AnnuAlRePoRt2009
I
n
c
i
t
e
c
P
i
v
o
t
L
i
m
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
9
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 2009 is Harvest Recycled Silk.
Harvest Recycled delivers Triple Green Environmental Performance:
60% Recycled Sugar Cane, ECF Bleaching and Sustainable Afforestation.
“ Own.Breakout.Deliver” embodies the Company’s Values,
which were developed by employees.
The Values are the guiding principles Incitec Pivot draws
on in its day-to-day decision-making.
‘Own’ captures the values:
– Treat the Business as Our Own
– Value People - Respect, Recognise and Reward
– Zero Harm for Everyone, Everywhere
– Care for the Community and Our Environment
– Think Customer. Everyone. Everyday
‘ Breakout’ identifies the
opportunity to:
– Challenge and Improve the Status Quo
‘ Deliver’ captures the philosophy
that we will:
– Deliver on Our Promises
Shareholder Information
Annual General Meeting
2.00 pm Wednesday 23 December 2009
The Auditorium,
Level 2, Melbourne Exhibition Centre,
2 Clarendon Street,
Southbank Victoria,
Australia
Securities exchange listing
Incitec Pivot Limited’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 303 780
(for callers within Australia)
International: +61 2 8280 7765
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
Contents
Chairman’s Report
Managing Director’s Report
Board of Directors
Executive Team
Financial Report
2
3
4
5
6
Fertilisers
Explosives
Trading
Manufacturing
Global Services
Global Initiation Systems
North America Ammonium
Nitrate Operations
Australia Operations
Australia
Global
Global
1
Chairman’s Report
My conviction in the strength of the IPL
businesses, the strategy, our assets and
people was confirmed during 2009, the
90th anniversary since the Company’s
incorporation in 1919. 2009 was an
extraordinary year by any measure, when
the world’s economy was ravaged by the
Global Financial Crisis.
Our businesses faced many challenges
during this period. Demand for industrial
explosives and fertilisers contracted and
commodity prices fell sharply, in contrast to the unprecedented highs
seen in 2007 and 2008. However, our clear strategy, the diversity of our
Company with fertilisers and explosives and operations in Australia, Asia
Pacific and North America, coupled with the commitment of our people,
allowed us to rise to those challenges. We have come through and I am
certain we are a stronger Company, better placed as the world moves
into a more positive economic environment. I am confident about the
pathway established by the Board and executed by the IPL team, led by
Managing Director & CEO, James Fazzino.
My fellow directors and I were pleased to appoint James to the role
following his outstanding success as Finance Director & Chief Financial
Officer. James joined IPL in 2003, and became a member of the Board
in 2005, and has shown in that time his drive and commitment to IPL.
I know that James has dedicated much of his first few months as Chief
Executive Officer visiting sites and speaking to employees, maintaining
the momentum on our strategy and culture which has been built up over
recent years. The opportunity to appoint a leader of the calibre of James
from within the Company reinforces the value of the Board’s succession
planning program. Incitec Pivot has a long history and it is pleasing to
see how we can encourage and foster our people to grow their careers
within the Company.
The turmoil in the global economy came at a testing time for IPL.
It occurred while we were integrating Dyno Nobel into IPL’s way of
operating. I have no doubt in the validity of the decision to acquire
Dyno Nobel last year. It was a company-transforming initiative taking
us further into the international arena and diversifying our business
into two segments, industrial explosives and fertilisers, which
contribute equally to our revenue.
The Dyno Nobel business has delivered to expectations despite the
economic downturn, which hit hardest in the United States where the
business is most prominent. Overall, Dyno Nobel has made a solid
contribution and earnings were up 27% compared to the 2008 proforma,
largely due to the Velocity efficiency program, which is driven by
employee-led innovation for continuous improvement. Within that, Dyno
Nobel’s Asia Pacific operations have performed well in an environment
where, despite depressed market conditions, demand has grown and our
volumes increased by 26%. This demonstrates that Dyno Nobel is a solid
business and, with the Velocity program, is positioned to be ready for the
economic recovery, when it inevitably occurs.
In addition to the impact of the Global Financial Crisis, Incitec Pivot
Fertilisers, our fertiliser distribution business, saw the continued drought
impact on sales. Fertiliser prices, which reached unprecedented highs in
late 2007/early 2008 as a result of global market forces, have this year
returned to levels around or below longer-term trends. However, this did
not result in increased sales, as farmers continued to bear the burden of
drought conditions and made conscious decisions to fertilise less due to
lower soft commodity prices. Despite this, Incitec Pivot Fertilisers’ value
proposition remains strong and, due to the efforts of our people and the
quality of our products, in 2009 we were able to maintain our market
share on east coast Australia.
The success of the Company’s strategy through the cycle has reinforced
the need to maintain our strategic approach. We have confidence
in our assets and we are focused on generating value from them. It
is pleasing that the confidence in IPL, the strategy and the business
approach is confirmed by strict external scrutiny as exemplified by the
Company obtaining three investment grade credit ratings, BBB stable
outlook from Standard & Poor’s and Fitch, and Baa3 stable outlook from
Moody’s. These ratings recognise the Company’s strong balance sheet
and financial discipline. Our shareholders also showed their confidence
in the Company late last year when we made a pro-rata Entitlement
Offer where, in the case of the institutional offer, 99 per cent of the
offer was taken up by existing shareholders and, for the retail offer,
there was solid support.
Notwithstanding this focus on our current assets, we continue to assess
the opportunity presented by the prospective re-start of the construction
of the 330,000-tonne per year ammonium nitrate plant at Moranbah
in Central Queensland. The project is based in the heart of Australia’s
largest metallurgical coal region, in the Bowen Basin and is adjacent
to some of the largest coal mines. In February 2009, we slowed the
construction of the plant and during the year we have focussed on
advanced design engineering, and have continued to work with our
foundation customers, with whom we have contracts in place. We will
provide further information on progress early in the new calendar year.
As a Board, we are committed to the highest level of governance and
we see our role in charting the direction of the Company and in the
creation of shareholder value. It is noteworthy that over the three
years to 30 September 2009, IPL delivered total shareholder returns of
42% per annum, outperforming the S&P/ASX 100 Accumulation Index
which delivered 2.1% per annum over the same period.
I would like to take this opportunity to thank my fellow directors
for their commitment and dedication in undertaking their role and
to formally welcome Graham Smorgon to the Board. We appointed
Graham as a non-executive director in December 2008. His wide
experience and skills complement the Board and the Board’s Audit
and Risk Management Committee, of which he is a member.
Finally, it is my pleasure to pay tribute to the thousands of IPL
employees around the world. I cannot over-estimate the role played
by our management and employees in maintaining a steady course
through the turbulent waters of the Global Financial Crisis. Time after
time, our employees demonstrate an ability to be innovative in finding
solutions to make the business operate better, more efficiently or
provide superior service to our customers. Through Tardis I and II and
now Velocity, we have a strong track record of significant business
improvement. The commitment of our employees to business
improvement has been constant and consistent.
The quality of our team is recognised by the large number of awards
bestowed on the business or individuals. In the past year, awards have
gone to IPL sites for excellence in safety, environment and customer
service. This included Gibson Island receiving, for two consecutive years,
the Platypus Environmental Award for water conservation and energy
efficiency. For customer service, Dyno Nobel in the US, as part of a
team of suppliers, was the recipient of the Vulcan Materials Company
Gold Award for supplier excellence. Individual awards were highlighted
by our Company Secretary & General Counsel, Kerry Gleeson, being
voted by her peers as In-house Lawyer of the Year at the 2009 ALB
Australasian Law Awards.
In summary, while this has been a challenging year for the Company,
it has underlined the endurance and strength of the Company, the
calibre of its people and assets and the soundness of its strategy –
a fitting testament to the Company on its 90th anniversary.
John C Watson, AM
Chairman
2
Managing Director’s Report
In the three months since I was
appointed as Managing Director &
Chief Executive Officer and took on
the privilege of leading this great
Company, I have concentrated my
energies on delivering the successful
strategic direction, which has evolved
over the last four years, and also
on building our performance on
safety and efficiency and with our
customers and IPL people.
The objective of IPL management is to lead a team which delivers
competitive shareholder returns equating to ASX 100 top quartile
performance. We achieve this by leveraging our exposure to the
industrialisation of Asia, particularly China, following the key strategic
principles of: lowest cost base; “own the product”, that is, upstream
manufacturing at the bottom of the cost curve; optimising our supply
chain; and trading in our manufactured products. This approach
has transformed the Company since 2005 by doubling profit from
manufacturing, trebling the production tonnes and quadrupling our
market capitalisation. We reduced risk through diversification of our
earnings streams with the acquisition of Dyno Nobel and improved
the quality of our earnings.
The challenge is to keep the momentum rolling; to take the next step.
In the past year, in the wake of the Global Financial Crisis, we were
unable to do that in some areas. Our Full Year Result was a loss of
$179.9 million after Individually Material Items (IMIs). Our Net Profit
After Tax, excluding IMIs, was 46% down on the previous year to
$347.8 million; although 2008 was an exceptional year driven by high
global fertiliser prices. This year, we experienced unprecedented global
volatility in our businesses. However, the actions that we took and are
continuing to take, such as, the Velocity efficiency program, our focus on
our customer relationships and continued financial discipline, will enable
us to manage the continued challenges of the external environment
in 2010. I am convinced that we have come out of the year a fitter
business to face the challenges of the future.
Positive outcomes during the year were the financial performance of
Dyno Nobel and the production performance of the fertiliser plants
in Queensland and the United States. Dyno Nobel increased earnings
in a year of extremely challenging market conditions, particularly
in North America. The improvement was driven by the Dyno Nobel
employees themselves through the Velocity program – a tribute to
their commitment to see the business succeed. The team at Incitec
Pivot Fertilisers came through a year of plummeting global fertiliser
prices, coupled with continuing drought conditions in many areas, with
a new strategic approach for the future. Manufacturing highlights were
the production performance of Gibson Island (Brisbane), Phosphate
Hill and Mt Isa (Far North Queensland) and St Helens (Oregon).
The successful maintenance ‘turnaround’ at St Helens, subsequent to
year-end, validates the global manufacturing strategy and reinforces
the value of our approach with our Global Risk and Reliability Team.
My priorities are safety, customers, efficiency and people. I firmly believe
that it is impossible to have a good business if we have poor safety
performance. While our safety statistics tell me there is an improvement
in our safety performance, we need to do more. I am committed to our
value on safety – Zero Harm, and zero means zero. I have called upon
for all in the Company to be leaders in this commitment. Consistent
with Zero Harm, I have changed the structure and approach so that
safety management and responsibility sits closest to the plants,
on the mine sites and on the farms. In addition, a separate team,
reporting directly to me, is working to improve our safety management
systems and standards, to create one uniform system across the
Company’s businesses.
At IPL, we recognise that we do not have a business if we do not
have customer relationships, where we share the benefits and where
we prosper together. As Managing Director & Chief Executive Officer, and
previously as Chief Financial Officer, customers have told me that they
need reliable products and service at the right time and at the right price.
We will continue to focus on manufacturing reliability, process excellence
and improving the quality of our service through training. We strive
to create a high level of customer support. To increase the customer
focus throughout the Company, employees developed a new Company
Value: Think Customer. Everyone. Everyday which is a daily reminder
as to the importance of our customers – placing them front of mind
for all IPL people.
Efficiency is an area in which the business has a strong culture
and is performing well through the Velocity program and through
outstanding cash flow management. We ended the year with an
extremely strong balance sheet which was recognised through the
achievement of investment grade credit ratings from three ratings
agencies: Standard & Poor’s, Moody’s and Fitch. Financial discipline
is an element of our business which is totally within our control and we
recognise that we need to maintain our lowest cost base culture or we
will not achieve ASX 100 top quartile performance. However, efficiency
does not mean simply cost cutting. We will spend money to save money
and support successful parts of the business to increase revenue which
goes to the bottom line.
Success for our business, ultimately, will come only through our people.
It is people who accomplish the strategy; who deliver the outcomes.
Two initiatives are the reinvigoration of our Values program and the
start of an Organisation Development Program. We will continue to
invest in people to attract and foster the best talent. On the other
hand, we will hold people accountable, bolstering that accountability
through cultivating an open and honest culture.
In looking at the coming year, I expect that we will continue to
confront challenging market conditions particularly in North America.
We will retain our focus on the “levers of the business” that we
can control, such as extracting further Velocity improvements and
supporting manufacturing and process excellence. We will continue
our interest in re-starting the Moranbah Ammonium Nitrate project
in Central Queensland and will update on progress in March 2010.
Finally, I would like to thank my fellow directors, executive team and
employees for their support and the encouragement they have given
me, particularly over the past three months and to everyone in the IPL
team for their commitment and excellence over the years. I am proud
to be the Managing Director & Chief Executive Officer of this great
Company and to be part of its history and I am looking forward to the
future as we continue on our strategy and priorities.
James Fazzino
Managing Director & Chief Executive Officer
3
Board of Directors
Allan McCallum
Dip. Ag Science, FAICD
Non-executive director
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,
CRF Foods (Vic) Pty Limited and
CRF (Colac Otway) Pty Limited,
and is a director of Medical
Developments International
Limited. He is a former director
of Graincorp Limited and a former
Chairman of Vicgrain Limited.
John Watson AM
MAICD
Non-executive Chairman
Chairman of the Remuneration
and Appointments Committee
John was appointed as a director
on 15 December 1997 and was
appointed Chairman in January 1998.
John is the Chairman of Tasman Farms
Limited and Governor of Van Diemen’s
Land Company, 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, a former
Chairman of PrimeSafe and a former
non-executive director of Rural Press
Limited. He was formerly Chairman of
the Export Wheat Commission, which
was replaced by a new authority,
Wheat Exports Australia, on 1 July
2008. In 2004, he was awarded a
Membership in the Order of Australia
for services to the agricultural and
food production sectors.
Anthony Larkin
FCPA, FAICD
Non-executive director
Chairman of the Audit and
Risk Management Committee
Tony was appointed as a director
on 1 June 2003. He is a director of
Corporate Express Australia Limited,
Eyecare Partners Limited and Oakton
Limited. Tony was previously a non-
executive director of OZ Minerals
Limited, Executive Director Finance
of Orica Limited, Chairman of Incitec
Limited and Chairman of Ausmelt
Limited. During his career with
BHP Limited, 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 Limited 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
on 20 December 2006. John is a
former Chief Executive Officer and
Managing Director of Alumina
Limited, a former director of Alcoa
of Australia Limited, Alcoa World
Alumina LLC and the Business
Council of Australia, the former
Deputy Chairman of Alcoa World
Alumina and Chemicals Strategic
Council, and the former Chairman
of the Australian Aluminium
Council. He has formerly held
executive positions with Esso
Australia Limited, James Hardie
Industries Limited, Pioneer
International Group Holdings and
Hanson plc.
4
4
Graham Smorgon
B.Juris LLB
Non-executive director
Graham was appointed to the
Board on 19 December 2008.
Graham is a non-executive
director of OneSteel Limited,
Chairman of Smorgon
Consolidated Investments, the
GBM Group and the Print Mint
Group, a Trustee of the Victorian
Arts Centre Trust and Chairman
of the Victorian Arts Centre
Foundation. His former roles
include Chairman of Smorgon
Steel Group Limited, President of
the Carlton Football Club, Director
of Fed Square Pty Ltd, Deputy
Chairman of Melbourne Health,
Director of the Walter and Eliza
Hall Institute and partner of law
firm Barker Harty & Co, where he
practised as a commercial lawyer
for 10 years.
James Fazzino
BEc(Hons), CPA
Managing Director
& Chief Executive Officer
James was appointed Acting
CEO on 8 May 2009 and was
appointed Managing Director
& CEO on 29 July 2009.
James was first appointed as
a director on 18 July 2005,
following his appointment as
Chief Financial Officer in May
2003. Before joining IPL, 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
IPL, he was Orica’s Investor
Relations Manager.
Executive Team
James Fazzino
BEc(Hons), CPA
Kerry Gleeson
LLB(Hons)
Managing Director
& Chief Executive Officer
General Counsel &
Company Secretary
Kerry has extensive
experience as a corporate
finance lawyer and joined
IPL as General Counsel
& Company Secretary in
February 2004. Prior to
joining IPL, Kerry was in
private practice with Blake
Dawson and advised the
Company on its merger
with Incitec Fertilizers
Limited in 2003. Kerry was
previously a partner of
English law firm Halliwell
Landau (now Halliwells
LLP), where she gained
extensive experience in IPOs,
international mergers and
acquisitions, equity markets
financing and restructuring. In
2009, Kerry received the ALB
Australasian Law Award for
In-House Lawyer of the Year.
Frank Micallef
BBus, MAcc, FCPA, FFTA
Chief Financial Officer
Frank was appointed as
Chief Financial Officer on
23 October 2009. Frank joined
IPL in May 2008 as General
Manager Treasury and Chief
Financial Officer Trading.
Prior to joining IPL, Frank
had significant experience in
the explosives and mining
industries as Global Treasurer
and Investor Relations
Manager at Orica and General
Manager Accounting at
North Limited.
Bernard Walsh
BE(Mech), MIEAust CPEng
General Manager
Global Manufacturing
Bernard has extensive
manufacturing experience
in petrochemicals, chemicals
and mining services.
Bernard joined IPL from
Orica Limited where he held
a variety of roles from 1987,
including General Manager
of Initiation Explosives
Systems (IES) until 2003.
IES was a joint venture
between Orica Limited and
Ensign Bickford Industries
Inc. and manufactured
a full range of initiating
systems at its Helidon,
Queensland, and Deer Park,
Melbourne, sites.
Alan Grace
BScChemEng, MIChemE
James Whiteside
BAgricSc, GradDipBusAdmin
General Manager
Major Projects
Alan joined IPL on the
Company’s merger with
Incitec Fertilizers Limited,
having commenced with
Incitec Limited in 2000. Alan
has extensive experience
in the construction and
operation of chemical and
petrochemical manufacturing
facilities. Alan previously held
the role of General Manager
Chemicals, where he was
responsible for managing
the chemicals business unit.
As General Manager Major
Projects, Alan is responsible
for the Moranbah Project.
General Manager Supply
Chain & Trading
James joined IPL (then
known as Pivot Limited) in
1992, following extensive
experience in agricultural
companies and consulting.
Since joining IPL, James
has held a number of
senior management
roles, including Group
Procurement Manager.
As General Manager Supply
Chain & Trading, James is
responsible for Southern
Cross International and its
international and domestic
trading business, and is
Chief Executive Officer of
the newly formed Quantum
Fertilisers joint venture.
Don Brinker
BS Public Administration/
Business MBA
General Manager Explosives
Don joined IPL in June
2008 and is responsible for
the Company’s explosives
business. Don has extensive
experience in the North
American explosives
business, having worked
for over 30 years in the
industry. Immediately prior
to joining IPL, Don held
the position of President
& CEO Americas at Minova
International and, prior to
that, he was President & CEO
of Orica’s North American
explosives business.
Jamie Rintel
BA
Gary Brinkworth
BEc
General Manager Strategy
& Business Development
General Manager
Incitec Pivot Fertilisers
Jamie joined IPL in February
2005, following extensive
experience in consulting
across a range of industries
both in Australia and
overseas. Within IPL, Jamie
has held a number of
roles including, Marketing
Manager for Incitec Pivot
Fertilisers. Jamie was
appointed to his current
role as General Manager
Strategy & Business
Development in June 2008.
Gary joined IPL in
November 2008. He has
extensive local and
international experience
across wholesale fuel
distribution, retail and
financial services industries.
Gary has held several
senior leadership positions
with BP Oil in Australia,
New Zealand, the United
Kingdom and the United
States and brings a strong
customer focus to the
business. Immediately
prior to joining IPL, Gary
held the position of
General Manager – Group
Business Development
with Coles Group.
5
5
5
Financial Report
Directors’ Report
Auditor’s Independence Declaration
Income Statements
Statements of Comprehensive Income
Statements of Financial Position
Statements of Cash Flows
Statements of Changes in Equity
Notes to the Financial Statements
Directors’ Declaration on the Financial Statements set out on pages 44 to 117
Audit Report
Shareholder Statistics
Five Year Financial Statistics
7
43
44
45
46
47
48
50
118
119
121
122
6
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 2009 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 Health, Safety, Environment and Community
Committee
A C Larkin FCPA, FAICD
Independent non-executive director
Chairman of the Audit and Risk Management Committee
Member of the Health, Safety, Environment and Community
Committee
A D McCallum Dip. Ag Science, FAICD
Independent non-executive director
Chairman of the Health, Safety, Environment and Community
Committee
Member of the Audit and Risk Management Committee (to 27
February 2009)
Member of the Remuneration and Appointments Committee
J Marlay BSc, FAICD
Independent non-executive director
Member of the Remuneration and Appointments Committee
Member of the Audit and Risk Management Committee
G Smorgon B.Juris LLB
Independent non-executive director
Member of the Audit and Risk Management Committee (from 27
February 2009)
J E Fazzino BEc(Hons), CPA
Managing Director & Chief Executive Officer
Member of the Health, Safety, Environment and Community
Committee (from 22 June 2009)
John was appointed as a director on 15 December 1997 and was appointed
Chairman in January 1998. John is the Chairman of Tasman Farms Limited
and Governor of Van Diemen’s Land Company, 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, a former Chairman of PrimeSafe and a
former non-executive director of Rural Press Limited. He was formerly
Chairman of the Export Wheat Commission, which was replaced by a new
authority, Wheat Exports Australia, on 1 July 2008. In 2004, he was
awarded a Membership in the Order of Australia for services to the
agricultural and food production sectors.
Tony was appointed as a director on 1 June 2003. He is a director of
Corporate Express Australia Limited, Eyecare Partners Limited and Oakton
Limited. Tony was previously a non-executive director of OZ Minerals
Limited, Executive Director Finance of Orica Limited, Chairman of Incitec
Limited and Chairman of Ausmelt Limited. During his career with BHP
Limited, 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 Limited 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, CRF Foods (Vic) Pty Ltd and CRF (Colac Otway)
Pty Ltd, and is a director of Medical Developments International Limited. He
is a former director of Graincorp Limited and a former Chairman of Vicgrain
Limited.
John was appointed to the Board on 20 December 2006. John is a former
Chief Executive Officer and Managing Director of Alumina Limited, a former
director of Alcoa of Australia Limited, Alcoa World Alumina LLC and the
Business Council of Australia, the former Deputy Chairman of Alcoa World
Alumina and Chemicals Strategic Council, and the former Chairman of the
Australian Aluminium Council. He has formerly held executive positions with
Esso Australia Limited, James Hardie Industries Limited, Pioneer
International Group Holdings and Hanson plc.
Graham was appointed to the Board on 19 December 2008. Graham is a
non-executive director of OneSteel Limited, Chairman of Smorgon
Consolidated Investments, the GBM Group and the Print Mint Group, a
Trustee of the Victorian Arts Centre Trust and Chairman of the Victorian
Arts Centre Foundation. His former roles include Chairman of Smorgon
Steel Group Limited, President of the Carlton Football Club, Director of Fed
Square Pty Ltd, Deputy Chairman of Melbourne Health, Director of the
Walter and Eliza Hall Institute and partner of law firm Barker Harty & Co,
where he practised as a commercial lawyer for 10 years.
James was appointed Acting CEO on 8 May 2009 and was appointed
Managing Director & CEO on 29 July 2009. James was first 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.
Incitec Pivot Limited
7
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 and, prior to that, Kerry was a partner of an English law firm,
Halliwell Landau (now Halliwell LLP).
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
A C Larkin
A D McCallum (1)
J Marlay (1)
G Smorgon
J E Fazzino (2)
Fully paid ordinary shares
Incitec Pivot Limited
100,000
5,000
216,501
37,693
0
1,845,420
(1) Held both directly and indirectly.
(2) This interest includes shares acquired pursuant to Incitec Pivot’s long term incentive plans. Further details of the long term incentive plans
are set out in the remuneration report and Note 36, Share based payments.
Further details of directors’ interests in share capital are set out in Note 35, 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
Health, Safety,
Environment and
Community
Held (1) Attended (2) Held (1) Attended (2) Held (1) Attended (2) Held (1) Attended (2)
Current
J C Watson
A C Larkin
A D McCallum (3)
J Marlay
G Smorgon (4) (5)
J E Fazzino (6)
Former
B Healey (7)
J Segal (8) (9)
18
18
18
18
12
18
6
13
18
17
18
17
11
18
6
13
-
5
2
5
3
-
-
-
-
5
2
5
2
-
-
-
10
-
10
10
-
-
-
-
10
-
10
10
-
-
-
-
4
4
4
-
-
2
-
2
4
3
4
-
-
2
-
2
(1) This column shows the number of meetings held during the period that the director was a member of the Board or Committee.
(2) This column shows the number of meetings attended during the period that the director was a member of the Board or Committee.
(3) Mr Allan McCallum resigned from the Audit and Risk Management Committee on 27 February 2009.
(4) Mr Graham Smorgon was appointed to the Board by the directors on 19 December 2008.
(5) Mr Graham Smorgon was appointed to the Audit and Risk Management Committee on 27 February 2009.
(6) Mr James Fazzino was appointed to the Health, Safety, Environment and Community Committee on 22 June 2009.
(7) Mr Brian Healey retired from the Board on 19 December 2008.
(8) Mr Julian Segal resigned from the Board on 8 May 2009.
(9) Mr Julian Segal resigned from the Health, Safety, Environment and Community Committee on 8 May 2009.
Principal activities
The principal activities of the Consolidated entity during the course of the financial year were the manufacture, trading and
distribution of fertilisers, industrial explosives and chemicals, and the provision of related services. No significant changes have
occurred in the nature of these activities during the financial year.
8
Incitec Pivot Limited
Directors’ Report
Review and results of operations
Financial Highlights
• Net Loss After Tax (including individually material items1) for the year ended 30 September 2009 was $179.9m, down
$784.5m compared to a Net Profit After Tax (including individually material items) in the year ended 30 September 2008 of
$604.6m.
• Net Profit After Tax (excluding individually material items) for the year ended 30 September 2009 was down 46% or
$299.7m to $347.8m (2008: $647.5m). The result reflects the benefits of the Dyno Nobel acquisition in 2008 and the
delivery of the Velocity program benefits, offset by reduced earnings in the Fertilisers business.
• Earnings Before Interest and Tax (EBIT) (excluding individually material items) was down 40% or $379.6m to $575.7m
(2008: $955.3m) with the mix of earnings being 52% Explosives and 48% Fertilisers, demonstrating the benefits of the
business model with a common nitrogen manufacturing core and two diversified downstream markets.
• Earnings Per Share (excluding individually material items) were down 63% to 22.6 cents (2008: 60.5 cents).
Business Highlights
• Explosives contribution to EBIT (excluding individually material items) increased by $219.8m (2008: $79.5m) to $299.3m
reflecting a full year Explosives contribution following the June 2008 acquisition.
• Cumulative Velocity program benefits were above the 2009 target.
• Net Debt decreased by $566.9m to $1,463.4m at 30 September 2009 (2008: $2,030.3m).
External Sales Revenue
•
Total sales revenue was up 17% or $500.7m to $3,418.9m (2008: $2,918.2m) primarily due to a full year contribution from
the Explosives business.
• Sales revenue contributed by the Explosives business was up 220% to $1,827.6m (2008: $570.9m) reflecting a full year
contribution in 2009 (2008: 3½ months).
• Sales revenue of the Fertilisers business was down 32% or $756.0m to $1,591.3m (2008: $2,347.3m) driven by weaker
sales volumes in the Australian east coast market and softer global fertiliser prices.
Earnings Summary
Net Loss After Tax (including individually material items) for the year ended 30 September 2009 was $179.9m, down $784.5m
compared to a Net Profit After Tax (including individually material items) in the year ended 30 September 2008 of $604.6m. This
was largely due to the decrease in Fertilisers EBIT and a non-cash write down in the carrying value of the Dyno Nobel goodwill
of $490.6m.
Net Profit After Tax (excluding individually material items) was down 46% or $299.7m to $347.8m (2008: $647.5m) and EBIT
(excluding individually material items) was down 40% or $379.6m to $575.7m (2008: $955.3m).
Positive factors include:
•
contribution from the Explosives business of $299.3m (2008: $79.5m) up 276% or $219.8m attributable to a twelve month
contribution from Explosives in 2009 versus three and a half months in the prior year.
Negative factors include:
•
Fertilisers business EBIT of $276.4m (2008: $875.8m) down 68% or $599.4m driven by weaker volumes in the Australian
east coast market and softer global fertiliser prices.
Returns to Shareholders
• A final dividend of 2.3 cents per share (cps) unfranked is to be paid on 18 December 2009.
•
This brings the total 2009 dividend to 4.4cps, 48% franked (2008: 29.7cps fully franked).
•
Total shareholder returns for 2009 were negative 43% (2008: positive 25%) assuming shares were held for the full year.
Balance Sheet
• Net debt decreased by $566.9m to $1,463.4m at 30 September 2009 (2008: $2,030.3m) with funds from the November
2008 rights issue equity raising utilised to pay-down debt.
The Net Debt/EBITDA2 ratio is 1.97 at 30 September 2009 (2008: 1.98).
•
1 Individually material items are revenues or expenses that are outside the normal operations of the business and are non-recurring in nature.
2 Net Debt/EBITDA equals interest bearing liabilities less cash and cash equivalents / Earnings Before Interest, Tax, Depreciation and
Amortisation, excluding individually material items.
Incitec Pivot Limited
9
Directors’ Report
Dividends
Dividends paid since the last annual report were:
Type
Paid during the year
2008 final dividend
2009 interim dividend
Paid after end of year
2009 final dividend
Cents per share
Total amount
$000
Franked / Unfranked
Date of payment
19.5
2.1
237,360
33,595
Franked
Franked
2 December 2008
7 July 2009
2.3
37,088
Unfranked
18 December 2009
Dealt with in the financial
report as:
Dividends
Subsequent event
Note
$000
27
27
270,955
37,088
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, in November 2009, the directors determined to pay a final dividend for the Company of 2.3
cents per share on 18 December 2009. The dividend is unfranked (Refer Note 27).
On 13 November 2009, the Consolidated entity determined that it would cease manufacturing activities in early 2010 at its
ammonium nitrate facilities in Battle Mountain, Nevada, USA and Maitland, Ontario, Canada. Distribution and warehousing
activities will continue at both sites to fulfil customer requirements. Manufacturing assets have been written down to their
recoverable amount as at 30 September 2009, resulting in an adverse impact to earnings before interest and tax of $66.3m. The
costs at both sites for decommissioning, mothballing, redundancy and make good will be accounted for in the 2010 financial
year.
Other than the matters reported on above, the directors have not become aware of any other significant matter or circumstance
that has arisen since 30 September 2009 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
Further information on likely developments in the operations of the Consolidated entity and the expected results of the
operations have not been included in this financial report because the directors believe it would be likely to result in
unreasonable prejudice to the Group.
Environmental regulations
Manufacturing licences and consents are in place at each Group 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. When
breaches occur, they are reported to the authorities as required and actions taken to prevent recurrences.
10
Incitec Pivot Limited
Directors’ 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 officers of its
controlled entities against 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 has provided non-audit services to the amount of $646,000 during the year ended 30 September 2009 (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 this 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
11
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 the Consolidated entity for the year ended 30 September
2009. This remuneration report is audited.
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 the Key Management Personnel of the Company and the Consolidated entity are the non-executive directors listed in the
table in section A on page 13, and the Managing Director & CEO and his direct reports as listed in table D.4 on page 23, which
includes the five most highly remunerated Company executives.
When used in this report, the term “executives” means the Managing Director & CEO and his direct reports, as listed in table D.4.
This remuneration report forms part of the directors’ report.
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 and arrangements for the 2008/09 financial year are set out in this remuneration
report.
Overview
Incitec Pivot aims to generate competitive returns for its shareholders through its business strategy as a leading chemicals
company specialising in the manufacture and distribution of fertilisers, industrial explosives and related products and services.
The realisation of value from this strategy will only be delivered by successful employees who are capable, committed and
motivated. Accordingly, the Company’s remuneration strategy is designed to:
(cid:159)
(cid:159)
enable Incitec Pivot to attract, retain and motivate executives and employees who will create value for shareholders; and
fairly and appropriately reward executives and employees having regard to the performance of Incitec Pivot and that of the
relevant executive or employee.
In pursuing its remuneration strategy, the Board has taken into account shareholder sentiment in relation to executive
remuneration, and has recognised the global financial environment in which the Company has operated over the last 12 months.
In this respect, in its review of executive remuneration for the 2009/10 financial year, the Board has determined that remuneration
for executives will remain at the current levels. Similarly, fees for non-executive directors will not increase.
Key Highlights
Commentary
Clear Strategy and Philosophy
Market competitive – to position fixed annual remuneration at
the 50th percentile of executives in the S&P/ASX 26-100, with
opportunity for highly competitive total remuneration for
superior performance to attract and retain high performing
senior management.
Alignment with shareholder value – measures used in the
incentives have been chosen to establish a strong link between
executive reward and returns to shareholders thereby ensuring
alignment between executive performance and the creation of
value for shareholders.
STI: principal measure used is NPAT (before individually
material items). NPAT is considered the appropriate short term
measure as, in the absence of capital initiatives, it equates to
EPS, the key driver of shareholder value.
LTI: principal measure used is the Company’s TSR which is
measured over three years and must be at least 20% per
annum compounded over the three year period for reward to be
granted in full.
2009/10 Remuneration Snapshot
Remuneration freeze - Implementing a freeze on fixed annual
remuneration for executives and fees for non-executive
directors.
STI/LTI – STI and LTI percentages for executives remain
unchanged.
No STI payments were awarded to executives in 2009.
The 2006/09 LTI plan matured on 30 September 2009. Incitec
Pivot’s TSR was 42.2% per annum compounded over the three
year performance period, 111% higher than the stretch hurdle
of 20% per annum compounded over the period. This
represents superior performance over a sustained period.
Participating executives received their full entitlement at the
Stretch hurdle and received awards, in the form of loan
waivers, net of the Company’s fringe benefits tax liability, which
is paid by the executives.
In 2008 the Board reviewed the form of the LTIs having regard
to market practice and in response to shareholder sentiment.
This resulted in a move to a performance rights plan as
opposed to the loan-backed share-based plan. Following the
maturity of the 2006/09 LTI plan in September 2009, there
remains one loan-backed share-based plan, being the 2007/10
LTI plan which will be tested as at 30 September 2010.
In recognition of the global financial environment and having
regard to its strategy and philosophy on executive
remuneration and the Company’s market competitiveness on
remuneration, the fixed annual remuneration for executives for
their current roles will remain at the current levels. The fixed
annual remuneration for the Managing Director & CEO will not
be increased.
The fees for non-executive directors will not be increased.
12
Incitec Pivot Limited
Directors’ Report
Remuneration Report
A. Non-executive directors
Non-executive directors’ fees are determined by the Board subject to the aggregate limit of $2,000,000 approved by
shareholders at the 2008 Annual General Meeting.
Non-executive directors receive a fee for being a director of the Board and additional fees for either chairing or being a member
of a Committee. The level of fees paid to non-executive directors reflects their time commitments and responsibilities. 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 three years immediately preceding their date of retirement. This
retirement benefit will be paid pro-rata for less than ten years of service. The service period is capped to 31 May 2003.
Fees are reviewed annually. For the 2009/10 financial year the Board has determined that no increases will be made to
non-executive director remuneration.
Non-executive directors’ remuneration
Details of the non-executive directors’ remuneration for the financial year ended 30 September 2009 are set out in the
following table:
For the year ended 30 September 2009
Short-term benefits
Post-
employment
benefits
Other long term
benefits (A)
Year
Fees
$000
Other short term
benefits (B)
$000
Superannuation
benefits
$000
$000
Total
$000
Non-executive directors
- Current
J C Watson, Chairman (1)
2009
2008
410
330
A C Larkin
2009
2008
187
150
J Marlay (2)
A D McCallum (1)
G Smorgon (3)
- Former
2009
2008
2009
2008
2009
2008
168
131
185
150
118
-
B Healey (4)
2009
2008
40
150
Total non-executive directors 2009
2008
1,108
911
-
26
-
-
-
-
-
-
-
-
-
-
-
26
41
33
18
15
17
4
18
15
12
-
-
-
106
67
106
81
-
-
-
-
46
29
-
-
-
-
152
110
557
470
205
165
185
135
249
194
130
-
40
150
1,366
1,114
(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) Other short term benefits include the taxable value of fringe benefits attributable to the FBT year (2009: 1 April 2008 – 31 March 2009)
(2008: 1 April 2007 to 31 March 2008). In the case of Mr Watson, for the 2007/08 financial year this relates to travel expenses.
If Mr Watson or Mr McCallum had ceased to be a director on 30 September 2009, the following benefits would have been payable under
their respective contracts: Mr Watson $619,000, Mr McCallum $272,000.
(1)
(2) For Mr Marlay, for the period 1 October 2007 to 31 May 2008, fees of $90,000 were paid to Alumina Limited, Mr Marlay’s then employer.
(3) On 19 December 2008, Mr Smorgon was appointed to the Board by the non-executive directors. The disclosures for the 2008/09 financial
year are from this date.
(4) On 19 December 2008, Mr Healey retired as a non-executive director. The disclosures for the 2008/09 financial year are from
1 October 2008 to 19 December 2008.
Incitec Pivot Limited
13
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 successfully implementing business strategies.
The Board’s strategy on remuneration is that:
•
•
the fixed component, fixed annual remuneration, is referenced to that paid by companies in the S&P/ASX 26-100 at the
50th percentile, with variations to recognise experience and performance in the particular role; and
the “at risk” component and the total remuneration package for executives, is referenced to the top 25 performing
companies within the S&P/ASX 26-100 and that NPAT targets be used as the performance measure for short term
incentives and total shareholder return (TSR) be used as the performance measure for long term incentives, thereby
linking executive reward with the creation of shareholder value.
The mix between fixed annual remuneration and “at risk” or performance-related remuneration varies according to the duties
and responsibilities of executives, and supports the objectives of the remuneration strategy.
Remuneration arrangements are reviewed annually. For the 2008/09 financial year, the Board reviewed remuneration
arrangements having regard to the duties and responsibilities of the executives and by reference to survey data provided by
Godfrey Remuneration Group (GRG), an appropriately qualified external consultant, which compared remuneration packages of
companies of similar size to Incitec Pivot’s market capitalisation. Following this review, the Board approved, with effect from
1 January 2009, an increase of 8% to the fixed annual remuneration for all executives, other than for Mr Jamie Rintel, who
received a 20% increase to reflect his increased responsibilities in his new role as General Manager – Strategy and Business
Development. In addition, Mr Gary Brinkworth, who was appointed as General Manager – Incitec Pivot Fertilisers in November
2008, did not receive an increase as his fixed annual remuneration had been assessed on his appointment. No changes were
made to the “at risk” components of remuneration on the basis that the short term incentive and long term incentive were
considered to be appropriate at their current levels.
For the 2009/10 financial year, the fixed annual remuneration for executives, in respect of their current roles, will not be
increased.
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 at a business / 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 (1)
Executives (2)
% of Total Remuneration (annualised)
Fixed Remuneration
Performance-based Remuneration
FAR
33%
33%
36%
STI
33%
33%
29%
LTI
34%
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.
(1) The relative proportions of fixed remuneration and performance based remuneration have been determined by reference to Mr Fazzino’s
remuneration arrangements during the period 1 October 2008 to 29 July 2009 at which time he held the position of Finance Director & Chief
Financial Officer.
(2) For the purpose of the above table, Executives does not include General Manager - Explosives. For the General Manager - Explosives, the
relative proportions are as follows: fixed remuneration - 36%, STI - 35% and LTI - 29%.
14
Incitec Pivot Limited
Directors’ Report
Remuneration Report
Fixed Annual 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. 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. The level of fixed remuneration is reviewed
annually.
Performance-based remuneration – Short Term Incentive Plan (STI)
The Short Term Incentive Plan (STI) is an annual “at risk” cash bonus which is dependent 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 challenging 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 are set annually with both target and stretch conditions. The STI and the performance
conditions under the STI have been designed to motivate and reward high performance in the particular year. If performance
exceeds the already challenging targets, the STI will deliver higher rewards to executives. The principal performance condition
for the STI is Net Profit After Tax (NPAT) (before individually material items). NPAT (before individually material items) is
considered the appropriate financial measure for a short term incentive 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).
Additional conditions may be applied and, if so, include the performance and execution of business plans in the functional
areas.
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.
No executives were awarded STI payments under the 2008/09 STI.
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 type of LTI previously used by the Company had been a loan-backed share-based plan. However, in 2008, following an
external review of the design of the Company’s long term incentive plan by Mercer Human Resource Consulting Pty Ltd, the
Board adopted a performance rights LTI for the three year period 2008/11 in which growth in TSR is used as the principal
performance measure.
Summary of plans
Plan
Participants
Performance
Current LTIs
Discussion
Period
Long Term Incentive
Performance Plan
Executives and
senior employees
3 years
LTI performance plan 2006/09
Page 16
LTI performance plan 2007/10
Long Term Incentive
Performance Rights Plan
Australian executives
and senior employees
3 years
LTI performance rights plan 2008/11
Pages 16-
17
Long Term Incentive
Performance Cash Plan
Overseas executives
and senior employees
3 years
LTI performance cash plan 2008/11
Page 17
Incitec Pivot Limited
15
Directors’ Report
Remuneration Report
Long Term Incentive Performance Plan (loan-backed share-based)
Key features:
•
Loan backed plan: At the commencement of relevant performance periods (typically three 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 5.85%) 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 were 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 three months after the expiry of the
performance period, unless extended by the Company.
• 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, being 1 October 2006 in the case of the LTI performance plan 2006/09 and
1 October 2007 in the case of the LTI performance plan 2007/10. The criteria focus on financial performance of the
Company and include a condition relating to duration of employment. The LTI performance measure is based on
Incitec Pivot’s 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, assuming the dividends are reinvested in the Company’s shares
(Absolute TSR). The Board adopted Absolute 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 returns to shareholders thereby aligning executives’ performance with the creation of shareholder
value. Further, as the Company’s two key business segments are explosives and fertilisers, there is no logical
comparator group which would make a relative TSR measure appropriate, and a more general comparator group, such
as companies in the S&P/ASX 100 index would not ensure alignment between executives’ performance and value
delivered to shareholders. For the performance criteria to be satisfied in full, Absolute 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. If, at the end of the
relevant performance period, Absolute TSR is less than 10% per annum compounded over the three year period, no
awards in the form of loan forgiveness will be granted.
Current Long Term Incentive Performance Plans (loan-backed share-based):
The LTI performance plan 2006/09 and the LTI performance plan 2007/10 are for three year periods. The performance criteria
for LTI performance plan 2007/10 will not be tested until 30 September 2010.
Under the LTI performance plan 2006/09, the performance measure was set on 1 October 2006 and is based on Absolute TSR.
The stretch performance measure was for Absolute TSR to be at least 20% per annum compounded over the three years. The
Absolute TSR calculated from the start of the performance period to 30 September 2009 is 42.2% per annum compounded over
the period, and is 111% higher than the TSR stretch performance measure. Accordingly, each of Mr Fazzino, Mrs Gleeson, Mr
Grace, Mr Rintel, Mr Walsh and Mr Whiteside received awards by way of loan forgiveness in respect of the three year
performance period ended 30 September 2009.
Long Term Incentive Performance Rights Plan
Key features:
• Performance rights: A performance right entitles the participant to acquire an ordinary share in the Company for no
consideration at a later date subject to the satisfaction of certain performance and service conditions. As no share is
issued until exercise, performance rights have no dividend entitlement.
• Allocation: The decision to grant performance rights is made annually by the Board. Grants of performance rights to
participants are based on a percentage of the relevant participant’s fixed annual remuneration.
• Performance criteria: The performance rights only become exercisable if certain conditions are met. The conditions
focus on performance of the Company and include a condition relating to duration of employment. The performance
16
Incitec Pivot Limited
Directors’ Report
Remuneration Report
conditions are measured by reference to Absolute TSR over the relevant performance period (typically three years).
The Board has adopted Absolute 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
returns to shareholders thereby aligning executives’ performance with the creation of shareholder value. Further, as
the Company’s two key business segments are explosives and fertilisers, there is no logical comparator group which
would make a relative TSR measure appropriate, and a more general comparator group, such as companies in the
S&P/ASX 100 index would not ensure alignment between executives’ performance and value delivered to
shareholders. For the performance condition to be satisfied in full, Absolute TSR must be at least 20% per annum
compounded over the performance period. In setting this at 20%, the Board considers it has established an aggressive
target to promote behaviour to achieve superior performance. If, at the end of the relevant performance period, the
Company’s:
- TSR is equal to or less than 10% per annum compounded over the performance period, none of the
performance rights vest;
- TSR is between 10% and 20% per annum compounded over the performance period, an increasing
proportion of the performance rights will vest from zero on a straight line basis; and
- TSR is greater than 20% per annum compounded over the performance period, all of the performance rights
will vest.
• Exercise period: Upon vesting of the performance rights, the participant has a two-year exercise period which
commences three years after the grant date. This period may be reduced if the employee ceases to be employed by a
member of the Consolidated entity.
•
Lapse: Performance rights will lapse (and not be able to be exercised and converted into shares) if they are not
exercised within five years from their grant date. Performance rights will also lapse if the performance conditions are
not satisfied during the performance period or, in certain circumstances, if a participant ceases to be employed by the
Company during the performance period.
Current Long Term Incentive Performance Rights Plans:
The LTI performance rights plan 2008/11 is for a three year period and the performance criteria will not be tested until
30 September 2011. The Company is in the process of establishing a LTI performance rights plan for the three year period
commencing 1 October 2009 to 30 September 2012.
Long Term Incentive Performance Cash Plan
For overseas executives and senior employees, the Consolidated entity, through its offshore entities, operates a long term
incentive performance cash plan designed to deliver a similar benefit to employees on achievement of sustained performance
over the three year period, and with similar conditions, as the Long Term Incentive Performance Rights Plan.
Incitec Pivot Limited
17
Directors’ Report
Remuneration Report
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 preceding four financial years.
Table B.2
Net Profit After Tax (before individually material items) ($m)
Earnings Per Share (before individually material items) (cents)
Dividends - paid in the financial year - per share (cents)
Dividends - declared in respect of the financial year - per share
(cents)
Share price ($) (Year End)
TSR (Annual) (%)
TSR (3 Year Compound per annum) (%)
2005 (1)(2)
2006 (1)(2)
2007 (1)(2)
2008 (1)(3)
2009 (1)
47.9
4.1
6.1
3.6
0.79
(12)
-
82.8
7.3
3.6
5.2
1.29
70
22
202.5
20.1
7.5
15.0
4.28
242
74
647.5
60.5
21.8
29.7
5.07
25
93
347.8
22.6
21.6
4.4
2.83
(43)
42
(1) Stated on an AIFRS basis.
(2) All indices except for Net Profit After Tax (before individually material items) have been restated as a result of the 20:1 share split approved
by shareholders in September 2008.
(3) Restated for change in accounting standard. Refer Note 1(i) of the financial report.
The Board considers that linking executive remuneration to Incitec Pivot’s TSR and NPAT (before individually material items)
has ensured there is alignment between executive performance (and reward) and value delivered to shareholders. This is
demonstrated in the charts on the following page, which show sustained performance over the three years (2006 to 2009),
noting that, in 2009, NPAT (before individually material items) was $347.8m and Incitec Pivot’s TSR was 42% per annum
compounded over the three years to 2009. Accordingly, executives received awards (in the form of loan waivers) under the LTI
performance plan 2006/09. However, no payments were made under the 2008/09 STI.
18
Incitec Pivot Limited
Directors’ Report
Remuneration Report
Charts B.2
Earnings Per Share (before indiviually material items) and
Year End Share price
Net Profit After Tax (before individually material items)
and Dividends declared
e
r
o
e
b
(
f
S
P
E
l
t
a
i
r
e
a
m
y
l
l
i
a
u
d
v
d
n
i
i
)
1
(
s
t
n
e
c
)
s
m
e
t
i
70
60
50
40
30
20
10
0
6
4
2
0
(2)
e
r
a
h
S
d
n
E
r
a
e
Y
)
1
(
$
e
c
i
r
p
f
e
r
o
e
b
(
T
A
P
N
l
t
a
i
r
e
a
m
y
l
l
i
a
u
d
v
d
n
i
i
m
$
)
s
m
e
t
i
800
600
400
200
0
40
30
20
10
-
r
e
P
s
d
n
e
d
v
D
i
i
s
t
n
e
c
e
r
a
h
S
)
1
(
d
e
r
a
c
e
d
l
2005 2006 2007 2008 2009
EPS (before IMI)
Year End Share price
2005 2006 2007 2008 2009
NPAT (before IMI)
DPS (declared)
TSR ( 3 Year Compound per annum) and
Year End Share price
r
a
e
Y
3
(
R
S
T
)
1
(
%
)
a
p
d
n
u
o
p
m
o
C
100
80
60
40
20
0
6
5
4
3
2
1
-
e
c
i
r
p
e
r
a
h
S
d
n
E
r
a
e
Y
)
1
(
$
2005 2006 2007 2008 2009
TSR (3 Year Compound pa)
Year End Share price
IPL 3 Year Share Price Performance versus ASX200
1/10/06 to 30/9/09
6
0
/
0
1
/
1
:
0
0
1
:
x
e
d
n
I
800
700
600
500
400
300
200
100
-
Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
IPL share price
ASX200 Index
(1) For years 2005, 2006, 2007 and 2008 indices have been restated as a result of the 20:1 share split approved by shareholders in September
2008.
Incitec Pivot Limited
19
Directors’ Report
Remuneration Report
C. Managing Director & Chief Executive Officer’s Employment Arrangements and Remuneration
Managing Director & CEO – Mr J Fazzino
James Fazzino was appointed as Acting CEO on 8 May 2009. He was appointed as Managing Director & CEO on 29 July 2009.
The terms of Mr Fazzino’s appointment as Managing Director & CEO are set out in a single contract of service dated
29 July 2009.
The agreement provides that Mr Fazzino may terminate his employment on six months’ notice. The Company may terminate
Mr Fazzino’s employment:
(cid:159)
immediately for cause, without payment of any separation payment, save as to accrued fixed annual remuneration,
accrued annual leave and long service leave;
(cid:159)
otherwise, without cause, with or without notice, in which case the Company must pay a separation payment plus accrued
fixed annual remuneration, accrued annual leave and long service leave.
The separation payment will be equal to 52 weeks of fixed annual remuneration as at the date of termination.
The details of his remuneration are as follows:
(cid:159)
Fixed Annual Remuneration
Mr Fazzino’s fixed annual remuneration is $1,800,000, reviewed annually each January having regard to Incitec Pivot’s
executive remuneration policy. For the 2009/10 financial year, there will be no change to Mr Fazzino’s fixed annual
remuneration.
On Mr Fazzino being appointed as Acting CEO, in recognition of his additional duties and responsibilities as Acting CEO,
he became entitled to a cash payment of $325,000 gross, subject to him remaining in employment to 30 September 2009
and Incitec Pivot’s cumulative TSR over the three years to 30 September 2009 being greater than 20%.
(cid:159)
Short Term Incentive
Mr Fazzino is eligible to participate in Incitec Pivot’s STI.
Mr Fazzino’s STI opportunity is 50% 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 2008/09 financial
year is $347.8m, down 46.3% or $299.7m on the 2007/08 result, Mr Fazzino was not awarded a STI payment for the
period 1 October 2008 to 30 September 2009.
For the 2009/10 financial year, Mr Fazzino’s STI opportunity is 50% of fixed annual remuneration up to a maximum of
100% of fixed annual remuneration for over performance against specified measures.
Further details of the STI are set out in section B of this remuneration report.
(cid:159)
Long Term Incentive
Mr Fazzino’s LTI opportunity is 50% of fixed annual remuneration up to a maximum of 100% of fixed annual remuneration
for over performance against specified measures over a three year period. Mr Fazzino currently participates in the
following LTIs which continued on his appointment as Managing Director & CEO:
-
-
-
LTI performance plan 2006/09 in respect of which Mr Fazzino is the holder of 472,880 shares in the Company;
LTI performance plan 2007/10 in respect of which Mr Fazzino is the holder of 137,240 shares in the Company; and
LTI performance rights plan 2008/11 pursuant to which Mr Fazzino was issued 222,482 Performance Rights as
approved by shareholders at the 2008 Annual General Meeting held on 19 December 2008.
Under the LTI performance plan 2006/09, the performance measure was based on the Absolute TSR for the three year
performance period to 30 September 2009. The stretch performance measure was for Absolute TSR to be at least 20%
per annum compounded over the three years. As the Absolute TSR is 42.2% per annum compounded over the three
years, 111% higher than the TSR stretch performance measure, Mr Fazzino has received an LTI award by way of loan
forgiveness in respect of the three year performance period ended 30 September 2009.
Further details of the LTIs are set out in section B of this remuneration report.
20
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 Fazzino, 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
LTI Plan
Fixed annual 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 Brinker, 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 Brinker, 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.
Participation is at the Board’s discretion. For all executives other than Mr Brinker, the LTI opportunity
is 50% of fixed annual remuneration up to a maximum of 100% of fixed annual remuneration for over
performance against specified measures. For Mr Brinker, the LTI opportunity is 40% of fixed annual
remuneration, up to a maximum of 80% of fixed annual remuneration for over performance against
specified measures.
Termination by Incitec Pivot
Incitec Pivot may terminate the service agreements:
(cid:159)
immediately for cause, without payment of any separation sum, save as to accrued fixed annual
remuneration, accrued annual leave and long service leave;
(cid:159) on notice in the case of incapacity, and the Company must pay a separation payment plus
accrued fixed annual remuneration, accrued annual leave and long service leave;
(cid:159) otherwise, without cause, with or without notice and the Company must pay a separation payment
plus accrued fixed annual remuneration, accrued annual leave and long service leave.
The amount of a separation payment is calculated on a ‘capped’ number of weeks and, in the case of
Mr Walsh, is determined having regard to the length of his prior service with the Orica group, and is as
follows for each executive:
Current Fixed Annual
Remuneration
Number of Weeks
Separation
Payment
Mr Gary Brinkworth
Mr Don Brinker
Mrs Kerry Gleeson
Mr Alan Grace
Mr Kevin Lynch (2)
Mr Jamie Rintel
Mr Bernard Walsh
Mr James Whiteside
Mr Frank Micallef (3)
$’000
420
1,061 (1)
594
486
594
420
648
486
660
26.0 weeks
52.0 weeks
26.0 weeks
26.0 weeks
26.0 weeks
26.0 weeks
61.81 weeks
45.41 weeks
26.0 weeks
$’000
210
1,061
297
243
297
210
770
424
330
Termination by executive
An executive may terminate his/her employment on 13 weeks’ notice (save for Mr Grace who may
terminate on 8 weeks’ notice and Mr Brinker who may terminate without notice) and the Company may
require the executive to serve out the notice period or may make payment in lieu.
Details of the nature and amount of each element of remuneration of the executives are included in table D.4.
(1) US$ converted to A$ at an average exchange rate for the year ended 30 September 2009 of 0.73212.
(2)
In October 2009, Mr Lynch resigned from the position of General Manager Human Resources and ceased employment with the Company
on 16 October 2009.
(3) On 23 October 2009, Mr Frank Micallef was appointed Chief Financial Officer and his current fixed annual remuneration and STI and LTI
participation is as specified in the table above.
Incitec Pivot Limited
21
Directors’ Report
Remuneration Report
D.2 Grants of STI payments
No executives were awarded STI payments under the 2008/09 STI.
D.3 Grants of LTI Plan awards
For the year ended 30 September 2009, the Absolute TSR is 42.2% per annum compounded over the three years ended 30
September 2009, and is 111% higher than the TSR stretch performance measure of 20% per annum compounded established
in 2006. Accordingly, each of Mr Fazzino, Mrs Gleeson, Mr Grace, Mr Rintel, Mr Walsh and Mr Whiteside were granted awards
in full for their respective maximum LTI opportunities under the LTI performance plan 2006/09. For each of the executives
referred to above, the balance of the loan not forgiven, which will equal the fringe benefits tax amount on the loan, must be
repaid by the executive by 31 March 2010.
22
Incitec Pivot Limited
Directors’ Report
Remuneration Report
D.4 Executives’ remuneration
For details of remuneration paid to executives and their employment arrangements refer also to sections C, D.1, D.2 and D.3 of
this remuneration report.
For the year ended 30 September 2009
Short-term benefits
Post-
employment
benefits
Other long term
benefits (D)
Termination
benefits
Share-based
payments
Short Term
Incentive &
other
bonuses (A)
Salary &
Fees
Other Short
Term
benefits (B)
Superannuation
benefits
Value of
shares &
rights
(treated as
options) (C)
Year
$000
$000
$000
$000
$000
$000
$000
Proportion of
remuneration
performance
related
Value of
shares &
rights (treated
as options) as
proportion of
remuneration
Total
$000
%
%
Executive
- Current
J E Fazzino (1)
Managing Director &
Chief Executive Officer
2009
2008
1,559
842
K J Gleeson
General Counsel & Company
Secretary
2009
2008
569
489
-
950
-
440
-
432
-
360
-
-
-
-
-
2
2
5
2009
2008
622
537
2009
2008
463
394
2009
2008
463
394
-
360
14
20
2009
2008
569
333
-
440
86
-
2009
2008
389
112
-
280
132
-
B C Walsh
General Manager - Global
Manufacturing
A Grace
General Manager
- Major Projects
J Whiteside
General Manager - Supply
Chain & Trading
K Lynch
General Manager - Human
Resources
J Rintel
General Manager - Strategy
& Business Development
D Brinker (2)
General Manager - Explosives
2009
2008
1,040
248
-
701
244
49
G Brinkworth (3)
General Manager –
Incitec Pivot Fertilisers
- Former
2009
2008
353
-
-
-
-
-
J Segal (4)
Managing Director & CEO
2009
2008
1,070
1,512
-
1,700
9
9
315
137
61
-
31
86
14
32
19
55
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
449
268
2,337
2,210
282
169
926
1,111
313
188
980
1,258
209
126
702
930
220
132
730
974
47
21
55
10
716
803
590
407
52
14
1,391
1,019
9
-
375
-
43
138
168
-
457
786
1,756
4,158
19%
55%
30%
55%
32%
49%
30%
52%
30%
50%
7%
57%
9%
71%
4%
24%
2%
0%
26%
60%
0%
40%
14
13
14
13
14
13
14
13
14
13
14
9
14
5
55
7
13
-
9
13
3
13
-
13
19%
12%
30%
15%
32%
15%
30%
14%
30%
14%
7%
3%
9%
2%
4%
4%
2%
0%
26%
19%
0%
6%
0%
17%
20%
14%
P Barber (5)
General Manager - Australian
Fertilisers
D A Roe (6)
General Manager - Business
Development
Total Executive
2009
2008
90
355
-
295
93
147
2009
2008
-
367
-
320
-
-
-
-
-
20
-
-
-
-
-
55
186
865
-
150
-
870
0%
54%
2009
2008
7,187
5,583
-
6,278
580
232
178
125
483
468
168
-
2,093 10,689
1,919 14,605
20%
54%
Incitec Pivot Limited
23
Directors’ Report
Remuneration Report
(A) No executives were awarded STI payments under the 2008/09 STI.
(B) Other short term benefits include the taxable value of fringe benefits paid attributable to the FBT year (2009: 1 April 2008 to 31 March
2009) (2008: 1 April 2007 to 31 March 2008), 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) External valuation advice from PricewaterhouseCoopers has been used to determine the fair value of these shares and rights, treated as
options, at grant date. For shares and rights, treated as options, 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 or right 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 or right treated as an option. The fair value has been allocated evenly over the performance
period. The value disclosed in table D.4 represents the portion of fair value allocated to this reporting period. The LTI performance cash
plan 2008/11, contains similar conditions as the LTI performance rights plan 2008/11, the exception being that the entitlements are settled
in cash and were valued at 31 March 2009.
Refer to section B of this remuneration report for further details of the LTI performance plan 2006/09, the LTI performance plan 2007/10,
the LTI performance rights plan 2008/11, the LTI performance cash plan 2008/11 and LTIs generally.
The terms and conditions of each grant affecting remuneration in this or future reporting periods are as follows:
Grant date
Vesting date
Fair Value per share or right
treated as option at grant date
Date
exercisable
1/12/2006
30/09/2009
$0.83 (ii)
From 1/10/2009 (i)
Exercise
Price
$1.21(ii)
12/11/2007
30/09/2010
$1.94 (ii)
From 1/10/2010 (i)
$4.41(ii)
19/12/2008
30/09/2011
$0.30
From 1/10/2011
19/12/2008
30/09/2011
$0.13 (iii)
From 1/10/2011
$nil
$nil
LTI performance plan
2006/09
LTI performance plan
2007/10
LTI performance
rights plan 2008/11
LTI performance
cash plan 2008/11
The number of shares and rights, treated as options for the purposes of remuneration, held by each executive director and executive is
detailed in section E of this remuneration report and Note 35 to the financial report.
(i)
(ii)
(iii)
Shares restricted until such time as the loan is repaid. Under the LTI performance plan 2006/09, the loan must be repaid
by a “sunset date” which has been determined as 31 March 2010. Under the LTI performance plan 2007/10, the loan must
be repaid by 31 December 2010.
Amounts have been restated as a result of the 20:1 share split approved by shareholders in September 2008.
Fair value calculated as at 31 March 2009.
For 2009, the share-based payment remuneration includes, in respect of those executives who were participants in the LTI interim
performance plan 2006/08, a true-up amount relating to the fact that awards granted under the plan were greater than the expense
calculated using the Black-Scholes option pricing model for the plan period.
(D) Other long term benefits represents long service leave accrued during the reporting period.
(1) Mr Fazzino was appointed as Managing Director & CEO during the financial year (refer to section C).
(2) For the financial year, US$ converted to A$ at an average exchange rate of 0.7321 (2008: 0.9046). For Mr Brinker, share-based
payments includes $9,000 in relation to the LTI performance cash plan 2008/11 (2008: $nil).
(3) Mr Brinkworth was appointed as an executive during the financial year. These disclosures are from his appointment date,
17 November 2008.
(4) On 8 May 2009, Mr Segal ceased to be employed by the Company. These disclosures are from 1 October 2008 to that date. On his
resignation from the Company, in accordance with his Service Agreement, Mr Segal received his accrued entitlements for salary and long
service leave, his retention award granted to him in 2006 and a payment of $168,000 in relation to relocation expenses. In addition, Mr
Segal continues to hold 1,120,020 shares acquired for him in 2006 under the LTI performance plan 2006/09 subject to the existing holding
lock over those shares. In accordance with the rules of this plan, Mr Segal became entitled to an award in full on the achievement of the
TSR stretch performance measure, pro rata to his employment during the period.
(5) On 31 December 2008, Mr Barber ceased to be employed by the Company. These disclosures are from 1 October 2008 to that date.
(6) At 30 September 2008, Mr Roe ceased to be a member of the Executive Team.
24
Incitec Pivot Limited
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 E Fazzino
- Former
J Segal
Executives
- Current
K J Gleeson
B C Walsh
A Grace
J Whiteside
K Lynch
J Rintel
D Brinker
G Brinkworth
- Former
P Barber
- STI
- STI
- STI
- STI
- STI
- STI
- STI
- STI
- STI
- STI
- STI
Short term incentive
Included in
remuneration
$000
% vested in
year
% forfeited
in year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Incitec Pivot Limited
25
Directors’ Report
Remuneration Report
E. Equity instruments
E.1 Shares and rights treated as options over equity instruments granted as remuneration
Details of the shares and rights, treated as options, that were granted to each Key Management Person and those that vested
during the reporting period are set out in the following table and further details are also set out in sections B and C:
For the year ended 30 September 2009
Grant date
Granted during
2009 as
remuneration (A)
Vested during
2009 (B)
Number
Number
Key Management Personnel
Executive Directors
- Current
J E Fazzino
Performance Rights Plan 2008/11
Performance Plan 2006/09
19 December 2008
1 December 2006
222,482
-
Performance Rights Plan 2008/11
Retention Award
Performance Plan 2006/09
19 December 2008
5 July 2006
1 December 2006
597,190
-
-
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Cash Plan 2008/11
Performance Plan 2006/09
Performance Rights Plan 2008/11
Performance Plan 2006/09
19 December 2008
1 December 2006
19 December 2008
1 December 2006
19 December 2008
1 December 2006
19 December 2008
1 December 2006
19 December 2008
1 December 2006
19 December 2008
1 December 2006
19 December 2008
1 December 2006
19 December 2008
1 December 2006
128,806
-
140,515
-
105,386
-
105,386
-
128,806
-
81,967
-
207,738
-
98,361
-
-
472,880
-
651,940
1,120,020
-
298,660
-
331,840
-
217,360
-
232,300
-
-
-
52,260
-
-
-
-
- Former
J Segal (1)
Executives
- Current
K J Gleeson
B C Walsh
A Grace
J Whiteside
K Lynch (2)
J Rintel (3)
D Brinker (4)
G Brinkworth (2)
Executives
- Former
P Barber (5)
Performance Rights Plan 2008/11
Performance Plan 2006/09
19 December 2008
1 December 2006
-
-
-
-
(A) For the 2008/09 financial year, this refers to the number of rights, treated as options, allocated to the participating executive or
participating executive director during the reporting period.
(B) For the 2008/09 financial year, this refers to the number of shares, treated as options, that vested during the reporting period.
(1) On 8 May 2009, Mr Segal ceased employment with the Company. In respect of the 651,940 shares granted to Mr Segal in 2006 as a
retention award, the shares vested during the financial year and the loan for $722,000 applied in the purchase of those shares on market
was forgiven in full. In respect of the shares, treated as options, granted under the LTI performance plan 2006/09, Mr Segal was granted
an award at his maximum LTI opportunity under the LTI performance plan 2006/09 pro rata to his employment during the performance
period. In respect of the rights, treated as options, granted to Mr Segal under the LTI performance rights plan 2008/11, these were
forfeited in accordance with the applicable plan rules on Mr Segal ceasing employment.
(2) Mr Lynch was appointed as an executive during the 2007/08 financial year and Mr Brinkworth was appointed as an executive during the
2008/09 financial year and they are not participants in the LTI performance plan 2006/09.
(3) Mr Rintel was appointed as an executive during the 2007/08 financial year and the shares, treated as options, granted under the LTI
performance plan 2006/09 were granted prior to his appointment as an executive.
26
Incitec Pivot Limited
Directors’ Report
Remuneration Report
(4) Mr Brinker was appointed as an executive during the 2007/08 financial year and is not a participant in the LTI performance plan 2006/09.
Mr Brinker is the only Key Management Person participating in the LTI performance cash plan 2008/11.
(5) Mr Barber was appointed as an executive during the 2007/08 financial year and was not a participant in either the LTI performance plan
2006/09 or the LTI performance rights plan 2008/11.
In respect of the LTI performance plan 2006/09, the number of shares, treated as options, has been restated as a result of the 20:1 share split
approved by shareholders in September 2008.
In respect of the shares and rights that are treated as options for the purposes of remuneration, 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 35 and 36 to the financial report:
(cid:159)
(cid:159)
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
Other than the extension of the sunset date (being the loan repayment date) from 31 December 2009 to 31 March 2010 under
the LTI performance plan 2006/09, no terms of equity-settled share-based payment transactions (including shares and rights
which are treated as options) granted to a Key Management Person have been altered or modified by the issuing entity during
the reporting period or the prior period.
Incitec Pivot Limited
27
Directors’ Report
Remuneration Report
E.3 Analysis of shares and rights treated as options over equity instruments granted as remuneration
Details of the vesting profile of the shares and rights, treated as options, granted as remuneration to each executive director and
each of the named executives is detailed below:
Grant date
Number granted
% Vested
in year
% Forfeited
in year (A)
Financial year
in which grant
vests
Key Management Personnel
Executive Directors
- Current
J E Fazzino
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
- Former
J Segal (1)
Executives
- Current
K J Gleeson
B C Walsh
A Grace
J Whiteside
K Lynch (2)
J Rintel (3)
D Brinker (4)
Retention Award
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2007/10
Performance Cash Plan 2008/11
G Brinkworth (5) Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
1 December 2006
12 November 2007
19 December 2008
5 July 2006
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
1 December 2006
12 November 2007
19 December 2008
472,880
137,240
222,482
651,940
1,120,020
361,200
597,190
298,660
86,680
128,806
331,840
96,320
140,515
217,360
67,420
105,386
232,300
67,420
105,386
-
53,240
128,806
52,260
15,160
81,967
-
66,680
207,738
-
-
98,361
100%
-
-
100%
100%
-
-
100%
-
-
100%
-
-
100%
-
-
100%
-
-
-
-
-
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
100%
100%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Executives
- Former
P Barber (6)
Performance Plan 2006/09
Performance Plan 2007/10
Performance Rights Plan 2008/11
1 December 2006
12 November 2007
19 December 2008
-
84,280
-
-
-
-
-
100%
-
2009
2010
2011
2009
2009
2010
2011
2009
2010
2011
2009
2010
2011
2009
2010
2011
2009
2010
2011
-
2010
2011
2009
2010
2011
-
2010
2011
-
-
2011
-
2010
-
(A) The percentage forfeited in the year represents:
(i)
in the case of rights treated as options, the reduction from the maximum number of rights available to vest due to the performance
criteria not being achieved; and
(ii) in the case of shares treated as options, 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.
28
Incitec Pivot Limited
Directors’ Report
Remuneration Report
(1) On 8 May 2009, Mr Segal ceased employment with the Company. In respect of the 651,940 shares granted to Mr Segal in 2006 as a
retention award, the shares vested during the financial year and the loan for $722,000 applied in the purchase of those shares on market
was forgiven in full. In respect of the shares, treated as options, granted under the LTI performance plan 2006/09, Mr Segal was granted
an award at his maximum LTI opportunity under the LTI performance plan 2006/09 pro rata to his employment during the performance
period. In respect of the shares, treated as options, granted under the LTI performance plan 2007/10 and the rights, treated as options,
granted under the LTI performance rights plan 2008/11, these were forfeited in accordance with the applicable plan rules on Mr Segal
ceasing employment.
(2) Mr Lynch’s employment commenced on 18 February 2008 and he was not a participant in LTI performance plan 2006/09.
(3) Mr Rintel’s shares, treated as options, were granted under the LTI performance plan 2007/10 and the LTI performance plan 2006/09 prior
to his appointment as an executive.
(4) Mr Brinker’s employment commenced on 1 June 2008 and he is not a participant in the LTI performance plan 2006/09. Mr Brinker is the
only Key Management Person participating in the LTI performance cash plan 2008/11.
(5) Mr Brinkworth’s employment commenced on 17 November 2008 and he is not a participant in either the LTI performance plan 2006/09 or
the LTI performance plan 2007/10.
(6) Mr Barber’s employment commenced on 10 September 2007 and he was not a participant in the LTI performance plan 2006/09. In
respect of the shares, treated as options, granted under the LTI performance plan 2007/10, these were forfeited in accordance with the
rules of the plan on Mr Barber ceasing employment. In respect of the LTI performance rights plan 2008/11, Mr Barber was not a
participant in this plan.
In respect of the LTI performance plan 2006/09 and the LTI performance plan 2007/10, the number of shares, treated as options, have been
restated as a result of the 20:1 share split approved by shareholders in September 2008.
The minimum value of shares and rights 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. This does not apply to shares, which are treated as options, that vested during the reporting period.
The maximum value of shares and rights which are treated as options yet to vest is not determinable as it depends on the market price of the
Company’s shares on the ASX at the date of exercise. This does not apply to shares or rights, which are treated as options, that vested during
the reporting period.
Incitec Pivot Limited
29
Directors’ Report
Remuneration Report
E.4 Analysis of movements in shares and rights treated as options
The movement during the reporting period, by value, of shares and rights, 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 2009
Grant date
Key Management Personnel
Executive Directors
- Current
J E Fazzino
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
19 December 2008
1 December 2006
17 November 2006
- Former
J Segal (1)
Executives
- Current
Performance Rights Plan 2008/11
Performance Plan 2007/10
Performance Plan 2006/09
Retention Award
19 December 2008
12 November 2007
1 December 2006
5 July 2006
K J Gleeson
Performance Rights Plan 2008/11
B C Walsh
A Grace
J Whiteside
K Lynch (2)
J Rintel (3)
D Brinker (4)
G Brinkworth (5)
- Former
P Barber (6)
Performance Plan 2006/09
Performance Plan 2006/08
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
Performance Cash Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
Performance Rights Plan 2008/11
Performance Plan 2006/09
Performance Plan 2006/08
19 December 2008
1 December 2006
17 November 2006
19 December 2008
1 December 2006
17 November 2006
19 December 2008
1 December 2006
17 November 2006
19 December 2008
1 December 2006
17 November 2006
19 December 2008
1 December 2006
17 November 2006
19 December 2008
1 December 2006
17 November 2006
19 December 2008
1 December 2006
17 November 2006
19 December 2008
1 December 2006
17 November 2006
Performance Rights Plan 2008/11
Performance Plan 2007/10
Performance Plan 2006/09
Performance Plan 2006/08
19 December 2008
12 November 2007
1 December 2006
17 November 2006
Granted during 2009
as remuneration (A) Vested in year (B) Forfeited in year (C)
$000
$000
$000
Exercised in year
(D)
$000
67
-
-
179
-
-
-
39
-
-
42
-
-
32
-
-
32
-
-
39
-
-
25
-
-
27
-
-
30
-
-
-
-
-
-
-
305
-
-
-
627
722
-
193
-
-
214
-
-
140
-
-
150
-
-
-
-
-
34
-
-
-
-
-
-
-
-
-
-
-
-
-
-
179
802
95
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
187
-
-
-
-
305
-
-
-
722
-
-
193
-
-
214
-
-
140
-
-
150
-
-
-
-
-
34
-
-
-
-
-
-
-
-
-
-
(A) The value of rights, treated as options, granted in the year is the fair value of those rights calculated at grant date using a binominal
option-pricing model. The value of these rights is included in the table above. This amount is allocated to the remuneration of the
applicable executive over the vesting period (i.e. in financial years 2009 to 2011 for the LTI performance rights plan 2008/11).
(B) The value of shares, treated as options, that vested during the year represents awards (in the form of waivers of loans) to the applicable
executives who satisfied the criteria under the LTI performance plan 2006/09.
(C) The value of the shares and rights, treated as options, that lapsed during the year represents the benefit foregone and is calculated at the
date they lapsed.
(D) The value of shares, treated as options, exercised during the year 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
granted in relation to the LTI interim performance plan 2006/08 and, for Mr Segal, in relation to his retention award.
30
Incitec Pivot Limited
Directors’ Report
Remuneration Report
(1) On 8 May 2009, Mr Segal ceased employment with the Company. In respect of the 651,940 shares granted to Mr Segal in 2006 as a
retention award, the shares vested during the financial year and the loan for $722,000 applied in the purchase of those shares on market
was forgiven in full. In respect of the shares, treated as options, granted under the LTI performance plan 2006/09, Mr Segal was granted
an award at his maximum LTI opportunity under the LTI performance plan 2006/09 pro rata to his employment during the performance
period. In respect of the shares, treated as options, granted under the LTI performance plan 2007/10 and the rights, treated as options,
granted under the LTI performance rights plan 2008/11, these were forfeited in accordance with the applicable plan rules on Mr Segal
ceasing employment.
(2) Mr Lynch’s employment commenced on 18 February 2008 and he was not a participant in either the LTI performance plan 2006/09 or the
LTI interim performance plan 2006/08.
(3) Mr Rintel’s shares, treated as options, were granted under the LTI performance plan 2006/09 and the LTI interim performance plan
2006/08 prior to his appointment as an executive.
(4) Mr Brinker’s employment commenced on 1 June 2008 and he is not a participant in either the LTI performance plan 2006/09 or the LTI
interim performance plan 2006/08. Mr Brinker is the only Key Management Person participating in the LTI performance cash plan
2008/11.
(5) Mr Brinkworth’s employment commenced on 17 November 2008 and he is not a participant in either the LTI performance plan 2006/09 or
the LTI interim performance plan 2006/08.
(6) Mr Barber’s employment commenced on 10 September 2007 and he was not a participant in either the LTI performance plan 2006/09 or
the LTI interim performance plan 2006/08. In respect of the shares, treated as options, granted under the LTI performance plan 2007/10,
these were forfeited in accordance with the rules of the plan on Mr Barber ceasing employment. In respect of the LTI performance rights
plan 2008/11, Mr Barber was not a participant in this plan.
Incitec Pivot Limited
31
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 principles which the Board sees as fundamental to the Company’s continued growth and
success and the achievement of its corporate ambition and strategy.
The Board continues to review its corporate governance framework and practices to ensure they meet the interests of
shareholders and are consistent with the ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations (2nd edition, 2007) (ASX Recommendations).
This corporate governance statement outlines the key aspects of the Company’s corporate governance framework. This
statement is structured and numbered in the order of the Principles set out in the ASX Recommendations. It includes
cross-references to other relevant information in this report and the Company’s charters, policies and codes, details of which are
available on the Company’s website, www.incitecpivot.com.au.
The Board considers that Incitec Pivot’s corporate governance framework and practices have complied with the ASX
Recommendations throughout the year ended 30 September 2009.
Summaries or copies of the charters, policies and codes referred to in this statement are available on the corporate governance
section of Incitec Pivot’s website, www.incitecpivot.com.au.
Principle 1: Lay solid foundations for management and oversight
Role of the Board and management
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 and 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 the Company.
The Board operates in accordance with the broad principles set out in its Board Charter. A copy of the Board Charter is
available on the corporate governance section of the Company’s website, www.incitecpivot.com.au. 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.
The Board Charter has specifically reserved a number of key matters for consideration and decision by the Board. These
responsibilities include:
(cid:159)
(cid:159)
(cid:159)
Direction and objectives – approving the Company’s corporate strategy and 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:159) 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 Board Charter, the Board undertakes an annual performance evaluation, comparing its
performance against its Charter, setting objectives and effecting any improvements to the Charter.
To assist the Board in meeting its responsibilities, the Board currently has the following three Committees:
(cid:159)
(cid:159)
(cid:159)
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.
Each of these Committees has its own Charter which establishes the Committee’s terms of reference and operating procedures.
In line with the Board 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. Further information about the
governance framework and activities of the Committees is set out below.
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
32
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
delegated to the Managing Director & CEO, including the limits on the way in which the Managing Director & CEO can exercise
that authority. A summary of the Delegated and Reserved Powers Policy is set out on the corporate governance section of the
Company’s website, www.incitecpivot.com.au.
Management performance evaluation
As part of the Board’s oversight of senior management, 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 policy in relation to executive
remuneration is set out in section B of the remuneration report on page 14.
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.
The executive performance evaluations for the 2008 financial year were conducted in November 2008 in accordance with the
process outline above. Performance evaluations for the 2009 financial year are being conducted in the final quarter of the 2009
calendar year.
Principle 2: Structure the Board to add value
Composition of the Board
Incitec Pivot’s Constitution requires that the Company must have not less than three and no more than nine directors. Under the
Company’s Board Charter, the number of directors and composition of the Board is determined having regard to what is
appropriate for Incitec Pivot to achieve efficient and prudent decision making. The Board will consist of a majority of
non-executive, independent directors.
The Board comprises six directors, including five non-executive directors and one executive director (being the Managing
Director & CEO). The Company engages all non-executive directors by a letter of appointment setting out the key terms and
responsibilities of their role.
John Watson and Allan McCallum were each appointed as directors by the shareholders on 15 December 1997, Anthony Larkin
was appointed as a director on 1 June 2003, James Fazzino on 18 July 2005, John Marlay on 20 December 2006 and Graham
Smorgon was appointed to the Board by the directors on 19 December 2008.
Incitec Pivot aims to have directors with an appropriate range of skills, experience and expertise and an understanding of and
competence to deal with current and emerging issues in the Company’s business. Incitec Pivot’s succession plans are designed
to maintain an appropriate balance of skills, experience and expertise on the Board.
In these respects, 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 7 of this report.
The ASX Listing Rules 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.
Mr Anthony Larkin is retiring by rotation and standing for re-election at the 2009 Annual General Meeting. Mr Graham Smorgon,
who was appointed by the Board to fill a casual vacancy on 19 December 2008, will stand for re-election at the 2009 Annual
General Meeting.
The Managing Director & CEO serves as a director until he ceases to be the Managing Director & CEO.
Incitec Pivot Limited
33
Directors’ Report
Corporate Governance Statement
The roles of Chairman and Managing Director & CEO are separate.
The Board’s role is assisted by the Company Secretary. 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 that Board procedures and the
Constitution are complied with. The Board appoints and removes the Company Secretary and the Company Secretary is
accountable to the Board, through the Chair, on all governance matters.
Board meetings
Details of the Board meetings held during the 2008/09 financial year are set out on page 8 of this report.
The Board holds 10 scheduled meetings during each 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 agendas 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 meeting. Presentations to the Board are frequently made by executives and senior management, and
telecommunications technologies may be used to facilitate participation.
Director independence
The Board comprises a majority of independent non-executive directors.
The Board, excluding the director in question, will regularly assess the independence of each director, in light of any interest
disclosed by them. The Board considers all of the circumstances relevant to a director in determining whether the director is
independent and free from any interest, relationship or matter which could, or may reasonably be expected to, interfere with the
director’s ability to act in the best interests of the Company. A range of factors is considered by the Board in assessing the
independence of its directors, including those set out in the ASX Recommendations.
In assessing the independence of a director, consideration is given to the underlying purpose behind any relationship a director
may have with a third party that is identified as relevant to the assessment 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:159)
(cid:159)
(cid:159)
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, Allan McCallum, Anthony Larkin, John Marlay and Graham Smorgon are
independent when assessed on the criteria above, taking into account all the relevant interests, matters and relationships of the
particular director. As Managing Director & CEO of the Company, James Fazzino is not considered to be an independent
director. In summary, of the six directors, the Board considers five directors are independent.
The Board Charter requires that an independent non-executive director hold the position of Chairman.
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.
Remuneration and Appointments Committee
The Remuneration and Appointments Committee has a Charter approved by the Board. A copy of the Charter for the
Remuneration and Appointments Committee is available on the corporate governance section of the Company’s website,
www.incitecpivot.com.au. Under its Charter, the Committee:
(cid:159)
34
nominations and 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
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
(cid:159)
remuneration – assists and advises the Board on remuneration policy for the Board, the Managing Director & CEO,
executives, senior management and other employees, for such to be designed to enable Incitec Pivot to attract, retain and
motivate its people to create value for shareholders.
In relation to Board nominations and appointments, under the Board Charter, the process of selection and appointment of new
directors to the Board is that, when a vacancy arises, the Remuneration and Appointments Committee identifies candidates with
appropriate skills, experience and expertise. In turn, under the Remuneration and Appointments Committee Charter, candidates
with the skills, experience and expertise that best complement the Board’s effectiveness are recommended to the Board. When
the Board considers that a suitable candidate has been found, that person is appointed by the Board to fill a casual vacancy in
accordance with Incitec Pivot’s constitution, however must stand for re-election by shareholders at the next annual general
meeting.
The Committee, which formerly comprised all non-executive directors, was reconstituted on 5 September 2008 to comprise
three independent non-executive directors, being John Watson, Allan McCallum and John Marlay, 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 2009 is set out on page 8 of this report.
Health, Safety, Environment and Community Committee
The Health, Safety, Environment and Community Committee has a Charter approved by the Board. A copy of the Charter is
available on the corporate governance section of the Company’s website, www.incitecpivot.com.au. 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 James Fazzino.
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 2009
is set out on page 8 of this report.
Performance evaluations
Incitec Pivot recognises the importance of regular performance evaluations of its directors. Assessment of individual directors’
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 September 2009 by way of self-assessment of the Board’s
role, structure and processes, as well as the Board’s performance in meeting its responsibilities. The outcomes of that review
are included in the 2009/10 objectives for the Board and will be implemented throughout the Company’s 2009/10 financial year.
In addition, one-on-one interviews occurred between each director and the Chairman. For the director who is retiring by rotation
and standing for re-election at the 2009 Annual General Meeting, Mr Anthony Larkin, his performance was reviewed as part of
his nomination for re-election. For Mr Graham Smorgon, who is retiring, having been appointed by the Board in 2008, and is
standing for re-election at the 2009 Annual General Meeting, his performance was reviewed as part of his nomination for
re-election.
The Remuneration and Appointments Committee is responsible for developing and reviewing induction procedures for new
appointees to the Board to enable them to effectively discharge their duties. Additionally, the Committee ensures that
continuous education measures are in place to enhance director competencies, keep directors up to date and enhance
directors’ knowledge and skills.
Principle 3: Promote ethical and responsible decision-making
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 designed to ensure ethical conduct is maintained in the interests of shareholders and other
stakeholders.
Incitec Pivot Limited
35
Directors’ Report
Corporate Governance Statement
In particular, Incitec Pivot’s key codes of conduct, copies of which are available on the corporate governance section of the
Company’s website, www.incitecpivot.com.au, are:
•
•
•
Incitec Pivot’s Code of Ethics – Compliance Policies and Guide, which is a code of conduct for all employees. The Code’s
key principles require employees to comply with the letter and spirit of the laws affecting Incitec Pivot’s business, as well
as the Company’s policies and codes; to act honestly and with integrity, and to strive to earn and maintain the respect and
trust of co-employees, customers and the wider community; to use Incitec Pivot’s resources, including information
systems, in an appropriate and responsible way; and to work safely and with due regard for the safety and well-being of
fellow employees, contractors, customers and all persons affected by Incitec Pivot’s operations or products; to avoid
situations which involve or may involve a conflict between their personal interests and the interests of Incitec Pivot; to
have due regard for cultural diversity in the workplace; and to respect the environment and ensure that work activities are
managed in an acceptable manner so as to give benefit to society.
Incitec Pivot’s Code of Conduct for Directors and Senior Management, which sets out additional ethical standards for
directors and senior management reporting to the Managing Director & CEO.
Incitec Pivot’s Health, Safety, Environment & Community Policy, which sets out the Company’s commitment to the
Company’s values of “Zero Harm for Everyone, Everywhere” and “Care for the Community and our 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.
Employees are encouraged to raise any concerns, including those arising out of activities or behaviour that may not be in
accordance with Incitec Pivot’s Codes of Conduct, any of its other policies, or any other regulatory requirements with
management, the human resources team or the legal and compliance team. Employees can also raise concerns about
breaches of the Company’s regulatory obligations or internal policies or procedures on an anonymous basis through its
whistleblower reporting system. The Company’s Whistleblower Protection Policy protects employees who raise concerns about
suspected breaches of Incitec Pivot’s policies. Incitec Pivot’s whistleblower reporting system meets all relevant Australian
legislative requirements, and Australian Standard AS8004 (Whistleblower Protection Programs for Entities). Reports on the
operation of the system are made to the Audit and Risk Management Committee.
Share ownership and dealing
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. Additionally, ‘designated employees’ must not enter into hedging arrangements
which operate to limit the economic risk of their security holding in Incitec Pivot. In the case of the Company Secretary, she must
notify the Chairman or Managing Director & CEO of the proposed share trading and must also give the same written
confirmation as a ‘designated employee’ to the effect that she is not in possession of price sensitive information.
All directors have entered into agreements with Incitec Pivot under which they agree to provide details of changes in their
notifiable interests in Incitec Pivot’s shares within three business days after the date of change, enabling the ASX to be notified
of any share dealings by a director within five business days of the dealing taking place, as required by the ASX Listing Rules.
The Company’s Share Trading Policy is available on the corporate governance section of Incitec Pivot’s website,
www.incitecpivot.com.au.
Details of shares in the Company held by the directors are set out in Note 35, Key management personnel disclosures.
36
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
Principle 4: Safeguard integrity in financial reporting
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. It also 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), John Marlay and Graham
Smorgon, all of whom are independent non-executive directors.
The qualifications of those directors appointed to the Audit and Risk Management Committee are set out on page 7 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 2009 is set out on page 8 of this report.
The internal and external auditors, the Managing Director & CEO and the 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:159)
(cid:159)
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:159)
(cid:159) Managing Director & CEO and Chief Financial Officer certification – review the certification provided by the Managing
Director & CEO and the Chief Financial Officer on annual and half-yearly reports.
Internal control and risk management
(cid:159)
risk management strategies – receive reports from management concerning the Company’s risk management principles
and policies, and 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;
disclosure – review the form of disclosure to be made in the Annual Report given by the Managing Director & CEO and
Chief Financial Officer as to the effectiveness of the Company’s management of material business risks; and
insurance – monitor the insurance strategy of the Company and recommend approval or variation of insurance policies.
(cid:159)
(cid:159)
(cid:159)
(cid:159)
External audit
(cid:159)
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:159)
(cid:159)
(cid:159)
(cid:159)
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 the 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.
Incitec Pivot Limited
37
Directors’ Report
Corporate Governance Statement
Internal audit
(cid:159)
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:159)
(cid:159)
(cid:159)
(cid:159)
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.
External auditor
The role of the external auditor is to provide an independent opinion that the Company’s financial reports are true and fair and
comply with the applicable regulations.
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 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 23 December 2009, the lead audit partner or appropriate alternates 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.
Principle 5: Make timely and balanced disclosure
The Company is subject to continuous disclosure obligations under the ASX Listing Rules and Corporations Act 2001 (Cth).
Subject to some limited exceptions, under the continuous disclosure requirements, the Company must immediately notify the
market, through ASX, of any information which a reasonable person would expect to have a material effect on the price or value
of the Company’s shares.
To achieve these objectives and satisfy the regulatory requirements, the Board has implemented a Continuous Disclosure
Policy. The Policy aims to ensure the proper and timely disclosure of information to shareholders and the market in
several ways, including:
(cid:159)
(cid:159)
(cid:159)
(cid:159)
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 Corporations Act 2001 (Cth), 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 Policy appoints the Company Secretary as the Continuous Disclosure Officer whose role includes providing
announcements to the ASX and ensuring senior management and employees are kept informed of the Company’s obligations
and the accountability of the Company and its directors, officers and employees for compliance with the disclosure rules.
The Company’s Continuous Disclosure Policy is available on the corporate governance section of Incitec Pivot’s website,
www.incitecpivot.com.au.
38
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
Principle 6: Respect the rights of shareholders
Incitec Pivot is committed to giving all shareholders comprehensive, timely and equal access to information about its activities
so as to enable shareholders to make informed investment decisions and effectively exercise their rights as shareholders.
To achieve these objectives, the Board has adopted a Group Communications Policy. The Policy aims to ensure:
•
•
•
that the Company’s announcements are presented in a factual, clear and balanced way;
that all shareholders have equal and timely access to material information concerning the Company; and
shareholder access to information about, and shareholder participation in, general meetings of the Company.
The Company regularly reviews the methods by which it communicates with shareholders so as to ensure it can make best use
of new technologies to enhance shareholder communication. The Company places all relevant announcements made to the
market, and related information, on the Company’s website after they have been released to the ASX.
The Group Communications Policy is available on the corporate governance section of Incitec Pivot’s website,
www.incitecpivot.com.au.
Principle 7: Recognise and manage risk
Risk oversight and management
Risk is present in all aspects of Incitec Pivot’s business. It has the potential to impact people, the environment, the community
and the reputation, assets and financial performance of the Company. Incitec Pivot is committed to the effective management of
risk, which is central to its continued growth and success and the achievement of the Company’s corporate objective and
strategy.
Incitec Pivot has adopted a Group Risk Policy for the oversight and management of material business risks and manages risk
within a comprehensive risk management process which is consistent with the Australian/New Zealand Standard for Risk
Management (AS/NZS 4360:2004). A key element of this risk management process is the Board’s assessment on risk, which is
based on the level of risk Incitec Pivot is able to sustain in achieving its corporate objective of delivering value to shareholders.
Risks are identified, analysed and prioritised using common methodologies and risk controls are designed and implemented
having regard to the overall corporate strategy.
The risk controls adopted by Incitec Pivot are administered via a Group-wide framework, and include:
•
identifying, evaluating, treating, monitoring, and reporting on material business risks to the Audit and Risk Management
Committee;
the internal audit function;
annual budgeting and monthly reporting systems to monitor performance;
delegations of authority;
guidelines for the authorisation of capital expenditure;
a compliance program supported by approved guidelines and standards covering health, safety and environment, and
regulatory compliance;
policies and procedures for the management of financial risk and treasury operations, including exposures to foreign
currencies and movements in interest rates;
a letter of assurance process to provide assurance from management that all controls are in place and operating
appropriately; and
business continuity plans.
•
•
•
•
•
•
•
•
A summary of the Group Risk Policy is available on the corporate governance section of Incitec Pivot’s website,
www.incitecpivot.com.au.
Risk management roles and responsibilities
The Board is responsible for reviewing and approving the overall management of risk and internal control. The Board monitors
the Company’s risk profile, risks and mitigating strategies primarily through the Audit and Risk Management Committee. The
Audit and Risk Management Committee’s duties with respect to internal control and risk management have been summarised
Incitec Pivot Limited
39
Directors’ Report
Corporate Governance Statement
under the discussion of Principle 4 on page 37 of this report. The Audit and Risk Management Committee and, through it, the
Board, receive regular reports from management on the effectiveness of the Company’s risk management process.
Incitec Pivot has identified the following material business risks, which it has categorised under its Risk Management
Framework as follows:
General Economic and Business Conditions
The current global economic business climate and any sustained downturn in the global, North American or Australian
economy may adversely impact Incitec Pivot’s overall performance. This may affect, among other things, profitability
and demand for fertilisers, industrial chemicals, industrial explosives, and related products and services.
Product price deteriorations could adversely affect Incitec Pivot’s business and financial performance:
- Fertilisers are internationally traded commodities with pricing based on international benchmarks and are
affected by global supply and demand forces, as well as fluctuations in foreign currency exchange rates,
particularly the exchange rate between the Australian dollar and the US dollar.
- Industrial explosives products, particularly ammonium nitrate based explosives, are affected more directly by
supply and demand dynamics in industrial explosives markets, such as quarrying, construction and mining.
The appreciation or depreciation of the Australian dollar against the US dollar may materially affect Incitec Pivot’s
financial performance. A large proportion of Incitec Pivot’s sales are denominated either directly or indirectly in foreign
currencies, primarily the US dollar. In addition, Incitec Pivot also borrows funds in US dollars, and the Australian dollar
equivalent of these borrowings will fluctuate with the exchange rate.
Operational Risks
Incitec Pivot operates manufacturing plants and facilities and is exposed to operational risks associated with the
manufacture, distribution and storage of fertilisers, ammonium nitrate and industrial chemicals and industrial explosives
products and services. These risks include the need for plant reliability and timely and economic supply of adequate
raw materials, such as natural gas, ammonia, phosphate rock, sulphur and sulphuric acid.
Incitec Pivot’s manufacturing and distribution systems are vulnerable to unforeseen human error, equipment
breakdowns, energy or water disruptions, natural disasters and acts of God, sabotage, terrorist attacks, and other
events which may disrupt Incitec Pivot’s operations and materially affect its financial performance. In addition, loss from
such events may not be recoverable in whole or in part under Incitec Pivot’s insurance policies.
A shortage of skilled labour or loss of key personnel could disrupt Incitec Pivot’s business operations or adversely
affect Incitec Pivot’s business and financial performance. Incitec Pivot’s manufacturing plants require skilled operators
drawn from a range of disciplines, trades and vocations. In addition, the loss of services of one or more of Incitec
Pivot’s senior management could impede execution of Incitec Pivot’s business strategy and result in reduced
profitability.
In regard to Incitec Pivot’s Fertiliser business, seasonal conditions, particularly rainfall, is a key factor for determining
the timing and production of crops, which drives fertiliser demand and sales. Any prolonged adverse weather
conditions could impact future profitability and prospects of Incitec Pivot.
Strategy and Planning
Incitec Pivot operates in a competitive environment. The domestic and international fertiliser and industrial explosives
industries are highly competitive. The actions of competitors of Incitec Pivot or the entry of new competitors may result
in loss of sales and market share which could adversely affect Incitec Pivot’s financial performance.
Health Safety and Environment
Incitec Pivot is subject to various operational hazards, including from the manufacture, processing and transportation of
its fertiliser and explosives products and in the provision of its related services, which could potentially result in injury or
incident to employees, contractors, the public or the environment. Incitec Pivot has adopted a “Zero Harm” policy to
manage its health and safety risks.
40
Incitec Pivot Limited
Directors’ Report
Corporate Governance Statement
Compliance and Regulatory Risks
Changes in federal or state government legislation, regulations or policies in any of the countries in which it operates
may adversely impact on Incitec Pivot’s business, financial condition and results of operations. For instance, Incitec
Pivot, as a significant manufacturer, may be affected by the impact of future carbon trading or carbon tax regimes, or
future regulation of carbon emissions, together with any legislative requirements relating to climate change or
associated issues.
Incitec Pivot’s business is subject to environmental laws and regulations that require specific operating licences and
impose various requirements and standards. Changes in these laws and regulations, or changes to licence conditions
may have a detrimental effect on Incitec Pivot’s operations and financial performance, including the need to undertake
environmental remediation.
Incitec Pivot is exposed to potential legal and other claims or disputes in the course of its business, including
contractual disputes, property damage and personal liability claims in connection with operational and health and
safety matters.
Management, through the Managing Director & CEO and Chief Financial Officer, is responsible for the overall design,
implementation, management and coordination of the Company’s risk management and internal control system.
Each business unit has responsibility for identification and management of risks specific to their business. This is managed
through an annual risk workshop within each business unit. The risk workshops are facilitated by the Company’s internal
auditors, and form part of the annual internal audit program, thereby aligning the internal audit activities with material business
risks. The outcomes of the business unit risk workshops are assessed as part of the annual corporate risk workshop. The
resultant Corporate Risk Workbook is presented to the Audit and Risk Management Committee on an annual basis, and
management is required to present regular updates to the Committee on material business risks.
Internal audit independently monitors the internal control framework and provides regular reports to the Audit and Risk
Management Committee. The annual internal audit program is approved by the Audit and Risk Management Committee.
Internal audit provides written reports to the Committee on the effectiveness of the management of risk and internal controls,
and meets regularly with the Committee without the presence of management.
The Audit and Risk Management Committee and the Board have received reports from management on the effectiveness of the
Company’s management of its material business risks for the financial year ended 30 September 2009.
CEO and CFO Declaration and Assurance
In accordance with the ASX Recommendations, for the financial year ended 30 September 2009, the Board received written
assurance from the Managing Director & Chief Executive Officer and each person performing the function of Chief Financial
Officer that the declaration provided by them in accordance with section 295A of the Corporations Act 2001 (Cth) is founded on
a sound system of risk management and internal control, and that the system is operating effectively in all material respects in
relation to the reporting of financial risks.
Principle 8: Remunerate fairly and responsibly
The Board and Remuneration and Appointments Committee are primarily responsible in relation to the oversight of the
Company’s remuneration framework and policies. Details of Incitec Pivot’s remuneration arrangements are set out in the
remuneration report on pages 12 to 31. As set out on page 34 of this report, the Remuneration and Appointments Committee is
formed under a Charter approved by the Board, a copy of which is available on the corporate governance section of the
Company’s website, www.incitecpivot.com.au. The members of the Committee are three independent non-executive directors,
being John Watson, Allan McCallum and John Marlay, and the Committee is chaired by the Chairman, John Watson.
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 on page 13.
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 $2,000,000 as approved at
the Annual General Meeting held on 19 December 2008. The total remuneration paid to the non-executive directors during the
financial year ended 30 September 2009 was within the maximum amount approved by shareholders.
Incitec Pivot Limited
41
Directors’ Report
Corporate Governance Statement
Details of remuneration paid to the Managing Director & CEO are included in table D.4 “Executives’ remuneration” in the
remuneration report on page 23. The attendance of the members of the Remuneration and Appointments Committee at each
meeting held during the financial year to 30 September 2009 is set out on page 8 of this report.
Signed on behalf of the Board.
John C Watson, AM
Chairman
Dated at Melbourne this 13th day of November 2009
42
Incitec Pivot Limited
Income Statements
For the year ended 30 September 2009
Revenue
Other and financial income
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
Costs recovered from subsidiaries under agency agreement
Depreciation and amortisation expense
Financial expenses
Purchased services
Repairs and maintenance
Outgoing freight
Lease payments - operating leases
Profit on share equity accounted investments
Asset write-downs, clean-up and environmental provisions
Other expenses
Profit / (loss) before income tax
Income tax benefit / (Income tax expense)
Profit / (loss) for the financial year
Earnings per share
Basic earnings / (loss) per share
Diluted earnings / (loss) per share
Consolidated
Company
Notes
2009
$mill
2008
$mill
(4)
(4)
3,418.9
47.4
2,918.2
17.5
2009
$mill
987.5
515.5
2008
$mill
1,200.1
219.6
(231.9)
243.7
(262.1)
246.5
(644.0)
(102.3)
81.7
(25.6)
(87.9)
(82.6)
(30.7)
(110.0)
(20.9)
-
(178.8)
(0.2)
(1,463.4)
39.6
218.3
257.9
(1,092.2)
(101.9)
71.5
(22.3)
(67.6)
(84.2)
(28.0)
(122.3)
(19.3)
-
(4.8)
(13.9)
(1,238.5)
181.2
2.7
183.9
(5)
(5)
(5)
(16)
(8)
(1,545.1)
(548.6)
-
(170.5)
(126.1)
(188.9)
(122.3)
(173.6)
(52.5)
25.0
(590.1)
(56.3)
(3,780.9)
(314.6)
134.7
(1,478.1)
(259.8)
-
(70.3)
(95.2)
(165.9)
(67.7)
(140.6)
(36.2)
6.7
(5.0)
(30.8)
(2,099.2)
836.5
(231.9)
(179.9)
604.6
cents
cents
(9)
(9)
(11.7)
(11.7)
56.5
56.5
The above Income Statements are to be read in conjunction with the Notes to the Financial Statements set out on pages 50 to 117.
44
Incitec Pivot Limited
Statements of Comprehensive Income
For the year ended 30 September 2009
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
Profit / (loss) for the financial year
(179.9)
604.6
257.9
183.9
Other comprehensive income
Cash flow hedging reserve
Changes in fair value of cash-flow hedges
Profit / (loss) in cash-flow hedges transferred to income statement
Income tax on movements in the cash-flow hedging reserve
Fair value reserve
Change in fair value of assets held as available for sale
Income tax on change in fair value of assets held as available for sale
Foreign currency translation reserve
Exchange differences on translation of foreign operations
Exchange differences on non-repayable inter-company loans
Actuarial (losses) / gains on defined benefit plan
Actuarial (losses) / gains on defined benefit plans
Income tax on actuarial (losses) / gains on defined benefit plans
(25)
(15.9)
2.2
4.4
(9.3)
14.2
(4.2)
10.0
(276.9)
19.6
(257.3)
(33.3)
12.7
(20.6)
(2.0)
(1.5)
1.1
(2.4)
(16.9)
5.1
(11.8)
363.5
7.7
371.2
(38.0)
11.9
(26.1)
(12.9)
-
3.8
(9.1)
14.2
(4.2)
10.0
-
-
-
(2.6)
0.8
(1.8)
(0.1)
(1.5)
0.5
(1.1)
(16.9)
5.1
(11.8)
-
-
-
(4.9)
1.3
(3.6)
Total other comprehensive income / (expense)
(277.2)
330.9
(0.9)
(16.5)
Total comprehensive income / (expense) for the financial year
(457.1)
935.5
257.0
167.4
The above Statements of Comprehensive Income are to be read in conjunction with the Notes to the Financial Statements set out on
pages 50 to 117.
Incitec Pivot Limited
45
Statements of Financial Position
As at 30 September 2009
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Current tax assets
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Trade and other receivables
Investments accounted for using the equity method
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Deferred tax liabilities
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Consolidated
Company
Restated(i)
2008
$mill
2009
$mill
Notes
2009
$mill
2008
$mill
(10)
(11)
(14)
(12)
(13)
(15)
(11)
(16)
(14)
(17)
(18)
(19)
(13)
(20)
(21)
(22)
(23)
(20)
(21)
(24)
(25)
(23)
(26)
125.2
323.0
71.2
397.1
32.4
30.7
54.3
1,033.9
32.1
254.0
135.9
1,663.4
3,153.0
354.2
4.7
5,597.3
6,631.2
636.7
432.2
12.9
-
93.4
1,175.2
426.6
1,156.4
312.8
91.6
87.5
2,074.9
3,250.1
3,381.1
3,217.8
119.1
44.2
3,381.1
479.7
625.3
30.3
675.2
-
51.7
4.8
1,867.0
2.3
311.2
0.6
1,670.6
3,962.1
371.5
0.1
6,318.4
8,185.4
1,132.0
2,238.8
16.2
225.3
88.6
3,700.9
520.0
271.2
380.4
66.8
90.8
1,329.2
5,030.1
3,155.3
2,267.7
371.9
515.7
3,155.3
93.1
79.4
59.5
205.4
31.5
11.3
2.9
483.1
1,162.0
-
3,080.2
207.7
5.1
89.7
3.2
4,547.9
5,031.0
662.0
47.2
12.9
-
46.3
768.4
831.7
-
-
5.5
50.2
887.4
1,655.8
3,375.2
3,217.8
13.7
143.7
3,375.2
400.4
357.0
30.3
468.5
-
37.9
2.0
1,296.1
0.2
-
2,897.3
214.3
6.6
33.9
0.1
3,152.4
4,448.5
1,169.3
180.5
13.8
211.7
47.7
1,623.0
337.7
-
-
2.4
46.3
386.4
2,009.4
2,439.1
2,267.7
12.8
158.6
2,439.1
The above Statements of Financial Position are to be read in conjunction with the Notes to the Financial Statements set out on
pages 50 to 117.
(i) Comparative information has been restated to reflect the amendments to provisional asset and liability fair values on acquisition
of Dyno Nobel Limited in the prior financial year (see Note 28).
46
Incitec Pivot Limited
Statements of Cash Flows
For the year ended 30 September 2009
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Financial expenses paid
Dividends received from wholly-owned controlled entities
Other 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 subsidiaries, net of cash acquired
Payments for purchase of share in joint ventures and associates
Payments for purchase 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
Payment of borrowing costs
Proceeds from shares issued
Repayments of step-up preference shares
Payment of distributions to step-up preference shareholders
Realised market value gains on cross currency swaps
Share issuance cost paid
Dividends paid
Net cash flows from financing activities
Consolidated
Company
Notes
2009
$mill
Inflows/
(Outflows)
2008
$mill
Inflows/
(Outflows)
2009
$mill
Inflows/
(Outflows)
2008
$mill
Inflows/
(Outflows)
(34)
(29)
(28)
3,878.5
(3,330.6)
23.6
(115.8)
-
28.0
(146.3)
337.4
2,911.1
(1,957.7)
14.9
(77.1)
-
7.7
(76.3)
822.6
1,128.4
(1,130.4)
8.5
(71.3)
414.4
0.7
(138.0)
212.3
1,107.0
(569.2)
9.5
(57.5)
190.3
6.8
(68.0)
618.9
(393.0)
1.0
-
(3.0)
52.5
(342.5)
(4,232.4)
2,972.6
(18.3)
901.7
-
-
306.3
(37.8)
(237.4)
(345.3)
(350.4)
479.7
(4.1)
125.2
(227.4)
(526.4)
(11.6)
(48.4)
9.8
(804.0)
(1,569.0)
2,395.3
(7.7)
-
(345.0)
(13.8)
-
(2.0)
(219.3)
238.5
257.1
218.3
4.3
479.7
(22.9)
-
-
(3.0)
9.7
(16.2)
(1,563.9)
434.0
-
901.7
-
-
-
(37.8)
(237.4)
(503.4)
(307.3)
400.4
-
93.1
(55.2)
-
-
(48.4)
10.2
(93.4)
(759.0)
647.2
-
-
-
-
-
(2.0)
(219.3)
(333.1)
192.4
208.0
-
400.4
Net increase in cash and cash equivalents held
Cash and cash equivalents at the beginning of the financial year
Effect of exchange rate fluctuation on cash and cash equivalents held
Cash and cash equivalents at the end of the financial year
(10)
The above Statements of Cash Flows are to be read in conjunction with the Notes to the Financial Statements set out on pages 50 to 117.
Incitec Pivot Limited
47
Statements of Changes in Equity
For the year ended 30 September 2009
Consolidated
Balance at 1 October 2007
Total comprehensive income for the period
Dividends paid
Shares issued during the period
Transaction cost on issuing shares
Share based payment transactions
Dividends received as loan repayment
Option expense
Deferred tax on share based payments
Loan repayments
Employee shareholder loans
Balance at 30 September 2008
Balance at 1 October 2008
Total comprehensive income for the period
Dividends paid
Shares issued during the period
Transaction cost on issuing shares
Share based payment transactions
Dividends received as loan repayment
Option expense
Deferred tax on share based payments
Loan repayments
Employee shareholder loans
Balance at 30 September 2009
Issued
capital
$mill
360.8
-
-
1,908.9
(2.0)
-
-
-
-
-
2,267.7
2,267.7
-
-
987.9
(37.8)
-
-
-
-
-
3,217.8
Cash flow
hedging
Reserve
Share-
based
payments
Reserve
Foreign
Currency
Translation
Reserve
Fair Value
Reserve
Retained
earnings
$mill
$mill
$mill
$mill
$mill
1.1
(2.4)
-
-
-
-
-
-
-
-
(1.3)
(1.3)
(9.3)
-
-
-
-
-
-
-
-
(10.6)
(8.0)
-
-
-
-
1.8
2.8
0.8
0.4
(8.6)
(10.8)
(10.8)
-
-
-
-
1.8
2.2
0.3
2.9
(3.4)
(7.0)
-
371.2
-
-
-
-
-
-
-
-
371.2
371.2
(257.3)
-
-
-
-
-
-
-
-
113.9
24.6
(11.8)
-
-
-
-
-
-
-
-
12.8
12.8
10.0
-
-
-
-
-
-
-
-
22.8
156.5
578.5
(219.3)
-
-
-
-
-
-
-
515.7
515.7
(200.5)
(271.0)
-
-
-
-
-
-
-
44.2
Total
$mill
535.0
935.5
(219.3)
1,908.9
(2.0)
1.8
2.8
0.8
0.4
(8.6)
3,155.3
3,155.3
(457.1)
(271.0)
987.9
(37.8)
1.8
2.2
0.3
2.9
(3.4)
3,381.1
The Statements of Changes in Equity should be read in conjunction with the Notes to the Financial Statements set out on pages 50 to 117.
Cash flow hedging reserve: The cash flow hedging reserve comprises the cumulative net change in the fair value of cash flow hedging
instruments related to the effective portion of hedged transactions that have not yet occurred.
Share-based payments reserve: The share-based payments reserve represents the amount receivable from employees in relation to limited
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.
Foreign currency translation reserve: Exchange differences arising on translation of foreign controlled operations are taken to the foreign
currency translation reserve, as described in Note 1(xviii). The relevant position of the reserve is recognised in the income statement when
the foreign operation is disposed of.
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.
48
Incitec Pivot Limited
Statements of Changes in Equity
For the year ended 30 September 2009
Company
Balance at 1 October 2007
Total comprehensive income for the period
Dividends paid
Shares issued during the period
Transaction cost on issuing shares
Share based payment transactions
Dividends received as loan repayment
Option expense
Deferred tax on share based payments
Loan repayments
Employee shareholder loans
Balance at 30 September 2008
Balance at 1 October 2008
Total comprehensive income for the period
Dividends paid
Shares issued during the period
Transaction cost on issuing shares
Share based payment transactions
Dividends received as loan repayment
Option expense
Deferred tax on share based payments
Loan repayments
Employee shareholder loans
Balance at 30 September 2009
Issued
capital
$mill
360.8
-
-
1,908.9
(2.0)
-
-
-
-
-
2,267.7
2,267.7
-
-
987.9
(37.8)
-
-
-
-
-
3,217.8
Cash flow
hedging
Reserve
Share-
based
payments
Reserve
Foreign
Currency
Translation
Reserve
Fair Value
Reserve
Retained
earnings
$mill
$mill
$mill
$mill
$mill
1.1
(1.1)
-
-
-
-
-
-
-
-
-
-
(9.1)
-
-
-
-
-
-
-
-
(9.1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24.6
(11.8)
-
-
-
-
-
-
-
-
12.8
12.8
10.0
-
-
-
-
-
-
-
-
22.8
197.6
180.3
(219.3)
-
-
-
-
-
-
-
158.6
158.6
256.1
(271.0)
-
-
-
-
-
-
-
143.7
Total
$mill
584.1
167.4
(219.3)
1,908.9
(2.0)
-
-
-
-
-
2,439.1
2,439.1
257.0
(271.0)
987.9
(37.8)
-
-
-
-
-
3,375.2
The Statements of Changes in Equity should be read in conjunction with the Notes to the Financial Statements set out on
pages 50 to 117.
Cash flow hedging reserve: The cash flow hedging reserve comprises the cumulative net change in the fair value of cash flow hedging
instruments related to the effective portion of hedged transactions that have not yet occurred.
Share-based payments reserve: The share-based payments reserve represents the amount receivable from employees in relation
to limited 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.
Foreign currency translation reserve: Exchange differences arising on translation of foreign controlled operations are taken to the
foreign currency translation reserve, as described in Note 1(xviii). The relevant position of the reserve is recognised in the income
statement when the foreign operation is disposed of.
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.
Incitec Pivot Limited
49
Notes to the Financial Statements
For the year ended 30 September 2009
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 Investments accounted for using the equity method
17 Property, plant and equipment
18 Intangible assets
19 Deferred tax assets
20 Trade and other payables
21 Interest bearing liabilities
22 Other financial liabilities
23 Provisions
24 Deferred tax liabilities
25 Retirement benefit obligations
26 Issued capital
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 Financial risk management
33 Financial instruments
34 Related party disclosures
35 Key management personnel disclosures
36 Share based payments
37 Investments in controlled entities
38 Deed of Cross Guarantee
39 Events subsequent to balance date
50
Incitec Pivot Limited
51
57
58
60
60
61
63
64
65
65
66
66
66
66
67
67
70
72
74
75
76
77
77
80
81
83
84
85
86
87
88
89
95
101
102
109
114
116
117
Notes to the Financial Statements
For the year ended 30 September 2009
1. Significant accounting policies
Incitec Pivot Limited is a company domiciled in Australia. The
consolidated financial statements were authorised for issue by the
directors on 13 November 2009.
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.
Interests in jointly controlled entities and associates are equity
accounted (recorded as Investments accounted for using the equity
method) and recorded as an equity investment and are not part of the
Consolidated entity (Refer Note 1 (ii) (b)).
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,
other authoritative pronouncements of the Australian Accounting
Standards Board and the Corporations Act 2001.
Current net asset deficiency
As at 30 September 2009, the Company and Consolidated entity’s
current liabilities exceeded their current assets by $285.3m and
$141.3m respectively. The Consolidated entity’s forecasted cash
flows for the next twelve months indicate that it will be able to meet
current liabilities as and when they fall due, in addition the
Consolidated entity has un-drawn financing facilities of $817.5m at
30 September 2009.
The Company’s current liabilities exceeded their current assets due
to the fact that the majority of its trade payables are owed to wholly
owned controlled entities as several controlled entities cash receipts
on sales are collected within the Company. The Company’s current
liabilities will decrease as these wholly owned controlled entities
declare dividends on its profits for the period to the Company. The
wholly owned controlled entities have declared dividends to the
Company since 30 September 2009 which decreases the amount
due to wholly owned controlled entities by $232.2m.
Compliance with IFRS
Australian Accounting Standards include Australian equivalents to
International Financial Reporting Standards (AIFRS). The
consolidated financial report of the Consolidated entity and the
financial report of the Company comply with the International
Financial Reporting Standards (IFRSs) and interpretations adopted
by the International Accounting Standards Board (IASB).
Historical cost convention
These financial statements have been prepared under the historical
cost convention, except for derivative financial instruments, available-
for-sale financial assets, financial instruments held for trading and
liabilities for cash settled share based payment arrangements 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 certain 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 2008-8 Amendments to Australian Accounting Standards –
Eligible Hedged Items (August 2008)
• AASB 2009-6 Amendments to Australian Accounting Standards (June
2009)
• AASB 2009-7 Amendments to Australian Accounting Standards (July
2009)
• AASB 2009-8 Amendments to Australian Accounting Standards –
Group cash-settled share-based payments (July 2009)
The early adoption of AASB 2008-8 changes the Company and
Consolidated entity’s accounting policy in regards to treatment of
options as an effective hedge instrument. This has resulted in the
following changes to the Company and Consolidated entity’s financial
statements:
(i)
In the prior year, the movement in market value of option
premiums was booked to the Cash Flow Hedging Reserve.
AASB 2008-8 requires the decrease in the market value (time
related portion) of the option premiums to be expensed, resulting
in $13.8m ($9.7m net of tax) being transferred from the Cash
Flow Hedging Reserve to the Income Statement. The Company
and Consolidated entity’s prior year Income Statement has been
restated (reduced) by $13.8m ($9.7m net of tax).
(ii) In the current year, the movement in market value (time related
portion) of option premiums (open at year end) totalling $3.9m
($2.7m net of tax) has been recognised as income; in the event
that AASB 2008-8 had not been adopted early this amount would
have been transferred to the Cash Flow Hedging Reserve.
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 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.
• AASB 2007-3 Amendments to Australian Accounting Standards
arising from AASB 8 is applicable for annual reporting periods
beginning on or after 1 January 2009.
• AASB 3 Business Combinations (March 2008) requires an acquirer of
a business to recognise the assets acquired and liabilities assumed at
their acquisition-date fair values and disclose information that enables
users to evaluate the nature and financial effects of the acquisition.
AASB 3 is applicable for annual reporting periods beginning on or
after 1 July 2009.
• AASB 2009-2 Amendments to Australian Accounting Standards –
Improving Disclosures about Financial Instruments (April 2009)
• AASB 2009-4 Amendments to Australian Accounting Standards
arising from the Annual Improvements Process (May 2009)
• AASB 2009-5 Further Amendments to Australian Accounting
Standards arising from the Annual Improvements Process (May 2009)
The Consolidated entity plans to adopt AASB 8 and AASB 3 in the
2010 financial year. The initial application of AASB 8 and AASB 3 are
not expected to have a material impact on the financial results of the
Company and the Consolidated entity.
Incitec Pivot Limited
51
Notes to the Financial Statements
For the year ended 30 September 2009
1. Significant accounting policies (continued)
(ii) Consolidation
(a) Subsidiaries
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of Incitec Pivot Limited as at 30
September 2009 and the results of all subsidiaries for the year then
ended. Subsidiaries are all those 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.
(b) Associates and jointly controlled entities
Associates are those entities in which the Consolidated entity has
significant influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the
Consolidated entity holds between 20 and 50 percent of the voting
power of another entity. Jointly controlled entities are those entities
over whose activities the Consolidated entity has joint control,
established by contractual agreement and requiring unanimous
consent for strategic financial and operating decisions.
Associates and jointly controlled entities are accounted for using the
equity method (equity accounted investees) and are initially
recognised at cost. The Consolidated entity’s investment includes
goodwill identified on acquisition, net of any accumulated impairment
losses. The consolidated financial statements include the
Consolidated entity’s share of the income and expenses and equity
movements of equity accounted investees, after adjustments to align
the accounting policies with those of the Consolidated entity, from the
date that significant influence or joint control commences until the
date that significant influence or joint control ceases. When the
Consolidated entity’s share of losses exceeds its interest in an equity
accounted investee, the carrying amount of that interest (including
any long-term investments) is reduced to nil and the recognition of
further losses is discontinued except to the extent that the
Consolidated entity has an obligation or has made payments on
behalf of the investee.
(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, where the costs incurred or to be incurred cannot
be measured reliably, where there is a risk of return of goods or
where there is continuing management involvement with the goods.
Interest income is recognised as it accrues.
Dividends receivable 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 for the purpose of
recognising a qualifying asset.
(v) Share based payments
The grant date fair value of shares and rights, treated as options,
granted to employees is recognised as an employee expense, with
a corresponding increase in equity, over the period that the
employees become unconditionally entitled to the options.
The amount recognised as an expense is adjusted to reflect the
actual number of share options for which the related service and
non-market vesting conditions are met.
The fair value of the amount payable to employees in respect of
rights, which are settled in cash, is recognised as an expense, with
a corresponding increase in liabilities, over the period that the
employees become unconditionally entitled to payment. The liability
is remeasured during each reporting period and at settlement date.
Any changes in the fair value of the liability are recognised as
employee expenses in the Income Statement.
(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.
52
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
1. Significant accounting policies (continued)
(vi) Taxation (continued)
Tax Consolidation (continued)
Due to the effect of applying Interpretation 1052 Tax Consolidation
Accounting and the existence of a tax funding agreement between
the entities in the tax consolidated group, the parent entity recognises
the tax effects of its own transactions and the current tax liabilities
and the deferred tax assets arising from unused tax losses and
unused tax credits assumed by the subsidiary entities. In accordance
with the tax funding agreement, the subsidiary entities are
compensated for the assets and liabilities assumed by the parent
entity as intercompany receivables and payables and for amounts
which equal the amounts initially recognised by the subsidiary
entities. There is no adjustment for tax consolidation contribution by
(or distribution to) equity participants.
(vii) Inventories
Inventories are valued at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary
course of business less the estimated cost of completion and selling
expenses. Cost is based on a weighted average method. For
manufactured goods, cost includes direct material and labour costs
plus an appropriate proportion of fixed and variable overheads based
on normal operating capacity of the production facilities. For
merchanted goods, cost is net cost into store. Engineering spares are
held in inventory and expensed when used.
(viii) Trade and other receivables
Trade and other receivables are recognised at their cost less any
impairment losses.
Collectability of trade and other receivables is reviewed on an
ongoing basis. Debts which are known to be uncollectible are written
off by reducing the carrying amount directly. An allowance account
(provision for impairment of trade receivables) is used 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 allowance 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 within other expenses. When a trade receivable for which
an impairment allowance had been recognised becomes uncollectible
in a subsequent period, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited
against other expenses in the income statement.
Where substantially all risks and rewards relating to receivables have
been transferred to a financial institution, the receivable is
derecognised. Where this has not occurred, the receivable and the
equivalent interest bearing liability have been recognised in the
statement of financial position.
(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.
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) 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.
Impairment losses are 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 statement of financial position.
(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 of the asset 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 the Income Statement on a straight line
basis over the term of the lease.
Incitec Pivot Limited
53
Notes to the Financial Statements
For the year ended 30 September 2009
1. Significant accounting policies (continued)
(xiii) Intangible assets
(a) 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.
(b) 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.
(c) Other intangible assets
Other intangible assets that are acquired by the Consolidated entity
are stated at cost less accumulated amortisation and impairment
losses.
(d) 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.
(e) 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
• Product trademarks
• Patents
• Customer contracts
3 – 7 years
4 – 10 years
13 – 15 years
13 – 15 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. When control is obtained in
successive share purchases, each significant transaction is
accounted for separately and the identifiable assets, liabilities and
contingent liabilities acquired are stated at fair value when control is
obtained.
(xv) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value.
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.
(a) 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. 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.
54
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
1. Significant accounting policies (continued)
(xvi) Provisions (continued)
(b) 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.
(c) 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.
Short term incentive plans
A liability is recognised for short term incentive plans on the
achievement of predetermined short term incentive plan targets and
the benefit calculations are formally documented and determined
before signing the financial report.
(d) 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.
(e) 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.
(f) 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.
(g) 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
Functional and presentation currency
Items included in the financial statements of each of the Consolidated
entity’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the functional
currency”). The consolidated financial statements are presented in
Australian dollars, which is Incitec Pivot Limited’s presentation
currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the Income Statement, except
when they are deferred in equity as qualifying cash flow hedges.
Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Foreign operations
On consolidation, the assets and liabilities of the Consolidated
entity’s overseas operations are translated at exchange rates
prevailing at the reporting date. Income and expense items are
translated at the average exchange rates for the period unless
exchange rates fluctuate significantly. Exchange differences arising,
if any, are recognised in the foreign currency translation reserve, and
recognised in income on disposal of the foreign operation.
Goodwill and fair value adjustments arising on the acquisitions of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at exchange rates prevailing at the reporting date.
(xix) Derivative financial instruments
The Consolidated entity uses derivative financial instruments to
hedge its exposure to foreign exchange, commodity price 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.
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, the gain or loss is
transferred to the cash flow hedging reserve.
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.
Incitec Pivot Limited
55
Notes to the Financial Statements
For the year ended 30 September 2009
1. Significant accounting policies (continued)
(xix) Derivative financial instruments (continued)
Hedging (continued)
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
Changes in fair value of the derivative hedging instrument designated
as a cash flow hedge are recognised directly in equity to the extent
that the hedge is effective. To the extent that the hedge is ineffective,
changes in fair value are recognised in the Income Statement.
Amounts accumulated in equity are recycled in the Income Statement
in the periods when the hedged item affects profit or loss. When the
hedged item is a non-financial asset, the amount recognised in equity
is transferred to the carrying amount of the asset when it is
recognised.
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.
(xx) Cash and cash equivalents
For statement of cash flows 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 is 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 contracts is calculated as the present
value of the estimated future cash flows. The fair value of cross
currency interest rate swaps is determined using market based
forward interest and exchange rates and the present value of
estimated future cash flows. The fair value of foreign exchange
options is determined using market rates and a present value
calculation based on the Black Scholes method. The fair value of
forward exchange contracts is determined using forward exchange
market rates at the balance sheet date and the present value of the
estimated future cash flows. 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 is
estimated by discounting the future cash flows at the current market
interest rate that is available to the Consolidated entity for similar
financial instruments.
(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 (excluding receivables – refer to
Note 1 (viii)) is determined as the higher of fair value less cost to sell
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 CGU’s 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
Statement of Financial Position.
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.
56
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
2. Critical accounting estimates and
judgements
Impairment of assets
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 Consolidated
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 Financial
Report:
•
•
•
• 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; and
valuation of assets and liabilities acquired in a business combination.
•
The Moranbah Nitrate plant construction in progress fixed asset is
recorded at cost in the financial report (carrying value of $323.3m), on the
basis that the project is highly probable to proceed to completion.
(i)
The determination of impairment for property, plant and equipment,
goodwill and other intangible assets involves the use of estimates
that include, but are not limited to, the cause, timing and amount of
the impairment. Impairment is based on a large number of factors,
such as changes in competitive positions, expectations of growth,
increased cost of capital, current replacement costs, increases in cost
of inputs, and other factors which may indicate impairment. An asset
is considered impaired when the recoverable amount is less than the
carrying value. Recoverable amount is determined as the higher of
fair value less costs to sell and value-in-use. In calculating value-in-
use, the cash flows include projections of cash inflows and outflows
from continuing use of the asset and cash flows associated with
disposal of the asset. The cash flows are estimated for the asset in its
current condition. In assessing value-in-use, the estimated cash flows
are discounted to their present value using a pre-tax discount rate
that reflects the current market assessments of the risks specific to
the asset or Cash Generating Unit (CGU). The identification of
impairment indicators, the estimation of future cash flows and the
determination of fair values of assets (or groups of assets) requires
management to make significant estimates and judgements
concerning the identification of impairment indicators, earnings before
interest and tax, growth rates, applicable discount rates, useful lives
and residual values. Refer Note 1 (xxiii) for further details regarding
the accounting policy regarding ‘Impairment of assets’.
Management believes that this policy is critical to the financial
statements, particularly when evaluating the Consolidated entity’s
assets for impairment. Varying results from this impairment analysis
are possible due to the significant estimates and judgements
involved.
(ii)
The Consolidated entity tests annually whether goodwill has incurred
any impairment, in accordance with the accounting policy stated in
Note 1 (xiii). The recoverable amounts of CGU’s 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 18 for
details of these assumptions and the potential impact of changes to
the assumptions.
Impairment of goodwill
Income taxes
The assumptions are management’s best estimates based on current
and forecast market conditions. Changes in economic and operating
conditions impacting these assumptions could result in additional
impairment charges in future periods. Management believes that this
policy is critical to the financial statements, particularly when
evaluating the Consolidated entity’s goodwill for impairment. Varying
results from this analysis are possible due to the significant estimates
and judgements involved in the Company’s evaluations.
(iii)
The Consolidated entity is subject to income taxes in Australia and
overseas jurisdictions. 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 realisation 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) (a) & Note 1 (xvi) (f) to the financial statements for
further details of the accounting policy relating to environmental and
restructuring provisions. Also refer to Note 23 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 statement of financial position, 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) (d) to the financial statements for further details of
the accounting policy relating to retirement benefit obligations. Refer
Note 25 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
•
(vi) Business combinations
Fair valuing assets and liabilities acquired in a business combination,
involves making assumptions about the timing of cash inflows and
outflows, commodity prices, growth assumptions, discount rates and
cost of debt. Refer to Note 28 for details of acquisitions made during
the period.
future salary increases.
rate of inflation;
Incitec Pivot Limited
57
Notes to the Financial Statements
For the year ended 30 September 2009
3. Segment report
(a) Description of segments
The acquisition of Dyno Nobel Limited resulted in the Consolidated entity operating with two distinct businesses with distinct reporting
structures. As a result, the Consolidated entity adopted business segments as its primary segment reporting format.
Business segments
The Consolidated entity comprises the following main business segments:
•
•
Fertilisers: the manufacture, trading and distribution of fertilisers and chemicals.
Explosives: the manufacture and sale of industrial explosives and related products and services to mining, quarrying and
construction industries.
(b) Primary reporting format – business segments
30 September 2009
External sales
Profit before depreciation, amortisation, interest, related income tax
expense and individually material items
Depreciation and amortisation (excluding individually material items)
Profit from ordinary activities before interest, related income tax
expense and individually material items
Individually material items before related income tax expense
Profit / (Loss) before interest and related income tax benefit
Interest income
Financial expenses (excluding individually material items)
Loss before income tax
Income tax benefit
Loss for the financial year
30 September 2009
Segment assets
Investment in associates accounted for using the equity method
Total assets
Segment liabilities
Total liabilities
Share of profits in associates
Acquisition of property, plant and equipment, intangibles and other
non-current assets
Impairment losses - inventories
Impairment losses - trade receivables
Impairment losses - goodwill
Impairment losses - property, plant and equipment
Fertilisers
$mill
Explosives
$mill
adjustments Consolidated
$mill
$mill
Consolidation
1,591.3
1,827.6
-
3,418.9
318.3
421.9
(41.9)
(125.4)
276.4
(163.2)
113.2
296.5
(619.5)
(323.0)
2.8
-
2.8
-
2.8
743.0
(167.3)
575.7
(782.7)
(207.0)
10.8
(118.4)
(314.6)
134.7
(179.9)
Fertilisers
$mill
Explosives
$mill
adjustments Consolidated
$mill
$mill
Consolidation
2,504.3
-
2,504.3
1,301.6
1,301.6
-
50.4
114.0
-
-
1.7
5,444.4
254.0
5,698.4
3,520.0
3,520.0
25.0
294.3
11.3
2.4
490.6
78.7
(1,571.5)
-
(1,571.5)
(1,571.5)
(1,571.5)
6,377.2
254.0
6,631.2
3,250.1
3,250.1
-
-
-
-
-
-
25.0
344.7
125.3
2.4
490.6
80.4
58
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
3. Segment report (continued)
(b) Primary reporting format – business segments (continued)
30 September 2008
External sales
Fertilisers
$mill
Explosives
$mill
adjustments Consolidated
$mill
$mill
Consolidation
2,347.5
570.9
(0.2)
2,918.2
Profit before depreciation, amortisation, interest, related income tax
expense and individually material items
927.1
109.5
(11.0)
1,025.6
Depreciation and amortisation
Profit from ordinary activities before interest, related income tax
expense and individually material items
Individually material items before related income tax expense
Profit before interest and related income tax expense
Interest income
Financial expenses (excluding individually material items)
Profit before income tax
Income tax expense
Profit for the financial year
30 September 2008
Segment assets
Investment in associates accounted for using the equity method
Total assets
Segment liabilities
Total liabilities
(40.3)
886.8
(17.2)
869.6
(30.0)
79.5
(21.0)
58.5
-
(70.3)
(11.0)
-
(11.0)
955.3
(38.2)
917.1
8.8
(89.4)
836.5
(231.9)
604.6
Fertilisers
$mill
Explosives
$mill
adjustments Consolidated
$mill
$mill
Consolidation
2,175.1
-
2,175.1
1,578.7
1,578.7
5,883.0
311.2
6,194.2
3,635.3
3,635.3
(183.9)
-
(183.9)
(183.9)
(183.9)
-
-
-
-
7,874.2
311.2
8,185.4
5,030.1
5,030.1
6.7
227.4
1.9
1.9
Share of profits in associates
Acquisition of property, plant and equipment, intangibles and other
non-current assets
Impairment losses - inventories
Impairment losses - trade receivables
-
6.7
80.6
3.1
1.6
146.8
(1.2)
0.3
(c) Geographical segments – secondary reporting segments
The fertiliser and explosives segments are managed on a worldwide basis, but operate in two principal geographical areas,
Australia/Asia and the Americas (including USA, Mexico and Canada).
In presenting information on the basis of geographical segments, segment revenue is based on geographical locations of customers.
Segment assets are based on the geographical location of the assets.
30 September 2009
Revenue from external customers
Segment assets
Acquisition of property, plant and equipment, intangibles and other
non-current assets
30 September 2008
Australia/Asia
$mill
Americas
$mill
adjustments Consolidated
$mill
$mill
Consolidation
2,103.8
3,358.7
1,315.1
4,590.0
-
(1,571.5)
3,418.9
6,377.2
273.3
71.4
-
344.7
Consolidation
Australia/Asia
$mill
Americas
$mill
adjustments Consolidated
$mill
$mill
Revenue from external customers
Segment assets
Acquisition of property, plant and equipment, intangibles and other
non-current assets
2,468.0
2,994.9
450.4
5,063.2
(0.2)
(183.9)
2,918.2
7,874.2
196.0
31.4
-
227.4
Incitec Pivot Limited
59
Notes to the Financial Statements
For the year ended 30 September 2009
4. Revenue and other income
Revenue
External sales
Sales to wholly-owned controlled entities
Total revenue
Other income
Dividend income
wholly-owned controlled entities
Net foreign exchange gains
Royalty income
Net gain on sale of property, plant and equipment
Other income
Total other income
Financial income
Interest income from external parties
Interest income from wholly-owned controlled entities
Interest income from joint ventures and associates
Interest income on bank deposits
Profit in cash-flow hedges transferred from equity
Total financial income
Total other and financial income
5. Expenses
Profit before income tax includes the following specific expenses:
Depreciation & Amortisation
depreciation
amortisation
Recoverable amount write-down
property, plant and equipment
intangible assets
investments in controlled entities
Amounts set aside to provide for
impairment loss on trade and other receivables
employee entitlements
environmental liabilities
inventory losses and obsolescence
other provisions
restructuring
Lease payments – operating leases
Net foreign exchange losses
Research and development
Defined contribution superannuation expense
Defined benefit superannuation expense
Financial expenses
Write off of borrowing costs
Unwinding of discount on provisions and other payables
Interest expenses on financial liabilities
Interest expenses on financial liabilities with wholly-owned controlled entities
Interest expenses on financial liabilities with joint ventures and associates
Total financial expenses
60
Incitec Pivot Limited
Consolidated
Company
Notes
2009
$mill
2008
$mill
2009
$mill
2008
$mill
3,418.9
-
3,418.9
2,918.2
-
2,918.2
918.6
68.9
987.5
1,158.9
41.2
1,200.1
(34)
(29)
(34)
(17)
(18)
(29)
(17),(29)
(18),(29)
(23)
(23)
(23)
(25)
(6)
(29)
(34)
-
-
22.9
13.3
0.4
36.6
9.2
-
1.6
-
-
10.8
47.4
139.0
31.5
170.5
80.4
490.6
-
571.0
2.4
29.1
17.1
125.3
0.7
27.4
52.5
1.5
8.1
15.1
7.9
7.7
9.1
108.8
-
0.5
126.1
-
2.2
-
2.9
3.6
8.7
-
-
-
7.3
1.5
8.8
17.5
60.8
9.5
70.3
0.4
-
-
0.4
1.9
11.2
5.0
1.9
21.1
17.7
36.2
-
3.4
7.1
2.1
5.8
16.2
73.2
-
-
95.2
414.4
44.8
-
5.5
0.1
464.8
8.5
42.2
-
-
-
50.7
515.5
23.2
2.4
25.6
0.3
-
163.7
164.0
-
11.9
14.9
114.0
-
7.0
20.9
-
0.4
6.0
1.6
7.7
1.9
67.6
10.7
-
87.9
190.3
11.0
-
3.0
5.4
209.7
-
2.2
-
6.2
1.5
9.9
219.6
19.9
2.4
22.3
-
-
-
-
1.6
10.5
4.8
3.1
20.8
5.3
19.3
-
0.7
5.3
1.3
5.8
1.4
55.0
5.4
-
67.6
Notes to the Financial Statements
For the year ended 30 September 2009
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 - Fertiliser business(1)
restructuring and other direct costs
Total business restructuring
Business restructuring costs - Orica Separation and Integration(2)
restructuring and other direct costs
Total business restructuring
Business restructuring costs - Dyno Nobel Integration(3)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Business restructuring costs - Manufacturing and Distribution(4)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Other
write-off of borrowing costs(5)
inventory NRV provision(6)
tax gain on sale of subsidiary(7)
tax benefit on foreign exchange(8)
impairment of intangible assets(9)
Total other
Gross
$mill
2009
Tax
$mill
Net
$mill
Gross
$mill
2008
Tax
$mill
Net
$mill
-
-
-
-
(24.3)
(33.7)
(58.0)
(127.7)
(14.5)
(142.2)
(7.7)
(84.2)
-
-
(490.6)
(582.5)
-
-
-
-
8.0
12.0
20.0
43.9
4.8
48.7
-
-
-
-
(16.3)
(21.7)
(38.0)
(83.8)
(9.7)
(93.5)
2.3
25.3
-
158.7
-
186.3
(5.4)
(58.9)
-
158.7
(490.6)
(396.2)
(0.8)
(0.8)
(3.7)
(3.7)
(16.3)
(11.6)
(27.9)
-
-
-
(5.8)
-
-
-
-
(5.8)
0.2
0.2
1.1
1.1
3.5
1.8
5.3
-
-
-
1.7
-
(13.0)
-
-
(11.3)
(0.6)
(0.6)
(2.6)
(2.6)
(12.8)
(9.8)
(22.6)
-
-
-
(4.1)
-
(13.0)
-
-
(17.1)
Individually material items
(782.7)
255.0
(527.7)
(38.2)
(4.7)
(42.9)
(1) 2005 saw a significant rationalisation of the fertiliser industry, following which the Consolidated entity incurred significant
expenditure in reacting to the changed industry dynamics including developing and implementing a new business model
and embarking on a major restructuring of the business. During the 2008 financial year, additional expenditure was
recognised in relation to further business efficiency projects.
(2) Additional expenditure was incurred during the 2008 financial year in relation to the separation from Orica Limited and
integration of Southern Cross Fertilisers Pty Limited, including the development of a Standard Operating Environment
(IT Platform).
(3) Following the acquisition of Dyno Nobel Limited, restructuring and integration expenditure has been incurred including
employee redundancy costs as well as IT expenditure in creating common networks and collaboration between sites.
(4) The impact of the Global Financial Crisis has resulted in the Consolidated entity changing its strategy in how it manages
its manufacturing and distribution assets. The Consolidated entity has changed from a growth focus to a maintenance
focus which has resulted in a restructuring of manufacturing and distribution operations leading to redundancies,
termination of capital projects and exiting / idling certain sites (Cockle Creek, Geelong, Maitland, Port Ewen and
Battle Mountain).
(5) Direct transaction costs in relation to the Bridge Loan facility negotiated in order to acquire the remaining shares in Dyno
Nobel Limited during the year. As the Bridge Loan facility is replaced with new borrowings, its establishment costs are
required to be written off.
(6) During 2009, sales volumes and market prices for imported phosphate rock based products declined significantly. The
provision represents the write down of the phosphate rock component of finished goods and phosphate rock on hand to
net realisable value.
(7) Tax on the sale of Dyno Nobel Nitrogen Inc by Dyno Nobel Holdings USA II to Dyno Nobel Holding ASA. This tax gain is
a result of the integration and restructuring activities following the acquisition of Dyno Nobel Limited during the period.
(8) Tax benefit associated with foreign exchange losses realised on USD Debt during the period.
(9) Impairment of goodwill recognised on the acquisition of Dyno Nobel Limited. Refer Note 18 for further detail.
Incitec Pivot Limited
61
Notes to the Financial Statements
For the year ended 30 September 2009
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 - Fertiliser business (1)
restructuring and other direct costs
Total business restructuring
Business restructuring costs - Separation and Integration (2)
restructuring and other direct costs
Total business restructuring
Business restructuring costs - Dyno Nobel Integration(3)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Business restructuring costs - Manufacturing restructure(4)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Other
write-off of borrowing costs(5)
inventory NRV provision(6)
tax benefit on foreign exchange(7)
impairment of investment in a controlled entity(8)
Total other
Gross
$mill
2009
Tax
$mill
Net
$mill
Gross
$mill
2008
Tax
$mill
Net
$mill
-
-
-
-
(13.3)
(4.4)
(17.7)
(45.6)
(8.0)
(53.6)
-
-
-
-
4.0
1.3
5.3
13.7
2.5
16.2
-
-
-
-
(9.3)
(3.1)
(12.4)
(31.9)
(5.5)
(37.4)
(7.7)
(84.2)
-
(163.7)
(255.6)
2.3
25.3
158.7
-
186.3
(5.4)
(58.9)
158.7
(163.7)
(69.3)
(0.8)
(0.8)
(3.7)
(3.7)
(7.0)
-
(7.0)
-
-
-
(5.8)
-
-
-
(5.8)
0.2
0.2
1.1
1.1
2.1
-
2.1
-
-
-
1.7
-
-
-
1.7
(0.6)
(0.6)
(2.6)
(2.6)
(4.9)
-
(4.9)
-
-
-
(4.1)
-
-
-
(4.1)
Individually material items
(326.9)
207.8
(119.1)
(17.3)
5.1
(12.2)
(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. During the 2008 financial year, additional expenditure was
recognised in relation to further business efficiency projects.
(2) Additional expenditure was incurred during the 2008 financial year in relation to the separation from Orica Limited and
integration of Southern Cross Fertilisers Pty Limited, including the development of a Standard Operating Environment
(IT Platform).
(3) Following the acquisition of Dyno Nobel Limited, integration expenditure has been incurred including IT costs in creating
common networks and collaboration between sites.
(4) The impact of the Global Financial Crisis has resulted in the Company changing its strategy in how it manages its
manufacturing and distribution assets. The Company has changed from a growth focus to a maintenance focus which
has resulted in a restructuring of manufacturing and distribution operations leading to redundancies, termination of
capital projects and exiting / idling certain sites (Cockle Creek and Geelong).
(5) Direct transaction costs in relation to the Bridge Loan facility negotiated in order to acquire the remaining shares in
Dyno Nobel Limited during the financial year. As the Bridge Loan facility is replaced with new borrowings, its
establishment costs are required to be written off.
(6) During 2009, sales volumes and market prices for imported phosphate rock based products declined significantly. The
provision represents the write down of the phosphate rock component of finished goods and phosphate rock on hand to
net realisable value.
(7) Tax benefit associated with foreign exchange losses realised on USD Debt during the period.
(8) Impairment of investment related to the acquisition of Dyno Nobel Limited. The investment is lower than the impairment
of goodwill as a result of favourable foreign exchange movements and earnings post acquisition.
62
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
7. Auditor's remuneration
Total remuneration received, or due and receivable,
by the auditors for:
Audit services
Auditors of the Consolidated entity - KPMG Australia
Auditors of the Consolidated entity - KPMG Overseas
Other auditors
Non audit services
Auditors of the Consolidated entity - KPMG Australia
taxation services
other services
Consolidated
2009
$000
2008
$000
Company
2009
$000
2008
$000
1,543.4
1,393.3
106.8
3,043.5
266.0
380.0
646.0
3,689.5
997.8
1,248.0
-
2,245.8
-
5.0
5.0
2,250.8
1,154.3
-
2.0
1,156.3
997.8
-
-
997.8
225.8
380.0
605.8
1,762.1
-
5.0
5.0
1,002.8
From time to time, the auditors provide other services to the Company / Consolidated entity, which are subject to strict
corporate governance procedures adopted by the Consolidated entity which encompass the selection of service providers
and the setting of their remuneration. The Board 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.
Incitec Pivot Limited
63
Notes to the Financial Statements
For the year ended 30 September 2009
8. Income tax expense / (benefit)
Income tax expense / (benefit)
(a)
Current tax
Current year
Benefit of favourable tax ruling
Deferred tax
Origination and reversal of temporary differences
Total income tax expense / (benefit)
(b) Numerical reconciliation of income tax expense / (benefit)
and pre-tax accounting profit / (loss)
Profit / (loss) before income tax
Income tax expense / (benefit) attributable to profit / (loss) before
income tax
Tax at the Australian tax rate of 30% (2008 at 30%)
on profit / (loss) before income tax
Tax effect of amounts which are not deductible / (taxable)
in calculating taxable income:
Depreciation and amortisation
Profit on sale of property, plant and equipment
Research and development incentive
Dividends from wholly-owned entities
Interest deductible in domestic and foreign tax jurisdictions
Share-based payments
Lease payments (net)
Capital gains
Capital losses not previously recognised
Impairment of investment in a controlled entity
Impairment of intangible assets
Valuation allowances
Foreign exchange losses
Sundry items
Difference in overseas tax rates
Benefit of favourable tax ruling
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
charged to equity
Net deferred tax - debited / (charged) directly to equity
Consolidated
Company
2009
$mill
2008
$mill
2009
$mill
2008
$mill
(4.6)
(63.1)
(67.7)
(67.0)
(134.7)
226.5
(8.6)
217.9
14.0
231.9
(96.0)
(61.4)
(157.4)
(60.9)
(218.3)
19.7
(0.6)
19.1
(21.8)
(2.7)
(314.6)
836.5
39.6
181.2
(94.4)
251.0
11.9
54.4
3.0
0.2
(4.3)
-
(17.1)
0.5
(16.9)
-
-
-
147.2
32.9
(110.3)
(10.0)
(69.2)
(2.4)
(63.1)
(134.7)
0.8
-
(3.0)
-
(4.9)
0.2
(6.1)
11.8
(2.9)
-
-
(2.7)
-
(2.8)
241.4
(0.9)
(8.6)
231.9
0.1
0.4
(0.6)
(124.3)
-
0.7
-
-
-
49.1
-
16.1
(97.8)
(12.5)
(156.9)
-
(61.4)
(218.3)
0.1
0.2
(0.7)
(57.1)
-
0.8
-
-
-
-
-
-
-
0.2
(2.1)
-
(0.6)
(2.7)
12.3
12.3
(22.2)
(22.2)
(0.5)
(0.5)
(11.1)
(11.1)
64
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
9. Earnings per share (EPS)
Basic earnings / (losses) per share
including individually material items
excluding individually material items
Diluted earnings / (losses) 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) (2)
Earnings / (losses) 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 / (loss) for the financial year
Add back individually material items after income tax
(6)
Earnings used in calculation of basic and diluted EPS excluding individually material items
Consolidated
2009
Cents
per share
2008
Cents
per share (2)
Notes
(11.7)
22.6
(11.7)
22.6
56.5
60.5
56.5
60.5
Number
Number
1,541,925,068
1,069,506,540
$mill
(179.9)
(179.9)
527.7
347.8
$mill
604.6
604.6
42.9
647.5
(1) 395,305,775 shares were issued during the year ended 30 September 2009.
(2)
In September 2008, shareholders approved a share split whereby every fully paid ordinary share was split into 20 fully
paid ordinary shares.
10. Cash and cash equivalents
Cash at bank and on hand
Deposits at call
external
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
84.0
41.2
125.2
114.6
365.1
479.7
51.9
41.2
93.1
35.3
365.1
400.4
Notes
(29)
Incitec Pivot Limited
65
Notes to the Financial Statements
For the year ended 30 September 2009
Consolidated
Company
Notes
2009
$mill
2008
$mill
2009
$mill
2008
$mill
11. Trade and other receivables
Current
Trade debtors
external
jointly controlled entities
Less impairment losses
external
Sundry debtors / loans
external
jointly controlled entities
wholly-owned controlled entities
Non-current
Sundry debtors / loans
external
jointly controlled entities
wholly-owned controlled entities
Less impairment losses
external
(34)
(33)
(34)
12.
Inventories
Raw materials and stores at cost
Work in progress at cost
Finished goods
At cost
Less provision for inventory losses, obsolescence and net realisable value
Finished goods
13. Other assets
Current
Prepayments
Other
Non-current
Prepayments
14. Other financial assets
Current
Investments available for sale - listed shares
Derivative financial instruments - cash flow hedges
Cross currency interest rate swaps
Option contracts
Non-current
Investments in controlled entities
Unlisted shares at cost
Derivative financial instruments - cash flow hedges
Cross currency interest rate swaps
Forward exchange contracts
(33)
(33)
(37)
(33)
(33)
66
Incitec Pivot Limited
262.8
19.3
(6.8)
275.3
47.6
0.1
-
47.7
323.0
8.2
24.1
-
(0.2)
32.1
42.9
49.2
409.1
(104.1)
305.0
397.1
22.1
8.6
30.7
4.7
4.7
46.9
11.7
12.6
71.2
-
135.9
-
135.9
455.9
47.9
(13.3)
490.5
132.2
2.6
-
134.8
625.3
2.4
-
-
(0.1)
2.3
89.1
60.8
539.2
(13.9)
525.3
675.2
51.7
-
51.7
0.1
0.1
30.3
-
-
30.3
-
-
0.6
0.6
75.1
-
(0.4)
74.7
4.7
-
-
4.7
79.4
0.3
-
1,161.9
(0.2)
1,162.0
7.4
-
296.1
(98.1)
198.0
205.4
11.3
-
11.3
3.2
3.2
161.3
0.3
(1.8)
159.8
30.7
-
166.5
197.2
357.0
0.3
-
-
(0.1)
0.2
8.5
-
463.0
(3.0)
460.0
468.5
37.9
-
37.9
0.1
0.1
46.9
30.3
-
12.6
59.5
-
-
30.3
3,080.2
2,896.7
-
-
3,080.2
-
0.6
2,897.3
Notes to the Financial Statements
For the year ended 30 September 2009
14. Other financial assets (continued)
Sensitivity analysis – equity price risk
Consolidated entity / Company
All of the equity investments are listed on the Australian Securities Exchange. A 5% increase in the share prices of these
equities at the reporting date would have increased equity (pre-tax) by $2.3m (2008: $1.5m); an equal decrease would
have decreased equity (pre-tax) by $2.3m (2008: $1.5m).
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
Notes
15. Assets classified as held for sale
Land and buildings held for sale
Investments accounted for using the equity method
(16)
Machinery, plant and equipment held for sale
4.3
44.0
6.0
54.3
4.8
-
-
4.8
2.9
-
-
2.9
2.0
-
-
2.0
Assets classified as held for sale consist of investments and various sites which are either vacant land or sites which the
Company / Consolidated entity has already exited or is planning to exit within the next 12 months.
16. Investments accounted for using the equity method
Name of Entity
Principal Activity
Company
Incitec Pivot Limited
Jointly Controlled Entities
Alpha Dyno Nobel
Delivery of explosives and related products
Boren Explosives Company Inc. Delivery of explosives and related products
Buckley Powder Company
Delivery of explosives and related products
IRECO Midwest, Inc.
Delivery of explosives and related products
Wampum Hardware Company
Delivery of explosives and related products
Pepin-IRECO, Inc
Delivery of explosives and related products
Midland Powder Company
Delivery of explosives and related products
Mine Equipment & Mill Supply
Co.
Delivery of explosives and related products
Controlled Explosives Inc.
Delivery of explosives and related products
Delivery of explosives and related products
Western Explosives Systems
Company
DetNet Detonadores
Electronico Limitada
Ownership
interest
Country of
incorporation
Australia
1
50%
50%
51%
50%
50%
50%
50%
50%
50%
50%
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Delivery of explosives and related products
50%
Chile
Newfoundland Hard-Rok Inc.
Delivery of explosives and related products
Dyno Labrador Inc.
Delivery of explosives and related products
Quantum Explosives Inc.
Delivery of explosives and related products
Dene Dyno Nobel Inc.
Delivery of explosives and related products
Qaaqtuq Dyno Nobel Inc.
Delivery of explosives and related products
50%
50%
50%
49%
49%
Canada
Canada
Canada
Canada
Canada
1) Refer to footnote description on next page.
Incitec Pivot Limited
67
Notes to the Financial Statements
For the year ended 30 September 2009
16. Investments accounted for using the equity method (continued)
Name of Entity
Principal Activity
Queensland Nitrates Pty Ltd
Production of ammonium nitrate
Queensland Nitrates Management
Pty Ltd
Management services
DetNet International Limited
Distribution of electronic detonators
DetNet South Africa (Pty) Ltd
Development, manufacture and supply of
electronic detonators
DNEX Mexico Inc
Mexican investment holding company
Distribution of explosives and related products
Ownership
interest
Country of
incorporation
50%
50%
50%
50%
49%
49%
Australia
Australia
Ireland
South Africa
Mexico
Mexico
2
2
4
Explosivos De La Region
Lagunera, S.A. de C.V.
Explosivos De La Region
Central, S.A. de C.V.
Nitroexplosivos de Ciudad
Guzman, S.A. de C.V.
Explosivos Y Servicios Para La
Construccion, S.A. de C.V.
Tenaga Kimia Ensign-Bickford Sdn
Bhd
Distribution of explosives and related products
49%
Mexico
Distribution of explosives and related products
49%
Mexico
Distribution of explosives and related products
49%
Mexico
Manufacture of explosive accessories
50%
Malaysia
Sasol Dyno Nobel (Pty) Ltd
Distribution of detonators
Nitromak DNX Kimya Sanayi
AnonimSirketi
Manufacturing of initiating systems
50%
50%
South Africa
Turkey
2
3,5
Associates
Labrador Maskua Ashini Ltd
Delivery of explosives and related products
Fabchem China Ltd
Manufacture of commercial explosives
Valley Hydraulics Ltd
Delivery of explosives and related products
Apex Construction Specialities Ltd Delivery of explosives and related products
Warex Corporation
Delivery of explosives and related products
Warex LLC
Delivery of explosives and related products
25%
30%
25%
25%
25%
25%
Canada
Singapore
Canada
Canada
USA
USA
1) Due to the contractual and decision making arrangement between the shareholders of the entities, despite the legal ownership
exceeding 50%, these entities are not considered to be subsidiaries.
2) These jointly controlled entities have a 30 June year end. For the purpose of applying the equity method of accounting, the
financial information through to 30 September 2009 has been used.
3) During 2008 an interest in this entity was acquired. At 30 September 2009 the investment has been classified as held for sale.
4) Formerly ‘DNEX’.
5) Formerly ‘Nitromak Nakina Kimya Sanayi A.S.’
68
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
16.
Investments accounted for using the equity method (continued)
Summarised financial information of jointly controlled entities and associates:
Current assets
Non-current assets
Total Assets
Current liabilities
Non-current liabilities
Total Liabilities
Net Assets
Revenue
Net Profit
Consolidated
2009
$mill
2008
$mill
Notes
308.1
326.8
634.9
227.3
101.6
328.9
340.3
296.9
637.2
238.3
121.3
359.6
306.0
277.6
1,000.6
60.0
283.2
20.0
Share of jointly controlled entities and associates' profit / (loss):
Share of jointly controlled entities profit before tax
Share of jointly controlled entities income tax expense
Share of jointly controlled entities and associates' profit / (loss)
35.8
(10.8)
25.0
9.6
(2.9)
6.7
(29)
Carrying amount of investments in jointly controlled entities and associates
Carrying amount at the beginning of the year
Share of Joint ventures acquired during the year
Share in Joint ventures reclassified to assets held for sale
Addition of new investments
Share of net profit from jointly controlled entities and associates
Less: dividends received / receivable
(34)
Movement in foreign currency translation reserve of jointly controlled entities and associates
Carrying amount at end of the year
311.2
-
-
227.5
(44.0)
-
267.2
25.0
(5.2)
(33.0)
254.0
-
46.2
273.7
6.7
(0.3)
31.1
311.2
The Consolidated entity’s share of the capital commitments, other expenditures and contingent liabilities are
disclosed in Notes 30 and 31.
Incitec Pivot Limited
69
Freehold land
and buildings
$mill
Machinery, plant
and equipment
$mill
Notes
251.0
(107.5)
-
143.5
143.5
174.0
0.2
12.6
(4.3)
(8.4)
(0.3)
(7.7)
20.9
330.5
438.9
(113.5)
5.1
330.5
330.5
0.1
15.2
(5.9)
(15.8)
(4.6)
(13.2)
306.3
425.1
(128.8)
10.0
306.3
620.5
(287.3)
25.4
358.6
358.6
723.3
-
212.7
(6.8)
(52.4)
(0.1)
7.7
97.1
1,340.1
1,285.5
(302.2)
356.8
1,340.1
1,340.1
(7.1)
313.5
(31.8)
(123.2)
(75.8)
(58.6)
1,357.1
1,347.9
(385.2)
394.4
1,357.1
Total
$mill
871.5
(394.8)
25.4
502.1
502.1
897.3
0.2
225.3
(11.1)
(60.8)
(0.4)
-
118.0
1,670.6
1,724.4
(415.7)
361.9
1,670.6
1,670.6
(7.0)
328.7
(37.7)
(139.0)
(80.4)
(71.8)
1,663.4
1,773.0
(514.0)
404.4
1,663.4
Notes to the Financial Statements
For the year ended 30 September 2009
17. Property, plant and equipment
Consolidated
At 1 October 2007
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2008
Opening net book amount
Acquisition of business
Reclassification (to) / from fixed assets classified as held for sale
Additions
Disposals
(5)
Depreciation charge
Impairment of assets (5)
Reclassification
Foreign exchange movement
Closing net book amount
At 1 October 2008
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2009
Opening net book amount
Reclassification (to) / from fixed assets classified as held for sale
Additions
Disposals
Depreciation charge
Impairment of assets
Foreign exchange movement
Closing net book amount
(5)
(5)
At 30 September 2009
Cost
Accumulated depreciation
Construction in progress
Net book amount
70
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
17. Property, plant and equipment (continued)
Company
At 1 October 2007
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2008
Opening net book amount
Reclassifications (to) / from fixed assets classified as held for sale
Additions
Disposals
Depreciation charge
Movement in allocated assets - transfer to related party
Closing net book amount
(5)
At 1 October 2008
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2009
Opening net book amount
Reclassifications (to) / from fixed assets classified as held for sale
Additions
Disposals
Depreciation charge
Impairment of assets
Reclassification
Closing net book amount
(5)
(5)
At 30 September 2009
Cost
Accumulated depreciation
Construction in progress
Net book amount
Freehold land
and buildings
$mill
Machinery, plant
and equipment
$mill
Notes
71.5
(34.4)
-
37.1
37.1
0.2
6.7
(1.0)
(2.9)
0.6
40.7
76.1
(36.6)
1.2
40.7
-
40.7
(0.9)
6.5
(3.3)
(2.8)
-
0.5
40.7
74.9
(37.5)
3.3
40.7
206.7
(80.5)
15.2
141.4
141.4
-
46.5
(0.5)
(17.0)
3.2
173.6
237.1
(90.1)
26.6
173.6
-
173.6
-
14.5
(0.9)
(20.4)
(0.3)
0.5
167.0
254.0
(103.3)
16.3
167.0
Total
$mill
278.2
(114.9)
15.2
178.5
178.5
0.2
53.2
(1.5)
(19.9)
3.8
214.3
313.2
(126.7)
27.8
214.3
-
214.3
(0.9)
21.0
(4.2)
(23.2)
(0.3)
1.0
207.7
328.9
(140.8)
19.6
207.7
Non-current assets impairments
During the year ended 30 September 2009, impairment of assets occurred to the value of $6.9m (2008: $0.4m) as a result
of the Consolidated entity’s fixed asset verification procedures and the abandonment of certain assets.
Capitalised interest
During the 2009 financial year interest of $18.2m (2008: $2.1m) was capitalised relating to interest bearing liabilities used
specifically to fund expansion projects.
Incitec Pivot Limited
71
Other
$mill
5.9
(2.9)
3.0
3.0
-
-
(3.0)
-
-
5.9
(5.9)
-
-
-
-
-
-
-
-
-
-
Total
$mill
205.2
(11.5)
193.7
193.7
3,247.6
2.1
(12.5)
531.2
3,962.1
3,987.4
(25.3)
3,962.1
3,962.1
16.0
(31.5)
(490.6)
(303.0)
3,153.0
3,199.7
(46.7)
3,153.0
Patents,
Trademarks &
Customer
Contracts Brand Name
$mill
$mill
-
-
-
-
225.0
-
(5.3)
24.0
243.7
250.1
(6.4)
243.7
243.7
-
(20.8)
-
(12.0)
210.9
235.1
(24.2)
210.9
-
-
-
-
241.5
-
-
33.5
275.0
275.0
-
275.0
275.0
-
-
-
(19.6)
255.4
255.4
-
255.4
Notes to the Financial Statements
For the year ended 30 September 2009
18.
Intangible assets
Consolidated
Software
Goodwill
At 1 October 2007
Cost
Accumulated amortisation
Net book amount
$mill
15.5
(8.6)
6.9
$mill
183.8
-
183.8
Year ended 30 September 2008
Opening net book amount
Acquisition of business (28)
Additions
Amortisation charge
Foreign exchange movement
Closing net book amount
183.8
2,754.6
-
-
470.2
3,408.6
6.9
26.5
2.1
(4.2)
3.5
34.8
At 1 October 2008
Cost
Accumulated amortisation
Net book amount
47.8
(13.0)
34.8
3,408.6
-
3,408.6
Year ended 30 September 2009
Opening net book amount
Additions
Amortisation charge
Impairment of assets
Foreign exchange movement
Closing net book amount
3,408.6
-
-
(490.6)
(268.7)
2,649.3
34.8
16.0
(10.7)
-
(2.7)
37.4
At 30 September 2009
Cost
Accumulated amortisation
Net book amount
59.9
(22.5)
37.4
2,649.3
-
2,649.3
72
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
18.
Intangible assets (continued)
Company
Software
Goodwill
$mill
Notes
At 1 October 2007
Cost
Accumulated amortisation
Net book amount
$mill
15.6
(8.6)
7.0
-
-
-
Year ended 30 September 2008
Opening net book amount
Additions
Amortisation charge
Closing net book amount
7.0
2.0
(2.4)
6.6
At 1 October 2008
Cost
Accumulated amortisation
Net book amount
17.5
(10.9)
6.6
Year ended 30 September 2009
Opening net book amount
Additions
Amortisation charge
Closing net book amount
6.6
0.9
(2.4)
5.1
At 30 September 2009
Cost
Accumulated amortisation
Net book amount
18.4
(13.3)
5.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Patents,
Trademarks &
Customer
Contracts Brand Name
$mill
$mill
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Other
$mill
5.6
(2.7)
2.9
2.9
-
(2.9)
-
-
-
-
-
-
-
-
-
-
-
Total
$mill
21.2
(11.3)
9.9
9.9
2.0
(5.3)
6.6
17.5
(10.9)
6.6
6.6
0.9
(2.4)
5.1
18.4
(13.3)
5.1
(a) Allocation of goodwill
The Consolidated entity’s business segments form the basis of allocating goodwill as presented below:
Fertilisers
Explosives
2009
$mill
183.8
2,465.5
2,649.3
2008
$mill
183.8
3,224.8
3,408.6
(b) Impairment testing
The carrying amount of goodwill and intangible assets with indefinite lives are tested for impairment annually at 30
September and all other assets are tested when there is an indicator that an asset may be impaired, as was the case for
the year ended 30 September 2009. If an asset is deemed to be impaired it is written down to its recoverable amount. The
recoverable amount is based on the higher of fair value less costs to sell and value in use. Value in use is calculated using
cash flow projections based on financial forecasts for a period of five years as approved by management.
(c) Key assumptions used for value-in-use calculations
Key assumptions used to test for impairment, include:
Fertilisers
Explosives
Terminal Growth Rate
Discount rate
2009
%
2.5%
2.5%
2008
%
2.0%
3.0%
2009
%
10.2%
9.0%
2008
%
10.2%
8.5%
Incitec Pivot Limited
73
Notes to the Financial Statements
For the year ended 30 September 2009
18. Intangible assets (continued)
(d) Impairment Charge
As a result of the impairment review, the Consolidated entity recognised a non-cash impairment charge of $490.6m in the
year ended 30 September 2009 (2008: $nil). The charge related to the write-off of goodwill in relation to the Explosives
business segment.
(e) Sensitivity analysis
As part of impairment testing, a sensitivity analysis was conducted on the effect of changes in forecasted cash flows and
discount rates. A summary of key sensitivities is listed below:
Fertilisers
Explosives
Terminal Growth Rate
Discount Rate
+0.5%
53.1
264.0
-0.5%
(46.6)
(226.0)
+0.5%
(60.0)
(280.0)
-0.5%
68.4
326.0
An adverse movement in terminal growth rates or discount rates would result in an additional impairment charge to the
Explosives intangible assets, as highlighted above.
19. Deferred tax assets
The balance comprises temporary differences attributable to:
Impairment of trade and other receivables
Employee entitlements provision
Retirement benefit obligations
Restructuring and rationalisation provision
Environmental provision
Other provisions
Inventories
Property, plant and equipment
Foreign exchange losses
Share buy-back expenses
Share issue expenses
Cash flow hedges
Unfavourable supplier contracts
Tax losses
Other
Deferred tax assets
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
Notes
1.5
11.4
7.3
5.6
25.9
4.5
20.3
61.0
10.6
0.6
-
3.9
153.1
135.8
90.5
532.0
3.8
17.4
18.7
5.2
22.7
20.1
5.6
31.0
13.1
1.1
2.0
4.2
192.9
35.5
44.1
417.4
0.2
7.4
1.6
4.1
12.5
3.1
14.2
-
-
0.6
-
3.9
-
81.4
0.9
129.9
0.6
7.3
0.7
4.8
10.0
6.2
0.9
-
13.1
1.1
2.0
4.2
-
-
4.0
54.9
Set-off of deferred tax liabilities pursuant to set-off provisions (24)
(177.8)
(45.9)
(40.2)
(21.0)
Net deferred tax assets
Movements:
354.2
371.5
89.7
33.9
Opening balance at 1 October
Credited / (charged) to the income statements
Credited / (charged) to equity
Acquisition of subsidiaries
Foreign exchange movement
Adjustments in respect of prior years
Closing balance at 30 September
417.4
176.2
(8.7)
-
(48.2)
(4.7)
532.0
75.4
1.8
16.5
307.8
15.2
0.7
417.4
54.9
74.9
4.8
-
-
(4.7)
129.9
30.9
19.1
4.9
-
-
-
54.9
74
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
20. Trade and other payables
Current
Trade creditors
external
wholly-owned controlled entity
Sundry creditors and accrued charges
external
jointly controlled entities
unfavourable sales / supplier contracts
Non-current
Sundry creditors and accrued charges
external
share based payments
wholly-owned controlled entity
unfavourable sales / supplier contracts
Consolidated
Company
Notes
2009
$mill
2008
$mill
2009
$mill
2008
$mill
(34)
(34)
413.5
-
413.5
123.1
0.2
99.9
223.2
636.7
-
0.1
-
426.5
426.6
785.6
-
785.6
249.7
-
96.7
346.4
1,132.0
3.1
-
-
516.9
520.0
230.9
404.0
634.9
27.1
-
-
27.1
662.0
-
-
831.7
-
831.7
369.6
623.0
992.6
176.7
-
-
176.7
1,169.3
-
-
337.7
-
337.7
Unfavourable contracts
Unfavourable contracts were recognised as part of the Southern Cross Fertilisers Pty Ltd acquisition in 2006 and the Dyno
Nobel Limited acquisition in 2008. The liability is measured at acquisition date based on the unfavourable difference
between the market rate and contractual rate with suppliers and customers and multiplying it by the volumes required to be
purchased / supplied that are specified in the contracts. Where contract terms are greater than one year, cash flows are
discounted by applying a pre tax interest rate equivalent to the Consolidated entity’s cost of debt. The liability is amortised
based on contracted volumes determined in measuring the liability at acquisition date 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.
Incitec Pivot Limited
75
Notes to the Financial Statements
For the year ended 30 September 2009
Consolidated
Company
Notes
2009
$mill
2008
$mill
2009
$mill
2008
$mill
21.
Interest bearing liabilities
Current
Secured
bank loans
trade loans
participation facility
bank overdraft
lease liability
Unsecured
bank loans - bridge / working capital facility
other loans
wholly-owned controlled entity
joint ventures and associates (1)
Non-current
Secured
bank loans
participation facility
lease liability
Unsecured
bank loans
bridge / working capital facility
syndicated facility
joint ventures and associates (1)
47.2
53.7
-
0.4
-
66.2
11.0
3.8
315.2
2,147.1
-
15.7
432.2
-
10.7
2,238.8
47.2
47.2
-
-
-
-
-
-
(29)
(33)
186.4
2.0
267.2
4.0
100.0
867.3
0.7
(33)
1,156.4
-
-
-
271.2
-
-
-
-
-
-
-
-
-
-
170.0
10.5
-
180.5
-
-
-
-
-
-
Committed bank overdraft facilities are provided to the Consolidated entity both in Australia and internationally. These
facilities are used as a contingency and interest is payable at a Base Rate plus a margin. During the year, the
Consolidated entity undertook a number of financing activities:
-
-
-
The unsecured Syndicated facility was drawn down to repay a portion of the Bridge facility.
A Working Capital facility was entered into, which replaced the Bridge facility.
A short term Trade Loan facility was negotiated and drawn down.
Significant terms and conditions
Interest expense is recognised progressively over the life of the facilities.
Bridge / Working Capital facility
In March 2009, the Company entered into a Working Capital facility, which replaced the Bridge facility. The Working
Capital facility is designed to support the Consolidated entity’s working capital requirements. The facility limit at
30 September 2009 is AUD420.0m and reduces over the term of the facility which expires on 1 October 2010.
Syndicated facility
The Syndicated facility is a 3 year revolving facility that can be drawn in either AUD or USD. It has a facility limit of
AUD1,680.0m and matures on 17 September 2011.
Participation facility
The Participation facility matures on 28 June 2013, the carrying amount of the facility of AUD240.1m is secured against
certain assets operated by Southern Cross Fertilisers Pty Ltd. The facility is denominated in AUD and has a fixed nominal
interest rate of 8.93% for the term of the facility.
In September 2009 the Consolidated entity entered into a second Participation Facility, which matures on 24 September
2014. The AUD63.0m facility was undrawn at 30 September 2009. Subsequent to 30 September 2009 the facility has been
fully drawn and the funds used to repay and cancel an equivalent amount of limit under the Working Capital facility. The
participation facility is secured against certain assets operated by Southern Cross Fertilisers Pty Ltd and has a fixed
nominal interest rate of 9.63% for the term of the facility.
(1) Loans from joint ventures and associates relate to unsecured loans from joint ventures in Wampum Hardware Co and
Alpha Dyno Nobel Inc.
76
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
21. Interest bearing liabilities (continued)
Trade Loan facility
The Trade Loan facility is an uncommitted funding arrangement for the purposes of funding trade related payments
associated with the importation of various raw and finished products. It has a facility limit of USD50.0m.
22. Other financial liabilities
Current
Derivative financial instruments
forward commodity contracts
option contracts
interest rate contracts
23. Provisions
Current
Employee entitlements
Restructuring and rationalisation
Environmental
Asset retirement obligation
Other
Non-current
Employee entitlements
Restructuring and rationalisation
Environmental
Asset retirement obligation
Other
Aggregate employee entitlements
Current
Non-current
Notes
(33)
(33)
(33)
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
-
-
12.9
12.9
24.8
24.4
29.6
1.7
12.9
93.4
12.4
11.2
44.5
13.1
6.3
87.5
24.8
12.4
37.2
2.4
13.8
-
16.2
24.5
13.6
31.5
3.1
15.9
88.6
13.3
10.1
46.2
5.2
16.0
90.8
24.5
13.3
37.8
-
-
12.9
12.9
-
13.8
-
13.8
12.2
13.2
11.3
-
9.6
46.3
12.4
7.3
30.5
-
-
50.2
12.2
12.4
24.6
12.5
5.7
15.5
-
14.0
47.7
11.9
10.1
17.7
-
6.6
46.3
12.5
11.9
24.4
The present value of Company and the Consolidated entity’s 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 (risk free rate)
Settlement term
Employees at year end
Full time equivalent
4.25% + age based scale
6.08%
10 years
2009
Number
4,622
2008
Number
5,134
2009
Number
1,002
2008
Number
1,062
Incitec Pivot Limited
77
Notes to the Financial Statements
For the year ended 30 September 2009
23. Provisions (continued)
Reconciliations
Reconciliations of the carrying amounts of provisions from the beginning to the end of the current financial year are set out below.
Consolidated Company
Notes
$mill
$mill
(27)
(5)
(5)
(5)
-
(271.0)
271.0
-
-
(271.0)
271.0
-
13.6
24.9
(1.0)
(12.6)
1.3
(1.8)
24.4
31.5
0.6
(0.5)
(10.3)
10.2
(1.9)
29.6
3.1
(1.2)
(0.2)
1.7
15.9
0.7
(0.7)
(11.9)
9.7
(0.8)
12.9
5.7
7.0
(0.1)
(2.9)
3.5
-
13.2
15.5
0.1
(0.5)
(5.8)
2.0
-
11.3
-
-
-
-
14.0
-
-
(11.3)
6.9
-
9.6
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
Provisions written back during the year
Payments made during the year
Transfers
Foreign currency exchange differences
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
Payments made during the year
Transfers
Foreign currency exchange differences
Carrying amount at the end of the financial year
Current Provision - Asset retirement obligations
Carrying amount at the beginning of the financial year
Payments made during the year
Foreign currency exchange differences
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
Transfers
Foreign currency exchange differences
Carrying amount at the end of the financial year
See Note 1(xvi) for further details on provisions noted above.
78
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
23. Provisions (continued)
Reconciliations (continued)
Non-current Provision - Restructuring and rationalisation
Carrying amount at the beginning of the financial year
Provisions made during the year
Transfers
Unwinding of discount
Foreign currency exchange differences
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
Provisions written back during the year
Transfers
Unwinding of discount
Foreign currency exchange differences
Carrying amount at the end of the financial year
Non-current Provision - Asset retirement obligations
Carrying amount at the beginning of the financial year
Provisions made during the year
Provisions written back during the year
Transfers
Unwinding of discount
Foreign currency exchange differences
Carrying amount at the end of the financial year
Non-current Provision - Other
Carrying amount at the beginning of the financial year
Payments made during the year
Transfers
Unwinding of discount
Foreign currency exchange differences
Carrying amount at the end of the financial year
See Note 1(xvi) for further details on provisions noted above.
Consolidated Company
Notes
$mill
$mill
(5)
(5)
10.1
2.5
(1.3)
0.7
(0.8)
11.2
46.2
16.5
(0.9)
(17.6)
1.5
(1.2)
44.5
5.2
1.5
(1.9)
7.4
1.1
(0.2)
13.1
16.0
-
(9.7)
0.3
(0.3)
6.3
10.1
-
(3.5)
0.7
-
7.3
17.7
14.8
-
(2.0)
-
-
30.5
-
-
-
-
-
-
-
6.6
0.3
(6.9)
-
-
-
Incitec Pivot Limited
79
Notes to the Financial Statements
For the year ended 30 September 2009
24. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Inv entories
Property, plant and equipment
Intangible assets
Financial assets at fair value
Cash flow hedges
Foreign exchange (losses) / gains
Provision
Other
Deferred tax liabilities
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
Notes
0.9
228.6
133.7
9.9
8.7
4.5
32.8
71.5
490.6
1.2
209.9
134.0
5.8
5.5
(2.6)
-
72.5
426.3
0.6
12.7
0.8
9.8
-
-
16.0
0.3
40.2
0.6
13.1
1.0
5.8
0.2
-
-
0.3
21.0
Set-off of deferred tax liabilities pursuant to set-off provisions (19)
(177.8)
(45.9)
(40.2)
(21.0)
Net deferred tax liabilities
312.8
380.4
-
-
Movements:
Opening balance at 1 October
Charged / (credited) to the income statements
Charged / (credited) to equity
Acquisition of subsidiaries
Foreign exchange (losses) / gains
Adjustments in respect of prior years
Closing balance at 30 September
426.3
109.3
4.2
-
(50.2)
1.0
490.6
46.8
15.8
(6.4)
318.7
51.4
-
426.3
21.0
14.0
4.2
-
-
1.0
40.2
30.0
(2.7)
(6.3)
-
-
-
21.0
80
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
25. Retirement benefit obligations
(a) Information on Plans
The Consolidated entity operates a number of defined benefit plans to provide benefits for employees and their
dependants on retirement, disability or death. In the Americas (comprising Canada, USA and Mexico), several defined
benefit pension plans are in operation. Contributions to the plans are determined by actuarial valuation using the projected
unit credit cost method.
The Company is the 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 key assumptions and amounts recognised in the income
statements and balance sheets are set out below.
(b) Reconciliation of the present value of the defined benefit obligation
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
Notes
Present value of defined benefit obligations at beginning of the year
Present value of defined benefit obligations acquired
Current service cost
Past service benefit
Interest cost
Actuarial (gains) / losses
Contributions by plan participants
Benefits paid
Foreign exchange differences on foreign plans
Present value of defined benefit obligations at end of the year
(c) Reconciliation of the fair value of plan assets
Fair value of plan assets at beginning of the year
Fair value of plan assets acquired
Expected return on plan assets
Actuarial gains / (losses)
Employer contributions
Contributions by plan participants
Benefits paid
Foreign exchange differences on foreign plans
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
Tax provision
Total value of funded defined benefit obligations at end of year
Fair value of plan assets at end of year
Net liability recognised in balance sheets at end of year
(e) Expense recognised in income statements
Current service cost
Past service benefit
Interest cost
Expected return on plan assets
Expense recognised in income statements
(5)
287.3
-
7.5
(1.0)
17.5
16.0
1.7
(24.7)
(15.9)
288.4
220.9
-
16.1
(17.3)
9.8
1.5
(24.7)
(9.5)
196.8
287.6
0.8
288.4
(196.8)
91.6
7.5
(1.0)
17.5
(16.1)
7.9
77.5
186.3
3.9
-
9.4
(5.9)
1.0
(20.1)
35.2
287.3
79.9
163.6
11.2
(43.9)
4.4
1.6
(20.0)
24.1
220.9
287.3
0.4
287.7
(220.9)
66.8
3.9
-
9.4
(11.2)
2.1
64.5
-
2.1
-
4.0
(4.4)
1.8
(7.4)
-
60.6
62.5
-
4.5
(7.0)
1.0
1.5
(7.4)
-
55.1
59.8
0.8
60.6
(55.1)
5.5
2.1
-
4.0
(4.5)
1.6
2008
$mill
77.5
-
2.1
-
4.9
(5.9)
1.0
(15.1)
-
64.5
79.9
-
5.7
(10.8)
1.2
1.6
(15.1)
-
62.5
64.5
0.4
64.9
(62.5)
2.4
2.1
-
4.9
(5.7)
1.3
Incitec Pivot Limited
81
Notes to the Financial Statements
For the year ended 30 September 2009
25. Retirement benefit obligations (continued)
Consolidated
Company
2009
$mill
2008
$mill
(f) Amounts recognised in the statements of comprehensive income
Actuarial (gains) / losses (before income tax)
33.3
38.0
(g) Cumulative amount recognised in the statements of comprehensive income
Cumulative amount of actuarial (gains) / losses
68.7
35.4
(h) Plan Assets
The percentage invested in each asset class at the reporting date:
Equities
Fixed Interest Securities
Property
Other
(i) Fair value of plan assets
61%
25%
6%
8%
55%
30%
8%
7%
2009
$mill
2.6
5.0
45%
13%
15%
27%
2008
$mill
4.9
2.4
49%
14%
13%
24%
The fair value of plan assets includes no amounts relating to:
- any of the Company’s / Consolidated entity's own financial instruments
- any property occupied by, or other assets used by, the Company / Consolidated entity
(j) Expected rate of return on plan assets
The overall expected rate of return on assets assumption is determined by weighting the expected long-term rate of return for each
asset class by the target allocation of assets to each class. The rates of return used for each class are net of investment tax and
investment fees.
(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
Medical cost trend rate
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 2009:
Expected employer contributions
Expected contribution by plan participants
(1.3)
(32.7)
(2.5)
(5.1)
4.0% - 8.0% 4.5% - 8.2%
5.6% - 8.0% 7.0% - 8.5%
2.0% - 5.0% 2.0% - 5.6%
5.0% - 8.5% 5.0% - 9.0%
2.5%
2.1% - 4.0%
5.3%
7.7%
4.0%
0%
2.1%
4.5%
7.5%
4.3%
0%
2.5%
2009
2008
2007
2006
2005
287.7
(220.9)
66.8
7.9
(10.9)
77.2
(79.9)
(2.7)
(4.4)
3.7
75.1
(72.2)
2.9
(2.9)
3.3
75.3
(72.0)
3.3
(4.2)
4.6
288.4
(196.8)
91.6
3.7
(2.9)
11.3
0.7
82
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
26. Issued capital
Share Capital
Ordinary shares authorised and issued - 1,612,536,335 (2008: 1,217,230,560 ) (1)
Movements in issued and fully paid ordinary shares of the Company during the financial year:
Date
Details
30 September 2008
24 November 2008
18 December 2008
19 December 2008
11 May 2009
7 July 2009
30 September 2009
Balance at the end of the previous financial year
Shares issued during the period
Shares issued (institutional issue)
Shares issued (retail issue)
Shares issued (Nitromak purchase 1)
Shares issued (Nitromak purchase 2)
Shares issued (Dividend Reinvestment Plan and underwriter issue)
Transaction costs of issued shares
Balance at the end of the financial year
(1) Ordinary shares authorised and issued have no par value.
Consolidated / Company
2008
$mill
2009
$mill
3,217.8
3,217.8
2,267.7
2,267.7
Number of
Shares
$mill
1,217,230,560
2,267.7
327,600,000
33,073,604
20,374,444
1,482,729
12,774,998
1,612,536,335
819.0
82.7
49.1
3.5
33.6
(37.8)
3,217.8
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
shareholders’ meetings.
Shares issued during financial year
On 24 November 2008, 327,600,000 ordinary shares ($819.0m) were issued under the institutional entitlement offer.
On 18 December 2008, 33,073,604 ordinary shares ($82.7m) were issued under the retail entitlement offer.
On 19 December 2008, 20,374,444 ordinary shares ($49.1m) were issued to fund Incitec Pivot’s final component of the
purchase price consideration in respect of its 50% interest in Nitromak.
On 11 May 2009, an additional 1,482,729 ordinary shares ($3.5m) were issued to fund the final, conditional tranche of the
purchase price payable by Incitec Pivot in respect of its 50% interest in Nitromak.
On 7 July 2009, 3,378,748 ordinary shares ($8.8m) were issued to Dividend Reinvestment Plan (DRP) participants and
9,396,250 ($24.8m) to the underwriter to fund the interim dividend payment.
Incitec Pivot Limited
83
Notes to the Financial Statements
For the year ended 30 September 2009
27. Dividends
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary Shares
Final dividend of 9.55 cents per share(1), fully franked at 30%, paid 13 December 2007
Final special dividend of 2 cents per share(1), fully franked at 30%, paid 13 December 2007
Interim dividend of 10.2 cents per share(1), fully franked at 30%, paid 2 July 2008
Final dividend of 19.5 cents per share, fully franked at 30%, paid 14 November 2008
Interim dividend of 2.1 cents per share(2), fully franked at 30%, paid 7 July 2009
Total ordinary share dividends
Company
2009
$mill
2008
$mill
-
-
-
237.4
33.6
271.0
96.3
20.2
102.8
-
-
219.3
Subsequent event
Since the end of the financial year, the directors have determined to pay the following dividend:
- Final dividend of 2.3 cents per share, unfranked to be paid on 18 December 2009
37.1
Ordinary shares
The financial effect of this dividend has not been recognised in the financial report and will be recognised in subsequent
financial reports.
(1) Dividends per share in the comparative period have been restated following the 20 for 1 share split as approved by
shareholders in September 2008.
(2) Dividends were paid by a Dividend Reinvestment Plan which was fully underwritten.
Franking credits
Franking credits available to shareholders of the Company amount to negative $15.1m (2008: $195.1m) at the 30%
(2008 at 30%) corporate tax rate after allowing for tax receveiable 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.
Future profits earned by the Company will be a mixture of Australian and offshore income. Consequently some tax will be
paid in foreign jurisdictions, and will not be available as franking credits.
84
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
28. Business combination
Acquisition of Dyno Nobel Limited
(a) Summary of acquisition
On 16 June 2008, the Consolidated entity acquired the remaining shares it did not already own (86.8%) in Dyno Nobel
Limited for $2,460.8m, including $37.1m of transaction costs. During 2007 the Company acquired 13.2% of the shares in
Dyno Nobel Limited for $256.2m. Dyno Nobel Limited manufactures and sells industrial explosives and related products
and services to mining, quarrying and construction industries.
(b) Purchase consideration
Consideration paid, satisfied in cash
Less cash acquired
Net cash outflow
Add back cash acquired
Shares issued
Original investment (13.2%)
Purchase consideration
Consolidated
2008 Amendments
$mill
551.9
(25.5)
526.4
25.5
1,908.9
256.2
2,717.0
$mill
(1.0)
-
(1.0)
-
-
-
(1.0)
2009
$mill
550.9
(25.5)
525.4
25.5
1,908.9
256.2
2,716.0
(c) Assets and liabilities acquired
Since 30 September 2008 the following amendments to the 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:
Dyno Nobel
Initial
pre acquisition
carrying
Fair Value
amounts adjustments
$mill
$mill
Provisional
Fair values
as at 16
Additional
Fair Value
June 2008 adjustments
$mill
$mill
Acquiree's net assets at the acquisition date
Cash and cash equivalents
Trade and other receivables
Inventories
Equity accounted investments
Property, plant and equipment
Intangibles
- Goodwill
- Software
- Non compete
- Patents
- Customer contracts
- Trademarks
- Dyno brand name
Deferred tax assets
Trade payables
Other assets / (liabilities)
Step-up Preference Shares
Tax liabilities
Deferred tax liabilities
Provisions
Interest bearing liabilities
Net identifiable assets and liabilities
Less consideration
Goodwill on acquisition recognised
25.2
356.4
169.6
123.9
624.1
179.6
-
2.0
22.4
-
-
-
152.3
(67.9)
(246.7)
-
3.7
-
(48.3)
(852.4)
443.9
0.3
1.3
8.1
103.6
290.3
(179.6)
27.6
(2.0)
1.7
159.9
41.0
241.5
95.6
(2.6)
(541.0)
(345.0)
(4.7)
(271.7)
(8.6)
(5.6)
(389.9)
25.5
357.7
177.7
227.5
914.4
-
27.6
-
24.1
159.9
41.0
241.5
247.9
(70.5)
(787.7)
(345.0)
(1.0)
(271.7)
(56.9)
(858.0)
54.0
2,717.0
2,663.0
-
-
(1.4)
-
(17.1)
-
(1.1)
-
-
-
-
-
59.9
-
(42.9)
-
(43.0)
(47.0)
-
-
(92.6)
(1.0)
91.6
Final Fair
Value
$mill
25.5
357.7
176.3
227.5
897.3
-
26.5
-
24.1
159.9
41.0
241.5
307.8
(70.5)
(830.6)
(345.0)
(44.0)
(318.7)
(56.9)
(858.0)
(38.6)
2,716.0
2,754.6
The goodwill recognised on the acquisition is mainly attributable to the skills and technical talent of the acquiree’s
workforce and the synergies expected to be achieved from integrating the acquiree into the Consolidated entity’s existing
business.
Incitec Pivot Limited
85
Notes to the Financial Statements
For the year ended 30 September 2009
29. Reconciliation of profit after income tax to net cash inflow from operating activities
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
Notes
Reconciliation of cash
Cash at the end of the financial year as shown in the Statements of
Cash Flows is reconciled to the related items in the Statements of
Financial Position as follows:
Cash
Bank overdraft
Reconciliation of profit for the financial year to net cash flows
from operating activities
Profit / (loss) for the financial year
Depreciation and amortisation
Depreciation of capital spares
Write-down of property, plant and equipment
Profit on share equity accounted investments
Net (profit) / loss on sale of property, plant and equipment
Impairment of investment in a controlled entity
Impairment of goodwill
Loss on transactional contracts
Foreign exchange difference on loans with foreign controlled entities
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 tax liabilities
increase / (decrease) in net interest payable
increase / (decrease) in payables and provisions
increase / (decrease) in income taxes payable
Net cash flows from operating activities
(10)
(21)
125.2
-
125.2
479.7
(11.0)
468.7
93.1
-
93.1
400.4
-
400.4
(5)
(5)
(16)
(4)
(5)
(179.9)
170.5
-
80.4
(25.0)
(13.3)
-
490.6
-
-
3.8
-
9.1
209.8
293.1
(30.9)
(21.6)
6.3
(427.0)
(228.5)
337.4
604.6
70.3
1.0
0.4
(6.7)
(2.9)
-
-
0.6
-
3.0
2.9
16.2
(63.3)
(249.9)
(19.1)
135.8
1.4
281.3
47.0
822.6
257.9
25.6
-
0.3
-
(5.5)
163.7
-
-
-
-
-
1.9
84.9
263.1
(55.8)
-
(3.7)
(276.9)
(243.2)
212.3
183.9
22.3
1.0
-
-
(3.0)
-
-
0.1
7.7
-
2.9
1.4
(135.5)
(245.9)
(22.5)
0.7
2.4
848.2
(44.8)
618.9
86
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
30. Commitments
a) Capital expenditure commitments
Capital expenditure on property, plant and equipment contracted but not provided for and payable:
Consolidated
Company
2009
$mill
2008
$mill
2009
$mill
2008
$mill
no later than one year
later than one, no later than five years
Share of capital expenditure commitments of the joint venture operation:
no later than one year
b) Lease commitments
89.2
23.1
112.3
93.4
-
93.4
2.4
114.7
18.3
111.7
1.3
-
1.3
-
1.3
0.3
-
0.3
-
0.3
Non-cancellable operating lease commitments comprise a number of operating arrangements for the provision of certain equipment and
property. 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
54.6
111.0
56.5
222.1
43.1
96.3
62.8
202.2
26.2
54.5
30.4
111.1
17.6
39.0
34.1
90.7
Finance lease commitments comprise a number of finance 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
Less future finance charges
Present value of minimum lease payments provided for as a liability
2.2
3.7
5.9
-
5.9
3.6
5.4
9.0
(0.9)
8.1
-
-
-
-
-
-
-
-
-
-
c) Other expenditure commitments
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
61.0
222.6
147.4
431.0
31.9
115.5
175.5
322.9
29.6
97.4
-
127.0
-
-
-
-
Incitec Pivot Limited
87
Notes to the Financial Statements
For the year ended 30 September 2009
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:159)
Under a Deed of Cross Guarantee dated 30 September 2008, entered into in accordance with ASIC Class
Order 98/1418 (as amended), 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 the commentary to Note 37, Investments in controlled
entities.
Consolidated Statements of Financial Position and Income Statements for the closed group is shown in
Note 38, 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 level 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.
(cid:159)
(cid:159)
(cid:159)
(cid:159)
(cid:159)
(cid:159)
I
Environmental
General
The Company has identified a number of sites as requiring environmental clean up and review. Appropriate
implementation of clean up requirements is ongoing. In accordance with current accounting policy (see Note 1
(xvi)), provisions have been created for all known environmental liabilities that can be reliably estimated. While the
directors believe that, based upon current information, the current provisions are appropriate, there can be no
assurance that new information or regulatory requirements with respect to known sites or the identification of new
remedial obligations at other sites will not require additional future provisions for environmental remediation and
such provisions could be material.
II
Environmental matters subject to voluntary requirements with regulatory authority
For sites where the requirements have been assessed and are capable of reliable measurement, estimated
regulatory and remediation costs have been capitalised, expensed as incurred or provided for in accordance with
the accounting policy included in Note 1 (xvi).
Taxation
Consistent with other companies of the size of Incitec Pivot Limited, the Consolidated entity 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.
88
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
32. Financial risk management
Overview
The Consolidated entity has exposure to the following variety of financial risks:
• Market risk (foreign exchange, interest rate, equity price and commodity risk)
• Liquidity risk
• Credit risk
This note presents information about the Consolidated entity’s exposure to each of the above risks, as well as the
Consolidated entity’s objectives, policies and processes for measuring and managing risk.
The Board of Directors has overall responsibility for the establishment and oversight of the Consolidated entity’s risk
management framework. The Board established the Board Audit and Risk Management Committee (BARMC), which is
responsible for, amongst other things, the monitoring of the Consolidated entity’s risk management plans. The BARMC
reports regularly to the Board of Directors on its activities.
The Consolidated entity’s financial risk management policies establish a framework for identifying, analysing and
managing the financial risks faced by the Consolidated entity. These policies set appropriate financial risk limits and
controls, identify permitted derivative instruments and provide guidance on how financial risks and adherence to limits are
to be monitored and reported.
Financial risk management policies and systems are reviewed regularly to ensure they remain appropriate given changes
in market conditions and/or the Consolidated entity’s activities.
The BARMC oversees how management monitors compliance with the Consolidated entity’s risk management policies
and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the
Consolidated entity. The BARMC is assisted in its oversight role by the Consolidated entity’s internal auditors. The internal
auditors undertake both regular and ad hoc reviews of risk management controls and procedures, the results of which are
reported to the BARMC.
A. Market risk
Market risk is the risk that changes in commodity prices, foreign exchange rates and interest rates will affect the
Consolidated entity’s income, cash flows and/or value of its holdings of derivative instruments. The objective of market risk
management is to manage market risk exposures within acceptable parameters, while optimising the return on risk. To
achieve this objective an “insurance based” approach is often taken whereby the Consolidated entity will pay a premium to
limit the impact of unfavourable market movements while allowing at least partial participation in favourable movements.
For some market risks, primarily commodity price risks, there is either no specific derivative market available or the
derivative market is illiquid and expensive. In some cases, derivative markets exist but contain unacceptable levels of
basis risk (the risk that the change in price of a hedge may not match the change in price of the item it hedges). In these
circumstances, the Consolidated entity chooses not to hedge using derivatives.
Further details of the Consolidated entity’s financial risk management structures are outlined below, including information
as to whether hedge accounting has been applied.
i. Foreign exchange risk - transactional
The Consolidated entity is exposed to foreign exchange movements on sales and purchases denominated, either directly
or indirectly, in foreign currency (primarily in United States dollars). Where these exposures are significant and cannot be
eliminated by varying contract terms or other business arrangements, formal hedging strategies are implemented within
Board approved policy. The formal hedging strategies involve collating and consolidating exposure levels centrally, and
hedging specific transactions, after taking into account offsetting exposures, by entering into derivative contracts with
highly rated financial institutions. The Consolidated entity’s principal transactional foreign exchange risks can be split into
two main categories: short term contractual exposures and longer term forecast exposures.
Incitec Pivot Limited
89
Notes to the Financial Statements
For the year ended 30 September 2009
32. Financial risk management (continued)
A. Market risk (continued)
i. Foreign exchange risk – transactional (continued)
Short term contractual exposures: As the Consolidated entity both imports and exports fertilisers and raw materials in
foreign currency, its profitability is impacted by foreign exchange movements. Timing differences between receipts and
payments of foreign currency are managed using swaps. Where there is a net excess or shortfall of foreign currency,
forward foreign exchange contracts are taken out to hedge those exposures. The Consolidated entity achieves hedge
accounting for these derivatives. The table below shows the outstanding forward foreign exchange contracts as at
30 September 2009:
Term
Buy USD / Sell AUD
Buy EUR / Sell AUD
Weighted average AUD/USD
strike rate
Forward FX contract
AUD mill
2009
0.7093
-
2008
0.7941
0.5688
2009
186.1
-
2008
286.4
31.7
Longer term forecast exposures: The profitability of Southern Cross Fertilisers Pty Limited, a wholly owned subsidiary of
the Company, is impacted by foreign exchange movement due to the manufacturing inputs (gas, electricity, labour) being
denominated in Australian dollars, whilst the manufactured outputs (phosphate based fertilisers) are sold either in United
States dollars or in Australian dollars based on an import parity formula impacted by the rate of exchange.
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. Policies approved by the Board of
Directors limit the percentage of forecast sales that can be hedged with the percentage reducing as the time horizon
increases.
The Consolidated entity has purchased a series of average rate AUD Call/USD Put options to protect a portion of next
year’s forecast exposure. The market value of options is recorded in the Statements of Financial Position at year end and
any movements in the market value from purchase price to year end value are recorded through the Income Statements.
Favourable outcomes on the hedge will occur when the average exchange rate for the hedged period (calculated on a
daily basis) is higher than the strike rate established at the inception of the hedge. These contracts allow full participation
in favourable outcomes on the underlying exposures resulting from decreases in the AUD/USD exchange rate, but limit the
unfavourable outcomes resulting from increases in the AUD/USD exchange rate beyond the strike rate of the options.
The table below summarises the foreign currency option contracts taken out to hedge sales of the output of Southern
Cross Fertilisers Pty Ltd:
Term
Average rate options not later
than one year
Vanilla European options not
later than one year
Weighted average AUD/USD
strike rate
Contract amounts
AUD mill
2009
2008
2009
2008
0.8400
-
238.1
-
-
0.8434
-
567.2
From time to time, the Consolidated entity may look to reduce premium costs by transacting collars or selling floors against
existing bought positions. Board approved policies prevent the Consolidated entity from selling naked options. No collars
or sold floor positions existed at year end.
90
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
32. Financial risk management (continued)
A. Market risk (continued)
ii. Foreign exchange risk – translational
The Consolidated entity has foreign operations with non-AUD functional currencies and therefore is exposed to translation
risk resulting from foreign exchange movements which impact on the AUD equivalent value of the self-sustaining foreign
operations.
The Consolidated entity manages the impact of the translation risk by a combination of borrowing in the same currency as
the net foreign assets and by using cross currency swaps to create ‘synthetic’ foreign currency debt. The cross currency
swaps pay and receive floating rates of interest with quarterly rate resets. These borrowings are generally held within the
foreign subsidiaries resulting in a reduction in the overall net assets that are translated. The translation movement of the
Consolidated entity’s net assets are recognised within the foreign currency translation reserve. The table below
summarises the cross currency swaps.
Term
Receive AUD / Pay USD mill
not later than one year
AUD 484.2 / USD 412.4
later than one year, no later than five years
AUD 1,279.8 / USD 999.5
2009
2008
-
-
iii. Interest rate risk
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 policies determined by the Board of Directors using approved derivative
instruments.
The Consolidated entity’s interest rate risk arises from long term borrowings in Australian and United States dollars. Out of
the AUD1,588.6m of Interest Bearing Liabilities at the reporting date, AUD240.1m had a fixed interest rate.
As discussed in the Note 32A (ii) above, the Consolidated entity has a preference for debt denominated in United States
dollars. Within the foreseeable future, the Consolidated entity anticipates that it will have at least USD500.0m of debt
borrowed directly in United States dollars. This funding could come from a variety of sources including bank debt or other
debt capital markets. Drawings under the Consolidated entity’s existing Syndicated facility and Working Capital facility may
occur in either AUD or USD. As this anticipated debt will be priced with reference to base USD interest rates existing at a
future point in time, the Consolidated entity is exposed to the risk that base USD interest rates will increase. To protect
against this risk, the Consolidated entity has entered into a series of forward starting Treasury Locks. Details of these
Treasury Locks are detailed below.
The notional principal amounts and periods of expiry of these interest rate hedge contracts are as follows:
Term
Contract amounts
Fixed Rate
0-5 years
5-7 years
7-15 years
2009
-
USD100.0m
USD400.0m
2008
-
-
-
2009
-
3.29%
3.74%
2008
-
-
-
Incitec Pivot Limited
91
Notes to the Financial Statements
For the year ended 30 September 2009
32. Financial risk management (continued)
A. Market risk (continued)
iv. Commodity risk
The Consolidated entity is exposed to changes in commodity prices by virtue of its operations. Where possible, the
Consolidated entity manages some of that risk by negotiating appropriate contractual terms with its suppliers and
customers.
Natural gas represents a significant raw material cost for the Consolidated entity’s ammonia and nitrogen based
manufacturing. In order to manage the price risk associated with natural gas in Australia, the Consolidated entity has
entered into long term fixed price contracts for the supply of gas. In the United States, the Consolidated entity aims, where
possible, to mitigate some of its exposure to natural gas price risk by entering into contracts with its customers which pass
on the risk of natural gas price movements. Alternatively, the Consolidated entity has used fixed price derivatives for
managing its gas price risk for periods shorter than one year during the year.
The table below summarises the fixed price derivatives outstanding as at 30 September 2009:
Months
hedged
10
Monthly
volume (mmbtu)
100,000
Fixed
rate USD
7.78
Contract
The Consolidated entity is exposed to price volatility on the commodities it sells. These exposures can be categorised into
three main areas: ammonium nitrate, ammonium phosphate and urea.
The Consolidated entity aims to manage its price risk exposure to ammonium nitrate by entering into long term contracts
with its customers with fixed sales prices that are adjusted for changes to input costs such as natural gas and for
movements in CPI.
The market for ammonium phosphates and urea is generally based on spot prices with minimal ability to contract for long
terms. For these commodities, no specific derivative market is available. The following table details the Consolidated
entity’s EBIT sensitivity to price movements for these commodities, based on manufactured tonnes sold in 2009.
Fertiliser Price Sensitivity
Middle East Granular Urea (MEGU) FOB/t
Diammonium Phosphate (DAP) Tampa FOB/t
+ / - USD10
AUD mill
5.3
11.7
v. Equity price risk
Refer to Note 14.
B. Liquidity risk
Liquidity risk is the risk that the Consolidated entity will not be able to meet its financial obligations as they fall due. The
Consolidated entity’s approach to managing liquidity is to ensure that there are sufficient committed funding facilities
available to meet the Consolidated entity’s financial commitments in a timely manner. The Consolidated entity’s forecast
liquidity requirements are continually reassessed based on regular forecasting of capital requirements including extensive
stress testing of critical assumptions such as input costs, sales prices, volumes and exchange rates.
Typically the Consolidated entity holds a minimum liquidity buffer of AUD200.0m in cash forecasts at all times to meet any
unforeseen cashflow requirements including unplanned reduction in revenue, business disruption and unplanned capital
expenditure. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as
natural disasters. In addition, the Consolidated entity maintains the following committed lines of credit:
(cid:159)
Unsecured bank overdraft facilities denominated in AUD and foreign currencies. Interest is payable at a
base rate plus a margin.
An unsecured short term AUD420.0m (amortising) working capital facility maturing in October 2010. This is
a multicurrency facility drawable in AUD and USD with interest payable at BBSY/LIBOR plus a margin.
This facility is revolving in nature, refer to Note 21. Repayment can be redrawn at the Company’s
discretion.
(cid:159)
92
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
32. Financial risk management (continued)
B. Liquidity risk (continued)
(cid:159)
An unsecured Syndicated facility agreement of AUD1,680.0m for 3 years, maturing September 2011. This
is a multicurrency facility drawable in AUD and USD with interest payable at BBSY/LIBOR plus a margin.
This facility is revolving in nature whereby repayment can be redrawn at the Company’s discretion.
A participation facility of AUD240.1m (amortising) maturing in June 2013, the carrying amount of the facility
is secured against certain assets operated by Southern Cross Fertilisers Pty Ltd. The facility is
denominated in AUD and has a fixed nominal interest rate of 8.93% for the term of the facility.
(cid:159)
At year end, the Consolidated entity has committed undrawn lines of AUD817.5m and cash of AUD125.2m.
C. Credit risk
Credit risk is the risk of financial loss to the Consolidated entity if a customer or counterparty to a financial instrument fails
to meet its contractual obligations. The major exposure to credit risk arises from trade receivables, which have been
recognised in the Statements of Financial Position net of any impairment losses, and from derivative financial instruments.
Trade and other receivables
The Consolidated entity’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.
The demographics of the Consolidated entity’s customer base, including the default risk of the industry and country in
which customers currently operate, have an influence on credit risk. Credit risk on sales to overseas customers is negated
by way of entering into irrevocable letters of credits with financial institutions or by asking customers to pay in advance.
The Consolidated entity has a credit policy under which each new customer is analysed individually for creditworthiness
before the Consolidated entity enters into any sales transaction on an open credit account with standard payment, delivery
terms and conditions of sale. The creditworthiness review includes analysing the financial information provided by the
customer, where applicable, and reports from external ratings agencies. Based on this analysis, credit limits are
established for each customer, which represents the projected highest level of exposure, at any one point in time, which a
customer may reach. These limits are reviewed annually for all customers with a limit greater than AUD0.5m and on an as
needs basis if an increase is required. Customers that fail to meet the Consolidated entity’s benchmark creditworthiness or
who are in breach of their credit limits, may transact only on a “Cash Before Delivery” basis.
Goods are generally sold without any retention to title clauses except where as part of the creditworthiness reviews, it is
recommended to retain security to protect either in full or part the level of debt the Consolidated entity will be exposed to at
any one time.
The Consolidated entity establishes an allowance for impairment that represents its estimate of probable losses in respect
of trade and other receivables.
Financial Instruments
The Group limits its exposure to credit risk created by investing in financial instruments by only investing in liquid securities
and only with counterparties that have a credit rating of at least BBB+. In practice, financial instruments are dealt with
financial institutions with a stronger rating than BBB+. Currently all financial instruments held are with financial institutions
with a long term rating of A or better.
The credit risk exposure arising from derivative financial instruments is the sum of all contracts with a positive replacement
cost. As at 30 September 2009, the sum of all contracts with a positive replacement cost was AUD144.4m (2008
AUD2.7m).
Incitec Pivot Limited
93
Notes to the Financial Statements
For the year ended 30 September 2009
32. Financial risk management (continued)
C. Credit risk (continued)
Capital risk management
The key objectives of the Consolidated entity and the Company when managing capital is to safeguard their ability to
continue as a going concern and maintain optimal returns to shareholders and benefits for other stakeholders. “Capital” is
considered to be all sources of funding, whether debt or equity. Management also aims to maintain a capital and funding
structure that optimises the cost of capital available to the Consolidated entity and the Company over the long term.
The key objectives include:
(cid:159) maintaining an investment grade credit profile and the requisite financial metrics;
(cid:159)
securing access to diversified sources of debt funding with a spread of maturity dates and sufficient
undrawn committed facility capacity;
optimising over the long term, and to the extent practicable, the Weighted Average Cost of Capital
(WACC) to reduce the cost of capital to the Consolidated entity while maintaining financial flexibility.
(cid:159)
In order to optimise the capital structure, management may alter the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares, draw down additional debt or sell assets to reduce debt in line with the strategic
objectives and operating plans of the Consolidated entity and the Company.
Various financial ratios and internal targets are assessed and reported to the Board on a regular basis by management to
monitor and support the key objectives set out above. These ratios and targets include:
(cid:159) Gearing ratio; Gross debt to Earning Before Interest, Tax, Depreciation and Amortisation (EBITDA) and
interest cover.
Debt covenants relating to the Working Capital facility (AUD420.0m) and the Syndicated facility (AUD1,680.0m) have been
measured and are within the debt covenant targets for the year ended 30 September 2009.
94
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
33. Financial instruments
A. Foreign exchange risk
The Consolidated entity’s exposure to foreign exchange risk at balance date was based on notional amounts as follows:
Consolidated
30 September 2009
CAD
$mill
Peso
$mill
USD
$mill
Trade receivables
Trade payables
Interest bearing liabilities
80.8
(155.6)
(171.6)
51.1
(8.5)
-
36.3
(4.7)
-
Gross balance sheet exposure
(246.4)
42.6
31.6
Forward exchange contracts
-
-
-
Net exposure
(246.4)
42.6
31.6
Company
Trade receivables
Trade payables
Interest bearing liabilities
Gross balance sheet exposure
Forward exchange contracts
Net exposure
30 September 2009
CAD
$mill
Peso
$mill
USD
$mill
0.7
(111.1)
-
(110.4)
-
(110.4)
-
-
-
-
-
-
-
-
-
-
-
-
EUR
$mill
-
-
-
-
-
-
EUR
$mill
-
-
-
-
-
-
30 September 2008
Peso
$mill
CAD
$mill
USD
$mill
EUR
$mill
137.8
(318.8)
(1,581.1)
75.3
(16.6)
-
24.2
(15.4)
-
-
(18.6)
-
(1,762.1)
58.7
8.8
(18.6)
(227.4)
-
-
-
(1,989.5)
58.7
8.8
(18.6)
30 September 2008
Peso
$mill
CAD
$mill
USD
$mill
-
(265.1)
(1,581.1)
(1,846.2)
(227.4)
(2,073.6)
-
-
-
-
-
-
-
-
-
-
-
-
EUR
$mill
-
(18.0)
-
(18.0)
-
(18.0)
The following significant exchange rates applied during the year:
Average
rate
2009
Balance
date spot
rate
2009
Average
rate
2008
Balance
date spot
rate
2008
USD
0.7321
0.8744
0.9082
0.8015
Interest rate risk
B.
At the reporting date the interest rate profile of the Consolidated entity and the Company’s interest bearing financial
instruments were:
Variable rate instruments
- Financial liabilities
Fixed rate instruments
- Financial liabilities
Consolidated
2009
$mill
2008
$mill
Company
2009
$mill
2008
$mill
1,348.5
2,176.6
47.2
180.5
240.1
333.4
-
-
Cash flow sensitivities for variable rate instruments
A change of 100 basis points in interest rates at the reporting date would have increased / decreased equity and profit and
loss by AUD21.7m assuming all the variables were held constant in particular foreign exchange rates.
Incitec Pivot Limited
95
Notes to the Financial Statements
For the year ended 30 September 2009
33. Financial instruments (continued)
C. Credit risk
The maximum exposure to credit risk at the reporting date was:
Trade receivables
Other receivables
Cash and cash equivalents
Limited recourse receivables sold
Forward exchange contracts
Cross currency swaps
Option contracts
Consolidated
2009
$mill
275.3
79.8
125.2
-
-
147.6
12.6
640.5
2008
$mill
490.5
137.1
479.7
3.0
0.6
-
-
1,110.9
Company
2009
$mill
74.7
1,166.7
93.1
-
-
-
12.6
1,347.1
The maximum exposure to credit risk for trade receivables at the reporting date by country was:
Australia
Europe
USA
Canada
Asia
Other
Consolidated
Company
2009
$mill
127.4
0.9
73.9
55.8
13.0
4.3
275.3
2008
$mill
232.1
1.0
153.7
92.9
10.2
0.6
490.5
2009
$mill
74.7
-
-
-
-
-
74.7
2008
$mill
159.8
30.9
400.4
3.0
0.6
-
-
594.7
2008
$mill
159.8
-
-
-
-
-
159.8
The maximum exposure to credit risk for trade receivables at the reporting date by type of customers was:
Wholesale customer
End user customer
66.2
209.1
275.3
167.6
322.9
490.5
50.9
23.8
74.7
139.3
20.5
159.8
96
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
33. Financial instruments (continued)
C. Credit risk (continued)
As at the end of September 2009 and September 2008, the Consolidated entity and the Company had no individual
debtor’s balance outstanding in excess of 10% of the total of the Trade Receivable balance.
Impairment losses
The aging of Trade Receivables at the reporting date was:
Consolidated
Current
Past due 0 - 30 days
Past due 31 - 120 days
Total
Company
Current
Past due 0 - 30 days
Past due 31 - 120 days
Total
Gross
2009
$mill
Impairment
2009
$mill
Gross
2008
$mill
Impairment
2008
$mill
212.4
30.2
39.5
282.1
73.6
1.5
-
75.1
-
-
6.8
6.8
-
0.4
-
0.4
359.3
96.3
48.2
503.8
142.7
17.8
1.1
161.6
-
2.0
11.3
13.3
-
1.4
0.4
1.8
2008
$mill
0.5
1.3
-
-
1.8
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Notes
Balance at 1 October
Impairment losses recognised / (released)
Write-offs recognised during the year
Foreign exchange movements
Balance at 30 September (11)
Consolidated
Company
2009
$mill
13.3
(0.4)
(6.0)
(0.1)
6.8
2008
$mill
0.5
12.8
-
-
13.3
2009
$mill
1.8
(1.3)
(0.1)
-
0.4
Based on past experience, the Consolidated entity believes that no impairment allowance is necessary in respect of trade
receivables that are not past due.
The allowance accounts in respect of trade receivables are used to record impairment losses unless the Consolidated
entity is satisfied that no recovery of the amount owing is possible; at that point the amount considered irrecoverable is
written off against the financial asset directly.
Incitec Pivot Limited
97
Notes to the Financial Statements
For the year ended 30 September 2009
33. Financial instruments (continued)
D. Liquidity risk – financial liabilities
The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of
netting payments:
Consolidated
30 September 2009
Non-derivative financial liabilities
Carrying
amount
$mill
Contractual
cash flows (1)
$mill
6 months
6 - 12
or less (1) months (1)
$mill
$mill
1 - 2
years (1)
$mill
2 - 5
years (1)
$mill
more
than 5
years (1)
$mill
Interest bearing liabilities
1,588.6
1,588.6
90.2
342.0
1,023.8
132.6
Derivative financial liabilities
Interest rate contracts
Total
30 September 2008
Non-derivative financial liabilities
Interest bearing liabilities
12.9
1,601.5
12.9
1,601.5
12.9
103.1
-
342.0
-
1,023.8
-
132.6
2,510.0
3,019.9
85.3
2,258.9
160.1
515.6
Derivative financial liabilities
Option contracts used for hedging
Forward commodity contracts used for hedging
Total
13.8
2.4
2,526.2
-
2.4
3,022.3
-
1.6
86.9
-
0.8
2,259.7
-
-
160.1
-
-
515.6
-
-
-
-
-
-
-
Company
30 September 2009
Non-derivative financial liabilities
Interest bearing liabilities
Derivative financial liabilities
Interest rate contracts
Total
30 September 2008
Non-derivative financial liabilities
Interest bearing liabilities
Derivative financial liabilities
Option contracts used for hedging
Carrying
amount
$mill
Contractual
cash flows (1)
$mill
6 months
6 - 12
or less(1) months(1)
$mill
$mill
1 - 2
years(1)
$mill
2 - 5
years(1)
$mill
more
than 5
years(1)
$mill
47.2
47.2
47.2
12.9
60.1
12.9
60.1
12.9
60.1
-
-
-
180.5
183.2
6.6
176.6
13.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
194.3
183.2
6.6
176.6
(1)
Contractual cash flows are based on exchange rates prevailing at year end. Any subsequent movement in exchange rates will
impact the cash flow required to settle the obligations where those obligations are in a foreign currency.
98
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
33. Financial instruments (continued)
E. Liquidity risk – cash flow hedges
Cash flow hedges are mainly used to mitigate the Consolidated entity’s exposure to commodity price risk, foreign
exchange risk and interest rate risk. Forward commodity contracts are entered into to manage the price risk associated
with the purchase of natural gas which is a key raw material input to the production of ammonia and ammonium nitrate.
Forward currency risk associated with sales and purchases denominated in foreign currency is managed by entering into
forward contracts and options. Interest rate risk is managed by entering into interest rate contracts in order to limit the
exposure to interest rate fluctuations.
The following table indicates the periods in which the cash-flows associated with derivatives that are cash flow hedges are
expected to occur and expected to impact the Income Statement:
Consolidated
30 September 2009
Option, interest contracts and cross currency
swaps
- Assets
- Liabilities
Total
30 September 2008
Carrying
amount
$mill
Expected
cash flows
$mill
6 months
or less
$mill
6 - 12
months
$mill
1 - 2
years
$mill
2 - 5
years
$mill
160.2
12.9
147.3
160.2
12.9
(5.9)
12.9
30.2
-
105.1
-
30.8
-
147.3
(18.8)
30.2
105.1
30.8
Option and forward commodity contracts
- Assets
- Liabilities
-
16.2
-
2.4
-
1.6
-
0.8
Total
(16.2)
(2.4)
(1.6)
(0.8)
-
-
-
-
-
-
Company
30 September 2009
Option contracts
- Assets
- Liabilities
Total
30 September 2008
Option contracts
- Assets
- Liabilities
Total
Carrying
amount
$mill
Expected
cash flows
$mill
6 months
or less
$mill
6 - 12
months
$mill
1 - 2
years
$mill
2 - 5
years
$mill
12.6
12.9
12.6
12.9
5.6
12.9
(0.3)
(0.3)
(7.3)
-
13.8
(13.8)
-
-
-
-
-
-
7.0
-
7.0
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
more
than 5
years
$mill
-
-
-
-
-
-
more
than 5
years
$mill
-
-
-
-
-
-
Incitec Pivot Limited
99
Notes to the Financial Statements
For the year ended 30 September 2009
33. Financial instruments (continued)
F. Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as
follows:
Consolidated
Available for sale financial assets
Loans and receivables
Cash and cash equivalents
Cross currency interest rate swaps
Option and commodity contracts
Other forward exchange contracts
Trade and other payables
Financial liabilities
Interest rate contracts
Total
Company
Available for sale financial assets
Loans and receivables
Cash and cash equivalents
Investments in controlled entities
Option contracts
Other forward exchange contracts
Trade and other payables
Financial liabilities
Interest rate contracts
Total
Carrying
amount
2009
$mill
46.9
355.1
125.2
147.6
12.6
-
(1,063.3)
(1,588.6)
(12.9)
(1,977.4)
Carrying
amount
2009
$mill
46.9
1,241.4
93.1
3,080.2
12.6
-
(1,493.7)
(47.2)
(12.9)
2,920.4
Fair value
2009
$mill
46.9
355.1
125.2
147.6
12.6
-
(1,063.3)
(1,588.6)
(12.9)
(1,977.4)
Fair value
2009
$mill
46.9
1,241.4
93.1
3,080.2
12.6
-
(1,493.7)
(47.2)
(12.9)
2,920.4
Carrying
amount
2008
$mill
30.3
627.6
479.7
-
(16.2)
0.6
(1,608.9)
(2,510.0)
-
(2,996.9)
Carrying
amount
2008
$mill
30.3
357.2
400.4
2,896.7
(13.8)
0.6
(1,507.0)
(180.5)
-
1,983.9
Fair value
2008
$mill
30.3
627.6
479.7
-
(16.2)
0.6
(1,608.9)
(2,510.0)
-
(2,996.9)
Fair value
2008
$mill
30.3
357.2
400.4
2,896.7
(13.8)
0.6
(1,507.0)
(180.5)
-
1,983.9
Basis for determining fair value
The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments reflected in the table above.
i. Investments in equity securities
The fair value of financial assets available for sale is determined based on the quoted bid price at the reporting date.
ii. Derivatives
The fair value of forward exchange contracts is based on their listed market price if available. If a listed market price is not
available, then fair value is estimated by discounting the difference between the contractual forward price and the current
forward price.
The fair value of interest rate contracts is calculated as the present value of the estimated future cash-flows.
iii. Trade and other receivables & Trade and other payables
The fair value of trade and other receivables, and trade and other payables are estimated as the present value of future
cash flows, discounted at the market rate of interest at the reporting date.
iv. Financial liabilities designated at Fair value through the Income Statement
Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market
rate of interest at the reporting date.
Method of discounting
In calculating the fair values of financial instruments, the present value of all cash flows greater than 1 year are discounted.
100
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
34. Related party disclosures
Subsidiaries
Interest in subsidiaries is set out in Note 37.
Jointly controlled entities
Interest in jointly controlled entities is set out in Note 16.
Key management personnel
Disclosures relating to key management personnel are set out in Note 35.
Transactions with related parties are as follows:
Consolidated
Sales of goods / services
Purchase of goods / services
Interest income
Interest expense
Dividend income
Loan forgiveness
Company
Sales of goods / services
Purchase of goods / services
Interest income
Interest expense
Dividend income
Loan forgiveness
Jointly controlled entities (1)
2009
$mill
242.6
(30.7)
1.6
(0.5)
5.2
-
2008
$mill
94.7
(7.0)
-
-
0.3
-
Notes
(4)
(5)
(16)
Related parties (2)
2009
$mill
-
-
-
-
-
-
2008
$mill
-
-
-
-
-
-
Jointly controlled entities (1)
2009
$mill
-
-
-
-
-
-
2008
$mill
-
-
-
-
-
-
Notes
(4)
(5)
(4)
Related parties (2)
2009
$mill
162.8
(385.4)
-
-
414.4
-
2008
$mill
125.7
(521.0)
-
-
190.3
(3.6)
(1) Jointly controlled entities transactions represent amounts which do not eliminate on consolidation.
(2) Transactions between Company and its subsidiaries are eliminated on consolidation.
Outstanding balances arising from sales / purchases of goods and services with related parties are on normal current
terms and are as follows:
Consolidated
Amounts owing to related parties
Amounts owing from related parties
Company
Amounts owing to related parties
Amounts owing from related parties
Jointly controlled entities
Related parties
2009
$mill
0.2
19.4
2008
$mill
-
50.5
2009
$mill
-
-
2008
$mill
-
-
Jointly controlled entities
Related parties
2009
$mill
-
-
2008
$mill
-
0.3
2009
$mill
404.0
-
2008
$mill
623.0
-
Notes
(20)
(11)
Notes
(20)
(11)
Incitec Pivot Limited
101
Notes to the Financial Statements
For the year ended 30 September 2009
35. Key management personnel disclosures
(a) Key Management Personnel
The following were key management personnel of the Company and 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 (1)
A C Larkin
A D McCallum
J Marlay
G Smorgon (2)
Executive directors
J E Fazzino (3)
J Segal (4)
Executives
K J Gleeson
D A Roe (5)
B C Walsh
A Grace
J D Whiteside
P Barber (6)
K Lynch
J Rintel
D Brinker
Chairman
Managing Director & Chief Executive Officer (3)
Former Managing Director & Chief Executive Officer
General Counsel & Company Secretary
General Manager Business Development
General Manager Global Manufacturing
General Manager Major Projects
General Manager Supply Chain & Trading
General Manager Australian Fertilisers
General Manager Human Resources
General Manager Strategy & Business Development
General Manager Explosives
G Brinkworth (7)
General Manager Incitec Pivot Fertilisers
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Mr Healey retired as a non-executive director on 19 December 2008.
Mr Smorgon was appointed as a non-executive director on 19 December 2008.
Mr Fazzino was appointed Acting Chief Executive Officer on 8 May 2009 and was appointed as Managing Director & Chief
Executive Officer on 29 July 2009. Mr Fazzino was Finance Director & Chief Financial Officer to 29 July 2009.
Mr Segal ceased to be employed by the Company, as Managing Director & Chief Executive Officer, on 8 May 2009.
Mr Roe ceased to be a member of the Executive Team on 30 September 2008.
Mr Barber ceased to be employed by the Company on 31 December 2008.
Mr Brinkworth was appointed as an executive on 17 November 2008.
All of the above persons were also key management persons during the year ended 30 September 2008 with the following
exceptions:
• Mr Lynch commenced his appointment on 18 February 2008 and Mr Rintel and Mr Brinker commenced their
appointments on 1 June 2008, and accordingly were not key management personnel for the entire reporting
period.
• Mr Smorgon and Mr Brinkworth who commenced their appointments in the year ended 30 September 2009.
On 16 October 2009, Mr Lynch ceased to be employed by the Company.
On 23 October 2009, Mr Frank Micallef was appointed as Chief Financial Officer. Prior to this Mr Micallef was Incitec
Pivot’s General Manager Treasury and Chief Financial Officer for Incitec Pivot’s trading business, Southern Cross
International.
102
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
35. Key management personnel disclosures (continued)
(b) Key management personnel compensation
The key management personnel compensation included in the income statement line “Employee Expenses” are as follows:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Consolidated
2009
$000
2008
$000
8,875
284
635
168
2,093
12,055
13,030
192
578
-
1,919
15,719
Company
2009
$000
2008
$000
7,591
229
635
168
-
8,623
12,032
185
578
-
-
12,795
Individual directors and executives compensation disclosures
Information regarding the compensation for individual directors and executives and some equity instruments disclosures as
required by Corporations Regulations 2M.3.03, is provided in the remuneration report which is included in the Directors’
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’
and executives’ interests existing at year-end.
(c) Loans to key management personnel
Details regarding loans outstanding at the reporting date to key management personnel and their related parties, where
the individual’s aggregate loan balance exceeded $100,000 at any time in the reporting period, are as follows:
Balance
1 October 2008
USD’000
Balance
30 September 2009
USD’000
Interest not
charged
USD’000
Highest balance
in period
USD’000
Mr D Brinker
-
-
8.8
257.6
The unsecured bridge loan to Mr D Brinker issued during the year ended 30 September 2009 amounted to USD257,600
(2008: USDnil). The interest free bridge loan was required to be repaid in full 347 days after the issue date. During the
year, Mr D Brinker repaid the loan in full (2008: USDnil).
There are no other loans to key management personnel.
(d) Other key management personnel transactions
The following transactions, entered into during the year with directors of the Company, were on terms and conditions no
more favourable than those available to other customers, suppliers and employees:
(1) During the year Mr McCallum purchased fertiliser to the value of $7,992 (2008: $1,907) from the Company, the
balance owing at 30 September 2009 was $nil (2008: $nil).
(2) The spouse of Mr Fazzino, the Managing Director & Chief Executive Officer, is a partner in the accountancy and tax
firm PricewaterhouseCoopers from which the Company purchased services of $5,725,573 during the year (2008:
$6,077,920). Mr Fazzino’s spouse does not directly provide these services.
Incitec Pivot Limited
103
Notes to the Financial Statements
For the year ended 30 September 2009
35. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives
(1) Movements in shares in the Company
The movement during the reporting period in the numbers of shares in the Company held directly, indirectly or beneficially,
by each key management person, including their related parties, is set out in the table below:
Number of Shares (E)
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
A D McCallum
J Marlay
A C Larkin
G Smorgon
- Former
B Healey
Executive directors
- Current
J E Fazzino
- Former
J Segal
Executives
- Current
K J Gleeson
B C Walsh
A Grace
J Whiteside
K Lynch
J Rintel
D Brinker (1)
G Brinkworth (2)
- Former
P Barber (3)
D A Roe (4)
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
-
74,000 26,000
100,000
156,360 85,141
156,360
20,000 17,693
20,000
- 5,000
- 100,000
(26,000) 74,000
(25,000) 216,501
- - 156,360
- 37,693
- - 20,000
- 5,000
- - - -
-
- - -
- - - -
20,000 20,000
(40,000)
-
20,000
- - 20,000
1,845,420
1,708,080 137,340
- - 1,845,420
- 1,845,420
2,134,120 104,000
1,772,820 361,300
(2,238,120)
-
- 2,134,120
-
-
-
-
(284,020) 387,600
- 671,620
(367,720) 429,380
- 797,100
(100,000)
428,420
(133,980) 528,420
(223,940) 300,920
- 524,860
- - 53,240
- 53,240
- - 117,120
- 117,120
- - 66,680
- 66,680
671,620
584,840 86,780
797,100
700,680 96,420
528,420
521,000 141,400
524,860
457,340 67,520
53,240
- 53,240
117,120
101,960 15,160
66,680
- 66,680
- - -
-
- - - -
120,080 15,544
- 120,080
- - -
518,980 77,040
(135,624)
-
-
- 596,020
- 120,080
104
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
35. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
(1) Movements in shares in the Company (continued)
(A)
(B)
(C)
(D)
(E)
(1)
(2)
(3)
(4)
Represents the holding at 1 October 2008 and 1 October 2009 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 2008 and 30
September 2009 and their related parties. This includes fully paid ordinary shares, shares acquired under the Employee Share
Ownership Plan (ESOP) and shares, treated as options, for the purposes of remuneration 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 36, Share based
payments.
Represents shares acquired during the year by directors and executives and their related parties while they are directors or
executives of the Company.
Represents shares disposed of during the year. This includes fully paid ordinary shares, shares acquired under the ESOP and
shares, treated as options, issued under the Long Term Incentive Performance Plans. In the case of directors or executives who
ceased their directorship or employment during the years ended 30 September 2009 and 30 September 2008, all shares were
treated as disposed as at the relevant date of cessation.
Represents the holding at 30 September 2009 and 30 September 2008 of shares in the Company for current directors and
executives.
For 2008, the number of shares have been restated as a result of the 20:1 share split approved by shareholders in September
2008.
At 30 September 2009 Mr Brinker holds 16,250 shares in the Company through an (unsponsored) American Depository Receipt.
Mr Brinkworth’s employment commenced on 17 November 2008. Mr Brinkworth does not hold any shares in the Company.
On 31 December 2008, Mr Barber ceased employment with the Company. In respect of 84,280 shares, treated as options,
granted under the LTI performance plan 2007/10, these were forfeited and sold on market, in accordance with the rules of the plan
on Mr Barber ceasing employment.
At 30 September 2008, Mr Roe ceased to be a member of the Executive Team.
Incitec Pivot Limited
105
Notes to the Financial Statements
For the year ended 30 September 2009
35. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
(2) Movements in shares, treated as options, over equity instruments in the Company
The movement during the reporting period in the number of shares, treated as options, over 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
JE Fazzino
- Former
J Segal (1)
Executives
- Current
K J Gleeson
B C Walsh
A Grace
J D Whiteside
K Lynch
J Rintel (2)
D Brinker
G Brinkworth (3)
- Former
P Barber (4)
D A Roe (5)
Year
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
Number of Shares (treated as options) (F)
Opening
balance (A)
Granted as
compensation
(B)
Exercised
during the
year (C)
Other
Changes (D)
Closing balance
(E)
1,059,820
922,580 137,240
-
- 610,120
(449,700)
- - 1,059,820
2,133,160
1,771,960 361,200
-
(651,940)
1,120,020
- - 2,133,160
(361,200)
-
-
-
-
669,360
582,680 86,680
743,720
647,400 96,320
491,480
424,060 67,420
520,620
453,200 67,420
53,240
(284,020)
- 385,340
- - 669,360
(315,560)
- 428,160
- - 743,720
(206,700)
- 284,780
- - 491,480
(220,900)
- 299,720
- - 520,620
- - - 53,240
- - 53,240
- 67,420
- - 117,120
- - - 66,680
- - 66,680
117,120
101,960 15,160
66,680
- 66,680
- - - - -
- - - - -
- 53,240
-
(49,700)
84,280
- -
- 84,280
- - - - -
(84,280)
- - 84,280
-
517,940 77,040
- - 594,980
(A) Represents the holding at 1 October 2008 and 1 October 2009 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 2008 and 30
September 2009. 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 executive 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. 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.
(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 granted in 2008 in relation to the LTI interim
performance plan 2006/08.
(D) Represents shares, treated as options, that were forfeited 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 however 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
unless otherwise indicated.
106
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
35. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
(2) Movements in shares, treated as options, over equity instruments in the Company (continued)
(E) Represents the holding at 30 September 2009 and 30 September 2008 of shares, treated as options, unless otherwise indicated.
(F)
For 2008, the number of shares, treated as options, have been restated as a result of the 20:1 share split approved by
shareholders in September 2008.
(1) On 8 May 2009, Mr Segal ceased employment with the Company. In respect of the 651,940 shares, treated as options, exercised
during the financial year, these shares were granted in 2006 to Mr Segal as a retention award. In respect of 361,200 shares,
treated as options, granted under the LTI performance plan 2007/10, these were forfeited and sold on market, in accordance with
the rules of the plan on Mr Segal ceasing employment. In respect of the 1,120,020 shares, treated as options, granted under the
LTI performance plan 2006/09 Mr Segal continued to hold these shares subject to the existing holding lock over these shares. In
accordance with the rules of this plan, Mr Segal became entitled to an award in full on the achievement of the TSR Stretch
performance measure pro rata to his employment during the period.
(2) Mr Rintel’s shares, treated as options, exercised during the financial year were granted under the LTI performance plan 2006/09
prior to his appointment as an executive.
(3) Mr Brinkworth’s employment commenced on 17 November 2008 and he is not a participant in either the LTI performance plan
2006/09 or the LTI performance plan 2007/10.
(4) Mr Barber’s employment commenced on 10 September 2007 and he was not a participant in the LTI performance plan 2006/09.
In respect of shares, treated as options, granted under the LTI performance plan 2007/10, these were forfeited in accordance with
the rules of the plan on Mr Barber ceasing employment on 31 December 2008.
At 30 September 2008, Mr Roe ceased to be a member of the Executive Team.
(5)
Incitec Pivot Limited
107
Notes to the Financial Statements
For the year ended 30 September 2009
35. Key management personnel disclosures (continued)
(e) Movements in shareholdings of directors and executives (continued)
(3) Movements in rights, treated as options, over equity instruments in the Company
The movement during the reporting period in the number of rights, treated as options, over shares in the Company, held
directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
The Company - Incitec Pivot
Executive directors
- Current
JE Fazzino
- Former
J Segal (1)
Executives
- Current
K J Gleeson
B C Walsh
A Grace
J D Whiteside
K Lynch
J Rintel
D Brinker (2)
G Brinkworth
- Former
P Barber (3)
D A Roe (4)
Year
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
Number of Rights (treated as options)
Opening
balance (A)
Granted as
compensation
(B)
Exercised
during the
year (C)
Other
Changes (D)
Closing balance
(E)
- 222,482
- - - - -
- - 222,482
- 597,190
-
-
- - - - -
(597,190)
- - 105,386
- - 128,806
- - 140,515
- 128,806
- - - - -
- 140,515
- - - - -
- 105,386
- - - - -
- 105,386
- - - - -
- 128,806
- - - - -
- 81,967
- - - - -
- 207,738
- - - - -
- 98,361
- - - - -
- - 98,361
- - 81,967
- - 105,386
- - 128,806
- - 207,738
- - - - -
- - - - -
- - - - -
- - - - -
(A) Represents the holding at 1 October 2008 and 1 October 2009 of rights, treated as options, over shares in Incitec Pivot held by
executive directors and executives who were directors and executives of the Company during the year ended 30 September 2008
and 30 September 2009. Further details of these rights, which are treated as options, for the purposes of remuneration have been
disclosed in section E of the Remuneration Report and relate to rights allocated under the LTI plans as referred to in sections B
and E of the Remuneration Report.
(B) Represents rights, treated as options, which were acquired during the year by executive 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 rights, treated as options, previously granted as compensation, were exercised during the reporting period.
Refer to sections B and E of the Remuneration Report for further details.
(D) Represents rights, treated as options, that were forfeited. 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 rights, treated as options, were
forfeited as at the relevant date of cessation, in accordance with the plan rules.
(E) Represents the holding at 30 September 2009 and 30 September 2008 of rights, treated as options.
(1) On 8 May 2009, Mr Segal ceased employment with the Company. In respect of the 597,190 rights, treated as options, granted
under the LTI performance rights plan 2008/11, these were forfeited in accordance with the rules of the plan.
(2) Mr Brinker is not a participant in the LTI performance rights plan 2008/11. However, as a non-Australian executive, Mr Brinker
participates in the LTI performance cash plan 2008/11.
(3) Mr Barber did not participate in the LTI performance rights plan 2008/11.
(4) On 30 September 2008, Mr Roe ceased to be a member of the Executive Team.
108
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
36. Share based payments
(a) Long Term Incentive Plans (LTIs)
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.
Long Term Incentive Performance Rights Plan
During the year, the Company established a LTI performance rights plan 2008/11 under the Long Term Incentive
Performance Rights Plan rules. The performance period for this plan is based on a three year performance cycle from
1 October 2008 to 30 September 2011.
This plan has the following features:
• Performance rights: A performance right entitles the participant to acquire an ordinary share in the Company for no
consideration at a later date subject to the satisfaction of certain performance and service conditions. As no share is
issued until exercise, performance rights have no dividend entitlement.
• Allocation: The decision to grant performance rights is made annually by the Board. Grants of performance rights to
participants are based on a percentage of the relevant participant’s fixed annual remuneration.
• Performance criteria: The performance rights only become exercisable if certain conditions are met. The conditions
focus on performance of the Company and include a condition relating to duration of employment. The performance
condition is based on Incitec Pivot’s 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, assuming the dividends are reinvested in the
Company’s shares (Absolute TSR). The Board has adopted Absolute 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 returns to shareholders thereby aligning executives’ performance with the creation of
shareholder value. Further, as the Company’s two key business segments are explosives and fertilisers, there is no
logical comparator group which would make a relative TSR measure appropriate, and a more general comparator
group, such as companies in the S&P/ASX 100 index would not ensure alignment between executives’ performance
and value delivered to shareholders. For the performance condition to be satisfied in full, Absolute TSR must be at
least 20% per annum compounded over the three year period. In setting this at 20%, the Board considers it has
established an aggressive target to promote behaviour to achieve superior performance. If, at the end of the relevant
performance period:
-
Absolute TSR is equal to or less than 10% per annum compounded over the performance period, none of the
performance rights vest;
- Absolute TSR is between 10% and 20% per annum compounded over the performance period, an
increasing proportion of the performance rights will vest from zero on a straight line basis; and
-
Absolute TSR is greater than 20% per annum compounded over the performance period, all of the
performance rights will vest.
• Exercise period: Upon vesting of the performance rights, the participant has a two-year exercise period which
commences three years after the grant date. This period may be reduced if the employee ceases to be employed by a
member of the Consolidated entity.
•
Lapse: Performance rights will lapse (and not be able to be exercised and converted into shares) if they are not
exercised within five years from their grant date. Performance rights will also lapse if the performance conditions are
not satisfied during the performance period or, in certain circumstances, if a participant ceases to be employed by the
Company during the performance period.
Long Term Incentive Performance Cash Plan
For overseas executives and senior employees, the Consolidated entity through its offshore entities operates a long term
incentive performance cash plan. The LTI performance cash plan 2008/11 is designed to deliver a similar benefit to
employees on achievement of sustained performance over the three year period, and with similar conditions, as the Long
Term Incentive Performance Rights Plan.
Incitec Pivot Limited
109
Notes to the Financial Statements
For the year ended 30 September 2009
36. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
Long Term Incentive Performance Plans (loan-backed share-based)
The LTI performance plan 2007/10, LTI performance plan 2006/09 and the LTI interim performance plan 2006/08 have the
following features:
(cid:159)
(cid:159)
(cid:159)
Loan backed plan: At the commencement of the relevant performance period (typically three years) the
Company, through its wholly owned subsidiary, Incitec Pivot LTI Plan Company Pty Limited, provides to
participants limited recourse loans bearing interest at the fringe benefits tax benchmark rate (currently
5.85%) 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 three months after the expiry of the performance period, unless extended by the
Company.
The Board set the criteria for the granting of awards under each of the above 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, the criteria was
based on the achievement at 30 September 2008 of a cumulative Net Profit After Tax (NPAT) target. For the LTI
performance plan 2006/09 and the LTI performance plan 2007/2010, the criteria was based on Absolute TSR per annum
compounded over the three year period.
Under all three 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.
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 Southern Cross Fertilisers Pty Limited.
Accordingly, Mr Segal received a retention award in 2006 in the form of a limited recourse, interest free unsecured loan by
Incitec Pivot for $722,000 which was applied in the purchase of 651,940 shares on market. On 8 May 2009, Mr Segal
ceased employment with the Company and in accordance with the terms of the retention award, the shares vested during
the financial year and the loan for $722,000 applied in the purchase of those shares on market was forgiven in full.
110
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
36. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
Set out below are summaries for:
(cid:159)
2009, of shares and rights, treated as options, under the LTI interim performance plan 2006/08, LTI
performance plan 2006/09, the LTI performance plan 2007/10, the LTI performance rights plan 2008/11,
the LTI performance cash plan 2008/11 and in relation to Mr Segal, in respect of his retention award; and
2008, of shares, treated as options, under the LTI interim performance plan 2006/08, the LTI performance
plan 2006/09, the LTI performance plan 2007/10 and in relation to Mr Segal, in respect of his retention
award.
(cid:159)
Consolidated - 2009
Grant date
Expiry date
Exercise
price
Balance at
the start of
the year
Number
Granted
during the
year
Number
Exercised
during the
year
Number
Forfeited
during the
year
Number
Balance at the
end of the year
Number
Retention award - Mr Segal
05 Jul 06
10 May 09
Total
LTI interim performance plan - 2006/08
$0
651,940
651,940
17 Nov 06
30 Sep 08
$1.27
2,697,640
Total
2,697,640
LTI performance plan - 2006/09
01 Dec 06
30 Sep 09
$1.21
4,209,900
Total
4,209,900
LTI performance plan - 2007/10
12 Nov 07
30 Sep 10
$4.41
1,796,560
Total
1,796,560
-
-
-
-
-
-
-
-
LTI performance rights plan - 2008/11
19 Dec 08
30 Sep 11
Total
LTI performance cash plan - 2008/11
19 Dec 08
30 Sep 11
Total
$0
$0
-
-
-
-
3,044,411
3,044,411
1,302,133
1,302,133
(651,940)
(651,940)
(2,697,640)
(2,697,640)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(33,300)
(33,300)
4,176,600
4,176,600
(492,560)
(492,560)
(655,058)
(655,058)
(153,873)
(153,873)
$1.66
1,304,000
1,304,000
2,389,353
2,389,353
1,148,260
1,148,260
$1.20
Weighted average exercise price
$1.76
-
$1.02
Consolidated - 2008*
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
05 Jul 06
10 May 09
$0
Total
LTI interim performance plan - 2006/08 (1)
651,940
651,940
17 Nov 06
30 Sep 08
$1.27
2,697,640
Total
2,697,640
LTI performance plan - 2006/09 (1)
01 Dec 06
30 Sep 09
$1.21
4,209,900
Total
4,209,900
-
-
-
-
-
-
LTI performance plan - 2007/10 (2)
12 Nov 07
30 Sep 10
$4.41
Total
-
-
1,811,000
1,811,000
Weighted average exercise price
$1.13
$4.41
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
651,940
651,940
2,697,640
2,697,640
4,209,900
4,209,900
(14,440)
(14,440)
$4.41
1,796,560
1,796,560
$1.76
*
(1)
(2)
Comparative numbers includes the effect of the 20 for 1 share split approved by shareholders in September 2008.
The opening balance has been adjusted to reflect the number of shares that were granted during the 2006/07 financial year,
however, disclosed in the 2008 financial report as granted in the 2007/08 financial year.
Includes an additional 51,880 shares granted that were not disclosed in the 2008 financial report.
Incitec Pivot Limited
111
Notes to the Financial Statements
For the year ended 30 September 2009
36. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
The weighted average share price at the date of exercise of shares, treated as options, exercised during the year ended
30 September 2009 was $1.02 (2008 - $nil, as no shares, treated as options, were exercised).
The weighted average remaining contractual life of shares and rights, treated as options, outstanding at the end of the
period was 1.73 years (2008 – 1.23 years).
Fair value of performance rights granted
LTI performance rights plan – 2008/11
In respect of the LTI performance rights plan 2008/11, the assessed fair value at grant date of the rights, treated as
options, granted during the year ended 30 September 2009 was $0.30 per right, treated as an option. The fair value at
grant date is independently determined using an adjusted form of the Black-Scholes option pricing model that takes into
account the exercise price, the life of the performance right, 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 performance right treated as an option.
The model inputs for these performance rights, treated as options, granted during the year ended 30 September 2009
included:
Performance rights (treated as options) were granted at $nil per right, have a three year
life, and vest after certain Absolute TSR targets are met for the period 1 October 2008
to 30 September 2011.
Grant date
Share price (at grant date)
Exercise price
Expected price volatility of the Company’s shares
Vesting date
Expected dividends
Risk-free interest rate (based on Australian Government bonds)
with approximately three years to maturity (as at 19 December 2008)
Share price which TSR targets are measured from
19 Dec 2008
$2.45
$nil
40% pa
30 Sept 2011
5.0%
3.1% pa
$5.61
Fair value at grant date
LTI performance rights plan 2008/11
$0.30
LTI performance cash plan – 2008/11
In respect of the LTI performance cash plan 2008/11 granted during the year ended 30 September 2009, the plan is
designed to deliver a similar benefit to employees, and with similar conditions as the LTI performance rights plan 2008/11
outlined above, the exception being that the entitlements, treated as options, are settled in cash, and were valued at
31 March 2009, with a share price of $2.12 at that date and a risk free interest rate of 3.4% at that date.
Fair value at 31 March 2009
LTI performance cash plan 2008/11
$0.13
112
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
36. Share based payments (continued)
(b) 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 Link Market Services Limited. 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:159)
(cid:159)
(cid:159)
shares acquired are either newly issued shares or existing shares acquired on market.
employees are each entitled to acquire shares with a maximum value of $1,000.
employees salary sacrifice the value of the shares by equal deductions through to 30 June the following
year.
employees cannot dispose of the shares for a period of three years from the date of acquisition or until
they leave their employment with the Company, whichever occurs first.
employees who leave the Company must salary sacrifice any remaining amount prior to departure.
(cid:159)
(cid:159)
Grant date
Date shares become
unrestricted
9-Sep-04
22-Dec-04
7-Mar-05
30-Jun-05
16-Sep-05
13-Jul-06
23-Aug-06
2-Jul-07
11-Jul-08
9-Sep-07
22-Dec-07
7-Mar-08
30-Jun-08
16-Sep-08
13-Jul-09
23-Aug-09
2-Jul-10
11-Jul-11
Number of participants as at
Number of shares held as at
30-Sep-09
-
30-Sep-08
-
30-Sep-09
-
30-Sep-08
-
-
-
-
-
-
-
312
492
-
-
-
-
259
134
360
562
-
-
-
-
-
-
81,120
49,200
-
-
-
-
11,137
5,226
4,680
2,810
These shares rank equally with all other fully paid ordinary shares from the date acquired by the employee and are eligible
for dividends.
(c) 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:
Consolidated
Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Shares and rights, treated as options, issued under Mr Segal’s
retention award, the LTI performance plan 2006/09, LTI
performance plan 2007/10, the LTI performance rights plan
2008/11 and the LTI performance cash plan 2008/11
2,359
2,359
2,776
2,776
Total carrying amount of liabilities for cash settled arrangements
130
-
-
-
-
-
-
-
Incitec Pivot Limited
113
Notes to the Financial Statements
For the year ended 30 September 2009
37. Investments in controlled entities
Name of Entity
Company
Incitec Pivot Limited
Controlled Entities - operating
Incitec Fertilizers Limited
TOP Australia Ltd
Southern Cross Fertilisers Pty Ltd
Southern Cross International Pty Ltd
Incitec Pivot LTI Plan Company Pty Limited
Incitec Pivot Holdings (Hong Kong) Limited
Incitec Pivot Explosives Holdings Pty Limited
TinLinhe Nitrogen Limited
Dynofert Limited
Coltivi Insurance Pte Limited
Queensland Operations Pty Limited
Incitec Pivot Investments 1 Pty Ltd
Incitec Pivot Investments 2 Pty Ltd
Incitec Pivot US Investments
Incitec Pivot US Holdings Pty Ltd
Incitec Pivot Management LLC
Incitec Pivot Finance LLC
Incitec Pivot Finance Australia Pty Ltd
Dyno Nobel Pty Limited
Dyno Nobel Australia LLC
Prime Manufacturing Ltd
The Dyno Nobel SPS Trust
The Dyno Nobel SPS LLC
Dyno Nobel Europe Pty Ltd
Dyno Nobel Management Pty Limited
Industrial Investments Australia Finance Pty Limited
Te Moana Insurance Limited
Dyno Nobel Holdings IV LLC
Dyno Nobel Holdings USA III, Inc.
Dyno Nobel Holdings USA II
Dyno Nobel Holdings USA II, Inc.
Dyno Nobel Holdings USA, Inc.
1) Refer to footnote description on next page.
2) Refer to footnote description on next page.
3) Refer to footnote description on next page.
9) Refer to footnote description on next page.
9
9
9
9
9
1,2
3,9
1
1
1
1
1
1
1
1
1,9
Ownership
Interest
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Hong Kong
Australia
Hong Kong
Hong Kong
Singapore
Australia
Australia
Australia
USA
Australia
USA
USA
Australia
Australia
USA
New Zealand
Australia
USA
Australia
Australia
Australia
New Zealand
USA
USA
USA
USA
USA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
114
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
37. Investments in controlled entities (continued)
Name of Entity
Dyno Nobel Inc.
DNX Drilling Inc.
Dyno Nobel Transportation Inc.
Independent Explosives Co. of Pennsylvania
IR Inc.
Simsbury Hopmeadow Street LLC
Tech Real Estate Holdings LLC
Tradestar Corporation
Dyno Nobel Explosivos Chile Limitada
CMMPM, LLC
CMMPM, L.P.
Dyno Nobel Peru S.A.
Dyno Nobel Mexico, S.A. de C.V.
Dyno Nobel Canada Inc.
Castonguay Blasting Limited
Denesoline Western Explosives Inc.
Castonguay G.P.
DNX Castonguay Inc.
Dyno Nobel Nitrogen Inc.
Dyno Nobel Nunavut Inc.
Le Groupe Castonguay Inc.
Polar Explosives 2000 Inc.
Polar Explosives Ltd
Dyno Nobel Asia Pacific Pty Limited
Dampier Ammonia Pty Ltd
Dampier Nitrogen Pty Ltd
Dampier Urea Pty Ltd
DNX Australia Pty Ltd
DNX Mongolia LLC
DNX PNG Ltd
Dyno Nobel Administration Pty Limited
Dyno Nobel Moranbah Pty Ltd
Dyno Nobel Moura Pty Limited
Dyno Nobel Nitrates Pty Ltd
Plenty River Ammonia Holdings Pty Ltd
PT DNX Indonesia
Ownership
Interest
Country of
incorporation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
49%
100%
100%
100%
100%
100%
100%
84%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
USA
USA
USA
USA
USA
USA
USA
USA
Chile
Mexico
Mexico
Peru
Mexico
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Australia
Australia
Australia
Australia
Australia
Mongolia
PNG
Australia
Australia
Australia
Australia
Australia
Indonesia
5
4
8
6
7
1) These entities were incorporated during the 2009 financial year.
2) Formerly ‘Incitec Pivot (Hong Kong) Holdings’.
3) Formerly ‘Dyno Nobel Investments Australia Pty Ltd’.
4) Formerly ‘Compania Mexicana de Mecha para Minas S.A. de C.V.’.
5) Formerly ‘DNX Explosivos Chile Limitada’.
6) Formerly ‘Dyno Nobel Asia Pacific Limited’.
7)
8) Due to legal requirements in the Canadian Northwest Territories, the Consolidated entity cannot own more than 49% of the
In the process of being liquidated.
shares in Denesoline Western Explosives Inc. However, under the joint venture agreement, the Consolidated entity is entitled to
95% of the assets and profit of Denesoline Western Explosives Inc.
9) Party to deed of cross guarantee dated 30 September 2008.
Incitec Pivot Limited
115
Notes to the Financial Statements
For the year ended 30 September 2009
38. Deed of Cross Guarantee
Closed Group
2009
$mill
2008
$mill
Statements of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Current tax assets
Inventories
Assets classified as held for sale
Other assets
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Investments accounted for using the equity method
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Other financial liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Retirement benefit obligation
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Income Statements
Profit / (loss) before income tax
Inc ome tax benefit / (expense)
Profit for the financial year
Retained profits at the beginning of the financial year
Movements in retained earnings
Dividend paid
Retained profits at the end of the financial year
93.1
80.8
59.5
30.2
245.7
46.9
14.7
570.9
1,153.8
2,764.4
50.3
541.5
188.9
184.5
3.3
4,886.7
5,457.6
326.6
100.9
-
46.3
12.9
486.7
798.3
186.4
5.5
56.2
1,046.4
1,533.1
3,924.5
3,217.8
397.3
309.4
3,924.5
400.7
362.6
30.3
-
483.6
4.8
111.9
1,393.9
0.2
2,299.3
-
539.6
190.4
49.1
0.1
3,078.7
4,472.6
750.8
170.0
210.8
47.7
13.8
1,193.1
42.2
386.9
2.4
51.4
482.9
1,676.0
2,796.6
2,267.7
2.3
526.6
2,796.6
(73.2)
137.9
64.7
526.6
(10.9)
(271.0)
309.4
837.9
(233.9)
604.0
148.5
(6.6)
(219.3)
526.6
Entities which are party to a Deed of Cross Guarantee dated 30 September 2008, entered into in accordance with ASIC
Class Order 98/1418 (as amended), are disclosed in Note 37, Investments in controlled entities. Consolidated Statements
of Financial Position and Income Statements for this closed group are shown above.
116
Incitec Pivot Limited
Notes to the Financial Statements
For the year ended 30 September 2009
39. Events subsequent to balance date
Since the end of the financial year, in November 2009, the directors have determined to pay a final dividend of 2.3 cents
per share on 18 December 2009. This dividend is unfranked.
On 13 November 2009, the Consolidated entity determined that it would cease manufacturing activities in early 2010 at its
ammonium nitrate facilities in Battle Mountain, Nevada, USA and Maitland, Ontario, Canada. Distribution and warehousing
activities will continue at both sites to fulfil customer requirements. Manufacturing assets have been written down to their
recoverable amount as at 30 September 2009 resulting in an adverse impact to earnings before interest and tax of
$66.3m. The costs at both sites for decommissioning, mothballing, redundancy and make good will be accounted for in the
2010 financial year.
Other than the matters reported on above, the directors have not become aware of any other significant matter or
circumstance that has arisen since 30 September 2009, 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
117
Directors’ Declaration
on the Financial Statements set out on pages 44 to 117
I, John 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 117, and the remuneration disclosures
that are contained in the Remuneration Report on pages 12 to 31 of the Directors’ Report, are in
accordance with the Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the financial position of the Company and the Consolidated entity
as at 30 September 2009 and of their performance, for the year ended on that date; and
complying with Accounting Standards in Australia (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001.
(b)
(c)
the financial report also complies with International Financial Reporting Standards as disclosed in
Note 1; and
there are reasonable grounds to believe the Company will be able to pay its debts as and when
they become due and payable.
2.
3.
There are reasonable grounds to believe that the Company and the controlled entities identified in Note
37 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).
The directors have been given the declaration by the Chief Executive Officer and those persons
performing the function of Chief Financial Officer as required by section 295A of the Corporations Act
2001 for the financial year ended 30 September 2009.
John Watson, AM
Chairman
Dated at Melbourne this 13th day of November 2009
118
Incitec Pivot Limited
Shareholder Statistics
As at 10 November 2009
Distribution of ordinary shareholder and shareholdings
Size of holding
–
–
–
–
–
1
1,001
5,001
10,001
50,001
100,001 and over
Total
1,000
5,000
10,000
50,000
100,000
Number of
holders
15,086
37,043
12,405
9,261
476
296
74,567
Number of
Percentage
shares Percentage
20.23%
49.68%
16.64%
12.42%
0.64%
0.40%
8,229,082
109,587,265
93,223,669
178,259,148
33,073,505
1,190,163,666
100.00% 1,612,536,335
0.51%
6.80%
5.78%
11.05%
2.05%
73.81%
100.00%
Included in the above total are 1857 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 67.32% of that class of shares.
Twenty largest ordinary fully paid shareholders
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited
ANZ Nominees Limited
Cogent Nominees Pty Limited
Queensland Investment Corporation
Australian Foundation Investment Company Limited
Citicorp Nominees Pty Limited
AMP Life Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Citicorp Nominees Pty Limited
ANZ Nominees Limited
Citicorp Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty LTD
Australian Reward Investment Alliance
Citicorp Nominees Pty Limited
Argo Investments Limited
HSBC Custody Nominees (Australia) Limited- A/C 2
Total
Number of
shares Percentage
19.32%
16.46%
12.93%
4.12%
3.15%
1.99%
1.88%
1.21%
1.11%
0.86%
0.73%
0.65%
0.62%
0.48%
0.44%
0.36%
0.29%
0.25%
0.24%
0.22%
67.32%
311,503,590
265,406,344
208,571,076
66,511,139
50,814,702
32,131,504
30,243,386
19,522,780
17,939,104
13,927,838
11,811,586
10,536,396
9,947,220
7,678,111
7,043,260
5,761,144
4,688,861
4,075,139
3,895,530
3,510,047
1,085,518,757
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:
10 November 2009
10 November 2009
10 November 2009
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
311,503,590
265,406,344
208,571,076
19.32%
16.46%
12.93%
On-market buy-back
There is no current on-market buy-back.
Incitec Pivot Limited
121
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 individually material items)
Earnings before net borrowing costs, individually material items and tax (EBIT)
Net borrowing costs (excluding individually material items)
Individually material items before tax
Taxation revenue / (expense)
Operating profit / (loss) 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
2009
$mill
3,418.9
2008
$mill
2,918.2
2007
$mill
1,373.2
743.0
1,025.6
(167.3)
575.7
(107.6)
(782.7)
134.7
(179.9)
(527.7)
347.8
271.0
1,033.9
1,663.4
254.0
3,153.0
526.9
6,631.2
1,081.8
93.4
1,987.4
87.5
3,250.1
3,381.1
3,381.1
3,381.1
(70.3)
955.3
(80.6)
(38.2)
(231.9)
604.6
(42.9)
647.5
219.3
1,867.0
1,670.6
311.2
3,962.1
374.5
8,185.4
3,612.3
88.6
1,238.4
90.8
5,030.1
3,155.3
3,155.3
3,155.3
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
Ordinary Shares (1)
Number of shares on issue at year end (1)
thousands
thousands
1,612,536
1,612,536
1,217,231
1,217,231
1,008,478
1,008,478
Weighted average number of shares on issue (investor and ordinary) (1)
thousands
1,541,925
1,069,507
1,008,478
Earnings / (losses) per share (1)
before individually material items
including individually material items
Dividends (declared)
Dividends (paid)
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
cents
%
$mill
$
%
$mill
%
times
$mill
$mill
%
%
22.6
(11.7)
4.4
21.6
48
$5.18
$1.74
$2.83
4,563.5
0.14
16.8
1,463.4
30.2
5.4
340.5
2.0
10.6
(5.5)
60.5
56.5
29.7
21.8
100
$9.99
$4.11
$5.07
6,171.4
(0.66)
32.7
2,030.3
39.2
11.9
217.6
586.4
35.1
32.8
20.1
20.4
15.0
7.5
100
$4.29
$1.19
$4.28
4,313.3
0.34
22.8
411.7
43.5
10.9
62.9
257.0
44.3
44.9
Note:
(1) The number of shares have been restated as a result of the 20:1 share split as approved by shareholders in September 2008.
122
Incitec Pivot Limited
Five Year Financial Statistics
2006
$mill
1,111.2
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
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
1,008,478
1,008,478
1,165,621
1,165,621
1,130,320
1,165,621
7.3
4.1
5.2
3.6
100
$1.33
$0.77
$1.29
1,304.5
0.18
11.4
275.4
42.0
9.8
21.4
155.3
17.6
9.9
4.1
1.2
3.6
6.1
100
$1.13
$0.75
$0.79
922.0
0.32
7.3
9.2
1.6
8.3
26.1
-
8.0
0.0
(1) The number of shares have been restated as a result of the 20:1 share split as approved by shareholders in September 2008.
Incitec Pivot Limited
123
This page has been left blank intentionally.
“ Own.Breakout.Deliver” embodies the Company’s Values,
which were developed by employees.
The Values are the guiding principles Incitec Pivot draws
on in its day-to-day decision-making.
‘Own’ captures the values:
– Treat the Business as Our Own
– Value People - Respect, Recognise and Reward
– Zero Harm for Everyone, Everywhere
– Care for the Community and Our Environment
– Think Customer. Everyone. Everyday
‘ Breakout’ identifies the
opportunity to:
– Challenge and Improve the Status Quo
‘ Deliver’ captures the philosophy
that we will:
– Deliver on Our Promises
Shareholder Information
Annual General Meeting
2.00 pm Wednesday 23 December 2009
The Auditorium,
Level 2, Melbourne Exhibition Centre,
2 Clarendon Street,
Southbank Victoria,
Australia
Securities exchange listing
Incitec Pivot Limited’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 303 780
(for callers within Australia)
International: +61 2 8280 7765
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
AnnuAlRePoRt2009
I
n
c
i
t
e
c
P
i
v
o
t
L
i
m
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
2
0
0
9
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 2009 is Harvest Recycled Silk.
Harvest Recycled delivers Triple Green Environmental Performance:
60% Recycled Sugar Cane, ECF Bleaching and Sustainable Afforestation.