Amerisourcebergen Annual Report 2018

Plain-text annual report

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 A D E L A I D E B R I G H T O N L T D 2 0 1 8 A N N U A L R E P O R T 1 2 3 5 8 10 12 14 16 18 26 28 30 32 34 36 37 39 49 72 73 74 75 76 77 80 89 96 104 114 117 117 118 122 123 Performance summary Company profile and map of operations Chairman’s report Chief Executive Officer review Finance report Cement and Lime Concrete and Aggregates Concrete Products Joint Ventures Sustainability report > Health and safety > People and diversity > Diversity report > Tax transparency report Corporate governance overview Directors Financial statements Directors’ report Remuneration report Income statement Statement of comprehensive income Balance sheet Statement of changes in equity Statement of cash flows Notes to the financial report > Financial performance overview > Balance sheet items > Capital structure and risk management > Group structure > Other Directors’ declaration Auditor’s independence declaration Independent auditor’s report to the Members of Adelaide Brighton Ltd Financial history Information for shareholders 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 This report is printed by an independently audited carbon neutral printer on 100% post consumer recycled carbon neutral manufactured stocks accredited by the Forest Stewardship Council R using vegetable based inks made from renewable resources with all paper waste recycled 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 logo, the Penrice Quarry & Mineral logo, the Central Pre-Mix logo, the Central Quarries logo and the Davalan logo are trade marks of Adelaide Brighton Ltd or its related bodies corporate. The Sunstate Cement logo is a registered trade mark of Sunstate Cement Ltd used with permission. The I logo is a registered trade mark of Independent Cement and Lime Pty Limited used with permission. The Mawson logo is a registered trade mark of E. B. Mawson & Sons Pty Ltd used with permission. Batesford Quarry logo is a trade mark of Adelaide Brighton Cement Ltd and Geelong Lime Pty Ltd. The Burrell logo is a trade mark of Burrell Mining Products, Inc used with permission. The Aalborg Portland logo is a trade mark of Cementir Holding SpA used with permission. Performance summary Revenue $1,631m NPAT attributable to members $185.3m 4.6% 1.4% Underlying NPAT ex-property attributable to members $190.1m Basic EPS 28.5c Final ordinary dividend 11.0c Special dividend 4.0c 0.1% 1.4% 1 cent Unchanged Adelaide Brighton Ltd Annual Report 2018 c/share Dividends 32 24 16 8 0 % 20 15 10 5 0 14 15 16 17 18 Ordinary interim Ordinary fi nal Special Return on funds employed 14 15 16 17 18 % Gearing: net debt to equity 40 30 20 10 0 14 15 16 17 18 $M Cash ﬂ ow from operations 300 225 150 75 0 14 15 16 17 18 Times Interest cover EBITDA basis 32 24 16 8 0 14 15 16 17 18 1 Company profi le and map of operations Adelaide Brighton is a leading integrated Lime Joint ventures and associates construction materials and lime producer which supplies a range of products into building, construction, infrastructure and mineral processing markets throughout Australia. Adelaide Brighton is the largest producer Adelaide Brighton has a number of of lime in Australia, with production assets signifi cant investments in joint ventures in Western Australia, South Australia and and associates in construction materials the Northern Territory. Lime is an important production and distribution. These include product for the mineral processing industry major cement distribution joint ventures Adelaide Brighton origins go back to 1882 in resource rich markets, particularly for in Queensland (Sunstate Cement), Victoria and today it is an S&P/ASX100 company the production of alumina and gold, of and New South Wales (Independent with 1,500 employees and operations in which Australia is a leading producer. Cement and Lime); regional concrete all Australian states and territories. The Company’s principal activities include Concrete and Aggregates New South Wales (Mawsons); and a 30% and aggregates positions in Victoria and the production, importation, distribution Adelaide Brighton has a growing presence and marketing of clinker, cement, industrial in the premixed concrete and aggregates lime, premixed concrete, construction industry in South Australia, Victoria, New investment in a Malaysian white cement and clinker producer (Aalborg Portland Malaysia), which supplies to the south east Asian market in addition to Australia. Sustainability South Wales, south east and northern Queensland and the Northern Territory. It has strategic aggregate reserves west of Sydney, mid northern coast of New South Adelaide Brighton’s commitment to Wales, south east Queensland, South sustainable development is demonstrated Australia, Victoria and the Northern through a range of actions implemented Territory through its wholly owned across a balanced program of initiatives. 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. Adelaide Brighton believes that setting and achieving sustainability objectives throughout the organisation assists long term competitive business performance. aggregates and concrete products. 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 effi cient access to every mainland capital city market. This network includes signifi cant distribution joint ventures in Victoria, New South Wales and Queensland. Cement Lime Concrete and aggregates Concrete products 2 Adelaide Brighton Ltd Annual Report 2018 Chairman’s report On behalf of all Directors, it is my pleasure to present you with the 2018 Annual Report for Adelaide Brighton Ltd. The year ended 31 December 2018 was a year of strong operational performance for your Company. Revenue increased 4.6% to $1,630.6 million, reflecting the benefit of acquisitions made in 2017 as well as demand across the residential, non-residential and infrastructure sectors and stable lime demand. Your Company reported net profit after tax of $185.3 million and basic earnings per share of 28.5 cents, both up 1.4% on the prior year. Zlatko Todorcevski Chairman Although the final profit result was slightly Leadership below our initial market guidance due to weather impacts and timing of customer activity, we are pleased with how the management team responded to these and other challenges throughout the year. Adelaide Brighton continues to deliver against its long term strategy of cost reduction and operational improvement; growth of the lime business and vertical integration into downstream aggregates, concrete, logistics and masonry businesses. Capital management These results were achieved during a period of leadership transition for Adelaide Brighton and are a testament to the strength of your business and the resilience of its people. Chief Executive Officer of Fulton Hogan from 2010 to 2017, and more recently at Broadspectrum (a subsidiary of Ferrovial Group) who operate within the civil construction, major project and asset management industries. I encourage you to read Nick’s review of 2018 On behalf of the Board and all shareholders, performance within this report. I would once again like to extend thanks to former CEO and Managing Director, During the year, we were also pleased Martin Brydon. Martin announced his to promote Brett Brown to the role of retirement at last year’s AGM following a Executive General Manager Concrete distinguished 30-year career with Adelaide and Aggregates. Brett has over 20 years’ Brighton. He has delivered exceptional experience in the construction materials results over his tenure, both as CEO and industry and joined Adelaide Brighton The Board continues to take the view Managing Director and as a member of through our acquisition of Direct Mix that capital surplus to the Company’s the senior executive team. In addition, Concrete and Southern Quarries in 2014. requirements to implement its strategy Martin was very flexible in accommodating His internal promotion underscores the should be returned to shareholders the Board’s request for him to continue in quality of operational experience within through an efficient capital management his role to ensure a smooth and seamless our ranks and the pathways to promotion mechanism. The Board has utilised transition to new leadership - including that Adelaide Brighton can offer. special dividends in this regard, which has deferring his retirement plans. Martin contributed to strong total shareholder has been an integral part of the Adelaide returns. A final ordinary dividend of 11.0 cents per Brighton growth story and we wish him all the best for the future. We are also looking forward to welcoming our new Chief Financial Officer, Theresa Mlikota, in April 2019. Theresa is a highly regarded finance executive with 30 years’ share and final special dividend of 4.0 cents We have been delighted to welcome Nick experience in resources and construction per share were declared for 2018, bringing Miller as Adelaide Brighton’s new CEO (including CFO roles at Ausdrill Limited, total dividends declared to 28.0 cents per in January 2019. Nick is a high calibre Fulton Hogan, Thiess, Macmahon share, fully franked, for 2018, representing and experienced Managing Director and Holdings and Barminco Ltd). a payout ratio of 98.2%. CEO, including Managing Director and 3 Adelaide Brighton Ltd Annual Report 2018The addition of Nick and Theresa In March 2019, your Board announced between Barro Group and the independent compliment Adelaide Brighton’s highly that Raymond Barro would transition to Directors according to the Board Protocol - experienced and skilled management the role of Chairman after the 2019 Annual Potential Conflicts and Interests. team, which will support the Company’s General Meeting. Raymond has significant continued development and growth. industry experience and has made a great With high quality assets, a positive culture contribution to Adelaide Brighton as both a and great people, we are excited about Director and as a long term representative the opportunities before us to further of our major shareholder. The independent Directors are pleased with this outcome, which ensures stability, and are strongly of the view that this is in the best interests of all shareholders. With this framework in place, I look forward to enhance shareholder value. Board Composition and Board Governance Framework Your Board also confirmed that all working with Raymond to ensure a smooth Directors recognise the importance of transition of the Chairmanship. effective independent Board oversight for the benefit of all shareholders, in line Conclusion In 2018, Graeme Pettigrew and Les Hosking with ASX Corporate Governance Council retired from the Board. On behalf of the recommendations. As a result, your Board and all shareholders, I thank them Directors have agreed a Board Governance both for their significant contribution. Framework that ensures Adelaide Brighton’s Martin Brydon also retired from the Board future Board composition will remain On behalf of your Directors, I acknowledge the hard work of all our employees in 2018, a year in which Adelaide Brighton delivered record revenues and strong dividends. in January 2019. majority independent for the foreseeable Adelaide Brighton takes its responsibilities future (four independent Directors, three as a corporate citizen very seriously. During the year, Vanessa Guthrie joined the Board as an independent non-executive Barro Group nominees). Director and Geoff Tarrant joined as non- Furthermore, the Governance Framework executive Director and nominee of the includes an enhanced Board Protocol - Barro Group. I look forward to working Potential Conflicts and Interests governing interactions between the business interests of Adelaide Brighton and the Barro Group. I will take on the role of Lead Independent We have strong employment and safety practices, have maintained a strong focus on reducing our emissions while improving energy efficiency and we work closely with local communities, government and regulatory bodies to ensure our business is sustainable. with them going forward. The majority of the Board remains independent, which is consistent with the Principles and Recommendations of the ASX Corporate Governance Council. Your Board has a strong mix of skills, experience and perspectives that are appropriate to our long term strategy to build shareholder value. During 2018, we made some changes to the way we organise Board priorities and time to better reflect Adelaide Brighton’s > objectives: People and Culture Committee - The People and Culture Committee replaces the former Nomination, Remuneration and Governance Committee, reflecting our commitment to prioritise our people > and set the culture from the top. Safety, Health, Environment and Community Committee - The Safety, Health and Environment Committee has been expanded to now also reflect the focus we have always had on the communities in which we operate. The Board monitors and reports on sustainability performance and is responding to increasing expectations of our stakeholders on the disclosure of our sustainability risks. The Board is assessing the impact of climate change in accordance with recommendations of the Financial Stability Board’s Task Force on Climate- related Financial Disclosures (TCFD) and proposes reporting on TCFD as part of the Company’s 2019 Sustainability Report. 4 Director and Deputy Chairman following I would like to thank all our shareholders, this year’s AGM. In this role, I will continue our joint venture partners and, of course, to ensure that conflicts of interest are our customers for their continuing support addressed and managed as agreed of Adelaide Brighton. Financial Summary ($ million) 2018 1 2017 Revenue1 Earnings before interest, tax, depreciation and amortisation Depreciation and amortisation 1,630.6 352.8 ) (87.4 1,559.6 350.1 (82.5 ) Earnings before interest and tax Net finance cost 2 Profit before tax Tax expense Net profit after tax Non-controlling interests Net profit attributable to members Underlying net profit after tax Underlying net profit after tax excluding property Basic earnings per share (“EPS”) (cents) Ordinary dividends per share - fully franked (cents) Special dividends per share - fully franked (cents) Net debt 3 ($ million) Leverage ratio (times) 4 Gearing 5 (%) Return on funds employed 6 - reported (%) 265.4 ) (14.4 251.0 ) (65.8 185.2 ) (0.1 185.3 191.0 190.1 28.5 20.0 8.0 424.8 1.2 34.1 16.1 267.6 (12.1 ) 255.5 ) (72.7 182.8 0.1 182.7 198.4 190.0 28.1 20.5 4.0 371.6 1.1 29.8 16.7 1 Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018. As a result of the changes, prior year financial statements were restated. 2 Net finance cost is the net of finance costs shown gross in the Income Statement with interest income included in other income. 3 Net debt is calculated as total borrowings less cash and cash equivalents. 4 Leverage ratio is net debt / trailing 12 months EBITDA. 5 Net debt/equity. 6 Return on funds employed = EBIT / average monthly funds employed. Adelaide Brighton Ltd Annual Report 2018Chief Executive Officer review I was delighted to take up the role of Chief Executive Officer of Adelaide Brighton in January 2019. In the short time I’ve been at the Company, it has been evident that the quality of its people and the very successful long term strategy, underpinned strong growth and shareholder returns. The 2018 performance provides further evidence that the strategy to diversify the business by product and geography, driving vertical integration through both acquisition and organic growth and continual focus on cost reduction and operational improvement is working well. Nick Miller Chief Executive Officer Following the retirement of the former Net profit after tax increased 1.4% to Operational highlights CEO and Managing Director, Martin Brydon, $185.3 million, while EBIT of $265.4 million I’m pleased to provide a report on the was 0.8% lower than 2017. Overall cement and clinker sales volume increased 1.1% compared to 2017. 2018 year. Underlying EBIT, which disregards one-off Sales were stronger into east coast markets In 2018, construction markets were items, declined 5.7% to $273.5 million, but declined in South Australia and Western strongest in New South Wales and Victoria. reflecting softer cement and lime earnings Australia, which also impacted average Queensland, Northern Territory and and lower property profits, not fully offset realised prices. South Australia experienced stable demand by improved concrete, aggregates and joint during the year, while demand in Western venture earnings. Excluding earnings from Australia eased. Lime demand from the property sales, which are variable from a resources sector was stable. timing perspective, underlying EBIT was Excluding Western Australia and Northern stable in 2018. Cement selling prices increased in most markets but margins declined in the second half on reduced cement volumes, lower average realised prices and increased import costs. Increased competition from bagged Territory, residential construction activity Strong cash flow was a feature of the imports in South Australia was observed in remained healthy during the year and the 2018 results, which supported our healthy the second half of the year. non-residential and infrastructure sectors balance sheet and provided the capacity to continued to improve. The business continued to perform well in 2018, with full year revenue growing 4.6% to $1,630.6 million. Our revenue growth reflects Adelaide Brighton capitalising on the favourable demand environment for construction materials and lime as well as the concrete and aggregates acquisitions, made in 2017, delivering to expectations. fund growth projects while continuing to provide attractive shareholder returns in the form of dividends. A lift in total dividends paid to shareholders for the 2018 financial year reflects the Board’s confidence in the financial position and the outlook. Sales of concrete improved 14% compared to 2017, or 9% when the impact of acquisitions is excluded, with east coast markets particularly strong. Aggregate volumes increased 10%, assisted by the strong east coast markets and acquisitions. Concrete margins increased on higher volumes and prices. Pricing in aggregates improved in the majority of markets, however margins were impacted by sales of lower value fill to the early stages of infrastructure projects. 5 Adelaide Brighton Ltd Annual Report 2018Revenue by product group Cement Lime Concrete and aggregates Concrete products Revenue by market Non- residential Residential Engineering and infrastructure Mining operations Revenue by state Western Australia South Australia Victoria New South Wales Queensland Other Focus on energy efficiency and sustainability Optimising efficiency will remain an important element of our approach to long term growth to underpin our competitiveness and the sustainability of our business. Adelaide Brighton has a proactive strategy to deliver long term reductions in operational energy consumption, as well as lower costs and operating risk, through measures including: > A portfolio approach to energy supply and procurement benefits; > Long term contracts that lower electricity costs and improve sustainability; > Increased use of alternative fuels to reduce reliance on traditional sources (targeting more than 30% substitution of 6PJ of fuel supply in South Australia in the medium term); > Increased use of alternative cementitious materials e.g. blast furnace slag; and > Hedging and other financial strategies to manage risk, where it adds value for shareholders. In 2018, Adelaide Brighton made a number of operational improvements to mitigate rising energy costs and reduce its carbon footprint, including: > The realisation of energy efficiency improvements from the 2017 rationalisation of oil well cement production at Angaston in South Australia, and the leveraging of the import supply network. > Lifting sales of granulated blast furnace slag as an alternative cementitious material to reduce both the consumption of natural resources and the environmental impact from disposal of these industrial by- products. > Following an investment in a second wood firing plant undertaken in 2015, approximately 25% of energy at Birkenhead was sourced from alternative fuels in 2018. > Establishing new energy supply contracts in South Australia, that include one of the country’s largest renewable electricity supply contracts, to improve costs while increasing supply security and sustainability. Lime sales were stable in 2018 as Adelaide Brighton continued to supply the market with reliable, high quality and cost competitive product. While improving in the second half, average lime prices were lower over the year due to a combination of sales mix and contractual pricing arrangements. The Australian joint venture operations benefited from the strong demand in east coast states for cement, clinker, concrete and aggregates to support an overall 6.1% increase in joint venture earnings in 2018. Strategic developments Adelaide Brighton’s long standing strategy remains highly relevant. But there’s always room to improve at the operational level. The Company continues to deliver against its long term growth strategy of cost reduction and operational improvement; growth of the lime business and vertical integration opportunities into downstream aggregates, concrete, logistics and masonry businesses. Improving energy efficiency and reducing carbon footprint remain a key focus. In 2018, Adelaide Brighton benefited from savings in an electricity supply agreement with a renewables generator, increased utilisation of alternative fuels in its production plants, and greater use of environmentally friendly alternative cementitious materials in its key products. Lime demand is expected to grow over the medium term, in line with incremental output improvements and growth in the Western Australian resources sector. Adelaide Brighton’s leading cost position and substantial capacity means it is well placed to benefit from this growth. In addition to its active pursuit of further downstream opportunities, organic projects remain a driver of growth. Organic projects recently completed include two concrete plants to service the southeast Queensland market, a new upgraded drymix packaging plant to service the Western Australian market, and increased cement storage capacity at the Morgan site to improve service to the New South Wales market. 6 Adelaide Brighton Ltd Annual Report 2018Safety Conclusion Safety is a key performance indicator across In summary, Adelaide Brighton is in a all divisions and at Group level. In 2018 fantastic position to go forward - it has we saw a decrease in our lost time injury privileged assets which are difficult to frequency rate by 33% to 26.0, primarily replicate. In 2018 the Company achieved as a result of focussed injury prevention good revenue growth with the underlying programs which were also embedded into revenue increasing excluding acquisitions. the acquisitions made in 2017. The company has a very strong cash flow An increase in proactive safety reporting, and the balance sheet is in great shape. up 65% at year end, is an indication of There is always room for operational employee engagement and improved improvement and I look forward to awareness of potential hazards. working with the management team on Safety is not just about processes and applying my experience and perspective procedures within a business, it is a to explore and define new opportunities culture. We will continue to invest in our for improvement and growth at Adelaide safety development to deliver further Brighton, within the current successful improvements in our safety performance. long term strategy. Outlook Finally, a significant thank you to all our employees for their hard work and In 2019, Adelaide Brighton expects overall dedication in 2018 for the delivery of demand for construction materials to be strong returns to shareholders and a stable, with growth in non-residential sustainable future for Adelaide Brighton. engineering and infrastructure demand largely offset by declines in residential. Construction demand in east coast markets is expected to remain healthy and with stable demand in Western Australia and the Northern Territory. Volumes in South Australia are likely to be assisted by demand from projects and mining. While variation in sector demand is likely, overall, Adelaide Brighton’s east coast markets are anticipated to remain at healthy levels in 2019. The demand environment appears favourable for further construction materials price increases, but, as always, this will be dependent on local market conditions. The outlook for the joint venture operations in Australia remains positive, although Sunstate Cement may face increased competition in the southeast Queensland market. While there are regional variances in the outlook, we are expecting a broadly stable demand environment in construction materials and lime in 2019. This should be supportive of our efforts to implement our strategy and continue to grow long term value for shareholders. Australian industry position #1 Lime producer in the minerals processing industry Concrete products producer Cement and clinker imported with unmatched channels to market #2 Cement and clinker supplier to the Australian construction industry #4 Concrete and aggregates producer 7 Adelaide Brighton Ltd Annual Report 2018Finance report Full year reported NPAT increased 1.4%, Earnings before interest and tax (EBIT) EBIT margins to $185.3 million. Underlying EBIT, which decreased 0.8% from the prior year to excludes one-offs, eased 5.7% on 2017 $265.4 million on an EBIT margin of to $273.5 million. Underlying NPAT of 16.3%. Underlying EBIT, which excludes $191.0 million was down 3.7% on 2017. restructuring and transaction costs, declined 5.7% to $273.5 million. Sales and profi ts Revenue increased 4.6% to a record of increased from $37.8 million in 2017 to $1,630.6 million, refl ecting continued $40.1 million in 2018, refl ecting improved growth in east coast markets, improved demand and higher construction material pricing and the fi rst full year contribution prices on the east coast of Australia. Underlying EBIT margins declined from 18.5% to 16.8% in 2018, refl ecting reduced cement and lime earnings and lower property profi ts more than offsetting earnings growth in concrete, aggregates Increased import costs, and a lower average selling price due to geographic sales mix, impacted cement margins. Our cement business receives a lower Joint arrangements and associate earnings and joint ventures. of acquisitions completed in 2017. Excluding the acquisitions, revenue increased 2.6% on 2017. Adelaide Brighton’s reported net profi t after tax (NPAT) increased 1.4% to $185.3 million in 2018. Underlying NPAT of $191.0 million, which excluded restructuring and transaction costs, was down 3.7% on 2017. Property profi ts contributed $0.9 million to NPAT in 2018, compared to $8.4 million in 2017. Excluding property profi ts, Underlying NPAT was essentially fl at compared to 2017 at $190.1 million. Net fi nance costs increased from price on the east coast where growth is $12.1 million to $14.4 million in 2018 currently strongest, but some of this due to higher market interest rates and comes back to us through the equity higher average borrowings. accounted earnings of our joint ventures. The effective tax rate decreased from In Lime, the renewal of a contract for coal 28.5% to 26.2% in 2018 due to the higher in Western Australia resulted in higher contribution from post-tax earnings of joint energy costs from 1 January 2018, which ventures and lower non-deductible expenses impacted lime margins in 1H18. However, associated with acquisitions, compared to these were partially offset by higher prices 2017. Adelaide Brighton continues to expect and the benefi t from renegotiated gas its effective tax rate to be in the range of supply contract in 2H18. 27% to 28%, although it may be lower in periods when capital losses related to property sales are recognised. In Concrete and Aggregates, margins increased in 2018 on higher volumes and prices. While average aggregates margins declined due to strong sales of low value fi ll products, margins increased in premium aggregates for concrete and asphalt making, supported by higher volume and prices. $M Revenue and net $Bn profi t after tax* 250 200 150 100 50 1700 1400 1100 800 500 % 100 85 70 55 40 Payout ratio c/share Earnings per share 40 30 20 10 0 14 15 16 17 18 14 15 16 17 18 14 15 16 17 18 Ordinary dividend Special dividend NPAT Revenue *Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018. As a result of the changes, prior year fi nancial statements were restated 8 Adelaide Brighton Ltd Annual Report 2018 In Concrete Products, EBIT increased Strong balance sheet 4.9% to $10.7 million, but this included $1.3 million in property profi ts (2017: nil). Adelaide Brighton’s low gearing, strong cash fl ow and consistent returns provide Strong demand on the east coast it with stability and funding fl exibility. Total dividends (ordinary and special) declared with respect to the 2018 fi nancial year were 28.0 cents per share, fully franked, an increase of 14% on 24.5 cents per share (fully franked) with In total, Adelaide Brighton has bank debt respect to 2017. of Australia supported an increased contribution from the joint venture operations. Strong Cash Flow facilities of $590 million spread across three of Australia’s major trading banks. The average tenure of the facilities has increased from 2.2 to 2.4 years as a Ordinary dividends declared of 20.0 cents represented a payout of 70% of 2018 basic earnings per share (EPS) of 28.5 cents. This is consistent with Adelaide Brighton’s dividend policy of ordinary dividends of Cash fl ow from operations increased by result of a facility renegotiation in 2018. $20.5 million on 2017 to $244.7 million, supported by strong sales performance and improvements to working capital management. The Board considers a leverage ratio of 65-75% of basic EPS. between 1.0 to 2.0 times 12-month trailing Underlying EBITDA is an appropriate target range. Under this measure, net debt was Enhanced processes and management 1.2 times 12-month trailing Underlying of collections from customers resulted EBITDA at 31 December 2018. Including special dividends of 8.0 cents, total dividends declared for 2018 of 28.0 cents represent a payout of 98% of 2018 basic EPS. The Dividend Reinvestment Plan remains suspended in a reduction in trade debtor balances despite higher revenue in the period. The net debt to book equity gearing ratio given the Company’s strong cash fl ow was 34.1% at 31 December 2018 and and low gearing. Capital expenditure of $115 million remains close to the midpoint of the target declined $55 million compared to 2017, range for that measure of 25% to 45%. due to the timing of acquisition spending during the year, partially offset by a higher Attractive shareholder returns Return on funds employed, while slightly down on 2017, remained healthy at 16.6%. This refl ects a strong return on capital employed and remains signifi cantly ahead of the Company’s cost of capital. investment spending on development capital. In 2018, capital expenditure occurred on 27 projects above $1 million in value, comprising stay in business capex of $55 million, development projects of $58 million and acquisitions of $2 million. Adelaide Brighton has a conservative approach to capital management with the following broad objectives: Reconciliation of underlying net > Ensure an effi cient balance sheet to profi t after tax excluding property optimise cost of capital and thereby shareholder returns through utilisation $ million 2018 2017 Proceeds from the sale of assets were of a prudent level of debt; Underlying net profi t after tax 191.0 198.4 $5.3 million, a decline of $12.4 million > Maintain an investment grade rating on 2017, driven by the reduced property to optimise funding cost; Property profi t 0.9 8.4 sales. Dividend payments increased by > Retain balance sheet fl exibility to fund Underlying net profi t after $32.6 million over 2017 as a result of capital projects and acquisitions; and tax excluding property 190.1 190.0 the higher dividends declared. > Distribute surplus capital to shareholders in an effi cient manner. $M 2400 1800 1200 600 0 Total assets $M Net profi t after tax* 240 180 120 60 0 14 15 16 17 18 14 15 16 17 18 *Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018. As a result of the changes, prior year fi nancial statements were restated Adelaide Brighton Ltd Annual Report 2018 9 Cement and lime Brad Lemmon Brad Lemmon Brad Lemmon Brad Lemmon Executive General Manager Executive General Manager Executive General Manager Executive General Manager Cement and Lime Cement and Lime Cement and Lime Cement and Lime Cement and clinker In South Australia, a fi ve year agreement Total cement sales volumes increased 1.1% compared to 2017. East coast markets remained strong in 2017 supported by robust residential activity in Victoria, New South Wales and Queensland, and increased non-residential building and for the supply of electricity from a renewable energy generator delivered cost savings, more than offsetting higher gas costs. Adelaide Brighton continues to pursue its strategy of increasing the use of alternative infrastructure activity. The South Australian fuels and alternative cementitious market was also lifted by infrastructure demand. products to reduce energy costs, led by the Birkenhead plant in South Australia. Demand remained strong in Melbourne and Sydney, with continued demand from residential construction, supported by the commencement of the construction phase of major infrastructure projects. Non-residential development, such as offi ce towers, further supported sales in these markets. Sales volumes declined in South Australia, as higher mining volumes were offset by subdued project volumes. Western Australian volumes were lower, as the market remained subdued. Northern Territory demand was stable with regional infrastructure projects providing support for underlying demand, with the overall market stable resulting in overall fl at sales volumes. Prices were higher compared to 2017 in the majority of markets, particularly the eastern states. Increased competitive pressures emerged in the South Australian market from imported bulk bag product. Adelaide Brighton’s average weighted cement price declined in 2018 as a result of sales mix. Margins Lower average realised prices and increased import costs resulted in a decline in cement margins in 2018. Following an investment in a second wood fi ring plant constructed in 2015, approximately 25% of energy at Birkenhead was sourced from alternative fuels in 2018. During the fi rst half of 2018, cement milling was disrupted due to the temporary failure of a mill bearing in the Birkenhead plant. The fi nancial impact of this was largely offset by an insurance claim and the settlement receipts of $4.6 million for an unrelated claim on a supplier of refractory that caused damage at the Birkenhead operation in 2014. Import costs increased, due to higher shipping and material procurement costs. Lime Lime sales volumes were stable in 2018. Adelaide Brighton continued to successfully defend its market position with reliable, high quality and cost competitive domestic production. Average Lime prices were lower compared to 2017, due to both sales mix and contractual pricing arrangements. The renewal of a coal supply contract in Western Australia resulted in higher energy costs from 1 January 2018 which impacted lime margins in 1H18, however these were partially offset by higher prices in 2H18 and the benefi t from a renegotiated gas supply contract. Nonetheless, sales mix restrained average realised lime prices. 10 Adelaide Brighton Ltd Annual Report 2018 Investment for growth Capital investment in effi ciency and growth projects continued during the year with the completion of a state of the art cement packing plant to support the Western Australian market, expansion of cement silo capacity at the Morgan site to improve effi ciency in the strong New South Wales market, expansion in the number of specialised train carriages to transport product to regional distribution terminals and fi nalisation of a dryer upgrade for the production of slag based cementitious products for the Western Australian market. These investments will provide improvement to production effi ciency, expand product offerings to customers and increase production capacity to match customer demand in strong markets. Photographs, top to bottom: Adelaide Brighton Cement Birkenhead plant limestone reclaimer shed / MV Accolade II bulk limestone carrying vessel / Cement and Lime Quality Manager, Mars Capasso, instructing our 2018 iWomen program participants on laboratory testing techniques Adelaide Brighton ‘000 cement milled tonnes (inc. imported clinker) 3200 2400 1600 800 0 14 15 16 17 18 ‘000 Adelaide Brighton tonnes lime production 1200 900 600 300 0 14 15 16 17 18 Concrete production, import and distribution Adelaide Brighton imports 2.4Mt pa cementitious materials and sells more than 4.0Mt pa of cementious materials International imports Domestic imports Clinker production Cement terminals Cement milling 11 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 11 Concrete and aggregates Brett Brown Brett Brown Brett Brown Brett Brown Executive General Manager Executive General Manager Executive General Manager Executive General Manager Concrete and Aggregates Concrete and Aggregates Concrete and Aggregates Concrete and Aggregates CONCRETE In 2018, the Concrete and Aggregates Investing in growth business continued its strong growth, driven by strong markets for our products, effi cient operations and the benefi t of acquisitions made in 2017. Over the last 5 years Adelaide Brighton has invested more than $262 million in acquisitions, expanding the geographic footprint of the Concrete and Aggregates Concrete sales volumes increased by 14%, division as part of the Company’s vertical compared to 2017. Excluding the impact integration strategy. of acquisitions completed in 2017, concrete volumes grew approximately 9%. All markets improved, with volume growth strongest in the east coast markets. Average concrete prices increased by more than infl ation, compared to 2017. The most recent acquisition of Central Pre-Mix, Davalan Concrete and the Northern Territory concrete and aggregates assets of Holcim in 2017, and ResourceCo Concrete in South Australia in 2018, added further scale to Adelaide Brighton’s business. In Aggregate volumes were also strong, 2018, the 2017 acquisitions provided the growing 10% in 2018, assisted by strong east coast markets and acquisitions. fi rst full year contribution to revenue and EBIT, and signifi cant vertical integration Aggregates prices increased in the majority benefi ts to the Group. of markets over the year, but the supply of a signifi cant volume of lower value fi ll material to the early stages of infrastructure projects resulted in slightly lower average realised prices and a decline in average aggregates margins. Sales of higher value aggregates are expected to increase in 2019 as these projects progress, assisting average selling prices and margins. Organic growth projects have also led to improved performance. Major investments during the 2018 year included construction and commissioning of two concrete plants to service the Brisbane market, with further investment anticipated in 2019 for a third plant. These plants provide infi ll to our existing operations in the south east Queensland market. Additional reserves Concrete margins increased in 2018 on have been purchased to secure future higher volumes and prices. While average development of quarry operations. aggregates margins declined due to signifi cant sales of lower value fi ll products, margins increased in premium aggregates for concrete and asphalt making, supported by strong volumes and prices. Investment in a new quarry at Scotchy Pocket to service our Sunshine Coast concrete sales as well as the local market. Commencement of supply from the quarry is anticipated during 2019. Concrete and Aggregates footprint Hy-Tec Central Davalan Concrete Direct Mix Concrete ResourceCo Concrete Established operations Aquisitions in 2018 12 Adelaide Brighton Ltd Annual Report 2018 Photographs, top to bottom and left to right: Austen Quarry Supervisor, Craig McDonald / Sellicks Hill Quarry Site Supervisor, Luke McGowan / Hy-Tec concrete batch plant / Quarry worker, Mark Taylor, undertaking water quality testing at Austen Quarry / Sellicks Hill Quarry rigid haul truck Adelaide Brighton Ltd Annual Report 2018 13131313131313131313 13 Concrete products Andrew Dell Andrew Dell Andrew Dell Andrew Dell Executive General Manager Executive General Manager Executive General Manager Executive General Manager Concrete Products Concrete Products Concrete Products Concrete Products In 2018, Concrete Products continued The production facility at the Stapylton to make signifi cant improvements to the site in Queensland, the largest production long term strength of the operations, site in the Concrete Products Division, within a backdrop of easing demand in was upgraded with the introduction of some markets. Revenue was fl at compared a new curing system. The new system to 2017 and volumes decreased slightly will provide an improvement in product over the prior year, largely due to reduced quality, in addition to cost savings, as a commercial sales in Queensland. Sales result of enhanced energy effi ciency volumes improved in most other markets. with a consequential saving in greenhouse A focus on selling prices resulted in average prices increasing by more than infl ation, gas emissions due to lower quantity of gas used to fuel the system. with improvement across all regions and In 2017 the Company invested in this was evident in fl at sales revenue despite manufacturing equipment to produce reduced sales volume. The Concrete Products business continues to focus efforts around operational improvement, product innovation and developing new market segment opportunities. In 2H18, a number of plant upgrades were undertaken to reduce energy costs, lift plant effi ciencies and facilitate the launch of a number of products into emerging market opportunities. concrete sleeper products. Production volumes in product have increased over the period since commissioning with demand being driven from both internal and external customers. This product now represents a key part of our design and construct offering, a growing part of the Concrete Product full service offering. 14 Adelaide Brighton Ltd Annual Report 2018 Concrete Products is an important and growing customer for the cement, aggregates and sand business. Following investment over the last fi ve years in the Concrete and Aggregates Division, there is signifi cant overlap of the geographic footprint, providing vertical integration benefi ts to Adelaide Brighton. Adelaide Brighton Ltd Annual Report 2018 15 Joint ventures Michael Miller Executive General Manager Marketing and International Trade The positive trends in joint ventures In a competitive market that included continued in 2018, supported by healthy reduced offtake from our joint venture east coast construction markets. These partner, Sunstate earnings were stable in businesses offer vertical integration with 2018. Improved pricing and favourable our fully owned operations and provide material costs largely offset the impact of us with access to important markets the lower volumes. and products. Independent Cement and Lime Pty Ltd (ICL) (50%) Mawson Group (Mawsons) (50%) Mawsons is a joint venture between Adelaide Brighton and BA Mawson Pty Ltd. ICL, a joint venture between Adelaide Mawsons is the largest premixed concrete Brighton and Barro Group Pty Ltd, is a and quarry operator in northern regional specialist supplier of cement and cement Victoria and also operates in southern New blended products throughout Victoria South Wales. Mawsons is a signifi cant and New South Wales and is the exclusive aggregates producer in the region, generally distributor for Adelaide Brighton and any holding the number one or number two related body corporate in these states. position in the markets it serves. Strong demand across Victoria and New Healthy demand for its products across South Wales resulted in increased volumes its supply footprint contributed to and prices, lifting ICL’s contribution to improved earnings in 2018. profi t by 21%. Sunstate Cement Limited (Sunstate) (50%) Sunstate is a joint venture between Adelaide Brighton and Boral Limited. A leading supplier to Queensland’s construction industry, Sunstate has a cement milling, storage and distribution facility at Fisherman Islands, Port Brisbane. 16 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Aalborg Portland Malaysia Sdn. Bhd. (Aalborg) (30%) Aalborg manufactures and sells white cement and clinker for the domestic Malaysian markets and exports to Australia and markets throughout south-east Asia. Earnings softened as improved sales Stable demand volumes were offset by higher costs from the coal and adverse movement in regional industry, particularly exchange rates. Burrell Mining Services (50%) Burrell Mining Services is an in Queensland, led to fl at earnings over the prior year. Batesford Quarry unincorporated joint venture between Batesford Quarry is an unincorporated Adelaide Brighton and Burrell Mining joint venture between Adelaide Brighton, Products. With operations in New South E&P Partners and Geelong Lime Pty Ltd. Wales and Queensland, Burrell Mining Batesford Quarry, situated at Fyansford Services manufactures a range of Quarry near Geelong in Victoria, concrete products exclusively for undertakes quarrying and manufacturing, the coal mining industry. marketing and distribution of limestone and quarry products. Despite lower demand from the agricultural lime market due to drought conditions in parts of Victoria, overall volumes were only marginally lower than 2017. Earnings improved as selling prices improved and operating costs were contained, leading to an improvement in margins. Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 17 Sustainability report This Sustainability Report should be read in conjunction with other sections of this Annual Report and its fi nancial statements. The Directors’ Report, Corporate Governance Statement and reports on Remuneration, People and Diversity and Health and Safety all contain information relevant to the sustainability performance of the Group. At Adelaide Brighton, sustainability is about managing our business to ensure success for the long term. Our commitment to sustainability is built on a 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. S u s t a inable business E nvironment E co-effi ciency I m p a c t management P r o duct life cycle E m i s s ion reduction W a s te utilisation S i t e rehabilitation a t e ri a l s as reductio n entitio us m e raw m aterials ative fuels y effi ciency n r e lt A g r e n E u o h n e e r G se g m e y c tiv r a a t n n r e e m t l e A l p p u S A s s u E c o r n V S a i a o h n G a c o e r e b i l i t m C v h o y u s t e r n o l f s d u o m e p m e e r s n t r s p ly i c Product develo p m e n t Corporate citiz e n s h i p Developing a ski l l s b a s e Safety G o v ernance Integrity Compl i a n c e Our environmental development programs for the rehabilitation of quarry areas improves habitats by planting local indigenous species P P r r o o M M L o o c c a a a a i i l l e n n s c c e e s s s s n w w v i r a t a s t o e r e n m e r f e e fi d n e u t c c a i t l e e n f c i o n y f e c t s s e urc s n n n ctio Stakeholder relatio Social E m ployee reso Diversity and inclusio munity intera Co m n t m e e g a n k m a s R i 18 Adelaide Brighton Ltd Annual Report 2018 The Adelaide Brighton Group includes Adelaide Brighton Limited and the entities Key performance indicator Alternative fuels and energy consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 23 Discussion in Annual Report it controls (the Group), as well as a number Alternative raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 23 of joint ventures. This report excludes Carbon emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 20 information about the joint ventures as their Employee turnover by age group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 27 operations are not material to the Group’s Employee turnover by gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 27 sustainability reporting. Employee turnover by geography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 29 While the Group’s fi nancial year ends on 31 December, most government sustainability related reporting requires information to be provided for the year to 30 June. So that statistical and graphical data provided in this Sustainability Report can be compared with other publicly available information, the information in this Sustainability Report relates to the year ended 30 June 2018, unless otherwise indicated. In developing this report, the following Employment by contract status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 28 Employment by employment status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 28 Employment by geography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 29 Energy by source . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 23 Lost time injury frequency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 27 Mains water usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 20 Participation of women in the Company . . . . . . . . . . . . . . . . . . . . . . Page 31 - Diversity Report % of employees on EBAs vs staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 29 Restricted duties injury frequency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 27 Total recordable injury frequency rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 27 Other reports Coverage of organisation defi ned benefi t plan obligations . . . . . . . . . . Pages 111-112 - Note 26 resources have been considered: Direct economic value added (sales, costs, employee > The Global Reporting Initiative compensation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 72 - Income Statement G4 Sustainability Reporting Guidelines. Pages 82-83 - Note 5 and 6 > ESG Reporting Guide for Australian Details of sanctions for non-compliance with Companies prepared by the Australian laws and regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 46-47 - Directors’ Report Council of Superannuation Investors and the Financial Services Council. Environment Performance > The Cement Sustainability Initiative Tax Transparency Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pages 32-33 of the World Business Council for Sustainable Development. Relevant industry practice. Energy and greenhouse gas emissions information complies with the defi nitions > > For further information about the Sustainability Report email adelaidebrighton@adbri.com.au or telephone 02 8248 9911. and boundaries contained in the National A fundamental part of Adelaide Brighton’s Greenhouse and Energy Reporting Act. long term strategy has been the continuous In 2017 Adelaide Brighton advised the Australian Taxation Offi ce that the Company would sign up to the voluntary Tax Transparency Code, and subsequently published an initial report under this Code in the 2017 Sustainability Report. This 2018 Sustainability Report includes the second report under this Code. The Chief Executive Offi cer (CEO) oversees improvement of operational performance, encompassing the environment, social, governance and economic factors that the Group consider is required to operate a sustainable business. Innovation and continuous improvement remain a natural part of business at Adelaide Brighton and help to ensure the Company’s long term success in a changing world. and approves the Company’s sustainability Climate change framework, the Group’s key performance indicators and the scope of this report. The key performance indicators listed adjacent have been assessed to be material to the Group’s sustainability performance. Adelaide Brighton, as a producer of heavy construction materials and lime, emits greenhouse gases as part of its operations. Emissions are primarily generated by the production of clinker, an intermediary product in the production of portland cement, and lime. The production process for clinker and lime are similar, with a carbonate source of limestone heated in a kiln to high temperature, resulting in Source of greenhouse gas emission in a cement plant 50% of greenhouse gas emission occur as the raw meal is heated and carbon dioxide is driven off in order to form the necessary chemical conversion of limestone to calcium oxide: CaC03>Ca0+C02. As long as cement making relies on the calcination of limestone, these emissions will be impossible to avoid. 35% of greenhouse gas emissions occur as a result of burning fuels (coal, gas and diesel) to create thermal energy. 15% is produced as a result of the indirect emissions resulting from the use of electricity. Cement grinding is the largest single electricity user in the cement plant. Raw meal grinding and moving material around the plant are other signifi cant sources emissions from both a chemical reaction of electricity use. and the fuel used for heat in the process. Source: Cement Industry Federation Adelaide Brighton Ltd Annual Report 2018 19 The Group’s strategy of continuous improvement has resulted in a reduction in greenhouse gas emissions over a sustained period. 2018 emissions of 2.4 million tonnes CO2-e are a reduction of: 3% from 2017; 22% over the 5 years from 2013; and 30% (666,000 tonnes CO2-e) compared > > > to 2010. The reduction compared to 2013 is despite the growth in sales volumes of 4.3% for cement and clinker over this period. These savings have been generated by a focus on effi ciency and investment in low emission alternate fuels. In addition to the constant focus on incremental effi ciency improvements, Adelaide Brighton’s production footprint has changed over a number of years, as a result of closing low effi ciency clinker production facilities and concentrating production at more effi cient sites. An investment in a second fi ring line for the use of refuse derived fuel (primarily a wood waste) as an energy source at the Birkenhead plant in 2015 has led to a reduction in emissions due to its lower emissions profi le. The use of refuse derived fuel has increased over the last fi ve years, doubling the quantity of energy from this source since 2013. ‘000 Total carbon emissions tonnes 3600 3200 2800 2400 2000 14 15 16 17 18 ‘000 Process waste tonnes to landfi ll* 200 150 100 50 0 14 15 16 17 18 Cement and lime Concrete and aggregates Concrete products Megalitres Mains water usage* 800 600 400 200 0 14 15 16 17 18 Cement and lime Concrete and aggregates Concrete products *Increases due to aquisitions While not captured in these emission reduction fi gures, the Group has also: > Increased the use of slag, a by-product from the production of steel, as an alternate cementitious material that reduces the overall emissions intensity of product sold; > Increased the use of mineral addition in the production of cement, lowering the proportion of clinker used, resulting in a lower carbon footprint per tonne of product sold; and > Entered into an electricity supply agreement with a renewables generator for the provision of electricity to our South Australian sites, a major component of our electricity use. Task Force for Climate Related Financial Disclosure The Group recognises that the effect of greenhouse gas emissions on climate change and the potential impacts on the environment have driven a movement toward a low carbon economy. This movement has resulted in a range of actions being undertaken by governments, the corporate sector and individuals in recognition of climate change, including imposing a price on carbon and changes to product specifi cations. The Task Force for Climate Related Financial Disclosure (TCFD), an industry led taskforce established by the Group of 20 Government’s Financial Stability Board, was tasked with preparing a framework for fi nancial reporting on climate change, with its fi nal report released in 2017. While the recommendations of the TCFD are not mandatory, these have been identifi ed as a standard that companies should utilise in order to adequately report the impact of climate change on their business. Adelaide Brighton has reduced C02 emissions by 30% since 2010 via increased efﬁ ciencies and low emission fuels while increasing sales volumes 20 Adelaide Brighton Ltd Annual Report 2018 Construction and demolition waste is used as a fuel in the clinker production process, reducing both the use of natural gas and waste going into landﬁ ll Adelaide Brighton is currently assessing the impact of climate change in accordance with TCFD recommendations and intends to provide a report utilising the TCFD framework as part of its 2019 sustainability report. Environment and Community We are aware that our operations are fuelled by natural resources from the Concrete and aggregates environment in which we live and we School Education Program are always respectful of the local communities in which we operate. Adelaide Brighton’s Concrete and Similar school education and tree planting Aggregates Division in Queensland is now programs have also been established with The operations of the Group have entering its third year of engaging schools schools adjacent to our South Australian strict licensing and mandatory reporting located near its quarries to participate in and New South Wales quarry sites. conditions that are monitored and the School Educational Program. The reported against. In addition we program is aimed at educating school undertake voluntary measures to ensure children about the geological and the natural environment and local environmental aspects of quarry activities communities we operate within are and how quarries contribute to the local not adversely affected by our activities. regional community. In addition, the Community open days and drop in days are held to connect with and respond to the needs of local communities. Concrete products Continuous improvement is embedded in the culture at Adelaide Brighton. We strive to continually improve our environmental footprint. Our Divisions identify environmental aspects impacting program includes involving the school Waste diverted from landfi ll children in tree planting native species specifi cally chosen to regenerate an area of the quarry to encourage local wildlife to the area. Waste such as defective materials from production of concrete masonry products, has historically been disposed of to landfi ll. A new initiative now sees this material sent our sites and Environmental Improvement The Concrete and Aggregates Division to local recyclers for crushing and re-use, Plans are formalised with target outcomes education initiative received a ‘Highly primarily as road base. This initiative has and timelines. A range of initiatives Commended Award’ Community seen a saving of approximately 900 tonnes were undertaken in each of our divisions Leadership Award in the 2018 per annum of concrete waste being throughout the year. Queensland Cement, Concrete and sent to landfi ll. Aggregates Association awards. Adelaide Brighton Ltd Annual Report 2018 21 Dust emission reduction > The Adelaide Brighton Cement The off specifi cation material is captured Our Adbri Masonry production facility at Maroochydore installed a water sprinkler systems to the bunker system for the storage of raw materials to eliminate the potential for fugitive dust from the site. Cement and Lime Birkenhead plant developed a web page and recycled into the bagging machine to display real time ambient air dust at a controlled variable rate thereby levels recorded from monitors located eliminating waste product. in the local community. The monitors measure particulate matter present in the Land rehabilitation environment which comes from a number The ongoing Munster plant land of sources including the Birkenhead plant, rehabilitation saw 8,000 native species other industries, motor vehicles, domestic planted at the site and donated to and natural sources in the region. local schools as part of our community Site beautifi cation Birkenhead plant The web page is available at engagement program. A team of enthusiastic employees at the Adelaide Brighton Cement Birkenhead plant formed a working group with the aim of improving the visual impact of the Birkenhead site. A program of planting native trees and shrubs during 2018 included the planting of: > 50 mature ornamental pear trees and 200 Nandinas; 600 native trees and shrubs; 35 mature eucalypt trees; and 30 self-propagated eucalyptus trees. > > > abcmonitoring.katestone.com.au/public/ > An upgrade to the Gas Conditioning Environmental reporting Towers spray systems at the Birkenhead plant has resulted in further reduced particular emissions from the stacks. > The outcome of a successful trial of dust suppression products carried out on the lime kiln dust pond at the Munster plant has led to the selection and application of a product with a life span of 12 months at the Company’s Munster and Kwinana plants in Western Australia. As set out in the Directors’ Report, a number of our sites operated outside of their environmental approvals that resulted in action from a regulatory body. Adelaide Brighton take seriously all breaches of its environmental conditions, assessing the matter to identify a root cause, reassessing control processes and implementing remediation. This suppressant will provide a reduction In 2018, the Group had one reportable Dust management of fugitive emissions from the sites. environmental incident, compared to > An internal web based Dust Management Dashboard was implemented at Waste reduction Birkenhead plant in South Australia which monitors on-site dust emissions and records actions taken in response to alerts to proactively minimise the potential for an off-site exceedance of air quality standards. 16 in 2017. In addition, 506 environmental hazards and 34 environmental near misses were reported, a 36% increase An upgrade to a Kwinana plant bagging compared to 2017. The reporting of machine which has more than doubled hazards, near misses and incidents its total bags per capacity, also includes continues to improve, indicating an the installation of a product reclaim increased awareness of reporting potential and recycling facility for off specifi cation and actual environmental impacts within material produced during product our operations which underpins improved changeovers. environmental performance. Adelaide Brighton reduces mains water consumption via both recycling and catching and storing substantial volumes of rainwater at multiple sites 22 Adelaide Brighton Ltd Annual Report 2018 Adelaide Brighton Ltd Annual Report 2018 Energy by source Environmental management system Confi rmation that we have processes to Liquid fuels Coal Natural gas Demolition material Waste oil Electricity Terajoules Alternative fuels % energy consumption 2000 1500 1000 500 0 16 12 8 4 0 14 15 16 17 18 Demolition material Industrial waste Waste oil % alternative fuels of total energy Improvement initiatives implemented as part of the integrated Health, Safety and Environment management system include: > Further investment in environmental protective equipment, upgrading water management systems, dust suppression; > Changes to management procedures relating to areas that have sensitive environmental impacts such as equipment near watercourses; > Changes to the production processes within sites to reduce the potential for, or eliminate the risk of, an environmental incident; manage sites effectively include the review and classifi cation of the Concrete and Aggregates Tinda Park Quarry by the New South Wales Environmental Protection Authority as ‘Level 1’ for environmental risk, and ‘A’ for environmental management category. This classifi cation is the highest rating achievable, refl ecting the site has been able to demonstrate they have good environmental controls and management procedures in place and therefore are ‘good environmental performers’. Annual mandatory reporting > Increased environmental reporting Adelaide Brighton continues to report and investigation; under the national environmental > Improved compliance validity through schemes detailed below: onsite dashboard reporting. Individual > National Greenhouse Gas and Energy site compliance dashboards incorporates Reporting Scheme - providing greenhouse all compliance requirements including gas emissions, energy consumption and development applications and energy production data; and environmental protection licence conditions, > National Pollutant Inventory. mining leases, and mine operation plans; Site-specifi c licence compliance posters > displayed in the site offi ce or weighbridge at each site to provide a summary of the relevant site compliance requirements; and > Improvements to automation of onsite systems controls. Adelaide Brighton also provides annual reports to the industry associations of Cement Industry Federation and National Lime Association, in addition to the completion of various surveys undertaken by the Australian Bureau of Statistics. Assessment of our performance against Community environmental obligations and regulatory compliance was reviewed as a specifi c component of the 2018 internal audit program across a selection of sites in the Adelaide Brighton is committed to being a socially responsible member of the communities in which we operate. % Alternative raw ‘000t GHG Concrete and Aggregates Division. The Through our community support program objective of the audit was to examine we aim to make a valued and sustainable the adequacy of processes and controls contribution to the communities in which supporting the Company’s environmental we operate by investing in primarily obligations and regulatory requirements. community based organisations and The results were fed back into a best children services; supporting specialised practice initiative to improve overall higher education programs and performance across all sites. environmental education through local schools participation in vegetation programs and wetland education. substitution materials 30 25 20 15 10 saving 1100 900 700 500 300 14 15 16 17 18 GHG saving % SCM substitution (by-products of industrial processes - slag from the steel manufacturing industry and fl y ash from coal fi red power stations) Adelaide Brighton Ltd Annual Report 2018 23 iWomen and iMen Program Adelaide Brighton annually partners with Community engagement communications program the Kwinana Industries Council to deliver Engagement with, and keeping the local the iWomen and iMen project, an community informed on the operations of educational program promoting career the Munster plant is an important element opportunities to year 10 students. of our day to day operations. We have In 2018, the Munster plant hosted 29 female year 10 students for an information session, and 33 year 10 male students visited the Munster and Kwinana plants for an information session. The students were able to experience fi rst-hand the various parts of our manufacturing operations and learn from our staff about the career opportunities available within our industry. created a communication program which includes a dedicated community website www.cockburncementcommunity.com. au/, a 24x7 community feedback telephone service, newsletters and a range of fact sheets and short videos which aim to inform and provide answers to key questions, as well as regular community meetings with key stakeholders. Our Munster and Birkenhead plants create and maintain wetlands and involve students from local schools in our environmental programs 24 Adelaide Brighton Ltd Annual Report 2018 School tree planting days Some of our 2018 recipients included: > University of Wollongong - Women The Munster plant hosted two local schools for tree-planting days at the Munster site. We had over 110 students, teachers and guardians visit the site to learn about the Munster plant operations and participate in the planting of over 1,600 native seedlings across the site. Community investment program > Little Athletics South Australia - sports in Engineering Scholarship program for children of all abilities > STEM program (Science, Technology, aged 3-17 years Engineer and Math - Year 10 and 11 > Variety the Children’s Charity SA - secondary students) supporting disadvantaged or sick children and their families > > The South Australian Indigenous Law Student Mentoring Program - supporting > > Science grant to Beeliar Public School indigenous law students to facilitate Around the Campfire - organisation transition as graduates to legal practice. focused on improving indigenous health > St Peter’s College ‘Adelaide Brighton Ltd and opportunity in remote areas across Scholarship’ - an indigenous secondary We aim to make a valued and sustainable Australia school scholarship for an indigenous contribution to the communities in > Daniel Morcombe Foundation - educating student. which we operate through partnerships, children on their personal safety sponsorship and donations to specialised > University of Adelaide Engineering programs at local schools, sporting clubs, Scholarships care agencies and community services as well as higher education support. Photographs, top to bottom: Adelaide Brighton supports ‘Little Athletics’ / Cockburn Cement Munster plant tree planting day for local school Coogee Primary Adelaide Brighton Ltd Annual Report 2018 25 Health and safety Safe, Sustainable Production is an Lost time injury frequency rate Safety initiative ‘Do not disburb’ essential and integral part of the way we do business. Our Group Lost Time Injury Frequency Using a mobile phone while driving Rate (LTIFR) at December 2018 was 1.70 increases the risk of crashing by at least To achieve this, we continually work on compared to 2.8 at December 2017. four times. Using a mobile phone can improving our safety and environmental The reduction in LTIFR is largely attributed signifi cantly impair a driver’s: management systems and culture. to our Concrete Products Division which recorded Nil LTI in 2018. Our Cement and Lime Division recorded a 62% reduction in LTIFR in 2018. Safety hazards > > > > > Reaction time Visual search patterns Ability to maintain speed and position on the road Ability to judge safe gaps in the traffi c General awareness of other road users. Safety hazard reporting increased in 2018 A large number of our employees drive a by 65% compared to the same period motorised vehicle as part of their job - be the previous year. The proactive reporting it a heavy haulage truck, concrete agitator of near misses and hazards has been, and will continue to be, a key driver for improvement. Proactive reporting and shared learnings are being supported by a refreshed monthly employee dashboard distributed across the Group, showcasing ‘what good looks like’. This is where we provide examples of good practice and learnings across the business. truck, forklift or a passenger motor vehicle. A safety campaign was launched to encourage our employees to use the ‘do not disturb’ feature on their mobile phone. This feature senses when the carrier may be driving a vehicle and prevents notifi cations being received by the phone. We believe that good planning and preparation will eliminate or minimize risks to health, safety and the environment. Total recordable injury frequency rate Adelaide Brighton’s total recordable injury frequency rate (TRIFR) at December 2018 was 26.0, compared to 38.1 at December 2017. Our focus across all Divisions has been the reduction of injuries across all recordable types - lost time, restricted duties and medically treated, resulting in a TRIFR reduction of 43.2% in the Cement and Lime Division, 33% reduction in the Concrete and Aggregates Division and 25% reduction in the Concrete Products Division. Our sustained focus on key areas of risk that shapes the design of our injury prevention programs are driving sustainable improvements in reducing harm to our people. HSE priorities Operational HSE excellence Leaders deliver safe, sustainable production Inclusive and collaborative HSE culture Loss prevention HSE management system that supports safe, sustainable operations ABL focussed indicators to measure and manage our performance Data management that supports environmentally sustainable decision making Leadership that visibly demonstrates safety as a value Maintain and strengthen the connections with the communities in which we work and live Build HSE capability in frontline management Sustain a fi t and agile workforce to support a more productive work life Investigate signifi cant incidents and identify at risk behaviours to prevent recurrence Raise awareness to reduce adverse environmental impacts Enable a learning culture that encourages the sharing of information and lessons learned across all sites Leveraging technology to improve communication effectiveness with our employees and inclusive of our mobile workforce 26 Adelaide Brighton Ltd Annual Report 2018 Using the feature reduces the risk of motor vehicle accidents that could result > > Build in-house capability with respect to CoR Frequency Lost time injury Create opportunity for sharing CoR frequency rate in death, or serious or permanent injury information and knowledge to not only drivers, but other road users. > Develop a business wide Transport Safety Chain of Responsibility (CoR) and heavy vehicle safety Wellbeing Standard (framework). The heavy vehicle supply chain plays an Adelaide Brighton provides employees and important role in supporting safe, reliable their families with a free and confi dential road transport for all road users. CoR laws counselling service through our Employee ensure that everyone on and off the road Assistance Program (EAP) to help employees that is involved in the supply chain is meet life challenges and remain healthy, equally responsible for complying with engaged and productive. Heavy Vehicle National Law. Annualised utilisation rate as at December Adelaide Brighton takes CoR seriously and has managed transport safety as part 2018 is 4.4% which is higher than the industry benchmark annualised utilisation of its overall safety practices. On 1 October of 3.2%. The EAP is promoted at all our 2018 CoR laws were amended to align work sites to enable greater awareness more closely with workplace health and and support for employees’ wellbeing. safety provisions meaning that all parties in the chain must reduce risks related to the safety of transport tasks. In practical terms, there is an obligation to eliminate or minimise potential harm or loss (risk) by doing all that is reasonably practicable to ensure safety. As an extension to EAP, Adelaide Brighton advocates and supports active participation in R U OK? day, a national day of action in September each year dedicated to reminding people to ask family, friends and colleagues To build on our commitment to transport the question safety, Adelaide Brighton’s CoR Working Group successfully delivered on the “R U OK?”, in a meaningful way. following objectives: 6.0 4.5 3.0 1.5 0 14 15 16 17 18 Concrete and aggregates Concrete products Cement and lime Total Frequency Restricted duties injury frequency rate 40 30 20 10 0 14 15 16 17 18 Concrete and aggregates Concrete products Cement and lime Total % turnover Employee turnover by age group % of Employee turnover employees by gender Frequency Total recordable injury frequency rate 80 60 40 20 0 100 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 Female Male Continuers Turnover 60 45 30 15 0 14 15 16 17 18 Concrete and aggregates Concrete products Cement and lime Total Adelaide Brighton Ltd Annual Report 2018 27 People and diversity Dimity Smith Executive General Manager Human Resources and Heath, Safety and Environment Our Code of Conduct is based on the key > Demonstrate a high level of integrity values that guide and define how business and a clear drive to make a difference; is conducted and provides a set of guiding > Build trust and respect through energetic principles to help us make the right decision participation and the empowerment every time. of others; and > > We act with fairness, honesty and integrity; We provide a safe and healthy work environment for all employees; > Demonstrate a high level of leadership by gaining the commitment and confidence of others at all times > We are aware of and abide by laws and The principles are embedded into the regulations; employee lifecycle; recruitment, selection, > We maintain the highest standards of performance, succession and development. professional behaviour; and > We strive to be a good corporate citizen and to achieve community respect (by individually and collectively contributing to the well-being of shareholders, customers, the economy and the community). Our employees are expected to behave in a way that is consistent with the Adelaide Brighton Code of Conduct. This means employees: Regular performance discussions focus on what employees have achieved and how they have achieved. The ‘what’ and the ‘how’ are equally valued. The behaviours are crucial to the sustainable success of any team or business. The performance discussions encourage a shared understanding of what constitutes high performance and improves employee perceptions of fairness which motivates high performance. People priorities HR services Frontline leadership Talent management Enhance shared services capability, performance and scope to meet business requirements and self service Strengthen people management capability in frontline leaders Shape and manage talent to enable high performance sustainable business operations nsitio n Tra D e v e l o p m e n t R e c ruitment Employee life cycle Successi o n S e l e c t i o n e c n a P erform Employment by employment status Employee by contract status Full time Part time Casual Permanent Fixed term 28 Adelaide Brighton Ltd Annual Report 2018 Unique gift An innate gift that: > is highly observable to all those around them > cannot be learned through others or training > is used imaginatively Employee survey In 2018, more than 80% of our workforce completed an employee survey. The results tell us what our workforce values in their working life; inform us on what we need to keep doing and the things we need to start doing. More than 80% of employees are proud to work for Adelaide Brighton and 76% would recommend this company as a great place to work. 79% of employees What makes leaders stand out ? Persistence > A pure determination to succeed > Never gives up > Resilience Charisma > Real charm, character and personality > Magnetism > Has an impact on their world Frontline management are comfortable voicing their ideas and More than 50% of our frontline leaders opinions, even if they are different from have completed frontline management others. 75% of employees receive the training developing essential skills and information and communication they need to do their job effectively. knowledge to enable them to lead their teams to sustained, improved business 96% of employees believe everyone is performance. responsible for safety and 89% state they Our blended coaching model has proven have access to the things they need to to be an effective way to learn and practice do their job safely. 87% feel free to new skills leading to more confi dent, discuss work hazards and safety issues better organised effective people leaders. freely and openly. This has resulted in frontline leaders willing We are committed to being a safe and inclusive workplace that values and promotes diversity. Receiving and acting on the feedback is an important part of being an inclusive workplace. to embrace diffi cult conversations in a timely manner and be skilful in creating an inclusive and collaborative work environment. Employment by geography Employment turnover by geography % employees on EBA vs staff Adelaide Brighton survey results 73% Engagement Creating opportunities for our leaders to engage with our workforce more regularly 88% Safety confi dence Continuing to increase awareness and personal ownership of safety in the workplace 76% Diversity and inclusion Creating opportunities to encourage and respond to the views of everyone in our workforce 69% Communication Working together to develop new ways to share and receive information South Australia New South Wales Western Australia Queensland Victoria Northern Territory Tasmania ACT EBA Staff South Australia New South Wales Western Australia Queensland Victoria Northern Territory Tasmania Adelaide Brighton Ltd Annual Report 2018 29 Diversity report Adelaide Brighton is committed to being an inclusive workplace that values and promotes diversity of skills, experience and cultural background. We recognise that an inclusive culture adds significant value through diversity and enables us to attract and retain the best people with the appropriate skills to contribute to the continuing success of our business. Our Diversity and Inclusion Policy outlines seven core objectives which form the foundations of our approach to diversity and upon which we measure our performance in this area. In addition to progress against these specific objectives, the Nomination, Remuneration and Governance Committee was renamed in 2018 to the People and Culture Committee to focus on delivery against its diversity objectives, and included a review and update of the Committee’s charter. An overview of these objectives, and our progress towards achieving these objectives during the 2018 financial year are set out below: Objectives Diversity measures to facilitate achievement of objectives Progress To promote a culture of diversity and inclusion Continue to embed our diversity policy and deployment of the plan to deliver progress towards achieving the objectives, approved by the Board and People and Culture Committee of Adelaide Brighton being relative to the industry structure in which the Company operates. Proactively engage with industry to enhance inclusion and increase diversity. Company-wide training in workplace policies (including diversity, anti-bullying and harassment, Equal Employment Opportunity). Recruitment sourcing strategies and practices deliver diverse candidate pools with employment decisions made without regard to factors that are not applicable to the inherent requirements of a position and unconscious gender bias does not influence outcomes. Promote Adelaide Brighton as a diverse employer with an inclusive culture. ABL mentoring program for high potential employees facilitated across the divisions to continue to develop inclusive leadership. Ensure performance, development and succession management processes support the career progression of individuals regardless of gender or cultural background. Sponsor or encourage professional networking, coaching programs and cross divisional projects to give employees the opportunity to connect with other professionals. To ensure that recruitment and selection processes seek out candidates from a diverse background, with selection decisions being based on merit Develop inclusive leaders who value diversity of opinions and challenge the status quo Build talent pipelines through investment in skills and capabilities 30 The Board and the People and Culture Committee discussed the Company’s diversity measures and reviewed progress towards achieving the objectives, to continue to develop an inclusive workplace culture that enables diversity to thrive. As a member of the Cement Concrete & Aggregates Australia (CCAA) and their Diversity Working Group, the Company contributed to the development of the CCAA Diversity Statement: Diversity and Inclusion in the Construction Materials Industry and the Diversity and Inclusion Action Plan to attract a diverse group of people to work in our industry. Online learning platform embedded across the business to provide an effective and accessible way for employees and contractors to complete inductions and training, complimenting face to face sessions. In addition, specific offerings launched also to support Company policies such as bullying and harassment. Recruitment coaching continues across the business to support and enable diverse candidate pools and increase awareness of unconscious bias. 19.5% of all new hires in 2018 were female with 16.8% of staff roles filled by successful female candidates. Initiatives to increase the number of female applicants applying for typically male dominated roles included; online videos showcasing our female employees on the job, advertising our flexibility options and the availability of training for candidates without prior experience. 83.9% of roles advertised in 2018 attracted female applicants, more than a 17% increase compared to 2017. Mentoring program embedded across the business to develop, inspire and support the next generation. Mentors and mentees attend workshop training, webinars and 1:1 coaching sessions for a shared positive mentoring experience. Leadership talent priorities include building understanding and accountability to demonstrate inclusiveness and adapting leadership style to obtain maximum contribution from all employees. Development programs are provided for individuals as part of ‘Our Business My Potential’ program. Talent and succession management process proactively challenges and promotes gender representation. Investment in frontline management has enabled more than 50% of frontline leaders to complete FastLead training building confidence, capability and an openness to learning. When needs are identified, coaching programs are supported across the business. Pilot program successfully delivered in the Concrete Products Division where identified high performers were provided with a program to inspire curiosity, innovation and networking with site visits across the entire business. An ABL program with CEO sponsorship will be launched in 2019. Adelaide Brighton Ltd Annual Report 2018Objectives Diversity measures to facilitate achievement of objectives Progress Sponsor MBA or post-graduate studies for high potential employees. Adelaide Brighton supports external study and development for high potential employees. Build talent pipelines through investment in skills and capabilities (continued) In recognition of the low numbers of females entering into engineering and manufacturing vocations and to increase the diversity of our workforce: > implement programs designed to engage graduate engineers; > offer undergraduate scholarship opportunities and sponsor vacation work programs to engage students who are entering tertiary education to consider engineering as a career option; > offer opportunities for high school students to become aware of diverse career opportunities within our industry. To reward and remunerate fairly Adelaide Brighton has a policy to provide equal pay for equal work. 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. 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. Adelaide Brighton offers 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. Understand the diversity of our workforce Measure age, gender, and cultural identity of our workforce. Electrical Engineering scholarship in place at University of Wollongong in 2018 that provides a female student both a financial benefit and a work placement opportunity. Engineering scholarships across multiple year groups are in place at University of Adelaide for female students. Sponsorship of STEM Program (Science, Technology, Engineering and Math) for Year 10 and 11 high school students. Vacation programs in place in Adelaide, Perth and Sydney. Participation in Kwinana Industries Council iWomen and iScience projects. Sponsorship of the SA Law Society Indigenous Law Student Mentoring Program and establishment of a Scholarship for an indigenous high school student at St Peter’s College in Adelaide. Support of the Aurora Foundation Aspiration Initiative designed to enhance academic achievement for Aboriginal and Torres Strait Islander secondary school students. The gender pay parity review was completed in 2018 as part of Adelaide Brighton’s annual remuneration review processes indicating that within groupings, the Group achieved pay parity. Methodology and training supporting the staff remuneration framework, the Mercer International Position Evaluation (IPE), is embedded in the hiring process. Flexibility is offered to women returning from maternity leave including reduced hours to assist the transition back to the workplace. Flexibility is also offered to employees who may have temporary domestic responsibilities and require a change in working arrangements. 7.3% of the workforce have a part time or casual work arrangement. 16 employees have taken ‘Paternity Leave’ in 2018. Analysis of results from 2018 employee survey of cultural identity, plus diversity data is collected from candidates during the recruitment process. Member of Cement Concrete & Aggregates Australia (CCAA) Diversity Working Group. Adelaide Brighton is committed to the in the building, manufacturing and The following table shows the proportional regular review of its objectives to ensure construction materials industries in which representation of women employees at that these continue to be appropriate and we operate. We recognise that the available various levels within the Adelaide Brighton relevant. This commitment includes the pool of female candidates in manufacturing Group (as at 31 December 2018): completion of the workplace profile report and engineering roles relevant to our as required by the Workplace Gender business operations is limited, and this % Male Female Equality Act 2012. impacts our ability to increase the number Board 29.0 A copy of the workplace profile report is available in the ‘Our Responsibilities’ section of our website at www.adbri.com.au/ ourresponsibilities#reporting. The Board is committed to build upon the achievements to date and reinforce the continued efforts in promoting and cultivating a culture of diversity and inclusiveness. 5 7 2 1 of female new hires. In an effort to make our Company (and industry) more Senior executives 12.5 attractive to women, we have focused Senior managers 26.8 30 11 on measures designed to increase the (direct reports to senior executives) proportion of female candidates, graduates and to support the development of female employees who are recognised as having Total workforce 13.5 1,357 211 future potential. We believe that, over A copy of Adelaide Brighton’s Diversity time, our diversity objectives and measures and Inclusion Policy is available in the The proportion of women across Adelaide will achieve an improvement in the level corporate governance section of Brighton’s workforce is reflective of the of female representation and inclusiveness Adelaide Brighton’s website. generally low level of female representation across the organisation. 31 Adelaide Brighton Ltd Annual Report 2018 Tax transparency report This Report is prepared in accordance with The ETR is presented under three scenarios Effective tax rate Adelaide Brighton’s voluntary adoption of below: accounting profi t; accounting profi t the Tax Transparency Code and provides excluding equity accounted earnings; % 2018 2017 information regarding Adelaide Brighton’s and accounting profi t excluding equity Australian operations 26.7 27.7 tax contribution, its approach to tax strategy accounted earnings and income tax and governance, and its international expense excluding capital losses recognised. related party dealings during the year ended The reason for this is to provide maximum 31 December 2018. Adelaide Brighton transparency. publishes this Report on a voluntary basis as part of its commitment to tax transparency. Effective company tax rate In accordance with accounting standards, the share of after tax profi ts generated by Adelaide Brighton’s joint ventures and associates is recognised by the Group in Australian operations - excluding equity accounted earnings 29.7 29.8 Australian operations - excluding equity accounted earnings and capital losses recognised 29.8 29.9 The Australian full company tax rate is the income statement. Adelaide Brighton Global operations 26.7 27.5 currently 30% of taxable income. Taxable also maintains a balance of capital losses income represents gross income minus that may be recouped to offset capital gains amounts that are treated as deductible incurred for tax purposes. During the year or exempt under the tax law. ended 31 December 2018 $0.3m of capital Global operations - excluding equity accounted earnings 29.7 29.8 The Effective Tax Rate (“ETR”), that is expense divided by profi t before tax, for Adelaide Brighton’s Australian operations is 26.7% for the year ended 31 December 2018. losses were recognised to offset capital Global operations - gains. The inclusion of equity accounted excluding equity accounted earnings in accounting profi t, and the earnings and capital losses inclusion of capital losses recognised in recognised 29.8 29.9 income tax expense, may distort the ETR and removing these items from the ETR The ETR differs to the company tax rate provides a more transparent representation. due to non-temporary differences, which represent amounts that are recognised as assessable or deductible for accounting purposes or tax purposes, but not both. The global ETR recognises the accounting profi t/loss attributable to Adelaide Brighton’s minority interest in our Malaysian based associate. During the year ended Income tax expense is an accounting 31 December 2018, the accounting concept that is different to income tax profi t attributable to our Malaysian based payable. Income tax expense refl ects the associate had only a minor effect on the amount of income that is assessable for ETR, which is not visible due to rounding. tax purposes regardless of the timing of For this reason, the ETR for the Australian the assessability. In contrast, income tax operations and the global operations payable refl ects the amount of income that appears the same for the year ended is assessable in the current year. 31 December 2018. Additional information in relation to Adelaide Brighton’s international related party dealings is provided under Part B of this Report. % Adelaide Brighton Ltd 2018 effective tax rate 40 30 20 10 0 ETR ETR excluding equity accounted earnings ETR excluding equity accounted earnings and losses recognised Australian operations Global operations Australian corporate tax rate Adjusting for equity accounted earnings and capital losses not previously recognised, Adelaide Brighton has an effective tax rate of 29.8% percent for the year ended 31 December 2018. 32 Adelaide Brighton Ltd Annual Report 2018 Reconciliation of accounting profit to income tax expense and income tax payable The reconciliation of accounting profit to income tax expense and income tax payable contained in this Report is published in a summarised form in Note 7 in the 2018 Financial Statements. As Adelaide Brighton holds a minority interest in APM, it does not have effective control of APM nor is it involved in the day to day management of the company. In addition, the Shareholders’ Agreement specifically requires that any related party $ million 2018 2017 agreements, arrangements or dealings must Accounting profit before tax 251.0 254.2 be on arm’s length terms as if conducted by two independent parties. As a result Prima facie tax payable (at 30 percent) 75.3 76.3 of these measures, Adelaide Brighton’s Tax effect of non-temporary differences (at 30%): Non-allowable expenses Non-assessable income Rebateable dividends Non assessable non-exempt dividends Other deductions Previously unrecognised capital losses Income tax expense Tax effect of temporary differences (at 30%): Higher accounting depreciation compared to tax depreciation Timing of deduction for consumables Timing of deduction for provisions Recognised tax losses deductible against taxable income Deduction for accruals on payment Timing of deduction of prepayments Foreign currency income not yet realised for tax Other timing differences Income tax payable 0.5 (2.2) (5.3) (0.4) (0.8) (0.1) 67.0 1.5 (2.6) (0.8) 0 (0.2) (0.1) 0.1 (0.4) 64.5 2.6 (3.4) (4.6) 0 (0.7) (0.3) 69.9 1.2 (0.7) 0.1 (0.3) 0.6 (2.5) 0 3.5 71.8 Identification of material temporary Adelaide Brighton is committed to being dealings with APM, which are limited to the purchase of clinker, are conducted on a commercial arm’s length basis. Tax contribution summary Adelaide Brighton paid/will pay in excess of $85 million in Commonwealth, state and territory taxes in respect of the 2018 year. Taxes borne by Adelaide Brighton $ million 2018 2017 Corporate income tax1 Fringe benefits tax2 Payroll tax 3 Property tax Total 64.5 1.2 9.0 0.9 71.0 4 1.2 8.8 2.2 5 75.6 83.2 1 Corporate income tax paid is based on the year-end provision and will be finalised when the income tax return for the year ended 31 December 2018 is due for lodgement in mid-2019. 2 Fringe benefits tax paid in respect of the year and non-temporary differences a responsible corporate citizen and actively ended 31 March 2018. Material adjustments for non-temporary items that reduce income tax expense relate primarily to differences in the accounting seeks to contribute to the well-being of shareholders, customers, the economy and the community. and tax treatment of income derived from Adelaide Brighton reflects these joint ventures and associated entities as commitments in its approach to taxation, outlined above. with a high focus on meeting its various 3 Payroll tax paid in respect of the year ended 30 June 2018. 4 Prior year income tax paid has been updated from the amount shown in the 2017 Report to reflect the final income tax liability per the income tax return which was due and lodged in mid-2018 (after the 2017 Report was published). 5 Prior year property tax paid has been updated tax obligations. Strong internal expertise from the amount shown in the 2017 Report to Adjustments for temporary differences relate to differences in the timing between an amount being derived/incurred for accounting purposes and the amount being assessable/deductible for tax purposes. During the year, temporary differences primarily related to differences in the timing of deductions for expenses such as depreciation, provisions, accruals, prepayments and consumables. and internal processes, combined with engagement of expert advisers, ensures Adelaide Brighton is fully compliant with its taxation obligations. Adelaide Brighton also seeks to maintain a professional and transparent relationship with taxation authorities. International related party dealings Adelaide Brighton has limited international Tax strategy and governance related party dealings. The Group holds a Adelaide Brighton is committed to the highest standards of corporate governance and its approach to taxation aligns with its Tax Risk Management and Governance Policy and Code of Conduct. 30% equity interest in Aalborg Portland Malaysia Sdn Bhd (APM), a manufacturer of white clinker and cement based in Ipoh, Malaysia. The majority 70% owner of APM is Aalborg Portland A/S, a Danish subsidiary of an Italian multinational cement and concrete producer, Cementir SpA. Adelaide Brighton is not related to Cementir SpA. reflect a stamp duty refund received after the 2017 Report was published. Adelaide Brighton also collected $55.3 million in net GST after input tax credits on behalf of taxation authorities. In this Report references to ‘Adelaide Brighton’, ‘the Group’ and ‘our’ refer to Adelaide Brighton Limited and its wholly owned subsidiaries. This Report has not been independently audited; however, disclosures made in Part A of this Report are consistent with disclosures made in the audited financial statements. 33 Adelaide Brighton Ltd Annual Report 2018 Corporate governance overview Marcus Clayton General Counsel and Company Secretary The Adelaide Brighton Ltd Board is Adelaide Brighton’s Corporate Governance committed to conducting the Company’s Statement which provides detailed business ethically and in accordance with information about governance at Adelaide high standards of corporate governance. Brighton is available on Adelaide Brighton To this end, the Board (together with the website at www.adbri.com.au Company’s management) regularly reviews the Company’s policies, practices and other Role of the Board arrangements governing and guiding the conduct of the Company and those acting on its behalf. The role of the Board of Directors is to protect and optimise the performance of the Company and its subsidiaries (Group). Adelaide Brighton confi rms it has followed The Board takes accountability for the ASX Corporate Governance Council’s reviewing and approving strategic direction, Principles and Recommendation (3rd edition) establishing policy, overseeing the fi nancial during the 2018 fi nancial year. position assessing approach to risk and monitoring the business and affairs of the Group on behalf of shareholders. Board Committees To assist the Board in fulfi lling its responsibilities, the Board has established a number of committees with responsibility for particular areas. Each committee has a specifi c charter, which are each available on the governance section of the Company’s website at www.adbri.com.au Adelaide Brighton’s Governance framework Shareholders Adelaide Brighton Ltd Board Safety, Health, Environment and Community Committee > > Monitors and oversees effectiveness of health, safety and environmental practices Corporate Social Responsibility and Sustainability Audit, Risk and Compliance Committee People and Culture Committee > > Financial reporting, internal and external audit Risk management > > > Assists and advises the Board on matters relating to Board and Committee membership Remuneration - Board, CEO and Managing Director and senior executives Diversity objectives Adelaide Brighton CEO > > Day-to-day management of the Company Development and implementation of the Company’s strategy Adelaide Brighton executive management 34 Adelaide Brighton Ltd Annual Report 2018 The Board is structured to add Timely and balanced disclosure In all cases, Directors and Offi cers are prohibited from trading in securities when they are in possession of ‘inside information’. The Share Trading Policy is available on the Company’s website at www.adbri.com.au Board succession planning The Board regularly reviews the size and composition of the Board to ensure the appropriate skills, perspective and expertise are represented. The skills matrix set out below demonstrates the skills, experience and diversity of the non-executive Directors in offi ce as at the date of this report. The Board will also utilise the Board skills matrix review process to identify areas where non-executive Directors would benefi t from further professional development. Diversity The Board, having adopted a Diversity and Inclusion Policy, has established measurable diversity objectives to enhance gender and other diversity across the organisation. Information about the Group’s diversity objectives and progress is set out in the Diversity Report on page 30-31 of this Annual Report. value and Board decision making is enhanced through education and support The Company is committed to providing relevant and timely information to its shareholders and to the broader market, > The Board ensures that its members in accordance with its obligations under have the time and commitment to the Corporations Act 2001 and the ASX devote to the role. continuous disclosure regime. > The Board is committed to a majority of independent views being brought to bear in decision making. > Comprehensive induction processes equip Directors to perform in their role. > Confl icts are managed - protocols around disclosure, and procedures around management of potential confl icts have been adopted. > Board members have access to management and independent advice to assist in discharge of their duties. > Board and Director performance is regularly evaluated to facilitate continuous improvement. > The Board keeps informed of The Company’s Continuous Disclosure Policy is available on the Company’s website at www.adbri.com.au. It sets out guidelines and processes to be followed in order to ensure that the Company’s continuous disclosure obligations are met. These policies and procedures are supplemented by the Shareholder Communications Policy which includes arrangements the Company has in place to promote communication with shareholders and encourage effective participation at general meetings. Shareholdings of Directors and employees regulatory and industry developments Directors and Offi cers may not buy or sell to challenge status quo and strengthen Adelaide Brighton shares except during knowledge base. specifi ed periods (known as ‘Trading Windows’) provided that prior approval is obtained. Our Share Trading Policy also defi nes certain periods where trading is not permitted under any circumstances (known as ‘Blackout Periods’). Skills, experience and diversity Management and leadership Experience in relevant industries Strategy /Risk Financial understanding and capability Global experience Governance, compliance and regulatory Remuneration Male Female 1 2 3 4 5 6 Non-executive Directors Adelaide Brighton Ltd Annual Report 2018 35 Directors Zlatko Todorcevski Raymond Barro Ken Scott-Mackenzie Arlene Tansey Vanessa Guthrie Geoff Tarrant MBA, BCom, FCPA, FGIA Age 51 BBus, CPA, FGIA, FCIS Age 57 BE(Mining), Dip Law Age 68 FAICD, MBA, JD, BBA Age 61 Hon DSc, PhD, BSc (Hons) Age 58 BBus Age 50 Experience Experience Experience Experience Experience Experience Non-executive Director since February 2018. Finance executive with over 25 years’ experience gained in Australia, the United Kingdom and Asia. Currently engaged in a corporate finance consultancy role with Deutsche Bank. Special responsibilities Member, Audit, Risk and Compliance Committee (appointed 4 July 2018). Non-executive Director since August 2008. Over 28 years’ experience in the premixed concrete and construction materials industry. Managing Director of Barro Group Pty Ltd. Special responsibilities Member, Safety, Health, Environment and Community Committee. Independent non- executive Director since March 2017. Experienced global executive with more than 30 years’ experience in the oil and gas, logistics and manufacturing sectors gained in Australia and overseas with a background in finance, strategy and planning. Former Chief Financial Officer of Brambles, Oil Search Limited and BHP Billiton’s Energy business. Director, The Star Entertainment Group Limited (appointed in May 2018) and Coles Group Limited (appointed November 2018). Special responsibilities Appointed Chairman 17 May 2018. Member, Audit, Risk and Compliance Committee. Member, People and Culture Committee (appointed 16 November 2017 - ceased 4 July 2018). 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. Former Chief Executive Officer of Abigroup and then Bilfinger Berger Australia, the holding company of Abigroup, Baulderstone and Bilfinger Berger Services. Special responsibilities Chairman, Safety, Health, Environment and Community Committee. Member, People and Culture Committee. Independent non- executive Director since February 2018. Extensive experience in the mining and resources industry. Previous CEO and Managing Director of Toro Energy Limited (ceased Dec 2016), and former Director Vimy Resources Limited (appointed October 2017 and ceased November 2018) and former Vice President Sustainable Development at Woodside Energy. Director of Santos Limited (appointed July 2017). Special responsibilities Chairman, People and Culture Committee (appointed 16 May 2018). Member, Safety, Health, Environment and Community Committee (appointed 4 July 2018). 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, Healius Limited (formerly Primary Health Care Limited - appointed August 2012) and Aristocrat Leisure Limited (appointed July 2016). Former Chairman of Future Fibre Technologies Limited (appointed March 2015 and resigned in October 2016) and Urbanise.com Limited (appointed June 2014 and resigned in October 2016). Special responsibilities Chairman, Audit, Risk and Compliance Committee (appointed 16 May 2018). Member, People and Culture Committee. 36 Adelaide Brighton Ltd Annual Report 2018 Financial statements Adelaide Brighton Ltd Annual Report 2018 37 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Financial statements contents Directors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Remuneration report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Notes to the financial report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 1 Summary of significant accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Financial performance overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 2 Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 3 Critical accounting estimates and assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 4 5 6 7 Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Revenue from contracts with customers and other income . . . . . . . . . . . . . . . . . . . . . . 82 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 8 Note to statement of cashflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Balance sheet items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 9 Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 10 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 11 Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 12 Assets classified as held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 13 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 14 Impairment tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 15 Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 Capital structure and risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 16 Borrowings and lease commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 17 Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 18 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 19 Reserves and retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 20 Financial risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Group structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 21 Joint arrangements and associate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 22 Subsidiaries and transactions with non-controlling interests . . . . . . . . . . . . . . . . . . . . . 105 23 Deed of cross guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 24 Parent entity financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107 25 Retirement benefit obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 26 Share-based payment plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 27 Related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 28 Events occurring after the balance sheet date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 29 Commitments for capital expenditure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 30 Remuneration of auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 31 Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 Directors’ declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Auditor’s Independence Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 Independent auditor’s report to the members of Adelaide Brighton Ltd . . . . . . . . . 118 Information for shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 38 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Directors’ report The Directors present their report on the Statutory results consolidated entity (the Group) consisting of Adelaide Brighton Limited (the Company) and the entities it controlled at the end of, or during, the year ended 31 December 2018 . 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: Z Todorcevski RD Barro VA Guthrie (appointed 8 February 2018) KB Scott-Mackenzie AM Tansey GR Tarrant (appointed 8 February 2018) LV Hosking (retired 16 May 2018) GF Pettigrew (retired 17 May 2018) M Brydon (retired 30 January 2019) Principal activities During the year the principal activities of the Group consisted of the manufacture and distribution of cement, and cementitious products, lime, premixed concrete, aggregates, sand and concrete products . Consolidated 2018 $ million Restated 1 2017 $ million 1,559 .6 Revenue from contracts with customers Earnings before interest, tax, depreciation and amortisation 350 .1 Earnings before interest, tax, depreciation and amortisation 352.8 350 .1 (82 .5) Depreciation and amortisation 1,630.6 352.8 (87.4) Earnings before interest and tax (“EBIT”) Net finance cost2 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 dividend per share (cents) Special dividend per share (cents) Franking (%) Net debt 3 ($ million) Leverage4 ratio (times) Net debt/equity (%) 265.4 (14.4) 251.0 (65.8) 185.2 185.3 (0.1) 28.5 20.0 8.0 100.0 424.8 1.2 34.1 267 .6 (12 .1) 255 .5 (72 .7) 182 .8 182 .7 0 .1 28 .1 20 .5 4 .0 100 .0 371 .6 1 .1 29 .8 The results were impacted by a number of significant items . The table below sets out the underlying financial results for the year ended 31 December 2018 which have been adjusted for the significant items . An explanation of the significant items and reconciliation to statutory results is provided on page 44 . Review of operations Underlying results A summary of the financial results for the year ended 31 December 2018 is set out below: Consolidated 2018 $ million Restated 1 2017 $ million Revenue from contracts with customers 1,630.6 1,559 .6 Earnings before interest, tax, depreciation and amortisation Depreciation and amortisation 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) Net profit after tax 360.9 (87.4) 273.5 (14.4) 259.1 (68.2) 190.9 191.0 0.1 29.4 372 .4 (82 .5) 289 .9 (12 .1) 277 .8 (79 .3) 198 .5 198 .4 (0 .1) 30 .5 Full year reported net profit after tax (NPAT) increased 1 .4% on 2017, to $185 .3 million . Underlying NPAT declined 3 .7% from $198 .4 million in 2017 to $191 .0 million . Property profits contributed $0 .9 million to NPAT in the year, compared to $8 .4 million in 2017 . 1 Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018 . As a result of the changes, prior year financial statements were restated . 2 Net finance cost is the net of finance costs shown gross in the Income Statement with interest income included in other income . 3 Net debt is calculated as total borrowings less cash and cash equivalents . 4 Leverage ratio is net debt / trailing 12 months EBITDA . 39 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. Revenue from contracts with customers > Senior management appointments - Prices were higher compared to 2017 in the Full year revenue of $1,630 .6 million, was Chief Executive Officer, Chief Financial majority of markets, particularly the eastern 4 .6% higher than 2017, supported by Officer and internal promotion of states . Increased competitive pressures continued growth in east coast markets, Executive General Manager - Concrete emerged in the South Australian market improved pricing and the contribution of and Aggregates . from imported bulk bag product . Adelaide acquisitions completed in 2017 . Excluding > Demand expected to be broadly Brighton’s weighted average cement price the acquisitions completed in 2017, revenue stable in 2019, with lower demand declined in 2018 as a result of sales mix increased 2 .6% on 2017 . from residential construction offset by toward lower price markets . Volumes for granulated blast furnace slag increased following the securing of further long term contracts, albeit at lower prices . Operations - Margins pressured by lower volumes and import costs Lower cement volumes in 2H18, combined with a change in product sales mix and increased import costs resulted in a decline in cement margins . In South Australia, a five year agreement for the supply of electricity delivered savings during 2018 that more than offset higher gas costs . Adelaide Brighton continues to pursue its strategy of increasing the use of alternative fuels and alternative cementitious products to reduce energy costs and carbon emissions, led by the Birkenhead plant in South Australia . During the first half of 2018, cement milling was disrupted due to the temporary failure of a mill bearing in the Birkenhead plant . The financial impact of this was largely offset by an insurance claim and the settlement receipts of $4 .6 million . Import costs increased, due to higher shipping and material procurement costs . The value of expected imports is hedged through to the end of June 2019 . Clinker sales volumes declined, due to Sunstate Cement’s other shareholder electing to supply their 50% entitlement to the Joint Venture’s clinker requirements . Offsetting this, Adelaide Brighton now supplies all of the clinker via import contracts to its own wholly owned grinding facility in Port Kembla, New South Wales . Earnings before interest and tax Earnings before interest and tax (EBIT) decreased 0 .8% in 2018 to $265 .4 million . Underlying EBIT, which excludes restructuring and transaction costs, declined 5 .7% to $273 .5 million . Underlying EBIT was impacted by lower cement earnings, improved demand from infrastructure and non-residential projects . > Stable demand environment anticipated to be supportive of announced price increases . Demand overview In 2018, the demand environment remained due to market mix changes and the increase generally favourable, with demand for in energy costs more than offsetting earnings growth in concrete, aggregates and joint ventures . Cash flow and debt Operating cash flow increased 9 .1% to $244 .7 million - higher sales coupled with improved receivables processes and working capital management . Net debt increased to $424 .8 million at year end, as a consequence of ongoing capital investment and a high dividend payout ratio . Net debt to equity gearing was 34 .1% at period end, up from 29 .8% at 31 December 2017 . The leverage ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) was 1 .2 times at year end . This leverage ratio is towards the bottom end of the board’s target range, while gearing is near the mid-point . Shareholder returns Basic earnings per share (EPS) increased 1 .4% on 2017 to 28 .5 cents, reflecting underlying EPS of 29 .4 cents . Final ordinary dividend of 11 .0 cents per share (franked to 100%), compared to 12 .0 cents per share for FY17 . Final special dividend of 4 .0 cents per share (franked to 100%), compared to 4 .0 cents for FY17 . Strategy and outlook > Focus on realising further benefits from unchanged corporate strategy: cost reduction and operational improvement; growth of the lime business; and focussed and relevant vertical integration . Strategy on track and relevant to growing shareholder value . construction materials in New South Wales and Victoria robust . Demand in South Australia, Queensland and Northern Territory was stable, while demand in Western Australia declined . Overall, residential construction activity remained healthy during the year and the non-residential, engineering and infrastructure sectors1 continued to improve, with several major infrastructure projects moving from early stage works to construction . Demand for lime from the resources sector was stable on 2017 . In 2018, Adelaide Brighton is estimated to have generated revenue from key sectors of the Australian economy as follows: > Engineering and infrastructure construction 32% > Residential building 32% > Non-residential building 22% > Mining and resources 14% Cement and clinker Sales - Demand strong on east coast In 2018, total cement sales volumes increased 1 .1% compared to 2017 . Demand remained strong in Melbourne and Sydney, with continued demand from residential construction supported by the commencement of the construction phase of major infrastructure projects . Non-residential development such as office towers, further supported sales in these markets . Sales volumes declined in South Australia, as higher mining volumes were offset by subdued project volumes . Western Australian volumes were lower as the market remained subdued . 1 Non-residential building includes education, health, office, retail, hotels and factories, while infrastructure includes roads, bridges and railways . 40 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Lime Concrete Products Mawson Group (Mawsons) (50%) Sales - Volumes stable Sales - Mixed demand across regions Lime sales volumes were stable in Concrete Products revenue was flat 2018 . Adelaide Brighton continued to compared to 2017 . Volumes decreased successfully defend its market position with slightly over the prior year largely due to reliable, high quality and cost competitive reduced commercial sales in Queensland . domestic production . Sales volumes improved in the majority of Average lime prices were lower compared to other markets . Mawsons is the largest premixed concrete and quarry operator in northern regional Victoria, and also operates in southern regional New South Wales . Mawsons is a significant aggregates producer in the region, holding number one and number two positions in the markets it serves . Mawsons’ contribution to earnings 2017, due to both sales mix and contractual A focus on selling prices resulted in average improved 4 .3% to $7 .2 million . Concrete pricing arrangements . prices increasing across all regions . sales volumes improved during the year Operations - Energy costs increase Operations - Business enhancements The renewal of a contract for coal fuel in continue Western Australia resulted in higher energy The Concrete Products business continues costs from 1 January 2018 which impacted to focus efforts around operational lime margins in 1H18, however these were improvement, product innovation due to demand from major regional infrastructure projects, while aggregate volumes were in line with the prior year . Aggregate selling prices improved while concrete prices moderated marginally . partially offset by higher prices in 2H18 and developing new market segment Aalborg Portland Malaysia Sdn. Bhd. and the benefit from renegotiated gas opportunities . In 2H18, a number of plant (Aalborg) (30%) supply contract . upgrades were undertaken to reduce energy Aalborg manufactures and sells white Concrete and Aggregates Sales - Strong growth in sales volumes In 2018, concrete volumes increased by 14%, compared to 2017 . Excluding the impact of acquisitions completed in 2017, concrete volumes grew by approximately 9% . All markets improved, with volume growth strongest in the east coast markets . Average concrete prices increased compared to 2017 . In 2018, aggregate volumes increased 10%, costs, lift plant efficiencies and facilitate cement and clinker for the domestic the launch of a number of products into Malaysian markets and exports to Australia emerging market opportunities . and markets throughout south east Asia . Lower revenue and the calibration of production volumes to match sales led to higher costs due to reduced fixed cost recovery, offsetting the benefits from cost controls . While overall EBIT increased 4 .9% to $10 .7 million, this included $1 .3 million in property profits (2017: nil) . Improved sales volumes were offset by higher distribution and materials costs, as well as adverse movement in regional exchange rates . Strategic Developments Adelaide Brighton continues a successful long term strategy to grow shareholder Joint arrangements and associates returns through investment in three assisted by strong east coast markets and Independent Cement and Lime Pty Ltd key areas: acquisitions . Aggregate prices increased in (ICL) (50%) 1 Cost reduction and operational the majority of markets over the year, but ICL is a specialist supplier of cement and improvement; the supply of a significant volume of lower cement blended products to a wide variety value fill material to the early stages of of industries and retail outlets throughout infrastructure projects resulted in slightly Victoria and New South Wales and is 2 Growth of the lime business to supply the resources sector; and lower average realised prices and a decline Adelaide Brighton’s distributor in those 3 Focussed and relevant integration into in quarry margins . Sales of higher value markets . Strong demand across Victoria aggregates, concrete, logistics and aggregates are expected to increase as these and New South Wales resulted in increased masonry businesses . projects progress, assisting average selling volumes and prices, resulting in ICL’s prices and margins . contribution increasing 21% on 2017 to Operations - Acquisitions delivering $17 .8 million . Efficiency has remained a driver of shareholder returns with ongoing improvements in the cement manufacturing Concrete margins increased in 2018 on Sunstate Cement Limited (Sunstate) (50%) and logistics operations . higher volumes and prices . While average Sunstate is a joint venture with a cement aggregate margins declined due to fill sales, milling, storage and distribution facility margins increased in premium aggregates at Fisherman Islands, Port Brisbane . In a for concrete and asphalt making, supported competitive market that included reduced by increased volume and prices . offtake from our joint venture partner, The acquisition of the Central Pre-Mix, Davalan Concrete and the Northern Territory concrete and aggregates assets of Holcim in 2017 added further scale to Adelaide Brighton’s business . In 2018, these acquisitions provided growth in revenue and EBIT, and pull through benefits to the Group . Sunstate equity accounted earnings were in line with the prior year at $11 .6 million . Improved pricing and favourable material costs largely offset the impact of the lower volumes . Managing energy costs across the Adelaide Brighton operations remains an important focus and a significant opportunity for shareholder value creation, which includes the growing utilisation of alternative fuels and cementitious materials . 41 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.The lime business continues to benefit from The Company’s unique distribution network The portfolio of properties targeted for sale an emphasis on costs and efficiency . The affords significant scale economies and is projected to realise proceeds in excess of business is well positioned for long term opportunities to further improve efficiency . $100 million over the next 10 years . The growth in resources sector demand . A new long term contract with a domestic EBIT margin on these sales is anticipated to In addition to downstream acquisitions, pursuing organic opportunities has also been a driver of growth . In particular, the Group has a well established record of taking long term positions in strategic quarry resources and other greenfields investments that complement Adelaide Brighton’s operations . 1 Cost reduction and operational improvement Cost competitive manufacture and import model Adelaide Brighton remains Australia’s largest importer of cementitious materials (cement, clinker and blast furnace slag) . Utilising its import facilities in key markets across Australia, the company sources more than 2 .5 million tonnes of imported product per annum . shipping provider and the commissioning be circa 85% with an effective tax rate of of a new vessel by the supplier for approximately 20% . cement deliveries between Adelaide and Melbourne, together provide significant 2 Lime growth benefits to the logistics operations . The new Efficient operations with strong contract delivered savings of approximately competitive position $2 .0 million during 2018 and is expected to rise to $2 .5 million annually from 2019 . Adelaide Brighton’s Munster, Western Australia, lime business is underpinned Energy efficiency remains a key focus by low cost mineral resources secured Adelaide Brighton has a proactive strategy to manage energy costs and operating risks, by a State Agreement Act and long term statutory approvals . through measures including: The Munster lime plant is a low cost > A portfolio approach to energy supply and procurement benefits; > Long term contracts that lower electricity operation with two lime kilns, which are among the largest globally, and currently operates at 80% of capacity . costs i .e . a new five year contract signed for The Western Australian alumina sector, electricity from renewables; which includes some of the lowest cost > Increased use of alternative fuels to reduce alumina production in the world, represents reliance on traditional sources (targeting increased substitution of fuel supply in about 70% of Western Australian lime demand . Lime demand is expected to This industry leading position enhances South Australia in the medium term); grow over the medium term, in line with supply chain efficiency in procurement, > Increased use of alternative cementitious incremental output improvements and transport, storage and distribution . The materials e .g . slag; growth in the Western Australian resources use of imported materials allows the > Short term consumption management sector . Adelaide Brighton’s leading cost supply of competitively priced product through operational adjustments; position and substantial capacity means it is into a range of markets where demand > A proactive approach to cost recovery in well placed to benefit from this growth . exceeds the Company’s manufacturing the marketplace, supported by vertical capacity . It enables Adelaide Brighton’s integration, and through partnership 3 Downstream integration domestic production assets to operate at full contracts with long term customers; and Growth continues in concrete utilisation, which underpins its competitive > Hedging and other financial strategies, and aggregates position and shareholder returns . where it adds value for shareholders . Adelaide Brighton continues to actively The import strategy is supported by long The 2017 rationalisation of oil well cement pursue its strategy of building, via term agreements with two Japanese production at Angaston in South Australia acquisitions and organic growth, quality suppliers for grey clinker: Aalborg for white and the leveraging of the supply network concrete and aggregate businesses that clinker and a major Japanese trading house has improved the energy efficiency of the enhance its long term competitive position for supply of granulated blast furnace slag . South Australian cement operations as well and shareholder value . Over the last decade, Adelaide Brighton also has a leading as returns . position in the supply of supplementary Land sales program to release capital cementitious materials including ground over the next decade granulated blast furnace slag and fly ash . Adelaide Brighton has been actively The use of supplementary cementitious engaged in selling and preparing for sale materials in the production of concrete can properties released by its operational enhance durability, while reducing both the rationalisation and improvement program . consumption of natural resources and the Since the beginning of 2013, proceeds from environmental impact from disposal of these the property sale program have totalled industrial by-products . $100 million . it has built a concrete and aggregates business of scale that offers strong regional positions and strategic aggregates reserves that underpin returns to shareholders . The business is complementary to the cement and lime operations and provides attractive diversification benefits as well as value creation through cost synergies, logistics benefits and raw materials pull through . Adelaide Brighton’s investment approach includes a preference for long term quarry reserves, identifying clear opportunities for synergies and a disciplined approach to investment . 42 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.On a national perspective, Adelaide Organic projects an important Net debt and gearing - conservative Brighton has a number four position in contributor to growth approach concrete and aggregates with operations in all mainland capitals, excluding Western Australia, and many significant regional centres . Given the high cost of transporting concrete and aggregates long distances, and the perishable nature of premixed concrete, markets tend to be highly localised with In addition to acquisitions, organic growth has been a key growth driver in many markets, with a well established Adelaide Brighton has a conservative approach to capital management with the following broad objectives: strategy of taking long term positions on > Ensure an efficient balance sheet to strategic quarry resources and assets that optimise cost of capital and thereby complement Adelaide Brighton operations . shareholder returns through utilisation of a leading positions in local markets affording Organic projects recently completed include scale benefits . As such, Adelaide Brighton a state-of-the-art indoor concrete plant in aims to establish a leading market position Alexandria, New South Wales, servicing within local markets . Adelaide Brighton’s Austen Quarry at Hartley, west of Sydney, is a low cost aggregate the high growth inner west Sydney market and a concrete plant in Larapinta, south of Brisbane . quarry supplying the Sydney market with Other projects underway include a concrete construction materials . Adelaide Brighton plant at Swanbank in Brisbane and a hard recently received Development Consent to rock quarry at Gympie, Queensland, to prudent level of debt; > Maintain an investment grade rating to optimise funding cost; > Retain balance sheet flexibility to fund capital projects and acquisitions; and > Distribute surplus capital to shareholders in an efficient manner . Net debt at the end of the period was $424 .8 million . increase the sales volume limit of the hard service the Sunshine Coast market where When assessing capital requirements and rock quarry from 1 .2 mtpa to 1 .6 mtpa Adelaide Brighton already has a leadership balance sheet risk, Adelaide Brighton also and extend its hours of operation . The position in concrete . efficiency afforded by extended operating hours, particularly in transportation outside Financial Review of peak hour traffic, and the increase in the allowable annual sales volume, positions Strong cash flow Cash flow from operations increased by the quarry to supply customer demand $20 .5 million on 2017 to $244 .7 million, for construction materials in the growing supported by improvements to working Sydney market . capital management . considers a core measure of leverage ratio . This is the ratio of period end net debt to 12-month trailing Underlying EBITDA . This measure compares debt levels to recent cash generation rather than to historical book value . As such, it offers a more responsive measure of capital management and better reflects the Group’s ability to Long term diversification strategy Improved processes and management of service debt obligations . The Company’s diversification program has been underway for more than a decade, and in the last five years, Adelaide collections from customers resulted in a reduction in trade debtor balances despite higher revenue in the period . Under this measure, net debt was 1 .2 times 12-month trailing Underlying EBITDA at 31 December 2018 . The Board considers a Brighton invested more than $262 million Capital expenditure of $115 million declined leverage ratio of between 1 .0 to 2 .0 times in acquisitions . The businesses have $55 million compared to 2017, due to the 12-month trailing Underlying EBITDA is an yielded synergy savings from back office, timing of acquisition spending during the appropriate target range, which equates transport and materials pull through . These year, partially offset a higher investment to net debt to book equity range of acquisitions have met financial targets; they spending on development capital . In 2018, approximately 30% to 60% . have also diversified earnings and delivered capital expenditure occurred on 27 projects significant strategic benefits . above $1 million in value, comprising stay in Three acquisitions in 2017, in Victoria, South Australia and the Northern Territory, are in line with the Company’s strategy of business capex of $55 million, development projects of $58 million and acquisitions of $2 million . focussed value added vertical integration Proceeds from the sale of assets were in the concrete and aggregates businesses . $5 .3 million, a decline of $12 .4 million on The businesses, acquired at a total cost 2017, driven by the reduction in proceeds of $85 .2 million, complement existing from property sales . Dividend payments Adelaide Brighton operations in these increased by $32 .6 million over 2017 as a markets and are meeting earnings and result of the higher dividends declared . strategic expectations . The upper end of the range is within the intermediate band for credit rating purposes and therefore well within the investment grade band . The net debt to book equity gearing ratio was 34 .1% at 31 December 2018 and remains close to the midpoint of the target range of 25% to 45% . 43 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Funding facilities - financial flexibility Reconciliation of underlying profit The Company’s low gearing, strong cash “Underlying” measures of profit exclude significant items of revenue and expenses, such as flow and consistent returns provide it with the costs related to restructuring, rationalisation and acquisitions, in order to highlight the funding flexibility . underlying financial performance across reporting periods . Profits from the Company’s long In August 2018, Adelaide Brighton renewed its bank debt facilities that were to mature term land sales program are included in underlying profit despite the timing being difficult to predict . in January 2019 . In addition to extending The following table reconciles underlying earnings measures to statutory results . the maturity of the renewed facilities to January 2022, the facility limit was increased from $210 million to $260 million on similar pricing . The maturity date for the $330 million balance of the Company’s bank debt facilities remains unchanged at January 2021 . In total, Adelaide Brighton has bank debt facilities of $590 million spread across three of Australia’s major trading banks . The average tenure of the facilities has increased 2018 2017 Restated Full year ended 31 December $ million Statutory profit Rationalisation Corporate restructuring Acquisition expenses Fair value gain Doubtful debts Profit before Income tax tax Profit after tax 251.0 (65.8) 185.2 - 6.9 (1.4) - 2.6 - (2.0) 0.4 - (0.8) - 4.9 (1.0) - 1.8 Profit before Income tax 255 .5 3 .3 0 .8 5 .0 (4 .5) 17 .7 tax (72 .7) (1 .0) (0 .3) - - (5 .3) Profit after tax 182 .8 2 .3 0 .5 5 .0 (4 .5) 12 .4 from 2 .2 to 2 .4 years as a result of the Underlying profit 259.1 (68.2) 190.9 277 .8 (79 .3) 198 .5 Doubtful debts provision The prior year included a fair value gain In late 2017 Adelaide Brighton became of $4 .5 million on acquisitions during aware of certain financial discrepancies that period . Business Risks and Mitigation Adelaide Brighton’s risk management framework, as outlined in the Corporate Governance Statement, incorporates effective risk management into all facets of the business . Planning processes, including budgets and strategic plans, incorporate a risk management component . These are integrated into reports to the Board and respective Board Committees throughout the year . The key risks to the Adelaide Brighton Group and mitigation actions are outlined below . The risks are not set out in any particular order and do not comprise every risk we encounter in conducting our business . Rather, they are the most significant risks that we believe we should be monitoring and seeking to mitigate or otherwise manage at this point in time . facility renegotiation in 2018 . Maturity Limit January 2021 January 2022 $330 million $260 million Finance cost and tax - higher financing costs Net finance costs of $14 .4 million were $2 .3 million higher than 2017 . The increase was due to higher market interest rates and higher average borrowings . which relate to transactions whereby it had been underpaid for products supplied . The Company completed its analysis with the assistance of forensic accountants KPMG and recognised a provision for doubtful debts and costs in its 2017 results . Further costs relating to the recovery of unpaid The effective tax rate decreased from 28 .5% amounts have been incurred in the period of to 26 .2% due to the higher contribution $2 .6 million ($17 .7 million pcp inclusive of from post-tax earnings of joint ventures provision and costs) . and lower non-deductible expenses associated with acquisitions . Adelaide Brighton continues to expect its effective tax rate to be in the range of 27% to 28%, although this may be lower in periods when capital losses related to property sales are recognised . Dividends The Board has declared a final ordinary dividend of 11 .0 cents per share (12 .0 cents 2017) and a special dividend of 4 .0 cents Rationalisation of cement production Cement production at the Angaston site was rationalised in 2017 . As part of the rationalisation, employee redundancy costs of $3 .3 million were recognised in 2017 . Corporate restructuring costs Redundancies and one-off employment costs of $6 .9 million were recognised in 2018 ($0 .8 million pcp) . These costs result from staff restructuring within the Group . per share (4 .0 cents in 2017) . The full year Acquisition expenses and fair value gain ordinary dividend represents a payout ratio A refund of acquisitions costs paid in of 70 .2% and total dividends of 28 .0 cents the prior year resulted in the recognition for the 2018 year . The record date for the final ordinary and special dividend is 3 April 2019 with payment on 15 April 2019 . of $1 .4 million in the income statement (costs of $3 .8 million pcp) . The costs were associated with the acquisitions, including stamp duty, legal and other consulting costs, which will fluctuate with transaction activity . 44 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. Risk Details Mitigation Macro- economic conditions Regulatory compliance Adelaide Brighton supplies product to its Australian customers from local production sites across all states and territories, supplemented by imported product . Demand and supply conditions are therefore dependent upon economic conditions . Adelaide Brighton has diversified its business both geographically within Australia and through vertical integration . This diversity has balanced the exposure of the business to fluctuations across its customer base of construction, infrastructure and mining sectors . With production and distribution sites across all states and territories of Australia, Adelaide Brighton is subject to significant regulatory requirements across areas such as environmental, labour, occupational health and safety, and taxation laws . Non-compliance with regulatory requirements could lead to substantial penalties and impositions on operations . The Group employs a range of initiatives to meet or exceed regulatory compliance including: Employment of specialists to support operational staff in areas such as human resources, and health, safety and environment; Regular training and competency testing of employees; Inclusion of regulatory compliance within the internal audit scope; and Policies and procedures designed to instil and foster a culture going beyond mere compliance . > > > > Movement to a low carbon economy (climate change) The recognition of the impact of greenhouse gas emissions on climate change and the potential impacts on the environment have driven a movement toward a low carbon economy . A range of actions are being undertaken by governments, the corporate sector and individuals in recognition of climate change, including imposing a price on carbon and changes in product specifications . Adelaide Brighton’s strategy of cost reduction and operational improvement includes the focus on improved efficiency in the manufacturing process for clinker and lime . The program has delivered savings over a long time period, with further improvements anticipated which will reduce the emissions intensity of production . The focus on improvement has delivered a reduction in total scope 1 and scope 2 emissions of 30% since 2010 . Production of clinker, an intermediary product in the production of cement, and lime are carbon emissions intensive . The movement to a low carbon economy could potentially increase the cost of production and reduce demand . The Group is able to leverage its access to products from emissions efficient suppliers as a result of the Company’s import strategy . In addition, the use of alternate products with cementitious properties, such as fly ash and ground granulated slag, has increased . Adelaide Brighton is also working with partners in the development of alternate products to replace Portland cement . The Group is progressing an assessment of the implications of climate change in line with the recommendations released by the Task Force on Climate-related Financial Disclosures, and will be incorporated in Adelaide Brighton’s 2019 Sustainability Report . Energy pricing Foreign currency Production of cement and lime are energy intensive and consequently access to reliable, cost effective energy is required . Price and reliability are factors in the selection of suitable energy sources for production . The Group employs a portfolio approach to energy procurement, looking to diversify the sourcing risk at competitive prices . This portfolio approach has resulted in a mix of contracted arrangements for the supply of energy and spot purchases on trading markets . The Group imports a range of materials to supplement capacity of local production facilities, with approximately 2 .7 million tonnes of product imported in 2018 . As a result of these purchases primarily being denominated in United States Dollars and Japanese Yen, the Group is exposed to fluctuations in the strength in the Australian Dollar against these currencies . The Group manages exposure to foreign exchange risk through a formalised hedging policy . Committed purchases that expose the Group to foreign currency risk are hedged through agreed hedging products up to a period of nine months . In addition, where practical, contractual arrangements with suppliers include provisions to limit the risk of foreign currency to Adelaide Brighton . Competitive landscape Australia, with its relatively open access to global participants, is a competitive market . Heightened competition combined with fluctuations in the macro economic environment can impact upon the performance of the Group . Through a focus on cost control and improvement, the Group’s production facilities are efficient and competitive . These facilities are supported by a distribution network throughout Australia, ensuring that Adelaide Brighton can provide a competitive value offering to customers . Key equipment failure Production quality The production of cement and lime involves large scale manufacturing sites in order to obtain economies of scale . The failure of key equipment in the process can disrupt production . Business continuity planning identifies risks with key equipment and alternate strategies are developed to mitigate the risk including holding “insurance spares” of key equipment and contractual arrangements to supplement production where required . The Groups key products of cement, lime, concrete, aggregates and concrete products are sold in accordance with relevant quality standards . Materials used in production are natural products and therefore normal variability of the characteristics could result in fluctuations in quality of the end product . Products that do not meet the relevant quality standard could result in end use customers being financial disadvantaged . (Continued next page) The Group has quality assurance processes across all products, including the monitoring of inputs into the production process and testing of final product to ensure compliance with relevant standards . The skills of internal quality personnel are continually updated and supplemented by the use of external experts where required . 45 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. Risk Details Mitigation Trade credit Contractual arrangements with customers include the provision of short term trade credit for product supplied . The Group is therefore exposed to the credit risk for a portion of its sales . Changes in macro economic conditions and customer specific issues impacting cash flows available to settle purchases factor into the level of risk associated with trade credit outstanding . Fraud, bribery and corruption The Group operates in an environment that exposes it to the risk of loss from fraud, bribery and corruption . Operating in a commercial environment with the movement of funds into and out of the Company give rise to the risk that economic benefits can be obtained through inappropriate acts by employees, suppliers, customers or third parties . Trade credit risk is managed through assessment of individual customer credit limits in accordance with delegated authority levels approved by the Board, which is monitored along with ageing of balances outstanding . The Group’s Code of Conduct outlines the key principles that governs the Company’s behaviour and actions which make clear there is zero tolerance for practises considered as bribery, fraud or corruption . Employees and contractors are required to adhere to this code as part of their ongoing employment . Process controls are periodically reviewed to incorporate enhanced fraud, bribery and corruption prevention measures, which are tested through the internal audit program . Dividends paid or declared by Likely developments and expected Import material costs are anticipated to the Company results of operations During the 2018 financial year, the Adelaide Brighton continues to implement following dividends were paid: its successful and relevant long term increase circa $10 million, as a result of contractual price increases and a forecast lower value of the Australian Dollar against other major trading currencies . > A final dividend in respect of the year ended 31 December 2017 of 16 cents per share (fully franked) was paid on 13 April 2018 . This dividend totalled $104,043,599; and > An interim dividend in respect of the year ended 31 December 2018 of 13 cents per strategy for the growth of shareholder value through cost reduction and Capital expenditure is anticipated to be operational improvement; growth of the between $100 million and $120 million lime business; and focussed and relevant in 2019 . vertical integration, to support growth in shareholder returns . The Company will continue to pursue value accretive acquisitions in line with share (fully franked) was paid on 11 October In 2019 Adelaide Brighton expects overall our strategy . 2018 . This dividend totalled $84,579,379 . demand for construction materials to be Since the end of the financial year the Directors have approved the payment of a final dividend of 15 .0 cents per share (fully stable . Residential demand is anticipated to decline, largely offset by growth in non- residential, engineering and infrastructure . franked), comprising an ordinary dividend of Sales volumes of cement are anticipated 11 .0 cents per share and a special dividend to be stable . Demand in Western Australia of 4 .0 cents per share . The final dividend is and the Northern Territory is expected to to be paid on 15 April 2019 . be in line with 2018 . Higher demand from State of affairs Other than set out in the review of operations, no significant changes occurred in the state of affairs of the Group during the financial year . Events subsequent to the end of the financial year No matter or circumstance has arisen since 31 December 2018 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 . projects and mining will support volumes in South Australia . While variation in sector demand is likely, overall, Adelaide Brighton’s east coast markets are anticipated to remain at healthy levels in 2019 . Lime sales volume is expected to be flat in 2019, while prices are anticipated to increase under contractual provisions in supply contracts . Import pressures are expected to continue at similar levels . Adelaide Brighton announced price increases for all products across its product range effective 1 April 2019 . The demand environment is anticipated to be supportive of these increases . The joint venture operations in Australia should continue to enjoy healthy demand and rising prices, although the competitive landscape in Queensland could impact Sunstate Cement . Proceeds from the sale of land in the next 10 years are expected to realise in excess of $100 million, however no significant land sales are anticipated in 2019 . Adelaide Brighton aims to optimise shareholder returns by maintaining an efficient balance sheet, while retaining the flexibility to fund long term growth opportunities . Prudent capital management will remain an important part of this approach . Environmental performance The Group’s operations are subject to various Commonwealth, State and Territory environmental regulation . Environmental performance is monitored by each business division and site, and information about the Group’s performance is reported to and reviewed by the Group’s senior management, the Board’s Safety, Health, Environment and Community 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 . 46 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Group entities respond as required to Hy-Tec Industries (Queensland) Pty Ltd requests made by regulatory authorities, (Hy-Tec) self-reported to the Queensland including requests for information and Department of Natural Resources and Mines Directors’ interests site inspections . During 2018, Group entities were issued with regulatory notices issued by government authorities responsible for planning and environment matters . Group companies responded to regulatory notices (DR&M) that Hy-Tec’s concrete business in Mundubbera had been extracting sand from the Burnett River without a Quarry Material Allocation Notice . DR&M has foreshadowed it will investigate the matter, and Hy-Tec will co-operate with the investigation . as required and addressed issues raised by Adelaide Brighton Cement Limited (ABCL) regulatory authorities . received from the South Australian Z Todorcevski RD Barro VA Guthrie KB Scott-Mackenzie AM Tansey GR Tarrant M Brydon Ordinary shares 20,000 279,178,329 - 5,000 10,000 - 53,887 Adelaide Brighton Cement Ltd (ABCL) notified the NSW Environment Protection Authority (NSW EPA) in August 2018 of non-friable asbestos fragments which had been identified in what was certified to ABCL as Virgin Excavated Natural Material Department for Environment and Water a penalty of $136,059 .66 for taking 32,637 kL of water in excess of its 102,200 kL allocation of water at ABCL’s Penrice quarry for the year ended 30 June 2018 . ABCL has paid the penalty . Full details of the interests in share capital of Directors of the Company are set out in the Remuneration Report on pages 49 to 71 of this report . Director profiles delivered to the Morgan Ash Vales Point site . Further details of the Group’s environmental The NSW EPA is investigating . performance will be published in the 2018 Sustainability Report . Information relating to Directors’ qualifications, experience and special responsibilities are set out on page 36 of the Annual Report . Directors’ meetings 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: Director and executive remuneration Director Board Meetings Audit, Risk & People and Safety, Health, Compliance Committee Culture Committee 1 Environment & Community Committee 2 Z Todorcevski 3 RD Barro4 VA Guthrie5 KB Scott-Mackenzie 6 AM Tansey 7 GR Tarrant 8 LV Hosking9 GF Pettigrew 10 M Brydon A 13 12 12 12 12 12 4 7 13 H 13 13 13 13 13 13 6 7 13 A 4 - - 4 2 - 2 - A Number of meetings attended. H Number of meetings held during period of office. H 4 - - 4 2 - 2 - A 2 - 2 4 4 - 2 - H 2 - 2 4 4 - 2 - A - 2 1 2 - - 1 - H - 2 1 2 - - 1 - 1 People and Culture Committee was formerly named the Nomination, Remuneration and Governance Committee . Change of name effective 20 November 2018 . 2 Safety, Health, Environment and Community Committee formerly named Safety, Health and Environment Committee . Change of name effective 26 February 2019 . 3 With effect from 4 July 2018, Mr Todorcevski ceased to be a member of the People and Culture Committee . 4 At the request of the Board, Mr Barro excused himself from a meeting when the Board discussed matters on which he may have had a conflict . 5 Dr Guthrie was appointed a Director on 8 February 2018; Chairman of the People and Culture Committee on 16 May 2018 and member of the Audit, Risk and Compliance Committee on 4 July 2018 . Due to a pre-appointment commitment, Dr Guthrie was unable to attend one meeting . 6 Mr Scott-Mackenzie was out of telecommunications range at the time an unplanned Board meeting was convened at short notice . 7 Ms Tansey had previously informed the Chairman and Directors that she was unable to attend a meeting due to a prior commitment overseas . 8 Mr Tarrant was appointed a Director on 8 February 2018 and a member of the Audit, Risk and Compliance Committee on 4 July 2018 . At the request of the Board, Mr Tarrant excused himself from a meeting when the Board discussed matters on which he may have had a conflict . 9 Mr Hosking retired as a Director on 16 May 2018 . At the request of other Directors, Mr Hosking did not attend two meetings, excusing himself from the Board’s discussion on Chairman transition matters . 10 Mr Pettigrew retired as a Director on 17 May 2018 . Details of the Company’s remuneration policies and the nature and amount of the remuneration of the Directors and certain senior executives are set out in the Remuneration Report on pages 49 to 71 of this report . Company Secretaries The Company’s principal Company Secretary is Marcus Clayton, who has been employed by the Company in the two separate offices of General Counsel and Company Secretary since 24 February 2003 . He is a legal practitioner admitted in South Australia in 1987 . Two other employees of the Company also held the office of Company Secretary to assist with secretarial duties should the principal Company Secretary be absent: the Company’s former Chief Financial Officer, Michael Kelly, a Certified Practising Accountant who had been a Company Secretary since 23 November 2010 (resigned on 24 September 2018) and the Group’s Corporate Affairs Adviser, Luba Alexander, who has been a Company Secretary since 22 March 2001 . 47 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Indemnification and insurance Proceedings on behalf of Rounding off of officers the Company The Company is of a kind referred to in Rule 9 of the Company’s constitution No person has applied for leave of the ASIC Corporations (Rounding in Financial/ provides that the Company indemnifies each Court to bring proceedings on behalf of the Directors’ Reports) Instrument 2016/191 person who is or who has been an “officer” Company or to intervene in any proceedings relating to the “rounding off” of amounts of the Company on a full indemnity basis to which the Company is a party for the in the Directors’ report . In accordance with and to the full extent permitted by law, purpose of taking responsibility on behalf that instrument, amounts in the financial against liabilities incurred by that person in of the Company for all or any part of those report and Directors’ report have been their capacity as an officer of the Company proceedings . The Company was not a party rounded off to the nearest one hundred or of a related body corporate . to any such proceedings during the year . thousand dollars, unless otherwise stated . Rule 9 .1 of the constitution defines “officers” to mean: > 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 . Additionally the Company has entered into 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 Non-audit services Shares under option The Company may decide to employ the Unissued ordinary shares under option auditor on assignments additional to their relate to Awards associated with the statutory audit duties where the auditor’s Company’s Executive Performance Share experience and expertise with the Company Plan . Outstanding Awards at the date of this and the Group are important . report are as follows: Details of the amounts paid or payable to PricewaterhouseCoopers for audit and non-audit services provided during the year are set out in Note 30 to the Financial Statements on page 116 of this report . 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 the non-audit services is Date Awards Expiry granted date Number of Awards 1 January 2015 30 September 577,383 1 January 2016 1 January 2017 1 January 2018 2019 30 September 2020 30 September 2021 30 September 2022 518,972 440,054 142,357 1,678,766 liabilities incurred by the person as an officer compatible with the general standard of Total 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 The exercise price for these Awards is nil . Further details of Awards are set out in Note 26 and the Remuneration Report . Note 30, did not compromise the auditor’s independence requirements Registered office of the Corporations Act 2001 for the The registered office of the Company is following reasons: > All non-audit services have been reviewed by the Audit, Risk and Compliance Committee to ensure they do not impact the impartiality and objectivity of the auditor; and > None of the services undermine the general Level 1, 157 Grenfell Street, Adelaide, South Australia 5000 . Corporate governance statement The corporate governance statement is available on the Adelaide Brighton Limited principles relating to auditor independence website and may be accessed via the as set out in APES 110 Code of Ethics for following URL: 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 117 . http://adbri .com .au/ ourresponsibilities#governance-exp Signed in accordance with a resolution of the Directors Zlatko Todorcevski Chairman Dated 19 March 2019 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 Company was not liable during 2018 under such indemnities . Rule 9 .5 of the constitution provides that the Company may purchase and maintain insurance or pay or agree to pay a premium for insurance for “officers” (as defined in 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 2018 to 30 April 2019 . 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 . 48 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Remuneration report Dear Shareholders On behalf of the Board and as Chair of the People and Culture Committee, I am pleased to present the Adelaide Brighton 2018 Remuneration Report . I would like to take this opportunity to thank the previous Chair, Arlene Tansey, for her leadership of the People and Culture Committee for the preceding five years and congratulate her on her appointment as the Chair of the Audit Risk and Compliance Committee . This year has been a year of change and renewal in both the Board and the executive team . Board changes As foreshadowed, former Chairman, Mr Leslie Hosking, retired as a Director of the Company and Mr Zlatko Todorcevski stepped up from Chairman Elect to Chairman to take leadership of the Board at the Company’s Annual General Meeting on 16 May 2018 . Mr Hosking served as a Director for 15 years and as Chairman for the last seven years . Consistent with the letter to shareholders in April 2018, longstanding Director Mr Graeme Pettigrew retired at the conclusion of the Company’s Annual General Meeting on 17 May 2018 after nearly 14 years’ service as a Director . The Board thank both Mr Hosking and Mr Pettigrew for their committment and years of service to the Company . Continuing the Board’s renewal program and taking into consideration the Board skills matrix and matching those skills to our strategic plans, the Board was pleased to announce the appointment of two new Directors in 2018 . In February 2018, Mr Geoff Tarrant and I were appointed non-executive Directors . Mr Tarrant is a finance executive with over 25 years’ experience primarily in mergers and acquisitions and capital markets . Mr Tarrant was nominated by the Company’s major shareholder, Barro Properties Pty Ltd, and is not considered independent . I bring more than 30 years’ experience in mining and resources to the Board and I am considered an independent Director . Consistent with the ASX Corporate Governance Council’s Principles and Recommendations, a majority of the Board remains independent . Key Management Personnel changes in 2018 CEO succession On 17 May 2018 the Company announced that Martin Brydon, CEO and Managing Director, advised the Board of his intention to retire . To allow for timely succession and handover to the incoming CEO, Mr Brydon will retire no later than 31 March 2019 after more than 30 years of service to the Company . He is leaving the Company in excellent condition with total shareholder returns over the period from 2014 to 2018 of 48 .2% and the share price of the Company having increased by 17 .1% . The Board commends him, and is grateful for, his dedication and service to the Company . Details of Mr Brydon’s arrangements in relation to his retirement are set out in Section 5 of this Remuneration Report . Following the announcement of Mr Brydon’s retirement, the Board undertook an extensive search process to find a high calibre executive to lead Adelaide Brighton through its next phase of growth . On 18 October 2018 the Board announced the appointment of Nick Miller as incoming CEO effective from 30 January 2019 . Mr Miller is a high calibre and experienced Managing Director and CEO, including Managing Director and Chief Executive Officer Fulton Hogan from 2010 to 2017, and more recently at Broadspectrum (a subsidiary of Ferrovial Group) who operate within the civil construction, major project and asset management industries . Consistent with the Company’s past practice, Mr Miller has not been appointed to the Board in the first instance, in order to enable him to focus on the business operations . The Board will give consideration to his appointment as Managing Director in due course . Details of Mr Miller’s remuneration package are set out in Section 5 of this Remuneration Report . 49 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. Other executive changes Adelaide Brighton announced the appointment of Theresa Mlikota as its new Chief Financial Officer (CFO) on 15 January 2019 with a commencement date no later than 15 April 2019 . Ms Mlikota is a finance executive with 30 years’ experience in the resources and construction sectors . Ms Mlikota was previously CFO of Ausdrill Limited and prior to that held the role of CFO with Fulton Hogan, Thiess, Macmahon Holdings and Barminco Ltd . In September 2018, following the departure of George Agriogiannis, the Company promoted Mr Brett Brown to the position of Executive General Manager, Concrete and Aggregates . Mr Brown joined Adelaide Brighton through our acquisition of Direct Mix Concrete and Southern Quarries in 2014 . He has over 20 years’ experience in the construction materials industry having held a range of management roles with Hanson and as General Manager of Direct Mix and Southern Quarries before its acquisition by Adelaide Brighton . 2018 performance Adelaide Brighton continues to pursue its long term growth strategy with ongoing investment in cost reduction and operational improvement; growth of the lime business to supply the Australian resources sector and vertical integration of its construction materials business . In 2018, Adelaide Brighton delivered record revenue of $1 .63 billion driven by strong east coast demand, improved pricing and the contribution of acquisitions from the concrete and aggregates businesses completed in the prior year . Underlying profit excluding property was stable at $190 .1 million as a result of improved pricing and the contribution from acquisition offset by higher import costs and a number of one-offs . Reported profit increased 1 .4% to $185 .3 million . Adelaide Brighton’s long term strategy of product and geographic diversification has positioned the Company to benefit from the strong markets on the east coast of Australia . This strategy includes vertical integration into premixed concrete and concrete products and the development of an aggregates business to underpin performance of these operations . Adelaide Brighton continues to generate strong cash flows which allows the Company to invest in growth projects and pay increased dividends while retaining a strong balance sheet with leverage toward the bottom end of the Board’s target range . We were pleased our performance has enabled us to pay shareholders fully franked ordinary dividends for the 2018 year of 20 .0 cents per share and special dividends of 8 .0 cents per share, bringing total dividends for 2018 to 28 .0 cents per share fully franked - an increase of 14% on 2017 . Remuneration in 2018 Our remuneration framework incorporates robust performance measures linked to our strategic plan and delivers remuneration outcomes that reflect our business performance over both the annual cycle and the longer term . The remuneration policies of Adelaide Brighton continue to focus on attracting and retaining the best talent to deliver our strategic objectives and align executive rewards with the creation and delivery of shareholder value . Nevertheless, we are always reviewing our remuneration framework in light of stakeholder consultations . Fixed annual remuneration The 2018 remuneration increases across the Executive KMP team averaged 2 .8 percent . This is in line with the Company’s policy of setting remuneration levels based on the size and nature of an executive’s role (and impact of the role on the business) and individual performance in roles . Fixed remuneration levels continue to remain conservative relative to peer companies of a similar market capitalisation . Fees for the Chairman and non-executive Directors are reviewed annually and considered against peer companies . Following re-alignment of non-executive Director fees during 2017, as foreshadowed, there was no increase in the Chairman and non-executive Director fees in 2018 . 50 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. Short Term Incentive As Mr Brydon had announced his intention to retire in May 2018, the Board adjusted Mr Brydon’s short term incentive targets to focus on a smooth transition to a new Chief Executive . This included assisting with investor and employee engagement around the change of leadership . Mr Brydon successfully achieved the agreed transition objectives and was awarded his full (100%) 2018 STI . For other KMP, short term incentive awards ranged from 13 .6% to 24 .1% of their potential maximum taking into account the Board’s assessment of non-financial objectives and achievement of divisional financial targets . While Adelaide Brighton delivered a stable underlying performance on 2017, the Group financial component did not meet target, which resulted in no payment for the Group financial components of the short term incentive . Long Term Incentive Consistent with strong Company performance over the past four years, the Board is pleased to advise that the Company’s 2014 long term incentive Award was tested during 2018 and vested at 50% . The relative total shareholder return (TSR) performance condition exceeded the 79th percentile and vested at 100% . The compound annual earnings per share (EPS) growth rate over the measurement period was 1 .3% which was less than the minimum EPS target of 5 .0% and consequently the EPS component did not vest . These LTI outcomes are consistent with delivery of long term value to shareholders with the Company achieving a TSR of 106 .9% over the measurement period . Director share ownership To enhance Board alignment with shareholder interests, the Board introduced a non-executive Director Minimum Shareholding Policy during 2018 . The Minimum Shareholding Policy was adopted in order to encourage non-executive Directors to accumulate and maintain a meaningful level of ownership in Adelaide Brighton . During their tenure on the Board, non-executive Directors are expected to acquire (within five years of their appointment) a shareholding equivalent in value to one year’s base fees (Minimum Shareholding) and thereafter to maintain at least that level of shareholding throughout their tenure . Non-executive Directors who are in office when this policy was adopted will have five years from July 2018 to achieve the Minimum Shareholding . Further details of non-executive Director shareholdings are set out in section 8 .3 . Conclusion Remuneration outcomes reflect the level of performance achieved against our applicable targets during 2018 . We have prepared the 2018 Remuneration Report in line with our objective of transparency in explaining our remuneration framework and practices, and the link between Company and individual performance and incentive remuneration outcomes . We continue to seek feedback on our Remuneration Report and continually look at ways to improve and include this feedback into our remuneration practices and this report . We look forward to welcoming you to the 2019 Annual General Meeting . Vanessa Guthrie Chairman of People and Culture Committee 51 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Remuneration report contents 1 Executive remuneration policy and framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 1 .1 1 .2 1 .3 Remuneration policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Remuneration framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Remuneration governance - responsibility for setting remuneration . . . . . . . . . . . . . 56 2 Overview of Company performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 2 .1 2 .2 Financial performance in 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Long term financial highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 3 Linking remuneration to Company performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 3 .1 Short Term Incentive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 3 .1 .1 Short Term Incentive - performance measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 3 .1 .2 Short Term Incentive - financial outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3 .2 Long Term Incentive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 3 .2 .1 Long Term Incentive - outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 4 Executive remuneration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 4 .1 4 .2 4 .3 Fixed annual remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 At-risk remuneration - Short Term Incentive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 At-risk remuneration - Long Term Incentive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 5 CEO succession arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 5 .1 5 .2 5 .3 Outgoing CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Incoming CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Other Executive arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 6 Executive Service Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 7 Non-executive Directors’ fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 7 .1 7 .2 Non-Executive Directors’ minimum shareholding requirement . . . . . . . . . . . . . . . . . 67 Policy and approach to setting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 8 Key Management Personnel disclosure tables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 8 .1 8 .2 8 .3 Non-executive Directors’ statutory remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Executive statutory remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Equity holdings of Key Management Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 52 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.The Directors of Adelaide Brighton Limited Table 1 (the Company) present the Remuneration Report (Report) for the Company and the Group for the financial year ended 31 December 2018 . The Report outlines the Name Role Current Executives M Brydon1 CEO and Managing Director (CEO & MD) remuneration arrangements in place for the BW Brown 2 Executive General Manager, Concrete and Aggregates Key Management Personnel (KMP) of the Company and is prepared in accordance with section 300A of the Corporations Act 2001 . This Report, which forms part of the Directors’ Report, has been audited by PricewaterhouseCoopers . AL Dell BD Lemmon Former Executives Executive General Manager, Concrete Products Executive General Manager, Cement and Lime M Kelly 3 Chief Financial Officer (CFO) G Agriogiannis 4 Executive General Manager, Concrete and Aggregates The KMP of Adelaide Brighton comprise all Directors and those Executives who have authority and responsibility for the planning, Current Directors Z Todorcevski5 RD Barro directing and controlling of the activities of VA Guthrie6 Chairman Non-executive Director Non-executive Director the Group . In this Report, ‘Executives’ refers to members of the Group executive team identified as KMP . The KMP detailed in this Report for the 2018 financial year are: KB Scott-Mackenzie Non-executive Director AM Tansey GR Tarrant 6 Former Directors LV Hosking7 GF Pettigrew 8 Non-executive Director Non-executive Director Former Chairman Former non-executive Director 1 Mr Brydon has announced his retirement effective no later than 31 March 2019 . Mr Brydon ceased to be a Director on 30 January 2019 . 2 Appointed 17 September 2018 . 3 Resigned effective 3 November 2018 . 4 Resigned effective 11 December 2018 . 5 Appointed Chairman on 16 May 2018 . 6 Appointed on 8 February 2018 . 7 Retired on 16 May 2018 . 8 Retired on 17 May 2018 . 1 Executive remuneration policy and framework 1.1 Remuneration policy > Reward individual performance, responsibility and potential; > Drive leadership performance and behaviours that reinforce the Group’s short and long term strategic and operational objectives; > 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; > Have regard to market practice and market conditions; and > Provide transparency and clarity on what, to whom and on what basis remuneration has The Board ensures remuneration policies are clearly aligned with the Group strategy, been paid . which is focused on maintaining and growing long term shareholder value . In determining executive remuneration, the Board has adopted a policy that aims to: > Be competitive in the market place in which the Group operates in order to attract, reward, motivate and retain a highly capable executive team; The governance of remuneration outcomes is a key focus of the Board and the People and Culture (PC) Committee . Remuneration policies are regularly reviewed to ensure that remuneration for Executives continue to remain aligned with Company performance . 53 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. 1.2 Remuneration framework In order to meet the aims of our remuneration policy, our executive remuneration framework consists of the following three components: > Fixed annual remuneration > 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 is shown below . CEO Fixed annual remuneration Short term incentive Long term incentive 331/3% 162/3% 162/3% 331/3% Cash 50% Equity 50% Other key management personnel (average) Fixed annual remuneration Short term incentive Long term incentive 46% 16% 16% 22% Cash 62% Equity 38% 54 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.The table below provides a summary of our remuneration framework for the 2018 financial year, 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 ‘At risk’ weight Strategic objective / performance link Fixed Annual Remuneration (FAR) Salary and other benefits (including statutory superannuation) Considerations (NA) > Long term individual performance > Role, responsibility and potential > Benchmarked to competitive market rate > Remuneration set at competitive levels in the market to attract, retain and engage key talent > Motivate to achieve outstanding performance Annual Short Term Incentive (STI) Cash + Deferred rights to receive fully paid ordinary shares Financial targets (80%) - CEO and CFO - 80% relating to Group NPAT Other Executives - 60% relating to Group NPAT and 20% relating to Divisional EBIT Non-financial targets (20%) Relating to personal performance against individual objectives Maximum: 60%-80% of FAR (100% of FAR for CEO) Long Term Incentive (LTI) Rights to receive fully paid ordinary shares Earnings Per Share (EPS) (50%) and Maximum: CEO 100% of FAR Total Shareholder Return (TSR) (50%) Other executives 40%-70% of FAR Measured over a four year performance period > > > > > Alignment to Group budget through NPAT and Divisional budget through Divisional EBIT performance Non-financial 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 targets and other specific personal or non-financial performance objectives which align the interest of Company executives and shareholders Ensure strong link with the creation of long term shareholder value to encourage the achievement of growth of the Company’s business EPS was chosen as a performance hurdle as it: - Links executive reward to a fundamental indicator of financial 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 (Comparator Group) 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 55 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.1.3 Remuneration governance - responsibility for setting remuneration 2 Overview of Company performance Our governance framework for determining executive remuneration is outlined below: 2.1 Financial performance in 2018 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 PC 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 PC Committee process 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 People and Culture (PC) Committee The PC 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 PC Committee Obtains remuneration information from external advisors to assist the PC Committee (i .e . factual information, legal advice, accounting advice, tax advice) The PC Committee seeks advice from external remuneration consultants on an as required basis . The PC Committee did not obtain remuneration recommendations during 2018 . Notwithstanding this, the Board has considered information on the relativity of KMP remuneration in the context of benchmarking reports and market data across comparable Companies . The Directors are pleased to present Adelaide Brighton Limited’s financial performance for 2018 . Adelaide Brighton achieved record revenue of $1,630 .6 million in 2018, an increase of 4 .6% on the prior year . The growth was the result of realising the benefits from the Group’s vertical integration strategy, with contribution from acquisitions of concrete and aggregate businesses in 2017, in addition to growth in the heritage business due to strong demand in east coast markets supporting price and volumes . Reported NPAT of $185 .3 million was up 1 .4%, although both years have been impacted by a number of significant items and changes in earnings from property . Excluding property, reported NPAT of $184 .4 million was 5 .7% higher than 2017 . Underlying NPAT (excluding property) of $190 .1 million was in line with the prior year as a result of: > Cement pricing and volumes improved across most markets, however the average price declined as a result of sales mix, with margins under pressure from higher shipping and material costs, in addition to the cost of the temporary failure of a mill bearing at the Birkenhead plant . > Lime volumes were stable, although pricing was subdued and costs increased following the renewal of a contract for coal resulting in higher energy costs . > Earnings from concrete and aggregates benefitted from higher volumes and price, in addition to the benefit of a full year of earnings from acquisitions made in 2017 . > Joint venture earnings improved as a result of the strong markets on the east coast . Adelaide Brighton’s business model has delivered robust earnings over a number of years, despite challenging market conditions at times . Table 2 Revenue EBITDA EBIT NPAT 2018 $m Restated 1 2017 Variance $m % 2018 $m Restated 1 2017 Variance $m % Reported (excluding property) Underlying (excluding property) 1,630 .6 1,559 .6 351 .5 339 .0 264 .1 256 .5 184 .4 174 .4 4 .6 3 .7 3 .0 5 .7 1,630 .6 1,559 .6 359 .6 361 .3 272 .2 278 .8 190 .1 190 .0 4 .6 (0 .5) (2 .4) 0 .1 1 Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018 . As a result of the changes, prior year financial statements have been restated . 56 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. 2.2 Long term fi nancial highlights The table below provides an overall view of the Company’s fi nancial performance and operating As can be seen in the graph below the cash fl ow over the past fi ve fi nancial years to 31 December 2018 . NPAT (underlying excluding property) Table 3 - Financial performance and shareholders’ wealth improvement from 2014 to 2018 has increased from $159 .6 million to $190 .1 million over the last fi ve years representing compound annual growth rate (CAGR) of 4 .5% . This growth has been delivered as a result of the Company’s long term strategy of cost reduction and continuous Financial year ended 31 December Sales NPAT Reported Restated 1 2014 2015 2016 2017 2018 2014 2016 2017 2015 2018 CAGR 2 % $m 1,335 .5 1,411 .4 1,393 .8 1,559 .6 1630 .6 5 .1 Excluding property $m 172 .0 173 .0 177 .8 174 .4 184 .4 0 .6 % change 14 .5 2 .8 (1 .9) 5 .7 1 .8 improvement; growth in the lime business NPAT Underlying Excluding and vertical integration of the construction materials business . property $m 159 .6 174 .2 179 .1 190 .0 190 .1 4 .5 % change 3 .1 9 .1 2 .8 6 .1 0 .1 $m 200 180 160 140 120 100 Net profi t after tax (reported excluding property) vs net profi t after tax (underlying excluding property) Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018 Share price 3 $/share 3 .52 4 .75 5 .43 6 .52 4 .27 4 .9 Dividends Franking Cents/share 17 .0 27 .0 4 28 .04 24 .55 28 .0 4 13 .3 % 100 100 100 100 100 Operating cash fl ow $m 194 .0 229 .9 248 .4 224 .2 244 .7 Earnings per share Cents 26 .9 32 .0 28 .7 28 .0 28 .5 TSR - 1 year Total Shareholder Return % % 0 .5 42 .6 20 .2 24 .6 (30 .2) 48 .2 n o t h g i r B 1 Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018 . As a result of the changes, prior year fi nancial statements have been restated . i e d a e d A l : e c r u o S 2014* 2015* 2016* 2017* 2018 NPAT (reported excluding property) NPAT (underlying excluding property) 2 Compound Annual Growth Rate . 3 At 31 December, or last trading day of the year if not 31 December . 4 Includes 8 .0 cents total special dividend . 5 Includes 4 .0 cents special dividend . Notwithstanding the broader decline in the construction materials section from mid 2018, as shown in the graph below, Adelaide Brighton’s TSR growth over the last fi ve years has outperformed the S&P/ASX200 Accumulation Index . The TSR achieved over the last fi ve years of 48 .2% has outperformed the S&P/ASX200 Accumulation Index, including our Comparator Group1 . This is due to a sustained year on year improvement in share price and increased dividends . TSR over the last 12 months was (30 .2%), refl ecting a decline in share price partially offset by increased ordinary dividends and the payment of special dividends . 1 Comparator Group is the companies in the S&P/ ASX200 Accumulation Index, excluding all GICS fi nancial companies and selected resources companies . % 160 140 120 100 80 60 40 20 0 -20 ABC total shareholder returns (share price + dividends reinvested) and S&P/ASX200 accumulation index returns d t L y t P s r o s i v d A t s r i F : e c r u o S 4 1 n a J 4 1 r p A 4 1 l u J 4 1 t c O 5 1 n a J 5 1 r p A 5 1 l u J 5 1 t c O 6 1 n a J 6 1 r p A 6 1 l u J 6 1 t c O 7 1 n a J 7 1 r p A 7 1 l u J 7 1 t c O 8 1 n a J 8 1 r p A 8 1 l u J 8 1 t c O 9 1 n a J ABC TSR S&P/ASX 200 Accumulation Index Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . 57 3 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 2018 . Company performance across key indicators is reflected in the remuneration outcomes during the year . Mr Brydon’s remuneration arrangements were subject to his Retirement Deed and are outlined in Section 5 .1 of this Remuneration Report . 3.1 Short Term Incentive 3.1.1 Short Term Incentive - performance measures Performance measures Reason chosen Financial performance The “financial metrics” for the Group are NPAT and EBIT for Divisions . Actual financial metrics are compared to budget . The Board has discretion to adjust NPAT for target assessment . The Board believes the financial measure aligns the interests of Executives with shareholders, ensuring the KMP are rewarded on the Group’s annual business objectives and creating sustainable value for shareholders . The comparison to budget allows for recognition of the cyclical nature of the industry in which the Company operates and forward looking factors that can be incorporated into a budget, while the stretch targets provide incentives beyond budget to enhance shareholder returns . Non-financial performance The strategic initiatives focus on three interdependent areas; operational excellence, market leadership and vertical integration, with key foundation drivers being growth in our core business and delivery against our strategic objectives . Fundamental to this assessment is the setting of business initiatives to set the Company up for future development and growth beyond the 12 month financial assessment of the STI . A range of metrics focused on safety, engagement, building capability, retaining Company knowledge and diversity with specific metrics for: > Proactive safety behaviours > Enhancement of environmental performance > Development of capability > Deepening succession pools > Increasing diversity of candidate pools . Proactively responding to market developments and implementing strategies to drive sustainable growth are critical to delivering the strategy and the creation of shareholder value . Having the right people in management and senior leadership roles is critical to our long term success . The CEO and Managing Director plays an important role in this process and he is assessed on his ability to manage talent and succession risks at senior management levels . Specific operational targets focused on productivity gains, cost reduction, operational improvement and improved asset management towards achieving improved return on investment . Specific measures and initiatives were identified to ensure the delivery of sustainable operations and shareholder return . l a i c n a n i F c i g e t a r t S e l p o e P e c n e l l e c x e l a n o i t a r e p O 58 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. Performance assessment Result Target included a financial stretch The 2018 budget was set at 5 .3% above 2017 actual . This was a challenging target given the subdued market conditions in Western Australia and the Northern Territory and higher import costs . For KMP to achieve the maximum outcome under the Group financial performance measure, 2018 NPAT must have exceeded 2017 NPAT by 16%, highlighting the significant stretch component of the incentive . Group result In its assessment of financial performance, the Board excluded property profits and other significant items (restructuring and transaction costs) . Group financial performance was assessed at less than 95% of budget resulting in the Group financial component not being met . Strong underlying performance The Board’s view is that the underlying performance of the Group continues to be strong with contribution from recent acquisitions in the concrete and aggregate division highlighting the benefits of the Company’s vertical integration strategy . Divisional results Concrete and Aggregates Division financial performance was greater than 95% of budget, resulting in 52 .3% achievement of the concrete and aggregates financial component . Cement and Lime and Concrete Products Divisions financial performance was less than 95% of budget, resulting in the financial component for these Divisions not being achieved . Acquisitions Position the Company to take advantage of potential “bolt-on” and transformational acquisitions to ensure readiness when the opportunity becomes available . The management team progressed acquisition opportunities which culminated in the acquisition of the ResourceCo concrete business in South Australia . Disruptive strategies and technologies A program of work was undertaken to increase awareness of disruptive strategies and technologies initiating actions to mitigate the potential impacts . Community engagement Establishment of a framework to guide community engagement initiatives across the business, including a diagnostic assessment of current practice, risks and emerging trends and challenges . 60 -70% achievement of strategic non-financial objectives . Enhanced safety performance Adelaide Brighton Total Recordable Injury Frequency Rate (TRIFR) at 31 December 2018 was 26 .0, a reduction of 33% . 60- 85% achievement of People non-financial objectives . Proactive safety behaviours Improvement in proactive safety behaviours evidenced by the increase in reporting in 2018 - near miss and hazard reporting increased by 78% compared to 2017 . The CEO and Managing Director and management demonstrated their visible and active leadership through participation in site safety committee meetings throughout the Company’s Australia wide operations . Development of capability Mentoring program embedded across the business to develop, inspire and support Adelaide Brighton’s future leaders . Investment in frontline management has enabled more than 50% of frontline leaders to complete FastLead training building confidence, capability and an openness to learning . Deepening succession pools and identification of future executive talent The CEO and Managing Director and management exceeded targets set in respect of internal succession plans for Executive General managers, General managers and leadership roles . Diverse candidate pools Initiatives to increase the number of female applicants applying for typically male dominated roles resulted in 83 .9% of roles advertised in 2018 attracting female applicants, more than a 17% increase compared to 2017 . Organisation restructure Concrete Products Division restructure resulted in an improvement in the alignment of sales, logistics and customer service workflows delivering annual savings . 40-80% achievement of Operational Excellence non-financial objectives . Import strategy Successful completion of a comprehensive search for the supply of cementitious materials . Utilisation of alternative fuel Increased utilisation of refuse derived fuel at the Birkenhead plant to replace natural gas . 59 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.3.1.2 Short Term Incentive - financial outcomes Although Adelaide Brighton delivered a stable underlying financial performance in 2018, the Group financial component did not meet target resulting in no payment for the Group financial component of the short term incentive . The overall result was short term incentives for all KMP (other than Mr Brydon) vesting in the range of 13 .6% to 24 .1% of their potential maximum taking into account the Board’s assessment of non-financial objectives and achievement of divisional financial targets . The Concrete and Aggregates Division financial performance was greater than 95% of target, resulting in 52 .3% achievement of the financial component for this Division . As financial performance was less than 95% of target, the financial component was not achieved for the Group, Cement and Lime Division and Concrete Products Division . Table 4 Revenue EBITDA EBIT NPAT Underlying (excluding property) 2018 $m Restated 1 2017 $m 1,630 .6 1,559 .6 359 .6 272 .2 190 .1 361 .3 278 .8 190 .0 Variance % 5 .2 (0 .5) (2 .4) 0 .1 1 Restated numbers are due to a change in accounting policy on adoption of AASB15 Revenue from Contracts with Customers applied from 1 January 2018 . As a result of the changes, prior year financial statements have been restated . The short term incentive payments shown in the table below reflect the performance achieved and amounts payable to Executives for the 2018 financial year . Table 5 For the year ended Maximum Actual STI STI actual 2 Cash STI Deferred STI Deferred STI Deferred STI 31 Dec 2018 potential STI opportunity 1 as % of STI maximum (2 years) (3 years) (Total) Current Executives BW Brown3 AL Dell BD Lemmon Former Executives4 M Kelly G Agriogiannis $ 105,000 262,230 436,080 525,378 420,707 % 24 .1 16 .4 13 .6 - - $ 25,260 43,006 59,307 - - $ 12,630 21,503 29,654 - - $ 6,315 10,752 14,827 - - $ 6,315 10,751 14,826 - - $ 12,630 21,503 29,653 - - 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 2018 STI was determined in conjunction with the finalisation of 2018 financial results . 3 Mr Brown was appointed a KMP on 17 September 2018 and was eligible for prorata KMP STI in 2018 from the date of his appointment . 4 The previous Chief Financial Officer Michael Kelly and Executive General Manager Concrete and Aggregates George Agriogiannis resigned effective 3 November 2018 and 11 December 2018 respectively . On resignation their entitlement to the 2018 STI was forfeited with the Board deciding not to exercise discretion in relation to payment of STI and no amounts were payable . Mr Brydon’s 2018 STI was treated in accordance with the terms set out in his Retirement Deed, with further detail set out in section 5 .1 of this Remuneration Report . 60 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. 3.2 Long Term Incentive 3.2.1 Long Term Incentive - outcomes During 2018, the 2014 Award was tested for earliest exercise in May 2018 and vested at 50 .0%: > The total shareholder return component vested at 100 .0% with the Company achieving a Total Shareholder Return of 106 .9% being the 79th percentile of the Comparator Group . > The compound annual EPS growth rate over the 2014 to 2017 fi nancial period was 1 .3% which was less than the minimum EPS target of 5 .0% . Therefore, the EPS component did not vest . The chart below illustrates Adelaide Brighton’s total shareholder return over the measurement period for the 2014 Award . The Total Shareholder Return of 106 .9% resulted from share price growth and payment of ordinary and special dividends totalling 109 .0 cents fully franked over the period . Index=100 240 220 200 180 160 140 120 100 80 ABC shareholder returns - share price growth and TSR (October 2013 to December 2017) Source: ASX, First Advisors Pty Ltd Dividends = 36 .8% Share price growth = 70 .1% ABC TSR = 106 .9% 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 5 1 n a J 5 1 r p A 5 1 l u J 5 1 t c O 6 1 n a J 6 1 r p A 6 1 l u J 6 1 t c O 7 1 n a J 7 1 r p A 7 1 l u J 7 1 t c O 8 1 n a J ABC share price growth ABC TSR (share price growth + dividends reinvested) Details of the movement in Awards held by Executives during the 2018 fi nancial year are set out below . Table 6 For the year ended Number held Number Number Number lapsed Number held 31 Dec 2018 at 1 Jan 2018 granted during the year 1 exercised / vested during the year 2 / forfeited during the year 3 at 31 Dec 2018 4 Current Executives M Brydon BW Brown7 AL Dell BD Lemmon Former Executives M Kelly 8 G Agriogiannis8 1,334,040 - 117,995 199,662 500,411 252,176 - - 27,761 41,708 86,769 44,210 177,112 177,111 989,817 - - - - 23,161 23,161 65,945 32,937 521,235 263,449 - 145,756 195,048 - - Value of Awards at grant date 5 $ - - 99,384 151,609 314,104 157,830 Value per share at the date of exercise 6 $ 6 .61 - - 6 .42 6 .42 6 .42 1 This represents the maximum number of Awards granted in 2018 that may vest to each Executive . As the Awards granted in 2018 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 2018 were exercised, being the 2014 Award . The number of Awards that vested during the period and exercisable at 31 December 2018 is NIL . The number of Awards that vested but not yet exercisable at 31 December 2018 is NIL . 3 This includes the portion of 2014 Award that reached the end of its performance period on 31 December 2017 that did not meet the performance conditions and was forfeited . 4 Awards subject to performance conditions which remain unvested (2015, 2016, 2017 and 2018 Awards), and which will be tested for vesting during the period 2019 to 2022 . 5 Fair value of Awards granted during 2018 as at grant date . 6 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 $1,955,285 based on the Volume Weighted Closing Price . 7 Mr Brown was appointed a KMP on 17 September 2018 and did not receive shares under the 2018 Award . 8 Mr Kelly and Mr Agriogiannis resigned effective 3 November 2018 and 11 December 2018 respectively . On resignation, all outstanding Awards previously held by Messrs Kelly and Agriogiannis were forfeited . Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . 61 4 Executive remuneration Fixed remuneration is reviewed annually The 2018 remuneration increases across the 4.1 Fixed annual remuneration having regard to relevant factors including Executive KMP team averaged 2 .8 percent . performance, market conditions (both This is in line with the Company’s policy The amount of fixed remuneration for generally and in the markets in which the of setting remuneration levels based on an individual executive (expressed as a Group operates), growth and comparable the size and nature of an executive’s role total amount of salary and other benefits, roles within peer companies and similar (and impact of the role on the business) including superannuation contributions) is roles across a comparator group comprising and individual performance in roles . Fixed set with regard to the size and nature of an those companies in the ASX 51-150 . For remuneration levels continue to remain executive’s role, the long term performance someone who has performed successfully conservative relative to peer companies of a of an individual, their future potential in their role for a number of years, FAR set similar market capitalisation . within the Group and market practice . between the median and 75th percentile of The Company’s stated approach is also to the comparator would be expected . set fixed remuneration levels at relatively modest levels compared to peers for Executives who are new to their roles and to then progressively increase remuneration based on individual performance in that role . 4.2 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 . A summary of the key features of the 2018 STI is as follows: Form and purpose of the STI Who participates in the STI? Participation in the STI is generally offered to the CEO and Managing Director 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? Yes . Performance conditions When and how are the STI performance All performance conditions are set by the Board and agreed with the executive . 50% of STI awards will be deferred (unless otherwise determined by the Board) . conditions set? 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 consistently generated positive return for longer term shareholders even under difficult market conditions . 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 . Reward opportunity What level of reward can be earned under STI outcomes of financial targets vest progressively in accordance with the following scale: the STI? Financial target achieved STI % for financial target Below 95% 95% Between 95% and 110% 110% or above Nil 50% Pro rata 100% Non-financial objectives are set at a stretch level of performance . 62 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Governance How is performance against the All performance conditions under the STI are clearly defined and measurable . performance conditions assessed? NPAT is used for setting and measuring Group financial performance for the purposes of the STI as this more closely reflects the shareholder experience . Divisional financial performance will continue to be based on EBIT performance . In respect of the financial targets, the Board compares the actual NPAT earned against the budgeted NPAT 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 . The Board also considers the PC Committee’s assessment of the CEO and Managing Director’s performance against the agreed non-financial targets, and that of the senior Executives (based on the recommendation of the CEO and Managing Director) . When is performance against the Assessment of performance against the performance hurdles for the relevant year is determined performance conditions determined and the at the February meeting of the PC Committee and the Board, in conjunction with finalisation of award made available? the Group’s full year results . The cash award is paid following the release of the Company’s full year results in February . The remainder of the award (the Deferred Rights) is made available as reasonably practical after the announcement of the Company’s full year result . What disposal restrictions apply to the The 2018 Deferred Rights will be divided into two equal tranches: Deferred Rights (and to dividends and > the Deferred Rights in Tranche 1 and the shares acquired on their exercise may not be sold or voting rights attach?) otherwise disposed of until after 31 December 2020 (2 year disposal restriction); and > the Deferred Rights in Tranche 2 and the shares acquired on their exercise may not be sold or otherwise disposed of until after 31 December 2021 (3 year disposal restriction) . No dividends (or voting rights) are received on the Deferred Rights during the disposal restrictions . On exercise, the Deferred Rights are converted to shares . The shares issued may not be sold or otherwise disposed of until the restriction period ends . During the restriction period shares are eligible to receive dividends and be voted . Does the Board have an overriding The Board has absolute discretion in relation to assessing performance and determining the discretion? amount, if any, of STI awards . Is there an ability to ‘claw back’ in Yes . The STI Plan Rules provide the Board with a broad ability to claw back awards if appropriate circumstances? considered appropriate . In addition to the STI Plan Rules, the Board also has a formal Clawback Policy which provides the Board with the ability to reduce, forfeit or require repayment of incentives which vest (or may vest) in the case of a material misstatement in Company financial results, serious misconduct by a participant or in circumstances where incentive awards or vesting is based on incorrect information not of a financial nature . Cessation of employment or a change of control What happens to STI awards on cessation Generally, if an Executive resigns or is terminated for cause, all STI entitlements will be forfeited . of employment? The STI Plan Rules provide that in other circumstances, and at the discretion of the Board, award opportunities will be pro-rata reduced to reflect the proportion of the measurement period not worked . Any disposal restrictions applicable to shares acquired upon the exercise of Deferred Rights will be lifted on cessation of employment . How would a change of control of the In the event of a takeover bid (or other transaction likely to result in a change in control of Group impact on STI entitlements? the Company), the Board has absolute discretion to take any action as provided under the STI Plan Rules . 63 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.4.3 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 2018 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 performance and align participants’ interests on the Group’s long term performance . Its purpose is to focus Executives on the Group’s long with shareholders? term 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 2018 Awards will be tested and become exercisable to the extent of any vesting from 1 May 2022 . 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 . 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 Any unexercised 2018 Awards will expire on 30 September 2022 . companies and selected resources companies over the period from 31 December 2017 to 31 December 2021 . The 2018 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 . The Board retains overall discretion to make adjustments in favour of, or against, management to ensure that they do not enjoy a windfall gain nor suffer an unfair penalty for matters that were not in their control or reasonable foresight . Awards under the 2018 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 is not permitted . 64 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Governance Is there ability to ‘claw back’ in Yes . The rules of the Plan have, for some time, provided the Board with a broad ability to claw appropriate circumstances? back Awards if considered appropriate . In addition to the rules of the Plan, the Board also has a formal Clawback Policy which provides the Board with the ability to reduce, forfeit or require repayment of incentives which vest (or may vest) in the case of a material misstatement in Company financial results, serious misconduct by a Participant or in circumstances where incentive awards or vesting is based on incorrect information not of a financial nature . What other conditions apply to the Awards An executive’s entitlement to shares under an Award may also be adjusted to take account of (including voting rights and dividends)? 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 Limited shares, no entitlement to receive dividends and no voting rights in relation to any securities granted under the 2018 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 . Cessation of employment or a change of control What happens to Awards that are not yet exercisable on cessation of employment? If an Executive resigns or is terminated for cause, the Awards in respect of any tranche that is not 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 . 5 CEO succession arrangements Following the departure of long serving As part of these arrangements and noting 5.1 Outgoing CEO Chief Financial Officer, Michael Kelly, the that, as Mr Brydon had announced his Board asked Martin to extend his time with intention to retire in May 2018 no long On 17 May 2018, Adelaide Brighton’s CEO the Company until after the 2018 results term incentive award was made to him and Managing Director, Martin Brydon, had been delivered to the market . This also for 2018, the Board adjusted Mr Brydon’s announced his intention to retire after 30 provided time for the Board to complete the short term incentive targets to focus on a years of service to the Company . Mr Brydon new CEO search, allow for smooth transition smooth transition to a new Chief Executive . has delivered exceptional results over his between the outgoing and incoming CEO, This included assisting with investor and tenure with the Company, both as CEO and and provide important continuity to the employee engagement around the change Managing Director and as a member of the Company and investors and shareholders of leadership . senior executive team . Notably, over the during the 2018 results release . The Board is period of his tenure as CEO, there has been grateful to Martin for his willingness to delay revenue growth of 32 .8% and net profit his retirement and to continue to provide after tax increased 22 .6% . In addition total leadership to the Company . In return for shareholder returns over the period January his commitment and continued support 2014 to December 2018, which largely of the Company, the Board responded by aligns with Mr Brydon’s tenure as CEO, exercising discretion on his transitional were 48 .2% and the Company’s share price remuneration arrangements for 2018 . increased by 17 .1% . As disclosed in section 3 .1 .2 above, while the Company did not satisfy its profit after tax targets for the purposes of the 2018 short term incentive plan, the Board has determined that Mr Brydon successfully delivered against the expectations set by the Board during the CEO transition period, and was awarded his full (100%) 2018 STI . As Having regard to these factors, and Mr Brydon ceased as Managing Director on In addition, Mr Brydon has been very flexible particularly the Board’s request of Martin 30 January 2019 and is not continuing as an and accommodating to the Board’s request to delay his retirement (thereby precluding executive beyond 31 March 2019, the Board for him to continue in his role while the Martin the opportunity to give proper notice agreed that his 2018 STI would be paid Board undertook a rigorous executive search under his contract) the Board has resolved to in cash following finalisation of the 2018 for a new CEO . provide payment in lieu of notice at the end financial results . of his employment in addition to his other contractual entitlements . 65 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Mr Brydon’s 2015 long term incentive, granted under the Company’s Executive Performance Share Plan were tested in line with the Plan rules . In addition, and in recognition of his outstanding service, leadership of the Company during this period of transition, performance outcomes and his willingness to delay his retirement, the Board has resolved it will vest Mr Brydon’s 2016 and 2017 LTI Awards in full on his retirement . Further details of these arrangements and his remuneration for the period from 1 January to 31 March 2019 will be set out in the 2019 Remuneration Report . The Board is grateful to Martin for his service and dedication for the majority of his professional life to the Company and believes this discretion reflects the contribution and performance outcomes he has delivered to Adelaide Brighton and its shareholders . 5.2 Incoming CEO The ASX announcement disclosed on 18 October 2018 sets out the material terms of Mr Nick Miller’s service agreement and remuneration arrangements for 2019 . A summary of these, in respect of remuneration, are set out below . Total Base Remuneration Package $1,500,000 per annum, reviewed annually . (including superannuation) STI LTI The maximum opportunity will be 100% of Total Base Remuneration Package . Any short term incentive awarded to the CEO for 2019 will comprise 50% cash and 50% deferred equity . Deferred equity will be deferred in two equal tranches for a period of 2 and 3 years respectively . The maximum opportunity will be 100% of Total Base Remuneration Package . Compensation for incentives foregone In recognition of Mr Miller foregoing entitlements from his previous employer in order to accept this position at Adelaide Brighton, as part of his contractual arrangements, he will be eligible to receive a cash payment of $450,000, with 50% payable on commencement and 50% payable after completing 6 months’ service . Mr Miller is a high calibre and experienced 5.3 Other Executive arrangements The retention payments (future incentives CEO and Managing Director with extensive industry experience having held leadership positions at major regional infrastructure and construction services providers with a track record of delivering strong business performance over a 25 year career . He has strong leadership qualities, commercial expertise and strategic insight . Due to the executive changes that occurred during the year, to ensure business continuity and to guard-against loss of corporate knowledge, the Board wanted brought forward) are in cash and are due for payment in 2019 are: > B Lemmon - $900,000 > A Dell - $500,000 to retain other key Executives with the The Board sought independent advice Company during this period of change . in constructing the retention payments, As a result, the Board offered retention and subsequently considered in detail the arrangements by way of bringing forward purpose of the retention payments, the Mr Miller’s total base remuneration package vesting of future incentives for Andrew importance of maintaining stability during a of $1 .5 million is commensurate with Dell and Brad Lemmon . These retention year of change, and above all, the interests industry benchmarks and is 7 .1% under that payments fall due for payment in mid-2019 . of shareholders to have experienced of the fixed annual remuneration package (including living away from home allowance) paid to Mr Brydon in 2018 . Mr Miller’s base remuneration package recognises his extensive experience and tenure of eight years as a CEO in construction related industries and the Board believes the above remuneration arrangements are appropriate in this context . Importantly, these payments are not ‘additional’ lump sum payments, but Executives continuing to lead the key business units of the Company . have been structured such that they A proportion of the retention payments has bring forward the vesting of part of each been recognised as the pro-rata incremental executive’s future STI and LTI . Accordingly, expense in the current year as a “bring following payment of these amounts, forward” of incentives as detailed in table 9 . existing or future STI or LTI Awards will The unrecognised balance and interactions be adjusted downwards to reflect the with existing incentive arrangements, will be prepayment of these incentives in the included in the 2019 Remuneration Report . interests of retaining these Executives . 66 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.6 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 . During 2018, all Executive Service Agreements were reviewed to ensure consistency in employment arrangements for existing KMP . Independent advice was sought in preparing revised Service Agreements, and the key terms are outlined below . Table 7 Notice periods Separation payments 1 6 months’ notice by either party (or payment in lieu) 6 months fixed annual remuneration where the Company 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). As described in section 5 .1 above, Mr Brydon did not provide formal notice under his agreement in order to accommodate the Board’s request for flexibility . The Board has resolved to provide payment in lieu of notice at the end of his employment in addition to his other contractual entitlements . On termination of employment for any reason, 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 . Mr Kelly resigned as Chief Financial Officer during the year and ceased employment on 3 November 2018 . The Board exercised its right under his executive service agreement, to enforce a post paid employment non-compete undertaking . The non-compete period is a maximum of 6 months following the end of employment . 7 Non-executive Directors’ fees 7.1 Non-Executive Directors’ minimum shareholding requirement In 2018, to enhance Board alignment with shareholder interests, the Board introduced a non-executive Director Minimum Shareholding Policy . The Minimum Shareholding Policy was adopted in order to encourage non-executive Directors to accumulate and maintain a meaningful level of ownership in Adelaide Brighton . During their tenure on the Board, non-executive Directors are expected to acquire (within five years of their appointment) a shareholding equivalent in value to one year’s base fees (Minimum Shareholding) and thereafter to maintain at least that level of shareholding throughout their tenure . Non-executive Directors who are in office when this policy was adopted will have 5 years from July 2018 to achieve the Minimum Shareholding . Details of the current shareholdings for non-executive Directors as at 31 December 2018 are provided in section 8 .3 . 7.2 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 PC 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 PC 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 . Aggregate fees approved by shareholders Total fees, including committee fees, were set within the maximum aggregate amount of $1,600,000 per annum approved at the 2017 Annual General Meeting . 67 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Base fees for 2018 Fees for the Chairman and non-executive Directors are reviewed annually and considered against peer companies . Following re-alignment of non-executive Director fees during 2017, as foreshadowed, no further changes were made to Chairman and Non-Executive Directors fees in 2018 . Fees payable to non-executive Directors are inclusive of contributions to superannuation . Base fees (Board) Non-executive Chairman1 Non-executive Director Committee fees $ $ 370,000 130,000 Committee chair Committee member Audit, Risk and Compliance Committee People and Culture Committee Safety, Health, Environment and Community Committee 1 The Chairman of the Board receives no additional fee for Committee work . 30,000 30,000 30,000 15,000 15,000 15,000 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 . 68 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.8 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 8 Non-executive Director Directors’ base fees Committee fees Year (incl. superannuation) (incl. superannuation) Fees and allowances Current Executives Z Todorcevski 2 (Chairman) RD Barro KB Scott-Mackenzie AM Tansey 3 VA Guthrie 4 GR Tarrant 5 Former Executives LV Hosking 6 GF Pettigrew 7 Total non-executive Directors’ remuneration 2018 2017 2018 2017 2018 2017 2018 2017 2018 2018 2018 2017 2018 2017 2018 2017 $ 280,435 101,268 130,000 130,000 130,000 130,000 130,000 130,000 116,458 116,458 145,471 370,000 49,457 130,000 1,098,279 991,268 $ 11,195 3,750 15,000 15,000 45,000 45,000 45,000 45,000 26,191 7,387 - - 22,826 60,000 172,599 168,750 Post-employment benefits Superannuation contributions 1 $ 25,628 9,111 12,580 12,580 15,183 15,183 15,183 15,183 12,376 10,745 9,329 23,449 6,571 17,273 107,595 92,779 Total $ 291,630 105,018 145,000 145,000 175,000 175,000 175,000 175,000 142,649 123,845 145,471 370,000 72,283 190,000 1,270,878 1,160,018 1 Superannuation contributions are made on behalf of non-executive Directors which satisfy the Group’s obligations under applicable Superannuation Guarantee Charge legislation . 2 Mr Todorcevski was appointed a non-executive Director on 22 March 2017 and Chairman on 17 May 2018 . He was appointed a member of the Board’s Audit, Risk and Compliance Committee and People and Culture Committee effective 16 November 2017 . Mr Todorcevski ceased to be a member of the People and Culture Committee on 4 July 2018, but remains a member of the Audit, Risk and Compliance Committee . As Chairman (from 16 May 2018), Mr Todorcevski does not receive Committee fees . 3 Ms Tansey was appointed Chairman of the Audit, Risk and Compliance Committee on 16 May 2018 . She ceased to be Chairman of the People and Culture Committee on 16 May 2018, but remains a member of the Committee . 4 Dr Guthrie was appointed a non-executive Director on 8 February 2018 . She was appointed Chairman of the People and Culture Committee on 26 May 2018 and a member of the Safety, Health, Environment and Community Committee on 4 July 2018 . 5 Mr Tarrant was appointed a non-executive Director on 8 February 2018 . He was appointed a member of the Audit, Risk and Compliance Committee on 4 July 2018 . 6 Mr Hosking retired on 16 May 2018 . 7 Mr Pettigrew retired on 17 May 2018 . 69 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.8.2 Executive statutory remuneration Table 9 Post employment Equity based Short term benefits Cash salary Other (FAR) Cash STI 1 benefits benefit Super- annuation 2 benefits Deferred STI 1 Long term incentive 3 Total % of remuneration consisting of awards 4 Current Executives Year $ $ $ $ M Brydon 2018 1,442,688 1,467,688 1,614,857 5 Notice payment 2017 1,408,910 - 152,9415 25,091 30,000 BW Brown 2018 125,417 12,630 100,000 6 6,271 2018 2017 2018 2017 2018 2017 2018 2017 413,050 21,503 105,464 7 404,480 16,454 - 517,600 29,654 208,728 7 485,000 27,192 - 631,183 735,290 506,995 - - - 475,436 8 - 167,976 9 525,900 68,503 - 24,000 24,000 27,500 30,000 25,540 30,000 18,889 20,000 AL Dell BD Lemmon Former Executives M Kelly G Agriogiannis Total executive remuneration $ - - $ $ 1,264,708 5,815,032 283,725 1,875,576 12,630 21,503 16,454 29,654 27,192 - 256,948 33,283 618,803 26,024 487,412 46,867 860,003 52,918 622,302 - - - (124,464) 1,007,695 113,457 878,747 (63,457) 630,403 68,502 58,079 740,984 % 22 15 5 5 5 9 13 8 2018 3,636,933 1,531,475 2,672,461 127,291 63,787 1,156,937 9,188,884 2017 3,559,580 112,149 152,941 134,000 112,148 534,203 4,605,021 1 STI payment includes payments relating to 2018 performance accrued but not paid as at 31 December 2018 . 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 26 . 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 Pursuant to Mr Brydon’s Retirement Deed, an amount of $1,467,688 is payable in relation to payment in lieu of notice and severance payment . A payment of $147,169 being a Living Away From Home Allowance was made pursuant to Mr Brydon’s Service Agreement to assist him in discharging his duties from the Company’s Sydney office . 6 Mr Brown was appointed Executive General Manager, Concrete and Aggregates on 17 September 2018 . Mr Brown was paid a settling allowance for relocation from South Australia to New South Wales following his appointment to the position of Executive General Manager, Concrete and Aggregates . 7 Prorata retention payment as detailed in section 5 .3 . 8 Mr Kelly ceased employment on 3 November 2018 . On cessation of employment Mr Kelly was paid $280,287 in annual leave and long service leave entitlements . Following Mr Kelly’s resignation, and pursuant to his service agreement in relation to a period of restraint, he has been paid a total of $195,149 . 9 Mr Agriogiannis ceased employment on 11 December 2018 . On cessation of employment Mr Agriogiannis was paid $167,976 in annual leave and long service entitlements . 70 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.8.3 Equity holdings of Key Management Personnel A summary of Executives’ and non-executive Directors’ current shareholdings in the Company as at 31 December 2018 is set out below . While the Board has introduced minimum shareholding guidelines for non-executive Directors the Board continues to consider that Executives’ interests are sufficiently aligned to those of our shareholders through the LTI and STI Deferral (as the LTI and STI Deferral are subject to share price fluctuation) . Table 10 1 Current Executives M Brydon BW Brown 2 AL Dell 3 BD Lemmon Former Executives M Kelly 4 G Agriogiannis 5 Current Non-executive Directors Z Todorcevski RD Barro 6 VA Guthrie 7 KB Scott-Mackenzie AM Tansey GR Tarrant 7 Former Non-executive Directors LV Hosking 8 GF Pettigrew 9 Granted as remuneration during the year Balance at beginning of year LTI Deferred STI to other changes of year Net movement due Balance at end 78,906 - 5,588 8,197 16,854 13,502 20,000 246,484,345 - 5,000 10,000 - 9,851 16,739 177,112 - - 23,161 65,945 32,937 - - - - - - - - - - 2,430 4,015 - 10,115 - - - - - - - - (202,131) - - (23,161) (82,799) (56,554) 53,887 - 8,018 12,212 - - - 20,000 32,693,984 279,178,329 - - - - (9,851) (16,739) - 5,000 10,000 - - - 1 The balances reported in this Table 10 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 2018 . 2 Mr Brown commenced in the position of Executive General Manager, Concrete and Aggregates effective from 17 September 2018 . He was not eligible for shares granted under the LTI 2014 Award . 3 Mr Dell commenced in the position of Executive General Manager, Concrete Products effective from 1 May 2015 . He was not eligible for shares granted under the LTI 2014 Award . 4 Mr Kelly resigned effective 3 November 2018, therefore his equity holding has been reduced to nil at 31 December 2018 through ‘Net movement due to other changes” . Awards in the 2015, 2016, 2017 and 2018 LTI Plan held by Mr Kelly were forfeited on resignation . 5 Mr Agriogiannis resigned effective 11 December 2018, therefore his equity holding has been reduced to nil at 31 December 2018 through ‘Net movement due to other changes’ . Awards in the 2015, 2016, 2017 and 2018 LTI Plan held by Mr Agriogiannis were forfeited on resignation . 6 The balances relating to Mr Barro include shares owned by entities over which Mr Barro has a significant influence, or which he jointly controls, but he does not control these entities himself . 7 Dr Guthrie and Mr Tarrant were appointed non-executive Directors on 8 February 2018 . 8 Mr Hosking retired on 16 May 2018, therefore his equity holding has been reduced to nil at 31 December 2018 through ‘Net movement due to other changes’ . 9 Mr Pettigrew retired on 17 May 2018, therefore his equity holding has been reduced to nil at 31 December 2018 through ‘Net movement due to other changes’ . 71 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Income statement Consolidated For the year ended 31 December 2018 ($ million) Continuing operations Revenue from contracts with customers 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 Notes 2018 5 5 6 21(a) 7(a) 1,630.6 (1,052.2) (274.3) 304.1 17.2 (22.9) (68.5) (16.3) 37.4 251.0 (65.8) 185.2 185.3 (0.1) 185.2 Cents 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 4 4 28.5 28.4 Restated 2017 1,559 .6 (1,009 .9) (243 .8) 305 .9 21 .1 (20 .7) (72 .3) (13 .6) 35 .1 255 .5 (72 .7) 182 .8 182 .7 0 .1 182 .8 Cents 28 .1 28 .0 72 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . The above income statement should be read in conjunction with the accompanying notes . Statement of comprehensive income For the year ended 31 December 2018 ($ million) Profit for the year Other comprehensive income Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Changes in the fair value of cash flow hedges Income tax relating to these items Items that will not be reclassified to profit or loss Actuarial (loss)/gain 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 19(a) 19(a) 7(c) 25(b) 7(c) Consolidated 2018 185.2 Restated 2017 182 .8 2.0 1.7 (0.5) (0.6) 0.2 2.8 0 .4 - - 1 .9 (0 .6) 1 .7 188.0 184 .5 188.1 (0.1) 188.0 184 .4 0 .1 184 .5 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . The above statement of comprehensive income should be read in conjunction with the accompany notes . 73 Balance sheet As at 31 December 2018 ($ million) Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Assets classified as held for sale Total current assets Non-current assets Receivables Retirement benefit asset Joint arrangements and associate Property, plant and equipment Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Contract liabilities Borrowings Current tax liabilities Provisions Other liabilities Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Other non-current liabilities Total non-current liabilities Total liabilities Net assets Equity Share capital Reserves Retained earnings Capital and reserves attributable to owners of the Company Non-controlling interests Total equity 74 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . The above balance sheet should be read in conjunction with the accompanying notes . Notes 2018 8(i) 9 10 12 9 25(b) 21 11 13 16 15 16 7(f) 15 17 19(a) 19(b) Consolidated Restated 2017 57 .6 241 .0 174 .3 - 1 .9 474 .8 37 .3 3 .5 160 .3 1,037 .2 299 .9 1,538 .2 2,013 .0 145 .8 13 .4 0 .3 9 .8 33 .8 5 .1 208 .2 428 .9 85 .0 45 .0 0 .1 559 .0 767 .2 93.9 224.8 176.4 5.5 - 500.6 39.9 2.5 173.9 1,061.7 299.5 1,577.5 2,078.1 133.0 11.7 - - 30.4 4.2 179.3 518.7 89.2 45.2 0.1 653.2 832.5 1,245.6 1,245 .8 734.4 4.2 504.5 1,243.1 2.5 1,245.6 733 .1 1 .9 508 .2 1,243 .2 2 .6 1,245 .8 Statement of changes in equity For the year ended 31 December 2018 Consolidated ($ million) Notes Balance at 1 January 2018 Change in accounting policy Restated total equity at 1 January 2018 Profit for the year Other comprehensive income Total comprehensive income for the year Deferred hedging gains and losses and cost of hedging transferred to the carrying value of inventory purchased in the period Transactions with owners in their capacity as owners: Dividends provided for or paid Executive Performance Share Plan 18 17(b)/19(a) Balance at 31 December 2018 Balance at 1 January 2017 Change in accounting policy Restated total equity at 1 January 2017 Profit for the year (restated) Other comprehensive income Total comprehensive income for the year Deferred hedging gains and losses and cost of hedging transferred to the carrying value of inventory purchased in the period Transactions with owners in their capacity as owners: Dividends provided for or paid Executive Performance Share Plan 18 17(b)/19(a) Balance at 31 December 2017 Attributable to owners of Adelaide Brighton Limited Share capital 733.1 - 733.1 - - - - - 1 .3 1.3 734.4 731.4 - 731.4 - - - - - 1 .7 1.7 733.1 Reserves Retained earnings 1.9 - 1.9 - 3 .2 3.2 510.6 (2 .4) 508.2 185 .3 (0 .4) 184.9 Total 1,245.6 (2 .4) 1,243.2 185 .3 2 .8 188.1 (0 .1) - (0 .1) - (0 .8) (0.8) 4.2 2.9 - 2.9 - 0 .4 0.4 (188 .6) - (188.6) 504.5 483.3 (3 .1) 480.2 182 .7 1 .3 184.0 (188 .6) 0 .5 (188.1) 1,243.1 1,217.6 (3 .1) 1,214.5 182 .7 1 .7 184.4 (0 .9) - (0 .9) Non- controlling interests Total equity 2.6 - 2.6 (0 .1) - (0.1) - - - - 2.5 2.5 - 2.5 0 .1 - 0.1 - - - - 1,248.2 (2 .4) 1,245.8 185 .2 2 .8 188.0 (0 .1) (188 .6) 0 .5 (188.1) 1,245.6 1,220.1 (3 .1) 1,217.0 182 .8 1 .7 184.5 (0 .9) (156 .0) 1 .2 (154.8) - (0 .5) (0.5) 1.9 (156 .0) - (156.0) 508.2 (156 .0) 1 .2 (154.8) 1,243.2 2.6 1,245.8 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . The above statement of changes in equity should be read in conjunction with the accompany notes . 75 Statement of cash flows For the year ended 31 December 2018 ($ million) 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 Other income Income taxes paid Consolidated Notes 2018 1,812.5 (1,509.6) 25.6 0.9 (17.1) 10.5 (78.1) Restated 2017 1,661 .3 (1,379 .4) 26 .4 1 .6 (13 .0) 8 .6 (81 .3) Net cash inflow from operating activities 8(ii) 244.7 224 .2 Cash flows from investing activities Payments for property, plant, equipment and intangibles Payments for acquisition of businesses, net of cash acquired 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 Draw down of borrowings Dividends paid to Company’s shareholders Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the year (112.7) (2.1) 5.3 (2.0) 0.6 (110.9) 2.2 89.0 (188.6) (97.4) 36.4 57.6 (0.1) 93.9 (89 .1) (80 .2) 17 .7 (3 .1) 0 .6 (154 .1) 3 .5 118 .5 (156 .0) (34 .0) 36 .1 21 .5 - 57 .6 17 8(iv) 18 8(i) 76 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . The above statement of cash flows should be read in conjunction with the accompany notes . Notes to the financial report 1 Summary of significant New and amended standards adopted by The Group has elected to apply certain accounting policies the Group practical expedients in the application of Adelaide Brighton Limited (the Company) is a company limited by shares, incorporated and domiciled in Australia whose shares are The Group has applied the following standard AASB15 by not restating contracts that for the first time for the financial reporting begin and end within the same annual period commencing 1 January 2018 . reporting period and/or were completed publicly traded on the Australian Securities AASB 15 Revenue From Contracts With Exchange (ASX) . Customers (AASB 15) at the beginning of the earliest period presented and for completed contracts that have variable consideration, the Group has The financial report was authorised for issue In accordance with the transitional used hindsight and used the transition price by the Directors on 19 March 2019 . The provisions in AASB 15, the Group has at the date the contract was completed . Directors have the power to amend and adopted the new rules retrospectively and reissue the financial statements . has restated comparatives for the 2017 The principal accounting policies adopted financial year . A receivable is recognised when the goods and services are delivered as this is the point in time that the consideration is in the preparation of these consolidated The change in accounting policy primarily unconditional because only the passage of financial statements are either set out below relates to contracts with stepped pricing time is required before the payment is due . or included in the accompanying notes . applying to a contract year, where the Unless otherwise stated these policies have contract year is different to Adelaide been consistently applied to all the years Brighton’s financial reporting period . presented . Unless otherwise stated the Where step pricing is applicable, revenue is Trade receivables are typically due for settlement no more than 30 to 45 days from the end of the month of invoice . financial statements are for the consolidated recognised based on pricing on estimated AASB 15 Revenue From Contracts With entity consisting of Adelaide Brighton purchases during the contract period . Customers replaces AASB 118 Revenue Limited and its subsidiaries . (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 Revenue from the sale of goods is recognised when control of the product has transferred, being where goods are shipped to the customer, risks of loss have been transferred to the customer and there is objective evidence that all criteria for acceptance has been satisfied . Corporations Act 2001 . The Company is a A contract liability is recognised for expected for-profit entity for the purpose of preparing discount based on the stepped pricing the financial statements . on future purchases until the end of the which covers contracts for goods and services and AASB 111 Construction Contracts which covers construction contracts . The new standard replaces the existing notion of risk and rewards with the notion of control to recognise when a good or service transfers to a customer . Further information on revenue from contracts with customers and other income is detailed in Note 5 . Comparative information has been re-stated where appropriate to enhance comparability . Historical cost convention These financial statements have been prepared under the historical cost convention, except for the circumstances where the fair value method has been applied as detailed in the accounting policies . remaining contract period . The impact of the adoption of AASB 15 is set out below: Balance Sheet ($ million) 31 December 2017 Re-measurement 1 January 2018 Carrying amount Carrying amount Other liabilities Deferred tax liability 15 .1 86 .0 3 .4 (1 .0) Compliance with IFRS Income Statement - For the year ended 31 December 2017 The consolidated financial statements of the Adelaide Brighton Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) . ($ million) As originally presented AASB15 Restatement Revenue Income tax expense Net profit after tax 1,560 .0 (72 .3) 182 .1 (0 .4) (0 .3) 0 .7 18 .5 85 .0 Restated 1,559 .6 (72 .7) 182 .8 New standards and interpretations not yet adopted by the Group Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2018 reporting periods . The Group’s assessment of the impact of these new standards and interpretations is set out below . Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 77 1 Summary of significant Subsidiaries are entities over which the (c) Foreign currency translation accounting policies (continued) Group has control . The Group controls (a) Basis of preparation (continued) AASB 16 Leases (AASB 16) AASB 16 Leases will replace the current standard on lease accounting, AASB 117 an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity . (i) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’) . The Leases . AASB 16 introduces a single lessee Subsidiaries are fully consolidated from the consolidated financial statements are accounting model and requires the lessee to date on which control is transferred to the presented in Australian Dollars, which is recognise assets and liabilities for all leases Group . They are deconsolidated from the Adelaide Brighton Limited’s functional and with a term of more than 12 months, unless date that control ceases . The acquisition presentation currency . the underlying asset is of low value . A lessee method of accounting is used to account for is required to recognise a right-of-use asset business combinations by the Group (refer representing its right to use the underlying to Note 1(d)) . (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the leased asset and a lease liability representing its obligations to make lease payments . Intercompany transactions, balances exchange rates prevailing at the dates of the and unrealised gains on transactions transactions . Foreign exchange gains and The Group has assessed all of the existing between Group companies are eliminated . losses resulting from the settlement of such leasing arrangements and service Unrealised losses are also eliminated transactions and from the translation at year agreements in light of the new standard . unless the transaction provides evidence end exchange rates of monetary assets and The standard will primarily affect the of the impairment of the asset transferred . liabilities denominated in foreign currencies accounting for operating leases, together Accounting policies of subsidiaries have are recognised in the income statement or with a limited number of contracts that are been changed where necessary to ensure deferred in equity if the gain or loss relate to classified as containing embedded leases consistency with the policies adopted by a qualifying cash flow hedge . under the new definition . the Group . (iii) Foreign operations The Group will apply AASB 16 from its (ii) Employee Share Trust The results and financial position of all the mandatory adoption date of 1 January The Group has formed a trust to administer foreign operations that have a functional 2019 and intends to apply the standard the Group’s employee share scheme . currency different from the presentation using the modified retrospective approach, The company that acts as the Trustee is currency are translated into the presentation under which the cumulative effect of consolidated as the company is controlled by currency as follows: initial application is recognised in retained the Group . The Adelaide Brighton employee > Assets and liabilities for each balance sheet earnings as at 1 January 2019 . The share plan trust is not consolidated as it is presented are translated at the closing rate estimated impact of AASB 16 at 1 January not controlled by the Group . at the date of that balance sheet; 2019 is to recognise a right-of-use asset of approximately $104 million, and a corresponding increase to lease liabilities of approximately $104 million . The group expects that net profit after tax will decrease by approximately $2 million in 2019 . The Group does not anticipate there will be a significant impact on the classification of cashflows as a result of adopting AASB 16 and there will be no impact on the group cash position . (iii) Non-controlling interests Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively . The Group treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Group . For changes in ownership interests, the difference between any consideration paid and the relevant share acquired of the > Income and expenses for each income statement and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of 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 . (b) Principles of consolidation carrying value of net assets of the subsidiary On consolidation, exchange differences (i) Subsidiaries is deducted from equity . The consolidated financial statements incorporate the assets and liabilities of all subsidiaries controlled by Adelaide Brighton Limited as at 31 December 2018 and the results of all subsidiaries for the year then ended . The Company and its subsidiaries together are referred to in this financial report as “the Group” . 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 . 78 Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 1 Summary of significant Where settlement of any part of cash accounting policies (continued) consideration is deferred, the amounts (c) Foreign currency translation (continued) payable in the future are discounted to their present value as at the date of When a foreign operation is sold or any exchange . The discount rate used is the borrowings forming part of the net entity’s incremental borrowing rate, being investment are repaid, a proportionate share the rate at which a similar borrowing could of such exchange differences is reclassified be obtained from an independent financier to profit or loss, as part of the gain or loss under comparable terms and conditions . on sale where applicable . (d) Business combinations The acquisition method of accounting is used to account for all business combinations, including business combinations involving equities or 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 . businesses under common control, (e) Rounding of amounts 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 . The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary . The Company is of a kind referred to in the Australian Securities and Investments Commission Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191, relating to the ‘’rounding off’’ of amounts in the financial report . Amounts in the financial report have been rounded off in accordance with that instrument to the nearest one hundred thousand dollars, unless otherwise stated . Acquisition-related costs are expensed as incurred . Identifiable assets acquired and (f) Goods and Services Tax (GST) liabilities and contingent liabilities assumed Revenues, expenses and assets are in a business combination are, with limited recognised net of the amount of associated exceptions, measured initially at their GST, unless the GST incurred is not fair values at the acquisition date . On an recoverable from the taxation authority . In acquisition-by-acquisition basis, the Group this case it is recognised as part of the cost recognises any non-controlling interest in of acquisition of the asset or as part of the acquiree either at fair value or at the the expense . non-controlling interest’s proportionate share of the acquiree’s net identifiable assets . Receivables and payables are stated inclusive of the amount of GST receivable or payable . The excess of the consideration transferred, The net amount of GST recoverable from, or the amount of any non-controlling interest payable to, the taxation authority is included in the acquiree and the acquisition date with other receivables or payables in the fair value of any previous equity interest balance sheet . in the acquiree over the fair value of the Group’s share of the net identifiable assets acquired is recorded as goodwill . If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit or loss as a bargain purchase . 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 . Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 79 Financial performance overview 2 Segment reporting (a) Description of segments Management has determined the operating segments based on the reports reviewed by the former CEO and Managing Director . These reports include segmental information on the basis of product groups and are used to regularly evaluate how to allocate resources and in assessing performance . A disaggregation of revenue using existing segments and the timing of the transfer of goods and services (at a point in time versus over time) is considered by management to be adequate for the Groups circumstances . 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 Operating Segments as well as meeting the aggregation criteria allowing them to be reported as one segment . The Group considered aggregation of these segments appropriate due to the similarity of the markets that the products are sold, the consistent regulatory environment for the production, handling and use of the products, distribution method and underlying demand drivers . 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 . The major end-use markets of the Group’s products include residential and non-residential construction, engineering construction, alumina production and mining . (b) Segment information provided to the CEO and Managing Director The segment information provided to the former CEO and Managing Director for the reportable segments is as follows: 31 December 2018 ($ million) Total segment operating revenue Inter-Company revenue Revenue from external customers Timing of revenue recognition At a point in time Over time Depreciation and amortisation EBIT Share of net profits of joint venture and associate entities accounted for using the equity method 31 December 2017 (Restated) ($ million) Total segment operating revenue Inter-Company revenue Revenue from external customers Timing of revenue recognition At a point in time Over time Depreciation and amortisation EBIT Share of net profits of joint venture and associate entities accounted for using the equity method Cement, Lime, Concrete Concrete Unallocated Total and Aggregates Products 1,462.9 (98.8) 1,364.1 1,367.6 (3.5) 1,364.1 (76.5) 290.2 147.5 - 147.5 147.5 - 147.5 (6.9) 10.7 - - - - - - (4.0) (35.5) 1,610.4 (98.8) 1,511.6 1,515.1 (3.5) 1,511.6 (87.4) 265.4 37.4 - - 37.4 Cement, Lime, Concrete Concrete Unallocated Total and Aggregates Products 1,402 .5 (95 .5) 1,307 .0 1,310 .4 (3 .4) 1,307 .0 (69 .4) 287 .7 147 .6 - 147 .6 147 .6 - 147 .6 (7 .8) 10 .2 - - - - - - (5 .3) (30 .3) 1,550 .1 (95 .5) 1,454 .6 1,458 .0 (3 .4) 1,454 .6 (82 .5) 267 .6 35 .1 - - 35 .1 80 Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 2 Segment reporting (continued) (b) Segment information provided to the CEO and Managing Director (continued) Sales between segments are carried out at arms length and are eliminated on consolidation . The operating revenue assessed by the former CEO and Managing Director and 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 as follows: ($ million) Total segment operating revenue Inter-Company revenue elimination Freight revenue Other production revenue Royalties Revenue from continuing operations Consolidated 2018 1,610.4 (98.8) 102.3 16.3 0.4 1,630.6 Restated 2017 1,550 .1 (95 .5) 89 .5 15 .1 0 .4 1,559 .6 The former CEO and Managing Director assessed 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: ($ million) EBIT Net interest Profit before income tax (c) Other segment information Consolidated 2018 265.4 (14.4) 251.0 Restated 2017 267 .6 (12 .1) 255 .5 Revenues of $292 .0 million (2017: $268 .5 million) are derived from a single customer . These revenues are attributable to the Cement, Lime, Concrete and Aggregates segment . 3 Critical accounting estimates and assumptions The Group makes estimates and assumptions in preparing the financial statements . The resulting accounting estimates will, by definition, seldom equal the related actual results . This note provides an overview of the areas that involved a higher degree of judgement or complexity and of items which are more likely to be materially adjusted due to estimates and assumptions differing to actual outcomes . The areas involving significant estimates and assumptions are listed below . > Impairment of assets - Note 14 > Provisions for close down and restoration costs - Note 15(iv) > Defined benefit superannuation plan - Note 25 Detailed information about each of these estimates and assumptions is included in Notes 14, 15(iv) and 25 together with information about the basis of calculation for each affected line item in the financial statements . 81 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 4 Earnings per share Accounting policy - earnings per share (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 . (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assuming conversion of all dilutive potential ordinary shares . (cents) 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 Consolidated 2018 28.5 28.4 Restated 2017 28 .1 28 .0 Consolidated 2018 2017 650,498,520 650,067,492 1,678,766 2,767,452 Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share 652,177,286 652,834,944 ($ million) Reconciliation of earnings used in calculating earnings per share Basic and diluted earnings per share Profit after tax (Profit)/loss attributable to non-controlling interests Profit attributable to ordinary equity holders of the Company used in calculating basic and diluted earnings per share 5 Revenue from contracts with customers and other income Accounting policy - revenue recognition Revenue is recognised for the major business activities as follows: (i) Revenue from contracts with customers Consolidated 2018 Restated 2017 185.2 0.1 182 .8 (0 .1) 185.3 182 .7 Revenue from the sale of goods is recognised when control of the product has transferred, being where goods are shipped to the customer, risks of loss have been transferred to the customer and there is objective evidence that all criteria for acceptance has been satisfied . (ii) Interest income Finance income comprises interest income recognised on financial assets . Interest income is recognised as it accrues in profit or loss, using the effective interest rate method . 82 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 5 Revenue from contracts with customers and other income (continued) Consolidated ($ million) Revenue from contracts with customers Revenue from contracts with customers Royalties Other income Interest from joint ventures Interest from other parties Net gain on disposal of property, plant and equipment Fair value accounting gain on business acquisition Rental income Other income Notes 2018 1,630.2 0.4 1,630.6 0.7 1.2 0.4 - 1.5 13.4 17.2 Restated 2017 1,559 .2 0 .4 1,559 .6 0 .7 0 .8 10 .4 4 .5 1 .2 3 .5 21 .1 Total revenue from contracts with customers and other income 1,647.8 1,580 .7 The Group has a strategy of divesting properties that are released from operational activities as a result of a rationalisation and improvement program . During the year the Group realised a net gain on the sale of properties of $1 .3 million (2017: $11 .1 million) which is recognised in other income . 6 Expenses Profit before income tax includes the following specific expenses: ($ million) Depreciation Buildings Plant and equipment Mineral reserves Total depreciation Amortisation of intangibles Other charges Employee benefits expense Defined contribution superannuation expense Operating lease rental charge Impairment expense recognised on trade debtors Provision for inventory Accounting policy - borrowing costs Notes 2018 2017 Consolidated 4.5 76.0 4.7 85.2 2.2 185.0 13.4 10.0 1.0 - 4 .3 71 .4 4 .9 80 .6 1 .9 169 .0 11 .7 9 .2 18 .3 - 20(b) Borrowing costs incurred for the construction of any qualifying asset are capitalised into the cost base of the asset 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 . ($ million) Finance costs Interest and finance charges paid / payable Unwinding of the discount on restoration provisions and retirement benefit obligation Fair value loss/(gain) on forward foreign currency contracts at fair value through profit or loss Total finance costs Amount capitalised 1 Finance costs expensed 16.3 1.1 - 17.4 (1.1) 16.3 Notes 2018 2017 Consolidated 1 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, being 3 .1% p .a . (2017: 2 .8% p .a .) . 13 .5 1 .1 - 14 .6 (1 .0) 13 .6 83 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 7 Income tax Accounting policy - income tax 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 temporary differences and to previously unrecognised tax losses . The current income tax charge is calculated on the basis of tax laws enacted or substantively enacted at the end of the reporting period . 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 on those tax rates which are enacted or substantively enacted for each jurisdiction . The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the 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 . Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses . Deferred tax liabilities and assets are not recognised for temporary differences 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 same taxation authority . Current tax assets and tax liabilities are offset where the entity 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 . 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 Limited and its wholly owned Australian subsidiaries implemented the tax consolidation legislation as of 1 January 2004 . Adelaide Brighton Limited, 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 . The entities in the tax consolidated group are part of a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the case of default by the head entity, Adelaide Brighton Limited . Amounts receivable or payable under a tax sharing agreement with the tax consolidated entities are recognised separately as tax-related amounts receivable or payable . Expenses and revenues arising under the tax sharing agreement are recognised as a component of income tax expense . The wholly owned entities fully compensate Adelaide Brighton Limited for any current tax payable assumed and are compensated by Adelaide Brighton Limited 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 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 . Deferred tax balances relating to assets that 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 . 84 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 7 Income tax (continued) ($ million) (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% (2017: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Non allowable expenses Non assessable income Rebateable dividends Non assessable non exempt dividends Other deductions Previously unrecognised capital tax losses offset against capital gains Under provided in prior years Aggregate income tax expense Aggregate income tax expense comprises: Current taxation expense Net deferred tax expense/(benefit) (Over)/Under 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 expense/(benefit) (c) Tax expense relating to items of other comprehensive income Actuarial (loss)/gain on retirement benefit obligation Changes in the fair value of cash flow hedges (d) Tax losses Unused tax losses for which no deferred tax asset has been recognised: Revenue losses Capital losses Consolidated 2018 251.0 75.3 0.5 (2.2) (5.3) (0.4) (0.8) (0.1) 1.2 65.8 64.5 4.0 (2.7) 65.8 (0.9) 0.1 (0.8) (0.2) 0.5 0.3 Restated 2017 255 .5 76 .7 2 .6 (3 .4) (4 .6) - (0 .7) (0 .3) 2 .4 72 .7 71 .8 (3 .1) 4 .0 72 .7 (0 .8) (0 .3) (1 .1) 0 .6 - 0 .6 0.6 11.2 0 .5 11 .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 . 85 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 7 Income tax (continued) ($ million) (e) Non-current deferred tax assets The balance comprises temporary differences attributable to: Share based payment reserve Provisions Other assets Deferred tax assets - before offset Offset deferred tax liability (Note 7(f)) Net deferred tax assets - after offset Movements: Opening balance at 1 January - before offset Recognised in the income statement Recognised in other comprehensive income Under/(over) provision in prior year Acquired in business combinations Closing balance at 31 December - before offset (f) Non-current deferred tax liabilities The balance comprises temporary differences attributable to: Property, plant and equipment Inventories Other Deferred tax liabilities - before offset Offset deferred tax assets (Note 7(e)) Net deferred tax liabilities - after offset Movements: Opening balance at 1 January - before offset Recognised in the income statement Recognised in equity (Over)/under provision in prior year Acquired in business combinations Closing balance at 31 December - before offset Consolidated 2018 Restated 2017 1.1 30.8 1.8 33.7 (33.7) - 37.8 (3.9) 0.5 (0.7) - 33.7 97.4 12.9 12.6 122.9 (33.7) 89.2 122.5 0.4 0.1 (0.1) - 122.9 1 .4 33 .1 3 .0 37 .5 (37 .5) - 28 .9 7 .4 (1 .1) - 2 .3 37 .5 100 .5 10 .4 11 .6 122 .5 (37 .5) 85 .0 118 .8 3 .4 (0 .3) (1 .6) 2 .2 122 .5 86 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 8 Note to statement of cashflows (i) Cash and cash equivalents Accounting policy - cash and cash equivalents 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 current liabilities on the balance sheet . ($ million) Current Cash at bank and in hand Term deposits Cash and cash equivalents (a) Offsetting Consolidated 2018 2017 91.0 2.9 93.9 56 .0 1 .6 57 .6 The Group has an offsetting agreement with its bank for cash facilities . This agreement allows the Group to manage cash balances on a total basis, offsetting individual cash balances against overdrafts . The value of overdraft at 31 December 2018 was $nil (2017:$nil) . (b) Risk exposure The Group’s exposure to interest rate risk is discussed in Note 20 . 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 . (ii) Reconciliation of profit after income tax to net cash inflow from operating activities ($ million) Profit for the year Doubtful debts Depreciation, amortisation and impairment Share based payments Finance charges on remediation provision (Gain) / loss on sale of non-current assets Share of profits of joint ventures, net of dividends received 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 business combinations: (Increase) / decrease in inventories (Increase) / decrease in prepayments (Increase) / decrease in receivables Increase / (decrease) in trade creditors Increase / (decrease) in provisions (Decrease) / increase in taxes payable (Decrease) / increase in deferred taxes payable Increase / (decrease) in other operating assets and liabilities Net cash inflow from operating activities Consolidated 2018 185.2 1.0 87.4 (1.1) 1.1 0.2 (11.7) 0.5 1.2 - (1.1) (0.9) Restated 2017 182 .8 18 .3 82 .5 (2 .9) 1 .1 (6 .4) (8 .6) 0 .7 (4 .3) (4 .5) (1 .0) (0 .8) 261.8 256 .9 (2.1) (0.8) 16.9 (12.7) (3.3) (15.4) 3.8 (3.5) (9 .0) (1 .8) (53 .0) 27 .6 2 .3 (5 .5) (3 .9) 10 .6 244.7 224 .2 87 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 8 Note to statement of cashflows (continued) (iii) Net debt reconciliation ($ million) Cash and cash equivalents Borrowings - repayable within one year (including overdraft): Borrowings - repayable after one year Net debt (iv) Reconciliation of movements of liabilities to cash flows arising from financing activities Consolidated 2018 93.9 - (518.7) (424.8) 2017 57 .6 (0 .3) (428 .9) (371 .6) Total (288 .5) (82 .4) (0 .7) Other assets Liabilities from financing activities Cash/ Bank Overdraft Liquid Investments Finance Leases due within 1 year Finance Leases due After 1 year Borrowings Due within 1 year Borrowings Due after 1 year 21 .5 36 .1 - 57.6 36 .3 - 93.9 - - - - - - - (0 .4) 0 .1 - (0.3) 0 .3 - - (0 .3) 0 .3 - - - - - - - - - - - - (309 .3) (118 .9) (0 .7) (428.9) (371.6) (91 .1) 1 .3 (54 .5) 1 .3 (518.7) (424.8) ($ million) Net debt as at 1 January 2017 Cash flows Other non-cash movements Net debt as at 31 December 2017 Cash flows Other non-cash movements Net debt as at 31 December 2018 88 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. Balance sheet items 9 Trade and other receivables Accounting policy - trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less loss allowance provision . Trade receivables are typically due for settlement no more than 30 to 45 days from the end of the month of invoice . The Group applies the simplified approach to providing for expected credit losses for all trade receivables as set out in Note 20(b) . The amount of the provision is recognised in the income statement . When a trade receivable for which a loss allowance provision 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 . ($ million) Current Trade receivables Loss allowance provision Amounts receivable from joint ventures Prepayments Other receivables Total current Non-current Loans to joint ventures Other non-current receivables Total non-current Movement in loss allowance provision Opening balance at 1 January Amounts written off during the year Loss allowance provision recognised during the year Closing balance at 31 December Fair value and credit, interest and foreign exchange risk Notes 2018 2017 Consolidated 189.0 (19.1) 169.9 34.8 7.3 12.8 200 .1 (19 .5) 180 .6 50 .3 6 .5 3 .6 224.8 241 .0 38.4 1.5 39.9 19.5 (1.4) 1.0 19.1 35 .4 1 .9 37 .3 1 .2 - 18 .3 19 .5 20(b) Due to the short term nature of current 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 20 . The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of receivables mentioned above . Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 89 10 Inventories Accounting policy - inventories Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value . Cost comprises direct materials, direct labour and 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 . Cost includes the reclassification from equity of any gains or losses on qualifying cashflow hedges relating to purchases of raw materials . Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale . Inventory quantities are verified through stocktakes where inventory is either counted or, in the case of bulk materials, volumetric surveys are converted to weight using density factors . Certain volumetric surveys are performed by independent surveyors utilising aerial and laser surveys . ($ million) Current Finished goods Raw materials and work in progress Engineering spare parts stores Consolidated 2018 2017 69.7 63.4 43.3 176.4 73 .6 56 .9 43 .8 174 .3 Inventory expense Inventories recognised as expense during the year ended 31 December 2018 and included in cost of sales amounted to $981 .7 million (2017: $948 .5 million) 11 Property, plant and equipment Accounting policy - property plant and equipment 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 . The carrying amount of any component accounted for as a separate asset is derecognised when replaced . All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred . (i) Mineral reserves Mineral reserves are amortised based on annual extraction rates over the estimated life of the reserves from 2 - 50 years . 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 5 - 10 years . (iii) Leasehold property The cost of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life, whichever is the shorter . Amortisation is over 5 - 30 years . (iv) Other fixed assets Freehold land is not depreciated . Depreciation on other assets is calculated using the straight line method to allocate their cost or deemed cost amounts, over their estimated useful lives, as follows: > Buildings 20 - 40 years > Plant and equipment 3 - 40 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date . An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount . Gains and losses on disposals are determined by comparing proceeds with carrying amount . These are included in the income statement . The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s 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 . 90 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 11 Property, plant and equipment (continued) Consolidated at 31 December 2018 ($ million) At cost Accumulated depreciation Net book amount Reconciliations Carrying amount at 1 January 2018 Additions Disposals Business combinations Reclassification Depreciation/amortisation Carrying amount at 31 December 2018 Freehold land Buildings Leasehold property Plant & equipment Mineral reserves Asset retirement cost In course of construction Total 193 .0 - 152 .8 (69 .1) 193.0 83.7 178 .5 17 .0 (0 .2) - (2 .3) - 89 .0 1 .3 (0 .8) - (1 .3) (4 .5) 9 .6 (4 .4) 5.2 5 .8 - - - (0 .1) (0 .5) 1,453 .1 (921 .4) 226 .1 (47 .7) 531.7 178.4 517 .9 54 .6 (2 .2) 1 .1 34 .5 (74 .2) 174 .3 5 .9 - - 2 .9 (4 .7) 34 .3 (10 .3) 24.0 25 .2 0 .1 - - - (1 .3) 45 .7 2,114 .6 - (1,052 .9) 45.7 1,061.7 46 .5 34 .4 - - (35 .2) - 1,037 .2 113 .3 (3 .2) 1 .1 (1 .5) (85 .2) 193.0 83.7 5.2 531.7 178.4 24.0 45.7 1,061.7 Consolidated at 31 December 2017 At cost Accumulated depreciation Net book amount Reconciliations Carrying amount at 1 January 2017 Additions Disposals Business combinations Reclassification Depreciation/amortisation Carrying amount at 31 December 2017 Leased assets 178 .5 - 154 .4 (65 .4) 178.5 89.0 167 .0 1 .3 (0 .9) 10 .6 0 .5 - 83 .8 0 .6 (0 .1) 8 .7 0 .3 (4 .3) 9 .6 (3 .8) 5.8 6 .2 0 .1 - - - (0 .5) 1,383 .7 (865 .8) 218 .0 (43 .7) 517.9 174.3 495 .8 42 .6 (3 .2) 21 .7 29 .6 (68 .6) 165 .2 5 .9 - 8 .1 - (4 .9) 34 .1 (8 .9) 25.2 19 .6 4 .3 - 3 .6 - (2 .3) 46 .5 2,024 .8 - (987 .6) 46.5 1,037.2 40 .8 38 .9 - - (33 .2) - 978 .4 93 .7 (4 .2) 52 .7 (2 .8) (80 .6) 178.5 89.0 5.8 517.9 174.3 25.2 46.5 1,037.2 Plant and equipment includes the following amounts where the Group is a lessee under a finance lease: ($ million) Cost Accumulated depreciation Net book amount Consolidated 2018 - - - 2017 1 .2 (0 .5) 0 .7 91 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 12 Assets classified as held for sale Accounting policy - assets held for sale 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 and a sale is considered highly probable . An impairment loss is recognised for any initial or subsequent write down of the asset (or disposal group) to fair value less costs to sell . A gain is recognised for any subsequent increases in fair value less costs to sell an asset (or disposal group), but not in excess of any cumulative impairment loss previously recognised . A gain or loss not previously recognised by the date of the sale of the non current asset (or disposal group) is recognised at the date of de-recognition . Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale . Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale continue to be recognised . Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the other assets in the balance sheet . The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the balance sheet . Signed contracts are in existence for the sale of these assets held for sale and the assets are held at their carrying value . The timing is normal for the nature of the of the contract for sale in the Concrete Products segment . ($ million) Current Land and buildings Plant and equipment 13 Intangible assets Accounting policy - intangible assets (i) Goodwill Consolidated 2018 2017 - - - 1 .6 0 .3 1 .9 Goodwill is measured as described in Note 1(d) . Goodwill on acquisitions of subsidiaries is included in intangible assets . Goodwill on acquisition of joint ventures is included in the investment in joint ventures . Goodwill is not amortised . Instead, goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less 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 from the business combination for the purpose of impairment testing . Each of those cash generating units are consistent with the Group’s reporting 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 . (iii) Software Costs incurred in acquiring software and licences that will contribute to future period financial benefits through 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 . IT development costs include only those costs 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 . ($ million) 31 December 2018 Cost Accumulated amortisation Carrying amount at 31 December 2018 Opening balance at 1 January 2018 Reclassification Additions in current year Amortisation charge Closing balance at 31 December 2018 92 Consolidated Other Goodwill Software intangibles Total 281.3 - 281.3 280.1 - 1.2 - 281.3 20.1 (12.4) 7.7 8.5 1.2 - (2.0) 7.7 12.1 (1.6) 10.5 11.3 (0.6) - (0.2) 10.5 313.5 (14.0) 299.5 299.9 0.6 1.2 (2.2) 299.5 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 13 Intangible assets (continued) ($ million) 31 December 2017 Cost Accumulated amortisation Carrying amount at 31 December 2017 Opening balance at 1 January 2017 Reclassification Additions in current year Amortisation charge Closing balance at 31 December 2017 14 Impairment tests Consolidated Other Goodwill Software intangibles Total 280 .1 - 280 .1 248 .7 - 31 .4 - 280 .1 18 .9 (10 .4) 8 .5 9 .4 0 .9 - (1 .8) 8 .5 12 .7 (1 .4) 11 .3 12 .2 (0 .8) - (0 .1) 11 .3 311 .7 (11 .8) 299 .9 270 .3 0 .1 31 .4 (1 .9) 299 .9 Goodwill is not subject to amortisation and is 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 . An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount . The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use . 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 . (a) Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to business segments . A segment level summary of the goodwill allocation is presented below . ($ million) Cement and Lime Concrete and Aggregates Cement, Lime, Concrete and Aggregates segment Concrete Products segment Consolidated 2018 134.0 138.5 272.5 8.8 281.3 2017 134 .0 137 .3 271 .3 8 .8 280 .1 The recoverable amount of a CGU is determined based on value-in-use calculations . These calculations use cash flow projections based on 2019 financial budgets approved by the Board, external forecasts of market growth rates and expected operating margins and capital expenditure . Projected cash flows are forecast for a period of greater than 5 years to incorporate the construction cycle into demand assumptions for modelling purposes . The growth rate does not exceed the long term average growth rate for the industry in which the CGU operates . (b) Key assumptions used for value-in-use calculations ($ million) Cement, Lime, Concrete and Aggregates Concrete Products Growth rate 1 Discount rate 2 2018 % 1.4 1.2 2017 % 1 .3 1 .2 2018 % 10.8 11.6 2017 % 11 .3 12 .1 1 Weighted average growth rate used to extrapolate cash flows beyond the specific market forecast period of up to 11 years . 2 Pre-tax discount rate applied to cash flow projections . Significant estimate - key assumptions used for value-in-use calculations The Group tests annually whether goodwill, other intangible assets with an indefinite life and other non-current assets have suffered any impairment . The recoverable amounts of cash generating units have been determined based on value-in-use calculations . These calculations require the use of assumptions detailed above . Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances . The assumptions have been used for the analysis of each CGU within the business segment . Management determined budgeted gross margin and other operating costs based on the past performance and its expectations for the future . The discount rates used are pre-tax and reflect specific risks relating to relevant segments . 93 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 15 Provisions Accounting policy - provisions 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 . Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined 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 . Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date . Non-employee benefit 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) Short employee benefit obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled . The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits . All other short-term employee benefit obligations are presented as payables . (ii) Long term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method . Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service . Expected future payments are discounted using market yields at the end of the reporting period on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows . (iii) Workers’ compensation Certain entities within the Group are self insured for workers’ compensation purposes . For self-insured entities, provision is made that covers incidents that have occurred and have been reported together with an allowance for incurred but not reported claims . The provision is based on an actuarial assessment . (iv) Provisions for close down and restoration costs Close down and restoration costs include the dismantling and demolition of infrastructure and the removal of residual materials and remediation of disturbed areas . Provisions for close down and restoration costs do not include any additional obligations which are expected to arise from future disturbance . The costs are based on the net present value of the estimated future costs of a closure plan . Estimate changes resulting from new disturbance, updated cost estimates including information from tenders, changes to the lives of operations and revisions to discount rates are capitalised within property, plant and equipment . These costs are then depreciated over the lives of the assets to which they relate . The amortisation or ‘unwinding’ of the discount applied in establishing the net present value of provisions is charged to the income statement in each period as part of finance costs . Significant estimates - future cost to rehabilitate Restoration provisions are based on estimates of the future cost to rehabilitate currently disturbed areas using current costs, forecast cost inflation factors and rehabilitation requirements . The Group progressively rehabilitates as part of the quarrying process . Cost estimates are evaluated at least annually on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances . Provisions for close down and restoration costs at the end of the year was $40 .0 million (2017: $43 .1 million) . 94 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 15 Provisions (continued) ($ million) Current Employee benefits Restoration provisions Workers’ compensation Other provisions Non-current Employee benefits Restoration provisions Consolidated 2018 2017 26.8 1.5 1.1 1.0 30.4 6.7 38.5 45.2 27 .3 5 .1 0 .8 0 .6 33 .8 7 .0 38 .0 45 .0 The current portion of employee benefits includes all of the accrued annual leave, the unconditional entitlements to long service leave where employees are entitled to pro-rata payments in certain circumstances . However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months . The following amounts reflect leave that is not expected to be taken or paid within the next 12 months . ($ million) Current leave obligations expected to be settled after 12 months Consolidated 2018 4.2 2017 4 .0 Movements in each class of provision during the financial year, other than employee benefits, are set out below . ($ million) Opening balance at 1 January 2018 Additional provision recognised - charged to income statement Additional provision recognised - charged to asset retirement cost Charged to income statement - unwind of discount Payments Closing balance at 31 December 2018 Workers’ Restoration Other compensation provisions provisions 0.8 0 .8 - - (0 .5) 1.1 43.1 - 0 .1 1 .1 (4 .3) 40.0 0.6 1 .0 - - (0 .6) 1.0 95 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. Capital structure and risk management 16 Borrowings and lease commitments Accounting policy - borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred . Borrowings are subsequently measured at amortised cost . Any difference between 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 . Accounting policy - leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases . Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments . The corresponding rental obligations, net of finance charges, are included in borrowings . Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding . The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period . Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases . Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease . ($ million) Current Finance lease Non-current Bank loans - unsecured Consolidated 2018 2017 - 518.7 518.7 0 .3 428 .9 428 .9 The Group complied with the terms of borrowing agreements during the year . Details of the Group’s exposure to interest rate changes is set out in Note 20 . Due to the short term fixed interest rates of the borrowings, the carrying value is the fair value . Lease commitments - finance leases Commitments in relation to finance leases for various plant and equipment are payable as follows: Within one year Minimum lease payments Future finance charges Total lease liabilities The present value of finance lease liabilities is as follows: Within one year Minimum lease payments 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 - - - - - - 0 .3 0 .3 - 0 .3 0 .3 0 .3 4.4 12.5 124.4 141.3 4 .9 14 .9 128 .9 148 .7 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 . 96 Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 17 Share capital Accounting policy - share capital Ordinary shares are classified as equity . 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 . ($ million) (a) Share capital Issued and paid up capital Consolidated 2018 2017 650,610,606 (2017: 650,272,495) ordinary shares, fully paid 734.4 733 .1 (b) Movements in ordinary share capital Opening balance at 1 January 338,111 shares issued under Executive Performance Share Plan (2017: 618,396)1 Closing balance at 31 December 733.1 1.3 734.4 731 .4 1 .7 733 .1 1 Ordinary shares issued under the Adelaide Brighton Limited Executive Performance Share Plan (refer Note 26) . (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 Under the Dividend Reinvestment Plan (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, and has not been reactivated since that time . (e) Capital risk management The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern, continuing 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 . Adelaide Brighton’s target gearing ratio is 25% to 45% . The gearing ratio at 31 December 2018 and 31 December 2017 was as follows: ($ million) Total borrowings Less: cash and cash equivalents Net debt Total equity Gearing ratio (f) Employee share scheme and options Consolidated 2018 518.7 (93.9) 424.8 1,245.6 34.1% Restated 2017 429 .2 (57 .6) 371 .6 1,245 .8 29 .8% Information relating to the employee share schemes, including details of shares issued under the schemes is set out in Note 26 . 97 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 18 Dividends ($ million) Dividends paid during the year 2017 final dividend of 16 cents (2016 - 15 .5 cents) per fully paid ordinary share, franked at 100% (2016 - 100%) paid on 13 April 2018 2018 interim dividend of 13 cents (2017 - 8 .5 cents) per fully paid ordinary share, franked at 100% (2017 - 100%) paid on 11 October 2018 Total dividends - paid in cash Dividend not recognised at year end The Company 2018 2017 104.0 100 .7 84.6 188.6 55 .3 156 .0 Since the end of the year the Directors have recommended the payment of a final dividend of 15 cents (2017 16 cents) per fully paid share, franked at 100% (2017: 100%) . The aggregate amount of the proposed final dividend to be paid on 15 April 2019, not recognised as a liability at the end of the reporting period, is 97.6 104 .0 Franked dividend The franked portion of the dividend proposed as at 31 December 2018 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 2019 . ($ million) Franking credits available for subsequent financial years based on a tax rate of 30% (2017: 30%) Consolidated 2018 123.4 2017 136 .4 The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for: (a) franking credits that will arise from the payment of any current tax liability; (b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and (c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date . 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 $41 .8 million (2017: $46 .0 million) . 19 Reserves and retained earnings (a) Reserves Foreign currency translation reserve Share-based payment reserve Cash flow hedge 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 Reallocation to liabilities1 Issue of shares to employees Closing balance at 31 December Cash flow hedge reserve Opening balance at 1 January Revaluation - gross Reclassified to the carrying amount of inventory Deferred tax on movement in reserve Closing balance at 31 December 1 Certain long term equity incentives have changed and will result in a cash settled entitlement . 98 1.7 1.4 1.1 4.2 (0.3) 2.0 1.7 2.2 1.2 (1.4) (0.2) (0.4) 1.4 - 1.7 (0.1) (0.5) 1.1 (0 .3) 2 .2 - 1 .9 (0 .7) 0 .4 (0 .3) 2 .7 0 .6 (0 .2) - (0 .9) 2 .2 0 .9 - (1 .3) 0 .4 - Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 19 Reserves and retained earnings (continued) (b) Reserves (continued) 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(c) and accumulated in a separate reserve within equity . The cumulative amount is reclassified to the income statement 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 . Refer Note 26 . Cash flow hedge reserve The cash flow hedge reserve is used to recognise the accumulated movement in fair value of instruments that qualify for hedge accounting . The accumulated amount of a hedging instrument is transferred to the carrying value of inventory on recognition or, for hedges of items that are not non-financial assets or non-financial liabilities, to the income statement at the time of recognising the item in the income statement . (b) Retained earnings ($ million) 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 20 Financial risk management Financial risk management Consolidated 2018 508.2 185.3 (0.4) (188.6) 504.5 Restated 2017 480 .2 182 .7 1 .3 (156 .0) 508 .2 The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange, interest rate risk, and commodity price 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 where the Group’s exposure is material . The Board approves written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative and non-derivative financial instruments and investment of excess liquidity . The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes . The Group uses different methods to measure different types of risk to which it is exposed, which are reviewed on intervals appropriate to the individual risk . These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, and ageing analysis for credit risk . The Group uses derivative financial instruments in the form of foreign exchange forward contracts to hedge certain currency risk exposures and price caps to hedge the price risk related to certain electricity purchases . (a) Market risk (i) Foreign exchange risk The Group’s activities, through its importation of cement, clinker, slag and equipment, expose it to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar and the Japanese Yen . Foreign exchange risk arises from commitments and highly probable transactions, and recognised assets and liabilities that are denominated in a currency that is not the entity’s functional currency . The risk is measured using sensitivity analysis and cash flow forecasting . The Group enters into Forward Exchange Contracts (FEC) to hedge its foreign exchange risk on these overseas trading activities against movements in foreign currency exposure to the Australian Dollar . FECs are entered into for a duration in line with forecast purchases and currency matched to the underlying exposure . Ineffectiveness of the hedge can arise primarily from changes in the timing of foreign currency payments compared to the duration of the FEC . The Group treasury risk management policy is to progressively hedge up to 100% of material highly probable purchases for up to nine months forward on a rolling basis . Longer dated hedge positions are deemed too expensive versus the value at risk due to the respective currencies’ interest rate spread . As at the end of the reporting period, the Group had the following exposure to foreign exchange risk, expressed in Australian dollar: ($ million) Forward foreign exchange contracts: Buy foreign currency Sell Australian dollar (cash flow hedges) Net exposure Consolidated 2018 2017 55.0 (56.7) (1.7) 24 .2 (24 .2) - 99 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 20 Financial risk management (continued) (a) Market risk (continued) (ii) Electricity price risk The Group’s electricity purchases include market based pricing mechanisms, exposing cash flows to future movements in the underlying price of electricity in certain markets . Electricity price risk is assessed on the basis of forward projections of the Group’s electricity demand and forecast market pricing to calculate a Value At Risk (VAR) measure . Hedging the price risk is considered when the VAR outweighs the cost of risk mitigation alternatives . The Group considers and utilises where effective, futures electricity price caps (Caps) to manage this risk exposure . Caps are available for the relevant markets that the Group has price risk, matching the underlying price exposure of the Group . Ineffectiveness of the hedge arises from differences in the quantity of actual electricity purchases compared to the nominal quantity of the hedging instrument . (iii) Interest rate risk The Group’s main interest rate risk arises from bank borrowings with variable rates which expose the Group to interest rate risk . Due to the historically low levels of gearing, Group policy is to take on debt facilities on a one to five year term with fixed bank lending margins associated with each term . Cash advances to meet short and medium term borrowing requirements are drawn down against the debt facilities on periods up to 90 days, at a variable lending rate comprising the fixed bank margin applied to the daily bank bill swap rate effective at the date of each cash advance . During both 2018 and 2017, the Group’s borrowings at variable rates were denominated in Australian Dollars . The Group analyses its interest rate exposure on a dynamic basis . Periodically, various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging . Based on these scenarios, the Group calculates the impact on forecast profit and loss of a defined interest rate shift . The scenarios are run only for liabilities that represent the major interest-bearing positions . As at the end of the reporting period, the Group had the following exposure to variable and fixed rate financial instruments: Variable rate instruments: Cash at bank, on hand and at call Bank facilities Fixed rate instruments: Finance leases (iv) Summarised sensitivity analysis Consolidated 2018 2017 Weighted Weighted average Balance average Balance interest rate $ million interest rate $ million 2.0% 3.1% 93.9 518.7 2 .0% 2 .83% 57 .6 428 .9 - - 5 .51% 0 .3 Foreign currency risk relating to assets and liabilities at year end is immaterial as the majority of sales and assets are denominated in Australian Dollars, while the Group’s purchases that are in foreign currency are settled at the time of the transaction . Consequently, liabilities recognised at 31 December are generally in Australian Dollars . All borrowings are denominated in Australian Dollars . Electricity price risk impacts on future purchases of electricity, therefore recognised liabilities for electricity purchases are not impacted . The following table summarises the sensitivity of the Group’s floating rate borrowings to interest rate risk at the end of the reporting period . A 100 basis-point sensitivity has been selected as this is considered reasonable given the current level of both short term and long term Australian dollar interest rates . ($ million) Interest rates - increase by 1% Interest rates - decrease by 1% (b) Credit risk Consolidated 2018 2017 Impact on Impact on post-tax Impact on post-tax Impact on profit (3.6) 3.6 equity (3.6) 3.6 profit (3 .0) 3 .0 equity (3 .0) 3 .0 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 as credit exposures to customers, including outstanding receivables and committed transactions, and financial guarantees . Financial guarantees are only provided in exceptional circumstances and are subject to approval in accordance with the Board approved delegated authorities . For banks and financial institutions, only independently rated parties with investment grade rating are accepted . Derivative counterparties and cash transactions are limited to high credit quality institutions . 100 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 20 Financial risk management (continued) (b) Credit risk (continued) For trading credit risk, the Group assesses the credit quality of the customer, taking into account its financial position, past experience, external credit agency reports and credit references . Individual customer risk limits are set based on internal approvals in accordance with delegated authority limits set by the Board . The compliance with credit limits by credit approved customers is regularly monitored by line credit management . Sales to non-account customers are settled either in cash, major credit cards or electronic funds transfer, mitigating credit risk . 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 . The Group uses credit insurance for selected accounts with a credit limit exceeding $0 .25 million . The maximum liability insured is capped at $14 million . The Company applies the simplified approach to providing for expected credit losses, which permits the use of the lifetime expected loss provision for all trade receivables . The loss allowance provision as at 31 December 2018 is determined as set out below, which incorporates past experience and forward looking information, including the outlook for market demand and forward looking interest rates . Consolidated 2018 Gross 2017 Gross Expected Carrying Expected Carrying loss rate % 0.11 0.21 2.03 75.92 Amount $million Provision $million 115.6 73.6 10.1 24.5 223.8 0.1 0.2 0.2 18.6 19.1 loss rate % 0 .11 0 .22 2 .09 73 .26 Amount $million Provision $million 125 .7 85 .8 13 .1 25 .8 250 .4 0 .1 0 .2 0 .3 18 .9 19 .5 Current More than 30 days past due More than 60 days past due More than 90 days past due Total The gross carrying amount includes external receivables of $189 .0 million (2017: $200 .1 million) and joint venture receivables of $34 .8 million (2017: $50 .3 million) . In late 2017 the Group became aware of certain financial discrepancies which related to transactions whereby it was underpaid for products supplied to customers . The Group has as a result recognised an additional provision of $17 .1 million in 2017 for the impairment of trade receivables in the balance sheet in the prior period . While the financial impact of the discrepancies has been quantified, investigations are continuing . The Company is also continuing its efforts to recover amounts due . (c) Liquidity risk The ultimate responsibility for liquidity risk management rests with the Board which has established an appropriate risk management framework for the management of the Group’s short, medium and long term funding and liquidity management requirements . The Group’s Corporate Treasury Function manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities . Included below is a statement of credit standby facilities that the Group has at its disposal to further reduce liquidity risk . Financing arrangements ($ million) Unrestricted access was available at balance date to the following lines of credit: Credit standby arrangements Total facilities Bank overdrafts Bank facilities Used at balance date Bank overdrafts Bank facilities Unused at balance date Bank overdrafts Bank facilities Maturity profile of bank facilities . Maturing on: 4 January 2019 6 January 2021 7 January 2022 Consolidated 2018 2017 4.0 590.0 594.0 - 520.0 520.0 4.0 70.0 74.0 - 330.0 260.0 590.0 4 .0 540 .0 544 .0 - 430 .0 430 .0 4 .0 110 .0 114 .0 210 .0 330 .0 - 540 .0 101 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 20 Financial risk management (continued) (c) Liquidity risk (continued) 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 . Contractual maturities of financial liabilities Consolidated ($ million) 31 December 2018 Non-derivatives Trade payables Bank facilities Finance leases Bank guarantees Derivatives Gross settled forward foreign exchange contracts (cash flow hedges): - (inflow) - outflow 31 December 2017 Non-derivatives Trade payables Bank facilities Finance leases Bank guarantees Derivatives Gross settled forward foreign exchange contracts (cash flow hedges): - (inflow) - outflow < 6 months 6-12 months 1-2 years > 2 years Total (Assets)/Liabilities Carrying Amount 133.0 8.5 - 6.2 147.7 (47.5) 48.9 1.4 145 .9 6 .4 0 .3 6 .0 158 .6 (23 .8) 23 .8 - - 8.5 - 6.5 15.0 (7.5) 7.8 0.3 - 6 .4 - 6 .3 12 .7 (0 .4) 0 .4 - - 316.6 - 4.2 320.8 - 220.1 - 23.7 243.8 - - - - - - - 195 .1 - - 195 .1 - 250 .1 - 23 .2 273 .3 - - - - - - 133.0 553.7 - 40.6 727.3 (55.0) 56.7 1.7 145 .9 458 .0 0 .3 35 .5 639 .7 (24 .2) 24 .2 - 133.0 518.7 - - 651.7 - - - 145 .8 428 .9 0 .3 - 575 .0 - - - (d) Financial instruments, derivatives and hedging activity The Company early adopted AASB 9 Financial Instruments and implemented hedge accounting during the prior period ended December 2015 . Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to credit risk can be found in (b) above . Accounting policy - financial instruments The Group classifies its financial assets in the following categories: financial assets at amortised cost, financial assets at fair value through profit or loss and hedging instruments . The classification depends on the purpose for which the financial assets were acquired, which is determined at initial recognition based upon the business model of the Group . (i) Financial assets at amortised cost The Group classifies its financial assets as at amortised cost if the asset is held with the objective of collecting contractual cash flows and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest . These include trade receivables and bank term deposits . Bank term deposits are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market . They are financial assets at amortised cost and are included in current assets, except for those with maturities greater than 12 months after the balance sheet date . Refer to Note 9 for details relating to trade receivables . (ii) Financial assets through profit or loss Forward foreign exchange contracts are derivative instruments entered into by the Group for the purpose of managing foreign currency risk prior to late August 2015 which do not qualify for hedge accounting . 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 . Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement and are included in finance costs . 102 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 20 Financial risk management (continued) (d) Financial instruments, derivatives and hedging activity (continued) (iii) Hedging instruments Financial instruments entered into by the Group for the purpose of managing foreign currency risk associated with its highly probable inventory purchases and electricity price risk with its highly probable electricity purchases after late August 2015 qualify for hedge accounting . Instruments are initially recognised at fair value on the date a contract is entered into . Changes in fair value of instruments that qualify for hedge accounting are recognised in other comprehensive income in the cash flow hedge reserve . Amounts accumulated in the hedge reserve are recognised as part of the initial carrying amount of an asset or liability or reclassified to the income statement, depending upon the purpose of the hedging instrument . Refer to Note 20(a) for details of the movements in the Group’s reserves relating to hedging activities . The effects of applying hedge accounting on the Group’s financial position and performance are as follows: Hedging instrument - forward foreign exchange contracts Carrying amount - $ million Notional amount US Dollars - $ million Notional amount Yen - $ million Notional amount EURO - $ million Maturity date Hedge ratio Change in value of outstanding hedge instruments since 1 January - $million Change in value of hedge item used to determine hedge effectiveness - $million Weighted average hedge rate - US Dollars - Yen - Euro Fair value measurements Fair value hierarchy Consolidated 2018 2017 1.7 53.4 1.2 0.4 Jan - Jul 2019 1:1 - - - 20 .6 1 .7 1 .9 Jan - Aug 2018 1:1 - - A$1 : US$0.7281 A$1 : Yen 82.5 A$1 : EURO$0.6438 A$1 : US$0 .7769 A$1 : Yen 87 .9 A$1 : EURO$0 .6581 The fair value of financial assets and liabilities must be estimated for recognition and measurement or for disclosure purposes . The carrying amounts of financial instruments disclosed in the balance sheet approximate to their fair values . AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities . Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) . Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) . (i) Recognised fair value measurements The Group measures and recognises derivatives used for hedging foreign currency risk and electricity price risk at fair value on a recurring basis . The Group held assets in relation to forward exchange contracts of $1 .7 million (2017: assets of $0 .2 million and liabilities of $0 .2 million) at the end of the reporting period . There were no electricity price caps in place at 31 December 2018 or 31 December 2017 . The fair values of the forward exchange contracts are measured with reference to forward interest rates and exchange rates at balance date and the present value of the estimated future cash flows (level 2) . (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 current trade receivables and payables are assumed to approximate their fair values due to their short term nature . For non-current receiveables, the fair values are also not significantly different to their carrying amounts as a commercial rate of interest is charged to the counterparty (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) . 103 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. Group structure 21 Joint arrangements and associate Accounting policy - joint arrangements and associate (i) Associate entity The interest in associate is accounted for using the equity method, after initially being recorded at cost . Under the equity method, the share of the profits or losses of the associate is recognised in the income statement, and the share of post-acquisition movements in reserves is recognised in other comprehensive income . Profits or losses on transactions establishing the associate and transactions with the associate are eliminated to the extent of the Group’s ownership interest until such time as they are realised by the associate on consumption or sale, unless they relate to an unrealised loss that provides evidence of the impairment of an asset transferred . (ii) Joint arrangements Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of the Group to the joint arrangement . Joint operations Interests in joint operations are accounted for using the proportionate consolidation method . Under this method, the Group has recognised its share of assets, liabilities, revenues and expenses . Joint ventures Interests in joint ventures are accounted for using the equity method . Under this method, 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 statement of other comprehensive income respectively . Dividends received are recognised as a reduction in the investment in the joint venture . When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint venture (which includes any long term 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 . Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the 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 . (a) Summarised financial information for joint ventures and associate The following table 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 Total Joint ventures Associate Consolidated 2018 133.9 36.6 - 36.6 2017 121 .3 33 .6 - 33 .6 2018 40.0 0.8 - 0.8 2017 39 .0 1 .5 - 1 .5 2018 173.9 37.4 - 37.4 2017 160 .3 35 .1 - 35 .1 104 Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 21 Joint arrangements and associate (continued) (b) Interests in joint arrangements and associate Ownership interest 2018 2017 Name Principal place of business Aalborg Portland Malaysia Sdn . Bhd .1 Malaysia Batesford Quarry 2 Victoria Burrell Mining Services JV 2 New South Wales and Queensland E .B . Mawson & Sons Pty Ltd and Lake Boga Quarries Pty Ltd 3 New South Wales and Victoria Independent Cement and Lime Pty Ltd3 New South Wales and Victoria Peninsula Concrete Pty Ltd 3 South Australia Sunstate Cement Ltd3 Queensland % 30 50 50 50 50 50 50 % 30 50 50 50 50 50 50 Activities White clinker and cement manufacture Limestone products Concrete products for the coal mining industry Premixed concrete and quarry products Cementitious product distribution Premixed concrete Cement milling and distribution 1 Associate 2 Joint operation 3 Joint venture Each of the above entities, except Aalborg Portland Malaysia Sdn . Bhd ., 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 . (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 exercise by the joint venture partner, the occurrence of which affects the value of the interest . The minimum amount of the contingent liability is $32 .1 million (2017: $31 .3 million) . 22 Subsidiaries and transactions with non-controlling interests The Group’s material subsidiaries at 31 December are set out below . The subsidiaries have share capital consisting solely of ordinary shares, which are held directly by the Group, and the proportion of ownership interests held equals to the voting rights held by the Group . The country of incorporation or registration is also their principal place of business . Name of entity Place of incorporation Adbri Masonry Group Pty Ltd Adbri Masonry Pty Ltd Adelaide Brighton Cement Investments Pty Ltd Adelaide Brighton Cement Ltd Adelaide Brighton Management Ltd Aus-10 Rhyolite Pty Ltd Cockburn Cement Ltd Exmouth Limestone Pty Ltd Hurd Haulage Pty Ltd Hy-Tec Industries Pty Ltd Hy-Tec Industries (Queensland) Pty Ltd Hy-Tec Industries (Victoria) Pty Ltd Morgan Cement International Pty Ltd Northern Cement Ltd Premier Resources Ltd Screenings Pty Ltd Southern Quarries Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ownership interest held by the Group 2018 2017 % 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 % 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 Class of shares Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord Ord 105 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018.23 Deed of cross guarantee As at the date of this report, Adelaide Brighton Limited, 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, Southern Quarries Pty Ltd, Central Pre-Mix Concrete Pty Ltd and Hy-Tec Industries (Northern Territory) 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, wholly owned entities classified as a “Closed Group” are relieved from the requirement to prepare a financial report and Directors’ report under ASIC Corporations (Wholly-owned companies) Instrument 2016/785 (formerly Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission) . Direct Mix Holdings Pty Ltd is ineligible for relief under the Instrument and is classified as a member of the “Extended Closed Group” for the purposes of the Instrument . Hy-Tec Industries (Northern Territory) Pty Ltd was added to the “Closed Group” during 2018 . Set out below is a consolidated balance sheet as at 31 December 2018 of the Closed Group . ($ million) Current assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Assets classified as held for sale Total current assets Non-current assets Receivables Retirement benefit asset 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 Other liabilities Total current liabilities Non-current liabilities Borrowings Deferred tax liabilities Provisions Other non-current liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity 106 2018 86.6 226.7 175.8 5.6 - 494.7 39.9 2.5 98.6 21.4 1,024.6 293.2 1,480.2 1,974.9 131.7 - - 29.9 15.8 177.4 518.7 90.1 45.1 0.1 654.0 831.4 Restated 2017 50 .4 242 .6 166 .4 - 1 .9 461 .3 37 .3 3 .5 91 .7 21 .4 997 .4 293 .6 1,444 .9 1,906 .2 140 .9 0 .1 9 .9 33 .0 18 .3 202 .2 428 .9 84 .0 42 .4 0 .1 555 .4 757 .6 1,143.5 1,148 .6 734.4 2.2 406.9 733 .1 1 .4 414 .1 1,143.5 1,148 .6 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 23 Deed of cross guarantee (continued) 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 2018 of the Closed Group . ($ million) Profit before income tax Income tax expense Profit for the year Retained earnings 1 January Retained earnings - newly added entities Profit for the year Other comprehensive income Dividends paid Retained earnings 31 December 24 Parent entity financial information 2018 242.6 (65.9) 176.7 414.1 5.1 176.7 (0.4) (188.6) 406.9 Restated 2017 237 .5 (70 .0) 167 .5 401 .3 - 167 .5 1 .3 (156 .0) 414 .1 The financial information for the parent entity, Adelaide Brighton Limited (“the Company”), has been prepared on the same basis as the consolidated financial statements, except as set out below . (i) Investments in subsidiaries, associate and joint arrangements Investments in subsidiaries, associate and joint arrangements are accounted for at cost 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 in the subsidiary . These include investments in the form of interest free loans which have no fixed repayment terms and which have been provided to subsidiaries as an additional source of long term capital . Trade amounts receivable from subsidiaries in the normal course of business and other amounts advanced on commercial terms and conditions are included in receivables . 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 . (ii) Tax consolidation legislation The Company and its wholly owned Australian controlled entities have implemented the tax consolidation legislation . The Company and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts . These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right . In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets) and the deferred assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated Group . The entities have also entered into a tax funding agreement under which the wholly owned entities fully compensate the Company for any current tax payable assumed and are compensated by Adelaide Brighton Limited 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 owned entities’ financial statements . The amounts receivable/payable under the tax funding agreement are due upon receipt of the funding advice from the head entity, which is issued as soon as practicable after the end of each financial year . The head entity may also require payment of interim funding amounts to assist with its obligations to pay tax instalments . 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 . Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly owned tax consolidated entities . (iii) Financial guarantees Where the Company has provided financial guarantees in relation to loans and payables of subsidiaries for no compensation, the fair values of these guarantees are accounted for as contributions and recognised as part of the cost of the investment . (iv) Share based payments The grant by the Company of options over its equity instruments to employees of subsidiary undertakings in the Group is treated as a receivable from that subsidiary undertaking . 107 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 24 Parent entity financial information (continued) (a) Summary financial information The individual financial statements for the Company show the following aggregate amounts: ($ million) Balance sheet Current assets Total assets Current liabilities Total liabilities Net assets Shareholders’ equity Share capital Reserves Share-based payments Retained earnings Total shareholders’ equity Profit for the year Total comprehensive income 2018 2017 2,534.8 2,932.3 1,445.9 1,999.5 932.8 2,277 .1 2,674 .6 1,298 .8 1,762 .7 911 .9 727.3 725 .9 1.4 204.1 932.8 208.9 208.9 2 .2 183 .8 911 .9 169 .1 169 .1 (b) Guarantees entered into by the parent entity Bank guarantees 5.4 7 .4 (c) Contingent liabilities of the parent entity The parent entity did not have any contingent liabilities as at 31 December 2018 or 31 December 2017 other than the bank guarantees detailed above . 25 Retirement benefit obligations Accounting policy - 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 section provides defined lump sum benefits on retirement, death, disablement and withdrawal, based on years of service and final average salary . The defined benefit plan section is closed to new members . The defined contribution section receives fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions . A liability or asset in respect of defined benefit superannuation plans is recognised in the balance sheet, and is measured as the present value of the defined benefit obligation at the reporting date less the fair value of the superannuation fund’s assets at that date . The present value of the defined benefit obligation is based on expected future payments, which arise from membership of the fund to the reporting date, calculated by independent actuaries using the projected unit credit method . Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service . Expected future payments are discounted using market yields at the reporting date on high quality corporate 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 in the statement of comprehensive income . They are included in retained earnings in the statement of changes in equity and in the balance sheet . Past service costs are recognised immediately in the income statement . 108 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 25 Retirement benefit obligations (continued) 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 . Significant estimate - key assumptions The present value of defined benefit superannuation plan obligations depends on a number of factors that are determined 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 . (a) Superannuation plan details Other than those employees that have opted out, employees are members of the consolidated superannuation entity being the Adelaide Brighton Group Superannuation Plan (“the Plan”), a sub-plan of the Mercer Super Trust (“MST”) . The MST is a superannuation master trust arrangement governed by an independent trustee, Mercer Investment 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% . The Plan’s Trustee is responsible for the governance of the Plan . The Trustee has a legal obligation to act solely in the best interests of Plan beneficiaries . The Trustee has the following roles: > Administration of the Plan and payment to the beneficiaries from Plan assets when required in accordance with the Plan rules; > Management and investment of the Plan assets; and > Compliance with superannuation law and other applicable regulations . The prudential regulator, the Australian Prudential Regulation Authority (APRA), licenses and supervises regulated superannuation plans . Membership is in either the Defined Benefit or Accumulation sections of the Plan . The accumulation section receives fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions . The following sets out details in respect of the defined 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 through additional contributions from the Group . The defined benefit section of the Plan is closed to new members . During the 12 months to 31 December 2018, all new employees, who are members of this fund, have become members of the accumulation category of the Plan . There are a number of risks to which the Plan exposes the Company . The more significant risks relating to the defined benefits are: > Investment risk - the risk that investment 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 contributions . > Legislative risk - the risk that legislative changes could be made which increase the cost of providing the defined benefits . > Timing of members leaving service - a significant amount of benefits paid to 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 . The defined benefit assets are invested in the Mercer Growth investment option . The assets are diversified within this investment option and therefore the Plan has no significant concentration of investment risk . 109 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 25 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 2018 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 (gain) Contributions: Employers Plan participants Payments from Plan: Benefit payments At 31 December 2018 At 1 January 2017 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 (gain) Contributions: Employers Plan participants Payments from Plan: Benefit payments At 31 December 2017 Present value of Fair value of Net obligation/ obligation plan assets (asset) 44.8 1.4 1.3 0.1 2.8 - (0.1) (0.1) (0.2) - 0.8 (4.6) 43.6 51 .4 1 .7 1 .7 0 .2 3 .6 - (0 .3) 0 .9 0 .6 - 0 .9 (48.3) - (1.4) (0.1) (1.5) 0.8 - - 0.8 (0.9) (0.8) 4.6 (46.1) (53 .7) - (1 .8) (0 .2) (2 .0) (2 .5) - - (2 .5) (0 .9) (0 .9) (11 .7) 44 .8 11 .7 (48 .3) (3.5) 1.4 (0.1) - 1.3 0.8 (0.1) (0.1) 0.6 (0.9) - - (2.5) (2 .3) 1 .7 (0 .1) - 1 .6 (2 .5) (0 .3) 0 .9 (1 .9) (0 .9) - - (3 .5) 110 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 25 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 2018 Unquoted $ million 12.9 16.1 6.5 6.5 0.9 3.2 46.1 31 December 2017 Unquoted in % 28% 35% 14% 14% 2% 7% 100% $ million 12 .6 15 .4 10 .1 6 .3 1 .0 2 .9 48 .3 in % 26% 32% 21% 13% 2% 6% 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 . - first year Future salary increases - % p .a . - second year Future salary increases - % p .a . - thereafter 2018 2017 % 3.0 2.5 2.5 2.5 % 3 .3 2 .0 3 .5 3 .0 The sensitivity of the defined benefit obligation to changes in the significant assumptions is: 31 December 2018 Discount rate Future salary increases 31 December 2017 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 1 .5% Increase by 1 .1% Increase by 1 .6% Decrease by 1 .0% Decrease by 1 .6% Increase by 1 .2% Increase by 1 .7% Decrease by 1 .1% 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 The Group made contributions to the Plan at rates of between 6% and 9% of member salaries . Expected contributions to the defined benefit plan for the year ending 31 December 2019 are $0 .7 million (2018: $0 .7 million) . The weighted average duration of the defined benefit obligation is 5 years (2017: 6 years) . 111 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 26 Share-based payment plans Accounting policy - share-based payments Share-based compensation benefits are provided to executives via the Adelaide Brighton Limited Executive Performance Share Plan (“the Plan” or “EPSP”) . 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 date and recognised over the period during which the employees become unconditionally entitled to the Awards . 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 . The fair value of the Awards granted excludes 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 employee benefit expense recognised each period takes into account the most recent estimate . The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding entry to equity . The Plan is administered by the Adelaide Brighton employee share plan trust; see Note 1(b)(ii) . (a) Employee Share Plan The establishment of the Adelaide Brighton Limited 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 (2017 - 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 Plan provides for grants of Awards to eligible executives . This plan was approved by shareholders at the Annual General Meeting held on 19 November 1997 . Under the Plan, eligible executives are granted Awards (each being an entitlement to a fully paid ordinary share of Adelaide Brighton Limited, 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 49-71 . 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 2018 2017 2,767,452 142,357 (554,824) (338,111) (338,108) 2,919,824 593,583 - (618,396) (127,559) 1,678,766 2,767,452 - - The average value per share at the earliest exercise date during the year was $6 .42 (2017: $5 .76) . 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 . 112 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 26 Share-based payment plans (continued) (b) Executive Performance Share Plan (continued) The fair value of Awards at the grant date are independently determined using a pricing model . 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 tables below set out the key assumptions used by the independent valuer in their valuation model to assess the fair value of the Awards . Awards granted in 2018 - weighted average pricing model inputs Share price at grant date - per share Expected future dividends - per share Risk-free interest rate - % p .a . Lack of marketability discount - % p .a . TSR condition discount Earliest exercise date 2018 Awards $6 .84 $0 .96 2 .30 3 .00 50% 1 May 22 Awards granted in 2017 - weighted average pricing model inputs Share price at grant date - per share Expected future dividends - per share Risk-free interest rate - % p .a . Lack of marketability discount - % p .a . TSR condition discount Earliest exercise date 2017 Awards $5 .62 $0 .79 1 .97 2 .25 50% 1 May 21 Comparative information has been updated to reflect the most recent Award valuations undertaken by the independent valuer . 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 Group recognised share based payments expense of $1,399,867 during the year (2017: $619,965) . The weighted average remaining contractual life of Awards outstanding at the end of the period was 1 .4 years (2017: 1 .8 years) . 113 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. Other 27 Related parties (a) Compensation of Key Management Personnel ($ million) Short-term employee benefits Post employment benefits Share-based payments Consolidated 2018 9.0 0.1 1.2 10.3 2017 5 .3 0 .1 0 .5 5 .9 (b) Other transactions with Key Management Personnel RD Barro, a Director of Adelaide Brighton Limited, is Managing Director of Barro Group Pty Ltd . Barro Group Pty Ltd and Adelaide Brighton Limited, 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 . M Brydon, the former CEO and Managing Director, and M Kelly, a senior executive of Adelaide Brighton Limited for part of the year, were Directors of Sunstate Cement Ltd during the reporting period . G Agriogiannis and B Brown, being senior executives of Adelaide Brighton Limited were also Directors of the Mawson Group for part of the year . During the year, the Group traded significantly with Independent Cement and Lime Pty Ltd, Sunstate Cement Ltd, the Mawson Group and Aalborg Portland Malaysia Sdn . Bhd ., which are all joint ventures or associates of the Group . (c) Controlled entities All transactions involving the Barro Group Pty Ltd and Adelaide Brighton Limited and its subsidiaries, Independent Cement and Lime Pty Ltd and its subsidiaries, Sunstate Cement Ltd, the Mawson Group and Aalborg Portland Malaysia Sdn . Bhd . 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 standard 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 by subsidiaries and joint ventures with the Directors and their related parties: Sales to Director related parties Purchases from Director related parties Consolidated 2018 $ 2017 $ 84,622,252 34,204,918 80,951,994 18,967,244 Details of interests in controlled entities are set out in Note 22 . The ultimate parent company is Adelaide Brighton Limited . (d) Joint arrangement and associate entities 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 . 114 Adelaide Brighton Ltd and its controlled entities . Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018 . 27 Related parties (continued) (e) Transactions with related parties The following transactions occurred with related parties: ($’000) Sales of goods Joint venture entities Purchases of materials and goods Joint venture entities Associate entities Interest revenue Joint venture entities Dividend and distribution income Joint venture entities Superannuation contributions Consolidated 2018 2017 328,134 307,037 116,080 10,362 115,210 6,597 742 659 25,670 26,413 Contributions to superannuation funds on behalf of employees 13,337 12,628 Loans advanced to: Joint venture entities (f) Outstanding balances arising from sales/purchases of goods and services The following balances are outstanding at the reporting date in relation to transactions with related parties: ($’000) Current receivables Joint venture entities (interest) Joint venture entities (trade) Non-current receivables Joint venture entities (loans) Current payables Joint venture entities (trade) 2,958 3,125 Consolidated 2018 2017 394 34,375 313 49,977 38,032 35,049 8,847 7,997 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 $742,491 (2017: $659,420) . 28 Events occurring after the balance sheet date No matter or circumstance has arisen since 31 December 2018 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years . 29 Commitments for capital expenditure ($ million) Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Within one year Consolidated 2018 2017 11.1 15 .0 115 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018. 30 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: ($) (a) Audit services PricewaterhouseCoopers Australian firm Audit and review of financial statements (b) Non-audit services PricewaterhouseCoopers Australian firm Other assurance services 31 Contingencies Details and estimates of maximum amounts of contingent liabilities are as follows: ($ million) (a) Guarantees Bank guarantees (b) Litigation Consolidated 2018 2017 769,416 855,313 65,900 20,550 Consolidated 2018 40.6 2017 35 .4 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 . 116 Adelaide Brighton Ltd and its controlled entities. Notes to and forming part of the consolidated financial statements for the year ended 31 December 2018.Directors’ declaration Auditor’s independence declaration AUDITOR’S INDEPENDENCE DECLARATION In the Directors’ opinion: (a) the fi nancial statements and notes set out on pages 72 to 116 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s fi nancial position as at 31 December 2018 and of its performance As lead auditor for the audit of Adelaide Brighton Limited for the year ended 31 December 2018, I declare that to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit . for the fi nancial year ended on that date; This declaration is in respect of Adelaide and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (c) at the date of this declaration, there are reasonable grounds to believe that the members of the Extended Closed Group identifi ed in Note 23 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 23 . Brighton Limited and the entities it controlled during the period . MT Lojszczyk Partner PricewaterhouseCoopers Adelaide 19 March 2019 Liability limited by a scheme approved Note 1(a) confi rms that the fi nancial under Professional Standards Legislation . 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 former CEO and Managing Director and Acting Chief PricewaterhouseCoopers ABN 52 780 433 757 Level 11, 70 Franklin Street, Adelaide SA 5000 GPO Box 418, Adelaide SA 5001 Telephone +61 8 8218 7000 Facsimile +61 8 8218 7999 Financial Offi cer required by section 295A of www .pwc .com .au the Corporations Act 2001 . This declaration is made in accordance with a resolution of the Directors . Zlatko Todorcevski Chairman Dated 19 March 2019 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . 117 Independent auditor’s report to the members of Adelaide Brighton Ltd Report on the audit of the fi nancial report Our opinion In our opinion: The accompanying fi nancial report of Adelaide Brighton Limited (the Company) and its controlled entities (together the Group) is in accordance with the Corporations Act 2001, including: Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the fi nancial report in Australia . We have also fulfi lled our other ethical responsibilities in accordance (a) giving a true and fair view of the Group’s with the Code . fi nancial position as at 31 December 2018 and of its fi nancial performance for the year then ended (b) complying with Australian Accounting Standards and the Corporations Regulations 2001 . What we have audited The Group fi nancial report comprises: > the consolidated balance sheet as at 31 December 2018 Our audit approach An audit is designed to provide reasonable assurance about whether the fi nancial report is free from material misstatement . Misstatements may arise due to fraud or error . They are considered material if individually or in aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of the fi nancial report . Audit scope > Our audit focused on where the Group made subjective judgements; for example, signifi cant accounting estimates involving assumptions and inherently uncertain future events . > We conducted an audit of the most signifi cant components being Cement and Lime (primarily focusing on the South Australian and Western Australian businesses which comprise the bulk of these operations) which, in our view, were fi nancially signifi cant to the fi nancial report . > Additionally, we performed specifi c risk focused audit procedures in relation to the Group’s Cement and Lime component in the Northern Territory and New South Wales, Concrete and Aggregates components in New South Wales, Victoria and Queensland and Concrete Products . > Independent Cement and Lime Pty Ltd and Sunstate Cement Ltd were the largest contributors to the Group’s share of net > the consolidated statement of We tailored the scope of our audit to ensure profi ts from joint ventures and associates . comprehensive income for the year that we performed enough work to be able Other auditors audited the fi nancial reports then ended to give an opinion on the fi nancial report as for Independent Cement and Lime Pty Ltd > the consolidated statement of changes in a whole, taking into account the geographic and Sunstate Cement Ltd for the year ended equity for the year then ended and management structure of the Group, its 30 June 2018 . We determined the level of > the consolidated statement of cash fl ows for accounting processes and controls and the involvement we needed to have to be able the year then ended industry in which it operates . > the notes to the consolidated fi nancial statements, which include a summary of Materiality to conclude whether suffi cient appropriate audit evidence had been obtained for our opinion on the Group fi nancial report as signifi cant accounting policies > For the purpose of our audit we used overall a whole, including reviewing the work of > the directors’ declaration . Group materiality of $12 million, which these other auditors . Due to the different Basis for opinion represents approximately 5% of the Group’s balance dates utilised by these joint profi t before tax . ventures, we performed audit procedures We conducted our audit in accordance > We applied this threshold, together with for the period 1 July 2018 to (and as at) with Australian Auditing Standards . Our qualitative considerations, to determine the 31 December 2018, including substantive responsibilities under those standards scope of our audit and the nature, timing analytical procedures over the fi nancial are further described in the Auditor’s and extent of our audit procedures and to results, to obtain suffi cient evidence in responsibilities for the audit of the fi nancial evaluate the effect of misstatements on the respect of the results for the year ended and report section of our report . fi nancial report as a whole . fi nancial position as at 31 December 2018 We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinion . > We chose Group profi t before tax because, for our opinion . in our view, it is the benchmark against which the performance of the Group is most commonly measured . > We utilised a 5% threshold based on our professional judgement, noting it is within the range of commonly acceptable thresholds . Outside the operations identifi ed above, the Group includes components which individually and collectively do not contribute materially to the overall Group result . We have obtained an understanding of these operations and performed analytical procedures . 118 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period . The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters . Further, any commentary on the outcomes of a particular audit procedure is made in that context . Key audit matter How our audit addressed the key audit matter Recoverability of good will and property, plant and equipment We evaluated the Group’s cash flow forecasts and the process (Refer to notes 11, 13 & 14) The financial report of the Group includes goodwill of $281 .3 million and property, plant and equipment of $1,061 .7 million as at 31 December 2018 . by which they were developed . We compared the 2019 forecast to Board approved budgets . We checked that prior year budgets have been materially consistent with actual performance to assess the Group’s ability to make reliable forecasts . We note that for the assessment in the current year, management have allocated In order to assess recoverability of these assets, the Group prepared financial models (hereafter, “the models”) as at 31 December 2018 corporate costs against each operating segment which has increased the costs included in the discounted cash flow model . to determine if the carrying values of goodwill and property, plant and equipment were supported by forecast future cash flows, discounted to present value . We compared growth rate assumptions with external forecasts for the industry and found the growth rate assumptions in the models to be consistent with these . We have performed a sensitivity analysis on The recoverability of these assets was a key audit matter given the the growth rate and WACC used . No material risk of impairment was significance of the Group’s recorded goodwill and property, plant and identified through this assessment . equipment balances to the financial position of the Group, and the judgments and assumptions required in assessing the assets value in use (including budgeted cash flows, growth rates and discount rates) . The Group engaged an expert to assist them in determining the discount rates applied in the impairment models . We assessed them as Group experts, and considered their methods, competency, and objectivity . Having done so, we were satisfied that we could rely on the work of the Group’s expert for the purpose of our audit . We ensured that the WACC employed in the cashflow forecasts are consistent with those recommended by management’s expert . 119 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Key audit matter How our audit addressed the key audit matter Estimation of close down and restoration provision We assessed whether a provision was included for all sites that (Refer to note 15) The Group recognised restoration provisions of $40 .0 million in relation to the rehabilitation of presently operating quarries and concrete plants . The estimation of rehabilitation provisions was a key audit matter because the estimation of rehabilitation provisions involves signifi cant judgement to estimate future costs and to assess rehabilitation requirements . required rehabilitation based on our knowledge of the Group’s operations, review of new lease contract agreements, review of meeting minutes, and discussions with management . We did not identify any omissions from our procedures . We focussed our attention on sites where there had been a signifi cant change to the nominal cost of the provision from the previous period, or where we would have expected there to be a material change based on our knowledge of the business . For sites what a signifi cant change, we have corroborated with site manager The rehabilitation provision for sites being actively remediated is and engineering reports to validate the change . based on future works tendered cost estimates as well as costs to complete the current stage of rehabilitation . For other quarries not currently being actively remediated, the provision is determined via the nominal cost estimate process completed annually by operational staff based on rehabilitation requirements, current costs, and forecast cost infl ation factors . These are then discounted in order to estimate the net present value of the provision . For sites where there was no material change in the nominal cost to rehabilitate, our procedures were limited to assessing whether the provisions had been updated to refl ect any new knowledge gained from rehabilitation planned in other areas or changes in rehabilitation requirements . The provisions for these sites were tested on initial recognition, or since the last signifi cant change to nominal cost . For sites being actively remediated, we compared the movement in the provision recognised, with the actual costs of the work performed during the period . To assess the Group’s ability to estimate accurately for provision of areas still to be remediated, we also compared previous period’s estimates of costs to the actual costs, based on the area of required remediation . Key audit matter How our audit addressed the key audit matter Measurement of stockpiled inventory (Refer to note 10) Of the Group’s $176 .4 million of recorded inventory on hand at 31 December 2018, $63 .4 million comprised raw materials and work in progress . Raw materials and work in progress inventory is typically stockpiled prior to consumption or sale . The measurement of these inventories is a key audit matter as the measurement of inventory quantities for We assessed the independent surveyors as Group experts, and for each expert considered the surveyor’s method, competency and objectivity . We were satisfi ed that we could use their work for the purpose of our audit . We obtained and inspected the survey results for material stockpiled inventory locations . We reperformed the Group’s conversion of the quantities identifi ed from the surveyors’ reports to tonnages using the Group’s density factors . stockpiled inventory is complex . The Group relies on independent We compared the density factors used to results of the Group’s surveyors to perform volumetric surveys to estimate the quantity internal laboratory testing that occurred during the year and to prior stockpiled for these inventory types . Survey quantity results, which year density factors for the same raw material, where available . Given are reported in cubic metres, are converted to tonnages using the nature of the inventory, the density factors do not usually vary density factors . signifi cantly year on year . We identifi ed no signifi cant changes in these factors in the current year or other factors which would require a change . 120 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018 . Other information Responsibilities of the directors Report on the remuneration report The directors are responsible for the for the financial report other information . The other information The directors of the Company are Our opinion on the remuneration report We have audited the remuneration report comprises the information included in responsible for the preparation of the included in pages 49 to 71 of the directors’ the annual report for the year ended 31 financial report that gives a true and report for the year ended 31 December 2018 . December 2018, but does not include the fair view in accordance with Australian financial report and our auditor’s report Accounting Standards and the Corporations thereon . Prior to the date of this auditor’s Act 2001 and for such internal control as report, the other information we obtained the directors determine is necessary to included the Company Profile and Map enable the preparation of the financial of Operations, Chairman’s Report, Chief report that gives a true and fair view and is Executive Officer and Managing Director free from material misstatement, whether Review, Finance Report, Cement and Lime due to fraud or error . Report, Concrete and Aggregates Report, Concrete Products Report, Joint Ventures Report, Sustainability Report, Health and Safety Report, People and Diversity Report, Tax Transparency Report, Diversity Report, Corporate Governance Overview, Directors Summary and Information for Shareholders . We expect the remaining other information to be made available to us after the date of this auditor’s report . Our opinion on the financial report does not cover the other information and we do not In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so . Auditor’s responsibilities for the audit of the financial report and will not express an opinion or any form Our objectives are to obtain reasonable of assurance conclusion thereon . In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated . assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion . Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement If, based on the work we have performed when it exists . Misstatements can arise from on the other information that we obtained fraud or error and are considered material if, prior to the date of this auditor’s report, individually or in the aggregate, they could we conclude that there is a material reasonably be expected to influence the misstatement of this other information, we economic decisions of users taken on the are required to report that fact . We have basis of the financial report . nothing to report in this regard . A further description of our responsibilities When we read the other information not for the audit of the financial report is yet received, if we conclude that there is located at the Auditing and Assurance a material misstatement therein, we are required to communicate the matter to Standards Board website at: http://www .auasb .gov .au/auditors_ the directors and use our professional responsibilities/ar1 .pdf . This description judgement to determine the appropriate forms part of our auditor’s report . action to take . In our opinion, the remuneration report of Adelaide Brighton Limited for the year ended 31 December 2018 complies with section 300A of the Corporations Act 2001 . Responsibilities The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards . PricewaterhouseCoopers MT Lojszczyk Partner Adelaide 19 March 2019 Liability limited by a scheme approved under Professional Standards Legislation . PricewaterhouseCoopers ABN 52 780 433 757 Level 11, 70 Franklin Street, Adelaide SA 5000 GPO Box 418, Adelaide SA 5001 Telephone +61 8 8218 7000 Facsimile +61 8 8218 7999 www .pwc .com .au 121 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Financial history Year Ended Dec Dec 1 Dec Dec Dec 2 Dec Dec 3 Dec Dec Dec Dec Dec Dec (A$ million unless stated) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 Statements of financial performance Sales revenue Depreciation, amortisation 1,630 .6 1,559 .6 1,396 .2 1,413 .1 1,337 .8 1,228 .0 1,183 .1 1,100 .4 1,072 .9 987 .2 1,022 .4 888 .4 794 .7 and impairments (87 .4) (82 .5) (78 .1) (77 .8) (75 .0) (70 .6) (65 .2) (57 .8) (52 .8) (56 .8) (56 .8) (52 .4) (51 .8) Earnings before interest and tax 265 .4 267 .6 266 .1 298 .6 247 .5 222 .7 222 .1 219 .83 216 .2 185 .3 189 .1 171 .3 148 .8 Net interest earned (paid) (14 .4) (12 .1) (11 .5) (13 .0) (15 .0) (14 .1) (14 .6) (17 .0) (14 .0) (16 .7) (33 .8) (21 .7) (15 .2) Profit before tax, abnormal and extraordinary items 251 .0 255 .5 254 .6 285 .6 232 .5 208 .6 207 .5 206 .4 202 .2 168 .6 155 .3 149 .6 133 .6 Tax expense (65 .8) (72 .7) (68 .4) (77 .8) (59 .9) (57 .5) (54 .6) (58 .0) (50 .8) (45 .4) (34 .5) (35 .7) (31 .0) Non-controlling interests 0 .1 (0 .1) (0 .1) 0 .1 0 .1 - 0 .1 - 0 .1 (0 .1) - - (0 .5) Net profit after tax attributable to members 185 .3 182 .7 186 .3 207 .9 172 .7 151 .1 153 .0 148 .4 151 .5 123 .1 120 .8 113 .9 102 .1 Group balance sheet Current assets 500 .6 474 .8 390 .1 403 .1 387 .4 390 .2 363 .7 307 .8 274 .1 308 .8 290 .8 233 .1 224 .7 Property, plant and equipment 1,061 .7 1,037 .2 978 .4 986 .1 994 .2 889 .7 902 .5 851 .0 760 .6 774 .3 801 .9 742 .5 694 .2 Receivables Investments Intangibles 39 .9 37 .3 34 .4 32 .9 32 .7 31 .4 29 .6 173 .9 160 .3 151 .2 142 .2 139 .9 138 .5 129 .0 27 .2 97 .2 30 .4 87 .7 30 .4 72 .5 28 .4 67 .6 29 .5 66 .9 27 .5 40 .8 299 .5 299 .9 270 .3 272 .9 266 .4 183 .9 184 .8 183 .0 179 .1 169 .0 169 .4 164 .4 164 .6 Other non-current assets 2 .5 3 .5 2 .3 1 .3 0 .0 0 .0 3 .5 0 .0 0 .0 0 .0 0 .0 2 .7 22 .9 Total assets 2,078 .1 2,013 .0 1,826 .7 1,838 .5 1,820 .6 1,633 .7 1,613 .1 1,466 .2 1,331 .9 1,355 .0 1,358 .1 1,239 .1 1,174 .7 Current borrowings and creditors 144 .7 159 .2 117 .4 123 .9 122 .7 105 .4 115 .0 99 .2 106 .4 106 .5 Current provisions 34 .6 49 .0 50 .6 55 .4 44 .2 105 .8 78 .5 34 .5 52 .6 55 .4 98 .4 44 .5 145 .5 125 .8 49 .5 54 .1 Non-current borrowings 518 .7 428 .9 309 .6 329 .5 390 .1 259 .1 299 .3 258 .7 150 .2 200 .5 410 .5 281 .9 210 .7 Deferred income tax and other non-current provisions 134 .5 130 .1 129 .0 122 .4 126 .9 101 .6 114 .4 116 .7 88 .4 95 .6 102 .8 94 .3 109 .1 Total liabilities Net assets Share capital Reserves Retained pofits 832 .5 767 .2 606 .6 631 .2 683 .9 571 .9 607 .2 509 .1 397 .6 458 .0 656 .2 571 .2 499 .7 1,245 .6 1,245 .8 1,220 .1 1,207 .3 1,136 .7 1,061 .8 1,005 .9 957 .1 934 .3 897 .0 701 .9 667 .9 675 .0 734 .4 733 .1 731 .4 729 .2 727 .9 699 .1 696 .6 694 .6 692 .7 690 .4 540 .4 514 .0 513 .3 4 .2 1 .9 2 .9 1 .2 3 .3 4 .3 2 .1 2 .3 2 .6 2 .9 3 .5 14 .5 13 .3 504 .5 508 .2 483 .3 474 .3 402 .8 355 .6 304 .4 257 .3 236 .0 200 .6 155 .0 136 .4 139 .8 Shareholders’ equity attributable to members of the Company 1,243 .1 1,243 .2 1,217 .6 1,204 .7 1,134 .0 1,059 .0 1,003 .1 954 .2 931 .3 893 .9 698 .9 664 .9 666 .4 Non-controlling interests 2 .5 2 .6 2 .5 2 .6 2 .7 2 .8 2 .8 2 .9 3 .0 3 .1 3 .0 3 .0 8 .6 Total shareholders’ funds 1,245 .6 1,245 .8 1,220 .1 1,207 .3 1,136 .7 1,061 .8 1,005 .9 957 .1 934 .3 897 .0 701 .9 667 .9 675 .0 Share information Net Tangible Asset Backing ($/share) Return on funds employed (%) 1 .45 16 .1 1 .46 16 .7 Basic earnings per share (¢/share) 28 .5 28 .1 Diluted earnings (¢/share) Total dividend (¢/share) 4 Interim dividend (¢/share) 4 28 .4 28 .0 9 .0 28 .0 24 .5 8 .5 1 .46 17 .5 28 .7 28 .6 28 .0 8 .5 Final dividend (¢/share)4 11 .0 12 .0 11 .5 11 .0 Special dividend (¢/share)4 Gearing (%) 8 .0 34 .1 4 .0 29 .8 8 .0 8 .0 1 .44 1 .34 1 .38 1 .29 1 .22 19 .8 32 .0 31 .9 27 .0 8 .0 17 .7 26 .9 26 .8 17 .0 7 .5 9 .5 - 17 .0 23 .7 23 .4 19 .5 7 .5 9 .0 3 .0 18 .0 24 .0 23 .8 16 .5 7 .5 9 .0 - 19 .4 23 .3 23 .2 16 .5 7 .5 9 .0 - 1 .19 20 .0 23 .9 23 .7 21 .5 7 .5 9 .0 5 .0 1 .15 17 .3 20 .4 20 .3 13 .5 5 .5 8 .0 - 0 .97 18 .0 22 .2 22 .0 15 .0 6 .5 8 .5 - 0 .93 0 .94 18 .1 16 .7 21 .0 18 .8 20 .8 16 .4 18 .5 18 .5 6 .0 9 .0 3 .5 5 .0 7 .5 6 .0 23 .6 24 .6 31 .6 23 .4 30 .9 26 .0 15 .9 19 .6 55 .3 48 .4 33 .6 1 Restated for changes to accounting policies (Note 1 (b) to Financial Statements) 3 Restated for changes to accounting policies (Note 42 to the 2013 Financial Statements) 2 Restated for final acquisition accounting values for businesses purchased in 2014 4 Fully franked 122 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018.Information for shareholders Annual general meeting Direct credit of dividends On market buy back The annual general meeting of shareholders will be held at the InterContinental, North Terrace, Adelaide, South Australia on Friday 10 May 2019 at 10 .00 am . Securities exchange listing Adelaide Brighton Ltd is quoted on the official list of the Australian Securities Exchange and trades under the symbol “ABC” . Adelaide is Adelaide Brighton Ltd’s home exchange . Registered office Level 1, 157 Grenfell Street Adelaide SA 5000 Telephone 08 8223 8000 Facsimile 08 8215 0030 Enquiries about your shareholding Enquiries or notifications by shareholders regarding their shareholdings or dividends should be directed to Adelaide Brighton’s share registry: Computershare Investor Services Pty Limited Level 5, 115 Grenfell Street Adelaide SA 5000 Telephone 1800 339 522 International 613 9415 4031 Facsimile 1300 534 987 International 613 9473 2408 When communicating with the share registry, shareholders should quote their current address together with their Security Reference Number (SRN) or Holder Identification Number (HIN) as it appears on their Issuer Sponsored/ CHESS statement . Online services Shareholders can access information and update information about their shareholding in Adelaide Brighton Limited via the internet by visiting Computershare Investor Services Pty Ltd website: www .investorcentre .com Some of the services available online include: check current holding balances, choose your preferred annual report option, update address details, update bank details, confirm whether you have lodged your TFN, ABN or exemption, view your transaction and dividend history or download a variety of forms . Dividends can be paid directly into an Australian bank or other financial institution . Payments are electronically credited on the dividend payment day and subsequently confirmed by mailed payment advice . Application forms are available from our share registry, Computershare Investor Services Pty Ltd or visit the website at www .computershare . com .au/easyupdate/abc to update your banking details . Dividend Reinvestment Plan (DRP) Adelaide Brighton’s DRP is currently suspended until further notice . In future, if the DRP is reactivated, it will be notified by way of an ASX announcement . Change of address Shareholders who are Issuer Sponsored should notify any change of address to the share registry, Computershare Investor Services Pty Limited, by telephone or in writing quoting your security holder reference 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: Group Corporate Affairs Adviser Adelaide Brighton Ltd Level 9 Aurora Place 88 Phillip Street Sydney NSW 2000 Telephone 02 8248 9911 Email adelaidebrighton@adbri com .au Communications Our internet site www .adbri .com .au offers access to our ASX announcements and news releases as well as information about our operations . 9 .06 8 .82 8 .43 7 .46 1 .53 1 .26 1 .18 1 .05 0 .61 0 .56 0 .46 0 .35 0 .25 0 .23 0 .20 0 .18 0 .17 0 .16 0 .15 At 26 March 2019 there is no on-market buy back of the Company’s shares being undertaken . Twenty largest shareholders shown in the Company’s Register of Members as at 26 March 2019 Shareholder Barro Properties Pty Ltd Barro Group HSBC Custody Nominees (Australia) Limited Citicorp Nominees Pty Limited JP Morgan Nominees Australia Limited No. of ordinary shares held % of issued capital 215,285,359 33 .03 59,022,619 57,489,902 54,944,172 48,609,996 Citicorp Nominees Pty Ltd 9,981,295 National Nominees Limited Argo Investments Ltd Australian Foundation Investment Company Limited 8,229,296 7,681,385 6,822,000 BNP Paribas Nominees Pty Ltd 3,969,720 Ageflow Pty Ltd Milton Corporation Limited Sandhurst Trustees Ltd BNP Paribas Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited - A ./C2 3,630,000 2,978,554 2,312,480 1,636,132 1,500,207 IOOF Investment Management Limited 1,330,156 Djerriwarrh Investments Limited Mirrabooka Investments Limited 1,145,000 1,120,000 HSBC Custody Nominees (Australia) Limited - GSCO ECA 1,079,705 Diversified United Investment Limited 1,000,000 Total top 20 shareholders Total remaining shareholders balance 489,767,978 75.15 161,955,149 24.85 Voting rights All shares at 26 March 2019 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 26 March 2019 No. of shareholders % of issued capital 1 - 1,000 4,594 0 .34 1,001 - 5,000 10,015 4 .27 5,001 - 10,000 4,063 4 .62 10,001 - 100,000 3,197 11 .11 100,001 - over 140 79 .66 Total shareholders 22,009 100.00 Less than a marketable parcel of 112 shares 828 Substantial shareholders Unquoted securities Barro Properties Pty Ltd, by a notice of change of interests of substantial shareholder dated 12 September 2018, informed the Company that it or an associate had a relevant interest in 279,710,424 ordinary shares or 43 .0% of the Company’s issued share capital . 1,678,766 Awards issued to the senior executive team under the Adelaide 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 six . 123 Adelaide Brighton Ltd and its controlled entities for the year ended 31 December 2018. 1 2 3 5 8 10 12 14 16 18 26 28 30 32 34 36 37 39 49 72 73 74 75 76 77 80 89 96 104 114 117 117 118 122 123 Performance summary Company profile and map of operations Chairman’s report Chief Executive Officer review Finance report Cement and Lime Concrete and Aggregates Concrete Products Joint Ventures Sustainability report > Health and safety > People and diversity > Diversity report > Tax transparency report Corporate governance overview Directors Financial statements Directors’ report Remuneration report Income statement Statement of comprehensive income Balance sheet Statement of changes in equity Statement of cash flows Notes to the financial report > Financial performance overview > Balance sheet items > Capital structure and risk management > Group structure > Other Directors’ declaration Auditor’s independence declaration Independent auditor’s report to the Members of Adelaide Brighton Ltd Financial history Information for shareholders 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 This report is printed by an independently audited carbon neutral printer on 100% post consumer recycled carbon neutral manufactured stocks accredited by the Forest Stewardship Council R using vegetable based inks made from renewable resources with all paper waste recycled 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 logo, the Penrice Quarry & Mineral logo, the Central Pre-Mix logo, the Central Quarries logo and the Davalan logo are trade marks of Adelaide Brighton Ltd or its related bodies corporate. The Sunstate Cement logo is a registered trade mark of Sunstate Cement Ltd used with permission. The I logo is a registered trade mark of Independent Cement and Lime Pty Limited used with permission. The Mawson logo is a registered trade mark of E. B. Mawson & Sons Pty Ltd used with permission. Batesford Quarry logo is a trade mark of Adelaide Brighton Cement Ltd and Geelong Lime Pty Ltd. The Burrell logo is a trade mark of Burrell Mining Products, Inc used with permission. The Aalborg Portland logo is a trade mark of Cementir Holding SpA used with permission. 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 A D E L A I D E B R I G H T O N L T D 2 0 1 8 A N N U A L R E P O R T

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