(cid:54)(cid:99)(cid:99)(cid:106)(cid:86)(cid:97)
(cid:71)(cid:90)(cid:101)(cid:100)(cid:103)(cid:105)
(cid:39)(cid:37)(cid:37)(cid:44)
“Own.Breakout.Deliver” embodies the Company’s Values,
which were developed by employees through a series of
workshops held in late 2006. The Values are the guiding
principles Incitec Pivot draws on in its day-to-day
decision-making. The Values are now being rolled out
through a Company-wide “Living the Values” program.
‘…a very successful year for Incitec Pivot Limited – one which
demonstrated dramatically how your Company has changed.’
John C Watson, AM
Chairman
Contents
Chairman’s Report
Managing Director’s Report
Incitec Pivot – an overview
Own.Breakout.Deliver
Putting Own.Breakout.Deliver into action
Board of Directors
Executive Team
Review of Performance
Health, Safety, Environment & Community
Financial Report
2
3
4
5
6
8
9
10
14
15
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Chairman’s Report
I am pleased to report a very successful year for Incitec Pivot
Limited – one which demonstrated dramatically how your
Company has changed. In a year of extreme difficulty for many
companies within the agricultural industry in Australia, Incitec
Pivot has delivered a record profit – a testament to the strategy
which your Board and management embarked upon to create
a strong and viable business regardless of the prevailing
climatic environment.
Successful transformation
The successful transformation of the Company is demonstrated
by our full year result and the benefits delivered for our
shareholders. Earnings before interest and tax (EBIT) rose
by 148%, net profit after tax (NPAT), excluding individual
material items, by 145%, and earnings per share (EPS) by
174% – outstanding outcomes which reflect the performance
by all employees in the Incitec Pivot team. Shareholders
benefit through exceptional share price growth and through
fully franked dividends of 300 cents – a 191% increase on
last year – representing a total shareholder return (TSR) of
242% for the financial year.
In 2007, there were two key strategic contributors to the
sustainable transformation of Incitec Pivot – the continuing
success of the ‘Tardis’ efficiency program and the integration
of Southern Cross Fertilisers (SCF). The efficiency program,
commenced last financial year, was the first step in the new
strategic direction to ensure that our business was being
run efficiently. The total EBIT benefit delivered since the
inception of the efficiency program is running at $104 million
per year. Taking costs out of the business has improved our
competitiveness in the market place.
The acquisition of SCF in 2006 was a coup and the integration
program in the past year has delivered great benefits.
The performance improvements in maximising plant efficiency
and increasing production volumes created a successful
business even more quickly than anticipated and is a credit to
everyone involved.
While we are gratified by the success of the transformation,
we recognise that there is an on-going challenge in
charting the Company’s future success. This will come from
consolidating the gains of the past by continuing to focus on
the fundamentals, which have given us our success, and also,
grasping the opportunities for growth. We are considering a
number of organic growth opportunities to drive shareholder
value such as plant upgrades and de-bottlenecking plus
greenfield expansion prospects, such as Aceh, which is
progressing through feasibility and assessment.
Additionally, we are alert to the potential to make acquisitions
but only when meeting our financial hurdles. We recognise that
any potential acquisition must provide upside growth beyond
the value of a competitive market. The question we ask is: Can
we develop efficiencies and value that others can’t, such that
any acquisition becomes a value-enhancing deal for us?
While our strategic direction is evolving, the business still has
the level of domestic focus of previous years. We are conscious
of working together with our business partners to satisfy the
needs of farmer customers. The Board has followed closely the
customer-focused Fresh Approach project, a new and mutually
beneficial way of working with our business partners.
Caring – community and
our environment
I have a strong affinity with
farmer customers having been
a farmer for many years myself.
I know well the impact that
severe drought can have on our
farming communities. We believe that, as a significant company
in the Australian agricultural industry, we have a responsibility
to the communities that support us. We therefore joined with
beyondblue and other community organisations such as Rotary,
to support a program to raise awareness of mental health
in regional Australia.
Forty depression awareness forums and 33 Incitec Pivot staff
training sessions were conducted as part of this program.
I spoke at a community forum at Cootamundra in August
attended by some 650 people. I witnessed a number of people
talking about very personal issues and receiving advice from
local medical practitioners. The important message for people
in this situation is that they are not on their own. We have
contributed to a changing of community values and I believe
it’s one of the best community support projects Incitec Pivot
has undertaken in the 10 years I have been involved with
this Company.
Another area where we have made a contribution to our
communities is in environmental management. This year, as
part of the integration of SCF, we created new Health, Safety,
Environment and Community (HSEC) standards built upon the
best of Incitec Pivot and SCF. This has been the catalyst for
improving safety and environmental outcomes across our plants.
To strengthen the Board’s interface with HSEC, a Board HSEC
committee was established this year.
Perhaps, the major global environmental issue facing us all is
climate change. The Board is greatly advantaged by having a
new director, John Marlay, inform our discussions on this critical
issue. John, as well as being chief executive of a significant
manufacturing business, was invited to join the Prime Ministerial
Task Group on Emissions Trading which met during 2007.
Recognition of the environment and the community is one of
Incitec Pivot’s six Company Values – ‘Care for the Community
and our Environment.’ The Values, which drive everything that
the Company does, were created by our employees themselves
and presented to the Board earlier this year for endorsement.
Currently, employees throughout the Company are involved in
discussion forums so that everyone can contribute to living their
Values in the workplace.
Incitec Pivot team
In closing, I would like to thank my fellow directors, and pay
special tribute to our Managing Director and CEO, Julian Segal,
his team of executives and all of our employees. The directors
contribute expertise, insight and commitment to the Board’s
decision-making and in charting the success of the Company.
Julian, his team and our employees have demonstrated
professionalism and commitment to achieve the Company’s
considerable goals and its successful transformation.
John C Watson, AM
Chairman
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Managing Director’s Report
I am delighted to report a year of record results for Incitec Pivot and
to say how personally gratifying it is to lead a quality team which has
delivered an outstanding outcome for our Company, our shareholders
and our communities.
Financial performance
Net Profit After Tax (NPAT) was $205.3 million compared with $46.7
million in 2006. Earnings Before Interest and Tax (EBIT) were $312.5
million compared with $126.2 million last year.
The 2006/07 financial results were driven by record production, the
delivery of ‘Tardis’ efficiency benefits and continued financial discipline,
and strong global fertiliser prices. The results also reflect the successful
integration and operation of Southern Cross Fertilisers and the growth
of our trading business.
Incitec Pivot’s strategy
Significantly, the 2006/07 financial results further confirmed the power
and effectiveness of the four legs of the business strategy:
Lowest Cost Base: The continuous drive for high productivity and
efficiency will secure our place in having the lowest cost base in our
industry. The 2006/07 financial results exemplified this: the total EBIT
benefit of the ‘Tardis’ efficiency program since its inception is $104
million plus a $155.5 million reduction in working capital. Making
efficiency sustainable is on-going at Incitec Pivot and we will continue
to explore opportunities to ensure we maintain our cost efficiency.
Own the Product: This capitalises on our recognised manufacturing
competence and the quality of our assets. 81% of 2006/07 EBIT was
made in manufacturing. Our manufacturing competence was underscored
by the success of the Gibson Island maintenance shut, ‘Reset 07’, which
was achieved on time, on budget and with an exceptional level of safety
performance.
Trading Model: The trading model aims to build on our already
established trading business, Southern Cross International, by developing
domestic, regional and global trading in products manufactured by
Incitec Pivot and sourced from other manufacturers.
In the 2006/07 financial results, trade sales increased by 736,000 tonnes
to 972,000 tonnes with export of product balancing the fluctuating
domestic demand. The trading business increased its contribution to
$12.4 million this year. We opened new export markets into regions such
as Latin America, India, Pakistan and New Zealand.
Supply Chain Engine: Our business involves the transport of millions
of tonnes of raw materials and product by ship, train and truck. Every
time we reduce the transport cost per tonne by $1, it is multiplied by
millions of tonnes. As mentioned, this year we achieved a $155.5 million
reduction in trade working capital and further ways to improve efficiency
are always under consideration.
We recognise that the drought and economic conditions made the year
a difficult one for our business partners involved in the distribution of our
products, as well as for farmer customers. To improve our distribution
model, Incitec Pivot is introducing new arrangements for working with
our business partners. The new arrangements, which we have called
‘Fresh Approach’, commence on 1 December 2007. Fresh Approach
introduces a new pricing model, as well as new reward arrangements
recognising the value contributed by our business partners. In addition,
as part of the Supply Chain Engine leg of our strategy, we have
undertaken work in improving forecasting to meet seasonal demand.
The year ahead
In 2007, Australia saw a rise in fertiliser prices driven by international
forces, with the price of fertilisers currently dictated by global demand
for food, feed, fibre and fuels. Taking each of these:
Food: With the world’s population growing by 200,000 people every day
or 96 million people a year, rising demand for food is a fact of life.
Feed: The demand for feed for livestock is also increasing, as people in
countries like China and India change their diets to include more complex
proteins such as beef, pork and chicken in line with rising incomes.
Fibre: Fibre production has been increased to meet the clothing
requirements of a growing population.
Fuels: The demand for biofuels to
substitute for fossil fuels has seen
a huge leap in corn production,
particularly in the United States where
80 new ethanol plants were built last
year alone.
In each case, fertiliser demand
increases as farmers strive to increase productivity in each of the four
‘Fs’. This demand in turn drives fertiliser prices.
In the year ahead, while I expect global demand for fertilisers to
continue to drive international fertiliser prices and thus domestic prices,
the continued drought will make for difficult trading conditions in the
domestic distribution business. I feel confident that the effectiveness
of our business strategy, with the Lowest Cost Base, Own the Product,
the Trading Model and our Supply Chain Engine, will position us well to
continue to create shareholder value.
Health, Safety, Environment and Community
During 2007, a key area of focus for the Company was Health, Safety,
Environment and Community (HSEC) and, although we continue to see
improvements, it will always be an area of continued focus as we aspire
to ‘Zero Harm for Everyone, Everywhere’. In 2007, safety performance
improved and notably the overall potential severity of injuries reduced.
Additionally, the Company introduced a new HSEC management system,
policies and procedures, specifically focused on Incitec Pivot’s scope of
operations using the highest of standards from both Incitec Pivot and SCF.
Given the critical national issue which we all face living in the world’s
driest inhabited continent, the reduction in our use of town water has
been an environmental success story for Incitec Pivot this year. I was
delighted to host the now-Premier of Queensland, Hon Anna Bligh, to
Gibson Island during the year to officially open our new desalination
plant. This plant reduces our call on Brisbane’s water supply by one
million litres a day. The desalination plant is one of a number of water-
saving projects at the Gibson Island plant, which together will require
a $7 million investment. In addition, there are water-saving projects
completed or underway at a number of our other sites, including
Geelong, Portland and Phosphate Hill. Other important environmental
issues on which we are focusing are climate change and the responsible
use of fertiliser to avoid run-off impacting on waterways and coastal
ecosystems. As well as looking to improve performance at our plants,
we have developed new products for farmers which slow the release of
carbon dioxide from fertiliser and reduce the impact of nutrient run-off.
Our People
I want to thank the Board and the Executive Team for their continued
commitment, advice and support and to everyone in the Incitec Pivot
team for an outstanding year. I’m pleased to welcome Paul Barber to our
Executive Team as General Manager – Australian Fertilisers. Paul brings
extensive marketing and customer experience in the agriculture sector
and will be a great asset to our business.
Finally, right across the Company, Incitec Pivot is a team on the move
and is prepared to seize opportunities and take on challenges. When
I visit the sites, I see people everywhere with a spring in their step.
At the heart of this renewed spirit is the adoption across all levels of
the organisation of the Own.Breakout.Deliver values, which guide our
individual and corporate behaviour. Created ‘by our employees, for our
employees’, Own.Breakout.Deliver captures our unique spirit and, I am
quite sure, gives us a competitive advantage. We are well along the
pathway to creating a responsible and responsive culture that embodies
the quality and determination of our people.
Julian Segal
Managing Director & CEO
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Incitec Pivot reached a new stage in its development when it became
part of the S&P/ASX 00 index in September 006. This year its progress
continued and, in August, Incitec Pivot joined Australia’s leading
companies in the S&P/ASX 100 index.
In addition to sales across eastern and southern Australia,
Incitec Pivot exports significant volumes of fertiliser to overseas
markets through its newly-established trading arm, Southern
Cross International. In 2007, the Company increased its
international trade substantially, including the sale of 120,000
tonnes of superphosphate to new markets in South America.
Incitec Pivot was created with the merger of Pivot and Incitec
Fertilizers in 2003, but the business has roots going back to
the early part of last century when Australian superphosphate
production was pioneered.
First listed on the Australian Securities Exchange in 2003, Incitec
Pivot reached a new stage in its development when it became
part of the S&P/ASX 200 index in September 2006. This year
its progress continued and, in August, Incitec Pivot joined
Australia’s leading companies in the S&P/ASX 100 index.
Incitec Pivot has a balanced mix of domestic and overseas
institutional shareholders, as well retail shareholders, including
some who live in rural Australia and maintain the Company’s
links with farming families built up over many years.
Incitec Pivot – an overview
Incitec Pivot is a chemical manufacturer supplying
agricultural fertilisers and industrial chemicals for Australian
and overseas markets.
The Company operates a phosphate mine in Queensland,
plants in Queensland, New South Wales and Victoria and has
a distribution network stretching from the Northern Territory
to Tasmania.
By supplying more than 50 per cent of Australia’s
agricultural nutrient needs, our Company plays an essential
role in helping farmers increase productivity and remain
internationally competitive.
Our manufacturing strength gives the Company unequalled
capacity to meet the market’s needs across a wide product
range serving all major farming sectors. These products include
urea, ammonium phosphates, superphosphate and anhydrous
ammonia, which are variously applied as solids in granulated
form, as liquid nutrients or as gas injected into the soil.
These Australian-manufactured fertilisers, along with imported
products, are sold through a comprehensive network of 450
strategically located business partners.
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.
In all of its activities, Incitec Pivot takes its environmental and
community responsibilities seriously across the manufacture
and handling of our products and their sustainable use on
farm. To this end, the Company is fully accredited with the
Fertilizer Industry Federation of Australia’s national training
and accreditation program, Fertcare®.
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In a nutshell, we are saying that ‘we care’ – about the business, the
environment, the people and communities we come into contact with,
in constantly improving our performance and, importantly, keeping
our word.
Own.Breakout.Deliver
The Incitec Pivot Board and management endorsed a set of
corporate Values developed by employees to guide personal
and corporate behaviour. These are the standards Incitec Pivot
employees have set for themselves and for the Company.
In a nutshell, we are saying that ‘we care’ – about the business,
the environment, the people and communities we come into
contact with, in constantly improving our performance and,
importantly, keeping our word.
Own.Breakout.Deliver encompasses the six individual Values the
Company has adopted:
• Treat the Business as Our Own
• Value People – Respect, Recognise & Reward
• Zero Harm for Everyone, Everywhere
• Care for the Community & Our Environment
• Challenge and Improve the Status Quo
• Deliver on Our Promises
Having grown from the shop floor in workshops involving
nearly every employee, the Values are now being rolled out
through a Company-wide ‘Living the Values’ program.
In this way, the Values are becoming an integral part of day-to-
day decision-making. This will help to ensure that Incitec Pivot
remains a responsible and responsive company with a clearly
defined culture.
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Incitec Pivot and its predecessors have a long history of helping rural
communities in times of need and we are proud to return a favour to
those who have helped our business grow.
Putting Own.Breakout.Deliver into action
2007 saw Incitec Pivot put Own.Breakout.Deliver into action in
many ways, two of which were very visible: the commissioning
of a desalination plant at Gibson Island freeing up one million
litres of drinking water a day for Brisbane; and in supporting
rural communities in dealing with the rising incidence
of depression.
Desalination plant
Few parts of Australia – and few Australians – have been spared
from water shortages. Farmers are suffering from continuing
drought and many communities, including our biggest cities,
are on water restrictions.
Industry is a traditionally a large water consumer and
Incitec Pivot is playing its part to reduce water usage at its
manufacturing and distribution plants.
The Company’s biggest water-saving projects, involving
capital expenditure of $4.3 million in 2007, are at the Gibson
Island manufacturing plant in Brisbane. There, a new water
desalination unit was commissioned in May and, subsequently,
a reverse osmosis plant to treat previously discarded process
and storm water came on line.
A third water-saving initiative, the construction of a massive
18 million–litre storage dam to capture stormwater for recycling
through the plant, is well advanced.
These projects are interim measures to reduce the plant’s
dependence on town water until treated waste water becomes
available late next year when the Queensland Government’s
Western Corridor recycled water project is expected to
come on line.
Officially commissioning the desalination plant in May, the
Acting Queensland Premier (now Premier), the Hon Anna
Bligh, congratulated Incitec Pivot on its water-saving program.
‘The saving from desalination alone is equivalent to twice the
daily drinking water requirements of the suburb of Murrarie.’
The desalination plant converts salt water from the adjacent
Brisbane River into water suitable for use in cooling towers and
boilers during production, reducing fresh water consumption
by 15 per cent. With all on-site initiatives operating, daily
consumption will be reduced by almost 40 per cent,
underscoring the Company’s Value of ‘Care for the Community
and Our Environment.’
‘These initiatives move us in the right direction, but the long-
term solution is for industry to access treated waste water
from the Western Corridor recycled water pipeline,’ Incitec
Pivot’s Managing Director & CEO, Julian Segal, told guests at the
desalination plant commissioning ceremony.
Recycled water from the Government scheme, when combined
with the Company’s own water re-use initiatives, has the
potential to virtually eliminate the use of fresh water at
Gibson Island, freeing up more than six million litres for
the community.
To use the now-Premier’s words at the commissioning
ceremony: ‘They are showing other companies how it’s done.’
Queensland Premier, the Hon Anna Bligh officially commissions Incitec
Pivot’s desalination plant at Gibson Island, freeing up one million litres
of drinking water a day for Brisbane.
The official party at the desalination plant opening ceremony
(from left): Pat Purcell – MP for Bulimba, Damian Ziebarth –
Incitec Pivot Brisbane Operations Manager, the Hon Anna Bligh –
Premier, Julian Segal – Incitec Pivot Managing Director & CEO.
6
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• Training sessions were conducted by a beyondblue clinical
psychologist for Incitec Pivot field staff and others who come
into contact with rural communities in the course of their
work. The sessions helped participants recognise warning
signs of depression – in themselves, their colleagues, their
customers and their communities – and provided advice on
where help is available.
When stage one of the program was completed in September
2007, 40 community forums had been held, reaching more
than 6,700 participants, including 650 who packed the
Cootamundra forum in September.
The public response was extremely positive, with depression
sufferers coming forward at every forum to share their heartfelt
stories and experience. In this way, the forums helped reduce
the stigma and isolation associated with mental illness
and gave people a better understanding of how to care for
their family, friends and neighbours who may be suffering
with depression.
When the staff training program concluded, 33 training sessions
had been held for a total of 400 participants. The impact of
this part of the campaign will be felt well into the future as
participants use and share their knowledge.
In 2008, stage two of the program will commence, with dates
already set for a number of community forums.
The program demonstrates again that Incitec Pivot takes its
Company Values seriously and is happy to be judged by its
deeds and ‘Deliver on Our Promises’, as one Value puts it.
Incitec Pivot has been congratulated by many individuals and
organisations for its role in presenting the forums. Typical of the
comments received are those of Alexandra Gartmann, CEO of
the Birchip Cropping Group in northern Victoria:
‘The Birchip forum was extremely well attended and
well received. Since the forum, a number of people have
commented on the open and honest account of a fellow farmer
dealing with depression.’
‘The forum was non-threatening, relevant and high impact.
Incitec Pivot are to be congratulated for partnering with
beyondblue to tackle a traditionally ‘behind closed doors’
topic in a positive and constructive way.’
Feedback such as this is a great boost to employee morale,
as employees felt proud that their Company is committed
to a genuine cause that can make a difference for those in
our communities.
Depression awareness
Incitec Pivot has a long-established tradition of helping out in
times of crisis. Over the years, it has helped train young rural
drivers, raised money for drought relief, provided bush fire
and cyclone assistance, and arranged coastal holidays for rural
school children.
Recently another challenge has emerged for Australian families
– the medical condition known as clinical depression. In 2006,
it became apparent that cases of depression were increasing in
rural communities.
There were numerous stories in the media as farm
organisations, support groups, medical professionals and
politicians highlighted the plight of farmers who were having
difficulty coping with the drought, bushfires, increased interest
rates and higher farm costs.
As a key rural provider, Incitec Pivot was strongly aware of
the growing problems faced by some of its customers and
decided, as it had done before, to ‘put something back’ into
farming communities.
In consultation with numerous organisations and experts
in mental health, strong confirmation of the seriousness of
the depression ‘epidemic’ emerged. The consensus was that
anything that could assist in improving the level of awareness
of mental illness would be welcomed by support groups,
sufferers, their families and friends, and the general community.
This led to Incitec Pivot joining forces with beyondblue:
the national depression initiative in a partnership to support
beyondblue’s ‘Don’t Beat About the Bush’ national drought
campaign. The two organisations agreed to jointly organise a
series of depression awareness forums in country areas and,
in addition, to professionally train Incitec Pivot field staff in
recognising the symptoms of depression and dealing with
those at risk.
In addition to alerting people to the symptoms of depression,
the program highlighted the range of professional help and
support services available. It focused on drought-hit areas
where farmers and their families might be experiencing
financial and other pressures.
Incitec Pivot’s partnership with beyondblue was announced
jointly by the two organisations on 18 December 2006 at a
full-house media conference at beyondblue’s headquarters in
Melbourne. The event received national coverage on television
and radio and in newspapers and farming publications.
Two days later the program was outlined to Incitec Pivot
shareholders at the 2006 Annual General Meeting by Chairman
John Watson AM, who observed: ‘Incitec Pivot and its
predecessors have a long history of helping rural communities
in times of need and we are proud to return a favour to those
who have helped our business grow.’
The roll-out of the rural mental health initiative began in early
2007 with:
• Community depression awareness forums, where
guest speakers shared their personal experiences of
depression and recovery and medical professionals spoke
about identifying and dealing with mental illness in the
community. The forums were organised by Incitec Pivot
field staff in conjunction with local community groups
and the Company’s business partners.
At the launch of the Incitec Pivot/beyondblue rural mental health
program (from left): Julian Segal – Incitec Pivot Managing Director
& CEO, John Watson AM – Incitec Pivot Chairman, Jeff Kennett –
Chairman of beyondblue: the national depression initiative.
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Board of Directors
John Watson AM, MAICD
Non-Executive Chairman,
Chairman of Remuneration and
Appointments Committee
John was appointed as a director
on 15 December 1997 and was
appointed Chairman in 1998.
John is the inaugural Chairman
of the Export Wheat Commission,
Chairman of PrimeSafe and of
the Co-operative Research Centre
for Innovative Dairy Products, a
director of Tassal Group 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
and a former director of Rural
Press Limited. 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 Healey FAICD, FAIM
Non-Executive Director,
Deputy Chairman
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,
and a former Chief Executive of
Nicholas Kiwi.
Allan McCallum
Dip. Ag Science, FAICD
Non-Executive Director, Chairman
of Governance Committee (to
17 April 2007), Chairman of the
Health, Safety, Environment and
Community Committee
Allan was appointed as a director
on 15 December 1997. Allan is
Chairman of Tassal Group Limited
and is a director of Medical
Developments International
Ltd. He is a former director of
Graincorp Limited and a former
Chairman of Vicgrain Ltd.
Anthony Larkin FCPA, FAICD
Non-Executive Director,
Chairman of Audit and Risk
Management Committee
Tony was appointed as a director
on 1 June 2003. He is a director
of Corporate Express Australia
Limited, Zinifex Limited and
Eyecare Partners Limited. Tony
was previously Executive Director
Finance of Orica Limited, Chairman
of Incitec Ltd and Chairman of
Ausmelt Limited. During 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 early
2006, he was a Commissioner
of the Victorian Essential
Services Commission.
John Marlay BSc, FAICD
Non-Executive Director
John was appointed to the Board
by the directors on 20 December
2006. John is Chief Executive
Officer and Managing Director of
Alumina Limited. He is a director
of Alcoa of Australia, Alcoa World
Alumina LLC and of the Business
Council of Australia. He is also
Deputy Chairman of Alcoa World
Alumina and Chemicals Strategic
Council, and is Chairman of the
Australian Aluminium Council.
He has formerly held executive
positions with, and been a director
of, Esso Australia Limited, James
Hardie Industries Limited, Pioneer
International Group Holdings and
Hanson plc.
Julian Segal BSc, MBA
Managing Director &
Chief Executive Officer
Julian was appointed as Managing
Director & CEO 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 Fazzino BEc(Hons), CPA
Finance Director &
Chief Financial Officer
James was appointed as a director
on 18 July 2005, following his
appointment as 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.
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Executive Team
Julian Segal BSc, MBA
Managing Director &
Chief Executive Officer
James Fazzino BEc(Hons), CPA
Finance Director &
Chief Financial Officer
Kerry Gleeson LLB(Hons)
General Counsel &
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 to her current
position in February 2004, having
previously practised with Blake
Dawson. Prior to emigrating in
1999, Kerry was a partner of an
English law firm, Halliwell Landau.
Bernard Walsh BE(Mech),
MIEAust CPEng
General Manager Operations
Bernard has extensive
manufacturing experience in
petrochemicals, chemicals and
mining services. Bernard joined
Incitec Pivot from Orica Limited
where he held a variety of roles
from 1987, including General
Manager of Initiating Explosives
Systems (IES). 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 Chemicals
Daryl joined Incitec Pivot 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, and
formerly held the role of General
Manager SCF Integration.
James Whiteside BAgric Sc, Grad
Dip Bus Admin
General Manager Supply Chain
and Trading
James joined Pivot in 1992,
following a number of years
working for agricultural companies
and in consulting. 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.
Paul Barber
General Manager Australian
Fertilisers
Paul joined Incitec Pivot and the
Executive Team in September
2007, having spent his entire
professional career within the
agriculture industry. Prior to his
appointment, Paul held various
executive roles within Elders
Limited, including General
Manager Merchandise, Group
General Manager Operations
and Group General Manager
Client Services.
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Transformed Incitec Pivot delivers – ‘I am delighted to report a year of
record results for Incitec Pivot and to say how personally gratifying it is
to lead a quality team which has delivered an outstanding outcome…’
Julian Segal
Managing Director & CEO
Review of Performance
Financial Highlights
• Net Profit After Tax (NPAT) (excluding individually material
items) for the year ended 30 September 2007 was up
145% or $119.7M to $202.5M (2006: $82.8M).
• Earnings Before Interest and Tax (EBIT) was up 148% or
$186.3M to $312.5M (2006: $126.2M). Manufacturing
accounted for 81% of EBIT, underscoring the Company’s
strategy of ‘Own the Product’.
• Earnings per share (excluding individually material items)
were up 174% to 402 cents (2006: 146 cents).
• Dividends per share were up 191% to 300 cents
(2006: 103 cents).
• Total Shareholder Returns of 242% (2006: 70%).
• Financial discipline has been maintained. Strong cash-flow
generation resulted in significant balance sheet capacity at
year-end.
Business Highlights
• The ‘Tardis’ efficiency program was accelerated, with the
2007 EBIT benefits of $73.6M, almost three times the initial
target. The total EBIT benefit delivered since inception
of the program is $103.7M, in addition to a $155.5M
reduction in working capital.
• Successful integration of SCF with record production and cash
cost targets achieved ahead of schedule.
• Gibson Island planned major maintenance shut (‘Reset 07’)
External Sales Revenue
• Total sales revenue was up 24% or $262M to $1,373M
(2006: $1,111M).
• Total sales volumes increased 16% to 3,165kt
(2006: 2,740kt).
• Severe drought conditions on the east coast of Australia for
the second consecutive year had a negative impact on sales
in the domestic fertiliser distribution business, with volumes
down 15% or 338kt to 1,868kt (2006: 2,206kt).
• Global fertiliser prices were at record levels in 2007 in
response to growing demand for food, fibre, feed and fuel.
• Industrial chemicals tonnes increased 9% to 325kt
(2006: 298kt) with some ammonia production diverted
to industrial customers as a result of the drought.
• Trade sales of 972kt increased by 736kt (2006: 236kt)
consistent with the Company’s strategy.
• External sales from SCF totalled 645kt with robust global
demand supported by record production.
• In response to soft domestic pasture demand, 101kt of
single superphosphate was exported to new markets in
South America.
Sales Summary
000’s (Tonnes)
Year Ended 30 September
2007
2006 Change
delivered on time and on budget.
Fertiliser distribution
1,868
2,206
(15)%
• Adequate returns delivered in the base business
Industrial
(excluding SCF) despite severe drought conditions, with EBIT
of $111.6M and Return on Net Assets (RONA) of 20.5%.
• Trade sales volumes increased 312% in line with the
Company’s strategy to grow sales beyond the domestic
distribution business.
Trade
Total
A$M
Outlook – 2008
• Strong outlook for global fertiliser prices.
• Continued strength of the Australian dollar.
• Difficult trading conditions in the domestic distribution
business are expected to continue.
Fertiliser distribution
Industrial
Trade
Total
Other
325
972
298
236
3,165
2,740
9%
312%
16%
867
82
424
959
(10)%
77
75
7%
462%
24%
1,373
1,111
Average exchange rate
81.3
Middle East Granular Urea (US$/t) 264
FOB Tampa DAP US$/t*
364
74.6
245
260
(9)%
8%
39%
*2006 comparative is for 2 months to 30 September.
10
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Earnings summary
• As mentioned, NPAT (excluding individually material items)
was up 145% or $119.7M to $202.5M (2006: $82.8M) and
EBIT was up 148% or $186.3M to $312.5M (2006: $126.2M).
• Positive factors include:
– $157M: increase in full year earnings from SCF
(excluding ‘Tardis’ program efficiencies).
– $73.6M: ‘Tardis’ program efficiencies.
– $12.4M: increased contribution from the trading business
(excluding SCF product).
– $10.1M: profit from asset sales, dividend from the Dyno
Nobel investment and other income.
– $1.3M net benefit from higher global urea prices,
partially offset by the higher Australian dollar
($7M benefit from higher prices offset by $5.7M
impact of higher Australian dollar).
• Negative factors include:
– $46.9M: negative drought impact on sales volume and mix
in the base business (excluding SCF).
– $10.1M: reduced manufacturing margin from the Gibson
Island plant during ‘Reset 07’.
– $12.6M: negative movement of fixed costs being
released from stock due to a significant decline in
inventory holdings.
Earnings summary
Year Ended September
A$M
EBITDA
Depreciation
EBIT
Borrowing Costs
Tax Expense
NPAT excl individually
material items
Individually material items
after tax
NPAT incl individually
material items
EBIT Margin (EBIT/sales)
00
006 Change
348.6
(36.1)
312.5
(28.8)
(81.2)
159.3
(33.1)
126.2
119%
(9)%
148%
(12.9)
(123)%
(30.5)
(166)%
0.
.
1%
2.8
(36.1)
NA
0.
22.8%
6.
11.4%
0%
Individually material items
• 2007 individually material items were a net gain after tax
of $2.8M. This includes a gain of $9.5M on the sale and
leaseback of the ammonia linehaul fleet.
• This gain was partially offset by business restructuring costs.
• Further restructuring costs of $7M after tax will be reported
as individually material items in the 2007/08 financial year.
• The positive overall result reflects the benefit of the strategy
Individually Material Items
adopted by Incitec Pivot in 2005. Specific achievements
against each element of the strategy include:
– Lowest Cost Base: ‘Tardis’ efficiency savings.
– Own the Product: SCF acquisition and Gibson Island
‘Reset 07’.
A$M after tax
00
One-off gain on sale/leaseback ammonia linehaul fleet
9.5
Business restructuring costs
Wallaroo cleanup provision
(4.8)
(1.9)
.
– Trading Model: growing sales beyond Incitec Pivot’s
Total
domestic distribution business.
– Supply Chain Engine: step change in working capital.
• Total 2007 borrowing costs were up $15.9M to $28.8M
(2006: $12.9M). The increase reflects:
– An increase in net interest of 107% to $25.5M
(2006: $12.3M) due to higher debt following the
share buy-back and the acquisition of SCF in 2006.
– $1.8M interest expense attributable to the investment in
Dyno Nobel. The investment was earnings per share (EPS)
positive in 2007 after dividend income of $3.0M.
– A non-cash expense of $1.5M (2006: $0.6M) was
incurred reflecting the unwinding of discounts on
non-current provisions.
• Tax expense (excluding individually material items) of
$81.2M was up 166% on 2006 in line with improved
earnings (2006: $30.5M). The Company’s effective tax
rate was 29% (2006: 27%).
Southern Cross Fertilisers
• SCF was acquired from BHP Billiton on 1 August 2006
for $155.3M.
• The business was acquired on a multiple of 0.74
times EBITDA.
• SCF’s 2007 production was 978kt – the highest level on
record and above nameplate capacity of 975kt.
• EBIT increased by $190.1M in the year to $200.9M. 2006
EBIT of $10.8M reflected two months of ownership by
Incitec Pivot.
• 2007 EBIT of $200.9M was $140.4M or 232% above 2006
pro-forma.
• Record production and sales volumes, strong global fertiliser
prices, and internally generated business efficiency gains
combined to drive this result.
• The acquisition debt was retired from operating cash inflows
at the end of year one.
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11
Review of Performance – Continued
Returns to shareholders
• The Board has declared a final dividend of 231 cents per
share (cps), comprising a normal dividend of 191cps and a
special dividend of 40cps, both fully franked.
• This brings the total 2007 dividend to 300cps, fully franked
(2006:103 cps, fully franked).
• The total 2007 dividend represents a payout ratio of 75%
of NPAT excluding individually material items and 100%
of franking credits have been returned to shareholders.
Excluding the special dividend of 40cps, the pay-out ratio is
65% (2006: 65% pay-out ratio).
Balance sheet
Incitec Pivot has maintained strong financial discipline in 2007,
once again finishing the year with a strong balance sheet
position. The Company continued to focus on reducing capital
intensity to boost shareholder returns.
• Trade Working Capital (TWC) declined by $31.8M to
$121.3M (2006: $153.1M). This was achieved despite a
negative impact of $17M from higher fertiliser prices on
inventory balances.
• TWC excluding SCF was $53.5M lower than last year, taking
‘Tardis’ supply chain cash savings to $155.5M.
• Total shareholder returns were 242% for 2007 (2006: 70%)
• Net change in property, plant and equipment was $61M.
assuming shares were held for the full year.
Major capital projects included Gibson Island ‘Reset 07’ and
the SCF gypsum cell construction.
Returns to shareholders
Year Ended 30 September
• Tax assets reduced to a liability of $6.5M (2006: asset
Cents per share
2007
2006 Change
Final Dividend
– normal
– special
– sub-total
% Franked
Total Dividend
– normal
– special
– sub-total
% Franked
191
40
231
81
136%
81
185%
100%
100%
260
40
300
103
152%
103
191%
100%
100%
Payout ratio normal
Payout ratio including special
65%
75%
65%
65%
Dividend Yield
– opening share price on
1 October
– closing share price on
30 September
11.6%
6.5%
3.5%
4.0%
Share Price at 30 September ($)
– Opening 1 October
25.87
15.82
63.5%
– Closing 30 September
85.54
25.87 230.7%
Total Shareholder Return
242%
70%
of $49.3M).
• In August 2007, Incitec Pivot made a 13.2% strategic
investment in Dyno Nobel Limited (DXL) for consideration
(including transaction costs) of $257.1M. This investment
was marked to market value at year-end resulting in a
carrying value of $291.2M.
• Net debt increased by $136.3M to $411.7M (2006: $275.4M).
This reflects the investment in DXL offset by operating
cash flow.
• Gearing, as measured by underlying net debt/EBITDA, of 0.45
times was well below Incitec Pivot’s long-term range of 3.0
to 4.0 times.
Balance Sheet
A$M
Year Ended 30 September
2007
2006 Change
Trade working capital
121.3
153.1
31.8
Net property plant and
equipment
Goodwill
Investment in Dyno Nobel
Environmental and
restructuring
Tax (liabilities)/assets
Net other liabilities
502.1
183.8
291.2
(74.4)
(6.5)
(70.8)
441.1
183.8
61.0
0.0
0.0
291.2
(86.0)
11.6
49.3
(55.8)
(85.9)
15.1
Net Assets
946.7
655.4
291.3
Net Debt
Underlying
Investment in Dyno Nobel
Total
Equity
154.6
257.1
275.4
120.8
0.0
(257.1)
411.7
275.4
(136.3)
535.0
380.0
155.0
Capitalisation
946.7
655.4
291.3
Underlying Net Debt/
EBITDA (times)
0.45
1.73
74%
12
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Cash flow
Strong earnings performance has once again been reflected
in cash flow.
Cash Flow
A$M
Net operating cash flows
Year Ended 0 September
00
006 Change
Net operating cash flows increased by $70.5M to $259.2M
(2006: $188.7M). Major factors were:
• EBITDA up $189.3M to $348.6M (2006: $159.3M).
• Interest payments increased by $15.4M to $25.9M
(2006: $10.5M), reflecting higher net debt balances
through the year following the acquisition of SCF and
the share buy-back.
• Tax paid was $37.8M (2006: $12.9M) reflecting earnings
improvements in 2006 and 2007.
EBITDA
Net interest paid
Net income tax paid
348.6
(25.9)
(37.8)
Trade working capital movement
33.7
159.3
(10.5)
(12.9)
95.8
189.3
(15.4)
(24.9)
(62.1)
Business integration
and restructuring
Environmental and site
clean-up
(29.5)
(17.7)
(11.8)
(6.1)
(23.8)
(11.1)
(14.2)
5.0
(9.6)
• Reduction in trade working capital resulted in a cash
Other
inflow of $33.7M (2006: $95.8M).
• Business integration and restructuring costs paid were
$29.5M (2006: $17.7M). ‘Tardis’ restructuring costs
(excluding capital expenditure) were $18.9M and Orica
exit costs were $10.6M.
Operating cash flow
.
1.
0.
Net investing cash flows
• Environmental and site clean-up expenditure of $6.1M
Capital spending
(91.6)
(28.0)
(2006: $11.1M).
Net investing cash outflows were up $165M to $319.9M
(2006: $154.9M). Major items included:
• The acquisition of a 13.2% strategic investment in
Dyno Nobel for $257M, including transaction costs.
• Net capital expenditure was $62.9M (2006: $21.4M)
comprising capital spending of $91.6M offset by asset
sales of $28.7M. Major items of capital spending were:
– Gibson Island: ‘Reset 07’, $42.1M and water saving
initiatives, $4.3M.
– SCF gypsum cell, $9.0M.
– Business integration spending of $5.5M
(‘Tardis’ $3.6M and Orica separation $1.9M).
– Sustenance $30.7M.
(63.6)
22.1
155.3
Proceeds from asset sales
28.7
6.6
Purchase of SCF
–
(155.3)
Purchase of Dyno Nobel shares (257.0)
–
(257.0)
Sale of QGC investment
0.0
21.8
(21.8)
Investing cash flow
(1.)
(1.)
(16.0)
Net financing cash flows
(Decrease)/increase in
other net debt
Dividends paid
136.3
(75.6)
8.1
(41.9)
128.2
(33.7)
Financing cash flow
60.
(.)
.
8536-01 AR Text.48.indd 13
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1
Health, Safety, Environment and Community (HSEC)
Incitec Pivot’s strong focus on HSEC continued in the
2006/07 year.
There were 19 recordable injuries in the year, seven fewer
injuries than in the previous year, representing a 25%
improvement from 2005/06 on a pro forma basis including
SCF for the 12 months. Notably, in general, there has been a
significant decrease in both the severity and potential severity
of injuries. This is in part reflected in the reduction of the lost
workday case rate.
There was also a major maintenance shutdown at the
Gibson Island plant, ‘Reset 07’, during the reporting period.
This involved 286,000 man-hours, with 1,059 workers
(85% of whom were contractors) on site. Despite the
increased work force on site, there was a single injury
requiring medical treatment.
Environmental licence performance improved during
the year. This is reflected in a reduction from 12 to nine
non-complying tests.
In recognition that drug and alcohol use is a significant
community problem that, if not managed, has the potential to
negatively impact upon the health and safety of personnel on
its sites and the integrity of the Company’s operations, Incitec
Pivot introduced a drug & alcohol standard and procedure in
2007. This involves random drug and alcohol testing, conducted
in compliance with Australian Standard AS/NZS 4308:2001.
The acquisition of SCF in late 2006 presented the opportunity
for the Company to develop a HSEC management system
specifically focused on Incitec Pivot’s scope of operations using
the highest of standards from both Incitec Pivot and SCF.
Product Stewardship
Product stewardship, the responsible and ethical design
and management of products, packaging and services
throughout their entire lifecycle to protect public health and
the environment, is addressed by Incitec Pivot at the corporate
level and at an industry level through its membership of
Fertilizer Industry Federation of Australia (FIFA).
FIFA has implemented the Fertcare® national training and
accreditation scheme. Incitec Pivot and its agronomists and sales
advisory staff are Fertcare® accredited.
Incitec Pivot operates its own soil, plant tissue and water
testing service. Company agronomists have developed
interpretative tools and decision support systems to allow
the interpretation of laboratory results and the development
of fertiliser recommendations to lead to appropriate fertiliser
application rates.
Packaging
Incitec Pivot became a signatory to the National Packaging
Covenant (NPC) in 2007. The NPC aims to minimise the
environmental impacts arising from the disposal of used
packaging and facilitate the re-use and recycling of
packaging materials.
Incitec Pivot promotes the use of bulk handling systems and
the use of returnable flexible intermediate bulk containers
(FIBCs). Single-use FIBCs comprise only 5% of the FIBCs used.
Returnable FIBCs have a life of 3 years, and on average are used
on 12 occasions before they are disposed. When FIBCs are taken
out of service, as there are no recycling programs in Australia,
Incitec Pivot exports the used FIBCs to China for recycling.
Sustainability
Incitec Pivot continues to seek ways to use materials, energy
and water in a sustainable manner. In doing so, it recognises
community expectations as well government regulations.
In 2006/07, Incitec Pivot’s focus was on the improvement
of energy efficiency at its sites and, as part of this, in 2007,
registered for the Commonwealth Energy Efficiency Opportunities
Program. The Company continued to monitor and reduce
emissions and promote the efficient use of water.
As part of its drive towards a sustainable future, Incitec Pivot
continues to address contamination issues caused by historical
operations of the Company or inherited by the Company from
predecessors or neighbouring activities.
In South Australia, significant work has been undertaken
since 2005 to remediate two sites. At Parafield Gardens, soil
remediation work has been completed and a groundwater
treatment plant installed to treat groundwater for the next three
to five years. At Wallaroo, a remediation action plan (RAP) has
been agreed with the South Australian EPA and remediation and
demolition works have commenced.
In relation to the site at Cockle Creek in New South Wales, this
site’s contamination resulted from fill placed on the site from
adjacent smelter operations over many years. During the year, the
Company progressed the RAP and completed site investigations.
Incitec Pivot is working with NSW government authorities.
SH&E performance summary
00 006 00 00
Recordable injuries
Lost workday case rate
Recordable case rate
19
0.36
0.98
Distribution
(Category 2+)
Losses of containment
(Category 2)
Environmental licence
non-complying tests
Hygiene monitoring
Tests over occupational
exposure limit
2
2
9
0
10
0.4
0.8
1
0
12
0.25
0.99
5
0
13
0.5
1.09
2
1
12
69
82
2
3.8%
93%
The 2006 column includes SCF from 1 August 2006. In relation to hygiene
monitoring and the number of tests over occupational exposure limit, there is no
data available for SCF. The data shown is for Incitec Pivot only.
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 was 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.
1
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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 97
Audit Report
Shareholder Statistics
Five Year Financial Statistics
16
43
44
45
46
47
48
98
99
101
102
1
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Directors’ Report
The directors of Incitec Pivot Limited present the financial report of the Company and its controlled entities (the consolidated
entity) for the year ended 30 September 2007 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 (to 17 April 2007)
Member of the Health, Safety, Environment and Community
Committee
B Healey FAICD, FAIM
Independent non-executive director and Deputy Chairman
Member of the Governance Committee (to 17 April 2007)
Member of the Remuneration and Appointments Committee
Member of the Audit and Risk Management Committee (to 23
February 2007)
A C Larkin FCPA, FAICD
Independent non-executive director
Chairman of the Audit and Risk Management Committee
Member of the Remuneration and Appointments Committee
Member of the Health, Safety, Environment and Community
Committee
A D McCallum Dip. Ag Science, FAICD
Independent non-executive director
Chairman of the Governance Committee (to 17 April 2007)
Chairman of the Health, Safety, Environment and Community
Committee
Member of the Remuneration and Appointments Committee
Member of the Audit and Risk Management Committee
J Marlay BSc, FAICD
Independent non-executive director
Member of the Remuneration and Appointments Committee
Member of the Audit and Risk Management Committee
J Segal BSc, MBA
Managing Director & Chief Executive Officer
Member of the Health, Safety, Environment and Community
Committee
J E Fazzino BEc(Hons), CPA
Finance Director & Chief Financial Officer
John was appointed as a director on 15 December 1997 and was appointed
Chairman in 1998. John is the inaugural Chairman of the Export Wheat
Commission, Chairman of PrimeSafe and of the Co-operative Research
Centre for Innovative Dairy Products, a director of Tassal Group 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 and a former director of Rural Press Limited. 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 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, and a former Chief
Executive of Nicholas Kiwi.
Tony was appointed as a director on 1 June 2003. He is a director of
Corporate Express Australia Limited, Zinifex Limited and Eyecare Partners
Limited. Tony was previously Executive Director Finance of Orica Limited,
Chairman of Incitec Ltd and Chairman of Ausmelt Limited. During 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 early 2006, he was a Commissioner
of the Victorian Essential Services Commission.
Allan was appointed as a director on 15 December 1997. Allan is Chairman
of Tassal Group Limited and is a director of Medical Developments
International Ltd. He is a former director of Graincorp Limited and a former
Chairman of Vicgrain Ltd.
John was appointed to the Board by the directors on 20 December 2006.
John is Chief Executive Officer and Managing Director of Alumina Limited.
He is a director of Alcoa of Australia, Alcoa World Alumina LLC and of the
Business Council of Australia. He is also Deputy Chairman of Alcoa World
Alumina and Chemicals Strategic Council, and is Chairman of the
Australian Aluminium Council. He has formerly held executive positions
with, and been a director of, Esso Australia Limited, James Hardie
Industries Limited, Pioneer International Group Holdings and Hanson plc.
Julian was appointed as Managing Director & CEO 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 a director on 18 July 2005, following his
appointment as 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.
16
Incitec Pivot Limited
Directors’ Report
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 in Melbourne. Prior to emigrating in 1999, Kerry was a partner of an English law firm,
Halliwell Landau.
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
Securities 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
B Healey
A C Larkin
A D McCallum (1)
J Marlay
J Segal (2)
J E Fazzino (2)
Fully paid ordinary shares
Incitec Pivot Limited
5,000
1,000
-
7,818
1,000
88,641
85,404
(1) Held both directly and indirectly.
(2) This interest includes, in the case of Mr Segal, shares acquired pursuant to his Retention Award and pursuant to the Incitec Pivot long
term incentive plans and, in the case of Mr Fazzino, shares acquired pursuant to Incitec Pivot’s long term incentive plans; further details of
which are set out in the remuneration report and note 35, Share Based Payments.
Further details of directors’ interests in share capital are set out in note 34, Key Management Personnel disclosures.
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 (1)
Health, Safety,
Environment and
Community (2)
Held (3) Attended (4) Held (3) Attended (4) Held (3) Attended (4) Held (3) Attended (4) Held (3) Attended (4)
Current
J C Watson
B Healey (5)
A C Larkin
A D McCallum
J Marlay (6)
J Segal
J E Fazzino
17
17
17
17
13
17
17
17
16
15
17
12
17
17
-
1
4
4
3
-
-
-
-
4
3
3
-
-
6
6
6
6
3
-
-
6
6
5
6
2
-
-
1
1
-
1
-
-
-
1
1
-
1
-
-
-
3
-
3
3
-
3
-
3
-
3
3
-
3
-
(1) Following the Company’s exit from the Orica group, the Governance Committee (which considered Orica group related party transactions)
was dissolved by the Board on 17 April 2007.
(2) The Health, Safety, Environment and Community Committee was established by the Board on 23 February 2007.
(3) This column shows the number of meetings held during the period that the director was a member of the Board or Committee.
(4) This column shows the number of meetings attended during the period that the director was a member of the Board or Committee.
(5) Mr Healey resigned from the Audit and Risk Management Committee on 23 February 2007.
(6) Mr Marlay was appointed to the Board by the directors on 20 December 2006. Mr Marlay was appointed to the Audit and Risk
Management Committee and the Remuneration and Appointments Committee on 23 February 2007.
Incitec Pivot Limited
17
Directors’ Report
Principal activities
The principal activities of the consolidated entity during the course of the financial year were the manufacture, trading and
distribution of fertilisers and chemicals. 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 10 to 13 of the annual report.
Dividends
Dividends declared and paid since the last annual report were:
Type
Declared and paid during the year
2006 final dividend
2007 interim ordinary
Declared and paid after end of year
2007 final dividend
Dealt with in the financial
report as:
Dividends
Subsequent event
Note
27
38
Cents per share
Total amount
$000
Franked / Unfranked
Date of payment
40,843
34,792
Franked
Franked
13 December 2006
5 July 2007
116,479
Franked
13 December 2007
81
69
231
$000
75,635
116,479
Changes in the state of affairs
There have been no significant changes to the consolidated entity’s state of affairs during the year.
Events subsequent to balance date
Since the end of the financial year, the directors have declared a final dividend for the Company of 231 cents per share,
comprising a normal dividend of 191 cents per share and a special dividend of 40 cents per share. The dividend is fully franked
at the 30% corporate tax rate and is payable on 13 December 2007 (Refer note 27).
In addition, by the announcement lodged with the Australian Securities Exchange the market was advised on 19 October 2007
of an unscheduled outage of the urea manufacturing plant at Gibson Island, Brisbane. The total financial impact is estimated at
$16 million after tax. Incitec Pivot’s insurer has been advised of the event and, if the insurance policy responds, the total
financial impact is estimated at $5.5 million after tax.
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2007
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 10 to 13 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 Health, Safety, Environment and Community report on page 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 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. Pursuant to
those deeds, the Company has paid a premium in respect of a contract insuring officers of the Company and of its 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 $40,000 during the year ended 30 September 2007 (Refer 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 one hundred 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 2007. 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. The Board has determined
that for the purposes of AASB 124 Related Party Disclosures, the Key Management Personnel of the consolidated entity are the
non-executive directors listed in the table in section A, and the executive directors and the direct reports to the Managing
Director & CEO listed in table D.4.
When used in this report, the term “executives” means the executive directors and the direct reports to the Managing Director
& CEO.
The Company’s remuneration strategy is designed to:
(cid:121)
enable Incitec Pivot to attract, retain and motivate directors, executives and employees who will create value for
shareholders; and
(cid:121)
fairly and appropriately reward executives and employees having regard to the performance of Incitec Pivot and that of the
relevant executive or employee.
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.
Details of the Company’s remuneration strategy for the 2006/07 financial year are set out in this remuneration report.
This remuneration report forms part of the directors’ report.
A. Non-executive directors
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. Given the aggregate limit was last considered by shareholders in 2003, to
enable the Company to attract and retain high calibre directors, a resolution will be proposed at the 2007 Annual General
Meeting to increase the maximum total amount from which the Company may pay the non-executive directors for their services
as directors by $400,000 to $1,400,000. The Board sought independent external advice in determining the maximum total
amount to be put to shareholders and considers that the amount of $1,400,000 is appropriate for a company of the size and
nature of Incitec Pivot and is consistent with that of companies of comparable size and complexity.
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. Fees are
determined annually after receiving professional advice from an appropriately qualified external consultant taking 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.
20
Incitec Pivot Limited
Directors’ Report
Remuneration Report
Non-executive directors’ remuneration
Details of the non-executive directors’ remuneration for the financial year ended 30 September 2007 are set out in the
following table.
For the year ended 30 September 2007
Short-term benefits
Post-
employment
benefits
Other long
term benefits
(A)
Non-
monetary
benefits (B)
$000
Superannuation
benefits
$000
Fees
$000
$000
Total
$000
254
233
126
113
111
98
79
-
118
108
-
77
688
629
14
-
-
-
-
-
-
-
-
-
-
-
14
-
27
23
-
-
11
10
-
-
12
11
-
-
50
44
44
75
-
-
-
-
-
-
15
25
-
-
59
100
339
331
126
113
122
108
79
-
145
144
-
77
811
773
Non-executive directors
- Current
J C Watson, Chairman (1)
Year
2007
2006
B Healey 2007
2006
A C Larkin 2007
2006
J Marlay (2)
A D McCallum (1)
- Former
J R Chesterfield (3)
Total non-executive directors
2007
2006
2007
2006
2007
2006
2007
2006
(A) Consistent with best practice, with the exception of the contractual entitlements for Mr Watson and Mr McCallum who were appointed to
the Board before 1 June 2003, the Company does not pay additional benefits to non-executive directors.
(B) Non-monetary benefits include Fringe Benefits Tax attributable to the FBT year (2007: 1 April 2006 to 31 March 2007) (2006: 1 April 2005
to 31 March 2006). In the case of Mr Watson, this relates to travel allowances.
(1)
If Mr Watson or Mr McCallum had ceased to be directors on 30 September 2007, the following benefits would have been payable under
their respective contracts: Mr Watson $432,000, Mr McCallum $197,000.
(2) On 20 December 2006, Mr Marlay was appointed to the Board by the directors as a non-executive director. Fees of $79,000 were paid to
Mr Marlay’s employer, Alumina Limited.
(3) Fees of $77,000 were paid to Mr Chesterfield’s employer, Orica Limited.
Incitec Pivot Limited
21
Directors’ Report
Remuneration Report
B.
Executive remuneration
The remuneration of the executives is set by the Board.
Executive remuneration is set at levels to properly reflect the duties and responsibilities of the executives and comprises both a
fixed component and an “at risk” component, which is intended to remunerate executives for increasing shareholder value and
for achieving financial targets and business strategies. 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 is reviewed annually by the Board after receiving advice from an appropriately qualified external consultant,
taking into account survey data on remuneration packages for comparable companies, and the duties and responsibilities of the
executives. Currently, executive remuneration is under review and the Board has engaged Mercer Human Resource Consulting
Pty Ltd to provide advice on the Company’s strategy for the attraction, retention and motivation of its executives.
Components of remuneration
As indicated above, remuneration for executives has the following components:
1.
Fixed annual remuneration (FAR); and
2. Performance-based “at-risk” remuneration, comprising:
•
•
Short term incentive – based on annual performance at an individual and Company level;
Long term incentive – based on sustained creation of shareholder value over a performance period, typically
three years.
The Board aims to achieve a balance between fixed and performance-related components of remuneration that reflect market
conditions at each job and seniority level.
The relative proportion of executives’ total remuneration packages that is performance-based is set out in the table below.
Table B.1, Remuneration structure by level
CEO
CFO
Executives
% of Total Remuneration (annualised)
Fixed Remuneration
Performance-based Remuneration
FAR
29%
33%
36%
STI
29%
33%
29%
LTI
42%
34%
35%
In determining the “at risk” compensation as a proportion of total remuneration, for each category of employee the maximum
entitlement under the STI or LTI was taken into account.
This table has not been subject to audit.
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. This amount of remuneration is not dependent upon Company performance and is set by
reference to appropriate benchmark information for each executive’s role, level of knowledge, skill, responsibilities and
experience.
22
Incitec Pivot Limited
Directors’ Report
Remuneration Report
Performance-based remuneration – Short Term Incentive Plan (STI)
The Short Term Incentive Plan (STI) is an annual “at risk” cash bonus which delivers cash bonuses on achievement of specific
target levels. All executives (as well as other senior employees) participate in the STI. The Board considers the STI is an
appropriate incentive. It is designed to encourage executives to support Incitec Pivot’s strategic objectives by putting a large
proportion of the executive remuneration “at risk” against meeting performance targets linked to the Company’s annual business
objectives. STI awards are not an entitlement, but rather a reward for annual Company performance and individual performance
or contribution to overall Company performance.
The criteria for awarding the STI is set annually. There are both target and stretch conditions. The STI and the performance
conditions under the STI have been designed to motivate and reward high performance. If performance exceeds the already
challenging targets, the STI will deliver higher rewards to executives. The performance conditions include both financial and
non-financial measures and are heavily weighted to 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 dividends and
share price growth). Non-financial measures include corporate values and functional performance.
No STI is awarded if the minimum performance across the Company does not meet the required threshold. In recent years,
this has been linked to a minimum level of NPAT (before individually material items) that must be achieved before any STI
is awarded.
Performance-based remuneration – Long Term Incentive Plan (LTI)
Incitec Pivot’s Long Term Incentive Plans (LTIs) are the long term incentive component of remuneration for executives who are
able to influence the sustained generation of shareholder value through their direct contribution to the Company’s performance.
The LTIs are designed to link executive reward with the key performance drivers which underpin sustainable growth in
shareholder value – which comprises both share price growth and returns to shareholders. The arrangements also support the
Company’s strategy for retention and motivation of its employees.
The Board considers the structure of the LTI is appropriate as it facilitates immediate share ownership by the executives and
links a significant proportion of their potential remuneration to returns to shareholders over a three year period. By having a
significant proportion of remuneration at risk, the LTI promotes behaviour that will achieve superior performance. Participants
are affected in the same way as all other shareholders by changes in the Company’s share price and, accordingly, the LTI
ensures that executives’ performance is in alignment with the creation of shareholder value.
Key features of the LTIs:
•
Loan backed plan: At the commencement of relevant performance periods (typically 3 years) the Company, through
its wholly owned subsidiary, Incitec Pivot LTI Plan Company Pty Ltd, provides to participants limited recourse loans
bearing interest at the fringe benefits tax benchmark rate (currently 8.05%) for the sole purpose of acquiring shares in
Incitec Pivot.
• Shares acquired on market and held under restriction: The loans are applied to acquire shares on market which
avoids dilution of other shareholdings. Australian Securities Exchange Listing Rule 10.14 provides that no shareholder
approval is required. Participants may not deal in the shares while the loan remains outstanding. Net cash dividends
after personal income tax obligations are applied to reduce the loan balance throughout the term of the loan.
•
Loan forgiveness: If, at the end of the performance period, the performance of the Company and the participant
meets or exceeds the performance criteria which was set by the Board at the commencement of the performance
period, part of the loan may be forgiven. The amount of the loan forgiven will be determined according to the
performance achieved and will be net of fringe benefits tax. The balance of the loan must be repaid prior to any dealing
in the shares, on cessation of employment, or at the latest, a sunset date which is 3 months after the expiry of the
performance period.
Incitec Pivot Limited
23
Directors’ Report
Remuneration Report
• Performance Criteria: The Board sets the criteria for the granting of awards at the beginning of the three year
performance period covered by the LTI. The criteria focuses on financial performance of the Company and includes a
condition relating to duration of employment. The LTI performance measure is based on Total Shareholder Return
(TSR), being the percentage increase in the Company’s share price over the three year performance period plus the
after tax value of dividends paid. The Board adopted the Company’s TSR as the performance measure, as opposed to
a TSR measure relative to the TSR of the companies in the S&P/ASX 100 index, because doing so ensures there is a
direct link between reward and actual returns to shareholders thereby aligning executives’ performance with the
creation of shareholder value. For the performance criteria to be satisfied in full, Incitec Pivot’s TSR must be at least
20% per annum compounded over the three year period (Stretch TSR). In setting the Stretch TSR at 20%, the Board
considers it has established an aggressive target to promote behaviour to achieve superior performance, noting that it
referenced TSR for the S&P/ASX 100 index over the ten year period to 30 September 2006 and that a TSR of 20%
reflected top decile performance over this period. If, at the end of the relevant performance period, TSR is less than
10% per annum compounded over the three year period, no awards in the form of loan forgiveness will be granted.
Relationship between Company performance and remuneration
Indices
In considering Incitec Pivot’s performance and benefits for shareholders, 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 B.2
Net Profit After Tax (before individually material items) ($m)
Dividends per share (cents)
Share price ($) (Year End)
TSR (Annual) - IPL (%)
Earnings per share (including individually material items) (cents)
2003 (1)
35.0
140
15.66
8
(59.8)
2004
80.9
29
18.80
28
128.8
2005 (2)
2006 (2)
2007 (2)
47.9
121
15.82
(12)
24.9
82.8
72
25.87
70
82.6
202.5
150
85.54
242
407.1
The above table has not been subject to audit.
(1) TSR (Annual) is calculated from date of listing (28 July 2003).
(2) Stated on an AIFRS basis.
24
Incitec Pivot Limited
Directors’ Report
Remuneration Report
The Board considers that linking executive remuneration to the performance measures of NPAT and TSR has been a key driver
to the strong results of the Company as demonstrated in the charts below.
Charts B.2
%
R
S
T
300
250
200
150
100
50
0
-50
x
e
d
n
I
0
0
2
X
S
A
8000
7500
7000
6500
6000
5500
5000
Total Shareholders Return (Annual)
EPS and Year End Share price
s
t
n
e
C
S
P
E
500
400
300
200
100
0
(100)
2003
2004
2005
2006
2007
EPS
Y/E Share Price
2003
2004
2005
2006
2007
TSR IPL
IPL Share Price Performance
NPAT and Dividends
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
$
m
$
T
A
P
N
250
200
150
100
50
0
6
0
-
t
c
O
6
0
-
v
o
N
6
0
-
c
e
D
7
0
-
b
e
F
7
0
-
r
a
M
7
0
-
y
a
M
7
0
-
n
u
J
7
0
-
g
u
A
7
0
-
p
e
S
100
80
60
40
20
0
$
e
c
i
r
p
e
r
a
h
S
E
Y
/
200
150
100
50
-
s
t
n
e
c
S
P
D
2003
2004
2005
2006
2007
ASX 200
IPL Share Price
NPAT
Dividends
The above charts have not been subject to audit.
Current LTIs
The Company currently has in place the following LTIs:
- 1 October 2006 to 30 September 2008 (LTI interim performance plan 2006/08); and
- 1 October 2006 to 30 September 2009 (LTI performance plan 2006/09).
The Company is in the process of establishing a LTI performance plan 2007/10, with participants having been advanced loans
which have been applied in the purchase of shares on market and which are to be allocated in November 2007
(LTI performance plan 2007/10). The LTI performance plan 2006/09 and the LTI performance plan 2007/10 are for three year
periods. The performance criteria for the LTI performance plan 2006/09 and the LTI performance plan 2007/10 will not be tested
until 30 September 2009 and 30 September 2010 respectively. Accordingly, none of the executives have received any loan
forgiveness in the financial year ended 30 September 2007.
While Incitec Pivot’s LTIs operate on a three year performance period (with the first LTI plan established in 2003 for the rolling
three year period to 30 September 2006), in 2004 and 2005 no plans were established for the performance periods 1 October
2004 to 30 September 2007 and 1 October 2005 to 30 September 2008. With the Company’s exit from the Orica group in July
2006 and the acquisition of Southern Cross Fertilisers Pty Ltd in August 2006, in order to promote behaviour that would achieve
superior performance in 2007 and 2008, the Board determined that it would establish the LTI interim performance plan 2006/08
in respect of the Company’s performance over the two year period commencing 1 October 2006 and ending 30 September
2008. Under the LTI interim performance plan 2006/08, the performance measure is based on cumulative NPAT for the two
years ending 30 September 2008. The LTI award will be made if the cumulative NPAT (excluding individually material items)
is equal to or above $227.5m. None of the executives have received any loan forgiveness in the financial year ended 30
September 2007 as the LTI interim performance plan 2006/08 will not be tested until 30 September 2008.
Incitec Pivot Limited
25
Directors’ Report
Remuneration Report
C. Managing Director & Chief Executive Officer’s Employment Arrangements
and Remuneration
Managing Director & CEO – Mr J Segal
Julian Segal was initially appointed as Managing Director & CEO on 3 June 2005 on secondment from Orica Limited, the then
parent company of Incitec Pivot. Pursuant to a service agreement entered into with Incitec Pivot dated 29 May 2006, Mr Segal’s
appointment as Managing Director & CEO continued on the basis of the terms set out in that service agreement which
commenced on 10 May 2006.
The agreement provides that Mr Segal may terminate his employment on 6 months’ notice. The Company may terminate
Mr Segal’s employment:
(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)
(cid:121)
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)
(cid:121)
(cid:121)
Fixed Annual Remuneration
Mr Segal’s fixed annual remuneration is $1,000,000, reviewed annually each January having regard to Incitec Pivot’s
executive remuneration policy.
Short Term Incentive
Mr Segal is eligible to participate in Incitec Pivot’s STI.
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. Given NPAT (before individually material items) for the 2006/07 financial
year is $202.5m, up 145% or $119.7m on the 2005/06 result, Mr Segal was awarded a STI payment of $1,000,000 being
100% of the maximum STI opportunity for the period 1 October 2006 to 30 September 2007.
Further details of the STI plan are set out in section B of this remuneration report.
Long Term Incentive
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 to 2009. In addition, given 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 Southern Cross Fertilisers. Accordingly, Mr Segal received a Retention Award in the
form of an interest free, limited recourse, unsecured loan by Incitec Pivot for $722,000 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.
26
Incitec Pivot Limited
Directors’ Report
Remuneration Report
D. Executives’ employment arrangements and remuneration
D.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 C of this remuneration report) 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
STI Plan
Fixed remuneration comprising salary paid in cash and mandatory employer superannuation
contributions. This is subject to an annual review.
Participation is at the Board’s discretion. For all executives other than Mr Fazzino, the STI 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 STI opportunity is 50% of fixed annual
remuneration up to a maximum of 100% of fixed annual remuneration for over performance against
specified measures.
LTI Plan
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.
Termination by Incitec Pivot
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 the length of any prior service with the Orica group (where applicable), and
is as follows for each executive (excluding Mr Segal):
Mr Paul Barber
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
$’000
350
570
360
280
320
400
280
26.0 weeks
51.6 weeks
26.0 weeks
26.0 weeks
70.48 weeks
61.81 weeks
45.41 weeks
Separation
Payment
$’000
175
566
180
140
434
475
255
Termination by executive
An executive may terminate his/her employment on 13 weeks’ notice (save for Mr Grace, who may
terminate on 8 weeks’ notice) and the Company may require the executive to serve out the notice
period or may make payment in lieu.
Details of the nature and amount of each element of remuneration of the executives are included in table D.4.
D.2 Grants of STI payments
For the 2006/07 STI, the principal measure established in order to determine whether STI payments were to be made was
NPAT (before individually material items). In addition, for all executives, 10% of the available STI opportunity was based on the
successful implementation of the Incitec Pivot ‘Living our Values’ program and, for each of Mr Grace, Mr Roe, Mr Walsh and Mr
Whiteside, 30% of their available STI opportunity was based on specific objectives in their respective functional areas. In 2007,
NPAT (before individually material items) is $202.5m, an increase of 145% on the 2006 NPAT (before individually material
items) of $82.8m. Mr Fazzino, Mrs Gleeson and Mr Roe were awarded STI payments at 100% of their respective maximum STI
opportunities, with Mr Grace, Mr Walsh and Mr Whiteside being awarded approximately 98% of their respective maximum STI
opportunities.
D.3 Grants of LTI Plan awards
There are no awards to be made under any LTI Plan as no plan matures for the year ending 30 September 2007.
Incitec Pivot Limited
27
Directors’ Report
Remuneration Report
D.4 Executives’ remuneration
For the year ended 30 September 2007
Short-term benefits
Post-
employment
benefits
Other long
term benefits
Termination
benefits
Share-based
payments
Short Term
Incentive &
other
bonuses (A)
Non-
monetary
benefits (B)
Salary &
Fees
Superannuation
benefits
Value of
shares treated
as Options
(C)
Year
$000
$000
$000
$000
$000
$000
$000
Proportion of
remuneration
performance
related
Value of shares
treated as
options as
proportion of
remuneration
%
%
962
695
557
455
347
303
307
296
387
321
258
83
267
85
19
-
-
-
251
45
-
254
-
-
-
-
-
-
1,000
748
570
450
288
296
382
198
314
247
218
154
220
164
-
-
-
-
224
29
-
257
-
-
-
-
-
-
60
155
8
85
-
54
6
7
6
16
8
14
6
8
-
-
-
809
-
-
-
-
-
118
-
6
-
127
13
12
13
12
13
12
13
12
13
12
13
4
13
4
1
-
-
-
12
2
-
12
-
-
-
-
-
-
31
119
10
81
-
-
6
17
7
50
5
7
5
17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
385
-
-
-
-
-
-
-
-
-
552
61
179
17
113
15
100
16
126
9
82
2
88
2
-
-
-
-
82
-
-
-
-
-
-
-
-
-
Total
$000
2,618
1,790
1,337
1,100
761
680
814
546
853
655
584
264
599
280
20
-
-
809
954
76
-
523
-
118
-
6
-
127
59%
45%
56%
42%
53%
46%
59%
39%
52%
39%
51%
59%
51%
59%
0%
-
-
-
32%
38%
-
49%
-
0%
-
0%
-
0%
Executive
- Current
J Segal
2007
Managing Director & CEO 2006
J E Fazzino
Finance Director &
Chief Financial Officer
K J Gleeson
General Counsel & Company
Secretary
D A Roe (1)
Strategy & Business
Development Manager
2007
2006
2007
2006
2007
2006
B C Walsh
2007
General Manager - Operations 2006
A Grace
2007
General Manager - Chemicals 2006
J Whiteside
General Manager - Supply
Chain & Trading
P Barber (2)
General Manager - Australian
Fertilisers
2007
2006
2007
2006
- Former
G J Witcombe
2007
Managing Director & CEO 2006
M Drew (3)
General Manager - Sales &
Customer Service
A Cleland
General Manager Strategy &
Business Development
J W Elmer
General Manager Human
Resources
2007
2006
2007
2006
2007
2006
J M Lloyd
2007
General Manager Commercial 2006
J R Warnock
General Manager Logistics &
Supply
Total Executive
2007
2006
2007
2006
3,355
2,537
3,216
2,543
94
1,399
104
82
64
291
385
-
1,322
122
8,540
6,974
53%
38%
28
Incitec Pivot Limited
21%
3%
13%
2%
15%
2%
12%
3%
15%
1%
14%
1%
15%
1%
0%
-
-
-
9%
0%
-
0%
-
0%
-
0%
-
0%
15%
2%
Directors’ Report
Remuneration Report
For details of remuneration paid to executives and their employment arrangements refer also to sections C, D.1 and D.2 of this
remuneration report.
(A) Mr Segal, Mr Fazzino, Mrs Gleeson and Mr Roe were each awarded their maximum available STIs. Accordingly, Mr Segal and Mr Fazzino
received 100% of their respective fixed annual remuneration as STIs. Mrs Gleeson and Mr Roe received 80% of their respective fixed
annual remuneration as STIs, Mr Grace received 78% of his fixed annual remuneration as a STI and Mr Walsh and Mr Whiteside received
78.4% of their respective fixed annual remuneration as STIs. Mr Barber, who joined the Company on 10 September 2007, was not eligible
to receive a STI for 2006/07.
(B) Non-monetary benefits include Fringe Benefits Tax paid attributable to the FBT year (2007: 1 April 2006 to 31 March 2007) (2006: 1 April
2005 to 31 March 2006), 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) For Mr Segal this relates to a Retention Award (refer to section C) and his participation in the LTI performance plan 2008/09 (refer to
sections B and C), and for the other executives this relates to the LTI performance plan 2006/09 and the LTI interim performance plan
2006/08. The benefits received as a result of Mr Segal’s Retention Award and the executives’ participation in the LTI plans 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 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. The fair value has been allocated evenly over the period from grant date to the date when an entitlement to an award arises.
The value disclosed in this table represents the portion of fair value allocated to this reporting period.
Refer to sections B and C of this remuneration report for further details of the LTI performance plan 2006/09, the LTI interim performance
plan 2006/08 and LTIs 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
17/11/2006
30/09/2008
$4.33
From 1/10/2008 (i)
$25.35
1/12/2006
30/09/2009
$16.53
From 1/10/2009 (i)
$24.11
LTI interim
performance plan
2006/08
LTI performance plan
2006/09
The number of shares (treated as options for the purposes of remuneration) held by each executive director and executive is detailed in the
section E of this remuneration report and note 34 to the financial report.
(i)
Shares restricted until such time as the loan is repaid. Under the LTI interim performance plan 2006/08, the loan must be repaid by
31 December 2008 and, under the LTI performance plan 2006/09, the loan must be repaid by 31 December 2009.
(1) This includes the sum of $126,000 which was paid to Mr Roe in satisfaction of the agreement between him and Incitec Pivot relating to his
continued entitlement to a long term incentive on his transfer from Orica Limited to Incitec Pivot and the cessation of his participation in
Orica Limited’s LTI plans.
(2) Mr Barber was appointed as an executive during the financial year. These disclosures are from his appointment date, 10 September 2007.
(3) On 7 September 2007, Mr Drew ceased to be employed by the Company. These disclosures are from 1 October 2006 to that date.
Incitec Pivot Limited
29
Directors’ Report
Remuneration Report
D.5 Analysis of incentive compensation included in remuneration
Details of the vesting profile of the STI payments or other incentive compensation awarded as remuneration to each executive
director or executive are set out below:
Executive directors
- Current
J Segal
J E Fazzino
Executives
- Current
K J Gleeson
D A Roe (1)
B C Walsh
A Grace
J Whiteside
P Barber (2)
- Former
M Drew
- STI
- STI
- STI
- STI
- STI
- STI
- STI
- STI
- STI
Short term incentive
Included in
remuneration (A)
$000
% vested in
year (B)
% forfeited
in year
1,000
570
288
382
314
218
220
-
224
100%
100%
100%
100%
98%
98%
98%
0%
100%
0%
0%
0%
0%
2%
2%
2%
0%
0%
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 amounts that vest in the financial year
based on achievement of personal and Company targets and satisfaction of relevant performance measures under the STI.
(B) Mr Segal, Mr Fazzino, Mrs Gleeson and Mr Roe were each awarded their maximum available STIs. Mr Grace, Mr Walsh and Mr
Whiteside were each awarded approximately 98% of their respective maximum STI opportunities. On this basis, Mr Segal and Mr Fazzino
received 100% of their respective fixed annual remuneration as STIs. Mrs Gleeson and Mr Roe received 80% of their respective fixed
annual remuneration as STIs, Mr Grace received 78% of his fixed annual remuneration as a STI and Mr Walsh and Mr Whiteside received
78.4% of their respective fixed annual remuneration as STIs.
(1) This includes the sum of $126,000 which was paid to Mr Roe in satisfaction of the agreement between him and Incitec Pivot relating to his
continued entitlement to a long term incentive on his transfer from Orica Limited to Incitec Pivot and the cessation of his participation in
Orica Limited’s LTI plans.
(2) Mr Barber was appointed an as executive on 10 September 2007 and he did not participate in the 2006/07 STI.
30
Incitec Pivot Limited
Directors’ Report
Remuneration Report
E. Equity instruments
E.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
2006/09 and the LTI interim performance plan 2006/08 are treated as options.
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 B and C:
For the year ended 30 September 2007
Number of shares
treated as options
Grant date
Granted during
2007 as
remuneration (A)
Status at end of
year (B)
Key Management Personnel
Executive Directors
- Current
J Segal
J E Fazzino
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace
J Whiteside
P Barber (1)
Executives
- Former
M Drew
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
1 December 2006
17 November 2006
1 December 2006
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
56,001
22,485
23,644
14,201
14,933
12,623
13,274
15,778
16,592
10,335
10,868
11,045
11,615
-
-
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
Restricted
-
-
Performance Plan 2006/08
Performance Plan 2006/09
17 November 2006
1 December 2006
11,045
11,615
Forfeited
Forfeited
Incitec Pivot Limited
31
Directors’ Report
Remuneration Report
For the year ended 30 September 2006
Number of shares
treated as options
Granted and vested
during 2006 as
remuneration (A)
Status at end of
year (B)
Grant date
Key Management Personnel
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)
Retention Award
Performance Plan 2003/06
5 July 2006
4 October 2005
32,597
5,130
Restricted
Restricted
Performance Plan 2003/06
Performance Plan 2003/06
Performance Plan 2003/06
Performance Plan 2003/06
Performance Plan 2003/06
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
(A) 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 vested during the reporting period.
(B)
"Restricted" refers to those shares that are subject to a limited recourse loan and the participant is not free to sell or otherwise deal in
the underlying shares.
"Forfeited" means the executive ceased to be employed by the Company and all rights to the underlying shares were forfeited.
(1) Mr Barber was appointed as an executive during the financial year and he is not a participant in the 2006/09 performance plan or the
2006/08 interim performance plan.
(2) 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 as executives.
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 this 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.
E.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.
32
Incitec Pivot Limited
Directors’ Report
Remuneration Report
E.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
named executives is detailed below:
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
Retention Award
Performance Plan 2006/09
J E Fazzino Performance Plan 2006/08
Performance Plan 2006/09
D A Roe
B C Walsh
Executives
- Current
K J Gleeson Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
J Whiteside Performance Plan 2006/08
Performance Plan 2006/09
P Barber (1) Performance Plan 2006/08
Performance Plan 2006/09
A Grace
5 July 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
- Former
M Drew
Performance Plan 2006/08
Performance Plan 2006/09
17 November 2006
1 December 2006
32,597
56,001
22,485
23,644
14,201
14,933
12,623
13,274
15,778
16,592
10,335
10,868
11,045
11,615
-
-
11,045
11,615
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
100%
2009
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
-
-
2008
2009
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
This table has not been subject to audit.
(A) 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.
(B) 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.
(C) 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 Securities Exchange at the date of exercise.
(1) Mr Barber’s employment commenced on 10 September 2007 and he is not a participant in the LTI performance Plan 2006/09 or the LTI
interim performance plan 2006/08.
Incitec Pivot Limited
33
Directors’ Report
Remuneration Report
E.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 named executives is detailed below:
For the year ended 30 September 2007
Value of shares treated as options
Grant date
Granted during 2007
as remuneration (A) Forfeited in year (B)
$000
$000
Total option value
in year
$000
Key Management Personnel
Executive Directors
- Current
J Segal
J E Fazzino
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
1 December 2006
17 November 2006
1 December 2006
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace
J Whiteside
P Barber (1)
- Former
M Drew
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
Performance Plan 2006/08
Performance Plan 2006/09
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
17 November 2006
1 December 2006
Performance Plan 2006/08
Performance Plan 2006/09
17 November 2006
1 December 2006
926
97
391
61
247
55
219
68
274
45
180
48
192
-
-
48
192
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(48)
(192)
926
97
391
61
247
55
219
68
274
45
180
48
192
-
-
-
-
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 (i.e. in years 2006 to 2008 for the LTI performance plan 2006/08 and years 2006 to
2009 for the LTI performance plan 2006/09).
(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.
(1) Mr Barber’s employment commenced on 10 September 2007 and he is not a participant in the LTI performance Plan 2006/09 or the LTI
interim performance plan 2006/08.
During the reporting period, no shares (which are treated as options) previously granted as compensation were exercised.
34
Incitec Pivot Limited
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 Securities 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’s “Principles of Good
Corporate Governance and Best Practice Recommendations” (ASX Recommendations) which were introduced on
31 March 2003.
The Board continues to review its corporate governance framework and practices to ensure they meet the interests of
shareholders. The Company is currently undertaking a further review of its policies and procedures which will extend into
the 2007/08 financial year to ensure compliance with the recently revised ASX Recommendations and 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 2007.
For ease of reference, the table below notes those ASX Recommendations that deal with information to be disclosed in the
corporate governance statement and indicates where that information can be found in this report.
Disclosure required by ASX Recommendations
Reference
Board of Directors on page 36
Functions reserved to the Board and those delegated to
management
Skills, experience and expertise relevant to the position
of director
Details of directors considered by Incitec Pivot as
independent and the criteria/thresholds applied
Procedure for independent professional advice
Directors’ terms of office
Names of the Remuneration and Appointments
Committee members and attendance at meetings
Composition of Board, Chairman, role of Chairman and
Managing Director & CEO
Code of conduct for directors, executives and employees Codes of Conduct on page 42
Share trading policy
Risk oversight
Audit and Risk Management Committee members and
qualifications
Audit and Risk Management Committee meetings and
attendance
Risk management and internal controls
Financial statements sign off and structure of Audit and
Risk Management Committee
Procedures for ASX disclosures
Shareholder communications strategy
Directors’ meetings on page 17
Information on directors on pages 8 to 9 and page 16
Composition of the Board on pages 36 to 37
Access to information and independent advice on page 39
Information on directors on pages 8 to 9 and page 16
Remuneration and Appointments Committee and Board meetings of directors
on page 17
Composition of the Board on pages 36 to 37
Share ownership and dealing on page 41
Audit and Risk Management Committee on pages 39 to 40
Information on directors on page 16
Internal control and risk management on page 39
Audit and Risk Management Committee on pages 39 to 40
Procedures for ASX disclosure requirements on page 41
Procedures for ASX disclosure requirements on page 41 and the Incitec Pivot
website (www.incitecpivot.com.au)
External auditor on page 41
Performance evaluations on page 37
The remuneration report and also in note 34, Key Management Personnel
disclosures
Section A of the remuneration report
Codes of conduct on page 42
Attendance of auditor
Performance review
Company’s remuneration policies and disclosure
Retirement benefits for non-executive directors
Codes of conduct to guide compliance with legal and
other obligations
Summaries or copies of the charters, policies and codes referred to in this statement are available on the Incitec Pivot website,
www.incitecpivot.com.au.
Incitec Pivot Limited
35
Directors’ Report
Corporate Governance Statement
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 Incitec Pivot’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.
Each year, as provided for by the charter, the Board undertakes an annual performance evaluation, comparing its performance
against its charter, setting objectives and effecting any improvements to the charter.
Composition of the Board
The Board comprises seven directors, including five non-executive directors and two executive directors (being the Managing
Director & CEO and the 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, James Fazzino on 18 July 2005,
and John Marlay was appointed to the Board by the directors on 20 December 2006.
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.
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.
36
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
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 and 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, Anthony Larkin and John Marlay 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 seven directors, the Board considers five directors are independent.
Performance evaluations
Incitec Pivot recognises the importance of regular performance evaluations of its 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 2007 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 each director and the Chairman. Individual director performance will be reviewed throughout the 2007/08
financial year and will include one-on-one interviews between each director and the Chairman, as well as discussions on
succession planning. Each of Allan McCallum, James Fazzino and John Marlay, who are retiring and standing for re-election at
the 2007 Annual General Meeting, were subject to specific performance reviews 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 B 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 “Non-executive directors’ remuneration” set out in section A
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 2007 was within the maximum amount approved by shareholders. Given the aggregate limit
was last considered by shareholders in 2003, to enable the Company to attract and retain high calibre directors, a resolution will
be proposed at the 2007 Annual General Meeting to increase the maximum total amount from which the Company may pay the
non-executive directors for their services by $400,000 to $1,400,000. The Board sought independent external advice in
determining the maximum total amount to be put to shareholders and considers that the amount of $1,400,000 is appropriate for
a company of the size and nature of Incitec Pivot and is consistent with that of companies of comparable size and complexity.
Details of remuneration paid to the executive directors are included in table D.4 “Executives’ remuneration” in the
remuneration report.
Board processes
To assist the Board in meeting its responsibilities, the Board currently has the following three Committees:
(cid:121)
(cid:121)
(cid:121)
the Audit and Risk Management Committee;
the Remuneration and Appointments Committee; and
the Health, Safety, Environment and Community Committee.
The Board charter provides that the Board may establish other committees of the Board from time to time as may be necessary
to deal with specific matters. In addition, from 2003 until April 2007, the Board had in place a Governance Committee for the
purposes of considering related party matters arising from its status as a subsidiary of Orica Limited. With Orica ceasing to be a
majority shareholder in May 2006, and the two companies completing the separation of functions and arrangements during the
2006/07 financial year, the Board dissolved the Governance Committee in April 2007.
Materials for 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 Company, 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 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. The Company Secretary is
also responsible to the Board for ensuring Board procedures and the Constitution are complied with. The Board appoints and
removes the Company Secretary.
38
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
Board meetings
Details of the Board meetings held during the 2006/07 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 are 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.
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 John
Marlay, all of whom are independent non-executive directors. During the 2006/07 financial year Brian Healey was a member of
the Committee. Brian Healey is also an independent non-executive director. He retired from the Committee on 23 February
2007.
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 2007 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)
(cid:121)
review of reports and analyses – review management, internal audit and external audit reports and analyses of financial
reporting issues;
review of financial statements – review all audited financial statements and all other financial information 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)
(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;
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;
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.
(cid:121)
(cid:121)
(cid:121)
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 twice a year.
The attendance of the members of the Remuneration and Appointments Committee at each meeting held during the financial
year to 30 September 2007 is set out on page 17 of this report.
Health, Safety, Environment and Community Committee
The Health, Safety, Environment and Community Committee has a charter approved by the Board. The Committee was
established in February 2007 to assist the Board in discharging its overall responsibilities in relation to health, safety,
environment and community matters arising out of the Company’s activities as they may affect employees, contractors, and the
local communities in which it operates. 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, Anthony Larkin
and Julian Segal.
The Committee is to meet as frequently as required but not less than four times a year. The attendance of the members of the
Health, Safety, Environment and Community Committee at each meeting held during the financial year to 30 September 2007
is set out on page 17 of this report.
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 appointed for the 2006/07 audit of the Company, replacing the lead audit partner and review
partner previously appointed for the audits from 2002/03.
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 2007, 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, he/she must notify the Chairman or
Managing Director & CEO and must also give the same written confirmation to the effect that he/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, or on behalf of, the Company.
Health, Safety, Environment and Community policy
Incitec Pivot has adopted a policy in relation to health, safety, environment and the community which sets out the Company’s
commitment to the Company’s values of “Zero Harm for Everyone, Everywhere” and “Care for the Community and the
Environment”. The policy provides that the Company will establish and maintain health and safety management standards and
systems in compliance with relevant industry standards and regulatory requirements, and that the Company will provide a safe
and healthy working environment. The policy also provides for the Company to conduct its operations in compliance with all
relevant environmental licences and regulations, and to strive to be a valued corporate citizen in the communities in which
it operates.
Signed on behalf of the Board.
John C Watson, AM
Chairman
Dated at Melbourne this 13th day of November 2007
42
Incitec Pivot Limited
Income Statements
For the year ended 30 September 2007
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
Company
2007
$mill
2006
$mill
1,373.2
34.6
1,111.2
14.9
Notes
(4)
(4)
2007
$mill
890.5
217.2
(59.7)
4.0
(42.8)
(33)
(5)
(5)
(5)
(8)
(575.2)
(119.3)
-
(36.1)
(34.1)
(78.0)
(49.7)
(123.6)
(29.4)
(4.2)
(10.8)
(1,120.1)
287.7
(82.4)
205.3
(724.5)
(91.1)
-
(33.1)
(14.9)
(58.2)
(33.8)
(40.1)
(13.9)
(35.4)
(25.8)
(1,066.8)
59.3
(12.6)
46.7
cents
cents
(639.1)
(83.4)
55.2
(16.3)
(33.5)
(38.0)
(25.8)
(52.7)
(16.1)
(4.2)
(6.8)
(903.5)
204.2
(0.8)
203.4
2006
$mill
939.5
84.1
5.1
(725.1)
(82.5)
58.8
(11.9)
(14.7)
(50.6)
(27.7)
(30.5)
(11.6)
(35.4)
(30.1)
(956.2)
67.4
4.1
71.5
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
(9)
(9)
407.1
407.1
82.6
82.6
The above Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 48 to 97.
44
Incitec Pivot Limited
Balance Sheets
As at 30 September 2007
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
Retirement benefit surplus
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
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Consolidated
Company
Notes
Restated (1)
2006
$mill
2007
$mill
(10)
(11)
(14)
(12)
(13)
(15)
(11)
(14)
(16)
(17)
(18)
(24)
(13)
(19)
(21)
(20)
(22)
(19)
(21)
(20)
(24)
(22)
(25)
(26)
(26)
218.3
167.4
292.1
221.7
4.5
5.0
909.0
0.4
1.6
502.1
193.7
28.6
2.7
1.2
730.3
1,639.3
281.4
-
9.1
35.1
31.2
356.8
52.8
630.0
-
-
64.7
747.5
1,104.3
535.0
360.8
17.7
156.5
535.0
161.7
121.3
2.0
300.6
8.9
2.9
597.4
0.3
-
441.1
196.2
68.6
-
0.9
707.1
1,304.5
283.1
7.1
5.7
19.2
48.2
363.3
64.0
430.0
1.8
3.4
62.0
561.2
924.5
380.0
360.8
(5.8)
25.0
380.0
2007
$mill
208.0
263.5
292.1
225.6
3.1
2.1
994.4
0.4
696.1
178.5
9.9
0.9
2.7
1.2
889.7
1,884.1
551.1
-
9.1
35.1
31.2
626.5
-
630.0
-
-
43.5
673.5
1,300.0
584.1
360.8
25.7
197.6
584.1
2006
$mill
161.3
185.3
2.0
267.6
7.0
-
623.2
0.3
684.5
126.9
12.1
32.7
-
0.9
857.4
1,480.6
501.2
7.1
5.7
19.3
41.8
575.1
-
430.0
1.8
3.4
40.8
476.0
1,051.1
429.5
360.8
0.7
68.0
429.5
The above Balance Sheets are to be read in conjunction with the Notes to the Financial Statements set out on pages 48 to 97.
(1) Comparative information has been restated to reflect the amendments to provisional asset and liability fair values on acquisition of
Southern Cross Fertilisers Pty Limited in the prior financial year (see Note 28).
Incitec Pivot Limited
45
Statements of Recognised Income and Expense
For the year ended 30 September 2007
Cash flow hedges
Effect of prior year change in accounting policy - financial instruments
Changes in fair value of cash-flow hedges
Losses in cash-flow hedges transferred to income statement
Actuarial gains on defined benefit plans
Change in fair value of assets held as available for sale
Net income/(expense) recognised directly in equity
Profit for the financial year
Total recognised income and expense for the financial year
Consolidated
Company
Notes
(26)
(26)
(26)
2007
$mill
-
2.4
(2.0)
1.1
24.6
26.1
205.3
231.4
2006
$mill
(5.2)
(4.2)
0.6
0.7
-
(8.1)
46.7
38.6
2007
$mill
-
2.4
(2.0)
1.1
24.6
26.1
203.4
229.5
2006
$mill
(5.2)
(4.2)
0.6
0.7
-
(8.1)
71.5
63.4
Other movements in equity arising from transactions with owners as owners are set out in Notes 26 and 27. The amounts
recognised directly in equity are disclosed net of tax.
The above Statements of Recognised Income and Expense are to be read in conjunction with the Notes to the Financial Statements
set out on pages 48 to 97.
46
Incitec Pivot Limited
Cash Flow Statements
For the year ended 30 September 2007
Notes
Consolidated
2007
$mill
Inflows/
(Outflows)
2006
$mill
Inflows/
(Outflows)
Company
2007
$mill
Inflows/
(Outflows)
2006
$mill
Inflows/
(Outflows)
(33)
(29)
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs paid
Dividends received from wholly-owned controlled entity
Rental income
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
Net increase 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
(29)
1,332.1
(1,015.2)
4.5
(30.4)
-
0.1
5.9
(37.8)
259.2
(91.6)
-
(257.0)
-
28.7
(319.9)
(182.1)
375.0
-
(75.6)
117.3
56.6
161.7
218.3
1,181.6
(969.7)
1.5
(12.0)
-
0.1
0.2
(12.9)
188.8
(28.0)
(155.3)
-
21.8
6.6
(154.9)
(89.2)
430.0
(174.5)
(41.9)
124.4
158.3
3.4
161.7
935.9
(698.3)
4.5
(30.4)
79.7
0.1
3.8
(37.8)
257.5
(67.3)
-
(267.0)
-
6.2
(328.1)
(182.1)
375.0
-
(75.6)
117.3
46.7
161.3
208.0
965.3
(802.7)
1.5
(11.9)
43.4
0.1
0.2
(12.9)
183.0
(22.6)
(155.3)
-
21.8
6.6
(149.5)
(89.2)
430.0
(174.5)
(41.9)
124.4
157.9
3.4
161.3
The above Cash Flow Statements are to be read in conjunction with the Notes to the Financial Statements set out on
pages 48 to 97.
Incitec Pivot Limited
47
Notes to the Financial Statements
For the year ended 30 September 2007
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
Auditor’s 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 Events subsequent to balance date
48
Incitec Pivot Limited
49
55
55
56
56
57
59
59
60
60
61
61
61
61
62
62
64
66
67
67
68
68
70
71
73
74
75
76
77
78
79
80
83
85
91
95
96
97
Notes to the Financial Statements
For the year ended 30 September 2007
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 13 November 2007.
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
(AASBs) (including Australian Interpretations) 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.
Historical cost convention
These financial statements have been prepared under the historical
cost convention, except for derivative financial instruments, available-
for-sale financial assets 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. Actual results
may differ from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected.
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 Limited 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:
• AASB 101 Presentation of Financial Statements
• AASB 1048 Interpretation and Application of Standards
• AASB 123 Borrowing Costs
• AASB 2007-4 Amendments to Australian Accounting Standards
arising from ED 151 and Other Amendments amending
AASB 1 First Time Adoption of Australian Equivalents to International
Financial Reporting Standards, AASB 2 Share-based Payment,
AASB 3 Business Combinations, AASB 4 Insurance Contracts,
AASB 5 Non-current Assets Held for Sale and Discontinued
Operations, AASB 6 Exploration for and Evaluation of Mineral
Resources, AASB 7 Financial Instruments: Disclosures, AASB 101
Presentation of Financial Statements, AASB 102 Inventories, AASB
107 Cash Flow Statements, AASB 108 Accounting Policies, Changes
in Accounting Estimates and Errors, AASB 110 Events after the
Balance Sheet Date, AASB 112 Income Taxes, AASB 114 Segment
Reporting, AASB 116 Property Plant and Equipment, AASB 117
Leases, AASB 118 Revenue, AASB 119 Employee Benefits, AASB
120 Accounting for Government Grants and Disclosure of
Government Assistance, AASB 121 The Effects of Changes in
Foreign Exchange Rates, AASB 127 Consolidated and Separate
Financial Statements, AASB 128 Investments in Associates, AASB
129 Financial Reporting in Hyperinflationary Economies, AASB 130
Disclosures in the Financial Statements of Banks and Similar
Institutions, AASB 131 Interest in Joint Ventures, AASB 132 Financial
Instruments: Presentation, AASB 133 Earnings per Share, AASB 134
Interim Financial Reporting, AASB 136 Impairment of Assets, AASB
137 Provisions, Contingent Liabilities and Contingent Assets, AASB
138 Intangible Assets, AASB 139 Financial Instruments: Recognition
and Measurement, AASB 141 Agriculture, AASB 1023 General
Insurance Contracts, AASB 1038 Life Insurance Contracts and
Interpretation 113 Jointly Controlled Entities – Non-Monetary
Contributions by Venturers
• AASB 2007-6 Amendments to Australian Accounting Standards
arising from AASB 123 Borrowing Costs amending AASB 1 First Time
Adoption of Australian Equivalents to International Financial, AASB
101 Presentation of Financial Statements, AASB 107 Cash Flow
Statements, AASB 111 Construction Contracts, AASB 116 Property
Plant and Equipment, AASB 138 Intangible Assets, Interpretation 1
Changes in Existing Decommissioning, Restoration and Similar
Liabilities and Interpretation 12 Service Concession Arrangements
• AASB 2007-7 Amendments to Australian Accounting Standards:
AASB 1 First Time Adoption of Australian Equivalents to International
Financial, AASB 2 Share-based Payment, AASB 4 Insurance
Contracts, AASB 5 Non-current Assets Held for Sale and
Discontinued Operations, AASB 107 Cash Flow Statements and
AASB 128 Investments in Associates
Interpretation 10 Interim Financial Reporting and Impairment
Interpretation 11 AASB 2 – Group and Treasury Share Transactions
Interpretation 13 Customer Loyalty Programmes
Interpretation 14 AASB 119 – The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
•
•
•
•
The early adoption of these standards did not have a material impact
on the year end results of the Company and the Consolidated entity.
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 2005-10 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.
• AASB 8 Operating segments (February 2007) replacing the existing
AASB 114 Segment Reporting and requiring more qualitative
disclosure and also applying to single segment entities. AASB 8 is
applicable for annual reporting periods beginning on or after 1
January 2009.
Incitec Pivot Limited
49
Notes to the Financial Statements
For the year ended 30 September 2007
1. Significant accounting policies (continued)
The Consolidated entity plans to adopt AASB 8 in the 2010 financial
year. The initial application of AASB 8 is not expected to have an
impact on the financial results of the Company and the Consolidated
entity as the standard is concerned only with disclosures.
(ii) Consolidation
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of Incitec Pivot Limited as at 30
September 2007 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 Limited.
(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 Limited may
grant awards to employees, subject to individual and Company
performance (the Performance Plan). The LTI operates by way of the
Company providing employees with limited recourse interest bearing
loans which must be used to purchase Incitec Pivot Limited shares on
market.
The benefits received by the employees as a result of participation in
the LTI plan 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.
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.
50
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
1. Significant accounting policies (continued)
(viii) Trade and other receivables
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
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.
(ix) Other financial assets
The Consolidated entity’s interests in financial assets included in
Note 14, other than controlled entities and financial assets classified
as available-for-sale, are stated at fair value, with movement in
market value recognised in the Income Statement. Financial assets
classified as being available-for-sale are stated at fair value with
movements in market value recognised within a Fair Value reserve.
The fair value of available-for-sale financial assets is determined by
reference to their quoted bid price at the reporting date.
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
reviewed 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.
Estimated useful lives of each class of asset are as follows:
Buildings and improvements
Machinery, plant and equipment
20 to 40 years
3 to 30 years
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
recognised in profit and loss on a straight line basis over the term of
the lease.
(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 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.
Incitec Pivot Limited
51
Notes to the Financial Statements
For the year ended 30 September 2007
1. Significant accounting policies (continued)
(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.
(xv) Interest-bearing borrowings
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.
(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 Limited’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.
(iii) Employee entitlements
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.
52
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
1. Significant accounting policies (continued)
(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. 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.
(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
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.
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.
Incitec Pivot Limited
53
Notes to the Financial Statements
For the year ended 30 September 2007
(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
(CGU’s) 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 one hundred thousand dollars, or in certain
cases, the nearest one thousand dollars.
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.
54
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
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.
Impairment of assets
(i)
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.
Impairment of goodwill
(ii)
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.
Income taxes
(iii)
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 2007 and 30 September 2006,
the Consolidated entity operated in one business segment in which
the principal activities were the manufacture, trading and distribution
of fertilisers and chemicals, and in one geographic location, Australia.
Incitec Pivot Limited
55
Notes to the Financial Statements
For the year ended 30 September 2007
4. Revenue and other income
Revenue
External sales
Sales to entities subject to common control
Sales to wholly-owned controlled entities
Total Revenue
Other income
Dividend income
external parties
wholly-owned controlled entities
Interest income
external parties
Other income
From outside operating activities
Gain from Sale & Leaseback of BIGN Assets
Gain on write back of acquisition provisions
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 and other payables
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
restructuring
Net foreign exchange losses
Lease payments – operating leases
Research and development
Defined contribution superannuation expense
Defined benefit superannuation expense
Consolidated
Company
Notes
2007
$mill
2006
$mill
2007
$mill
2006
$mill
(33)
(33)
(33)
(6)
(6)
(6)
1,373.2
-
-
1,373.2
1,088.9
22.3
-
1,111.2
3.0
-
5.3
3.2
-
-
2.0
0.4
868.0
-
22.5
890.5
3.0
198.3
5.3
3.4
917.2
22.3
-
939.5
-
69.3
2.0
0.3
13.5
2.4
-
7.2
34.6
1,407.8
-
-
9.5
3.0
14.9
1,126.1
-
-
-
7.2
217.2
1,107.7
-
-
9.5
3.0
84.1
1,023.6
(16)
(16)
(22)
(22)
(24)
34.1
2.0
36.1
32.6
1.5
34.1
0.2
0.2
0.3
7.2
4.2
0.3
3.4
0.4
29.4
0.3
2.3
1.9
31.0
2.1
33.1
14.2
0.7
14.9
5.0
5.0
0.1
7.3
28.5
0.2
24.8
0.2
13.9
0.1
1.3
2.2
14.3
2.0
16.3
32.6
0.9
33.5
-
-
0.3
7.2
4.2
0.3
3.4
0.1
16.1
0.3
2.3
1.9
9.9
2.0
11.9
14.2
0.5
14.7
5.0
5.0
0.1
6.6
28.3
0.1
24.8
0.2
11.6
0.1
1.3
2.2
56
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
Gross
$mill
2007
Tax
$mill
Net
$mill
Gross
$mill
2006
Tax
$mill
Net
$mill
6.
Individually material items
Profit includes the following revenues and expenses whose
disclosure is relevant in explaining the financial performance
of the entity:
Consolidated
Business restructuring costs (1)
employee redundancies and allowances
restructuring and other direct costs
demolition
asset write-downs (8)
Total business restructuring
Business restructuring costs - Separation and Integration (2)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Clean-up and closure costs (3)
environmental clean-up
closure and demolition
redundancy
Total Clean-up and closure costs
Other
Gain from Sale & Leaseback of BIGN Assets (4)
Gain on write back of acquisition provisions (5)
Realised gain from investment in listed company held at fair
value through profit and loss (6)
Litigation ruling and dispute (7)
Total Other
Individually material items
(2.2)
(0.8)
-
-
(3.0)
(6.3)
-
(6.3)
(2.7)
-
-
(2.7)
13.5
2.4
-
-
15.9
3.9
0.7
0.2
-
-
0.9
1.9
-
1.9
0.8
-
-
0.8
(4.0)
(0.7)
-
-
(4.7)
(1.1)
(1.5)
(0.6)
-
-
(2.1)
(4.4)
-
(4.4)
(1.9)
-
-
(1.9)
9.5
1.7
-
-
11.2
-
(3.4)
(0.7)
(5.0)
(9.1)
(8.2)
(3.8)
(12.0)
(21.0)
(8.7)
(1.8)
(31.5)
-
-
9.5
(11.0)
(1.5)
-
1.0
0.2
1.5
2.7
2.4
1.2
3.6
6.3
2.6
0.6
9.5
-
-
(1.1)
3.3
2.2
-
(2.4)
(0.5)
(3.5)
(6.4)
(5.8)
(2.6)
(8.4)
(14.7)
(6.1)
(1.2)
(22.0)
-
-
8.4
(7.7)
0.7
2.8
(54.1)
18.0
(36.1)
(1) 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. Additional provisions have been recognised in relation to
further redundancies announced during the year, as well as other direct costs.
(2) Additional provisions for restructuring costs have been created during this year in relation to the separation from Orica
during May 2006, and acquisition of Southern Cross Fertilisers Pty Limited in August 2006.
(3) An extra provision has been recognised in relation to the costs associated with soil and groundwater remediation and
demolition works at the Wallaroo site. During 2006 a provision was recognised in relation to the costs associated with
dismantling the manufacturing facility, remediating the site, demolition works and redundancies at Cockle Creek.
(4) As part of a restructuring of the BigN business, a sale and leaseback transaction was completed on the BigN mobile
fleet during the year.
(5) During the year provisions recognised as part of the initial accounting for the Southern Cross Fertilisers Pty Limited
acquisition were written back and contingent assets not initially recognised were recovered.
(6) Realised gains in relation to an investment previously held for resale in the listed gas producer Queensland Gas
Company Limited. The investment was sold during August 2006.
(7) 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. Payments in the order of $11
million (gross), $7.7 million (net of tax) were subsequently made during the year ended 30 September 2006.
(8) During 2006 a review of the long term manufacturing strategy around ammonium phosphates was undertaken and as a
result, the manufacturing plant at Kooragang Island was closed.
Incitec Pivot Limited
57
Notes to the Financial Statements
For the year ended 30 September 2007
6.
Individually material items (continued)
Profit includes the following revenues and expenses whose
disclosure is relevant in explaining the financial performance
of the entity:
Company
Business restructuring costs (1)
employee redundancies and allowances
restructuring and other direct costs
demolition
asset write-downs (6)
Total business restructuring
Business restructuring costs - Separation and Integration (2)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Clean-up and closure costs (3)
environmental clean-up
closure and demolition
redundancy
Total Clean-up and closure costs
Other
Realised gain from investment in listed company held at fair
value through profit and loss (4)
Litigation ruling and dispute (5)
Total Other
2007
Tax
$mill
Gross
$mill
2006
Net
$mill
Gross
$mill
Tax
$mill
Net
$mill
(2.2)
(0.8)
-
-
(3.0)
(6.3)
-
(6.3)
(2.7)
-
-
(2.7)
-
-
-
0.7
0.2
-
-
0.9
1.9
-
1.9
0.8
-
-
0.8
-
-
-
(1.5)
(0.6)
-
-
(2.1)
(4.4)
-
(4.4)
(1.9)
-
-
(1.9)
-
-
-
-
(3.4)
(0.7)
(5.0)
(9.1)
(8.2)
(3.8)
(12.0)
(21.0)
(8.7)
(1.8)
(31.5)
9.5
(11.0)
(1.5)
-
1.0
0.2
1.5
2.7
2.4
1.2
3.6
6.3
2.6
0.6
9.5
(1.1)
3.3
2.2
-
(2.4)
(0.5)
(3.5)
(6.4)
(5.8)
(2.6)
(8.4)
(14.7)
(6.1)
(1.2)
(22.0)
8.4
(7.7)
0.7
Individually material items
(12.0)
3.6
(8.4)
(54.1)
18.0
(36.1)
(1) 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. Additional provisions have been recognised in relation to
further redundancies announced during the year, as well as other direct costs.
(2) Additional provisions for restructuring costs have been created during this year in relation to the separation from Orica
during May 2006, and acquisition of Southern Cross Fertilisers Pty Limited in August 2006.
(3) An extra provision has been recognised in relation to the costs associated with soil and groundwater remediation and
demolition works at the Wallaroo site. During 2006 a provision was recognised in relation to the costs associated with
dismantling the manufacturing facility, remediating the site, demolition works and redundancies at Cockle Creek.
(4) Realised gains in relation to an investment previously held for resale in the listed gas producer Queensland Gas
Company Limited. The investment was sold during August 2006.
(5) 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. Payments in the order of $11
million (gross), $7.7 million (net of tax) were subsequently made during the year ended 30 September 2006.
(6) During 2006 a review of the long term manufacturing strategy around ammonium phosphates was undertaken and as a
result, the manufacturing plant at Kooragang Island was closed.
58
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
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
accounting advice
Consolidated
Company
Notes
2007
$000
2006
$000
2007
$000
2006
$000
487.0
487.0
455.3
455.3
487.0
487.0
455.3
455.3
40.0
40.0
527.0
33.0
33.0
488.3
21.0
21.0
508.0
33.0
33.0
488.3
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 individual non audit services provided by KPMG
above a value of $20,000, as well as where the aggregate amount exceeds 15% of the annual KPMG audit fee.
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% (2007 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
Under/(over) provision in prior years
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
$mill
$mill
$mill
$mill
54.8
(3.4)
51.4
31.0
82.4
30.6
(2.8)
27.8
(15.2)
12.6
(20.5)
(1.8)
(22.3)
23.1
0.8
7.3
(2.8)
4.5
(8.6)
(4.1)
287.7
59.3
204.2
67.4
86.3
17.8
61.3
20.2
0.3
0.1
(1.9)
-
-
0.6
(3.4)
-
0.4
82.4
0.5
(0.2)
(0.8)
-
-
0.1
(2.8)
(1.8)
(0.2)
12.6
0.1
0.1
(0.7)
(59.5)
0.3
0.6
(1.8)
-
0.4
0.8
0.1
(0.1)
(0.8)
(20.8)
2.0
0.1
(2.8)
(1.8)
(0.2)
(4.1)
8.8
8.8
(6.6)
(6.6)
8.8
8.8
(6.6)
(6.6)
Incitec Pivot Limited
59
Notes to the Financial Statements
For the year ended 30 September 2007
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
Reconciliation of earnings used in the calculation of basic and diluted earnings per
share excluding individually material items
Profit for the financial year
(Deduct)/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.
Consolidated
2007
Cents
per share
2006
Cents
per share
407.1
401.6
407.1
401.6
82.6
146.5
82.6
146.5
Number
Number
50,423,885
56,515,861
$mill
205.3
$mill
46.7
205.3
(2.8)
202.5
46.7
36.1
82.8
10. Cash and cash equivalents
Cash at bank and on hand
Deposits at call
external
Bank Facilities
Committed bank overdraft facilities available
Amount of facilities unused
Commited standby and loan facilities available
Amount of facilities unused
Notes
(29)
Consolidated
2007
$mill
2006
$mill
Company
2007
$mill
2006
$mill
14.4
203.9
218.3
10.0
10.0
835.0
205.0
6.3
155.4
161.7
10.0
10.0
680.0
250.0
4.1
5.9
203.9
208.0
155.4
161.3
10.0
10.0
835.0
205.0
10.0
10.0
680.0
250.0
The committed bank overdraft facility is provided by Westpac. This is used as a contingency and interest is payable at the
Westpac Reference Lending Rate + a margin.
During the year the Company negotiated a new Bilateral Cash Advance Facility to replace the previous facility. This facility
is used for funding the seasonal trade working capital requirements of the Consolidated entity and matures between
October 2007 and February 2008. The facility is $210m for the period January to June and $105m from July to December.
Interest is payable at BBSY + a margin. These facilities are revolving whereby repayments can be redrawn at the
Company’s discretion.
In addition, the Company has a long term unsecured syndicated facility agreement of $730m with $465m available to be
drawn to fund transactions of an acquisitive nature and $265m to fund working capital and general corporate purposes.
Interest is payable at BBSY + a margin.
60
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
11. Trade and other receivables
Current
Trade debtors
external
Less impairment losses
external
Sundry debtors/loans
external
wholly-owned controlled entity
Less impairment losses
external
Non-current
Sundry debtors/loans
external
Less impairment losses
external
12.
Inventories
Raw materials and stores at cost
Work in progress at cost
Finished goods
At cost
Less provision for inventory losses and obsolescence
Finished goods
13. Other assets
Current
Prepayments
Non-current
Prepayments
14. Other financial assets
Current
Investment available for sale
Derivative financial instruments - cash flow hedges
Option contracts (32)
Non-current
Investments in controlled entities
Unlisted shares at cost (36)
Derivative financial instruments - cash flow hedges
Interest rate swaps (32)
Consolidated
Company
Notes
2007
$mill
2006
$mill
2007
$mill
2006
$mill
148.9
114.4
69.8
90.6
(33)
(0.5)
148.4
19.0
-
-
19.0
167.4
0.6
(0.2)
0.4
15.3
-
208.5
(2.1)
206.4
221.7
4.5
4.5
1.2
1.2
292.1
-
292.1
-
1.6
1.6
(0.4)
114.0
7.4
-
(0.1)
7.3
121.3
0.3
-
0.3
28.8
5.7
270.8
(4.7)
266.1
300.6
8.9
8.9
0.9
0.9
(0.5)
69.3
17.7
176.5
-
194.2
263.5
0.6
(0.2)
0.4
12.1
-
215.6
(2.1)
213.5
225.6
3.1
3.1
1.2
1.2
-
292.1
2.0
2.0
-
292.1
(0.2)
90.4
5.9
89.0
-
94.9
185.3
0.3
-
0.3
11.3
-
261.0
(4.7)
256.3
267.6
7.0
7.0
0.9
0.9
-
2.0
2.0
-
-
-
694.5
684.5
1.6
696.1
-
684.5
Incitec Pivot Limited
61
Notes to the Financial Statements
For the year ended 30 September 2007
Notes
15. Assets classified as held for sale
Land and buildings held for sale
Consolidated
2007
$mill
2006
$mill
Company
2007
$mill
2006
$mill
5.0
2.9
2.1
-
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
Consolidated
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 (28)
Reclassification to Assets classified as held for sale
Additions
Disposals
Depreciation charge (5)
Impairment of assets
Reclassification
Closing net book amount
At 1 October 2006
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2007
Opening net book amount
Reclassification to Assets classified as held for sale
Additions
Disposals
Depreciation charge (5)
Impairment of assets
Reclassification
Closing net book amount
At 30 September 2007
Cost
Accumulated depreciation
Construction in progress
Net book amount
Freehold land
and buildings
$mill
Machinery, plant
and equipment
$mill
220.7
(97.1)
-
123.6
123.6
30.7
(0.3)
2.8
(2.4)
(5.8)
(0.8)
(8.9)
138.9
242.8
(104.5)
0.6
138.9
138.9
(2.2)
14.0
(0.7)
(6.4)
-
(0.1)
143.5
251.0
(107.5)
-
143.5
439.3
(282.4)
11.5
168.4
168.4
130.7
(0.1)
24.4
(0.7)
(25.2)
(4.2)
8.9
302.2
557.4
(278.1)
22.9
302.2
302.2
0.1
93.9
(9.8)
(27.7)
(0.2)
0.1
358.6
620.5
(287.3)
25.4
358.6
Total
$mill
660.0
(379.5)
11.5
292.0
292.0
161.4
(0.4)
27.2
(3.1)
(31.0)
(5.0)
-
441.1
800.2
(382.6)
23.5
441.1
441.1
(2.1)
107.9
(10.5)
(34.1)
(0.2)
-
502.1
871.5
(394.8)
25.4
502.1
62
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
16. Property, plant and equipment (continued)
Company
Notes
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 - transfer to related party
Closing net book amount
At 1 October 2006
Cost or fair value
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2007
Opening net book amount
Reclassifications from Assets classified as held for sale
Additions
Disposals
Depreciation charge (5)
Impairment of assets
Movement in allocated assets - transfer to related party
Closing net book amount
At 30 September 2007
Cost or fair value
Accumulated depreciation
Construction in progress
Net book amount
Freehold land
and buildings
$mill
Machinery, plant
and equipment
$mill
85.6
(36.8)
-
48.8
48.8
2.3
2.3
(2.4)
(2.8)
(0.8)
(8.8)
0.7
39.3
71.9
(32.6)
-
39.3
39.3
(2.1)
2.0
(0.7)
(2.2)
-
0.8
37.1
71.5
(34.4)
-
37.1
152.2
(95.1)
11.5
68.6
68.6
-
20.2
(0.7)
(7.0)
(4.2)
8.8
1.9
87.6
135.2
(74.9)
27.3
87.6
87.6
-
62.5
(0.6)
(12.1)
-
4.0
141.4
206.7
(80.5)
15.2
141.4
Total
$mill
237.8
(131.9)
11.5
117.4
117.4
2.3
22.5
(3.1)
(9.8)
(5.0)
-
2.6
126.9
207.1
(107.5)
27.3
126.9
126.9
(2.1)
64.5
(1.3)
(14.3)
-
4.8
178.5
278.2
(114.9)
15.2
178.5
Non-current assets impairments
During the year ended 30 September 2007, the Consolidated entity recorded impairments of property, plant and equipment
to the value of $0.2 million relating to additional assets written off as a result of the closure of the Kooragang Island
manufacturing plant during 2006.
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 the Company’s cost of capital as the discount rate – 10%.
Change in estimates
During the 2007 financial year, the asset lives of the Company’s manufacturing assets were reviewed. From this review,
the asset life of the Gibson Island site was increased from 2017 to 2027. This amounted to a saving of $1.6m in the
current financial year and will amount to an annual saving of $3.2m in future.
Incitec Pivot Limited
63
Notes to the Financial Statements
For the year ended 30 September 2007
17.
Intangible assets
Consolidated
Notes
At 1 October 2005
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2006
Opening net book amount
Acquisition of business (28)
Additions
Amortisation charge (5)
Closing net book amount
At 1 October 2006
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2007
Opening net book amount
Additions
Amortisation charge (5)
Closing net book amount
At 30 September 2007
Cost
Accumulated amortisation
Net book amount
Software
$mill
Goodwill
$mill
Other
$mill
13.0
(4.6)
8.4
8.4
-
0.2
(2.0)
6.6
13.2
(6.6)
6.6
6.6
2.3
(2.0)
6.9
15.5
(8.6)
6.9
183.8
-
183.8
183.8
-
-
-
183.8
183.8
-
183.8
183.8
-
-
183.8
183.8
-
183.8
-
-
-
-
0.2
5.7
(0.1)
5.8
5.9
(0.1)
5.8
5.8
-
(2.8)
3.0
5.9
(2.9)
3.0
Total
$mill
196.8
(4.6)
192.2
192.2
0.2
5.9
(2.1)
196.2
202.9
(6.7)
196.2
196.2
2.3
(4.8)
193.7
205.2
(11.5)
193.7
64
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
17.
Intangible assets (continued)
Company
Notes
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 1 October 2006
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2007
Opening net book amount
Additions
Amortisation charge (5)
Closing net book amount
At 30 September 2007
Cost
Accumulated amortisation
Net book amount
Software
$mill
Goodwill
$mill
Other
$mill
13.0
(4.6)
8.4
8.4
0.1
(2.0)
6.5
13.1
(6.6)
6.5
6.5
2.5
(2.0)
7.0
15.6
(8.6)
7.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5.6
-
5.6
5.6
-
5.6
5.6
-
(2.7)
2.9
5.6
(2.7)
2.9
Total
$mill
13.0
(4.6)
8.4
8.4
5.7
(2.0)
12.1
18.7
(6.6)
12.1
12.1
2.5
(4.7)
9.9
21.2
(11.3)
9.9
(a) Impairment tests for goodwill
Goodwill is managed on a consolidated basis and not allocated to the Consolidated entity’s cash generating units.
Goodwill is therefore tested for impairment against forecasted consolidated 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:
(cid:121)
(cid:121)
(cid:121)
growth in budgeted gross margin rate of 2-3%.
growth rate of 2% representing inflation; and
discount rate of 10% representing a market based weighted average cost of capital;
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 2007
Consolidated
2007
$mill
2006
$mill
Company
2007
$mill
2006
$mill
Notes
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
Share buy-back expenses
Cash flow hedges
Property, plant and equipment
Unfavourable supplier contracts
Other
Deferred tax assets
0.2
6.5
-
5.8
16.5
-
0.6
18.7
-
1.7
2.7
-
19.4
3.3
75.4
0.3
6.5
1.2
5.6
15.5
8.7
3.5
25.3
0.2
2.3
2.2
0.2
21.6
0.7
93.8
0.2
6.4
-
5.8
10.1
-
0.6
0.1
-
1.7
2.7
-
-
3.3
30.9
Set-off of deferred tax liabilities pursuant to set-off provisions (23)
(46.8)
(25.2)
(30.0)
Net deferred tax assets
28.6
68.6
0.9
Movements:
Opening balance at 1 October
Credited/(charged) to the income statement
Credited/(charged) to equity
Acquisition of subsidiary (28)
Transfer of provisions from related entity
Adjustments in respect of prior years
Closing balance at 30 September
93.8
(20.3)
2.1
-
-
(0.2)
75.4
23.2
6.9
7.2
56.2
0.1
0.2
93.8
36.3
(7.5)
2.1
-
-
-
30.9
0.2
4.7
1.2
5.6
9.7
7.5
1.4
0.5
0.1
2.3
2.2
0.2
-
0.7
36.3
(3.6)
32.7
23.2
5.6
7.2
-
0.1
0.2
36.3
66
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
Consolidated
Company
Notes
2007
$mill
2006
$mill
2007
$mill
2006
$mill
19. Trade and other payables
Current
Trade creditors
external
wholly-owned controlled entity (33)
Sundry creditors and accrued charges
external
wholly-owned controlled entity (33)
unfavourable supplier contracts
Non-current
Sundry creditors and accrued charges
external
unfavourable supplier contracts
248.9
-
248.9
20.5
-
12.0
32.5
281.4
-
52.8
52.8
259.6
-
259.6
14.4
-
9.1
23.5
283.1
1.1
62.9
64.0
215.8
313.6
529.4
21.7
-
-
21.7
551.1
-
-
-
232.6
160.6
393.2
14.2
93.8
-
108.0
501.2
-
-
-
Unfavourable contracts
Unfavourable contracts were recognised as part of the SCF acquisition during 2006. 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 (32)
embedded derivative
Non-Current
Derivative financial instruments
interest rate swaps - cash flow hedges (32)
9.1
-
9.1
-
-
0.1
5.6
5.7
1.8
1.8
9.1
-
9.1
-
-
0.1
5.6
5.7
1.8
1.8
Incitec Pivot Limited
67
Notes to the Financial Statements
For the year ended 30 September 2007
21.
Interest bearing liabilities
Current
Unsecured
other short term borrowings
Non-current
Unsecured
other loans
external - term facility
Consolidated
Company
Notes
2007
$mill
2006
$mill
2007
$mill
2006
$mill
(32)
(32)
-
-
7.1
7.1
-
-
7.1
7.1
630.0
630.0
430.0
430.0
630.0
630.0
430.0
430.0
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.
Term Debt Facility
The term facility matures in July 2011 and is repayable in whole or in part at the discretion of the Company. In 2007, the
facility was converted to a revolver from a bullet payment arrangement where part repayments constituted a cancellation of
the facility for the amount repaid and thus could not 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
11.3
9.2
10.7
-
31.2
10.2
10.2
44.3
64.7
11.3
10.2
21.5
11.2
23.7
10.6
2.7
48.2
10.3
10.7
41.0
62.0
11.2
10.3
21.5
11.3
9.2
10.7
-
31.2
10.2
10.2
23.1
43.5
11.3
10.2
21.5
7.2
23.7
10.6
0.3
41.8
8.4
10.7
21.7
40.8
7.2
8.4
15.6
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
964
Number
1,051
Number
964
Number
762
68
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
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
Provisions written back 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
Provisions made during the year
Provisions written back during the year
Payments made 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
Transfers
Unwinding of discount
Carrying amount at the end of the financial year
Non-Current Provision - Environmental
Carrying amount at the beginning of the financial year
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
$mill
$mill
(27)
(27)
(5)
(5)
-
75.6
(75.6)
-
23.7
3.4
0.4
(18.3)
9.2
10.6
4.2
(0.6)
(0.8)
(2.7)
10.7
2.7
-
(0.1)
(2.6)
-
10.7
(0.4)
(0.1)
10.2
41.0
3.0
0.9
(0.6)
44.3
-
75.6
(75.6)
-
23.7
3.4
0.4
(18.3)
9.2
10.6
4.2
(0.6)
(0.8)
(2.7)
10.7
0.3
-
-
(0.3)
-
10.7
(0.4)
(0.1)
10.2
21.7
-
0.9
0.5
23.1
Incitec Pivot Limited
69
Notes to the Financial Statements
For the year ended 30 September 2007
23. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Inventories
Depreciation
Intangible assets
Financial assets at fair value
Cash flow hedges
Property, plant and equipment
Foreign exchange gains
Retirement benefit obligations
Other
Deferred tax liabilities
Consolidated
2007
$mill
2006
$mill
Company
2007
$mill
2006
$mill
Notes
1.5
17.0
1.4
10.8
0.5
10.9
2.7
0.8
1.2
46.8
1.8
6.3
1.7
-
0.4
14.7
-
-
0.3
25.2
1.5
11.3
1.4
10.8
0.5
(0.2)
2.7
0.8
1.2
30.0
1.3
-
1.6
-
0.4
-
-
-
0.3
3.6
Set-off of deferred tax liabilities pursuant to set-off provisions (18)
(46.8)
(25.2)
(30.0)
(3.6)
Net deferred tax liabilities
-
-
-
-
Movements:
Opening balance at 1 October
Charged/(credited) to the income statement
Charged/(credited) to equity
Acquisition of subsidiary (28)
Adjustments in respect of prior years
Closing balance at 30 September
25.2
10.6
10.9
-
0.1
46.8
30.4
(8.3)
0.6
2.5
-
25.2
3.6
15.6
10.9
-
(0.1)
30.0
6.0
(3.0)
0.6
-
-
3.6
70
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
24. Retirement Benefit Obligation
(a) Plan Information
The Company is a sponsoring employer of the Incitec Pivot Employees Superannuation 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.
(b) Reconciliation of the present value of the defined benefit obligation
Consolidated/Company
2007
$mill
2006
$mill
Present value of defined benefit obligations at beginning of the year
75.1
75.3
Current service cost
Interest cost
Actuarial (gains)/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
2.3
4.5
3.3
2.0
(8.1)
(1.6)
77.5
2.6
4.4
2.5
1.3
(10.3)
(0.7)
75.1
Fair value of plan assets at beginning of the year
72.2
71.6
Expected return on plan assets
Actuarial gains/(losses)
Employer contributions
Contributions by plan participants
Benefits paid
Distributions
Fair value of plan assets 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
(Surplus)/deficit in plan
Tax provision
Net (Asset) / Liability recognised in balance sheet at end of year
Amounts in the balance sheet:
Liabilities
Assets
Net (Asset) / Liability recognised in balance sheet at end of year
(e) Expense recognised in income statement
Current service cost
Interest cost
Expected return on plan assets
Expense recognised in income statement
4.9
4.1
6.4
2.0
(8.1)
(1.6)
79.9
77.5
(79.9)
(2.4)
(0.3)
(2.7)
-
(2.7)
(2.7)
2.3
4.5
(4.9)
1.9
4.8
3.3
2.2
1.3
(10.3)
(0.7)
72.2
75.1
(72.2)
2.9
0.5
3.4
3.4
-
3.4
2.6
4.4
(4.8)
2.2
Incitec Pivot Limited
71
Notes to the Financial Statements
For the year ended 30 September 2007
24. Retirement Benefit Obligation (continued)
(f) Amounts recognised in the statements of recognised income and expense
Actuarial (gains)/losses
(g) Cumulative amount recognised in the statements of recognised income and expense
Consolidated/Company
2007
$mill
2006
$mill
(0.9)
######## (981,647)
(1.6)
Cumulative amount of actuarial (gains)/losses
(2.6)
(1.0)
(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
(i) 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.
(j) Expected rate of return on plan assets
48%
16%
12%
15%
9%
48%
21%
11%
10%
10%
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.
(k) Actual return on plan assets
Actual return on plan assets
(l) Principal actuarial assumptions at the reporting date
Discount rate (net of tax)
Expected rate of return on plan assets
Future salary increases
Future inflation
(m) Historical Information
Present value of defined benefit obligation
Fair value of plan assets
(Surplus)/Deficit in plan
Experience adjustment - plan liabilities
Experience adjustment - plan assets
(n) Expected Contributions
Expected contributions in year ending 30 September 2008:
Expected employer contributions
Expected contribution by plan participants
8.6
8.1
5.20%
7.50%
4.80%
7.00%
4% + promotional scale 4% + promotional scale
2.50%
2.50%
2007
2006
2005
2004
76.4
(72.6)
3.8
75.1
(72.2)
2.9
(2.9)
3.3
75.3
(72.0)
3.3
(4.2)
4.6
77.7
(80.0)
(2.3)
(4.4)
3.7
1.4
0.7
72
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
25. Issued Capital
Share Capital
Ordinary shares authorised and issued - 50,423,885 (2006 - 50,423,885) (1)
Movements in issued and fully paid ordinary shares of the Company during the financial year:
Date
Details
30 September 2006
Balance at the end of the previous financial year
30 September 2007
Balance at the end of the financial year
Consolidated/Company
2007
$mill
2006
$mill
360.8
360.8
360.8
360.8
Number of
Shares
50,423,885
50,423,885
$mill
360.8
360.8
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 2007
26. Reserves and retained earnings
Reserves
Share-based payments
Cash flow hedging
Fair value reserve
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
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)/Gains transferred to income statement
Balance at the end of the financial year
Fair Value Reserve
Balance at the beginning of the financial year
Changes in fair value of investment
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 for the financial year
Less dividends paid
2005 Final special dividend
2006 Interim dividend
2006 Final dividend
2007 Interim dividend
Share-based payment transactions
Dividends received as loan repayment
Actuarial gains on defined benefit plans
Retained earnings at the end of the financial year
Consolidated
Company
Notes
2007
$mill
2006
$mill
2007
$mill
2006
$mill
(8.0)
1.1
24.6
17.7
(6.5)
1.8
2.2
(5.5)
(8.0)
0.7
-
0.7
2.4
(2.0)
1.1
-
24.6
24.6
(6.5)
0.7
-
(5.8)
(1.5)
0.2
0.5
(5.7)
(6.5)
-
4.3
4.3
(4.2)
0.6
0.7
-
-
-
-
1.1
24.6
25.7
-
-
-
-
-
0.7
-
0.7
2.4
(2.0)
1.1
-
24.6
24.6
-
0.7
-
0.7
-
-
-
-
-
-
4.3
4.3
(4.2)
0.6
0.7
-
-
-
25.0
29.0
68.0
47.1
(27)
(27)
(27)
(27)
-
25.0
205.3
-
-
(40.8)
(34.8)
0.7
1.1
156.5
(9.5)
19.5
46.7
(29.1)
(12.8)
-
-
0.1
0.7
25.0
-
68.0
236.9
-
-
(40.8)
(34.8)
0.7
1.1
231.0
(9.5)
37.6
71.5
(29.1)
(12.8)
-
-
0.1
0.7
68.0
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, as well as the fair value of shares treated
as options recognised as an employee expense over the relevant vesting period.
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.
Fair value reserve: The fair value reserve represents the cumulative net change in the fair value of available-for-sale
financial assets until the investment is derecognised as available for sale.
74
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
27. Dividends
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary Shares
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
Final dividend of 81 cents per share, fully franked at 30%, paid 13 December 2006
Interim dividend of 69 cents per share, fully franked at 30%, paid 5 July 2007
Total ordinary share dividends paid in cash
Company
2007
$mill
2006
$mill
-
-
40.8
34.8
75.6
29.1
12.8
-
-
41.9
Subsequent event
Since the end of the financial year, the directors have declared the following dividends:
Ordinary shares
Final dividend of 81 cents per share, fully franked at 30%, paid on 13 December 2006
40.8
Final dividend comprising:
- normal dividend of 191 cents per share, fully franked at 30%, paid on 13 December 2007
- special dividend of 40 cents per share, fully franked at 30%, paid on 13 December 2007
96.3
20.2
The financial effect of this dividend has not been recognised in the financial report and will be recognised in subsequent
financial reports.
Franking credits
Franking credits available to shareholders of the Company of $45.6m (2006 - $24.3m) at the 30% (2006 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 2007
28. Business combination
(a) Summary of acquisition
On 1 August 2006, the Consolidated entity acquired all the shares in Southern Cross Fertilisers Pty Limited for $155.3
million, inclusive of $6.4 million of transaction costs. The company manufactures and distributes ammonium phosphate
fertilisers.
b) Purchase consideration
Consideration paid, satisfied in cash
Plus/(less) cash acquired
Net cash outflow
Consolidated
2007
$mill
-
-
-
2006
$mill
155.3
-
155.3
Company
2007
$mill
-
-
-
2006
$mill
155.3
-
155.3
c) Assets and liabilities acquired
Since 30 September 2006 the following amendments to the initial fair value of assets and liabilities have been recognised
due to additional information obtained during the year in relation to the provisional fair values recognised.
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 entitelments
Intangible assets
Unfavourable Contracts
Other Liabilities
Net identifiable assets and liabilities
Less consideration paid in cash
Goodwill / (discount) on acquisition recognised
Provisional
Acquiree's
carrying
amount
Initial Fair
Value
adjustments
Fair Values
as at 1
August 2006
Additional
Fair Value
adjustments
Final Fair
Values
$mill
$mill
$mill
$mill
$mill
-
44.9
32.8
489.4
9.5
(41.5)
(18.6)
(46.4)
(6.2)
0.1
-
-
464.0
-
(0.2)
3.1
(291.1)
20.4
(1.6)
(4.2)
33.7
0.2
0.2
(68.1)
(1.1)
(308.7)
-
44.7
35.9
198.3
29.9
(43.1)
(22.8)
(12.7)
(6.0)
0.3
(68.1)
(1.1)
155.3
-
-
2.0
(36.8)
26.3
(0.7)
3.8
10.2
-
(0.2)
(4.6)
-
-
-
44.7
37.9
161.5
56.2
(43.8)
(19.0)
(2.5)
(6.0)
0.1
(72.7)
(1.1)
155.3
155.3
-
76
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
29. Reconciliation of profit after income tax to net cash inflow from operating activities
Consolidated
2007
$mill
2006
$mill
Company
2007
$mill
2006
$mill
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
Write-down of property, plant and equipment
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 tax assets
increase/(decrease) in deferred taxes payable
increase/(decrease) in net interest 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)
218.3
218.3
161.7
161.7
208.0
208.0
161.3
161.3
(5)
(5)
(4)
205.3
36.1
0.2
(20.6)
-
2.3
2.7
1.5
(41.3)
63.4
28.2
-
0.8
(7.6)
(27.7)
15.9
259.2
46.7
33.1
5.0
(3.0)
(9.5)
0.3
(5.6)
0.7
72.2
0.1
-
(2.8)
1.7
(7.3)
54.7
2.5
188.8
236.9
16.3
-
(7.1)
-
2.3
2.7
0.9
(71.6)
42.1
-
(53.3)
1.7
(7.6)
111.8
15.9
291.0
71.5
11.9
5.0
(3.0)
(9.5)
0.3
(5.6)
0.5
1.0
(4.6)
-
(32.2)
1.7
(7.3)
138.1
15.2
183.0
Incitec Pivot Limited
77
Notes to the Financial Statements
For the year ended 30 September 2007
Consolidated
2007
$mill
2006
$mill
Company
2007
$mill
2006
$mill
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
3.9
3.9
1.9
1.9
2.1
2.1
1.9
1.9
Lease commitments comprise a number of operating lease arrangements for the provision of certain equipment. These leases have
varying durations and expiry dates. 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
28.0
75.8
56.7
160.5
160.5
160.5
28.8
65.9
66.4
161.1
161.1
161.1
16.5
36.9
31.1
84.5
84.5
84.5
11.0
28.8
35.8
75.6
75.6
75.6
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
31.7
110.3
198.7
340.7
31.9
110.4
226.1
368.4
-
-
-
-
-
-
-
-
78
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
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
(cid:121)
Under a Deed of Cross Guarantee dated 28 September 2007, 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, Investments in controlled entities.
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
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
General
I
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).
Incitec Pivot Limited
79
Notes to the Financial Statements
For the year ended 30 September 2007
31. Contingent liabilities (continued)
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 progressed with the relevant regulatory authority’s voluntary
Remediation Action Plan (“RAP”) and has completed site investigations. It is working 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.
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.
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 1(xvi) (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
C. Liquidity risk
B. Interest rate risk
D. Credit Risk
A. Foreign exchange 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.
In July 2007, the Company’s policy in relation to foreign exchange transaction risk management changed, whereby foreign
exchange transactions will no longer be hedged. This will allow the company to take advantage of the natural hedge
provided by the operations of Southern Cross Fertilisers. All existing foreign exchange hedge contracts will remain in
place until maturity, with the last of the contracts maturing in April 2008.
The table below outlines the forward foreign exchange contracts taken out to hedge committed purchases and sales
denominated in foreign currencies.
Term
Weighted average rate
Forward FX Contract
Buy US dollars / sell Australian dollars
Not later than one year
0.8040
0.7461
108.4
150.2
2007
$
2006
$
2007
A$mill
2006
A$mill
80
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
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 last of the options matured in July 2007 and no new option cover has been entered into.
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
Total
AUD/USD strike rate
2007
$
-
2006
$
0.6789
2007
US$mill
-
-
2006
US$mill
15.0
15.0
(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.
The Consolidated entity has no foreign operations with a different functional currency 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. 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 p.a.
2007
$mill
-
150.0
2006
$mill
-
300.0
6.37% - 6.45%
7.00%
6.37% - 6.45%
6.23% - 6.28%
During 2007, $150.0m of interest rate swaps were closed out to comply with IPL treasury policy approved by the Board.
Incitec Pivot Limited
81
Notes to the Financial Statements
For the year ended 30 September 2007
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:
Notes
(10)
(11)
(19)
(21)
(10)
(11)
(19)
(21)
30 September 2007
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 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)
Floating
interest
rate
$mill
Fixed interest rates
1 year or
less
1 to 5
years
5 years
or more
$mill
$mill
$mill
218.3
-
218.3
6.30%
-
(630.0)
(630.0)
150.0
(480.0)
7.43%
(261.7)
161.7
-
161.7
5.92%
-
(437.1)
(437.1)
300.0
(137.1)
6.22%
24.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(150.0) (3)
(150.0) (3)
6.41%
(150.0)
-
-
-
-
-
-
-
(300.0) (3)
(300.0) (3)
6.415%
(300.0)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Non-
interest
bearing
$mill
-
167.8
167.8
-
(325.3)
-
(325.3)
Total
$mill
218.3
167.8
386.1
-
(325.3)
(630.0)
(955.3)
-
-
(325.3)
(955.3)
-
-
(157.5)
(569.2)
-
121.6
121.6
-
(347.1)
-
(347.1)
161.7
121.6
283.3
-
(347.1)
(437.1)
(784.2)
-
-
(347.1)
(784.2)
-
-
(225.5)
(500.9)
(1) Weighted average effective interest rate includes funding at local rates.
(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 2007 mature during August 2009.
82
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
32. Derivative financial instruments (continued)
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.
Credit risk from trade receivables is managed in the following ways:
(cid:121)
(cid:121)
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 exceeding credit limits
and for long overdue accounts. Interest may be charged where the terms of repayment exceed agreed
terms.
(cid:121)
extended term sales to specifically approved customers is sold on a non-recourse basis to financial
institutions prepared to carry the risk.
The directors consider the carrying amount of receivables to approximate their net fair values.
The credit risk exposure arising from derivative financial instruments is the sum of all contracts with a positive replacement
cost. As at 30 September 2007, the sum of all contracts with a positive replacement cost was $nil (2006 $1.0m).
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
As at 30 September 2007 the net fair values of the Consolidated entity’s unrecognised financial assets and liabilities were
$nil (2006 - $nil).
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
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:
(cid:121)
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 $115,539,000 (2006 - $110,003,000). Fixed costs incurred by the Company in the
performance of its obligations amounting to $55,169,000 (2006 - $58,779,000) have been charged to
Incitec Fertilizers Limited.
Incitec Pivot Limited
83
Notes to the Financial Statements
For the year ended 30 September 2007
33. Related party disclosures (continued)
(cid:121)
(cid:121)
Incitec Fertilizers Limited declared and paid an interim dividend to the Company of $21,800,000 (2006 -
$11,446,000) and declared a final dividend on 30 September 2007 of $30,300,000 (2006 - $57,900,000).
This dividend is eliminated on consolidation.
SCF and Southern Cross International Pty Ltd (SCI) declared a final dividend on 28 September 2007 to
the Company of $144,400,000 (2006 - $nil) and $1,750,000 respectively. These dividends are eliminated
on consolidation.
(cid:121) 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.
(cid:121)
(cid:121)
(cid:121)
Effective 1 August 2006, the Company completed the acquisition of SCF. The Company manages the
operations of SCF. For the year ended 30 September 2007, SCF sold fertiliser to the Company to the
value of $176,540,000 (for 2 months ending 30 September 2006 - $13,083,000) and invoiced the
Company for salary and travel charges to the value of $546,000 (for 2 months ending 30 September 2006
- $2,052,000). For the year ended 30 September 2007 the Company sold fertilisers to SCF to the value of
$7,590,000 (2006 - $nil) and invoiced SCF for insurance and corporate charges to the value of
$12,546,000 (for 2 months ending 30 September 2006 - $2,000,000). At 30 September 2007, SCF had an
inter-company receivable from the Company of $14,155,000 (2006 - $11,532,000). This is eliminated on
consolidation.
For the year ended 30 September 2007 the Company sold fertiliser to SCI to the value of $14,911,000
(2006 - $nil). This is eliminated on consolidation.
For the year ended 30 September 2007 the Company forgave a loan to Incitec Pivot LTI Plan Company
Pty Ltd to the value of $1,462,000 (2006 - $6,547,000) according to the terms and conditions of the
Company’s LTI plans as detailed in Note 35.
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 2006 financial year with the previous parent entity (Orica) until the effective date of
separation (10 May 2006) were:
(cid:121)
(cid:121)
Sales of products (mainly urea and sulphuric acid) to the value of $22,340,000 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 $4,953,000.
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
Under various service level agreements, fees of $5,977,000 were received or receivable by the Company
from Orica Australia Pty Ltd.
Purchases of products and services to the value of $4,378,000 from Orica Australia Pty Ltd.
Under a service level agreement, fees of $5,914,000 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
$4,712,000.
Interest income received or receivable by the Company for money lent to Orica Finance Limited was $nil.
Insurance cover was purchased from Curasalus Pty Limited, a wholly owned subsidiary of Orica Limited
on normal terms and conditions to the value of $10,127,000 for the year ended 30 September 2006.
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.
84
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
33. Related party disclosures (continued)
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
Key management personnel disclosures
Notes 4, 5
Note 10
Note 11
Notes 14, 36
Note 19
Note 34
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
B Healey
A C Larkin
A D McCallum
J Marlay (1)
Executive directors
J Segal
J E Fazzino
Executives
K J Gleeson
D A Roe
B C Walsh
A Grace
J D Whiteside
P Barber (2)
M Drew (3)
Chairman
Managing Director and Chief Executive Officer
Finance Director and Chief Financial Officer
General Counsel & Company Secretary
General Manager Strategy & Business Development
General Manager Operations
General Manager Chemicals
General Manager Supply Chain & Trading
General Manager Australian Fertilisers
General Manager Sales & Customer Service
(1) Mr Marlay was appointed as a non-executive director by the Board on 20 December 2006.
(2) Mr Barber was appointed as an executive on 10 September 2007.
(3) Mr Drew ceased his employment with Incitec Pivot Limited on 7 September 2007.
All of the above persons were also key management persons during the year ended 30 September 2006, except for Mr
Marlay who commenced his appointment in December 2006, and Mr Barber who commenced his appointment in
September 2007. Mr Chesterfield who resigned in 2006 and Ms Cleland who completed her secondment in 2006 were
also key management persons during the year ended 30 September 2006.
(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
2007
$000
7,367
154
123
385
1,322
9,351
2006
$000
7,108
126
391
-
122
7,747
Incitec Pivot Limited
85
Notes to the Financial Statements
For the year ended 30 September 2007
34. Key management personnel disclosures (continued)
Individual directors and executives compensation disclosures
Information regarding the compensation for individual directors and executives and some disclosures for equity
instruments as permitted by Corporations Regulations 2M.3.03 and 2M.6.04, are provided in the Remuneration Report
which is included in the Directors’ report on pages 20 to 34. Disclosures of remuneration policies, service contracts and
details of remuneration are included in Section A to D of the Remuneration Report.
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.
(c) 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:
(1) During the year Mr McCallum purchased fertiliser to the value of $15,828 (2006: $30,514) from the Company, the
balance owing at 30 September 2007 was $nil (2006: $nil).
(2) 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 $804,935 during the year (2006:
$923,518). Mr Fazzino’s spouse does not directly provide these services.
86
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
34. Key management personnel disclosures (continued)
(d) 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:
Number of Shares
Year
Opening
balance (A)
Acquired
during the
year (B)
Disposed
during the
year (C)
Closing
balance (D)
The Company - Incitec Pivot
Non-executive directors
- Current
J C Watson
B Healey
A D McCallum
J Marlay (1)
Executive directors
- Current
J Segal
J E Fazzino
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace
J Whiteside
- Former
M Drew
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
5,000
2,700
1,000
- 5,000
-
- 5,000
2,300
- - 1,000
- 1,000
- 7,818
- 7,818
- 1,000
- -
-
1,000
-
-
- 1,000
7,818
6,818
1,000
-
32,640 56,001
- 32,640
56,142
29,262
19,613
9,649
- 88,641
- 32,640
- 85,404
- 29,262
8,575 29,147
5,921
5,981
9,059 25,897
6,269
2,790
32,383
7,675
5,742
1,933
21,216
4,834
12
5,822
22,660
3,951
55
3,896
(8,480) 29,242
(3,327) 8,575
(9,007) 25,949
- 9,059
(5,024) 35,034
- 7,675
- 26,050
(1,000) 4,834
(3,744) 22,867
- 3,951
43
43
22,673
-
(22,716)
-
- 43
Pursuant to the LTI Interim Performance Plan 2006/08 and LTI Performance Plan 2006/09, shares, treated as options,
were allocated to certain key management personnel during the reporting period.
(A)
(B)
(C)
(D)
(1)
Represents the holding at 1 October 2006 of shares of Incitec Pivot held by non-executive directors, executive directors and
executives who were directors and executives of the Company during the year ended 30 September 2007 and their related
parties. 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 E of the Remuneration Report
and the movements disclosed in this Note. Details of the ESOP are set out in Note 35, Share Based Payments.
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 ESOP and who participated in the plan during
the year, as well as the acquisition of shares, treated as options for the purposes of remuneration, under the LTI Interim
Performance Plan 2006/08 and the LTI Performance Plan 2006/09 and in the case of Mr Segal, include shares acquired pursuant
to his Retention Award as referred to in Section C of the Remuneration Report. 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 ESOP and
shares (treated as options for the purposes of remuneration) under the LTI Performance Plan 2003/06 and in the case of Mr.
Drew, shares treated as options for the LTI Interim Performance Plan 2006/08 and the LTI Performance Plan 2006/09. In the case
of directors or executives who ceased their directorship or employment during the year ended 30 September 2007 and 2006, all
shares were treated as disposed as at the relevant date of cessation.
Represents the holding at 30 September 2007 and 30 September 2006 of shares of Incitec Pivot.
Opening balance represents holdings at date of appointment to the Board (20 December 2006). Movements are from this date.
Incitec Pivot Limited
87
Notes to the Financial Statements
For the year ended 30 September 2007
34. Key management personnel disclosures (continued)
(d) 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:
The Company - Incitec Pivot
Executive directors
- Current
J Segal
J E Fazzino
Executives
- Current
K J Gleeson
D A Roe
B C Walsh
A Grace
J Whiteside
- Former
M Drew
Year
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
Number of Shares treated as Options
Opening
balance (A)
Granted as
compensation
(B)
Exercised
during the
year (C)
Other
Changes (D)
Closing
balance (E)
32,597 56,001 -
-
-
-
- 32,597
- 46,129
5,130
4,424
- 88,598
- 32,597
- 46,129
-
(9,554)
2,542
2,738
- 29,134
5,938
- 25,897
6,269
- 32,370
3,199
- 21,203
-
-
-
-
-
-
-
- -
-
- -
- 22,660
1,825
3,744
3,630
(8,480)
(9,007)
- 29,134
-
- 25,897
-
- 32,370
-
- 21,203
-
- 22,660
-
(5,024)
(3,744)
(3,630)
- 22,660
-
- - -
(22,660)
-
- -
(A) Represents the holding at 1 October 2006 of shares (treated as options) in Incitec Pivot held by executive directors and
executives who were directors and executives of the Company during the year ended 30 September 2007. Further details
of these shares which are treated as options for the purposes of remuneration have been disclosed in section E of the
Remuneration Report and relate to shares allocated under the LTI plans as referred to in sections B and E of the
Remuneration Report.
(B) Represents shares (treated as options) which were acquired during the year by directors and executives while they are
directors or executives of the Company pursuant to the LTI plans, details of which are set out in section B of the
Remuneration Report.
(C) Represents where shares (treated as options) previously granted as compensation, were exercised (by the making of an
award) during the reporting period. Awards (in the form of waivers of loans) were not granted in 2006 as the criteria under
the 2003/06 LTI Plan were not satisfied.
(D) Represents shares treated as options that expired due to the holder ceasing to be eligible to the option of a loan waiver.
Under the relevant plan rules, at the end of a performance period, irrespective of whether a loan waiver is made, the
executive director or executive remains the registered holder of the underlying shares. No person can howver deal in the
shares until their loan is repaid. Refer to section B of the Remuneration Report for further details. 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 2007 and 30 September 2006 of shares, treated as options.
88
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
34. Key management personnel disclosures (continued)
(d) 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 2006
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
- Current
B Healey
A C Larkin
- Former
J R Chesterfield
Executive directors
- Current
J Segal
J E Fazzino
Executives
- Current
D A Roe
B C Walsh
A Grace (1)
Number of Shares
Year
Opening
Balance (A)
Acquired
during the
period (B)
Received on
exercise of
options (C)
Disposed
during the
period (D)
Closing
Balance (E)
2006
2006
9,300 1,163
38,000
4,750
- - 10,463
38,000
-
(4,750)
2006
28,614
12,061
14,254
(34,189)
20,740
2006
2006
2006
2006
2006
16,831 38,877 54,817
3,726
29,808
-
(55,397)
(15,000)
55,128
18,534
13,338
6,887
4,554
267
929
-
13,605
8,915
-
3,476
- - 4,554
(8,915)
(4,340)
(A)
(B)
(C)
(D)
(E)
Represents the holding at 1 October 2005 of shares of Orica Limited (including trust shares and award rights) held by non-
executive directors, 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.
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.
Shares of fully paid ordinary shares of Orica Limited received on exercise of options during the period ended 10 May 2006.
Represents shares disposed of during period ended 10 May 2006.
Represents the holding at 10 May 2006 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
89
Notes to the Financial Statements
For the year ended 30 September 2007
34. Key management personnel disclosures (continued)
(d) Movements in shareholdings of directors and executives (continued)
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
28,508
-
(14,254)
-
14,254
2006 109,634
-
(54,817)
- 54,817
2006 35,663
-
(8,915)
(19,616) 7,132
Ultimate parent entity - Orica Limited
(until 10 May 2006)
Non-executive directors
- Former
J R Chesterfield
Executive directors
- Current
J Segal
Executives
- Current
D A Roe
(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.
Represents options for fully paid ordinary shares of Orica Limited acquired during the period ended 10 May 2006 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 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 by directors and executives while they are directors or executives of the Company.
Represents the holding at 10 May 2006 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.
90
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
35. Share based payments
(a) Long Term Incentive (LTI) Performance Plans – 2006/08 and 2006/09
During the year, the Company established two further LTI Performance Plans under the LTI Plan Rules, being the LTI
Interim Performance Plan 2006/08 and the LTI Performance Plan 2006/09. The performance periods for each of these
Plans is as follows: (i) LTI Interim Performance Plan 2006/08 – based on a two year performance cycle from 1 October
2006 to 30 September 2008 and (ii) LTI Performance Plan 2006/09 – based on a three year performance cycle from 1
October 2006 to 30 September 2009.
The LTIs are designed to link Executive reward with the key performance drivers which underpin sustainable growth in
shareholder value – which comprises both share price and returns to shareholders. The arrangements also support the
Company’s strategy for retention and motivation of its employees.
These plans, as with the previous LTI Performance Plan 2003/06, have the following features:
(cid:121)
Loan backed plan: At the commencement of relevant performance period (typically 2 or 3 years) the
Company, through its wholly owned subsidiary, Incitec Pivot LTI Plan Company Pty Ltd, provides to
participants limited recourse loans bearing interest at the fringe benefit tax benchmark rate (currently
8.05%) for the sole purpose of acquiring shares in Incitec Pivot.
(cid:121)
(cid:121)
Shares acquired on market and held under restriction: The loans are applied to acquire shares on
market which avoids dilution of other shareholdings. Australian Securities Exchange Listing Rule 10.14
provides that no shareholder approval is required. Participants may not deal in the shares while the loan
remains outstanding. Net cash dividends after personal income tax obligations are applied to reduce the
loan balance throughout the term of the loan.
Loan forgiveness: If, at the end of the performance period, the performance of the Company and the
participant meets or exceeds the performance criteria which was set by the Board at the commencement
of the performance period, part of the loan may be forgiven. The amount of the loan forgiven will be
determined according to the performance achieved and will be net of the fringe benefit tax. The balance of
the loan must be repaid prior to any dealing in the shares, on cessation of employment, or at the latest, a
sunset date which is 3 months after the expiry of the performance period.
The Board sets the criteria for the granting of awards under both LTI Plans at the beginning of the performance period
covered by the LTI Plan and in the case of the LTI Interim Performance Plan 2006/08, is based on the achievement at 30
September 2008 of a cumulative Net Profit after tax (NPAT) target; and for the 2006/09 LTI Performance Plan, is based on
total shareholder returns (TSR) over the three year period.
Under both plans any LTI award received will be used firstly to pay the interest on the loans. Of the remainder of any LTI
award, part will be provided as a loan waiver amount after the Company’s FBT liability has been paid. A participant will not
be eligible to receive any LTI award if the relevant NPAT target or TSR target is not met.
(b) LTI Performance Plan – 2003/06
The Company established a LTI Performance Plan in 2003 in respect of the three year performance period, 1 October
2003 to 30 September 2006.
This LTI operated by way of the Company providing participants with limited recourse interest bearing loans, which were
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. Net cash dividends after personal income tax obligations are applied to
reduce the loan balance.
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 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 that have not been made, at the
end of the performance period, that is 30 September 2006, the shares remained registered in the names of the participants
under the LTI Performance Plan 2003/06. The loans are repayable prior to the participant dealing in the shares, and in
any event must be repaid by 31 December 2007.
Incitec Pivot Limited
91
Notes to the Financial Statements
For the year ended 30 September 2007
35. Share based payments (continued)
c) 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 $722,000 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 could
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.
Set out below are summaries
(cid:121)
for 2007, of shares treated as options, under the LTI Interim Performance Plan 2006/08, the LTI
Performance Plan 2006/09 and to Mr Segal, in respect of his Retention Award; and
(cid:121)
for 2006, of shares treated as options, under the LTI Performance Plan 2003/06 and to Mr. Segal, in
respect of his Retention Award.
Consolidated/Company – 2007
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
32,597
32,597
-
-
LTI Interim Performance Plan – 2006/08
17 Nov 06
30 Sept 08
$25.35
Total
LTI Performance Plan – 2006/09
1 Dec 06
30 Sept 09
$24.11
Total
Weighted average exercise price
-
-
-
-
-
151,370
151,370
229,082
229,082
$24.60
-
-
-
-
-
-
-
-
-
32,597
32,597
(16,488)
134,882
(16,488)
134,882
(18,587)
210,495
(18,587)
210,495
$24.69
$22.47
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
-
-
32,597
32,597
20 Sep 04
30 Sep 06
$16.39
41,844
-
4 Oct 05
30 Sep 06
$15.97
-
69,022
Total
41,844
69,022
Weighted average exercise price
$16.39
$10.85
-
-
-
-
-
-
-
-
32,597
32,597
(41,844)
(69,022)
(110,866)
$16.13
-
-
-
-
92
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
35. Share based payments (continued)
The weighted average share price at the date of exercise of shares treated as options exercised regularly during the year
ended 30 September 2007 was $nil (2006 - $nil) 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 1.61
years (2006 – 2.61 year).
Fair value of shares treated as options granted
LTI Interim Performance Plan – 2006/08
In respect of the LTI Interim Performance Plan 2006/08, the assessed fair value at grant date of the shares treated as
options, granted during the year ended 30 September 2007 was $4.33 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.
The model inputs for the shares treated as options, granted during the year ended 30 September 2007 included:
(a) shares treated as options are granted at $25.35, have a two year life, and vest after certain cumulative
NPAT targets are met for the period 1 October 2006 to 30 September 2008 and are treated as exercisable
at the earlier of 31 December 2008 or cessation of employment
(b) exercise price: $25.35
(c) grant date: 17 November 2006
(d) expiry date: 30 September 2008
(e) share price at grant date: $30.40
(f)
(g) expected dividend yield: 2.5%
(h)
risk-free interest rate: 2 year government bond rate.
expected price volatility of the Company’s shares: 30% per annum
LTI Performance Plan – 2006/09
In respect of the LTI Performance Plan 2006/09, the assessed fair value at grant date of the shares treated as options
granted during the year ended 30 September 2007 was $16.53 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.
The model inputs for these shares treated as options, granted during the year ended 30 September 2007 included:
(a) shares treated as options are granted at $24.11 per share treated as an option, have a three year life, and
vest after certain cumulative TSR targets are met for the period 1 October 2006 to 30 September 2009 and
are exercisable at the earlier of 31 December 2009 or cessation of employment.
(b) exercise price: $24.11
(c) grant date: 1 December 2006
(d) expiry date: 30 September 2009
(e) share price at grant date: $32.90
(f) expected price volatility of the Company’s shares: 30% per annum
(g) expected dividend yield: 2.5%
(h) risk-free interest rate: Australian Government bond rate with approximately 3 years to maturity.
Incitec Pivot Limited
93
Notes to the Financial Statements
For the year ended 30 September 2007
35. Share based payments (continued)
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:
(cid:121)
(cid:121)
(cid:121)
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.
shares acquired are either newly issued shares or existing shares acquired on market.
(cid:121)
(cid:121)
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 Company, whichever occurs first.
employees who leave the Company must salary sacrifice any remaining amount prior to departure.
Grant date
Date shares become
unrestricted
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
2 Jul 07
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
2 Jul 10
Number of participants as at
Number of shares held as at
30 Sep 2007
261
261
241
241
240
240
170
285
150
395
30 Sep 2006
261
261
282
282
281
281
204
327
180
-
30 Sep 2007
6,781
6,836
3,083
2,763
3,071
3,354
2,729
12,255
5,850
5,135
51,857
30 Sep 2006
6,781
6,836
3,595
3,225
3,583
3,917
3,270
14,104
7,020
-
52,331
These shares rank equally with all other fully paid ordinary shares from the date acquired by the employee and are eligible
for dividends.
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 Mr Segal’s Retention
Award, the LTI Interim Performance Plan 2006/08, the LTI
Performance Plan 2006/09 and the LTI Performance Plan 2003/06
Consolidated
Company
2007
$’000
1,827
1,827
2006
$’000
243
243
2007
$’000
1,827
1,827
2006
$’000
243
243
94
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
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
TOP Australia Ltd
Southern Cross Fertilisers Pty Limited
Southern Cross International Pty Limited
Coltivi Insurance Pte Limited
Ownership
interest
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
100%
100%
100%
100%
100%
100%
On 30 September 2005, TOP Australia Ltd and Incitec Fertilizers Limited entered into a Deed of Cross Guarantee with
Incitec Pivot Limited for the purposes of obtaining financial reporting relief under Class Order 98/1418 (2005 Deed) made
by the Australian Securities and Investments Commission (ASIC). Southern Cross Fertilisers Pty Ltd was included in the
2005 Deed by an Assumption Deed dated 28 September 2006.
In order for Southern Cross International Pty Ltd to obtain the same relief, Incitec Fertilizers Limited, TOP Australia Ltd,
Southern Cross Fertilisers Pty Ltd and Southern Cross International Pty Ltd entered into a new Deed of Cross Guarantee
dated 28 September 2007 (2007 Deed). The 2007 Deed was entered into in accordance with a specific instrument issued
by ASIC numbered 07/0761.
The 2005 Deed was revoked and the revocation becomes effective on 28 March 2008.
Incitec Pivot Limited
95
Notes to the Financial Statements
For the year ended 30 September 2007
37. Deed of Cross Guarantee
Closed Group
2007
$mill
2006
$mill
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
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Retirement benefit surplus
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
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
218.3
167.4
292.1
221.7
4.5
5.0
909.0
0.4
1.6
502.1
193.7
28.6
2.7
1.2
730.3
1,639.3
281.4
-
9.1
35.1
31.2
356.8
52.8
630.0
-
-
64.7
747.5
1,104.3
535.0
360.8
25.7
148.5
535.0
161.7
121.3
2.0
300.6
8.9
2.9
597.4
0.3
-
441.1
196.2
68.6
-
0.9
707.1
1,304.5
283.1
7.1
5.7
19.2
48.2
363.3
64.0
430.0
1.8
3.4
62.0
561.2
924.5
380.0
360.8
0.7
18.5
380.0
286.2
(82.4)
203.8
18.5
52.7
(12.6)
40.1
29.1
1.8 (8.8)
(41.9)
18.5
(75.6)
148.5
Entities which are party to a Deed of Cross Guarantee dated 28 September 2007, entered into in accordance with a
specific instrument issued by ASIC numbered 07/0761, are disclosed in Note 36, Investments in controlled entities. A
consolidated Balance Sheet and Income Statement for this closed group are shown above.
96
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2007
38. Events subsequent to balance date
Since the end of the financial year, in November 2007, the directors have declared a final dividend comprising a normal
dividend of 191 cents per share as well as a special dividend of 40 cents per share. These dividends are fully franked at
the 30% corporate tax rate and are payable on 13 December 2007.
In addition, by an announcement lodged with the Australian Securities Exchange the market was advised on 19 October
2007 of an unscheduled outage of the urea manufacturing plant at Gibson Island, Brisbane. The total financial impact is
estimated at $16 million after tax. The Company’s insurer has been advised of the event and if the insurance policy
responds, the total financial impact is estimated at $5.5 million after tax.
Other than the two matters reported on above, the directors have not become aware of any other significant matter or
circumstance that has arisen since 30 September 2007, 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
97
Directors’ Declaration
on the Financial Statements set out on pages 44 to 97
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 97, and the remuneration disclosures
that are contained in the Remuneration Report on pages 20 to 34 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 2007 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 2007.
John C Watson, AM
Chairman
Dated at Melbourne this 13th day of November 2007
98
Incitec Pivot Limited
Shareholder Statistics
As at 7 November 2007
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
30,906
2,105
78
75
26
33,190
93.11%
6.34%
0.24%
0.23%
0.08%
100.00%
7,888,920
3,743,331
517,200
2,355,339
35,919,095
50,423,885
15.65%
7.42%
1.03%
4.67%
71.23%
100.00%
Included in the above total are 196 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 69.59% of that class of shares.
Twenty largest ordinary fully paid shareholders
ANZ Nominees Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
Citicorp Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Credit Suisse Securities (Europe) Ltd
Cogent Nominees Pty Limited
UBS Nominees Pty Ltd
Australian Foundation Investment Company Limited
Queensland Investment Corporation
HSBC Custody Nominees (Australia) Limited- A/C 2
RBC Dexia Investor Services Australia Nominees Pty Limited
Warbont Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited- A/C 3
Cogent Nominees Pty Limited
Australian Reward Investment Alliance
HSBC Custody Nominees (Australia) Limited- GSCO ECSA
RBC Dexia Investor Services Australia Nominees Pty Limited
ECapital Nominees Pty Limited
Total
Number of
shares
6,607,091
5,960,216
5,588,410
5,413,679
2,001,873
1,519,547
1,400,000
1,256,868
802,707
647,801
572,153
562,844
520,616
463,793
385,683
371,432
344,370
227,822
223,242
219,031
35,089,178
Percentage
13.10%
11.82%
11.08%
10.74%
3.97%
3.01%
2.78%
2.49%
1.59%
1.28%
1.13%
1.12%
1.03%
0.92%
0.76%
0.74%
0.68%
0.45%
0.44%
0.43%
69.59%
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:
07-Nov-2007
07-Nov-2007
ANZ Nominees Limited
J P Morgan Nominees Australia Limited
6,607,091
5,960,216
13.10%
11.82%
On-market buy-back
There is no current on-market buy-back.
Incitec Pivot Limited
101
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
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
%
$mill
$
%
$mill
%
times
$mill
$mill
%
%
Note:
Financial year ended 30 September 2005, 2006 and 2007 are reported under AIFRS.
The financial year ended 30 September 2003 and 2004 are reported under AGAAP.
102
Incitec Pivot Limited
2007
$mill
1,373.2
2006
$mill
1,111.2
348.6
(36.1)
-
312.5
(28.8)
3.9
(82.4)
205.3
2.8
202.5
75.6
909.0
502.1
1.6
193.7
32.9
1,639.3
325.6
31.2
682.8
64.7
1,104.3
535.0
535.0
535.0
50,424
-
50,424
50,424
401.6
407.1
150
100
$85.74
$23.72
$85.54
4,313.3
6.77
22.8
411.7
43.5
10.9
62.9
257.0
44.3
44.9
159.4
(33.1)
-
126.2
(12.9)
(54.1)
(12.6)
46.7
(36.1)
82.8
41.9
597.4
441.1
-
196.2
69.8
1,304.5
315.1
48.2
499.2
62.0
924.5
380.0
380.0
380.0
50,424
-
50,424
56,516
146.5
82.6
72
100
$26.60
$15.31
$25.87
1,304.5
3.65
11.4
275.4
42.0
9.8
21.4
155.3
17.6
9.9
2005
$mill
1,073.9
108.4
(30.5)
-
77.9
(9.4)
(47.0)
(7.0)
14.5
(33.4)
47.9
70.5
358.6
292.0
-
192.3
2.5
845.2
213.2
47.8
-
24.3
285.3
560.0
560.0
560.0
58,281
-
58,281
58,281
82.2
24.9
121
100
$22.50
$15.00
$15.82
922.0
6.31
7.3
9.2
1.6
8.3
26.1
-
8.0
0.0
Five Year Financial Statistics
2004
$mill
1,135.6
167.2
(35.4)
(9.9)
121.9
(5.4)
(9.3)
(32.1)
75.0
5.8
80.9
16.9
460.9
296.1
-
183.8
30.5
971.4
272.2
26.9
19.0
21.8
339.9
631.5
631.5
631.5
58,281
-
58,281
58,281
138.8
128.8
29
100
$19.30
$15.65
$18.80
1,096
7.68
10.7
(20.8)
(3.4)
22.5
29.4
-
13.4
12.5
2003
$mill
686.3
83.5
(21.2)
(3.1)
59.2
(6.8)
(64.6)
(6.4)
(18.6)
(53.7)
35.0
24.5
350.6
296.6
-
185.4
34.6
867.1
177.9
37.1
69.3
9.5
293.8
573.4
573.4
573.4
58,281
-
58,281
31,120
112.6
(59.8)
140
100
$15.70
$14.00
$15.66
912.7
6.66
8.6
74.4
11.5
8.7
12.9
(4.4)
9.7
(5.1)
Incitec Pivot Limited
103
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8544-02 AR.53.indd 131
12/11/07 10:01:26 AM
Shareholder Information
Annual General Meeting
2.00 pm Thursday 20 December 2007
The Auditorium,
Level 2, Melbourne Exhibition Centre,
2 Clarendon Street,
Southbank Victoria,
Australia
Securities Exchange Listing
Incitec Pivot’s shares are listed on the
Australian Securities 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, BIG N, Nutrient Advantage, Easy Liquids, Granulock, GranAm, Liquifert and Green Urea are registered trade marks
of Incitec Pivot Limited. Cal Gran and Boosta are trade marks of Incitec Pivot Limited.
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
Telephone: + 61 3 8695 4400
Facsimile: + 61 3 8695 4419
www.incitecpivot.com.au
®
®
®
®
®
®
™
The paper used for this Annual Report 2007 is Harvest Recycled Silk.
Harvest Recycled delivers Triple Green Environmental Performance:
60% Recycled Sugar Cane, ECF Bleaching and Sustainable Afforestation.