Annual Report 2003
Contents
About Incitec Pivot Limited
Chairman’s Report
Managing Director’s Report
Review of Operations
Review of Financial Performance
Board of Directors
Executive Team
Safety, Health and Environment
Corporate Governance
Financial Report
In this report the following abbreviations are used:
Incitec Pivot Limited (Incitec Pivot)
Pivot Limited (Pivot)
Orica Limited (Orica)
Incitec Fertilizers Limited (IFL)
Incitec Ltd (Incitec)
1
2
3
4
6
8
10
11
15
21
Incitec Pivot Limited
ABN 42 004 080 264
About Incitec Pivot Limited
Incitec Pivot Limited is a specialist Australian-owned, world-class fertiliser manufacturer and supplier providing farmers across eastern
and southern Australia with a full range of agricultural nutrients.
Incitec Pivot operates manufacturing facilities in Queensland, Victoria and New South Wales and has distribution networks in these
States as well as in South Australia and Tasmania.
The company has annual sales of approximately $1 billion and supplies rural producers with about three million tonnes of essential
fertiliser products a year. Incitec Pivot is listed on the Australian Stock Exchange and had a market capitalisation of $913 million on 30
September 2003.
Launched on 1 June 2003 with the merger of Incitec Fertilizers Limited and Pivot Limited, Incitec Pivot has strong bloodlines of service
to Australian farmers. Each of its founding companies has been in the fertiliser business for more than 80 years.
Based on this hard-earned experience, today the merged business offers producers unequalled service from plant to paddock. With a
suite of manufacturing plants, efficient logistics and scientifically-based technical back-up, Incitec Pivot’s strategy is simple. By inheriting
the ‘best of the best’ from its founders, Incitec Pivot is determined to set new standards in the supply of fertiliser and become No 1 in
an industry that supplies up to 10% of all farm inputs.
The joint Incitec Pivot name may be new, but the quality of its service and products is based on a distinctly time-honoured concept –
looking after our customers.
BROADACRE
HORTICULTURE
VITICULTURE
INCITEC PIVOT
SUGAR CANE
COTTON
PASTURE
Chairman’s Report
After at least a decade of discussion, consolidation of the Australian agricultural nutrients industry became fact with the establishment of
Incitec Pivot Limited on 1 June 2003.
The merger of Pivot Limited and Incitec Fertilizers Limited opened the way for improved efficiencies in the manufacture and distribution
of fertiliser and created a strong new Australian-owned agribusiness.
With fertiliser representing around 10 per cent of average farm input costs, Incitec Pivot will play a vital role in maintaining the
international competitiveness of Australian farmers in the coming years.
The new company has made a sound beginning and, in its short life, is already establishing itself at the heart of the $20 billion Australian
agricultural industry. This healthy start was underpinned by the range and quality of Incitec Pivot’s products, the standard and location of
its assets and the strength of its financial position.
Equally important is the commitment to meeting the farmer’s needs that Pivot, Incitec Fertilizers and their well-established agent and
dealer networks bring to the new entity.
But these developments did not happen without vision, planning and hard work. As the former Chairman of Pivot, I know the foresight it
took for the Directors to accept that the future of their 83-year-old company lay in amalgamating with another producer.
My sincere thanks go to those Directors for their open-minded approach and to the shareholders they represented, who on 29 April
2003 voted overwhelmingly to support the merger. My appreciation also goes to Pivot’s former management for turning the company’s
performance around and for their diligence in preparing for the merger.
Appreciation is also due to the Directors of Incitec Ltd for their vision and contribution to the successful merger. The commitment of
Directors and senior managers of both companies was even more notable for the fact that many clearly recognised that they would be
unlikely to have a continuing role with Incitec Pivot. Their selfless professionalism was enlightening and greatly appreciated.
On 1 June 2003, the new management team under the direction of a reconstituted Board took over guiding the merged company.
Management’s overall priorities were to mould the two separate operations into a single high-performing new company with its own
distinct identity, to preserve Incitec Pivot’s position in the marketplace and to begin the process of securing the targeted efficiencies.
It is a tribute to the calibre and hard work of our new team and their staff that Incitec Pivot made a sound start, despite difficult trading
conditions brought about by one of the worst droughts in Australian history.
Incitec Pivot reported earnings before interest and tax (EBIT) – excluding significant items – of $59.1 million on sales revenue of $686
million in 2003. A net loss of $18.6 million after tax and significant items – including merger costs of $49.9 million – was reported.
I am pleased to say that the new team is absolutely committed to achieving the estimated $30 million in annual synergy savings made
possible by the merger. These savings are the key measure of success of the merger and it is pleasing to note that the business is on
track to secure benefits at this rate by the end of next financial year.
The shareholders of Incitec Pivot – large and small, old and new – deserve special mention. In relation to our major shareholder, there is
no doubt that we are benefiting from the efficiencies made possible by working closely with Orica Limited.
The confidence in our future shown by new institutional and private investors since Incitec Pivot’s listing on the Australian Stock
Exchange on 28 July 2003 has been heartening.
Among the investors are approximately 39,000 former shareholders of Pivot who have opted to retain their investment in the company.
Many shareholders in this category are also long-standing customers, and the importance of that dual connection to our future success
is well understood.
Incitec Pivot ends its first year absolutely committed to building value for all shareholders by delivering growth as well as improved
returns.
My fellow Directors join me in thanking past and present management and staff and our business partners across Australia for delivering
a successful merger that many believed would never happen. We will work hard to build on the solid start made by our new business.
John Watson
Chairman
Incitec Pivot Limited
Chairman John Watson (left)
with Managing Director and
CEO Greg Witcombe at the
launch of the company on
the Australian Stock
Exchange in Melbourne.
Managing Director’s Report
Like farming, the wellbeing of most agribusinesses reflects the preceding and prevailing weather patterns. So the timing of the launch of
Incitec Pivot Limited during one of Australia’s most severe droughts offered our new business additional challenges from day one.
This inevitably affected our financial performance for the year ended 30 September 2003, representing eight months of the Pivot Limited
business and four months of Incitec Pivot Limited.
Total sales for the 12 months to 30 September 2003 were $686 million. Earnings before interest, taxation, depreciation and amortisation
(EBITDA) – excluding significant items – were $83.4 million, and earnings before interest and taxation (EBIT) – excluding significant
items – were $59.1 million.
After tax and significant items, including merger implementation costs of $49.9 million, a net loss of $18.6 million was reported.
The financial results for 2002/03 covered two separate businesses, making it difficult to provide a direct comparison with previous years.
However, taking into account market conditions and one-off merger costs, the company’s performance could be regarded as a good
result in a challenging environment.
Next year, with the bulk of the merger integration behind us and a full year to report, will provide a more useful assessment of our
performance.
When the merged company was formed on 1 June 2003, the fertiliser industry was feeling the flow-on effects of drought that was
affecting farmers in most parts of eastern and southern Australia, in some cases for a number of years.
Fertiliser sales into most market segments were below expectations and rural confidence was down. To make matters worse, the
Australian dollar had strengthened and some international agriculture commodity prices were soft.
This was the less-than-ideal environment into which our new company was launched. Putting aside the distractions of factors we could
not influence, we established clear priorities for building our business by focusing on areas within our control.
To this end, the management team identified three priority targets for laying the foundations of an integrated Incitec Pivot:
• Create a single company with its own identity and culture from the two merger partners, Pivot Limited and Incitec Fertilizers Limited.
• Maintain our combined market share by retaining the confidence of our distribution partners, the agents and dealers, and our farmer
customers
• Secure the $30 million annual synergy benefits which underpinned the merger
Four months after the new Incitec Pivot corporate identity was unveiled and the new logo was displayed at all of our sites, I am pleased
to say we have made great steps to achieving our ‘big three’ objectives.
Our major external stakeholders, including customers, shareholders and the communities we work in, now recognise our two-into-one
company by its name and corporate image. Building on the long history of both Pivot and Incitec Fertilizers, our own modern business
culture is being established among our workforce of over 800 people.
In the market place, our sales and marketing teams have worked hard to maintain Incitec Pivot’s share of fertiliser sales at the combined
level of the previous companies. This has involved retaining the loyalty of the agents and dealers that make up our dual distribution
networks and building on the strength of our main Pivot and Incitec Fertilizers brands.
It is a tribute to our field teams that by year-end our market share had not slipped and neither had we lost a single dealer or agent.
We are also on track to deliver on the third of our key priorities – achieving the $30 million of merger synergy benefits identified when the
merger was first proposed.
Some of these savings, principally through efficiency improvements in the supply chain and reduced overhead costs, are already flowing
through to the business. Disciplined tracking of the synergy programme indicates that savings will reach the targeted rate by the end of
next financial year.
On balance, we have made a strong start in a difficult year. Our focus in the coming year will be on executing the plans we have in place
to build the company. That will come about by setting and observing strict financial discipline to maintain a strong financial position and
build a strong cash flow.
My thanks go to a supportive Board, a dedicated management team and an enthusiastic and highly capable workforce all determined
to make Incitec Pivot Australia’s best-performing agribusiness.
Greg Witcombe
Managing Director and CEO
3
Review of Operations
Our products
Incitec Pivot supplies a complete range of soil nutrients to Australian farmers who must maximise productivity to ensure the
competitiveness of their products on world markets.
Most of the company’s fertilisers are designed to deliver one or more of the three primary nutrients required by Australian soils –
nitrogen, phosphorus and potassium. Others provide sulphur and trace elements such as copper, zinc and molybdenum.
Nitrogen is the major nutrient supplied by Incitec Pivot and is supplied either in single-nutrient form (urea and ammonia), in combination
with phosphorus a mono-ammonium phosphate (MAP) and di-ammonium phosphate (DAP), or in other blends. Incitec Pivot’s Big-N
fertiliser delivers concentrated nitrogen fertiliser ammonia in liquefied gas form.
Fertilisers that deliver phosphorus range from single superphosphate (SSP) to MAP and DAP. Potassium is generally applied as a single-
nutrient fertiliser (potash) and sulphur is commonly delivered as a blend with phosphorus fertilisers, including SSP, MAP and DAP. Incitec
Pivot’s Granulock brand delivers blended fertilisers in granulated form.
Looking to the future, Incitec Pivot will continue to develop innovative new products tailored to give Australian farmers the edge by
providing the right fertiliser, at the right time at the right price.
Primary Distribution Centres
• North Queensland – Cairns, Townsville, Mackay
• Brisbane – Gibson Island and Pinkenba
• Newcastle – Kooragang Island and Cockle Creek
• Port Kembla
• Geelong
• Portland
• South Australia – Adelaide, Wallaroo, Port Pirie, Port Lincoln
• Devonport
• Yass
• Goulburn
Bundaberg
Regional Service Centres
Brisbane
RSC/Logistics Centres
Major manufacturing
and distribution sites
Distribution sites
Cairns
Townsville
Home Hill
Mackay
Dalby
Brookstead
Goondiwindi
Moree
Wardell
Dumaresq
Quirindi
Forbes
Parkes
Newcastle
Griffith
Junee
Yass
Port Kembla
Goulburn
Manoora
Port Pirie
Adelaide
Wallaroo
Port Lincoln
Murray Bridge
Keith
Naracoorte
Swan Hill
Warracknabeal
Wodonga
Portland
Shepparton
Ballarat
Geelong
Maffra
Timboon
Yarram
Buffalo
• Bundaberg
• Dalby
• Wardell
• Dumaresq
• Moree
• Forbes
• Parkes
• Wodonga
• Griffith
• Shepparton
Circular Head
Devonport
Howth
Deloraine
Scottsdale
Longford
Sales Centres
Our major manufacturing assets
Major Products
Urea: 250,000 tpa
Ammonia: 290,000 tpa
Ammonium Sulphate: 180,000 tpa
Superphosphate: 350,000 tpa
Granulated phosphates: 90,000 tpa
Superphosphate: 450,000 tpa
Superphosphate: 250,000 tpa
Site
Gibson Island
Queensland
Cockle Creek
New South Wales
Kooragang Island
New South Wales
Geelong
Victoria
Portland
Victoria
4
Incitec Pivot operated
Sales Centres
Agent operated
Sales Centres
• Brookstead
• Maffra
• Warracknabeal
• Murray Bridge
• Circular Head
• Deloraine
• Howth
• Longford
• Scottsdale
• Home Hill
• Goondiwindi
• Quirindi
• Junee
• Ballarat
• Buffalo
• Swan Hill
• Timboon
• Yarram
• Manoora
• Keith
• Naracoorte
Our key competitive advantages
• As Australia’s largest fertiliser manufacturer and distributor, Incitec Pivot’s scale underpins its position as the lowest delivered cost supplier.
• The company’s quality manufacturing and logistics assets across eastern and southern Australia give it unequalled capacity to meet
seasonal demand for farm nutrients.
• Incitec Pivot’s product range, key site locations, focused customer service and scientific back-up ensure farmers get the precise
nutrients they require.
Our key priorities
Incitec Pivot’s key priorities post-merger:
Progress against priorities 2003
1. Establish a unified company,
including a new corporate identity – ‘one company’
Incitec Pivot is establishing its own distinct identity as a specialist
Australian supplier of essential nutrients to the nation’s farmers.
One major challenge facing Incitec Pivot when it was formed was
to mould two businesses into a single unified company. Progress
has been pleasing with the successful completion of the corporate
rebranding exercise built around the new name and the
amalgamation of supply chain assets.
The company was successfully listed on the Australian Stock
Exchange (ASX) on 28 July 2003 and had a market capitalisation of
$913 million on 30 September 2003.
A comprehensive program is now underway which will reinforce the
strength and solidarity of the ‘one company’ spirit already evident
among our employees.
2. Achieve the targeted merger synergies of $30 million
per annum
Merger synergies are on track with $6.1 million delivered to date.
The company was able to secure these gains by moving quickly to
close surplus sites and lock in other efficiency improvements in the
supply chain.
3. Retain market share
Incitec Pivot’s leading east coast Australia market share has been
retained post-merger. Customer service metrics are positive and
sales and operations planning has been integrated in the merged
business to boost efficiency and improve customer service levels.
5
Review of Financial Performance
Sales revenue
External sales summary
External sales revenue increased by $82 million or 14% over
2002 to $686 million (2002: $604 million).
• Underlying revenue in the Pivot fertilisers business was down
8% to $447 million (2002: $487 million). Volumes were impacted
by the worst drought in eastern Australia for 100 years.
• Sales from the Incitec Fertilizer business were $208 million in
the four months since the merger.
• Sales in discontinued businesses were $93 million below 2002
(the stockfeed and grains businesses were exited in 2003).
Earnings
Net loss after tax and significant items was $18.6 million
compared to a profit of $18.5 million in 2002. Excluding
significant items, Net Profit After Tax (NPAT) was $35.1 million
(2002: $21.2 million). Major factors were:
• 30% or $13.5 million increase in earnings before interest and
tax (EBIT) to $59.1 million due to:
– 15% or $6.8 million reduction in earnings in the Pivot
fertiliser business. Margin reductions from lower sales
volumes and prices were partially offset by excellent cost
control in the business.
– EBIT from the merged Incitec business of $17.8 million.
– Merger synergies of $6.1 million partially offset by
amortisation of merger goodwill of $3.1 million.
– $0.3 million loss in discontinued businesses (2002: profit
$0.2 million).
• Net interest cost was 50% lower than 2002 at $6.8 million
with strong business cash flow and access to tighter credit
spreads post-merger.
• Tax expense increased by $6.5 million or 60% to $17.2 million
in line with improved earnings.
Significant items
Total significant items after tax for 2003 were $53.7 million
including $49.9 million of merger related costs.
Total merger costs
Total merger costs are now estimated at $67.4 million after tax
compared to $62 million advised in the information memorandum
to the listing. The additional costs of $5.4 million after tax reflect
asset write-downs following a detailed post-merger review of
assets.
Merger costs of $4.7 million after tax are forecast for 2004.
A$million
Pivot fertilisers
Incitec Fertilizers (4 months)
Discontinued businesses
Sales to IFL* pre-merger
Total external sales
*Incitec Fertilizers Limited
Earnings summary
A$million
EBIT
Pivot fertilisers
Incitec Fertilizers (4 months)
Merger synergies
Amortisation of merger goodwill
Discontinued businesses
Total EBIT
Net Interest
Tax expense
NPAT excluding significant items
Significant items after tax
NPAT including significant items
Significant items – 2003
A$million
Merger costs:
Employee redundancy and allowances
Transaction and Implementation costs
Environmental
Site clean-up and rationalisation
Asset write-downs
Accounting policy adjustments
Sub-total
Other costs – pre merger
Total
Total merger costs
A$million
2003 Significant items
2004 Significant items
Merger costs including goodwill*
Total
Year Ended 30 September
2002
Change
2003
447
208
20
11
686
487
-
113
4
604
(8)%
-
(82)%
> 100%
14%
Year Ended 30 September
2002
Change
2003
38.6
17.8
6.1
(3.1)
(0.3)
59.1
(6.8)
(17.2)
35.1
(53.7)
(18.6)
45.4
(15)%
-
-
-
0.2
45.6
(13.7)
(10.7)
21.2
(2.7)
18.5
-
-
-
> (100%)
30 %
50 %
(61)%
66 %
>(100%)
>(100%)
Before
Tax
(10.1)
(12.7)
(7.3)
(7.9)
(22.6)
(2.9)
(63.5)
(1.1)
(64.6)
Before
Tax
(63.5)
(6.7)
(17.3)
(87.5)
After
Tax
(7.1)
(10.3)
(5.1)
(6.7)
(18.7)
(2.0)
(49.9)
(3.8)
(53.7)
After
Tax
(49.9)
(4.7)
(12.8)
(67.4)
*costs incurred in Incitec Fertilizers Limited allocated to goodwill
6
Dividend
No final dividend will be paid in 2003. A special dividend of
$1.40 per share (fully franked) was declared by Directors in May
payable to Pivot shareholders registered on the record date of
the merger with Incitec Fertilizers.
The Board has reviewed the company’s dividend policy and
recognises the importance, other than in exceptional
circumstances, of:
• Maintaining a steady (if not increasing) rate of dividends in
terms of cents per share.
• Distributing available franking credits.
• Targeting a dividend pay-out ratio of between 65% and
75% of net profit after tax.
• Utilising other mechanisms such as special dividends and
capital returns to distribute surplus funds when available.
Financial position
Incitec Pivot finished 2003 in a strong financial position.
• Since the merger there has been a focus on reducing the
investment in trade working capital. Year end working capital to
sales was 18.4%.
• September 2003 gearing (net debt/net debt + equity) at 11%
was down from 35% recorded in 2002, reflecting strong business
cash flow, increased equity on issue and the sound financial
position of the merged Incitec Fertilizers business. Average
gearing throughout the year on a proforma basis was 19%.
• The integrity of asset values has been assured through a
rigorous post-merger review (refer significant items at left).
Cash flow
Net operating cash flows were $96.2 million an increase of
$21.8 million or 29% over 2002 (2002: $74.4 million).
Major factors were:
• EBITDA was up 37% to $83.4 million reflecting the addition of
the Incitec Fertilizers business.
• Cash flow from trade working capital reductions of $58.8 million.
• $30.1 million spent on merger implementation costs (including
employee benefits).
Net investing cash flows were an outflow of $8.5 million (2002:
$3.2 million).
• Capital spending of $15.6 million was 80% of depreciation with
a focus on increasing the productivity of existing assets in the
business post-merger rather than reinvestment.
• Proceeds from asset sales were $7.1 million.
Net financing cash flows were $87.7 million (2002: $71.2 million)
including:
• $61.9 million applied to the repayment of borrowings.
• Dividends of $24.5 million.
Outlook – 2004
• Earnings underpinned by merger synergies.
• 2004 synergies on an annualised basis are expected to be
$30 million, although as a result of the timing of the realisation of
benefits, not all of the $30 million will be reflected in 2004 earnings.
• There is an improved weather outlook, albeit it is very early in
the season.
• Pressure is expected on sulphuric acid raw material costs
following supplier plant closures in 2003.
Statement of Financial Position
A$million
Trade working capital
Net property, plant & equipment
Goodwill
Net other assets
Net Assets
Net Debt
Equity
Total capitalisation
Gearing
30-Sept
2003
1-Jun
2003
30-Sept
2002
196
297
185
(30)
648
74
574
648
327
305
188
(59)
761
194
567
761
11%
25%
110
117
-
5
232
81
151
232
35%
Cash Flow Items
A$million
Net operating cash flows
EBITDA
Net borrowing costs
Net income tax paid
Merger costs (inc. employee benefits)
Trade working capital movement
Other
Total
Net investing cash flows
Proceeds from asset sales
Capital spending
Total
Net financing cash flows
Repayment of the net borrowing
Dividends paid
Other
Total
Year Ended September
2003
2002
Change
83.4
(8.1)
3.1
(30.1)
58.8
(10.9)
96.2
7.1
(15.6)
(8.5)
(61.9)
(24.5)
(1.3)
(87.7)
60.9
(13.7)
0.5
-
27.2
(0.5)
74.4
0.9
(4.1)
(3.2)
(71.2)
-
-
(71.2)
22.5
5.6
2.6
(30.1)
31.6
(10.4)
21.8
6.2
11.5
(5.3)
(9.3)
24.5
1.3
16.5
7
Board of Directors
John Watson
MAICD
Age 53
Greg Witcombe
BSc
Age 49
Leo Delahunty
FAICD
Age 51
Barbara Gibson
BSc, FTSE
Age 55
Brian Healey
Age 70
Non-Executive Chairman, Chairman of Remuneration and Appointments Committee
Pivot Director and Chairman since 1998. John is Chairman of the Victorian Meat Authority and of the
Co-operative Research Centre for Innovative Dairy Products, a Councillor of the Royal Agricultural Society
of Victoria and a member of the Rabo Bank Food and Agribusiness Advisory Board for Australia and
New Zealand. He is a former Senior Vice President of the National Farmers Federation.
Managing Director and Chief Executive Officer
Greg joined Orica in 1977 and has held several senior management positions. He was Managing Director
of Incitec between October 1998 and April 2003.
Director
Director of Pivot since November 1999. Leo is a grain and livestock farmer at Murtoa in the Wimmera.
He is co-founder and shareholder of the agricultural investment management company, DIRT
Management Pty Ltd. He is also a Director of Wimmera Racing Club Ltd.
Director
Barbara is General Manager Chemicals Group with Orica and has held several senior management
positions during her seventeen year career with Orica. She is Deputy Chairman of Biota Holdings Limited.
Former Director of Incitec.
Director, Deputy Chairman
Director of Orica. Brian is Chairman of Centro Properties Ltd and Prime Property Management Ltd and a
Director of Fosters Brewing Group Ltd and CGNU Australia Holdings Ltd. Former Senior Vice President
of Nabisco Inc. and Sara Lee Corporation. Former Chairman of Biota Holdings Ltd and Portfolio
Partners Ltd. Former Chief Executive of Nicholas Kiwi.
From left to right David Treback, Graeme Liebelt, Barbara Gibson, Brian Healey and Leo Delahunty
8
Anthony Larkin
FCPA, FAICD
Age 61
Graeme Liebelt
BEc(Hons)
Age 49
Allan McCallum
Dip. Ag Science, MAICD
Age 54
David Trebeck
BScAgr(Hons), MEc,
MAICD
Age 56
Director, Chairman of Audit and Risk Management Committee
Until January 2002, Tony was Executive Director Finance of Orica Limited. He previously held the position of
Group Treasurer BHP Ltd. His 38 year career with BHP included senior finance positions in steel and
minerals businesses and various senior corporate roles. From 1993 to 1997 he was seconded to Fosters
Brewing Group as Senior Vice President Finance and Investor Relations. He is a Commissioner with the
Victorian Essential Services Commission, Director of Ausmelt Limited and member of Advisory Board of
Pasminco Resources Limited. Chairman of Incitec from July 2000 to April 2003.
Director
Director of Orica. Graeme is Chief Executive Officer of Orica’s Mining Services business . He was previously
Chairman of Incitec, General Manager of Orica’s Plastics business and Managing Director of Dulux.
Director, Chairman of Governance Committee
Director of Pivot since 1998. Allan is a farmer in northern Victoria. He is also Deputy Chairman of Graincorp
Limited, Director of Grain Growers Association Limited, Chairman of Nugrain Pty Ltd and President of the
Australian Oilseeds Federation.
Director
David is Executive Chairman of ACIL Tasman Pty Ltd, an economics, policy and strategy consultancy. He
has grain farming and grazing interests in southern New South Wales. He is a Director of Graincorp Limited
and a former Director of Pipers Brook Vineyard Limited. He was previously a Director of Incitec.
From left to right Greg Witcombe, John Watson, Tony Larkin and Allan McCallum
9
Executive Team
Greg Witcombe
BSc
Managing Director and Chief Executive Officer
Greg joined Orica in 1977 and has held several senior management positions. He was
Managing Director of Incitec between October 1998 and April 2003.
John Lloyd
BSc, MBA
General Manager Commercial
Prior to the merger John was Pivot’s Executive General Manager Marketing and Sales. John
has had more than 20 years experience in agriculture.
John Warnock
BE(Chem), MBA
General Manager Logistics and Supply Chain
John worked in a variety of roles with Incitec, starting in 1973. Prior to the merger John was
Incitec’s Logistics and Supply Chain Manager.
Richard Hoggard
BEng
General Manager Manufacturing and Safety, Health and Environment
Richard joined Incitec from Orica in 1998. Prior to the merger, Richard was
Incitec’s General Manager Manufacturing.
Wayne Elmer
BEc, MCom
General Manager Human Resources
Prior to the merger, Wayne was Pivot’s Executive General Manager of Human Resources.
Wayne has substantial human resources and commercial experience.
James Fazzino
BEc(Hons), CPA
Chief Financial Officer
Prior to the merger, James held the position of Orica’s Investor Relations Manager. James
has had many years experience with Orica with a background in several business finance
roles.
Anil Sharma
LLB, FCIS, MAICD
General Counsel and Company Secretary
Before joining Incitec Pivot Limited as General Counsel and Company Secretary, Anil worked
for a number of years in the telecommunications industry.
10
Safety, Health and Environment
Incitec Pivot has a comprehensive Safety, Health and Environment (SH&E) management system, which is consistent with ISO 14001,
the international standard for environmental management systems.
This system supports our aim to provide for the safety and heath of all employees, the community and our environment and is our key
tool to help us achieve our commitment to:
• Manage the interaction between people and their work environment
• Ensure compliance with legislative requirements
• Ensuring that the company’s Directors exercise their obligations by understanding the key SH&E issues within the company through
the Incitec Pivot Letter of Assurance
• Meet the requirements of the Plastic and Chemical Industry Association (PACIA) Responsible Care Industry Codes of Practice
• Meet any other relevant external standards
• Eliminate all injuries, illnesses, motor vehicle accidents, environmental incidents and any other adverse incidents
Safety, Health and Environment Policy
At Incitec Pivot we believe that all work-related injuries, illnesses and environmental incidents are preventable. Our personal commitment
to working safely is embodied in the Incitec Pivot Safety, Health and Environment Charter, which clearly outlines the obligations of each
individual in the company.
We will manage all our activities with concern for people and the environment and will conduct our business without compromising the
quality of life of present or future generations.
In particular we will:
• Strive to ensure our facilities are operated to the highest standards to protect our employees, contractors, neighbours and the
environment
• Continue to seek ways to use materials and energy in a sustainable manner
• Sell only those products that can be produced, transported, stored, used and disposed of safely
• Provide appropriate information and/or training to our customers and consumers on the safe transportation, use and disposal of our
products
• Seek to develop new or improved products and processes to enhance the contribution we make to the quality of people’s lives and
to minimise the impact on the environment
• Provide programmes and encourage employee initiatives that contribute to a safer, healthier and improved environment at work, at
home and in the community
• Set challenging targets and measure progress to ensure we continuously improve our safety, health and environmental performance
• Communicate openly about our activities and report progress on our safety, health and environmental performance
• Require every employee and contractor working for us to comply with this policy, with all relevant legislation and with industry codes
of practice
• Provide the training, systems and equipment necessary to achieve continuous improvement in all aspects of safety, health and
environmental performance
We make this commitment to our employees, contractors, customers, shareholders and the community as we work towards our safety
vision of ‘No Injuries to Anyone, Ever.’
11
Safety, Health and Environment continued
SH&E Performance
Injuries
2003
2002
Distribution incidents
2003
2002
Lost workday cases
Restricted workday case
Medical treatment cases
Total recordable cases
Lost workday case rate
Recordable case rate
3
8
6
17
0.38
2.13
11
6
23
40
1.84
6.67
Category 2
Losses of containment
Category 2
Environmental licence
5
1
2
0
Non-complying tests
152
265
Definitions
Injuries: Reported injuries are ‘recordable’ workplace injuries as defined in the Occupational Safety and Health Administration (OSHA)
management system which provides for consistency in reporting and world-wide benchmarking.
Distribution Incident: An incident not on a company site arising from the transport or storage of raw materials, products, intermediates
or wastes owned by the company or prior to delivery to the customer. A Category 2 incident is one in which there was significant loss of
containment, injury and/or damage to equipment, property or the environment and/or major traffic disruption.
Losses of Containment: An unplanned release on a company site of a material from a vessel, tank, pipe pump, container or package in
which it was designed to be contained. A Category 2 loss of containment is an incident which causes injury or damage, or concern in
the surrounding community.
Environmental Licence Non-Compliance: An excursion outside statutory discharge or emission limits, as measured in a scheduled test.
Major Hazard Facilities
The National Code of Practice and the National Standard for the control of Major Hazard Facilities (MHFs) was introduced in 1996. As a
result, individual State Governments have introduced legislation and regulations to enforce the intent of the national standard and code
of practice.
In Queensland, the Incitec Pivot sites at Gibson Island, Dalby and Melrose have been classified as MHFs under the Dangerous Goods
Safety Management Act and Regulation 2001. All intermediate milestones as prescribed in the Act have been met, with work continuing
on the final two stages – safety management systems and community consultation – in preparation for the submission of the final safety
case submission in March 2004. Incitec Pivot does not have any sites rated as MHFs in Victoria. New South Wales is currently in the
process of introducing legislation for MHFs.
12
Environment
Twenty-one company sites, including all major locations, are covered by environmental licences issued under relevant State legislation.
Licences impose conditions on the operations of facilities and encompass an extensive range of licence condition parameters, including
limits on emissions to the atmosphere, liquid emissions, noise and dust. The company operates a comprehensive testing and reporting
regime to monitor compliance with these licence requirements. The environmental compliance table provides results of these tests.
The company was prosecuted in May 2003 for a breach of environmental licence conditions at the Portland site in February 2002. The
incident involved air pollution caused by the accidental release of an offensive odour during the superphosphate production process.
National Pollutant Inventory
The Environment Australia National Pollutant Inventory (NPI) is an internet database designed to provide the community, industry and
government with information on the types and amounts of certain substances being emitted to the environment and the relative
environmental impact of local industry and everyday activities.
Incitec Pivot reports on 29 substances against 90 reportable substances. During the year, the company has reduced fluoride and
particulate emissions from the Geelong and Portland sites as a result of improved gas-scrubbing performance.
Greenhouse Challenge
The Greenhouse Challenge is a voluntary agreement between industry and the Federal Government which commits to the reduction of
greenhouse gas emissions. Both the former companies of Incitec and Pivot were signatories with this agreement transitioning to Incitec
Pivot in due course.
The major producers of greenhouse gases are the ammonia plant at Gibson Island and the superphosphate plants at Cockle Creek,
Geelong and Portland. The Gibson Island ammonia plant accounts for 80% of the company’s greenhouse gas emissions. To reduce
emissions from Gibson Island works, approval has been given for engineering modifications which will result in the urea plant boilers
being run at lower levels thus reducing energy consumption.
Geelong and Portland works are reassessing their energy usage and resultant greenhouse gas emissions in line with new air quality
management legislation in Victoria.
Product stewardship
Product stewardship is defined as the responsible and ethical design and management of products throughout the entire life-cycle in
order to protect public health and the environment. Incitec Pivot addresses product stewardship in a number of ways.
Internal programs have been developed such as the Logistics Environmental Management System covering the company’s primary and
regional distribution centres. In particular, close attention is given to the transport and distribution of dangerous goods. A comprehensive
training and accreditation program is in place for the distribution of anhydrous ammonia, and a similar program is being developed for
Class 5.1 oxidising agents including ammonium nitrate.
Issues of national concern are addressed through the Fertiliser Industry Federation of Australia (FIFA) in which Incitec Pivot, as Australia’s
largest fertiliser supplier, plays a leading role. During the year, FIFA entered into an Eco-Efficiency Agreement with Environment Australia.
FIFA has appointed an environment manager and a comprehensive training package is being developed for those involved in the sale of
fertiliser products and those involved in offering advice on fertiliser use.
Through PACIA, Incitec Pivot is committed to the Responsible Care Codes of Practice. Regular self-assessments are undertaken to
measure improvement.
Incitec Pivot’s network of agricultural professionals advises farmers on the responsible use of our products and the appropriate
application rates to prevent nutrients being lost off site with the potential to impact on other ecosystems. The company provides a
prescription farming service which matches individual fertiliser blends with a specific farm’s need to ensure that excess nutrients are not
applied.
13
Safety, Health and Environment continued
Site reports
Gibson Island works
• The standard health assessment program has been expanded to include all office-based workers with testing and educational
programs specific to the office environment.
• A prostate and breast cancer educational program is planned for 2004.
• In addressing the requirements as a Major Hazard Facility, the site has been actively conducting risk assessments, capturing
plant technical knowledge for safe operation, preparing emergency response plans and conducting skills development and
scenario-based training. In addition, a significant number of risk reduction actions, for example tank bunding, have been
implemented to reduce the overall risk profile of the site.
Portland works
• An additional scrubbing stage added to the Dens scrubbing system in October 2002 has reduced fluoride and particulate stack
emissions by 15%.
• Similar modifications to the drying plant scrubbing system are being implemented during the October 2003 shutdown to further
reduce fluoride emissions.
Geelong works
• Over the 12-month reporting period, Geelong works has focussed on the general improvement of management systems,
including the adoption of the Incitec Pivot management system.
• Geelong works achieved a 60% reduction in recordable injuries for the year to 30 September 2003. Site focus on safety
performance will continue, with emphasis on behavioural-based safety systems to deliver further reductions in injuries in line with
our vision of ‘No Injuries to Anyone, Ever’.
• A system of caustic addition to process operations was instigated during the past year. This has reduced the level of fluoride and
particulate discharge to the atmosphere and achieved consistent results in operational compliance with EPA environmental
licence requirements.
Newcastle works
• Process modifications to recycle all Cockle Creek site effluent are complete. These changes are designed to prevent further
occurrences of the six licence non-compliance incidents during the reporting period.
• Manual handling task assessments were conducted in line with our commitment to prevent employee injury.
Logistics sites
• A program of repainting all line-haul tankers incorporating a reflective paint has commenced. This will result in higher visibility on
the roads and safer transportation of our products.
• Further work was carried out to improve the safe operation of all depot-to-farm ammonia distribution equipment as part of an
ongoing $2 million safety upgrade program.
• In line with our commitment to product stewardship, an inspection and testing program of on-farm tanks is offered to our end-
use customers to ensure vessel integrity and safety.
• During September 2003 the logistics functional area set a new departmental record of 100 days without a recordable injury.
14
Corporate Governance
Introduction
Since Incitec Pivot’s listing in July 2003, the Board has implemented and operated in accordance with a set of corporate governance
policies adopted to reflect the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice
Recommendations (ASX Recommendations) which were introduced on 31 March 2003. The Board considers that the company
complies with most of the requirements in the ASX Recommendations. Specific instances where a different approach is necessary for
the circumstances of the company are set out below.
This Corporate Governance Statement outlines the key aspects of the company’s governance framework which was established, and
will be continually reviewed, by the Board.
Procedures for ASX Disclosure Requirements
The company is subject to continuous disclosure obligations under the Listing Rules of the Australian Stock Exchange, which are
supplemented by Australian corporations legislation. Subject to some limited exceptions, under the continuous disclosure requirements,
the company must immediately notify the market, through the Australian Stock Exchange, of any information which a reasonable person
would expect to have a material effect on, or lead to a substantial movement in, the price or value of its shares.
To achieve these objectives and satisfy the regulatory requirements, the Board will provide information to shareholders and the market
in several ways, including:
• communicating with all shareholders in annual reports and financial statements, releases of results to the Australian Stock Exchange
each half year and at the company’s Annual General Meeting;
• releasing price sensitive announcements and other relevant significant announcements directly to the market via the Australian
Stock Exchange;
• conducting briefings with analysts and institutions from time to time – in doing so, Incitec Pivot recognises the importance of making
sure that any price sensitive information provided during these briefings is made available to all shareholders and the market at the
same time and in accordance with the requirements of the Australian Stock Exchange and the Australian Securities and Investments
Commission; and
• providing information on the company’s website about the company and its activities, including statutory reports and investor
information.
The Company Secretary is responsible for providing announcements to the Australian Stock Exchange.
Board of Directors
The Board is responsible for directing the business of the company towards increasing shareholder wealth and promoting the interests
of Incitec Pivot’s other stakeholders such as employees, customers and the community. The Board has adopted a delegated and
reserved powers policy which details those powers which are delegated to the Managing Director and Chief Executive Officer for
exercise by businesses or corporately. The policy also reserves a number of key matters for consideration and decision by the Board,
these include:
• Direction and objectives – charting and monitoring the direction, policies and financial objectives;
• Compliance – ensuring and monitoring compliance with legal requirements and standards of performance;
• Ethical – implementing procedures and principles to ensure the company carries on its businesses ethically, with openness, honesty
and integrity; and
• Managing Director and Chief Executive Officer and other officers – appointing, terminating and reviewing the performance of the
Managing Director and implementing appropriate succession planning for the Board and management.
Access to information and independent advice
Directors are entitled to full access to the information required to discharge their responsibilities. Subject to obtaining the prior approval
of the Chairman, the Directors have the right to seek independent professional advice at Incitec Pivot’s expense to assist in carrying out
their Board duties.
The Board is assisted by the Company Secretary, who advises on the management of meetings, the implementation of governance
procedures and compliance with regulatory requirements.
15
Corporate Governance continued
Composition of the Board
The Board comprises nine Directors, including eight non-executive Directors and one executive Director (the Managing Director and
Chief Executive Officer).
The Board collectively brings significant commercial, business, operational and financial experience in a range of industries. The
Directors all bring expertise which, in aggregate, combines to form a Board which is equipped to discharge its responsibilities. The
Directors’ biographies along with their term of office and information about their qualifications and experience are on pages 8 and 9.
The Listing Rules of the ASX require that no member of the Board (other than the Managing Director and Chief Executive Officer) may
serve for more than three years without being re-elected by shareholders at an Annual General Meeting of the company.
The company’s Constitution provides that, at each Annual General Meeting one-third of the Directors (not including the Managing
Director and Chief Executive Officer) must retire and are eligible to be re-elected by the shareholders. The Constitution sets out specific
retirement provisions regarding John Watson, Allan McCallum and Leo Delahunty. Each of these Directors will hold office until the third
Annual General Meeting after the Constitution was adopted (namely April 2003) and are eligible for re-election. If re-elected Allan McCallum
is to retire at the fourth Annual General Meeting, and if re-elected Leo Delahunty is to retire at the fifth Annual General Meeting, after the
date the Constitution was adopted. As John Watson was last elected as a Director by the shareholders in February 2001 and Allan
McCallum and Leo Delahunty in February 2002, they will each hold office for a term in excess of three years. However, this was agreed
to as part of the merger negotiations to ensure continuity of these Directors for defined terms in the first three years of Incitec Pivot’s
operations following the merger. Given the requirements of the Listing Rules, as referred to above, the company sought and obtained,
from ASX, a waiver from its requirement in the Listing Rules with regard to terms in excess of three years in relation to each of John
Watson, Allan McCallum and Leo Delahunty. The Managing Director and Chief Executive Officer serves as a Director until he ceases to
be the Managing Director and Chief Executive Officer.
Where the Board appoints a person as a Director (rather than the shareholders), that person must resign at the next Annual General
Meeting following their appointment and seek approval of shareholders to continue as a Director. Accordingly, at the 2003 Annual
General Meeting, Greg Witcombe, Barbara Gibson, Brian Healey, Anthony Larkin, Graeme Liebelt and David Trebeck will seek
shareholder approval to continue as Directors.
The Board, excluding the Director in question, will regularly assess the independence of each Director, in light of any interest disclosed
by them. The Board considers all of the circumstances relevant to a Director, in determining whether the Director is independent and
free from any interest, relationship or matter which could, or reasonably be expected to interfere with the Director’s ability to act in the
best interests of the company. The Board’s consideration has been undertaken in recognition of its status as a subsidiary of Orica.
Among the circumstances considered by the Board are a range of factors, including those set out in the ASX Recommendations.
The Board considers that each of John Watson, Allan McCallum, Leo Delahunty and David Trebeck are independent when assessed on
the criteria above, taking into account all the relevant interests, matters and relationships of the particular Director.
With regard to Anthony Larkin, while he was employed by Orica until January 2002 as Executive Director of Finance, the Board
considered the shortness of his term of employment with Orica, his role as Chairman of Incitec and his personal attributes in dealing
with related party transactions. After assessment of these matters, and the criteria set out above, the Board considers that Mr Larkin is
independent.
Because of Incitec Pivot’s status as a subsidiary of Orica, the Board recognises that Orica is entitled to nominate a majority of Directors.
The Directors who are not associated with Orica note that Orica has nominated as a Director who is an independent Director of Orica –
Brian Healey, and that he is able to act as an independent Director on consideration of all matters except transactions with Orica.
In summary, among the nine Directors, the Board considers five Directors independent for general purposes, and one further Director is
independent except in respect of Orica specific transactions.
In addition, Orica has agreed that, at any time when Orica is the ultimate listed holding company of Incitec Pivot and Incitec Pivot is
listed on the official list of ASX, Orica will exercise its power as holding company to support that Incitec Pivot will be governed in
accordance with the following principles, that:
(a) at least three members of the Board will have at least 10 years practical experience in managing a commercial farming business;
(b) the Board will adopt policies and procedures according to the principles of good governance consistent with those adopted by a
substantial number of ASX 200 companies;
(c) it is desirable that the Board at all times includes a diversity of experience, expertise and community connections so that no individual
or small group of individuals can dominate it; and
(d) robust documented protocols are maintained between Orica companies and Incitec Pivot companies to govern the transactions
between the two corporate economic entities and to ensure the independence of Incitec Pivot companies.
In addition, the Board has a specialist Governance Committee consisting of non Orica directors, which is responsible for reviewing
related party transactions and making appropriate recommendations to the Board.
The roles of Chairman and Managing Director and Chief Executive Officer are separate.
16
Performance evaluation
Board
Under its charter, the Board is to undertake an annual performance evaluation, comparing its performance against its charter, setting
objectives and effecting any improvements to the charter.
Board committees
In line with the Board’s own charter, the relevant committee is to review its performance at least annually, review its charter annually,
recommend any changes to the Board and to report regularly to the Board as to its activities.
Directors
With the exception of John Watson and Allan McCallum, who were each appointed on 30 January 1998, and Leo Delahunty who was
appointed on 8 November 1999, each of its other current Directors was appointed on 1 June 2003.
Incitec Pivot recognises the importance of regular performance evaluation of the Directors. Given the recent listing of Incitec Pivot in July
2003 and the brief term of office appointments of the majority of the incumbent Directors, a formal evaluation process for all non-
executive Directors has not yet been implemented. The Board is currently examining performance evaluation and aims to have a
process in place for the 2003/2004 financial year.
Executives
All Incitec Pivot executives are subject to annual performance reviews.
The annual review involves a key executive being evaluated by their immediate superior, normally the Managing Director and Chief
Executive Officer. The executive is assessed against agreed performance objectives including business/financial/operational targets,
functional/managerial goals and personal accountabilities.
The outcomes of performance reviews are directly related to remuneration levels for all key executives. The Remuneration and
Appointments Committee has overall responsibility for ensuring performance evaluation processes are in place for all key executives and
that such evaluations are linked to executive remuneration.
The Remuneration and Appointments Committee also considers the performance and remuneration of the Managing Director and Chief
Executive Officer and recommends his remuneration to the Board, including giving recommendations regarding his participation in the
Incitec Pivot Senior Executives Long Term Incentive Plan. This Plan takes into account, among other things, the company’s performance
and relative shareholder return and the value of similar incentive arrangements for managing Directors at comparable companies.
The performance evaluation of the Managing Director and Chief Executive Officer is conducted by the Chairman and Board. This
evaluation involves an assessment of a range of performance standards as determined by the Board, including the overall performance
of the company.
Board meetings
Details of the Board meetings held during 2002/2003 financial year are set out on page 22.
Procedures are also in place to ensure that Directors can meet to consider and decide urgent matters, as and when they arise.
Materials for Board and Board committee meetings are circulated to the Directors in advance. The agenda for meetings is formulated
with input from the Managing Director and Chief Executive Officer and the Chairman. Directors are free to nominate matters for inclusion
on the agenda for any Board or Board committee meeting.
Presentations to the Board are frequently made by members of senior management, and telecommunications technologies may be
utilised to facilitate participation.
Directors’ remuneration
Under the company’s constitution the maximum remuneration payable by the company for the services of non-executive Directors in
total must not exceed the amount approved by shareholders in general meeting, which is $600,000 as approved at the general meeting
held in April 2003. The total remuneration paid to the non-executive Director in the financial year ended 30 September 2003 is within the
maximum amount approved by shareholders.
Non-executive Directors receive remuneration based on membership of the Board and for chairing and membership of the Governance
and Audit and Risk Management Committees. Non-executive Directors do not receive any performance-based incentives and with
effect from 1 June 2003 no retirement benefits will be provided for Directors other than those disclosed in the Directors’ Report. Details
of remuneration paid to the non-executive Directors is set out on page 24.
17
Corporate Governance continued
Committees of the Board
As part of Incitec Pivot’s corporate governance, the Incitec Pivot Board has established the following committees:
• Audit and Risk Management Committee;
• Remuneration and Appointments Committee;
• Governance Committee.
The committees operate in accordance with charters established by the Board.
Other committees of the Board may be formed from time to time to deal with specific matters.
Materials for the Board committee meetings are circulated in advance and minutes are circulated to all Directors. In addition, regular
reports of the committees’ activities are provided to the Board.
Audit and Risk Management Committee
The Audit and Risk Management Committee assists the Board in its review of financial reporting principles and policies, controls and
procedures, internal audit and the integrity of the company’s financial statements, the external audit and the company’s compliance with
legal and regulatory requirements.
The primary objectives of the Audit and Risk Management Committee, as set out in its charter, are to:
Financial reporting
• (review of reports and analyses) review management, internal audit and external audit reports and analyses of financial reporting issues;
• (review of financial statements) review all audited financial statements and all other financial information being made public;
• (accounting policies) review the critical accounting policies with external auditors and management;
• (Managing Director and CEO and CFO certification) review the certification provided by the Managing Director and Chief Executive
Officer and the Chief Financial Officer on annual and half-yearly reports.
Internal control and risk management
• (risk management strategies) receive reports from management concerning the company’s risk management principles and policies,
assess and manage business, financial and operational risk;
• (risk reports and monitoring) receive reports on and oversee credit, market, balance sheet and operating risk and monitor risk
implications of new and emerging risks, organisational change and major initiatives and also monitor resolution of significant risk
exposures and risk events;
• (reports on change in the environment) monitor anticipated changes in the economic and business environment and other factors
relevant to future strategy;
• (compliance) oversee compliance with applicable laws relating to the operation of its business;
• (insurance) monitor the insurance strategy of the company and recommend approval or variation of insurance policies.
External audit
• (appointment/replacement) make recommendations to the Board on the selection, evaluation and replacement of the external
auditor;
• (terms of engagement) review and agree with the external auditor the terms of engagement;
• (effectiveness and independence) monitor the effectiveness and independence of the external auditor including requiring external
auditor to prepare and deliver an annual statement as to their independence;
• (scope of audit) review the scope of the external audit with the external auditor;
• (non-audit services) review and assess provision of non-audit services by the external auditors, provide pre-approval or otherwise of
all non-audit services which may be provided by the external auditor and ensure disclosure to shareholders of the committee’s
approval of all non-audit work.
Internal audit
• (appointment) recommend the internal auditor;
• (scope of audit and plan) review and assess the scope of the audit and the internal audit plan;
• (internal audit findings) receive reports from internal audit, management’s response and the internal audit recommendations;
• (assessment) conduct an annual assessment of the effectiveness of internal controls and financial reporting procedures.
The initial members of the Audit and Risk Management Committee are Anthony Larkin (Chairman), David Trebeck and Allan McCallum.
Although Anthony Larkin was previously employed by Orica, for the reasons set out above (under the heading Composition of the
Board) the Board considers he is independent for the purposes of chairing this committee.
18
Internal control and risk management
The Board has overall responsibility for the company’s systems of internal control. These systems are designed to ensure effective and
efficient operations, including financial reporting and compliance with laws and regulations, with a view to managing the risk of failure to
achieve business objectives.
The Board reviews the effectiveness of the internal control systems and risk management on an ongoing basis, and monitors risk
through the Audit and Risk Management Committee.
The Board regularly receives information about the financial position and performance of the company. For annual and half-yearly
accounts released publicly, the Managing Director and Chief Executive Officer and the Chief Financial Officer will certify to the Board:
• the accuracy of the accounts and that they represent a true and fair view, in all material respects, of the company’s financial condition
and operational results, and have been prepared in accordance with applicable accounting standards; and
• that the representations are based on a system of risk management and internal compliance and control which implements the
policies adopted by the Board, and that those systems are operating efficiently and effectively in all material respects.
External Auditor
KPMG is the company’s external auditor.
The audit partners and review partners of our external auditor will rotate every five years. The current audit partners and review partners
were first appointed for the 2002/2003 audit of the company.
Restrictions are placed on non-audit work performed by the auditors and projects outside the scope of the audit require the approval of
the Chairman of the Audit and Risk Management Committee.
Remuneration and Appointments Committee
In recognition of the need to ensure that proper processes are in place to deal with succession issues at Board level, the Board
established a Remuneration and Appointments Committee which is to comprise at least three independent non-executive Directors.
The initial members of the Remuneration and Appointments Committee are all members of the Board other than the Managing Director
and Chief Executive Officer, Greg Witcombe, and the committee is chaired by the Chairman, John Watson. Incitec Pivot’s Remuneration
and Appointments Committee charter was approved by the Incitec Pivot Board on 3 June 2003 and sets out the committee’s
responsibilities. The main items of responsibility are:
• to identify those individuals believed to be qualified to become Board members;
• in consultation with the Managing Director and Chief Executive Officer, to review and recommend to the Board for approval the
company’s approach to compensation and to oversee the establishment of those compensation proposals;
• to identify Board members qualified to fill vacancies on any committee of the Board (including the Remuneration and Appointments
Committee);
• to recommend the appropriate process for evaluation of the performance of the Directors;
• to consider the appointment, performance and remuneration of the Managing Director and Chief Executive Officer;
• to review and make recommendations to the Board as to appropriate incentive schemes for employees.
Governance Committee
This committee was established pursuant to Incitec Pivot’s constitution in recognition of the company’s status as a subsidiary of Orica.
Under its charter, the Governance Committee is to comprise at least three independent non-executive Directors. The initial members of
the committee are Allan McCallum (Chairman), John Watson and Leo Delahunty.
The primary purposes of the Committee are to ensure:
• all executives of Incitec Pivot are aware of the rules relating to related party transactions;
• that Incitec Pivot, its subsidiaries and its employees all comply with the company’s related party transactions policy;
• that any transactions that are likely to constitute related party transactions comply with the law; and
• that any related party transactions, where appropriate, are disclosed.
Except as may be provided in a power of attorney given to the members of the committee by Incitec Pivot, (in order to procure that
Incitec Pivot appropriately enforces Orica’s agreement with regard to corporate governance matters, as summarised under the heading
Composition of the Board), the Governance Committee has no executive powers with regard to its recommendations and does not
relieve the Board of its responsibilities.
19
Corporate Governance continued
Share ownership and dealing
Details of shares in the company held by the Directors are set out on page 22.
The Board has adopted a share trading policy which regulates dealings in the Company’s shares. The policy aims to ensure that Incitec
Pivot’s associates are aware of the legal restrictions on trading in securities while a person is in possession of the Company’s inside
information.
Under the Policy, all employees, advisers, auditors and consultants (Associates) and Directors are prohibited from trading in the
Company’[s securities or Orica’s securities, while in possession of inside information. Moreover there are certain ‘black out’ periods,
from the end of the financial year or half year until the relevant results are announced.
In addition, all employees in the legal, finance, commercial and marketing business units, all other Associates, who are not employees,
and all Directors are not permitted to trade in Incitec Pivot securities or Orica securities at any time outside designated trading windows,
without a current no objection notice. Under the policy, a no objection notice is issued by the Company Secretary, or in the case of a
Director, the Chairman, upon the relevant person confirming he or she is not aware of inside information.
The Australian Stock Exchange is notified of any share dealings by a Director within five business days.
Incitec Pivot codes of conduct
Incitec Pivot is committed to operating to the highest standards of ethical behaviour and honesty with full regard for the safety and
health of its employees, customers, the wider community and environment.
The company has codes of conduct which set ethical standards for Directors, senior management and employees. The codes describe
core principles ensuring ethical conduct is maintained in the interests of shareholders and other stakeholders. Such principles address
legal compliance, honesty and integrity, the avoidance of discrimination, separation of personal transactions from dealings with the
company, the maintenance of confidentiality in its dealings with customers, avoidance of actual or potential conflicts of interest (or in the
case of non-executive Directors, matters which may affect their independence) and the avoidance of personal gain from those doing
business with the company.
Safety, Health and Environment and quality policies
Incitec Pivot has adopted policies in relation to safety, the environment and quality, details of which are summarised below:
• Safety Policy
Incitec Pivot has adopted a policy on safety, which seeks to ensure a safe working environment and safe systems of work thereby
preventing injuries and reducing associated costs.
The objectives of Incitec Pivot as set out in the policy include meeting all regulatory authority requirements; establishing compliance
mechanisms; striving to achieve zero work related lost time injuries; ensuring a consistent focus on the management of safety and
providing rehabilitation services to workers who have suffered an illness or injury in the course of their employment with the company.
• Environmental Policy
Incitec Pivot has adopted a policy on its commitment to preserving the environment, preventing pollution and ensuring the health and
wellbeing of its workforce and the community in which it operates. The objectives of Incitec Pivot as set out in the policy include
meeting all regulatory authority requirements for ground water, air emissions, stormwater, noise and soil contamination, establishing
compliance mechanisms and maximising reuse of waste materials.
• Quality Policy
Incitec Pivot has adopted a policy on its commitment to providing products and services that meet its customers’ needs. The
objectives of the policy include Incitec Pivot meeting all regulatory requirements and establishing procedures and operating
mechanisms consistent with accepted international standards.
20
Financial Report
Directors’ Report
Statements of Financial Performance
Statements of Financial Position
Statements of Cash Flows
Notes to the Financial Statements
Directors’ Declaration on the Financial Report set out on pages 27 to 58
Audit Report
Shareholders’ Statistics
Five Year Financial Statistics
22
27
28
29
30
59
60
61
62
Incitec Pivot Limited (formerly Pivot Limited)
21
Directors’ Report
The directors of Incitec Pivot Limited (‘the Company’ or ‘Incitec Pivot’ and formerly Pivot Limited) present the financial report of the
Company and its controlled entities (collectively ‘the consolidated entity’) for the year ended 30 September 2003 and the auditor’s report
thereon.
Directors
The directors of the Company during the financial year and up to the date of this report are:
J C Watson, Chairman
G J Witcombe, Managing Director (Appointed 1 June 2003)
C G Leon, Managing Director (Resigned 31 May 2003)
L M Delahunty
B J Gibson (Appointed 1 June 2003)
B S Gilbert (Resigned 31 May 2003)
B Healey (Appointed 1 June 2003)
J Hasker (Resigned 31 May 2003)
I A Langdon (Resigned 31 May 2003)
A C Larkin (Appointed 1 June 2003)
G R Liebelt (Appointed 1 June 2003)
A D McCallum
T R Robbins (Resigned 31 May 2003)
D B Trebeck (Appointed 1 June 2003)
The office of company secretary is held by Mr A K Sharma. Particulars of directors’ qualifications, experience and special
responsibilities are detailed on page 10 of the annual report.
Directors’ interests in share capital
The relevant interest of each director in the share capital of the Company as at the date of this report is as follows:
Director
J C Watson
G J Witcombe
L M Delahunty
B J Gibson
B Healey
A C Larkin
G R Liebelt
A D McCallum
D B Trebeck
Fully paid
ordinary shares
2,700
32,269
6,478
-
-
-
-
5,158
-
Directors’ meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the
directors of the Company during the financial year are listed below:
Director
Board
Audit and Risk
Management
Remuneration and
Appointments
Governance
Capital and
Share Structure
Attended
Attended Held (1)
J C Watson
G J Witcombe
C G Leon
L M Delahunty
B J Gibson
B S Gilbert
J Hasker
B Healey
I A Langdon
A C Larkin
G R Liebelt
A D McCallum
T R Robbins
D B Trebeck
Held (1)
21
6
15
21
6
15
15
6
15
6
6
21
15
6
Attended
21
6
15
21
5
11
11
5
14
6
5
20
14
5
Held (1)
3
-
-
7
-
4
-
-
4
2
-
2
3
2
Attended
3
-
-
7
-
3
-
-
4
2
-
2
1
2
Held (1)
4
-
-
4
1
-
-
1
-
1
1
4
-
1
Attended
4
-
-
4
1
-
-
1
-
1
1
4
-
1
Held (1)
2
-
-
2
-
-
-
-
-
-
-
2
-
-
2
-
-
2
-
-
-
-
-
-
-
2
-
-
12
-
-
12
-
12
12
-
-
-
-
12
-
-
12
-
-
8
-
6
10
-
-
-
-
12
-
-
(1) This column shows the number of meetings held during the period that the director was a member of the Board or Committee.
Principal activities
The principal activities of the consolidated entity in the course of the financial year were the manufacture and distribution of fertilisers.
No significant changes have occurred in the nature of these activities during the financial year.
22
Incitec Pivot Limited (formerly Pivot Limited)
Directors’ Report
Dividends
Dividends paid or declared in respect of the year ended 30 September 2003 were:
Special dividend paid by the Company on 16th June 2003 at the rate of $1.40 per share on 17,484,308 ordinary
shares, fully franked at the 30% corporate tax rate.
Dividend paid in respect of redeemable preference shares by Incitec Fertilizers Limited on 27 August 2003 (1).
$000
24,478
737
(1) The Dividend in respect of the redeemable preference shares is payable quarterly at 5.36% per share unfranked. It is accrued in
the financial statements on a monthly basis. These dividends have been charged to the statement of financial performance as
borrowing costs because these shares are classified as liabilities.
Review and results of operations
A review of the operations of the consolidated entity during the financial year and of the results of those operations is contained on
pages 4 to 7 of the annual report.
Changes in the state of affairs
Particulars of significant changes in the state of affairs of the consolidated entity during the year ended 30 September 2003 are as
follows:
Acquisitions
• On 29th May 2003 the Company was renamed Incitec Pivot Limited.
• On 1st June 2003 the Company issued 40,796,719 shares in consideration for the purchase of Incitec Fertilizers Limited.
Divestments
• On 20th February 2003 Pivot Nutrition Pty Ltd, a wholly owned subsidiary of the Company, divested the operating assets and
business of the Carrick Stockfeed Mill for $4.4m.
Events subsequent to balance date
On 22 October 2003 loans were issued to 47 senior employees as part of the long term incentive program described below in the
‘Executive directors and senior executive officers emoluments’, and in note 32 of the Financial Statements.
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2003, that
has affected or may affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the
consolidated entity in subsequent years, which has not been covered in this report.
Likely developments
Likely developments in the operations of the consolidated entity and the expected results of those operations are covered generally in
the review of operations of the consolidated entity on pages 4 to 7 of the annual report.
Further information as to likely developments in the operations of the consolidated entity and the expected results of those operations in
subsequent financial years has not been included in this report because, in the opinion of the directors, disclosure would be likely to
result in unreasonable prejudice to the consolidated entity.
Executive directors and senior executive officers emoluments
It is the broad policy of the Company that its remuneration structure will:
(a) support the Company’s philosophy and values;
(b)
(c) provide a common interest between management and shareholders; and
(d) be sufficiently competitive in the markets in which the Company operates to attract, motivate and retain high calibre employees.
reinforce both the short and long term objectives of the Company;
During 2003, the Company introduced changes to executive remuneration as a result of the introduction of a long term incentive
program for senior management in addition to the short term incentive program already in existence. The incentive programs are
designed to encourage executives to focus on the key performance drivers which underpin sustainable growth in shareholder value.
Short Term Incentive Program
The Company has a short term incentive program that provides for incentive payments to senior executive officers based on
performance targets (both company financial and individual) for the preceding 12 months.
During the period 1 June 2003 to 30 September 2003 the short term incentive payments for the senior executives were calculated on an
annual pro-rata basis for the period, and were determined on the basis of achievement of performance targets set for that period.
For the period 1 October 2002 to 31 May 2003, for the participating senior executives, short term incentive payments were calculated
on a pro-rata basis for the 8 month period, and were paid on the basis of achievement of performance targets set for that period.
The calculation of the short term incentive has been split into two periods as described above due to the acquisition of Incitec Fertilizers
Limited on 1st June 2003.
Incitec Pivot Limited (formerly Pivot Limited)
23
Directors’ Report
Long Term Incentive Programs
Under the Long Term Incentive Plan the Company may grant awards to senior executive officers subject to the achievement or
satisfaction of conditions as to duration of employment or conditions as to performance.
Since the adoption of the Long Term Incentive Plan, 47 senior employees have been invited to participate in awards made under the
rules of the Long Term Incentive Plan on the following basis:
•
in recognition of the achievement of certain performance targets in the period between 1 June 2003 and 30 September 2003, the
participating senior employees will be granted awards based on a percentage of base remuneration. These awards, once
quantified, will be paid in cash before 31 December 2003;
in respect of the period from 1 June 2003 to 30 September 2005, an award was granted to the participating employees, such to be
satisfied by the purchase, in aggregate of 107,925 shares on the Australian Stock Exchange. The shares purchased may be
forfeited by a participating employee if that employee ceases to be employed with Incitec Pivot prior to September 2005. In
respect of the amount of this award to be applied towards shares, the participating employees were each given an interest free
unsecured loan by the Company. The loan is repayable on the earlier of the employee ceasing to be employed by Incitec Pivot,
the employee selling his/her shares or three years after the loan is made. The company has discretion to decide the amount of
repayment due in satisfaction of the debt. Any dividends will be applied on an after tax basis to reduce the loan balance. The
employee cannot deal in these shares until 30 September 2005, and
that they may be eligible to receive an award under the Long Term Incentive Plan dependent on the achievement of certain
performance measures over a rolling three year period.
•
•
Particulars of executive directors and senior executive officers qualifications, experience and special responsibilities are detailed on
page 10 of the annual report. Details of the nature and amount of each element of emoluments of executive directors and the five
highest remunerated officers are included in the following table.
Executive directors and five highest remunerated
officers
Cash benefits
Fixed
Annual
Remuneration (1)
$
Termination
payments (2)
$
2002
Incentive
payments (3)
$
2003
Incentive
payments (4)
$
Total
remuneration
expense
$
Other (5)
$
Executive Directors - Current
G J Witcombe
Managing Director and Chief Executive Officer
Executive Directors - Former
C G Leon
Managing Director and Chief Executive Officer
Senior Executives - Current
W Elmer
General Manager Human Resources
J Lloyd
General Manager Commercial
C Trotter
Manager Integration and Business Improvement
Senior Executives - Former
A McKendrick
Company Secretary
G Smith
Chief Financial Officer
203,333
-
-
108,377
35,891
347,601
317,006
945,000
118,963
47,250
265,581
277,956
233,168
-
-
-
85,921
47,203
88,488
52,155
48,839
12,093
207,029
311,895
66,297
20,793
256,097
427,927
89,601
26,677
-
-
-
-
-
-
1,428,219
398,705
418,599
294,100
606,014
800,302
Includes payment in lieu of notice, contractual entitlements due to early termination of employment contracts and annual leave entitlements.
(1) Fixed annual remuneration includes base salary, company superannuation contributions and company car.
(2)
(3) 2002 Incentive payments include payments relating to 2002 paid in 2003.
(4) 2003 Incentive payments include payments relating to 2003 performance which have either been paid or are accrued but not yet paid.
(5)
Includes relocation, allowances and rental assistance.
Remuneration of Managing Director and Chief Executive Officer
The Company has entered into an employment agreement with the Managing Director and Chief Executive Officer, Greg Witcombe.
The agreement may be terminated by 3 months notice given by either party. The agreement provides for a fixed annual remuneration
of $610,000 and other benefits on terms commensurate with his position, the industry and the size of the Company including
termination entitlements of 1.68 times his fixed annual remuneration. The agreement includes provisions relating to confidential
information and post termination restraints. The agreement also includes an entitlement to participate in the annual short term incentive
program. This is based on 30% of fixed annual remuneration and is subject to achievement of certain performance targets, and for over
performance of such targets, can increase to 60% of fixed annual remuneration. In addition, the Managing Director and Chief Executive
Officer is eligible to participate in the long term incentive program. His participation in this incentive program in respect of the retention
award, is based on 35% of fixed annual remuneration for the period from 1 June 2003 to 30 September 2005, and in respect of the
performance award, is based on 35% of fixed annual remuneration, subject to achievement of certain performance targets; for over
performance of such targets the award can increase to 70% of fixed annual remuneration.
24
Incitec Pivot Limited (formerly Pivot Limited)
Directors’ Report
Non - executive directors’ emoluments
Non-executive directors’ fees, including committee fees, are determined by the Board within the aggregate amount of $600,000 which
was approved by shareholders at the April 2003 Annual General Meeting. In determining the level of fees, the Board reviews external
professional advice and survey data on fees paid by comparable companies and considers this against the level of remuneration
required to attract and retain directors of the appropriate calibre. Non-executive directors are not entitled to any form of incentive
payments.
The Company has not since 1 June 2003 made provision for payment of retirement benefits for directors in respect of service after that
date. Directors of the Company who retired on 31 May 2003 each received a benefit calculated to that date based on the policy of the
Company in force as at 31 May 2003. This policy entitled these directors to a retirement benefit after 10 years of service equal to the
total of the benefits received by him from the Company in the 3 years immediately preceding the date of retirement. The retirement
benefit was paid on a pro-rata for less than 10 years of service. Directors who have continued to serve as directors of the after 31 May
2003 will receive a retirement benefit on their eventual retirement from the Company for service up to 31 May 2003. This retirement
benefit will be calculated and paid in accordance with the formula above.
Non-executive directors
Fees
$
Superannuation
Contributions
$
Retirement
allowance
$
Total
$
Non-executive directors - Current
J C Watson, Chairman
L M Delahunty
B J Gibson (1)
B Healey
A C Larkin
G R Liebelt (1)
A D McCallum
D B Trebeck
Non-executive directors - Former
I A Langdon
B S Gilbert
J Hasker
T R Robbins
(1) Fees of $55,000 per director per annum are paid to their employer, Orica Limited, the ultimate controlling entity.
108,335
47,501
18,333
18,333
23,145
18,333
65,835
20,833
9,975
4,659
-
1,650
2,083
-
6,536
1,875
120,000
59,014
42,740
40,077
26,667
26,667
26,667
26,667
2,400
2,400
2,400
2,400
-
-
-
-
-
-
-
-
118,310
52,160
18,333
19,983
25,228
18,333
72,371
22,708
149,067
88,081
71,807
69,144
Employees’ options entitlement
Incitec Pivot has not issued any options.
Corporate Governance
The Company has a comprehensive corporate governance framework, details are set out on pages 15 to 20 of the annual report.
Environmental regulations
Manufacturing licences and consents are in place at each Incitec Pivot site in consultation with local environmental regulatory
authorities. The measurement of compliance with conditions of licences and consents involves numerous tests being conducted
regularly. The sites record their compliance and report that there is continued high compliance. Any breaches are reported to the
authorities as required. More specific details of Incitec Pivot’s safety, health and environmental performance, including management
processes, are available in the Safety, Health and Environment Performance Report 2003 on pages 11 to 14 of the annual report.
Indemnification and insurance of officers
The Company’s Constitution requires the Company to indemnify any person who is, or has been, an officer of the Company, including
the directors, the secretary and other executive officers, against any liability incurred by the person which arises out of the discharge of
that person’s duties, unless the liability was incurred as a result of dishonesty, negligence or lack of good faith. In such circumstances,
the Board has discretion whether or not to provide an indemnity.
The Company has paid a premium in respect of a contract insuring officers of the Company and of controlled entities against a liability for
costs and expenses incurred by them in defending civil or criminal proceedings involving them as such officers, with some exceptions. The
contract of insurance prohibits disclosure of the nature of the liability insured against and the amount of the premium paid.
Incitec Pivot Limited (formerly Pivot Limited)
25
Directors’ Report
Rounding
The amounts shown in this report and in the financial statements have been rounded off, except where otherwise stated, to the nearest
thousand dollars, the Company being in a class specified in the ASIC Class Order 98/100 dated 10 July 1998.
Signed on behalf of the Board in accordance with a resolution of the directors of Incitec Pivot Limited.
John C Watson
Chairman
Dated at Melbourne this 5th day of November 2003.
26
Incitec Pivot Limited (formerly Pivot Limited)
Statements of Financial Performance
For the year ended 30 September 2003
Revenue from ordinary activities
Operating expenses
Changes in inventories of finished goods and work in progress
Raw materials and consumables used and
finished goods purchased for resale
Employee expenses (including significant items)
Write-down of investments in controlled entities (significant items)
Depreciation and amortisation expense
Borrowing costs
Purchased services (including significant items)
Repairs and maintenance
Property, plant & equipment retired/disposed (excluding significant items)
Outgoing freight
Lease payments - operating leases
Net assets disposed from sale of business (significant items)
Asset write-downs, clean-up and environmental provisions (significant
items)
Other expenses from ordinary activities including significant items
(Loss)/profit from ordinary activities before income tax expense
Income tax expense attributable to (loss)/profit from ordinary activities
(Loss)/profit from ordinary activities after income tax expense
Non-owner transactions in equity
Net increase in general and other reserves
Net decrease in forfeited shares reserve
Net decrease in capital profits reserve
Net reduction in equity due to initial adoption of AASB 1028
Employee Benefits
Total revenues, expenses and valuation adjustments relating to
members of the parent entity recognised directly in equity
Total changes in equity other than those resulting from
transactions with owners as owners
Notes
(3)
Consolidated
Company
2003
2002
2003
2002
$000
696,567
$000
610,286
$000
586,648
$000
603,744
(61,751)
(458)
(33,734)
(458)
(5)
(4)
(7)
(23)
(23)
(23)
(23)
(349,830)
(66,403)
-
(24,353)
(8,289)
(44,667)
(13,062)
(3,043)
(23,692)
(7,914)
(3,867)
(37,837)
(64,093)
(708,801)
(12,234)
(6,389)
(18,623)
1,499
(8)
(1,491)
(328)
(328)
(401,670)
(41,733)
-
(15,267)
(15,115)
(28,762)
(14,022)
(159)
(23,467)
(7,837)
(90)
(290,284)
(50,743)
(67,497)
(11,426)
(6,886)
(34,053)
(7,411)
(1,382)
(15,480)
(6,334)
-
(397,953)
(40,969)
-
(15,202)
(15,115)
(28,762)
(13,744)
375
(23,348)
(7,837)
(90)
-
(37,152)
-
(37,778)
(586,358)
23,928
(5,402)
18,526
(2,049)
(564,431)
22,217
(4,979)
17,238
(36,832)
(579,935)
23,809
(3,417)
20,392
-
-
-
-
-
8
(8)
-
(191)
(191)
-
-
-
-
-
(24)
(18,951)
18,526
17,047
20,392
Earnings per share
Basic earnings per share:
Ordinary shares
cents
cents
(8)
(60)
106
The Statements of Financial Performance are to be read in conjunction with the notes to the financial statements set out on
pages 30 to 58.
Incitec Pivot Limited (formerly Pivot Limited)
27
Statements of Financial Position
As at 30 September 2003
Current assets
Cash assets
Receivables
Other financial assets
Inventories
Other
Total current assets
Non-current assets
Receivables
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Payables
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
Notes
(9)
(10)
(13)
(11)
(12)
(10)
(13)
(14)
(15)
(16)
(12)
(17)
(18)
(19)
(20)
(17)
(18)
(21)
(20)
(22)
(23)
(23)
(24)
21,269
108,988
-
205,643
14,699
350,599
1,924
-
296,615
185,354
19,101
13,553
516,547
867,146
130,899
40,663
6,312
37,133
215,007
-
55,000
14,268
9,489
78,757
293,764
573,382
532,445
35,922
5,015
573,382
39,283
48,966
-
111,859
906
201,014
335
-
116,518
-
18,637
-
135,490
336,504
48,442
60,631
-
16,505
125,578
-
60,000
-
741
60,741
186,319
150,185
65,819
35,922
48,444
150,185
14,440
42,713
-
74,366
7,834
139,353
1,924
474,179
85,009
-
13,194
-
574,306
713,659
50,480
61,479
-
22,525
134,484
-
-
-
2,693
2,693
137,177
576,482
532,445
43,694
343
576,482
36,051
46,730
20
110,519
872
194,192
335
73,775
108,614
-
18,173
-
200,897
395,089
47,970
60,631
-
16,381
124,982
92,096
60,000
-
724
152,820
277,802
117,287
65,819
43,694
7,774
117,287
The Statements of Financial Position are to be read in conjunction with the notes to the financial statements set out on
pages 30 to 58.
28
Incitec Pivot Limited (formerly Pivot Limited)
Statements of Cash Flows
For the year ended 30 September 2003
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs
Royalties and other trading revenue received
Net income taxes received/(paid)
Net cash flows from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Proceeds from sale of business
Net cash flows used in investing activities
Cash flows from financing activities
Net movement in short term financing
Payments for expenses relating to listing on Australian Stock Exchange
Dividends paid
Net cash flows used in financing activities
Net (decrease)/increase in cash held
Cash at the beginning of the financial year
Cash at the end of the financial year
Consolidated
Company
Notes
2003
$000
Inflows/
(Outflows)
2002
$000
Inflows/
(Outflows)
2003
$000
Inflows/
(Outflows)
2002
$000
Inflows/
(Outflows)
812,715
(714,836)
1,472
(7,966)
1,734
3,113
96,232
636,360
(552,094)
1,452
(15,115)
3,368
453
74,424
525,959
(468,252)
1,770
(6,808)
1,004
-
53,673
623,507
(540,634)
1,452
(15,115)
3,305
(25)
72,490
(15,578)
2,659
4,393
(8,526)
(4,133)
540
400
(3,193)
(8,923)
852
-
(8,071)
(4,127)
489
400
(3,238)
(26)
(3)
(3)
(81,545)
(1,274)
(24,478)
(107,297)
(33,338)
-
-
(33,338)
(19,591)
39,283
19,692
37,893
1,390
39,283
(26)
(43,038)
(1,274)
(24,478)
(68,790)
(23,188)
36,051
12,863
(33,335)
-
-
(33,335)
35,917
134
36,051
The Statements of Cash Flows are to be read in conjunction with the notes to the financial statements set out on pages 30 to 58.
Incitec Pivot Limited (formerly Pivot Limited)
29
Notes to the Financial Statements
For the year ended 30 September 2003
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
30
Accounting policies
Segment report
Revenue from ordinary activities
(Loss)/Profit from ordinary activities before income tax expense
Individually significant items
Auditors' remuneration
Income tax expense
Earnings per share (EPS)
Cash assets
Receivables
Inventories
Other assets
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Payables
Interest bearing liabilities
Current tax liabilities
Provisions
Deferred tax liabilities
Contributed equity
Reserves and retained profits
Total equity reconciliation
Dividends
Notes to the statements of cash flows
Commitments
Contingent liabilities and contingent assets
Standby arrangements and credit facilities
Amounts receivable and payable denominated in foreign currencies
Additional financial instruments disclosures
Employee share plans
Related party disclosures
Superannuation commitments
Remuneration of directors and executives
Investments in controlled entities
Deed of cross guarantee
Events subsequent to balance date
Incitec Pivot Limited (formerly Pivot Limited)
31
33
35
35
36
37
37
38
38
39
39
39
40
40
41
41
41
42
42
42
43
44
45
46
46
47
48
49
50
50
50
53
54
55
56
57
58
58
Notes to the Financial Statements
For the year ended 30 September 2003
1. Significant accounting policies
The significant accounting policies adopted in preparing the
financial report of Incitec Pivot Limited (‘the Company’ or
‘Incitec Pivot’) and of its controlled entities (collectively ‘the
consolidated entity’) are stated to assist in a general
understanding of this financial report. These policies have
been consistently applied except as otherwise indicated.
(i) Basis of preparation
The financial report is a general purpose financial report
prepared in accordance with Accounting Standards, Urgent
Issues Group Consensus Views, other authoritative
pronouncements of the Australian Accounting Standards
Board and the Corporations Act 2001.
The financial report has been prepared on the basis of
historical cost and except where stated, does not take into
account changing money values or fair values of non-current
assets.
(ii) Change in accounting policy
Foreign currency translation
The consolidated entity has applied the revised AASB 1012 –
Foreign Currency Translation for the first time from 1 October
2002. For hedges of specific purchases or sales, the gains or
costs on entering the hedge and the exchange differences up
to the date of the purchase or sale are now deferred and
recognised as assets or liabilities on the statements of
financial position from the inception of the hedge contract, not
when the specific purchase or sale occurs. As a result of the
application of the revised AASB 1012, there was no impact on
opening retained profits.
Employee benefits
The consolidated entity has applied the revised AASB 1028 –
Employee Benefits for the first time from 1 October 2002. The
liability for wages and salaries, annual leave and sick leave is
now calculated using the remuneration rates the Company
expects to pay as at each reporting date, not wage and salary
rates current at reporting date. The initial adjustments to the
consolidated financial report as at 1 October 2002 as a result
of this change are:
$426,400 increase in provision for employee benefits;
$328,000 decrease in opening retained profits; and
$98,400 increase in future income tax benefit.
Provisions and contingent liabilities
The consolidated entity has applied AASB 1044 – Provisions,
Contingent Liabilities and Contingent Assets for the first time
from 1 October 2002. Dividends are now recognised at the
time they are declared or determined. Previously, final
dividends were recognised in the financial year to which they
related, even though the dividends were declared after the end
of that financial year.
As a result of the application of the revised AASB 1044, there
was no impact on opening retained profits.
(iii) Consolidation
The controlled entities included in the consolidated financial
statements are listed in note 36. All inter-entity transactions
and balances have been eliminated on consolidation. Where
entities are not controlled throughout the entire financial year,
the consolidated results include the results of those entities for
that part of the year during which control existed.
(iv) Revenue recognition (see note 3)
External sales, royalty income and other income are
recognised when the goods and services are provided.
Interest income is recognised as it accrues. Gross proceeds
from sale of businesses, controlled entities and other non-
current assets are recognised when there is a signed
unconditional contract of sale. Dividends are recognised in
the statements of financial performance when declared.
Revenues are recognised at fair value of the consideration
received net of the amount of GST payable to the taxation
authority.
(v) Borrowing costs (see note 4)
Borrowing costs include interest, amortisation of discounts or
premiums relating to borrowings and amortisation of ancillary
costs incurred in connection with the arrangement of
borrowings, including lease finance charges. Borrowing costs
are expensed as incurred unless they relate to qualifying
assets. Qualifying assets are assets which take more than
twelve months to get ready for their intended use or sale.
Where funds are borrowed specifically for the production of a
qualifying asset, the interest on those funds is capitalised, net
of any interest earned on those borrowings. Where funds are
borrowed generally, borrowing costs are capitalised using a
weighted average interest rate. Ancillary costs incurred in
connection with the arrangement of borrowings are capitalised
and amortised over the life of the borrowings.
(vi) Research and development costs (see note 4)
Research and development costs are expensed as incurred.
(vii) Taxation (see note 7)
Income tax has been brought to account using the income
statement method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted
for permanent differences between taxable and accounting
income. The tax effect of timing differences, which arise from
items being brought to account in different periods for income
tax and accounting purposes, is carried forward in the
statements of financial position as a future income tax benefit
or a provision for deferred income tax. Future income tax
benefits are not brought to account unless realisation of the
asset is assured beyond reasonable doubt, or if relating to tax
losses when realisation is virtually certain.
Capital gains tax is provided in the statements of financial
performance in the year in which an asset is sold.
(viii) Inventories (see note 11)
Inventories are valued at the lower of cost and net realisable
value.
Cost is based on a weighted average method. For
manufactured goods, cost includes direct material and labour
costs plus an appropriate proportion of variable and fixed
overheads based on normal operating capacity of the
production facilities. For merchanted goods, cost is net cost
into store.
(ix) Maintenance, repairs and other costs (see note 12)
Expenditure for maintenance, repairs and replacements of a
minor nature is expensed as incurred. Major cyclical
expenditure is undertaken at the principal manufacturing
plants in three to four year cycles. These plants operate
continuous production processes twenty-four hours per day,
seven days per week. Major cyclical expenditure,
incorporating new capital expenditure, enables these plants to
extend their estimated useful lives and improve their
performance. This expenditure is amortised over the period to
which future economic benefits relate, which is generally until
the commencement of the next cycle.
The unamortised expenditure is added to the respective net
book values of the major plant for the purposes of assessing
recoverable values.
Incitec Pivot Limited (formerly Pivot Limited)
31
Notes to the Financial Statements
For the year ended 30 September 2003
1. Significant accounting policies (continued)
(x) Other financial assets (see note 13)
The Company’s interests in controlled entities are stated at
cost. Where, in the opinion of the directors, there has been a
diminution in the carrying value of an investment, the
investment is written down to its recoverable amount. The
expected net cash flows included in determining recoverable
amounts are discounted to their present values.
(xi) Property, plant and equipment and depreciation
(see note 14)
Property, plant and equipment, other than freehold land, is
depreciated on a straight line basis at rates calculated to
allocate the cost less the estimated residual value over the
estimated useful life of each asset to the consolidated entity.
Estimated useful lives of each class of asset are as follows:
Buildings and improvements
Machinery, plant and equipment
Software
20 to 40 years
3 to 30 years
3 to 7 years
The carrying amounts of all non-current assets are reviewed
half-yearly to determine whether they are in excess of their
recoverable amounts. If the carrying amount of a non-current
asset exceeds its recoverable amount, the asset is revalued
downwards to its recoverable amount and the decrement is
recognised as an expense in the statements of financial
performance.
The expected net cash flows included in determining
recoverable amounts of non-current assets are discounted to
their present values.
Profits and losses on disposal of property, plant and
equipment are taken to the statements of financial
performance.
(xii) Leased assets
Operating leases are not capitalised and lease rental
payments are taken to the statements of financial
performance as incurred.
(xiii) Goodwill (see note 15)
Goodwill represents the excess of the cost of acquisition over
the fair value of the net assets acquired. Goodwill is
amortised on a straight line basis over the period in which the
benefits are expected to arise, not exceeding twenty years.
The carrying value is reviewed half-yearly and written down to
recoverable amount if considered necessary. The expected
net cash flows included in determining recoverable amount of
goodwill are discounted to their net present values.
(xiv) Provisions (see note 20)
A provision is recognised when there is a legal, equitable or
constructive obligation as a result of a past event and it is
probable that a future sacrifice of economic benefits will be
required to settle the obligation, the timing or amount of which
is uncertain.
If the effect is material, a provision is determined by
discounting the expected future cash flows (adjusted for
expected future risks) required to settle the obligation at a pre-
tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability, being risk
free rates on government bonds most closely matching the
expected future payments, except where otherwise noted. The
unwinding of the discount is treated as part of the expense
related to the particular provision.
Environmental liabilities
The cost of monitoring operations and treating operating
wastes is taken to the statements of financial performance as
an operating cost as incurred.
Estimated costs relating to the remediation of soil,
groundwater and untreated waste that have arisen as a result
of past events are usually taken to the statements of financial
performance in total as soon as the requirement to remediate
is identified and a reliable estimate of the liability is identified.
However, where the cost relates to land held for resale then,
to the extent that the expected realisation exceeds both the
book value of the land and the estimated cost of remediation,
the cost is capitalised as part of the holding value of that land
as it is incurred.
Employee entitlements
Provisions are made for liabilities to employees for annual
leave, sick leave and other current employee entitlements that
represent the amount for which the consolidated entity has a
present obligation. These have been calculated at nominal
amounts based on the wage and salary rates that the
consolidated entity expects to pay as at each reporting date
and include related on-costs. Liabilities for employee
entitlements which are not expected to be settled within twelve
months of balance date, such as long service leave, are
accrued at the present value of future amounts expected to be
paid. The present value is determined using interest rates
applicable to government guaranteed securities with maturities
during the next ten years.
Contributions for superannuation are taken to the statements
of financial performance in the year in which the payment is
made (see note 34).
A liability is recognised for bonus plans when there is no
realistic alternative, the benefit calculations are formally
documented and determined, before signing the financial
report and past practice supports the calculation.
Dividends
A provision for dividends payable is recognised in the
reporting period in which the dividends are declared, for the
entire undistributed amount, regardless of the extent to which
they will be paid in cash.
Restructuring and employee termination benefits
A provision for restructuring, including employee termination
benefits, related to an acquired entity or operation is
recognised at the date of acquisition where:
•
the main features of the restructuring were announced,
implementation of the restructuring commenced, or
contracts were entered by the date of acquisition
a detailed formal plan is developed by the earlier of three
months after the date of the acquisition and the
completion of this financial report.
•
The provision only relates to costs associated with the
acquired entity, and is included in the determination of the fair
value of the net assets acquired. The provision includes
liabilities for termination benefits that will be paid to employees
of the acquired entity as a result of the restructuring.
Other provisions for restructuring or termination benefits are
only recognised when a detailed plan has been approved and
the restructuring or termination benefits has either
commenced or been publicly announced, or firm contracts
related to the restructuring or termination benefits have been
entered into. Costs related to ongoing activities are not
provided for.
(xv) Foreign currency translation
Foreign currency transactions are translated at the exchange
rate prevailing at the date of the transaction. Foreign currency
receivables and payables outstanding at balance date are
translated at the exchange rates current at that date.
Exchange gains and losses are taken to the statements of
financial performance.
32
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
For the year ended 30 September 2003
1. Significant accounting policies (continued)
(xvi) Cash flows (see note 26)
For the purposes of the statements of cash flows, cash
includes cash at bank, cash on hand and deposits at call
which are readily convertible to cash on hand and which are
used in the cash management function, net of bank overdrafts.
(xvii) Derivative financial instruments (see note 31)
Derivative financial instruments are used to hedge interest
rate and foreign currency exposures. Accordingly, hedge
accounting principles are applied, under which gains and
losses on derivatives are brought to account on the same
basis as the gains and losses on the underlying physical
exposures. Derivative financial instruments are not held for
speculative purposes.
The effect of interest received, paid or accrued under interest
rate swap and forward rate agreements is included in the
calculation of net interest expense. The amount receivable or
payable at balance date is included in assets or liabilities
respectively.
Anticipated transactions
Where hedge transactions are designated as a hedge of the
anticipated purchase or sale of goods or services, purchase of
qualifying assets, or an anticipated interest transaction, gains
and losses, on the hedge arising up to the date of the
anticipated transaction, together with any costs or gains
arising at the time of entering into the hedge, are deferred and
included in the measurement of the anticipated transaction
when the transaction has occurred as designated. Any gains
or losses on the hedge transaction after that date are included
in the statements of financial performance.
The net amount receivable or payable under open swaps,
forward rate agreements and futures contracts and the
associated deferred gains or losses are not recorded in the
statements of financial performance until the hedged
transaction matures. The net receivables or payables are
then revalued using the foreign currency, interest or
commodity rates current at balance date. Refer to note 31.
When the anticipated transaction is no longer expected to
occur as designated the deferred gains and losses relating to
the hedged transaction are recognised immediately in the
statements of financial performance.
Gains and losses that arise prior to and upon the maturity of
transactions entered into under hedge strategies are deferred
and included in the measurement of the hedged anticipated
transaction if the transaction is still expected to occur as
designated. If the anticipated transaction is no longer
expected to occur as designated, the gains and losses are
recognised immediately in the statements of financial
performance.
(xviii) Redeemable Preference Shares
Redeemable Preference Shares which provide for mandatory
redemption are included in liabilities as they are, in substance,
borrowings. Dividends payable on these are recognised in the
statements of financial performance as borrowing costs on an
accruals basis.
(xix) Goods and services tax
Revenues, expenses, assets and liabilities other than
receivables and payables are recognised net of the amount of
goods and services tax (GST), except where the amount of
GST incurred is not recoverable from the relevant taxation
authorities. In these circumstances the GST is recognised as
part of the cost of acquisition of the asset or as part of an item
of expense.
The net amount of GST recoverable from, or payable to, the
relevant taxation authorities is included as a current asset or
liability in the statements of financial position.
Cash flows are included in the statements of cash flows on a
gross basis. The GST components of cash flows arising from
investing and financing activities which are recoverable from,
or payable to, the relevant taxation authorities are classified as
operating cash flows.
(xx) Comparative figures
Where necessary, comparatives have been reclassified and
repositioned for consistency with current year disclosures.
2. Segment report
Reports for business
During the year ended 30th September 2003, the consolidated entity operated in two business segments, Fertiliser and Divested
Business, and in one geographic location, Australia.
During the year ended 30th September 2002 the consolidated entities operated in three business segments comprising Fertiliser,
Grain, and Stockfeed in one geographic location, Australia.
The Stockfeed business was sold on 20th February 2003 and the Grain business has been progressively wound down throughout
2002 and 2003.
Incitec Pivot Limited (formerly Pivot Limited)
33
Notes to the Financial Statements
2. Segment report (continued)
2003
Revenue
External Sales
Sales to Incitec Fertilizer Limited Pre Acquisition
Total Sales Revenue
Other Revenue
Total of all segments
Total consolidated revenue from ordinary
activities
Result
EBIT - Segment
Net Interest
Profit before tax and significant items
Significant Items (refer note 5)
Loss from ordinary activities before tax
Income tax expense
Loss from ordinary activities after tax
Assets
Segment Assets
Liabilities
Segment Liabilities
Other Information
Acquisition of business
Acquisition of property, plant and equipment
Depreciation and amortisation of segment assets
Other non cash expenses - writedowns and provisions
2002
Revenue
External Sales
Intersegment sales
Sales to Incitec Fertilizer Limited Pre Acquisition
Total Sales Revenue
Other Revenue
Total of all segments
Total consolidated revenue from ordinary
activities
Result
EBIT - Segment
Net Interest
Profit before tax
Significant Items (refer note 5)
Profit from ordinary activities before tax
Income tax expense
Profit from ordinary activities after tax
Assets
Segment Assets
Liabilities
Segment Liabilities
Other Information
Acquisition of property, plant and equipment
Depreciation and amortisation of segment assets
Other non cash expenses - writedowns and provisions
Fertiliser
Divested
Consolidated
$000
655,503
10,500
666,003
Business
$000
20,304
-
20,304
666,003
20,304
59,401
(251)
867,047
293,721
467,900
15,578
24,343
45,197
99
43
-
-
10
-
$000
675,807
10,500
686,307
10,260
696,567
696,567
59,150
(6,816)
52,334
(64,568)
(12,234)
(6,389)
(18,623)
867,146
293,764
467,900
15,578
24,353
45,197
Fertiliser
Grain
Stockfeed
Eliminations
Consolidated
$000
$000
$000
$000
$000
487,249
-
3,762
491,011
5,952
496,963
99,999
6,782
-
106,781
-
106,781
13,204
-
-
13,204
120
13,324
-
(6,782)
-
(6,782)
-
(6,782)
45,378
(440)
668
324,665
182,436
4,127
15,202
4,435
7,334
3,324
-
-
3,890
4,505
559
6
65
-
600,452
-
3,762
604,214
6,072
610,286
610,286
45,606
(13,663)
31,943
(8,015)
23,928
(5,402)
18,526
336,504
186,319
4,133
15,267
8,325
34
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
3. Revenue from ordinary activities
External sales
Other revenue from operating activities
Royalty income
Interest income:
controlled entities
external parties – banks
Loan forgiveness from controlled entities (significant items)
Rental income
Other income
From outside operating activities
Sale of business
Sale of property, plant and equipment
Total other revenue
Total revenue
Consolidated
Company
2003
$000
2002
$000
2003
$000
2002
$000
Notes
686,307
604,214
472,484
597,792
10
17
10
17
-
1,473
-
433
1,292
-
1,452
312
3,351
476
1,372
110,459
354
641
-
1,452
-
296
3,288
4,393
2,659
10,260
696,567
400
540
6,072
610,286
-
852
114,164
586,648
400
499
5,952
603,744
(5)
(5)
4.
(Loss)/profit from ordinary activities before income tax expense
(Loss)/profit from ordinary activities before income tax expense is
arrived at after crediting:
Profit on sale of business
(Loss)/profit on sale of property, plant and equipment
Net gain/(loss) on foreign currency transactions
(Loss)/profit from ordinary activities before income tax expense is
arrived at after charging:
Cost of goods sold
Borrowing costs paid/payable to:
entity subject to common control
external parties
Depreciation on property, plant and equipment :
buildings and improvements
machinery, plant and equipment
Amortisation:
goodwill
deferred maintenance expenditure
Amounts set aside to provide for:
doubtful debts – trade
employee entitlements
environmental liabilities
inventory losses and obsolescence
other provisions
restructuring
Bad debts written off in respect of trade debtors
Lease payments – operating leases
Research and development
Superannuation contributions
(5)
526
(100)
115
310
326
(182)
-
6
(21)
310
875
(182)
471,135
470,903
324,019
467,186
942
7,347
-
15,115
4,767
14,875
4,391
10,876
942
5,944
3,660
7,766
3,128
1,583
-
13,492
7,033
-
2,297
20,650
232
7,914
121
4,482
-
-
-
-
17
5,539
575
528
754
3,535
299
7,837
469
2,982
-
11,435
7,033
-
2,297
20,359
232
6,334
121
2,431
-
15,115
4,391
10,811
-
-
-
5,539
575
528
754
3,535
299
7,837
469
2,982
Incitec Pivot Limited (formerly Pivot Limited)
35
Notes to the Financial Statements
Gross
$000
2003
Tax
$000
Net
$000
Gross
$000
2002
Tax
$000
Net
$000
5.
Individually significant items
(Loss)/profit from ordinary activities includes the following
revenues and expenses whose disclosure is relevant in
explaining the financial performance of the entity:
Consolidated
Merger implementation costs
Employee redundancies and allowances
Environmental
Site-clean up and rationalisation
Asset write-downs
Transaction and implementation costs
Accounting policy adjustments
Total merger implementation costs (i)
Other
Profit from business divested (ii)
Profit from sale of property, plant and equipment
Write-down of carrying value of inventory (iii)
Losses associated with wind-down of
business segment (iii)
Over (under) provision of income tax in previous years (iv)
Total other
Individually significant items
Company
Merger implementation costs
Employee redundancies and allowances
Environmental
Site-clean up and rationalisation
Asset write-downs
Transaction and implementation costs
Accounting policy adjustments
Total merger implementation costs (i)
Other
Write-down of investments in controlled entities (v)
Loan forgiveness from controlled entities (v)
Profit from business divested (ii)
Profit from sale of property, plant and equipment
Write-down of carrying value of inventory (iii)
Losses associated with wind-down of business
segment (v)
Over (under) provision of income tax in previous years (iv)
Total other
Individually significant items
(10,108)
(7,300)
(7,883)
(22,654)
(12,666)
(2,881)
(63,492)
526
224
(1,826)
-
-
(1,076)
(64,568)
(9,883)
(7,300)
(7,884)
(21,968)
(10,019)
(2,881)
(59,935)
(67,497)
110,459
-
224
(1,826)
-
-
41,360
(18,575)
3,032
2,190
1,231
3,927
2,354
864
13,598
(158)
(67)
548
-
(3,009)
(2,686)
10,912
2,965
2,190
1,230
3,722
1,560
864
12,531
-
-
-
(67)
548
-
(3,167)
(2,686)
9,845
(7,076)
(5,110)
(6,652)
(18,727)
(10,312)
(2,017)
(49,894)
368
157
(1,278)
-
(3,009)
(3,762)
(53,656)
(6,918)
(5,110)
(6,654)
(18,246)
(8,459)
(2,017)
(47,404)
(67,497)
110,459
-
157
(1,278)
-
(3,167)
38,674
(8,730)
(4,435)
-
-
-
-
-
(4,435)
310
-
-
(3,890)
-
(3,580)
(8,015)
(4,435)
-
-
-
-
-
(4,435)
-
-
310
549
-
(3,890)
-
(3,031)
(7,466)
1,331
-
-
-
-
-
1,331
(93)
-
-
1,167
2,959
4,033
5,364
1,331
-
-
-
-
-
1,331
-
-
(93)
(165)
-
1,167
4,926
5,835
7,166
(3,104)
-
-
-
-
-
(3,104)
217
-
-
(2,723)
2,959
453
(2,651)
(3,104)
-
-
-
-
-
(3,104)
-
-
217
384
-
(2,723)
4,926
2,804
(300)
(i)
(ii)
(iii)
(iv)
(v)
Merger implementation costs in 2003 relate to the restructuring and reorganisation activities following the acquisition of Incitec Fertilizers
Limited.
On 20th February 2003 Pivot Nutrition Pty Ltd, a wholly owned subsidiary of the Company, divested the operating assets and business of
the Carrick Stockfeed Mill for $4.4m.
Inventory written down and prior year losses relate to the grain business which has now been completely wound down and is no longer
trading.
Adjustment to income tax expense to reconcile to income tax returns as lodged.
Write-down of investment in controlled entities following reassessment of carrying value as a result of intercompany loans forgiven.
36
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
6. Auditors’ remuneration
Total remuneration received, or due and receivable,
by the auditors for:
Audit services
Auditors of the Company – KPMG
Auditors of the Company – Deloitte Touche Tohmatsu
Other services
Auditors of the Company - KPMG
other services (i)
taxation services (i)
Auditors of the Company - Deloitte Touche Tohmatsu
other services
taxation services
Consolidated
Company
2003
$
2002
$
2003
$
2002
$
250,000
70,000
320,000
-
184,000
184,000
250,000
70,000
320,000
-
184,000
184,000
24,460
40,300
180,526
126,578
371,864
691,864
-
-
24,460
40,000
-
-
147,113
15,830
162,943
346,943
180,526
126,578
371,564
691,564
147,113
15,830
162,943
346,943
(i) Represents fees paid to KPMG since their appointment as external auditors (2002 Deloitte Touche Tohmatsu).
From time to time, the auditors provide other services to the Company, which are subject to strict corporate governance procedures adopted by the
Company which encompass the selection of service providers and the setting of their remuneration. The Audit and Risk Management Committee will
approve any other services provided by KPMG above a value of $20,000.
7.
Income tax expense
The amount of income tax attributable to the financial year differs from the amount
prima facie payable on the operating profit/(loss). The differences are reconciled as
follows:
Income tax expense attributable to operating profit before significant items
Prima facie income tax expense calculated at 30% (2002 at 30%)
on profit from ordinary activities before significant items
Tax effect of permanent differences which (reduce)/increase tax expense:
non-allowable depreciation of buildings
research and development
tax under/(over)provided in prior years
non-allowable goodwill amortisation
non taxable profit on sale of property, plant and equipment
sundry items
Income tax expense attributable to operating profit before significant items
Income tax expense attributable to significant items
Prima facie income tax benefit calculated at 30% (2002 at 30%)
on loss from significant items
Tax effect of permanent differences which (reduce)/increase tax expense:
merger implementation costs
write-down of investments in controlled entities
loan forgiveness from controlled entities
tax under/(over)provided in prior years
Income tax benefit attributable to operating
loss from significant items
Consolidated
Company
2003
$000
2002
$000
2003
$000
2002
$000
15,701
9,583
12,238
9,383
472
(409)
929
939
(452)
121
17,301
632
(111)
-
-
-
662
10,766
229
(263)
2,704
-
(67)
(17)
14,824
650
(111)
-
-
-
661
10,583
(19,371)
(2,405)
(5,573)
(2,240)
5,450
-
-
3,009
-
-
-
(2,959)
5,450
20,249
(33,138)
3,167
-
-
-
(4,926)
(10,912)
(5,364)
(9,845)
(7,166)
Income tax expense attributable to operating (loss)/profit
6,389
5,402
4,979
3,417
Income tax expense comprises:
provision for income tax
deferred income tax
future income tax benefit
2,063
(3,662)
7,988
6,389
-
-
5,402
5,402
-
-
4,979
4,979
-
-
3,417
3,417
Incitec Pivot Limited (formerly Pivot Limited)
37
Notes to the Financial Statements
7.
Income tax expense (continued)
Recovery of future income tax benefits included in deferred tax assets (see note 16) depends on future taxable earnings and the
continuation of existing tax laws and compliance therewith.
There are no future tax benefits attributable to tax losses carried forward by controlled entities (2002 $9.3m).
8. Earnings per share (EPS)
Basic earnings per share
including significant items
excluding significant items
Consolidated
2003
Cents
per share
2002
Cents
per share
Notes
(60)
113
106
121
Number
Number
Weighted average number of shares used as the denominator:
Number for basic earnings per share (i)
31,120,472
17,484,530
Average market price of ordinary shares (ii)
$15.39
N/A
Reconciliation of earnings used in the calculation of basic earnings
per share:
Including individually significant items
(Loss)/profit from ordinary activities after income tax expense
Earnings used in calculation of EPS including individually significant items
Reconciliation of earnings used in the calculation of basic earnings
per share:
Excluding individually significant items
(Loss)/profit from ordinary activities after income tax expense
Deduct individually significant items after income tax
Earnings used in calculation of EPS excluding individually significant items
$000
$000
(18,623)
(18,623)
18,526
18,526
(5)
(18,623)
(53,656)
35,033
18,526
(2,651)
21,177
(i) The weighted average number of shares used as the denominator is calculated over the 12 months ended 30 September 2003 and takes
into account the issue of 40,796,719 shares on 1 June 2003.
(ii) The consolidated entity was not listed on the Australian Stock Exchange during 2002. Consequently an average market price of ordinary
shares was not available in 2002. The average market price of ordinary shares for the year ended 30 September 2003 is calculated from 28th
July 2003, the listing date of the Company on the Australian Stock Exchange.
9. Cash assets
Cash at bank and on hand
Deposits at call
external
entity subject to common control
Consolidated
Company
2003
$000
2002
$000
2003
$000
2002
$000
6,851
6,283
22
3,051
-
14,418
21,269
33,000
-
39,283
-
14,418
14,440
33,000
-
36,051
38
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
10. Receivables
Current
Trade debtors
external
entities subject to common control
Less provision for doubtful debts
external
Sundry debtors/loans
external
entities subject to common control
wholly-owned controlled entity
Non-current
Sundry debtors/loans
external
related parties
Significant terms and conditions
Trade debtors are carried at amounts due.
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
Notes
101,050
3,309
(866)
103,493
4,584
911
-
5,495
108,988
48,105
-
(1,125)
46,980
1,986
-
-
1,986
48,966
253
1,671
1,924
335
-
335
41,876
-
(666)
41,210
1,425
-
78
1,503
42,713
253
1,671
1,924
45,873
-
(1,057)
44,816
1,914
-
-
1,914
46,730
335
-
335
The collectability of debts is assessed at balance date and specific provision is made for any doubtful debts based on a review of all
outstanding amounts at year end. Bad debts are written off during the year in which they are identified.
Sundry debtors generally arise from transactions outside the usual operating activities of the consolidated entity.
Net fair values
The directors consider the carrying amount of receivables to approximate their net fair values.
Credit risk
Credit risk in debtors is managed in the following ways:
- payment terms are generally 30 days and payment compliance is high.
- a risk assessment process is used for all accounts, with a stop credit process for most long overdue accounts. Interest may
be charged where the terms of repayment exceed agreed terms.
- credit insurance cover is obtained where appropriate.
11.
Inventories
Raw materials and stores at cost
At cost
Less provision for inventory losses and obsolescence
Finished goods
At cost
Less provision for inventory losses and obsolescence
12. Other assets
Current
Deferred maintenance expenditure
Less accumulated amortisation
Prepayments
Non-current
Deferred maintenance expenditure
Prepayments
18,186
(468)
17,718
189,298
(1,373)
187,925
205,643
6,793
(330)
6,463
107,573
(2,177)
105,396
111,859
3,287
(468)
2,819
72,170
(623)
71,547
74,366
5,568
(330)
5,238
107,458
(2,177)
105,281
110,519
(1ix)
(1ix)
12,132
(7,292)
4,840
9,859
14,699
13,456
97
13,553
-
-
-
906
906
-
-
-
-
-
-
7,834
7,834
-
-
-
-
-
-
872
872
-
-
-
Incitec Pivot Limited (formerly Pivot Limited)
39
Notes to the Financial Statements
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
Notes
13. Other financial assets
Current
Non-trade receivables from wholly owned controlled entities
At cost
Non-current
Interest in unlisted controlled entities
At cost (36)
-
-
-
-
-
20
474,179
73,775
14. Property, plant and equipment
Land, buildings and improvements
At cost
Accumulated depreciation
At recoverable amount
Total net book value
Machinery, plant and equipment
At cost
Accumulated depreciation
Total net book value
Total net book value of property, plant and equipment
(i) Carrying value of freehold land
(included with land, buildings and improvements)
(ii) Land held for resale
At cost - current
At cost - non current
Total (included in value of freehold land)
203,982
(87,952)
14,913
130,943
114,399
(44,993)
-
69,406
66,046
(32,989)
14,913
47,970
92,152
(30,571)
-
61,581
431,830
(266,158)
165,672
296,615
180,973
(133,861)
47,112
116,518
136,072
(99,033)
37,039
85,009
168,966
(121,933)
47,033
108,614
47,018
7,397
4,596
5,298
10,462
356
10,818
-
-
-
-
-
-
-
-
-
(iii) Current valuations
The most recent valuations of freehold land, buildings and improvements,
which are prepared every three years, are listed below.
These valuations are not incorporated in the financial statements.
At directors’ valuation
2003
$000
148,898
2000
$000
104,300
The valuations were independently determined on a market value for existing use basis except in relation to properties held as
investments or for disposal in which case the valuations were determined on a market value for alternative use. Capital gains tax
has not been taken into account in these valuations.
(iv) Capitalised borrowing costs
No interest was capitalised during the financial year (2002 nil).
40
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
14. Property, plant and equipment (continued)
(v) Reconciliations
Reconciliations of the consolidated carrying amounts of property, plant and equipment at the beginning and end of the
current financial year are set out below.
Notes
Consolidated 2003
Carrying amount at the beginning of the financial year
Additions
Disposals
Additions through acquisition of entities (26)
Disposals through disposal of businesses (26)
Depreciation expense (4)
Write down to recoverable amount
Carrying amount at the end of the financial year
Company 2003
Carrying amount at the beginning of the financial year
Additions
Disposals
Depreciation expense (4)
Write down to recoverable amount
Depreciation of allocated assets from group
Carrying amount at the end of the financial year
Land,
buildings and
improvements
$000
Machinery,
plant and
equipment
$000
69,406
2,338
(2,374)
77,807
-
(4,767)
(11,467)
130,943
61,581
1,814
(958)
(3,660)
(11,467)
660
47,970
47,112
13,240
(1,810)
130,371
(174)
(14,875)
(8,192)
165,672
47,033
7,109
(1,565)
(7,766)
(7,802)
30
37,039
Total
$000
116,518
15,578
(4,184)
208,178
(174)
(19,642)
(19,659)
296,615
108,614
8,923
(2,523)
(11,426)
(19,269)
690
85,009
15.
Intangible assets
Goodwill, at cost
Less accumulated amortisation
Total net book value of goodwill
16. Deferred tax assets
Future income tax benefit
17. Payables
Current
Trade creditors
external
wholly-owned controlled entity
Sundry creditors and accrued charges
external
entity subject to common control
Non-current
Sundry creditors and accrued charges
wholly-owned controlled entities
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
188,482
(3,128)
185,354
-
-
-
-
-
-
-
-
-
19,101
18,637
13,194
18,173
113,152
-
17,669
78
130,899
48,405
-
37
-
48,442
26,703
19,435
4,264
78
50,480
47,933
-
37
-
47,970
-
-
-
-
-
-
92,096
92,096
Significant terms and conditions
Trade creditors, including expenditures not yet billed, are recognised when the consolidated entity becomes obliged to
make future payments as a result of a purchase of goods or services. Trade payables are normally settled within 32 days
from invoice, month end or within the agreed payment terms with the supplier.
Net fair values
The directors consider that the carrying amount of trade creditors and other payables approximate their net fair values.
Incitec Pivot Limited (formerly Pivot Limited)
41
Notes to the Financial Statements
18.
Interest bearing liabilities
Current
Secured
bank loans
investment deposit debentures
Unsecured
bank overdrafts
other loans
wholly-owned controlled entity
Non-current
Secured
bank loans
Unsecured
redeemable preference shares
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
-
39,086
1,577
-
40,663
28,915
31,716
-
39,086
28,915
31,716
-
1,577
-
-
60,631
20,816
61,479
-
60,631
-
60,000
55,000
55,000
-
60,000
-
-
-
60,000
-
60,000
Investment deposit debenture
Secured by a fixed and floating charge over the consolidated entity's assets, the current market value of which exceeds
the value of the borrowings.
Significant terms and conditions
Interest expense is recognised progressively over the life of the loan. Refer to note 31 for additional financial instruments disclosures.
Net fair values
The directors consider the carrying amount of borrowings to approximate their net fair values.
Redeemable Preference Shares
A subsidiary of the consolidated entity issued 11,000 redeemable preference shares at $5,000 per share on 27 May 2003,
redeemable on 27 November 2004 at face value. Holders receive interest at 5.36% per annum.
19. Current tax liabilities
Provision for income tax
20. Provisions
Current
Employee entitlements
Restructuring and rationalisation
Environmental
Other
Non-current
Employee entitlements
Restructuring and rationalisation
Aggregate employee entitlements
Current
Non-current
6,312
-
-
-
9,386
12,979
12,471
2,297
37,133
8,666
823
9,489
9,386
8,666
18,052
9,059
3,822
3,219
405
16,505
741
-
741
9,059
741
9,800
4,815
8,113
7,300
2,297
22,525
2,161
532
2,693
4,815
2,161
6,976
8,935
3,822
3,219
405
16,381
724
-
724
8,935
724
9,659
The present values of employee entitlements not expected to be settled within twelve months of balance date have been calculated
using the following assumptions:
Assumed rate of increase in wage and salary rates
Average discount rate
Settlement term
4.0%
5.2%
10 years
Employees at year end
Full time equivalent
Number
899
Number
466
Number
352
Number
455
42
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
20. Provisions (continued)
Reconciliations
Reconciliations of the carrying amounts of provisions at the beginning and end of the current financial year are set out below.
Current Provision - Dividends
Carrying amount at the beginning of the financial year
Provisions made during the year:
Special Dividend 2003
Payments made during the period
Carrying amount at the end of the financial year
Current Provision - Restructuring and rationalisation
Carrying amount at the beginning of the financial year
Additions through acquisition of entities
Provisions made during the year
Transfers from environmental provision
Payments made during the period
Carrying amount at the end of the financial year
Current Provision - Environmental
Carrying amount at the beginning of the financial year
Additions through acquisition of entities
Provisions made during the year
Provisions written back during the year
Transfers to restructuring and rationalisation provision
Payments made during the period
Carrying amount at the end of the financial year
Current Provision - Other
Carrying amount at the beginning of the financial year
Provisions made during the year
Transfer to current trade creditors - external
Transfer to current employee entitlements
Carrying amount at the end of the financial year
Non Current Provision - Restructuring and rationalisation
Carrying amount at the beginning of the financial year
Provisions made during the year
Carrying amount at the end of the financial year
Notes
Consolidated
$000
-
Company
$000
-
(26)
(26)
24,478
(24,478)
-
24,478
(24,478)
-
3,822
9,216
19,827
143
(20,029)
12,979
3,822
-
19,827
143
(15,679)
8,113
3,219
5,244
7,300
(268)
(143)
(2,881)
12,471
405
2,297
(268)
(137)
2,297
3,219
-
7,300
(268)
(143)
(2,808)
7,300
405
2,297
(268)
(137)
2,297
-
823
823
-
532
532
21. Deferred tax liabilities
Deferred income tax
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
14,268
-
-
-
Incitec Pivot Limited (formerly Pivot Limited)
43
Notes to the Financial Statements
22. Contributed equity
Share capital:
Ordinary shares - 58,281,027 (2002 - 14,037,142)
Investor shares - nil (2002 - 3,447,388)
Company/Consolidated
2002
$000
2003
$000
532,445
-
532,445
52,122
13,697
65,819
Movements in issued and fully paid ordinary shares of the company during the past two years were as follows:
Details
Opening balance of shares issued
Rebate reinvestment 1999 Adjustment
Conversion from ordinary share to investor share
New employee shares issued
Employee share plan buy-back
Date
1 Oct 01
1 Oct 01 to 30 Sep 02
16 Nov 01
1 Oct 01 to 30 Sep 02
Balance
Employee share plan buy-back
Conversion from ordinary share to investor share
Shares issued in consideration for purchase of Incitec Fertilizers Limited (i)
Conversion of balance of investor shares to ordinary shares
Transaction costs arising pursuant to the listing of Incitec Pivot Limited on the
Australian Stock Exchange
30 Sep 02
17 Oct 02
1 Oct 02 to 31 Jan 03
1 June 03
3 July 03
Number of
shares
14,058,910
-
(21,162)
9,130
(9,736)
14,037,142
(222)
(6,400)
40,796,719
3,453,788
Issue price
$
9.00
9.00
9.00
9.00
9.00
11.47
Balance
30 Sep 03
58,281,027
$000
51,940
378
(189)
81
(88)
52,122
(2)
(56)
467,900
13,755
(1,274)
532,445
(i) The issue price of $11.47 represents the midpoint of an independent valuation prepared by Ernst and Young as at 17th March 2003 of
the combined Incitec and Pivot fertiliser business.
Terms and conditions:
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
shareholders' meetings.
Movements in issued and fully paid investor shares of the company during the past two years were as follows:
Details
Opening balance of shares issued
Conversion from ordinary share to investor share
Employee share plan buy-back
Balance
Conversion from ordinary share to investor share
Conversion of balance of investor shares to ordinary shares
Date
1 Oct 01
1 Oct 01 to 30 Sep 02
1 Oct 01 to 30 Sep 02
30 Sep 02
1 Oct 02 to 31 Jan 03
3 July 03
3,427,581
21,162
(1,355)
3,447,388
6,400
(3,453,788)
Balance
30 Sep 03
-
13,517
189
9.00 (9)
9.00
13,697
58
(13,755)
-
Number of
shares
Issue price
$
$000
Investor shares enabled ordinary shareholders who ceased to be customers (and their beneficiaries) to continue to have equity interest in
the Company, and to facilitate employee and commercial equity investment. A new company constitution following the acquisition of Incitec
Fertilizers Limited provides for a single 'ordinary class' of shares. Consequently each investor share has been transferred to the 'ordinary'
class of shares.
44
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
23. Reserves and retained profits
(a) Reserves
Realisation and revaluation of assets
General and other
Forfeited shares
Capital profits
Movement in reserves during the financial year
Realisation and revaluation of assets
Balance at beginning of year
Increase in revaluation reserve
Balance at end of year
General and other
Balance at beginning of year
Transfer from capital profit reserves
Transfer from forfeited shares reserve
Balance at end of year
Forfeited shares reserve
Balance at beginning of year
Transfer to General and other
Balance at end of year
Capital profits reserve
Balance at beginning of year
Transfer to General and other
Balance at end of year
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
Notes
34,423
1,499
-
-
35,922
34,423
-
34,423
-
1,491
8
1,499
8
(8)
-
34,423
-
8
1,491
35,922
34,342
81
34,423
-
-
-
-
8
-
8
1,491
(1,491)
-
1,491
-
1,491
43,686
8
-
-
43,694
43,686
-
8
-
43,694
43,686
-
43,686
43,686
-
43,686
-
-
8
8
8
(8)
-
-
-
-
-
-
-
-
8
-
8
-
-
-
(b) Retained profits
Retained profits at the beginning of the financial year
Net decrease in equity due to initial adoption of revised AASB
1028 Employee Benefits
Operating (loss)/profit after income tax attributable
to members of Incitec Pivot
Dividends:
Special dividend
Retained profits at the end of the financial year
Nature and purpose of reserves
48,444
29,918
7,774
(12,618)
( 1ii )
(328)
-
(191)
-
(18,623)
18,526
17,238
20,392
(25)
(24,478)
5,015
-
48,444
(24,478)
343
-
7,774
Realisation and revaluation of assets: the realisation and revaluation of assets reserve includes the net revaluation of assets
increments and decrements arising from the revaluation of non-current assets in accordance with AASB 1041.
General and other : the general reserve has been created as a result of transfers from other reserve accounts and is available for
non-specific purposes.
Forfeited shares : the balance of the forfeited shares reserve has been transferred to general and other reserves.
Capital profits : the balance of capital profits reserve has been transferred to general and other reserves.
Incitec Pivot Limited (formerly Pivot Limited)
45
Notes to the Financial Statements
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
Notes
24. Total equity reconciliation
Total equity at the beginning of the financial year
Total changes recognised in the statements of financial performance
Transactions with owners as owners
Dividends provided for or paid
Contributions of equity
Expenses relating to the listing on the Australian Stock Exchange
Total equity at the end of the financial year
150,185
(18,951)
131,216
18,526
117,287
17,047
96,533
20,392
(25)
(22)
(22)
(24,478)
467,900
(1,274)
573,382
-
443
-
150,185
(24,478)
467,900
(1,274)
576,482
-
362
-
117,287
25. Dividends
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary
special dividend of $1.40 per share, fully franked at 30%, paid 16th June 2003
Dividends paid in cash
Company
2003
$000
2002
$000
24,478
24,478
-
-
Redeemable Preference Shares
Dividends payable in respect of the redeemable preference shares are accrued in the financial statements on a monthly basis, and
are paid quarterly at 5.36% per share, unfranked. Dividends on these shares have been charged to the statements of financial
performance as borrowing costs because the shares are classified as liabilities.
Franking credits
Franking credits available at the 30% (2002 at 30%) corporate tax rate after allowing for tax payable in respect of the current year's
profit is $3,241,743 (2002 $13,732,328). The ability to utilise the franking credits is dependent upon there being sufficient available
profits to declare dividends.
From 1 July 2002 the franking credits available have been measured in accordance with the New Business Tax System (Imputation)
Act 2002 as the amount of income tax paid rather than being based on after-tax profits as in previous periods. The change in the
basis of measurement does not change the underlying value of franking credits available to shareholders from the dividend franking
account. Comparative information has not been restated for this change in measurement.
46
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
26. Notes to the statements of cash flows
Reconciliation of cash
Cash at the end of the financial year as shown in the statements of
cash flows is reconciled to the related items in the statements of
financial position as follows:
Cash
Bank overdraft
Reconciliation of (loss)/profit from ordinary activities
after income tax to net cash flows from operating activities
(Loss)/profit from ordinary activities after income tax expense
Depreciation and amortisation
Increase in net interest payable
Write down of property, plant and equipment (significant Items)
Write-back of write-down of property, plant and equipment
Write-down of investments in controlled entities
Loan forgiveness from controlled entities (significant items)
Net profit on sale of business (significant items)
Net loss/(profit) on sale of property, plant and equipment
Changes in assets and liabilities excluding the effects of
acquisitions and disposals of businesses
increase/(decrease) in trade and other receivables
increase in inventories
increase in deferred taxes payable
decrease in payables and provisions
increase in income taxes payable
Net cash flows from operating activities
Disposal of business
Consideration
cash received
disposal costs
Fair value of net assets of business disposed
receivables
inventories
property, plant and equipment
intangibles
other assets
payables and interest bearing liabilities
other provisions
Profit on sale of business
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
Notes
(9)
(18)
21,269
(1,577)
19,692
39,283
-
39,283
14,440
(1,577)
12,863
36,051
-
36,051
(5)
(5)
(5)
(5)
(18,623)
24,353
324
22,143
(782)
-
-
(526)
100
42,943
63,421
4,573
(46,624)
4,930
96,232
4,553
(160)
4,393
1,800
1,971
174
-
58
-
(136)
3,867
526
18,526
15,273
-
-
-
-
-
(310)
(326)
33,946
11,049
-
(9,590)
5,856
74,424
400
-
400
-
-
14
98
-
(22)
-
90
310
17,238
11,426
-
21,754
(782)
67,497
(110,459)
-
(6)
(4,535)
36,153
4,979
10,408
-
53,673
20,392
15,202
-
-
-
-
-
-
(624)
33,837
11,075
-
(12,961)
5,569
72,490
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Disposal of entities
During the financial year, the consolidated entity divested the operating assets and business of the Carrick Stockfeed Mill.
Incitec Pivot Limited (formerly Pivot Limited)
47
Notes to the Financial Statements
26. Notes to the statements of cash flows (continued)
Acquisition of businesses/controlled entities
Consideration
non-cash consideration (shares issued)
net cash acquired
Fair value of net assets of businesses/controlled entities acquired
receivables
inventories
property, plant and equipment
other assets
payables and interest bearing liabilities
provision for employee entitlements
provision for restructuring and rationalisation
provision for environmental
provision for tax
Goodwill on acquisition
Consolidated
2003
$000
2002
$000
Company
2003
$000
2002
$000
467,900
(103)
467,797
114,770
159,175
208,178
27,786
(184,636)
(11,552)
(9,216)
(5,244)
(19,946)
279,315
188,482
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Acquisition of entities
During the financial year, the consolidated entity acquired Incitec Fertilizers Limited. Restructuring and rationalisation provisions were
established in order to merge its operations into the existing fertiliser business.
27. Commitments
Capital expenditure commitments
Capital expenditure on property, plant and equipment
contracted but not provided for and payable:
no later than one year
Lease commitments
Lease expenditure contracted for at balance date but not
recognised in the financial statements and payable:
no later than one year
later than one, no later than five years
later than five years
Representing
non-cancellable operating leases
1,557
1,557
3,659
3,659
1,128
1,128
3,659
3,659
8,871
16,115
18,066
43,052
7,274
10,238
16,508
34,020
3,495
8,248
11,695
23,438
7,274
10,238
16,508
34,020
43,052
43,052
34,020
34,020
23,438
23,438
34,020
34,020
48
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
28. Contingent liabilities and contingent assets
The following contingent liabilities are generally considered remote, however the directors consider they should be disclosed. The
directors are of the opinion that provisions are not required.
Discounted bills of exchange
A discounted bill of exchange facility is in place with a bank and is utilised by a number of customers for the purpose of trade finance.
The majority of these discounted bills of exchange are issued for periods less than 120 days.
Total discounted bills of exchange outstanding at year end amounted to $9.9m (2002 nil).
Guarantees and warranties
•
The Company has guaranteed seasonal borrowings of certain customers, up to 6% of the total amount borrowed. The guarantee
is in place with Suncorp Metway Bank. At 30 September 2003, the total contingent liability in respect of this guarantee is $1.7m.
• Under the terms of a Deed of Cross Guarantee entered into in accordance with the ASIC Class Order 98/1418 dated 13 August
1998 (as amended), each company which is a party to the Deed has covenanted with the Trustee of the Deed to guarantee the
payment of any debts of the other companies which are party to the Deed which might arise on the winding up of those companies.
The entities which are party to the Deed are disclosed in note 36. A consolidated statement of financial position and statement of
financial performance for this closed group is shown in note 37.
•
•
The consolidated entity has entered into various long term supply contracts. For some contracts minimum charges are payable
regardless of the level of operations, but in all cases the levels of operations are expected to remain above those that would trigger
minimum payments.
There are guarantees relating to certain leases of property, plant and equipment and other agreements arising in the ordinary
course of business.
• Contracts of sale covering companies and businesses which were divested during the current and prior years include normal
commercial warranties and indemnities to the purchasers. The Company is not aware of any material exposure under these
warranties and indemnities.
•
From time to time the consolidated entity is subject to claims for damages arising from products and services supplied by the
consolidated entity in the normal course of business. Controlled entities have received advice of claims relating to alleged failure
to supply products and services suitable for particular applications. The claims in the entities concerned are considered to be
either immaterial or the entity is defending the claim with no expected financial disadvantage. No specific disclosure is considered
necessary.
Environmental matters subject to regulatory environmental requirements
The Company has created provisions for all known environmental liabilities. While the directors believe that, based upon current
information, the current provisions are appropriate, there can be no assurance that new information or regulatory requirements with
respect to known sites or the identification of new remedial obligations at other sites will not require additional future provisions for
environmental remediation and such provisions could be material.
Taxation
Consistent with other companies of the size of Incitec Pivot Limited, the group is subject to periodic information requests, investigations
and audit activities by the Australian Taxation Office. Provisions for such matters will be booked when a present obligation in relation to
a taxation liability exists which can be reliably estimated.
Incitec Pivot Limited (formerly Pivot Limited)
49
Notes to the Financial Statements
29. Standby arrangements and credit facilities
Committed bank overdraft facilities available
Amount of facilities unused
Committed standby and loan facilities available
Amount of facilities unused
Consolidated
Company
2003
$000
5,000
3,423
220,000
220,000
2002
$000
5,000
5,000
215,000
94,369
2003
$000
5,000
3,423
220,000
220,000
2002
$000
5,000
5,000
215,000
94,369
The committed bank overdraft facilities are provided by banks and are subject to an annual review. The committed loan facilities
are provided by a related party, Orica Finance Limited with repayment terms ranging from overnight to 90 days.
30. Amounts receivable and payable denominated in foreign currencies
The consolidated entity enters into a range of financial instruments to hedge its foreign currency receivables and payables. At year
end, the consolidated entity was exposed to currency movements on net foreign currency amounts payable of $89.7m (2002
$16.9m). This exposure was predominantly against the US dollar.
The consolidated entity does not have any material exposure to currency movements on foreign currency amounts receivable and
payable due to the policy of entering into a range of financial instruments to hedge the consolidated entity’s exposures.
31. Additional financial instruments disclosures
The consolidated entity uses several techniques to reduce the exposure to loss from financial risks. The major types of risks are
foreign exchange risk, interest rate risk, liquidity risk and credit risk.
Foreign exchange risk management
Foreign exchange transaction risk management
The consolidated entity is exposed to foreign exchange movements on sales and purchases denominated, either directly or
indirectly, in foreign currencies. Where these exposures are significant and cannot be eliminated by varying contract terms or other
business arrangements, formal hedging strategies are implemented within policy guidelines. The formal hedging strategies involve
collating and consolidating exposures centrally, and hedging specific transactions, after taking into account offsetting exposures, by
entering into derivative contracts with external parties in the financial markets. The derivative instruments used for hedging
purchase and sales exposures are option contracts and forward contracts.
For contracts which specifically hedge anticipated sales and purchases, any unrealised gains and losses on the contracts, together
with the costs of the contracts, are carried forward in the statements of financial position and will be recognised in the statements of
financial performance at the time the underlying transaction occurs.
The table below outlines the forward foreign exchange contracts taken out to hedge committed and anticipated purchases and
sales denominated in foreign currencies.
Term
Weighted average rate
Forward FX Contract
Buy US dollars / sell Australian dollars
Not later than one year
Buy Euro / sell US dollars
Not later than one year
2003
$
2002
$
2003
A$000
2002
A$000
0.6420
0.5493
52,618
7,375
0.5391
-
236
-
Note: An immaterial amount of forward foreign exchange contracts are held in other currencies.
50
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
31. Additional financial instruments disclosures (continued)
The profitability of the principal nitrogen manufacturing facility located at Gibson Island is impacted by foreign exchange
movements due to the manufactured inputs (gas, electricity, labour) being Australian dollar linked whilst the manufactured outputs
(urea and ammonia) are sold on a United States dollar import parity basis. To hedge the output of this plant a series of collar
options and vanilla options have been put in place. These contracts are timed to mature in quarterly intervals to match anticipated
sales of product manufactured at this facility over the following years subject to limits approved by the Board of directors. The
amount of anticipated future sales is forecast in light of plant capacities, current conditions in domestic agricultural and industrial
markets, commitments from customers and historical seasonal impacts. All sales from the start of each quarter are designated as
being hedged until all hedge contracts are fully utilised. Favourable or unfavourable hedge outcomes only result if the relevant
exchange rate at maturity is higher or lower than the options upper or lower strike rates established at the inception of the hedge.
The table below summarises collar option contracts taken out to hedge the output of the Gibson Island plant.
Not later than one year
Weighted average AUD/USD strike rate
2003
$ $
Bought
AUD call
options
0.58
Sold
AUD put
options
0.43
2002
$ $
Bought
AUD call
options
-
Sold
AUD put
options
-
Contract amounts
2002
2003
US$000
US$000
55,000
-
The company has also bought a series of AUD Call / USD Put vanilla European options. The amount of the exposure hedged
progressively reduces in future periods in line with guidelines set out by the Board of Directors. The premiums paid along with any
unrealised gains are carried forward in the statement of financial position and will be recognised in the statements of financial
performance at the time the underlying transaction occurs. All costs associated with these contracts have been incurred.
Favourable outcomes will occur when the exchange rate at maturity is higher than the strike rate established at the inception of the
hedge. These contracts allow full participation in favourable outcomes resulting from decreases in the AUD/USD exchange rate,
but limit the unfavourable outcomes resulting from AUD/USD exchange rate increases.
The table below summarises the vanilla option contracts taken out to hedge sales of the output of the Gibson Island plant.
Term
Later than one year but not later than two years years
Later than two years but not later than three years
Later than three years but not later than four years
Total
Weighted average
AUD/USD strike rate
2003 2002
$000 $000
0.6781
0.6781
0.6781
-
-
-
Contract amounts
2003
A$000
20,000
10,000
10,000
40,000
2002
A$000
-
-
-
-
Foreign exchange translation risk management
The consolidated entity is not exposed to translation risk resulting from foreign exchange rate movements impacting on the AUD
equivalent value of self-sustaining foreign operations.
Interest rate risk management
The consolidated entity is exposed to interest rate risk on outstanding interest bearing liabilities and investments. The mix of
floating and fixed rate debt is managed within guidelines of the treasury steering committee. These contracts were established by
Incitec Fertilizers Limited prior to its acquisition.
Interest rate swaps
Interest rate swaps provide the consolidated entity with the facility to raise long term borrowings at floating or fixed interest rates
and effectively swap the interest obligation into fixed or floating interest rates respectively. The notional amounts of interest rate
swaps as summarised below represent the contract or face values of these derivatives. The notional amounts do not represent
amounts exchanged by the parties. The amounts to be exchanged are net settled and will be calculated with reference to the
notional amounts and the pay and receive interest rates determined under terms of the derivative contracts. Each contract involves
quarterly or biannual payment or receipt of the net amount of interest.
Incitec Pivot Limited (formerly Pivot Limited)
51
Notes to the Financial Statements
31. Additional financial instruments disclosures (continued)
The notional principal amounts and periods of expiry of these interest rate swap contracts are as follows:
Less than one year
One to five years
Notional principal
Fixed interest rate range p.a.
Floating interest rate range p.a.
Interest rate risk
2003
$000
10,000
5,000
2002
$000
10,000
-
15,000
5.45% - 6.56%
4.71% - 5.00%
10,000
6.38%
4.65% - 6.44%
The consolidated entity’s exposure to interest rate risk and the weighted average effective interest rates on financial assets and
liabilities at balance date are:
Fixed interest rates
1 year or less 1 to 5 years
Floating
interest rate
5 years
or more
Non-
Interest
bearing
Notes
$000’s
$000’s
$000’s
$000’s
$000’s
Total Weighted
average
effective
interest
rate (i)
% p.a.
$000’s
30 September 2003
Cash assets
Trade debtors
Total financial assets
Trade creditors
Bank overdraft
Other borrowings
Employee entitlements
Interest rate swaps (ii)
Redeemable preference
shares
Total financial liabilities
Net financial
assets/(liabilities)
30 September 2002
Cash assets
Trade debtors
Total financial assets
Trade creditors
Short term borrowings
Non current borrowings
Other borrowings
Employee entitlements
Interest rate swaps (ii)
Total financial liabilities
Net financial
assets/(liabilities)
(9) 14,418
14,418
(1,577)
(39,086)
15,000 (15,000)
(10)
(17)
(18)
(18)
(20)
(18)
6,851 21,269
101,050 101,050
107,901 122,319
(113,152) (113,152)
(1,577)
(39,086)
(8,666) (9,386) (18,052)
-
8.25
4.75
4.20
6.46
5.36
(25,663) (15,000) (55,000) (8,666)
(55,000)
(55,000)
(122,538) (226,867)
(11,245) (15,000) (55,000) (8,666) (14,637) (104,548)
(9) 39,283
(10)
39,283
(17)
(18) (28,915)
(18) (60,000)
(18) (31,716)
(20)
10,000 (10,000)
(110,631) (10,000)
39,283 4.65
48,105
48,105
48,105 87,388
(48,405) (48,405)
(9,059) (741)
(28,915) 6.44
(60,000) 6.44
(31,716) 5.75
(9,800) 4.20
6.38
-
(9,059) (49,146) (178,836)
(71,348) (10,000)
(9,059) (1,041) (91,448)
(i) Weighted average effective interest rate includes offshore funding at local rates.
(ii) Notional principal amount.
Liquidity risk management
Liquidity risk arises from the possibility that a market for derivatives may not exist in some circumstances. To counter this risk, the
consolidated entity deals only in derivatives in highly liquid markets.
52
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
31. Additional financial instruments disclosures (continued)
Credit risk management
Credit risk represents the loss that would be recognised if counterparties failed to meet their obligations under the contract or
arrangement. The major exposure to credit risk arises from trade receivables which have been recognised in the statements of
financial position net of any provision for doubtful debts (see note 10) and from derivative financial instruments.
The credit risk exposure arising from derivative financial instruments is the sum of all contracts with a positive replacement cost.
As at 30 September 2003, the sum of all contracts with a positive replacement cost was $16.7m (2002 $0.1m).
Net fair values of financial assets and liabilities
On-balance sheet financial instruments
The directors consider that the carrying amount of recognised financial assets and liabilities approximates their net fair values. Fair
values of monetary financial assets and financial liabilities not readily traded in an organised financial market are determined by
valuing them at the present value of contractual future cash flows on amounts due from customers, reduced for expected credit
losses, or amounts due to suppliers. Cash flows are discounted using standard valuation techniques at the applicable market yield
having regard to the timing of the cash flows.
Off-balance sheet financial instruments
The net fair values of the consolidated entity’s unrecognised financial assets and liabilities at balance date are:
Interest rate swaps
Foreign exchange option contracts
Net fair value
2003
$000’s
(202)
14,098
2002
$000’s
108
-
Net fair values of unrecognised financial instruments are determined according to the estimated amounts which the consolidated
entity would be expected to pay or receive to terminate the contracts. These values are determined using standard valuation
techniques.
32. Employee share plans
Incitec Pivot Senior Executives Long Term Incentive Plan
Under the Long Term Incentive Plan the Company may grant awards to senior executive officers subject to the achievement or
satisfaction of conditions as to duration of employment or conditions as to performance.
Since the adoption of the Long Term Incentive Plan, 47 senior employees have been invited to participate in awards made under
the rules of the Long Term Incentive Plan on the following basis:
•
in recognition of the achievement of certain performance targets in the period between 1 June 2003 and 30 September 2003,
the participating senior employees will be granted awards based on a percentage of base remuneration. These awards, once
quantified, will be paid in cash before 31 December 2003;
•
•
in respect of the period from 1 June 2003 to 30 September 2005, an award was granted to the participating employees, such
to be satisfied by the purchase, in aggregate, of 107,925 shares on Australian Stock Exchange in the name of Incitec Pivot LTI
Plan Company Pty Ltd as trustee for the participants. The shares purchased may be forfeited by a participating employee if
that employee ceases to be employed with Incitec Pivot prior to September 2005. In respect of the amount of this award to be
applied towards shares, the participating employees were each given an interest free unsecured loan by the Company. The
loan is repayable on the earlier of the employee ceasing to be employed by Incitec Pivot, the employee selling his/her shares
or three years after the loan is made. The company has discretion to decide the amount of repayment due in satisfaction of the
debt. Any dividends will be applied on an after tax basis to reduce the loan balance. The employee cannot deal in these
shares until 30th September 2005, and
that they may be eligible to receive an award under the Long Term Incentive Plan dependent on the achievement of certain
performance measures over a rolling three year period.
Employee Share Ownership Plan
On 28 October 2003 the Board established the Incitec Employee Pivot Share Ownership Plan (ESOP). The ESOP is administered
by the Plan Manager, Watson Wyatt Australia Pty. Ltd.
shares acquired are either newly issued shares or existing shares acquired on market.
A sub-committee of the Board of directors will determine which employees are eligible to receive invitations to participate in the
ESOP. Invitations will be made to eligible employees on the following basis:
•
•
•
•
employees salary sacrifice the value of the shares by equal deductions through to 30 June the following year.
employees cannot dispose of the shares for a period of three years from the date of acquisition or until they leave their
employment with the consolidated entity, whichever occurs first.
employees are each entitled to acquire shares with a market value to a maximum of $1,000.
Incitec Pivot Limited (formerly Pivot Limited)
53
Notes to the Financial Statements
33. Related party disclosures
(i) Controlling Entities
The immediate parent entity is Orica IC Assets Limited and the ultimate parent entity is Orica Limited both incorporated in Australia.
(ii) Directors and their Director Related Entities
The Directors of the Company during the year were:
J C Watson
B S Gilbert
G R Liebelt
G J Witcombe
J Hasker
A D McCallum
C G Leon
B Healey
T R Robbins
L M Delahunty
I A Langdon
D B Trebeck
B J Gibson
A C Larkin
Loans to the Executive Director and Senior Executives under the Incitec Pivot Senior Executive Long Term Share Plan
Individual share loan agreements under the Incitec Pivot Senior Executive Long Term Incentive Plan (note 32) issued subsequent
to balance date on 22 October 2003 by the Company are:
Executive
Director or
Senior
Executive
Number of
shares issued
or acquired on
market
Value of
loan
22 October
2003
Value of
loan
30 September
2003
Value of
loan
30 September
2002
G J Witcombe
W Elmer
J E Fazzino
J Lloyd
A Sharma
32,269
5,091
5,101
5,667
4,723
$
498,156
78,593
78,747
87,485
72,912
Directors’ transactions in shares
Director
J C Watson
G J Witcombe (vi)
C G Leon (v)
L M Delahunty
B J Gibson
B S Gilbert (v)
J Hasker (v)
B Healey
I Langdon (v)
A C Larkin
G R Liebelt
A D McCallum
T Robbins (v)
D B Trebeck
Acquired
during the
year (i)
2003
Disposed
during the
year (i)
-
-
-
3,350
-
-
-
-
-
-
-
3,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
$
-
-
-
-
-
Balance
at year
end (ii)
2,700
-
NA
6,478
-
NA
NA
-
NA
-
-
5,158
NA
-
Date of
loan
Loan
repayments
Loan Balance
-
-
-
-
-
22/10/2003
22/10/2003
22/10/2003
22/10/2003
22/10/2003
2003 2002
2003 2002
$
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
$
-
-
-
-
-
Acquired
during the
year (i)
-
-
-
-
-
-
111
-
-
-
-
276
-
-
2002
Disposed of
during the
year (i)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at
at year
end (ii)
2,700 (iii)
-
-
3,128
-
222
111
-
1,320
-
-
2,158 (iv)
515
-
(i) Shares acquired or disposed by directors while they are directors of the company.
(ii) Balance of shares held by directors at balance date.
(iii) Inclusive of 1,925 ordinary shares and 775 investor shares (refer to Note 22).
(iv) Inclusive of 1,993 ordinary shares and 165 investor shares (refer to Note 22).
(v) Balance of shares held at year end by retired directors is not disclosed.
(vi) Mr Witcombe acquired 32,269 shares in the Company subsequent to balance date, on 22nd October 2003.
Other directors’ transactions
The non-executive directors are or were directors of companies outside the consolidated entity during the year. Products and
services purchased from or sold to those companies are on standard terms and conditions available to all companies.
Mr Trebeck, a director of Incitec Pivot Limited, is a director of a company which provides consulting services to Incitec Pivot
Limited. Fees of $4,060 were paid to the company for consulting services. Mr McCallum and Mr Delahunty as directors of Incitec
Pivot Limited both purchased fertiliser to the value of $28,880 and $99,912 respectively on terms no more favourable than those
available to other customers.
54
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
33. Related party disclosures (continued)
At the date of this report Mr Delahunty had funds invested in the Company Investment Deposit Debenture scheme. The interest
rate offered is no more favourable than offered to all other investors in the scheme.
All the above transactions with related parties are made on normal commercial terms and conditions and in the ordinary course of
business.
Other transactions entered into during the year with directors of the company and controlled entities were on terms and conditions
no more favourable than those available to other customers, suppliers and employees and were of a trivial nature. These included
the reimbursement of relocation expenses, housing assistance for relocation, minor purchases of product, eligible health benefits,
the purchase and/or sale of shares and the receipt of dividends.
Remuneration of directors is disclosed in note 35 and the directors report.
(iii) Transactions with wholly owned controlled entities
Transactions between Incitec Pivot and entities in the wholly owned group during the year included:
• On 30 September 2003 a number of intercompany loans to the value of $110.5m were forgiven within the wholly owned
group.
• Management fees were received and paid by Incitec Pivot for accounting and administrative assistance on normal
commercial terms and conditions and in the ordinary course of business.
• During the period from acquisition to 30 September 2003, the Company sold fertiliser to Incitec Fertilizers Limited to the
value of $7.3m.
(iv) Transactions with other related parties
All transactions with other related parties are made on normal commercial terms and conditions and in the ordinary course of
business. During the year the following transactions occurred between the Company and its controlled entities and Orica.
Purchase of products and services to the value of $9.9m.
Sale of products and services to the value of $13.7m.
•
•
• Under a service level agreement, fees of $4.7m were paid/payable in relation to accounting, information technology,
engineering and administrative services.
Interest expense paid by the Company for money deposited with or borrowed from Orica Finance Limited was $1.1m.
•
(v) Additional related party disclosures
Additional relevant related party disclosures are shown throughout the notes to the financial statements as follows:
Interest income and expense
Receivables
Investments in controlled entities
Payables
Interest bearing liabilities
note 3, 4
note 10
note 13, 36
note 17
note 18
34. Superannuation commitments
The consolidated entity contributes to a number of superannuation funds that exist to provide benefits for employees and their
dependants on retirement, disability or death. The superannuation funds cover company sponsored funds and multi-employer
industry/union plans.
Company sponsored plans
•
The principal benefits are pensions or lump sum payments for members on resignation, retirement, disability or death. The
benefits are provided on either a defined benefit basis or a defined contribution basis.
•
•
Employee contribution rates are either fixed by the rules of the funds or selected by members from time to time from a
specified range of rates. The employer companies contribute the balance of the cost required to fund the defined benefits or
in the case of defined contribution funds, the amounts required by the rules of the fund.
The contributions made by the employer companies to defined contribution funds are legally enforceable.
Industry/union plans
•
•
Some controlled entities participate in industry/union plans on behalf of certain employees.
These plans operate on an accumulation basis and provide lump sum benefits for members on resignation, retirement,
disability or death.
•
•
The employer entity has a legally enforceable obligation to contribute a regular amount for each employee member of these
plans.
The employer entity has no other legal liability to contribute to the plans.
Incitec Pivot Limited (formerly Pivot Limited)
55
Notes to the Financial Statements
34. Superannuation commitments (continued)
Flexible Benefits Super Fund
During the year the consolidated entity made employer contributions of $0.8m (2002 $nil) to the defined benefit fund. Employer
contributions by the Company to the defined benefit fund during the year were $nil (2002 $nil).
The consolidated entities proportionate interest in the accrued benefits, based on the most recent actuarial assessments or
estimates, the plan assets at most recent estimates of net market values and the vested benefits as at the most recent reporting
date are:
Accrued benefits
Plan assets
2003
Net difference
accrued benefits
to plan
assets
Vested benefits
The Flexible Benefits Super Fund
$m
77.0
$m
75.5
$m
(1.5)
$m
77.0
Net surplus /
(deficit)
vested benefits
to plan
assets
$m
(1.5)
Incitec Fertilizers Limited (which was acquired on 1 June 2003) is an associated employer of The Flexible Benefits Super Fund.
The principal sponsor of the fund is the ultimate parent entity, Orica Limited. Only certain employees of Incitec Fertilizers Limited,
are members of the Flexible Benefits Super Fund. The Flexible Benefits Super Fund has a defined benefit member category and
defined contribution member category. The balance date of the fund is 30 June. A full actuarial review at 30 June 2000 was
performed by G E Miller FIAA. The 30 June 2003 full actuarial review is in progress.
Asset values are estimated at 30 September 2003, based on audited values as at 30 June 2003, adjusted to reflect estimated
investment performance between 1 July 2003 and 30 September 2003. The estimate for accrued benefits and vested benefits has
been calculated using membership data as at 30 June 2003, adjusted to reflect estimated investment performance between 1 July
2003 and 30 September 2003.
Differences between accrued benefits to plan assets ‘deficits’ depend on many diverse factors and can vary significantly over time
having regard for movements in investment markets, future salary increases and changes in employee patterns. The consolidated
entity’s current intention is to make contributions to defined benefit funds at a rate recommended by the actuary. It is expected that
the contribution rates will be determined after taking into account sound actuarial principles and would be designed to enable all
defined benefits to meet retirement expectations and relevant regulatory requirements as and when they fall due.
The consolidated entity does not have an obligation to fund immediately any reported deficiency and has met in full its obligations
to all funds as at the balance date. The consolidated entity expects future contributions will meet any reported deficiency from time
to time.
35. Remuneration of directors and executives
Directors
Aggregate of income paid or payable, or otherwise made available, to all
directors by the consolidated entity or any related party.
The number of directors of the company whose total income from the
company or any related party was within the specified bands are as
follows:
$
20,000 –
40,000 –
50,000 –
60,000 –
70,000 –
80,000 –
90,000 –
29,999
49,999
59,999
69,999
79,999
89,999
99,999
100,000 – 109,999
110,000 – 119,999
140,000 – 149,999
240,000 – 249,999
340,000 – 349,999
490,000 – 499,999
600,000 – 609,999
800,000 – 809,999
1,420,000 – 1,429,999
Consolidated
Company
2003
$
2002
$
2003
$
2002
$
4,093,099
1,173,145
2,465,773
1,173,145
No.
3
-
1
1
2
1
-
1
2
1
-
1
-
1
1
1
No.
-
5
1
1
-
-
1
-
-
-
1
-
1
-
-
-
No.
3
-
1
1
2
1
-
-
1
1
-
1
-
-
-
1
No.
-
5
1
1
-
-
1
-
-
-
1
-
1
-
-
-
56
Incitec Pivot Limited (formerly Pivot Limited)
Notes to the Financial Statements
35. Remuneration of directors and executives (continued)
Executive officers
Aggregate of income received or due and receivable by executive officers
(including executive directors) whose income is more than $100,000. An
executive officer is a member of the group executive who is directly
accountable and responsible for the strategic direction and operational
management of Incitec Pivot.
The number of executive officers with income of more than $100,000 is
shown in the relevant income bands:
$
100,000 – 109,999
110,000 – 119,999
140,000 – 149,999
200,000 – 209,999
260,000 – 269,999
280,000 – 289,999
290,000 – 299,999
340,000 – 349,999
360,000 – 369,999
390,000 – 399,999
410,000 – 419,999
450,000 – 459,999
490,000 – 499,999
600,000 – 609,999
800,000 – 809,999
1,420,000 – 1,429,999
Consolidated
Company
2003
$
2002
$
2003
$
2002
$
4,915,639
2,901,250
4,915,639
2,901,250
2
1
2
-
-
-
1
1
-
1
1
-
-
1
1
1
-
-
1
1
1
1
-
2
1
-
-
1
1
-
-
-
2
1
2
-
-
-
1
1
-
1
1
-
-
1
1
1
-
-
1
1
1
1
-
2
1
-
-
1
1
-
-
-
36. Investments in controlled entities
Name of Entity
Notes
Acquired in 2003
Acquired in 2003
Company
Incitec Pivot Limited - ( Formerly Pivot Limited )
Controlled Entities
Cripps Bakery Pty Ltd
ECH Investments Pty Limited
Electrical & Engineering Supplies Proprietary Limited
H.M.A. Ltd
Holyman Brothers Proprietary Limited
Incitec Fertilizers Limited
Incitec Pivot LTI Plan Company Pty Limited
L.P.I. Finance Proprietary Limited
M&A '95 Pty Ltd
North Western Flour Mills Pty Ltd
Nu-bake Bakery Pty Ltd
Nu-bake Properties Pty Ltd
Phoschem Proprietary Limited
Pivot Agricultural Laboratory Services Pty Ltd
Pivot Employee Share Plan Administration Company Pty Limited
Pivot Fertilisers Proprietary Limited
Pivot Motors Pty Ltd
Pivot Nominees Pty Ltd
Pivot Nutrition Pty Ltd
Pivot Supplementary Feeds Limited
Pivot Transport Proprietary Limited
Saftrans Pty Ltd
Stock Feed Distributors Pty Ltd
TOP Australia Ltd
All controlled entities are owned 100% and are incorporated in Australia. All controlled entities other than Incitec Fertilizers
Limited and Incitec Pivot LTI Plan Company Pty Ltd have each entered into a Deed of Cross Guarantee with Incitec Pivot
Limited in respect of relief granted from specific accounting and financial reporting requirements in reporting requirements in
accordance with ASIC Class Order 98/1418
Incitec Pivot Limited (formerly Pivot Limited)
57
Notes to the Financial Statements
37. Deed of Cross Guarantee
Entities which are party to a Deed of Cross Guarantee, entered into in accordance with ASIC Class Order 98/1418 dated 13 August
1998 (as amended), are disclosed in note 36. A consolidated statement of financial position and statement of financial performance
for this closed group is shown below.
Closed Group
2003
$000
2002
$000
Statement of financial position
Current assets
Cash assets
Receivables
Inventories
Other
Total current assets
Non-current assets
Receivables
Investments accounted for using the equity method
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Interest bearing liabilities
Provisions
Total current liabilities
Non-current liabilities
Payables
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
Statement of financial performance
Profit/(loss) from ordinary activities before income tax expense
Income tax (expense)/benefit attributable to profit/(loss) from ordinary activities
Profit/(loss) from ordinary activities after income tax expense
Retained profits at the beginning of the financial year
Net Increase in equity due to initial adoption of AASB 1028 Employee Benefits
Special Dividend paid
Retained profits at the end of the financial year
38. Events subsequent to balance date
14,440
42,807
74,366
7,840
139,453
1,924
-
467,900
91,287
-
15,201
-
576,312
715,765
50,522
61,479
22,525
134,526
-
-
-
2,694
2,694
137,220
578,545
532,445
35,935
10,165
578,545
39,283
48,966
111,859
906
201,014
335
-
-
116,518
-
18,637
-
135,490
336,504
48,442
60,631
16,505
125,578
-
60,000
-
741
60,741
186,319
150,185
65,819
35,922
48,444
150,185
(10,384)
(3,226)
(13,610)
48,444
(191)
(24,478)
10,165
23,928
(5,402)
18,526
29,918
-
-
48,444
On 22 October 2003 loans were issued to 47 senior employees as part of the long term incentive program described in note 32 of
the Financial Statements.
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2003,
that has affected or may affect the operations of the consolidated entity, the results of those operations, or the state of affairs of
the consolidated entity in subsequent years, which has not been covered in this report.
58
Incitec Pivot Limited (formerly Pivot Limited)
Directors’ Declaration on the Financial Report set out on pages
27 to 58
I, John C Watson, being a director of Incitec Pivot Limited, do hereby state in accordance with a resolution of the directors that in the
opinion of the directors,
1. (a) the financial statements and notes, set out on pages 27 to 58, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the Company and the consolidated entity as at 30 September 2003 and
of their performance, as represented by the results of their operations and their cash flows, for the year ended on that date; and
(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and payable.
2. There are reasonable grounds to believe that the Company and the subsidiaries identified in note 36 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 between the Company
and those subsidiaries pursuant to ASIC Class Order 98/1418 (as amended).
John C Watson
Chairman
Dated at Melbourne this 5th day of November 2003.
Incitec Pivot Limited (formerly Pivot Limited)
59
Audit Report
For the year ended 30 September 2003
Independent audit report to the members of Incitec Pivot Limited
Scope
The financial report and directors’ responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying
notes to the financial statements, and the directors’ declaration for both Incitec Pivot Limited (the “Company”) and the Incitec Pivot Limited
Group (the “Consolidated Entity”), for the year ended 30 September 2003. The consolidated entity comprises both the company and the entities
it controlled during that year.
The directors of the Company are responsible for the preparation and true and fair presentation of the financial report in accordance with the
Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed
to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.
Audit approach
We conducted an independent audit in order to express an opinion to the members of the Company. Our audit was conducted in accordance
with Australian Auditing Standards in order to provide reasonable assurance as to whether the financial report is free of material misstatement.
The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal
control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements
have been detected.
We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act
2001, Australian Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our
understanding of the Company’s and the Consolidated Entity’s financial position, and of their performance as represented by the results of their
operations and cash flows.
We formed our audit opinion on the basis of these procedures, which included:
•
•
examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and
assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting
estimates made by the directors.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our
procedures, our audit was not designed to provide assurance on internal controls.
Independence
In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the
Corporations Act 2001.
Audit opinion
In our opinion, the financial report of Incitec Pivot Limited is in accordance with:
(a) the Corporations Act 2001, including:
i. giving a true and fair view of the Company’s and Consolidated Entity’s financial position as at 30 September 2003 and of their
performance for the financial year ended on that date; and
ii. complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) other mandatory professional reporting requirements in Australia.
KPMG
Neil T Faulkner
Partner
Dated at Melbourne this 5th day of November 2003.
60
Incitec Pivot Limited (formerly Pivot Limited)
Shareholders’ Statistics
As at 3 November 2003
Distribution of Ordinary Shareholders and Shareholdings
Size of holding
–
–
–
–
1
1,001
5,001
10,001
100,001 and over
Total
1,000
5,000
10,000
100,000
Number of holders
Number of shares
36,163
2,956
90
23
8
39,240
92.16%
7.53%
0.23%
0.06%
0.02%
100%
9,642,487
5,157,618
581,797
406,606
42,492,519
58,281,027
16.54%
8.85%
1.00%
0.70%
72.91%
100%
Included in the above total are 1,344 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 73.4% of that class of shares.
Twenty largest ordinary fully paid shareholders
Orica IC Assets Limited
RBC Global Services Australia Nominees Pty Limited
National Nominees Limited
Gullane Holdings Ltd
Westpac Custodian Nominees Limited
J P Morgan Nominees Australia Limited
Gwynville Trading Pty Ltd
RBC Global Services Australia Nominees Pty Limited
Mirrabooka Investments Limited
ICM Agriculture Pty Ltd
Gregory Witcombe
Australian Foundation Investment Company Limited
Tallageira Pastoral Co Pty Ltd
Ross Investment (Aust) Pty Ltd
Hatfield Pty Ltd
National Exchange Corporation Proprietary Ltd
Ajay Nominees Pty Ltd
ANZ Nominees Limited
Mrs Diana Eirene Angliss
Mr Peter James Harris
Total
Shares
40,796,719
584,634
443,240
178,110
141,094
132,461
109,200
102,357
40,000
34,316
32,269
30,000
23,721
20,263
19,357
17,939
17,285
16,800
16,624
15,769
42,772,158
% of total
70.00
1.00
0.76
0.31
0.24
0.23
0.19
0.18
0.07
0.06
0.06
0.05
0.04
0.03
0.03
0.03
0.03
0.03
0.03
0.03
73.40
Register of substantial shareholders
The names of substantial shareholders in the company, and the number of fully paid ordinary shares in which
each has an interest, as disclosed in substantial shareholder notices to the company on the respective dates,
are as follows:
1 June 2003
Orica IC Assets Limited
40,796,719
70.00%
On-market buy-back
There is no current on-market buy-back.
Distribution of Redeemable Preference Shareholders and Shareholdings Issued by Incitec
Fertilizers Limited
Size of holding
Number of holders
Number of shares
1
5,001
Total
–
–
1,000
10,000
28
1
29
96.55%
3.45%
100%
3,400
7,600
30.91%
69.09%
11,000
100%
Incitec Pivot Limited (formerly Pivot Limited)
61
Five Year Financial Statistics
Incitec Pivot
Sales
Earnings before depreciation, amortisation, net borrowing costs and tax
Depreciation and amortisation (excluding goodwill)
Goodwill amortisation
Earnings before net borrowing costs and tax (EBIT)
Net borrowing costs
Rebates
Individually significant items before tax
Taxation revenue / (expense)
Outside equity interests
Operating profit after tax and individually significant items
Individually significant items after tax attributable to members of Incitec Pivot
Operating profit after tax before individually significant items (net of tax)
Dividends
Current assets
Property, plant and equipment
Investments
Intangibles
Other non-current assets
Total assets
Current borrowings and payables
Current provisions
Non current borrowings and payables
Non current provisions
Total liabilities
Net assets
Shareholders’ equity
Equity attributable to minority interests
Total shareholders’ equity
Ordinary Shares
Investor Shares
Number of shares on issue at year end
2003
$000
686,307
83,503
(21,225)
(3,128)
59,150
(6,816)
-
(64,568)
(6,389)
-
(18,623)
(53,656)
35,033
24,478
350,599
296,615
-
185,354
34,578
867,146
177,874
37,133
69,268
9,489
293,764
573,382
573,382
-
573,382
58,281
-
58,281
thousands
thousands
thousands
Weighted average number of shares on issue (investor and ordinary)
Earnings per share
before individually significant items
including individually significant items
Dividends
Dividend franking
Share price range – High
Low
Year end
Stockmarket capitalisation at year end
Net tangible assets per share
Profit margin (earnings before net borrowing costs and tax/sales)
Net debt
Gearing (net debt/net debt plus equity)
Interest cover (earnings before net borrowing costs and tax/net borrowing costs)
Net capital expenditure on plant and equipment (Cash Flow)
Net capital expenditure on acquisitions/(disposals) (Cash Flow)
Return on average shareholders funds
before individually significant items
including individually significant items
thousands
31,120
cents
cents
cents
%
$000
$
%
%
times
%
%
112.6
(59.8)
140
100
$15.70
$14.00
$15.66
912,681
6.66
8.6
74,364
11.5
8.7
12,919
(4,393)
9.7
(5.1)
2002
$000
604,214
60,873
(15,267)
-
45,606
(13,663)
-
(8,015)
(5,402)
-
18,526
(2,651)
21,177
-
201,014
116,518
-
-
18,972
336,504
109,073
16,505
60,000
741
186,319
150,185
150,185
-
150,185
14,037
3,448
17,485
17,485
121.1
106.0
-
-
N/A
N/A
N/A
N/A
8.59
7.5
81,348
35.1
3.3
3,593
(400)
15.1
13.2
62
Incitec Pivot Limited (formerly Pivot Limited)
2001
$000
627,748
40,563
(21,458)
(187)
18,918
(24,358)
-
(19,897)
7,840
-
(17,497)
(10,962)
(6,535)
-
204,522
127,825
-
-
25,123
357,470
124,208
15,483
85,000
1,563
226,254
131,216
131,216
-
131,216
14,059
3,428
17,486
17,486
(37.4)
(100.1)
-
-
N/A
N/A
N/A
N/A
7.50
3.0
152,579
53.8
0.8
(9,362)
(75,935)
(4.7)
(12.5)
2000
$000
612,603
35,209
(22,716)
(977)
11,516
(20,160)
-
(22,180)
7,690
-
(23,134)
(14,195)
(8,939)
14,304
235,013
192,010
3,773
14,959
30,436
476,191
213,312
12,362
100,000
1,665
327,339
148,852
148,852
-
148,852
14,726
2,777
17,503
16,530
(54.1)
(140.0)
90
-
N/A
N/A
N/A
N/A
7.65
1.9
260,064
63.6
0.6
12,068
0
(5.6)
(14.4)
1999
$000
650,170
46,993
(21,260)
(977)
24,756
(17,388)
(5,397)
-
(1,628)
-
343
-
343
1,295
284,069
207,799
3,714
15,936
18,049
529,567
220,125
14,451
120,970
2,005
357,551
172,016
172,016
-
172,016
12,894
2,663
15,557
16,297
2.1
2.1
27
100
N/A
N/A
N/A
N/A
10.03
3.8
281,533
62.1
1.4
23,466
0
0.2
0.2
Incitec Pivot Limited (formerly Pivot Limited)
63
Shareholder Information
Annual General Meeting
Share Registry
Auditor
2.00pm Friday 19 December 2003,
the Victory Room, Telstra Dome,
Docklands Victoria 3008
Australia.
ASX Perpetual Registrars Limited
Level 4, 333 Collins Street,
Melbourne Victoria 3000,
Australia.
KPMG
KPMG House, 161 Collins Street,
Melbourne Victoria 3000,
Australia.
Stock Exchange Listing
Incitec Pivot’s shares are listed on the
Australia Stock Exchange (ASX) and are
traded under the code IPL.
GPO Box 1736P,
Melbourne Victoria 3001
Australia.
Telephone: 1300 301 253
(for callers within Australia)
International: +61 3 9615 9317
Facsimile: +61 3 9615 9744
Email: registrars@asxperpetual.com.au
Website: www.asxperpetual.com.au
Incitec Pivot Limited
Registered address and head office:
70 Southbank Boulevard,
Southbank Victoria 3006
Australia.
GPO Box 1322L,
Melbourne Victoria 3001,
Australia.
Telephone: +61 3 8695 4400
Facsimile: +61 3 8695 4419
Website: www.incitecpivot.com.au
64
Incitec Pivot Limited
ABN 42 004 080 264
70 Southbank Boulevard
Southbank Victoria
Australia 3006
Postal address:
Incitec Pivot Limited
GPO Box 1322L
Melbourne Victoria
Australia 3001
Telephone:
+ 61 3 8695 4400
Facsimile:
+ 61 3 8695 4419
Website: www.incitecpivot.com.au
2
0
-
8
9
0
8
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C
R
O
e
m
I