Non current assets (or disposal groups) are classified as held for sale and stated at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continuing use current liabilities on the balance sheet. Net realisable value is the estimated selling and a sale is considered highly probable. (k) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (m) Financial assets An impairment loss is recognised for any initial or subsequent write down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell an receivables. Trade receivables are typically The Group classifies its financial assets in the asset (or disposal group), but not in excess due for settlement no more than 30 to 45 following categories: loans and receivables, of any cumulative impairment loss previously days from the end of the month of invoice. and financial assets at fair value through recognised. A gain or loss not previously profit or loss. The classification depends on recognised by the date of the sale of the non- the purpose for which the financial assets current asset (or disposal group) is recognised were acquired. Management determines the at the date of de-recognition. classification of its financial assets at initial recognition. 70 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting (iii) Leasehold property (iii) IT development and software policies (continued) The cost of improvements to or on leasehold Costs incurred in developing products or properties is amortised over the unexpired systems and costs incurred in acquiring (o) Non-current assets (or disposal groups) period of the lease or the estimated useful life, software and licences that will contribute held for sale (continued) whichever is the shorter. Amortisation is over to future period financial benefits through Non-current assets (including those that are 5 - 30 years. part of a disposal group) are not depreciated (iv) Other fixed assets or amortised while they are classified as Freehold land is not depreciated. Depreciation held for sale. Interest and other expenses on other assets is calculated using the attributable to the liabilities of a disposal straight line method to allocate their cost or group classified as held for sale continue to deemed cost amounts, over their estimated be recognised. useful lives, as follows: > Buildings 20 - 40 years revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and service and direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line basis over periods generally ranging from 5 to 10 years. Non-current assets classified as held for sale and the assets of a disposal group classified > Plant and equipment 3 - 40 years IT development costs include only those costs as held for sale are presented separately from The assets’ residual values and useful lives the other assets in the balance sheet. The are reviewed, and adjusted if appropriate, liabilities of a disposal group classified as held at each balance sheet date. An asset’s for sale are presented separately from other carrying amount is written down immediately liabilities in the balance sheet. to its recoverable amount if the asset’s carrying amount is greater than its estimated directly attributable to the development phase and are only recognised following completion of technical feasibility and where the Group has an intention and ability to use the asset. (r) Borrowings (p) Property, plant and equipment recoverable amount (Note 1(i)). Gains and Borrowings are initially recognised at fair Property, plant and equipment are shown at historical cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. losses on disposals are determined by value, net of transaction costs incurred. comparing proceeds with carrying amount. Borrowings are subsequently measured These are included in the income statement. at amortised cost. Any difference between (q) Intangible assets (i) Goodwill Goodwill is measured as described in Note 1(h). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of joint ventures is included in investments in joint ventures. the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. The carrying amount of any component Goodwill is not amortised. Instead, accounted for as a separate asset is goodwill is tested for impairment annually (s) Borrowing costs derecognised when replaced. All other or more frequently if events or changes repairs and maintenance are charged to in circumstances indicate that it might profit or loss during the reporting period in be impaired, and is carried at cost less which they are incurred. (i) Mineral reserves Mineral reserves are amortised based on annual extraction rates over the estimated life of the reserves. The remaining useful life of each asset is reassessed at regular intervals. Where there is a change during the period to the useful life of the mineral reserve, amortisation rates are adjusted prospectively from the beginning of the reporting period. (ii) Complex assets The costs of replacing major components of complex assets are depreciated over the estimated useful life, generally being the period until next scheduled replacement. accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units which are expected to benefit Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. (t) Trade and other payables from the business combination in which the These amounts represent liabilities for goods goodwill arose, for the purpose of impairment and services provided to the Group prior to testing. Each of those cash generating units the end of financial year which are unpaid. are consistent with the Group’s reporting The amounts are unsecured and are usually paid within 30 - 60 days of recognition. segments. (ii) Lease rights Lease rights acquired have a finite useful life. Amortisation is calculated using the straight- line method to allocate the cost over their estimated useful lives, which varies from 2 to 20 years. 71 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting (iv) Provisions for close down and restoration Expected future payments are discounted policies (continued) costs using market yields at the end of the reporting (u) Provisions dismantling and demolition of infrastructure terms to maturity and currency that match, Close down and restoration costs include the period on national government bonds with and the removal of residual materials and as closely as possible, the estimated future remediation of disturbed areas. Provisions cash outflows. Provisions are recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. for close down and restoration costs do not include any additional obligations which are expected to arise from future disturbance. The costs are estimated on the basis of a closure plan. The cost estimates are Where there are a number of similar reviewed annually during the life of the obligations, the likelihood that an outflow operation, based on the net present value of will be required in settlement is determined estimated future costs. (iii) Retirement benefit obligations Except those employees that opt out of the Group’s superannuation plan, all employees of the Group are entitled to benefits from the Group’s superannuation plan on retirement, disability or death. The Group has a defined benefit section and defined contribution section within its plan. The defined benefit by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Estimate changes resulting from new section provides defined lump sum benefits disturbance, updated cost estimates, on retirement, death, disablement and changes to the lives of operations and withdrawal, based on years of service and revisions to discount rates are capitalised final average salary. The defined benefit plan within property, plant and equipment. These section is closed to new members. The Provisions are measured at the present costs are then depreciated over the lives of defined contribution section receives fixed value of management’s best estimate of the the assets to which they relate. contributions from Group companies and expenditure required to settle the present obligation at the reporting date. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. (i) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the period but not distributed at balance date. The amortisation or ‘unwinding’ of the discount applied in establishing the net the Group’s legal or constructive obligation is limited to these contributions. present value of provisions is charged to the A liability or asset in respect of defined income statement in each accounting period. benefit superannuation plans is recognised The amortisation of the discount is shown in in the balance sheet, and is measured as the finance costs. (v) Employee benefits present value of the defined benefit obligation at the reporting date less the fair value of the superannuation fund’s assets at that date. (i) Short-term obligations The present value of the defined benefit Liabilities for wages and salaries, including obligation is based on expected future non-monetary benefits, annual leave and payments, which arise from membership of accumulating sick leave expected to be the fund to the reporting date, calculated settled within 12 months after the end of annually by independent actuaries using the the period in which the employees render projected unit credit method. Consideration the related service are recognised in respect is given to expected future wage and salary (ii) Workers’ compensation of employees’ services up to the end of levels, experience of employee departures Certain entities within the Group are self the reporting period and are measured at and periods of service. insured for workers’ compensation purposes. the amounts expected to be paid when For self-insured entities, provision is made the liabilities are settled. The liability for that covers accidents that have occurred annual leave and accumulating sick leave and have been reported together with an is recognised in the provision for employee allowance for incurred but not reported benefits. All other short-term employee benefit claims. The provision is based on an obligations are presented as payables. actuarial assessment. (iii) Restructuring costs (ii) Other long term employee benefit obligations The liability for long service leave and annual Liabilities arising directly from undertaking a leave which is not expected to be settled restructuring program, not in connection with within 12 months after the end of the period the acquisition of an entity, are recognised in which the employees render the related when a detailed plan has been developed, service is recognised in the provision for implementation has commenced, by entering employee benefits and measured as the into a binding sales agreement or making present value of expected future payments detailed public announcements such that to be made in respect of services provided Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, outside profit or loss directly in the statement of comprehensive income. They are included in retained earnings in the statement of changes in equity and in the balance sheet. the affected parties are in no doubt that by employees up to the end of the reporting Past service costs are recognised immediately the restructuring program will proceed. The cost of a restructuring program provided period using the projected unit credit method. Consideration is given to expected in profit or loss. for is the estimated future cash flows from future wage and salary levels, experience of implementation of the plan. employee departures and periods of service. 72 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting (vi) Termination benefits (z) Goods and Services Tax (GST) policies (continued) Termination benefits are payable when employment is terminated before the normal (v) Employee benefits (continued) retirement date, or when an employee Contributions to the defined contribution fund are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the Group can no longer withdraw the offer of those benefits; Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. and (b) when the entity recognises costs for Receivables and payables are stated inclusive a restructuring that is within the scope of of the amount of GST receivable or payable. (iv) Share-based payments AASB 137 Provisions, Contingent Liabilities The net amount of GST recoverable from, or Share-based compensation benefits are and Contingent Assets and involves the payable to, the taxation authority is included provided to executives via the Adelaide payment of terminations benefits. In the case with other receivables or payables in the Brighton Ltd Executive Performance Share of an offer made to encourage voluntary balance sheet. Plan (“the Plan”). The fair value of Awards granted under the Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after balance sheet date are discounted to present value. date and recognised over the period during which the employees become unconditionally (w) Contributed equity Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. entitled to the Awards. Ordinary shares are classified as equity. (aa) Financial guarantee contracts The fair value at grant date is independently determined using a pricing model that takes into account the exercise price, the term of the Award, the vesting and performance criteria, the impact of dilution, the non- tradeable nature of the Award, the share price at grant date, the expected dividend yield and the risk-free interest rate for the term of the Award. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, for the purpose of acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration. Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate. The fair value of the Awards granted excludes (x) Earnings per share the impact of any non-market vesting conditions (e.g. earnings per share). Non- market vesting conditions are included in assumptions about the number of Awards that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of Awards that are expected to become exercisable. The (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year. employee benefit expense recognised each (ii) Diluted earnings per share (ab) Carbon Accounting An entity within the Group was a Liable Entity under the Clean Energy Legislation (the Scheme) and also qualified for assistance under the Jobs and Competitiveness Program (JCP). The Scheme was repealed effective 1 July 2014 however obligations incurred up to 30 June 2014 were required to be settled. The Group was required to surrender eligible period takes into account the most recent Diluted earnings per share adjusts the emission units to the Clean Energy Regulator estimate. The impact of the revision to original figures used in the determination of basic (the Regulator) for covered emissions, while estimates, if any, is recognised in the income earnings per share to take into account the units were available based upon production statement with a corresponding entry to after income tax effect of interest and other volumes of eligible products. equity. The Plan is administered by the Adelaide Brighton employee share plan trust; see Note 1(b)(ii). (v) Short-term incentives financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assuming conversion of all dilutive potential ordinary shares. The Group recognises a liability and an (y) Rounding of amounts (i) Provision for Carbon Emissions Where a facility is anticipated to produce covered emissions in excess of the threshold in an assessment year, a provision is recognised for the cost of eligible emission units as covered emissions are emitted. A provision for unit shortfall charges is expense for short-term incentives available to certain employees on a formula that takes into consideration agreed performance targets. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. The Company is of a kind referred to in recognised at the time a shortfall in units Class Order 98/100, issued by the Australian Securities and Investments Commission, surrendered to the Regulator occurs or at the time a shortfall has been identified. relating to the ‘‘rounding off’’ of amounts in The provision is recognised in the income the financial report. Amounts in the financial statement as incurred unless qualifying report have been rounded off in accordance for an alternative treatment under another with that Class Order to the nearest one accounting standard or policy. hundred thousand dollars, unless otherwise stated. 73 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting (ii) Tax consolidation legislation (iii) Financial guarantees policies (continued) The Company and its wholly-owned Where the Company has provided financial (ab) Carbon Accounting (continued) implemented the tax consolidation legislation. of subsidiaries for no compensation, the fair Australian controlled entities have guarantees in relation to loans and payables The measurement of the provision for carbon The Company and the controlled entities in emissions is in accordance with the Group’s the tax consolidated Group account for their accounting policy for provisions, see own current and deferred tax amounts. These values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment. Note 1(u). (ii) Carbon Unit Asset An asset is recognised at fair value for tax amounts are measured as if each entity in (iv) Share based payments the tax consolidated Group continues to be a The grant by the Company of options over its stand alone taxpayer in its own right. equity instruments to employees of subsidiary JCP units as they are received or become In addition to its own current and deferred receivable. Units received in advance are tax amounts, the Company also recognises recognised as deferred income and released the current tax liabilities (or assets) and the to the income statement as eligible deferred assets arising from unused tax production activity is undertaken. losses and unused tax credits assumed undertakings in the Group is treated as a receivable from that subsidiary undertaking. (ad) New accounting standards and interpretations from controlled entities in the tax Certain new accounting standards and During the initial fixed price period of the Clean Energy Legislation, units purchased consolidated Group. from the Regulator are automatically The entities have also entered into a tax surrendered to the Regulator as a remission funding agreement under which the wholly- of liability under the Scheme and are owned entities fully compensate the Company recognised as a reduction of the provision for any current tax payable assumed and are interpretations have been published that are not mandatory for the 31 December 2014 reporting period. The Group’s assessment of the impact of these new standards and interpretations is set out below. for carbon emissions. compensated by Adelaide Brighton Limited AASB 9 Financial Instruments Carbon units are classified into current and non-current based upon the anticipated timing of disposal of the unit, either through remission of liability under the Scheme or sale. (ac) Parent entity financial information for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to Adelaide Brighton Limited under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly- The financial information for the parent entity, owned entities’ financial statements. AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities and introduces new rules for hedge accounting. In December 2014, the AASB made further changes to the classification and measurement rules and also introduced a new impairment model. These latest amendments Adelaide Brighton Limited (“the Company”), disclosed in Note 37 has been prepared on the same basis as the consolidated financial statements, except as set out below. The amounts receivable/payable under the now complete the new financial instruments tax funding agreement are due upon receipt standard. When adopted, the standard will of the funding advice from the head entity, not have a material impact on the financial which is issued as soon as practicable after statements. The standard is mandatory for (i) Investments in subsidiaries, associate and the end of each financial year. The head entity financial years commencing on or after joint arrangements may also require payment of interim funding 1 January 2018. Investments in subsidiaries, associate and amounts to assist with its obligations to pay joint arrangements are accounted for at cost tax instalments. in the financial statements of the Company. Such investments include both investments in shares issued by the subsidiary and other parent entity interests that in substance form part of the parent entity’s investment Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as current amounts receivable from or payable to other entities in the Group. AASB 15 Revenue From Contracts With Customers AASB 15 Revenue From Contracts With Customers will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction in the subsidiary. These include investments Any difference between the amounts contracts. The new standard replaces the in the form of interest-free loans which assumed and amounts receivable or payable existing notion of risk and rewards with the have no fixed repayment terms and which under the tax funding agreement are notion of control to recognise when a good have been provided to subsidiaries as an recognised as a contribution to (or distribution or service transfers to a customer. When additional source of long term capital. Trade from) wholly-owned tax consolidated entities. adopted, the standard will not have a material amounts receivable from subsidiaries in the normal course of business and other amounts advanced on commercial terms and conditions are included in receivables. Any dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. impact on the financial statements. The standard is mandatory for financial years commencing on or after 1 January 2017. 74 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  1 Summary of significant accounting The AASB has made limited scope (a) Provisions for close down and restoration policies (continued) (ad) New accounting standards and interpretations (continued) AASB 11 Joint Arrangements and AASB 2014-3 Amendments to Australian Accounting Standards - Accounting for Acquisitions of Interests in Joint Operations amendments to resolve a current inconsistency between AASB 10 Consolidated Financial Statements and AASB 128 Investment in Associates and Joint Ventures. The amendments confirm that the accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a ‘business’ (as defined in AASB 3 Business The AASB has made limited scope Combinations). Where the non-monetary amendments to AASB 11 Joint Arrangements assets constitute a business, the Group to explicitly address the accounting for the recognises the full gain or loss on the sale acquisition of an interest in a joint operation. or contribution. If the assets do not meet The amendments require an investor to the definition of a business, the gain or loss costs Restoration provisions are based on estimates of the cost to rehabilitate currently disturbed areas based on current costs and legislative requirements. The Group progressively rehabilitates as part of the mining process. Cost estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The detailed accounting treatment is set out in Note 1(u)(iv). apply the principles of business combination is recognised only to the extent of the other Provisions for close down and restoration accounting when it acquires an interest in a investors’ interests in the associate or joint costs at the end of the year was joint operation that constitutes a business in venture. As this amendment merely clarifies $36.6m (2013: $27.6m). AASB 3 (refer Note 1(h)). As this amendment the existing requirements, they do not affect merely clarifies the existing requirements, they the Group’s accounting policies or any of the (b) Impairment of assets do not affect the Group’s accounting policies disclosures. The Group intends to apply the or any of the disclosures. The Group intends amendment from 1 January 2016. to apply the amendment from 1 January 2016. AASB 116 Property, Plant and Equipment, AASB 138 Intangible Assets and AASB 2014- 4 Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of Depreciation and Amortisation Annual Improvements to IFRSs 2012-2014 cycle In January 2015, the AASB approved a number of amendments to Australian Accounting Standards as a result of the annual improvements project. Management does not believe that the application of the The AASB has made limited scope standard will have a material impact on the The Group tests annually whether goodwill, other intangible assets with an indefinite life and other non-current assets have suffered any impairment, in accordance with the accounting policies stated in Notes 1(i) and 1(q). The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. For detailed assumptions refer to Note 13(b). amendments to AASB 116 Property, Plant financial statements. The Group will apply Estimates and judgements are continually and Equipment to clarify that a revenue-based the amendments from 1 January 2016. evaluated and are based on historical method should not be used to calculate the experience and other factors, including depreciation of items of property, plant and 2 Critical accounting estimates and expectations of future events that may have equipment, and to AASB 138 Intangible assumptions Assets to introduce a rebuttable presumption that the amortisation of intangible assets based on revenue is inappropriate. As this amendment merely clarifies the existing requirements, they do not affect the Group’s accounting policies or any of the disclosures. The Group intends to apply the amendment from 1 January 2016. AASB 10 Consolidated Financial Statements, AASB 128 Investment in Associates and Joint Ventures and AASB 2014-10 Amendments to Australian Accounting Standards - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual a financial impact on the Group and that are believed to be reasonable under the circumstances. (c) Defined benefit superannuation plan results. The estimates and assumptions that The present value of defined benefit are significant to the carrying amounts of superannuation plan obligations depends assets and liabilities in the next financial year on a number of factors that are determined are discussed below. on an actuarial basis using a number of assumptions. These include selection of a discount rate, future salary increases and expected rates of return. The assumptions used to determine the obligations and the sensitivity of balances to changes in these assumptions are detailed in Note 20. 75 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 3 Revenue and other income Revenue from continuing operations Sale of goods Interest from joint ventures Interest from other parties Royalties Other income Net gain on disposal of property, plant and equipment Fair value accounting gain on business acquisition Claim settlement Rental income Other income Revenue and other income (excluding share of net profits of joint ventures and associate accounted for using the equity method) 4 Expenses Profit before income tax includes the following specific expenses: Depreciation Buildings Plant and equipment Mineral reserves Total depreciation Amortisation of intangibles Impairment of plant and equipment1 Other charges Employee benefits expense Defined contribution superannuation expense Operating lease rental charge Bad and doubtful debts - trade debtors Provision for inventory Finance costs Interest and finance charges paid / payable Unwinding of the discount on restoration provisions and retirement benefit obligation Exchange (gains) on foreign currency contracts Total finance costs Amount capitalised2 Finance costs expensed Consolidated 2014 2013 1,335.6 0.8 1.0 0.4 1,225.5 0.8 1.0 0.7 1,337.8 1,228.0 1.2 17.8 4.7 2.0 0.4 26.1 0.4 - - 2.9 1.4 4.7 1,363.9 1,232.7 4.3 62.7 4.5 71.5 1.5 2.0 154.8 10.1 2.1 2.3 0.5 16.2 1.2 - 17.4 (0.6 ) 16.8 3.8 61.7 3.6 69.1 1.5 - 148.2 9.4 3.3 1.5 0.7 16.0 1.2 (0.1 ) 17.1 (1.2 ) 15.9 1 As a result of the rationalisation of clinker production at the Munster site, an impairment charge of $2.0 million (2013: nil) was recognised for the excess of the written down value compared to the recoverable amount of the assets impacted by the rationalisation. 2 The rate used to determine the amount of borrowing costs to be capitalised is the average interest rate applicable to the Group’s outstanding borrowings during the year, in this case 3.9% p.a. (2013: 4.2% p.a.). 76 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 5 Income tax expense (a) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense Tax at the Australian tax rate of 30% (2013: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non allowable expenses Non assessable capital profits Rebateable dividends Fair value adjustment Previously unrecognised tax losses used to reduce deferred tax liability (Over) under provided in prior years Aggregate income tax expense Aggregate income tax expense comprises: Current taxation expense Net deferred tax (Note 12 & 19) (Over) provided in prior year (b) Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss but directly (credited) debited to equity Current tax Net deferred tax Consolidated 2014 2013 232.5 69.8 208.6 62.6 1.6 (1.8 ) (4.1 ) (5.4 ) - (0.2 ) 0.3 (0.7 ) (4.4 ) - (0.5 ) 0.2 59.9 57.5 54.5 5.5 (0.1 ) 59.9 (1.8 ) 0.6 (1.2 ) 61.0 (3.2 ) (0.3 ) 57.5 (0.8 ) (0.8 ) (1.6 ) (c) Tax expense relating to items of other comprehensive income Actuarial (losses) / gains on retirement benefit obligation (Note 12) (0.4 ) 2.3 (d) Tax losses Unused tax losses for which no deferred tax asset has been recognised: Capital losses 16.8 16.3 This benefit for tax losses will only be obtained if: (i) the Group derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised, (ii) the Group continues to comply with the conditions for deductibility imposed by tax legislation, and (iii) no changes in tax legislation adversely affect the Group in realising the benefit from the deductions for the losses. The accounting policy in relation to tax consolidation legislation is set out in Note 1(f). 77 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 6 Cash and cash equivalents Current Cash at bank and in hand Term deposits Cash and cash equivalents (a) Offsetting The Group has an offsetting agreement with its bank for cash facilities. The agreement allows the Group to manage cash balances on a total basis, offsetting individual cash balances against overdrafts. The gross value of the balance is as follows: Cash balances Cash overdrafts Net cash balance (b) Risk exposure The Group’s exposure to interest rate risk is discussed in Note 24. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of cash and cash equivalents mentioned above. 7 Trade and other receivables Current Trade receivables Provision for doubtful receivables Amounts receivable from joint ventures Prepayments Other receivables (a) Past due but not impaired Consolidated 2014 2013 29.7 2.0 31.7 31.7 - 31.7 9.1 2.0 11.1 11.1 - 11.1 164.9 (1.7 ) 163.2 27.6 4.7 3.8 150.7 (1.6 ) 149.1 24.1 5.5 3.7 199.3 182.4 Included in the Group’s trade receivables balance are debtors with a carrying value of $9.2 million (2013: $8.4 million) which are past due but not impaired. The Group has not provided for these amounts as there has not been a significant change in credit quality or the amounts relate to debtors for which there is no recent history of default. The Group believes these amounts are still recoverable. The ageing analysis is as follows: 60 days $8.1 million, over 90 days $1.1 million (2013: 60 days $6.8 million, over 90 days $1.6 million). (b) Impaired trade receivables As at 31 December 2014 current trade receivables of the Group with a nominal value of $2.2 million (2013: $2.7 million) were impaired. The amount of the provision was $1.7 million (2013: $1.6 million). The individually impaired receivables mainly relate to customers which are in unexpectedly difficult economic situations. It was assessed that a portion of the receivables is expected to be recovered. 78 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS Consolidated 2014 2013 - 0.3 1.9 2.2 1.6 (2.4 ) 2.5 1.7 - 2.0 0.7 2.7 0.7 (0.6 ) 1.5 1.6 29.7 3.0 32.7 27.8 3.6 31.4 71.8 55.6 27.3 58.4 43.0 34.9 154.7 136.3 - 1.5 1.5 0.6 7.3 7.9 ($ Million) 7 Trade and other receivables (continued) (b) Impaired trade receivables (continued) The ageing of these receivables is as follows: 1 to 3 months 3 to 6 months Over 6 months Movement in provision for doubtful receivables Opening balance at 1 January Amounts written off during the year Provision for doubtful receivables recognised during the year Closing balance at 31 December (c) Fair value and credit, interest and foreign exchange risk Due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value. All receivables are denominated in Australian dollars. Information concerning the fair value and risk management of both current and non-current receivables is set out in Note 24. Non-current Loans to joint ventures Other non-current receivables Details of the fair values, effective interest rate and credit risk are set out in Note 24. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above. (a) Impaired receivables and receivables past due None of the non-current receivables are impaired or past due but not impaired. 8 Inventories Current Finished goods Raw materials and work in progress Engineering spare parts stores Inventory expense Inventories recognised as expense during the year ended 31 December 2014 and included in cost of sales amounted to $770.2 million (2013: $686.5 million). 9 Assets classified as held for sale Current Plant and equipment Land and buildings 79 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  10 Joint arrangements and associate Non-current (a) Summarised financial information for joint ventures and associate The following tables provide summarised financial information for the joint ventures and associate which are individually immaterial and accounted for using the equity method. ($ Million) Investment in joint ventures and associate Profit from continuing operations Other comprehensive income Total comprehensive income (b) Interests in joint arrangements and associate Total non-material Consolidated Joint ventures Associate 2014 104.5 20.3 - 20.3 2013 104.8 22.6 - 22.6 2014 35.5 1.4 - 1.4 2013 2014 33.7 139.9 1.6 - 1.6 21.7 - 21.7 2013 138.5 24.2 - 24.2 Name Principal place of business Burrell Mining Services JV New South Wales and Queensland Batesford Quarry Sunstate Cement Ltd Victoria Queensland Independent Cement and Lime Pty Ltd New South Wales and Victoria E.B. Mawson & Sons Pty Ltd and Lake Boga Quarries Pty Ltd New South Wales and Victoria Aalborg Portland Malaysia Sdn. Bhd. Malaysia Peninsula Concrete Pty Ltd South Australia Ownership interest 2014 % 50 50 50 50 50 30 50 2013 % 50 50 50 50 50 30 - Activities Concrete products for the coal mining industry Limestone products Cement milling and distribution Cementitious product distribution Premixed concrete and quarry products White clinker and cement manufacture Premixed concrete All joint arrangements and associates are equity accounted in accordance with Note 1(b)(iv) except Burrell Mining and Batesford, which are considered joint operations and are proportionately consolidated. Each of the above joint arrangements has a balance sheet date of 30 June which is different to the Group’s balance sheet date of 31 December. Financial reports as at 31 December for the joint arrangements are used in the preparation of the Group financial statements. Aalborg has a 31 December balance date. (c) Contingent liabilities in respect of joint ventures The Group has an unrecognised contingent liability to acquire the interest it does not own in certain of its joint ventures. Acquisition of the interest is subject to the occurrence of certain future events which affect both the probability and value of the interest. The minimum value of the contingent liability is $25 million (2013: $25 million). 80 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  11 Property, plant and equipment Non-current Consolidated as at 31 December 2014 ($ Million) At cost Accumulated depreciation Net book amount Reconciliations Carrying amount at 1 January 2014 Additions Disposals Business combinations Held for sale Reclassification Impairment Depreciation/amortisation Other Carrying amount at 31 December 2014 Freehold Leasehold Plant & Mineral retirement In course of land Buildings property equipment reserves cost construction Total Asset 156.4 - 156.4 130.5 6.9 (0.3 ) 13.4 (1.5 ) 7.4 - - - 142.1 (54.4 ) 87.7 87.9 0.2 (0.3 ) 2.8 - 1.4 - (4.3 ) - 9.0 (2.6 ) 6.4 6.8 0.1 - - - - - (0.5 ) - 1,284.9 (757.4 ) 201.4 (28.3 ) 527.5 173.1 498.8 28.7 (3.9 ) 46.7 - 21.4 (2.0 ) (62.2 ) - 131.4 0.5 - 45.1 - - - (4.2 ) 0.3 20.8 (4.4 ) 16.4 4.7 - - 4.7 - - - (0.3 ) 7.3 22.1 - 22.1 1,836.7 (847.1 ) 989.6 29.6 24.5 - - - (32.0 ) - - - 889.7 60.9 (4.5 ) 112.7 (1.5 ) (1.8 ) (2.0 ) (71.5 ) 7.6 156.4 87.7 6.4 527.5 173.1 16.4 22.1 989.6 Consolidated as at 31 December 2013 Freehold Leasehold Plant & Mineral retirement In course of land Buildings property equipment reserves cost construction Total Asset 130.5 - 130.5 130.3 5.5 (0.7 ) (6.4 ) 1.8 - - 138.8 (50.9 ) 87.9 68.3 1.3 (0.1 ) (0.9 ) 23.1 (3.8 ) - 9.0 (2.2 ) 6.8 6.8 0.2 - - 0.2 (0.4 ) - 1,225.4 (726.6 ) 155.8 (24.4 ) 498.8 131.4 471.3 134.8 39.0 (3.4 ) (0.6 ) 53.8 (61.3 ) - - - - - (3.4 ) - 8.8 (4.1 ) 4.7 4.7 0.2 - - - (0.2 ) - 29.6 - 29.6 86.3 22.9 - - (79.6 ) - - 1,697.9 (808.2 ) 889.7 902.5 69.1 (4.2 ) (7.9 ) (0.7 ) (69.1 ) - 130.5 87.9 6.8 498.8 131.4 4.7 29.6 889.7 ($ Million) At cost Accumulated depreciation Net book amount Reconciliations Carrying amount at 1 January 2013 Additions Disposals Held for sale Reclassification Depreciation/amortisation Other Carrying amount at 31 December 2013 ($ Million) Consolidated 2014 2013 3.5 (0.2 ) 3.3 - - - Leased assets Plant and equipment includes the following amounts where the Group is a lessee under a finance lease: Cost Accumulated depreciation Net book amount 81 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS Consolidated 2014 2013 1.2 0.7 27.3 2.1 0.3 31.6 2.1 0.1 41.9 1.2 1.2 46.5 (31.6 ) (46.5 ) - - 46.5 (19.5 ) 0.4 (0.6 ) 4.8 31.6 44.3 2.9 (2.3) 1.6 - 46.5 Consolidated Goodwill Software Other intangibles Total 246.2 - 246.2 170.6 - - 75.6 - 246.2 170.6 - 170.6 170.6 - - 170.6 16.4 (5.2 ) 11.2 10.6 1.8 0.2 - (1.4 ) 11.2 14.5 (3.9 ) 10.6 11.5 0.5 (1.4 ) 10.6 7.1 (0.6 ) 6.5 2.7 - - 3.9 (0.1 ) 6.5 3.2 (0.5 ) 2.7 2.7 0.1 (0.1 ) 2.7 269.7 (5.8 ) 263.9 183.9 1.8 0.2 79.5 (1.5 ) 263.9 188.3 (4.4 ) 183.9 184.8 0.6 (1.5 ) 183.9 ($ Million) 12 Deferred tax assets Non-current The balance comprises temporary differences attributable to: Share based payment reserve Defined benefit obligations Provisions Other assets Tax losses Deferred tax assets - before offset Offset deferred tax liability (Note 19) Net deferred tax assets - after offset Movements: Opening balance at 1 January - before offset Recognised in the income statement Recognised in other comprehensive income Recognised in equity Acquired in business combinations Closing balance at 31 December - before offset ($ Million) 13 Intangible assets Non-current 31 December 2014 Cost Accumulated amortisation Carrying amount at 31 December 2014 Opening balance at 1 January 2014 Reclassification Additions in current year Business combinations Amortisation charge Closing balance at 31 December 2014 31 December 2013 Cost Accumulated amortisation Carrying amount at 31 December 2013 Opening balance at 1 January 2013 Additions in current year Amortisation change Closing balance at 31 December 2013 82 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 13 Intangible assets (continued) (a) Impairment tests for goodwill Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to business segments. A segment level summary of the goodwill allocation on a non-aggregation basis is presented below. Cement and Lime Concrete and Aggregates Cement, Lime, Concrete and Aggregates CGU Concrete Products CGU Consolidated 2014 2013 134.0 103.4 237.4 8.8 246.2 131.0 30.8 161.8 8.8 170.6 The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on 2014 actual results and 2015 financial budgets approved by management. The growth rate does not exceed the long term average growth rate for the business in which the CGU operates. (b) Key assumptions used for value-in-use calculations Cement, Lime, Concrete and Aggregates Concrete Products Gross margin1 Growth rate2 Discount rate3 2014 % 36.0 26.6 2013 % 36.3 25.1 2014 2013 2014 % 1.9 2.0 % 1.7 2.0 % 7.8 8.5 2013 % 10.0 10.0 1 Budgeted gross margin (excluding fixed production costs) 2 Weighted average growth rate used to extrapolate cash flows beyond the specific market forecast period of up to 8 years 3 Pre-tax discount rate applied to cash flow projections The assumptions have been used for the analysis of each CGU within the business segment. Management determined budgeted gross margin based on past performance and its expectations for the future. The discount rates used are pre-tax and reflect specific risks relevant to the segments. 14 Carbon asset and liability (a) Background The Federal Government introduced a price on carbon emissions from 1 July 2012 through the introduction of the Clean Energy Legislation (the Scheme). An entity within the Group was a Liable Entity under the Scheme and is required to surrender eligible emission units to the Clean Energy Regulator (the Regulator) in order to satisfy its liability for carbon emissions. The Group is also eligible to receive assistance under the Jobs and Competitiveness Program (JCP), where the Scheme provides units to industries that qualify as Emissions Intensive Trade Exposed. During 2014, the Scheme was repealed effective 1 July 2014. Obligations and benefits accrued before that date are not impacted by the repeal. The Scheme requires entities with operational control of a facility where certain emissions exceed 25,000 tonnes of carbon dioxide equivalence (tCO2 -e) to remit to the Regulator an equivalent number of eligible emission units to pay for their emissions. During the initial years of the Scheme, restrictions are placed on utilising eligible emission units that are not issued by the Regulator. The Group has operational control of a large number of facilities across Australia, however as a result of the threshold, only a limited number of sites related to the production of cement clinker and lime are directly liable under the Scheme. The production of cement clinker and lime require energy use to heat raw materials to produce chemical reactions necessary for the manufacturing process. Both the energy use for heat and the chemical reaction produce emissions that are covered by the Scheme. The accounting policy for carbon is set out in Note 1(ab). The Group is directly liable for certain emissions associated with sites that exceed the threshold. In addition to this, the Group incurs non-direct costs associated with the Scheme as a result of suppliers passing on the cost through higher charges. These costs form part of operating costs such as electricity charges. 83 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS Consolidated 2014 2013 - - - - 52.5 52.5 - 52.5 14.0 47.9 14.0 - 14.0 47.9 31.7 (65.6 ) 14.0 39.7 8.2 47.9 33.6 61.6 (47.3 ) 47.9 108.0 12.4 120.4 98.9 6.5 105.4 1.4 - 388.3 1.8 390.1 259.1 - 259.1 ($ Million) 14 Carbon asset and liability (continued) (b) Carbon balances recognised (i) Carbon unit asset Carbon units on hand Classified as: Current Non-current (ii) Provision for carbon emissions Provision for carbon emissions Classified as: Current Non-current The movement in provision for carbon emissions is set out below: Opening balance Liability for covered emissions Carbon units remitted to Regulator Closing balance 15 Trade and other payables Current Trade payables and accruals Trade payables - joint ventures Information about the Group’s exposure to foreign exchange risk is provided in Note 24. 16 Borrowings Current Finance lease Non-current Bank loans - unsecured Finance lease Details of the Group’s exposure to interest rate changes and fair value of borrowings are set out in Note 24. 84 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 17 Provisions Current Employee benefits Restoration provisions Workers’ compensation Other provisions Non-current Employee benefits Restoration provisions Movements in each class of provision during the financial year, other than employee benefits, are set out below. Consolidated 2014 2013 19.6 3.4 1.4 0.3 24.7 8.2 33.2 41.4 18.9 5.3 1.3 1.2 26.7 6.2 22.3 28.5 ($ Million) Opening balance at 1 January 2014 Assumed in business combinations Additional provision recognised - charged to income statement Additional provision recognised - charged to asset retirement cost Charged to income statement - unwind of discount Credited to income statement - reversal of amounts unused Payments Closing balance at 31 December 2014 ($ Million) 18 Other liabilities Current GST liability Deferred income - JCP assistance Other liabilities 19 Deferred tax liabilities Non-current The balance comprises temporary differences attributable to: Property, plant and equipment Inventories Other Deferred tax liabilities - before offset Offset deferred tax assets (Note 12) Net deferred tax liabilities - after offset Net deferred tax liabilities to be settled after more than 12 months Net deferred tax liabilities to be settled within 12 months 85 Workers’ Restoration Other compensation provisions provisions 1.3 - 0.1 - - - - 1.4 27.6 4.7 - 7.3 1.2 - (4.2 ) 36.6 1.2 - - - - (0.1 ) (0.8 ) 0.3 Consolidated 2014 2013 4.2 - - 4.2 3.2 17.1 0.1 20.4 95.8 9.3 3.3 108.4 (31.6 ) 76.8 76.4 0.4 76.8 84.2 8.3 18.3 110.8 (46.5 ) 64.3 63.8 0.5 64.3 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 19 Deferred tax liabilities (continued) Movements: Opening balance at 1 January - before offset Recognised in the income statement Acquired in business combinations (Over) provision in prior year Closing balance at 31 December - before offset Consolidated 2014 2013 110.8 (15.4 ) 13.3 (0.3 ) 108.4 111.0 (0.1 ) - (0.1 ) 110.8 20 Retirement benefit obligations > Administration of the Plan and payment to the There are a number of risks to which the Plan Non-current (a) Superannuation plan beneficiaries from Plan assets when required exposes the Company. The more significant in accordance with the Plan rules; risks relating to the defined benefits are: > Management and investment of the Plan > Investment risk - the risk that investment Other than those employees that have assets; and opted out, employees are members of the consolidated superannuation entity being the Adelaide Brighton Group Superannuation Plan > Compliance with superannuation law and other applicable regulations. (“the Plan”), a sub-plan of the Mercer Super The prudential regulator, the Australian Trust (“MST”). The MST is a superannuation Prudential Regulation Authority (APRA), master trust arrangement governed by an licenses and supervises regulated independent trustee, Mercer Investment superannuation plans. returns will be lower than assumed and the Company will need to increase contributions to offset this shortfall. > Salary growth risk - the risk that wages and salaries (on which future benefit amounts will be based) will rise more rapidly than assumed, increasing defined benefit amounts and thereby requiring additional employer Nominees Ltd. The Plan commenced in the MST on 1 August 2001. The Superannuation Industry (Supervision) legislation (SIS) governs the superannuation industry and provides a framework within which superannuation plans operate. The SIS Regulations require an actuarial valuation to be performed for each defined benefit superannuation plan every three years, or every year if the plan pays defined benefit pensions. Plan assets are held in trusts which are subject to supervision by the prudential regulator. Funding levels are reviewed regularly. Where assets are less than vested benefits, being those payable upon exit, a management plan must be formed to restore the coverage to at least 100%. Membership is in either the Defined Benefit contributions. or Accumulation sections of the Plan. The accumulation section receives fixed contributions from Group companies and the Group’s legal or constructive obligation is > Legislative risk - the risk that legislative changes could be made which increase the cost of providing the defined benefits. limited to these contributions. The following > Timing of members leaving service - a sets out details in respect of the defined significant amount of benefits paid to benefit section only. Defined benefit members receive lump sum benefits on retirement, death, disablement and withdrawal, and are guaranteed benefits to the equivalent of the notional balance they would have received as accumulation members leaving may have an impact on the financial position of the Plan, depending on the financial position of the Plan at the time they leave. The impact may be positive or negative, depending upon the circumstances and timing of the withdrawal. members through additional contributions The defined benefit assets are invested in the from the Group. The defined benefit section of Mercer Growth investment option. The assets the Plan is closed to new members. All new are diversified within this investment option members receive accumulation only benefits. and therefore the Plan has no significant The Plan’s Trustee is responsible for the During the 12 months to 31 December concentration of investment risk. governance of the Plan. The Trustee has 2014, all new employees, who are members a legal obligation to act solely in the best of this fund, have become members of the interests of Plan beneficiaries. The Trustee accumulation category of the Plan. has the following roles: 86 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  20 Retirement benefit obligations (continued) (b) Balance sheet amounts The amounts recognised in the balance sheet and the movements in the net defined benefit obligation over the year are as follows: ($ Million) At 1 January 2014 Current service cost Interest expense/(income) Transfers in Remeasurements Return on plan assets, excluding amounts included in interest expense/(income) Loss from change in financial assumptions Experience losses Contributions: Employers Plan participants Payments from Plan: Benefit payments At 31 December 2014 At 1 January 2013 Current service cost Interest expense/(income) Transfers in Remeasurements Return on plan assets, excluding amounts included in interest expense/(income) Gain from change in financial assumptions Experience losses Contributions: Employers Plan participants Payments from Plan: Benefit payments At 31 December 2013 Present value Fair value of of obligation plan assets Total 55.4 (54.9 ) 2.1 2.0 - 4.1 - 2.9 1.0 3.9 - 1.0 - (2.0 ) - (2.0 ) (2.7 ) - - (2.7 ) (1.6 ) (1.0 ) (5.5 ) 58.9 5.5 (56.7 ) 59.0 (51.0 ) 2.2 1.7 0.2 4.1 - (2.0 ) 1.5 (0.5 ) - 1.0 (8.2 ) 55.4 - (1.5 ) (0.2 ) (1.7 ) (7.1 ) - - (7.1 ) (2.3 ) (1.0 ) 8.2 (54.9 ) 0.5 2.1 - - 2.1 (2.7 ) 2.9 1.0 1.2 (1.6 ) - - 2.2 8.0 2.2 0.2 - 2.4 (7.1 ) (2.0 ) 1.5 (7.6 ) (2.3 ) - - 0.5 87 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  20 Retirement benefit obligations (continued) (c) Categories of plan assets The major categories of plan assets are as follows: Australian equity International equity Fixed income Property Cash Other Total 31 December 2014 in % Un-quoted $ million 15.9 18.1 9.1 5.7 3.4 4.5 28% 32% 16% 10% 6% 8% 31 December 2013 Un-quoted $ million 14.8 17.0 9.9 7.1 4.4 1.7 in % 27% 31% 18% 13% 8% 3% 56.7 100% 54.9 100% The assets set out in the above table are held in the Mercer Growth investment fund which does not have a quoted price in an active market. There are no amounts relating to the Company’s own financial instruments, and property occupied by, or other assets used by, the Company. (d) Actuarial assumptions and sensitivity The significant actuarial assumptions used were as follows: % Discount rate - % p.a. Future salary increases - % p.a. The sensitivity of the defined benefit obligation to changes in the significant assumptions is: Consolidated 2014 2.7 4.0 2013 3.9 2.0 in first year then 4.0 thereafter 31 December 2014 Discount rate Future salary increases 31 December 2013 Discount rate Future salary increases Change in assumption Increase in assumption Decrease in assumption Impact on defined benefit obligation 0.50 ppts 0.50 ppts 0.50 ppts 0.50 ppts Decrease by 2.0% Increase by 1.7% Increase by 2.2% Decrease by 1.6% Decrease by 2.1% Increase by 1.7% Increase by 2.2% Decrease by 1.6% The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit liability recognised in the balance sheet. (e) Defined benefit liability and employer contributions From 1 July 2014, the Group made contributions to the Plan at rates of between 6% and 9% of member salaries. For the period from 1 January 2013 to 30 June 2014, the Group made contributions to the Plan at rates of between 10% and 13% of member salaries. In addition, the Group made quarterly contributions of $150,000 during 2013. Expected contributions to the defined benefit plan for the year ending 31 December 2015 are $1.0 million. The weighted average duration of the defined benefit obligation is 7 years (2013: 6 years). 88 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 21 Contributed equity (a) Share capital Issued and paid up capital Consolidated 2014 2013 648,267,667 (2013: 638,456,688) ordinary shares, fully paid 727.9 699.1 (b) Movements in ordinary share capital Opening balance at 1 January 2,078,332 shares issued under Executive Performance Share Plan (2013: 1,069,200) (i) 7,732,647 Dividend Reinvestment Plan share issues (2013: nil) (Note 21(d)) Closing balance at 31 December 699.1 4.2 24.6 727.9 696.6 2.5 - 699.1 (i) Ordinary shares issued under the Adelaide Brighton Ltd Executive Performance Share Plan (refer Note 28). (c) Ordinary shares Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up the Company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote and, on a poll, each share is entitled to one vote. Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. (d) Dividend Reinvestment Plan In August 2014 the Company reactivated the Dividend Reinvestment Plan (DRP), effective for the 2014 interim dividend. Under the DRP, holders of ordinary shares may elect to have all or part of their dividend entitlements satisfied by the issue of new ordinary shares rather than by being paid in cash. Shares are issued under the DRP at a price determined by the Board. The operation of the DRP for any dividend is at the discretion of the Board, which suspended the DRP in February 2015 with immediate effect until further notice. (e) Capital risk management The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue shares as well as issue new debt or redeem existing debt. The Group monitors capital on the basis of the gearing ratio. The gearing ratio at 31 December 2014 and 31 December 2013 was as follows: ($ Million) Total borrowings Less: cash and cash equivalents Net debt Total equity Gearing ratio (f) Employee share scheme and options Consolidated 2014 391.5 (31.7 ) 2013 259.1 (11.1) 359.8 1,136.7 248.0 1,061.8 31.7 % 23.4 % Information relating to the employee share schemes, including details of shares issued under the schemes is set out in Note 28. 89 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 22 Reserves and retained earnings (a) Reserves Foreign currency translation reserve Share-based payment reserve Foreign currency translation reserve Opening balance at 1 January Currency translation differences arising during the year Closing balance at 31 December Share-based payment reserve Opening balance at 1 January Awards expense Deferred tax Over provision of tax in prior periods Issue of shares to employees Closing balance at 31 December Nature and purpose of reserves Foreign currency translation Exchange differences arising on translation of foreign controlled entities and the foreign associate are recognised in other comprehensive income as described in Note 1(d) and accumulated in a separate reserve within equity. The cumulative amount is reclassified to profit or loss when the net investment is disposed of. Share-based payment The share-based payment reserve is used to recognise the fair value of Awards issued but not exercised. (b) Retained earnings Opening balance at 1 January Net profit for the year Actuarial (loss) / gain on defined benefit obligation (net of tax) Dividends Closing balance at 31 December Consolidated 2014 2013 1.5 1.8 3.3 1.0 0.5 1.5 3.3 1.5 (0.6 ) - (2.4 ) 1.8 1.0 3.3 4.3 - 1.0 1.0 2.1 2.1 0.3 0.5 (1.7 ) 3.3 355.6 172.7 (0.8 ) (124.7 ) 304.4 151.1 5.3 (105.2 ) 402.8 355.6 90 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 23 Dividends Dividends paid during the year 2013 final ordinary dividend of 9.0 cents (2012 - 9.0 cents) per fully paid ordinary share, franked at 100% (2012 - 100%) paid on 15 April 2014 2013 final special dividend of 3.0 cents (2012 - nil cents) per fully paid ordinary share, franked at 100% (2012 - n/a) paid on 15 April 2014 2014 interim dividend of 7.5 cents (2013 - 7.5 cents) per fully paid ordinary share, franked at 100% (2013 - 100%) paid on 20 October 2014 Total dividends Dividends paid: In cash Issue of shares through dividend reinvestment plan Total dividends Consolidated 2014 2013 57.5 57.4 19.1 - 48.1 124.7 100.1 24.6 124.7 47.8 105.2 105.2 - 105.2 Dividend not recognised at year end Since the end of the year the Directors have recommended the payment of a final dividend of 9.5 cents (2013: 12.0 cents) per fully paid share, franked at 100% (2013: 100%).The aggregate amount of the proposed final dividend to be paid on 16 April 2015, not recognised as a liability at the end of the reporting period, is 61.6 76.6 Franked dividend The franked portion of the dividend proposed as at 31 December 2014 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ending 31 December 2015. Franking credits available for subsequent financial years based on a tax rate of 30% (2013: 30%) 116.8 107.3 The above amounts represent the balance The Board approves written principles for The Group’s Corporate Treasury Function of the franking account as at the end of the overall risk management, as well as policies provides services to the business, co- financial year, adjusted for: covering specific areas, such as foreign ordinates access to domestic financial (a) franking credits that will arise from the payment of any current tax liability exchange risk, interest rate risk, credit markets and monitors and manages the risk, use of derivative and non-derivative financial risks relating to the operations of financial instruments and investment of the Group. The Group Corporate Treasury (b) franking debits that will arise from the excess liquidity. The Group does not enter Function reports, on a monthly basis, an payment of dividends recognised as a liability into or trade financial instruments, including analysis of key market exposures. at the reporting date derivative financial instruments, for (c) franking credits that will arise from the receipt speculative purposes. (a) Market risk of dividends recognised as receivables at the The Group uses different methods to measure (i) Foreign exchange risk reporting date. different types of risk to which it is exposed. The Group’s activities through its importation 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 $26.4 million (2013: $32.8 million). 24 Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. These methods include sensitivity analysis of cement, clinker, slag and equipment in the case of interest rate, foreign exchange expose it to foreign exchange risk arising and other price risks, and ageing analysis for from various currency exposures, primarily credit risk. The Group uses derivative financial with respect to the US Dollar and the instruments in the form of foreign exchange Japanese Yen. forward contracts to hedge certain currency risk exposures. Foreign exchange risk arises from commercial transactions and recognised assets and Derivatives are initially recognised at fair value liabilities that are denominated in a currency at the date a derivative contract is entered that is not the entity’s functional currency. The into and are subsequently remeasured at risk is measured using sensitivity analysis and their fair value at each reporting date. The cash flow forecasting. Company does not utilise hedge accounting as permitted under Australian Accounting Standards. The Group enters into foreign exchange forward contracts to hedge its foreign exchange risk on these overseas trading activities against movements in the Australian dollar. 91 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  24 Financial risk management (continued) debt facilities on a one to five year term with Group calculates the impact on forecast fixed bank lending margins associated with profit and loss of a defined interest rate (a) Market risk (continued) each term. Cash advances to meet short shift. The scenarios are run only for liabilities (i) Foreign exchange risk (continued) The Group Treasury’s risk management policy is to hedge commitments for purchases for up to six months forward. Longer hedge positions are deemed too expensive versus the value at risk due to the respective currencies’ interest rate spread. Derivative instruments entered into by the Group do not qualify for hedge accounting. (ii) Interest rate risk and medium term borrowing requirements that represent the major interest-bearing are drawn down against the senior debt positions. Based on the latest calculations lending facilities on a 30, 60 or 90 day basis, performed, the impact on profit and equity at a variable lending rate comprising the of a 100 basis-point movement would fixed bank margin applied to the daily bank be a maximum increase/decrease of bill swap rate effective at the date of each $3.3 million (2013: $2.2 million). A 100 cash advance. During both 2014 and 2013, basis-point sensitivity has been selected the Group’s borrowings at variable rates as this is considered reasonable given the were denominated in Australian Dollars. current level of both short term and long The Group analyses its interest rate term Australian dollar interest rates. The Group’s main interest rate risk arises exposure on a dynamic basis. Periodically, (iii) Summarised sensitivity analysis from bank borrowings. Borrowings issued at various scenarios are simulated taking The following table summarises the variable rates expose the Group to interest into consideration refinancing, renewal of sensitivity, on a pre-tax basis, of the Group’s rate risk. Due to the historically low levels of existing positions, alternative financing and financial assets and financial liabilities to gearing, Group policy is to take on senior hedging. Based on these scenarios, the interest rate risk. ($ Million - consolidated) Notes Carrying value Sensitivity -1.0% +1.0% Carrying value Sensitivity -1.0% +1.0% 2014 2013 Financial assets Cash Receivables Financial liabilities Borrowings Payables Total increase/(decrease) 6 7 16 15 31.7 232.0 263.7 391.5 120.4 511.9 (0.3 ) (0.3 ) (0.6 ) 3.9 - 3.9 3.3 11.1 213.8 224.9 259.1 105.4 364.5 0.3 0.3 0.6 (3.9 ) - (3.9 ) (3.3 ) (0.1 ) (0.3 ) (0.4 ) 2.6 - 2.6 2.2 0.1 0.3 0.4 (2.6 ) - (2.6 ) (2.2 ) Foreign currency risk is immaterial as the Individual risk limits are set based on internal Consequently, the maximum exposure to majority of sales and assets are denominated or external ratings in accordance with credit risk represents the carrying value in Australian Dollars, while the Group’s delegated authority limits set by the Board. of receivables and derivatives. Derivative purchases that are in foreign currency The compliance with credit limits by credit counterparties and cash transactions are are settled at the time of the transaction, approved customers is regularly monitored by limited to high credit quality institutions. consequently payables are generally in line credit management. Sales to non-account Australian Dollars. All borrowings are customers are settled either in cash, major (c) Liquidity risk denominated in Australian Dollars. credit cards or electronic funds transfer, (b) Credit risk mitigating credit risk. The ultimate responsibility for liquidity risk management rests with the Board which has Credit risk is managed on a Group basis using delegated authority limits. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well approval. Credit risk further arises in relation to financial established an appropriate risk management guarantees given to certain parties. Such framework for the management of the guarantees are only provided in exceptional Group’s short, medium and long term funding circumstances and are subject to appropriate and liquidity management requirements. as credit exposures to customers, including The Group has no significant concentration outstanding receivables and committed of credit risk. The Group has policies and transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. For trading credit risk, Credit Control assesses the credit quality of the customer, taking into account its financial position, past experience, external credit agency reports and credit references. procedures in place to ensure that sales are made to customers with an appropriate credit history. In relation to a small number of customers with uncertain credit history, the Group has taken out personal guarantees in order to cover credit exposures. As at 31 December 2014, the Group held no collateral over outstanding debts. 92 The Group’s Corporate Treasury Function manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included below is a statement of undrawn facilities that the Group and Company has at its disposal to further reduce liquidity risk. ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 24 Financial risk management (continued) (c) Liquidity risk (continued) Financing arrangements Unrestricted access was available at balance date to the following lines of credit: Credit standby arrangements Total facilities Bank overdrafts Bank facilities - external parties Used at balance date Bank overdrafts Bank facilities - external parties Unused at balance date Bank overdrafts Bank facilities - external parties Maturity profile of bank facilities. Maturing on: 1 July 2015 1 July 2016 5 January 2018 4 January 2019 Consolidated 2014 2013 4.0 540.0 544.0 - 390.0 390.0 4.0 150.0 154.0 - - 330.0 210.0 540.0 4.0 500.0 504.0 - 260.0 260.0 4.0 240.0 244.0 300.0 200.0 - - 500.0 The table below analyses the Group’s financial liabilities that will be settled on a gross basis. The amounts disclosed are the contractual undiscounted cash flows. For bank facilities the cash flows have been estimated using interest rates applicable at the end of the reporting period. ($ Million) < 6 months 6-12 months 1-2 years > 2 years Total Contractual maturities of financial liabilities 31 December 2014 Trade payables Bank facilities Finance leases 31 December 2013 Trade payables Bank facilities 120.4 7.3 0.9 128.6 105.4 5.0 110.4 - 7.3 0.8 8.1 - 5.0 5.0 - 29.3 1.6 30.9 - 265.0 265.0 - 392.3 0.3 392.6 - - - 120.4 436.2 3.6 560.2 105.4 275.0 380.4 93 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  25 Fair value measurements Fair value hierarchy (i) Recognised fair value measurements The Group measures and recognises financial assets at fair value through profit or loss (FVTPL) on a recurring basis. Derivative instruments entered into by the Group do not qualify for hedge accounting and are classified in this category. The only assets or liabilities measured and recognised at fair value are the asset in relation to the Carbon Tax which is measured in accordance with the price of units in the market (level 1) and the asset or liability in relation to forward exchange contracts determined using forward exchange market rates at the balance sheet date (level 1). The Group held no assets associated with the Carbon Tax (2013: $52.5 million) or assets or liabilities in relation to forward exchange contracts (2013: $0.1 million) at the balance sheet date. (ii) Disclosed fair values The Group also has a number of assets and liabilities which are not measured at fair value, but for which fair values are disclosed in the notes. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of non-current receivables for disclosure purposes is based predominantly on the recoverable loan amount to joint ventures and external parties (level 3). The interest rate for current and non-current borrowings is reset on a short term basis, generally 30 to 90 days, and therefore the carrying value of current and non-current borrowings equal their fair values (level 2). Consolidated 2014 2013 19.8 - 15.6 30.6 ($ Million) 26 Contingencies Details and estimates of maximum amounts of contingent liabilities are as follows: (a) Guarantees Bank guarantees Guarantees of joint venture borrowings (b) Litigation At the time of preparing this financial report some companies included in the Group are parties to pending legal proceedings, the outcome of which is not known. The entities are defending, or prosecuting, these proceedings. The Directors have assessed the impact on the Group from the individual actions. No material losses are anticipated in respect of any of the above contingent liabilities. 27 Commitments for expenditure (a) Capital commitments - property, plant & equipment Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Within one year 5.0 8.3 (b) Lease commitments - operating leases Commitments in relation to operating leases contracted for at the reporting date, but not recognised as liabilities, are payable as follows: Within one year Later than one year but not later than five years Later than five years 4.9 9.8 8.8 23.5 5.3 13.0 17.1 35.4 Commitments for operating lease payments relate mainly to rental leases on property. The Group leases various properties under non-cancellable operating leases which contain varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are either renegotiated or the expiry date is extended under pre-negotiated terms. 94 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 27 Commitments for expenditure (continued) (c) Lease commitments - finance leases Commitments in relation to finance leases for various plant and equipment with a carrying amount of $3.3m (2013: nil) contracted for at the reporting date, but not recognised as liabilities, are payable as follows: Within one year Later than one year but not later than five years Minimum lease payments Future finance charges Total lease liabilities (Note 16) The present value of finance lease liabilities is as follows: Within one year Later than one year but not later than five years Minimum lease payments 28 Share-based payment plans (a) Employee Share Plan Consolidated 2014 2013 1.7 1.9 3.6 (0.4 ) 3.2 1.4 1.8 3.2 - - - - - - - - The establishment of the Adelaide Brighton Ltd Employee Share Plan was approved by special resolution at the Annual General Meeting of the Company held on 19 November 1997. Subject to the Board approval of grants, all full time employees of the Company and its controlled entities who have been continuously employed by the Company or a controlled entity for a period of one year are eligible to participate in the Plan. Casual employees and contractors are not eligible to participate in the Plan. No shares were issued under the Employee Share Plan during the year (2013 - nil). In subsequent years, the Board will decide whether, considering the profitability of the Company and the demands of the business, further invitations to take up grants of shares should be made. (b) Executive Performance Share Plan The Adelaide Brighton Ltd Executive Performance Share Plan (“the Plan” or “EPSP”) provides for grants of Awards to eligible executives. This plan was approved by shareholders at the Annual General Meeting held on 19 November 1997. In accordance with the requirements of the ASX Listing Rules, Awards granted to the Managing Director who retired on 21 May 2014, have been approved by shareholders. Under the Plan, eligible executives are granted Awards (each being an entitlement to a fully paid ordinary share of Adelaide Brighton Ltd, subject to the satisfaction of performance conditions) on terms and conditions determined by the Board. On exercise of the Award following vesting, participants are issued shares of the Company. Detailed discussion of performance conditions is set out in the Remuneration Report on pages 47 to 61. The exercise price for each Award is $nil. Movement in number of Awards outstanding Outstanding at beginning of the year Granted Forfeited Exercised Expired Outstanding at the end of the year Exercisable at the end of the year Consolidated 2014 2013 6,262,180 1,065,255 (1,929,500 ) (2,078,332 ) - 5,975,030 1,502,150 (145,800 ) (1,069,200 ) - 3,319,603 6,262,180 - - The average value per share at the earliest exercise date during the year was $3.92 (2013: $3.40). The value per share is calculated using the Volume Weighted Closing Price which is the average of the closing price and number of Adelaide Brighton Limited shares traded on the Australian Securities Exchange for the five trading days before the exercise date, but not including the day of exercise. 95 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  28 Share-based payment plans (continued) (b) Executive Performance Share Plan (continued) Fair values of Awards at the grant date are independently determined using a pricing model that takes into account the exercise price, the term of the Awards, the lack of marketability, the impact of the TSR vesting condition (applicable to 50% of Awards), the expected future dividends and the risk free interest rate for the term of the Award. For the purposes of pricing model inputs, the share price for calculation of the Award value is based on the closing published share price at grant date. The impact of the Award’s performance conditions have been incorporated into the valuation through the use of a discount for lack of marketability and TSR vesting conditions. Volatility of the Company’s share price has been considered in valuing the Awards, however the independent valuer has reached the conclusion that the volatility is not a factor in assessing the fair value of the Awards. The assessed fair value at grant date of Awards granted to individual participants is allocated equally over the period from grant date to vesting date. Awards granted in 2014 - weighted average pricing model inputs Share price at grant date Expected annual dividends Risk-free interest rate Lack of marketability discount TSR condition discount Earliest exercise date Awards granted in 2013 - weighted average pricing model inputs Share price at grant date Expected annual dividends Risk-free interest rate Lack of marketability discount TSR condition discount Earliest exercise date 2014 Awards 2013 Awards - Tranche 2 - Tranche 1 2012 Awards 2012 Awards $3.88 $0.17 $3.43 $0.19 $3.43 $0.19 $3.43 $0.11 3.37% p.a. 2.71% p.a. 2.71% p.a. 2.71% p.a. 2.50% p.a. 2.50% p.a. 2.50% p.a. 2.50% p.a. 50% 50% 50% 50% 1-May-18 1-May-17 1-May-16 1-May-15 2013 Awards $3.30 $0.17 2.81% p.a. 3.00% p.a. 50% 1-May-17 The Plan does not entitle the Participants to participate in any other share issues of the Company and the unexercised Awards do not attract dividend or voting rights. The Plan is accounted for by the Company in accordance with Note 1(v)(iv), with $1,521,941 (2013: $2,089,093) recognised as an expense during the year. The weighted average remaining contractual life of Awards outstanding at the end of the period was 1.8 years (2013: 1.8 years). ($) 29 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: (a) Audit services PricewaterhouseCoopers Australian firm Audit and review of financial statements Total remuneration for audit services (b) Non-audit services PricewaterhouseCoopers Australian firm Other assurance services Total remuneration for non-audit services Consolidated 2014 2013 651,210 692,540 651,210 692,540 104,073 92,798 104,073 92,798 96 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 30 Related parties (a) Compensation of key management personnel Short-term employee benefits Post-employment benefits Share-based payments Consolidated 2014 2013 7.1 1.0 1.8 9.9 8.8 0.2 1.4 10.4 (b) Other transactions with key management personnel RD Barro, a Director of Adelaide Brighton Ltd, is Managing Director of Barro Group Pty Ltd. Barro Group Pty Ltd and Adelaide Brighton Ltd, through its 100% owned subsidiary, Adelaide Brighton Management Ltd, each control 50% of Independent Cement and Lime Pty Ltd, a distributor of cement and lime in Victoria and New South Wales. During the year, the Barro Group of companies purchased goods and materials from and sold goods, materials and services to Independent Cement and Lime Pty Ltd and the Group. The Barro Group of companies also purchased goods and materials from Sunstate Cement Ltd, a company in which the Group has a 50% share, and other entities in the Group. MP Chellew, an executive Director of Adelaide Brighton Ltd until his retirement on 21 May 2014, M Brydon, Chief Executive Officer, and M Kelly, a senior executive of Adelaide Brighton Ltd, have been Directors of Sunstate Cement Ltd during the reporting period. M Brydon was also a Director of Independent Cement and Lime Pty Ltd until 6 March 2014 and of Aalborg Portland Malaysia Sdn. Bhd. until 13 November 2014. G Agriogiannis, a senior executive of Adelaide Brighton Ltd and M Kelly are also Directors of the Mawsons Group. During the year, the Group traded significantly with Independent Cement and Lime Pty Ltd, Sunstate Cement Ltd and the Mawsons Group, which are all joint ventures of the Group. All transactions involving the Barro Group Pty Ltd and Adelaide Brighton Ltd and its subsidiaries, Independent Cement and Lime Pty Ltd and its subsidiaries, Sunstate Cement Ltd and the Mawsons Group were conducted on standard commercial terms. Transactions entered into during the year with Directors of the Company and the Group, or their related parties, are on stardard commercial terms and conditions, and include the purchase of goods from the Group and the receipt of dividends from the Company. ($) Aggregate amounts of the above transactions with the Directors and their related parties: Sales to Director related parties Purchases from Director related parties (c) Controlled entities Consolidated 2014 2013 54,853,108 44,361,860 45,019,728 41,908,399 Details of interests in controlled entities are set out in Note 31. The ultimate parent company is Adelaide Brighton Ltd. (d) Joint arrangement and associate entities Details of interests in joint arrangement and associate entities are set out in Note 10(b). The nature of transactions with joint arrangement and associate entities is detailed below: Adelaide Brighton Cement Ltd and Morgan Cement International Ltd supplied finished products and raw materials to Sunstate Cement Ltd, Independent Cement and Lime Pty Ltd and Peninsula Concrete Pty Ltd. Hy-Tec Industries Pty Ltd, Hy-Tec Industries (Victoria) Pty Ltd, Hy-Tec Industries (Queensland) Pty Ltd, Adbri Masonry Group Pty Ltd, Adelaide Brighton Cement Ltd and Cockburn Cement Ltd purchased finished products, raw materials and transportation services from Sunstate Cement Ltd, Independent Cement and Lime Pty Ltd and Aalborg Portland Malaysia Sdn. Bhd. All transactions are on normal commercial terms and conditions and transactions for the supply are covered by shareholder agreements. 97 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($’000) 30 Related parties (continued) (e) Transactions with related parties The following transactions occurred with related parties: Sale of goods - Joint venture entities Purchases of materials and goods - Joint venture entities Interest revenue - Joint venture entities Dividend and distribution income - Joint venture entities Superannuation contributions - Contributions to superannuation funds on behalf of employees - Reimbursement of superannuation contribution by joint venture entity Loans advanced to/(from): - Joint venture entities (f) Outstanding balances arising from sales/purchases of goods and services The following balances are outstanding at the reporting date in relation to transactions with related parties: Current receivables - Joint venture entities (interest) - Joint venture entities (trade) Non-current receivables - Joint venture entities (loans) Current payables - Joint venture entities (trade) Consolidated 2014 2013 199,259 188,147 76,793 64,008 761 757 20,984 16,337 11,682 - 11,666 22 1,861 2,445 393 27,242 378 23,690 29,668 27,808 12,378 6,450 Outstanding balances are unsecured and repayable in cash. No provisions for doubtful receivables have been raised in relation to any outstanding balances. (g) Loans to related parties A loan to a joint venture entity, Independent Cement and Lime Pty Ltd, has interest charged at commercial rates on the outstanding balance. Interest revenue brought to account by the Group during the reporting year on this loan was $760,758 (2013: $756,557). 98 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  31 Subsidiaries and transactions with non-controlling interests Place of incorporation Class of shares Name of entity Adelaide Brighton Ltd Adelaide Brighton Cement Ltd2 Adelaide Brighton Cement Inc Adelaide Brighton Cement Investments Pty Ltd2 Adelaide Brighton Management Ltd2 Adelaide Brighton Cement International Pty Ltd1 Adelaide Brighton Intellectual Property Pty Ltd1 Cement Resources Consolidated Pty Ltd1 Cockburn Cement Ltd2 Hy-Tec Industries (Queensland) Pty Ltd2 Northern Cement Ltd2 Premier Resources Ltd2 Adbri Masonry Group Pty Ltd2 Adelaide Brighton Cement Ltd Exmouth Limestone Pty Ltd1 Adelaide Brighton Cement Inc Adelaide Brighton Cement (Florida) Inc Adelaide Brighton Cement (Hawaii) Inc Hileah (Florida) Management Inc Adelaide Brighton Management Ltd Accendo Pty Ltd1 Global Cement Australia Pty Ltd1 Hurd Haulage Pty Ltd2 K.C. Mawson Pty Ltd1 Adelaide Brighton Cement International Pty Ltd Adelaide Brighton Cement Inc Australia USA Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia USA USA USA Australia Australia Australia Australia USA Fuel & Combustion Technology International Ltd United Kingdom Fuel & Combustion Technology International Ltd Fuel & Combustion Technology International Inc Northern Cement Ltd Mataranka Lime Pty Ltd1 Cockburn Cement Ltd Cockburn Waters Pty Ltd1 Hydrated Lime Pty Ltd1 Chemical Unit Trust Kalgoorlie Lime & Chemical Company Pty Ltd1 Premier Resources Ltd Hy-Tec Industries Pty Ltd2 Hy-Tec Industries (Victoria) Pty Ltd2 Bonfoal Pty Ltd1 Aus-10 Rhyolite Pty Ltd3 Morgan Cement International Pty Ltd2 Screenings Pty Ltd2 Lonsdale Sand & Metal Pty Ltd1 Hy-Tec Industries (Victoria) Pty Ltd CRC2 Pty Ltd1 CRC3 Pty Ltd1 Hy-Tec Industries (Victoria) No 1 Pty Ltd1 Hy-Tec Industries (Victoria) No 2 Pty Ltd1 Sheltacrete Pty Ltd1 Adbri Masonry Group Pty Ltd Adbri Masonry Pty Ltd2 Adbri Mining Products Pty Ltd1 C&M Masonry Products Pty Ltd2 Betta Brick Pty Ltd1 C&M Brick (Bendigo) Pty Ltd1 C&M Design/Construct Pty Ltd1 USA Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia 99 Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Units Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ownership interest held by the Group 2014 % 2013 % 100 80 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 20 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 80 100 100 100 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 20 100 100 100 100 100 100 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 100 100 100 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  31 Subsidiaries and transactions with non-controlling interests (continued) Name of entity Screenings Pty Ltd Agripeta Pty Ltd1 Productivex Pty Ltd1 Southern Quarries Holdings Pty Ltd2 Southern Quarries Holdings Pty Ltd Direct-Mix Holdings Pty Ltd2 Direct-Screens Holdings Pty Ltd1 Southern Lime Pty Ltd1 Southern Quarries Pty Ltd2 Direct-Screens Holdings Pty Ltd Peninsula Mixed Concrete Supplies Pty Ltd1 Direct-Mix Holdings Pty Ltd Direct-Mix Concrete Pty Ltd1 Direct-Mix Concrete (Products) Pty Ltd1 Southern Quarries Pty Ltd2 Southern Quarries Pty Ltd Adelaide Concrete Recyclers Pty Ltd1 Place of incorporation Class of shares Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ownership interest held by the Group 2014 % 2013 % 100 100 100 100 100 100 51 100 100 100 49 100 - - - - - - - - - - - - 1 Small proprietary company as defined by the Corporations Act 2001 and is not required to be audited for statutory purposes. 2 These controlled entities have been granted relief from the necessity to prepare financial reports in accordance with ASIC Class Order 98/1418 (as amended) dated 12 June 2013. For further information see Note 32. 3 Aus-10 Rhyolite Pty Ltd joined Adelaide Brighton Ltd’s Deed of Cross Guarantee under ASIC Class Order 98/1418 (as amended) dated 12 June 2013 on 3 December 2014 by Assumption Deed. Unless otherwise stated, the subsidiaries as listed above have share capital consisting solely of ordinary shares, which are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. 32 Deed of cross guarantee As at the date of this report, Adelaide Brighton Ltd, Adelaide Brighton Cement Ltd, Cockburn Cement Ltd, Adelaide Brighton Cement Investments Pty Ltd, Adelaide Brighton Management Ltd, Northern Cement Ltd, Premier Resources Ltd, Hy-Tec Industries Pty Ltd, Hy-Tec Industries (Victoria) Pty Ltd, Hy-Tec Industries (Queensland) Pty Ltd, Morgan Cement International Pty Ltd, Adbri Masonry Group Pty Ltd, C&M Masonry Products Pty Ltd, Adbri Masonry Pty Ltd, Hurd Haulage Pty Ltd, Aus-10 Rhyolite Pty Ltd, Screenings Pty Ltd, Southern Quarries Holdings Pty Ltd, Direct-Mix Holdings Pty Ltd and Southern Quarries Pty Ltd are parties to a Deed of Cross Guarantee (the Deed) under which each company guarantees the debts of the others. By entering into the Deed, the wholly-owned entities have been relieved from the requirement to prepare a financial report and Directors’ report under Class Order 98/1418 (as amended) issued by the Australian Securities & Investments Commission. The above companies represent a “Closed Group” for the purposes of the Class Order, and as there are no other parties to the Deed that are controlled by the Company, they also represent the “Extended Closed Group”. Aus-10 Rhyolite Pty Ltd, Screenings Pty Ltd, Southern Quarries Holdings Pty Ltd, Direct-Mix Holdings Pty Ltd and Southern Quarries Pty Ltd entered into the Deed on 3 December 2014. No other changes to the Deed were made during 2014. During 2013, to take into account changes that have been made to ASIC’s Class Order 98/1418 over recent years, the Closed Group revoked the Deed of Cross Guarantee that had been in effect in previous years and each of the members of the Closed Group entered into a new Deed of Cross Guarantee reflective of the current requirements of ASIC’s Class Order. The new Deed of Cross Guarantee was in effect at the end of the 2013 financial year. ($ Million) Set out below is a consolidated balance sheet as at 31 December 2014 of the Closed Group. Current assets Cash and cash equivalents Trade and other receivables Inventories Carbon units Assets classified as held for sale Total current assets 100 Consolidated 2014 2013 26.8 200.0 154.2 - 381.0 1.5 382.5 7.8 185.6 127.3 52.5 373.2 7.9 381.1 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 32 Deed of cross guarantee (continued) Non-current assets Receivables Joint arrangements and associate Other financial assets Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Borrowings Current tax liabilities Provisions Provision for carbon emissions Other liabilities Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Retirement benefit obligations Provision for carbon emissions Other non-current liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity Set out below is a condensed consolidated statement of comprehensive income and a summary of movements in consolidated retained earnings for the year ended 31 December 2014 of the Closed Group. Profit before income tax Income tax expense Profit for the year Retained earnings 1 January Retained earnings on members entering / leaving Closed Group Profit for the year Other comprehensive income Dividends paid Retained earnings 31 December 101 Consolidated 2014 2013 32.6 101.0 25.1 953.3 263.9 31.4 101.7 10.2 808.2 183.2 1,375.9 1,134.7 1,758.4 1,515.8 123.8 0.9 1.3 24.5 14.0 4.1 168.6 389.2 76.2 41.1 2.2 - 0.1 508.8 677.4 1,081.0 727.9 4.3 348.8 1,081.0 229.6 (59.8 ) 169.8 271.6 32.9 169.8 (0.8 ) (124.7 ) 87.3 - 17.1 26.4 39.7 20.4 190.9 259.1 53.5 28.4 0.5 8.2 0.1 349.8 540.7 975.1 699.1 4.4 271.6 975.1 200.4 (55.5 ) 144.9 226.6 - 144.9 5.3 (105.2 ) 348.8 271.6 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 33 Reconciliation of profit after income tax to net cash inflow from operating activities Profit for the year Doubtful debts Depreciation, amortisation and impairment Share based payments expense Finance charges on remediation provision (Gain) on sale of non-current assets Share of undistributed profits of joint ventures Non-cash retirement benefits expense Non-cash remediation obligation Fair value accounting gain on acquisition of business Capitalised interest Other Net cash provided by operating activities before changes in assets and liabilities Changes in operating assets and liabilities, net of effects from purchase of controlled entity: (Increase) in inventories Decrease in prepayments (Increase) in receivables Increase in trade creditors Increase in provisions (Decrease) / increase in taxes payable Increase / (decrease) in deferred taxes payable Increase/ (decrease) in other operating assets and liabilities Net cash inflow from operating activities (Cents) 34 Earnings per share Basic earnings per share Diluted earnings per share (Number) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Adjustment for calculation of diluted earnings per share: Awards Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share ($ Million) Reconciliation of earnings used in calculating earnings per share Basic and diluted earnings per share Profit after tax Loss/(profit) attributable to non-controlling interests Profit attributable to ordinary equity holders of the Company used in calculating basic and diluted earnings per share 102 Consolidated 2014 2013 172.6 2.3 75.0 (5.5 ) 1.2 (1.2 ) (0.7 ) 0.9 (7.3 ) (17.8 ) (0.6 ) 1.0 219.9 (13.9 ) 1.4 (9.5 ) 4.7 3.6 (18.6 ) 4.0 2.4 151.1 0.9 70.6 (0.1 ) 1.0 (0.4 ) (7.9 ) 5.3 (1.4 ) - (1.2 ) 0.7 218.6 (1.5 ) - (13.1 ) 9.4 13.0 11.3 (2.8 ) (7.6 ) 194.0 227.3 Consolidated 2014 2013 26.9 26.8 23.7 23.4 Consolidated 2014 2013 641,365,689 638,099,312 3,319,603 6,262,180 644,685,292 644,361,492 Consolidated 2014 2013 172.6 0.1 172.7 151.1 - 151.1 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  35 Events occurring after the balance sheet date As at the date of this report, no matter or circumstance has arisen since 31 December 2014 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years. 36 Segment reporting (a) Description of segments Management has determined the operating segments based on the reports reviewed by the Chief Executive Officer. These reports are evaluated regularly in deciding how to allocate resources and in assessing performance. The two reportable segments have been identified as follows; > Cement, Lime, Concrete and Aggregates > Concrete Products The operating segments Cement, Lime, Concrete and Aggregates individually meet the quantitative thresholds required by AASB 8 as well as meeting the aggregation criteria allowing them to be reported as one segment. Concrete Products meets the quantitative threshold therefore is reported as a separate segment. Joint arrangements and associates related to the reportable segments form part of the above two reportable segments. During 2014, the Aggregates segment met the quantitative threshold for disclosure required by AASB 8 and is now incorporated into the Cement, Lime, Concrete and Aggregates segment. In accordance with the standard, comparative information has been restated to reflect this change. The major end-use markets of Adelaide Brighton’s products include residential and non-residential construction, engineering construction, alumina and steel production and mining. (b) Segment information provided to the Chief Executive Officer The segment information provided to the Chief Executive Officer for the reportable segments is as follows: 31 December 2014 ($ Million) Total segment operating revenue Inter-segment revenue Revenue from external customers Depreciation and amortisation Impairment EBIT Share of net profits of joint venture and associate entities accounted for using the equity method 31 December 2013 ($ Million) Total segment operating revenue Inter-segment revenue Revenue from external customers Depreciation and amortisation EBIT Share of net profits of joint venture and associate entities accounted for using the equity method Cement, Lime, Concrete and Concrete Aggregates Products Unallocated Total 1,411.2 (40.8 ) 1,370.4 (62.1 ) (2.0 ) 271.4 137.4 - 137.4 (7.7 ) - 6.1 - - - (3.2 ) - (30.0 ) 1,548.6 (40.8 ) 1,507.8 (73.0 ) (2.0 ) 247.5 21.7 - - 21.7 Cement, Lime, Concrete and Concrete Aggregates Products Unallocated Total 1,290.6 (25.7 ) 1,264.9 60.1 240.8 124.4 - 124.4 7.4 2.1 - - - 3.2 (20.2 ) 1,415.0 (25.7 ) 1,389.3 70.7 222.7 24.2 - - 24.2 103 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  36 Segment reporting (continued) (b) Segment information provided to the Chief Executive Officer (continued) Sales between segments are carried out at arms length and are eliminated on consolidation. The operating revenue assessed by the Chief Executive Officer includes revenue from external customers and a share of revenue from the joint ventures and associates in proportion to the Group’s ownership interest, excluding freight, interest and royalty revenue. A reconciliation of segment operating revenue to revenue from continuing operations is provided below: ($ Million) Total segment operating revenue Inter-segment revenue elimination Freight revenue Interest revenue Royalties Elimination of joint venture and associate revenue Revenue from continuing operations The Chief Executive Officer assesses the performance of the operating segments based on a measure of EBIT. This measurement basis excludes the effect of net interest. A reconciliation of the EBIT to operating profit before income tax is provided as follows: EBIT Net interest Profit before income tax (c) Other segment information Consolidated 2014 2013 1,548.6 (40.8 ) 139.4 1.8 0.4 (311.6 ) 1,415.0 (25.7 ) 128.3 1.8 0.7 (292.1 ) 1,337.8 1,228.0 247.5 (15.0 ) 232.5 222.7 (14.1 ) 208.6 Revenues of approximately $168.7 million (2013: $157.2 million) are derived from a single customer. These revenues are attributable to the Cement, Lime, Concrete and Aggregates segment. 104 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  ($ Million) 37 Parent entity financial information (a) Summary financial information The individual financial statements for the Company show the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Net assets Shareholders’ equity Issued capital Reserves Share-based payments Retained earnings Total shareholders’ equity Profit for the year Total comprehensive income (b) Guarantees entered into by the parent entity Bank guarantees (c) Contingent liabilities of the parent entity The Company 2014 2013 1,556.3 1,920.5 674.3 1,063.9 856.6 1,051.3 1,572.0 475.6 736.0 836.0 720.8 692.0 1.8 134.0 856.6 118.1 118.1 3.3 140.7 836.0 128.3 128.3 2.5 2.5 The parent entity did not have any contingent liabilities as at 31 December 2014 or 31 December 2013 other than the bank guarantees detailed above. 38 Business combinations During 2014, the Company acquired the following businesses: > Direct Mix / Southern Quarries, an integrated aggregate and premixed concrete business to the South Australian building and construction materials market. The Company acquired the business from October 2014 through the acquisition of a 100% interest in the entities associated with the construction materials business. > BM Webb construction materials is an integrated concrete, quarry, sand, transport and cement import business located in and around Townsville. The acquisition was completed in May 2014, with the Group acquiring 100% of the operating assets of the business. > Penrice Minerals & Quarry, a quarry business located in the Barossa Valley of South Australia. The acquisition was completed in July 2014, with the Group acquiring 100% of the owned operating assets of the business. The acquisitions are in line with Adelaide Brighton Ltd’s business strategy of vertical integration. 105 ADELAIDE BRIGHTON LTD AND ITS CONTROLLED ENTITIES FOR THE YEAR ENDED 31 DECEMBER 2014NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS  38 Business combinations (continued) Details of the purchase consideration, net assets acquired and goodwill are as follows: ($ Million) Purchase consideration Cash paid Contingent consideration Total purchase consideration The initial accounting for the acquisitions is not complete at the end of the year. Due to the timing of the acquisitions and the processes required to complete the fair value exercise, the initial accounting has not been completed for property, plant and equipment, intangible assets, inventory, restoration liabilities and deferred tax. Provisional information on the assets and liabilities recognised as a result of the acquisitions is set out below. Cash and cash equivalents Trade and other receivables Inventories Joint arrangements Freehold land Buildings Property, plant and equipment Mineral reserves Asset retirement cost Intangibles Deferred tax asset Trade and other payables Employment benefit liabilities, including superannuation Provision - restoration liability Current tax liability Borrowings Deferred tax liability Net identifiable asset acquired Add: goodwill Less: gain on bargain purchase Net assets acquired Fair value 157.4 - 157.4 1.8 11.0 4.5 0.3 13.4 2.8 46.7 45.1 4.7 3.9 4.8 (9.0 ) (2.2 ) (4.7 ) (0.9 ) (9.3 ) (13.3 ) 99.6 75.6 (17.8 ) 157.4 The goodwill is attributable to two acquisitions and relates to the expected synergies expected to arise from the Company’s vertical integration strategy and the workforce. None of the goodwill is expected to be deductible for tax purposes. A gain relating to a bargain purchase of $17.8 million was recognised within Other Income in the Income Statement. The gain on acquisition reflects the Group’s overall strategy of completing on acquisitions, where negotiating conditions allow, at values approximating the fair value of the tangible assets. Transaction costs associated with the acquisitions of $6.2 million are included in administration costs in the Income Statement. The acquired businesses contributed revenues of $35.4 million and net profit before tax, excluding the gain on acquisitions and acquisition related expenses, of $0.3 million. If the acquisitions had occurred on 1 January 2014, the annualised consolidated revenue and net profit before tax for the year ended 31 December 2014 would have been $1,424.4 million and $239.7 million respectively. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the businesses to reflect additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment had applied from 1 January 2014, together with the consequential tax effects. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 NOTES TO AND FORM I NG PA R T O F T H E FI N A N C I A L STATEM EN TS 106 Directors’ declaration Auditor’s independence declaration In the Directors’ opinion: Auditor’s Independence Declaration (a) the financial statements and notes set out on As lead auditor for the audit of Adelaide pages 62 to 106 are in accordance with the Brighton Ltd for the year ended 31 December Corporations Act 2001, including: (i) complying with Accounting Standards, 2014, I declare that to the best of my knowledge and belief, there have been: the Corporations Regulations 2001 and a) no contraventions of the auditor other mandatory professional reporting independence requirements of the requirements; and Corporations Act 2001 in relation to the audit; (ii) giving a true and fair view of the consolidated and entity’s financial position as at 31 December b) no contraventions of any applicable code of 2014 and of its performance for the financial professional conduct in relation to the audit. year ended on that date; and This declaration is in respect of Adelaide (b) there are reasonable grounds to believe that Brighton Ltd and the entities it controlled the Company will be able to pay its debts as during the period. and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identified in Note 31 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee described in Note 32. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer required by section 295A of the Corporations Act 2001. KR Reid Partner Adelaide 12 March 2015 PricewaterhouseCoopers Liability limited by a scheme approved under Professional Standards Legislation. PricewaterhouseCoopers ABN 52 780 433 757 70 Franklin Street, Adelaide SA 5000 GPO Box 418, Adelaide SA 5001 Telephone +61 8 8218 7000 Facsimile +61 8 8218 7999 This declaration is made in accordance with a www.pwc.com.au resolution of the Directors. LV Hosking Chairman Dated 12 March 2015 ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R EN DED 31 D EC E M BER 2 0 1 4 107 Independent audit report Report on the financial report In making those risk assessments, the auditor Auditor’s opinion We have audited the accompanying financial report of Adelaide Brighton Limited (the company), which comprises the balance sheet as at 31 December 2014, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for Adelaide Brighton Group (the consolidated entity). The consolidated entity comprises the company considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. In our opinion, the remuneration report of Adelaide Brighton Limited for the year ended 31 December 2014 complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers and the entities it controlled at year’s end or We believe that the audit evidence we have from time to time during the financial year. obtained is sufficient and appropriate to provide a basis for our audit opinion. KR Reid Partner Adelaide 12 March 2015 Directors’ responsibility for the financial report Independence The directors of the company are responsible In conducting our audit, we have complied for the preparation of the financial report with the independence requirements of the that gives a true and fair view in accordance Corporations Act 2001. with Australian Accounting Standards and the Corporations Act 2001 and for such Auditor’s opinion internal control as the directors determine is necessary to enable the preparation of In our opinion: Liability limited by a scheme approved under Professional Standards Legislation. PricewaterhouseCoopers ABN 52 780 433 757 70 Franklin Street, Adelaide SA 5000 GPO Box 418, Adelaide SA 5001 the financial report that is free from material (a) the financial report of Adelaide Brighton Telephone +61 8 8218 7000 misstatement, whether due to fraud or Limited is in accordance with the Facsimile +61 8 8218 7999 error. In Note 1, the directors also state, in Corporations Act 2001, including: www.pwc.com.au accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. (i) giving a true and fair view of the consolidated entity’s financial position as at 31 December 2014 and of its performance for the year ended on that date; and Auditor’s responsibility (ii) complying with Australian Accounting Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. with Australian Auditing Standards. Those (b) the financial report and notes also comply standards require that we comply with with International Financial Reporting relevant ethical requirements relating to audit Standards as disclosed in Note 1. engagements and plan and perform the audit to obtain reasonable assurance whether Report on the Remuneration Report the financial report is free from material misstatement. We have audited the remuneration report included in pages 47 to 61 of the directors’ An audit involves performing procedures to report for the year ended 31 December 2014. obtain audit evidence about the amounts The directors of the company are responsible and disclosures in the financial report. The for the preparation and presentation of the procedures selected depend on the auditor’s remuneration report in accordance with judgement, including the assessment of the section 300A of the Corporations Act 2001. risks of material misstatement of the financial Our responsibility is to express an opinion on report, whether due to fraud or error. the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. ADELAIDE BRIGHTON LT D A N D I T S C O N T RO LLED E NT I T I ES FOR THE YEAR EN DED 31 D EC E M BER 2 0 1 4 108 Financial history Year ended ($ Million unless stated) Dec 2014 Dec 2013 Dec 7 Dec 9 Dec 2010 2011 2012 Dec 2009 Dec 2008 Dec 2007 Dec 2006 Dec 2005 Dec 6 Dec 2003 2004 Dec 2002 Statements of financial performance Sales revenue 1,337.8 1,228.0 1,183.1 1,100.4 1,072.9 987.2 1,022.4 888.4 794.7 717.3 683.4 630.6 486.8 Depreciation and amortisation (75.0) (70.6) (65.2) (57.8) (52.8) (56.8) (56.8) (52.4) (51.8) (47.0) (51.4) (52.3) (45.1) Earnings before interest & tax 247.5 222.7 222.1 219.87 216.2 185.3 189.1 171.3 148.8 134.1 119.6 97.0 80.0 Net interest earned (paid) (15.0) (14.1) (14.6) (17.0) (14.0) (16.7) (33.8) (21.7) (15.2) (14.0) (14.7) (12.6) (13.1) Profit before tax, abnormal & extraordinary items 232.5 208.6 207.5 206.4 202.2 168.6 155.3 149.6 133.6 120.1 104.9 84.4 66.9 Tax expense (59.9) (57.5) (54.6) (58.0) (50.8) (45.4) (34.5) (35.7) (31.0) (29.2) (11.8) (25.8) (16.2) Profit from discontinued operations Non-controlling interests Net profit after tax attributable to members Group balance sheet - 0.1 - - - 0.1 - - - - 0.1 (0.1) - - - - - (0.5) - - 1.3 - (1.1) (0.9) - - 172.7 151.1 153.0 148.4 151.5 123.1 120.8 113.9 102.1 90.9 93.3 57.7 50.7 Current assets 387.2 390.2 363.7 307.8 274.1 308.8 290.8 233.1 224.7 211.0 196.2 173.3 143.3 Property, plant & equipment 989.6 889.7 902.5 851.0 760.6 774.3 801.9 742.5 694.2 665.6 613.5 620.1 561.3 Receivables Investments Intangibles 32.7 31.4 29.6 27.2 30.4 30.4 28.4 29.5 27.5 23.3 19.1 12.2 12.5 139.9 138.5 129.0 97.2 87.7 72.5 67.6 66.9 40.8 38.1 35.6 33.6 30.8 263.9 183.9 184.8 183.0 179.1 169.0 169.4 164.4 164.6 165.0 165.5 166.4 146.6 Other non-current assets 0.0 0.0 3.5 0.0 0.0 0.0 0.0 2.7 22.9 19.0 19.7 17.1 28.5 Total assets 1,813.3 1,633.7 1,613.1 1,466.2 1,331.9 1,355.0 1,358.1 1,239.1 1,174.7 1,122.0 1,049.6 1,022.7 923.0 Current borrowings & creditors 121.8 105.4 115.0 99.2 106.4 106.5 98.4 145.5 125.8 323.5 294.6 306.3 58.3 Current provisions 44.2 105.8 78.5 34.5 52.6 55.4 44.5 49.5 54.1 58.2 48.1 42.3 54.8 Non-current borrowings 390.1 259.1 299.3 258.7 150.2 200.5 410.5 281.9 210.7 1.0 1.1 1.5 200.8 Deferred income tax & other non-current provisions 120.5 101.6 114.4 116.7 88.4 95.6 102.8 94.3 109.1 105.3 116.8 97.0 83.3 Total liabilities 676.6 571.9 607.2 509.1 397.6 458.0 656.2 571.2 499.7 488.0 460.6 447.1 397.2 Net assets Share capital Reserves 1,136.7 1,061.8 1,005.9 957.1 934.3 897.0 701.9 667.9 675.0 634.0 589.0 575.6 525.8 727.9 699.1 696.6 694.6 692.7 690.4 540.4 514.0 513.3 513.3 512.8 512.8 512.1 3.3 4.3 2.1 2.3 2.6 2.9 3.5 14.5 13.3 14.0 12.8 30.4 30.6 Retained profits 402.8 355.6 304.4 257.3 236.0 200.6 155.0 136.4 139.8 98.4 54.1 22.4 -19.9 Shareholders’ equity attributable to members of the Company 1,134.0 1,059.0 1,003.1 954.2 931.3 893.9 698.9 664.9 666.4 625.7 579.7 565.6 522.8 Non-controlling interests 2.7 2.8 2.8 2.9 3.0 3.1 3.0 3.0 8.6 8.3 9.3 10.0 3.0 Total shareholders’ funds 1,136.7 1,061.8 1,005.9 957.1 934.3 897.0 701.9 667.9 675.0 634.0 589.0 575.6 525.8 Share information Net Tangible Asset Backing ($/share) 1.35 1.38 1.29 1.22 1.19 1.15 0.97 0.93 0.94 0.87 0.78 0.76 0.70 Return on funds employed 17.7% 17.0% 18.0% 19.4% 20.0% 17.3% 18.0% 18.1% 16.7% 15.9% 13.4% 12.7% 11.7% Basic earnings per share (¢/share) 26.9 23.7 24.0 23.3 23.9 20.4 22.2 21.0 18.8 16.8 17.2 10.7 Diluted earnings (¢/share) 26.8 23.4 23.8 23.2 23.7 20.3 22.0 20.8 16.4 16.2 14.6 10.7 9.9 9.9 Total dividend (¢/share) 17.0 1 19.51 16.51 16.51 21.51 13.51 15.01 18.51 18.51 10.51 7.51 6.0 5.25 Interim dividend (¢/share) Final dividend (¢/share) Special dividend (¢/share) 7.51 9.51 - 7.51 9.01 3.01 7.51 9.01 - 7.51 9.01 - 7.51 9.01 5.01 5.51 8.01 - 6.51 8.51 - 6.01 9.01 3.51 5.01 7.51 6.01 4.251 3.51 2.752 2.54 6.251 4.01 3.251,6 2.753 - - - - Gearing 11 Fully franked 12 60% franked 13 35% franked 14 20% franked 31.7% 23.4% 30.9% 26.0% 15.9% 19.6% 55.3% 48.4% 33.6% 35.8% 31.4% 37.7% 34.6% 15 Dividend declared after year end as a 17 Restated for changes to accounting policies result of Boral Ltd Takeover Offer of (Note 42 to the 2013 Financial Statements) Adelaide Brighton Ltd 16 Restated for AIFRS ADELAIDE BRIGH TON LTD A ND I TS CO NT RO LLED E NT I TI ES FOR THE YEA R END ED 31 D ECE M BER 2 01 4 109 Information for shareholders Annual general meeting Online services Change of address The annual general meeting of shareholders Shareholders can access information and Shareholders who are Issuer Sponsored will be held at the InterContinental, North update information about their shareholding in should notify any change of address to Terrace, Adelaide, South Australia on Adelaide Brighton Limited via the internet by the share registry, Computershare Investor Wednesday 27 May 2015 at 10.00 am. visiting Computershare Investor Services Pty Services Pty Limited, by telephone or in Ltd website: www.investorcentre.com writing quoting your security holder reference Securities exchange listing Some of the services available online include: Adelaide Brighton Ltd is quoted on the official check current holding balances, choose list of the Australian Securities Exchange and your preferred annual report option, update trades under the symbol “ABC”. Adelaide is address details, update bank details, confirm Adelaide Brighton Ltd’s home exchange. whether you have lodged your TFN, ABN number, previous address and new address. Broker Sponsored (CHESS) holders should advise their sponsoring broker of the change. Investor information other than that relating to a shareholding can be obtained from: Registered office Level 1, 157 Grenfell Street Adelaide SA 5000 Telephone: 08 8223 8000 Facsimile: 08 8215 0030 Enquiries or notifications by shareholders regarding their shareholdings or dividends should be directed to Adelaide Brighton’s share registry: or exemption, view your transaction and dividend history or download a variety of forms. Group Corporate Affairs Adviser Direct credit of dividends Dividends can be paid directly into an Australian bank or other financial institution. dividend payment day and subsequently confirmed by mailed payment advice. Application forms are available from our Adelaide Brighton Ltd GPO Box 2155 Adelaide SA 5001 Telephone 08 8223 8005 Facsimile 08 8215 0030 Email adelaidebrighton@adbri.com.au Communications share registry, Computershare Investor Our internet site www.adbri.com.au offers Services Pty Ltd or visit the website at access to our ASX announcements and news Enquiries about your shareholding Payments are electronically credited on the Computershare Investor Services Pty Limited www.computershare.com.au/easyupdate/abc releases as well as information about our Level 5, 115 Grenfell Street Adelaide SA 5000 Telephone 1800 339 522 International 613 9415 4031 Facsimile 1300 534 987 International 618 8236 2305 to update your banking details. operations. Dividend Reinvestment Plan (DRP) Substantial shareholders Following payment of the interim dividend on Barro Properties Pty Ltd, by a notice of 20 October 2014, Adelaide Brighton’s DRP change of interests of substantial shareholder has been suspended until further notice. dated 20 October 2014, informed the When communicating with the share registry, In future, if the DRP is reactivated, it will be Company that it or an associate had a shareholders should quote their current notified by way of an ASX announcement. relevant interest in 218,401,971 ordinary address together with their Security Reference Number (SRN) or Holder Identification Number (HIN) as it appears on their Issuer Sponsored/CHESS statement. shares or 33.7% of the Company’s issued share capital. On market buy back At 1 April 2015 there is no on-market buy back of the Company’s shares being undertaken. ADELAIDE BRIGHTON LT D A N N U AL R EP OR T 2 0 1 4 110 ADELAIDE BRIGHTON LTD ANNUAL REPORT 2014 Twenty largest shareholders shown in the Company’s Register of Members as at Unquoted securities 1 April 2015 Shareholder Number of ordinary % of issued Executive Officer and other members of the shares held capital senior executive team under the Adelaide 3,319,601 Awards issued to the Chief Brighton Ltd Executive Performance Share Plan as part of the Company’s long term incentive program. The Awards are not quoted and do not participate in the distribution of dividends and do not have voting rights. The total number of participants in the Adelaide Brighton Ltd Executive Performance Share Plan and eligible to receive the Awards is seven. Barro Properties Pty Ltd 172,876,906 26.67 HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited Barro Group Pty Ltd Citicorp Nominees Pty Limited National Nominees Limited BNP Paribas Noms Pty Ltd Argo Investments Ltd HSBC Custody Nominees (Australia) Limited UBS Wealth Management Australia Nominees Pty Ltd AMP Life Limited 60,705,391 53,383,388 43,752,619 42,941,998 30,649,316 10,091,248 7,681,385 3,927,830 3,807,806 3,075,839 Citicorp Nominees Pty Limited 2,850,745 Milton Corporation Limited Sandhurst Trustees Ltd 2,735,886 2,027,236 BNP Paribas Nominees Pty Ltd 1,640,500 The Australian National University Questor Financial Services Limited Geoff and Helen Handbury Foundation Pty Limited Netwealth Investments Limited Bond Street Custodians Limited 1,570,000 1,413,988 1,182,858 1,128,447 1,075,039 9.36 8.23 6.75 6.62 4.73 1.56 1.18 0.61 0.59 0.47 0.44 0.42 0.31 0.25 0.24 0.22 0.18 0.17 0.17 Total top 20 shareholders Total remaining holders balance Voting rights 448,518,425 199,749,242 69.19 30.81 All shares at 1 April 2015 were of one class with equal voting rights being one vote for each shareholder and, on a poll, one vote for each fully paid ordinary share. Shares held as at 1 April 2015 100,001 - 101,000 101,001 - 105,000 105,001 - 110,000 110,001 - 100,000 100,001 - over Total shareholders Number of % of issued shareholders capital 3,707 9,785 4,977 4,252 177 0.27 4.29 5.68 14.85 74.91 22,898 100.00 Less than a marketable parcel of 112 shares 740 ADELAIDE BRIGH TON LTD A NN UAL R EP OR T 20 14 111 This page has been left blank intentionally ADELAIDE BRIGHTON LT D A N N U AL R EP OR T 2 0 1 4 112 This report is printed carbon neutral by Finsbury Green an ISO14001: 2004 (Environmental Management Systems) certified company on 100% post consumer recycled carbon neutral manufactured paper accredited by the Forest Stewardship Council (FSC), which promotes environmentally appropriate, socially beneficial and economically viable management of the world’s forests. The printing process uses digital printing plates, eliminating film and associated chemicals, and vegetable- based inks made from renewable sources. All paper waste during the printing process is recycled. The printer of this report is an independently audited carbon neutral printer who proactively reduces emissions then offsets the balance with providers approved under the Australian Government’s National Offset Carbon Standard. The Adelaide Brighton logo, the MCI logo, the Cockburn Cement logo, the Swan Cement logo, the Northern Cement logo, the Hy-Tec logo, the Adbri Masonry logo, the Southern Quarries logo, the Direct Mix Concrete logo and the Penrice Quarry & Mineral logo are trade marks of Adelaide Brighton Ltd or its related bodies corporate. N G I S E D N E S N E G R O J Adelaide Brighton Ltd ABN 15 007 596 018 Level 1 157 Grenfell Street Adelaide South Australia 5000 GPO Box 2155 Adelaide SA 5001 Telephone 08 8223 8000 Facsimile 08 8215 0030 Web www.adbri.com.au 

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