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Incitec Pivot Limited
ABN 42 004 080 264
70 Southbank Boulevard,
Southbank Victoria 3006,
Australia
Postal address
Incitec Pivot Limited
GPO Box 1322
Melbourne Victoria 3001,
Australia
T. + 61 3 8695 4400
F. + 61 3 8695 4419
www.incitecpivot.com.au
Getting
things done.
Annual Report 2006
Incitec Pivot Limited ABN 42 004 080 264
Shareholder Information
Annual General Meeting
2.00 pm Wednesday 20 December 2006
at The Arts Centre, 100 St Kilda Road,
Melbourne Victoria 3000, Australia,
in the ANZ Pavilion
Stock Exchange Listing
Incitec Pivot’s shares are listed on the
Australian Stock Exchange (ASX) and
are traded under the code IPL
Share Registry
Link Market Services
Level 12, 680 George Street,
Sydney New South Wales 2000,
Australia
Locked Bag A14
Sydney South New South Wales 1235
Telephone: 1300 554 474
(for callers within Australia)
International: +61 2 8280 7111
General Facsimile: +61 2 9287 0303
Proxy Facsimile: +61 2 9287 0309
Email: registrars@linkmarketservices.com.au
Website: www.linkmarketservices.com.au
Auditor
KPMG
147 Collins Street,
Melbourne Victoria 3000,
Australia
Incitec Pivot Limited
Registered address and head office:
70 Southbank Boulevard,
Southbank Victoria 3006,
Australia
GPO Box 1322
Melbourne Victoria 3001,
Australia
Telephone: +61 3 8695 4400
Facsimile: +61 3 8695 4419
www.incitecpivot.com.au
SuPerfect, Easy Liquids, Green Urea and FertTerms Plus are registered trade marks of Incitec Pivot Limited. Cal Gran is a trade
mark of Incitec Pivot Limited. The BIG N logo, Nutrient Advantage, Granulock, GranAm and Liquifert are registered trade marks of
Incitec Fertilizers Limited. Aussie Gold and the Aussie Gold logo are registered trade marks of Southern Cross Fertilisers Pty Ltd.
The focus on costs continues and is now
embedded in Incitec Pivot’s culture
to secure its position as the lowest
cost base fertiliser supplier in Australia.
John C Watson, AM
Chairman
Contents
Chairman’s Report
Managing Director’s Report
Who we are and how we do business
Board of Directors
Executive Team
Review of Performance
Safety, Health & Environment
Financial Report
2
3
4
6
7
8
12
15
For Incitec Pivot, the 2005/06 financial year
was a year of transformation.
Chairman’s Report
For Incitec Pivot, the 2005/06 financial year was a year of
transformation. In its third full year since the merger, the
Company completed a major cost-focused restructure, separated
from its founding majority shareholder, Orica, and expanded
significantly by acquiring Southern Cross Fertilisers Pty Ltd (SCF).
Transforming events
Incitec Pivot’s restructure, which started in the 2004/05 year,
was part of a Company-wide cost-efficiency program. This
underpinned improved financial performance in 2005/06.
The focus on costs continues and is now embedded in Incitec
Pivot’s culture to secure its position as the lowest cost base
fertiliser supplier in Australia.
On 9 May 2006, Orica announced its intention to sell the 70 per
cent shareholding it obtained in Incitec Pivot at the time of the
merger in 2003.
The first phase of Orica’s exit, the sale of 56.5 per cent of
Incitec Pivot’s shares to institutions, was completed on 10 May.
The selldown was heavily over-subscribed at $21 per share,
demonstrating investors’ confidence in Incitec Pivot.
At the same time, Incitec Pivot announced its plan to buy back
the remaining portion of Orica’s holding and for those shares to
be cancelled, subject to shareholder approval.
Simultaneously with these announcements, Incitec Pivot
announced its proposal to purchase from BHP Billiton the
Queensland based manufacturer, SCF.
As you know, on 6 July, Incitec Pivot’s shareholders voted
overwhelmingly to support the buy-back proposal and this
was completed on 11 July. The acquisition of SCF completed on
1 August. With these events, Incitec Pivot is a fully integrated
fertiliser company and a truly independent listed company with
its shares freely available for trading. Incitec Pivot’s destiny is
now in its own hands.
Delivery of strategy
As a result of these developments, Incitec Pivot achieved the
liquidity in its share register and scale of market capitalisation
to be admitted to Standard and Poor’s ASX 200 on 15
September 2006.
This was appropriate recognition for the strategies adopted
by the Board and management and the dedication of the
workforce to implement them in a fast-changing environment.
A measure of the success of the strategies Incitec Pivot
has pursued is that in 2005/06 profitability increased 73
per cent to achieve Net Profit After Tax (NPAT), excluding
individually material items, of $82.8 million. This enabled your
Directors to declare a final dividend of 81 cents per share,
which is an increase of 45 per cent on the total dividend
paid in 2004/05. This is in line with the Board’s continued
policy of distributing surplus funds and franking credits to
shareholders when available.
Total shareholder returns almost doubled in 2005/06 as a
result of the increased total dividend, the $165 million buy-back
and a 64 per cent increase in the share price from $15.82 to
$25.87 between 1 October 2005 and 30 September 2006.
While it has been a successful year for Incitec Pivot, we are
acutely aware of the impact of the continuing drought in most
regions. That this performance was delivered in poor seasonal
conditions is testimony to the soundness of the strategy to
achieve a cost base that allows the business to achieve its
financial goals even in a difficult trading year.
Of course, our success would not have been possible without
the loyalty of our distribution partners and the support of
farmers, many of whom are also shareholders, who use
our products.
Board and employees
Regarding the composition of your Board, the only change
during the year was the resignation of John Chesterfield as a
non-Executive Director following the departure of Orica from our
share register. On behalf of the Board and shareholders, I would
like to thank John for his professional and knowledgeable
contribution and also pass on my gratitude to my fellow
Directors for their positive and considered input during the year.
The Board now comprises six Directors and, apart from the
Managing Director and the Finance Director, all Directors are
considered independent as defined in the ASX Principles of
Good Corporate Governance.
In conclusion, I would like to elaborate on my earlier reference
to the role of all employees in Incitec Pivot’s outstanding
success in 2005/06. This team’s determination to turn the
Company around has been most impressive, especially given
the unfavourable weather conditions and the competitive
nature of the market. On behalf of the Board and shareholders,
I thank all employees for their continued contribution to
the business.
John C Watson, AM
Chairman
2
I sincerely thank my Incitec Pivot colleagues for their
untiring efforts in a challenging and fast-changing
environment. Together, I know we can continue to
get things done.
Managing Director’s Report
My first full year as Managing Director and CEO of Incitec
Pivot has confirmed to me the underlying strength of the
business. The major transforming events, as outlined by the
Chairman, positioned the Company to deliver its strategy of being
the supplier with the lowest cost base in the fertiliser industry.
Financial performance
The financial results for 2005/06 clearly demonstrate the success
of our strategy.
In particular, the major cost-saving restructure launched in 2005
played a crucial part in delivering significantly improved earnings
in the 2005/06 year, despite poor prevailing seasonal conditions.
The restructure was designed to reduce the underlying cost base
sufficiently to allow satisfactory returns, even in a poor year, as
a means of managing seasonal fluctuations. Our performance in
the past year, which was characterised by unfavourable weather
conditions, vindicates this strategy.
The magnitude and timing of the cost savings achieved to
date deserves special mention. We promised a step change by
reducing the fixed cost base by $20 million in 2005/06, yet we
were able to deliver cost savings of $30.1 million before tax,
a 52 per cent improvement on our target. The cost savings were
achieved through a combination of initiatives, including improving
efficiencies in our manufacturing and logistics operations.
In the future, we expect phase one of the restructure to deliver
sustainable savings of $38 million per year. On top of this,
we have targeted $89 million in further savings in phase
two of the restructure, which involves additional efficiency
improvements in manufacturing, including SCF, and a major
supply chain optimisation program.
The improved efficiencies at our manufacturing plants,
together with above-trend global fertiliser prices, which dictate
the cost to Australian farmers, contributed to the 2005/06
financial results. Our expanded manufacturing capacity means
that 70 per cent of the product we sell is made in our own plants.
From 1 August 2006, when SCF joined Incitec Pivot, the newly
acquired operations contributed positively to earnings. From day
one, the SCF business also generated an annual return on net
assets (RONA) above our 18 per cent investment target.
An overall RONA for the business of 18 per cent was achieved
in 2005/06, two years ahead of target. Continued financial
discipline saw gearing held to 42 per cent, which was within the
target range one year ahead of the planned paydown in debt
following the SCF purchase and the share buy-back.
Leadership
In 2006, three new appointments were made to the Company’s
Executive Team. Alan Grace was appointed as General
Manager SCF Integration, James Whiteside was appointed as
General Manager Supply Chain and Trading and Mark Drew,
formerly of SCF, was appointed as General Manager Sales and
Customer Service. In addition, a number of other former SCF
personnel were appointed to high-level, Company-wide roles,
demonstrating the calibre of our new colleagues.
Health, safety and the environment
In 2005/06, Incitec Pivot continued to maintain its focus on
health, safety and the environment. Tragically, however, the
Company experienced its first fatality during the year at our
primary distribution centre at Mackay. This is unacceptable and
we are taking all possible steps to prevent this ever occurring
again. Following the tragedy, safety audits were conducted
at all of our sites and all employees attended workshops to
reinforce our safety focus.
In respect of the environment, the decision was taken to cease
single superphosphate production at Cockle Creek in New South
Wales by September 2009. The decision to close the plant will
enable rehabilitation and future sale of the site. Since year-end, we
have closed our Wallaroo distribution centre in South Australia to
allow remediation and ultimate development of the site to proceed.
I am also proud to report that our Company has achieved full
accreditation with the fertiliser industry’s national training and
accreditation program, Fertcare®. This confirms our ongoing
commitment to take a responsible approach to fertiliser handling,
advice and application.
Product Development
During 2005/06, the Incitec Pivot brand was further strengthened
in the market place and new products came on line to boost our
offering to farmers. For instance, FertTerms Plus™ was introduced
to offer farmers more flexible deferred payment options.
The Company also launched the new Entec® treatment, which
stabilises horticultural fertilisers, as well as Green Urea® fertiliser,
which allows more efficient nitrogen application.
The year ahead
Looking to the future, in addition to continuing our efficiency
drive, one of the top items on our agenda in the coming year is
the scheduled maintenance of our ammonia and urea plants at
Gibson Island.
This is a huge exercise involving 1,000 employees and contractors
over four weeks at an estimated total cost of $43 million, and is
necessary to ensure the efficient operation of these plants until
the next scheduled maintenance shut in five years time.
We will also be focusing on completing the integration of
SCF into the Incitec Pivot Group while remaining alert for
growth opportunities that similarly exceed our established
investment criteria.
In closing, I sincerely thank my Incitec Pivot colleagues for their
untiring efforts in a challenging and fast-changing environment.
Together, I know we can continue to get things done.
Julian Segal
Managing Director and CEO
As a supplier of more than 50 per cent of the plant nutrient needs of the
country’s farmers, the Company plays an essential role in helping our
customers increase productivity and remain internationally competitive.
Who we are and how we do business
Incitec Pivot is a vertically integrated fertiliser manufacturer
and importer which has operations stretching from its
newly-acquired phosphate mine in far north Queensland to the
heart of all farm sectors in eastern and southern Australia.
As a supplier of more than 50 per cent of the plant nutrient
needs of the country’s farmers, the Company plays an essential
role in helping our customers increase productivity and remain
internationally competitive.
In doing this, Incitec Pivot takes its environmental
responsibilities seriously, both in the manufacture and handling
of our products and in their sustainable use on farm.
To this end, Incitec Pivot was proud in 2006 to achieve full
accreditation with the national training and accreditation
program, Fertcare®, a joint initiative of the Australian Fertiliser
Services Association and the Fertilizer Industry Federation
of Australia.
Incitec Pivot has six manufacturing plants in Queensland,
New South Wales and Victoria and a distribution network
stretching from Darwin in the Northern Territory to Brighton
in southern Tasmania.
Together, these operations give the Company unequalled capacity
to meet the market’s needs. Incitec Pivot’s product range
includes urea, ammonium phosphates, superphosphate and
anhydrous ammonia which are applied as solids in granulated
form, as liquid nutrients or as gas injected into the soil.
These Australian-manufactured and imported fertilisers are
sold through a comprehensive network of 450 strategically
located business partners. These businesses, mostly
long-established, locally owned enterprises in rural and
regional centres, retail our products as agents, or as
independent or corporate dealers.
Supporting Incitec Pivot’s manufacturing, distribution and
product strengths is our NATA-accredited Nutrient Advantage
soil, plant and water testing laboratory and highly regarded
agronomic services.
With the purchase of SCF in 2006, Incitec Pivot became the
largest producer of ammonium phosphate fertilisers in Australia
with capacity to export overseas from its Townsville facility.
Incitec Pivot was created with the merger of Pivot and
Incitec Fertilizers in 2003, however the business has roots
going back to the early part of last century when Australian
superphosphate production was pioneered.
First listed on the Australian Stock Exchange in 2003, Incitec
Pivot reached a new stage in its development when it joined
Australia’s top companies in the ASX 200 in September 2006.
Handling in excess of three million tonnes of fertiliser annually,
Incitec Pivot’s scale underpins its determination to secure its
position as Australia’s most efficient fertiliser supplier.
Company Values and Culture
Incitec Pivot’s separation from Orica and expansion to embrace
SCF gave the Company the opportunity to review the corporate
values that drive our “getting things done” culture.
This review engaged most of the workforce, with 1100
employees attending 50 “New Beginnings” workshops.
These workshops defined the values which will guide the
Company’s corporate behaviour and the individual aspirations
of its people.
In “getting things done”, we are committed to:
• Treating the business as our own
• Valuing people – respect, recognise, reward
• Zero harm for everyone, everywhere
• Caring for the community and the environment
• Challenging and improving the status quo
• Delivering on our promises
Key:
Major manufacturing
and distribution sites
Distribution sites
ktpa: kilotonnes per annum
Townsville, Queensland
MAP & DAP distribution
and export facility
(cid:56)(cid:86)(cid:94)(cid:103)(cid:99)(cid:104)(cid:21)
(cid:73)(cid:68)(cid:76)(cid:67)(cid:72)(cid:75)(cid:62)(cid:65)(cid:65)(cid:58)
Mt Isa, Queensland
Sulphuric Acid:
1000 ktpa
(cid:66)(cid:73)(cid:21)(cid:62)(cid:72)(cid:54)
(cid:69)(cid:61)(cid:68)(cid:72)(cid:69)(cid:61)(cid:54)(cid:73)(cid:58)(cid:21)(cid:61)(cid:62)(cid:65)(cid:65)
(cid:66)(cid:86)(cid:88)(cid:96)(cid:86)(cid:110)(cid:21)
Phosphate Hill, Queensland
MAP and DAP:
950 ktpa
(cid:55)(cid:106)(cid:99)(cid:89)(cid:86)(cid:87)(cid:90)(cid:103)(cid:92)(cid:21)
(cid:57)(cid:86)(cid:97)(cid:87)(cid:110)(cid:21)
(cid:55)(cid:103)(cid:100)(cid:100)(cid:96)(cid:104)(cid:105)(cid:90)(cid:86)(cid:89)(cid:21)
(cid:55)(cid:71)(cid:62)(cid:72)(cid:55)(cid:54)(cid:67)(cid:58)(cid:21)
(cid:66)(cid:100)(cid:103)(cid:90)(cid:90)(cid:21)
Pinkenba, Brisbane
Bagging & Distribution
Gibson Island, Brisbane
280 ktpa
Urea:
290 ktpa
Ammonia:
Ammonium Sulphate: 200 ktpa
(cid:76)(cid:86)(cid:97)(cid:97)(cid:86)(cid:103)(cid:100)(cid:100)(cid:21)
(cid:69)(cid:100)(cid:103)(cid:105)(cid:21)(cid:65)(cid:94)(cid:99)(cid:88)(cid:100)(cid:97)(cid:99)(cid:21)
(cid:69)(cid:100)(cid:103)(cid:105)(cid:21)(cid:69)(cid:94)(cid:103)(cid:94)(cid:90)(cid:21)
(cid:69)(cid:100)(cid:103)(cid:105)(cid:21)(cid:54)(cid:89)(cid:90)(cid:97)(cid:86)(cid:94)(cid:89)(cid:90)(cid:21)
(cid:60)(cid:103)(cid:94)(cid:91)(cid:91)(cid:94)(cid:105)(cid:93)(cid:21)
(cid:72)(cid:108)(cid:86)(cid:99)(cid:21)(cid:61)(cid:94)(cid:97)(cid:97)(cid:21)
(cid:67)(cid:58)(cid:76)(cid:56)(cid:54)(cid:72)(cid:73)(cid:65)(cid:58)(cid:21)
(cid:60)(cid:100)(cid:106)(cid:97)(cid:87)(cid:106)(cid:103)(cid:99)(cid:21)
(cid:72)(cid:93)(cid:90)(cid:101)(cid:101)(cid:86)(cid:103)(cid:105)(cid:100)(cid:99)(cid:21)
(cid:68)(cid:78)(cid:72)(cid:73)(cid:58)(cid:71)(cid:21)(cid:56)(cid:68)(cid:75)(cid:58)
(cid:69)(cid:68)(cid:71)(cid:73)(cid:65)(cid:54)(cid:67)(cid:57)(cid:21)
(cid:60)(cid:58)(cid:58)(cid:65)(cid:68)(cid:67)(cid:60)
Kooragang Island, NSW
Bagging & Distribution
Cockle Creek, NSW
Superphosphate:
250 ktpa
(cid:56)(cid:94)(cid:103)(cid:88)(cid:106)(cid:97)(cid:86)(cid:103)(cid:21)(cid:61)(cid:90)(cid:86)(cid:89)(cid:21)
(cid:57)(cid:90)(cid:107)(cid:100)(cid:99)(cid:101)(cid:100)(cid:103)(cid:105)(cid:21)
(cid:61)(cid:100)(cid:108)(cid:105)(cid:93)(cid:21)
(cid:57)(cid:90)(cid:97)(cid:100)(cid:103)(cid:86)(cid:94)(cid:99)(cid:90)(cid:21)
(cid:72)(cid:88)(cid:100)(cid:105)(cid:105)(cid:104)(cid:89)(cid:86)(cid:97)(cid:90)(cid:21)
(cid:65)(cid:100)(cid:99)(cid:92)(cid:91)(cid:100)(cid:103)(cid:89)(cid:21)
Portland, Victoria
Superphosphate:
250 ktpa
Lara, Victoria
Bagging & Distribution
Oyster Cove, Victoria
Bagging & Distribution
Geelong, Victoria
Superphosphate:
450 ktpa
5
Board of Directors
John Watson AM, MAICD
Non-Executive Chairman,
Chairman of Remuneration and
Appointments Committee
Brian Healey FAICD, FAIM
Non-Executive Director,
Deputy Chairman
Allan McCallum
Dip. Ag Science, MAICD
Non-Executive Director, Chairman
of Governance Committee
Anthony Larkin FCPA, FAICD
Non-Executive Director,
Chairman of Audit and Risk
Management Committee
Appointed Chairman of Incitec
Pivot Limited in 2003, having
been a Director of the Company
from 1997 and Chairman from
1998. John is Chairman of
Primesafe and of the Co-operative
Research Centre for Innovative
Dairy Products, a Director of
Tassal Group Limited and Rural
Press Limited, Councillor of the
Royal Agricultural Society of
Victoria and a member of the
Rabobank Food and Agribusiness
Advisory Board for Australia and
New Zealand. He is also a past
Deputy President of the National
Farmers’ Federation. In 2004, he
was awarded a Membership in
the Order of Australia for services
to the agricultural and food
production sectors. In 2006, he
was the recipient of the inaugural
Rabobank Leadership Award.
Brian was appointed as a Director
of the Company on 1 June 2003.
He is Chairman of Centro
Properties Group and Centro Retail
Ltd. He is a former Senior Vice
President of Nabisco Inc. and Sara
Lee Corporation, a former Director
of Foster’s Group Ltd and Orica
Limited, a former Chairman of
Biota Holdings Ltd and Portfolio
Partners Ltd and a former
Chief Executive of Nicholas Kiwi.
A Director of the Company
since 1997, Allan is a farmer in
northern Victoria. He is also a
Director of Medical Developments
International Ltd and Chairman
of Tassal Group Limited. He is
a former director of Graincorp
Limited and Grain Growers
Association Limited.
Tony was appointed as a Director
of the Company on 1 June 2003.
He is a Director of Corporate
Express Australia Limited and
Zinifex Limited, and Chairman
of Ausmelt Limited. Tony was
previously Executive Director
Finance of Orica Limited and
Chairman of Incitec Ltd. In his
38-year career with BHP Ltd,
he held the position of Group
Treasurer after holding senior
finance positions in its steel and
minerals businesses and various
senior corporate roles. From 1993
to 1997, he was seconded to
Foster’s Group Ltd as Senior Vice
President Finance and Investor
Relations. Until earlier this year,
he was a Commissioner of the
Victorian Essential Services
Commission.
Julian Segal BSc, MBA
Managing Director and
Chief Executive Officer
James Fazzino BEc(Hons), CPA
Finance Director and
Chief Financial Officer
Julian was appointed as Managing
Director and CEO of Incitec
Pivot Limited on 3 June 2005.
Immediately prior to joining
Incitec Pivot, he was Manager
of Strategic Market Planning
for the Orica Group. He joined
Orica in 1999 and held various
management positions including
General Manager, Australia/Asia
Mining Services and Senior Vice
President – Marketing for Orica
Mining Services globally.
James was appointed as Chief
Financial Officer of Incitec Pivot
in May 2003 and was appointed
to the Incitec Pivot Board as
Finance Director on 18 July 2005.
Before joining Incitec Pivot, he
had many years experience with
Orica Limited in several business
financial roles, including Project
Leader of Orica’s group restructure
in 2001 and Chief Financial Officer
for the Orica Chemicals group.
Immediately before joining Incitec
Pivot, he was Orica’s Investor
Relations Manager.
6
Executive Team
Julian Segal BSc, MBA
Managing Director and
Chief Executive Officer
James Fazzino BEc(Hons), CPA
Finance Director and
Chief Financial Officer
Kerry Gleeson LLB(Hons)
General Counsel and
Company Secretary
Bernard Walsh BE(Mech),
MIEAust CPEng
General Manager Operations
Kerry is a practising solicitor
having been admitted to practice
in England and Wales in 1991,
and in Victoria in 2001. Kerry
was appointed to her current
position in February 2004,
having previously practised with
Blake Dawson Waldron. Prior to
emigrating in 1999, Kerry was
a partner of an English law firm,
Halliwell Landau.
Bernard has extensive
manufacturing experience in
petrochemicals, chemicals and
mining services. Bernard joined
Incitec Pivot Limited from Orica
Limited where he held a variety
of roles since 1987, the most
recent being as General Manager
of Initiating Explosives Systems
(IES) Pty Ltd. Bernard was
appointed to the Incitec Pivot
Executive Team in April 2005.
Daryl Roe BSc
General Manager Strategy and
Business Development
Alan Grace BSc Chem Eng,
MIChemE
General Manager SCF Integration
James Whiteside BAgric Sc, Grad
Dip Bus Admin
General Manager Supply Chain
and Trading
Mark Drew BAgrSc(Hons),
MSc, MBA, MICD
General Manager Sales and
Customer Service
Daryl joined Incitec Pivot Limited
in January 2004 from Orica Limited
where he held various business
management roles. Within Incitec
Pivot, Daryl has previously held
the roles of General Manager
Commercial and General Manager
Planning.
Alan has extensive experience
in the construction and operation
of chemical and petrochemical
manufacturing facilities.
Alan joined Incitec Limited in 2000
and Incitec Pivot in 2003. Prior
to this, Alan was responsible
for managing Lend Lease’s Process
Services business unit. Alan was
appointed to the Incitec Pivot
Executive Team in June 2006.
James joined Pivot in 1992,
following a number of years
working for agricultural companies
and a consulting firm. Since
joining the Company, James
has held a number of senior
management roles, most recently
as Group Procurement Manager.
James was appointed to the
Incitec Pivot Executive Team
in June 2006.
Mark joined Incitec Pivot in
August 2006 from SCF, where he
held the position of Sales and
Marketing Manager. Prior to this,
Mark held various senior roles in
the agricultural chemicals industry
in Australia and Asia.
2006 saw Incitec Pivot deliver on its business turnaround program,
despite unfavourable weather conditions.
External Sales Revenue
• Total sales revenue was up 3% to $1,111M (2005: $1,074M).
• Fertiliser revenue was down 1% to $996M (2005: $1,005M).
This reflected a reduction in sales volume due to drought
conditions and the changes in the competitive landscape
from 2005, which together caused a $119M decline in
revenue, offset by higher fertiliser prices which increased
revenue by $110M.
• Fertiliser selling prices were up by 13% or $50 per tonne on
2005 reflecting strong international fertiliser pricing with both
urea (US$245) and ammonium phosphates (US$260) at top of
cycle prices, partially offset by the strong Australian dollar, and
a recovery of local Australian prices to import parity levels.
• External revenue from SCF was $42M (2005: Nil).
Sales Summary
Year Ended September
2006
2005 Change
000’s
Fertiliser tonnes (base business) 2,322
Total tonnes (including SCF)
2,740
2,656
2,934
(13%)
(7%)
A$M
Fertiliser sales revenue
(base business)
Total sales revenue
(including SCF)
Other
Average exchange rate
(A$/US$)*
Middle East Granular Urea
price – US$/t*
996.3
1,005.0
(1%)
1,111.2
1,073.9
3%
74.6
75.2
245
236
230
1%
4%
NA
DAP Price – FOB Tampa – US$/t** 260
*lagged by 3 months
**2006 DAP price 2 months to Sept 06, 2005: July 04 – June 05
Review of Performance
Financial Highlights
• Net Profit After Tax (NPAT), excluding individually material
items, for the year ended 30 September 2006 was up 73%
to $82.8M (2005: $47.9M).
• NPAT, including individually material items, was $46.7M
(2005: $14.5M).
• Delivered “phase one” restructuring cost savings of $30.1M
before tax, up 50% on the Company’s target of $20M as
detailed in the September 2005 profit report.
• Business returns restored with 2006 Return on Net Assets
(RONA) at 18% (2005: 11.3%), 2 years ahead of plan.
• Dividend up 45% to 103 cents per share (2005: 71 cps).
• $165M (13.5%) buy-back of issued share capital completed
at $21 per share following Orica’s selldown.
• Share price up 64% to $25.87 at 30 September 2006
(2005: $15.82).
• Continued financial discipline, with year end gearing at 42%,
1 year ahead of the planned pay down in debt following the
SCF acquisition and share buy-back.
Key Business Outcomes
• Competitive returns to shareholders generated
notwithstanding unfavourable seasonal conditions.
• Acquisition of SCF which was earnings per share positive
from day one, generating returns in excess of the Company’s
hurdle rate of 18% RONA.
• Supply agreement signed with ELF in February 2006.
Outlook – 200
• Similarly to the 2002 drought, the 2006 drought will impact
nutrient carry-over, water allocations, sub-soil moisture,
farmer confidence and farmer cash flow going into the
2007 year.
• Earnings momentum from a full year ownership of SCF and
“phase two” restructure cost savings.
• Continued above-trend global fertiliser prices underpinning
manufacturing profitability.
Individually material items
2006 individually material items after tax were $36.1M
reflecting:
– Restructuring costs of $6.4M including $4.6M for the closure
of ammonium phosphate production at Kooragang Island.
– Cockle Creek closure and remediation costs of $22M.
– $7.7M relating to the 2005 Elders dispute.
– Separation costs of $3.7M following the exit of Orica which
completed in July 2006.
– SCF integration and restructuring costs of $4.7M. Further
restructuring costs of $5M after tax are expected in 2007.
– A further $8.4M profit following the sale of the Company’s
interest in Queensland Gas Company (total profit after tax
on the investment was $13.4M).
Southern Cross Fertilisers
The Company acquired SCF from BHP Billiton Limited on
1 August 2006 for $155.3M (including transaction costs). SCF is
Australia’s largest producer of ammonium phosphate, which it
manufactures in a modern, world scale plant at Phosphate Hill
in Queensland. The acquisition reflects the Company’s strategy
of “owning the product” and builds on the Company’s core
manufacturing capability.
The acquisition exceeds the Company’s investment hurdles by
generating a RONA above 18% and being Earnings per Share
(EPS) accretive from day one. SCF made a positive contribution
to earnings in the 2 months ended September 2006.
In particular:
• Underlying EBIT was $10.8M.
• Underlying NPAT, after interest on acquisition debt and
applicable tax, was $6.0M.
• After allowing for the impact of mark to market inventory
revaluation at acquisition date ($3.1M) and the elimination
of profit in stock on sales to the Company’s base business
($4.2M), reported EBIT was $3.5M and NPAT $0.8M.
Southern Cross Fertilisers 2 Months Ended September 2006
Underlying Eliminations Reported
A$M
Production tonnes
Sales tonnes
Revenue
EBITDA
EBIT
Net interest
Tax expense
163.6
153.1
54.9
12.1
10.
(2.3)
(2.6)
(33.9)
(13.1)
(7.3)
(.)
2.2
119.2
41.8
4.8
.5
(2.3)
(0.4)
NPAT excluding individually
material items
6.0
(5.1)
0.
Earnings summary
• NPAT, excluding individually material items, was up 73%
or $34.9M to $82.8M (2005: $47.9M). NPAT, including
individually material items, was up 222% to $46.7M
(2005: $14.5M).
• Earnings before interest and tax (EBIT) increased by 62% or
$48.3M to $126.2M (2005: $77.9M).
• Positive factors were:
– $30.1M: Lower costs throughout the business as a result of
restructuring. Total “phase one” program benefits (exit rate)
are now forecast at $38M before tax (52% above the initial
target of $25M).
– $35.6M: Stronger manufacturing margins reflecting efficient
plant operation and above trend global fertiliser prices. Gas
profit share of $11M (2005: $11.4M).
– $21.8M: Improved trading margins reflecting a favourable
opening stock position ($13.2M) and a recovery in
wholesale fertiliser prices to import parity levels.
– $3.5M: SCF profit (refer Southern Cross Fertilisers summary).
• Negative factors were:
– $25.1M: Lower sales volume (refer External Sales Revenue
summary above).
– $10.5M: Increased rebates paid to channel partners.
– $4.8M: Provision for demolition of redundant plant and
equipment following comprehensive site reviews conducted
during the year.
• Quality of earnings was restored with:
– EBIT margin up 4.2 percentage points to 11.4% of sales.
– RONA up 7 percentage points to 18%, equal to target.
• Total borrowing costs were up $3.4M to $12.9M
(2005: $9.5M), reflecting:
– net interest expense of $7.2M in the base business was
down 24% on 2005 (2005: $9.5M) reflecting strong cash
flow from improved earnings, reduced investment in
working capital and strict control on capital spending.
– interest cost incurred on the SCF acquisition ($2.3M) and
share buy-back ($2.8M).
– the Company incurring a non-cash expense of $0.6M
(2005: Nil) reflecting the unwinding of discounts on
non-current provisions.
• Tax expense, excluding significant items, of $30.5M was up
49% on 2005 (2005: $20.5M) reflecting improved earnings.
The effective tax rate was 27% (2005: 30%).
Earnings summary
Year Ended September
A$M
EBIT
Borrowing costs
Tax expense
NPAT excluding individually
material items
Individually material items
after tax
NPAT including individually
material items
EBIT/sales
RONA
2006
126.2
(12.9)
(30.5)
2005 Change
77.9
(9.5)
(20.5)
62%
(36%)
(49%)
2.
.9
%
(36.1)
(33.4)
(8%)
6.
1.5
222%
11.4%
7.3%
18.0%
11.3%
9
100%
100%
A$M
2006
Actual
(1)
2005
Proforma
2005
Actual
Review of Performance – Continued
Dividend
Directors have declared a fully franked final dividend of
81 cents per share (cps) (2005: special dividend of 50 cps, fully
franked). The record date for the dividend is 27 November 2006
and the payment date is 13 December 2006.
Total 2006 dividends are up 45% to 103 cps, fully franked
(2005: 71cps fully franked). 2006 dividends represent a pay
out of 65% of NPAT before individually material items, which
is consistent with the Board’s dividend policy of:
• Targeting a normal pay-out ratio of between 65% to 75%
of NPAT through the cycle.
• Distributing available franking credits.
• Utilising other mechanisms such as special dividends and
share buy-backs to distribute surplus funds to investors.
2006 dividend returns equate to a yield of 6.5% based on
the opening share price of $15.82 on 1 October 2005.
Shareholder returns
Year Ended September
Final Dividend (cps)
– normal
– special(a)
– sub-total
– % franked
Total Dividend (cps)(a)
– normal
– special
– sub-total
– % franked
Dividend yield at:
2006
2005 Change
81
81
–
50
50
62%
103
103
15
56
71
587%
(100%)
45%
100%
100%
– opening share price on 1 October 6.5%
3.8%
– closing share price on
30 September
Share buy-back @ $21ps – $M
4.0%
165
4.5%
(a) including November 2005 Special Dividend
Balance sheet
Incitec Pivot maintained strong financial discipline in 2006 with
a robust closing balance sheet position. This is an excellent
result given poor seasonal conditions and significant cash
outflows from the SCF acquisition and share buy-back.
10
2006 saw a continuation on the emphasis of reducing the
capital intensity of the base business in order to boost RONA
and shareholder returns:
• Trade Working Capital (TWC) was $114M. On a like-for-like
basis, that is restating September 2005 TWC for off balance
sheet trade finance facilities of $84M, TWC reduced by $102M
on 2005 (2005: $216M).
• Property plant and equipment reduced by $12M to $280M
with capital spending 76% of depreciation.
Environmental and restructuring provisions increased by $25M
to $67M largely as a result of the decision to close the Cockle
Creek plant by September 2009 (provision $31.5M).
Incitec Pivot’s investment in SCF was $158M at year-end.
Net debt increased by $266M over 2005. This reflects:
• Trade finance facilities being treated as on balance sheet
under AIFRS of $83.8M,
• SCF acquisition funding of $155.3M,
• Buy-back funding of $174.5M, and
• Net cash generation in the base business of $147.2M.
September 2006 gearing was 42%, towards the bottom of the
Company’s target range of 40 – 45% through the cycle.
Balance Sheet – as at 0 September
Excluding SCF:
Trade working capital (TWC)
Net property plant and
equipment
Goodwill
Environmental and
restructuring
Tax assets
114
280
190
(67)
(6)
Net other (liabilities)/ assets (14)
Sub-total
SCF:
Trade working capital (TWC)
Other assets
Sub-total
Net assets
9
39
119
15
655
216
292
192
(42)
(9)
(2)
6
132
292
192
(42)
(9)
12
5
6
5
Underlying net debt/ (cash)
(54)
93
SCF funding(2)
Buy-back funding(2)
Total net debt
Equity
Total capitalisation
155
174
25
380
655
9
555
6
Gearing
42.0%
14.4%
(1) Proforma: 2005 adjusted for trade finance facilities (trade bills
and seasonal finance $83.8M) that are on balance sheet from
1 October 2005.
(2) Includes transaction costs.
9
9
569
5
1.6%
Cash Flow Items
Year Ended September
A$M
2006
2005
Change
Net operating cash flows
EBITDA
Trade working capital –
base business
159.3
108.4
50.9
102.1
29.3
Cash flow
The Company’s strong 2006 earnings performance was matched
by an equally strong cash flow outcome.
Net operating cash flows increased by $117M to $188.7M
(2005: $71.7M). Major factors were:
• EBITDA up $50.9M to $159.3M reflecting the business
turnaround (2005: $108.4M).
• Decrease in trade working capital in the base business of
$102.1M (2005: $29.3M).
Trade working capital – SCF
(6.3)
Net interest paid
• Increase in SCF working capital of $6.3M post acquisition
Net income tax paid
with a return to normal inventory levels post the scheduled
maintenance shutdown in July 2006.
• Business restructuring costs of $17.7M (2005: $17.6M).
• $11.0M paid to Elders in settlement of the 2005
rebate dispute.
Business restructuring costs (17.7)
Elders settlement
(11.0)
Environmental and site
clean-up
• Environmental and site clean up expenditure of $11.1M
Other
(10.5)
(12.9)
(11.1)
(3.2)
72.8
(6.3)
(1.1)
10.7
(0.1)
(11.0)
(5.3)
8.4
(2.0)
11.0
(9.4)
(23.6)
(17.6)
(5.8)
(11.6)
2.0
1.
AIFRS adjustments
Operating cash flow
1.
Net investing cash flows
(2005: $5.8M) with the 2006 spend mainly associated with
the clean up of the Parafield Gardens site in South Australia.
• Interest and tax payments of $23.4M (2005: $33.0M).
Net investing cash outflows were up $123.7M to $154.9M
(2005: $31.2M). Major items include:
• Purchase of SCF, including transaction costs, for $155.3M.
• Sustenance capital spending down $3.7M on 2005 to $20.2M
(76% of depreciation).
• Spending of $3.8M on the planned maintenance shutdown of
the Gibson Island ammonia and urea plants in February 2007.
Total expenditure $43M, with $37M to be spent in 2007.
• Spending of $4M on the construction of a new gypsum cell
at SCF. Total cost of the cell is $20M, with $11M to be spent
in 2007.
• Cash from the sale of the Company’s shares in Queensland
Gas Company ($21.8M) and surplus asset sales ($6.6M).
Net financing cash inflows were $33.8M.
SCF acquisition
(155.3)
(155.3)
Capital spending –
sustenance
Capital spending –
Gibson Island reset
Capital spending –
SCF gypsum cell
QGC investment
Proceeds from asset sales
AIFRS adjustments
(20.2)
(23.9)
(3.8)
(2.4)
(4.0)
21.8
6.6
(5.1)
2.2
(2.0)
3.7
(1.4)
(4.0)
26.9
4.4
2.0
Investing cash flow
(15.9)
(1.2)
(12.)
Net financing cash flows
(Decrease)/increase in
other net debt
SCF acquisition debt
Buy-back debt
Dividends paid
(147.2)
30.0
(177.2)
155.3
174.5
(41.9)
(70.5)
Buy-back payment
(174.5)
AIFRS adjustments
Financing cash flow
(.)
(0.5)
155.3
174.5
28.6
(174.5)
0.0
6.
11
As part of the Company’s guiding principle of “valuing people and the
environment”, Incitec Pivot continues to seek ways to use materials and
energy in a sustainable manner.
Safety, Health & Environment
Incitec Pivot’s continued focus on safety resulted in a
reduction in overall injury rate for the third consecutive
year since the formation of Incitec Pivot in 2003. Tragically,
however the Company experienced a fatal incident at its
Mackay site in May of this year. This is unacceptable and the
Company is taking all possible steps to prevent this from ever
occurring again.
Environmental performance improved in 2006 across all
measurable elements. Notably, there was a significant
improvement in licence compliance tests at both the Geelong
and Portland manufacturing plants. This was largely due to
the introduction of improvements in the control of fluoride
emissions due to changes in the design and operation of the
scrubber systems at both sites. In addition, for the second year
in a row, there were no Category 2 losses of containment.
The acquisition of SCF on 1 August 2006 has created a new
dimension in safety, health and environment management
for Incitec Pivot in that mining operations have particular
challenges and issues that need to be managed. SCF has a
very strong safety, health and environment commitment and
performance and, as such, is well aligned with Incitec Pivot.
SH&E performance summary
2006
2005
200 200
10
0.4
0.8
1
0
12
0.25
0.99
5
0
13
0.5
1.09
2
1
23
0.29
1.69
8
1
12
69
82
152
2
96.2%
97.0% 98.1%
Recordable injuries
Lost workday case rate
Recordable case rate
Distribution
(Category 2+)
Losses of containment
(Category 2)
Environmental licence
non-complying tests
Hygiene monitoring
Tests over occupational
exposure limit
Figures include SCF from 1 August 2006. Figures prior to 1 June 2003 are Incitec
Pivot equivalent figures compiled from the former Incitec Fertilizers and Pivot
businesses. Some adjustment has been made to the figures published in the 2003
annual report to more accurately reflect measures used
by the Occupational Health and Safety Administration.
Definitions
Recordable injuries
Injuries which result in absence from work, restrictions from
normal work activities, or are medically treated.
Recordable case rate is defined as the number of recordable
injuries to all workers per 200,000 man hours worked.
Distribution incidents
Incidents 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 is significant loss of
containment, injury and/or damage to equipment, property or
the environment and/or major traffic disruption.
Losses of containment
Incidents where there is an unplanned release or spill on a
Company site of 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, impacts the environment or causes concern
in the surrounding community.
Environmental licence non-complying tests
Such non-compliance is an excursion outside statutory
discharge or emission limits, as measured in a scheduled test.
Product stewardship
Many Australian soils are low in fertility and nutrients, making
fertilisers essential for productive and profitable farming.
Fertilisers must always be used responsibly and at
appropriate rates, as improper use may impact adversely
on the environment and food quality. Incitec Pivot addresses
these potential issues through sound product stewardship.
Product stewardship is the responsible and ethical design
and management of products, packaging and services
throughout their entire lifecycle to protect public health
and the environment.
12
Safety, Health & Environment – Continued
The Company’s SH&E policy provides that the Company will:
• sell only those products that can be produced, transported,
stored, used and disposed of safely;
• provide appropriate information and/or training to customers
and consumers on the safe transportation, use and disposal
of products; and
• seek to develop new or improved products and processes
to enhance the contribution the Company makes to the
quality of people’s lives and minimise the impact on the
environment.
Put simply, product stewardship involves helping farmers apply
the right product at the right rate, in the right place at the
right time.
Soil, plant tissue and water testing are techniques which can be
used to promote product stewardship, as they can assist in the
management of nutrients and the development of crop-specific
fertiliser programs. Incitec Pivot offers these services through
its laboratory, Nutrient Advantage Laboratory Services, located
at Werribee in Victoria. The Nutrient Advantage laboratory is
accredited by the National Association of Testing Authorities
(NATA) and operates in accordance with the international
standard ISO/IEC 17025. The laboratory regularly participates
in inter-laboratory proficiency studies coordinated by the
Australasian Soil and Plant Analysis Council (ASPAC). Company
agronomists have also developed interpretative tools and
decision support systems to allow employees, and accredited
and licensed Agents and Dealers, to interpret laboratory results
and develop fertiliser recommendations and programs for
farmer customers.
At an industry level, Incitec Pivot addresses product
stewardship through its membership of FIFA, the Fertilizer
Industry Federation of Australia, and its participation in industry
training and accreditation programs through Fertcare®, the
fertiliser industry’s national training and accreditation program.
In June 2006, Incitec Pivot became a Fertcare® accredited
organisation. A number of its agronomists and sales advisory
staff have also undertaken the Fertcare® accreditation, giving
them further knowledge to provide quality advice on fertiliser
handling and use.
Incitec Pivot also participates in another national initiative, the
Australian Cadmium Minimisation Strategy (ACMS). The ACMS’
objectives include the development of Best Management
Practices for the production and processing of agricultural
produce in areas which have an existing or potential problem
with cadmium, and a Code of Practice for the fertiliser industry
to target low cadmium fertiliser to those industries or areas
which have an existing or potential cadmium problem.
Heavy metals, such as cadmium, may accumulate in soils
which have been regularly treated with high rates of certain
fertilisers. While permitted levels of cadmium are regulated
by legislation, Incitec Pivot has set its own stricter standards
and those of its fertilisers which contain heavy metals do so
at levels well below the levels permitted by legislation. Incitec
Pivot also regularly analyses manufactured and imported
products to ensure they meet statutory requirements and
label specifications.
During 2006, Victoria, New South Wales and South Australia
followed in the footsteps of Queensland and the ACT by
enacting legislation to control the use of Security Sensitive
Ammonium Nitrate (SSAN) fertilisers, which are solid fertilisers
containing more than 45% ammonium nitrate. Over the past
year, Incitec Pivot invested considerable resources in response
to this legislation, including upgrading security at various
distribution centres, including the import facilities at Newcastle,
Geelong and Adelaide.
In conjunction with this, Incitec Pivot has also developed a new
range of fertiliser blends, the Cal-Gran range, which have a
lower ammonium nitrate content and therefore are not subject
to the SSAN legislation. These products provide necessary
soil nutrients thereby removing the need for customers to be
subject to the SSAN licensing regime.
Sustainability
As part of the Company’s guiding principle of “valuing people
and the environment”, Incitec Pivot continues to seek ways
to use materials and energy in a sustainable manner for the
benefit of employees, contractors, customers, shareholders
and the community. Incitec Pivot recognises that operating its
business in a sustainable manner makes good business sense.
Legacy sites
In the drive towards a sustainable future, Incitec Pivot is
working to address contamination issues caused by historical
operations of the Company or inherited by the Company from
predecessors or neighbouring activities.
There has been significant work undertaken in 2006 to
investigate and remediate three such sites – two in South
Australia and one in New South Wales.
At Parafield Gardens in South Australia, a Remediation Action
Plan (RAP) for the site was endorsed by the South Australian
Environment Protection Authority in December 2005. The RAP
identified two key stages for the remediation process:
• the prevention of any future contamination of groundwater
on the site by treating the affected soil on site through a
stabilisation process; and
• removing existing contaminants from the groundwater.
The first stage was successfully completed in September
2006, and infrastructure has been installed in readiness for
groundwater remediation. A catalytic oxidation process will be
used to remove and destroy contaminants in the groundwater,
and is expected to take approximately three years to complete.
To date, a total of $8.5 million has been spent to remediate
the site.
1
At Incitec Pivot’s Cockle Creek site near Newcastle in New South
Wales, extensive investigation works were undertaken during
2006 to understand the nature and extent of contamination
that has resulted from fill placed on the site from adjacent
smelter operations over many years. In April 2006, the
Company announced plans to close the Cockle Creek single
superphosphate manufacturing operations by September 2009,
and the creation of a provision of $21.9 million, after tax,
for costs of dismantling the plant and remediation. A total of
$1 million has been spent to date.
At Wallaroo, also in South Australia, the Company commenced
the treatment of contaminated groundwater in 2005 to
remove heavy metals arising from smelter operations by
former site owners. During the 2005/06 year, Incitec Pivot
treated approximately one million litres of water a month
and completed investigations to determine the nature and
extent of contamination on the site. The distribution centre at
this site was closed on 10 November 2006, following which
the remediation program will commence. The remediation
and redevelopment of the site is being conducted in close
consultation with key government departments and the local
council, with the objective of providing the best outcome for
both the Company and the community. All work done on and
surrounding the site has been done with the full support of the
South Australian Environment Protection Authority from whom
an endorsement of a RAP will be sought in 2007. To date a
total of $2.2 million has been spent on the investigation and
remediation program.
Water Wise
Incitec Pivot is demonstrating its principle of valuing
the environment with the Gibson Island site responding
to the ongoing drought with strategies to further
reduce water consumption in its already water-efficient
manufacturing process.
By June 2007, a reverse osmosis treatment plant will be
installed on the existing effluent pond, recycling around 800
cubic metres of water per day back into the manufacturing
plant. This will result in 100% recycling of the site’s wastewater.
An added benefit is that the site’s licenced nitrogen discharge
to Moreton Bay will be reduced to zero.
A three year program commencing later this year to build an
extensive storm water collection and storage system will collect
and redirect water from stormwater drains across the site to
a storage dam. This water will then be recycled to the cooling
tower or treated via the reverse osmosis treatment plant before
re-use in the manufacturing process.
As these projects will take some time to complete, an interim
solution of installing a desalinator, which will take river water
and produce 1000 cubic metres of water for the cooling tower,
is planned to be in place during the 2006/07 year.
1
Financial Report
Directors’ Report
KPMG Independence Declaration
Income Statements
Balance Sheets
Statements of Recognised Income and Expense
Cash Flow Statements
Notes to the Financial Statements
Directors’ Declaration on the Financial Statements set out on pages 44 to 113
Audit Report
Shareholder Statistics
Five Year Financial Statistics
16
43
44
45
46
47
48
114
115
117
118
15
Directors’ Report
The directors of Incitec Pivot Limited present the financial report of the Company and its controlled entities (collectively
the “Consolidated entity”) for the year ended 30 September 2006 and the related auditor’s report.
Directors
The directors of the Company during the financial year and up to the date of this report are:
Name, qualifications and special responsibilities
Experience
Current directors
J C Watson AM, MAICD
Independent Non-Executive Director and Chairman
Chairman of the Remuneration and Appointments Committee
Member of the Governance Committee
J Segal BSc, MBA
Managing Director and Chief Executive Officer
B Healey FAICD, FAIM
Independent Non-Executive Director and Deputy Chairman
Member of the Audit and Risk Management Committee
Member of the Governance Committee
Member of the Remuneration and Appointments Committee
J E Fazzino BEc(Hons), CPA
Finance Director and Chief Financial Officer
A C Larkin FCPA, FAICD
Independent Non-Executive Director
Chairman of the Audit and Risk Management Committee
Member of the Remuneration and Appointments Committee
A D McCallum Dip. Ag Science, MAICD
Independent Non-Executive Director
Chairman of the Governance Committee
Member of the Remuneration and Appointments Committee
Member of the Audit and Risk Management Committee
Former director, John Chesterfield, retired on 11 July 2006.
John was appointed as a director on 15 December 1997 and was appointed
Chairman in 1998. John is Chairman of PrimeSafe and of the Co-operative
Research Centre for Innovative Dairy Products, a Director of Tassal Group
Limited and Rural Press Limited, Councillor of the Royal Agricultural Society
of Victoria and a member of the Rabobank Food and Agribusiness Advisory
Board for Australia and New Zealand. He is also a past Deputy President
of the National Farmers’ Federation. In 2004, he was awarded a
Membership in the Order of Australia for services to the agricultural and
food production sectors. In 2006, he was the recipient of the inaugural
Rabobank Leadership Award.
Julian was appointed as Managing Director and Chief Executive Officer on
3 June 2005. Immediately prior to joining Incitec Pivot, he was Manager of
Strategic Market Planning for the Orica Group. He joined Orica in 1999 and
held various management positions including General Manager,
Australia/Asia Mining Services and Senior Vice President - Marketing for
Orica Mining Services globally.
Brian was appointed as a director on 1 June 2003. He is Chairman of
Centro Properties Group and Centro Retail Ltd. He is a former Senior Vice
President of Nabisco Inc. and Sara Lee Corporation, a former Director of
Foster’s Group Ltd and Orica Limited, a former Chairman of Biota Holdings
Ltd and Portfolio Partners Ltd and a former Chief Executive of Nicholas
Kiwi.
James was appointed as a director on 18 July 2005. James was appointed
as Incitec Pivot’s Chief Financial Officer in May 2003. Before joining Incitec
Pivot, he had many years experience with Orica Limited in several business
financial roles, including Project Leader of Orica's group restructure in 2001
and Chief Financial Officer for the Orica Chemicals group. Immediately
before joining Incitec Pivot, he was Orica's Investor Relations Manager.
Tony was appointed as a director on 1 June 2003. He is a Director of
Corporate Express Australia Limited and Zinifex Limited, and Chairman of
Ausmelt Limited. Tony was previously Executive Director Finance of Orica
Limited and Chairman of Incitec Ltd from July 2000 to April 2003. In his
career with BHP Ltd, which spanned 38 years, he held the position of Group
Treasurer and prior to that he held senior finance positions in its steel and
minerals businesses and various senior corporate roles. From 1993 to
1997, he was seconded to Foster's Group Ltd as Senior Vice President
Finance and Investor Relations. Until earlier this year, he was a
Commissioner of the Victorian Essential Services Commission.
Allan was first appointed as a director on 15 December 1997. Allan is a
farmer in northern Victoria and is also a Director of Medical Developments
International Ltd and Chairman of Tassal Group Limited. He is a former
Director of Graincorp Limited and Grain Growers Association Limited.
Company Secretary
Mrs Kerry Gleeson holds the office of Company Secretary. Kerry is a practising solicitor, having been admitted to practice in
England and Wales in 1991 and in Victoria in 2001. Kerry was appointed as Company Secretary on 16 February 2004, having
previously practised with Blake Dawson Waldron in Melbourne. Prior to emigrating in 1999, Kerry was a partner of an English
law firm, Halliwell Landau.
16
Incitec Pivot Limited
Directors’ Report
Directors’ interests in share capital
The relevant interest of each director in the share capital of the Company, as notified by the directors to the Australian Stock
Exchange in accordance with section 205G(1) of the Corporations Act 2001 (Cth), as at the date of this report is as follows:
Director
J C Watson
J Segal(1)
B Healey
J E Fazzino(1)
A C Larkin
A D McCallum
Fully paid ordinary shares
Incitec Pivot Limited
5,000
32,640
1,000
29,262
-
7,818
(1) This interest includes, in the case of Mr Fazzino, shares acquired pursuant to Incitec
Pivot’s Long Term Incentive plan and, in the case of Mr Segal, shares acquired pursuant
to his Retention Award; further details of which are set out in note 35, Share Based
Payments.
Further details of directors’ interests in share capital are set out in the remuneration report.
Directors’ meetings
The number of directors’ meetings held (including meetings of committees of directors) and the 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
Held(1)
Attended(2)
Held(1)
Attended(2)
Held(1)
Attended(2)
Held(1)
Attended(2)
Current
J C Watson
J Segal
B Healey(3)
J E Fazzino
A C Larkin
A D McCallum
Former
J Chesterfield(4)
18
18
18
18
18
18
14
18
18
18
18
17
18
13
-
-
-
-
5
5
4
-
-
-
-
5
5
4
8
-
8
-
8
8
6
8
-
7
-
8
8
6
6
-
6
-
-
6
-
6
-
5
-
-
6
-
(1) This column shows the number of meetings held during the period that the director was a member of the Board or Committee.
(2) This column shows the number of meetings attended during the period that the director was a member of the Board or Committee.
(3) Brian Healey was appointed to the Audit and Risk Management Committee on 31 August 2006.
(4)
John Chesterfield retired from the Board on 11 July 2006.
Principal activities
The principal activities of the Consolidated entity during 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.
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
in the review of performance on pages 8 to 11 of the annual report.
Incitec Pivot Limited
17
Directors’ Report
Dividends
Dividends declared and paid since the last annual report were:
Type
Declared and paid during the year
2005 final special
2006 interim ordinary
Declared and paid after end of year
November 2006 final dividend
Cents per share
Total amount
$000
Franked / Unfranked
Date of payment
50
22
81
29,140
12,822
Franked
Franked
9 January 2006
9 June 2006
40,843
Franked
13 December 2006
Dealt with in the financial
report as:
Dividends
Subsequent event
Note
$000
27
39
41,962
40,843
Changes in the state of affairs
Incitec Pivot experienced a number of significant changes during the 2005/06 financial year.
On 20 April 2006, the Company announced plans to close the Cockle Creek single superphosphate manufacturing operations
by September 2009. The Company also announced the creation of a provision of $21.9 million after tax for the costs of
dismantling the Cockle Creek plant and remediating the site, with the majority of spending against this provision to occur from
the last quarter of 2009.
In July of this year, Orica exited as a shareholder of the Company after being a 70% majority shareholder since the merger of
Pivot and Incitec Fertilizers in 2003. The exit occurred by way of a two-stage process. First, Orica sold 56.5% of Incitec Pivot’s
shares under an institutional placement which completed on 10 May 2006 and, secondly, Incitec Pivot bought back Orica’s
remaining 13.5% shareholding by way of a selective share buy-back approved by shareholders on 6 July 2006. Following the
exit of Orica as a shareholder:
(cid:121)
(cid:121)
(cid:121)
the Company’s Managing Director and CEO, Julian Segal, who was on secondment to Incitec Pivot from Orica, resigned
from his employment with Orica and became an Incitec Pivot employee;
John Chesterfield resigned from the Incitec Pivot Board; and
the Company adopted a new Constitution following shareholder approval on 6 July 2006. The Constitution was amended
to remove provisions that were no longer appropriate absent a majority shareholder and was generally updated to reflect
current best practice.
In addition, Incitec Pivot acquired Southern Cross Fertilisers Pty Ltd (SCF) from BHP Billiton Limited on 1 August 2006.
The focus since then has been on integrating SCF into the Incitec Pivot Group.
There have been no other significant changes to the Consolidated entity’s state of affairs.
Events subsequent to balance date
Since the end of the financial year, the directors have declared a final dividend for the Company of 81 cents per share.
This dividend is fully franked at the 30% corporate tax rate and is payable on 13 December 2006. (See note 27).
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2006
that has affected or may affect the operations of the Consolidated entity, the result 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 performance of the Consolidated entity on pages 8 to 11 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.
18
Incitec Pivot Limited
Directors’ Report
Environmental regulations
Manufacturing licences and consents are in place at each Incitec Pivot site, determined in consultation with local environmental
regulatory authorities. The measurement of compliance with conditions of licences and consents involves numerous tests which
are conducted regularly. The individual 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 are available in the Safety, Health and Environment section on pages 12 to 14 of the annual report.
Indemnification and insurance of officers
The Company’s constitution provides that, to the extent permitted by law, the Company must indemnify any person who is, or
has been, a director or secretary of the Company against any liability incurred by that person including for any liability incurred
as an officer of the Company or a subsidiary of the Company and legal costs incurred by that person in defending an action.
The Constitution further provides that the Company may enter into an agreement with any current or former director or secretary
or a person who is, or has been, an officer of the Company or a subsidiary of the Company to indemnify the person against
such liabilities. The Company has entered into Deeds of Access, Indemnity and Insurance with each of its officers and pursuant
to those Deeds 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.
Auditor
KPMG continues in office in accordance with section 327B(2) of the Corporations Act 2001(Cth).
Non-audit services
KPMG have provided non-audit services to the amount of $33,000 during the year ended 30 September 2006. (See note 7).
Lead Auditor’s Independence Declaration
The lead auditor has provided a written declaration that no professional engagement for the Consolidated entity has been
carried out during the year that would impair KPMG’s independence as auditor.
The lead auditor’s independence declaration is set out on page 43 of the financial report.
Rounding
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and, in accordance with that Class Order,
the amounts shown in this report and in the financial statements have been rounded off, except where otherwise stated, to the
nearest thousand dollars.
Incitec Pivot Limited
19
Directors’ Report
Remuneration Report
The directors of Incitec Pivot Limited (the “Company” or “Incitec Pivot”) present the remuneration report prepared in accordance
with section 300A of the Corporations Act 2001 (Cth) for the Company and its controlled entities for the year ended 30
September 2006. This remuneration report is audited unless otherwise stated.
This remuneration report is prepared in respect of the key management personnel of the Company, being those persons who
have authority and responsibility for planning, directing and controlling the activities of the Company. For Incitec Pivot, this
means the non-executive directors, executive directors and the direct reports to the Managing Director & CEO.
Contents
A. Remuneration and Appointments Committee
B. Non-executive directors’ fees
C. Remuneration policy for Executives
D. Managing Director & Chief Executive Officer’s employment arrangements and remuneration
E. Executives’ employment arrangements and remuneration
F. Equity instruments
The Board comprises 6 directors, 4 of whom are non-executive directors and 2 are executive directors. There are 8 members of
the executive team, which includes the executive directors (the details for which are set out in sections C, D and E of this
remuneration report).
When used in this report, the terms “Executive Team” or “executives” means the executive directors and the direct reports to the
Managing Director & CEO.
A. Remuneration and Appointments Committee
The Remuneration and Appointments Committee, established by the Board, assists and advises the Board on remuneration
policies and practices for the Board, Managing Director & CEO, the executives, senior management and other employees.
The policies and practices are designed to:
(cid:121)
(cid:121)
enable Incitec Pivot to attract, retain and motivate directors, executives and employees who will create value for
shareholders; and
fairly and appropriately reward executives and employees having regard to the performance of Incitec Pivot and that of the
relevant executive and employee.
B. Non-executive directors’ fees
Non-executive directors’ fees are determined by the Board subject to the aggregate limit of $1,000,000 approved by
shareholders at the 2003 Annual General Meeting. Non-executive directors receive a fee for being a director of the Board and
additional fees for either chairing or being a member of a committee. The level of fees paid to non-executive directors reflects
their time commitments and responsibilities.
The Remuneration and Appointments Committee develops, reviews and makes recommendations to the Board on the
compensation of non-executive directors annually after receiving professional advice from an appropriately qualified external
consultant. The Committee takes into account survey data on fees paid by comparable companies and the level of fees
considered necessary to attract and retain directors of the appropriate calibre.
In order to maintain independence and impartiality, non-executive directors are not entitled to any form of incentive payments
and the level of their fees is not set with reference to measures of Company performance.
The Company is phasing out retirement benefits for all non-executive directors. Non-executive directors who joined the Board
after 30 May 2003 are not entitled to receive a retirement benefit. Retiring non-executive directors appointed before 1 June
2003 have contractual rights to a retirement benefit. This entitles them to a retirement benefit after 10 years of service equal to
the total of the benefits they received from the Company in the 3 years immediately preceding their date of retirement. This
retirement benefit will be paid pro-rata for less than 10 years of service. The service period is capped to 31 May 2003.
Details of non-executive directors’ fees are included in the following table, together with details of the executive directors’
remuneration (further details of which are set out in sections C, D and E of this remuneration report):
20
Incitec Pivot Limited
Directors’ Report
Remuneration Report
B. Non-executive directors’ fees (continued)
Directors’ remuneration
For the year ended 30th September 2006
Short-term benefits
Short term
incentive &
other
bonuses (A)
$
Non-
monetary
benefits
(B)
$
Salary &
Fees
$
232,846
219,670
112,987
82,610
97,628
92,470
107,641
102,093
77,000
19,250
-
65,863
-
63,258
-
57,750
-
68,860
628,102
771,824
694,982
181,669
455,262
292,412
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
736,202
-
449,865
-
155,288
14,077
85,397
27,927
Directors
Non-executive directors
- Current
J C Watson, Chairman (1)
Year
2006
2005
B Healey 2006
2005
A C Larkin 2006
2005
A D McCallum (1)
- Former
J R Chesterfield (2)
L M Delahunty
B J Gibson
G R Liebelt
D B Trebeck
Total non-executive
directors
Executive directors
- Current
J Segal (3)
Managing Director
J E Fazzino
Finance Director and
Chief Financial Officer
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
- Former
2006
G J Witcombe
Managing Director
2005
Total executive 2006
2005
directors
Total of all
2006
directors
2005
-
493,633
1,150,244
967,714
1,778,346
1,739,538
-
34,132
1,186,067
34,132
1,186,067
34,132
808,967
85,530
1,049,652
127,534
1,049,652
127,534
Termination
benefits
Post-
employment
benefits
Superannuation
benefits
.
$
$
Share-based
payments
Value of
shares treated
as Options
(C)
$
Value of
shares
treated as
options as
proportion of
remuneration
Proportion of
remuneration
performance
related
Total
$
%
%
22,864
21,726
-
-
9,587
9,145
10,646
10,097
-
-
-
6,810
-
2,228
-
-
-
6,810
43,097
56,816
12,415
3,862
12,276
11,723
-
8,689
24,691
24,274
67,788
81,090
-
-
-
-
-
-
-
-
-
-
-
81,018
-
-
-
-
-
-
-
81,018
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
255,710
241,396
112,987
82,610
107,215
101,615
118,287
112,190
77,000
19,250
-
153,691
-
65,486
-
57,750
-
75,670
671,199
909,658
-
-
-
-
-
-
-
-
-
60,976
-
1,659,863
199,608
16,936
12,689
1,019,736
344,751
-
59,524
77,912
72,213
77,912
808,967
681,508
3,488,566
1,225,867
4,159,765
81,018
72,213
2,135,525
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48%
-
46%
4%
-
14%
36%
9%
30%
5%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4%
-
2%
4%
-
9%
2%
6%
2%
3%
(A) No short term incentive (STI) payment or other cash incentive bonus has been paid or accrued for the financial year ended 30 September
2006 for any of the non-executive directors. The STI and discretionary bonuses paid or accrued for the financial year ended 30
September 2006 to the executive directors are disclosed.
(B) Non-monetary benefits include Fringe Benefits Tax paid attributable to the FBT year (2006: 1 April 2005 to 31 March 2006) (2005: 1 April
2004 to 31 March 2005), rent and mortgage interest subsidy, relocation allowances and other allowances.
Incitec Pivot Limited
21
Directors’ Report
Remuneration Report
(C) For Mr Segal this relates to a Retention Award (refer to section D) and for Mr Fazzino, this relates to the LTI Performance plan 2003/06
(refer to sections C and F). The benefits received as a result of the Retention Award and participation in this LTI have been treated as
options. External valuation advice from PricewaterhouseCoopers has been used to determine the fair value of the shares treated as
options at grant date. The valuation has been estimated using a Monte Carlo simulation model, which generates possible future prices for
the underlying shares based on assumptions similar to those underpinning the Black-Scholes option pricing model. The valuation under
the Monte Carlo approach requires inputs such as the expected share price volatility, the expected dividend yield, price at grant date of
the underlying shares, the exercise price and the expected life of these shares treated as options, the risk free rates, expected interest
rates and an assumption for the value of the loans at grant date. Multiple simulations were performed to determine the mean value. The
fair value has been allocated evenly over the period from grant date to the date when an entitlement to an award, in the form of loan
waiver arises, being 30 September 2006 for the LTI Performance plan 2003/06 and 10 May 2009 for the Retention Award. The value
disclosed in this table represents the portion of fair value allocated to this reporting period. Refer to section C of this remuneration report
for further details of this LTI and section D for further details of the Retention Award applicable to Mr Segal.
The terms and conditions of each award affecting remuneration in this or future reporting periods are as follows:
Grant date
Expiry date
Fair Value per share treated
as option at grant date
Date
exercisable
Exercise
Price
20/09/2004
30/09/2006
$5.71
From 1/10/2006 (i)
$16.39
LTI Performance
plan 2003/06
Retention award (ii)
5/07/2006
10/05/2009
4/10/2005
30/09/2006
$1.66
$21.20
From 1/10/2006 (i)
$15.97
From 11/05/2009
-
The number of shares (treated as options for the purposes of remuneration) held by each executive director is detailed in section F of this
remuneration report and note 34 to the financial report.
(i)
Shares restricted until such time as the loan is repaid. The loan must be repaid in any event by 31 December 2007.
(ii) Applicable to Mr Segal only.
(1)
If Mr Watson or Mr McCallum had ceased to be directors on 30 September 2006, the following benefits would have been payable under
their respective contracts: Mr Watson $391,597, Mr McCallum $183,367.
(2) Fees of $77,000 per annum were paid to Mr Chesterfield’s employer, Orica Limited.
(3) On 3 June 2005 Mr Segal was seconded to Incitec Pivot pursuant to his employment agreement with Orica Limited and was appointed
as a director of Incitec Pivot. Mr Segal resigned from Orica Limited on 9 May 2006 and was employed by Incitec Pivot pursuant to an
agreement dated 29 May 2006. Further details are summarised in section D of this remuneration report.
22
Incitec Pivot Limited
Directors’ Report
Remuneration Report
C. Remuneration policy for Executives
The remuneration of the executives is set by the Board on recommendation from the Remuneration and Appointments
Committee. The Company’s policy and practice for executive remuneration is designed to attract, retain and motivate
appropriately qualified and experienced individuals capable of discharging their respective responsibilities in supporting the
Company’s business and strategy.
Executive remuneration is set at levels to properly reflect the duties and responsibilities of the executives. The remuneration
packages include both a fixed component and an “at risk” component, as a performance-related component, designed to create
a clear link between reward for the executive and the creation of shareholder value. The mix between fixed remuneration and
“at risk” or performance-related remuneration varies according to the duties and responsibilities of executives and supports the
needs of the Company in attracting, retaining and motivating executives.
Remuneration packages are reviewed annually by the Remuneration and Appointments Committee which may take advice from
an appropriately qualified external consultant. The Committee takes into account survey data on remuneration packages for
comparable companies, and the duties and responsibilities of the executives.
With Orica ceasing to be a majority shareholder, and the acquisition of SCF, the Remuneration and Appointments Committee
engaged Godfrey Remuneration Group Pty Limited (GRG) to undertake a review of the remuneration of the executives in light of
the changed circumstances. This review benchmarked the remuneration to market and took into account the changes in the
scope of the roles performed by individuals, the changes required to meet the principles of the Company’s remuneration policy
and Incitec Pivot’s market competitiveness.
The following table shows how remuneration for executives is structured:
Table C.1, Remuneration structure by level
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Long Term Incentive
Short -t erm Incent ive
Fixed Remunerat ion
"At Risk"
compensation
CEO
Execut ives
Ot her
This table has not been subject to audit. In determining the “at risk” compensation as a proportion of total remuneration, for
each category of employee the maximum entitlement under the LTI or STI was taken into account.
Fixed Remuneration
The terms of employment for all executives contain a fixed remuneration component. Executives may receive their fixed
remuneration in a variety of forms including cash, superannuation and fringe benefits, such as motor vehicles. The level of fixed
remuneration is reviewed annually and is determined by the scope of each executive’s role, their level of knowledge, skill and
experience, and individual performance.
Incitec Pivot Limited
23
Directors’ Report
Remuneration Report
C. Remuneration policy for Executives (continued)
Performance based remuneration – Short Term Incentive Plan (STI)
The Short Term Incentive Plan (STI) is an annual “at risk” cash bonus plan which delivers cash bonuses on achievement of
specific performance targets. The Board considers the STI encourages executives to support Incitec Pivot’s strategic objectives
by providing rewards that are significantly differentiated on the basis of achievement against performance targets. STI awards
are not an entitlement but rather a reward for overall Company performance and individual performance or contribution to
Company performance.
The Board sets the criteria for awarding the STI annually. The targets are heavily weighted to improving the financial
performance of the business as measured by growth in Net Profit after Tax (NPAT) before individually material items. NPAT
(before individually material items) is considered the appropriate financial measure as, in the absence of capital initiatives, it
equates to earnings per share growth, which is the key driver of shareholder value (driving both dividend pay-outs and share
price movements).
In addition, part of the STI is awarded for improving safety performance – one of Incitec Pivot’s core values. Safety
performance is measured by the all worker Recordable Case Rate, which is the internationally recognised benchmark measure
of safety. The balance of the STI is applied to the achievement of key milestones, which support the delivery of the approved
strategy for the Company. The NPAT (before individually material items) hurdle must be reached before any payment is made
for achievement of the non-financial elements of the STI.
Performance based remuneration – Long Term Incentive Plan (LTI)
Long Term Incentive Plans (LTIs) are designed to encourage executives and other senior employees to focus on the key
performance drivers which underpin sustainable growth in shareholder value.
Incitec Pivot has a LTI designed to reward executives and other senior employees for delivering long term value to the
Company and support the Company’s strategy for retention and motivation of its employees. It creates the opportunity, and
provides the discipline, for executives and other senior employees to contribute to short term performance with full regard to the
delivery of sustainable growth in shareholder value.
Under the LTI, Incitec Pivot may grant awards to participants, subject to them satisfying particular conditions relating to the
duration of their employment or individual or Company performance. In short, the LTI operates by way of the Company
providing participants with limited recourse loans, which can be interest free or interest bearing, and which must be used to
purchase Incitec Pivot shares on market. The loans are repayable in a number of circumstances, including the participant
ceasing to be employed by Incitec Pivot, the participant selling his or her shares, or by a “sunset” date. The loans are repayable
from the proceeds of sale of the shares, and are deemed satisfied by the application of the proceeds of the sale of the shares,
including where there is a shortfall against the outstanding loan amount. Participants may directly repay the whole or part of
their loan at any time. Interest is charged on the loans at the FBT benchmark rate (currently 7.30%). Net cash dividends after
personal income tax obligations are applied to reduce the loan balance.
Awards, by way of forgiveness of loans, are granted only on the achievement of either conditions relating to duration of
employment and/or individual or Company performance over a rolling three year period.
The Board sets the criteria for the granting of awards under the LTI at the beginning of the three year performance period
covered by the LTI. The criteria set by the Board for measuring Company performance are based on the generation of targeted
cumulative economic profit over the performance period. Economic profit targets are set at levels that equate to top quartile
shareholder returns over the performance period. Cumulative economic profit was chosen as the relevant performance
measure as it recognises:
-
-
the need to both grow earnings and produce an acceptable return on shareholders funds;
the desire to reward participants for the value they directly create, as opposed to movements in the general
level of the share market which is an issue with share price based incentives; and
the inherent seasonal volatility of the business which can positively or negatively impact any one year but is less
likely to have an influence over a cumulative three year period.
-
If the Company waives any loan amount, a participant has full, unrestricted ownership of the shares to the value of the loan
waiver. Prior to any loan waiver being awarded, a participant cannot deal in the shares.
In 2003, the Company established a LTI performance plan for the period from 1 October 2003 to 30 September 2006 (LTI
Performance plan 2003/06).
24
Incitec Pivot Limited
Directors’ Report
Remuneration Report
Relationship between Company performance and remuneration
Indices
In considering Incitec Pivot’s performance and benefits for shareholders’ wealth, the Board, through its Remuneration and
Appointments Committee, has regard to financial and non-financial indices, including the following indices in respect of the
current financial year and the prevailing four financial years, noting that Incitec Pivot, as the merged entity was formed in 2003.
Table C.2
Net Profit After Tax (before individually material items) ($m)
Economic Profit ($m)
Dividends paid ($m)
Share price ($) (Year End)
The above table has not been subject to audit.
2006
(2)
82.8
21.8
42.0
25.87
2005
(2)
47.9
(14.5)
70.5
15.82
2004
2003
80.9
19.1
16.9
18.8
35.0
(15.9)
24.5
15.66
2002
(1)
21.2
(2.4)
-
N/A
(1)
Indices for 2002 are for the Company and pre-date the merger of Incitec Fertilizers Limited and Pivot Limited.
(2) Stated on an AIFRS basis.
LTI Plan awards
Under the LTI Performance plan 2003/06, for the performance period from 1 October 2003 to 30 September 2006, participants
were each advanced limited recourse, interest bearing, unsecured loans by the Company which were applied in the purchase of
shares on market. The criteria set by the Board for the granting of awards under this LTI (in the form of waivers of loans) was
based on the generation of targeted cumulative economic profit over the performance period (1 October 2003 to 30 September
2006).
With the decline in economic profit in 2005 reflecting a combination of poor seasonal conditions and strong competition, at the
conclusion of the performance period at 30 September 2006, no awards (in the form of waivers of loans) were made.
In accordance with the LTI Plan rules, notwithstanding awards in the form of loan waivers have not been made, participants
under the LTI Performance plan 2003/06 remain as the registered holders of the shares purchased with the loans. The loans
are repayable prior to the participant dealing in the shares, and in any event must be repaid by 31 December 2007.
STI payments
Following the challenging seasonal conditions and strong competition in 2005 and the need to meet the near term performance
imperatives to 30 September 2006, the Board reviewed the effectiveness of the LTI Performance plan 2003/06 and the then STI
opportunity. To enable Incitec Pivot to attract, retain and motivate executives and employees to deliver the near term
performance imperatives to 30 September 2006, given that no awards in the form of loan waivers could be made under the LTI
Performance plan 2003/06, the Board established an increased STI for 2005/06.
The 2005/06 STI was structured such that it combined the STI and LTI for 2006 by increasing for each participant their STI
percentage by half the amount of their then LTI percentage.
Incitec Pivot Limited
25
Directors’ Report
Remuneration Report
D. Managing Director & Chief Executive Officer’s Employment Arrangements
and Remuneration
Managing Director & CEO – Mr J Segal
Mr Segal was on secondment to Incitec Pivot from Orica Limited until 9 May 2006, after which date he became an employee of
the Company. Mr Segal’s remuneration arrangements for the period commencing 10 May 2006 are in accordance with an
agreement between Mr Segal and Incitec Pivot dated 29 May 2006.
Mr Segal may terminate his employment on 6 months notice. The Company may terminate Mr Segal’s employment:
(cid:121)
(cid:121)
(cid:121)
immediately for cause, without payment of any separation sum, save as to accrued fixed annual remuneration, accrued
annual leave or long service leave;
on notice in the case of incapacity, in which case the Company must pay a separation payment plus accrued annual leave
and long service leave;
otherwise, without cause, with or without notice, in which case the Company must pay a separation payment plus accrued
annual leave and long service leave.
The separation payment will be equal to 52 weeks of fixed annual remuneration at the date of termination.
The details of his remuneration are as follows:
(cid:121)
Fixed Annual Remuneration
Mr Segal’s fixed annual remuneration is $900,000, reviewed annually each January having regard to Incitec Pivot’s
executive remuneration policy.
(cid:121)
Short Term Incentive
Mr Segal is eligible to participate in Incitec Pivot’s STI. Mr Segal’s STI opportunity is 43.75% of fixed annual remuneration
up to a maximum of 175% of fixed annual remuneration for over performance against specified measures pro rata for the
period from 10 May 2006 to 30 September 2006.
Mr Segal was awarded a STI payment of $586,202, being 95% of the maximum STI opportunity for the period 10 May
2006 to 30 September 2006. This equates to 65.13% of fixed annual remuneration for the period. Mr Segal was also
awarded a discretionary bonus in recognition of his leadership and contribution to delivering shareholder value through the
acquisition of SCF from BHP Billiton.
For the period commencing 1 October 2006, Mr Segal’s STI opportunity is 25% of fixed annual remuneration up to a
maximum of 100% of fixed annual remuneration for over performance against specified measures in the 2006/07 financial
year.
Further details of the STI plan are set out in section C of this remuneration report.
(cid:121)
Long Term Incentive
Upon Mr Segal becoming an employee of the Company, he became eligible to participate in Incitec Pivot’s LTI plan. From
1 October 2006, Mr Segal’s LTI opportunity is 37.5% of fixed annual remuneration up to a maximum of 150% of fixed
annual remuneration for over performance against specified measures over a three year period until 2009. In addition,
given the Incitec Pivot’s LTI plans are three year performance plans with the opportunity falling in the third year, the Board
recognised that the retention of key executives was a crucial element to the success of the Company following Orica
ceasing to be a majority shareholder and the acquisition of SCF. Accordingly, Mr Segal received a Retention Award in the
form of an interest free, limited recourse, unsecured loan by Incitec Pivot for $722,250 which was applied in the purchase
of shares on market. The loan will be forgiven in full if Mr Segal remains in employment until 10 May 2009.
In respect of the period from 1 October 2005 until 9 May 2006, Mr Segal’s remuneration arrangements were in accordance
with an agreement between Mr Segal and Incitec Pivot dated 27 June 2005, which supplemented his employment
agreement with Orica Limited. For the period 1 October 2005 to 9 May 2006:
• Mr Segal’s fixed annual remuneration was $560,000.
• Mr Segal’s STI opportunity was 30% of fixed annual remuneration up to a maximum of 60% of fixed annual
remuneration for over performance against specified measures.
• While Mr Segal was not eligible to participate in Incitec Pivot’s LTI, he was eligible to participate in Orica’s Long
Term Incentive Plan.
26
Incitec Pivot Limited
Directors’ Report
Remuneration Report
E. Executives’ employment arrangements and remuneration
E.1 Service Contracts and Termination Provisions
Remuneration and other terms of employment for the executives (excluding Mr Segal, whose arrangements are set out in
section D of this remuneration report and Ms Cleland, whose arrangements are set out below) are formalised in service
agreements between the executive and the Company, details of which are summarised in the table below. Most executives are
engaged on similar contractual terms with minor variations to address differing circumstances. The Company’s policy is for
service agreements for these executives and senior management to be unlimited in term, but capable of termination in the
manner as described in the table below.
Fixed remuneration
Fixed remuneration comprising salary paid in cash and mandatory employer superannuation
contributions. This is subject to an annual review.
STI Plan
LTI Plan
Termination by Incitec Pivot
Participation is at the Board’s discretion. For the 2005/06 STI, the STI opportunity for the executives
was 65% of fixed annual remuneration, save for Mr Whiteside and Mr Grace, for whom it was 55%.
From 1 October 2006, for all executives other than Mr Fazzino, the opportunity is 40% of fixed annual
remuneration up to a maximum of 80% of fixed annual remuneration for over performance against
specified measures. For Mr Fazzino, the opportunity is 50% of fixed annual remuneration up to a
maximum of 100% of fixed annual remuneration for over performance against specified measures.
Participation is at the Board’s discretion. The opportunity is 50% of fixed annual remuneration up to a
maximum of 100% of fixed annual remuneration for over performance against specified measures.
Incitec Pivot may terminate the service agreements:
(cid:121)
immediately for cause, without payment of any separation sum, save as to accrued fixed annual
remuneration, accrued annual leave or long service leave;
(cid:121) on notice in the case of incapacity, and the Company must pay a separation payment plus accrued
annual leave and long service leave;
(cid:121) otherwise, without cause, with or without notice and the Company must pay a separation payment
plus accrued annual leave and long service leave.
The amount of a separation payment is calculated on a ‘capped’ number of weeks, where the number
of weeks is determined by length of any prior service with the Orica Group (where applicable), and is
as follows for each executive (excluding Mr Segal and Ms Cleland):
Mr Mark Drew
Mr James Fazzino
Mrs Kerry Gleeson
Mr Alan Grace
Mr Daryl Roe
Mr Bernard Walsh
Mr James Whiteside
Current Fixed Annual
Remuneration
$
Number of Weeks
280,000
570,000
360,000
262,000
320,000
400,000
280,000
26.0 weeks
51.6 weeks
26.0 weeks
26.0 weeks
70.48 weeks
61.81 weeks
45.41 weeks
Separation
Payment
$
140,000
565,615
180,000
131,000
433,723
475,462
244,515
Termination by executive
An executive may terminate his/her employment on 13 weeks’ notice (save for Mr Grace and Mr
Whiteside, who may terminate on 8 week’s notice) and the Company may require the executive to
serve out the notice period or may make payment in lieu.
With regard to Abigail Cleland, Ms Cleland was on secondment to Incitec Pivot from Orica Limited pursuant to her employment
agreement with Orica Limited dated 6 December 2004. This secondment commenced 6 June 2005 and ceased on 30
September 2006. In addition to her fixed annual remuneration she was eligible to participate in Incitec Pivot’s 2005/06 STI.
This was based on 65% of fixed annual remuneration. Ms Cleland was not eligible to participate in any Incitec Pivot LTI Plan.
However, Ms Cleland was eligible to participate in Orica’s Long Term Incentive Plan.
Details of the nature and amount of each element of remuneration of the executives (excluding the Managing Director & CEO
and the Finance Director & Chief Financial Officer) are included in table E.3.
Incitec Pivot Limited
27
Directors’ Report
Remuneration Report
E.2 Grants of cash bonuses, STI payments, and performance related awards under the LTI
Performance plan 2003/06
For the 2005/06 STI, the principal measure established in order to determine whether STI payments were to be made was
NPAT (before individually material items). In addition, in line with Company policy on the STI, part of the STI was to be
measured on improving safety performance and the achievement of key milestones, to deliver the strategic objectives for 2006.
In 2006, NPAT (before individually material items) is $82.8m, an increase of 73% on the 2005 NPAT (before individually material
items) of $47.9m. Each of the executives were awarded STI payments at 95% of the maximum STI opportunity for 2005/06. In
the case of Ms Cleland, Mr Fazzino, Mrs Gleeson, Mr Roe and Mr Walsh, the STI payment was 95% of their available maximum
STI of 65%, and in the case of Mr Whiteside and Mr Grace, 95% of their available maximum STI of 55%. Mr Drew was awarded
a STI payment at 95% of his available maximum STI of 65%, pro rata for the period from commencement of his service contract
to 30 September 2006.
Each of Mr Fazzino, Mrs Gleeson, Mr Whiteside and Mr Grace were awarded discretionary bonuses in recognition of their
contribution to delivering shareholder value through the negotiation of separation activities with Orica and the acquisition of SCF
from BHP Billiton. For Ms Cleland, this was in recognition of her contribution to the acquisition of SCF from BHP Billiton.
Those of the executives who were participants in the LTI Performance plan 2003/06 for the performance period 1 October 2003
to 30 September 2006 (being, all of the executives, save for Mr Drew and Ms Cleland), did not receive any awards, in the form
of loan waivers. Each of these executives remain as holders of the shares acquired with the loans granted under this plan, such
loans to be repaid by 31 December 2007.
28
Incitec Pivot Limited
Directors’ Report
Remuneration Report
E. Executives’ employment arrangements and remuneration (cont’)
E.3 Executives’ remuneration
For the year ended 30th September 2006
Short-term benefits
Short term
incentive &
other
bonuses
(A)
$
Non-
monetary
benefits
(B)
$
Salary &
Fees
$
Post-
employment
benefits
Termination
benefits
Share-
based
payments
Superannuation
benefits
$
$
Value of
shares treated
as Options
(C)
$
Total
$
302,838
258,027
296,010
-
53,530
-
295,750
253,274
197,600
-
6,522
9,654
12,276
11,723
12,276
11,723
320,567
129,069
247,000
-
16,143
3,249
12,276
5,931
83,148
-
154,011
-
13,775
-
85,452
-
164,208
-
8,408
-
44,554
-
28,817
-
253,974
80,781
256,725
42,500
-
-
-
-
4,183
-
4,183
-
2,114
-
12,276
3,935
-
-
-
-
-
-
-
-
-
-
-
-
-
-
14,695
7,623
679,349
277,373
15,618
5,211
527,766
279,862
8,784
1,737
604,770
139,986
2,125
-
257,242
-
1,795
-
264,046
-
-
-
-
-
75,485
-
522,975
127,216
-
258,417
-
140,583
-
201,515
-
261,227
-
-
-
-
-
-
-
-
117,747
-
-
11,729
-
215,239
-
11,464
117,747
496,849
-
40,799
-
5,792
-
-
-
6,251
-
193,425
5,500
13,096
-
13,736
-
17,122
-
9,259
5,500
254,728
127,185
52,063
-
11,723
-
236,358
-
11,488
127,185
572,859
1,386,283
1,344,371
348,810
1,582,893
42,500
118,861
59,584
76,292
-
43,017
3,182,065
468,719
53,033
2,342,298
Executive
- Current
K J Gleeson
General Counsel &
Company Secretary
D A Roe
General Manager
Strategy & Business
Development
B C Walsh
General Manager -
Operations
A Grace (1)
General Manager -
SCF Integration
J Whiteside (1)
General Manager -
Supply Chain & Trading
M Drew (1)
General Manager -
Sales & Customer Service
A Cleland (2)
General Manager Strategy
& Marketing
- Former
J W Elmer
General Manager
Human Resources
R Hoggard
General Manager
Manufacturing & SH&E
J M Lloyd
General Manager
Commercial
J R Warnock
General Manager
Logistics & Supply
Total Executive
Year
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
Value of
shares treated
as
options as
Proportion of
remuneration
performance proportion of
remuneration
related
%
%
46%
3%
40%
2%
42%
1%
61%
-
63%
-
38%
-
49%
33%
-
2%
-
3%
-
4%
-
2%
44%
4%
2%
3%
3%
2%
1%
1%
1%
-
1%
-
0%
-
0%
0%
-
2%
-
3%
-
4%
-
2%
1%
2%
For details of remuneration paid to executives and their employment arrangements refer also to sections C, E.1 and E.2 of this remuneration
report.
(A) The cash incentive bonuses paid or accrued to certain executives for the financial year ended 30 September 2006 are disclosed. Each of
Ms Cleland, Mrs Gleeson, Mr Roe, Mr Walsh and Mr Drew were awarded STIs at 95% of their available maximum STI of 65%, and, in the
case of Mr Drew, pro rata for the period from commencement of his service to 30 September 2006. Mr Grace and Mr Whiteside were
awarded STIs at 95% of their available maximum STI of 55%. In addition, Ms Cleland, Mrs Gleeson, Mr Grace and Mr Whiteside received
discretionary bonuses.
Incitec Pivot Limited
29
Directors’ Report
Remuneration Report
(B) Non-monetary benefits include Fringe Benefits Tax paid attributable to the FBT year (2006: 1 April 2005 to 31 March 2006) (2005: 1 April
2004 to 31 March 2005), rent and mortgage interest subsidy, relocation allowances and other allowances. Additionally, all executives are
eligible to participate in an annual health assessment program designed to ensure executives have their health status reviewed on a
regular basis.
(C) This relates to the LTI Performance plan 2003/06. The benefits received as a result of participation by the relevant executives in this LTI
have been treated as options. External valuation advice from PricewaterhouseCoopers has been used to determine the fair value of
these shares treated as options at grant date. The valuation has been estimated using a Monte Carlo simulation model, which generates
possible future prices for the underlying shares based on assumptions similar to those underpinning the Black-Scholes option pricing
model. The valuation under the Monte Carlo approach requires inputs such as the expected share price volatility, the expected dividend
yield, price at grant date of the underlying shares, the exercise price and the expected life of these shares treated as options, the risk free
rates, expected interest rates and an assumption for the value of the loans at grant date. Multiple simulations were performed to
determine the mean value. The fair value has been allocated evenly over the period from grant date to the date when an entitlement to an
award, in the form of loan waiver arises, being 30 September 2006. The value disclosed in this table represents the portion of fair value
allocated to this reporting period. Refer to section C of this remuneration report for further details of the LTI Performance plan 2003/06
and the LTI generally.
The terms and conditions of each award affecting remuneration in this or future reporting periods are as follows:
Grant date
Expiry date
Fair Value per share treated as
option at grant date
Date
exercisable
Exercise
Price
LTI Performance plan
2003/06
20/09/2004
30/09/2006
4/10/2005
30/09/2006
$5.71
$1.66
From 1/10/2006 (i)
$16.39
From 1/10/2006 (i)
$15.97
The number of shares (treated as options for the purposes of remuneration) held by each executive director and executive is detailed in the
section F of this remuneration report and note 34 to the financial report.
(i)
Shares restricted until such time as the loan is repaid. The loan must be repaid in any event by 31 December 2007.
(1) The executives were appointed to the Executive Team during the financial year. These disclosures are from their appointment date. Mr
Grace (1 June 2006), Mr Whiteside (22 June 2006) and Mr Drew (1 August 2006).
(2) On 6 June 2005, Ms Cleland was seconded to Incitec Pivot Limited pursuant to her employment agreement with Orica Limited. Ms
Cleland’s secondment ceased on 30 September 2006.
30
Incitec Pivot Limited
Directors’ Report
Remuneration Report
E.4 Analysis of bonuses included in remuneration
Details of the vesting profile of the STI payments or other bonuses awarded as remuneration to each executive director or
executive are set out below:
Short term incentive or bonus
Included in
remuneration (A)
% vested in
Executive directors
- Current
J Segal
J E Fazzino
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace
J Whiteside
M Drew
A Cleland
- STI
- Discretionary
- STI
- Discretionary
- STI
- Discretionary
- STI
- STI
- STI
- Discretionary
- STI
- Discretionary
- STI
- STI
- Discretionary
$
586,202
150,000
351,975
97,890
222,300
73,710
197,600
247,000
136,895
17,116
146,300
17,908
28,817
166,725
90,000
year
95%
-
95%
-
95%
-
95%
95%
95%
-
95%
-
95%
95%
-
% forfeited
in year (B)
5%
-
5%
-
5%
-
5%
5%
5%
-
5%
-
5%
5%
-
This table has not been subject to audit.
(A)
In relation to the STI, the amounts included in remuneration for the financial year represent the amount that vest in the financial year
based on achievement of personal and Company targets and satisfaction of relevant performance measures under the STI.
For further details of the discretionary bonuses paid to executive directors and executives refer to sections D and E.2.
(B) The amounts forfeited are due to the relevant performance measures (under the STI), not being met in relation to the financial year ended
30 September 2006.
Incitec Pivot Limited
31
Directors’ Report
Remuneration Report
F. Equity instruments
F.1 Shares treated as options over equity instruments granted as remuneration
For the purposes of determining key management personnel remuneration, shares granted under the LTI Performance plan
2003/06 are treated as options. Such shares, which are treated as options, are subject to limited recourse loans, details of
which have been disclosed in note 34 to the financial report.
Details of the shares, which are treated as options, that were granted to each key management person and those that vested
during the reporting period and the prior reporting period are set out in the following tables and further details are also set out in
sections C and D:
For the year ended 30th September 2006
Number of shares treated as options
Granted and
vested during
2006 as
remuneration (A)
Awards / Exercise of
options (B)
Grant date
Number of shares
treated as options
allocated since year
end (D)
Status at end
of year (C)
Status at end
of year (C)
Amount
paid per
share
$
Retention Award
Performance
Key Management Personnel (1)
Executive Directors
- Current
J Segal
J E Fazzino
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace (2)
J Whiteside (2)
Performance
Performance
Performance
Performance
Performance
5 July 2006
4 October 2005
32,597
5,130
4 October 2005
4 October 2005
4 October 2005
4 October 2005
4 October 2005
5,938
6,269
3,199
1,925
1,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
-
-
-
-
-
-
-
-
-
-
-
-
-
-
For the year ended 30th September 2005
Number of shares treated as
options
Grant date
Granted and vested
during 2005 as
remuneration (A)
Awards /
Exercise of
options (B1)
Amount paid
per share
$
Status at end of
year (C)
Number of shares
treated as options
allocated since
year end (D1)
Status at end of
year (C)
Key Management Personnel (1)
Executive Directors
- Current
J E Fazzino
Retention (3)
Performance
- Former
G J Witcombe Retention (3)
Performance
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
- Former
J W Elmer
R Hoggard
J M Lloyd
J R Warnock
Retention (3)
Performance
Performance
Performance
Retention (3)
Performance
Retention (3)
Performance
Retention (3)
Performance
Retention (3)
Performance
1 June 2003
4 October 2005
1 June 2003
20 September 2004
1 June 2003
4 October 2005
4 October 2005
4 October 2005
1 June 2003
20 September 2004
1 June 2003
20 September 2004
1 June 2003
20 September 2004
1 June 2003
20 September 2004
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,101
-
15.44 Unrestricted
-
-
-
5,130
-
Restricted
32,269
27,509
15.44
16.39
Repaid
Repaid
-
-
-
-
3,327
-
-
-
5,091
4,332
-
-
-
-
4,534
4,042
15.44 Unrestricted
-
-
-
-
-
-
15.44
16.39
-
-
-
-
Repaid
Repaid
Forfeited
Forfeited
Forfeited
Forfeited
15.44 Repayable
Repayable
16.39
-
5,938
6,269
3,199
-
Restricted
Restricted
Restricted
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
Incitec Pivot Limited
Directors’ Report
Remuneration Report
(A)
(B)
Refers to the number of shares allocated to the participating executive or participating executive director during the financial year.
These shares are treated as options.
No shares, which are treated as options, were awarded/exercised during the reporting period as no awards (in the form of waivers of
loans) were granted to the applicable executives because the criteria under the LTI Performance plan 2003/06 was not satisfied.
(B1) Represents the number of shares treated as options in respect of which awards (in the form of waivers of loans) were granted to the
applicable executives who satisfied the criteria under the relevant LTI plan, that is, the Retention Plan and/or the LTI Performance
plan 2003/06.
(C)
"Unrestricted" refers to shares, which are subject to a limited recourse loan, however the participant may sell these shares and repay
the loan at any time.
"Restricted" refers to those shares that are subject to a limited recourse loan; however the participant is not free to sell or otherwise
deal in the underlying shares.
"Repaid" means the underlying loan associated with the shares has been repaid in full.
"Forfeited" means the executive ceased to be employed by the Company and thus forfeited all rights to the underlying shares.
"Repayable" means the loan is repayable within 90 days of the executive's exit from the Company.
Since 30 September 2006, no shares, which are treated as options, have been granted under any LTI plan.
Since 30 September 2005, a number of executives were granted additional loans under the LTI Performance plan 2003/06 for the
performance period 2003/06 which were used to purchase shares on market. Refer to details of this LTI plan under section C of this
remuneration report. These shares, treated as options for the purposes of remuneration, were allocated on 4 October 2005 and are
included in this remuneration report.
)
No shares, treated as options, were granted as remuneration to the non-executive directors during the reporting period.
For Mr Grace and Mr Whiteside, shares (treated as options) were granted under the LTI Performance plan 2003/06 for the
performance period 2003/06 prior to their appointment to the Executive Team.
The Company established the Retention Plan in respect of the period from 1 June 2003 to 30 September 2005 by way of interest
free, limited recourse, unsecured loans by the Company which were used in the purchase of shares on market. For those
participants satisfying the conditions of the Retention Plan, 51.5% of the loans were forgiven by the Company.
(D)
(D1)
(1)
(2)
(3)
In respect of the shares that are treated as options for the purposes of remuneration, the following details of the particulars of
the terms and conditions of each grant made during the reporting period are set out in sections B, C and D of the remuneration
report and in notes 34 and 35 to the financial report:
(cid:121)
(cid:121)
fair value per share at grant date, the exercise price per share, the amount, if any, paid or payable by the recipient, the
expiry date and the date of exercise; and
a summary of the service and performance criteria that must be met before the beneficial interest vests in the person.
F.2 Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including shares which are treated as options granted to a key
management person) have been altered or modified by the issuing entity during the reporting period or the prior period.
Incitec Pivot Limited
33
Directors’ Report
Remuneration Report
F.3 Analysis of shares treated as options over equity instruments granted as remuneration
Details of the vesting profile of the shares treated as options granted as remuneration to each executive director and each of the
five named executives is detailed below:
For the year ended 30th September 2006
Number of
shares treated
as options
granted
% Vested
in year
% Forfeited
in year (A)
Financial year
in which grant
vests
Grant date
Value yet to Vest
Min (B)
$
Max (C)
$
Key Management Personnel
Executive Directors
- Current
J Segal
J E Fazzino
Retention Award
Performance Plan
Performance Plan
5 July 2006
20 September 2004
4 October 2005
32,597
4,424
5,130
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace (1)
J Whiteside (1)
Performance Plan
Performance Plan
Performance Plan
Performance Plan
Performance Plan
Performance Plan
Performance Plan
Performance Plan
Performance Plan
Performance Plan
20 September 2004
4 October 2005
20 September 2004
4 October 2005
20 September 2004
4 October 2005
20 September 2004
4 October 2005
20 September 2004
4 October 2005
2,542
5,938
2,738
6,269
1,825
3,199
1,705
1,925
1,784
1,960
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2009
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
2006
-
-
-
-
-
-
-
-
-
-
-
-
-
691,056
-
-
-
-
-
-
-
-
-
-
-
-
This table has not been subject to audit.
(A)
(B)
(C)
The percentage forfeited in the year represents the reduction from the maximum number of shares treated as options available to
vest, that is, in respect of which awards (in the form of loan waivers) could be made, due to the performance criteria not being
achieved.
The minimum value of shares which are treated as options yet to vest is $nil as the performance criteria may not be met and, in such
circumstances, there would be no vesting.
The maximum value of shares which are treated as options yet to vest is not determinable as it depends on the market price of shares
of the Company on the Australian Stock Exchange at the date of exercise. The maximum value presented above is based on
assumptions that the share price on the date of exercise does not exceed $21.20 for the grants issued on 5 July 2006. This share
price represents a maximum price included in the volatility assumptions within the value of the shares which are treated as options.
(1)
For Mr Grace and Mr Whiteside, shares (treated as options) were granted under the LTI Performance plan 2003/06 for the
performance period 2003/06 prior to their appointment to the Executive Team.
34
Incitec Pivot Limited
Directors’ Report
Remuneration Report
F.4 Analysis of movements in shares (which are treated as options)
The movement during the reporting period, by value, of shares (which are treated as options for the purposes of remuneration)
held by each executive director and each of the five named executives is detailed below:
For the year ended 30th September 2006
Value of shares treated as options
Grant date
Granted during 2006 as
remuneration (A)
$
Forfeited in year (B)
$
Total option value in
year
$
Retention Award
Performance Plan
Key Management Personnel
Executive Directors
- Current
J Segal
J E Fazzino
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace (1)
J Whiteside (1)
Performance Plan
Performance Plan
Performance Plan
Performance Plan
Performance Plan
5 July 2006
4 October 2005
691,056
8,516
-
154,071
4 October 2005
4 October 2005
4 October 2005
4 October 2005
4 October 2005
9,857
10,407
5,310
-
-
136,655
145,150
80,984
58,540
60,380
691,056
162,587
146,512
155,557
86,294
58,540
60,380
This table has not been subject to audit.
(A)
The value of shares which are treated as options granted in the year is the fair value of those shares calculated at grant date
using a binomial option-pricing model. The total value of these shares is included in the table above. This amount is
allocated to the remuneration of the applicable executive over the vesting period (ie. in years 2006 to 2009 for the retention
award, and 2006 for the LTI Performance plan 2003/06).
(B)
The value of the shares which are treated as options that lapsed during the year represents the benefit foregone and is
calculated at the date they lapsed, as 100% of the loan balance outstanding at 30 September 2006.
(1)
For Mr Grace and Mr Whiteside, their shares were granted prior to their appointment to the Executive Team.
During the reporting period, no shares, which are treated as options, previously granted as compensation were exercised.
Incitec Pivot Limited
35
Directors’ Report
Corporate Governance Statement
The Board is committed to achieving and demonstrating the highest standards of corporate governance. Since Incitec Pivot's
listing on the Australian Stock Exchange (ASX) 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 has continued to review its corporate governance framework and practices to ensure they meet the interests of
shareholders. Accordingly, following the exit of Orica as a majority shareholder in May 2006, the Board revised its corporate
governance framework to remove provisions that were no longer appropriate, absent a majority shareholder, and to generally
update the framework to reflect current best practice.
This Corporate Governance Statement outlines the key aspects of the Company's corporate governance framework. The Board
considers that Incitec Pivot has been compliant with the ASX Recommendations throughout the year ended 30 September
2006.
Summaries of the charters, policies and codes referred to in this Statement are available on the Incitec Pivot website,
www.incitecpivot.com.au.
Board of directors
The Board of directors of Incitec Pivot is responsible for charting the direction, policies, strategies and financial objectives of the
Company. The Board serves the interests of the Company, its shareholders, as well as Incitec Pivot's other stakeholders such
as employees, customers and the community, in a manner designed to create and continue to build sustainable value for
shareholders.
The Board operates in accordance with the broad principles set out in its charter. The charter sets out the Board’s own tasks
and activities as well as the matters it has reserved for its own consideration and decision making.
Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are
formally delegated to the Managing Director & CEO. The Delegated and Reserved Powers Policy details the authority
delegated to the Managing Director & CEO, including the limits on the way in which the Managing Director & CEO can exercise
that authority.
The Board has specifically reserved a number of key matters for consideration and decision by the Board. These include:
(cid:121)
(cid:121)
(cid:121)
Direction and objectives – approving the corporate strategy and the Company’s budgets;
Compliance – ensuring and monitoring compliance with all laws, governmental regulations and accounting standards;
Ethical – monitoring and influencing Incitec Pivot’s culture and implementing procedures and principles to promote ethical
and responsible decision making and confidence in Incitec Pivot’s integrity; and
(cid:121) Managing Director & CEO and direct reports – appointing the Managing Director & CEO and the direct reports to the
Managing Director & CEO, monitoring management’s performance and reviewing executive succession planning.
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. In August 2006, as part of the Board’s annual performance
review, and in light of the exit of its former majority shareholder, Orica, the Board’s charter and the Delegated and Reserved
Powers Policy were reviewed and updated.
Composition of the Board
The Board comprises six directors, including four non-executive directors and two executive directors (being the Managing
Director & CEO and Finance Director & Chief Financial Officer).
John Watson and Allan McCallum were each appointed as directors by the shareholders on 15 December 1997, Brian Healey
and Anthony Larkin were appointed as directors on 1 June 2003, Julian Segal, on 3 June 2005 and James Fazzino was
appointed as a director on 18 July 2005.
The Board collectively has significant commercial, business, operational and financial experience in a range of industries. The
directors all bring skills and expertise which, in aggregate, combine to form a Board which is equipped to discharge its
responsibilities. The directors' biographies along with their term of office and information about their skills, expertise and
experience are set out on page 16 of this report.
The Listing Rules of the ASX require that no member of the Board (other than the Managing Director & CEO) may serve for
more than three years without being re-elected by shareholders at an Annual General Meeting of the Company.
36
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
The Company's constitution provides that, at each Annual General Meeting, one-third of the directors (not including the
Managing Director & CEO) must retire and are eligible to be re-elected by the shareholders.
The Managing Director & CEO serves as a director until he ceases to be the Managing Director & CEO.
The roles of Chairman and Managing Director & CEO are separate.
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 may reasonably be expected to, interfere with the
director's ability to act in the best interests of the Company. A range of factors are considered by the Board in assessing the
independence of its directors, including those set out in the ASX Recommendations.
In assessing the independence of a director, consideration is given to the underlying purpose behind any relationship a director
may have with a third party that is identified as relevant to the assessment of independence and the overall purpose of
independence. In determining whether a sufficiently material relationship (as defined in Box 2.1 of the ASX Recommendations)
exists between Incitec Pivot and a third party for the purposes of determining the independence of a director, the Board has
regard to all the circumstances of the relationship, including among other things:
(cid:121)
(cid:121)
(cid:121)
the value (in terms of aggregate and proportionate expenses or revenues) that the relationship represents to both Incitec
Pivot and the third party;
the strategic importance of the relationship to Incitec Pivot's business; and
the extent to which the services provided by or to Incitec Pivot are integral to the operation of Incitec Pivot's business,
including the extent to which the services provided are unique and not readily replaceable.
The Board considers that each of John Watson, Brian Healey, Allan McCallum and Anthony Larkin are independent
when assessed on the criteria above, taking into account all the relevant interests, matters and relationships of the
particular director.
In summary, of the six directors, the Board considers four directors are independent.
Performance evaluations
Incitec Pivot recognises the importance of regular performance evaluation of the directors. Assessment of individual director’s
performance and the Board as a whole is a process determined by the Chairman and the Remuneration and Appointments
Committee. The Board’s annual performance review took place in August 2006 by way of a self assessment of the Board’s role,
structure and processes, as well as the Board’s performance in meeting its responsibilities. In addition, one-on-one interviews
occurred between the directors and the Chairman. Individual director’s performance will be reviewed throughout the 2006/07
financial year and will include one-on-one interviews with directors and the Chairman, as well as discussions on succession
planning. Each of John Watson and Anthony Larkin, who are retiring and standing for re-election at the 2006 Annual General
Meeting, were subject to a specific performance review prior to their nomination for re-election.
In addition, all Incitec Pivot executives are subject to annual performance reviews.
The annual review involves each executive being evaluated by their immediate superior, normally the Managing Director
& CEO. 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 executives. The Remuneration and
Appointments Committee has overall responsibility for ensuring performance evaluation processes are in place for all
executives and that such evaluations are linked to executive remuneration. Incitec Pivot's broad policy in relation to executive
remuneration is set out in section C of the remuneration report.
The Remuneration and Appointments Committee also considers the performance and remuneration of the Managing Director &
CEO and makes recommendations as to his remuneration to the Board.
The performance evaluation of the Managing Director & CEO is conducted by the Chairman and the Board. This evaluation
involves an assessment of a range of performance standards as determined by the Board, including the overall performance of
the Company.
Incitec Pivot Limited
37
Directors’ Report
Corporate Governance Statement
Directors' remuneration
Incitec Pivot's broad policy in relation to non-executive directors' fees and payments is to ensure that these fees and payments
are consistent with the market and are sufficient to enable Incitec Pivot to attract and retain directors of an appropriate calibre.
Details of these fees and payments are included in the table titled “Directors’ Remuneration” set out in section B of the
remuneration report.
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
$1,000,000 as approved at the Annual General Meeting held in December 2003. The total remuneration paid to the non-
executive directors during the financial year ended 30 September 2006 was within the maximum amount approved by
shareholders.
Details of remuneration paid to the executive directors are included in the table titled “Directors’ Remuneration” set out in
section B of the remuneration report.
Board processes
To assist the Board in meeting its responsibilities, the Board has established three committees:
(cid:121)
(cid:121)
(cid:121)
the Audit and Risk Management Committee;
the Remuneration and Appointments Committee; and
the Governance Committee.
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.
Each of these Committees have their own charters which establish the Committee’s terms of reference and operating
procedures. In line with the Board's own charter, each Board committee is to review its performance at least annually, review its
charter annually, recommend any changes to the Board and report regularly to the Board as to its activities.
The Board has also established a framework for the management of the Group, including a system of internal control, and a
business risk management process. 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 & CEO and the Finance Director & Chief Financial Officer will certify to
the Board:
(cid:121)
(cid:121)
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.
The Company Secretary, Kerry Gleeson, is responsible for assisting the Chairman in developing and maintaining information
systems and processes that are appropriate for the Board to fulfil its role and to achieve Incitec Pivot’s objectives. Kerry is also
responsible to the Board for ensuring board procedures and the Constitution are complied with. The Board appoints and
removes the Company Secretary.
Board meetings
Details of the Board meetings held during the 2005/06 financial year are set out on page 17 of this report.
The Board currently holds 10 scheduled meetings during the year plus any extraordinary meetings that may be necessary to
address any significant matters, as and when they arise.
Materials for Board meetings are circulated to directors in advance. The agenda for meetings is formulated with input from the
Managing Director & CEO and the Chairman. Directors are free to nominate matters for inclusion on the agenda for any Board
or Board Committee meeting.
38
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
Presentations to the Board are frequently made by executives and senior management, and telecommunications technologies
may be utilised to facilitate participation.
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.
Audit and Risk Management Committee
The Audit and Risk Management Committee has a charter approved by the Board. The Committee assists the
Board in its review of financial reporting principles and policies, controls and procedures, internal control and
risk management and internal audit. The Audit and Risk Management Committee assists the Board in its review
of the integrity and reliability of the Company's financial statements, the external audit and the Company's
compliance with legal and regulatory requirements.
The current members of the Audit and Risk Management Committee are Anthony Larkin (Chairman), Allan McCallum and Brian
Healey, all of whom are independent non-executive directors.
The qualifications of those directors appointed to the Audit and Risk Management Committee are set out on page 16 of this
report.
The Committee meets as frequently as required but not less than four times a year. The Committee reviews its performance by
self assessment at least annually.
The attendance of the members of the Audit and Risk Management Committee at each meeting held during the financial year to
30 September 2006 is set out on page 17 of this report.
The internal and external auditors, the Managing Director & CEO and the Finance Director & Chief Financial Officer are invited
to attend Audit and Risk Management Committee meetings. The Committee regularly meets with the internal and external
auditors without management being present.
The primary objectives of the Audit and Risk Management Committee, as set out in its charter, are as follows:
Financial reporting
(cid:121)
review of reports and analyses – review management, internal audit and external audit reports and analyses of financial
reporting issues;
(cid:121)
(cid:121)
review of financial statements – review all audited financial statements and all other financial information prior to release
through the ASX to shareholders and the financial community;
accounting policies – review the critical accounting policies with external auditors and management; and
(cid:121) Managing Director & CEO and Finance Director & Chief Financial Officer certification – review the certification provided by
the Managing Director & CEO and the Finance Director & Chief Financial Officer on annual and half yearly reports.
Internal control and risk management
(cid:121)
risk management strategies – receive reports from management concerning the Company's risk management principles
and policies, assess and manage business, financial and operational risk;
(cid:121)
(cid:121)
(cid:121)
(cid:121)
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 the Company’s business; and
insurance – monitor the insurance strategy of the Company and recommend approval or variation of insurance policies.
Incitec Pivot Limited
39
Directors’ Report
Corporate Governance Statement
External audit
(cid:121)
appointment/replacement – manage the relationship between the Company and the external auditor including making
recommendations to the Board on the selection, evaluation and replacement of the external auditor;
(cid:121)
(cid:121)
(cid:121)
(cid:121)
terms of engagement – determine the terms of engagement and remuneration of the external auditor and make
recommendations to the Board;
effectiveness and independence – monitor the effectiveness and independence of the external auditor, including requiring
the external auditor to prepare and deliver an annual statement as to its independence;
scope of audit – review the scope of the external audit with the external auditor; and
non-audit services – review and assess provision of non-audit services by the external auditor, 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 non-audit work.
Internal audit
(cid:121)
appointment/replacement – evaluate the expertise and experience of potential internal auditors and make
recommendations to the Board on the selection, evaluation and replacement of the internal auditor;
(cid:121)
(cid:121)
(cid:121)
(cid:121)
terms of engagement – determine the terms of engagement and remuneration of the internal auditor and make
recommendations to the Board;
scope of audit and plan – review and assess the scope of the audit and the internal audit plan;
internal audit findings – receive reports from the internal auditor, management's response and the internal auditor’s
recommendations; and
assessment – conduct an annual assessment of the effectiveness of internal controls and financial reporting procedures.
Remuneration and Appointments Committee
The Remuneration and Appointments Committee has a charter approved by the Board. Under its charter, the Committee:
(cid:121)
(cid:121)
Appointments – assists and advises the Board on director selection and appointment policy, performance evaluation,
Board composition and succession planning for the Board and senior management; and
Remuneration – assists and advises the Board on remuneration policy for the Board, the Managing Director & CEO and
senior management, for such to be designed to enable Incitec Pivot to attract, retain and motivate its people to create
value for shareholders.
The Committee comprises all the directors except the Managing Director & CEO, Julian Segal, and the Finance
Director & Chief Financial Officer, James Fazzino, and is chaired by the Chairman, John Watson.
The Committee is to meet as frequently as required but not less than two times a year.
The attendance of the members of the Remuneration and Appointments Committee at each meeting held during the financial
year to 30 September 2006 is set out on page 17 of this report.
Governance Committee
The Governance Committee has a charter approved by the Board. The Committee was established in 2003 pursuant to Incitec
Pivot's Constitution in recognition of the Company's status as a subsidiary of Orica Limitedwith its primary role to consider
related party transactions in light of the requirements of the Corporations Act 2001 (Cth). The Charter provides for the
Committee members to comprise at least three independent non-executive directors. The current members of the Committee
are Allan McCallum (Chairman), John Watson and Brian Healey.
The Committee is to meet as frequently as required but not less than two times a year. The attendance of the members of the
Governance Committee at each meeting held during the financial year to 30 September 2006 is set out on page 17 of this
report.
Following Orica ceasing to be a majority shareholder in May 2006, the Board intends to dissolve the Governance Committee in
the 2006/07 financial year, given its role in considering related party matters is diminished and such matters can be
appropriately addressed by the Board itself.
40
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
External auditor
KPMG is the Company's external auditor.
The lead audit partner and review partner of the Company’s external auditor rotate every five years. The current lead audit
partner and review partner were first appointed for the 2002/03 audit of the Company.
Restrictions are placed on non-audit work performed by the auditor and projects outside the scope of the audit require the
approval of the Chairman of the Audit and Risk Management Committee. Further details are set out in note 7, Auditor’s
remuneration.
Since KPMG’s appointment in 2003, KPMG’s lead audit partner and other representatives from KPMG have attended the
Company’s annual general meetings and were available to answer questions from shareholders, as appropriate.
For the next Annual General Meeting to be held on 20 December 2006, the lead audit partner will attend. Shareholders have
the right under the Corporations Act 2001 (Cth) to submit written questions on certain topics to the auditor and the auditor may
table answers to such questions at the Annual General Meeting.
Procedures for ASX disclosure requirements
The Company is subject to continuous disclosure obligations under the Listing Rules of the ASX, which are supplemented by
the Corporations Act 2001 (Cth). Subject to some limited exceptions, under the continuous disclosure requirements, the
Company must immediately notify the market, through the ASX, 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 the Company’s shares.
To achieve these objectives and satisfy the regulatory requirements, the Board has established a continuous
disclosure policy and, in accordance with this policy, will provide information to shareholders and the market in
several ways, including:
(cid:121)
(cid:121)
(cid:121)
(cid:121)
in annual reports and financial statements, releases of results to ASX each half and full year, and at the Company's Annual
General Meeting;
releasing price sensitive announcements and other relevant significant announcements directly to the market via ASX;
conducting briefings with analysts and institutions from time to time – in doing so, Incitec Pivot recognises the importance
of ensuring 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 ASX and the Australian Securities and
Investments Commission; and
providing information on the Company's website, which contains information about the Company and its activities,
including statutory reports and investor information.
The Company Secretary is responsible for providing announcements to the ASX.
Share ownership and dealing
Details of shares in the Company held by the directors are set out in note 34, Key Management Personnel Disclosures.
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 directors, employees, advisors, auditors and consultants (“staff”) are aware of the legal restrictions on trading
in securities while a person is in possession of inside information.
Under the policy, all staff are prohibited from trading in the Company's shares while in possession of inside information. Also,
there are certain 'black out' periods, from the end of the financial year or half year until two business days after the relevant
financial results are announced, where trading is prohibited.
In addition, certain members of staff, for example directors, the direct reports to the Managing Director & CEO, and those in the
finance units are ‘designated employees’ and as such may not deal in shares in the Company outside of ‘black out’ periods
unless, prior to the dealing, the relevant person has notified the Company Secretary and given written confirmation that they are
not in possession of price sensitive information. In the case of the Company Secretary, she must notify the Chairman or
Managing Director & CEO and also give the same written confirmation to the effect that she is not in possession of price
sensitive information.
The ASX is notified of any share dealings by a director within five business days of the dealing taking place.
Incitec Pivot Limited
41
Directors’ Report
Corporate Governance Statement
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 the 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 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, environmental 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 set out in
the policy include meeting all regulatory authority requirements for groundwater, air emissions, stormwater, noise and
soil contamination, establishing compliance mechanisms and maximising re-use 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 meeting all regulatory requirements and establishing procedures and
operating mechanisms consistent with accepted international standards.
Signed on behalf of the Board.
John C Watson, AM
Chairman
Dated at Melbourne this 15th day of November 2006
42
Incitec Pivot Limited
Income Statements
For the year ended 30 September 2006
Revenue
Other income (incl. Individually material items)
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 (incl. Individually material items)
Costs recovered from subsidiaries under agency agreement
Depreciation and amortisation expense
Borrowing and finance costs
Purchased services (incl. Individually material items)
Repairs and maintenance
Outgoing freight
Lease payments - operating leases
Asset write-downs, clean-up and environmental provisions (incl.
Individually material items)
Other expenses (incl. Individually material items)
Profit before income tax
Income tax benefit/(expense)
Profit for the financial year
Earnings per share
Consolidated
2006
$000
2005
$000
Company
2006
$000
2005
$000
Notes
(4)
(4)
1,111,239
14,864
1,073,872
8,818
939,501
84,066
947,548
42,818
4,020
23,225
5,137
23,225
(724,431)
(91,110)
-
(33,145)
(14,918)
(58,198)
(33,772)
(40,114)
(13,921)
(788,525)
(98,900)
-
(30,486)
(10,329)
(57,873)
(26,790)
(30,995)
(12,316)
(33)
(5)
(5)
(5)
(725,141)
(82,520)
58,779
(11,878)
(14,736)
(50,457)
(27,738)
(30,504)
(11,593)
(788,525)
(98,900)
50,437
(11,203)
(9,805)
(57,873)
(26,790)
(30,995)
(12,316)
(35,411)
(25,846)
(1,066,846)
59,257
(21,155)
(7,102)
(1,061,246)
21,444
(35,411)
(30,047)
(956,109)
67,458
(21,155)
(7,102)
(991,002)
(636)
(8)
(12,595)
(6,952)
4,071
10,291
46,662
14,492
71,529
9,655
cents
cents
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
(9)
(9)
83
83
25
25
The Income Statements for the financial year ended 30 September 2005 do not include restatements in accordance with AASB 132
Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement which
have been adopted from 1 October 2005. Refer Note 1xix.
The above Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 48 to 113.
44
Incitec Pivot Limited
Balance Sheets
As at 30 September 2006
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Deferred tax liabilities
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Consolidated
Company
Notes
2006
$000
2005
$000
2006
$000
2005
$000
161,658
121,445
2,019
298,656
8,885
2,876
595,539
264
-
478,097
196,210
32,215
877
707,663
1,303,202
282,598
7,103
5,683
19,329
47,478
362,191
60,086
430,000
1,774
-
3,393
65,761
561,014
923,205
379,997
3,351
75,901
12,341
262,909
1,638
2,416
358,556
1,633
-
291,971
192,250
-
839
486,693
845,249
200,699
12,514
-
4,101
43,713
261,027
-
-
-
7,114
4,321
12,821
24,256
285,283
559,966
(10)
(11)
(14)
(12)
(13)
(15)
(11)
(14)
(16)
(17)
(18)
(13)
(19)
(21)
(20)
(22)
(19)
(21)
(20)
(23)
(24)
(22)
(25)
(26)
(26)
161,252
185,270
2,019
267,635
7,007
25
623,208
3,351
107,901
12,341
262,909
1,638
2,279
390,419
280
684,470
126,901
12,147
32,690
876
857,364
1,480,572
383
529,178
117,366
8,441
17,223
839
673,430
1,063,849
501,140
7,103
5,683
19,329
41,813
575,068
-
430,000
1,774
-
3,393
40,837
476,004
1,051,072
429,500
406,797
12,514
-
4,101
43,713
467,125
-
-
-
-
4,321
12,821
17,142
484,267
579,582
532,445
-
47,137
579,582
360,797
(5,829)
25,029
379,997
532,445
(1,524)
29,045
559,966
360,797
718
67,985
429,500
The Balance Sheets for the financial year ended 30 September 2005 do not include restatements in accordance with AASB 132
Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement which have
been adopted from 1 October 2005. Refer Note 1xix.
The above Balance Sheets are to be read in conjunction with the Notes to the Financial Statements set out on pages 48 to 113.
Incitec Pivot Limited
45
Statements of Recognised Income and Expense
For the year ended 30 September 2006
Effect of changing an accounting policy - financial instruments
Changes in fair value of cash-flow hedges
Losses in cash-flow hedges transferred to profit and loss
Deferred tax adjustment on revaluation of property, plant and equipment
Actuarial gains on defined benefit plans
Net income/(expense) recognised directly in equity
Profit for the financial year
Total recognised income and expense for the financial year
Notes
(38)
(26)
(26)
Consolidated
2006
$000
2005
$000
(5,186)
(4,209)
648
-
650
(8,097)
46,662
38,565
-
-
-
200
57
257
14,492
14,749
Company
2006
$000
(5,186)
(4,209)
648
-
650
(8,097)
71,529
63,432
2005
$000
-
-
-
204
57
261
9,655
9,916
Other movements in equity arising from transactions with owners as owners are set out in Note 25 and 26. The amounts recognised
directly in equity are disclosed net of tax.
The Statements of Recognised Income and Expense for the financial year ended 30 September 2005 do not include restatements in
accordance with AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition
and Measurement which have been adopted from 1 October 2005. Refer Note 1xix.
The above Statements of Recognised Income and Expenses are to be read in conjunction with the Notes to the Financial Statements
set out on pages 48 to 113.
46
Incitec Pivot Limited
Cash Flow Statements
For the year ended 30 September 2006
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs
Dividends received from wholly-owned controlled entity
Rental income
Royalties
Other trading revenue received
Income taxes paid
Net cash flows from operating activities
Cash flows from investing activities
Payments for property, plant and equipment and intangibles
Payments for purchase of subsidiary, net of cash acquired
Payments for purchase of investments
Proceeds from sale of investments
Proceeds from sale of property, plant and equipment
Net cash flows from investing activities
Cash flows from financing activities
Repayments of borrowings
Proceeds from borrowings
Payments for share buy-back transaction
Dividends paid
Net cash flows from financing activities
Notes
Consolidated
2006
$000
Inflows/
(Outflows)
2005
$000
Inflows/
(Outflows)
Company
2006
$000
Inflows/
(Outflows)
2005
$000
Inflows/
(Outflows)
1,181,586
(969,785)
1,529
(12,006)
-
118
-
156
(12,888)
188,710
1,121,414
(1,017,188)
1,139
(10,575)
-
151
-
399
(23,619)
71,721
(33)
(29)
965,286
(802,747)
1,519
(11,932)
43,446
118
-
156
(12,888)
182,958
994,292
(912,654)
1,139
(9,805)
20,500
151
-
399
(23,619)
70,403
(27,976)
(155,329)
-
21,800
6,637
(154,868)
(28,214)
-
(5,105)
-
2,164
(31,155)
(22,667)
(155,292)
(26,897)
-
-
(60,104)
21,800
6,637
(149,522)
-
2,164
(84,837)
(25)
(89,165)
430,000
(174,497)
(41,873)
124,465
(50,541)
-
-
(70,520)
(121,061)
(89,165)
430,000
(174,497)
(41,873)
124,465
-
4,459
-
(70,520)
(66,061)
Net increase/(decrease) in cash and cash equivalents held
158,307
(80,495)
157,901
(80,495)
Cash and cash equivalents at the beginning of the financial year
3,351
83,846
3,351
83,846
Cash and cash equivalents at the end of the financial year
(29)
161,658
3,351
161,252
3,351
The Cash Flow Statements for the financial year ended 30 September 2005 do not include restatements in accordance with AASB
132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement which
have been adopted from 1 October 2005. Refer Note 1xix.
The above Cash Flow Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 48 to
113.
Incitec Pivot Limited
47
Notes to the Financial Statements
For the year ended 30 September 2006
1
2
3
4
5
6
7
8
9
Significant accounting policies
Critical accounting estimates and judgements
Segment report
Revenue and other income
Expenses
Individually material items
Auditors' remuneration
Income tax expense
Earnings per share (EPS)
10 Cash and cash equivalents
11 Trade and other receivables
12 Inventories
13 Other assets
14 Other financial assets
15 Assets classified as held for sale
16 Property, plant and equipment
17 Intangible assets
18 Deferred tax assets
19 Trade and other payables
20 Other financial liabilities
21 Interest bearing liabilities
22 Provisions
23 Deferred tax liabilities
24 Retirement benefit obligations
25 Issued capital
26 Reserves and retained earnings
27 Dividends
28 Business combination
29 Reconciliation of profit after income tax to net cash inflow from operating activities
30 Commitments
31 Contingent liabilities
32 Derivative financial instruments
33 Related party disclosures
34 Key management personnel disclosure
35 Share based payments
36 Investments in controlled entities
37 Deed of Cross Guarantee
38 Impact of adopting Australian equivalents of International Financial Reporting Standards
39 Events subsequent to balance date
48
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
1. Significant accounting policies
Incitec Pivot Limited is a company domiciled in Australia. The
consolidated financial report was authorised for issue by the
directors on 15 November 2006.
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 below to assist in a general understanding of this
financial report.
These policies have been consistently applied to all the years
presented, unless otherwise stated.
(i) Basis of preparation
The financial report is a general purpose financial report which has
been prepared in accordance with Australian Accounting Standards
(AASB) adopted by the Australian Acounting Standards Board and
the Corporations Act 2001 (Cth). International Financial Reporting
Standards (IFRS) form the basis of AASB adopted by the
Australian Acounting Standards Board, and for the purpose of this
report are called Australian equivalents to IFRS (AIFRS) to
distinguish from previous Australian GAAP.
Compliance with IFRS
The financial reports of the consolidated entity also comply with
International Financial Reporting Standards (IFRS) and
interpretations adopted by the International Accounting Standards
Board. A statement of compliance with IFRS cannot be made for
the parent entity financial statements as the Company has elected
to apply the relief provided to parent entities by AASB 132 Financial
Instruments: Presentation and Disclosure in respect of certain
disclosure requirements.
Application of AASB 1 First-time Adoption of Australian
Equivalents to International Financial Reporting Standards
These financial statements are the first of the consolidated entity to
be prepared in accordance with AIFRS. AASB 1 First-time Adoption
of Australian Equivalents to International Financial Reporting
Standards has been applied in preparing these financial
statements.
Financial statements of the consolidated entity had, until
30 September 2005, been prepared in accordance with previous
Australian Generally Accepted Accounting Principles (AGAAP).
AGAAP differs in certain respects from AIFRS. When preparing the
consolidated entity’s 2006 financial statements, management has
amended certain accounting, valuation and consolidation methods
applied in the AGAAP financial statements to comply with AIFRS.
With the exception of financial instruments, the comparative figures
in respect of 2005 were restated to reflect these adjustments. The
consolidated entity has taken the exemption available under AASB
1 to only apply AASB 132 and AASB 139 Financial Instruments:
Recognition and Measurement from 1 October 2005.
Reconciliations and descriptions of the effect of transition from
previous AGAAP to AIFRS on the consolidated entity‘s equity, its
net income and cashflows are given in note 38.
Historical cost convention
These financial statements have been prepared under the historical
cost convention, except for derivative financial instruments and
financial instruments held for trading which have been measured at
fair value. The carrying values of recognised assets and liabilities
that are hedged items in fair value hedges, and are otherwise
carried at cost, are adjusted to record changes in the fair value
attributable to the risks that are being hedged.
The financial report is presented in Australian dollars.
Critical accounting estimates
The preparation of financial statements in conformity with AIFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the consolidated entity’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements, are disclosed in note 2.
Early adoption of standards
Incitec Pivot has elected to early adopt Australian Accounting
Standards and interpretations which permit early adoption. The
decision to early adopt those standards and interpretations ensures
that policy elections described below, including AIFRS transition
exemptions, are available. The principal standards and
interpretations that have been early adopted are:
• Revised AASB 119 Employee Benefits
• AASB 2004-3 Amendments to Australian Accounting Standards
amending AASB 1, AASB 101 Presentation of Financial
Statements, AASB 124 Related Party Disclosures
• AASB 2005-1 Amendments to Australian Accounting Standard
amending AASB 139
• AASB 2005-3 Amendments to Australian Accounting Standards
amending AASB 119 Employee Benefits
• AASB 2005-4 Amendments to Australian Accounting
Standards amending AASB 139, AASB 132, AASB 1, AASB
1023 General Insurance Contracts, AASB 1038 Life Insurance
Contracts
• AASB 2005-5 Amendments to Australian Accounting Standards
amending AASB 1, AASB 139
• AASB 2005-7 Amendments to Australian Accounting Standards
amending AASB 134 Interim Financial Reporting
• AASB 2006-1 Amendments to Australian Accounting Standards
amending AASB 121 The Effects of Changes in Foreign
Exchange Rates
Interpretation 4 Determining whether an Arrangement contains
a Lease
Interpretation 5 Rights to Interests arising from
Decommissioning, Restoration and Environmental
Rehabilitation Funds
Interpretation 8 Scope of AASB 2
Interpretation 9 Reassessment of Embedded Derivatives
•
•
•
•
Issued Standards not early adopted
The following standards and amendments were available for early
adoption but have not been applied by the consolidated entity in
these financial statements:
• AASB 7 Financial Instruments: Disclosure (August 2005)
replacing the presentation requirements of financial instruments
in AASB 132. AASB 7 is applicable for annual reporting
periods beginning on or after 1 January 2007.
• AASB 2005-9 Amendments to Australian Accounting Standards
(September 2005) requires that liabilities arising from the issue
of financial guarantee contracts are recognised in the balance
sheet. AASB 2005-9 is applicable for annual reporting periods
beginning on or after 1 January 2006.
Incitec Pivot Limited
49
Notes to the Financial Statements
For the year ended 30 September 2006
1. Significant accounting policies (continued)
• AASB 2005-10 Amendments to Australian Accounting
Standards (September 2005) makes consequential
amendments to AASB 132, AASB 101 Presentation of Financial
Statements, AASB 114 Segment Reporting, AASB 117 Leases,
AASB 133 Earnings per Share, AASB 139, AASB 1, AASB 4
Insurance Contracts, AASB 1023 General Insurance Contracts
and AASB 1038 Life Insurance Contracts, arising from the
release of AASB 7. AASB 2005-10 is applicable for annual
reporting periods beginning on or after
1 January 2007.
The consolidated entity plans to adopt AASB 7, AASB 2005-9 and
AASB 2005-10 in the 2007 financial year.
The initial application of AASB 7 and AASB 2005-10 is not
expected to have an impact on the financial results of the Company
and the consolidated entity as the standard and the amendment are
concerned only with disclosures.
The initial application of AASB 2005-9 could have an impact on the
financial results of the Company and the consolidated entity as the
amendment could result in liabilities being recognised for financial
guarantee contracts that have been provided by the Company and
the consolidated entity. However, the quantification of the impact is
not known or reasonably estimable in the current financial year as
an exercise to quantify the financial impact has not been
undertaken by the Company and the consolidated entity to date.
(ii) Consolidation
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of Incitec Pivot as at 30 September
2006 and the results of all subsidiaries for the year then ended.
Subsidiaries are all those entities (including special purpose
entities) over which the consolidated entity has the power to govern
the financial and operating policies, generally accompanying a
shareholding of more than one-half of the voting rights. The
existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether
the consolidated entity controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
consolidated entity. They are de-consolidated from the date that
control ceases.
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the consolidated entity (refer to note
1(xiv)).
Inter-company transactions, balances and unrealised gains on
transactions between consolidated companies are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the
consolidated entity. Investments in subsidiaries are accounted for
at cost in the individual financial statements of Incitec Pivot.
(iii) Revenue recognition
Revenue is measured at the fair value of the consideration received
or receivable. Amounts disclosed as revenue are net of returns,
trade allowances and amounts collected on behalf of third parties.
Revenue is recognised for the major business activities as follows:
Sales Revenue is recognised when the significant risks and
rewards of ownership have been transferred to the buyer. No
revenue is recognised if there is significant uncertainty regarding
recovery of the consideration due, the costs incurred or to be
incurred cannot be measured reliably, there is a risk of return of
goods or there is continuing management involvement with the
goods.
Interest income is recognised as it accrues.
Dividends are recognised in the Income Statement when declared.
(iv) Borrowing costs
Borrowing costs include interest on borrowings, 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 that 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, finance costs
are capitalised using a weighted average interest rate.
(v) Share based payments
Under the Long Term Incentive Plan (LTI), Incitec Pivot may grant
awards to executives and other senior employees, subject to
individual and Company performance. The LTI operates by way of
the Company providing participants with limited recourse loans,
which can be interest free or interest bearing, and which must be
used to purchase Incitec Pivot shares on market.
Awards, by way of forgiveness of loans, are granted only on the
achievement of, either conditions relating to the duration of
employment of individual and/or Company performance over a
specific period.
The benefits received by the participants as a result of participation
in the LTI are treated as options. The fair value of the shares
treated as options is recognised as an employee expense over the
relevant vesting period with a corresponding increase in equity. An
option pricing model is used to derive a fair value at grant date.
Loan forgiveness and other terms and conditions are incorporated
into the option valuation.
The fair value is allocated to the Income Statement evenly over the
period from grant date to the date when an entitlement to an award,
in the form of a loan waiver, arises. The amount recognised as an
expense is adjusted to reflect the actual number of shares treated
as options that vest except where forfeiture is only due to share
prices not achieving the threshold for vesting. The interest bearing
loans are not recognised on the balance sheet.
(vi) Taxation
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in the Income Statement
except to the extent that it relates to items recognised directly in
equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantively enacted at
reporting date, and any adjustments to tax payable in respect of
previous years. Deferred tax is provided using the balance sheet
liability method, providing for temporary differences between the
carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for; initial
recognition of goodwill, the initial recognition of assets and liabilities
that affect neither accounting nor taxable profit, and differences
relating to investments in subsidiaries to the extent that they will
probably not reverse in the foreseeable future.
50
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
1. Significant accounting policies (continued)
The amount of deferred tax provided will be based on the expected
manner of realisation of the asset or settlement of the liability, using
tax rates enacted or substantively enacted at reporting date. A
deferred tax asset will be recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets will be reduced to the
extent it is no longer probable that the related tax benefit will be
realised.
Tax Consolidation
Legislation to allow groups, comprising a parent entity and its
Australian resident wholly-owned entities, to elect to consolidate
and be treated as a single entity for income tax purposes was
substantially enacted on 21 October 2002. This legislation, which
includes both mandatory and elective elements, is applicable to the
Company. Incitec Pivot Limited is the parent entity in the tax
consolidated group comprising all wholly-owned entities. The
implementation date for the tax-consolidated group was 1 October
2003.
Due to the effect of applying Interpretation 1052 Tax Consolidation
Accounting and the existence of a tax funding agreement between
the entities in the tax consolidated group, the parent entity
recognises the tax effects of its own transactions and the current
tax liabilities and the deferred tax assets arising from unused tax
losses and unused tax credits assumed by the subsidiary entities.
In accordance with the tax funding agreement, the subsidiary
entities are compensated for the assets and liabilities assumed by
the parent entity as intercompany receivables and payables and for
amounts which equal the amounts initially recognised by the
subsidiary entities. There is no adjustment for tax consolidation
contribution by (or distribution to) equity participants.
(vii) Inventories
Inventories are valued at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary
course of business less the estimated cost of completion and
selling expenses. Cost is based on a weighted average method.
For manufactured goods, cost includes direct material and labour
costs plus an appropriate proportion of fixed and variable
overheads based on normal operating capacity of the production
facilities. For merchanted goods, cost is net cost into store.
Engineering spares are held in inventory and expensed when used.
(viii) Trade and other receivables
Current accounting policy
Trade and other receivables are recognised at their cost less any
impairment losses.
Collectibility of trade and other receivables is reviewed on an
ongoing basis. Debts which are known to be uncollectible are
written off. An impairment loss is recognised when there is
objective evidence that the consolidated entity will not be able to
collect amounts due according to the original terms of the
receivables. The amount of the impairment loss is the difference
between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective
interest rate. Cash flows relating to short-term receivables are not
discounted if the effect of discounting is immaterial. The amount of
the impairment loss is recognised in the income statement.
Derecognition
A number of customers use trade finance facilities that are
guaranteed or partially guaranteed by Incitec Pivot. Where
substantially all risks and rewards relating to these facilities have
been transferred to the financial institution, the receivable is
derecognised. Where this has not occurred, the receivable and the
equivalent interest bearing liability have been recognised in the
balance sheet.
Prior period policy
Trade and other receivables are carried at invoice amounts.
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
ther year in which they are identified.
(ix) Other financial assets
The consolidated entity’s interests in financial assets included in
note 14, other than controlled entities are stated at fair value, with
movement in market value recognised in the Income Statement.
Regular purchases and sales are recognised on trade-date – the
date on which the consolidated entity commits to purchase or sell
assets.
Investment income includes dividends which are recognised in the
Income Statement when declared.
(x) Assets (or disposal groups) classified as held
for sale
Immediately before classification as held for sale, the measurement
of the assets (and all assets and liabilities in a disposal group) is
brought up-to-date in accordance with applicable accounting
standards. Then, on initial classification as held for sale, non-
current assets (or disposal groups) are recognised at the lower of
carrying amount and fair value less costs to sell.
An impairment loss is recognised for any initial or subsequent write-
down of the asset (or disposal group) to fair value less costs to sell.
A gain is recognised for any subsequent increases in fair value less
costs to sell off an asset (or disposal group), but not in excess of
any cumulative impairment loss previously recognised. A gain or
loss not previously recognised by the date of the sale of the non-
current asset (or disposal group) is recognised at the date of
derecognition.
Non-current assets classified as held for sale and the assets of a
disposal group classified as held for sale are presented separately
from the other assets in the balance sheet.
(xi) Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost or deemed cost less
accumulated depreciation and impairment. Cost includes
expenditure that is directly attributable to the acquisition of the item.
The cost of self-constructed assets includes the cost of materials,
direct labour and an appropriate proportion of overheads.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will
flow to the consolidated entity and the cost of the item can be
measured reliably.
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.
Incitec Pivot Limited
51
Notes to the Financial Statements
For the year ended 30 September 2006
20 to 40 years
3 to 30 years
1. Significant accounting policies (continued)
Estimated useful lives of each class of asset are as follows:
Buildings and improvements
Machinery, plant and equipment
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date.
Certain items of property, plant and equipment that had been
revalued to fair value on or prior to 1 October 2004, the date of
transition to AIFRS, are measured on the basis of deemed cost,
being the revalued amount at the date of that revaluation.
Profits and losses on disposal of property, plant and equipment are
taken to the Income Statement.
Spare parts purchased for a particular asset or class of assets are
classified as capital spares in property, plant and equipment and
depreciated over the useful life of the asset or class of assets to
which they relate.
(xii) Leased assets
Leases under which the consolidated entity assumes substantially
all the risks and benefits of ownership are classified as finance
leases. Other leases are classified as operating leases.
Finance leases are capitalised at the present value of the minimum
lease payments and amortised on a straight-line basis over the
period during which benefits are expected to flow from the use of
the leased assets. A corresponding liability is established and each
lease payment is allocated between finance charges and reduction
of the liability.
Operating leases are not capitalised and lease rental payments are
taken to the Income Statement as incurred.
(xiii) Intangible assets
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over
the fair value of the consolidated entity’s share of the net
identifiable assets of the acquired subsidiary/associate at the date
of acquisition. Goodwill on acquisition of subsidiaries is included in
intangible assets. Goodwill is not amortised. Instead, goodwill is
tested for impairment annually, or more frequently if events or
changes in circumstances indicate that it might be impaired, and is
carried at cost less accumulated impairment losses. Gains and
losses on the disposal of an entity include the carrying amount of
goodwill relating to the entity sold.
(ii) Research and development
Expenditure on research activities, undertaken with the prospect of
gaining new scientific or technical knowledge and understanding, is
recognised in the income statement as an expense as incurred.
Expenditure on development activities, whereby research findings are
applied to a plan or design for the production of new or substantially
improved products and processes, is capitalised if the product or
process is technically and commercially feasible and the consolidated
entity has sufficient resources to complete development.
The expenditure capitalised includes the cost of materials, direct labour
and an appropriate proportion of overheads. Other development
expenditure is recognised in the income statement as an expense as
incurred. Capitalised development expenditure is stated at cost less
accumulated amortisation and impairment losses.
(iii) Other intangible assets
Other intangible assets that are acquired by the consolidated entity
are stated at cost less accumulated amortisation and impairment
losses.
(iv) Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is
capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other
expenditure is expensed as incurred.
(v) Amortisation
Amortisation is charged to the income statement on a straight-line
basis over the estimated useful lives of intangible assets unless
such lives are indefinite. Goodwill and intangible assets with an
indefinite useful life are systematically tested for impairment at each
annual balance sheet date. Other intangible assets are amortised
from the date that they are available for use or when received. The
estimated useful lives in the current and comparative periods are as
follows:
• Software
• Asset Rights
3 – 7 years
1 – 2 years
(xiv) Business combinations
The purchase method of accounting is used to account for all
business combinations, including business combinations involving
entities or businesses under common control, regardless of
whether equity instruments or other assets are acquired. Cost is
measured as the fair value of the assets given, shares issued or
liabilities incurred or assumed at the date of exchange plus costs
directly attributable to the acquisition. Where equity instruments are
issued in an acquisition, the fair value of the instruments is their
published market price as at the date of exchange unless, in rare
circumstances, it can be demonstrated that the published price at
the date of exchange is an unreliable indicator of fair value and that
other evidence and valuation methods provide a more reliable
measure of fair value. Transaction costs arising on the issue of
equity instruments are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their
fair values at the acquisition date, irrespective of the extent of any
minority interest. The excess of the cost of acquisition over the fair
value of the consolidated entity’s share of the identifiable net assets
acquired is recorded as goodwill (refer to note 1(xiii)). If the cost of
acquisition is less than the consolidated entity’s share of the fair
value of the identifiable net assets of the subsidiary acquired, the
difference is recognised directly in the income statement, but only
after a reassessment of the identification and measurement of the
net assets acquired.
Where settlement of any part of cash consideration is deferred, the
amounts payable in the future are discounted to their present value
as at the date of exchange. The discount rate used is the entity’s
incremental borrowing rate, being the rate at which a similar
borrowing could be obtained from an independent financier under
comparable terms and conditions.
52
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
1. Significant accounting policies (continued)
(iii) Employee entitlements
(xv) Interest-bearing borrowings
Current accounting policy
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in
the Income Statement over the period of the borrowings on an
effective interest basis. Amortised cost is
calculated by taking into account any issue costs, and any discount
or premium on issuance. Gains and losses are recognised in the
Income Statement in the event that the liabilities are derecognised.
Comparative period policy
Bank loans are recognised at their principle amount, subject to set-
off arrangements. Interest expense is accrued at the contracted
rate and included in note 19 Trade and Other Payables.
(xvi) Provisions
A provision is recognised when there is a legal 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.
Provisions are measured at the present value of management’s
best estimate of the expenditure required to settle the present
obligation at the balance sheet date. The discount rate used to
determine the present value reflects current market assessments of
the time value of money and the risks specific to the liability. The
increase in the provision due to the passage of time is recognised
in borrowing costs.
(i) Environmental
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 Income Statement as soon as the need
is identified and a reliable estimate of the liability is able to be
assessed.
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.
For sites where there are uncertainties with respect to what Incitec
Pivot’s remediation obligations might be or what remediation techniques
might be approved and no reliable estimate can presently be made of
regulatory and remediation costs, no amounts have been capitalised,
expensed or provided for.
The provision is the best estimate of the present value of the
expenditure required to settle the restoration obligation at the
reporting date, based on current legal requirements and
technology. Future restoration costs are reviewed annually and any
changes are reflected in the present value of the restoration
provision at the end of the reporting period.
(ii) Decommissioning
The present value of the estimated costs of dismantling and
removing an asset and restoring the site on which it is located are
recognised as an asset within property, plant and equipment and as
a provision where a legal or constructive obligation exists. At each
reporting date, the liability is remeasured in line with changes in
discount rates, timing and estimated cash flows. Any changes in the
liability are added or deducted from the related asset, other than the
unwinding of the discount which is recognised as an interest
expense in the Income Statement.
Annual leave and sick leave
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 undiscounted 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.
Long Service leave
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
approximating to the terms of the consolidated entity’s obligations.
Profit sharing and bonus plans
A liability is recognised for bonus plans on the achievement of
predetermined bonus targets and the benefit calculations are
formally documented and determined before signing the
financial report.
(iv) Retirement Benefit Obligation
Contributions to defined contribution superannuation funds are
taken to the Income Statement in the year in which the expense is
incurred.
For defined benefit schemes, the cost of providing superannuation
is charged to the Income Statement so as to recognise current and
past service costs, interest cost on defined benefit obligations, and
the effect of any curtailments or settlements, net of expected
returns on plan assets.
All actuarial gains and losses as at 1 October 2004, the date of
transition to AIFRS, were recognised in retained earnings.
The consolidated entity has early adopted the revised AASB 119
Employee Benefits and all actuarial gains and losses that arise
subsequent to 1 October 2004 are recognised directly in equity.
The consolidated entity’s net obligation in respect of defined benefit
superannuation plans is calculated by estimating the amount of
future benefit that employees have earned in return for their service
in the current and prior periods; that benefit is discounted to
determine its present value, and the fair value of any plan assets is
deducted. The discount rate is the yield at the balance sheet date
on government bonds that have maturity dates approximating the
terms of the consolidated entity’s obligations. The calculation is
performed by a qualified actuary using the projected unit credit
method.
(v) 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.
(vi) Restructuring and employee termination benefits
Provisions for restructuring or termination benefits are only
recognised when a detailed plan has been approved and the
restructuring or termination benefits have 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.
Incitec Pivot Limited
53
Notes to the Financial Statements
For the year ended 30 September 2006
1. Significant accounting policies (continued)
(vii) Onerous contracts
A provision for onerous contracts is recognised after impairment
losses on assets dedicated to the contract have been recognised
and when the expected benefits are less than the unavoidable
costs of meeting the contractual obligations. A provision is
recognised to the extent that the contractual obligations exceed
unrecognised assets.
(xvii) Trade and other payables
Trade and other payables are stated at cost and represent liabilities
for goods and services provided to the consolidated entity prior to
the end of financial year which are unpaid.
(xviii) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at
the balance sheet date are translated to Australian dollars at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the Income
Statement.
(xix) Derivative financial instruments
Current period policy
The consolidated entity uses derivative financial instruments to
hedge its exposure to foreign exchange and interest rate risks
arising from operational, financing and investment activities. In
accordance with its treasury policy, the consolidated entity does not
hold or issue derivative financial instruments for trading purposes.
Derivatives that do not qualify for hedge accounting are accounted
for as trading instruments.
Derivative financial instruments are recognised initially at fair value.
Subsequent to initial recognition, derivative financial instruments
are stated at fair value. The gain or loss on remeasurement to fair
value is recognised immediately in the Income Statement.
However, where derivatives qualify for hedge accounting,
recognition of any resultant gain or loss depends on the nature of
the item being hedged.
Hedging
On entering into a hedging relationship, the consolidated entity
formally designates and documents the hedge relationship and the
risk management objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument,
the hedged item or transaction, the nature of the risk being hedged
and how the entity will assess the hedging instrument’s effectiveness
in offsetting the exposure to changes in the hedged item’s fair value
or cash flows attributable to the hedged risk. Such hedges are
expected to be highly effective in achieving offsetting changes in fair
value or cash flows and are assessed on an ongoing basis to
determine that they actually have been highly effective throughout the
financial reporting periods for which they are designated.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of
the variability in cash flows of a recognised asset or liability, or a
highly probable forecasted transaction, the effective part of any gain
or loss on the derivative financial instrument is recognised directly
in equity.
When the forecasted transaction subsequently results in the
recognition of a non-financial asset or non-financial liability, the
associated cumulative gain or loss is removed from equity and
included in the initial cost or other carrying amount of the non-
financial asset or liability.
If a hedge of a forecasted transaction subsequently results in
the recognition of a financial asset or a financial liability, then
the associated gains and losses that were recognised directly
in equity are reclassified into the Income Statement in the same
period or periods during which the asset acquired or liability
assumed affects the Income Statement.
For cash flow hedges, other than those covered by the preceding two
policy statements, the associated cumulative gain or loss is removed
from equity and recognised in the Income Statement in the same
period or periods during which the hedged forecast transaction affects
the Income Statement. The ineffective part of any gain or loss is
recognised immediately in the Income Statement.
When a hedging instrument expires or is sold, terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still expected to
occur, the cumulative gain or loss at that point remains in equity
and is recognised in accordance with the above policy when the
transaction occurs. If the hedged transaction is no longer expected
to take place, then the cumulative unrealised gain or loss
recognised in equity is recognised immediately in the Income
Statement.
Hedge of monetary assets and liabilities
When a derivative financial instrument is used to hedge
economically the foreign exchange exposure of a recognised
monetary asset or liability, hedge accounting is not applied and any
gain or loss on the hedging instrument is recognised in the Income
Statement.
Comparative period policy
The consolidated entity has taken the exemption available under AASB
1 to apply AASB 132 and AASB 139 only from 1 October 2005. The
consolidated entity has applied previous AGAAP to the comparative
information on the financial instruments within the scope of AASB 132
and AASB 139. The accounting policies applied in the comparative
period are as follows:
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
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 on retranslation of outstanding
receivable and payables are taken to the Income Statement.
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 Income Statement.
54
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
(xxiii) Impairment of assets
The carrying amount of the consolidated entity’s assets excluding
defined benefit fund assets, inventories, deferred tax assets,
goodwill and indefinite life intangible assets is reviewed at each
reporting date to determine whether there is any evidence of
impairment. If such indication exists, the asset is tested for
impairment by comparing its recoverable amount to its carrying
amount. Goodwill and indefinite life intangible assets are tested for
impairment annually.
The recoverable amount of an asset (excl. receivables – refer to 1 viii) is
determined as the higher of net selling price and value in use. The
recoverable amount is estimated for each individual asset or where it is
not possible to estimate for individual assets, it is estimated for the cash
generating unit to which the asset belongs.
A cash generating unit is the smallest identifiable group of assets
that generate cash inflows largely independent of the cash inflows
of other assets or group of assets with each cash generating unit
being no larger than a segment. In calculating recoverable amount,
the estimated future cash flows are discounted to their present
values using a pre-tax discount rate that reflects the current market
assessments of the risks specific to the asset or cash generating
unit. Cash flows are estimated for the asset in its present condition
and therefore do not include cash inflows or outflows that improve
or enhance the assets performance or that may arise from future
restructuring.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash generating unit exceeds its recoverable
amount.
Impairment losses are recognised in the Income Statement.
Impairment losses recognised in respect of cash-generating units
are allocated first to reduce the carrying amount of any goodwill
allocated to cash generating units and then, to reduce the carrying
amount of the other assets in the unit.
(xxiv) 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 Balance Sheet.
Cash flows are included in the Statement 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.
(xxv) Rounding of amounts
The company is of a kind referred to in Class order 98/0100
(updated by Class Order 05/641 and Class Order 06/51), issued by
the Australian Securities and Investments Commission, relating to
the ''rounding off'' of amounts in the financial report. Amounts in the
financial report have been rounded off in accordance with that
Class Order to the nearest thousand dollars, or in certain cases, the
nearest dollar.
1. Significant accounting policies (continued)
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 Income Statement 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.
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 Income Statement.
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
Income Statement.
(xx) Cash and cash equivalents
For cash flow statement presentation purposes, 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.
(xxi) Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in
equity as a deduction, net of tax, from the proceeds. Incremental
costs directly attributable to the issue of new shares or options for
the acquisition of a business are not included in the cost of the
acquisition as part of the purchase consideration. If the entity
reacquires its own equity instruments, eg as the result of a share
buy-back, those instruments are deducted from equity and the
associated shares are cancelled. No gain or loss is recognised in
the profit or loss and the consideration paid including any directly
attributable incremental costs (net of income taxes) is recognised
directly in equity.
(xxii) Fair value estimation
The fair value of financial assets and financial liabilities must be
estimated for recognition and measurement or for disclosure
purposes. The fair value of financial instruments traded in active
markets (such as publicly traded derivatives, and trading and
available-for-sale securities) is based on quoted market prices at the
balance sheet date.The quoted market price used for financial assets
held by the consolidated entity is the current bid price; the appropriate
quoted market price for financial liabilities is the current ask price. The
fair value of financial instruments that are not traded in an active
market (for example, over-the counter derivatives) is determined
using valuation techniques. The consolidated entity uses a variety of
methods and makes assumptions that are based on market
conditions existing at each balance date. Quoted market prices or
dealer quotes for similar instruments are used for long-term debt
instruments held. Other techniques, such as estimated discounted
cash flows, are used to determine fair value for the remaining financial
instruments.
The fair value of interest-rate swaps is calculated as the present
value of the estimated future cash flows. The fair value of forward
exchange contracts is determined using forward exchange market
rates at the balance sheet date. The nominal value less estimated
credit adjustments of trade receivables and payables are assumed
to approximate their fair values. The fair value of financial liabilities
for disclosure purposes is estimated by discounting the future
contractual cash flows at the current market interest rate that is
available to the consolidated entity for similar financial instruments.
Incitec Pivot Limited
55
Notes to the Financial Statements
For the year ended 30 September 2006
2. Critical accounting estimates and
judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectation of
future events that may have a financial impact on the entity and that
are believed to be reasonable under the circumstances.
Critical accounting estimates and assumptions
Management makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that
have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year are
discussed below.
Management believes the following are the critical accounting policies
and estimates used in the preparation of the AIFRS financial
statements:
•
•
•
• provision for environmental and restructuring liabilities;
•
the testing for impairment of assets;
the testing for impairment of goodwill;
income tax related assumptions and estimates;
the calculation of annual superannuation costs and related
assets and liabilities.
(i) Impairment of assets
The determination of impairment for property, plant and equipment,
goodwill and other intangible assets involves the use of estimates that
include, but is not limited to, the cause, timing and amount of the
impairment. Impairment is based on a large number of factors, such
as changes in competitive positions, expectations of growth,
increased cost of capital, current replacement costs, increases in cost
of inputs, and other factors which may indicate impairment. An asset
is considered impaired when the recoverable amount is less than the
carrying value. Recoverable amount is determined as the higher of
fair value less costs to sell and value-in-use. In calculating value-in-
use, the cash flows include projections of cash inflows and outflows
from continuing use of the asset and cash flows associated with
disposal of the asset. The cash flows are estimated for the asset in its
current condition. In assessing value-in-use, the estimated cash flows
are discounted to their present value using a pre-tax discount rate that
reflects the current market assessments of the risks specific to the
asset or Cash Generating Unit (CGU). The identification of
impairment indicators, the estimation of future cash flows and the
determination of fair values of assets (or groups of assets) requires
management to make significant estimates and judgements
concerning the identification of impairment indicators, earnings before
interest and tax, growth rates, applicable discount rates, useful lives
and residual values. Refer Note 1 xxiii for further details regarding the
accounting policy regarding ‘Impairment of assets’.
Management believes that this policy is critical to the financial
statements, particularly when evaluating the consolidated entity’s
assets for impairment. Varying results from this impairment analysis
are possible due to the significant estimates and judgements
involved.
(ii) Impairment of goodwill
The consolidated entity tests annually whether goodwill has suffered
any impairment, in accordance with the accounting policy stated in
note 1 xiii. The recoverable amounts of cash-generating units have
been determined based on value-in-use calculations. These
calculations require the use of assumptions, including forecast
earnings before interest and tax, growth rates and discount rates.
Refer to note 17 for details of these assumptions and the potential
impact of changes to the assumptions.
The assumptions are management’s best estimates based on current
and forecast market conditions. Changes in economic and operating
conditions impacting these assumptions could result in additional
impairment charges in future periods.
Management believes that this policy is critical to the financial
statements, particularly when evaluating the consolidated entity’s
goodwill for impairment. Varying results from this analysis are
possible due to the significant estimates and judgements involved in
the Company’s evaluations.
(iii) Income taxes
The consolidated entity is subject to income taxes in Australia. There
are many transactions and calculations undertaken during the
ordinary course of business for which the ultimate tax determination is
uncertain. The consolidated entity recognises liabilities for anticipated
tax audit issues based on estimates of whether additional taxes will
be due. Where the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will impact
the current and deferred tax provisions in the period in which such
determination is made.
In addition, deferred tax assets are recognised only to the extent it is
probable that future taxable profits will be available against which the
assets can be utilised. The consolidated entity’s assumptions
regarding future realization may change due to future operating
performance and other factors.
(iv) Environmental and Restructuring provisions
Provisions for environmental and restructuring/redundancy liabilities
are based on the consolidated entity’s best estimate of the outflow of
resources required to settle commitments made by the consolidated
entity. Where the outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the
income statement in the period in which such determination is made.
Refer note 1 xvi (i) & (vi) to the financial statements for further details
of the accounting policy relating to environmental and restructuring
provisions. Also refer to note 22 for amounts recognised for
environmental and restructuring provisions.
(v) Retirement Benefit obligations
A liability or asset in respect of defined benefit superannuation plans
is recognised in the balance sheet, and is measured as the present
value of the defined benefit obligation at the reporting date plus
unrecognised actuarial gains (less unrecognised actuarial losses)
less the fair value of the superannuation fund’s assets at that date
and any unrecognised past service cost. The present value of the
defined benefit obligation is based on expected future payments
which arise from membership of the fund to the reporting date,
calculated annually by independent actuaries. Consideration is given
to expected future wage and salary levels, experience of employee
departures and periods of service.
Expected future payments are discounted using market yields at the
reporting date on national government bonds with terms to maturity
and currency that match, as closely as possible, the estimated future
cash outflows.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity.
Refer Note 1 xvi (iv) to the financial statements for further details of
the accounting policy relating to retirement benefit obligations. Refer
Note 24 of the financial statements for details of the key assumptions
used in determining the accounting for these plans. The following are
the main categories of assumptions used:
• discount rate;
•
• expected return on plan assets; and
•
future salary increases
rate of inflation;
3. Segment report
During the years ended 30 September 2006 and 30 September
2005, the Consolidated entity operated in one business segment in
which the principal activities were the manufacture and distribution
of fertiliser, and in one geographic location, Australia.
56
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
4. Revenue and other income
Revenue
External sales
Sales to entities subject to common control
Total Revenue
Other income
Dividend income
wholly-owned controlled entities
Interest income
common controlled entities
external parties
Rental income
Other income
From outside operating activities
Unrealised gain on listed investment held at fair value through
profit and loss
Realised gain on listed investment held at fair value through
profit and loss
Net gain on sale of property, plant and equipment
Total other income
Total revenue and other income
5. Expenses
Profit before income tax includes the following specific expenses:
Depreciation & Amortisation
depreciation
amortisation
Borrowing and Finance costs
interest and finance charges paid/payable
unwinding of discount on provisions
Recoverable amount write-down
property, plant and equipment
Amounts set aside to provide for
impairment loss on trade and other receivables
employee entitlements
environmental liabilities
inventory losses and obsolescence
other provisions
restructuring
Net foreign exchange losses
Lease payments – operating leases
Research and development
Defined benefit superannuation expense
Consolidated
Company
Notes
2006
$000
2005
$000
2006
$000
2005
$000
(33)
1,088,899
22,340
1,111,239
1,035,437
38,435
1,073,872
917,161
22,340
939,501
909,113
38,435
947,548
(33)
-
-
69,346
34,000
-
2,026
118
290
246
653
151
38
-
2,016
118
156
246
653
151
38
-
7,236
-
7,236
9,459
-
9,459
2,971
14,864
1,126,103
494
8,818
1,082,690
2,971
84,066
1,023,567
494
42,818
990,366
31,028
2,117
33,145
14,188
730
14,918
28,678
1,808
30,486
10,329
-
10,329
9,847
2,031
11,878
14,188
548
14,736
9,435
1,768
11,203
9,805
-
9,805
5,038
5,038
11,842
11,842
5,038
5,038
11,842
11,842
106
7,326
28,490
167
-
24,822
217
13,921
101
2,184
106
4,422
-
2,917
424
24,871
361
12,316
602
2,453
90
6,609
28,307
110
-
24,822
217
11,593
101
2,184
490
4,422
-
2,917
424
24,871
361
12,316
602
2,453
(6)
(6)
(16)
(17)
(16)
(22)
(22)
(24)
Incitec Pivot Limited
57
Notes to the Financial Statements
For the year ended 30 September 2006
6.
Individually material items
Profit includes the following revenues and expenses whose
disclosure is relevant in explaining the financial performance
of the entity:
Consolidated/Company
Litigation ruling and dispute(1)
Cockle Creek clean-up and closure costs (2)
Environmental clean-up
Redundancy
Closure and demolition
Total Cockle Creek clean-up and closure costs
Gain from investment in listed Company held at fair value
through profit and loss (3)
Realised
Unrealised
Total gain from investment held for resale
Business restructuring costs(4)
Employee redundancies and allowances
Restructuring and other direct costs
Demolition
Asset write-downs (5)
Total business restructuring
Business restructuring costs - Separation and Integration(6)
Employee redundancies and allowances
Restructuring and other direct costs
Total business restructuring
Gross
$000
2006
Tax
$000
Net
$000
Gross
$000
2005
Tax
$000
Net
$000
(11,000)
3,300
(7,700)
(21,023)
(1,753)
(8,690)
(31,466)
6,307
526
2,607
9,440
(14,716)
(1,227)
(6,083)
(22,026)
-
-
-
-
-
-
-
-
-
-
-
-
9,459
-
9,459
(1,081)
-
(1,081)
8,378
-
8,378
-
7,236
7,236
-
(2,171)
(2,171)
-
5,065
5,065
-
(3,389)
(660)
(5,038)
(9,087)
(3,758)
(8,241)
(11,999)
-
1,016
198
1,511
2,725
1,127
2,472
3,599
-
(2,373)
(462)
(3,527)
(6,362)
(2,631)
(5,769)
(8,400)
(18,065)
(15,015)
-
(21,155)
(54,235)
5,420
4,145
-
6,193
15,758
(12,645)
(10,870)
-
(14,962)
(38,477)
-
-
-
-
-
-
-
-
-
Individually material items
(54,093)
17,983
(36,110)
(46,999)
13,587
(33,412)
(1) Represents payments made in respect of the dispute in the 2005 proceedings with Elders Limited for which orders were made by the Supreme
Court of South Australia in favour of Elders Limited in April 2006.
(2) A provision has been recognised in relation to the costs associated with dismantling the manufacturing facility, remediating the site, demolition
works and redundancies at Cockle Creek as announced to the Australian Stock Exchange on 20 April 2006.
(3) Realised gains in relation to the investment held for resale in the listed gas producer Queensland Gas Company Limited. Capital losses partly
offset the tax in relation to this gain.
(4) 2005 saw a significant rationalisation of the fertiliser industry, following which the Company incurred significant expenditure in reacting to the
changed industry dynamics including developing and implementing a new business model and embarking on a major restructuring of the business.
During 2006 additional provisions have been recognised in relation to further business and manufacturing efficiency projects.
(5) As part of the restructuring program, a review of the long term manufacturing strategy around ammonium phosphates was undertaken and as a
result, the manufacturing plant at Kooragang Island is to be mothballed in October 2006.
(6) Provisions for restructuring costs, including employee redundancy, have been created after the separation from Orica during May 2006, and
acquisition of SCF in August 2006.
58
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
7. Auditor's remuneration
Total remuneration received, or due and receivable,
by the auditors for:
Audit services
Auditors of the Company - KPMG
Non audit services
Auditors of the Company - KPMG
taxation services
other services - SCF acquisition
Consolidated
2006
2005
Notes $
$
Company
2006
$
2005
$
455,310
455,310
278,400
278,400
455,310
455,310
278,400
278,400
-
33,000
33,000
488,310
-
-
-
278,400
-
33,000
33,000
488,310
-
-
-
278,400
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 must approve non audit services provided by KPMG above a value of $20,000.
8. Income tax expense
Income tax expense/(benefit)
(a)
Current tax
Current year
Under/(over) provision in prior years
Deferred tax
Origination and reversal of temporary differences
Total income tax expense/(benefit)
(b) Numerical reconciliation of income tax expense
to prima facie tax payable
Profit before income tax
Income tax expense attributable to profit before income tax
Tax at the Australian tax rate of 30% (2005 at 30%)
on profit before income tax
Tax effect of amounts which are not deductible/(taxable)
in calculating taxable income:
Depreciation and amortisation
Profit/(loss) on sale of property, plant and equipment
Research and development incentive
Dividends from wholly-owned entities
Debt forgiveness within wholly-owned group
Share-based payments
Sundry items
Under/(over) provision in prior years
Business restructuring costs
Capital losses not previously recognised brought to account
Sundry items
Income tax expense/(benefit) attributable to profit
(c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period
and not recognised in net profit or loss but directly debited or
credited to equity
Net deferred tax - debited/(credited) directly to equity
30,633
(2,836)
27,797
11,535
(111)
11,424
7,317
(2,836)
4,481
(6,231)
(111)
(6,342)
(15,202)
12,595
(4,472)
6,952
(8,552)
(4,071)
(3,949)
(10,291)
59,257
21,444
67,458
(636)
17,777
6,433
20,238
(191)
483
(165)
(760)
-
-
76
(223)
(2,836)
-
(1,767)
10
12,595
479
75
(433)
-
-
-
(4)
(111)
513
-
-
6,952
137
(80)
(760)
(20,804)
1,964
76
(249)
(2,836)
-
(1,767)
10
(4,071)
86
49
(433)
(10,200)
-
-
(4)
(111)
513
-
-
(10,291)
(6,598)
(6,598)
29
29
(6,598)
(6,598)
25
25
Recovery of deferred tax assets (see note 18) depends on future taxable earnings and the continuation of existing tax laws and compliance
there with.
Incitec Pivot Limited
59
Notes to the Financial Statements
For the year ended 30 September 2006
9. Earnings per share (EPS)
Basic earnings per share
including individually material items
excluding individually material items
Diluted earnings per share
including individually material items
excluding individually material items
Weighted average number of ordinary shares used in the calculation of
basic and diluted earnings per share (1)
Earnings used in the calculation of basic and diluted earnings per share
including individually material items
Consolidated
2006
Cents
per share
2005
Cents
per share
83
146
83
146
25
82
25
82
Number
Number
56,515,861
58,281,027
$'000
$'000
46,662
14,492
Reconciliation of earnings used in the calculation of basic and
diluted earnings per share excluding individually material items
Profit for the financial year
Add back individually material items after income tax
Earnings used in calculation of basic and diluted EPS excluding
individually material items
(1) 7,857,142 shares were bought back during the year ended 30 September 2006.
46,662
36,110
82,772
14,492
33,412
47,904
10. Cash and cash equivalents
Cash at bank and on hand
Deposits at call
external
entity subject to common control
Consolidated
2006
$000
2005
$000
Company
2006
$000
2005
$000
Notes
6,261
2,785
5,855
2,785
155,397
-
161,658
-
566
3,351
155,397
-
161,252
-
566
3,351
(29)
Bank Facilities
Committed bank overdraft facilities available
Amount of facilities unused
Committed standby and loan facilities available
Amount of facilities unused
10,000
10,000
7,000
7,000
10,000
10,000
7,000
7,000
210,000
250,000
210,000
250,000
210,000
250,000
210,000
250,000
The committed bank overdraft facilities are provided by banks and are subject to an annual review. Orica Finance Limited, provided the
committed loan facilities. Repayment terms range from overnight to 90 days. With the separation from Orica Limited during the period,
replacement committed loan facilities have been negotiated with financial institutions.
60
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
11. Trade and other receivables
Current
Trade debtors
external (1)
entities subject to common control
Less impairment losses
external
Sundry debtors/loans
external
entities subject to common control
wholly-owned controlled entity
Less impairment losses
external
Non-current
Sundry debtors/loans
external
Consolidated
Company
Notes
2006
$000
2005
$000
2006
$000
2005
$000
114,475
-
63,950
704
90,639
-
63,950
704
(388)
114,087
(189)
64,465
(196)
90,443
(189)
64,465
(33)
7,403
-
-
(45)
7,358
121,445
5,862
5,574
-
-
11,436
75,901
5,817
-
89,010
5,862
3,243
34,331
-
94,827
185,270
-
43,436
107,901
264
264
1,633
1,633
280
280
383
383
(1) If AASB 139 had been applied in the comparative year ending 30 September 2005, the external trade debtor amount would have
been increased by $83,754 to $147,704. Refer to note 38 for a detailed description of AIFRS adjustments relating to AASB 139.
Significant terms and conditions
Trade debtors are carried at amounts due less impairment losses.
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 from the end of invoicing month and payment compliance is high.
- a risk assessment process is used for all accounts, with a stop credit process for exceding credit limits and for long overdue
accounts. Interest may be charged where the terms of repayment exceed agreed terms.
12.
Inventories
Raw materials and stores at cost
Work in progress at cost
Finished goods
At cost
Less provision for inventory losses and obsolescence
13. Other assets
Current
Prepayments
Non-current
Prepayments
28,807
5,718
11,699
-
11,288
-
11,699
-
268,819
(4,688)
264,131
298,656
255,595
(4,385)
251,210
262,909
261,035
(4,688)
256,347
267,635
255,595
(4,385)
251,210
262,909
8,885
8,885
877
877
1,638
1,638
839
839
7,007
7,007
876
876
1,638
1,638
839
839
Incitec Pivot Limited
61
Notes to the Financial Statements
For the year ended 30 September 2006
Notes
14. Other financial assets
Current
Investments in other entities
Listed shares at current market value
Derivative financial instruments - cash flow hedges
Option contracts (32)
Non-current
Investments in controlled entities
Unlisted shares at cost (36)
Consolidated
Company
2006
$000
2005
$000
2006
$000
2005
$000
-
12,341
-
12,341
2,019
2,019
-
12,341
2,019
2,019
-
12,341
-
-
-
-
684,470
684,470
529,178
529,178
15. Assets classified as held for sale
Land held for sale
2,876
2,416
25
2,279
Assets classified as held for sale consist of various sites which are either vacant land or sites which the Company has already exited or
is planning to exit within the next 12 months.
16. Property, plant and equipment
detadilosnoC
At 1 October 2004
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2005
Opening net book amount
Reclassification from Assets classified as held for sale
Additions
Disposals
Depreciation charge (5)
Impairment of assets
Closing net book amount
At 1 October 2005
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2006
Opening net book amount
Acquisition of business
Reclassification to Assets classified as held for sale
Additions
Disposals
Depreciation charge (5)
Impairment of assets
Reclassification
Closing net book amount
At 30 September 2006
Cost
Accumulated depreciation
Construction in progress
Net book amount
Freehold land
sgnidliub dna
$'000
Machinery, plant
tnempiuqe dna
$'000
latoT
$'000
207,437
(91,001)
-
116,436
116,436
6,965
6,406
-
(6,235)
-
123,572
220,682
(97,110)
-
123,572
123,572
23,210
(318)
2,859
(2,388)
(5,809)
(798)
(8,865)
131,463
235,377
(104,478)
564
131,463
429,437
(259,244)
14,621
184,814
636,874
(350,245)
14,621
301,250
184,814
-
18,801
(931)
(22,443)
(11,842)
168,399
301,250
6,965
25,207
(931)
(28,678)
(11,842)
291,971
439,294
(282,352)
11,457
168,399
659,976
(379,462)
11,457
291,971
168,399
175,169
(142)
24,468
)666(
(25,219)
(4,240)
568,8
346,634
291,971
198,379
(460)
27,327
(3,054)
(31,028)
(5,038)
-
478,097
601,866
(278,107)
22,875
346,634
837,243
(382,585)
23,439
478,097
62
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
16. Property, plant and equipment (continued)
Company
Notes
At 1 October 2004
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2005
Opening net book amount
Reclassification to Assets classified as held for sale
Additions
Disposals
Depreciation charge (5)
Impairment of assets
Movement in allocated assets
Closing net book amount
At 1 October 2005
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2006
Opening net book amount
Reclassifications from Assets classified as held for sale
Additions
Disposals
Depreciation charge (5)
Impairment of assets
Reclassification
Movement in allocated assets
Closing net book amount
At 30 September 2006
Cost or fair value
Accumulated depreciation
Construction in progress
Net book amount
Non-current assets impairments
Freehold land
and buildings
$'000
Machinery, plant
and equipment
$'000
Total
$'000
80,791
(32,174)
-
48,617
48,617
(2,279)
6,097
-
(3,234)
-
(395)
48,806
85,601
(36,795)
-
48,806
48,806
2,254
2,295
(2,388)
(2,802)
(798)
(8,813)
786
39,340
71,954
(32,614)
-
39,340
132,351
(78,728)
14,621
68,244
213,142
(110,902)
14,621
116,861
68,244
-
17,771
(931)
(6,201)
(11,842)
1,519
68,560
116,861
(2,279)
23,868
(931)
(9,435)
(11,842)
1,124
117,366
152,207
(95,104)
11,457
68,560
237,808
(131,899)
11,457
117,366
68,560
-
20,213
(666)
(7,045)
(4,240)
8,813
1,926
87,561
117,366
2,254
22,508
(3,054)
(9,847)
(5,038)
-
2,712
126,901
135,193
(74,979)
27,347
87,561
207,147
(107,593)
27,347
126,901
During the year ended 30 September 2006, the Company and consolidated entity recorded impairments of property, plant and
equipment totalling $5.0 million relating to the closure of the Kooragang Island manufacturing plant. The recoverable amount of this
plant was determined using value in use with a discount rate of 6.64%.
During the year ended 30 September 2005, the Company and consolidated entity recorded impairments of property, plant and
equipment totalling $11.8 million relating to reassessments of carrying amounts in light of expected lower sales volumes.
Incitec Pivot Limited
63
Notes to the Financial Statements
For the year ended 30 September 2006
17.
Intangible assets
Consolidated
Notes
At 1 October 2004
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2005
Opening net book amount
Additions
Amortisation charge (5)
Closing net book amount
At 1 October 2005
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2006
Opening net book amount
Acquisition of business
Additions
Amortisation charge (5)
Closing net book amount
At 30 September 2006
Cost
Accumulated amortisation
Net book amount
Software
$'000
Goodwill
$'000
Other
$'000
Total
$'000
10,000
(2,758)
7,242
183,809
-
183,809
7,242
3,007
(1,808)
8,441
183,809
-
-
183,809
13,007
(4,566)
8,441
183,809
-
183,809
-
-
-
-
-
-
-
-
-
-
193,809
(2,758)
191,051
191,051
3,007
(1,808)
192,250
196,816
(4,566)
192,250
8,441
157
158
(2,044)
6,712
183,809
-
-
-
183,809
-
183
5,579
(73)
5,689
192,250
340
5,737
(2,117)
196,210
18,901
(6,610)
12,291
183,809
-
183,809
183
(73)
110
202,893
(6,683)
196,210
64
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
17.
Intangible assets (continued)
Company
Notes
At 1 October 2004
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2005
Opening net book amount
Additions
Amortisation charge (5)
Closing net book amount
At 1 October 2005
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2006
Opening net book amount
Additions
Amortisation charge (5)
Closing net book amount
At 30 September 2006
Cost
Accumulated amortisation
Net book amount
(a) Impairment tests for goodwill
Software
$'000
Goodwill
$'000
Other
$'000
Total
$'000
8,961
(1,781)
7,180
7,180
3,029
(1,768)
8,441
11,989
(3,548)
8,441
8,441
158
(2,031)
6,568
12,147
(5,579)
6,568
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,579
-
5,579
5,579
-
5,579
8,961
(1,781)
7,180
7,180
3,029
(1,768)
8,441
11,989
(3,548)
8,441
8,441
5,737
(2,031)
12,147
17,726
(5,579)
12,147
Goodwill is not allocated to the Group's CGU's. Identified goodwill is managed on a group basis. Goodwill is therefore tested for
impairment against forecasted group cash flows.
The recoverable amount of goodwill is determined based on value-in-use calculations. These calculations use cash-flow projections
based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are
extrapolated using an estimated growth rate as detailed below.
(b) Key assumptions used for value-in-use calculations
Key assumptions used within the impairment testing of goodwill include:
- discount rate of 10% representing a market based weighted average cost of capital
- growth rate of 2% representing inflation
- growth in budgeted gross margin rate of 2-3%
Management determined growth in budgeted gross margin based on past performance and its expectations for the future.
Incitec Pivot Limited
65
Notes to the Financial Statements
For the year ended 30 September 2006
18. Deferred tax assets
The balance comprises temporary differences attributable to:
Doubtful debts provision
Employee entitlements provision
Retirement benefit obligations
Restructuring and rationalisation provision
Environmental provision
Other provisions
Inventories
Depreciation
Foreign exchange losses
Other
Share buy-back expenses
Cash flow hedges
Revaluation of property, plant and equipment
Unfavourable supplier contracts
Deferred tax assets
Consolidated
2006
$000
2005
$000
Company
2006
$000
2005
$000
Notes
264
6,465
1,189
5,654
16,620
8,465
2,631
482
182
712
2,279
2,237
204
20,244
67,628
204
4,379
1,436
5,612
6,371
963
1,316
1,879
47
828
-
-
200
-
23,235
206
4,681
1,189
5,654
9,713
7,503
1,407
475
60
712
2,279
2,237
204
-
36,320
204
4,379
1,436
5,612
6,371
959
1,316
1,869
47
828
-
-
204
-
23,225
Set-off of deferred tax liabilities against deferred tax assets (23)
(35,413)
(30,349)
(3,630)
(6,002)
Net deferred tax assets/(liabilities)
32,215
(7,114)
32,690
17,223
Movements:
Opening balance at 1 October
Credited/(charged) to the income statement
Credited/(charged) to equity
Acquisition of subsidiary
Transfer of provisions from related entity
Under/(over) provision in prior years
Closing balance at 30 September
23,235
6,914
7,203
29,959
105
212
67,628
18,429
4,608
(25)
-
204
19
23,235
23,225
5,575
7,203
-
105
212
36,320
15,051
4,734
(25)
-
3,446
19
23,225
66
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
Consolidated
Company
Notes
2006
$000
2005
$000
2006
$000
2005
$000
19. Trade and other payables
Current
Trade creditors
external
entity subject to common control
wholly-owned controlled entity (33)
Sundry creditors and accrued charges
external
entity subject to common control
wholly-owned controlled entity (33)
unfavourable supplier contracts
Non-current
Sundry creditors and accrued charges
external
unfavourable supplier contracts
259,600
-
-
259,600
14,455
-
-
8,543
22,998
282,598
1,061
59,025
60,086
194,067
900
-
194,967
5,658
74
-
-
5,732
200,699
232,480
-
160,643
393,123
14,213
-
93,804
-
108,017
501,140
194,067
900
117,509
312,476
18,851
74
75,396
-
94,321
406,797
-
-
-
-
-
-
Unfavourable Contracts
Unfavourable contracts were recognised as part of the SCF acquisition during the year. These amounts represent the difference
between market and contractual rates at the time of acquisition and will be released to profit over the life of the contracts.
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 62 days
from invoice date 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.
20. Other financial liabilities
Current
Derivative financial instruments
Forward exchange contracts - cash flow hedges (32)
Embedded derivative
Non-Current
Derivative financial instruments
Interest rate swaps - cash flow hedges (32)
144
5,539
5,683
1,774
1,774
-
-
-
-
-
144
5,539
5,683
1,774
1,774
-
-
-
-
-
-
-
-
Incitec Pivot Limited
67
Notes to the Financial Statements
For the year ended 30 September 2006
21.
Interest bearing liabilities
Current
Unsecured
other short term borrowings
other loans
investment deposit scheme
Non-current
Unsecured
other loans
external - term facility
Consolidated
Company
Notes
2006
$000
2005
$000
2006
$000
2005
$000
7,103
-
7,103
-
7,103
-
12,514
12,514
-
7,103
12,514
12,514
(32)
(32)
430,000
430,000
-
-
430,000
430,000
-
-
Significant terms and conditions
Interest expense is recognised progressively over the life of the loan.
Net fair values
The directors consider the carrying amount of borrowings to approximate their net fair values.
Investment deposit scheme
Customers could invest funds with the Company in the Investment Deposit Scheme by way of unsecured notes issued under the
prospectus dated 24 December 2004, as lodged with ASIC. The interest rate offered was 5.75%. The prospectus was effective until
January 2006.
Term facility
The term facility matures in July 2011 and is repayable in whole or in part at the discretion of the Company. Part repayments
constitute a cancellation of the facility for the amount repaid and thus cannot be redrawn.
22. Provisions
Current
Employee entitlements
Restructuring and rationalisation
Environmental
Other
Non-current
Employee entitlements
Restructuring and rationalisation
Environmental
Aggregate employee entitlements
Current
Non-current
11,234
23,715
10,607
1,922
47,478
10,314
10,670
44,777
65,761
11,234
10,314
21,548
6,585
20,218
16,428
482
43,713
8,012
-
4,809
12,821
6,585
8,012
14,597
7,190
23,715
10,607
301
41,813
8,413
10,670
21,754
40,837
7,190
8,413
15,603
6,585
20,218
16,428
482
43,713
8,012
-
4,809
12,821
6,585
8,012
14,597
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% + age based scale
5.8%
10 years
Employees at year end
Full time equivalent
Number
1,051
Number
740
Number
762
Number
740
68
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
22. 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
Payments made during the year
Carrying amount at the end of the financial year
Current Provision - Restructuring and rationalisation
Carrying amount at the beginning of the financial year
Provisions made during the year
Transfers
Payments made during the year
Carrying amount at the end of the financial year
Current Provision - Environmental
Carrying amount at the beginning of the financial year
Provisions made during the year
Transfers
Payments made during the year
Carrying amount at the end of the financial year
Current Provision - Other
Carrying amount at the beginning of the financial year
Additions through acquisition of entities (see note 28)
Provisions written back during the year
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
Transfers
Carrying amount at the end of the financial year
Non-Current Provision - Environmental
Carrying amount at the beginning of the financial year
Additions through acquisition of entities (see note 28)
Provisions made during the year
Transfers
Unwinding of discount
Carrying amount at the end of the financial year
See note 1 xvi for further details on each provision noted above.
Consolidated
Company
Notes
$000
$000
(27)
(27)
(5)
(5)
(5)
(5)
-
41,962
(41,962)
-
-
41,962
(41,962)
-
20,218
21,663
1,099
(19,265)
23,715
20,218
21,663
1,099
(19,265)
23,715
16,428
3,796
(99)
(9,518)
10,607
482
1,621
(181)
1,922
-
3,159
7,511
10,670
4,809
22,840
24,694
(8,511)
945
44,777
16,428
3,796
(99)
(9,518)
10,607
482
-
(181)
301
-
3,159
7,511
10,670
4,809
-
24,511
(8,511)
945
21,754
Incitec Pivot Limited
69
Notes to the Financial Statements
For the year ended 30 September 2006
23. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Inventories
Depreciation
Intangible assets
Financial assets at fair value
Other
Cash flow hedges
Revaluation of property, plant and equipment
Deferred tax liabilities
Consolidated
2006
$000
2005
$000
Company
2006
$000
2005
$000
Notes
1,667
16,690
1,668
-
310
411
14,667
35,413
1,767
13,183
1,131
2,171
933
-
11,164
30,349
1,284
-
1,635
-
300
411
-
3,630
1,767
-
1,131
2,171
933
-
-
6,002
Set-off of deferred tax assets against deferred tax liabilities (18)
(67,628)
(23,235)
(36,320)
(23,225)
Net deferred tax (assets)/liabilities
(32,215)
7,114
(32,690)
(17,223)
Movements:
Opening balance at 1 October
Charged/(credited) to the income statement
Charged/(credited) to equity
Acquisition of subsidiary
Closing balance at 30 September
30,349
(8,290)
605
12,749
35,413
30,209
136
4
-
30,349
6,002
(2,977)
605
-
3,630
4,526
1,476
-
-
6,002
70
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
24.
Retirement Benefit Obligation
(a) Plan Information
The Company is a sponsoring employer of the Flexible Benefits Super Fund, a defined benefit superannuation fund which consists of a
defined contribution section of membership as well as a defined benefit section. The Fund also pays pensions to a number of pensioners.
The following sets out details in respect of the defined benefit section only.
Consolidated/Company
(b) Reconciliation of the present value of the defined benefit obligation
Present value of defined benefit obligations at beginning of the year
Current service cost
Interest cost
Actuarial losses
Contributions by plan participants
Benefits paid
Distributions
Present value of defined benefit obligations at end of the year
(c) Reconciliation of the fair value of plan assets
Fair value of plan assets at beginning of the year
Expected return on plan assets
Actuarial gains
Employer contributions
Contributions by plan participants
Benefits paid
Distributions
Present value of defined benefit obligations at end of the year
(d) Reconciliation of assets and liabilities recognised in the balance sheet
Present value of funded defined benefit obligations at end of year
Fair value of plan assets at end of year
Deficit in plan
Tax provision
Net Liability recognised in balance sheet at end of year
Amounts in the balance sheet:
Liabilities
(Assets)
Net Liability / (Asset) recognised in balance sheet at end of year
(e) Expense recognised in income statement
Current service cost
Interest cost
(Expected return on plan assets)
Adjustment for tax provision
Expense recognised in income statement
(f) Amounts recognised in the statement of recognised income and expense
Actuarial (gains)/losses
(g) Cumulative amount recognised in the statement of recognised income and expense
Cumulative amount of actuarial (gains)/losses
2006
$'000
75,314
2,567
4,444
2,479
1,338
(10,340)
(670)
75,132
71,641
4,810
3,270
2,199
1,338
(10,340)
(670)
75,132
75,132
(72,248)
2,884
509
3,393
2005
$'000
76,361
2,961
4,408
4,093
1,614
(13,457)
(666)
75,314
72,618
4,902
4,609
2,021
1,614
(13,457)
(666)
75,314
75,314
(71,641)
3,673
648
4,321
3,392,941
-
3,392,941
4,321,176
-
4,321,176
2,567
4,444
(4,810)
(17)
2,184
(929)
(1,010)
2,961
4,408
(4,902)
(14)
2,453
(81)
(81)
Incitec Pivot Limited
71
Notes to the Financial Statements
For the year ended 30 September 2006
24.
Retirement Benefit Obligation (continued)
(h) Plan Assets
The percentage invested in each asset class at the reporting date:
Equities
Fixed Interest Securities
Property
Cash and Net Current Assets
Other
Fair value of plan assets
The fair value of plan assets includes no amounts relating to:
- any of the Company’s own financial instruments
- any property occupied by, or other assets used by, the Company.
48%
21%
11%
10%
10%
49%
24%
10%
10%
7%
Expected rate of return on plan assets
The overall expected rate of return on assets assumption is determined by weighting the expected long-term rate of return for each asset
class by the target allocation of assets to each class. The rates of return used for each class are net of investment tax and investment
fees.
Actual return on plan assets
(i) Principal actuarial assumptions at the reporting date
Discount rate (net of tax)
Expected rate of return on plan assets
Future salary increases
Future inflation
(j) Historical Information
Present value of defined benefit obligation
(Fair value of plan assets)
(Surplus)/Deficit in plan
Experience adjustments arising on plan liabilities
Experience adjustments arising on plan assets
(k) Expected Contributions
Expected employer contributions
Expected contribution by plan participants
(l) Funding of the Fund
Consolidated/Company
2005
$'000
9,511
2006
$'000
8,080
4.80%
7.00%
4.60%
7.00%
4% + age based scale 4% + age based scale
2.50%
2.50%
75,132
(72,248)
2,884
(2,891)
3,270
75,314
(71,641)
3,673
(4,093)
4,609
30 September 2007
2,167,000
777,000
The table below shows the surplus/deficit of the Flexible Benefits Super Fund that relates to members and pensioners who are current
and former employees of the Company, as determined in accordance with AAS 25 Financial Reporting by Superannuation Plans . These
figures (rather than those disclosed above) are calculated for funding purposes and are used to determine the required level of company
contributions.
The effective date of the amounts shown is 30 June 2003.
Net market value of assets
Accrued benefits
Surplus/(deficit)
$000
73,632
(75,490)
(1,858)
72
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
24.
Retirement Benefit Obligation (continued)
Employer Contributions
In the most recent actuarial review of the Fund, the Fund Actuary recommended that the Company make contributions to the Fund at the
rate of 12.5% of salaries of the defined benefit members of the Fund and additional lump sum contributions.
The contribution rate recommendations described above were determined using a variation of the Attained Age Normal funding method.
Under the Attained Age Method, a “normal cost” is calculated which is the estimated company contribution rate required to provide
benefits in respect of future service (i.e. service in respect of the period after the investigation date). The normal cost ignores any excess
or shortfall of assets over accrued liabilities. The “normal” cost is then adjusted to take into account any surplus (or deficiency) of assets
over liabilities in respect of service prior to the investigation date. Any surplus or deficiency can be used to reduce or increase the
“normal” Company contribution rate over a suitable period of time.
As part of the actuarial review of the Fund as at 30 June 2003, the Fund Actuary recommended that the Company contribute at the
"normal" rate, plus additional lump sum contributions to ensure that the Fund remains in a satisfactory financial position.
The economic assumptions used to make the contribution recommendations at the last actuarial valuation of the fund as at 30 June 2003
were:
Expected Return on assets
8% pa
Salary increase rate
5% pa
The Flexible Benefits Super Fund imposes a legal liability on the Company to cover any deficit that exists in the Fund. If the Fund were
wound up, there would be a legal obligation on the Company to make good any shortfall.
Under the Fund's Trust deed, the Company contribution rate in respect of defined benefit members is determined by the Company,
having regard to the report of the Actuary.
The Company may benefit from any surplus in the Fund in the form of a contribution reduction or contribution holiday. Any reduction in
contributions would normally be implemented only after advice from the Fund's Actuary.
25.
Issued Capital
Share Capital
Ordinary shares authorised and issued - 50,423,885 (2005 - 58,281,027) (1)
Movements in issued and fully paid ordinary shares of the Company during the financial year:
Date
Details
Consolidated/Company
2006
$'000
2005
$'000
360,797
360,797
532,445
532,445
Number of
Shares
$'000
30 September 2005 Balance at the beginning of the financial year
58,281,027
532,445
11 July 2006
Shares bought back on market and cancelled
7,857,142 (2005: Nil) shares
Buy-back transaction costs
Deferred tax credit recognised directly in equity
30 September 2006 Balance at the end of the financial year
Share buy-back
(7,857,142)
-
-
50,423,885
(165,000)
(9,497)
2,849
360,797
On 11 July 2006, the Company purchased and cancelled 7,857,142 ordinary shares, representing 13.5% of ordinary shares on issue on that
date, under the terms of a Buy-Back Agreement dated 9 May 2006. The share buy-back and cancellation were approved by shareholders at
the General Meeting held on 6 July 2006. The shares were acquired at a price of $21 per share. The total cost of $171.6 million, including
$6.6 million of after tax transaction costs, was deducted from shareholder equity.
There is no current on-market buy-back.
Terms and conditions
Holders of ordinary shares are entitled to receive dividends from time to time and are entitled to one vote per share at shareholder’s
meetings.
(1) Ordinary shares authorised and issued have no par value.
Incitec Pivot Limited
73
Notes to the Financial Statements
For the year ended 30 September 2006
26. Reserves and retained earnings
Reserves
Share-based payments
Cash flow hedging
Reserves at the end of the financial year
Movement in reserves during the financial year
Share-based payments
Balance at the beginning of the financial year
Option expense
Options forfeited
Loan repayments
Shareholder loans
Balance at the end of the financial year
Cash Flow Hedging Reserve
Balance at the beginning of the financial year
Recognition of fair value of cash flow hedging instruments upon
adoption of AASB 139
Balance at the beginning of the financial year restated
Changes in fair value of cash-flow hedges
Losses transferred to income statement
Balance at the end of the financial year
Movement in retained earnings during the financial year
Retained earnings at the beginning of the financial year
Recognition of fair value of embedded derivative upon adoption of
AASB 139
Retained earnings at the beginning of the financial year restated
Profit after income tax
Less dividends paid
2004 Final and final special dividend
2005 Interim and interim special dividend
2005 Final special dividend
2006 Interim dividend
Share-based payment transactions
Dividends received as loan repayment
Deferred tax adjustment on revaluation of property, plant and
equipment
Actuarial gains on defined benefit plans
Retained earnings at the end of the financial year
Consolidated
Company
Notes
2006
$000
2005
$000
2006
$000
2005
$000
(6,547)
718
(5,829)
(1,524)
-
(1,524)
(1,524)
243
-
459
(5,725)
(6,547)
-
4,279
4,279
(4,209)
648
718
(2,781)
227
438
592
-
(1,524)
-
-
-
-
-
-
-
718
718
-
-
-
-
-
-
-
4,279
4,279
(4,209)
648
718
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29,045
84,588
47,137
107,513
(9,466)
-
(9,466)
-
19,579
46,662
84,588
14,492
37,671
71,529
107,513
9,655
(27)
(27)
(27)
(27)
-
-
(29,140)
(12,822)
(58,281)
(12,239)
-
-
-
-
(29,140)
(12,822)
(58,281)
(12,239)
-
-
98
-
650
25,029
228
98
228
200
57
29,045
-
650
67,985
204
57
47,137
Share-based payments reserve: The share-based payments reserve represents the amount receivable from employees in relation to
non-recourse loans for shares issued under long term incentive plans.
Hedging reserve: The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow
hedging instruments related to hedged transactions that have not yet occurred.
74
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
27. Dividends
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary Shares
Final dividend of 70 cents per share, fully franked at 30%, paid on 9 December 2004
Final special dividend of 30 cents per share, fully franked at 30%, paid on 9 December 2004
Interim dividend of 15 cents per share, fully franked at 30%, paid 7 July 2005
Interim special dividend of 6 cents per share, fully franked at 30%, paid 7 July 2005
November 2005 special dividend of 50 cents per share, fully franked at 30%, paid 9 January 2006
Interim dividend of 22 cents per share, fully franked at 30%, paid 9 June 2006
Total ordinary share dividends paid in cash
Redeemable preference shares
Quarterly dividend at 5.36% per share unfranked paid in cash on
27 November 2004
Total redeemable preference share dividends paid in cash
Total dividends paid in cash
Company
2006
$000
2005
$000
-
-
-
-
29,140
12,822
41,962
40,797
17,484
8,742
3,497
-
-
70,520
-
-
41,962
737
737
71,257
Subsequent event
Since the end of the financial year, the directors have declared the following dividends:
Ordinary shares
November 2005 special dividend of 50 cents per share fully franked at 30% payable on 9 January 2006
Final dividend of 81 cents per share, fully franked at 30%, paid on 13 December 2006
The financial effect of this dividend has not been recognised in the financial report and will be recognised in subsequent financial
reports.
40,843
29,140
Franking credits
Franking credits available to shareholders of the Company of $24,275,870 (2005 $14,267,909) at the 30% (2005 at 30%) corporate
tax rate after allowing for tax payable in respect of the current year's profit. The ability to utilise the franking credits is dependent upon
there being sufficient available profits to declare dividends.
Incitec Pivot Limited
75
Notes to the Financial Statements
For the year ended 30 September 2006
28. Business combination
a) Summary of acquisition
On 1 August 2006, the consolidated entity acquired all the shares in Southern Cross Fertilisers Pty Limited (SCF) for $155.3 million,
including $6.4 million of transaction costs. The company manufactures and distributes ammonium phosphate fertilisers.
SCF contributed revenues of $54.9 million and net profit after tax of $7.4 million for the period from 1 August 2006 to 30 September
2006. If the acquisition had occurred on 1 October 2005, consolidated revenue and consolidated profit/(loss) for the year ended 30
September 2006 would have been $1,347 million and $96 million respectively. These amounts have been calcuated using the
consolidated entity's accounting policies and by adjusting the results of SCF to reflect lower depreciation charges assuming the fair
value adjustments to property, plant and equipment had applied from 1 October 2005, together with the consequential tax effects.
b) Purchase consideration
Consideration paid, satisfied in cash
Plus/(less) cash acquired
Net cash outflow
c) Assets and liabilities acquired
The assets and liabilities arising from the acquisition are as follows:
Acquiree's net assets at the acquisition date
Cash and cash equivalents
Trade and other receivables
Inventories
Property, plant and equipment
Deferred Tax Assets
Trade, other payables and other provisions
Provision for site restoration and mine rehabilitation
Deferred Tax liabilities
Provision for employee entitlements
Intangible assets
Unfavourable Contracts
Other liabilities
Net identifiable assets and liabilities
Less consideration paid in cash
Goodwill/discount on acquisition recognised
Consolidated
2006
$000
155,292
37
155,329
2005
$000
-
-
-
Company
2006
$000
155,292
-
155,292
2005
$000
-
-
-
Acquiree's
carrying
amount
$'000
Fair value (1)
adjustments
$'000
Fair
Value
$'000
(37)
44,928
32,772
489,434
9,517
(41,485)
(18,618)
(46,413)
(6,233)
157
-
-
464,022
-
(192)
3,109
(291,055)
20,442
(1,621)
(4,222)
33,665
248
183
(68,140)
(1,147)
(308,730)
(37)
44,736
35,881
198,379
29,959
(43,106)
(22,840)
(12,748)
(5,985)
340
(68,140)
(1,147)
155,292
155,292
-
(1) The fair value of assets and liabilities acquired have been accounted for provisionally in line with AASB 3 Business Combinations .
Adjustments will be required to the fair value of assets and liabilities accounted for at acquisition date if further information is identified
within 12 months of acquisition which provides better evidence of the item's fair value.
76
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
29. Reconciliation of profit after income tax to net cash inflow from operating activities
Consolidated
2006
$000
2005
$000
Company
2006
$000
2005
$000
Notes
Reconciliation of cash
Cash at the end of the financial year as shown in the Cash Flow
Statements is reconciled to the related items in the Balance Sheets
as follows:
Cash
Reconciliation of profit for the financial year to net cash flows
from operating activities
Profit for the financial year
Depreciation and amortisation
(Decrease)/increase in net interest payable
Unrealised gain on listed investment
Write-down of property, plant and equipment (individually material
items)
Net (profit)/loss on sale of property, plant and equipment
Net (profit)/loss on investment
Non-cash share based payment transactions
Right to receive rock
Unwinding of discount on provisions
Changes in assets and liabilities
(increase)/decrease in receivables and other assets
(increase)/decrease in inventories
increase/(decrease) in deferred taxes payable
increase/(decrease) in financial instruments
increase/(decrease) in payables and provisions
increase/(decrease) in income taxes payable
Net cash flows from operating activities
(10)
161,658
161,658
3,351
3,351
161,252
161,252
3,351
3,351
(5)
(4)
(5)
(4)
(4)
46,662
33,145
1,685
-
14,492
30,486
(81)
(7,236)
71,529
11,878
1,759
-
9,655
11,203
165
(7,236)
5,038
11,842
5,038
11,842
(2,971)
(9,459)
251
(5,579)
730
72,137
135
(2,772)
(7,336)
54,565
2,479
188,710
(494)
-
-
-
49,133
(25,740)
(4,491)
-
15,986
(12,176)
71,721
(2,971)
(9,459)
251
(5,579)
548
966
(4,726)
(32,186)
(7,336)
138,018
15,228
182,958
(494)
-
-
-
34,803
(25,740)
6,654
-
26,696
2,855
70,403
Incitec Pivot Limited
77
Notes to the Financial Statements
For the year ended 30 September 2006
Consolidated
2006
$000
2005
$000
Company
2006
$000
2005
$000
30. Commitments
a) Capital expenditure commitments
Capital expenditure on property, plant and equipment contracted but not provided for and payable:
no later than one year
b) Lease commitments
1,892
1,892
3,313
3,313
1,892
1,892
3,313
3,313
Lease commitments comprise a number of operating lease arrangements for the provision of certain equipment. These leases have
varying durations, with expiry dates from 2007 to 2014. The future minimum rental commitments are as follows:
no later than one year
later than one, no later than five years
later than five years
Representing
non-cancellable operating leases
c) Other expenditure commitments
28,078
63,686
48,762
140,526
10,811
25,609
41,205
77,625
11,017
28,753
35,787
75,557
10,811
25,609
41,205
77,625
140,526
140,526
77,625
77,625
75,557
75,557
77,625
77,625
Commitments for payments to suppliers under long-term executory contracts existing at balance date but not recognised as payable
include:
no later than one year
later than one, no later than five years
later than five years
62,980
250,163
358,433
671,576
-
-
-
-
-
-
-
-
-
-
-
-
78
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
31. Contingent liabilities
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.
Contracts, claims, guarantees and warranties
• Under a Deed of Cross Guarantee dated 30 September 2005 (as varied by an Assumption Deed dated 28 September
2006), both entered into in accordance with ASIC Class Order 98/1418, each company which is party to the Deed has
covenanted with the Trustee (or the Alternative Trustee as applicable) 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, Investment in controlled entities.
• A consolidated balance sheet and income statement for this closed group is shown in note 37, Deed of Cross Guarantee.
•
•
•
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 a number of legal claims and exposures, which arise from the ordinary course of business. There is significant
uncertainty as to whether a future liability will arise in respect of these items. The amount of liability, if any, which may arise
cannot be reliably measured at this time. In the opinion of the directors, any further information about these matters would
be prejudicial to the interests of the Company.
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 in 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
I. General
The Company has identified a number of sites as requiring environmental clean up and review. Appropriate
implementation of clean up requirements is ongoing. In accordance with current accounting policy (see note 1 xvi),
provisions have been created for all known environmental liabilities that can be reliably estimated. 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.
II. Environmental matters subject to voluntary requirements with regulatory authority
For sites where the requirements have been assessed and are capable of reliable measurement, estimated regulatory and
remediation costs have been capitalised, expensed as incurred or provided for in accordance with the accounting policy
included in note 1(xvi).
Cockle Creek (NSW)
The site at Cockle Creek (NSW) (owned by Incitec Fertilizers Limited) was declared and gazetted as a “remediation site”
on 29 July 2005 by the Department of Environment and Conservation under the Contaminated Land Management Act,
1997. The contamination on the site arose from the use of fill material, mainly sourced from the adjacent smelter on the
Pasminco site, by previous owners of the site. The Company is in discussion with the relevant regulatory authority to
develop a voluntary Remediation Action Plan (“RAP”) and has confirmed its position that it intends to work cooperatively
with both the regulatory authority and Pasminco Cockle Creek Smelter Pty Ltd (in administration) in relation to this site. An
environmental provision has been recognised in respect of this site.
Incitec Pivot Limited
79
Notes to the Financial Statements
For the year ended 30 September 2006
31. Contingent liabilities (continued)
Parafield Gardens (South Australia)
The Company has entered into a voluntary arrangement with the relevant regulatory authority to investigate and remediate
where appropriate land and groundwater contamination at Parafield Gardens. An environmental provision has been
recognised in respect of this site.
Wallaroo (South Australia)
Wallaroo has been identified as a site requiring soil and groundwater investigation and clean up. An independent
environmental auditor is working with the Company and community groups in relation to this site including the identification
of the most appropriate future use of this site. An environmental provision has been recognised in respect of this site.
III. Other environmental matters
For sites where there are significant uncertainties with respect to what the consolidated entity’s remediation obligations
might be or what remediation techniques might be approved, no reliable estimate can presently be made of regulatory and
remediation costs. In accordance with accounting policy included in note 1xvi (i), no amounts have been expensed
capitalised or provided for.
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 if a present
obligation in relation to a taxation liability exists which can be reliably estimated.
32. Derivative financial instruments
The Consolidated entity uses several techniques to reduce the exposure to loss from financial risks. The major types of risks
are:
A. Foreign exchange risk
B.
Interest rate risk
C. Liquidity risk
D. Credit risk.
A. 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 entities subject to common control and external parties in the financial
markets. The derivative instruments used for hedging purchase and sales exposures are option contracts and forward contracts.
The table below outlines the forward foreign exchange contracts taken out to hedge committed purchases and sales
denominated in foreign currencies.
Term
Buy US dollars / sell Australian dollars
Not later than one year
Weighted average rate
Forward FX Contract
2006
$
2005
$
2006
A$000
2005
A$000
0.7461
0.7609
150,190
106,025
80
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
32. Derivative financial instruments (continued)
A. Foreign exchange risk management (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.
The Company has 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 Balance Sheets and will be recognised in the Income Statements at
the time the underlying transactions occur. 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.
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.
The table below summarises the vanilla option(1) contracts taken out to hedge sales of the output of the Gibson Island plant.
Term
Weighted average
Contract amounts
Not later than one year
Later than one year but not later than two years
Total
AUD/USD strike rate
2006
$
0.6789
-
2005
2006
2005
$
US$000
US$000
0.6824
0.6789
15,000
-
15,000
30,000
15,000
45,000
(1) Vanilla options represent basic foreign currency options where the buyer has the option but no obligation to purchase currency on
maturity. The option would only be exercised if the rate was favourable to the strike rate.
Foreign exchange translation risk management
The consolidated entity has no foreign operations and therefore is not exposed to translation risk resulting from foreign
exchange rate movements impacting on the AUD equivalent value of self-sustaining foreign operations.
B. 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 determined by the Board of Directors.
The consolidated entity’s interest rate risk arises from long term borrowings. During the year, long term borrowing have
been acquired to finance the share buyback transaction and acquisition of SCF. Borrowings issued at variable rates
expose the entity to interest rate risk. The consolidated entity manages its interest rate risk by using floating to fixed
interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to
fixed rates. Under the interest rate swaps, the entity agrees with other parties to exchange, at specified intervals (either
quarterly or semi-annually), the difference between fixed contract rates and floating rate interest amounts calculated by
reference to the agreed notional principal amounts.
The notional principal amounts and periods of expiry of these interest rate swap contracts are as follows:
Not later than one year
Later than one year but no later than five years
Fixed interest rate range p.a.
Floating interest rate range p.a.
2006
$’000
-
300,000
6.37% - 6.45%
2005
$’000
-
-
N/A
6.23% - 6.28%
5.10% - 5.79%
Incitec Pivot Limited
81
Notes to the Financial Statements
For the year ended 30 September 2006
32. Derivative financial instruments (continued)
B. Interest rate risk management (continued)
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
5 years
or more
Floating
interest
rate
Total
Non-
interest
bearing
Notes
$000
$000
$000
$000
$000
$000
30 September 2006
Cash and cash equivalents
Trade and other receivables
Total financial assets
Weighted average effective interest rate (1)
Trade and other payables
Interest bearing liabilities
Total financial liabilities
Net hedging activity (2)
Net financial liabilities including hedging
activities
Weighted average effective interest rate (after
hedging activities)
Net financial assets/(liabilities)
30 September 2005
Cash and cash equivalents
Trade and other receivables
Investment in listed entity
Total financial assets
Weighted average effective interest rate (1)
Trade and other payables
Interest bearing liabilities
Total financial liabilities
Weighted average effective interest rate (1)
Net financial assets/(liabilities)
(10)
(11)
161,658
-
161,658
5.92%
(19)
-
(21)
(437,103)
(437,103)
300,000
(137,103)
6.22%
24,555
3,191
-
-
3,191
5.53%
-
(12,514)
(12,514)
5.54%
(9,323)
(10)
(11)
(14)
(19)
(21)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(300,000) (3)
-
-
- 121,709
- 121,709
-
-
161,658
121,709
283,367
- (342,684)
(342,684)
-
-
(437,103)
(342,684)
(779,787)
-
-
-
(300,000) (3)
- (342,684)
(779,787)
6.415%
-
-
-
(300,000)
-
(220,975)
(496,420)
-
-
-
-
-
-
-
-
-
-
-
-
-
160
77,534
12,341
90,035
3,351
77,534
12,341
93,226
- (200,699)
(200,699)
-
-
(12,514)
- (200,699)
(213,213)
-
-
-
- (110,664)
(119,987)
(1) Weighted average effective interest rate includes funding at local rates achieved.
(2) Net hedging activity represents the net impact on the Company’s interest exposures from the utilisation of derivative financial instruments to
hedge the Company’s interest rate exposures i.e. interest rate swaps.
(3) Interest rate swaps held as at 30 September 2006 matures during August 2009.
C. 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.
D. 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
Balance Sheets net of any impairment losses (see note 11, Trade and other receivables) and from derivative financial
instruments.
82
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
32. Derivative financial instruments (continued)
The credit risk exposure arising from derivative financial instruments is the sum of all contracts with a positive replacement
cost. As at 30 September 2006, the sum of all contracts with a positive replacement cost was $1.0m (2005 $2.3m).
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:
Foreign exchange option contracts
Net fair value
2006
$000
-
2005
$000
6,486
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.
33. Related party disclosures
Controlling entities
Until 9 May 2006, the immediate parent entity was Orica IC Assets Ltd and the ultimate parent entity was Orica Limited
(Orica), both incorporated in Australia. On 10 May 2006, Orica sold 32,939,577 shares of the Company into the market via
an institutional placement for $21 per share. From that date the Company does not have an immediate or ultimate parent
entity.
Subsidiaries
Interest in subsidiaries is set out in note 36.
Key management personnel
Disclosures relating to key management personnel are set out in note 34.
Transactions with wholly owned controlled entities
Transactions between the Company and entities in the wholly owned group during the year included:
• Effective 1 November 2003, the Company was appointed as undisclosed agent for Incitec Fertilizers Limited. The
Company manages certain operations of Incitec Fertilizers Limited, including manufacturing, marketing, selling,
invoicing and distribution, and has assumed management of working capital. Incitec Fertilizers Limited has invoiced
the Company for fertiliser sales made on its behalf, net of variable costs and amount to $110,003,398 (2005
$102,036,700). Fixed costs incurred by the Company in the performance of its obligations amounting to $58,778,540
(2005 $50,437,000) have been charged to Incitec Fertilizers Limited.
•
Incitec Fertilizers Limited declared and paid an interim dividend to the Company of $11,446,000 (2005 $2,000,000)
and declared a final dividend on 30 September 2006 of $57,900,000 (2005 $32,000,000). This dividend is eliminated
on consolidation.
• Management fees were received and paid by the Company for accounting and administrative assistance on normal
commercial terms and conditions and in the ordinary course of business.
•
The Company’s tax balances include the wholly-owned controlled entities tax related balances and the net tax balance
as at 30 September 2006 was $13,570,848 (2005 $17,243,000).
• Effective 1 August 2006, the Company completed the acquisition of SCF. The Company manages operations of SCF.
For the two months ended 30 September 2006, SCF sold fertiliser to the Company to the value of $13,083,000 and
invoiced the Company for salary and travel charges to the value of $2,051,520. For the two month period, the
Company invoiced SCF for insurance and corporate charges to the value of $2,000,000. At 30 September 2006, SCF
had an inter-company receivable from the Company of $11,532,000. This is eliminated on consolidation.
Incitec Pivot Limited
83
Notes to the Financial Statements
For the year ended 30 September 2006
33. Related party disclosures (continued)
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, unless otherwise stated. Transactions during the year until effective date of separation from Orica (10 May
2006) were:
• Sales of products (mainly urea and sulphuric acid) to the value of $22,340,000 (2005 $38,435,000) to Orica Australia
Pty Ltd.
• Sulphuric acid is purchased by the Company jointly with a common controlled entity, Orica Australia Pty Ltd.
Accordingly the product is transferred to Orica Australia Pty Ltd at a zero margin. Total zero margin sales of sulphuric
acid to Orica Australia Pty Ltd were $4,953,028 (2005 $6,442,000).
• Under various service level agreements, fees of $5,977,051 (2005 $6,337,000) were received or receivable by the
Company from Orica Australia Pty Ltd.
• Purchases of products and services to the value of $4,378,487 (2005 $14,606,000) from Orica Australia Pty Ltd.
• Under a service level agreement, fees of $5,914,227 (2005 $9,597,000) were paid/payable to the ultimate parent
entity in relation to accounting, information technology, engineering and administrative services.
•
•
Interest expense paid or payable by the Company for money borrowed from Orica Finance Limited was $4,712,120
(2005 $8,069,000).
Interest income received or receivable by the Company for money lent to Orica Finance Limited was $nil (2005
$246,000)
• Under the terms and conditions of the merger implementation deed, Orica Limited contributed $nil (2005 $1,300,000)
to the corporate costs of the Company. The corporate cost contribution agreement ceased 31 May 2005.
•
•
Insurance cover was purchased from Curasalus Pty Limited, a wholly owned subsidiary of Orica Limited on normal
terms and conditions to the value of $10,127,420 for the year ended 30 September 2006 (2005 $13,800,000).
Insurance claims were received or receivable from Curasalus Pty Limited, a wholly owned subsidiary of Orica Limited
on normal terms and conditions to the value of $2,000,000 (2005 $2,600,000).
Additional related party disclosures
Additional relevant related party disclosures are shown throughout the notes to the financial statements as follows:
Interest income and expense
Cash and cash equivalents
Trade and other receivables
Investments in controlled entities
Trade and other payables
Interest bearing liabilities
Key management personnel disclosures
notes 4, 5
note 10
note 11
notes 14, 36
note 19
note 21
note 34
84
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures
(a) Key Management Personnel
The following were key management personnel of the consolidated entity at any time during the reporting period and
unless otherwise indicated were key management personnel for the entire period:
Non-executive directors
J C Watson
J R Chesterfield (1)
B Healey
A C Larkin
A D McCallum
Executive directors
J Segal (2)
J E Fazzino
Executives
K J Gleeson
D A Roe
A Cleland (3)
B C Walsh
A Grace (4)
J D Whiteside (4)
M Drew (4)
Chairman
Managing Director and Chief Executive Officer
Finance Director and Chief Financial Officer
General Counsel & Company Secretary
General Manager Strategy & Business Development
General Manager Strategy & Marketing
General Manager Operations
General Manager SCF Integration
General Manager Supply Chain & Trading
General Manager Sales & Customer Service
(1) Mr Chesterfield resigned from the position of non-executive director on 11 July 2006.
(2) Mr Segal was seconded to Incitec Pivot from Orica Limited on 3 June 2005 and was appointed as a director of Incitec Pivot.
Mr Segal resigned from Orica Limited effective 9 May 2006 and entered into an agreement with Incitec Pivot Limited dated 29 May
2006.
(3) Ms Cleland was seconded to Incitec Pivot Limited on 6 June 2005 pursuant to her employment agreement with Orica Limited.
Ms Cleland completed her secondment from Orica effective 30 September 2006.
(4) The following executives were appointed to the Executive Team on the dates as noted: Mr Grace (1 June 2006), Mr Whiteside
(22 June 2006), Mr Drew (1 August 2006).
All of the above persons were also key management persons during the year ended 30 September 2005, except for
Mr Grace, Mr Whiteside and Mr Drew.
Incitec Pivot Limited
85
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(b) Key management personnel compensation
The key management personnel compensation included in the income statement line “Employee Expenses” are as follows:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Consolidated/Company
2006
2005
$
$
7,093,529
127,372
-
-
120,929
7,341,830
3,645,458
157,382
-
549,737
125,246
4,477,823
Individual directors and executives compensation disclosures
Information regarding individual directors and executives compensation and some equity instruments disclosures as
permitted by Corporations Regulations 2M.3.03 and 2M.6.04 is provided in the Remuneration Report which is included in
the Directors’ report on pages 20 to 35. Disclosures of remuneration policies, service contracts and details of
remuneration are included in the Remuneration Report on pages 23 to 28.
Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the
consolidated entity since the end of the previous financial year and there were no material contracts involving directors’
interests existing at year-end.
86
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(c) Loans to key management personnel and their related parties
No loans have been granted to directors and other key management personnel and their related parties with the exception
of loans granted under the terms and conditions of the LTI Performance plan 2003/06 for the three year period 1 October
2003 to 30 September 2006 and the loan provided to Mr Segal by way of a Retention Award. Details of loans made to
executive directors of Incitec Pivot Limited and other key management personnel of the consolidated entity, including their
personally related parties, are set out below:
Loan
advanced
during the
year
$
Interest paid
and payable
during the year
$
Amount repaid
during the year
$
Amount of
loan forgiven
$
Closing
balance
$
Highest
indebtedness
$
Interest not
charged
$
Opening
balance
$
-
-
102,298
150,156
-
942,066
102,298
1,092,222
62,953
41,656
43,154
44,868
28,765
29,907
55,800
-
56,723
-
-
148,496
-
148,534
-
165,016
-
135,264
247,395
713,741
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
722,250
-
81,926
-
-
-
804,176
-
94,830
53,299
100,116
-
51,088
-
-
-
-
-
-
-
-
-
-
-
-
-
246,034
53,299
2006
349,693
1,050,210
Directors
- Current
J Segal
J E Fazzino
- Former
G J Witcombe (1)
Total Directors
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace (2)
J D Whiteside (3)
- Former
J W Elmer
R Hoggard
J M Lloyd
J R Warnock
Total
Executives
Total for key
management
personnel and
their related
parties
-
-
9,296
3,718
-
20,946
9,296
24,664
7,866
2,136
8,365
2,301
4,748
1,534
3,539
-
3,657
-
-
4,478
-
2,497
-
3,616
-
4,498
28,175
21,060
37,471
-
-
(39,449)
(11,021)
-
(572,968)
(39,449)
(583,989)
(28,994)
(6,689)
(6,485)
(4,015)
(3,617)
(2,676)
(799)
-
-
-
-
(92,333)
-
(151,031)
-
(168,632)
-
(9,963)
-
-
-
(40,555)
-
(390,044)
-
(430,599)
-
(27,449)
-
-
-
-
-
-
-
-
-
(60,641)
-
-
-
-
-
(55,665)
722,250
-
154,071
102,298
-
-
876,321
102,298
136,655
62,953
145,150
43,154
80,984
28,765
58,540
-
60,380
-
-
-
-
-
-
-
-
74,134
(39,895)
(435,339)
-
(143,755)
481,709
209,006
722,250
-
186,641
150,156
-
942,066
908,891
1,092,222
159,543
94,955
145,150
44,868
80,984
29,907
58,540
-
60,380
-
-
148,496
-
148,534
-
165,016
-
135,264
504,597
767,040
13,181
-
1,499
4,815
-
29,246
14,680
34,061
1,056
3,314
-
-
-
-
-
-
-
-
4,614
-
2,461
-
3,217
340
4,279
1,396
17,885
(79,344)
-
1,358,030
1,413,488
16,076
2005
1,805,963
53,299
45,724
(1,019,328)
(574,354)
311,304
1,859,262
51,946
Incitec Pivot Limited
87
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(c) Loans to key management personnel and their related parties (continued)
The descriptions below should be read in conjunction with the table on page 87.
All loans are secured by restrictions on dealings being placed over the shares. The loans under the
previous, and completed, retention plan and Mr Segal’s Retention Award are interest free. Interest on the
loans under the LTI Performance plan 2003/06 is charged at the FBT benchmark rate, currently 7.30%
(2005: 7.05%). The loans under the LTI Performance plan 2003/06 are repayable prior to the participant
dealing in the shares and in any event must be repaid by 31 December 2007. Interest is payable annually.
Interest received on the loans totalled $37,471 (2005: $45,742). The Company has not advanced any other
loans to key management persons or their related parties. No amounts have been written down or recorded
as allowances, as the balances are considered fully collectible.
(1) Upon Mr Witcombe’s resignation as a director and cessation of employment with Incitec Pivot Limited,
Mr Witcombe received, as part of his severance payment, loan forgiveness in aggregate of $390,044 in
respect of his participation under the LTI Plan. In addition, Mr Witcombe repaid the balance of the loans
outstanding under the LTI Plan.
(2) Opening balance represents loan balance at date appointed to Executive Team (1 June 2006). Movements
are from this date.
(3) Opening balance represents loan balance at date appointed to Executive Team (22 June 2006). Movements
are from this date.
The amounts shown for interest not charged in the tables above represent the difference between the amount paid and
payable for the year and the amount of interest that would have been charged on an arm’s length basis in relation to the
previous, and completed, retention plan loans and Mr Segal’s Retention Award.
(d) Other key management personnel transactions
The following transactions, entered into during the year with directors of the Company, were on terms and conditions no
more favourable than those available to other customers, suppliers and employees:
(i) During the year Mr McCallum purchased fertiliser to the value of $30,514 (2005: $20,132) from the
Company, the balance owing at 30 September 2006 was $nil (2005: $nil).
(ii) The spouse of Mr Fazzino, the Finance Director and Chief Financial Officer, is a partner in the
accountancy and tax firm PricewaterhouseCoopers from which the Company purchased services of
$923,518 during the year (2005: $352,852). Mr Fazzino’s spouse does not directly provide these
services.
88
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives
(1) Movements in shares in the Company
The movement during the reporting period in the numbers of shares in the Company held directly, indirectly or beneficially,
by each key management person, including their related parties is set out in the table below:
The Company - Incitec Pivot
Non-executive directors
- Current
J C Watson
B Healey
A D McCallum
- Former
L M Delahunty
D B Trebeck
Executive directors
- Current
J Segal
J E Fazzino
- Former
G J Witcombe
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace (1)
J Whiteside (2)
M Drew (3)
- Former
J W Elmer
R Hoggard
J M Lloyd
J R Warnock
Year
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
Number of Shares
Opening
balance
(A)
Acquired
during the year
(B)
Disposed during
the year (C)
Closing
balance
(D)
2,700 2,300
2,700
- 5,000
- - 2,700
- 1,000
- 1,000
- - - -
7,818
- - 6,818
6,818 2,993
6,818
(1,993)
6,478
- - - -
-
- - - -
-
-
-
4,000
(6,478)
(4,000)
- 32,640
- 32,640
- - - -
- 29,262
- 9,649
9,649 19,613
9,581 68
- - -
- - - -
-
-
59,778
(59,778)
5,921 5,981
5,869 52
2,790 6,269
52
2,738
1,933
5,742
52
1,881
12
5,822
(3,327)
8,575
- 5,921
- 9,059
- 2,790
- 7,675
- 1,933
4,834
- - -
- 3,951
- - -
- - 43
- - -
(1,000)
55
38
52
(9,531)
- - -
-
- - -
-
- - -
-
-
- - -
-
(10,472)
(9,520)
(8,700)
68
-
3,896
-
43
-
-
9,479
-
9,482
-
10,472
-
8,632
No shares were granted to key management personnel during the reporting period as compensation in 2005 or 2006.
Shares treated as options, were granted as compensation to certain key management personnel during the reporting
period. No shares were held by key management personnel related parties.
Incitec Pivot Limited
89
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
The descriptions below should be read in conjunction with the table on page 89.
(A)
(B)
(C)
(D)
(1)
(2)
(3)
Represents the holding at 1 October 2005 of shares of Incitec Pivot held by non-executive and executive directors and executives
who were directors and executives of the Company during the year ended 30 September 2006. This includes fully paid ordinary
shares and shares acquired under the Employee Share Ownership Plan (ESOP) and shares treated as options for the purposes of
remuneration which have been disclosed in section F of the Remuneration Report and movement disclosed in this note. Details of
the ESOP are set out in Note 35, Share Based Payments.
The opening balances reflect the restatement of 2005 comparatives as appropriate.
Represents shares acquired by directors and executives while they are directors or executives of the Company including
acquisitions by the directors and executives who were eligible to participate in the employee share ownership plan (ESOP) and
who participated in the scheme during the year, as well as acquisition of shares treated as options for the purposes of
remuneration under the LTI Performance plan 2003/06. Details of the ESOP are set out in Note 35, Share Based Payments.
Represents shares disposed of during the year. This includes fully paid ordinary shares, shares acquired under the Employee
Share Ownership Plan (ESOP) and shares treated as options for the purposes of remuneration under the LTI Performance plan
2003/06. In the case of directors or executives who ceased their directorship or employment during the year ended 30 September
2005, all shares were treated as disposed as at the relevant date of cessation.
Represents the holding at 30 September 2006 of shares of Incitec Pivot.
Opening balance represents holdings at date of appointment to the executive team (1 June 2006). Movements are from this date.
Opening balance represents holdings at date of appointment to the executive team (22 June 2006). Movements are from this
date.
Opening balance represents holdings at date of appointment to the executive team (1 August 2006). Movements are from this
date.
90
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
(2) Movements in Shares treated as options over equity instruments in the Company
The movement during the reporting period in the number of shares treated as options over ordinary shares in the
Company, for the purposes of remuneration held, directly, indirectly or beneficially, by each key management person,
including their related parties, is as follows:
Number of Shares treated as Options
Year
Opening
balance (A)
Granted as
compensation
(B)
Exercised
during the
year (C)
Other
Changes (D)
Closing
balance (E)
The Company - Incitec Pivot
Executive directors
- Current
J Segal
J E Fazzino
- Former
G J Witcombe
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace (1)
J Whiteside (2)
M Drew (3)
- Former
J W Elmer
R Hoggard
J M Lloyd
J R Warnock
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
- 32,597
-
- - -
-
4,424 5,130
(5,101)
9,525
-
- 32,597
-
-
-
(9,554)
- 4,424
- - -
-
59,778
(59,778)
-
-
-
-
-
-
2,542 5,938
(3,327)
5,869
-
2,738 6,269
- -
2,738
-
1,825 3,199
- -
1,825
3,630
- -
- - -
3,744
- -
- - -
- - -
- - -
(5,024)
(9,007)
(8,480)
-
- 2,542
-
- 2,738
-
- 1,825
-
-
-
-
-
-
(3,630)
-
(3,744)
-
-
-
(9,423)
- - -
9,423
-
- - -
9,426
- -
- - -
- -
- - -
-
8,576
10,472
(8,576)
-
-
-
(9,426)
-
(10,472)
-
-
-
-
-
-
-
-
-
-
No shares treated as options held by key management personnel vested during the year ended 30 September 2006 or are
vested and exercisable at 30 September 2006. Shares treated as options received under the retention plan vested and
were exercisable at 30 September 2005. No shares treated as options were held by key management personnel related
parties.
Incitec Pivot Limited
91
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
The descriptions below should be read in conjunction with the table on page 91.
(A) Represents the holding at 1 October 2005 of shares treated as options of Incitec Pivot held by non-executive and executive
directors and executives who were directors and executives of the Company during the year ended 30 September 2006.
Further details of these shares treated as options for the purposes of remuneration have been disclosed in section F of the
Remuneration Report.
The opening balances reflect the restatement of 2005 comparatives as appropriate.
(B) Represents shares, treated as options, granted as remuneration acquired during the year by directors and executives while
they are directors or executives of the Company.
(C) Represents shares, treated as options, previously granted as compensation, which were exercised during the reporting
period when awards (in the form of waivers of loans) were granted to the applicable executives who satisfied the criteria
under the relevant LTI Plan. Refer to section C of the Remuneration Report for further details generally on the LTI Plan
and note 35 Share based payments for further details of the LTI Performance Plan 2003/06 and Retention plan and Julian
Segal’s Retention Award.
(D) Represents shares treated as options that expired due to the holder ceasing to be eligible to the option of a loan waiver.
The executive director or executive remains the registered holder of the underlying shares. Refer section C of the
Remuneration Report for further details of the LTI. In the case of directors or executives who ceased their directorship or
employment during the year, all shares treated as options were forfeited as at the relevant date of cessation.
(E) Represents the holding at 30 September 2006 of shares, treated as options.
(1) Opening balance represents holdings at date of appointment to the executive team (1 June 2006). Movements are from
this date.
(2) Opening balance represents holdings at date of appointment to the executive team (22 June 2006). Movements are from
this date.
(3) Opening balance represents holdings at date of appointment to the executive team (1 August 2006). Movements are from
this date.
92
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
(3) Movements in shares and options in the Ultimate parent entity (until 10 May 2006)
Orica Limited ceased to be Incitec Pivot’s Ultimate parent entity effective 10 May 2006. The movement during the
reporting period in the number of ordinary shares, trust shares and award rights and options for fully paid ordinary shares
of the Ultimate parent entity (Orica Limited) held, directly, indirectly or beneficially, by each key management person,
including their related parties, up to 10 May 2006, is as follows:
Ultimate parent entity - Orica Limited
(until 10 May 2006)
Non-executive directors
Year
Opening
Balance (A)
Number of Shares
Received on
exercise of
options (C)
Acquired
during the
period (B)
Disposed
during the
period (D)
Closing
Balance (E)
- Current
B Healey
A C Larkin
- Former
J R Chesterfield
B J Gibson
G R Liebelt
D B Trebeck
Executive directors
- Current
J Segal
J E Fazzino
- Former
G J Witcombe
Executives
- Current
D A Roe
B C Walsh
A Grace (1)
- Former
R Hoggard
J R Warnock
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
9,300 1,163
9,300
38,000 4,750
38,000
-
- -
-
- -
28,614 12,061
28,614
-
255,600 55,270
14,254
- -
- -
-
- -
-
- -
- -
423,281
-
454,778
-
9,000
(4,750)
(34,189)
- 10,463
- 9,300
38,000
- 38,000
-
20,740
- 28,614
-
-
-
(310,870)
-
-
-
(878,059)
-
-
-
(9,000)
16,831 38,877
16,831
29,808 3,726
18,642 11,166
- -
-
-
54,817
(55,397)
55,128
- 16,831
18,534
- 29,808
(15,000)
-
103,374
- -
-
196,962
-
(300,336)
-
-
13,338 267
13,274 11,951
6,887 929
6,659 228
4,554
-
8,915
-
-
-
- -
- -
(8,915)
(11,887)
(4,340)
13,605
13,338
3,476
- 6,887
- 4,554
-
-
-
415 20,378
-
1,375
- -
-
- -
-
5,254
-
(20,793)
-
(6,629)
-
-
-
-
Incitec Pivot Limited
93
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
The descriptions below should be read in conjunction with the table on page 93.
(A)
Represents the holding at 1 October 2005 of shares of Orica Limited (including trust shares and award rights) held by non-
executive and executive directors and executives who were directors and executives of the Company during the period ended
10 May 2006.
The opening balances reflect the restatement of 2005 comparatives as appropriate.
(1) Opening balance represents holdings at appointment date (1 June 2006). Movements are from this date.
(B)
(C)
(D)
(E)
Represents shares, trust shares and award rights of Orica Limited acquired during the period by directors and executives while
they are directors or executives of the Company during the period ended 10 May 2006 and 30 September 2005.
Shares of fully paid ordinary shares of Orica Limited received on exercise of options during the period ended 10 May 2006 and
30 September 2005.
Represents shares disposed of during period ended 10 May 2006 and 30 September 2005. In the case of directors or executives
who ceased their directorships or employment during the year ended 30 September 2005, all shares were treated as disposed as
at the relevant date of cessation.
Represents the holding at 10 May 2006 and 30 September 2005 of shares, trust shares and award rights of Orica Limited, held
by non-executive and executive directors and executives who were directors and executives of the Company during the period.
94
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
34. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
Ultimate parent entity - Orica Limited
(until 10 May 2006)
Non-executive directors
- Former
J R Chesterfield
B J Gibson
G R Liebelt
Executive directors
- Current
J Segal
J E Fazzino
Executives
- Current
D A Roe
- Former
J R Warnock
Number of Options
Year
Opening
Balance (A)
Acquired
during the
period (B)
Exercised
during the
period (C)
Other
Changes
during the
period (D)
Closing
Balance (E)
2006
2005
2006
2005
2006
2005
28,508
28,508
-
50,000
-
309,600
-
-
-
-
-
-
(14,254)
-
-
(50,000)
-
(292,000)
-
-
-
-
-
(17,600)
14,254
28,508
-
-
-
-
2006 109,634
2005 109,634
2006
2005 10,861
-
-
-
-
-
(54,817)
-
-
(10,861)
- 54,817
- 109,634
-
-
-
-
2006 35,663
2005 47,550
-
-
(8,915)
(11,887)
(19,616)
7,132
- 35,663
-
2006
2005 5,254
-
-
-
(5,254)
-
-
-
-
(A)
(B)
(C)
(D)
(E)
Represents the holding at 1 October 2005 of options for fully paid ordinary shares of Orica Limited (the ultimate parent entity
until 10 May 2006) held by non-executive and executive directors and executives who were directors and executives of the
Company during the period ended 10 May 2006 and 30 September 2005.
The opening balances reflect the restatement of 2005 comparatives as appropriate.
Represents options for fully paid ordinary shares of Orica Limited acquired during the period ended 10 May 2006 and 30
September 2005 by directors and executives while they are directors or executives of the Company.
Represents options for fully paid ordinary shares of Orica Limited which were exercised during the period ended 10 May
2006 and 30 September 2005 by directors and executives while they are directors or executives of the Company.
Represents options for fully paid ordinary shares of Orica Limited which expired or were forfeited during the period ended 10
May 2006 and 30 September 2005 by directors and executives while they are directors or executives of the Company. In the
case of directors or executives who ceased their directorship or employment during the 2005 financial year, all options of fully
paid ordinary shares of Orica Limited were treated as disposed at the relevant date of cessation.
Represents the holding at 10 May 2006 and 30 September 2005 of shares, trust shares and award rights of Orica Limited,
held by non-executive and executive directors and executives who were directors and executives of the Company during the
period.
Incitec Pivot Limited
95
Notes to the Financial Statements
For the year ended 30 September 2006
35. Share based payments
(a) LTI Performance Plan – 2003/06
The Company established the LTI Performance Plan 2003/06 in 2003 in respect of the three year performance period,
1 October 2003 to 30 September 2006.
This plan was designed to reward executives and other senior employees for delivering long term value to the Company
and support the Company’s strategy for retention and motivation of its employees. It created the opportunity, and provided
the discipline, for executives and other senior employees to contribute to short term performance with full regard to the
delivery of sustainable growth in shareholder value.
Under its LTI plans, the Company may grant awards to participants (in the form of loan waivers), subject to them satisfying
particular conditions relating to the duration of their employment or individual or Company performance. In short, the LTI
operates by way of the Company providing participants with limited recourse interest bearing loans, which are used to
purchase Incitec Pivot shares on market. The loans are repayable in a number of circumstances, including the participant
ceasing to be employed by the Company, the participant selling his or her shares when they become unrestricted, or by a
“sunset” date, 31 December 2007. The loans are repayable from the proceeds of sale of the shares, and are deemed
satisfied by the application of the proceeds of the sale of the shares, including where there is a shortfall against the
outstanding loan amount. Participants may directly repay the whole or part of their loan at any time. Interest is charged on
the loans at the FBT benchmark rate (currently 7.30%). Net cash dividends after personal income tax obligations are
applied to reduce the loan balance.
Awards, by way of forgiveness of loans, are granted only on the achievement of conditions relating to duration of
employment and/or individual or Company performance over the rolling three-year period.
The Board set the criteria for the granting of awards under this LTI at the beginning of the three-year performance period
covered by the LTI. The criteria set by the Board for measuring Company performance are based on the generation of
targeted cumulative economic profit over the performance period. Economic profit targets are set at levels that equate to
top quartile shareholder returns over the performance period. Cumulative economic profit was chosen as the relevant
performance measure as it recognises:
•
•
•
the need to both grow earnings and produce an acceptable return on shareholders funds;
the desire to reward participants for the value they directly create, as opposed to movements in the general level
of the share market which is an issue with share price based incentives; and
the inherent seasonal volatility of the business which can positively or negatively impact any one year but is less
likely to have an influence over a cumulative three year period.
If the Company waives any loan amount, a participant has full, unrestricted ownership of the shares to the value of the loan
waiver. Prior to any loan waiver being awarded, a participant is the registered holder of the shares, however, cannot deal
in the shares.
Under this plan all shares, treated as options, have expired due to the holders ceasing to be eligible to the option of a loan
waiver. The participants remain as registered holders of the shares.
(b) Retention Award – Mr Segal
The Board recognised that the retention of key executives was a crucial element to the success of the Company following
Orica Limited ceasing to be a majority shareholder and the acquisition of SCF. Accordingly, Mr Segal received a Retention
Award in the form of a limited recourse, interest free unsecured loan for $722,250 which was applied in the purchase of
shares on market. Mr. Segal is restricted from dealing in the shares until 10 May 2009 and, until that time, the shares may
be forfeited if he ceases to be employed by the Company. The loan is repayable on the earlier of Mr. Segal ceasing to be
employed by the Company, selling of the shares or three years after the loan is made. If he remains in service until 10
May 2009, the full loan amount outstanding at that time will be forgiven by the Company.
(c) Retention Plan – 2003/05
From the date of merger on 1 June 2003 to 30 September 2005 the Company had established a specific LTI plan to retain
key employees. Loans were granted and applied in the purchase of shares on market. For those participants satisfying
the condition by remaining in employment until 30 September 2005, 51.5% of loans were waived as at 30 September 2005
and the balance of the loans repaid .
96
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
35. Share based payments (continued)
Set out below are summaries
•
•
for 2006, of shares treated as options, granted under the LTI Performance plan 2003/06 and to Mr. Segal, by
way of a Retention Award; and
for 2005, of shares treated as options, granted under the LTI Performance plan 2003/06 and the Retention plan
2003/05:
Consolidated/Company – 2006
Grant date
Expiry date
Exercise
price
Balance at
the start of
the year
Granted
during the
year
Exercised
during the
year
Forfeited
during the
year
Balance at
the end of
the year
Number
Number
Number
Number
Number
Retention Award – Mr. Segal
5 Jul 06
10 May 09
$0
Total
LTI Performance plan – 2003/06
20 Sept 04
30 Sept 06
4 Oct 05
30 Sept 06
$16.39
$15.97
Total
Weighted average exercise price
Consolidated/Company – 2005
-
-
41,844
-
41,844
$16.39
32,597
32,597
-
69,022
69,022
$10.85
-
-
-
-
-
-
-
-
32,597
32,597
(41,844)
(69,022)
(110,866)
$16.13
-
-
-
-
Grant date
Expiry date
Exercise
price
Balance at
the start of
the year
Granted
during the
year
Exercised
during the
year
Forfeited
during the
year
Balance at
the end of
the year
Number
Number
Number
Number
Number
Retention plan – 2003/05
1 Jun 03
30 Sept 05
$15.44
Total
LTI Performance plan – 2003/06
20 Sept 04
30 Sept 06
$16.39
Total
Weighted average exercise price
100,535
100,535
92,445
92,445
$15.90
-
-
-
-
-
(86,294)
(86,294)
(35,883)
(35,883)
$15.72
(14,241)
(14,241)
(14,718)
(14,718)
$15.92
-
-
41,844
41,844
$16.39
The weighted average share price at the date of exercise of shares treated as options exercised regularly during the year
ended 30 September 2006 was $0 (2005 - $18.75) as no shares treated as options have been exercised.
The weighted average remaining contractual life of shares treated as options outstanding at the end of the period was 2.61
years (2005 - 1 year).
Fair value of shares treated as options granted
Retention Award – Mr. Segal
In respect of the Retention Award to Mr Segal, the assessed fair value at grant date of the shares treated as options,
granted during the year ended 30 September 2006 was $21.20 per share treated as an option. The fair value at grant date
is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the
term of the share treated as an option, the impact of dilution, the share price at grant date and expected price volatility of
the underlying share, the expected dividend yield and the risk free interest rate for the term of the share treated as an
option.
Incitec Pivot Limited
97
Notes to the Financial Statements
For the year ended 30 September 2006
35. Share based payments (continued)
The model inputs for the shares treated as options, granted during the year ended 30 September 2006 included:
(a) shares treated as options are granted for no consideration, have a three year life, and vests and are exercisable after
the third anniversary of the date of the grant
(b) exercise price: $0
(c) grant date: 5 July 2006
(d) expiry date: 10 May 2009
(e) share price at grant date: $22.75
(f) expected price volatility of the company’s shares: no material impact
(g) expected dividend yield: 2.5%
(h) risk-free interest rate: 3 year government bond rate.
LTI Performance Plan – 2003/06
In respect of the LTI Performance Plan 2003/06, the assessed fair value at grant date of the shares treated as options
granted during the year ended 30 September 2006 was $1.66 per share treated as an option. The fair value at grant date
is independently determined using a Monte Carlo simulation approach that takes into account the exercise price, the term
of the share treated as an option, the impact of dilution, the share price at grant date and expected price volatility of the
underlying share, the expected dividend yield and the risk free interest rate for the term of the share treated as an option.
The model inputs for these shares treated as options, granted during the year ended 30 September 2006 included:
(a) shares treated as options are granted at $15.97 per share treated as an option, have a two year life, and vest after
certain Cumulative Economic Profit Targets are met for the period 1 October 2003 to 30 September 2006 and are
exercisable at the earlier of 31 December 2007 or cessation of employment
(b) exercise price: $15.97
(c) grant date: 4 October 2005
(d) expiry date: 30 September 2006
(e) share price at grant date: $15.82
(f) expected price volatility of the company’s shares: 20%
(g) expected dividend yield: 6.13%
(h) risk-free interest rate: Australian Government bond rate with approximately 2 years to maturity.
Employee Share Ownership Plan
The Board established the Incitec Pivot Employee Share Ownership Plan (ESOP) on 28 October 2003. Administration of
the plan is held with Watson Wyatt Australia Pty Limited who have outsourced this to CitiStreet Australia Pty Limited,
effective 1 November 2004. The Board determines which employees are eligible to receive invitations to participate in the
ESOP. Invitations are made to eligible employees on the following basis:
• shares acquired are either newly issued shares or existing shares acquired on market.
• employees are each entitled to acquire shares on market with a maximum value of $1,000.
• 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 who leave the Consolidated entity must salary sacrifice any remaining amount prior to departure.
Grant date
Date shares become
unrestricted
Number of participants as at
Number of shares held as at
30 Sep 2006
30 Sep 2005
30 Sep 2006
30 Sep 2005
19 Mar 04
7 Jun 04
9 Sep 04
22 Dec 04
7 Mar 05
30 Jun 05
16 Sep 05
13 Jul 06
23 Aug 06
Total
19 Mar 07
7 Jun 07
9 Sep 07
22 Dec 07
7 Mar 08
30 Jun 08
16 Sep 08
13 Jul 09
23 Aug 09
261
261
282
282
281
281
204
327
180
295
295
318
318
319
317
232
6,781
6,836
3,595
3,225
3,583
3,917
3,270
14,104
7,020
52,331
7,681
7,756
4,060
3,641
4,064
4,428
3,672
35,302
These shares rank equally with all other fully paid ordinary shares from the date acquired by the employee and are eligible
for dividends.
98
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
35. Share based payments (continued)
Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit
expense were as follows:
Shares treated as options issued under Retention Award and
LTI Performance Plan 2003/06
Consolidated
Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
243
243
227
227
243
243
227
227
36.
Investments in controlled entities
Name of Entity
Company
Incitec Pivot Limited
Controlled Entities - operating
Incitec Fertilizers Limited
Incitec Pivot LTI Plan Company Pty Limited
Southern Cross Fertilisers Pty Limited
TOP Australia Ltd
Ownership
interest
Country of
incorporation
Australia
100%
100%
100%
100%
Australia
Australia
Australia
Australia
On 1 August 2006 the Company acquired 100% of Southern Cross Fertilisers Pty Limited shares from BHP
Billiton Limited.
On 30 September 2005 TOP Australia Ltd and Incitec Fertilizers Limited entered into a Deed of Cross
Guarantee with Incitec Pivot Limited in respect of relief granted from specific accounting and financial
reporting requirements in accordance with the ASIC Class order 98/1418. Southern Cross Fertilisers Pty Ltd
was joined to this Deed of Cross Guarantee by way of an Assumption Deed dated 28 September 2006.
Incitec Pivot Limited
99
Notes to the Financial Statements
For the year ended 30 September 2006
37. Deed of Cross Guarantee
Closed Group
2006
$000
2005
$000
Balance Sheet
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Deferred tax liabilities
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Income Statement
Profit before income tax
Income tax benefit/(expense)
Profit for the financial year
Retained profits at the beginning of the financial year
Movements in retained earnings
Cash dividend paid
Retained profits at the end of the financial year
161,658
121,445
2,019
298,656
8,885
2,876
595,539
280
478,097
196,210
32,215
877
707,679
1,303,218
282,614
7,103
5,683
19,329
47,478
362,207
60,086
430,000
1,774
-
3,393
65,761
561,014
923,221
379,997
360,797
718
18,482
379,997
52,710
(12,595)
40,115
29,045
(8,805)
(41,873)
18,482
3,351
75,901
12,341
262,909
1,638
2,416
358,556
(630)
291,971
192,250
-
839
484,430
842,986
198,436
12,514
-
4,101
43,713
258,764
-
-
-
7,114
4,321
12,821
24,256
283,020
559,966
532,445
(1,524)
29,045
559,966
21,444
(6,952)
14,492
84,588
257
(70,292)
29,045
Entities which are party to a Deed of Cross Guarantee dated 30 September 2005 (as varied by an Assumption
Deed dated 28 September 2006), entered into in accordance with ASIC Class Order 98/1418, are disclosed in
note 36, Investments in controlled entities. A consolidated Balance Sheet and Income Statement for this closed
group are shown above.
100
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
This is Incitec Pivot’s first full year financial report prepared in accordance with the requirements of AIFRS, which Incitec
Pivot was required to adopt from 1 October 2005. Comparative information is required to be restated. In general, AIFRS
accounting policies must be applied retrospectively to determine the opening AIFRS balance sheet as at transition date,
being 1 October 2004, with the exception of the requirements of AASB 132 and AASB 139 which are only applicable from
1 October 2005 and no comparative information is required. AASB 1 also allows a number of exemptions and exceptions
to this general principle, to assist in the transition to reporting under AIFRS, which are set out below.
Presented on the following pages are the restated Balance Sheets at 1 October 2004, 30 September 2005 and 1 October
2005 together with the restated Income Statements for the period ending 30 September 2005 as a result of the transition to
AIFRS. There are no material changes to the Statements of Cash Flows identified as part of AIFRS transition. An
explanation of how the transition from previous AGAAP to AIFRSs has affected the consolidated entity’s Balance Sheet,
Income Statement and Statement of Cash Flows is set out in the following tables and the notes that accompany the tables.
Incitec Pivot Limited
101
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
1. Reconciliation of equity reported under previous AGAAP to equity under AIFRS
a) At the date of transition to AIFRS: 1 October 2004
Previous
AGAAP
Consolidated
Effect of
transition to
AIFRS
AIFRS
Previous
AGAAP
Company
Effect of
transition to
AIFRS
AIFRS
Notes
$000
$000
$000
$000
$000
$000
a
a
m
h
a,f,m
f
b,j
a
h
j
b
83,846
123,745
246,292
7,047
-
460,930
3,248
-
296,132
183,809
17,108
10,166
510,463
971,393
192,854
63,055
16,277
26,877
299,063
19,049
-
21,762
40,811
339,874
-
-
(9,123)
(4,748)
9,381
(4,490)
(3,025)
-
5,118
7,242
(17,108)
(7,870)
(15,643)
(20,133)
-
-
-
-
-
(7,269)
4,403
-
(2,866)
(2,866)
83,846
123,745
237,169
2,299
9,381
456,440
223
-
301,250
191,051
-
2,296
494,820
951,260
192,854
63,055
16,277
26,877
299,063
11,780
4,403
21,762
37,945
337,008
83,846
142,245
246,292
2,268
-
474,651
188
474,179
114,918
-
13,730
2,296
605,311
1,079,962
385,019
8,055
1,246
22,460
416,780
4,526
-
15,372
19,898
436,678
-
-
(9,123)
-
-
(9,123)
-
-
1,943
7,180
(3,205)
-
5,918
(3,205)
244
-
-
-
244
(4,526)
4,403
-
(123)
121
83,846
142,245
237,169
2,268
-
465,528
188
474,179
116,861
7,180
10,525
2,296
611,229
1,076,757
385,263
8,055
1,246
22,460
417,024
-
4,403
15,372
19,775
436,799
631,519
(17,267)
614,252
643,284
(3,326)
639,958
a,h
a,b,h,j
532,445
35,922
63,152
631,519
-
(38,703)
21,436
(17,267)
532,445
(2,781)
84,588
614,252
532,445
43,694
67,145
643,284
-
(43,694)
40,368
(3,326)
532,445
-
107,513
639,958
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
102
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
b) At the end date of the last reporting period under previous AGAAP: 30 September 2005
Previous
AGAAP
Consolidated
Effect of
transition to
AIFRS
AIFRS
Previous
AGAAP
Company
Effect of
transition to
AIFRS
AIFRS
Notes
$000
$000
$000
$000
$000
$000
a
a
m
h
a,f,m
e,f
b,j
a
h
j
b
3,351
75,901
12,341
271,650
6,135
-
369,378
2,646
-
283,855
174,004
19,885
6,574
486,964
856,342
200,699
12,514
4,101
43,713
261,027
17,335
-
12,821
30,156
291,183
-
-
-
(8,741)
(4,497)
2,416
(10,822)
(1,013)
-
8,116
18,246
(19,885)
(5,735)
(271)
(11,093)
-
-
-
-
-
(10,221)
4,321
-
(5,900)
(5,900)
3,351
75,901
12,341
262,909
1,638
2,416
358,556
1,633
-
291,971
192,250
-
839
486,693
845,249
200,699
12,514
4,101
43,713
261,027
7,114
4,321
12,821
24,256
285,283
3,351
107,901
12,341
271,650
1,638
-
396,881
383
529,178
116,983
-
19,885
3,201
669,630
1,066,511
394,135
12,514
4,101
43,713
454,463
17,335
-
12,821
30,156
484,619
-
-
-
(8,741)
-
2,279
(6,462)
-
-
383
8,441
(2,662)
(2,362)
3,800
(2,662)
12,662
-
-
-
12,662
(17,335)
4,321
-
(13,014)
(352)
3,351
107,901
12,341
262,909
1,638
2,279
390,419
383
529,178
117,366
8,441
17,223
839
673,430
1,063,849
406,797
12,514
4,101
43,713
467,125
-
4,321
12,821
17,142
484,267
565,159
(5,193)
559,966
581,892
(2,310)
579,582
a,h
a,b,e,h,j,o
532,445
35,922
(3,208)
565,159
-
(37,446)
32,253
(5,193)
532,445
(1,524)
29,045
559,966
532,445
43,694
5,753
581,892
-
(43,694)
41,384
(2,310)
532,445
-
47,137
579,582
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Incitec Pivot Limited
103
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
c) Adjustments on transition to AASB 132 and AASB 139: 1 October 2005
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liability
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Other financial liabilities
Deferred tax liabilities
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
l
l
l
j,l
l
l
l
j,l
j,l
j,l
AIFRS
30-Sep-05
$000
Consolidated
AASB 139
Adjustment
$000
Notes
AIFRS
1-Oct-05
$000
AIFRS
30-Sep-05
$000
Company
AASB 139
Adjustment
$000
3,351
75,901
12,341
262,909
1,638
2,416
358,556
1,633
-
291,971
192,250
-
839
486,693
845,249
200,699
12,514
-
4,101
43,713
261,027
-
7,114
4,321
12,821
24,256
285,283
-
83,754
4,345
-
-
-
88,099
-
2,142
-
-
-
-
2,142
90,241
-
83,754
9,452
-
-
93,206
4,444
(2,223)
-
-
2,221
95,427
3,351
159,655
16,686
262,909
1,638
2,416
446,655
1,633
2,142
291,971
192,250
-
839
488,835
935,490
200,699
96,268
9,452
4,101
43,713
354,233
4,444
4,891
4,321
12,821
26,477
380,710
3,351
107,901
12,341
262,909
1,638
2,279
390,419
383
529,178
117,366
8,441
17,223
839
673,430
1,063,849
406,797
12,514
-
4,101
43,713
467,125
-
-
4,321
12,821
17,142
484,267
-
83,754
4,345
-
-
-
88,099
-
2,142
-
-
(17,223)
-
(15,081)
73,018
-
83,754
9,452
-
-
93,206
4,444
(19,446)
-
-
(15,002)
78,204
AIFRS
1-Oct-05
$000
3,351
191,655
16,686
262,909
1,638
2,279
478,518
383
531,320
117,366
8,441
-
839
658,349
1,136,867
406,797
96,268
9,452
4,101
43,713
560,331
4,444
(19,446)
4,321
12,821
2,140
562,471
559,966
(5,186)
554,780
579,582
(5,186)
574,396
532,445
(1,524)
29,045
559,966
-
4,280
(9,466)
(5,186)
532,445
2,756
19,579
554,780
532,445
-
47,137
579,582
-
4,280
(9,466)
(5,186)
532,445
4,280
37,671
574,396
104
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
2. Reconciliation of profit for the year ended 30 September 2005
Previous
AGAAP
Consolidated
Effect of
transition to
AIFRS
AIFRS
Previous
AGAAP
Company
Effect of
transition to
AIFRS
Revenue
Other income (incl. individually material items)
Changes in inventories of finished goods and
work in progress
Raw materials and consumables used and
finished goods purchased for resale
Employee expenses (including individually
material items)
Costs recovered from subsidiary under agency
agreement
Depreciation and amortisation expense
Borrowing costs
Purchased services (including individually
material items)
Repairs and maintenance
Property, plant & equipment retired/disposed
(excluding individually material items)
Outgoing freight
Lease payments - operating leases
Asset write-downs, clean-up and environmental
provisions (including individually material items)
Other expenses from ordinary activities
including individually material items
Profit/(loss) before income tax
Income tax expense
Profit for the financial year
Notes
c,h
$000
1,073,872
9,824
$000
-
(1,006)
$000
1,073,872
8,818
$000
947,548
43,824
h
e
c
23,225
(788,525)
-
-
23,225
23,225
(788,525)
(788,525)
(99,502)
602
(98,900)
(99,502)
-
(40,291)
(10,329)
(57,873)
(26,790)
(931)
(30,995)
(12,316)
(21,155)
(7,102)
11,112
(6,952)
4,160
-
9,805
-
-
-
931
-
-
-
(30,486)
(10,329)
(57,873)
(26,790)
-
(30,995)
(12,316)
50,437
(11,203)
(9,805)
(57,873)
(26,790)
(931)
(30,995)
(12,316)
-
(21,155)
(21,155)
-
10,332
-
10,332
(7,102)
21,444
(6,952)
14,492
(7,102)
(1,163)
10,291
9,128
$000
-
(1,006)
-
-
602
-
-
-
-
-
931
-
-
-
-
527
-
527
AIFRS
$000
947,548
42,818
23,225
(788,525)
(98,900)
50,437
(11,203)
(9,805)
(57,873)
(26,790)
-
(30,995)
(12,316)
(21,155)
(7,102)
(636)
10,291
9,655
Incitec Pivot Limited
105
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
3. Reconciliation of the cash flow statement under previous AGAAP to AIFRS for the year ended
30 September 2005
Consolidated
Effect of
transition to
AIFRS
Previous
AGAAP
AIFRS
Previous
AGAAP
Company
Effect of
transition to
AIFRS
AIFRS
Notes
$000
Inflows/
(Outflows)
$000
$000
Inflows/
(Outflows)
$000
Inflows/
(Outflows)
$000
$000
Inflows/
(Outflows)
a
1,121,414
(1,019,168)
1,139
(10,575)
-
151
399
(23,619)
69,741
-
1,980
-
-
-
-
-
-
1,980
1,121,414
(1,017,188)
1,139
(10,575)
-
151
399
(23,619)
71,721
994,292
(914,634)
1,139
(9,805)
20,500
151
399
(23,619)
68,423
-
1,980
-
-
994,292
(912,654)
1,139
(9,805)
-
20,500
-
-
-
1,980
151
399
(23,619)
70,403
a
(26,234)
(1,980)
(28,214)
(5,105)
2,164
-
-
(5,105)
2,164
(24,917)
(60,104)
2,164
(1,980)
(26,897)
-
-
(60,104)
2,164
(29,175)
(1,980)
(31,155)
(82,857)
(1,980)
(84,837)
(50,541)
(70,520)
(121,061)
(80,495)
83,846
3,351
-
-
-
-
-
-
(50,541)
(70,520)
(121,061)
4,459
(70,520)
(66,061)
(80,495)
(80,495)
83,846
3,351
83,846
3,351
-
-
-
-
-
-
4,459
(70,520)
(66,061)
(80,495)
83,846
3,351
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs
Dividends received from wholly-owned
controlled entity
Rental Income
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
and intangibles
Payments for purchase of investments
Proceeds from sale of property, plant and
equipment
Net cash flows from investing activities
Cash flows from financing activities
Net movement in short term financing
Dividends paid
Net cash flows from financing activities
Net decrease in cash and cash equivalents
held
Cash and cash equivalents at the
beginning of the financial year
Cash and cash equivalents at the end of
the financial year
106
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
Notes to the reconciliations
(a) Reclassifications
On initial application of AIFRS, the consolidated entity has transferred the balance of general and other reserves of
$35,922,000 to retained earnings (Company $43,694,000).
At the date of transition to AIFRS, major cyclical maintenance expenditure has been reclassified from other assets to
property, plant and equipment and it is being depreciated over the period to the next scheduled major shutdown. The
reclassification resulted in a decrease in current other assets in the consolidated entity by $4,748,000, non-current other
assets also decreased by $7,870,000 and property, plant and equipment increased by $12,618,000 as at 1 October 2004.
There is no effect on the Company.
In 2005, the major cyclical maintenance expenditure has also been reclassified from other assets to property, plant and
equipment. As at 30 September 2005, the reclassification from current other assets to property, plant and equipment was
$4,497,000 and non-current other assets to property, plant and equipment was $5,735,000. There is no effect on the
Company.
In addition capital spares have been reclassified from inventory to property, plant and equipment amounting to $9,123,000
at 1 October 2004 and $8,741,000 at 30 September 2005 for the consolidated entity and Company.
(b) Retirement benefit obligation
Under AASB 119 Employee Benefits, employer sponsors are required to recognise the net surplus or deficit in their
employer sponsored defined benefit funds as an asset or liability respectively. This resulted in a change in the
consolidated entity’s current accounting policy where defined benefit plans are accounted for on a cash basis, with no
defined benefit obligations or plan assets recognised on the balance sheet. Under the new policy, Incitec Pivot is required
to recognise an asset/liability of the defined benefit fund for the net surplus/deficit based on an actuarial calculation of the
position of the fund. On transition, the net deficit of the defined benefit fund was debited through retained earnings.
On transition, retirement benefit obligation for the consolidated and the Company increased by $4,403,000 and deferred
tax assets of $1,321,000, with a consequential reduction of $3,082,000 in retained earnings.
As at 30 September 2005, the retirement benefit obligation decreased by $82,000. The impact to the results was an
increase in equity of $57,000 net of tax and a reduction in deferred tax assets by $25,000. The adjustment is the same for
the Company.
(c) Property, plant and equipment
Property, plant and equipment is measured at cost under AIFRS. However, as permitted by the election made under
AASB 1 at transition date, property, plant and equipment were recognised at deemed cost, being a revalued amount prior
to transition date that approximates the fair value as at the date of transition.
Intangible software assets included in property plant and equipment under AGAAP have been reclassified under AIFRS to
intangible assets at 1 October 2004 and 30 September 2005. Refer to Note (f) below for further details.
Under AIFRS, the profit or loss on disposal of property, plant and equipment is recognised on a net basis in the Income
Statement rather than separately recognising the consideration as revenue. There is no profit and loss effect of this
change. However, consolidated revenue for the year ended 30 September 2005 decreased by $931,000 (Company
$931,000).
Incitec Pivot Limited
107
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
(d) Business combinations
An election is available in AASB 1, which provides the ability to choose whether the acquisition accounting of business
combinations prior to transition date is restated under AIFRS. Entities could choose to restate all prior business
combinations, only those after a certain date, or none at all. Incitec Pivot has elected not to restate business combinations
prior to transition date.
(e)
Intangible assets – goodwill
Goodwill represents the difference between the cost of a business combination over the net fair value of identifiable
assets, liabilities and contingent liabilities acquired. Under AASB 138 Intangible Assets (AASB 138), internally generated
goodwill is not recognised as an intangible asset.
Under the previous AGAAP goodwill was amortised on a straight-line basis over its useful life but not exceeding 20 years.
From 1 October 2004, goodwill is no longer amortised, but is tested annually for impairment (refer Note (g) for details on
impairment testing). The result of the cessation of the amortisation charge is to increase the value of goodwill in the
Balance Sheet and reduce the goodwill amortisation expense in the Income Statement by $9,805,000 (Company $nil) for
the year ended 30 September 2005. No impairment adjustments are required.
(f)
Intangible assets – other intangible assets
Other intangible assets acquired will be stated at cost less accumulated amortisation and impairment losses.
Under AASB 138, internally generated intangible assets (except development phase expenditure in certain circumstances)
will not be recognised and intangible assets can only be revalued if there is an active market.
On transition other intangible assets have been reviewed to ensure they are capable of recognition under AASB 138 and
tested for impairment. Software assets that are intangible assets under AASB 138 have been reclassified from property,
plant and equipment to intangible assets on transition to AIFRS. As a result, the net book value of property, plant and
equipment decreased by $7,242,000 in the consolidated entity as at 1 October 2004 and $8,441,000 as at 30 September
2005. For the Company the adjustments are $7,180,000 and $8,441,000 respectively. No impairment adjustments are
required.
(g)
Impairment of assets
AASB 136 Impairment of Assets determines the recoverable amount of an asset as the higher of net selling price and
value in use. This resulted in a change in the existing accounting policy, which determined the recoverable amount of an
asset on the basis of discounted cash flows. Under AIFRS, the carrying amount of non-current assets (excluding defined
benefit assets, deferred tax assets, goodwill and indefinite life intangible assets) is reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, the asset is tested for impairment by
comparing its recoverable amount to its carrying amount.
Goodwill and indefinite life intangible assets are tested for impairment annually (refer note (e) and (f)).
The recoverable amount will be estimated for each individual asset or where it is not possible to estimate for individual
assets, it will be estimated for the cash-generating unit (CGU) to which the asset belongs. A CGU is the smallest
identifiable group of assets that generate cash inflows largely independent of the cash inflows of other assets or group of
assets, with each CGU being no larger than a segment. In calculating the recoverable amount, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of
the risks specific to the asset or CGU. Cash flows are estimated for each asset in its current condition and therefore will
exclude cash inflows and outflows improving or enhancing the asset’s performance or that may arise from future
restructuring.
An impairment loss will be recognised whenever the carrying amount of an asset, or its CGU, exceeds its recoverable
amount. Impairment losses will be recognised in the Income Statement.
Incitec Pivot has defined its CGUs, reassessed its impairment testing policy and tested all assets for impairment as at
transition date and at 30 September 2005. No impairment write-downs were required.
108
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
(h) Share-based payments
Under previous AGAAP, no expense was recognised for share based payments. Under AASB 2 Share-Based Payments
(AASB 2), Incitec Pivot has determined the fair value of share-based payments issued to employees as remuneration and
recognised an expense in the Income Statement with a corresponding increase in equity. This applies to all share based
payments issued after 7 November 2002, which have not vested as at 1 January 2005. Accordingly, for the consolidated
entity the amounts receivable from employees were reversed, resulting in a reduction in the loan receivable at 1 October
2004 by $3,025,000 (Company $nil), a reduction in reserves of $3,069,000 (Company $nil) and an increase in retained
earnings with the net amount of loan forgiveness and dividends received up to 1 October 2004 of $44,000 (Company
$44,000).
In addition, AASB 2 requires that shares issued under a long term incentive scheme in conjunction with non-recourse
loans be treated as options. These options are valued at each reporting date, resulting in decrease in retained earnings at
1 October 2004 for the consolidated entity by $288,000 (Company $288,000), and an increase to reserves by the same
amount. Subsequent valuation has resulted in an incremental increase in employee expense by $227,000 (Company
$227,000) for the year ended 30 September 2005, with a corresponding increase to reserves for the same amount.
In addition, as the dividends on these shares are returned to Incitec Pivot to reduce the loans, these dividends are treated
as if they were not paid and are reversed and any loan forgiveness, loan repayment, and forfeit are also reversed. At 30
September 2005 the net impact of these transactions to the consolidated entity is an increase in loan receivable by
$2,088,000 and increase shareholders equity by $1,259,000 (Company $nil). The profit and loss impact of $829,000 is
due to a reduction in employee expense (Company $829,000).
Interest income on the loans is also reversed and at 30 September 2005 this resulted in a decrease in interest income of
$75,000 for the consolidated entity (Company $75,000) and loan receivable by the same amount.
(i) Earnings per share
Under AIFRS basic and diluted earnings per share are calculated using the profit or loss from continuing operations
attributable to ordinary shareholders.
The restated earnings per share for 30 September 2005, calculated on the adjusted results and the weighted average
number of shares of 58,281,027 shares, are as follows:
Basic EPS from continuing operations
Diluted EPS from continuing operations
30 Sep 2005
AGAAP
AIFRS
cents
7
7
cents
25
25
(j) Taxation
Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates
temporary differences based on the carrying amounts of an entity's assets and liabilities in the Balance Sheet and their
associated tax bases. In addition, current and deferred taxes attributable to amounts recognised directly in equity are also
recognised directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at reporting date, and any adjustments to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
value amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The following temporary differences are not provided for: the initial recognition of assets and liabilities that affect neither
accounting or taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not
reverse in the foreseeable future. The amount of deferred tax is based on the expected manner of realisation of the asset
or settlement of the liability, using tax rates enacted or substantively enacted at reporting date.
Incitec Pivot Limited
109
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
(j) Taxation (continued)
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent it is no longer probable that the related tax
benefit will be realised.
Under previous AGAAP, deferred tax balances are determined using the income statement method, items are only tax-
effected if they are included in the determination of pre-tax accounting profit or loss and/or taxable income or loss and
current and deferred taxes cannot be recognised directly in equity.
For the consolidated entity, the impact of the change in basis on the deferred tax balances and the previously reported tax
expense at 1 October 2004 is an increase in deferred tax liabilities of $11,160,000 and a decrease in retained earnings of
$11,160,000. There is no effect on the Company. In addition, other adjustments resulted in an increase in deferred tax
assets of $1,321,000 and an increase in retained earnings of $1,321,000 for the consolidated entity and the Company.
The deferred tax balances at 1 October 2004 have been netted off.
At 30 September 2005 the impact to the deferred tax balances as a result of the AIFRS adjustments is an increase in
deferred tax liabilities of $13,014,000 and deferred tax assets increased by $3,350,000 for the consolidated entity. For the
Company, the deferred tax liabilities decreased by $11,333,000 and deferred tax assets increased by $3,340,000. The
deferred tax balances at 30 September 2005 have been netted off.
At 1 October 2005 the impact to the deferred tax balances as a result of the AASB 139 adjustments is an increase in
deferred tax liabilities of $1,946,000 (Company $1,946,000) and deferred tax assets increased by $4,169,000 (Company
$4,169,000). The deferred tax balances at 1 October 2005 have been netted off.
(k) Borrowing costs
Under previous AGAAP requires borrowing costs relating to qualifying assets to be capitalised as part of the cost of the
asset. Under AIFRS, there is an option to either expense borrowing costs in the period in which they are incurred, or to
capitalise them as part of the cost of the asset.
Incitec Pivot did not have any qualifying assets in 2005.
Incitec Pivot expects to apply the allowed alternative treatment under AASB 123 Borrowing Costs and therefore will
continue to capitalise borrowing costs where they are directly attributable to the acquisition, construction or production of a
qualifying asset.
110
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
(l) Classification of financial instruments and hedge accounting – change in accounting policy
Incitec Pivot has taken advantage of the election available in AASB 1 to apply AASB 132 and AASB 139 only from 1
October 2005. This allows Incitec Pivot to apply previous AGAAP to the comparative information of financial instruments
within the scope of AASB 132 and AASB 139 for the 30 September 2006 Financial Report.
(i) Classification
Under AASB 139, financial instruments are required to be classified into one of five categories which will, in turn,
determine the accounting treatment of the item. The classifications are:
a)
b)
c)
d)
e)
Loans and receivables – measured at amortised cost;
Held to maturity – measured at amortised cost;
Held for trading – measured at fair value with fair value changes charged to net profit or loss;
Available for sale – measured at fair value with fair value changes taken to equity; and
Non-trading liabilities – measured at amortised cost.
This resulted in a change to the previous AGAAP accounting policy, which does not classify financial instruments and
where measurement was at amortised cost, with certain derivative financial instruments not recognised on Balance
Sheet. The effect at 1 October 2005 for the consolidated entity was to increase current and non current other
financial assets by $4,345,000 and $2,142,000 respectively, deferred tax assets by $4,169,000, deferred tax liabilities
by $1,946,000, current and non current other financial liabilities by $9,452,000 and $4,444,000 respectively, increase
cash flow hedging reserve by $4,280,000 and decrease retained earnings by $9,466,000. The adjustments are the
same for the Company.
(ii) Recognition of assets and liabilities
Under AASB 139 certain trade finance facilities organised for Incitec Pivot customers have been brought back onto
the balance sheet as Incitec Pivot has guaranteed a portion of these facilities. This has resulted in an increase in
trade and other receivables and an increase in interest bearing liabilities of $83,754,000 at 1 October 2005 in both
the consolidated entity and the Company.
(iii) Hedge accounting
Under AASB 139, in order to achieve a qualifying hedge, the entity is required to meet the following criteria:
Identify the type of hedge - fair value or cash flow;
Identify the hedged item or transaction;
Identify the nature of the risk being hedged;
Identify the hedging instrument;
•
•
•
•
• Demonstrate that the hedge has and will continue to be highly effective; and
• Document the hedging relationship, including the risk management objectives and strategy for undertaking the
hedge and how effectiveness will be tested.
This resulted in a change in the consolidated entity’s existing accounting policy 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, were deferred under AGAAP and included in the measurement of the
anticipated transaction when the transaction has occurred as designated.
Incitec Pivot Limited
111
Notes to the Financial Statements
For the year ended 30 September 2006
38. Impact of adopting Australian Equivalents of International Financial Reporting Standards
(continued)
(m) Assets classified as held for resale
Under AASB 5 Non-current assets held for sale and discontinued operations, a non-current asset is classified as held for
sale if its carrying amount is to be recovered principally through a sale transaction rather than through continued use. The
asset is measured at the lower of carrying amount and fair value, less costs to sell. These assets are required to be
separately disclosed on the Balance Sheet.
On transition to AIFRS, Incitec Pivot has recognised assets classified as held for sale of $9,381,000 for the consolidated
entity (Company $nil) at 1 October 2004, $2,416,000 at 30 September 2005 (Company $2,279,000). This resulted in a
reclassification from property, plant and equipment to a separate disclosure under assets classified as held for sale on the
Balance Sheet.
(n) Changes in accounting policies
Under AIFRS, changes in accounting polices will be recognised by restating comparatives rather than making current year
adjustments, with note disclosure of prior year effects, as is the existing practice under previous AGAAP.
(o)
Impact of AIFRS on retained earnings
The impact of the transition to AIFRS and adoption of AASB 132 and AABS 139 on retained earnings is as follows:
Reclassification of general and revaluation
of assets
Share-based payments transactions
Retirement benefit obligations
Deferred tax
Goodwill amortisation
Derivative financial instruments
Total adjustment to retained earnings
1 October 2004
30 September 2005
1 October 2005
Consolidated
$000
Company Consolidated
$000
$000
Company Consolidated
$000
$000
Company
$000
35,922
(244)
(3,082)
(11,160)
-
-
21,436
43,694
(244)
(3,082)
-
-
-
40,368
35,922
511
(3,025)
(10,960)
9,805
-
32,253
43,694
511
(3,025)
204
-
-
41,384
-
-
-
-
-
(9,466)
(9,466)
-
-
-
-
-
(9,466)
(9,466)
112
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2006
39. Events subsequent to balance date
Since the end of the financial year, in November 2006, the directors have declared a final dividend of 81 cents per share.
This dividend is fully franked at the 30% corporate tax rate and is payable on 13 December 2006.
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September
2006, that has affected or may affect the operations of the Consolidated entity, the result of those operations, or the state
of affairs of the Consolidated entity in subsequent years, which has not been covered in this report.
Incitec Pivot Limited
113
Directors’ Declaration
on the Financial Statements set out on pages 44 to 113
I, John C Watson, being a director of Incitec Pivot Limited (“the Company”), 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 44 to 113, and the remuneration disclosures that are contained in
the Remuneration Report on pages 20 to 35 of the Directors’ Report, 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
2006 and of their performance, as represented by the results of their operations, changes in equity and their cash
flows, for the year ended on that date; and
(ii) complying with Accounting Standards in Australia, including AASB 124 Related Party Disclosures, the Corporations
Regulations 2001 and other mandatory professional reporting requirements; 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 controlled entities 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).
3. The directors have been given the declaration by the chief executive officer and chief financial officer required by section
295A of the Corporations Act 2001 for the financial year ended 30 September 2006.
John C Watson, AM
Chairman
Dated at Melbourne this 15th day of November 2006
114
Incitec Pivot Limited
Shareholder Statistics
As at 7 November 2006
Distribution of ordinary shareholder 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
Percentage
Number of
shares
Percentage
32,845
2,734
94
68
37
35,778
91.80%
7.64%
0.26%
0.19%
0.10%
100.00%
8,747,238
4,901,231
644,092
2,066,039
34,065,285
50,423,885
17.35%
9.72%
1.28%
4.10%
67.56%
100.00%
Included in the above total are 908 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 61.81% of that class of shares.
Twenty largest ordinary fully paid shareholders
JP Morgan Nominees Australia Limited
National Nominees Limited
Westpac Custodian Nominees Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Citicorp Nominees Pty Limited
ANZ Nominees Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Suncorp Custodian Services Pty Limited
Cogent Nominees Pty Limited
Queensland Investment Corporation
RBC Dexia Investor Services Australia Nominees Pty Limited
Australian Foundation Investment Company Limited
Cogent Nominees Pty Limited
Citicorp Nominees Pty Limited
UBS Nominees Pty Ltd
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited
AMP Life Limited
Merrill Lynch (Australia) Nominees Pty Limited
Abeles Pty Ltd
Total
Number of
shares
5,372,786
4,870,114
3,396,388
3,365,925
2,427,232
2,053,152
1,589,854
1,495,773
1,422,609
1,021,880
666,954
632,801
424,411
421,562
375,086
354,014
350,000
319,187
311,777
302,250
31,173,755
Percentage
10.66%
9.66%
6.74%
6.68%
4.81%
4.07%
3.15%
2.97%
2.82%
2.03%
1.32%
1.25%
0.84%
0.84%
0.74%
0.70%
0.69%
0.63%
0.62%
0.60%
61.81%
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:
23-Oct-2006
19-Oct-2006
Perpetual Limited
IOOF Holdings Limited
5,688,474
4,678,679
11.28%
9.28%
On-market buy-back
There is no current on-market buy-back.
Incitec Pivot Limited
117
Five Year Financial Statistics
Incitec Pivot Limited and its controlled entities
Sales
Earnings before depreciation, amortisation, net borrowing costs, individually material
items and tax
Depreciation and amortisation (excluding goodwill)
Goodwill amortisation
Earnings before net borrowing costs, individually material items and tax (EBIT)
Net borrowing costs
Rebates
Individually material items before tax
Taxation revenue / (expense)
Operating profit after tax and individually material items
Individually material items after tax attributable to members of Incitec Pivot
Operating profit after tax before individually material 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
Total shareholders’ equity
Ordinary Shares
Investor Shares
Number of shares on issue at year end
thousands
thousands
thousands
Weighted average number of shares on issue (investor and ordinary)
thousands
Earnings per share
before individually material items
including individually material 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 material items
including individually material items
cents
cents
cents
%
$000
$
%
$000
%
times
$000
$000
%
%
Note:
Financial year ended 30 September 2005 and 2006 are reported under AIFRS.
The financial year ended 30 September 2002, 2003 and 2004 are reported under AGAAP.
118
Incitec Pivot Limited
2006
$000
1,111,239
2005
$000
1,073,872
2004
$000
1,135,588
159,387
108,359
167,179
(33,145)
-
126,242
(12,892)
(54,093)
(12,595)
46,662
(36,110)
82,772
41,962
595,539
478,097
-
196,210
33,356
1,303,202
295,384
66,807
491,860
69,154
923,205
379,997
379,997
379,997
50,424
-
50,424
56,516
146.5
82.6
72
100
$26.60
$15.31
$25.87
1,304,469
3.64
11.4
275,445
42.0
9.8
21,339
155,329
17.6
9.9
(30,486)
-
77,873
(9,430)
(46,999)
(6,952)
14,492
(33,412)
47,904
70,520
358,556
291,971
-
192,250
2,472
845,249
213,213
47,814
-
24,256
285,283
559,966
559,966
559,966
58,281
-
58,281
58,281
82.2
24.9
121
100
$22.50
$15.00
$15.82
922,005
6.31
7.3
9,163
1.6
8.3
26,050
-
8.0
2.6
(35,372)
(9,945)
121,862
(5,406)
(9,327)
(32,090)
75,039
5,832
80,870
16,902
460,930
296,132
-
183,809
30,522
971,393
272,186
26,877
19,049
21,762
339,874
631,519
631,519
631,519
58,281
-
58,281
58,281
138.8
128.8
29
100
$19.30
$15.65
$18.80
1,095,683
7.68
10.7
(20,792)
(3.4)
22.5
29,387
-
13.4
12.5
Five Year Financial Statistics
2003
$000
686,307
2002
$000
604,214
83,503
60,873
(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
31,120
112.6
(59.8)
140
100
$15.70
$14.00
$15.66
912,681
6.66
8.6
74,394
11.5
8.7
12,919
(4,393)
9.7
(5.1)
(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
Incitec Pivot Limited
119
If you think that blasting products
and services could not possibly have
any impact on your own everyday
needs, think again!
Orica Mining Services helped make
this backyard barbeque possible!
For example, Orica supplies
explosives to mine:
• minerals for making glassware.
• iron ore used in stainless steel
for cutlery and barbeque utensils.
• aluminium for foil, drink cans,
outdoor light fixtures - even the
garden shed!
Incitec Pivot
fertilisers are
used in the
farming of fruit
and vegetables
and in the farming
of wheat used
to produce bread.
And thank Yates
for your lush
green lawns.
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Shareholder Information
Annual General Meeting
2.00 pm Wednesday 20 December 2006
at The Arts Centre, 100 St Kilda Road,
Melbourne Victoria 3000, Australia,
in the ANZ Pavilion
Stock Exchange Listing
Incitec Pivot’s shares are listed on the
Australian Stock Exchange (ASX) and
are traded under the code IPL
Share Registry
Link Market Services
Level 12, 680 George Street,
Sydney New South Wales 2000,
Australia
Locked Bag A14
Sydney South New South Wales 1235
Telephone: 1300 554 474
(for callers within Australia)
International: +61 2 8280 7111
General Facsimile: +61 2 9287 0303
Proxy Facsimile: +61 2 9287 0309
Email: registrars@linkmarketservices.com.au
Website: www.linkmarketservices.com.au
Auditor
KPMG
147 Collins Street,
Melbourne Victoria 3000,
Australia
Incitec Pivot Limited
Registered address and head office:
70 Southbank Boulevard,
Southbank Victoria 3006,
Australia
GPO Box 1322
Melbourne Victoria 3001,
Australia
Telephone: +61 3 8695 4400
Facsimile: +61 3 8695 4419
www.incitecpivot.com.au
SuPerfect, Easy Liquids, Green Urea and FertTerms Plus are registered trade marks of Incitec Pivot Limited. Cal Gran is a trade
mark of Incitec Pivot Limited. The BIG N logo, Nutrient Advantage, Granulock, GranAm and Liquifert are registered trade marks of
Incitec Fertilizers Limited. Aussie Gold and the Aussie Gold logo are registered trade marks of Southern Cross Fertilisers Pty Ltd.
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Incitec Pivot Limited
ABN 42 004 080 264
70 Southbank Boulevard,
Southbank Victoria 3006,
Australia
Postal address
Incitec Pivot Limited
GPO Box 1322
Melbourne Victoria 3001,
Australia
T. + 61 3 8695 4400
F. + 61 3 8695 4419
www.incitecpivot.com.au
Getting
things done.
Annual Report 2006
Incitec Pivot Limited ABN 42 004 080 264