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Annual Report 2010
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 2010 is Harvest Recycled Silk.
Harvest Recycled delivers Triple Green Environmental Performance:
60% Recycled Sugar Cane, ECF Bleaching and Sustainable Afforestation.
201020102010
Shareholder Information
Annual General Meeting
2.00 pm Tuesday 21 December 2010
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
Explosives
Fertilisers
Trading
Customers in the mining,
quarry, construction, pipeline
and geophysical exploration
industries trust Dyno
Nobel, a global leader in
the commercial explosives
industry, to deliver
Groundbreaking Performance
through Practical Innovation.
Incitec Pivot Fertilisers is a
key supplier of Australia’s
soil health and nutrition
needs, helping farmers
maximise productivity
to remain competitive in
global markets.
Southern Cross International
is focused on sales to
Australian distributors and
export sales to Asia Pacific,
the Indian sub-continent
and Latin America.
Contents
Chairman’s Report ..................................................2
Managing Director’s Report ...................................4
Board of Directors ...................................................6
Executive Team ........................................................7
Directors’ Report ......................................................8
– Remuneration Report .....................................................13
– Corporate Governance Statement .......................................32
Financial Report ................................................... 41
Chairman’s Report
The result shows that we have established a solid
foundation built upon a sound strategy, privileged
assets, operational excellence, financial discipline
and the commitment to a high performance culture.
The 2010 Full Year performance of
Incitec Pivot, in a year of mixed market
conditions, underscores the strength of
the strategic direction, the quality of
the people and the value of the assets.
To come through the worst global
financial dislocation in 80 years and
confront some continuing challenges,
confirms that Incitec Pivot is a company
which can deliver through the toughest
of economic environments. The result
shows that we have established a solid
foundation built upon a sound strategy,
privileged assets, operational excellence,
financial discipline and the commitment
to a high performance culture.
The Group’s strategy is to leverage
the industrialisation cycle being driven
by China and India, by positioning
ourselves on the input side of the value
chain for both hard and soft commodities.
History demonstrates that, as an economy
develops, there is increased demand
for hard commodities such as copper.
This, in turn, drives growth in real income
which results in increased food demand.
In both agriculture and mining industries,
input side returns are typically higher
and less volatile. Fertiliser and explosives
are both key inputs to soft and hard
commodities’ production. Manufacturing
facilities, at the bottom of the cost curve,
are essential to our strategy. Data shows
that, in both explosives and fertilisers,
vertically integrated manufacturing
assets drive earnings.
The 2010 results speak for themselves.
Revenue was split about 50/50 between
explosives and fertilisers. This highlights
the value of the 2008 Dyno Nobel
acquisition which increased our exposure
to the global resources industry and
provided further linkage to the Asian
industrialisation cycle. It is somewhat
gratifying that the future value in
accessing the resources and agricultural
industries is becoming a global
business paradigm.
Dyno Nobel Americas increased earnings
despite flat market conditions and a 2%
reduction in US dollar revenue. This is a
tribute to the team who continue to
deliver despite a struggling US economy.
The US economy remains the world’s
largest and, while in the long term
growth may be small, even low digit
growth will contribute substantial value
for a business which is lean, nimble and
customer responsive. Canada and Latin
America both present opportunities.
Dyno Nobel Asia Pacific achieved a
60% increase in earnings, based upon
a customer-conscious team capitalising
on the demand for Australian and Asian
resource commodities.
The Velocity efficiency program was a
highlight producing incremental benefits
of US$69.2 million. The four year target
for the Velocity program is earnings
before interest and tax of US$204 million,
with US$140.2 million delivered to date.
Incitec Pivot Fertilisers had a strong
rebound, with earnings increasing
by 20%. The Incitec Pivot Fertilisers
team is a great example of how a well-
managed committed team can achieve a
positive outcome with volumes increasing
to 1.7 million tonnes notwithstanding
increased competition and variable
market demand.
Continued financial discipline is a
hallmark of Incitec Pivot’s results and
again the Group delivered exceptional
results such as a reduction in our net
debt, an improved gearing ratio and
a prudent hedging policy to manage our
exposure to the US dollar.
We came out of the 2010 year with a
strong balance sheet providing a platform
for growth. A highlight was the US$800
million 144A Bond issue in December,
2009, which increased the diversity
and tenor of our debt. The funds from
the Bond issue were applied mainly to
paying down debt. Through the Group’s
capital management strategy of holding
our debt in US dollars, we were able
to take advantage of lower interest
rates in the US compared with interest
rates in Australia. As a result, we have
delivered an average interest rate on
our debt of well under five per cent,
which is about half of that of some of
our Australian peers.
The foundation created by the success
of our strategy has given the Board
confidence to make growth decisions
during the year. The major commitment
was the re-start of the construction of
the 330,000-tonne a year ammonium
nitrate plant at Moranbah. The plant is
based in the heart of Australia’s largest
metallurgical coal region in the Bowen
Basin in Queensland. When this $935
million project starts production in
2012, it will contribute a step change
in earnings to Incitec Pivot. My fellow
directors and I visited the project
during the year and were pleased to
see the progress on construction and
to meet with senior representatives of
Local Government.
Also, during the year, there were a
number of small but exciting growth
opportunities which met our strategic
criteria. These included the decision to
commence the joint venture trading
business, Quantum; the re-start of
superphosphate manufacturing at
Geelong; the opening of an initiation
systems plant in Chile; and completion
of the acquisition of the Nitromak
business in Turkey, which previously
had been a 50/50 joint venture.
Quantum has added a new level of
flexibility to Incitec Pivot, opening
new fertiliser markets and leveraging
extensive global contacts in selling
and buying fertiliser and explosives.
2
Incitec Pivot Limited Annual Report 2010
The off-take agreement for two million
tonnes a year of granular urea fertiliser
from the Perdaman project in Western
Australia, which was entered into
subsequent to year end, could not have
been achieved without the capability for
Quantum to manage exports. In Chile,
our plant was officially opened by the
Provincial Governor to mark our return
to Latin America where the former Dyno
Nobel assets had been sold prior to
Incitec Pivot’s acquisition of Dyno Nobel.
Latin America, in general, and Chile,
in particular, have vibrant and growing
mining and construction industries.
We will continue to be alert to growth
opportunities which meet our criteria:
the potential to increase our leverage
to the industrialisation cycle, contribution
to our manufacturing assets at the
bottom of the cost curve and meeting
our financial hurdles.
Safety is the most critical component
of operational excellence and receives
Board focus through the Health, Safety
Environment and Community Committee
chaired by Allan McCallum. Commitment
to a safe workplace is fundamental and
everyone at Incitec Pivot was impacted by
the tragic loss in May of a colleague in our
subsidiary Canadian business, Castonguay.
However, I believe that Zero Harm is
achievable. The vast majority of our
operations are injury free. During the year,
the directors visited plants at St Helens
(Oregon), Carthage (Missouri) and Graham
(Kentucky), in the US, as well as meeting
with a joint venture partner and visiting
a customer’s gold mine. At Graham,
our visit marked the site’s 1,266th day
without a recordable injury. The US visit
impressed us all with the high level of
employee commitment to the Incitec
Pivot Group’s Values, particularly Zero
Harm, Think Customer and Deliver on our
Promises. I’m pleased to say that this
commitment to our Values, which are
printed elsewhere in this Annual Report, is
evident at every site I visit and is essential
to our high performance culture.
The site visits made by directors are but
a small part of their contribution to Incitec
Pivot. Incitec Pivot places a demanding
work load on its directors and I want to
express my gratitude for their continuing
support to me and the erudition and
experience they bring to discussions
around the Board table.
Each year we undertake a review of the
Board’s performance against its Charter
and also review the structure of the Board,
seeking to ensure the Board comprises
appropriate skills, experience and
expertise relative to the Group’s strategy.
After our 2009 review, which identified
that the Board required additional
strong financial skills and international
experience, I am delighted that, following
an extensive process, assisted by an
international executive search firm,
the Board appointed Paul Brasher as
a non-executive director. Paul was an
outstanding candidate, having been a
partner of PricewaterhouseCoopers and
its predecessor firm, Price Waterhouse,
for over 25 years including as Chairman
of the firm’s Global Board for five years.
He is a non-executive director of Perpetual
Limited, a trustee of the Victorian
Arts Centre Trust and Chairman of the
Reach Foundation.
Paul is already making a valuable
contribution to the Board and is dedicating
his time to participate in a comprehensive
induction program on our businesses,
strategies and operations and I welcome
him to the Board. Paul will stand for
re-election at the forthcoming Annual
General Meeting and I recommend his
election by shareholders.
Our duty to our shareholders is to
provide a strong and effective Board
and to do so ensuring the most fitting
of skills and experiences are brought
to bear in discussion around the Board
table. Following discussion with some
of our shareholders throughout this
financial year, the Board’s agenda has
included discussions on cultural and
gender diversity at both the Board
and organisational level. To this end,
the Remuneration and Appointments
Committee is charged with assisting the
Board in developing a diversity policy
and we will report on this in 2011.
In closing, I want to express the Board’s
appreciation to everyone in the Incitec
Pivot Group, from James and his Executive
Team colleagues through to the people
in offices throughout the world, to those
on benches in the mine sites, in factories
and in the farm fields. It is each of them
who has delivered this result and who
will continue to deliver into the future.
I’m confident in our strategic pathway
and in the steps we are taking.
John C Watson, AM
Chairman
Incitec Pivot Limited Annual Report 2010
3
Managing Director’s Report
In my first full year as Managing Director
& CEO, I find myself proud to lead a team
which has delivered such a strong result
in mixed market conditions including
the challenges of the US economy
and volatile fertiliser demand. I am
firmly convinced that it is the quality
of our people which drives the Group’s
performance. For this reason, I set my
focus on People, including Zero Harm, as
one of my three key priorities, together
with Customers and Efficiency. The 2010
result clearly demonstrates the value of
this approach.
Our Net Profit After Tax (NPAT),
excluding Individually Material Items,
was $442.8 million, an increase of
$95 million on the financial result for
2009. Earnings Before Interest and
Tax (EBIT) improved to $648.3 million,
compared with $575.7 million in 2009.
There were equal contributions from
explosives and fertilisers. Dyno Nobel
Asia Pacific achieved a 60% increase,
or $66.2 million, in EBIT results. Dyno
Nobel Americas delivered an increased
EBIT of US$147.9 million, compared
with US$145.4 million in 2009. This was a
good performance in a flat market and
despite a 2% reduction in US dollar
revenue. Incitec Pivot Fertilisers also
produced a good result achieving EBIT of
$112.4 million, a 20% increase on 2009.
This result was achieved notwithstanding
testing market conditions in the agri-
business sector in Australia where a
number of other companies struggled in
2010. Southern Cross International EBIT
increased by 21.4% to $222.6 million
and sales volumes of manufactured
Ammonium Phosphates were up 78,000
tonnes on 2009.
Manufacturing excellence is both
a strategic principle and a cultural
commitment through continued
support for the risk and reliability
approach we adopt in managing our
manufacturing assets. Major maintenance
programs were undertaken at the
Phosphate Hill fertiliser plant, in
Queensland, the biggest plant in our
manufacturing portfolio, and at Cheyenne,
in Wyoming, our biggest plant in the
United States. In 2011, we plan a major
maintenance program at our Gibson
Island fertiliser plant in Queensland.
In addition, a highlight for me has been
our Initiating Systems business which
has demonstrated how sustainable
benefits can be delivered, year on year,
by applying “lean principles” which
have been in place in that business for
a number of years.
Results such as these come because of
our people – with focused leadership and
a committed team working to the right
strategy and addressing the business
fundamentals of safe workplaces, reliable
plants, quality products, customer
relationships and efficient processes. My
firm belief is that our people give Incitec
Pivot a sustainable advantage that cannot
be replicated elsewhere and our focus
this year has been to work on creating
strong leadership and organisational
climate. Research over many years
has shown outstanding companies
come from having a fully engaged
workforce, with clear leadership creating
a positive climate thereby resulting in
employees giving their discretionary
effort. Aligned with this approach,
we surveyed our employees to better
understand the organisational climate
in the Group, which has undergone
substantial change since 2003.
One of our values is “Challenge and
Improve the Status Quo” and following
the survey we challenged our leadership
in a program called “Raising the bar” ,
establishing comprehensive leadership
development programs. By the time the
current program is completed next year,
over 800 leaders in the Group will have
participated in the program. Success will
be measured through the performance of
the Group and the ability of our team to
produce improved results, year on year,
in any market conditions.
The Group’s reward and recognition
program will, for the first time, reference
“how” financial and operational results
are delivered as well as the “what”,
the results themselves. The “how” is
built around the Incitec Pivot Group’s
Values which are grouped under a
banner of “Own.Breakout Deliver.” Our
seven Values, which were created by
employees themselves, are the key
driver of our Group culture and are critical
to linking the organisation globally.
The Values also link with cultural and
gender diversity which is important in
our approach to People and leadership.
For example, Indigenous employment
programs are in development as well
as programs to attract more women into
our operations and to offer leadership
development opportunities.
In my role as Managing Director & CEO,
I enjoy visiting our sites and offices and
meeting our people and customers.
The employee meetings allow me to
reinforce our strategic priorities, highlight
the Group Values and to recognise
good performance. My first message to
employees is always on Zero Harm; it
is our number one priority. I’m pleased
to say that more than 80% of our sites,
offices and operations are injury free
which shows me Zero Harm is possible.
However, our performance in Zero Harm
4
Incitec Pivot Limited Annual Report 2010
was tragically overshadowed by the workplace death of a
colleague at our Canadian subsidiary, Castonguay. This tragedy
reminds us that we all must remain diligent in ensuring our
own safety and that of our work colleagues. Immediately
following this incident we held “Safety Stand Downs” at all of
our Group sites, reaffirming our focus on achieving Zero Harm.
In relation to customers, we achieved a number of substantial
milestones during the year. Our customers in Queensland’s
Bowen Basin strongly supported our decision to re-start the
ammonium nitrate project at Moranbah, with virtually all of
the production sold when the plant comes on stream in 2012.
When I visited the site in October and met with customers,
the project was some 55% complete and on track to meet
production deadlines. Another major customer accomplishment
was Dyno Nobel Americas’ re-signing of the explosives supply
contract with Peabody Coal, our single biggest customer. I was
pleased to meet many customers at the official opening of our
initiation systems plant in Chile in June. My site visits have also
included customer meetings in Western Australia, the United
States, in Turkey and at the re-opening of our superphosphate
plant at Geelong. Our fertiliser customers will also benefit
from our entry into a 20 year off-take commitment for two
million tonnes a year of urea from the proposed Perdaman
project in Western Australia, which is expected to come on
line in 2014.
Efficiency outcomes are very much the result of our people
throughout the Group. The financial fundamentals have
again been delivered, highlighted by operating cash flows
improving by $191.5 million to $528.9 million inflow, net
debt reducing by $366.3 million to $1.1 billion, the gearing
ratio improving to 1.39 times and interest cover improving
to 12.2 times. The Velocity efficiency program continues to
produce results with incremental benefits in 2010 of US$69.2
million. Velocity is on track to deliver on the four year target
of US$204 million.
During the year, we made progress on our Sustainability
agenda for the next three years. We define Sustainability
as “the creation of long term economic value while caring
for our people, our communities and our environment”.
The Sustainability agenda, developed using a comprehensive
process including employee interviews and workshops plus
benchmarking against our peers, comprises: Use less: more
efficient use of non-renewable resources; Get close: community
engagement and Be responsible: product lifecycle. Energy
and water efficiency has been a key area of action over
many years and we continued to make progress this year.
Regarding energy, we participate in the Australian Energy
Efficiency Opportunity program and we have been noted
by the Australian Government as an example of industry
“best practice”. One project alone has resulted in saving
213,000 gigajoules.
Finally, I want to thank my fellow directors, my colleagues on
the Executive Team and employees throughout the Group. I am
continually delighted and impressed by the focus, quality and
commitment of our people. I have absolute confidence that
with leadership and support, our people will continue to deliver
strong results, such as in 2010, into the future.
James Fazzino
Managing Director &
Chief Executive Officer
“ Own.Breakout.Deliver embodies the
IPL Group’s Values which are at our core.
They reflect the fairness and trust in
which we believe and are the guiding
principles Incitec Pivot draws on in its
day-to-day decision making.”
James Fazzino
Managing Director & Chief Executive Officer
‘Own’ captures the values:
Zero Harm for Everyone,
Everywhere
Value People – Respect,
Recognise and Reward
Treat the Business
as Our Own
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
Incitec Pivot Limited Annual Report 2010
5
Board of Directors
John Watson AM MAICD
Non-executive Chairman
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.
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 and CRF Group 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.
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 non-executive director
of Oakton Limited. Tony was previously
a non-executive director of OZ Minerals
Limited, Corporate Express Australia
Limited and Eyecare Partners 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
Chairman of Remuneration and
Appointments Committee
John was appointed to the Board on
20 December 2006. John is a non-
executive director of Boral Limited as
well as independent Chairman of Tomago
Aluminium Company Pty Ltd, a joint
venture between Rio Tinto, Alcan, CSR/AMP
and Hydro Aluminum companies. 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. In addition,
he previously held executive positions
with Esso Australia Limited, James Hardie
Industries Limited, Pioneer International
Group Holdings and Hanson plc.
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,
6
Incitec Pivot Limited Annual Report 2010
Left: John Watson, Allan McCallum,
Anthony Larkin, John Marlay
Below: Graham Smorgon, Paul Brasher,
James Fazzino
Opposite above: James Fazzino, Frank Micallef,
Kerry Gleeson, Bernard Walsh, Alan Grace
Opposite below: James Whiteside,
Gary Brinkworth, Stephen Dawson,
Brian Wallace, Jamie Rintel, Simon Atkinson
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.
Paul Brasher BEc(Hons), FCA
Paul was appointed to the Board by
the directors on 29 September 2010.
Paul is a non-executive director of
Perpetual Limited, a trustee of the Victorian
Arts Centre Trust and Chairman of the
Reach Foundation. From 1982 to 2009, Paul
was a partner of PricewaterhouseCoopers
(and its predecessor firm, Price Waterhouse),
one of the world’s major chartered
accounting and professional services firms,
including five years as the Chairman of the
Global Board of PricewaterhouseCoopers.
Paul is a former Chairman of the National
Gallery of Victoria’s Business Council,
a former member of the Committee for
Melbourne, a former board member
of Asialink and a former trustee of the
Committee for Economic Development
of Australia.
James Fazzino BEc(Hons), FCPA
Managing Director & CEO
James 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 Investor Relations Manager,
Chief Financial Officer for the Orica Chemicals
group and Project Leader of Orica’s group
restructure in 2001.
Executive Team
James Fazzino BEc(Hons), FCPA
Managing Director & CEO
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.
Kerry Gleeson LLB(Hons)
General Counsel & Company Secretary
Kerry qualified as a lawyer in 1991, in
England & Wales, and subsequently in
Victoria, Australia in 2001. Kerry was
appointed as General Counsel and Company
Secretary in February 2004. Prior to joining
the Company, Kerry had extensive private
practice experience in IPOs, international
mergers and acquisitions, equity markets,
financing and restructuring, while practising
in Australia, with Blake Dawson, and prior
to that, as a partner of an English law firm.
In 2009, Kerry received the ALB Australasian
Law Award for In-House Lawyer of the Year.
Bernard Walsh BE(Mech), MIEAust CPEng
President, 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
General Manager, Major Projects -
Moranbah Project Director
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 the Project Director for
the Moranbah Project.
James Whiteside BAgricSc,
GradDipBusAdmin
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 Quantum
joint venture.
Gary Brinkworth BEc
General Manager, Incitec Pivot Fertilisers
& Human Resources
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.
Stephen Dawson BSc (Hons) Mining
Engineering, MBA
President, Dyno Nobel Asia Pacific
Stephen joined the Company upon
its acquisition of Dyno Nobel in 2008.
Stephen is responsible for leading the
Dyno Nobel industrial explosives business
in the Asia-Pacific region, including
Australia, Indonesia and Papua New Guinea.
He commenced his career with British Coal
and subsequently worked with mining
companies Amcoal Collieries Limited and
Randcoal in South Africa. Stephen has
also worked with AECI Explosives Limited
(now AEL) in a variety of sales and
operational roles.
Brian Wallace MSc, MBA
President, Dyno Nobel Americas
Brian joined the Company in 2008 and is
responsible for Dyno Nobel’s North American
business. He has extensive experience in
the industrial explosives business, having
worked in the industry for over 25 years
starting with AECI Explosives Limited (now
AEL) in Johannesburg and, prior to joining
Incitec Pivot, held positions with Austin
Powder Company in the United States
and Orica.
Jamie Rintel BA
President, Strategy & Business
Development
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
President, Strategy & Business Development
in June 2008.
Simon Atkinson BBus, CA
President, New Markets
Simon joined the Company on its merger
with Incitec Fertilizers Limited in 2003,
having commenced with Incitec Limited
in 2001 and Orica Limited in 1999. He has
extensive finance experience, having been
the Company’s Commercial Finance Manager
for the Australian fertilisers business. Simon
was previously the Company’s Investor
Relations Manager and more recently,
the Global CFO for the Group’s explosives
business. Simon was appointed to his
current role as President of New Markets
in May 2010 and has responsibility for new
markets, including Turkey and Chile.
Incitec Pivot Limited Annual Report 2010
7
Directors’ Report
The directors of Incitec Pivot Limited present the directors’ report, together with the financial report, of the Company and its
controlled entities (the Group) for the year ended 30 September 2010 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
J C Watson AM, MAICD
Independent non-executive director
and Chairman
Member of the Remuneration and
Appointments Committee
Member of the Health, Safety,
Environment and Community
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.
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
Tony was appointed as a director on 1 June 2003. He is a non-executive director of Oakton
Limited. Tony was previously a non-executive director of OZ Minerals Limited, Corporate
Express Australia Limited and Eyecare Partners 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.
A D McCallum Dip. Ag Science,
FAICD
Independent non-executive director
Chairman of the Health, Safety,
Environment and Community
Committee
Member of the Remuneration and
Appointments Committee
J Marlay BSc, FAICD
Independent non-executive director
Chairman of the Remuneration and
Appointments Committee
Member of the Audit and Risk
Management Committee
Allan was appointed as a director on 15 December 1997. Allan is Chairman of Tassal Group
Limited and CRF Group 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 was appointed to the Board on 20 December 2006. John is a non-executive director
of Boral Limited as well as independent Chairman of Tomago Aluminium Company Pty Ltd,
a joint venture between Rio Tinto, Alcan, CSR/AMP and Hydro Aluminum companies. 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. In addition, he
previously held executive positions with Esso Australia Limited, James Hardie Industries
Limited, Pioneer International Group Holdings and Hanson plc.
8
Incitec Pivot Limited Annual Report 2010
Name, qualifications and
special responsibilities
Experience
G Smorgon B.Juris LLB
Independent non-executive director
Member of the Audit and Risk
Management Committee
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.
P V Brasher BEc(Hons), FCA
Independent non-executive director
Paul was appointed to the Board by the directors on 29 September 2010. Paul is a
non-executive director of Perpetual Limited, a trustee of the Victorian Arts Centre Trust
and Chairman of the Reach Foundation. From 1982 to 2009, Paul was a partner of
PricewaterhouseCoopers (and its predecessor firm, Price Waterhouse), one of the world’s
major chartered accounting and professional services firms, including five years as the
Chairman of the Global Board of PricewaterhouseCoopers. Paul is a former Chairman of
the National Gallery of Victoria’s Business Council, a former member of the Committee
for Melbourne, a former board member of Asialink and a former trustee of the Committee
for Economic Development of Australia.
J E Fazzino BEc(Hons), FCPA
Managing Director & Chief Executive
Officer
Member of the Health, Safety,
Environment and Community
Committee
James was appointed as Managing Director & Chief Executive Officer 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, James had many years
of experience with Orica Limited in several business financial roles, including Investor
Relations Manager, Chief Financial Officer for the Orica Chemicals group and Project Leader
of Orica’s group restructure in 2001.
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.
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 (ASX) 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
P V Brasher
J E Fazzino(1) (2)
Fully paid ordinary shares
Incitec Pivot Limited
100,000
5,000
216,501
37,926
0
0
1,845,420
(1) Held both directly and indirectly.
(2) This interest includes shares held 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 in Note 36 to the financial statements, Share based payments.
Further details of directors’ interests in share capital are set out in Note 35 to the financial statements, Key Management
Personnel disclosures.
Incitec Pivot Limited Annual Report 2010
9
Directors’ Report
Directors’ meetings
The number of directors’ meetings held (including meetings of committees of directors) and the number of meetings attended by
each of the directors of the Company during the financial year are listed below:
Director
Current
J C Watson(3)
A C Larkin
A D McCallum
J Marlay(4)
G Smorgon
J E Fazzino
P V Brasher(5)
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)
14
14
14
14
14
14
1
14
13
14
14
14
14
1
-
4
-
4
4
-
-
-
4
-
4
4
-
-
6
-
6
6
-
-
-
6
-
6
6
-
-
-
4
4
4
-
-
4
-
4
4
4
-
-
4
-
(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 John Watson retired as the Chairman of the Remuneration and Appointments Committee on 26 February 2010. However, he continued as a member
of the Committee.
(4) Mr John Marlay was appointed by the Board as Chairman of the Remuneration and Appointments Committee on 26 February 2010.
(5) Mr Paul Brasher was appointed to the Board by the directors on 29 September 2010.
Principal activities
The principal activities of the Group 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.
Review and results of operations
Group Financial Highlights
• Net Profit After Tax excluding minority interests
(including individually material items(1)) for the year ended
30 September 2010 was $410.5m, up $631.9m compared
to a Net Loss After Tax excluding minority interests
(including individually material items) in the year ended
30 September 2009 of $221.4m.
• Net Profit After Tax excluding minority interests
(excluding individually material items) for the year ended
30 September 2010 was up 27.3% or $95.0m to $442.8m
(2009: $347.8m). The result reflects strong performance in
all four business segments despite mixed market conditions
and includes the delivery of Velocity program benefits.
• Earnings Before Interest and Tax (EBIT) (excluding
individually material items) was up 12.6% or $72.6m to
$648.3m (2009: $575.7m) with the mix of earnings being
approximately 50% Explosives and 50% Fertilisers.
• Earnings Per Share (excluding individually material items)
were up 20.8% to 27.3 cents (2009: 22.6 cents).
• Decrease in Financial Expenses of $67.8m to $58.3m
(2009: $126.1m), as a result of lower Net Debt levels
and a lower interest rate achieved in 2010.
Business Segment Financial Highlights
• Dyno Nobel Asia Pacific (DNAP) EBIT was up 60.3% to
$176.0m (2009: $109.8m) as a result of lower losses
incurred in servicing Moranbah foundation customers
coupled with an increase in the release of the Moranbah
unfavourable contract liability. Underlying business
performance was strong, benefitting from lower nitrogen
prices and better sourcing of product.
• Southern Cross International (SCI) EBIT was up 21.4%
to $222.6m (2009: $183.3m) due to higher sales of
manufactured Di-Ammonium Phosphate at a slightly lower
Australian dollar price.
•
Incitec Pivot Fertilisers (IPF) EBIT was up 19.6% to $112.4m
(2009: $94.0m) reflecting higher volumes sold in the
Australian market in 2010.
• Dyno Nobel Americas (DNA) delivered $163.2m EBIT,
which represented a decrease of $34.5m from 2009 EBIT
of $197.7m. However, when measured in its base currency
(US dollar), DNA EBIT was up slightly with the benefits of
the Velocity program offsetting difficult market conditions.
1.
Individually material items are revenues or expenses that are outside the normal operations of the business and are non-recurring in nature.
10
Incitec Pivot Limited Annual Report 2010
External Sales Revenue
• Revenue decreased by $487.2m, or 14.3%, to $2,931.7m
(2009: $3,418.9m) in the year ended 30 September 2010.
The decrease was primarily due to the impact of the higher
Australian dollar on US dollar earnings derived in DNA and
by IPF and SCI. Of the total revenue of $2,931.7m in the
year ended 30 September 2010, $1,387.6m, or 47.3%,
was derived from the fertiliser business and $1,544.1m,
or 52.7%, was derived from the explosives business.
• The decrease in revenue from the fertiliser business of
$203.7m, or 12.8%, to $1,387.6m (2009: $1,591.3m) in
the year ended 30 September 2010 was due to a decrease
in revenue in IPF of $64.3m to $885.9m (2009: $950.2m)
and a decrease in revenue in SCI of $130.4m to $647.1m
(2009: $777.5m) and an increase in the elimination of
intercompany sales of $9.0m from an elimination of
$136.4m in 2009 to an elimination of $145.4m in 2010.
The decrease in IPF revenues was impacted by lower
average fertiliser prices, in particular Urea and Single
Superphosphate, which was partially offset by a 21%
increase in sales volumes. The decrease in SCI revenues
was primarily due to lower average realised fertiliser
prices. While US dollar prices for Di-Ammonium Phosphate
increased from the prior year this was more than offset by
the appreciation of the Australian dollar.
• The explosives business contributed $1,544.1m of revenue
(2009: $1,827.6m) in the year ended 30 September 2010,
representing a decline of 15.5% or $283.5m due to a
decrease in revenue in DNA of $295.9m to $1,092.5m
(2009: $1,388.4m) and a decrease in revenue in DNAP of
$5.9m to $499.8m (2009: $505.7m) offset by a decrease in
the elimination of intercompany sales of $18.3m from an
elimination of $66.5m in 2009 to an elimination of $48.2m
in 2010. The decrease in DNA revenues reflected the impact
of the rising Australian dollar on US dollar revenues derived
by this business, as US dollar revenues were relatively flat
for the year. The decrease in DNAP revenues was a result of
decreased nitrogen selling prices offset by a slight increase
in volumes.
Returns to Shareholders
• A final dividend of 6 cents per share (cps) unfranked is to be
paid on 17 December 2010.
• This brings the total 2010 dividend to 7.8 cps, 0% franked
(2009: 4.4cps 48% franked).
• Total shareholder returns for 2010 were positive 30% (2009:
negative 43%) assuming shares were held for the full year.
Balance Sheet
• Net debt decreased by $366.3m to $1,097.1m at 30
September 2010 (2009: $1,463.4m) as a result of improved
operating cash flows and the benefit of carrying debt in US
dollars while the Australian dollar appreciated during 2010.
• The Net Debt/EBITDA(2) ratio is 1.39 at 30 September 2010
(2009: 1.97).
Dividends
Dividends paid since the last annual report were:
Type
Paid during the year
2009 final dividend
2010 interim dividend
Paid after end of year
2010 final dividend
Dealt with in the financial
report as:
Dividends
Subsequent event
Cents per share
Total amount
$000
Franked / Unfranked
Date of payment
2.3
1.8
6
Note
27
27
37,100
29,300
97,724
$000
66,400
97,724
Unfranked
Unfranked
18 December 2009
6 July 2010
Unfranked
17 December 2010
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 Annual Report 2010
11
Directors’ Report
Changes in the state of affairs
There have been no significant changes to the Group’s state
of affairs during the year.
Events subsequent to balance date
Since the end of the financial year, in November 2010, the
directors determined to pay a final dividend for the Company
of 6 cents per share on 17 December 2010. The dividend is
unfranked (Refer Note 27 to the financial statements).
In October 2010, the Company entered into a 20 year off-take
commitment with Perdaman Chemicals and Fertilisers Limited
for the output of approximately two million tonnes per annum
of granular Urea fertiliser from the proposed project at Collie,
Western Australia. Under the agreement, the Company is the
off-taker from the proposed project, which is planned to begin
production in 2014. The product supplied to the Company under
the agreement would be available for sale in Oceania, Pakistan,
Asia and the Americas.
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 2010 that
has affected or may affect the operations of the Group,
the result of those operations, or the state of affairs of the
Group in subsequent years, which has not been covered
in this report.
Likely developments
Further information on likely developments in the operations
of the Group and the expected results of the operations has
not been included in this 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.
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
$80,100 during the year ended 30 September 2010
(Refer Note 7 to the financial statements).
Lead Auditor’s Independence Declaration
The lead auditor has provided a written declaration that no
professional engagement for the Group 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 40 of this Annual 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.
12
12
Incitec Pivot Limited Annual Report 2010
Incitec Pivot Limited Annual Report 2010
Directors’ Report
Remuneration Report
The directors of Incitec Pivot Limited (the Company or
Incitec Pivot) present the Remuneration Report prepared in
accordance with section 300A of the Corporations Act 2001
(Cth) for the Company and its controlled entities (collectively
referred to in this report as the “Group”) for the year ended
30 September 2010. This Remuneration Report is audited.
The structure of this Remuneration Report
is as follows:
Section
This Remuneration Report forms part of the Directors’ Report.
A. Remuneration Overview
Details of the Group’s remuneration strategy and
arrangements for the 2009/10 financial year are set out
in this Remuneration Report.
This Remuneration Report is prepared in respect of the Key
Management Personnel, being those persons who have
authority and responsibility for planning, directing and
controlling the activities of the Group.
The Board has determined that the Key Management
Personnel are the non-executive directors of the Company
(refer to table B.1), certain former executives that resigned
during the reporting period (refer to table C.3) and the people
referred to in the table below, which includes the five most
highly remunerated Group executives.
When used in this Remuneration Report, the term “Executives”
means the people listed in the following table (and the former
executives that resigned during the reporting period, as the
context requires).
Name
Position
Mr James Fazzino
Managing Director & CEO
Mr Frank Micallef
Chief Financial Officer
Mrs Kerry Gleeson
General Counsel &
Company Secretary
Mr Bernard Walsh
President, Global Manufacturing
Mr Alan Grace
General Manager, Major Projects –
Moranbah Project Director
Mr James Whiteside
General Manager, Supply Chain
& Trading
Mr Gary Brinkworth
General Manager, Incitec Pivot
Fertilisers & Human Resources
Mr Stephen Dawson
President, Dyno Nobel Asia Pacific
B. Non-Executive Director
Remuneration
C. Executive Remuneration
Executive remuneration policy and practice
Key features of the components
of Executive remuneration
− Fixed annual remuneration
− At risk remuneration – Short Term
Incentive (STI) Plan
− At risk remuneration – Long Term
Incentive (LTI) Plans
Analysis of relationship between the
Group’s performance, shareholder wealth
and remuneration
Executives’ remuneration arrangements
− Managing Director & Chief
Executive Officer
− Executive Team
Mr Brian Wallace
President, Dyno Nobel Americas
Details of Executive remuneration
Mr Jamie Rintel
President, Strategy & Business
Development
Mr Simon Atkinson
President, New Markets
− Executive remuneration
− Short term incentive
− Long term incentives
Page
14
16
17
17
17
18
19
22
24
24
25
26
26
28
29
Incitec Pivot Limited Annual Report 2010
Incitec Pivot Limited Annual Report 2010
13
13
Directors’ Report
Remuneration Report
A. Remuneration Overview
Incitec Pivot aims to generate competitive returns for its shareholders through its strategy as a leading global chemicals Group,
manufacturing and distributing industrial explosives, fertilisers and related products and services. Incitec Pivot recognises that to
achieve this the Group needs outstanding people who are capable, committed and motivated. The philosophy of Incitec Pivot’s
remuneration strategy is that it should support the objectives of the business and enable the Group to attract, retain and reward
Executives of the necessary skill and calibre. Accordingly, the key principles of Incitec Pivot’s remuneration strategy are as follows:
• to provide market competitive remuneration to attract, retain and reward Executives;
• for the majority of Executive remuneration to be “at risk” and linked to performance and the creation of sustained
shareholder value;
• to apply demanding financial and non-financial performance objectives for the short and long term incentive plans; and
• for the long term incentive, to result in share ownership on the achievement of demanding objectives, linking remuneration
to Company performance as experienced by shareholders.
Remuneration in Practice in 2009/10 Financial Year
Key Highlights
Commentary
Fixed annual remuneration and
non-executive director fees
Freeze
Having regard to the financial performance of the Group and the global financial
environment, a freeze on fixed annual remuneration for Executives and on fees for
non-executive directors was implemented in 2009/10.
2009/10 Short Term Incentive
Set Challenging Targets Driving Creation of Shareholder Value
The Board set challenging performance conditions for the 2009/10 Short Term
Incentive (STI) Plan including a condition on achieving Earnings Per Share (EPS) growth
(before individually material items) compared to the prior year and, where relevant
for a particular Executive, the Earnings Before Interest and Taxes (EBIT) of a business
segment in the Group.
With EPS having grown 20.8% for the year ended 30 September 2010, Executives
received payments under the STI Plan. Details of the amounts awarded are set out
in table C.4.
2007/10 Long Term Incentive
No Awards Made on Maturity of Plan
The 2007/10 Long Term Incentive (LTI) Plan matured on 30 September 2010.
The performance conditions applying under this Plan were established in 2007 and
for awards (in the form of loan forgiveness) to be made under the Plan required the
Company’s total shareholder returns (TSR), measured over the three year period to
30 September 2010, to be greater than 10% per annum compounded over the three
year period.
The Company’s TSR is 2.64% per annum compounded over the three years to
30 September 2010 and, accordingly, no awards (in the form of loan forgiveness)
were made to Executives (or any participant) under the 2007/10 LTI Plan.
14
Incitec Pivot Limited Annual Report 2010
Remuneration for the 2010/11 Financial Year
Over the years, the Board has been consistent in the application of the remuneration strategy, maintaining stability in its practices
while annually reviewing executive remuneration, having regard to the need to offer competitive remuneration packages and to
respond to shareholder sentiment.
Accordingly, in readiness for the 2010/11 financial year, the Board commenced a detailed review of the remuneration policy and
the structure of the remuneration packages offered to the Executives. The Remuneration and Appointments Committee engaged
Godfrey Remuneration Group, an appropriately qualified and independent remuneration consultant, to assist in the review. The
outcome of the review is described in the table below.
Key Features
Commentary
Retention of remuneration
structure
Broad Structure of Executive Remuneration to be Retained
Following the review, the Board determined to retain the structure of fixed and “at risk”
(in the form of short term and long term incentives) remuneration, consistent with the
key principles of the Company’s remuneration strategy discussed above, keeping the
majority of Executive remuneration “at risk”, with total remuneration comprising equal
proportions of fixed remuneration, short term and long term incentives.
Review of Short Term Incentive
Review of Long Term Incentive
Introduction of two Long Term
Incentive performance conditions
Continue Targeting Earnings Growth
The Board determined to continue using growth in EPS as a performance condition for
the 2010/11 STI, coupled with, where relevant for a particular Executive, the EBIT of
a business segment in the Group. In addition, non-financial conditions will be used,
such conditions not to exceed 20% of the STI opportunity for a particular Executive.
Establishing non-financial performance conditions for part of the STI enables the Group
to also reward how the results are being achieved, for example, in accordance with the
Group’s Values, “Own.Breakout.Deliver.”
Performance Rights Plan to Remain
With regard to the future LTI plans (including for the three year period to 30 September
2013, the 2010/13 LTI plan), it was determined to maintain the design of the plan
as being a performance rights plan which entitles a participant to acquire ordinary
shares in the Company for no consideration at a later date, subject to satisfaction of
certain conditions.
Move to Relative TSR and EPS Growth
The Board determined to adopt the following performance conditions for future LTI plans,
thereby continuing to strongly link Executive reward and returns to shareholders:
• the Company’s total shareholder returns, relative to a comparator group, the S&P/ASX
100, with vesting of the performance rights attached to this condition starting where
the Company’s TSR is above the 50th percentile of the companies in the comparator
group, ranked by their TSR performance and full vesting in the performance rights
attached to this condition occurring where the Company’s TSR is equal to or above
the 75th percentile of the companies in the comparator group ranked by their TSR
performance; and
• Earnings Per Share growth, with vesting of the performance rights attached to this
condition starting where the compound annual growth rate of the Company’s EPS over
the performance period, from the base year (the financial year ended 30 September
2010), is equal to or greater than 7% per annum with full vesting in the performance
rights attached to this condition occurring where the compound annual growth rate
of the Company’s EPS over the performance period is 15% or greater. This condition
is designed to give a total shareholder return equivalent to the top quartile of
comparable companies in a three year period.
These performance conditions are equally weighted and will apply to the 2010/13
LTI Plan.
Incitec Pivot Limited Annual Report 2010
15
Directors’ Report
Remuneration Report
B. Non-Executive Director Remuneration
Incitec Pivot’s policy is to:
• remunerate non-executive directors by way of fees and
payments which may be in the form of cash, non-cash
benefits and superannuation benefits; and
• set the level of non-executive directors’ fees and payments
to be consistent with the market and to enable Incitec Pivot
to attract and retain directors of an appropriate calibre.
Non-executive directors are not remunerated by way
of options, shares, performance rights, bonuses nor by
incentive-based payments.
Non-executive directors receive a fee for being a director of the
Board and non-executive directors, other than the Chairman of
the Board, receive additional fees for either chairing or being
a member of a Board Committee. The level of fees paid to a
non-executive director is determined by the Board after an
annual review and reflects a non-executive director’s time
commitments and responsibilities. For the 2009/10 financial
year, there was a freeze on fees paid to non-executive directors.
In aggregate, the fees paid to non-executive directors
amounted to $1,335,000, below the $2,000,000 limit approved
by shareholders at the 2008 Annual General Meeting.
Non-executive directors joining the Board after 31 May 2003
are not entitled to receive a retirement benefit. There are
two non-executive directors who were appointed before
1 June 2003, Mr J Watson and Mr A McCallum, who have
contractual rights to a retirement benefit. The contracts, which
were entered into prior to the merger with Incitec Fertilizers
Limited in 2003, provide that on their respective retirements
from the Board, on condition of them serving 10 years on
the Board, each of Mr Watson and Mr McCallum receive a
payment calculated as to approximately 54% of the aggregate
remuneration they respectively receive from the Company in
the three years immediately preceding their date of retirement,
where the percentage represents their years of service from
the date of appointment to 31 May 2003, as a proportion of
10 years service.
Table B.1: Non-executive directors’ remuneration
Details of the non-executive directors’ remuneration for the financial year ended 30 September 2010 are set out in the
following table:
For the year ended 30 September 2010
Non-executive directors
Current
J C Watson, Chairman(1)
A C Larkin
J Marlay
A D McCallum(1)
G Smorgon(2)
P V Brasher(3)
Former
B Healey(4)
Total non-executive directors
Short-term benefits(A)
Fees
$000
410
410
187
187
176
168
177
185
155
118
1
–
–
40
1,106
1,108
Year
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Post-employment
benefits
Superannuation
benefits
Other long term
benefits(B)
$000
$000
41
41
18
18
17
17
18
18
15
12
0
–
–
–
109
106
85
106
–
–
–
–
35
46
–
–
–
–
–
–
120
152
Total
$000
536
557
205
205
193
185
230
249
170
130
1
–
–
40
1,335
1,366
(A) Apart from the fees paid or payable to the non-executive directors, no other short term benefits were paid or are payable in respect of the reporting period.
(B) 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.
(1) If Mr Watson or Mr McCallum had ceased to be a director on 30 September 2010, the following benefits would have been payable under their respective
contracts: Mr Watson $704,000, Mr McCallum $307,000.
(2) The disclosures for the 2008/09 financial year are with effect from Mr Smorgon’s appointment to the Board as a non-executive director on 19 December 2008.
(3) On 29 September 2010, Mr Brasher was appointed to the Board by the directors. The disclosures for the 2009/10 financial year are with effect from
Mr Brasher’s appointment to the Board as a non-executive director on 29 September 2010.
(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.
16
Incitec Pivot Limited Annual Report 2010
C. Executive Remuneration
Executive remuneration policy and practice
The remuneration of the Executives is set by the Board.
The relative proportion of the Executives’ total remuneration
packages for the 2009/10 financial year that is performance-
based is set out in the table below, and indicates a majority
of the Executives’ total remuneration is “at risk” (64 – 67%).
In alignment with its remuneration strategy, the Board’s policy
on executive remuneration is that it should comprise both a
fixed component (fixed annual remuneration) and an “at risk”
or performance related component (being short term and
long term incentives) where the mix between fixed annual
remuneration and that “at risk” may vary according to the
duties and responsibilities of an Executive.
Remuneration arrangements for Executives are reviewed
annually to ensure the arrangements continue to remain
market competitive and consistent with the strategy of creating
sustained shareholder value and in alignment with the Group’s
business strategy.
Overall the structure of executive remuneration is designed such
that the Executives’ total remuneration package is determined
by reference to the top 25 performing companies (by reference
to total shareholder return) of the S&P/ ASX 26 – 100.
Table C.1: Remuneration structures by level
% of Total Remuneration (annualised)
Fixed
Remuneration
Performance-based
Remuneration
Managing
Director & CEO
Executives (1)
FAR
33%
36%
STI
33%
29%
LTI
34%
35%
(1) For the purpose of the above table, the information regarding the Executives
does not include the President – New Markets or the former General
Manager – Explosives. For the President – New Markets, the relative
proportions were as follows: fixed remuneration – 48%, STI – 28% and LTI –
24%. For the former General Manager – Explosives, the relative proportions
were as follows: fixed remuneration – 36%, STI – 35% and LTI – 29%.
In calculating the “at risk” compensation as a proportion of
total remuneration for the 2009/10 year, for each Executive,
the maximum entitlement under the STI or LTI was taken
into account.
Key features of the components of Executive remuneration
The following tables set out the key features of the three components of Executive remuneration that are relevant to the 2009/10
financial year.
Fixed annual remuneration
Set out below is a summary of the key features of the fixed annual remuneration for the Executives relevant to the 2009/10
financial year.
Fixed annual remuneration
Who receives fixed annual
remuneration?
What is the purpose of the
fixed annual remuneration
component?
The terms of employment for each of the Executives contain a fixed annual
remuneration component.
The purpose of the fixed component is to remunerate the Executives at a level
that is market competitive and reflects the experience and performance of the
individual Executive.
What is included in fixed annual
remuneration?
Executives may receive their fixed annual remuneration in a variety of forms, including
cash, superannuation and fringe benefits, such as motor vehicles.
When is fixed annual
remuneration reviewed?
The level of fixed annual remuneration is reviewed by the Board annually with
reference to, among other things, market data provided by an appropriately qualified
and independent external consultant. In setting the level of the fixed component of
remuneration regard is had to the median of that paid by companies of a comparable
size for similar roles.
When does an increase in
fixed annual remuneration
take effect?
If the Board determines that there will be an increase in the fixed annual remuneration
for an Executive, the increase ordinarily takes effect from 1 January in the relevant
financial year.
What was the fixed annual
remuneration for the
Executives for the year ended
30 September 2010?
For the 2009/10 financial year, having regard to the financial performance of the
Company and the global financial environment, it was determined by the Board that the
fixed annual remuneration for the Executives would not be increased from the 2008/09
levels, save where roles and responsibilities changed during the year. Refer to table
C.3 for details of the fixed annual remuneration for the Executives for the year ended
30 September 2010.
Incitec Pivot Limited Annual Report 2010
17
Directors’ Report
Remuneration Report
At risk remuneration – Short Term Incentive (STI) Plan
Set out below is a summary of the key features of the STI component of remuneration for the Executives relevant to the 2009/10
financial year.
STI Plan
What is the STI?
The STI is an annual “at risk” cash bonus which is dependent on the achievement of
particular performance conditions in the financial year to 30 September 2010.
Who participates in the STI Plan?
All of the Executives (as well as other selected employees) participate in the STI Plan.
Why does the Board consider
the STI to be an appropriate
incentive?
The Board considers the STI is appropriate as it encourages the Executives to support
Incitec Pivot’s strategic objectives by putting a large proportion of the Executives’
remuneration “at risk” against meeting challenging performance targets linked to the
Group’s annual business objectives.
What are the criteria for
awarding the STI to Executives?
Why were these criteria chosen?
STI awards are not an entitlement, but rather a reward for annual Group performance and
individual performance or contribution to overall Group performance.
The criteria for awarding the STI is the satisfaction of performance conditions.
The performance conditions used are EPS growth from the prior year and, where relevant
for a particular Executive, the EBIT of a particular business segment in the Group coupled
with, where appropriate, non-financial performance conditions.
In respect of EPS, this is considered an appropriate financial measure because it aligns
Executive reward with the creation of shareholder value. In addition, by also using the
EBIT of a business segment as a measure for Executives in relevant business segments,
this ensures robust alignment of performance in a particular business segment with
reward for the Executive managing that business segment. Further, establishing non-
financial performance conditions for part of the STI enables the Group to also reward
how the results are being achieved, for example, in accordance with the Group’s Values,
“Own.Breakout.Deliver”.
When are the criteria set?
The criteria for awarding the STI were set by the Board at the commencement of the
2009/10 financial year.
What is the method for
determining if the criteria are
satisfied?
The method for determining if performance conditions are met is, for financial
performance conditions, based on a review of the audited accounts for the financial year
and, for any non-financial performance conditions, based on the review by the Board of
recommendations made by the Remuneration and Appointments Committee following
the annual performance review process for the Executives.
What STI awards were made to
Executives with respect to the
year ended 30 September 2010?
With EPS having grown 20.8% for the year ended 30 September 2010 and having regard
to the EBIT for relevant business segments as set out on page 10 of the directors’ report,
Executives were entitled to awards under the 2009/10 STI. Refer to tables C.3 and C.4 for
further details of STI awards to Executives for the year ended 30 September 2010.
No Executives were awarded STI payments under the 2008/09 STI.
18
Incitec Pivot Limited Annual Report 2010
At risk remuneration – Long Term Incentive (LTI) Plans
General summary of the LTI Plans
Set out below is a summary of the key features of the current LTI Plans.
LTI Plans
What are the Company’s LTI
Plans that are relevant to the
2009/10 financial year?
The current LTI Plans are:
• Long Term Incentive Performance Share Plan for 2007/10
(loan-backed share-based plan) (LTI 2007/10);
What is the purpose of the LTIs?
What is the design of the
LTI Plans?
• Long Term Incentive Performance Rights Plan for 2008/11 (LTI 2008/11); and
• Long Term Incentive Performance Rights Plan for 2009/12 (LTI 2009/12).
In addition there are incentive arrangements for Executives and other selected
employees based outside of Australia (see ‘What are the Long Term Incentive
Performance Cash Plans?’ below).
Details of the Executives’ participation in these plans are set out in tables C.6 and C.7.
The LTIs are the long term incentive component of remuneration for employees, including
the 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 reward with the key performance drivers which underpin
sustainable growth in shareholder value – which comprises both share price growth and
returns to shareholders. By rewards resulting in share ownership on the achievement of
demanding targets, this ties remuneration to Company performance as experienced by
shareholders. The arrangements also support the Company’s strategy for retention and
motivation of the Executives and senior employees.
The LTI 2007/10 was a loan-backed share-based plan with a performance period
over three years and performance conditions 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 LTI 2008/11 and LTI 2009/12 are performance rights plans which also have a
performance period of three years and performance conditions based on Absolute TSR.
What is the method for
determining if the criteria are
satisfied?
The method for determining if the performance conditions are met is to test the
performance conditions once only, following the end of the relevant performance period.
This is done by reviewing the share price over the three year performance period and
taking into account dividends paid.
What are the Long Term
Incentive Performance
Cash Plans?
Certain employees and Executives based in some jurisdictions participate in long term
incentive cash plans which are operated by the Group, through its offshore entities.
These cash plans are designed to deliver a similar benefit to those outlined above on
achievement of sustained performance over the relevant three year performance period,
with similar conditions as the Long Term Incentive Performance Rights Plans.
Incitec Pivot Limited Annual Report 2010
19
Directors’ Report
Remuneration Report
LTI 2007/10
Who participates in LTI 2007/10?
Executives and other selected managers.
What form does the LTI 2007/10
take?
For details of the Executives’ participation in this Plan refer to tables C.6 and C.7.
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 6.65%) for the sole purpose of acquiring shares
in Incitec Pivot.
How do the loans to the
participants work?
The loans are applied to acquire shares on market which avoids dilution of other
shareholdings. ASX 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.
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 (if any) 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.
What is the performance period
for this plan?
1 October 2007 to 30 September 2010.
What is the performance criteria
and how is the criteria set?
The Board set the criteria for the granting of awards at the beginning of the three year
performance period.
The criteria focus on financial performance of the Company and include a condition
relating to duration of employment.
The LTI performance condition is based on Absolute TSR. For the performance condition
to be satisfied in full, Absolute TSR must be at least 20% per annum compounded over
the three year period. If, at the end of the performance period, Absolute TSR is less than
10% per annum compounded over the three year period, no awards in the form of loan
forgiveness are granted.
In setting these performance conditions, the Board considered it had established an
aggressive target to promote behaviour to achieve superior performance, noting the
granting of an award (in the form of loan forgiveness) commences only where Absolute
TSR exceeds 10% per annum compounded over the performance period with a full award
requiring Absolute TSR of 20% per annum compounded over the performance period. For
example, for 50% of an award to be capable of being granted, Absolute TSR of 15% per
annum compounded over the performance period would be required.
If a participant leaves before the end of the performance period, the participant is
deemed to have agreed to sell the relevant shares and the proceeds of sale will be
applied against any outstanding loan amount. If a participant’s employment terminates
by reason of death, total and permanent disablement or for any other reason as
determined by the Board, the Board may determine that part of the loan may
be forgiven.
If a participant leaves after the end of the performance period, the participant must
decide to repay the loan or direct that the relevant shares be sold.
What happens if a participant in
the plan leaves the Group?
What awards have been granted
under the LTI 2007/10?
As the Company’s TSR is 2.64% per annum compounded over the three years
to 30 September 2010, no awards have been granted under the LTI 2007/10.
Accordingly, the loan to the participants will not be forgiven. The shares will be
sold and the proceeds applied against the outstanding loan amount with no
recourse to the participant for any shortfall.
20
Incitec Pivot Limited Annual Report 2010
LTI 2008/11
LTI 2009/12
Who participates in the LTI
2008/11 and the LTI 2009/12?
Executives and other selected managers participate in the LTI 2008/11 and the LTI
2009/12.
What form do the LTI 2008/11
and LTI 2009/12 take?
What is the process for
deciding who will participate
in the LTI plans?
For details of the Executives’ participation in these Plans refer to tables C.6 and C.7.
Both plans are ‘performance rights’ plans which entitle the participant to acquire ordinary
shares in the Company for no consideration at a later date, subject to the satisfaction
of certain conditions. As no shares are issued until exercise, performance rights have no
dividend entitlement.
The decision to grant performance rights and to whom they will be granted is made
annually by the Board, noting that the grant of performance rights to the Managing
Director is subject to shareholder approval. Grants of performance rights to participants are
based on a percentage of the relevant participant’s fixed annual remuneration.
Whether or not those performance rights will vest is determined in accordance with the
plan rules for the LTI 2008/11 and LTI 2009/12.
What are the performance
periods for these plans?
The performance period for the LTI 2008/11 is 1 October 2008 to 30 September 2011.
The performance period for the LTI 2009/12 is 1 October 2009 to 30 September 2012.
What are the conditions for the
performance rights under the
plans to vest and who approved
the conditions?
When do performance
rights lapse?
What happens if a participant
leaves the Group?
Do participants pay for the
performance rights or the
shares issued on exercise
of performance rights?
The performance rights will only vest if certain conditions are met. The Board approved
the conditions on the commencement of the relevant plans. The conditions focus on the
performance of the Company and include a condition relating to duration of employment.
The performance condition is based on Absolute TSR.
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;
is greater than 10% and less than 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
is 20% or more per annum compounded over the performance period, all of the
performance rights will vest.
•
•
In setting this condition, the Board considered it had established an aggressive target
to promote behaviour to achieve superior performance.
For the LTI 2008/11 and LTI 2009/12, the Board adopted Absolute TSR as the measure
for the performance condition to ensure there is a direct link between reward and
returns to shareholders, thereby aligning participants’ performance with the creation of
sustained shareholder value.
Performance rights will 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 Group during the performance period. Performance rights will also lapse if they are
not exercised within five years from their grant date.
Generally, the performance rights will lapse except where the participant has died,
become totally and permanently disabled, is retrenched or retires. In those circumstances,
the performance rights may be reduced pro rata to the proportion of days worked during
the relevant performance period.
Participants do not pay for the performance rights or shares.
What performance rights have
vested under the LTI 2008/11
and the LTI 2009/12?
None. The LTI 2008/11 and LTI 2009/12 are each for a three year period and the
performance conditions will not be tested until after 30 September 2011 and 30
September 2012 respectively.
Which Executives have been
granted performance rights
under these plans?
Refer to table C.6 in respect of performance rights granted to Executives.
Incitec Pivot Limited Annual Report 2010
21
Directors’ Report
Remuneration Report
Analysis of relationship between the Group’s performance, shareholder wealth
and remuneration
In considering the Group’s performance, the benefit to shareholders and appropriate remuneration for the Executives and other
selected senior employees, 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 C.2: Indices relevant to the Board’s assessment of the Group’s performance and the benefit
to shareholders
Net Profit After Tax excluding minority interests (before individually material items)
(NPAT (before IMI)) ($m)
Earnings Per Share (before individually material items) (EPS (before IMI)) (cents)
Dividends – paid in the financial year – per share (cents)
Dividends – declared in respect of the financial year – per share (DPS (declared)) (cents)
Share price ($) (Year End)
TSR (Annual) (%)
Absolute TSR (3 Year Compound per annum) (%)
2006(1)
2007(1)
2008(2)
2009
2010
82.8
202.5
647.5
347.8
442.8
7.3
3.6
5.2
20.1
60.5
22.6
27.3
7.5
21.8
21.6
15.0
29.7
4.4
4.1
7.8
1.29
4.28
5.07
2.83
3.59
70
22
242
74
25
93
(43)
42
30
3
(1) In respect of years 2006 and 2007, all indices except for Net Profit After Tax excluding minority interests (before individually material items) have been restated
as a result of the 20:1 share split approved by shareholders in September 2008.
(2) Restated for change in accounting standard. In the financial statements for the year ended 30 September 2009, the Group’s prior year Income Statement
(i.e. in respect of the year ended 30 September 2008) was restated (reduced) by $13.8m ($9.7m net of tax) thereby reducing NPAT (before individually
material items) from $657.2m to $647.5m.
The “at risk” or performance related components of the
Executives’ total remuneration, in the form of short term and
long term incentives, reward Executives only where value is
delivered to shareholders, directly linking the reward to the
Group’s financial results and its overall performance, in the
case of the long term incentive, over a sustained period of
three years.
The charts on the following page demonstrate the total
shareholder return to shareholders in the Company,
compounded over three years, and notably:
• for the long term incentive plan for 2006/09 which matured
on 30 September 2009 (LTI 2006/09), Absolute TSR was
42.2% per annum compounded over the three year period
to 30 September 2009, 111% higher than the stretch
measure of 20% per annum compounded over the period.
Accordingly, awards were made in full to Executives, with
the reward linked to value delivered to shareholders; and
• for the LTI 2007/10, Absolute TSR was 2.64% per annum
compounded over the three year period to 30 September
2010. Accordingly, no awards were made to Executives,
noting the share price had decreased over the three years
from $4.28 to $3.59 at the respective year ends in the
period and dividends paid had fallen in the period.
In relation to the short term incentives, for the STI Plan
2009/10 EPS has grown 20.8% for the year ended 30
September 2010 and accordingly, as referred to in table C.4,
Executives have been awarded short term incentives in cash.
In the past, awards under STI Plans have only been made
where the Net Profit, measured after tax and before
individually material items, has increased, year on year.
Net Profit was previously used as the principal measure for
the STI as, absent capital initiatives, it equated to Earnings Per
Share. While the measure for these prior plans was expressed
as Net Profit, measured after tax and before individually
material items, the levels at which awards could be made were
determined by reference to EPS growth, year on year and linked
reward with value delivered to shareholders. For example, as
can be seen from the above indices:
•
in 2009, Net Profit, measured after tax and before
individually material items, was $347.8m, a decrease of
46% on the prior year, 2008. Further, EPS decreased 63%
on the prior year, noting that Incitec Pivot had made a
non-renounceable entitlement offer in November 2008.
Accordingly, no awards were made to the Executives
under the 2008/09 STI Plan; and
•
in 2008, Net Profit, measured after tax and before
individually material items, was $647.5m, an increase of
220% on the prior year, and EPS was 60.5 cents, an increase
of 201%. Accordingly, awards were made in full in respect
of this performance condition under the 2007/08 STI Plan.
Likewise, in 2007, Net Profit, measured after tax and before
individually material items, was $202.5m, an increase of
145% on the prior year, and EPS was 20.1 cents, an increase
of 175%. Accordingly, awards were made in full in respect of
this performance condition under the 2006/07 STI Plan.
22
Incitec Pivot Limited Annual Report 2010
Net Profit After Tax excluding minority
interests (before individually material
items) $m and Dividends Per Share
cents declared(1)
Earnings Per Share (before individually
material items) cents(1) and Year End
Share price $(1)
Absolute Total Shareholder Return
(3 Year Compound per annum) %(1)
and Year End Share price $(1)
$m
800
600
400
200
0
cents
40
30
20
10
0
06
07
08
09
10
NPAT (before IMI)
DPS (declared)
cents
60
40
20
0
06
07
08
09
10
EPS (before IMI)
Year end share price
$
6
4
2
0
%
90
60
30
0
IPL 3 Year Share Price Performance versus ASX100 from 1 October 2007 to 30 September 2010
Index : 100 : 1/10/07
$
6
4
2
0
06
07
08
09
10
Absolute TSR
(3 Year compound pa)%
Year end share price
250
200
150
100
50
0
Sep 07
Dec 07 Mar 08
Jun 08
Sep 08
Dec 08 Mar 09
Jun 09
Sep 09
Dec 09 Mar 10
Jun 10
Sep 10
IPL share price
ASX100 Index
(1) In respect of years 2006 and 2007, all indices except for Net Profit After Tax excluding minority interests (before individually material items) have been restated
as a result of the 20:1 share split approved by shareholders in September 2008.
Incitec Pivot Limited Annual Report 2010
23
Directors’ Report
Remuneration Report
Executives’ remuneration arrangements
Managing Director & Chief Executive Officer
Mr James Fazzino 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.
Details of the nature and amount of each element of remuneration of the Managing Director & CEO are included in table C.3.
The following is a summary of Mr Fazzino’s employment arrangements and remuneration.
Fixed annual
remuneration
Mr Fazzino’s fixed annual remuneration is $1,800,000, reviewed annually having regard to
Incitec Pivot’s executive remuneration policy. Any changes to Mr Fazzino’s fixed annual remuneration
ordinarily come into effect on 1 January of the relevant financial year. For the 2009/10 financial
year, as part of the annual review, no increase was made.
STI
LTI
Termination by
Incitec Pivot
Termination by Managing
Director & CEO
Effect of termination on
long term incentives
Mr Fazzino is eligible to participate in Incitec Pivot’s STI Plan.
For 2009/10, Mr Fazzino’s STI opportunity was between 50% and 100% of his fixed annual
remuneration and was determined by reference to EPS growth in the 2009/10 financial year.
Given EPS has grown 20.8% in the 2009/10 financial year, Mr Fazzino was awarded a STI
payment of $1,800,000 in respect of the period from 1 October 2009 to 30 September 2010.
Mr Fazzino currently participates in the following LTI Plans:
• the LTI 2007/10 in respect of which Mr Fazzino is the holder of 137,240 shares in the Company;
• the LTI 2008/11 pursuant to which Mr Fazzino was issued 222,482 performance rights as
approved by shareholders in accordance with the ASX Listing Rules at the 2008 Annual General
Meeting held on 19 December 2008; and
• the LTI 2009/12 pursuant to which Mr Fazzino was issued 600,000 performance rights as
approved by shareholders in accordance with the ASX Listing Rules at the 2009 Annual General
Meeting held on 23 December 2009.
For the LTI 2007/10, Mr Fazzino’s LTI opportunity was between 50% and 100% of fixed annual
remuneration and was determined by reference to a performance condition based on Absolute
TSR for the three year performance period to 30 September 2010. For an award, in the form of
loan forgiveness, to be made, Absolute TSR of 10% per annum compounded over the performance
period was required. In order for the performance condition to be satisfied in full, Absolute TSR of at
least 20% per annum compounded over the performance period was required.
As the Absolute TSR is 2.64% per annum compounded over the three years, Mr Fazzino did not
receive an award by way of loan forgiveness in respect of the three year performance period ended
30 September 2010. Mr Fazzino remains the registered holder of the shares acquired with the loan
and the shares will be sold on-market and the proceeds applied towards the loan.
The LTI 2008/11 and the LTI 2009/12 are each for a three year period and the performance
conditions will not be tested until after 30 September 2011 and 30 September 2012 respectively.
The Company may terminate Mr Fazzino’s employment:
•
immediately for cause, without payment of any separation payment, save as to accrued fixed
annual remuneration, accrued annual leave and long service leave;
• otherwise, without cause, with or without notice, in which case the Company must pay a
separation payment plus accrued 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 agreement provides that Mr Fazzino may terminate his employment on six months’ notice.
In respect of the LTI 2008/11 and the LTI 2009/12, generally, the performance rights will lapse
except in circumstances of death, total and permanent disablement, retrenchment or retirement.
In those circumstances, the performance rights may be reduced pro rata to the proportion of days
worked during the relevant performance period.
24
Incitec Pivot Limited Annual Report 2010
Executive Team
Remuneration and other terms of employment for the Executives (excluding Mr Fazzino, whose arrangements are set out on
the previous page) are formalised in service agreements between the Executive and the Group, 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 Group’s policy is for service agreements for the Executives to be unlimited in term, but capable of termination
in the manner as described in the table below. Details of the nature and amount of each element of remuneration of the
Executives are included in table C.3.
Fixed annual
remuneration
STI
LTI
Fixed annual remuneration comprises salary paid in cash and mandatory employer superannuation contributions.
Fixed annual remuneration may also come in other forms such as fringe benefits (eg. motor vehicles).
This component of remuneration is subject to annual review and any changes to fixed annual remuneration
ordinarily come into effect on 1 January of the relevant financial year. For the 2009/10 financial year, the fixed
annual remuneration for the Executives was not increased from the 2008/09 levels, save where roles and
responsibilities changed during the year.
Participation is at the Board’s discretion. For all Executives, for the 2009/10 year, the STI opportunity was 40%
of fixed annual remuneration up to a maximum of 80% of fixed annual remuneration (except for Mr Atkinson
whose STI opportunity was 30% to a maximum of 60% of fixed annual remuneration) and was determined with
reference to performance conditions outlined on page 18. Mr Grace, as the Moranbah Project Director, participates
in an additional incentive linked to construction of the Moranbah ammonium nitrate complex.
Participation is at the Board’s discretion. For all Executives the LTI opportunity is 50% of fixed annual remuneration
up to a maximum of 100% of fixed annual remuneration for each plan in which they participate (except for
Mr Atkinson whose LTI opportunity is 25% to a maximum of 50% of fixed annual remuneration) and the awards
or vesting of rights (as applicable) is determined with reference to conditions based on Absolute TSR.
Termination by
Incitec Pivot(1)
Incitec Pivot may terminate the service agreements:
•
immediately for cause, without payment of any separation sum, save as to accrued fixed annual remuneration,
accrued annual leave and long service leave;
• 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;
• 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 basis as set out in the contract
with each Executive and, in the case of Mr Walsh, his contractual entitlement has regard to the length of prior
service with the Orica group. The following table sets out the separation payment for each Executive.
Mr Frank Micallef(2)
Mrs Kerry Gleeson
Mr Bernard Walsh
Mr Alan Grace
Mr James Whiteside
Mr Gary Brinkworth(3)
Mr Stephen Dawson(4)
Mr Brian Wallace(5)
Mr Jamie Rintel(6)
Mr Simon Atkinson(7)
Current Fixed Annual
Remuneration $’000
660
594
648
486
486
486
476
530
528
416
Number of Weeks
26.0 weeks
26.0 weeks
61.81 weeks
26.0 weeks
45.41 weeks
26.0 weeks
26.0 weeks
26.0 weeks
26.0 weeks
52.0 weeks
Separation
Payment $’000
330
297
770
243
424
243
238
265
264
416
Termination by
the Executive(1)
An Executive may terminate his/her employment on 13 weeks’ notice (save for Mr Grace and Mr Atkinson who
may terminate on 8 weeks’ notice) and the Company may require the Executive to serve out the notice period or
may make payment in lieu.
Effect of
termination on
long term
incentives
In respect of the LTI 2008/11 and the LTI 2009/12, generally, the performance rights will lapse except in
circumstances of death, total and permanent disablement, retrenchment or retirement. In those circumstances,
the performance rights may be reduced pro rata to the proportion of days worked during the relevant
performance period.
(1) In respect of the former General Manager – Explosives, the Group was entitled
to terminate his contract on 52 weeks’ notice and the former General Manager
– Explosives was entitled to terminate his contract without notice. In respect
of the former General Manager – Human Resources, the Group was entitled to
terminate his contract on 26 weeks notice and the former General Manager –
Human Resources was entitled to terminate his contract on 13 weeks’ notice.
(2) On 23 October 2009, Mr Micallef was appointed Chief Financial Officer and his
current fixed annual remuneration and STI and LTI participation is as specified
in the table above.
(3) With effect from March 2010 and in addition to his role as General Manager,
Incitec Pivot Fertilisers, Mr Brinkworth took functional responsibility for human
resources for the Group.
(4) Mr Dawson is considered to be a Key Management Person from 12 November
2009 and his current fixed annual remuneration and STI and LTI participation is
as specified in the table above.
(5) Mr Wallace is considered to be a Key Management Person from 12 November
2009 and his current fixed annual remuneration and STI and LTI participation is
as specified in the table above. US$ converted to A$ at an average exchange
rate for the period from 12 November 2009 to 30 September 2010 of 0.89838.
(6) US$ converted to A$ at an average exchange rate for the year ended 30
September 2010 of 0.90087.
(7) Mr Atkinson is considered to be a Key Management Person from 1 January
2010 and his current fixed annual remuneration and STI and LTI participation
is as specified in the table above. Following a restructure of the Dyno Nobel
business, Mr Atkinson was appointed as President – New Markets with effect
from 1 June 2010. Immediately prior to this he was the Chief Financial Officer
for the Dyno Nobel business.
Incitec Pivot Limited Annual Report 2010
25
Directors’ Report
Remuneration Report
Details of Executive remuneration
Table C.3 – Executive remuneration
Details of the remuneration paid to Executives is set out below.
For the year ended 30 September 2010
Short-term benefits
Short Term
Incentive
& other
bonuses(A)
Salary &
Fees
Post-
employment
benefits
Other
long term
benefits (C)
Termination
benefits
Share-based
payments
Other
Short Term
benefits(B)
Super-
annuation
benefits
Accounting
Value(D)
Year
$000
$000
$000
$000
$000
$000
$000
Executive
Current
J E Fazzino(1)
Managing Director
& CEO
F Micallef(2)
Chief Financial Officer
K J Gleeson
General Counsel &
Company Secretary
B C Walsh
President –
Global Manufacturing
A Grace
General Manager –
Major Projects –
Moranbah Project Director
J Whiteside
General Manager –
Supply Chain & Trading
G Brinkworth(3)
General Manager –
Incitec Pivot Fertilisers
& Human Resources
S Dawson(4)
President – Dyno Nobel
Asia Pacific
B Wallace(5)
President – Dyno Nobel
Americas
J Rintel
President – Strategy &
Business Development
S Atkinson(6)
President – New Markets
Former
K Lynch(7)
General Manager –
Human Resources
D Brinker(8)
General Manager –
Explosives
J Segal(9)
Managing Director
& CEO
P Barber(10)
General Manager –
Australian Fertilisers
Total Executives
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
1,785
1,559
1,800
–
601
–
579
569
633
622
471
463
471
463
427
353
408
–
454
–
489
389
301
–
27
569
164
1,040
–
1,070
–
90
528
–
475
–
451
–
389
–
389
–
389
–
381
–
255
–
393
–
258
–
–
–
383
–
–
–
–
–
6,810
7,187
6,091
–
26
Incitec Pivot Limited Annual Report 2010
–
–
–
–
–
–
–
–
–
2
9
14
–
–
20
–
32
–
61
132
156
–
–
86
176
244
–
9
–
93
454
580
15
14
14
–
15
14
15
14
15
14
15
14
15
13
13
–
16
–
15
14
11
–
1
14
35
55
–
9
–
3
38
315
–
–
11
61
14
31
9
14
10
19
–
–
12
–
–
–
24
–
6
–
–
–
–
–
–
43
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,003
–
–
168
–
–
Total
$000
4,069
2,337
1,271
–
1,255
926
1,305
980
1,025
702
431
449
128
–
175
282
192
313
141
209
141
220
1,035
730
85
9
42
–
108
–
93
55
41
–
–
47
9
52
916
375
876
–
865
–
1,075
590
773
–
28
716
1,770
1,391
–
457
–
1,756
–
–
–
186
Proportion of
remuneration
performance
related
Share-based
payments as
proportion of
remuneration
%
%
55%
19%
52%
–
52%
30%
49%
32%
52%
30%
51%
30%
52%
2%
48%
–
42%
–
45%
9%
39%
–
0%
7%
0.5%
4%
–
26%
–
0%
45%
20%
11%
19%
10%
–
14%
30%
15%
32%
14%
30%
14%
30%
9%
2%
5%
–
12%
–
9%
9%
5%
–
0%
7%
0.5%
4%
–
26%
–
0%
10%
20%
195
178
124
483
1,003
168
1,586
2,093
16,263
10,689
(A) Certain STI payments are awarded in US$. Such STI payments were converted to A$ at the spot rate on 30 September 2010, being 0.96890. No Executives were
awarded STI payments under the 2008/09 STI. In respect of Mr. Brinker, on termination he received a payment in January 2010 in respect of his contractual
entitlements established in 2008 as part of his employment arrangements.
(B) Other short term benefits include the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2010: 1 April 2009 to 31 March 2010)
(2009: 1 April 2008 to 31 March 2009), 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) Other long term benefits represents long service leave accrued during the reporting period.
(D) In accordance with accounting standards, the share-based payments accounting value included as remuneration represents the fair value of shares, treated as
options, and rights that have not vested. The value disclosed in table C.3 represents the portion of fair value allocated to this reporting period and is not indicative
of the benefit, if any, that may be received by the Executive should the performance conditions with respect to the relevant long term incentive plan be satisfied.
In respect of the LTI 2007/10 the performance conditions have not been satisfied and, while the accounting value is recorded in the table above, the relevant
Executives will not receive awards in the form of loan forgiveness with respect to participation in that plan.
External valuation advice from PricewaterhouseCoopers has been used to determine the fair value at grant date of these shares, treated as options, and rights.
The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the share
treated as an option or right, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield
and the risk free interest rate for the term of the share, treated as an option, or right. The fair value has been allocated evenly over the performance period.
Refer to section C of this Remuneration Report for further details of the LTI 2006/09, the LTI 2007/10, the LTI 2008/11, the LTI 2009/12, the LTI performance cash
plans 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
treated as option or right
at grant date
Date
exercisable
LTI 2007/10
12/11/2007
30/09/2010
$1.94(i)
LTI 2008/11
19/12/2008
30/09/2011
LTI performance
cash plan 2008/11
19/12/2008
30/09/2011
$0.30
$0.13
From 1/10/2010
From 1/10/2011
From 1/10/2011
LTI 2009/12
16/12/2009
30/09/2012
$1.60
From 1/10/2012
Exercise
Price
$4.41(i)
$nil
$nil
$nil
The number of shares, treated as options, and rights for the purposes of remuneration, held by each Executive is referred to in section C of this Remuneration
Report and Note 35 to the financial statements.
(i) Amounts have been restated as a result of the 20:1 share split approved by shareholders in September 2008.
For 2009, the share-based payment remuneration includes, in respect of those Executives who were participants in the LTI interim performance share plan
2006/08, a true-up amount relating to the non-market performance conditions of this plan.
(1) Mr Fazzino was appointed as Managing Director & CEO during the 2009 financial year.
(2) Mr Micallef was appointed as Chief Financial Officer during the 2010 financial year. The disclosures for the 2010 financial year are from the date he became
Chief Financial Officer, 23 October 2009.
(3) Mr Brinkworth was appointed as an Executive during the 2009 financial year. The disclosures for the 2009 financial year are from his appointment date,
17 November 2008.
(4) Mr Dawson became a Key Management Person during the 2010 financial year. The disclosures for the 2010 financial year are from the date he became
a Key Management Person, 12 November 2009.
(5) Mr Wallace became a Key Management Person during the 2010 financial year. The disclosures for the 2010 financial year are from the date he became
a Key Management Person, 12 November 2009.
(6) Mr Atkinson became a Key Management Person during the 2010 financial year. The disclosures for the 2010 financial year are from the date he became
a Key Management Person, 1 January 2010.
(7) On 16 October 2009, Mr Lynch ceased employment with the Company.
(8) On 30 November 2009, Mr Brinker ceased employment with the Group. Mr Brinker’s termination benefits received during the reporting period include a separation
payment, accrued holiday leave and relocation costs. Mr Brinker was entitled to the termination benefits under his employment contract. Except in relation to the
termination benefits, Mr Brinker’s benefits were converted from US$ to A$ at the average exchange rate for 1 October 2009 to 30 November 2009 being 0.91323
(2009: average exchange rate for full year of 0.7321). Termination benefits were converted from US$ to A$ at the spot rate on 30 November 2009 being 0.91290.
(9) On 8 May 2009, Mr Segal ceased to be employed by the Company. The disclosures for 2009 are from 1 October 2008 to that date.
(10) On 31 December 2008, Mr Barber ceased to be employed by the Company. The disclosures for 2009 are from 1 October 2008 to that date.
Incitec Pivot Limited Annual Report 2010
27
Directors’ Report
Remuneration Report
Details of performance related remuneration: short term incentive
Table C.4 – Short term incentives awarded for the year ended 30 September 2010
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2010 as remuneration to each Executive
are set out below:
Included in remuneration
$000(A)
% vested in year(B)
% forfeited in year
Short term incentive
Executives
Current
J E Fazzino
F Micallef
K J Gleeson
B C Walsh
A Grace
J Whiteside
G Brinkworth
S Dawson
B Wallace
J Rintel
S Atkinson
Former
K Lynch
D Brinker
1,800
528
475
451
389
389
389
381
255
393
258
–
–
100%
100%
100%
87%
100%
100%
100%
100%
65%
100%
100%
0%
0%
0%
0%
0%
13%
0%
0%
0%
0%
35%
0%
0%
100%
100%
(A) In relation to the STI, the amounts included in the remuneration for the financial year represent the amounts that vest in the financial year based on the satisfaction
of performance conditions under the STI Plan.
(B) Mr Fazzino, Mr Micallef, Mrs Gleeson, Mr Grace, Mr Whiteside, Mr Brinkworth, Mr Dawson, Mr Rintel and Mr Atkinson were each awarded their maximum available
STIs. Mr Walsh was awarded 87% of his maximum STI opportunity and Mr Wallace was awarded 65% of his maximum STI opportunity. On that basis, Mr Fazzino
received 100% of his fixed annual remuneration as a STI. Mr Micallef, Mrs Gleeson, Mr Grace, Mr Whiteside, Mr Brinkworth, Mr Dawson and Mr Rintel received 80%
of their respective fixed annual remuneration as STIs, Mr Atkinson received 60% of his fixed annual remuneration as a STI, Mr Walsh received 69.6% of his fixed
annual remuneration as a STI and Mr Wallace received 52% of his fixed annual remuneration as a STI.
28
Incitec Pivot Limited Annual Report 2010
Details of performance related remuneration: long term incentives
Table C.5 – Long term incentives granted and vested in the year ended 30 September 2010
Details of the shares, treated as options, and rights that were granted to each Key Management Person and those that vested
during the reporting period are set out in the following table.
For the year ended 30 September 2010
Key Management Personnel
Grant date
Granted during 2010
as remuneration(A)
Number
Vested during
2010(B)
Number
Executives
Current
J E Fazzino
F Micallef
K J Gleeson
B C Walsh
A Grace
J Whiteside
G Brinkworth
S Dawson
B Wallace
J Rintel
S Atkinson(1)
Former
K Lynch(2)
D Brinker(3)
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Rights Plan 2009/12
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
23 December 2009
12 November 2007
16 December 2009
12 November 2007
16 December 2009
12 November 2007
16 December 2009
12 November 2007
16 December 2009
12 November 2007
16 December 2009
12 November 2007
16 December 2009
16 December 2009
16 December 2009
12 November 2007
16 December 2009
12 November 2007
16 December 2009
12 November 2007
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
16 December 2009
12 November 2007
16 December 2009
12 November 2007
600,000
–
220,000
–
198,000
–
216,000
–
162,000
–
162,000
–
140,000
79,333
180,494
–
140,000
–
69,333
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(A) For the 2009/10 financial year, this refers to the number of rights allocated to the participating Executives during the reporting period.
(B) For the 2009/10 financial year, this refers to the number of shares, treated as options, that vested during the reporting period, noting that for the LTI 2007/10
no awards, in the form of loan forgiveness, were made.
(1) Mr Atkinson’s performance rights were granted under the LTI 2009/12 prior to him becoming a Key Management Person.
(2) On 16 October 2009, Mr Lynch ceased employment with the Company and was not a participant in the LTI 2009/12.
(3) On 30 November 2009, Mr Brinker ceased employment with the Group and was not a participant in the LTI 2009/12.
In respect of the shares, treated as options, and rights, details of the terms and conditions of each grant made during the reporting
period are set out in section C of this Remuneration Report and in Notes 35 and 36 to the financial statements including:
• the fair value per share or right at grant date, the exercise price per share or right, 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.
Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including shares, treated as options, and rights) 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 Annual Report 2010
29
Directors’ Report
Remuneration Report
Table C.6 – Details of the vesting profile of long term incentives granted as remuneration
Details of the vesting profile of the shares treated as options, and rights granted as remuneration to each Executive is
detailed below:
Grant date
Number
granted
% Vested
in year
% Forfeited
in year(A)
Financial
year in which
grant vests
Key Management Personnel
Executives
Current
J E Fazzino
F Micallef (1)
K J Gleeson
B C Walsh
A Grace
J Whiteside
G Brinkworth(2)
S Dawson(3)
B Wallace(4)
J Rintel(5)
S Atkinson(6)
Former
K Lynch(7)
D Brinker(8)
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Cash Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Cash Plan 2008/11
Performance Rights Plan 2009/12
12 November 2007
19 December 2008
23 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
12 November 2007
19 December 2008
16 December 2009
137,240
222,482
600,000
22,520
46,838
220,000
86,680
128,806
198,000
96,320
140,515
216,000
67,420
105,386
162,000
67,420
105,386
162,000
–
98,361
140,000
–
55,738
79,333
33,280
100,984
180,494
15,160
81,967
140,000
19,500
46,838
69,333
53,240
128,806
–
66,680
207,738
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
–
–
–
–
–
–
0%
–
–
0%
–
–
0%
–
–
–
–
–
0%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
–
–
–
–
–
–
100%
–
–
100%
–
–
100%
–
–
100%
100%
–
100%
61%
–
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
(6) Mr Atkinson’s shares, treated as options, were granted under the LTI 2007/10
and rights were granted under the LTI 2008/11 and the LTI 2009/12 prior to
him becoming a Key Management Person on 1 January 2010.
(7) On 16 October 2009, Mr Lynch ceased employment with the Company and
was not a participant in the LTI 2009/12.
(8) On 30 November 2009, Mr Brinker ceased employment with the Group and
was not a participant in the LTI 2009/12. As a result of ceasing employment
with the Group during the 2009/10 year, and in accordance with Mr. Brinker’s
employment arrangements, a portion of Mr Brinker’s entitlements under
the LTI performance cash plan 2008/11 were forfeited.
In respect of the LTI 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.
For information on the number of shares for the purposes of remuneration held by
Key Management Personnel, directly or indirectly, refer to Note 35 to the financial
statements. The shares are fully paid.
(A) The percentage forfeited in the year represents:
(i) in the case of shares, treated as options, where no award, in the form of
loan forgiveness, could be made due to the performance conditions not
being achieved; and
(ii) in the case of rights, the reduction in the maximum number of rights
available to vest due to the performance conditions or other conditions
not being achieved, noting that the LTI 2008/11 and LTI 2009/12 are not
tested until 30 September 2011 and 30 September 2012 respectively.
(1) Mr Micallef’s shares, treated as options, granted under the LTI 2007/10 and
rights granted under the LTI 2008/11 were granted prior to his appointment
as Chief Financial Officer on 23 October 2009.
(2) Mr Brinkworth’s employment commenced on 17 November 2008 and he is
not a participant in the LTI 2007/10.
(3) Mr Dawson’s rights were granted under the LTI 2008/11 prior to him
becoming a Key Management Person on 12 November 2009. Mr Dawson is
not a participant in the LTI 2007/10.
(4) Mr Wallace’s shares, treated as options, granted under the LTI 2007/10 and
entitlements granted under the LTI performance cash plan 2008/11 were
granted prior to him becoming a Key Management Person on 12 November
2009.
(5) Mr Rintel’s shares, treated as options, were granted under the LTI 2007/10
prior to him becoming a Key Management Person.
30
Incitec Pivot Limited Annual Report 2010
Table C.7 – Analysis of movements in long term incentives during the year ended 30 September 2010
The movement during the reporting period, by value, of shares, treated as options, and rights for the purposes of remuneration held
by each Executive is detailed below:
For the year ended 30 September 2010
Key Management Personnel
Executives
Current
J E Fazzino
F Micallef(1)
K J Gleeson
B C Walsh
A Grace
J Whiteside
G Brinkworth(2)
S Dawson(3)
B Wallace(4)
J Rintel(5)
S Atkinson(6)
Former
K Lynch(7)
D Brinker(8)
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Performance Rights Plan 2009/12
Performance Cash Plan 2008/11
Performance Share Plan 2007/10
Performance Share Plan 2006/09
Grant date
23 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
12 November 2007
1 December 2006
16 December 2009
19 December 2008
12 November 2007
1 December 2006
16 December 2009
19 December 2008
12 November 2007
1 December 2006
Granted during
2010 as
remuneration(A)
$000
Vested in
year(B)
$000
Forfeited
in year(C)
$000
Exercised
in year(D)
$000
960
–
–
352
–
–
317
–
–
346
–
–
259
–
–
259
–
–
224
–
–
127
–
–
289
–
–
224
–
–
111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
266
–
–
44
–
–
168
–
–
187
–
–
131
–
–
131
–
–
–
–
–
–
–
–
65
–
–
29
–
–
38
–
–
39
103
–
–
17
129
–
–
–
305
–
–
–
–
–
193
–
–
214
–
–
140
–
–
150
–
–
–
–
–
–
–
–
–
–
–
34
–
–
–
–
–
–
–
–
–
–
–
(A) The value of rights granted in the year is the fair value of those rights
(4) Mr Wallace’s shares, treated as options, were granted under the LTI 2007/10
calculated at grant date using a Black-Scholes 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 2010 to 2012 for the LTI 2009/12).
(B) As the criteria under the LTI 2007/10 were not satisfied, no shares, treated
as options, vested during the 2009/10 year.
(C) The value of the shares, treated as options, and rights that were forfeited
during the year represents the benefit foregone.
(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 2006/09.
(1) Mr Micallef’s shares, treated as options, were granted under the LTI 2007/10
prior to him becoming a Key Management Person. He is not a participant in
the LTI 2006/09.
(2) Mr Brinkworth’s employment commenced on 17 November 2008 and he
is not a participant in either the LTI 2006/09 or the LTI 2007/10.
(3) Mr Dawson’s rights were granted under the LTI 2008/11 prior to him
becoming a Key Management Person on 12 November 2009. Mr Dawson
is not a participant in either the LTI 2007/10 or the LTI 2006/09.
prior to him becoming a Key Management Person on 12 November 2009.
Mr Wallace is not a participant in the LTI 2006/09.
(5) Mr Rintel’s shares, treated as options, were granted under the LTI 2007/10
and the LTI 2006/09 prior to his appointment as an Executive.
(6) Mr Atkinson’s rights were granted under the LTI 2009/12 and shares,
treated as options, were granted under the LTI 2007/10 prior to him
becoming a Key Management Person on 1 January 2010.
(7) Mr Lynch’s employment commenced on 18 February 2008 and he was
not a participant in the LTI 2006/09. On 16 October 2009, Mr Lynch ceased
employment with the Company. Mr Lynch was not a participant in the LTI
2009/12.
(8) Mr Brinker’s employment commenced on 1 June 2008 and he was not a
participant in the LTI 2006/09. On 30 November 2009, Mr Brinker ceased
employment with the Group. Mr Brinker was not a participant in the LTI 2009/12.
The minimum value of shares, which are treated as options, and rights 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, which are
treated as options, and rights 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, which are treated as options, or rights, that vested during the
reporting period.
Incitec Pivot Limited Annual Report 2010
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 (ASX Recommendations), revisions to
which were released by the ASX Corporate Governance
Council on 30 June 2010 and which are applicable to
financial years commencing on or after 1 January 2011
(Revised Recommendations). Although the Revised
Recommendations will not be applicable to Incitec Pivot
until the 2011/12 financial year, the Board has reviewed
its corporate governance framework and practices and where
possible, at this stage, introduced changes, for example to its
Charter for the Remuneration and Appointments Committee,
and such changes are referred to in this Corporate Governance
Statement. 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 Annual
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 2010.
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:
• Direction and objectives – approving the Company’s
corporate strategy and budgets;
• Compliance – ensuring and monitoring compliance with all
laws, governmental regulations and accounting standards;
32
Incitec Pivot Limited Annual Report 2010
• 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
• 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:
• 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 in this statement.
Day-to-day management of Incitec Pivot’s affairs and the
implementation of the corporate strategy and policy initiatives
are formally delegated to the Managing Director & CEO.
The Delegated and Reserved Powers Policy details the authority
delegated to the Managing Director & CEO, including the limits
on the way in which the Managing Director & CEO can exercise
that authority. 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 executive 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 the Remuneration Report.
The Remuneration and Appointments Committee also considers
the performance and remuneration of the Managing Director
& CEO and makes recommendations as to his remuneration to
the Board.
The performance evaluation of the Managing Director & CEO
is conducted by the Chairman and the Board. This evaluation
involves an assessment of a range of performance standards
as determined by the Board, including the overall performance
of the Company.
The Managing Director & CEO serves as a director until
he ceases to be the Managing Director & CEO.
The executive performance evaluations for the 2008/09
financial year were conducted in the final quarter of the 2009
calendar year in accordance with the process outlined above.
Performance evaluations for the 2009/10 financial year are
being conducted in the final quarter of the 2010 calendar year
in accordance with the process outlined above.
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 seven directors, including six 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.
The directors were appointed on the following dates:
John Watson: 15 December 1997;
•
• Allan McCallum: 15 December 1997;
• Anthony Larkin: 1 June 2003;
James Fazzino: 18 July 2005;
•
John Marlay: 20 December 2006;
•
• Graham Smorgon: 19 December 2008; and
• Paul Brasher: 29 September 2010.
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
Group’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
pages 8 and 9 of this Annual 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 Allan McCallum and Mr John Marlay are retiring by rotation
and standing for re-election at the 2010 Annual General
Meeting. Mr Paul Brasher, who was appointed by the Board as
a director on 29 September 2010, will stand for re-election at
the 2010 Annual General Meeting.
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 Chairman,
on all governance matters.
Board meetings
Details of the Board meetings held during the 2009/10
financial year are set out on page 10 of this Annual 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:
• 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.
Incitec Pivot Limited Annual Report 2010
33
Directors’ Report
Corporate Governance Statement
The Board considers that each of John Watson, Allan McCallum,
Anthony Larkin, John Marlay, Graham Smorgon and Paul Brasher
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 seven directors, the Board considers
six 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:
• nominations and appointments – assists and advises the
Board on director selection and appointment practices,
performance evaluation, Board composition, succession
planning for the Board and senior management and
oversees the development of strategies to address
Board diversity; and
• remuneration – assists and advises the Board on
remuneration policies and practices for the Board, the
Managing Director & CEO, the Executive Team, 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 or
an existing non-executive director retires, the Remuneration
and Appointments Committee will, having regard to the
skills and competencies represented on the Board and the
competencies required, implement a process to identify
suitable candidates with the process to include a search being
undertaken by an appropriate third party. In turn, under the
Remuneration and Appointments Committee Charter, the
Committee will make recommendations to the Board for
the appointment of new Board members having regard to
a number of factors including a candidate’s judgment, skill,
diversity and experience. 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 comprises three independent non-executive
directors, being John Marlay, John Watson and Allan McCallum.
John Marlay was appointed as the Chairman of the Committee
effective from February 2010.
The Committee is to meet as frequently as required but not
less than four times a year.
The attendance of the members of the Remuneration and
Appointments Committee at each meeting held during the
34
Incitec Pivot Limited Annual Report 2010
financial year to 30 September 2010 is set out on page 10
of this Annual 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 four
members, three of whom will be non-executive directors and
one will be the Managing Director & CEO. 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 2010
is set out on page 10 of this Annual 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 August 2010 by way of self-assessment of the Board’s role,
structure and processes, as well as the Board’s performance
in meeting its responsibilities under its Charter. The outcomes
of that review are included in the 2010/11 objectives for the
Board and will be implemented throughout the Company’s
2010/11 financial year. In addition, one-on-one interviews
occurred between each director and the Chairman. For
the directors who are retiring by rotation and standing for
re-election at the 2010 Annual General Meeting, Mr Allan
McCallum and Mr John Marlay, their performance was reviewed
as part of their 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. The Charter for the Committee provides that the
induction procedures should enable new appointees to gain an
understanding of the Company’s financial, strategic, operational
and risk management position, the culture and values of Incitec
Pivot, the rights, duties and responsibilities of the directors,
the roles and responsibilities of senior executives, the role of
Board Committees and meeting arrangements and director
interaction. In this respect, the Company is in compliance with
the Revised Recommendations.
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. The measures are to include having access to education
concerning key developments in the Company and in the
industry in which Incitec Pivot operates. In this respect, the
Company is in compliance with the Revised Recommendations.
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.
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.
Whistleblower protection
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 Group 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. The ASX has announced that the
requirement to have a share trading policy will be elevated
to a requirement under the ASX Listing Rules. The Company’s
Share Trading Policy is in compliance with the requirements
under the relevant new ASX Listing Rules.
Details of shares in the Company held by the directors are set
out in Note 35, Key Management Personnel disclosures.
Diversity
In compliance with the Revised Recommendations, the
Charter for the Remunerations and Appointments Committee
provides that the Committee must regularly review and report
to the Board about the proportion of women at all levels of
the Company.
Incitec Pivot Limited Annual Report 2010
35
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 pages 8 and 9
of this Annual 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 2010 is set out on page 10
of this Annual 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
• 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
• 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
• risk management strategies – receive reports from
management, internal auditor and external auditor concerning
our risk management principles and policies, strategies,
processes and controls and concerning the processes for
determining and monitoring material business risks;
• risk reports and monitoring – receive reports from
management on risk implications from new and emerging
risks, changes in the economic and business environment
and other factors relevant to the Group’s performance and
strategy; receive reports from management and monitor
resolution of significant risk exposures;
• compliance – receive reports from management, monitor
and oversee compliance with applicable laws relating to the
operation of the business and review and monitor policies
and systems to manage compliance risk;
• 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 – receive reports from management and monitor
the insurance strategy of the Group and recommend
approval or variation of insurance policies.
•
External audit
• 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;
• 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.
Internal audit
• 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;
• 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 summaries of significant
reports to management from the internal auditor,
management’s response and the internal auditor’s
recommendations;
• monitor internal audit plan – monitor, and review
compliance with, and the effectiveness of implementation
of, audit plans of the internal auditor; 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.
36
Incitec Pivot Limited Annual Report 2010
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 to the financial statements,
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
21 December 2010, 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.
Internal auditor
Deloitte Touche Tohmatsu is the Company’s internal auditor,
undertaking internal audits to an annual plan approved by the
Audit and Risk Management Committee.
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:
•
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.
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 adopted a revised
Shareholder Communications Policy in November 2009.
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 Shareholder 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 Group. Incitec Pivot is committed to the
effective management of risk, which is central to its continued
growth and success and the achievement of the Group’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 ISO 31000:2009). 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;
Incitec Pivot Limited Annual Report 2010
37
Directors’ Report
Corporate Governance Statement
• 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 Group’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 under the discussion of Principle 4 on page
36 of this Annual Report. The Audit and Risk Management
Committee and, through it, the Board, receive regular reports
from management on the effectiveness of the Group’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 the Fertilisers 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.
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
38
Incitec Pivot Limited Annual Report 2010
and financial performance, including the need to undertake
environmental remediation.
executive directors, being John Marlay (Chair), John Watson
and Allan McCallum.
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.
Risk management and internal controls
Management, through the Managing Director & CEO and
Chief Financial Officer, is responsible for the overall design,
implementation, management and coordination of the
Group’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 Group’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 Group’s management of its material business risks
for the financial year ended 30 September 2010.
CEO and CFO Declaration and Assurance
In accordance with the ASX Recommendations, for the financial
year ended 30 September 2010, the Board received written
assurance from the Managing Director & Chief Executive Officer
and the 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. As set out on page 34 of this Annual
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-
The Revised Recommendations provide that a remuneration
committee should be structured so that it consists of a majority
of independent directors, is chaired by an independent
director and has at least three members. The Charter for the
Remuneration and Appointments Committee provides that
each member of the Committee must be a non-executive
director and a majority of members of the Committee must
be independent. The Charter also provides that the Chairman
of the Committee must be an independent director. As each
member of the Remuneration and Appointments Committee
(including Mr John Marlay, the Chairman of the Committee) is
considered to be an independent non-executive director, the
structure of the Committee fulfils the requirements under the
Revised Recommendations.
Incitec Pivot’s policy is to remunerate non-executive directors
by way of fees and payments which may be in the form of
cash, non-cash benefits and superannuation benefits. Incitec
Pivot’s broad policy in relation to the level of non-executive
directors’ fees and payments is to ensure that these fees
and payments are consistent with the market and 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 B of the Remuneration Report on page 16.
The Company’s policy is that non-executive directors should
not be remunerated by way of options, shares, performance
rights, bonuses nor incentive-based payments.
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 2010 was within the maximum amount
approved by shareholders.
Details of remuneration paid to the Managing Director
& CEO and other executives are included in table C.3
“Executive remuneration” in the Remuneration Report
on page 26. The attendance of the members of the
Remuneration and Appointments Committee at each
meeting held during the financial year to 30 September
2010 is set out on page 10 of this Annual Report.
Signed on behalf of the Board.
John C Watson, AM
Chairman
Dated at Melbourne
this 12th day of November 2010
Incitec Pivot Limited Annual Report 2010
39
40
Incitec Pivot Limited Annual Report 2010
Financial Report
Income Statement ................................................ 42
Statement of Comprehensive Income ................ 43
Statement of Financial Position .......................... 44
Statement of Cash Flows ..................................... 45
Statement of Changes in Equity .......................... 46
Notes to the Financial Statements ..................... 47
Directors’ Declaration on the Financial
Statements set out on pages 42 to 111 ........... 112
Audit Report ....................................................... 113
Shareholder Statistics ......................................... 115
Five Year Financial Statistics .............................. 116
Incitec Pivot Limited Annual Report 2010
41
Income Statement
For the year ended 30 September 2010
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
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 expense) / Income tax benefit
Profit / (loss) for the financial year
Profit / (loss) attributable to:
Shareholders of Incitec Pivot Limited
Minority interest
Earnings per share
Basic earnings / (loss) per share
Diluted earnings / (loss) per share
Consolidated
2010
2009
Restated*
Notes
$mill
$mill
(4)
(4)
2,931.7
53.7
3,418.9
47.4
(69.3)
(231.9)
(5)
(5)
(5)
(16)
(8)
(1,141.9)
(516.5)
(139.0)
(58.3)
(144.0)
(110.0)
(166.5)
(55.0)
30.5
(28.3)
(47.2)
(2,445.5)
539.9
(127.7)
412.2
(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)
93.2
(221.4)
410.5
1.7
(221.4)
-
cents
cents
(9)
(9)
25.3
25.3
(14.4)
(14.4)
*Comparative information has been restated to reflect the correction to the Income tax benefit as described in Note 1 (xxvii) to the Financial
Statements.
The above Income Statement is to be read in conjunction with the Notes to the Financial Statements set out on pages 47 to 111.
42 42
Incitec Pivot Limited Annual Report 2010
Statement of Comprehensive Income
For the year ended 30 September 2010
Profit / (loss) for the financial year
Other comprehensive income / (expense)
Cash flow hedging reserve
Changes in fair value of cash-flow hedges
Profit 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
Net gain on hedge of net investment
Income tax on net gain on hedge of net investment
Notes
Actuarial losses on defined benefit plans
Actuarial losses on defined benefit plans
Income tax on actuarial losses on defined benefit plans
(25)
Total other comprehensive (expense)
Total comprehensive income / (expense) for the financial year
Total comprehensive income / (expense) attributable to:
Shareholders of Incitec Pivot Limited
Minority interest
2010
Consolidated
2009
Restated*
$mill
$mill
412.2
(221.4)
45.6
3.1
(17.9)
30.8
(18.5)
5.5
(13.0)
(183.7)
67.7
(20.1)
(136.1)
(16.9)
6.4
(10.5)
(15.9)
2.2
4.4
(9.3)
14.2
(4.2)
10.0
(257.3)
-
-
(257.3)
(33.3)
12.7
(20.6)
(128.8)
(277.2)
283.4
(498.6)
281.7
1.7
(498.6)
-
*Comparative information has been restated to reflect the correction to the Income tax benefit as described in Note 1 (xxvii) to the Financial
Statements.
The above Statement of Comprehensive Income is to be read in conjunction with the Notes to the Financial Statements set out on
pages 47 to 111.
Incitec Pivot Limited Annual Report 2010
43 43
Statement of Financial Position
As at 30 September 2010
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Assets classified as held for sale
Current tax assets
Total current assets
Non-current assets
Trade and other receivables
Other assets
Other financial assets
Investments accounted for using the equity method
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Minority interest
Total equity
Notes
(10)
(11)
(12)
(13)
(14)
(15)
(11)
(13)
(14)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(20)
(21)
(23)
(24)
(25)
(26)
Consolidated
2010
$mill
48.7
443.8
336.5
36.2
111.6
9.1
-
985.9
15.3
2.5
28.7
256.5
1,844.1
3,002.6
173.9
5,323.6
6,309.5
697.1
108.5
1.7
82.2
25.1
914.6
378.3
1,037.3
82.6
190.1
95.3
1,783.6
2,698.2
3,611.3
3,265.9
7.0
336.3
2.1
3,611.3
Restated*
2009
$mill
125.2
323.0
397.1
30.7
71.2
54.3
32.4
1,033.9
32.1
4.7
135.9
254.0
1,663.4
3,153.0
312.7
5,555.8
6,589.7
636.7
432.2
12.9
93.4
-
1,175.2
426.6
1,156.4
87.5
312.8
91.6
2,074.9
3,250.1
3,339.6
3,217.8
119.1
2.7
-
3,339.6
*Comparative information has been restated to reflect a correction to deferred tax assets as described in Note 1 (xxvii) to the Financial
Statements.
The above Statement of Financial Position is to be read in conjunction with the Notes to the Financial Statements set out on
pages 47 to 111.
44 44
Incitec Pivot Limited Annual Report 2010
Statement of Cash Flows
For the year ended 30 September 2010
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Financial expenses paid
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 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
Realised market value gains on cross currency swaps
Share issuance cost paid
Dividends paid
Net cash flows from financing activities
Net decrease in cash and cash equivalents held
Cash and cash equivalents at the beginning of the financial year
Effect of exchange rate fluctuation on cash and cash equivalents held
Cash and cash equivalents at the end of the financial year
Notes
Consolidated
2009
$mill
Inflows/
(Outflows)
2010
$mill
Inflows/
(Outflows)
3,145.3
(2,599.2)
4.9
(43.6)
31.8
(10.3)
528.9
3,878.5
(3,330.6)
23.6
(115.8)
28.0
(146.3)
337.4
(316.3)
(97.1)
(6.6)
19.0
(401.0)
(393.0)
1.0
(3.0)
52.5
(342.5)
(1,380.4)
1,003.5
(8.3)
-
201.3
-
(18.3)
(202.2)
(74.3)
125.2
(2.2)
48.7
(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
(29)
(28)
(10)
The above Statement of Cash Flows is to be read in conjunction with the Notes to the Financial Statements set out on pages 47 to 111.
Incitec Pivot Limited Annual Report 2010
45 45
Statement of Changes in Equity
For the year ended 30 September 2010
Consolidated
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
Balance at 1 October 2009
Sale of share capital to minority interest holder
Total comprehensive income for the period
Dividends paid
Shares issued during the period
Share based payment transactions
Dividends received as loan repayment
Option expense
Deferred tax on share based payments
Loan repayments
Balance at 30 September 2010
Issued
capital
$mill
2,267.7
-
-
987.9
(37.8)
-
-
-
-
-
3,217.8
3,217.8
-
-
-
48.1
-
-
-
-
3,265.9
Cash flow
hedging
reserve
Share
based
payments
reserve
Foreign
currency
translation
reserve
Fair value
reserve
Retained
earnings
$mill
$mill
$mill
$mill
$mill
Minority
interest
Restated*
total equity
$mill
$mill
Total
$mill
(1.3)
(9.3)
-
-
-
-
-
-
-
-
(10.6)
(10.6)
-
30.8
-
-
-
-
-
-
20.2
(10.8)
-
-
-
-
1.8
2.2
0.3
2.9
(3.4)
(7.0)
(7.0)
-
-
-
-
0.1
3.8
0.6
1.7
(0.8)
371.2
(257.3)
-
-
-
-
-
-
-
-
113.9
113.9
-
(136.1)
-
-
-
-
-
-
(22.2)
12.8
10.0
-
-
-
-
-
-
-
-
22.8
22.8
-
(13.0)
-
-
-
-
-
-
9.8
515.7
(242.0)
(271.0)
-
-
-
-
-
-
-
2.7
2.7
-
400.0
(66.4)
-
-
-
-
-
336.3
3,155.3
(498.6)
(271.0)
987.9
(37.8)
1.8
2.2
0.3
2.9
(3.4)
3,339.6
3,339.6
-
281.7
(66.4)
48.1
0.1
3.8
0.6
1.7
3,609.2
-
-
-
-
-
-
-
-
-
-
-
-
0.4
1.7
-
-
-
-
-
-
2.1
3,155.3
(498.6)
(271.0)
987.9
(37.8)
1.8
2.2
0.3
2.9
(3.4)
3,339.6
3,339.6
0.4
283.4
(66.4)
48.1
0.1
3.8
0.6
1.7
3,611.3
*Comparative information has been restated to reflect a correction to the Income tax benefit as described in Note 1 (xxvii) to the Financial
Statements.
The Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements set out on pages 47 to 111.
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 comprises 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 and of rights 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(xix). The relevant position of the reserve is recognised in the Income Statement when the foreign operation is disposed of.
It is also used to record gains and losses on hedges of net investments in foreign operations.
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.
Minority interest
During the year, the Group sold a 35% interest in Quantum Fertilisers Limited, a Hong Kong based Fertiliser trading company.
46 46
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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
Parent entity disclosure
40
Events subsequent to balance date
48
55
56
59
59
60
61
62
63
63
64
64
64
64
65
65
68
69
71
72
73
74
74
77
78
80
81
82
83
84
85
86
92
96
97
102
107
109
110
111
Incitec Pivot Limited Annual Report 2010
47 47
Notes to the Financial Statements
For the year ended 30 September 2010
1. Significant accounting policies
Incitec Pivot Limited (‘the Company’ or ‘Incitec Pivot’) is a company
domiciled in Australia. The consolidated financial statements were
authorised for issue by the directors on 12 November 2010.
The significant accounting policies adopted in preparing the financial
report of Incitec Pivot and of its controlled entities (collectively ‘the
Group’) 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 do not form part of the Group (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
(AASBs) (including Australian Interpretations) adopted by the
Australian Accounting Standards Board (AASB) and the
Corporations Act 2001. The consolidated financial report of the
Group complies with International Financial Reporting Standards
(IFRSs) and interpretations adopted by the International Accounting
Standards Board (IASB).
Compliance with IFRS
The consolidated financial report of the Group complies 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, all of which have been measured at fair value.
The carrying values of recognised assets and liabilities that are
hedged items in fair value hedges, and that would be otherwise
carried at cost, are adjusted to record changes in the fair value
attributable to the risks that are being hedged to match the fair value
accounting applied to the derivative financial instruments used to
hedge these items.
The financial report is presented in Australian dollars.
Critical accounting estimates
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group’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 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 IFRS
transition exemptions, are available. The principal standards and
interpretations that have been early adopted are:
• AASB 2009-5 Further Amendments to Australian Accounting
Standards arising from the Annual Improvements Process
(AASB 5, 8, 118 and 136) (January 2011)
• AASB 2009-10 Amendments to Australian Accounting Standards
– Classification of Rights Issues (February 2010)
• AASB 2009-13 Amendments to Australian Accounting Standards
arising from Interpretation 19 AASB1 (July 2010)
• AASB 2009-14 Amendments to Australian Interpretation –
Prepayments of a Minimum Funding requirement (January 2011)
• AASB 2010-3 Amendments to Australian Accounting Standards
arising from the Annual Improvements Project (July 2010)
• AASB 2010-4 Amendments to Australian Accounting Standards
arising from the Annual Improvements Project (January 2011)
• AASB Interpretation 19 Extinguishing Financial Liabilities with
Equity Instruments (July 2010)
The early adoption of AASB 2009-5 changed the segment information
disclosures to reflect the results regularly reviewed by the Chief
Operating Decision Maker (Incitec Pivot’s Executive Team) of the
Group. This has resulted in changes to the segment information as
disclosed in Note 3.
Other than the impact of AASB 2009-5, as described above, the early
adoption of these standards did not have a significant impact on the
Group’s results in the current and/or prior year.
Issued Standards not early adopted
The following standards and amendments were available for early
adoption but have not been applied by the Group in these financial
statements:
• AASB 9 Financial Instruments includes requirements for the
classification and measurement of financial assets resulting
from the first part of Phase 1 of the project to replace AASB 139
Financial Instruments: Recognition and Measurement. AASB 9
will become mandatory for the Group’s 30 September 2014
financial statements. The Group has not yet determined the
potential effect of the standard.
• AASB 124 Related Party Disclosures (revised December 2009)
simplifies and clarifies the intended meaning of the definition of
a related party. The amendments, which will become mandatory
for the Group’s 30 September 2012 financial statements, are not
expected to have an impact on the financial statements.
• AASB 2009-8 Amendments to Australian Accounting Standards
– Group Cash-settled Share-based Payment Transactions
resolves diversity in practice regarding the attribution of cash-
settled share-based payments between different entities within
a Group. The amendments, which become mandatory for the
Group’s 30 September 2011 financial statements, are not
expected to have a significant impact on the financial
statements.
(ii) Consolidation
(a) Subsidiaries
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of Incitec Pivot as at 30 September 2010
and the results of all subsidiaries for the year then ended.
Subsidiaries are all those entities over which the Group 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 Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. 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 Group (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
Group. Investments in subsidiaries are accounted for at cost in
the Statement of Financial Position of the Company (refer Note 39).
48 48
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
1. Significant accounting policies (continued)
(ii) Consolidation (continued)
(b) Associates and jointly controlled entities
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating policies.
Significant influence is presumed to exist when the Group holds
between 20 and 50 percent of the voting power of another entity.
Jointly controlled entities are those entities over whose activities
the Group 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 Group’s investment includes goodwill
identified on acquisition, net of any accumulated impairment losses.
The consolidated financial statements include the Group’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 Group, from the date that significant
influence or joint control commences until the date that significant
influence or joint control ceases. When the Group’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 Group 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 significant 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, or received, whichever occurs first.
(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
capitalising interest.
(v) Share based payments
The grant date fair value of shares treated as options, and rights,
granted to employees is recognised as an employee expense, with
a corresponding increase in equity, over the period that employees
become unconditionally entitled to the options or rights.
The amount recognised as an expense is adjusted to reflect the
actual number of options, shares and rights 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 expense comprises current and deferred tax and 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
period, using tax rates enacted or substantively enacted at the
reporting date, and any adjustment to tax payable in respect of
previous periods, adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences between the tax bases
of assets and liabilities and their carrying amounts in the financial
statements, and by the availability of unused tax losses.
Deferred tax is recognised using the balance sheet method in which
temporary differences are calculated based on the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognised
for the following temporary differences: the initial recognition of
goodwill; the initial recognition of assets or liabilities in a transaction
that is not a business combination and that affects neither accounting
nor taxable profit; and differences relating to investments in
subsidiaries to the extent that it is probable that they will not reverse
in the foreseeable future. Deferred tax is measured at the tax rates
that are expected to be applied when the temporary difference
reverses, that is, when the asset is realised or the liability is settled,
based on the laws that have been enacted or substantively enacted
at the reporting date.
Deferred tax assets are recognised only to the extent that it is
probable that future taxable profits will be available against which the
assets can be utilised. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realised.
Current tax assets and liabilities are offset where the consolidated
entity has a legally enforceable right to offset and intends either to
settle on a net basis, or to realise the asset and settle the liability
simultaneously. Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset and when the deferred tax
balances relate to the same taxation authority.
The assumptions regarding future realisation, and therefore the
recognition of deferred tax assets, may change due to future
operating performance and other factors.
Incitec Pivot provides for income tax in both Australia and overseas
jurisdictions where a liability exists.
Tax Consolidation
The Company and its wholly-owned Australian resident entities have
formed a tax-consolidated group and are therefore taxed as a single
entity. The head entity within the tax-consolidated group is
Incitec Pivot.
Members of the tax consolidated group recognise their own current
tax expense/income and deferred tax assets and liabilities arising
from temporary differences using the ‘stand alone taxpayer’ approach
by reference to the carrying amounts of assets and liabilities in the
separate financial statements of each entity and the tax values
applying under tax consolidation.
In addition to its current and deferred tax balances, the Company also
recognises the current tax liabilities (or assets), and the deferred tax
assets arising from unused tax losses and unused tax credits
assumed from members of the tax-consolidated group, as part of the
tax-consolidation arrangement. Assets or liabilities arising under tax
funding agreements with members of the tax-consolidated group are
recognised as amounts receivable or payable from the other entities
within the tax-consolidated group.
Incitec Pivot Limited Annual Report 2010
49 49
Notes to the Financial Statements
For the year ended 30 September 2010
1. Significant accounting policies (continued)
(vi) Taxation (continued)
Nature of tax funding agreement
Incitec Pivot, as the head entity of the tax-consolidated group, in
conjunction with the other members of the tax-consolidated group,
has entered into a tax funding agreement which sets out the funding
obligations of members of the tax-consolidated group in respect of tax
amounts. The tax funding agreement requires payment to/from the
head entity equal to the current tax liability/asset assumed by the
head entity, resulting in the head entity recognising an intercompany
receivable/payable equal to the amount of the tax liability/asset
assumed.
The agreement requires wholly-owned subsidiaries to make
contributions to the Company for tax liabilities arising from external
transactions during the year. The contributions are calculated as if
each subsidiary continued to be a stand alone taxpayer in its own
right. The contributions are payable annually and reflect the timing of
the head entity’s obligation to make payments for tax liabilities to the
relevant tax authority. 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 third-
party sourced finished 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 uncollectable 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 Group 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
uncollectable 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 Group’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 Group commits to purchase or sell assets.
Investment income includes dividends, which are recognised in
the Income Statement when received or a legal right to receive
is established.
(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
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 Group 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 Group.
Estimated useful lives of each class of asset are as follows:
20 to 40 years
3 to 30 years
• Buildings and improvements
• Machinery, plant and equipment
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date.
Certain items of property, plant and equipment that had been
revalued to fair value on or prior to 1 October 2004, the date of
transition to IFRS, 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 Group 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.
50 50
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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 Group’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
Group intends 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 Group 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 such
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
10 – 17 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. For acquisitions occurring in
stages, goodwill is determined at the acquisition date. Goodwill is
determined after the previously held equity interest is adjusted to
fair value.
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.
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 Group’s share of the identifiable net assets acquired is
recorded as goodwill (refer to Note 1(xiii) (a)). If the cost of
acquisition is less than the Group’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) Segment Reporting
As of 1 October 2009, the Group has determined and presented
operating segments based on the information that is internally
provided to the Group’s Executive Team, which is the Group’s Chief
Operating Decision Maker. This change in accounting policy is due
to the adoption of AASB 8 Operating Segments. Previously,
operating segments were determined and presented in accordance
with AASB 114 Segment Reporting.
Comparative segment information has been re-presented in
conformity with the transitional requirements of AASB 8. Since the
change in accounting policy only impacts presentation and
disclosure aspects, there is no impact on earnings per share.
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group’s other components. All operating
segments’ operating results are regularly reviewed by the Group’s
Executive Team to make decisions about resources to be allocated
to the operating segment and assess their performance.
Operating segment results that are reported to the Executive Team
include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis. Unallocated items comprise
mainly corporate assets and head office expenses.
Operating segment capital expenditure is the total cost incurred
during the period to acquire property, plant and equipment and
software.
The following disclosure changes were made to the balance sheet,
reportable segments and segment information:
•
In the prior year, the Group comprised two main business
segments; Fertilisers and Explosives. Given the adoption of AASB
8 and a change in reporting structure, the Group has identified four
reportable segments: Incitec Pivot Fertilisers, Southern Cross
International, Dyno Nobel – Americas and Dyno Nobel – Asia
Pacific.
• The Group is required to disclose information as it is provided to
the Chief Operating Decision Maker. As such, no information
regarding segment assets and liabilities has been disclosed.
Incitec Pivot Limited Annual Report 2010
51 51
Notes to the Financial Statements
For the year ended 30 September 2010
1. Significant accounting policies (continued)
(c) Employee entitlements
(xvi) 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.
(xvii) 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 the
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.
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.
(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 to or deducted from the related asset, other than
the unwinding of the discount which is recognised as an interest
expense in the Income Statement.
Current
Provisions are made for liabilities to employees for annual leave, sick
leave and other current employee entitlements that represent the
amount for which the Group has a present obligation. These have
been calculated at undiscounted amounts based on the wage and
salary rates that the Group expects to pay as at each reporting date
and include related on-costs.
Non-current
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 the terms of the Group’s obligations.
Short term incentive plans
A liability is recognised for short term incentive plans on the
achievement of predetermined short term incentive plan
performance measures 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 IFRS, were recognised in retained earnings.
All actuarial gains and losses that arise subsequent to 1 October
2004 are recognised directly in equity.
The Group’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 Group’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 paid, or a legal right to pay is
established, 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.
52 52
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
1. Significant accounting policies (continued)
(xviii) Trade and other payables
Trade and other payables are stated at cost and represent liabilities
for goods and services provided to the Group prior to the end of
financial year which are unpaid.
Unfavourable sales / supplier contracts
Liabilities are recognised on acquisition where it is probable that an
outflow of resources embodying economic benefits will be required
to settle an obligation (probable loss), and the fair value of the loss
can be measured reliably. If the terms of a contract are unfavourable
relative to market terms at the acquisition date, a liability is
recognised as part of accounting for the business combination.
(xix) Foreign currency transactions
Functional and presentation currency
Items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional currency”).
The 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 Group’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.
(xx) Derivative financial instruments
The Group 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 Group 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 or foreign currency
translation reserve.
Hedging
On entering into a hedging relationship, the Group formally
designates and documents the hedge relationship and the risk
management objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument,
the hedged item or transaction, the nature of the risk being hedged
and how the entity will assess the hedging instrument’s effectiveness
in offsetting the exposure to changes in the hedged item’s fair value
or cash flows attributable to the hedged risk.
Such hedges are expected to be highly effective in achieving
offsetting changes in fair value or cash flows and are assessed on
an ongoing basis to determine that they actually have been highly
effective throughout the financial reporting periods for which they
are designated.
Cash flow hedges
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.
Hedges of a net investment
Hedges of a net investment in a foreign operation, including a hedge
of monetary item that is accounted for as part of the net investment,
are accounted for in a similar way as cash flow hedges. Gains or
losses on the hedging instrument relating to the effective portion of
the hedge are recognised directly in equity (foreign currency
translation reserve) while any gains or losses relating to the
ineffective portion are recognised in profit and loss. On disposal of
the foreign operation, the cumulative value of such gains or losses
recognised directly to equity is transferred to other comprehensive
income based on the amount calculated using the direct method of
consolidation.
(xxi) Cash and cash equivalents
For presentation purposes on the Statement of Cash Flows, cash
includes cash at bank, cash on hand and deposits at call which are
readily convertible to cash on hand and which are used in the cash
management function, net of bank overdrafts.
(xxii) 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.
Incitec Pivot Limited Annual Report 2010
53 53
Notes to the Financial Statements
For the year ended 30 September 2010
1. Significant accounting policies (continued)
(xxii) Share capital (continued)
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.
(xxiii) 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
Group 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 Group 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 Group for similar financial
instruments.
(xxiv) Impairment of assets
The carrying amount of the Group’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
(CGUs) are allocated first to reduce the carrying amount of any
goodwill allocated to CGUs and then, to reduce the carrying amount
of the other assets in the unit.
(xxv) 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.
(xxvi) Rounding of amounts
The Group 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.
(xxvii) Restatement of prior year tax benefit
For the year ended 30 September 2009, a tax benefit of $158.7m was
recognised in relation to realised foreign exchange losses that were
assessed as fully deductible in the preparation of the Financial Report
and disclosed in Note 6 as an individually material item. In preparing
the 30 September 2009 tax return during 2010, the deductibility of
foreign exchange losses was reassessed and reduced by $41.5m to
$117.2m. Accordingly, amounts relating to this item in the 2009
Financial Report have been restated as follows:
Income tax benefit / (Income
tax expense)
Profit /(Loss) for the
financial year
Total comprehensive
income / (expense) for the
financial year
Deferred tax assets
Total assets
Net assets
Retained earnings
Total equity
2009
Adjustment
$mill
$mill
Restated
2009
$mill
134.7
(41.5)
93.2
(179.9)
(41.5)
(221.4)
(457.1)
354.2
6,631.2
3,381.1
44.2
3,381.1
(41.5)
(41.5)
(41.5)
(41.5)
(41.5)
(41.5)
(498.6)
312.7
6,589.7
3,339.6
2.7
3,339.6
EPS - basic and diluted
(11.7)
(2.7)
(14.4)
As the tax benefit was only recognised at the end of the 2009
financial year, no adjustments to the 2008 comparatives in the
Statement of Financial Position were needed and accordingly a third
Statement of Financial Position has not been disclosed.
54 54
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
2. Critical accounting estimates and
judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectation of
future events that may have a financial impact on the Group 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 subsequent 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.
•
Impairment of assets
(i)
The determination of impairment for property, plant and equipment,
goodwill and other intangible assets involves the use of estimates
that include, but 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 or terminal values. Refer Note 1 (xxiv) 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 Group’s assets for
impairment. Varying results from this impairment analysis are
possible due to the significant estimates and judgements involved.
(ii) Impairment of goodwill
The Group tests annually whether goodwill has incurred any
impairment, in accordance with the accounting policy stated in
Note 1 (xiii) (a). The recoverable amounts of CGUs 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.
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 Group’s goodwill for impairment. Varying results from
this analysis are possible due to the significant estimates and
judgements involved in the Group’s evaluations.
(iii) Income taxes
The Group 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 Group 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 Group’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 Group’s best estimate of the outflow of resources
required to settle commitments made by the Group. 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 (xvii)
(a) & Note 1 (xvii) (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 (xvii) (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
•
future salary increases.
future rate of inflation;
(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.
Incitec Pivot Limited Annual Report 2010
55 55
Notes to the Financial Statements
For the year ended 30 September 2010
3. Segment report
(a)
Identification of reportable segments
The Group has identified its operating segments based on the internal reports that are reviewed and used by the Group’s
Executive Team in assessing performance and in determining the allocation of resources.
The operating segments are identified by management and are based on the market and region in which product is sold.
Discrete financial information about each of these operating businesses is usually reported to the Executive Team on at least
a monthly basis.
(b) Description of operating segments
Fertilisers:
Incitec Pivot Fertilisers (IPF): manufactures and distributes fertilisers in Eastern Australia. The products that IPF manufactures
include Single Super Phosphate, Urea and Ammonia. IPF also import products from overseas suppliers and purchases
Ammonium Phosphates from Southern Cross International for resale.
Southern Cross International (SCI): manufactures Ammonium Phosphates, is a distributor of its manufactured fertiliser product to
wholesalers in Australia (including IPF) and the export market. SCI also has a 65% share of the Hong Kong trading company,
Quantum Fertilisers Limited and operates an Industrial Chemicals business.
Fertilisers Elimination (Elim): represents the elimination of profit in stock arising from SCI sales to IPF.
Explosives:
Dyno Nobel Americas (DNA): principal activity is the manufacture and sale of industrial explosives and related products and
services to the mining, quarrying and construction industries in the Americas, and the manufacture and sale of Agricultural
chemicals.
Dyno Nobel Asia Pacific (DNAP): principal activity is the manufacture and sale of industrial explosives and related products and
services to the mining industry in the Asia Pacific region.
Explosives Eliminations (Elim): represents eliminations of profit in stock arising from DNA sales to DNAP.
(c) Accounting policies and inter-segment transactions
Corporate (Corp):
Corporate costs include all head office expenses that cannot be directly attributed to the operation of any of the Group's
businesses.
Inter-entity sales are recognised based on an arm’s length transfer price. The price aims to reflect what the business operation
could achieve if they sold their output and services to external parties at arm’s length.
Note that comparatives have been restated as a result of the change in reportable segments.
56 56
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
3. Segment report (continued)
(d) Reportable segments
30 September 2010
IPF
$mill
SCI
$mill
Elim
$mill
Total
Fertilisers
$mill
Sales to external customers
885.9
647.1
(145.4)
1,387.6
DNAP
$mill
499.8
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Consolidated
Group
$mill
Corp
$mill
1,092.5
(48.2)
1,544.1
-
2,931.7
Share of profits in associates and joint
ventures accounted for by the equity
method
Earnings before interest, related income
tax expense, depreciation and
amortisation and individually material
items
Depreciation and amortisation
Earnings before interest, related income
tax expense and individually material
items
Net interest expense
Income tax expense
Profit after tax (excluding individually
material items)
Individually material items
Profit after tax
-
-
-
-
12.9
17.6
-
30.5
-
30.5
141.6
(29.2)
236.9
(14.3)
(0.6)
-
377.9
(43.5)
196.0
(20.0)
236.5
(73.3)
1.5
-
434.0
(93.3)
(24.6)
(2.2)
787.3
(139.0)
112.4
222.6
(0.6)
334.4
176.0
163.2
1.5
340.7
(26.8)
648.3
(53.0)
(150.8)
444.5
(32.3)
412.2
30 September 2009
IPF
$mill
SCI
$mill
Elim
$mill
Total
Fertilisers
$mill
Sales to external customers
950.2
777.5
(136.4)
1,591.3
DNAP
$mill
505.7
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Consolidated
Group
$mill
Corp
$mill
1,388.4
(66.5)
1,827.6
-
3,418.9
Share of profits in associates and joint
ventures accounted for by the equity
method
Earnings before interest, related income
tax expense, depreciation and
amortisation and individually material
items
Depreciation and amortisation
Earnings before interest, related income
tax expense and individually material
items
Net interest expense
Income tax expense
Profit after tax (excluding individually
material items)
Individually material items
Loss after tax
-
-
-
-
5.3
19.7
-
25.0
-
25.0
121.1
(27.1)
195.8
(12.5)
24.3
-
341.2
(39.6)
135.6
(25.8)
297.4
(99.7)
(3.8)
-
429.2
(125.5)
(27.4)
(2.2)
743.0
(167.3)
94.0
183.3
24.3
301.6
109.8
197.7
(3.8)
303.7
(29.6)
575.7
(107.6)
(120.3)
347.8
(569.2)
(221.4)
Incitec Pivot Limited Annual Report 2010
57 57
Notes to the Financial Statements
For the year ended 30 September 2010
3. Segment report (continued)
(e) Geographical information – secondary reporting segments
The Group operates in four principal countries being Australia (country of domicile), USA, Canada and Turkey.
In presenting information on the basis of geographical information, revenue is based on the geographical location of the entity
making the sale. Assets are based on the geographical location of the assets.
30 September 2010
Revenue from external customers
Non-current assets other than financial
instruments and deferred tax assets
Australia
$mill
USA Canada
$mill
$mill
Turkey Other/Elim Consolidated
$mill
$mill
$mill
1,871.8
770.3
235.9
14.8
38.9
2,931.7
2,702.5 2,115.4
80.0
146.2
76.9
5,121.0
30 September 2009
Australia
$mill
USA Canada
$mill
$mill
Turkey Other/Elim Consolidated
$mill
$mill
$mill
Revenue from external customers
Non-current assets other than financial
instruments and deferred tax assets
2,097.5
986.1
306.6
2,590.3 2,336.7
95.1
-
-
28.7
3,418.9
85.1
5,107.2
58 58
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
4. Revenue and other income
Revenue
External sales
Total revenue
Other income
Net foreign exchange gains
Royalty income and management fees
Net gain on sale of property, plant and equipment
Other income
Gain on Nitromak acquisition
Total other income
Financial income
Interest income from external parties
Interest income from jointly controlled entities
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
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 expense
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 jointly controlled entities
Total financial expenses
Consolidated
2010
$mill
2009
$mill
Notes
2,931.7
2,931.7
3,418.9
3,418.9
(29)
(34)
0.6
23.8
4.3
0.7
19.0
48.4
2.8
2.5
5.3
53.7
(17)
(18)
(29)
112.1
26.9
139.0
(17),(29)
(18),(29)
(23)
(23)
(23)
(25)
(6)
(29)
(34)
0.7
-
0.7
1.1
8.3
24.9
1.2
1.8
6.8
55.0
-
7.8
11.1
8.0
-
13.8
44.2
0.3
58.3
-
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
Incitec Pivot Limited Annual Report 2010
59
Notes to the Financial Statements
For the year ended 30 September 2010
6.
Individually material items
Profit includes the following revenues and expenses whose
disclosure is relevant in explaining the financial performance
of the Group:
Business restructuring costs - Dyno Nobel Integration(1)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Business restructuring costs - Manufacturing and Distribution(2)
restructuring and other direct costs
employee redundancies and allowances
Total business restructuring
Other
write-off of borrowing costs (3)
inventory NRV provision (4)
tax benefit on foreign exchange (5)
impairment of intangible assets(6)
accounting acquisition profit - Nitromak(7)
asbestos environmental costs at various sites(8)
Total other
Gross
$mill
2010
Tax
$mill
Restated 2009
Net
$mill
Gross
$mill
Tax
$mill
Net
$mill
(7.8)
(16.7)
(24.5)
(18.7)
(8.0)
(26.7)
-
-
-
-
19.0
(23.2)
(4.2)
2.4
5.3
7.7
5.8
2.7
8.5
-
-
-
-
-
6.9
6.9
(5.4)
(11.4)
(16.8)
(12.9)
(5.3)
(18.2)
-
-
-
-
19.0
(16.3)
2.7
(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
117.2
-
-
-
144.8
(5.4)
(58.9)
117.2
(490.6)
-
-
(437.7)
Individually material items
(55.4)
23.1
(32.3)
(782.7)
213.5
(569.2)
(1) 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.
(2) The impact of the Global Financial Crisis resulted in the Group changing its strategy in how it manages its manufacturing and distribution
assets. The Group 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).
(3) Direct transaction costs in relation to the Bridge Loan facility negotiated in order to acquire the remaining shares in Dyno Nobel Limited
during the 2009 financial year. As the Bridge Loan facility was replaced with new borrowings, its establishment costs were written off.
(4) 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.
(5) Tax benefit associated with foreign exchange losses realised on USD Debt.
(6) Impairment of goodwill recognised on the acquisition of Dyno Nobel Limited.
(7) During 2010, the Group acquired the remaining 50% interest in Nitromak DNX Kimya Samayii Anonim Sirketi (Nitromak), making Nitromak
a fully owned subsidiary. AASB 3 Business Combinations requires that the original 50% investment is revalued to fair value in the Income
Statement when the Group gained control of Nitromak, which resulted in a gain of $33.4 million, offset by $14.4 million of foreign exchange
losses, resulting in a net gain of $19.0 million.
(8) Environmental costs at various sites, including estimated costs to remediate asbestos identified at some sites.
60
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
7. Auditor's remuneration
Total remuneration received, or due and receivable,
by the auditors for:
Audit services
Auditors of the Group - KPMG Australia
Auditors of the Group - KPMG Overseas
Other auditors
Other assurance services - debt issue
Non audit services
Auditors of the Group - KPMG Australia
taxation services
other services
Consolidated
2010
$000
2009
$000
1,092.5
992.7
25.0
231.0
2,341.2
-
80.1
80.1
2,421.3
1,543.4
1,393.3
106.8
-
3,043.5
266.0
380.0
646.0
3,689.5
From time to time, the auditors provide other services to the Group, which are subject to strict corporate governance procedures adopted
by the Group 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 20% of the audit fee.
Incitec Pivot Limited Annual Report 2010
61
Notes to the Financial Statements
For the year ended 30 September 2010
8.
Income tax expense / (benefit)
Income tax expense / (benefit)
(a)
Current tax
Current year
Over provision in prior years
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% (2009 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
Share-based payments
Participation facility
Impairment of intangible assets
Valuation allowances
Foreign exchange losses
Sundry items
Difference in overseas tax rates
Benefit of favourable tax ruling
Overprovision in prior years
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
62
Incitec Pivot Limited Annual Report 2010
Consolidated
Restated
2009
$mill
2010
$mill
100.6
(4.1)
-
96.5
31.2
127.7
(4.6)
-
(21.6)
(26.2)
(67.0)
(93.2)
539.9
(314.6)
162.0
(94.4)
-
-
(3.5)
0.7
(13.2)
-
-
-
(16.1)
129.9
1.9
-
(4.1)
127.7
3.0
0.2
(4.3)
0.5
(16.9)
147.2
32.9
(110.3)
(27.1)
(69.2)
(2.4)
(21.6)
-
(93.2)
26.1
26.1
12.3
12.3
Notes to the Financial Statements
For the year ended 30 September 2010
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)
Profit / (loss) attributable to ordinary shareholders
Consolidated
2010
Cents
per share
Notes
25.3
27.3
25.3
27.3
Restated
2009
Cents
per share
(14.4)
22.6
(14.4)
22.6
Number
Number
1,623,134,164
1,541,925,068
Consolidated
2010
$mill
2009
$mill
410.5
(221.4)
Reconciliation of earnings used in the calculation of basic and diluted
earnings per share excluding individually material items
Profit / (loss) attributable to ordinary shareholders
Add back individually material items after income tax
Profit attributable to ordinary shareholders excluding individually material items
(6)
410.5
32.3
442.8
(221.4)
569.2
347.8
(1) 16,193,772 shares were issued during the year ended 30 September 2010, refer Note 26.
10. Cash and cash equivalents
Cash at bank and on hand
Deposits at call
external
Consolidated
2010
$mill
47.9
0.8
48.7
2009
$mill
84.0
41.2
125.2
Notes
(29)
Incitec Pivot Limited Annual Report 2010
63
Notes to the Financial Statements
For the year ended 30 September 2010
11. Trade and other receivables
Current
Trade debtors
external
jointly controlled entities and associates
Less impairment losses
external
Sundry debtors / loans
external
jointly controlled entities and associates
Non-current
Sundry debtors / loans
external
jointly controlled entities and associates
Less impairment losses
external
12. Inventories
Raw materials and stores at cost
Work in progress at cost
Finished goods
at cost
less provision for inventory losses, obsolescence and net realisable value
Finished goods
13. Other assets
Current
Prepayments
Other
Non-current
Prepayments
Other
14. Other financial assets
Current
Investments available for sale - listed shares
Derivative financial instruments
cross currency swaps
option contracts
forward exchange contracts
Non-current
Derivative financial instruments
cross currency swaps
64
Incitec Pivot Limited Annual Report 2010
Consolidated
2010
$mill
2009
$mill
Notes
(34)
(33)
(34)
419.4
24.8
(5.6)
438.6
4.9
0.3
5.2
443.8
3.4
13.8
(1.9)
15.3
51.6
32.5
259.9
(7.5)
252.4
336.5
26.6
9.6
36.2
0.7
1.8
2.5
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
(33)
(33)
(33)
(33)
30.2
46.9
61.3
-
20.1
111.6
11.7
12.6
-
71.2
28.7
28.7
135.9
135.9
Notes to the Financial Statements
For the year ended 30 September 2010
14. Other financial assets (continued)
Sensitivity analysis – equity price risk
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 $1.5m (2009: $2.3m); an equal decrease would have decreased
equity (pre-tax) by $1.5m (2009: $2.3m).
15. Assets classified as held for sale
Land and buildings held for sale
Investments accounted for using the equity method
Machinery, plant and equipment held for sale
Notes
(16)
Consolidated
2010
$mill
2009
$mill
4.8
-
4.3
9.1
4.3
44.0
6.0
54.3
Assets classified as held for sale consist of various sites which are either vacant land or sites which the Group has already exited
or is planning to dispose of within the next 12 months.
During the year, the Group acquired the remaining 50% share of Nitromak.
16. Investments accounted for using the equity method
Name of Entity
Principal Activity
Ownership
interest
Country of
incorporation
Jointly controlled entities
Alpha Dyno Nobel Inc
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
Western Explosives Systems Company
Delivery of explosives and related products
DetNet Detonadores Electronico Limitada Delivery of explosives and related products
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
(1) Refer to footnote description on next page.
50%
50%
51%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
49%
49%
(1)
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Chile
Canada
Canada
Canada
Canada
Canada
Incitec Pivot Limited Annual Report 2010
65
Notes to the Financial Statements
For the year ended 30 September 2010
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
(2)
(2)
Ireland
South Africa
Mexico
Mexico
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.
Distribution of explosives and related products
49%
Mexico
Distribution of explosives and related products
49%
Mexico
Distribution of explosives and related products
49%
Mexico
Tenaga Kimia Ensign-Bickford Sdn Bhd
Manufacture of explosive accessories
Sasol Dyno Nobel (Pty) Ltd
Distribution of detonators
Associates
Labrador Maskua Ashini Ltd
Delivery of explosives and related products
Fabchem China Ltd
Valley Hydraulics Ltd
Manufacture of commercial explosives
Delivery of explosives and related products
Apex Construction Specialities Ltd
Delivery of explosives and related products
Warex Corporation
Warex LLC
Delivery of explosives and related products
Delivery of explosives and related products
50%
50%
25%
30%
25%
25%
25%
25%
Malaysia
South Africa
(2)
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%, this entity is not considered to be a subsidiary.
(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 2010 has been used.
66
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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
Share of jointly controlled entities and associates' profit:
Share of jointly controlled entities and associates' profit before tax
Share of jointly controlled entities and associates' income tax expense
Share of jointly controlled entities and associates' profit
Carrying amount of investments in jointly controlled entities and associates
Carrying amount at the beginning of the year
Share in jointly controlled entities reclassified to assets held for sale
Share of net profit from jointly controlled entities and associates
Less: dividends received / receivable
Movement in foreign currency translation reserve of jointly controlled entities and associates
Carrying amount at end of the financial year
Consolidated
2010
$mill
2009
$mill
Notes
252.3
280.4
532.7
131.7
95.6
227.3
308.1
326.8
634.9
227.3
101.6
328.9
305.4
306.0
796.8
65.6
1,000.6
60.0
42.4
(11.9)
30.5
35.8
(10.8)
25.0
254.0
-
254.0
30.5
(17.1)
(10.9)
256.5
311.2
(44.0)
267.2
25.0
(5.2)
(33.0)
254.0
(29)
(15)
(34)
The Group’s share of the capital commitments, other expenditures and contingent liabilities are disclosed in Notes 30 and 31.
Incitec Pivot Limited Annual Report 2010
67
Notes to the Financial Statements
For the year ended 30 September 2010
17. Property, plant and equipment
Consolidated
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
(5)
Impairment of assets (5)
Foreign exchange movement
Closing net book amount
At 1 October 2009
Cost
Accumulated depreciation
Construction in progress
Net book amount
Year ended 30 September 2010
Opening net book amount
Acquisition of business
Reclassification 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 2010
Cost
Accumulated depreciation
Construction in progress
Net book amount
Freehold land Machinery, plant
and equipment
and buildings
$mill
$mill
Notes
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
306.3
6.1
-
179.0
(6.7)
(13.2)
-
(11.9)
459.6
449.4
(141.1)
151.3
459.6
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
1,357.1
2.1
0.5
180.3
(8.0)
(98.9)
(0.7)
(47.9)
1,384.5
1,471.1
(521.3)
434.7
1,384.5
Total
$mill
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
1,663.4
8.2
0.5
359.3
(14.7)
(112.1)
(0.7)
(59.8)
1,844.1
1,920.5
(662.4)
586.0
1,844.1
Non-current asset impairment
During the year ended 30 September 2010, impairment of property, plant and equipment occurred to the value
of $0.7m (2009: $80.4m) as a result of the Group’s fixed asset verification procedures and the abandonment of
certain assets.
Capitalised interest
During the year ended 30 September 2010 interest of $25.2m (2009: $18.2m) was capitalised relating to interest
bearing liabilities used specifically to fund qualifying assets (expansion projects) as defined under AASB123
Borrowing Costs.
68
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
18. Intangible assets
Consolidated
At 1 October 2008
Cost
Accumulated amortisation
Net book amount
Notes
Software
$mill
Goodwill
$mill
Patents,
Trademarks
& Customer
Contracts
Brand
Names
$mill
$mill
47.8
(13.0)
34.8
3,408.6
-
3,408.6
250.1
(6.4)
243.7
275.0
-
275.0
Other
$mill
5.9
(5.9)
-
Total
$mill
3,987.4
(25.3)
3,962.1
Year ended 30 September 2009
Opening net book amount
Additions
Amortisation charge
Impairment of assets
Foreign exchange movement
Closing net book amount
34.8
16.0
(10.7)
-
(2.7)
37.4
(5)
(5)
3,408.6
-
-
(490.6)
(268.7)
2,649.3
At 1 October 2009
Cost
Accumulated amortisation
Net book amount
59.9
(22.5)
37.4
2,649.3
-
2,649.3
Year ended 30 September 2010
Opening net book amount
Acquisition of business
Additions
Amortisation charge
Foreign exchange movement
Closing net book amount
37.4
0.2
3.8
(9.2)
(2.3)
29.9
(5)
2,649.3
150.0
2.0
-
(247.8)
2,553.5
At 30 September 2010
Cost
Accumulated amortisation
Net book amount
60.4
(30.5)
29.9
2,553.5
-
2,553.5
243.7
-
(20.8)
-
(12.0)
210.9
235.1
(24.2)
210.9
210.9
1.1
-
(17.7)
(13.5)
180.8
220.6
(39.8)
180.8
275.0
-
-
-
(19.6)
255.4
255.4
-
255.4
255.4
4.0
-
-
(21.0)
238.4
238.4
-
238.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,962.1
16.0
(31.5)
(490.6)
(303.0)
3,153.0
3,199.7
(46.7)
3,153.0
3,153.0
155.3
5.8
(26.9)
(284.6)
3,002.6
3,072.9
(70.3)
3,002.6
Incitec Pivot Limited Annual Report 2010
69
Notes to the Financial Statements
For the year ended 30 September 2010
18. Intangible assets (continued)
(a) Allocation of goodwill
The Group’s goodwill is allocated as follows:
IPF
SCI
DNAP
DNA
Nitromak
2010
$mill
183.8
1.9
1,098.4
1,126.5
142.9
2,553.5
2009
$mill
183.8
-
1,216.0
1,249.5
-
2,649.3
(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. 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:
IPF
SCI
DNAP
DNA
Nitromak
Terminal Growth Rate
2009
%
2.5
2010
%
0.0
0.0
2.5
2.5
2.5
2.5
2.5
2.5
-
Discount rate*
2010
%
9.0
9.0
9.0
9.0
15.5
2009
%
10.2
10.2
9.0
9.0
-
* The discount rate used reflects underlying cost of capital adjusted for market risk.
(d) Impairment charge
As a result of the annual impairment testing, the Group recognised a non-cash impairment charge of $nil in the year ended
30 September 2010 (2009: $490.6m).
(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:
IPF
SCI
DNAP
DNA
Nitromak
Terminal Growth Rate
-0.5%
$mill
(27.8)
+0.5%
$mill
31.1
23.4
79.1
176.6
8.4
(20.9)
(67.8)
(151.4)
(7.4)
Discount Rate
+0.5%
$mill
(39.9)
(28.6)
(83.9)
(187.7)
(9.8)
-0.5%
$mill
44.6
32.0
97.9
219.0
11.0
70
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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
Restated
2009
$mill
2010
$mill
Notes
8.0
10.8
28.5
3.9
28.0
10.9
3.5
33.3
13.8
-
1.1
0.5
128.7
69.9
23.2
364.1
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
49.0
490.5
Set-off of deferred tax liabilities pursuant to set-off provisions
(24)
(190.2)
(177.8)
Net deferred tax assets
Movements:
Opening balance at 1 October
Credited to the Income Statement
Credited / (charged) to equity
Foreign exchange movement
Adjustments in respect of prior years
Closing balance at 30 September
173.9
312.7
490.5
(115.2)
(26.1)
20.0
(5.1)
364.1
417.4
134.7
(8.7)
(48.2)
(4.7)
490.5
Incitec Pivot Limited Annual Report 2010
71
Notes to the Financial Statements
For the year ended 30 September 2010
20. Trade and other payables
Current
Trade creditors
external
jointly controlled entities and associates
Sundry creditors and accrued charges
external
jointly controlled entities and associates
unfavourable sales / supplier contracts
Non-current
Sundry creditors and accrued charges
share based payments
unfavourable sales / supplier contracts
Consolidated
2009
$mill
2010
$mill
Notes
(34)
(34)
474.7
1.6
476.3
171.5
-
49.3
220.8
697.1
-
378.3
378.3
413.5
-
413.5
123.1
0.2
99.9
223.2
636.7
0.1
426.5
426.6
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 Group’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 Group 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.
72
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
Consolidated
2010
$mill
2009
$mill
Notes
21. Interest bearing liabilities
Current
Secured
bank loans
trade loans
participation facilities
inventory finance facility
lease liability
Unsecured
bank loans
working capital facility
other bank loans
other loans
jointly controlled entities and associates (1)
(33)
Non-current
Secured
bank loans
participation facilities
lease liability
Unsecured
fixed interest rate bonds
bank loans
-
75.5
10.3
0.2
-
12.5
10.0
108.5
179.5
1.7
804.7
47.2
53.7
-
0.4
315.2
-
15.7
432.2
186.4
2.0
-
working capital facility
syndicated facility
jointly controlled entities and associates (1)
-
51.4
-
1,037.3
100.0
867.3
0.7
1,156.4
(33)
(1) Loans from jointly controlled entities and associates relate to unsecured loans from joint ventures in Wampum Hardware
Co and Alpha Dyno Nobel Inc.
During the year, the Group undertook a number of financing activities:
-
-
-
-
-
A 144A / Regulation S bond was issued in the USA, proceeds of which were used to repay and cancel the Working Capital
Facility and repay a portion of the Syndicated Facility.
A$600.0m of committed limit under the Syndicated Facility was cancelled at the Group’s request.
A short term Inventory Finance Facility was negotiated and drawn down.
The Trade Loan Facility was cancelled.
A second Participation Facility was negotiated and drawn down.
Significant terms and conditions
Interest expense is recognised progressively over the life of the facilities.
Fixed Interest Rate Bonds
In December 2009 the Group completed a US$800.0m 10 year bond issuance in the US 144A / Regulation S debt capital market.
The bond is denominated in USD, has a fixed rate semi-annual coupon of 6% and matures in December 2019. The proceeds of
this funding were used to repay and cancel the Working Capital Facility with the remaining proceeds used to partially repay the
Syndicated Facility.
Syndicated Facility
The Syndicated Facility is a 3 year revolving facility that can be drawn in either AUD or USD. It has a remaining facility limit of
A$1,080.0m (2009: A$1,680.0m) and matures on 4 October 2011.
Participation Facilities
The Participation Facilities mature in June 2013 and September 2014. The carrying amount of the facilities is A$255.0m and is
secured against certain assets operated by Southern Cross Fertilisers Pty Ltd. The facilities are denominated in AUD and have
fixed nominal interest rates of 8.93% and 9.63% respectively for the term of the facilities.
Incitec Pivot Limited Annual Report 2010
73
Notes to the Financial Statements
For the year ended 30 September 2010
21. Interest bearing liabilities (continued)
Inventory Finance Facility
In February 2010 the Group entered into a 364 day US$100.0m fertiliser Inventory Finance Facility. During the year US$40.0m of
this limit was cancelled at the Group’s request. The facility is denominated in USD, has a floating interest rate plus a margin and
matures in February 2011. The carrying amount of this facility is secured against a portion of the Group’s inventory.
22. Other financial liabilities
Current
Derivative financial instruments
commodity 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
Consolidated
2009
2010
Notes
$mill
$mill
(33)
(33)
1.7
-
1.7
-
12.9
12.9
24.5
13.4
34.6
1.4
8.3
82.2
13.1
4.0
51.3
13.5
0.7
82.6
24.5
13.1
37.6
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
The present value of the Group’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
4.00% + age based scale
6.08%
10 years
2010
Number
4,998
2009
Number
4,622
74
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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.
Current Provision - Dividends
Carrying amount at the beginning of the financial year
Provisions made during the year
Payments made during the year
Settled via Dividend Reinvestment Plan
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 from non-current
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
Payments made during the year
Transfers from non-current
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
Payments made during the year
Transfers from non-current
Carrying amount at the end of the financial year
See Note 1(xvii) for further details on the provisions noted above.
Consolidated
2010
$mill
Notes
(27)
(27)
(5)
(5)
(5)
-
66.4
(18.3)
(48.1)
-
24.4
6.8
(3.7)
(16.9)
4.2
(1.4)
13.4
29.6
12.1
(11.7)
5.7
(1.1)
34.6
1.7
(0.1)
(0.2)
1.4
12.9
1.8
(11.7)
5.3
8.3
Incitec Pivot Limited Annual Report 2010
75
Notes to the Financial Statements
For the year ended 30 September 2010
23. Provisions (continued)
Reconciliations (continued)
Non-current Provision - Restructuring and rationalisation
Carrying amount at the beginning of the financial year
Transfers to current
Provisions written back during the year
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
Transfers to current
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
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
Transfers to current
Foreign currency exchange differences
Carrying amount at the end of the financial year
See Note 1 (xvii) for further details on the provisions noted above.
Consolidated
2010
$mill
Notes
(5)
11.2
(4.2)
(3.2)
0.3
(0.1)
4.0
44.5
12.8
(5.7)
1.0
(1.3)
51.3
13.1
0.3
0.4
(0.3)
13.5
6.3
(5.3)
(0.3)
0.7
76
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
24. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Inventories
Property, plant and equipment
Intangible assets
Financial assets at fair value
Cash flow hedges
Foreign exchange (losses) / gains
Provisions
Other
Deferred tax liabilities
Consolidated
2010
$mill
2009
$mill
Notes
0.7
219.6
116.2
-
-
(9.5)
4.4
48.9
380.3
0.9
228.6
133.7
9.9
8.7
4.5
32.8
71.5
490.6
Set-off of deferred tax liabilities pursuant to set-off provisions
(19)
(190.2)
(177.8)
Net deferred tax liabilities
Movements
Opening balance at 1 October
Charged / (credited) to the Income Statement
Charged to equity
Acquisition of subsidiaries
Foreign exchange losses
Adjustments in respect of prior years
Closing balance at 30 September
190.1
312.8
490.6
(84.0)
-
0.1
(29.7)
3.3
380.3
426.3
109.3
4.2
-
(50.2)
1.0
490.6
Incitec Pivot Limited Annual Report 2010
77
Notes to the Financial Statements
For the year ended 30 September 2010
25. Retirement benefit obligations
(a) Information on Plans
The Group 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 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 Statement and Statement of Financial Position are set out below.
(b) Reconciliation of the present value of the defined benefit obligation
Consolidated
Present value of defined benefit obligations at beginning of the year
Current service cost
Past service benefit
Interest cost
Actuarial 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
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 Statement of Financial Position
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 the Statement of Financial Position at end of year
(e) Expense recognised in Income Statement
Current service cost
Past service benefit
Interest cost
Expected return on plan assets
Expense recognised in Income Statement
Notes
2010
$mill
288.4
7.5
(1.3)
16.2
20.1
1.2
(22.3)
(22.2)
287.6
196.8
14.4
3.2
12.3
1.2
(22.3)
(13.3)
192.3
2009
$mill
287.6
7.5
(1.0)
17.5
16.1
1.5
(24.8)
(16.0)
288.4
220.9
16.1
(17.3)
9.8
1.5
(24.7)
(9.5)
196.8
286.9
0.7
287.6
(192.3)
95.3
287.6
0.8
288.4
(196.8)
91.6
7.5
(1.3)
16.2
(14.4)
8.0
7.5
(1.0)
17.5
(16.1)
7.9
(5)
78
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
25. Retirement benefit obligations (continued)
(f) Amounts recognised in the Statement of Comprehensive Income
Actuarial losses (before income tax)
(g) Cumulative amount recognised in the Statement of Comprehensive Income
Cumulative amount of actuarial losses
(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
The fair value of plan assets includes no amounts relating to:
- any of the Group's own financial instruments
- any property occupied by, or other assets used by, the Group
(j) Expected rate of return on plan assets
Consolidated
2010
$mill
2009
$mill
16.9
33.3
85.6
68.7
60%
28%
8%
4%
61%
25%
6%
8%
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) Expected contributions
Expected contributions in year ending 30 September 2011
Expected employer contributions
Expected contribution by plan participants
(n) Historical information
10.4
(1.3)
4.5% - 8.0% 4.0% - 8.0%
6.0% - 8.0% 5.6% - 8.0%
2.0% - 5.0% 2.0% - 5.0%
4.0% - 8.0% 5.0% - 8.5%
2.5% - 2.8% 2.1% - 4.0%
9.6
0.6
2010
2009
2008
2007
2006
Present value of defined benefit obligation
Fair value of plan assets
(Surplus) / Deficit in plan
Experience adjustment - plan liabilities
Experience adjustment - plan assets
287.6
(192.3)
95.3
(2.2)
3.0
288.4
(196.8)
91.6
3.7
(2.9)
287.7
(220.9)
66.8
7.9
(10.9)
77.2
(79.9)
(2.7)
(4.4)
3.7
Incitec Pivot Limited Annual Report 2010
75.1
(72.2)
2.9
(2.9)
3.3
79
Notes to the Financial Statements
For the year ended 30 September 2010
26. Issued capital
Share Capital
Ordinary shares authorised and issued - 1,628,730,107 (2009: 1,612,536,335 ) (1)
Movements in issued and fully paid ordinary shares of the Company during the financial year:
Date
Details
Consolidated
2010
$mill
2009
$mill
3,265.9
3,265.9
3,217.8
3,217.8
Number of
Shares
$mill
30 September 2009 Balance at the end of the previous financial year
1,612,536,335
3,217.8
Shares issued during the period
18 December 2009 Shares issued (Dividend Reinvestment Plan)
18 December 2009 Shares issued (Underwriter issue)
17 March 2010
6 July 2010
Shares issued (Dividend Reinvestment Plan)
Shares issued (Dividend Reinvestment Plan)
4,878,436
7,475,676
42,531
3,797,129
14.5
22.5
0.1
11.0
30 September 2010 Balance at the end of the financial year
1,628,730,107
3,265.9
(1) Ordinary shares authorised and issued have no par value.
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 18 December 2009, 4,878,436 ordinary shares ($14.5m) were issued to Dividend Reinvestment Plan (DRP) participants
and 7,475,676 ($22.5m) to the underwriter to fund the 2009 final dividend payment.
On 17 March 2010, 42,531 ordinary shares ($0.1m) were issued to Dividend Reinvestment Plan (DRP) participants in respect
of the 2009 final dividend payment.
On 6 July 2010, 3,797,129 ordinary shares ($11.0m) were issued to Dividend Reinvestment Plan (DRP) participants for the 2010
interim dividend payment.
80
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
27. Dividends
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary Shares
Final dividend of 19.5 cents per share, fully franked at 30%, paid 14 November 2008
Interim dividend of 2.1 cents per share(1), fully franked at 30%, paid 7 July 2009
Final dividend of 2.3 cents per share(1), unfranked, paid 18 December 2009
Interim dividend of 1.8 cents per share(2), unfranked, paid 6 July 2010
Total ordinary share dividends
Company
2010
$mill
2009
$mill
-
-
37.1
29.3
66.4
237.4
33.6
-
-
271.0
Subsequent event
Since the end of the financial year, the directors have determined to pay the following dividend:
-
Final dividend of 6 cents per share, unfranked, to be paid on 17 December 2010. The total dividend payment will be $97.7m.
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 were paid under a Dividend Reinvestment Plan which was fully underwritten.
(2) The interim dividend was paid $18.3m in cash and $11.0m by a Dividend Reinvestment Plan.
Franking credits
Franking credits available to shareholders of the Group amount to $0.2m (2009: $15.1m negative) at the 30% (2009: 30%)
corporate tax rate. Accordingly, the final dividend for 2010 is unfranked. Franking credits that will arise from payment of
income tax in the year ending 30 September 2010 have been factored into the franking account balance.
Incitec Pivot Limited Annual Report 2010
81
Notes to the Financial Statements
For the year ended 30 September 2010
28. Business combination
Acquisition of Nitromak DNX Kimya Sanayii Anonim Sirketi
(a) Summary of acquisition
On 31 July 2010, the Group acquired the remaining 50.0% equity in the Turkish joint venture Nitromak DNX Kimya Sanayii
Anonim Sirketi (“Nitromak”) for $97.1m, excluding transaction costs. Nitromak manufactures and sells industrial explosives
and related products and services to the mining, quarrying and construction industries.
(b) Purchase consideration
Consideration paid, satisfied in cash
Less cash acquired
Total consideration transferred
Fair value of equity interest in Nitromak held before the business combination
Total consideration
Acquisition-related costs
(c) Assets and liabilities acquired
The assets and liabilities arising from the acquisition are as follows:
Consolidated
2010
$mill
99.3
(2.2)
97.1
74.8
171.9
0.7
Acquiree's net assets at the acquisition date
Cash and cash equivalents
Trade and other receivables
Inventories
Other investments
Property, plant and equipment
Intangibles
- Customer contracts
- Brand name
- Other
Trade payables
Other liabilities
Tax liabilities
Deferred tax liabilities
Provisions
Interest bearing liabilities
Net identifiable assets and liabilities
Less consideration
Goodwill on acquisition recognised
Nitromak Pre-
acquisition
Carrying
Amounts
$mill
Initial Fair
Value
Adjustments
Provisional
Fair Value
$mill
$mill
2.2
29.3
9.1
0.1
9.9
-
-
0.2
(12.8)
(4.0)
(1.5)
(0.1)
(1.5)
(12.4)
18.5
-
(1.0)
1.2
(0.1)
(1.7)
1.1
4.0
-
-
-
-
-
(0.1)
-
3.4
2.2
28.3
10.3
-
8.2
1.1
4.0
0.2
(12.8)
(4.0)
(1.5)
(0.1)
(1.6)
(12.4)
21.9
171.9
150.0
The Group recognised a net $19.0m gain ($33.4m gain net of $14.4m of foreign exchange loss) as a result of measuring at fair
value its 50% equity interest in Nitromak held before the business combination. The gain is included in other income in the
Group’s Income Statement (and as an individually material item in Note 6) for the year ending 30 September 2010.
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 Group’s existing business.
82
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
29. Reconciliation of profit after income tax to net cash inflow from operating activities
Reconciliation of cash
Cash at the end of the financial year as shown in the Statement of Cash Flows is reconciled to
the related items in the Statement of Financial Position as follows:
Cash and cash equivalents
Reconciliation of profit for the financial year to net cash flows
from operating activities
Profit / (loss) for the financial year
Depreciation and amortisation
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 goodwill
Non-cash share based payment transactions
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
Consolidated
Restated
2009
$mill
2010
$mill
Notes
(10)
48.7
48.7
125.2
125.2
(5)
(5)
(16)
(4)
(5)
412.2
139.0
0.7
(30.5)
(4.3)
-
3.9
13.8
(164.1)
69.1
126.7
(93.1)
(17.9)
25.5
47.9
528.9
(221.4)
170.5
80.4
(25.0)
(13.3)
490.6
3.8
9.1
209.8
293.1
10.6
(21.6)
6.3
(427.0)
(228.5)
337.4
Incitec Pivot Limited Annual Report 2010
83
Notes to the Financial Statements
For the year ended 30 September 2010
30. Commitments
a) Capital expenditure commitments
Capital expenditure on property, plant and equipment contracted but not provided for and payable:
no later than one year
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
Consolidated
2010
$mill
2009
$mill
331.2
0.6
331.8
89.2
23.1
112.3
-
331.8
2.4
114.7
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
50.4
96.5
56.7
203.6
54.6
111.0
56.5
222.1
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
Present value of minimum lease payments provided for as a liability
1.6
0.3
1.9
2.2
3.7
5.9
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
94.1
178.9
168.4
441.4
61.0
222.6
147.4
431.0
84
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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:1)
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 Statement of Financial Position and Income Statement for the closed group are shown in
Note 38, Deed of Cross Guarantee.
The Group 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 Group.
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 Group is not aware of any
material exposure under these warranties and indemnities.
From time to time, the Group is subject to claims for damages arising from products and services
supplied by the Group 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:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
Environmental
I General
The Group 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
(xvii)), 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 (xvii).
Taxation
Consistent with other companies of the size of Incitec Pivot, the Group is subject to periodic information requests,
investigations and audit activities by the Australian Taxation Office. Provisions for such matters will be recognised if a
present obligation in relation to a taxation liability exists which can be reliably estimated.
Incitec Pivot Limited Annual Report 2010
85
Notes to the Financial Statements
For the year ended 30 September 2010
32. Financial risk management
Overview
The Group has exposure to the following financial risks:
• Market risk (foreign exchange, interest rate, equity price and commodity risk)
• Liquidity risk
• Credit risk
This note presents information about the Group’s exposure to each of the above risks, as well as the Group’s objectives,
policies and processes for measuring and managing these risks.
The Board of Directors has overall responsibility for the establishment and oversight of the Group’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 Group’s risk management plans. The BARMC reports regularly to the
Board of Directors on its activities.
The Group’s financial risk management policies establish a framework for identifying, analysing and managing the
financial risks faced by the Group. 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 Group’s activities.
The BARMC oversees how management monitors compliance with the Group’s risk management policies and
procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The
BARMC is assisted in its oversight role by the Group’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 Group’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 Group 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 Group chooses not to hedge using derivatives.
Further details of the Group’s financial risk management structures are outlined below, including information as to
whether hedge accounting has been applied.
i. Foreign exchange risk - transactional
The Group 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 by Treasury,
and hedging specific transactions, after taking into account offsetting exposures, by entering into derivative contracts with
highly rated financial institutions. The Group’s principal transactional foreign exchange risks can be split into two main
categories: short term contractual exposures and longer term forecast exposures.
86
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
32. Financial risk management (continued)
(a) Market risk (continued)
i. Foreign exchange risk – transactional (continued)
Short term contractual exposures: As the Group 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 foreign exchange swaps. Where there is a net excess or shortfall of
foreign currency, forward foreign exchange contracts are taken out to hedge those exposures. The Group applies hedge
accounting for these derivatives. The table below shows the outstanding forward foreign exchange contracts as at
30 September 2010:
Term
Weighted average strike rate
AUD mill AUD mill
Forward FX contract
Buy USD / Sell AUD
Buy AUD / Sell USD
Buy EUR / Sell AUD
Buy GBP / Sell AUD
2010
0.9020
0.9576
0.6822
0.5988
2009
2010
0.7093
94.9
2009
186.1
-
1.9
-
-
1.6
-
-
0.2
-
Longer term forecast exposures: The profitability of Southern Cross International and Incitec Pivot Fertilisers, 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, urea and ammonia) 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 both domestic and
international 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 Group has entered into a series of Foreign Exchange Contracts (“FEC”) to Sell USD / Buy AUD, to protect a portion
of next year’s forecast exposure. The market value of these FEC’s are recorded in the Statement of Financial Position at
year end. Any movement in the market value from contract price to year end price is recorded in the Cashflow Hedge
Reserve in the Statement of Financial Position. Favourable outcomes on the hedge will occur when the AUD
appreciates. As FEC contracts do not offer participation when the AUD depreciates, options and collars contracts are
entered into occasionally to allow some participation.
The table below summarises the FEC and foreign currency option contracts taken out to hedge sales of the output of
Southern Cross International and Incitec Pivot Fertilisers:
Term
Buy AUD / Sell USD
Buy USD / Sell CAD
Buy EUR / Sell AUD
Average rate options not
later than one year
2010
0.8719
1.0367
0.7100
-
USD/AUD
exercise price
Weighted average
AUD/USD strike
rate
2009
2010
2009
-
-
-
-
-
-
-
-
-
-
-
Contract
amounts
AUD mill
2009
-
-
-
2010
462.2
50.0
0.4
0.8400
-
238.1
From time to time, the Group may look to reduce premium costs by transacting collars or selling floors against existing
bought positions. Board approved policies prevent the Group from selling naked options. No collars or sold floor positions
existed at year end.
Incitec Pivot Limited Annual Report 2010
87
Notes to the Financial Statements
For the year ended 30 September 2010
32. Financial risk management (continued)
(a) Market risk (continued)
i. Foreign exchange risk – transactional (continued)
The following sensitivity is based on the transactional foreign currency risk exposures in existence at the reporting date
and is calculated based on name plate capacity, average acheived Fertiliser selling prices and exchange rates in 2010.
Foreign Exchange Sensitivity – Transactional
USD Fertilser sales from Australian plants
ii. Foreign exchange risk – translational
USD + 1c
AUD mill
USD - 1c
AUD mill
2010
(7.2)
2010
7.4
The Group has foreign operations with non-AUD functional currencies and is therefore exposed to translation risk
resulting from foreign exchange movements which impact on the AUD equivalent value of the foreign operations.
The Group 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 or monthly rate resets. The 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 Group’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
2010
2009
not later than one year
later than one year, no later than five
years
AUD 488.3 / USD 432.0
AUD 484.2 / USD 412.4
AUD 407.7 / USD 375.0
AUD 1,279.8 / USD 999.5
The following sensitivity is based on the translational foreign currency risk exposures in existence at the reporting date
and is calculated based on 2010 USD denominated earnings before interest and tax at the average 2010 translation
exchange rate.
Foreign Exchange Sensitivity – Translational
North American earnings before interest and tax
iii. Interest rate risk
USD + 1c
AUD mill
USD - 1c
AUD mill
2010
(1.8)
2010
1.8
The Group 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 Group’s interest rate risk arises from long term borrowings in Australian and United States dollars. Out of the
AUD1,145.8m of Interest Bearing Liabilities at the reporting date, AUD84.2m had a floating interest rate.
Term
Contract amounts
Fixed Rate
0-5 years
5-7 years
7-15 years
2010
-
-
-
2009
-
USD100.0m
USD400.0m
2010
-
-
-
2009
-
3.29%
3.74%
In the year ended 30 September 2009, in anticipation of the US$800.0m 10 year fixed rate bond raising in December
2009, the Group entered into a series of forward starting Treasury Locks to protect itself against the risk that base USD
interest rates might increase. These instruments were subsequently closed out on completion of the bond issuance.
88
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
32. Financial risk management (continued)
(a) Market risk (continued)
iii. Interest rate risk (continued)
The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date and is
calculated based on the variable interest rate borrowings balance at 30 September 2010 and the average variable
interest rate during the 2010 year.
Interest Rate Sensitivity
Current and non-current borrowings with variable interest rates
+ 1%
AUD mill
- 1%
AUD mill
2010
(0.5)
2010
0.5
iv. Commodity risk
The Group is exposed to changes in commodity prices by virtue of its operations. Where possible, the Group 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 Group’s ammonia and nitrogen based manufacturing. In
order to manage the price risk associated with natural gas in Australia, the Group has entered into long term fixed price
contracts for the supply of gas. In the United States, the Group 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.
For longer term contracts that do not include a gas price pass through clause, the Group will typically manage its gas
price risk by entering into a fixed price derivative that matches the term of the customer contract (see the table below for
a list of contracts outstanding as at 30 September 2010). On occasion the Group has used fixed price derivatives during
the year for managing its short term gas price risk for periods shorter than one year.
The table below summarises the fixed price derivatives outstanding as at 30 September 2010:
Contract
Contract
Contract
Contract
Contract
Contract
Contract
Months
hedged
10
15
3
12
3
3
26
Monthly
volume (mmbtu)
100,000
45,000
20,000
20,000
10,000
10,000
5,000
Fixed
rate USD
7.78
6.12
5.12
4.29
5.98
5.41
5.40
The Group 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 Group 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.
Incitec Pivot Limited Annual Report 2010
89
Notes to the Financial Statements
For the year ended 30 September 2010
32. Financial risk management (continued)
(a) Market risk (continued)
iv. Commodity risk (continued)
The market for ammonium phosphates and urea is generally based on spot prices with minimal ability to contract for
longer terms. For these commodities, no deep and liquid derivative market is available. The following table details the
Group’s profit sensitivity to price movements for these commodities, based on plant name plate capacity.
Fertiliser Price Sensitivity
Middle East Granular Urea (MEGU) FOB/t
Diammonium Phosphate (DAP) Tampa FOB/t
+ USD10
AUD mill
- USD10
AUD mill
Name plate
Tonnes
2010
4.8
11.5
2010
(4.8)
(11.5)
405,000
970,000
v. Equity price risk
Refer to Note 14.
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure that there are sufficient committed funding facilities available to meet the
Group’s financial commitments in a timely manner. The Group’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, production volumes, exchange rates and capital expenditure.
Typically, the Group holds a minimum liquidity buffer of at least AUD500.0m in undrawn committed funding 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. The Group maintains the following committed lines of credit:
(cid:1)
An unsecured Syndicated facility agreement of AUD1,080.0m for 3 years, maturing October 2011. This is
a multi-currency 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 Group’s discretion.
A USD800.0m 10 year bond completed in the US 144A / Regulation S debt capital market. The bond is
denominated in USD, has a fixed rate semi-annual coupon of 6.00% and matures in December 2019.
A participation facility of AUD199.7m (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.
A second participation facility of AUD55.3m (amortising) maturing in September 2014, 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 9.63% for the term of the
facility.
Secured Inventory Finance Facility of USD60.0m drawable in AUD and USD for 1 year. Interest is
payable at a base rate plus a margin.
(cid:1)
(cid:1)
(cid:1)
(cid:1)
At year end, the Group has committed undrawn lines of AUD1,076.9m and cash of AUD48.7m.
90
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
32. Financial risk management (continued)
(b) Liquidity risk (continued)
Capital risk management
The key objectives of the Group when managing capital are to safeguard its 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 Group over the long term.
The key objectives include:
(cid:1) Maintaining an investment grade credit profile and the requisite financial metrics;
(cid:1)
Securing access to diversified sources of debt funding with a spread of maturity dates and sufficient
undrawn committed facility capacity; and
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 Group while maintaining financial flexibility.
(cid:1)
In order to optimise the capital structure, management may alter the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares, vary discretionary capital expenditure, draw down additional debt or sell
assets to reduce debt in line with the strategic objectives and operating plans of the Group.
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:1)
Gearing ratio, Gross debt to Earning Before Interest, Tax, Depreciation and Amortisation (EBITDA) and
interest cover.
Debt covenants relating to the Syndicated facility (AUD1,080.0m) have been measured and are within the debt covenant
targets for the year ended 30 September 2010.
(c) Credit risk
Credit risk is the risk of financial loss to the Group 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 Statement of Financial Position net of any impairment losses, and from derivative financial instruments.
Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer.
The demographics of the Group’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 usually
negated by way of entering into irrevocable letters of credit with financial institutions or by asking customers to pay
in advance.
The Group has a credit policy under which each new customer is analysed individually for creditworthiness before the
Group 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 Group’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 Group will be exposed to at any
one time.
The Group 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
usually 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 fair value. As at
30 September 2010, the sum of all contracts with a positive fair value was AUD110.1m (2009: AUD144.4m).
Incitec Pivot Limited Annual Report 2010
91
Notes to the Financial Statements
For the year ended 30 September 2010
33. Financial instruments
(a) Foreign exchange risk
The Group’s exposure to foreign exchange risk at balance date was:
Consolidated
Trade receivables
Trade payables
Gross Statement of Financial Position
exposure
Forward exchange contracts
Net exposure
2010
USD
mill
2009
USD
mill
6.9
76.9
5.0
113.1
70.0
108.1
76.9
131.9
(6.9)
(23.8)
The following significant exchange rates applied during the year:
Average
rate
2010
Balance
date spot
rate
2010
Average
rate
2009
Balance
date spot
rate
2009
USD
0.9009
0.9689
0.7321
0.8744
(b)
Interest rate risk
At the reporting date the interest rate profile of the Group’s interest bearing financial instruments were:
Variable rate instruments
- Financial liabilities
Fixed rate instruments
- Financial liabilities
Consolidated
2010
$mill
2009
$mill
84.2
1,348.5
1,061.6
240.1
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 AUD0.8m assuming all the variables were held constant in particular foreign exchange rates.
(c) Credit risk
The maximum exposure to credit risk at the reporting date was:
Trade receivables
Other receivables
Cash and cash equivalents
Forward exchange contracts
Cross currency swaps
Option contracts
92
Incitec Pivot Limited Annual Report 2010
Consolidated
2010
$mill
2009
$mill
438.6
20.5
48.7
20.1
90.0
-
617.9
275.3
79.8
125.2
-
147.6
12.6
640.5
Notes to the Financial Statements
For the year ended 30 September 2010
33. Financial instruments (continued)
(c) Credit risk (continued)
The maximum exposure to credit risk for trade receivables at the reporting date by country was:
Australia
India
Europe
USA
Canada
Asia
Turkey
Other
Consolidated
2010
$mill
147.3
91.0
8.9
69.0
65.3
22.3
28.5
6.3
438.6
2009
$mill
127.4
-
0.9
73.9
55.8
13.0
-
4.3
275.3
The maximum exposure to credit risk for trade receivables at the reporting date by type of customers was:
Wholesale customer
End user customer
Consolidated
2010
$mill
221.0
217.6
438.6
2009
$mill
66.2
209.1
275.3
As at the end of September 2010 and September 2009, the Group had no individual debtor’s balance outstanding in
excess of 10% of the total of the trade receivable balance.
Impairment losses
The ageing of trade receivables at the reporting date was:
Consolidated
Current
Past due 0 - 30 days
Past due 31 - 120 days
Total
Gross
2010
$mill
Impairment
Gross
2009
2010
$mill
$mill
Impairment
2009
$mill
392.4
27.0
24.8
444.2
-
-
5.6
5.6
212.4
30.2
39.5
282.1
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Balance at 1 October
Net impairment losses recognised / (released)
Write-offs recognised during the year
Foreign exchange movements
Balance at 30 September
(11)
Notes
Consolidated
2010
$mill
6.8
0.4
(1.7)
0.1
5.6
Based on past experience, the Group 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 Group 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 Annual Report 2010
93
-
-
6.8
6.8
2009
$mill
13.3
(0.4)
(6.0)
(0.1)
6.8
Notes to the Financial Statements
For the year ended 30 September 2010
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 2010
Non-derivative financial liabilities
Interest bearing liabilities
Interest payments
Derivative financial liabilities
Forward commodity contracts
Total
30 September 2009
Non-derivative financial liabilities
Interest bearing liabilities
Derivative financial liabilities
Interest rate contracts
Total
Carrying Contractual
cash flows (1)
amount
$mill
$mill
6 months
6 - 12
1 - 2
2 - 5
or less (1) months (1)
years (1)
years (1)
more than
5 years (1)
$mill
$mill
$mill
$mill
$mill
1,145.8
-
1,145.8
538.0
73.3
51.0
1.7
1,147.5
1.7
1,685.5
0.8
125.1
36.1
42.7
0.6
79.4
115.8
82.7
115.9
170.0
804.7
191.6
0.3
198.8
-
285.9
-
996.3
1,588.6
1,588.6
90.2
342.0
1,023.8
132.6
12.9
1,601.5
12.9
1,601.5
12.9
103.1
-
342.0
-
1,023.8
-
132.6
-
-
-
(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.
(e) Liquidity risk – cash flow hedges
Cash flow hedges are mainly used to mitigate the Group’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 2010
Cross currency swaps, forward
exchange and commodity
contracts
- Assets
- Liabilities
Total
30 September 2009
Option, interest contracts and
cross currency swaps
- 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
110.1
1.7
108.4
160.2
12.9
147.3
110.1
1.7
108.4
36.0
0.8
35.2
45.4
0.6
44.8
21.0
0.3
20.7
7.7
-
7.7
160.2
12.9
147.3
(5.9)
12.9
(18.8)
30.2
-
30.2
105.1
-
105.1
30.8
-
30.8
more
than 5
years
$mill
-
-
-
-
-
-
94
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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
Trade and other receivables
Cash and cash equivalents
Cross currency swaps
Option and commodity contracts
Forward exchange contracts
Trade and other payables
Financial liabilities
Interest rate contracts
Total
Basis for determining fair value
Carrying
amount
2010
$mill
30.2
459.1
48.7
90.0
(1.7)
20.1
(1,075.4)
(1,145.8)
-
(1,574.8)
Fair value
2010
$mill
30.2
459.1
48.7
90.0
(1.7)
20.1
(1,075.4)
(1,173.6)
-
(1,602.6)
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)
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)
The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments reflected in the table above.
Investments in equity securities
i.
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 commodity contracts is based on their listed market price as quoted on the NYMEX if available and if
a listed market price is not available, then fair value is estimated by discounting the difference between the
contractual price and current market price.
The fair value of interest rate contracts is calculated as the present value of the estimated future cashflows.
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.
Fair Value Hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The different levels have been
defined as follows:
-
-
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 September 2010
Listed equity securities
Derivative financial assets
Derivative financial liabilities
Level 1
$mill
30.2
-
30.2
-
-
Level 2
$mill
-
110.1
110.1
1.7
1.7
Level 3
$mill
-
-
-
-
-
95
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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
Management fees / royalties
Interest income
Interest expense
Dividend income
Jointly controlled entities (1)
Notes
(4)
(5)
(16)
2010
$mill
219.0
(4.9)
23.8
2.5
(0.3)
17.1
2009
$mill
242.6
(30.7)
22.9
1.6
(0.5)
5.2
(1) Jointly controlled entities transactions represent amounts which do not eliminate 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
Jointly controlled entities
Notes
(20)
(11)
2010
$mill
1.6
25.1
2009
$mill
0.2
19.4
96
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
35. Key management personnel disclosures
(a) Key management personnel
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
Consolidated
2010
$000
2009
$000
14,461
304
244
1,003
1,586
17,598
8,875
284
635
168
2,093
12,055
Determination of key management personnel and detailed remuneration disclosures are provided in the
Remuneration Report.
(b) Loans to key management personnel
In the year ended 30 September 2010, there were no loans to key management personnel and their related parties.
In the year ended 30 September 2009 an unsecured bridge loan to Mr D Brinker amounting to USD257,600 was issued.
The interest free bridge loan was required to be repaid in full 347 days after the issue date and was repaid in full during
the year ended 30 September 2009. Interest not charged on the loan amounted to USD8,800 and the highest balance in
the period was USD257,600. There were no other loans to key management personnel and their related parties in the
year ended 30 September 2009.
(c) Other key management personnel transactions
The following transactions, entered into during the year and prior year with key management personnel, were on terms
and conditions no more favourable than those available to other customers, suppliers and employees:
(1) The spouse of Mr Fazzino, the Managing Director & Chief Executive Officer, is a partner in the accountancy and tax
firm PricewaterhouseCoopers from which the Group purchased services of $3,338,954 during the year (2009:
$5,725,573). Mr Fazzino’s spouse does not directly provide these services.
(2) During the year ended 30 September 2010, Mr McCallum purchased fertiliser to the value of $nil, (2009: $7,992) from
the Company. The balance owing at 30 September 2010 was $nil (2009: $nil).
Incitec Pivot Limited Annual Report 2010
97
Notes to the Financial Statements
For the year ended 30 September 2010
35. Key management personnel disclosures (continued)
(d) Movements in shareholdings of directors and executives
(1) Movements in shares in the Company
The movement during the reporting period in the numbers of shares in the Company held directly, indirectly or
beneficially, by each key management person, including their related parties, is set out in the table below:
Non-executive directors - Current
J C Watson
A D McCallum
J Marlay
A C Larkin
G Smorgon
P V Brasher (1)
Non-executive directors - Former
B Healey
Executive directors - Current
J E Fazzino
Executives - Former
J Segal
Executives - Current
F Micallef (1)
K J Gleeson
B C Walsh
A Grace
J Whiteside
G Brinkworth
S Dawson (1)
B Wallace (1)
J Rintel
S Atkinson (1)
Executives - Former
K Lynch (2)
D Brinker
P Barber
Number of Shares (A)
Opening
balance
Shares
acquired
Shares
disposed (B)
Closing
balance (C)
- - 100,000
- 100,000
- - 216,501
(25,000) 216,501
- 37,926
- 37,693
- - 5,000
- 5,000
100,000
74,000 26,000
216,501
156,360 85,141
37,693 233
20,000 17,693
5,000
- 5,000
-
-
-
- - -
- - -
- - -
Year
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
20,000 20,000
(40,000)
-
2010
2009
1,845,420
1,845,420
- - 1,845,420
- - 1,845,420
2009
2,134,120 104,000
(2,238,120)
-
2010
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2010
2010
2009
2010
2010
2009
2010
2009
2009
22,520
387,600 373
671,620
429,380
797,100
428,420
528,420
300,920
524,860
- 292
-
23,429 428
57,480
117,120
117,120
22,880
- - 22,520
(298,660)
89,313
-
(284,020) 387,600
- - 429,380
(367,720) 429,380
-
(100,000) 328,420
-
-
(100,000) 428,420
- - 300,920
(223,940) 300,920
-
- 292
- - -
- 23,857
- - 57,480
- - 117,120
- - 117,120
- - 22,880
(53,240)
53,240
53,240
66,680
66,680
120,080 15,544
-
- - 53,240
-
- - 66,680
(135,624)
-
-
-
(66,680)
(A)
(B)
(C)
(1)
(2)
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 C of the Remuneration Report and the
movements disclosed in this Note. Details of the ESOP are set out in Note 36, Share based payments.
In the case of directors or executives who ceased their directorship or employment during the years ended 30 September 2010
and 30 September 2009, all shares were treated as disposed as at the relevant date of cessation unless otherwise stated.
Shares held at 30 September 2010 includes shares, treated as options, granted under the LTI performance plan 2007/10 that
are treated as forfeited due to the performance criteria not being achieved. Under the plan rules, the participant remains the
registered holder of the underlying shares until the loan is repaid. Refer to section C of the Remuneration Report for further details.
The opening balance represents shares held as at the date of becoming a key management person. Movements are from
this date.
On 16 October 2009, Mr Lynch ceased employment with the Company. In respect of the 53,240 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 Lynch ceasing employment.
98
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
35. Key management personnel disclosures (continued)
(d) Movements in shareholdings of directors and executives (continued)
(2) Movements in shares, treated as options, over equity instruments in the Company
The movement during the reporting period in the number of shares, treated as options, over 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:
Executive directors - Current
J E Fazzino
Executive directors - Former
J Segal
Executives - Current
F Micallef (1)
K J Gleeson
B C Walsh
A Grace
J D Whiteside
G Brinkworth (2)
S Dawson (3)
B Wallace (4)
J Rintel (5)
S Atkinson (6)
Executives - Former
K Lynch (7)
D Brinker (8)
P Barber
Number of Shares (treated as options) (A)
Opening
balance
Granted as
compensation
Exercised
(B)
Forfeited (C)
Closing balance
(D)
610,120
1,059,820
-
-
(472,880)
(449,700)
- 137,240
- 610,120
Year
2010
2009
2009
2,133,160
-
(651,940)
(361,200)
1,120,020
2010
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2010
2010
2009
2010
2010
2009
2010
2009
2009
22,520
385,340
669,360
428,160
743,720
284,780
491,480
299,720
520,620
-
-
-
33,280
67,420
117,120
19,500
(298,660)
(284,020)
(331,840)
(315,560)
(217,360)
(206,700)
(232,300)
(220,900)
- -
-
-
-
-
-
-
-
-
- -
- -
- -
- -
-
-
- -
(52,260)
(49,700)
- 22,520
- 86,680
- 385,340
- 96,320
- 428,160
- 67,420
- 284,780
- 67,420
- 299,720
- -
- -
- -
- 33,280
- 15,160
- 67,420
- 19,500
53,240
53,240
66,680
66,680
84,280
- -
- -
- -
- -
- -
(53,240)
-
- 53,240
- 66,680
- 66,680
(84,280)
-
(A) Further details of these shares which are treated as options for the purposes of remuneration have been disclosed in section C of
the Remuneration Report and relate to shares allocated under the LTI plans.
(B) Represents where shares, treated as options, previously granted as remuneration, were exercised (by the making of an award)
during the reporting period. Awards (in the form of waivers of loans) were granted during the year ended 30 September 2010 in
relation to the LTI performance plan 2006/09.
(C) Represents shares, treated as options, that were forfeited and sold on market, in accordance with the rules of the relevant plan, on
the participant ceasing employment.
(D) Shares held at 30 September 2010 represents shares, treated as options, granted under the LTI performance plan 2007/10 that are
treated as forfeited due to the performance criteria not being achieved. Under the plan rules, the participant remains the registered
holder of the underlying shares until the loan is repaid. Refer to section C of the Remuneration Report for further details.
Incitec Pivot Limited Annual Report 2010
99
Notes to the Financial Statements
For the year ended 30 September 2010
35. Key management personnel disclosures (continued)
(d) Movements in shareholdings of directors and executives (continued)
(2) Movements in shares, treated as options, over equity instruments in the Company (continued)
(1) Mr Micallef’s shares, treated as options, were granted under the LTI performance plan 2007/10 prior to his appointment as
Chief Financial Officer on 23 October 2009. He is not a participant in the LTI performance plan 2006/09.
(2) 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.
(3) Mr Dawson became a key management person on 12 November 2009 and he is not a participant in either the LTI
performance plan 2006/09 or the LTI performance plan 2007/10.
(4) Mr Wallace’s shares, treated as options, were granted under the LTI performance plan 2007/10 prior to him becoming a
key management person on 12 November 2009. He is not a participant in the the LTI performance plan 2006/09.
(5) Mr Rintel’s shares, treated as options, exercised during the financial year were granted under the LTI performance plan
2006/09 and the 15,160 shares, treated as options, were granted under the LTI performance plan 2007/10 prior to his
appointment as an executive.
(6) Mr Atkinson’s shares, treated as options, were granted under the LTI performance plan 2007/10 prior to him becoming a
key management person on 1 January 2010.
(7) On 16 October 2009, Mr Lynch ceased employment with the Company. In respect of the 53,240 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 Lynch ceasing employment. Mr Lynch was not a participant in the LTI performance plan 2006/09.
(8) On 30 November 2009, Mr Brinker ceased employment with the Group. In respect of the 66,680 shares, treated as
options, granted under the LTI performance plan 2007/10, Mr Brinker continued to hold these shares subject to the
existing holding lock over these shares in accordance with his employment arrangements. Mr Brinker was not a
participant in the LTI performance plan 2006/09.
100
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
35. Key management personnel disclosures (continued)
(d) Movements in shareholdings of directors and executives (continued)
(3) Movements in rights over equity instruments in the Company
The movement during the reporting period in the number of rights over shares in the Company, held directly, indirectly or
beneficially, by each key management person, including their related parties, is as follows:
Executive directors
- Current
J E Fazzino
- Former
J Segal
Executives
- Current
F Micallef (1)
K J Gleeson
B C Walsh
A Grace
J D Whiteside
G Brinkworth
S Dawson (1)
B Wallace (1)
J Rintel
S Atkinson (1)
- Former
K Lynch (2)
D Brinker (3)
P Barber
Number of Rights (A)
Year
Opening
balance
Granted as
compensation
(B)
Exercised Forfeited (C)
Closing balance
2010
2009
222,482 600,000
- 222,482
-
-
- 822,482
- 222,482
2009
- 597,190
-
(597,190)
-
2010
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2010
2010
2009
2010
2010
2009
2010
2009
2009
46,838 220,000
128,806 198,000
- 128,806
140,515 216,000
- 140,515
105,386 162,000
- 105,386
105,386 162,000
- 105,386
98,361 140,000
- 98,361
55,738 79,333
100,984 180,494
81,967 140,000
- 81,967
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- -
116,171
128,806
207,738
- 128,806
- -
-
- -
-
- -
- 207,738
-
- 266,838
- 326,806
- 128,806
- 356,515
- 140,515
- 267,386
- 105,386
- 267,386
- 105,386
- 238,361
- 98,361
- 135,071
- 281,478
- 221,967
- 81,967
- 116,171
(128,806)
-
(126,951)
- 128,806
80,787
- 207,738
- -
(A) Further details of these rights have been disclosed in section C of the Remuneration Report and relate to rights allocated under the
LTI plans.
(B) Represents rights which were acquired during the year by executive directors and executives while they are directors or executives
of the Group pursuant to the LTI plans, details of which are set out in section C of the Remuneration Report.
(C) Represents rights that were forfeited. Refer to section C 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, were forfeited as at the relevant date of
cessation, in accordance with the plan rules, unless otherwise stated.
(1) Opening balance represents rights held under the LTI performance rights plan 2008/11 as at the date of appointment as a key
management person. In respect of Mr Wallace this represents entitlements granted under the LTI performance cash plan 2008/11.
In respect of Mr Atkinson this also includes rights granted under the LTI performance rights plan 2009/12.
(2) On 16 October 2009, Mr Lynch ceased employment with the Company. In respect of the 128,806 rights, granted under the LTI
performance rights plan 2008/11, these were forfeited in accordance with the rules of the plan. Mr Lynch was not a participant in
the LTI performance rights plan 2009/12.
(3) On 30 November 2009, Mr Brinker ceased employment with the Group. In respect of the 207,738 entitlements, granted under the
LTI performance cash plan 2008/11, a portion of Mr Brinker’s entitlements were forfeited in accordance with Mr Brinker’s
employment arrangements. Mr Brinker was not a participant in either the LTI performance rights plan 2008/11 or the LTI
performance rights plan 2009/12.
Incitec Pivot Limited Annual Report 2010
101
Notes to the Financial Statements
For the year ended 30 September 2010
36. Share based payments
(a) Long Term Incentive Plans (LTIs)
The LTIs are designed to link 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 executives and senior employees.
Long Term Incentive Performance Rights Plans
During the year, the Company established a LTI performance rights plan under the Long Term Incentive Performance
Rights Plan rules, being the LTI performance rights plan 2009/12. The performance period for this plan is from 1 October
2009 to 30 September 2012.
The LTI performance rights plan 2009/12 has the same features as the LTI performance rights plan 2008/11, as follows:
• 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 conditions. As no share is issued until exercise,
performance rights have no dividend entitlement.
• Allocation: The decision to grant performance rights and to whom they will be granted 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.
• Conditions: The performance rights only vest if certain conditions are met, which are approved by the Board. The
conditions focus on performance of Incitec Pivot and include a condition relating to duration of employment. The
performance condition is based on Incitec Pivot’s Absolute Total Shareholder Return (Absolute 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. In setting the performance criteria at
20%, the Board considered it had established an aggressive target to promote behaviour to achieve superior
performance. If, at the end of the relevant performance period Incitec Pivot’s Absolute TSR:
-
-
-
is equal to or less than 10% per annum compounded over the performance period, none of the performance
rights vest;
is greater than 10% and less than 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
is 20% or more 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 participant ceases to be employed by
the Group.
•
Lapse: Performance rights will 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 Group during the performance period.
Performance rights will also lapse (and not be able to be exercised and converted into shares) if they are not exercised
within five years from their grant date.
Long Term Incentive Performance Cash Plans
Certain employees and executives based in some jurisdictions, participate in long term incentive performance cash plans
which are operated by the Group, through its offshore entities. The LTI performance cash plan 2009/12 and LTI
performance cash plan 2008/11 are designed to deliver a similar benefit to executives and employees on achievement of
sustained performance over the relevant three year performance period, and with similar conditions as the Long Term
Incentive Performance Rights Plans.
102
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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 and the LTI performance plan 2006/09 have the following features:
(cid:1)
Loan backed plan: 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 6.65%) for the sole purpose of acquiring shares in Incitec Pivot Limited.
(cid:1)
(cid:1)
Shares acquired on market and held under restriction: The loans are applied to acquire shares on
market which avoids dilution of other shareholdings. ASX 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. 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 Absolute TSR. For the
performance criteria to be satisfied in full, Absolute TSR must be at least 20% per annum compounded over the three year
period. If at the end of the performance period, Absolute TSR is less than 10% per annum compounded over the three
year period, no awards in the form of loan forgiveness are granted.
Under both plans, any LTI award received will be used firstly to pay the interest on the loans. Of the remainder of any LTI
award, part will be provided as a loan waiver amount after the Company’s FBT liability has been paid. A participant will not
be eligible to receive any LTI award if the relevant TSR target is not met.
Incitec Pivot Limited Annual Report 2010
103
Notes to the Financial Statements
For the year ended 30 September 2010
36. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
Consolidated - 2010
Grant date
Expiry date
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
Vested and
exerciseable at
the end of the
year
Number
Number
Number
Number
Number
Number
Shares treated as options
Exercise price
LTI 2006/09
LTI 2007/10
01 Dec 06
30 Sep 09
12 Nov 07
30 Sep 10
Total - Shares treated as options
Weighted average exercise price
$1.21
$4.41
4,176,600
1,304,000
5,480,600
-
-
-
(4,176,600)
-
-
(1,304,000)
(4,176,600)
(1,304,000)
-
-
-
-
-
-
$1.97
$0.00
$1.21
$4.41
$0.00
$0.00
Performance Rights
LTI Rights - 2008/11
LTI Cash - 2008/11
LTI Rights - 2009/12
LTI Cash - 2009/12
Total - Performance rights
Weighted average fair value
Consolidated - 2009
Shares treated as options
Retention award - Mr Segal
LTI 2006/08
LTI 2006/09
LTI 2007/10
Total - Shares treated as options
Weighted average exercise price
Fair Value (1)
19 Dec 08
19 Dec 08
16 Dec 09
16 Dec 09
30 Sep 11
30 Sep 11
30 Sep 12
30 Sep 12
$0.30
$0.13
$1.60
$1.60
2,389,353
1,148,260
-
-
-
-
5,388,742
312,039
3,537,613
5,700,781
-
-
-
-
-
$0.24
$1.60
$0.00
(264,091)
(214,825)
(73,638)
-
(552,554)
$0.41
2,125,262
933,435
5,315,104
312,039
8,685,840
-
-
-
-
-
$1.12
$0.00
Grant date
Expiry date
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
Vested and
exerciseable at
the end of the
year
Number
Number
Number
Number
Number
Number
05 Jul 06
10 May 09
17 Nov 06
30 Sep 08
01 Dec 06
12 Nov 07
30 Sep 09
30 Sep 10
Exercise price
$0
$1.27
$1.21
$4.41
651,940
2,697,640
4,209,900
1,796,560
9,356,040
-
-
-
-
-
(651,940)
(2,697,640)
-
-
(3,349,580)
-
-
(33,300)
(492,560)
(525,860)
$4.21
(655,058)
(153,873)
(808,931)
$0.27
-
-
4,176,600
1,304,000
5,480,600
-
-
4,176,600
-
4,176,600
$1.97
$1.21
2,389,353
1,148,260
3,537,613
-
-
-
$0.24
$0.00
$1.76
$0.00
$1.02
-
-
-
3,044,411
1,302,133
4,346,544
-
-
-
$0.00
$0.25
$0.00
Performance Rights
LTI Rights - 2008/11
19 Dec 08
30 Sep 11
Fair Value (1)
$0.30
LTI Cash - 2008/11
19 Dec 08
30 Sep 11
$0.13
Total - Performance rights
Weighted average fair value
(1) Performance rights have a $nil exercise price.
104
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
36. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
The weighted average remaining contractual life of shares treated as options and rights outstanding at the end of the
period was 1.65 years (2009 – 1.73 years).
Fair value of performance rights granted
LTI performance rights plan – 2009/12
In respect of the LTI performance rights plan 2009/12, the assessed fair value at grant date of the rights granted during the
year ended 30 September 2010 was $1.60 per right. 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, 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.
The model inputs for these performance rights granted during the year ended 30 September 2010 included:
Performance rights were granted at $nil per right, have a three year life, and vest after Absolute TSR
targets are met for the period 1 October 2009 to 30 September 2012.
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 16 December 2009)
Share price which TSR targets are measured from
16 Dec 2009
$3.31
$nil
40% pa
30 Sept 2012
2.5% pa
4.54% pa
$3.00
Fair value at grant date
LTI performance cash plan – 2009/12
LTI performance rights plan 2009/12
$1.60
In respect of the LTI performance cash plan 2009/12 granted during the year ended 30 September 2010, the plan is
designed to deliver a similar benefit to employees, and with similar conditions as the LTI performance rights plan 2009/12
outlined above, the exception being that the entitlements, treated as options, are to be settled in cash.
Incitec Pivot Limited Annual Report 2010
105
Notes to the Financial Statements
For the year ended 30 September 2010
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 generally made annually to eligible employees on the following basis:
(cid:1)
(cid:1)
(cid:1)
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:1)
(cid:1)
Grant date
Date shares become
unrestricted
2-Jul-07
11-Jul-08
6-Nov-09
9-Sep-10
2-Jul-10
11-Jul-11
6-Nov-12
9-Sep-13
Number of participants as at
Number of restricted shares held as at
30-Sep-10
-
30-Sep-09
312
458
413
497
492
-
-
30-Sep-10
-
45,800
150,218
143,153
30-Sep-09
81,120
49,200
-
-
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:
Shares, treated as options, and rights issued under the LTI
performance plans
Consolidated
2010
$’000
2009
$’000
3,921
2,359
Total carrying amount of liabilities for cash settled arrangements
296
130
106
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
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
Quantum Fertilisers 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
3
3
3
3
3
3
Incitec Pivot Finance Australia Pty Ltd
3
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.
3) Refer to footnote description on next page.
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%
65%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Incitec Pivot Limited Annual Report 2010
107
Notes to the Financial Statements
For the year ended 30 September 2010
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.
Incitec Pivot Finance Canada 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
Nitromak DNX Kimya Sanayii AS
SC Romnitro Explosives Srl.
DNX Nitro Industrial Kimike Sh.p.k
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%
100%
84%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2
1
1
1
1
1
1
USA
USA
USA
USA
USA
USA
USA
USA
Chile
Mexico
Mexico
Peru
Mexico
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Australia
Australia
Australia
Australia
Australia
Mongolia
PNG
Australia
Australia
Australia
Australia
Australia
Indonesia
Turkey
Romania
Albania
In the process of being liquidated.
1)
2) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49% of the shares in Denesoline
Western Explosives Inc. However, under the joint venture agreement, the Group is entitled to 95% of the assets and profit of Denesoline
Western Explosives Inc.
3) Party to deed of cross guarantee dated 30 September 2008.
108
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
38. Deed of cross guarantee
Closed Group
2010
2009
$mill
$mill
Statement 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
Provisions
Other financial liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Retirement benefit obligation
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Income Statement
Profit / (loss) before income tax
Income tax benefit / (expense)
Profit for the financial year
Retained profits at the beginning of the financial year
Movements in retained earnings
Dividend paid
Retained profits at the end of the financial year
12.0
110.3
111.6
15.3
210.6
2.8
7.7
470.3
567.7
2,668.0
52.2
611.0
188.5
149.5
0.4
4,237.3
4,707.6
244.4
88.4
45.5
-
378.3
94.0
234.2
4.6
30.4
53.8
417.0
795.3
3,912.3
3,265.7
174.7
471.9
3,912.3
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
143.0
3.3
4,845.2
5,416.1
326.6
100.9
46.3
12.9
486.7
798.3
186.4
5.5
-
56.2
1,046.4
1,533.1
3,883.0
3,217.8
397.3
267.9
3,883.0
303.3
(33.6)
269.7
267.9
0.7
(66.4)
471.9
(73.2)
137.9
64.7
526.6
(52.4)
(271.0)
267.9
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
Statement of Financial Position and Income Statement for this closed group are shown above.
Incitec Pivot Limited Annual Report 2010
109
Notes to the Financial Statements
For the year ended 30 September 2010
39. Parent entity disclosure
As at, and throughout, the financial year ending 30 September 2010 the parent company of the Group was Incitec Pivot
Limited.
Company
Results of the parent entity
Profit for the period
Other comprehensive income
Total comprehensive Income for the period
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Net Assets
Total equity of the parent entity comprises
Share capital
Cash flow hedging reserve
Foreign currency translation reserve
Fair value reserve
Retained earnings
Total Equity
2010
$mill
78.2
65.6
143.8
420.7
4,515.1
686.5
1,001.5
3,513.6
3,265.7
34.9
46.8
9.8
156.4
3,513.6
2009
$mill
216.4
(0.9)
215.5
483.1
4,989.5
768.4
1,655.8
3,333.7
3,217.8
(9.1)
-
22.8
102.2
3,333.7
Parent entity contingencies
The directors are of the opinion that Incitec Pivot Limited does not have any contingent liabilities that would require
disclosure at 30 September 2010.
Parent entity capital commitments for acquisition of property, plant and equipment
Plant and equipment
Contracted but not yet provided for and payable:
Within one year
Company
2010
$mill
2009
$mill
6.3
1.3
Parent entity guarantees in respect of debts of its subsidiaries
As at 30 September 2010 the Company’s current liabilities exceeded it’s current assets by $265.8m. The parent entity is
part of a Deed of Cross Guarantee with the effect that the Group guarantees debts in respect of all members within the
Group. The Group’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 Group has un-drawn financing facilities of $1,076.9m at 30 September 2010.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in Note 38.
110
Incitec Pivot Limited Annual Report 2010
Notes to the Financial Statements
For the year ended 30 September 2010
40. Events subsequent to balance date
Since the end of the financial year, in November 2010, the directors have determined to pay a final dividend of 6 cents per
share on 17 December 2010. This dividend is unfranked.
In October 2010, the Company entered into a 20 year off-take commitment with Perdaman Chemicals and Fertilisers
Limited (“Perdaman”) for the output of approximately two million tonnes per annum of granular urea fertiliser from the
proposed project at Collie, Western Australia. Under the agreement, the Group is the off-taker from the proposed project,
which is planned to begin production in 2014. The product supplied to the Group under the agreement would be available
for sale in Oceania, Pakistan, Asia and the Americas.
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 2010, that has affected or may affect the operations of the Group,
the result of those operations, or the state of affairs of the Group in subsequent years, which has not been covered in
this report.
Incitec Pivot Limited Annual Report 2010
111
Directors’ Declaration
on the Financial Statements set out on pages 41 to 111
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 42 to 111, and the remuneration disclosures
that are contained in the Remuneration Report on pages 13 to 31 of the Directors’ Report, are in
accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the financial position of the Company and the Group as at 30
September 2010 and of their performance, for the year ended on that date; and
(ii) 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 the Chief Financial
Officer as required by section 295A of the Corporations Act 2001 for the financial year ended 30
September 2010.
John Watson, AM
Chairman
Dated at Melbourne this 12th day of November 2010
112
Incitec Pivot Limited Annual Report 2010
Shareholder Statistics
As at 11 November 2010
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
Percentage
shares Percentage
Number of
14,002
31,591
10,077
7,472
337
220
63,699
6,757,067
21.98%
92,377,523
49.59%
73,866,924
15.82%
139,694,969
11.73%
0.53%
22,820,318
0.35% 1,293,213,309
100.00% 1,628,730,110
0.41%
5.67%
4.54%
8.58%
1.40%
79.40%
100.00%
Included in the above total are 2,027 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 74.42% 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
J P Morgan Nominees Australia Limited
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