2011ANNUAL RepoRt 2011
StRAteRAteRA GY oN tRACK AND DeLIVeRING
TURKEY
CHINA
PAKISTAN
INDIA
Lausanne
Tirana
Tirana
Tirana
Bucharest
Ankara
Soma
Linyi (Fabchem)
New Delhi
Hong Kong
SOUTH
AFRICA
Johannesburg (SASOL)
Johannesburg (DetNet)
TKEB
Arkon
Martabe
Adaro
Jakarta
Port Hedland
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
PAPUA
NEW GUINEA
Binungan, Lati
Binungan, Lati
Binungan, Lati
& Sambarata
& Sambarata
Lihir
INDONESIA
AUSTRALIA
Moranbah
Moranbah
Townsville
Townsville
Townsville
Townsville
MouraMouraMouraMoura
(Queensland Nitrates)
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Kooragang Island
Melbourne
Geelong
Geelong
Geelong
Devonport
Devonport
Devonport
“Incitec Pivot’s strategy is
to leverage value from the
industrialisation and urbanisation
of Asia by positioning ourselves
on the input side of the value
chain for both hard and soft
commodities, that is, in
explosives and fertilisers.”
John C Watson AM
Chairman
Incitec Pivot Limited
Company Headquarters
Incitec Pivot Fertilisers
Corporate Office
Manufacturing/Distribution
Nitromak
Corporate Office
Manufacturing/Distribution
Dyno Nobel
Southern Cross International
Corporate Office
Manufacturing/Distribution
Joint Ventures/Investments
Corporate Office
Manufacturing
Quantum Joint Venture
CANADA
USA
MEXICO
LATIN
AMERICA
TURKEY
CHINA
PAKISTAN
INDIA
SOUTH
AFRICA
PAPUA
NEW GUINEA
INDONESIA
AUSTRALIA
Calgary
Louisiana
St Helens
Salt Lake City
Cheyenne
Carthage
Wolf Lake
Dinamita
CANADA
USA
MEXICO
Boisbriand
North Bay
Maitland
Ormstown
Simsbury
Port Ewen
Donora
Duffield
Savannah
Graham
LATIN
AMERICA
La Serena
Santiago
Contents
Chairman’s Report
Managing Director’s Report
Board of Directors
Executive Team
Directors’ Report
– Remuneration Report
– Corporate Governance
Statement
Financial Report
2
4
6
7
8
13
31
41
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 focussed on sales to
Australian distributors and
export sales to Asia Pacific,
the Indian sub-continent
and Latin America.
Chairman’s Report
I am pleased to report another successful
year for Incitec Pivot. Despite a two-
speed Australian economy and mixed
conditions globally, Incitec Pivot achieved
an underlying growth in Net Profit After
Tax, before individually material items
(IMIs), of 20% to $530.1 million. A
highlight of the result was the return
to shareholders, including a full year
dividend of 11.5 cents per share, a 47%
increase on the 2010 dividend, and
Earnings Per Share, before IMIs, rising
19% to 32.5 cents per share.
Incitec Pivot’s strategy is to leverage
value from the industrialisation and
urbanisation of Asia by positioning
ourselves on the input side of the value
chain for both hard and soft commodities,
that is, in explosives and fertilisers.
Incitec Pivot achieves this with vertically
integrated manufacturing through a
multi-regional approach with customer
aligned channels to market.
This strategy is driven by a motivated
senior management team whose
disciplined execution focusses both on
the “controllables” and on ensuring the
impacts of the “uncontrollables”, such as
weather conditions and the recent global
economic crisis, are mitigated.
Good management demands that
the business is managed for the long-
term and, through the evolution of
the strategy, we have addressed the
“uncontrollables” and, to a large extent,
mitigated their impacts on the business.
The merger in 2003 of the Company,
then southern Australian-based, with
the northern-based Incitec Fertilizers,
provided greater geographic spread
to mitigate the impacts of localised
weather conditions. The acquisition
of Southern Cross Fertilisers in 2006,
including the prized Phosphate Hill plant,
mine and assets, continued the focus on
manufacturing and moved the Group’s
business further up the value chain.
The creation of the trading businesses,
Southern Cross International in 2007 and
Quantum last year, provided the capacity
to trade fertilisers on global markets
and helped to manage the impacts of
demand fluctuations in Australia.
2
Incitec Pivot Limited Annual Report 2011
At the core of Incitec Pivot is our strong culture,
underpinned by our Group’s Values. I see these values
being lived across the many facets of our business.
The 2008 Dyno Nobel acquisition
established our exposure to the global
resources industry.
As the Group has grown, debt financing
risk has been actively managed following
principles established under the Group’s
comprehensive capital management
strategy. The key principle of this Board
endorsed strategy is a commitment
to an investment grade credit profile,
including a requirement for diversification
of funding sources and a spread of debt
maturities. The implementation of this
strategy has resulted in an enviable
outcome, including an average interest
rate paid on our debt of 5.7%.
In the past year, risk mitigation has also
been evidenced by the steps taken to
actively manage the volatility in the
unprecedented Australia/United States
currency exchange rates. Incitec Pivot’s
hedging program delivered a benefit
of $95 million through a transactional
Australian dollar exchange rate of
US$0.91 in 2011 which was US$0.12
better than the average spot rate. For
2012, Incitec Pivot continues to actively
manage currency risk and we have
significant cover in place for 2012 and
a foundation level of cover for the 2013
financial year. In recognition of the
Treasury Team’s outstanding performance,
they were named Corporate Treasury
Team of the Year at the 2011 CFO
Dealbook Awards.
In addition, throughout the years we
have maintained focus on developing
businesses that are “fit for purpose” for
the economic environment, applying
the disciplines of our business efficiency
programs. This has been illustrated more
recently through our Velocity program,
which has delivered cumulative benefits
of US$204 million as at the end of 2011,
and also through our other business
specific strategies, which have included
realigning our channels to market,
developing technological solutions
for customers and applying rigorous
maintenance programs to increase plant
reliability and productivity.
2012 will see Incitec Pivot embark
on its next phase of continuous
improvement, building from its strong
disciplines applied in Velocity, and its
predecessor, Tardis. This next phase,
which is known as BEx, from “Business
Excellence”, will transform the way
Incitec Pivot does business and will
drive long term and sustainable
productivity improvement in the
Group. BEx will introduce well known
methodologies, such as Lean principles,
which I have seen in operation when
visiting some of our North American
plants, and will empower all of our
employees in continuous improvement
– ultimately across every part of our
international business.
August 2011 Board tour of Western Australian operations.
The IPL Group Values
Own.Breakout.Deliver embodies the
Own.Breakout.Deliver embodies the
Own.Breakout.Deliver
IPL Group’s Values which are at our
core. They reflect the fairness and trust
in which we believe and are the guiding
principles which we draw upon in our
day-to-day decision making.
We are also continuing to invest for the
future where projects fit our strategic
direction. By this time next year, our
ammonium nitrate plant at Moranbah, in
the Bowen Basin, will be in production
and supplying our coal mining customers.
Earlier this year, the Board visited
Moranbah. It was pleasing to see the plant
under construction and the development
of the Moranbah community where we
have built over 70 houses at a cost of $25
million which means our people are part
of the local community. Also, next year,
we will start production from an emulsion
plant at Port Hedland in the Pilbara which
is currently under construction at a cost of
$40 million, underpinning our customer
relationships in Western Australia.
Additionally, we are pursuing
debottlenecking and minor expansion
opportunities in our existing plants, such
as Phosphate Hill, where we are starting
the development of a third phosphoric
acid filter train, at a cost of $50 million,
which will allow the processing of more
varied rock feedstock and increase
phosphoric acid production.
In 2011, we continued our investment in
our people, supporting their development
and improving their leadership skills.
In addition to BEx, we are making a
substantial investment in leadership
training for managers and supervisors,
both in management and also in safety,
which is the priority for everyone
working at Incitec Pivot. It will remain
a permanent priority, even beyond the
time when our safety performance
reaches our goal of Zero Harm. I know
Zero Harm is possible – indeed the
majority of our sites have been injury
free for many years. Board members
continue to visit the Group’s operations
to reinforce the focus which must be
maintained on safety. This year we
visited operations in Australia, the US
and in Canada where we met with
employees, customers and community
representatives and toured the
operations as well as customers’ mine
sites. In Canada, we were pleased to
meet with the First Nations people in
the North West Territories. We encourage
close relationships with all Incitec Pivot
communities such as residents and
commercial neighbours around our
plants and this year, in Australia, we saw
with pride, the efforts of our employees
at Gibson Island, in Brisbane, who
volunteered their time and skill to
assist in the flood recovery effort.
Another priority for the Board and
management is to encourage diversity,
in gender, in culture and in ethnicity.
We recognise that diversity will assist in
fostering a broader range of talent in the
Group which reflects the communities in
which we operate.
Earlier in the year I was pleased to
announce that Rebecca McGrath had been
appointed to the Board as a non-executive
director. Rebecca was appointed following
an extensive process, commencing with a
review on the spread of skills, experience
and expertise among the existing directors
from which we identified those skills
needed to complement the Board’s
composition. We interviewed a number of
high quality applicants and I am delighted
that Rebecca accepted our invitation.
Rebecca, who has had a long term career
with BP, with experience in operational,
marketing and commercial roles, has
joined a Board which comprises people
with broad experience and expertise.
Rebecca’s appointment also adds to board
diversity as she is the first female director
to join the Board since 2005. Rebecca will
stand for re-election at the forthcoming
Annual General Meeting and the Board
unanimously recommends her election
by shareholders.
I would like to take this opportunity
to thank my fellow directors for their
contribution to Incitec Pivot’s strategic
direction this year and for their ongoing
commitment to the Group as it embarks
on its next transformation through BEx.
I want to pay tribute to our Managing
Director & CEO, James, and the Executive
Team, for their leadership and dedication,
as well as our 5000 people who
contributed this year to the success of
the Group. The Board recognises that the
Group’s performance is a direct reflection
of the quality of our people and their
ability to execute on the strategy.
At the core of Incitec Pivot is our strong
culture, underpinned by our Group’s
Values. I see these values being lived
across the many facets of our business,
and with this culture, our disciplined
approach to business, a clear strategy
and strong management, I feel confident
in the future.
John C Watson AM
Chairman
Incitec Pivot Limited Annual Report 2011
3
Managing Director’s Report
We believe in taking control of our own destiny,
and that BEx, our next phase of continuous
improvement, will transform the Group.
slowly over the next few years. In the
longer term, we are positive about the
US given it remains the world’s largest
economy by a factor of almost three.
We remain committed to the strategy,
with our portfolio approach to managing
the business allowing us to balance risk
and return.
Incitec Pivot Fertilisers’ 15% increase in
EBIT to $128.8 million reflects a recovery
in domestic fertiliser volumes and strong
global fertiliser prices. Similarly, Southern
Cross International’s EBIT increased
by 46% to $323.9 million. We hold a
positive long-term view on fertilisers
with global world food demand and,
in turn, agricultural commodity prices,
set to rise at a multiple of global
inflation, driven by the urbanisation and
industrialisation of the developing world.
The 2011 result reflects the actions
we took in securing and strengthening
the base business and sharpening our
strategic focus. The balance sheet was
strengthened by increasing the diversity
and tenor of our debt with the Company
successfully completing its second US
144A bond issue raising US$500 million
in December 2010 and refinancing our
syndicated facility in April 2011.
2011 saw a step change in leadership
capability through the continued
development of our leaders, with over
a quarter of our people participating in
leadership programs. We have made this
investment in our people as independent
research over many years shows clear
leadership can create a positive climate
with fully engaged employees which
will result in outstanding performance,
including, most importantly, in relation
to safety. On surveying our organisational
climate this year, I was pleased to learn
that there was a 16% improvement in
employee engagement across the Group.
Our safety performance is improving
with 83% of our sites injury free. At
Moranbah, with our construction partners,
we have achieved over 2.5 million man-
hours without a lost-time injury, which
is world-class performance compared to
the Australian benchmark of around half
Moranbah ammonium nitrate manufacturing complex currently under construction (October 2011).
The 2011 full year result represents
a strong performance by the Incitec
Pivot team in successfully delivering
on our strategy – in simple terms, to
leverage the industrialisation of Asia,
particularly China.
Net Profit After Tax, before individually
material items (IMIs), was $530.1
million, an increase of 20% or $87.3
million on the financial results for 2010.
Earnings Before Interest And Tax (EBIT)
before IMIs improved to $772.1 million,
compared with $648.3 million in 2010.
In 2011, the benefit of Incitec Pivot’s
strategic direction was realised with
each of the businesses achieving double-
digit earnings growth: the explosives
business achieved record earnings, with
the fertilisers business recording a 34%
increase in EBIT.
In Dyno Nobel Asia Pacific (DNAP), EBIT
increased by 11% to $195.4 million, a
record for this business. This result is
even more satisfying in that it came
despite the significant impact of adverse
weather conditions in Australia in
the first half. The outlook for DNAP is
positive: the ammonium nitrate plant
at Moranbah, Queensland, is due to
commence commercial production
by the third quarter in 2012 and the
development of the emulsion plant
at Port Hedland, Western Australia, is
slated for commercial production this
time next year.
Dyno Nobel Americas (DNA) also
achieved a record result with US dollar
denominated earnings up 21% to
US$179.4 million. Putting this into
context, this is a commendable result,
noting in 2007 earnings were US$131
million at a time when US construction
was at its peak. Since 2007, volumes in
the quarry and construction segment,
our most attractive market, have
declined by over 40%. The result
highlights the improvement in the
quality of earnings and underlying cost
base brought about by the Velocity
efficiency program and a renewed
focus on execution. DNA is now well
positioned for when the US economy
recovers, which we expect will occur
4
Incitec Pivot Limited Annual Report 2011
a million hours. When I visit Moranbah
and our other sites, it is clear to me that
leadership at a site drives the culture
and relentless focus on safety and
Zero Harm. This makes me confident
that our safety objectives are achievable
and that we must “stay the course” on
the safety journey.
While the 2011 result is good, we can
do better. This is not only my view,
it is also a view held by many of our
employees, who, through the employee
engagement survey earlier this year,
expressed how important continuous
improvement is to them.
We are now positioned to take the
business to the next level by pursuing
growth opportunities which align with
our core strategy. While M&A activity
grabs the media headlines, the most
compelling source of value in any
business is driving earnings from
current assets. We are focussed on
capturing value through strategic organic
development, such as the Moranbah
and Port Hedland projects, and through
productivity transformation via BEx.
Notwithstanding this, we are alert to
M&A opportunities that will add value.
Central to our strategic analysis is strict
financial discipline. We will be patient
to ensure we pursue only the right
projects and, ultimately, if we cannot
find re-investment opportunities that
exceed our hurdles, we will return
excess funds to shareholders.
We believe in taking control of our own
destiny and that BEx, our next phase of
continuous improvement, will transform
the Group and ultimately create long-
term, year-on-year productivity benefits.
BEx involves engaging all of our
employees in continuous improvement in
their individual work practices, formally
identifying and solving opportunities
to improve the work “flow”. Through
BEx, our people will be empowered
to identify areas where safety can
be improved, waste reduced and
productivity increased.
The initial BEx focus will be in
manufacturing, where we will create
our own “IPL production system” that
will change the way we run our plants
globally – creating standard work,
focussing our attention on eliminating
waste and improving flow or removing
bottlenecks. Supply Chain will follow in
late 2012.
It is appropriate that we turn to our
people, through BEx, to create the long-
term future for our business. It is our
people who make our business what
it is, through their commitment to the
Values, and who provide our sustainable
competitive advantage. My commitment
to our people is to provide the support
and training they need to achieve their
personal and professional goals and, in
doing so, to make Incitec Pivot the best
in the world at everything we do.
James Fazzino
Managing Director &
Chief Executive Officer
BEx will ultimately create long-
term, year-on-year productivity
benefits; closing the “gap to
perfect”. Our future is BEx.
Self-assess
to identify
opportunities
Share
learning and
rapidly evolve
‘Best Practice’
Build skills
and common
language
Plan and
execute
improvements
according to
an integrated,
maturity-based
road map
Incitec Pivot Limited Annual Report 2011
5
Board of Directors
First row (l to r):
John Watson,
Allan McCallum,
Anthony Larkin,
John Marlay
Second row (l to r):
Graham Smorgon,
Paul Brasher,
Rebecca McGrath,
James Fazzino
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 also
a non-executive director of Tassal Group
Limited. He is a past Chairman of the
Export Wheat Commission, the Cooperative
Research Centre for Innovative Dairy
Products, PrimeSafe, the National Rural
Advisory Council and Tasman Farms
Limited, Governor of Van Diemen’s Land
Company and Deputy President of the
National Farmers’ Federation. John is also
a former non-executive director of Rural
Press Limited, Wool Partners International
Limited (NZ), Eastern Energy Limited and
was a member of the Rabobank Food and
Agribusiness Advisory Board for Australia
and New Zealand. He is a recipient of the
Australian Centenary Medal and, 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 is a director of Medical
Developments International Limited. He is a
former Chairman of CRF Group Limited, CRF
(Colac Otway) Pty Ltd and Vicgrain Limited
and a former director of Graincorp 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 also 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
6
Incitec Pivot Limited Annual Report 2011
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 the Remuneration and
Appointments Committee
John was appointed to the Board on 20
December 2006. John is a non-executive
director of Boral Limited and Cardno 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, 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
Non-executive director
Paul was appointed to the Board on
29 September 2010. Paul is a non-
executive director of Perpetual Limited
and the Essendon Football Club and a
trustee of the Victorian Arts Centre Trust.
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 Reach Foundation, and 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.
Rebecca McGrath BTP(Hons), MASc,
MAICD
Non-executive director
Rebecca was appointed to the Board on
15 September 2011. Rebecca is currently
Chief Financial Officer, BP Australasia and
a member of BP’s Executive Management
Board for Australia and New Zealand. She
has announced her resignation from this
position, which will come into effect in
early 2012. During her career with BP,
Rebecca has held a number of senior roles
in operations, marketing and functional
leadership. She has held executive positions
in Australia, the United Kingdom and Europe.
Rebecca is also a non-executive director of
OZ Minerals Limited and a former director
of Big Sky Credit Union Limited.
James Fazzino BEc(Hons)
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
First row (l to r):
James Fazzino,
Frank Micallef,
Kerry Gleeson,
Bernard Walsh,
James Whiteside
Second row (l to r):
Gary Brinkworth,
Stephen Dawson,
Brian Wallace,
Jamie Rintel,
Simon Atkinson
James Fazzino BEc(Hons)
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 Limited and General
Manager Accounting at North Limited.
Kerry Gleeson LLB(Hons)
General Counsel & Company Secretary
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. Kerry qualified as a
lawyer in 1991, in England & Wales, and
subsequently in Victoria, Australia in 2001.
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 joined IPL in 2003 and 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.
James Whiteside BAgricSc,
GradDipBusAdmin, GAICD
Chief Operating Officer, 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 Chief Operating Officer, 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, GAICD
Chief Operating Officer, Incitec Pivot
Fertilisers & General Manager, 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, New Markets in May 2010
and has responsibility for new markets,
including Turkey and Chile.
Incitec Pivot Limited Annual Report 2011
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 2011 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 also a non-executive director of Tassal Group Limited. He is a past
Chairman of the Export Wheat Commission, the Cooperative Research Centre for Innovative
Dairy Products, PrimeSafe, the National Rural Advisory Council and Tasman Farms Limited,
Governor of Van Diemen’s Land Company and Deputy President of the National Farmers’
Federation. John is also a former non-executive director of Rural Press Limited, Wool
Partners International Limited (NZ), Eastern Energy Limited and was a member of the
Rabobank Food and Agribusiness Advisory Board for Australia and New Zealand. He is a
recipient of the Australian Centenary Medal and, 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
Tony was appointed as a director on 1 June 2003. He is also 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
J Marlay BSc, FAICD
Independent non-executive director
Chairman of the Remuneration and
Appointments Committee
Allan was appointed as a director on 15 December 1997. Allan is Chairman of Tassal Group
Limited and is a director of Medical Developments International Limited. He is a former
Chairman of CRF Group Limited, CRF (Colac Otway) Pty Ltd and Vicgrain Limited and a
former director of Graincorp Limited.
John was appointed to the Board on 20 December 2006. John is a non-executive director of
Boral Limited and Cardno 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.
G Smorgon B.Juris, LLB
Independent non-executive director
Member of the Audit and Risk
Management Committee
Member of the Health, Safety,
Environment and Community
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.
8
Incitec Pivot Limited Annual Report 2011
Name, qualifications and
special responsibilities
Experience
P V Brasher BEc(Hons), FCA
Independent non-executive director
Member of the Audit and Risk
Management Committee
Member of the Remuneration and
Appointments Committee
Paul was appointed to the Board on 29 September 2010. Paul is a non-executive director
of Perpetual Limited and the Essendon Football Club and a trustee of the Victorian Arts
Centre Trust. 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 Reach Foundation, and 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.
R J McGrath BTP(Hons),
MASc, MAICD
Independent non-executive director
Rebecca was appointed to the Board on 15 September 2011. Rebecca is currently Chief
Financial Officer, BP Australasia and a member of BP’s Executive Management Board for
Australia and New Zealand. She has announced her resignation from this position, which
will come into effect in early 2012. During her career with BP, Rebecca has held a number
of senior roles in operations, marketing and functional leadership. She has held executive
positions in Australia, the United Kingdom and Europe. Rebecca is also a non-executive
director of OZ Minerals Limited and a former director of Big Sky Credit Union Limited.
J E Fazzino BEc(Hons)
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(1)
R J McGrath
J E Fazzino(1)
(1) Held both directly and indirectly.
Fully paid ordinary shares
Incitec Pivot Limited
100,000
5,000
216,501
37,926
0
20,600
400
1,708,180
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 2011
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
J C Watson
A C Larkin(3)
A D McCallum(4)
J Marlay(5)
G Smorgon(6)
P V Brasher(7)
R J McGrath(8)
J E Fazzino
Board
Audit and
Risk Management
Remuneration and
Appointments
Health, Safety, Environment
and Community
Held(1)
10
10
10
10
10
10
1
10
Attended(2)
10
10
10
10
9
10
1
10
Held(1)
–
5
–
1
5
4
–
–
Attended(2)
–
5
–
1
3
4
–
–
Held(1)
7
–
2
7
–
5
–
–
Attended(2)
7
–
2
7
–
5
–
–
Held(1)
4
1
4
–
3
–
–
4
Attended(2)
4
1
4
–
2
–
–
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 Anthony Larkin ceased to be a member of the Health, Safety, Environment and Community Committee on 24 February 2011.
(4) Mr Allan McCallum ceased to be a member of the Remuneration and Appointments Committee on 24 February 2011.
(5) Mr John Marlay ceased to be a member of the Audit and Risk Management Committee on 24 February 2011.
(6) Mr Graham Smorgon was appointed as a member of the Health, Safety, Environment and Community Committee on 24 February 2011.
(7) Mr Paul Brasher was appointed as a member of the Audit and Risk Management Committee and the Remuneration and Appointments Committee
on 24 February 2011.
(8) Ms Rebecca McGrath was appointed to the Board on 15 September 2011.
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 2011 was up 13% or $52.7m to $463.2m
(2010: $410.5m).
•
•
Net Profit After Tax excluding minority interests
(excluding individually material items) for the year ended
30 September 2011 was up 20% or $87.3m to $530.1m
(2010: $442.8m).
Earnings Before Interest and Tax (EBIT) (excluding
individually material items) was up 19% or $123.8m to
$772.1m (2010: $648.3m). The increase reflects double
digit earnings growth in all business units.
•
Earnings Per Share (excluding individually material items)
was up 5.2 cents to 32.5 cents (2010: 27.3 cents).
•
Operating cash flows were up 36% or $190.2m to $719.1m
(2010: $528.9m) as a result of improved Earnings Before
Interest, Tax, Depreciation and Amortisation (EBITDA) and
lower trade working capital balances at year end.
Business Segment Financial Highlights
•
Dyno Nobel Asia Pacific (DNAP) EBIT was up 11% to
$195.4m (2010: $176.0m) as a result of lower losses on the
costs to serve Moranbah foundation customer contracts and
the benefits delivered by the Velocity program.
•
•
•
Dyno Nobel Americas (DNA) EBIT was up 6% to $173.8m
(2010: $163.2m). When measured in its base currency of US
dollars, the business EBIT was up 21%. The increase in EBIT
reflects the benefits delivered by the Velocity program and
improved pricing to agriculture customers.
Southern Cross International (SCI) EBIT was up 46% to
$323.9m (2010: $222.6m) due to higher selling prices for
di-ammonium phosphate, offset by the impact of the higher
Australian dollar on US dollar priced fertilisers.
Incitec Pivot Fertilisers (IPF) EBIT was up 15% to $128.8m
(2010: $112.4m) reflecting higher volumes sold in the
Australian market in 2011.
(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 2011
Balance Sheet
•
Net debt increased by $91.7m to $1,188.8m (2010:
$1,097.1m) as a result of higher capital spend on the
Moranbah Ammonium Nitrate plant and an increase in
cash dividends paid during the year, partially offset by an
increase in operating cash flows.
•
The Net Debt/EBITDA
(2010: 1.39).
(2) ratio was 1.29 at 30 September 2011
External Sales Revenue
•
Revenue increased by $974.6m to $3,906.3m (2010:
$2,931.7m) in the year ended 30 September 2011. The
increase was primarily due to the impact of higher fertiliser
prices, higher sales volumes in the IPF business, the impact
of higher revenues from the Quantum business and the
impact of higher ammonia prices on sales by the Explosives
business. Of the total revenue of $3,906.3m in the year
ended 30 September 2011, $2,230.3m or 57.1% was
derived from the Fertilisers business and $1,676.0m or
42.9% was derived from the Explosives business.
Returns to Shareholders
•
A final dividend of 8.2 cents per share (cps) unfranked is to
be paid on 16 December 2011.
•
This brings the total 2011 dividend to 11.5 cps.
Dividends
Dividends paid since the last annual report were:
Type
Paid during the year
2010 final dividend
2011 interim dividend
Paid after end of year
2011 final dividend
Dealt with in the
financial report as:
Dividends
Subsequent event
Cents per share
Total amount
$000
Franked/
Unfranked
Date of payment
6
3.3
8.2
Note
27
27
97,724
53,700
Unfranked
Unfranked
17 December 2010
5 July 2011
133,556
Unfranked
16 December 2011
$000
151,400
133,556
(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 2011
11
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 $7,800
during the year ended 30 September 2011 (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.
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 reporting date
Since the end of the financial year, in November 2011, the
directors determined to pay a final dividend for the Company
of 8.2 cents per share on 16 December 2011. The dividend is
unfranked (Refer Note 27 to the financial statements).
The Commonwealth parliament has recently passed the
‘Clean Energy Future’ legislation. The legislation will introduce
a carbon pricing scheme and require the Group to purchase
and surrender carbon permits in relation to its carbon
emissions in Australia. The scheme, anticipated to commence
on 1 July 2012, will have a three-year fixed price period and
subsequently transition to an emissions trading scheme. It is
anticipated that the introduction of a carbon pricing scheme
will have implications for the Group’s Australian operations,
particularly its manufacturing operations. The financial impact
for the Group cannot be estimated until the Company can
assess the effect of the industry assistance program to be
implemented as part of the ‘Clean Energy Future’ legislation.
However, based on the draft regulations regarding the industry
assistance program and the Group’s forecast future emissions,
the impact of the carbon pricing scheme is not, at this stage,
anticipated to have a material impact on the future profitability
of the Group during the fixed price period of the carbon pricing
scheme. As the market price of carbon permits under the
subsequent emissions trading scheme cannot be predicted and
the details of the industry assistance program (and its duration)
are unknown, the financial impact for the Group cannot be
estimated.
On 27 October 2011, the Group announced a feasibility study
into the construction of an ammonium nitrate manufacturing
plant on the site of its fertiliser facility on Kooragang Island,
Newcastle, NSW. Development of the plant would proceed only
on meeting the Group’s strict financial hurdles and achieving
firm customer commitments, regulatory approvals and support
from the local and broader communities.
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 2011 that has
affected or may affect the operations of the Group, the results
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.
12
Incitec Pivot Limited Annual Report 2011
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
2011. This Remuneration Report is audited.
The structure of this Remuneration Report
is as follows:
Section
Page
This Remuneration Report forms part of the Directors’ Report.
A. Executive Remuneration Overview
14
Details of the Group’s remuneration strategy and
arrangements for the 2010/11 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 (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 certain
former executives, 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 James Whiteside
Mr Gary Brinkworth
Chief Operating Officer,
Supply Chain & Trading
Chief Operating Officer,
Incitec Pivot Fertilisers &
General Manager,
Human Resources
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
Mr Stephen Dawson
President, Dyno Nobel Asia Pacific
Mr Brian Wallace
President, Dyno Nobel Americas
−
Executive Team
Mr Jamie Rintel
President, Strategy &
Business Development
Details of Executive remuneration
Mr Simon Atkinson
President, New Markets
−
Executive remuneration
−
At risk remuneration – Short term incentives
−
At risk remuneration – Long term incentives
16
17
17
17
18
19
22
24
24
25
26
26
28
29
Incitec Pivot Limited Annual Report 2011
13
Directors’ Report
Remuneration Report
A. Executive 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.
•
•
2010/11 Remuneration in Review
Key Highlights
Commentary
Strong Alignment to
Shareholders
• Challenging targets driving
creation of shareholder value
• Reward only where
exceptional performance
The majority of Executive remuneration is at risk, in the form of short term and long
term incentives. As such, Executives are rewarded only where value is delivered to
shareholders, for example:
STI
The key measure for the STI is Earnings Per Share (EPS) before individually material
items (IMIs), a profit based metric, which is consistent with market practice. In the
2010/11 financial year, EPS (before IMIs) has grown 19% and, accordingly, Executives
received payments under the STI Plan. Details of the amounts awarded are set out in
table C.4.
LTI
The Company’s approach is to set challenging targets to drive the creation of
shareholder value. LTI awards are made only where there is exceptional performance
over a sustained period, noting that under the Company’s recent LTI plans, for awards
to be made in full, the total return to the Company’s shareholders (TSR) over the
relevant performance period was required to exceed 20% per annum compounded
over the period.
In relation to the last four LTI plans that have matured, being the LTI 2006/08, the
LTI 2006/09, the LTI 2007/10 and the LTI 2008/11:
• For two of these plans, the LTI 2006/08 and the LTI 2006/09, which matured on
30 September 2008 and 30 September 2009, respectively, the TSR was substantially
in excess of the stretch target (2008: 93% and 2009: 42.2%) and, accordingly,
Executives received awards in full.
• For the remaining two plans, the LTI 2007/10 and the LTI 2008/11, no awards were
made as the Company’s TSR did not meet the minimum hurdle, in particular, with
regard to the LTI 2008/11, no performance rights vested as the minimum hurdle of
10% per annum compounded over the performance period was not met.
Refer to table C.2.
14
Incitec Pivot Limited Annual Report 2011
Key Highlights
Commentary
Positive Shareholder Support for
Remuneration Practices
• Consistent and responsive strategy
• Strong advisory vote at all annual
general meetings
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.
The Company has consistently received strong shareholder support for the
remuneration report and, thus, the Company’s remuneration policy and practices.
At each annual general meeting the resolution to adopt the remuneration report has
been passed on a show of hands. In addition, in 2010, had the resolution gone to a
poll, 96% of the votes registered by proxy were in favour of the adoption of the report
(2009: 89%, 2008: 93%).
Responsive to Shareholder Views
• Adoption of two new metrics
in line with market practice
– Relative TSR
– EPS
For the 2010/11 financial year, consistent with the Board’s remuneration philosophy
and strategy and in response to shareholder views, having regard to market practice,
the Board established two new challenging performance conditions for LTI plans,
commencing with the 2010/13 Long Term Incentive Plan:
•
•
with vesting of the performance rights attached to this condition
Relative TSR:
starting where the Company’s TSR is above the 50th percentile of the companies
in the S&P/ASX 100 ranked by their TSR performance and full vesting of the
performance rights attached to this condition occurring where the Company’s TSR
is equal to or above the 75th percentile of such companies ranked by their TSR
performance; and
with vesting of the performance rights attached to this
Earnings Per Share:
condition starting where the compound annual growth rate of the Company’s EPS
(before IMIs) over the performance period, from the base year, 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
(before IMIs) over the performance period is 15% or greater.
Prior to the 2010/11 financial year, a single metric was used for the Company’s LTI
plans, absolute TSR. Accordingly, the move to having dual metrics and to have as those
metrics Relative TSR and EPS growth is consistent with market practice and ensures
strong alignment with shareholders’ interests.
Incitec Pivot Limited Annual Report 2011
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 2010/11 financial
year, the fees paid to non-executive directors amounted to
$1,600,000, which was 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 2011 are set out in the
following table:
For the year ended 30 September 2011
Short-term benefits(A)
Post-employment
benefits
Other long term
benefits(B)
Non-executive directors
Current
J C Watson, Chairman(1)
A C Larkin
J Marlay
A D McCallum(1)
G Smorgon
P V Brasher(2)
R J McGrath(3)
Total non-executive directors
Year
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Fees
$000
453
410
198
187
189
176
187
177
180
155
173
1
6
–
1,386
1,106
Superannuation
benefits
$000
$000
42
41
18
18
18
17
18
18
17
15
16
–
1
–
130
109
62
85
–
–
–
–
22
35
–
–
–
–
–
–
84
120
Total
$000
557
536
216
205
207
193
227
230
197
170
189
1
7
–
1,600
1,335
(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)
1 June 2003, the Company does not pay additional benefits to non-executive directors.
If Mr Watson or Mr McCallum had ceased to be a director on 30 September 2011, the following benefits would have been payable under their respective contracts:
Mr Watson $766,000, Mr McCallum $329,000.
(2) The disclosures for the 2009/10 financial year are with effect from Mr Brasher’s appointment to the Board as a non-executive director, 29 September 2010.
(3) The disclosures for the 2010/11 financial year are with effect from Ms McGrath’s appointment to the Board as a non-executive director, 15 September 2011.
16
Incitec Pivot Limited Annual Report 2011
C. Executive Remuneration
Executive remuneration policy and practice
The remuneration of the Executives is set by the Board.
In alignment with its remuneration strategy, the Board’s policy
on executive remuneration is that it comprises both a fixed
component (fixed annual remuneration (FAR)) and an “at risk”
or performance-related component (being short term and long
term incentives) where:
(i) the majority of executive remuneration is “at risk”; and
(ii) the level of FAR will be benchmarked against that paid at
the 50th percentile of companies in a comparator group
with a range of market capitalisations (50%–200% of that
of Incitec Pivot).
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. For the 2010/11 financial year,
the Remuneration and Appointments Committee engaged
Godfrey Remuneration Group, an appropriately qualified and
independent remuneration consultant, to assist in a review
of the continued appropriateness of the Board’s policy,
remuneration strategy and structure of remuneration packages
offered to Executives. As part of the review:
•
this was benchmarked against the median of that
FAR:
paid for similar roles in comparable companies and in
light of there being no increases in the fixed annual
remuneration for Executives in the 2009/10 financial
year, the Board approved, with effect from 1 January
2011, an increase of 8% to the fixed annual remuneration
of Executives, save for the following Executives who
received the following increases due to the market
benchmark data for their particular roles:
– Mr Frank Micallef: 10%
– Mr Jamie Rintel: 10.3%
– Mr Stephen Dawson: 10.3%.
the performance measures used in the LTI were
LTI:
reviewed and, in line with market practice, the Board
established two new challenging performance conditions for
LTI plans, relative TSR and EPS growth.
•
The relative proportion of the Executives’ total remuneration
packages for the 2010/11 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%).
Table C.1: Remuneration structures by level
% of Total Remuneration (annualised)
Fixed
Remuneration
Performance-based
Remuneration
Managing
Director & CEO
Executives
FAR
33%
36%
STI
33%
LTI
34%
36%
28%
In calculating the “at risk” compensation as a proportion of total
remuneration for the 2010/11 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 2010/11 financial year.
Fixed annual remuneration
Fixed annual remuneration
Who receives fixed annual
remuneration?
The terms of employment for each of the Executives contain a fixed annual
remuneration component.
What is the purpose of the
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?
When does an increase in
fixed annual remuneration
take effect?
What was the fixed annual
remuneration for the
Executives for the year ended
30 September 2011?
The level of fixed annual remuneration is reviewed by the Board annually with reference to,
among other things, changes in role and responsibilities and 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 for similar roles by a
group of comparator companies where the group includes companies with a range of market
capitalisations across various industries.
The Board determined that increases in the fixed annual remuneration for an Executive
took effect from 1 January.
Refer to table C.3 for details of the fixed annual remuneration for the Executives for the
year ended 30 September 2011.
Incitec Pivot Limited Annual Report 2011
17
Directors’ Report
Remuneration Report
At risk remuneration – Short Term Incentive (STI) Plan
STI Plan
What is the STI?
The STI is an annual “at risk” cash incentive which is dependent on the achievement of
particular performance conditions in the financial year to 30 September 2011.
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.
STI awards are not an entitlement, but rather a reward for annual Group performance
and individual performance or contribution to overall Group performance.
What are the criteria for
awarding the STI to Executives?
The criteria for awarding the STI is the satisfaction of performance conditions where
performance is measured over the year.
Why were these criteria chosen?
The performance conditions used are growth in EPS (before IMIs) and, where
relevant for a particular Executive, the EBIT of a particular business segment in the
Group or production outcomes coupled with, where appropriate, non-financial
performance conditions, such conditions not to exceed 20% of the STI opportunity for
a particular Executive. In respect of non-financial performance conditions, in 2010/11
Executives were set objectives in relation to the organisational climate of the Group and,
specifically, the level of engagement achieved within the Executives’ respective business
units as measured by the results of a global employee survey.
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 or production outcomes as measures 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.
In respect of the non-financial performance conditions, organisational climate and the
level of engagement, since 2010 Incitec Pivot has established comprehensive leadership
programs designed to address leaders’ roles in developing a strong organisational
climate. Independent research over many years has shown that outstanding companies
come from having a fully engaged workforce, with clear leadership creating a positive
climate. Given the focus on leadership programs and on organisational climate, this
measure was chosen to align Executive reward with improved organisational climate, as
measured by the results of a global employee survey.
When are the criteria set?
The criteria for awarding the STI were set by the Board prior to the commencement of
the 2010/11 financial year.
What is the method for
determining if the criteria are
satisfied?
What STI awards were made to
Executives with respect to the
year ended 30 September 2011?
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.
With EPS (before IMIs) having grown 19% for the year ended 30 September 2011 and
having regard to the EBIT for relevant business segments, production outcomes and
performance with regard to improved organisational climate, Executives were entitled
to awards under the 2010/11 STI. Refer to tables C.3 and C.4 for further details of STI
awards to Executives for the year ended 30 September 2011.
18
Incitec Pivot Limited Annual Report 2011
At risk remuneration – Long Term Incentive (LTI) Plans
LTI Plans
What are the Company’s LTI
Plans that are relevant to the
2010/11 financial year?
What is the purpose of the LTIs?
What is the design of the
LTI Plans?
What is the method for
determining if the criteria are
satisfied?
What are the Long Term
Incentive Performance
Cash Plans?
The current LTI Plans are:
•
•
•
Long Term Incentive Performance Rights Plan for 2008/11 (LTI 2008/11);
Long Term Incentive Performance Rights Plan for 2009/12 (LTI 2009/12); and
Long Term Incentive Performance Rights Plan for 2010/13 (LTI 2010/13).
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.5 and C.6.
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 EPS, 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 2008/11 and LTI 2009/12 are performance rights plans which have a
performance period of 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 2010/13 is a performance rights plan which also has a performance period of
three years. However, the performance conditions are based on the Company’s TSR
relative to a comparator group, the S&P/ASX 100 (Relative TSR) and growth in EPS
(before IMIs).
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.
For the LTI 2008/11 and LTI 2009/12, this is done by reviewing the share price over
the three year performance period and taking into account dividends paid. For the LTI
2010/13, this is done by reviewing both the share price over the three year performance
period relative to the comparator group and the growth in EPS (before IMIs) over
that period.
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.
Cash plans are used where performance rights are not appropriate by reason of the
particular jurisdiction. They 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 performance conditions as the Long Term Incentive
Performance Rights Plans.
Incitec Pivot Limited Annual Report 2011
19
Directors’ Report
Remuneration Report
LTI 2008/11
LTI 2009/12
LTI 2010/13
Who participates in the LTI
2008/11, the LTI 2009/12 and
the LTI 2010/13?
What form do the LTI 2008/11,
LTI 2009/12 and LTI 2010/13
take?
What is the process for
deciding who will participate
in the LTI plans?
Executives and other selected managers participate in the LTI 2008/11, the LTI 2009/12
and the LTI 2010/13.
For details of the Executives’ participation in these Plans refer to tables C.5 and C.6.
The 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, LTI 2009/12 and LTI 2010/13.
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.
The performance period for the LTI 2010/13 is 1 October 2010 to 30 September 2013.
What are the conditions for the
performance rights under the
plans to vest and who approved
the conditions?
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.
For the LTI 2008/11 and LTI 2009/12, the performance condition is based on Absolute TSR.
If, at the end of the relevant performance period, Absolute TSR (calculated in accordance
with the applicable plan rules):
•
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.
•
•
For the LTI 2010/13, the Board determined to adopt the following performance conditions:
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 (before IMIs) 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 (before IMIs) 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.
20
Incitec Pivot Limited Annual Report 2011
LTI 2008/11
LTI 2009/12
LTI 2010/13
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?
What performance rights have
vested under the LTI 2008/11,
the LTI 2009/12 and the LTI
2010/13?
Which Executives have been
granted performance rights
under these plans?
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. Additionally, under the LTI 2008/11 and the
LTI 2009/12, the 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 will 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.
LTI 2008/11: no performance rights have vested.
LTI 2009/12 and LTI 2010/13: these plans are each for a three year period and the
performance conditions will not be tested until after 30 September 2012 and
30 September 2013 respectively.
Refer to table C.5 in respect of performance rights granted to Executives.
Incitec Pivot Limited Annual Report 2011
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
2007(1)
2008(2)
2009
2010
2011
202.5
647.5
347.8
442.8
530.1
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)
20.1
7.5
Dividends – declared in respect of the financial year – per share (DPS (declared)) (cents)
15.0
Share price ($) (Year End)
Absolute TSR (3 Year Compound per annum) (%)
4.28
74
60.5
21.8
29.7
5.07
93
22.6
27.3
32.5
21.6
4.4
4.1
7.8
9.3
11.5
2.83
3.59
3.27
42
3
(10)
(1)
In respect of the financial year ended 30 September 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 Company’s approach is to set challenging targets to
drive the creation of shareholder value with LTI awards being
made only where there is exceptional performance over a
sustained period.
The charts on the following page show NPAT, EPS (before
IMIs) and the total shareholder return to shareholders in the
Company, compounded over three years and, notably, where
awards were made under the LTI 2006/08 and LTI 2006/09,
this was in alignment with the results achieved over the period.
In relation to the short term incentives, for the STI Plan
2010/11, EPS (before IMIs) has grown 19% for the year ended
30 September 2011 and, accordingly, as referred to in table C.4,
Executives have been awarded short term incentives in cash.
22
Incitec Pivot Limited Annual Report 2011
Net Profit After Tax excluding minority interests (before individually
material items) $m and Dividends Per Share cents declared(1)
$m
800
600
400
200
0
cents
40
30
20
10
0
07
08
09
10
11
NPAT (before IMI)
DPS (declared)
Earnings Per Share (before individually material items) cents(1)
cents
60
40
20
0
07
08
09
10
11
EPS (before IMI)
Absolute Total Shareholder Return (3 Year Compound per annum) %(1)
and Year End Share price $(1)
%
100
80
60
40
20
0
-20
$
6
5
4
3
2
1
0
07
08
09
10
11
Absolute TSR (3 Year compound pa)%
Year end share price
(1)
In respect of the 2007 financial year, 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 2011
23
For the LTI 2008/11, 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 2011. For the performance rights to vest,
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.
On determination of performance measured against the
performance conditions, in accordance with the LTI 2008/11
plan rules, none of Mr Fazzino’s performance rights vested.
The LTI 2009/12 and LTI 2010/13 are each for a three year
period and the performance conditions will not be tested until
after 30 September 2012 and 30 September 2013 respectively.
Termination by Incitec Pivot
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.
Termination by Managing Director & CEO
The agreement provides that Mr Fazzino may terminate his
employment on six months’ notice.
Effect of termination on long term incentives
In respect of the LTI 2009/12 and LTI 2010/13, generally the
performance rights will lapse except in circumstances of death,
total and permanent disablement, retrenchment or retirement.
In those circumstances, the performance rights will be reduced
pro rata to the proportion of days worked during the relevant
performance period.
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
For 2010/11, Mr Fazzino’s fixed annual remuneration was
$1,944,000, effective 1 January 2011. His fixed annual
remuneration is reviewed annually having regard to Incitec
Pivot’s executive remuneration policy.
STI
Mr Fazzino is eligible to participate in Incitec Pivot’s STI Plan.
For 2010/11, Mr Fazzino’s STI opportunity was between
50% and 100% of his fixed annual remuneration and was
determined by reference to growth in EPS (before IMIs) in the
2010/11 financial year.
•
Given EPS (before IMIs) has grown 19% in the 2010/11
financial year, Mr Fazzino was awarded a STI payment of
$1,944,000 in respect of the period from 1 October 2010 to
30 September 2011.
LTI
Mr Fazzino currently participates in the following LTI Plans:
•
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;
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; and
the LTI 2010/13 pursuant to which Mr Fazzino was issued
511,364 performance rights as approved by shareholders in
accordance with the ASX Listing Rules at the 2010 Annual
General Meeting held on 21 December 2010.
•
•
24
Incitec Pivot Limited Annual Report 2011
Executive Team
Termination by Incitec Pivot
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 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 described below. Details of the
nature and amount of each element of remuneration of the
Executives are included in table C.3.
Fixed annual remuneration
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.
Noting that there was no increase in the fixed annual
remuneration for the Executives in the 2009/10 financial year,
for the 2010/11 financial year, the fixed annual remuneration
for the Executives was increased with effect from 1 January
2011 by 8% from the 2008/09 levels. Three Executives
received increases of approximately 10% in line with market
benchmark data for their roles.
STI
Participation is at the Board’s discretion. For all Executives, for
the 2010/11 financial year, the STI opportunity was 50% of
fixed annual remuneration up to a maximum of 100% of fixed
annual remuneration and was determined with reference to
performance conditions outlined on page 18.
LTI
Participation is at the Board’s discretion. For the LTI 2008/11
and LTI 2009/12, 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
vesting of rights is determined with reference to conditions
based on Absolute TSR. For the LTI 2010/13, for all Executives
the LTI opportunity is 40% of fixed annual remuneration up
to a maximum of 80% of fixed annual remuneration and the
vesting of rights is determined with reference to conditions
based on Relative TSR and growth in EPS (before IMIs).
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 ‘capped’ number
of weeks for each Executive.
Mr Frank Micallef
Mrs Kerry Gleeson
Mr Bernard Walsh
Mr James Whiteside
Mr Gary Brinkworth
Mr Stephen Dawson
Mr Brian Wallace
Mr Jamie Rintel
Mr Simon Atkinson
Number of Weeks
26 weeks
26 weeks
61.81 weeks
45.41 weeks
26 weeks
26 weeks
52 weeks
26 weeks
52 weeks
Termination by the Executive
An Executive may terminate his/her employment on 13 weeks’
notice (save for 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 2009/12 and LTI 2010/13, generally the
performance rights will lapse except in circumstances of death,
total and permanent disablement, retrenchment or retirement.
In those circumstances, the performance rights will be reduced
pro rata to the proportion of days worked during the relevant
performance period.
Incitec Pivot Limited Annual Report 2011
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 2011
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
Managing Director
& CEO
F Micallef(1)
Chief Financial Officer
K J Gleeson
General Counsel &
Company Secretary
B C Walsh
President –
Global Manufacturing
J Whiteside
Chief Operating Officer –
Supply Chain & Trading
G Brinkworth
Chief Operating Officer –
Incitec Pivot Fertilisers
& General Manager –
Human Resources
S Dawson(2)
President – Dyno Nobel
Asia Pacific
B Wallace(3)
President – Dyno Nobel
Americas
J Rintel
President – Strategy &
Business Development
S Atkinson(4)
President – New Markets
Former
K Lynch(5)
General Manager –
Human Resources
D Brinker(6)
General Manager –
Explosives
A Grace(7)
General Manager
– Major Projects –
Moranbah Project
Director
Total Executives
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
1,893
1,785
1,944
1,800
694
601
614
579
672
633
500
471
500
427
497
408
492
454
525
489
428
301
–
27
–
164
–
471
726
528
642
475
595
451
525
389
499
389
472
381
514
255
525
393
449
258
–
–
–
383
–
389
–
–
–
–
–
–
–
–
–
9
–
–
–
20
17
32
48
61
118
156
–
–
–
176
–
–
15
15
15
14
15
15
15
15
15
15
15
15
15
13
7
16
15
15
15
11
–
1
–
35
–
15
89
38
–
–
17
11
35
14
22
10
–
–
26
12
–
–
4
24
8
6
–
–
–
–
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,003
899
431
285
128
265
175
290
192
217
141
205
85
166
42
222
108
225
93
145
41
–
–
–
9
–
–
–
141
Proportion of
remuneration
performance
related
Share-based
payments as
proportion of
remuneration
%
%
59%
55%
59%
52%
58%
52%
55%
49%
58%
51%
58%
52%
54%
48%
59%
42%
56%
45%
51%
39%
–
0%
–
0.5%
–
52%
19%
11%
17%
10%
17%
14%
18%
15%
17%
14%
17%
9%
14%
5%
18%
12%
17%
9%
12%
5%
–
0%
–
0.5%
–
14%
Total
$000
4,840
4,069
1,720
1,271
1,553
1,255
1,607
1,305
1,279
1,035
1,219
916
1,176
876
1,252
865
1,342
1,075
1,163
773
–
28
–
1,770
–
1,025
2011
2010
6,815
6,810
6,891
6,091
183
454
142
195
201
124
–
1,003
2,919 17,151
16,263
1,586
57%
45%
17%
10%
26
Incitec Pivot Limited Annual Report 2011
(A) Certain STI payments are awarded in US$. Such STI payments were converted to A$ at the spot rate on 30 September 2011, being 0.9782. In respect of
Mr. Brinker, he received a short term incentive payment in January 2010 in accordance with 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 (2011: 1 April 2010 to 31 March 2011)
(2010: 1 April 2009 to 31 March 2010), rent and mortgage interest subsidies, 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 2008/11, the performance conditions have not been satisfied and, while the accounting value is recorded in the table above, no performance
rights will vest.
External valuation advice from PricewaterhouseCoopers has been used to determine the fair value at grant date of these 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 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 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 2008/11, the LTI 2009/12, the LTI 2010/13, 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
LTI 2008/11
19/12/2008
30/09/2011
LTI performance
cash plan 2008/11
19/12/2008
30/09/2011
LTI 2009/12
16/12/2009
30/09/2012
LTI 2010/13 – TSR
23/12/2010
30/09/2013
LTI 2010/13 – EPS
23/12/2010
30/09/2013
Fair Value per share
treated as rights
at grant date
$0.30
$0.13
$1.60
$2.77
$3.76
Date
exercisable
From 1/10/2011
From 1/10/2011
From 1/10/2012
From 1/10/2013
From 1/10/2013
Exercise
Price
$nil
$nil
$nil
$nil
$nil
The number of 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.
(1) 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.
(2) 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.
(3) 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. Included within Mr Wallace’s share-based payments accounting value for the 2011 financial year is an amount of
$4,000 relating to the LTI performance cash plan 2008/11.
(4) Mr Atkinson became a Key Management Person during the 2010 financial year. The disclosures for the 2010 financial year are from the date he became a
Key Management Person, 1 January 2010.
(5) On 16 October 2009, Mr Lynch ceased employment with the Company.
(6) On 30 November 2009, Mr Brinker ceased employment with the Group. Mr Brinker’s termination benefits received during the 2010 financial year include a
separation payment, accrued holiday leave and relocation costs. Mr Brinker was entitled to the termination benefits under his employment contract. Except in
relation to the termination benefits, Mr Brinker’s benefits were converted from US$ to A$ at the average exchange rate for 1 October 2009 to 30 November 2009
being 0.91323. Termination benefits were converted from US$ to A$ at the spot rate on 30 November 2009 being 0.91290.
(7) With Mr Grace’s role as Moranbah Project Director, Mr Grace’s sole focus was the Project and he ceased to be a member of the Executive Team on
30 September 2010.
Incitec Pivot Limited Annual Report 2011
27
Directors’ Report
Remuneration Report
Details of performance related remuneration: short term incentives
Table C.4 – Short term incentives awarded for the year ended 30 September 2011
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2011 as remuneration to each
Executive are set out below:
Included in remuneration(A)
$000
% vested in year
% forfeited in year
Short term incentive
Executives
Current
J E Fazzino
F Micallef
K J Gleeson
B C Walsh
J Whiteside
G Brinkworth
S Dawson
B Wallace
J Rintel
S Atkinson
1,944
726
642
595
525
499
472
514
525
449
100%
100%
100%
85%
100%
95%
90%
100%
100%
100%
–
–
–
15%
–
5%
10%
–
–
–
(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.
28
Incitec Pivot Limited Annual Report 2011
Details of performance related remuneration: long term incentives
Table C.5 – Details of long term incentives granted and vested in the year ended 30 September 2011 and the
vesting profile of long term incentives granted as remuneration
Grant date
Number
granted(A)
Number
vested(B)
% Vested
in year
% Forfeited
in year(C)
Financial
year in which
grant vests
Key Management Personnel
Executives
Current
J E Fazzino
F Micallef (1)
K J Gleeson
B C Walsh
J Whiteside
G Brinkworth
S Dawson(2)
B Wallace(3)
J Rintel
S Atkinson(4)
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Cash Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
19 December 2008
23 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
19 December 2008
16 December 2009
23 December 2010
222,482
600,000
511,364
46,838
220,000
150,000
128,806
198,000
135,000
140,515
216,000
147,273
105,386
162,000
110,455
98,361
140,000
110,455
55,738
79,333
108,182
100,984
180,494
111,528
81,967
140,000
130,948
46,838
69,333
94,545
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
0%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
100%
–
–
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
(A) This includes the number of rights allocated to the participating Executives during the reporting period.
(B) For the 2010/11 financial year, this refers to the number of rights that vested during the reporting period.
(C) The percentage forfeited in the year represents 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 2009/12 and LTI 2010/13 are not tested until 30 September 2012 and 30 September 2013 respectively.
(1) Mr Micallef’s rights granted under the LTI 2008/11 were granted prior to his appointment as Chief Financial Officer on 23 October 2009.
(2) Mr Dawson’s rights were granted under the LTI 2008/11 prior to him becoming a Key Management Person on 12 November 2009.
(3) Mr Wallace’s entitlements granted under the LTI performance cash plan 2008/11 were granted prior to him becoming a Key Management Person
on 12 November 2009.
(4) Mr Atkinson’s 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.
Details of the terms and conditions of each grant of rights 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 right at grant date, the exercise price per 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 2011
29
Directors’ Report
Remuneration Report
Table C.6 – Analysis of movements in long term incentives during the year ended 30 September 2011
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 2011
Granted
during 2011 as
remuneration(A)
$000
Vested in
year(B)
$000
Forfeited
in year(C)
$000
Exercised
in year(D)
$000
Key Management Personnel
Executives
Current
J E Fazzino
F Micallef(1)
K J Gleeson
B C Walsh
J Whiteside
G Brinkworth(2)
S Dawson(3)
B Wallace(4)
J Rintel(5)
S Atkinson(6)
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Cash Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Performance Rights Plan 2010/13
Performance Rights Plan 2008/11
Performance Share Plan 2007/10
Grant date
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
23 December 2010
19 December 2008
12 November 2007
1,670
–
–
490
–
–
441
–
–
481
–
–
361
–
–
361
–
–
353
–
–
364
–
–
428
–
–
309
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
67
–
–
14
–
–
39
–
–
42
–
–
32
–
–
30
–
–
17
–
–
13
–
–
25
–
–
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(A) The value of rights granted in the year is the fair value of those rights 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 2011 to 2013 for
the LTI 2010/13).
(B) The value of rights that vested during the year represents awards to the applicable executives who satisfied the criteria under the LTI performance plan. As the criteria
(C)
under the LTI 2008/11 were not satisfied, no rights vested during the 2010/11 financial year.
The value of rights that were forfeited during the year represents the benefit foregone and is calculated by reference to the fair value of those rights calculated at
grant date using a Black-Scholes option-pricing model. Please refer to footnote (D) of table C.3 for further details of the fair value of performance rights at grant date.
(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. No awards (in the form of waivers of loans) were granted in relation to the LTI 2007/10.
(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 him becoming a Key
Management Person 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, under the LTI 2007/10 and entitlement 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, under the LTI 2007/10 were granted prior to his appointment as a Key Management Person on 1 June 2008.
(6) Mr Atkinson’s rights were granted under the LTI 2008/11 and shares, treated as options, were granted under the LTI 2007/10 prior to him becoming a Key
Management Person on 1 January 2010.
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.
30
Incitec Pivot Limited Annual Report 2011
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 reviewed its corporate governance
framework and practices and has, where possible, 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 2011.
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
Direction and objectives
Direction and objectives – approving the Company’s
– approving the Company’s
corporate strategy and budgets;
Compliance
Compliance
Compliance – ensuring and monitoring compliance with all
– ensuring and monitoring compliance with all
laws, governmental regulations and accounting standards;
•
•
•
Ethical
Ethical
Ethical – monitoring and influencing Incitec Pivot’s culture
– 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
Managing Director & CEO and direct reports
Managing Director & CEO and direct reports – appointing
– 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.
Incitec Pivot Limited Annual Report 2011
31
Directors’ Report
Corporate Governance Statement
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.
Mr John Watson and Mr Anthony Larkin are retiring by rotation
and standing for re-election at the 2011 Annual General
Meeting. Ms Rebecca McGrath, who was appointed by the
Board as a director on 15 September 2011, will stand for
re-election at the 2011 Annual General Meeting.
The executive performance evaluations for the 2009/10
financial year were conducted in the final quarter of the 2010
calendar year in accordance with the process outlined above.
Performance evaluations for the 2010/11 financial year are
being conducted in the final quarter of the 2011 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 not 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 eight directors, including seven 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;
Paul Brasher: 29 September 2010; and
Rebecca McGrath: 15 September 2011.
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.
The Managing Director & CEO serves as a director until he
ceases to be the Managing Director & CEO.
The roles of Chairman and Managing Director & CEO
are separate.
The Board’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 2010/11
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;
32
Incitec Pivot Limited Annual Report 2011
•
•
the strategic importance of the relationship to Incitec Pivot’s
business; and
the extent to which the services provided by or to Incitec
Pivot are integral to the operation of Incitec Pivot’s business,
including the extent to which the services provided are
unique and not readily replaceable.
The 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
financial year ended 30 September 2011 is set out on page
10 of this Annual Report.
The Board considers that each of John Watson, Allan McCallum,
Anthony Larkin, John Marlay, Graham Smorgon, Paul Brasher
and Rebecca McGrath 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 eight
directors, the Board considers seven 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
nominations and appointments – assists and advises the
– assists and advises the
nominations and appointments
•
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
remuneration
remuneration – assists and advises the Board on
– 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 (Chairman), John Watson and
Paul Brasher.
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,
Graham Smorgon 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 ended 30 September
2011 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 that of the Board is a process determined
by the Chairman and the Remuneration and Appointments
Committee. Performance assessments are intended to assist
the Board in carrying out its responsibilities (as set out in its
Charter) and ensure the Board remains effective. The Board’s
annual performance review took place in August 2011 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 2011/12 objectives for the Board and will
be implemented throughout the Company’s 2011/12 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 2011 Annual
General Meeting, Mr John Watson and Mr Anthony Larkin, their
performance was reviewed as part of their nomination for
re-election. Periodically, the Board engages external consultants
to undertake comprehensive reviews of the effectiveness of the
Board. The next external review is scheduled to take place in
the 2011/12 financial year.
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.
Incitec Pivot Limited Annual Report 2011
33
Directors’ Report
Corporate Governance Statement
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
Guide, which is a code of conduct for all employees. The
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; 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
Management, which sets out additional ethical standards
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
Policy
Policy, which sets out the Company’s commitment to
its 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.
•
•
34
Incitec Pivot Limited Annual Report 2011
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 Code of Ethics, policies or
the law. 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
and received an acknowledgement of the confirmation from
the Company Secretary. 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 Company’s Share Trading Policy
is in compliance with the requirements under the relevant
ASX Listing Rules.
Details of shares in the Company held by the directors are set
out in Note 35, Key Management Personnel disclosures.
Diversity
The Revised Recommendations, with regard to diversity, take
effect for Incitec Pivot in its 2011/12 financial year, when
Incitec Pivot will establish a policy addressing gender diversity
as required by the Revised Recommendations.
However, in the meantime, Incitec Pivot has already introduced
a number of changes within its governance framework,
for example, under its Charter, the Remuneration and
Appointments Committee is charged with:
•
•
reviewing and reporting to the Board about the proportion
of women at all levels of the Company; and
overseeing the development of, and making
recommendations to the Board about strategies to address
diversity, including the development of a diversity policy.
The Board has a number of initiatives in place to ensure a
diverse board, including placing diversity on the agenda
regularly for meetings of the Remuneration and Appointments
Committee and establishing a process to regularly assess the
skills, experience and background of the Board members
with a view to ensuring a diverse mix relative to the Group’s
business and operations. In addition, the Chairman participated
in the AICD ASX 200 Chairmen’s mentoring program which was
designed to assist in the development of a broader pool of
Board candidates.
During the 2010/11 financial year, in furtherance of the
Group’s recognition of the important contribution made to its
business and operations by its people working across many
different countries, with diverse experience, background,
age, gender and cultural association, Incitec Pivot established
a Diversity Council.
The Diversity Council was formed in recognition of the
challenges presented by the industries within which the Group
operates and the nature of its operations, which includes
heavy manufacturing sites and remote and regional operations.
The remit of the Diversity Council is to champion, influence
and support the Company’s diversity agenda, leading to the
development of a diversity strategy directly relevant to Incitec
Pivot’s business and operations.
The Diversity Council has undertaken a diagnostic of the Group’s
operations and practices, accessing qualitative and quantitative
data which has lead to the development of key priorities for
diversity in 2012, including:
•
•
reward and recognition practices; and
an indigenous employment program noting that in 2011
Incitec Pivot signed the Australian Employment Covenant.
Underpinning these priorities is the Group’s continued
focus on leadership development. The Group’s leadership
program, in place since 2010, was designed to create a strong
organisational climate resulting from enhanced employee
engagement, which independent research has shown leads
to outstanding performance. This leadership program will
be reviewed in 2012 with a view to establishing a clearer
understanding of diversity among leaders.
In 2011, as was the case in 2010, the Company received
confirmation from the Australian Government’s Equal
Opportunity for Women in the Workplace Agency that it
was compliant with the Equal Opportunity for Women in the
Workplace Act 1999. The table below shows the percentage
of females employed in the following categories as at
30 September 2011.
Board
Executive
Management
Global
% Females at 30 September 2011
12%
10%
13.7%
14.2%
In accordance with the Revised Recommendations, Incitec Pivot
will commence reporting on its diversity policy in the 2012
Annual Report.
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), Graham Smorgon
and Paul Brasher, 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 ended 30 September 2011 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.
Incitec Pivot Limited Annual Report 2011
35
Directors’ Report
Corporate Governance Statement
Internal control and risk management
•
risk management strategies – receive reports from
management, the internal auditor and external auditor
concerning 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
•
•
•
•
•
•
•
•
•
•
•
•
36
Incitec Pivot Limited Annual Report 2011
•
assessment – conduct an annual assessment of
the effectiveness of internal controls and financial
reporting procedures.
External auditor
The role of the external auditor is to provide an independent
opinion that the Company’s financial reports are true and fair
and comply with the applicable regulations.
KPMG is the Company’s external auditor.
The lead audit partner and review partner of the Company’s
external auditor rotate every five years. The current lead audit
partner was 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. The current review
partner was appointed for the 2010/11 audit of the Company.
Restrictions are placed on non-audit work performed by the
auditor and projects outside the scope of the audit require
the approval of the Audit and Risk Management Committee.
Further details are set out in Note 7 to the financial statements,
Auditor’s remuneration.
Since KPMG’s appointment, KPMG’s lead audit partner and
other representatives from KPMG have attended the Company’s
annual general meetings and were available to answer
questions from shareholders, as appropriate.
For the next Annual General Meeting to be held on 20
December 2011, 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.
KPMG was appointed as auditor of the Company on 4
September 2003 following the merger with Incitec Fertilizers
Limited. Since that time, KPMG has conducted the audit in
an effective and competent manner. Given KPMG’s tenure,
the Board undertook a detailed review of accounting firms
with the necessary capabilities to undertake the Company’s
audit. Following this review, the directors recommended the
appointment of Deloitte Touche Tohmatsu as auditor of the
Company in respect of the financial year commencing 1 October
2011 and a resolution to this effect is to be proposed at the
2011 Annual General Meeting.
Internal auditor
During the financial year ended 30 September 2011,
Deloitte Touche Tohmatsu was the Company’s internal
auditor, undertaking internal audits to an annual plan
approved by the Audit and Risk Management Committee.
With the proposed appointment of Deloitte Touche Tohmatsu
as external auditor, Deloitte Touche Tohmatsu will cease to be
internal auditor. Management has established an internal audit
function and this function’s internal audit plan will be approved
by the 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.
The Shareholder Communications 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 of
risk, which is based on the level of risk Incitec Pivot is able to
sustain in achieving its corporate objective of delivering value to
shareholders. Risks are identified, analysed and prioritised using
common methodologies and risk controls are designed and
implemented having regard to the overall corporate strategy.
The risk controls adopted by Incitec Pivot are administered
via a Group-wide framework, and include:
•
identifying, evaluating, treating, monitoring, and
reporting on material business risks to the Audit and Risk
Management Committee;
the internal audit function;
annual budgeting and monthly reporting systems to monitor
performance;
delegations of authority;
guidelines for the authorisation of capital expenditure;
a compliance program supported by approved guidelines
and standards covering health, safety and environment,
and regulatory compliance;
policies and procedures for the management of financial
risk and treasury operations, including exposures to foreign
currencies and movements in interest rates;
a letter of assurance process to provide assurance from
management that all controls are in place and operating
appropriately; and
business continuity plans.
•
•
•
•
•
•
•
•
A summary of the Group Risk Policy is available on the
corporate governance section of Incitec Pivot’s website,
www.incitecpivot.com.au.
Risk management roles and responsibilities
The Board is responsible for reviewing and approving the
overall management of risk and internal control. The Board
monitors the 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
35 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.
The following paragraphs describe the material risks associated
with Incitec Pivot’s business and operations. There may be
additional risks unknown to Incitec Pivot and other risks,
currently believed to be immaterial, which could become
material. These risks, which may occur individually or
concurrently, could significantly affect the Company’s business
and operations. The risks outlined below do not include details
as to how each risk is managed and the mitigation strategies
adopted, or the manner in which those risks may have a
Incitec Pivot Limited Annual Report 2011
37
Directors’ Report
Corporate Governance Statement
positive or negative impact on the Group. The Group’s process
for managing risk is set out in the above section titled “Risk
oversight and management”.
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.
Further, in relation to both its Fertilisers business and its
Explosives business, seasonal conditions, particularly rainfall, are
a key factor for determining demand and sales. Any prolonged
adverse weather conditions could impact the future profitability
and prospects of Incitec Pivot.
38
Incitec Pivot Limited Annual Report 2011
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
the carbon pricing scheme or future carbon trading regimes,
together with any legislative requirements relating to climate
change or associated issues.
Incitec Pivot’s business is subject to environmental laws
and regulations that require specific operating licences
and impose various requirements and standards. Changes in
these laws and regulations, or changes to licence conditions
may have a detrimental effect on Incitec Pivot’s operations
and financial performance, including the need to undertake
environmental remediation.
Incitec Pivot is exposed to potential legal and other claims or
disputes in the course of its business, including contractual
disputes, property damage and personal liability claims in
connection with operational and health and safety matters.
Risk management and internal controls
Management, through the Managing Director & CEO and the
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.
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 2011
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 2011 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 11th day of November 2011
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 2011.
CEO and CFO Declaration and Assurance
In accordance with the ASX Recommendations, for the financial
year ended 30 September 2011, the Board received written
assurance from the Managing Director & CEO 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 33 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-executive directors,
being John Marlay (Chairman), John Watson and Paul Brasher.
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.
Incitec Pivot Limited Annual Report 2011
39
40
Incitec Pivot Limited Annual Report 2011
Financial Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Directors’ Declaration on the Consolidated
Financial Statements set out on pages 42 to 111
Audit Report
Shareholder Statistics
Five Year Financial Statistics
42
43
44
45
46
47
112
113
115
116
Consolidated Income Statement
For the year ended 30 September 2011
Revenue
Financial and other 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
Share of profit on equity accounted investments
Asset write-downs, clean-up and environmental provisions
Other expenses
Profit before income tax
Income tax expense
Profit for the financial year
Profit attributable to:
Members of Incitec Pivot Limited
Non-controlling interest
Earnings per share
Basic earnings per share
Diluted earnings per share
Consolidated
Notes
(4)
(4)
(5)
(5)
(5)
(16)
(8)
2011
$mill
3,906.3
46.3
141.2
(2,062.1)
(549.1)
(148.2)
(63.1)
(159.7)
(119.2)
(218.5)
(60.3)
24.2
(23.7)
(92.7)
(3,331.2)
621.4
(154.1)
467.3
2010
$mill
2,931.7
53.7
(69.3)
(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
463.2
4.1
410.5
1.7
cents
cents
(9)
(9)
28.4
28.4
25.3
25.3
The above Consolidated Income Statement is to be read in conjunction with the Notes to the Consolidated Financial Statements set out on
pages 47 to 111.
42
Incitec Pivot Limited Annual Report 2011
Notes
Consolidated
2011
$mill
2010
$mill
467.3
412.2
51.7
(90.5)
8.1
(30.7)
(20.1)
6.0
(14.1)
(84.6)
(21.8)
(61.3)
(167.7)
(29.5)
10.0
(19.5)
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)
(232.0)
(128.8)
235.3
283.4
231.2
4.1
281.7
1.7
Consolidated Statement of Comprehensive Income
For the year ended 30 September 2011
Profit 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 Consolidated Income Statement
Income tax on movements in the cash-flow hedging reserve
Fair value reserve
Change in fair value of equity instruments
Income tax on change in fair value of equity instruments
Foreign currency translation reserve
Exchange differences on translation of foreign operations
Net (loss) / gain on hedge of net investment
Income tax on movements in foreign currency translation reserve
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 for the financial year
Total comprehensive income attributable to:
Members of Incitec Pivot Limited
Non-controlling interest
The above Consolidated Statement of Comprehensive Income is to be read in conjunction with the Notes to the Consolidated Financial
Statements set out on pages 47 to 111.
Incitec Pivot Limited Annual Report 2011
43
Consolidated Statement of Financial Position
As at 30 September 2011
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Assets classified as held for sale
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
Other financial 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)
(22)
(23)
(24)
(25)
(26)
Consolidated
2011
$mill
379.7
451.9
477.9
31.2
40.8
6.5
1,388.0
16.1
17.5
52.9
257.1
2,283.3
2,942.3
44.7
5,613.9
7,001.9
875.1
95.7
0.6
98.3
93.5
1,163.2
281.9
1,472.8
2.9
63.8
195.3
115.3
2,132.0
3,295.2
3,706.7
3,265.9
(192.8)
628.6
5.0
3,706.7
2010*
$mill
48.7
437.5
336.2
36.2
111.6
9.1
979.3
15.3
2.5
28.7
256.5
1,844.1
3,010.0
173.9
5,331.0
6,310.3
697.5
108.5
1.7
82.6
25.1
915.4
378.3
1,037.3
-
82.6
190.1
95.3
1,783.6
2,699.0
3,611.3
3,265.9
7.0
336.3
2.1
3,611.3
*Comparative information has been restated to reflect the amendments to provisional asset and liability fair values on the acquisition of
Nitromak DNX Kimya Sanayii A.S. in the prior financial year.
The above Consolidated Statement of Financial Position is to be read in conjunction with the Notes to the Consolidated Financial Statements
set out on pages 47 to 111.
44
Incitec Pivot Limited Annual Report 2011
Consolidated Statement of Cash Flows
For the year ended 30 September 2011
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 investments
Proceeds from sale of property, plant and equipment
Loans to equity-accounted investees
Proceeds from settlement of net investment hedge derivatives
Net cash flows from investing activities
Cash flows from financing activities
Repayments of borrowings
Proceeds from borrowings
Payment of borrowing costs
Realised market value gains on cross currency swaps
Dividends paid
Net cash flows from financing activities
Net increase / (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
2010
$mill
Inflows/
(Outflows)
2011
$mill
Inflows/
(Outflows)
4,279.3
(3,565.5)
4.8
(22.7)
27.7
(4.5)
719.1
3,145.3
(2,599.2)
4.9
(43.6)
31.8
(10.3)
528.9
(646.6)
-
(0.2)
1.7
36.2
(15.0)
16.1
(607.8)
(127.2)
509.7
(10.7)
-
(151.4)
220.4
331.7
48.7
(0.7)
379.7
(316.3)
(97.1)
(6.6)
-
19.0
-
-
(401.0)
(1,380.4)
1,003.5
(8.3)
201.3
(18.3)
(202.2)
(74.3)
125.2
(2.2)
48.7
(29)
(28)
(10)
The above Consolidated Statement of Cash Flows is to be read in conjunction with the Notes to the Consolidated Financial Statements set
out on pages 47 to 111.
Incitec Pivot Limited Annual Report 2011
45
Consolidated Statement of Changes in Equity
For the year ended 30 September 2011
Consolidated
Balance at 1 October 2009
Profit for the financial year
Total other comprehensive income / (expense) for the period
Sale of share capital to minority interest holder
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
Balance at 1 October 2010
Profit for the financial year
Total other comprehensive (expense) for the period
Dividends paid
Share based payment transactions
Dividends received as loan repayment
Option expense
Loan repayments
Balance at 30 September 2011
Cash flow
hedging
reserve
Share
based
payments
reserve
Foreign
currency
translation
reserve
Fair value
reserve
Retained
earnings
$mill
$mill
$mill
$mill
$mill
Minority
interest Total equity
$mill
$mill
Total
$mill
(10.6)
-
30.8
-
-
-
-
-
-
-
20.2
20.2
-
(30.7)
-
-
-
-
(10.5)
(7.0)
-
-
-
-
-
0.1
3.8
0.6
1.7
(0.8)
(0.8)
-
-
-
0.1
7.7
4.9
11.9
113.9
-
(136.1)
-
-
-
-
-
-
-
(22.2)
(22.2)
-
(167.7)
-
-
-
-
(189.9)
22.8
-
(13.0)
-
-
-
-
-
-
-
9.8
9.8
-
(14.1)
-
-
-
-
(4.3)
2.7
410.5
(10.5)
-
(66.4)
-
-
-
-
-
336.3
3,339.6
410.5
(128.8)
-
(66.4)
48.1
0.1
3.8
0.6
1.7
3,609.2
336.3
463.2
(19.5)
(151.4)
3,609.2
463.2
(232.0)
(151.4)
-
-
-
628.6
0.1
7.7
4.9
3,701.7
-
1.7
-
0.4
-
-
-
-
-
-
2.1
2.1
4.1
-
(1.2)
-
-
-
5.0
3,339.6
412.2
(128.8)
0.4
(66.4)
48.1
0.1
3.8
0.6
1.7
3,611.3
3,611.3
467.3
(232.0)
(152.6)
0.1
7.7
4.9
3,706.7
Issued
capital
$mill
3,217.8
-
-
-
-
48.1
-
-
-
-
3,265.9
3,265.9
-
-
-
-
-
-
3,265.9
The Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated 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 fair value of shares treated as options and of rights recognised as an employee expense
over the relevant vesting period and transactions associated with the 2006/09 and the 2007/10 Long Term Incentive plans.
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 portion of the reserve is recognised in the Consolidated Income Statement when the foreign operation is disposed of.
The foreign currency translation reserve 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 equity instruments.
Minority interest
Represents a 35% outside equity interest in Quantum Fertilisers Limited, a Hong Kong based fertiliser marketing company.
46
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 reporting date
48
55
56
59
59
60
61
62
63
63
64
64
64
65
65
66
69
70
72
73
74
75
75
78
79
81
81
82
83
84
85
86
92
96
97
102
107
109
110
111
Incitec Pivot Limited Annual Report 2011
47
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 11 November 2011.
The significant accounting policies adopted in preparing the
consolidated financial statements of Incitec Pivot and of its controlled
entities (collectively ‘the Group’) are stated below to assist in a
general understanding of the consolidated financial statements.
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 consolidated financial statements are general purpose financial
statements which have 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 statements of
the Group comply with International Financial Reporting Standards
(IFRSs) and interpretations adopted by the International Accounting
Standards Board (IASB).
Historical cost convention
These consolidated financial statements have been prepared under
the historical cost convention, except for derivative financial
instruments, investments in equity instruments, 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 consolidated financial statements are presented in Australian
dollars.
Critical accounting estimates
The preparation of consolidated 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
consolidated 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 124 Related Party Disclosures (revised December 2009)
• AASB 1054 Additional Australian Disclosures
• AASB 2011-1 Amendments to Australian Accounting Standards
arising from the Trans-Tasman Convergence project
• AASB 9 Financial Instruments (2009)
The early adoption of AASB 124 increased the related party
disclosure requirements to include disclosure of transactions
between jointly controlled entities of the IPL Group. This has resulted
in changes to Related Party disclosures as disclosed in Note 34.
The early adoption of AASB 9 requires that an entity classify its
financial assets as subsequently measured at either amortised cost or
fair value depending on the entity’s business model for managing the
financial assets and their contractual cash flow characteristics. This
resulted in changes to the classification of financial assets. Refer to
Note 1(ix) for the accounting policy on other financial assets.
Other than the impact of AASB 124 and AASB 9, 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
consolidated financial statements:
• AASB 2010-6 Amendments to Australian Accounting Standards
– Disclosures on Transfers of Financial Assets increases the
disclosure requirements for transactions involving transfers of
financial assets. AASB 2010-6 will become mandatory for the
Group’s 30 September 2012 consolidated financial statements.
The Group has not yet determined the potential impact of this
standard.
• Amendments to AASB 119: Employee Benefits eliminates the
option to apply the ‘corridor method’ when accounting for defined
benefit funds, amends the measurement methodology for
calculating net interest expense in relation to defined benefit
funds, enhances disclosure requirements for defined benefit
plans and changes the measurement methodology for employee
entitlements not expected to be settled in less than twelve
months. The amendments will become mandatory for the
Group’s 30 September 2014 consolidated financial statements.
The Group has not yet quantified the potential impact of these
amendments.
• Amendments to AASB 101: Presentation of Financial
Statements retains the option to present the consolidated
statement of comprehensive income either in a single continuous
statement or in two separate, but consecutive statements, but
introduces the requirement that items that will never be
recognised in profit or loss are to be presented separately from
those that are subject to subsequent reclassification (recycling).
The amendments which will become mandatory for the Group’s
30 September 2013 consolidated financial statements, are not
expected to have a significant impact on the consolidated
financial statements.
• AASB 13: Fair Value Measurement provides a new definition of
fair value based on exit price and additional guidance for
measuring fair value. The amendments also require additional
disclosure related to fair value measurements and valuation
techniques. The amendments, which will become mandatory for
the Group’s 30 September 2014 consolidated financial
statements, are not expected to have a significant impact on the
Group’s consolidated financial statements.
• AASB 11: Joint Arrangements reduces the ‘types’ of joint
arrangements from three to two and eliminates the option to
apply proportionate consolidation. The amendments, which will
become mandatory for the Group’s 30 September 2014
consolidated financial statements, are not expected to have a
significant impact on the consolidated financial statements.
• AASB 10: Consolidated Financial Statements creates a broader
definition of control whereby control is defined as the power to
direct the activities of another entity to generate returns. IFRS
10, which will become mandatory for the Group’s 30 September
2014 consolidated financial statements, is not expected to have
a significant impact on the Group’s consolidated financial
statements.
48
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
1. Significant accounting policies (continued)
(i) Basis of preparation (continued)
Issued Standards not early adopted (continued)
• AASB 12: Disclosure of Interests in Other Entities, requires
more extensive qualitative disclosures around judgement used
by management in determining whether an entity is controlled by
the Group and additional financial disclosures of the Group’s
material non-controlling interest in subsidiaries. AASB 12, which
will become mandatory for the Group’s 30 September 2014
consolidated financial statements, is not expected to have a
significant impact on the Group’s consolidated financial
statements.
(ii) Consolidation
(a) Subsidiaries
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of Incitec Pivot Limited as at 30
September 2011 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.
(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.
Commissions when the Group acts in the capacity of an agent rather
than as the principal in a transaction, the revenue recognised is the
net amount of commission made by the Group.
Interest income is recognised as it accrues.
Dividends receivable are recognised in the Consolidated 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, a weighted
average interest rate is used for capitalising interest to qualifying
assets.
(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 Consolidated Income Statement.
(vi) Taxation
Income tax expense comprises current and deferred tax and is
recognised in the Consolidated 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.
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.
Incitec Pivot Limited Annual Report 2011
49
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
(ix) Other financial assets
Change in Accounting Policy:
The Group has early adopted AASB 9 Financial Instruments as
issued in 2009, with initial application from 1 October 2010 (being the
beginning of the period). AASB 9 requires that an entity classify its
financial assets as subsequently measured at either amortised cost or
fair value depending on the entity’s business model for managing the
financial assets and the contractual cash flow characteristics of the
financial assets.
This change in accounting policy has been applied on a retrospective
basis, from 1 October 2010 without restatement of prior periods. The
adoption of this standard has no material impact on the measurement
of the Group’s financial assets and, therefore, has no impact on the
Group’s earnings per share for the year.
The adoption of AASB 9 resulted in Cash and cash equivalents,
Trade receivables and Other receivables being measured at
amortised cost, which is a change from the classification of Loans
and receivables as previously measured under AASB 139.
In accordance with AASB 9, the Group has designated its investment
in equity securities that were formerly designated as “available-for-
sale”, as “fair value through other comprehensive income”. This
results in all realised and unrealised gains and losses from the
investment portfolio being recognised directly in equity through “other
comprehensive income” in the Consolidated Statement of
Comprehensive Income. Dividend income is recognised in the
Consolidated Income Statement.
The adoption of AASB 9 does not impact the original carrying
amount of the Group’s financial assets, previously measured
under AASB 139.
(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 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 Consolidated Statement of Financial Position.
1. Significant accounting policies (continued)
(vi) Taxation (continued)
Deferred tax assets are recognised for unused tax losses, tax credits
and deductible temporary differences, 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 Group 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 Limited.
(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 may 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 Consolidated
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 Consolidated
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
Consolidated Statement of Financial Position.
50
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
1. Significant accounting policies (continued)
(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 in the current and comparative periods of
each class of asset are as follows:
• Buildings and improvements
20 to 40 years
• Machinery, plant and equipment 3 to 30 years
The assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date.
Certain items of property, plant and equipment that had been
revalued to fair value on or prior to 1 October 2004, the date of
transition to 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 Consolidated 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 Consolidated Income Statement
on a straight line basis over the term of the lease.
(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 Consolidated 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 Consolidated 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 Consolidated Income Statement on a
straight-line basis over the estimated useful lives of intangible
assets, unless such lives are indefinite. Goodwill and brand names
are systematically tested for impairment at each annual reporting
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 Consolidated 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.
Incitec Pivot Limited Annual Report 2011
51
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
1. Significant accounting policies (continued)
(xv) Segment Reporting
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.
(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 Consolidated 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 Consolidated 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 reporting 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 Consolidated 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.
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.
For sites where there are uncertainties with respect to the
remediation obligations or the remediation techniques that might be
approved and no reliable estimate can presently be made of
regulatory and remediation costs, no amounts have been capitalised,
expensed or provided.
(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 part of the 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 Consolidated Income Statement.
(c) Self-insurance
The Group self-insures for certain insurance risks. Outstanding
claims are recognised when an incident occurs that may give rise
to a claim and are measured at the cost that the entity expects to
incur in settling the claims.
(d) Employee entitlements
Current Entitlements
Provisions are made for liabilities to employees for annual leave,
sick leave and other current employee entitlements that represent
the amount for which the 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 Entitlements
Liabilities for employee entitlements which are not expected to be
settled within twelve months of reporting 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 consolidated
financial statements.
(e) Retirement benefit obligation
Contributions to defined contribution superannuation funds are
charged to the Consolidated Income Statement in the year in which
the expense is incurred.
For defined benefit schemes, the cost of providing superannuation
and pension benefits is charged to the Consolidated 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 and pension 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
reporting 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.
52
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
1. Significant accounting policies (continued)
(xvii) Provisions (continued)
(f) 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.
(g) 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.
(h) 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.
(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”).
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 Consolidated Income
Statement, except when they are deferred in equity as qualifying
cash flow hedges or net investment 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 the Consolidated Income Statement on disposal of
the foreign operation.
Goodwill and fair value adjustments arising on the acquisition 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 Consolidated 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
Consolidated Income Statement.
Amounts accumulated in equity are recycled in the Consolidated
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 Consolidated 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 the Consolidated Income
Statement. 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 Consolidated 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.
Incitec Pivot Limited Annual Report 2011
53
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 asset’s 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 Consolidated 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
Consolidated Statement of Financial Position.
Cash flows are included in the Consolidated 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 consolidated financial statements.
Amounts in the consolidated financial statements have been
rounded off in accordance with that Class Order to the nearest one
hundred thousand dollars, or in certain cases, the nearest one
thousand dollars.
1. Significant accounting policies (continued)
(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. No gain or loss is recognised in
the Consolidated Income Statement 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 equity instruments) is based on
quoted market prices at the reporting 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 reporting 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
54
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 consolidated
financial statements:
•
•
•
• provision for environmental and restructuring liabilities;
•
the testing for impairment of assets;
the testing for impairment of goodwill;
income tax related assumptions and estimates;
the calculation of annual superannuation and pension 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’.
(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 consolidated 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 Consolidated
Income Statement in the period in which such determination is made.
Refer Note 1 (xvii) (a) & Note 1 (xvii) (f) to the consolidated 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 and
pension plans is recognised in the Consolidated 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 consolidated financial statements for
further details of the accounting policy relating to retirement benefit
obligations. Refer Note 25 of the consolidated 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 2011
55
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 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 imports 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 marketing 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 (USA, Canada, Mexico and Chile) and Turkey,
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.
56
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
3. Segment report (continued)
(d) Reportable segments
30 September 2011
IPF
$mill
SCI
$mill
Elim
$mill
Total
Fertilisers
$mill
Sales to external customers
1,185.5
1,238.6
(193.8)
2,230.3
DNAP
$mill
533.1
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Corp/Group
Elim
$mill
Consolidated
Group
$mill
1,172.5
(27.5)
1,678.1
(2.1)
3,906.3
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)
Non-controlling interest
Individually material items
Profit after tax
-
-
-
-
12.1
12.1
-
24.2
-
24.2
156.0
(27.2)
353.3
(29.4)
(3.7)
-
505.6
(56.6)
215.3
(19.9)
244.3
(70.5)
(0.4)
-
459.2
(90.4)
(44.5)
(1.2)
920.3
(148.2)
128.8
323.9
(3.7)
449.0
195.4
173.8
(0.4)
368.8
(45.7)
772.1
(58.2)
(179.7)
534.2
(4.1)
(66.9)
463.2
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
Corp/Group
Elim
$mill
Consolidated
Group
$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)
Non-controlling interest
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
(1.7)
(32.3)
410.5
Incitec Pivot Limited Annual Report 2011
57
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 2011
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
2,303.6
811.0
225.0
82.9
483.8
3,906.3
3,170.2 2,074.8
54.8
129.6
97.0
5,526.4
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
153.6
76.9
5,128.4
58
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
4. Revenue and other income
Revenue
External sales
Total revenue
Financial income
Interest income from external parties
Interest income from jointly controlled entities
Total financial income
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
Total financial and other income
5. Expenses
Profit before income tax includes the following specific expenses:
Depreciation & Amortisation
depreciation
amortisation
Recoverable amount write-down
property, plant and equipment
Amounts set aside to provide for
impairment loss on trade and other receivables
employee entitlements
environmental liabilities
inventory losses and obsolescence
other provisions
restructuring
Lease payments – operating leases
Net foreign exchange losses
Research and development expense
Defined contribution superannuation expense
Defined benefit superannuation/pension expense
Financial expenses
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
2011
$mill
2010
$mill
Notes
(34)
(34)
(29)
3,906.3
3,906.3
2,931.7
2,931.7
4.1
0.8
4.9
-
20.7
18.0
2.7
-
41.4
46.3
2.8
2.5
5.3
0.6
23.8
4.3
0.7
19.0
48.4
53.7
(17)
(18)
(29)
124.7
23.5
148.2
112.1
26.9
139.0
(17),(29)
(23)
(23)
(23)
(25)
(29)
(34)
7.6
7.6
5.9
6.4
7.2
0.9
4.1
15.0
60.3
1.8
7.9
15.8
5.0
25.2
37.8
0.1
63.1
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
Incitec Pivot Limited Annual Report 2011
59
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
6.
Individually material items
Profit includes the following revenues / (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
accounting acquisition profit - Nitromak(3)
asbestos environmental costs at various sites(4)
loss on sale and impairment of drilling businesses (5)
profit on sale of property, plant and equipment (6)
Total other
Consolidated
Gross
$mill
Notes
2011
Tax
$mill
Net
$mill
Gross
$mill
2010
Tax
$mill
Net
$mill
(25.9)
(28.3)
(54.2)
(11.9)
(4.4)
(16.3)
-
-
(41.1)
19.1
(22.0)
10.0
9.4
19.4
3.5
1.2
4.7
-
-
1.5
-
1.5
(15.9)
(18.9)
(34.8)
(8.4)
(3.2)
(11.6)
-
-
(39.6)
19.1
(20.5)
(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
Individually material items
(9)
(92.5)
25.6
(66.9)
(55.4)
23.1
(32.3)
(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) During 2010, the Group acquired the remaining 50% interest in Nitromak DNX Kimya Sanayii A.S. (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.
(4) Environmental costs at various sites, including estimated costs to remediate asbestos identified at some sites.
(5) During 2011, the Group sold its 100% ownership interest in the Canadian drilling business DNX Castonguay Inc (Castonguay) for $1.5m. A
loss on the sale of $35.2m (including foreign exchange losses) was recorded. Additionally, an impairment charge against property, plant
and equipment of $6.0m was recognised in relation to other drilling businesses.
(6) Gain on sale of land.
60
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
Other assurance services
Non audit services
Auditors of the Group - KPMG Australia
taxation services
other services
Consolidated
2011
$000
2010
$000
1,052.9
633.9
62.7
252.0
121.7
2,123.2
7.8
-
7.8
2,131.0
1,092.5
992.7
25.0
231.0
-
2,341.2
-
80.1
80.1
2,421.3
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 $100,000, as well as where the
aggregate amount exceeds $250,000 per annum.
Incitec Pivot Limited Annual Report 2011
61
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
8.
Income tax expense
Income tax expense
(a)
Current tax
Current year
Over provision in prior years
Deferred tax
Origination and reversal of temporary differences
Total income tax expense
(b) Reconciliation of income tax expense
and pre-tax accounting profit
Profit before income tax
Income tax expense attributable to profit before income tax
Tax at the Australian tax rate of 30% (2010 at 30%)
on profit before income tax
Tax effect of amounts which are not deductible / (taxable)
in calculating taxable income:
Research and development incentive
Share-based payments
Participation facility
Valuation allowances
Sundry items
Difference in overseas tax rates
Overprovision in prior years
Income tax expense 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 directly to equity
Consolidated
2011
$mill
2010
$mill
105.4
(0.5)
104.9
49.2
154.1
100.6
(4.1)
96.5
31.2
127.7
621.4
539.9
186.4
162.0
(5.5)
-
(15.6)
7.6
(21.4)
151.5
3.1
(0.5)
154.1
(3.5)
0.7
(13.2)
-
(16.1)
129.9
1.9
(4.1)
127.7
37.2
37.2
26.1
26.1
62
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
9. Earnings per share (EPS)
Basic earnings per share
including individually material items
excluding individually material items
Diluted earnings per share
including individually material items
excluding individually material items
Weighted average number of ordinary shares used in the calculation of basic and
diluted earnings per share (1)
(1) No shares were issued during the year ended 30 September 2011, refer Note 26.
Profit attributable to ordinary shareholders
Reconciliation of earnings used in the calculation of basic and diluted
earnings per share excluding individually material items
Profit attributable to ordinary shareholders
Add back individually material items after income tax
Profit attributable to ordinary shareholders excluding individually material items
10. Cash and cash equivalents
Cash at bank and on hand
Deposits at call
external
Consolidated
2011
Cents
per share
2010
Cents
per share
Notes
28.4
32.5
28.4
32.5
25.3
27.3
25.3
27.3
Number
Number
1,628,730,107
1,623,134,164
Consolidated
2011
$mill
2010
$mill
463.2
410.5
(6)
(29)
463.2
66.9
530.1
95.5
284.2
379.7
410.5
32.3
442.8
47.9
0.8
48.7
Incitec Pivot Limited Annual Report 2011
63
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
Consolidated
2011
$mill
2010
$mill
Notes
(34)
(33)
(34)
417.1
26.6
(12.2)
431.5
5.0
15.4
20.4
451.9
2.7
13.4
-
16.1
52.1
45.0
388.1
(7.3)
380.8
477.9
26.3
4.9
31.2
13.0
4.5
17.5
419.4
24.8
(11.9)
432.3
4.9
0.3
5.2
437.5
3.4
13.8
(1.9)
15.3
51.6
32.5
259.9
(7.8)
252.1
336.2
26.6
9.6
36.2
0.7
1.8
2.5
64
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
14. Other financial assets
Current
Investments - equity instruments
Derivative financial instruments
cross currency swaps
option contracts
forward exchange contracts
Non-current
Investments - equity instruments
Derivative financial instruments
interest rate swaps
cross currency swaps
Consolidated
2011
$mill
2010
$mill
Notes
-
30.2
35.4
5.4
-
40.8
10.1
42.8
-
52.9
61.3
-
20.1
111.6
-
-
28.7
28.7
(33)
(33)
(33)
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 $0.5m (2010: $1.5m); an equal decrease would have decreased
equity (pre-tax) by $0.5m (2010: $1.5m).
15. Assets classified as held for sale
Land and buildings held for sale
Machinery, plant and equipment held for sale
1.9
4.6
6.5
4.8
4.3
9.1
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.
Incitec Pivot Limited Annual Report 2011
65
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 Co., Inc.
Buckley Powder Co.
Delivery of explosives and related products
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 Company
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
Newfoundland Hard-Rok Inc.
Delivery of explosives and related products
Dyno Nobel Labrador Inc.
Delivery of explosives and related products
Quantum Explosives Inc.
Inactive
Dene Dyno Nobel Inc.
Delivery of explosives and related products
Qaaqtuq Dyno Nobel Inc.
Delivery of explosives and related products
Denesoline Western Explosives Inc.
Delivery of explosives and related products
(1) Refer to footnote description on next page.
(2) Refer to footnote description on next page.
(3) Refer to footnote description on next page.
50%
50%
51%
50%
50%
50%
50%
50%
50%
50%
50%
50%
50%
49%
49%
49%
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Canada
Canada
Canada
Canada
Canada
Canada
(1)
(2)
(3)
66
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
16. Investments accounted for using the equity method (continued)
Name of Entity
Principal Activity
Ownership
interest
Country of
incorporation
Jointly controlled entities (continued)
Queensland Nitrates Pty Ltd
Queensland Nitrates Management
Pty Ltd
Production of ammonium nitrate
Management services
DetNet International Limited
Distribution of electronic detonators
DetNet South Africa (Pty) Ltd
Development, manufacture and supply of
electronic detonators
DNEX Mexico, S. De R.L. de C.V.
Mexican investment holding company
Distribution of explosives and related products
50%
50%
50%
50%
49%
49%
Australia
Australia
(4)
(4)
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.
Nitro Explosivos 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
Sasol Dyno Nobel (Pty) Ltd
Manufacture of explosive accessories
Distribution of detonators
Associates
Labrador Maskua Ashini Ltd
Fabchem China Ltd
Delivery of explosives and related products
Manufacture of commercial explosives
Valley Hydraulics Ltd
Delivery of explosives and related products
Apex Construction Specialities Ltd
Delivery of explosives and related products
Innu Namesu Ltd
Delivery of explosives and related products
St Lawrence Explosives Inc
Inactive
Warex Corporation
Warex LLC
Delivery of explosives and related products
Delivery of explosives and related products
50%
50%
25%
30%
25%
25%
25%
33%
25%
25%
Malaysia
South Africa
(4)
Canada
Singapore
(5)
Canada
Canada
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) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49% of the shares in Qaaqtuq Dyno
Nobel Inc. However, under the joint venture agreement, the Group is entitled to 75% of the profit of Qaaqtuq Dyno Nobel Inc.
(3) 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 profit of Denesoline Western
Explosives Inc.
(4) These jointly controlled entities have a 30 June year end. For the purpose of applying the equity method of accounting, the unaudited
financial information through to 30 September 2011 has been used.
(5) Fabchem China Ltd has a 31 March year end. For the purpose of applying the equity method of accounting, the unaudited financial
information through to 30 September 2011 has been used.
Incitec Pivot Limited Annual Report 2011
67
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 of net profit from jointly controlled entities and associates
Less: dividends received / receivable
Elimination of profit on transactions with jointly controlled entities and associates
Foreign exchange movement
Carrying amount at end of the financial year
Consolidated
2011
$mill
2010
$mill
Notes
264.4
297.2
561.6
139.7
81.4
221.1
252.3
280.4
532.7
131.7
95.6
227.3
340.5
305.4
723.3
48.8
796.8
65.6
36.5
(12.3)
24.2
42.4
(11.9)
30.5
256.5
24.2
(8.6)
(2.4)
(12.6)
257.1
254.0
30.5
(17.1)
-
(10.9)
256.5
(29)
(34)
The Group’s share of capital commitments, other expenditures and contingent liabilities are disclosed in Notes 30 and 31.
68
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
17. Property, plant and equipment
Consolidated
At 1 October 2009
Cost
Accumulated depreciation
Net book amount
Notes
Year ended 30 September 2010
Opening net book amount
Reclassification from fixed assets classified as held for sale
Additions
Disposals
Acquisition of business
(5)
Depreciation charge
Impairment of assets
(5)
Reclassification
Foreign exchange movement
Closing net book amount
At 1 October 2010
Cost
Accumulated depreciation
Net book amount
Year ended 30 September 2011
Opening net book amount
Reclassification (to) / from fixed assets classified as held for sale
Additions
Disposals
Depreciation charge
Impairment of assets
Reclassification
Foreign exchange movement
Closing net book amount
(5)
(5)
Freehold land and
buildings
Machinery, plant
and equipment
Construction in
progress
$mill
425.1
(128.8)
296.3
296.3
-
14.8
(6.7)
6.1
(13.2)
-
21.3
(10.3)
308.3
449.4
(141.1)
308.3
308.3
2.9
3.9
(10.0)
(13.1)
-
22.9
(2.6)
312.3
$mill
1,347.9
(385.2)
962.7
962.7
0.5
120.3
(8.0)
2.1
(98.9)
(0.7)
20.5
(48.7)
949.8
1,471.1
(521.3)
949.8
949.8
(0.3)
18.8
(23.2)
(111.6)
(7.6)
126.3
(3.0)
949.2
$mill
404.4
-
404.4
404.4
-
224.2
-
-
-
-
(41.8)
(0.8)
586.0
586.0
-
586.0
586.0
-
589.5
(1.7)
-
-
(149.2)
(2.8)
1,021.8
Total
$mill
2,177.4
(514.0)
1,663.4
1,663.4
0.5
359.3
(14.7)
8.2
(112.1)
(0.7)
-
(59.8)
1,844.1
2,506.5
(662.4)
1,844.1
1,844.1
2.6
612.2
(34.9)
(124.7)
(7.6)
-
(8.4)
2,283.3
At 30 September 2011
Cost
Accumulated depreciation
Net book amount
Non-current asset impairment
461.3
(149.0)
312.3
1,518.7
(569.5)
949.2
1,021.8
-
1,021.8
3,001.8
(718.5)
2,283.3
During the year ended 30 September 2011, impairment of property, plant and equipment occurred to the value of $7.6m (2010:
$0.7m) as a result of the Group’s fixed asset verification procedures, the abandonment of certain assets and assets identified
where the recoverable amount is less than carrying value.
Capitalised interest
During the year ended 30 September 2011 interest of $52.1m (2010: $25.2m) was capitalised relating to interest bearing liabilities
used specifically to fund qualifying assets (expansion projects) as defined under AASB123 Borrowing Costs.
Incitec Pivot Limited Annual Report 2011
69
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
18. Intangible assets
Consolidated
At 1 October 2009
Cost
Accumulated amortisation
Net book amount
Notes
Software
$mill
Goodwill
$mill
Patents,
Trademarks
& Customer
Contracts
Brand
Names
$mill
$mill
Total
$mill
59.9
(22.5)
37.4
2,649.3
-
2,649.3
235.1
(24.2)
210.9
255.4
-
255.4
3,199.7
(46.7)
3,153.0
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)
At 1 October 2010
Cost
Accumulated amortisation
Net book amount
60.4
(30.5)
29.9
Year ended 30 September 2011
Opening net book amount
Additions
Amortisation charge
Foreign exchange movement
Closing net book amount
29.9
5.2
(7.3)
(0.2)
27.6
(5)
At 30 September 2011
Cost
Accumulated amortisation
Net book amount
65.3
(37.7)
27.6
2,649.3
157.4
2.0
-
(247.8)
2,560.9
2,560.9
-
2,560.9
2,560.9
-
-
(44.3)
2,516.6
2,516.6
-
2,516.6
210.9
1.1
-
(17.7)
(13.5)
180.8
255.4
4.0
-
-
(21.0)
238.4
3,153.0
162.7
5.8
(26.9)
(284.6)
3,010.0
220.6
(39.8)
180.8
238.4
-
238.4
3,080.3
(70.3)
3,010.0
180.8
-
(16.2)
(2.1)
162.5
238.4
-
-
(2.8)
235.6
3,010.0
5.2
(23.5)
(49.4)
2,942.3
218.3
(55.8)
162.5
235.6
-
235.6
3,035.8
(93.5)
2,942.3
70
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
18. Intangible assets (continued)
(a) Allocation of goodwill
The Group’s indefinite life intangible assets are allocated to CGU’s as follows:
IPF
SCI
DNAP
DNA
Nitromak
Goodwill
2011
$mill
183.8
1.9
1,091.0
1,119.8
120.1
2,516.6
Total Goodwill
Brand
Names
2011
$mill
-
-
2011
$mill
183.8
1.9
40.3
1,131.3
192.3
1,312.1
3.0
235.6
123.1
2,752.2
Brand
Names
2010
$mill
-
-
Total
2010
$mill
183.8
1.9
40.3 1,138.7
194.1 1,320.6
4.0
154.3
238.4 2,799.3
2010
$mill
183.8
1.9
1,098.4
1,126.5
150.3
2,560.9
(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 Discount Rate*
2011
%
0.0
0.0
2.5
2.5
2.5
2010
%
0.0
0.0
2.5
2.5
2.5
2011
%
9.0
9.0
9.0
9.0
15.5
2010
%
9.0
9.0
9.0
9.0
15.5
* The post-tax discount rate used reflects underlying cost of capital adjusted for market risk.
Incitec Pivot Limited Annual Report 2011
71
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 issue expenses
Cash flow hedges
Unfavourable supplier contracts
Tax losses
Other
Deferred tax assets
Consolidated
2011
$mill
2010
$mill
Notes
0.5
15.4
37.1
5.3
23.9
13.9
3.4
32.5
3.3
-
0.2
105.0
44.3
23.9
308.7
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
Set-off of deferred tax liabilities pursuant to set-off provisions
(24)
(264.0)
(190.2)
Net deferred tax assets
Movements:
Opening balance at 1 October
Charged to the Income Statement
Credited / (charged) to equity
Foreign exchange movement
Adjustments in respect of prior years
Closing balance at 30 September
44.7
173.9
364.1
(65.6)
18.0
(1.4)
(6.4)
308.7
490.5
(115.2)
(26.1)
20.0
(5.1)
364.1
72
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
external
unfavourable sales / supplier contracts
Consolidated
Notes
2011
$mill
2010
$mill
(34)
(34)
625.6
4.5
630.1
176.3
0.1
68.6
245.0
875.1
0.6
281.3
281.9
475.1
1.6
476.7
171.5
-
49.3
220.8
697.5
-
378.3
378.3
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.
Amortisation of the Moranbah unfavourable customer contracts recorded in the Consolidated Income Statement for the year
ended 30 September 2011 was $67.9m (2010: $75.7m).
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.
Incitec Pivot Limited Annual Report 2011
73
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
21. Interest bearing liabilities
Current
Secured
bank loans
participation facilities
inventory finance facility
lease liability
Unsecured
bank loans
other loans
jointly controlled entities and associates (1)
Non-current
Secured
bank loans
participation facilities
lease liability
Unsecured
fixed interest rate bonds
bank loans
bank facility
Consolidated
2011
$mill
2010
$mill
Notes
77.0
-
-
75.5
10.3
0.2
9.6
12.5
(33)
9.1
95.7
10.0
108.5
114.1
0.1
179.5
1.7
1,358.6
804.7
(33)
-
1,472.8
51.4
1,037.3
(1) Loans from jointly controlled entities and associates relate to unsecured loans from joint venture Wampum Hardware Co.
During the year, the Group undertook a number of financing activities:
-
-
-
-
-
In December 2010 the Group completed a US$500.0m 5 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 4% and matures in December 2015. The
proceeds of this funding are being used to reduce future reliance on bank funding.
The Bank Facility was renegotiated for a further 3 year term with the Group choosing to reduce the limit from $1,080.0m to
$900.0m. The facility now matures in April 2014.
The Group chose to cancel the Inventory Finance Facility.
A number of uncommitted trade finance facilities were negotiated on behalf of the Group’s 65% owned subsidiary, Quantum
Fertilisers. These facilities are fully guaranteed by Incitec Pivot.
An uncommitted overdraft and guarantee facility was negotiated for the Group’s wholly owned North American businesses.
Significant terms and conditions
Interest expense is recognised progressively over the life of the facilities.
Fixed Interest Rate Bonds
The Group has on issue the following Fixed Interest Rate Bonds in the US 144A / Regulation S debt capital market:
US$800.0m 10 year bond denominated in USD, with a fixed rate semi-annual coupon of 6%, maturing in December 2019.
-
US$500.0m 5 year bond denominated in USD, with a fixed rate semi-annual coupon of 4%, maturing in December 2015.
-
During December 2010 the Group entered into a 5 year US$500.0m Interest Rate Swap to receive fixed interest and pay floating
interest. In January 2011 the Group entered into a 8.5 year US$300.0m Interest Rate Swap, which started in June 2011, to
receive fixed interest and pay floating interest.
Bank Facility
The Bank Facility was a 3 year revolving facility that could be drawn in either AUD or USD. It had a facility limit of A$1,080.0m
(2009: A$1,680.0m) with a maturity date of 4 October 2011. The Bank Facility was cancelled during the year and replaced by a
new A$900.0m 3 year Bank Facility, maturing in April 2014. The terms and conditions of the new facility are principally the same
as the previous agreement.
Participation Facilities
The Participation Facilities mature in June 2013 and September 2014. The carrying amount of the facilities is A$191.1m 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.
Inventory Finance Facility
The Inventory Finance Facility was cancelled during the year at the Group’s request.
74
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
22. Other financial liabilities
Current
Derivative financial instruments
commodity contracts
forward exchange contracts
Non-Current
Derivative financial instruments
cross currency swaps
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
Notes
2011
$mill
2010
$mill
(33)
(33)
-
0.6
0.6
2.9
2.9
27.6
21.7
41.0
2.4
5.6
98.3
12.2
2.1
31.6
16.9
1.0
63.8
27.6
12.2
39.8
1.7
-
1.7
-
-
24.5
13.4
34.6
1.4
8.7
82.6
13.1
4.0
51.3
13.5
0.7
82.6
24.5
13.1
37.6
The present value of the Group’s employee entitlements not expected to be settled within twelve months of reporting 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
3.5% + age based scale
4.87%
10 years
2011
Number
4,910
2010
Number
4,998
Incitec Pivot Limited Annual Report 2011
75
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
23. Provisions (continued)
Reconciliations
Reconciliations of the carrying amounts of provisions from the beginning to the end of the current financial year are set out
below.
Consolidated
2011
$mill
Notes
(27)
(5)
(5)
(5)
-
151.4
(151.4)
-
13.4
15.0
(0.4)
(8.6)
2.0
0.3
21.7
34.6
0.2
(1.9)
(20.2)
28.3
(0.2)
0.2
41.0
1.4
1.0
2.4
8.7
3.2
(6.3)
0.3
(0.3)
5.6
Current Provision - Dividends
Carrying amount at the beginning of the financial year
Provisions made during the year
Payments made during the year
Carrying amount at the end of the financial year
Current Provision - Restructuring and rationalisation
Carrying amount at the beginning of the financial year
Provisions made during the year
Provisions written back during the year
Payments made during the year
Transfers 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
Provisions written back during the year
Payments made during the year
Transfers from non-current
Disposal of subsidaries
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
Transfers from non-current
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
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.
76
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
23. Provisions (continued)
Reconciliations (continued)
Non-current Provision - Restructuring and rationalisation
Carrying amount at the beginning of the financial year
Transfers to current
Discount unwind
Carrying amount at the end of the financial year
Non-current Provision - Environmental
Carrying amount at the beginning of the financial year
Provisions made during the year
Provisions written back during the year
Transfers to current
Discount unwind
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
Transfers to current
Discount unwind
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
Provisions made during the year
Provisions written back during the 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
2011
$mill
Notes
4.0
(2.0)
0.1
2.1
51.3
7.0
(0.2)
(28.3)
2.4
(0.6)
31.6
13.5
1.1
(1.0)
3.4
(0.1)
16.9
0.7
0.9
(0.1)
(0.3)
(0.2)
1.0
(5)
(5)
Incitec Pivot Limited Annual Report 2011
77
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
24. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Inventories
Property, plant and equipment
Intangible assets
Foreign exchange (losses) / gains
Provisions
Other
Deferred tax liabilities
Consolidated
2011
$mill
2010
$mill
Notes
2.5
210.7
111.5
10.5
-
124.1
459.3
0.7
219.6
116.2
(9.5)
4.4
48.9
380.3
Set-off of deferred tax liabilities pursuant to set-off provisions
(19)
(264.0)
(190.2)
Net deferred tax liabilities
Movements
Opening balance at 1 October
Credited to the Income Statement
Charged to equity
Acquisition of subsidiaries
Foreign exchange movements
Adjustments in respect of prior years
Closing balance at 30 September
195.3
190.1
380.3
(16.4)
55.2
-
(3.1)
43.3
459.3
490.6
(84.0)
-
0.1
(29.7)
3.3
380.3
78
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 Consolidated Income Statement and Consolidated 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
Notes
2011
$mill
287.6
6.2
(0.8)
13.4
15.1
1.1
(15.0)
(3.2)
304.4
192.3
13.8
(14.4)
14.5
1.1
(15.0)
(3.2)
189.1
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
(d) Reconciliation of assets and liabilities recognised in the Consolidated 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 Consolidated Statement of Financial Position at end of year
303.4
1.0
304.4
(189.1)
115.3
286.9
0.7
287.6
(192.3)
95.3
(e) Expense recognised in Consolidated Income Statement
Current service cost
Past service benefit
Interest cost
Expected return on plan assets
Expense recognised in Consolidated Income Statement
6.2
(0.8)
13.4
(13.8)
5.0
7.5
(1.3)
16.2
(14.4)
8.0
(5)
Incitec Pivot Limited Annual Report 2011
79
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
25. Retirement benefit obligations (continued)
(f) Amounts recognised in the Consolidated Statement of Comprehensive Income
Actuarial losses (before income tax)
(g) Cumulative amount recognised in the Consolidated Statement of Comprehensive Income
Cumulative amount of actuarial losses (before income tax)
(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
2011
$mill
2010
$mill
29.5
16.9
115.1
85.6
66%
21%
7%
6%
60%
28%
8%
4%
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 2012
Expected employer contributions
Expected contribution by plan participants
(n) Historical information
Present value of defined benefit obligation
Fair value of plan assets
(Surplus) / Deficit in plan
Experience adjustment - plan liabilities
Experience adjustment - plan assets
(0.6)
10.4
4.2% - 8.0% 4.5% - 8.0%
7.0% - 7.8% 6.0% - 8.0%
2.0% - 5.0% 2.0% - 5.0%
4.0% - 10.0% 4.0% - 8.0%
2.5% - 4.0% 2.5% - 2.8%
13.9
0.4
2008
$mill
287.7
(220.9)
66.8
7.9
(10.9)
2007
$mill
77.2
(79.9)
(2.7)
(4.4)
3.7
2011
$mill
304.4
(189.1)
115.3
7.0
6.2
2010
$mill
287.6
(192.3)
95.3
(2.2)
3.0
2009
$mill
288.4
(196.8)
91.6
3.7
(2.9)
80
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
26. Issued capital
Share Capital
Ordinary shares authorised and issued - 1,628,730,107 (2010: 1,628,730,107) (1)
(1) Ordinary shares authorised and issued have no par value.
Consolidated
2010
2011
$mill
$mill
3,265.9
3,265.9
3,265.9
3,265.9
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
There were no movements in issued and fully paid ordinary shares of the Company during the financial year.
27. Dividends
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary Shares
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
Final dividend of 6.0 cents per share(3), unfranked, paid 17 December 2010
Interim dividend of 3.3 cents per share(3), unfranked, paid 5 July 2011
Total ordinary share dividends
(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.
(3) Dividends were paid in cash only during the year.
Company
2011
$mill
2010
$mill
Notes
-
-
97.7
53.7
37.1
29.3
-
-
(23)
151.4
66.4
Subsequent event
Since the end of the financial year, the directors have determined to pay the following dividend:
-
Final dividend of 8.2 cents per share, unfranked, to be paid on 16 December 2011. The total dividend payment will be
$133.6m.
Ordinary shares
The financial effect of this dividend has not been recognised in the consolidated financial statements and will be recognised in
subsequent consolidated financial statements.
Franking credits
Franking credits available to shareholders of the Group amount to $13.8m (2010: $0.2m) at the 30% (2010: 30%) corporate tax
rate. The final dividend for 2011 is unfranked. Franking credits that will arise from payment of income tax in the year ending 30
September 2011 have been factored into the franking account balance.
Incitec Pivot Limited Annual Report 2011
81
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
28. Business combination
Acquisition of Nitromak DNX Kimya Sanayii A.S.
(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 A.S.
(“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. The acquisition accounting for this acquisition was performed on
a provisional basis in the prior year.
(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
$mill
99.3
(2.2)
97.1
74.8
171.9
0.7
(c) Assets and liabilities acquired
Since 30 September 2010 the following amendments to the initial fair value of assets and liabilities have been recognised due to
additional information obtained during the year in relation to the provisional fair values recognised:
Acquiree's net assets at the acquisition date
Cash and cash equivalents
Trade and other receivables
Inventories
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
Initial Fair
Value
Adjustments
Provisional
Fair Value
at 31 July
2010
Additional Fair
Value
adjustments
in current year
Final Fair
Value*
$mill
$mill
$mill
$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
-
(6.3)
(0.3)
-
-
-
-
-
-
(0.4)
-
-
(0.4)
-
(7.4)
-
7.4
2.2
22.0
10.0
-
8.2
1.1
4.0
0.2
(12.8)
(4.4)
(1.5)
(0.1)
(2.0)
(12.4)
14.5
171.9
157.4
*Comparative information has been restated to reflect the amendments to provisional asset and liability fair values on acquisition of Nitromak DNX
Kimya Sanayii A.S. in the prior financial year.
In 2010 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 Consolidated Income Statement (and as an individually material item in Note 6) for the year ended 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 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 Consolidated Statement of Cash Flows is
reconciled to the related items in the Consolidated 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 for the financial year
Depreciation and amortisation
Write-down of property, plant and equipment
Share of profit on equity accounted investments
Net gain on sale of property, plant and equipment
Non-cash share based payment transactions
Unwinding of discount on provisions
Changes in assets and liabilities
(increase) / decrease in receivables and other operating 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, provisions and other operating liabilities
increase / (decrease) in income taxes payable
Net cash flows from operating activities
Consolidated
2011
$mill
2010
$mill
Notes
(10)
379.7
379.7
48.7
48.7
(5)
(5)
(16)
(4)
(5)
467.3
148.2
7.6
(24.2)
(18.0)
8.0
25.2
58.6
(146.7)
126.1
(48.0)
5.5
38.0
71.5
719.1
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
Incitec Pivot Limited Annual Report 2011
83
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 jointly controlled entities:
no later than one year
later than one, no later than five years
b) Lease commitments
Consolidated
2011
$mill
2010
$mill
119.0
1.3
120.3
331.2
0.6
331.8
11.0
0.4
11.4
-
-
-
Non-cancellable operating lease commitments comprise a number of operating lease arrangements for the provision of certain
equipment. These leases have varying durations and expiry dates. The future minimum rental commitments are as follows:
no later than one year
later than one, no later than five years
later than five years
51.6
110.8
65.7
228.1
50.4
96.5
56.7
203.6
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
-
0.1
0.1
1.6
0.3
1.9
c) Other expenditure commitments
Commitments for payments to suppliers under long-term executory contracts existing at reporting date but not recognised as
payable include:
no later than one year
later than one, no later than five years
later than five years
116.7
116.4
154.1
387.2
94.1
178.9
168.4
441.4
84
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 Consolidated 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 Limited, 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 2011
85
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
32. Financial risk management
Overview
The Group has exposure to the following financial risks:
• Market risk (foreign exchange, interest rate, commodity and equity price 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 audit function. The internal audit function involves
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 foreign exchange rates, interest rates, commodity prices and equity prices 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 these exposures 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: contractual exposures and forecast exposures.
86
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
32. Financial risk management (continued)
(a) Market risk (continued)
i. Foreign exchange risk – transactional (continued)
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 (FEC’s) are taken out to hedge those exposures. The Group applies hedge
accounting for these derivatives. The table below shows the outstanding FEC’s as at 30 September 2011:
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
2011
1.0366
1.0170
0.7195
-
2010
0.9020
0.9576
0.6822
0.5988
2011
2010
213.1
94.9
2.2
5.7
-
1.9
1.6
0.2
Forecast exposures: The profitability of Southern Cross International and Incitec Pivot Fertilisers is impacted by foreign
exchange movements 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 FEC’s to Sell USD / Buy AUD, to protect a portion of the Group’s forecast
exposure. The market value of these FEC’s is recorded in the Consolidated Statement of Financial Position at year end.
Any movement in the market value from contract price to year end price is recorded in the Cash-flow Hedge Reserve in
the Consolidated 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 collar contracts are
entered into occasionally to allow some participation.
The table below summarises the outstanding FEC and foreign currency option contracts taken out to hedge sales of the
output of Southern Cross International and Incitec Pivot Fertilisers at 30 September:
Term
USD/AUD
exercise price
Weighted average
AUD/USD strike rate
2011
2010
2011
2010
Buy AUD / Sell USD
0.9793
Buy USD / Sell CAD
Buy EUR / Sell AUD
Purchased average rate
AUD call/ USD put, not later
than one year
-
-
-
0.8719
1.0367
0.7100
-
-
-
-
1.0200
-
-
-
-
Contract
amounts
AUD mill
2011
687.2
-
-
2010
462.2
50.0
0.4
365.0
-
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 sold options existed at
reporting date.
Incitec Pivot Limited Annual Report 2011
87
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
32. Financial risk management (continued)
(a) Market risk (continued)
i. Foreign exchange risk – transactional (continued)
The following sensitivity is based on the unhedged 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 2011.
Foreign Exchange Sensitivity – Transactional (unhedged)
USD Fertiliser sales from Australian plants
ii. Foreign exchange risk – translational
USD + 1c
AUD mill
USD - 1c
AUD mill
2011
(10.1)
2011
10.3
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 is recognised within the foreign currency translation reserve. The table below summarises the
cross currency swaps outstanding at 30 September:
Term
Receive AUD / Pay USD mill
2011
2010
not later than one year
later than one year, no later than five
years
AUD 482.6 / USD 449.5
AUD 488.3 / USD 432.0
AUD 114.1 / USD 103.0
AUD 407.7 / USD 375.0
The following sensitivity is based on the unhedged translational foreign currency risk exposures in existence at the
reporting date and is calculated based on 2011 USD denominated earnings before interest and tax at the average 2011
translation exchange rate.
Foreign Exchange Sensitivity – Translational (unhedged)
North American earnings before interest and tax
iii. Interest rate risk
USD + 1c
AUD mill
USD - 1c
AUD mill
2011
(1.4)
2011
1.4
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. Interest rate risk is managed by entering into interest rate contracts in order to balance the Group’s fixed
and variable interest rate mix.
The Group’s interest rate risk arises from long term borrowings in Australian and United States dollars. Of the
AUD1,568.5m of Interest Bearing Liabilities at the reporting date, AUD834.9m (53%) were exposed to floating
interest rates.
88
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 2011 and the average variable
interest rate during the 2011 year.
Interest Rate Sensitivity
Current and non-current borrowings with variable interest rates
+ 1%
AUD mill
- 1%
AUD mill
2011
(8.3)
2011
8.3
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 2011). 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 2011:
Contract
Contract
Contract
Contract
Contract
Contract
Months
hedged
3
3
3
15
3
3
Monthly
volume (mmbtu)
135,000
90,000
30,000
75,000
60,000
30,000
Fixed
rate USD
6.32
4.46
4.36
5.68
4.29
4.03
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 2011
89
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
(1) Maximum production capacity of the plant
v. Equity price risk
+ USD10
AUD mill
- USD10
AUD mill
Name plate
Tonnes (1)
2011
4.5
10.4
2011
(4.5)
(10.4)
405,000
950,000
The Group is exposed to equity price risk on securities held on investments. These securities are not held for trading
as it is the Group’s objective to hold these in the long term for strategic purposes. 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 stress testing of critical assumptions such
as input costs, sales prices, production volumes, exchange rates and capital expenditure.
Typically, the Group aims to hold a minimum liquidity buffer of 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)
(cid:1)
(cid:1)
(cid:1)
(cid:1)
An unsecured Bank facility agreement of AUD900.0m for 3 years, maturing April 2014. 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 USD500.0m 5 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 4.00% and matures in December 2015.
A participation facility of AUD144.3m (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 AUD46.8m (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.
At reporting date, the Group has committed undrawn lines of AUD900.0m and cash of AUD379.7m.
90
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
(cid:1) 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.
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: Gearing ratio, Gross debt to
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and Interest cover.
Debt covenants relating to the Bank facility (AUD900.0m) have been measured and are within the debt covenant targets
for the year ended 30 September 2011.
The Group self-insures for certain insurance risks under the Australian Reform Act 2011 and the Singapore Insurance
Act. Under these Acts, authorised general insurer, Coltivi Insurance Pte Limited (the Group’s self-insurance company),
is required to maintain a minimum amount of capital. For the financial year ended 30 September 2011, Coltivi Insurance
Pte Limited maintained capital in excess of the minimum requirements prescribed under these Acts.
(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 Consolidated 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 represent 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 needed 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.
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 “A”. In practice, financial instruments are
usually dealt with financial institutions with a stronger rating than “A”. Currently all financial instruments held are with
financial institutions with a long term rating of “A+” or better.
The credit risk exposure arising from derivative financial instruments is the sum of all contracts with a positive fair value.
As at 30 September 2011, the sum of all contracts with a positive fair value was AUD100.8m (2010: AUD110.1m).
Incitec Pivot Limited Annual Report 2011
91
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
33. Financial instruments
(a) Foreign exchange risk
The Group’s exposure to foreign exchange risk at reporting date was:
Consolidated
Trade receivables
Trade payables
Gross statement of financial position
exposure
Forward exchange contracts
Net exposure
The following significant exchange rates applied during the year:
Euro
USD
2011
Euro
mill
-
4.3
4.3
4.1
0.2
2010
Euro
mill
-
-
-
-
-
2011
USD
mill
5.0
224.1
2010
USD
mill
6.9
76.9
219.1
70.0
218.7
76.9
0.4
(6.9)
Average
rate
2011
0.7357
1.0265
Balance
date spot
rate
2011
0.7212
0.9782
Average
rate
2010
Balance
date spot
rate
2010
0.6648
0.9009
0.7129
0.9689
Interest rate risk
(b)
At the reporting date the interest rate profile of the Group’s interest bearing financial instruments was:
Variable rate instruments
- Financial liabilities
Fixed rate instruments
- Financial liabilities
Consolidated
2011
$mill
2010
$mill
834.9
84.2
733.6
1,061.6
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 AUD8.3m 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
Interest rate swaps
92
Incitec Pivot Limited Annual Report 2011
Notes
(11)
(11)
(10)
Consolidated
2011
$mill
2010
$mill
431.5
36.5
379.7
18.9
33.6
5.4
42.8
948.4
432.3
20.5
48.7
20.1
90.0
-
-
611.6
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
2011
$mill
2010
$mill
172.6
43.8
2.3
102.5
46.5
32.2
20.0
11.6
431.5
147.3
91.0
8.9
69.0
65.3
22.3
22.2
6.3
432.3
The maximum exposure to credit risk for trade receivables at the reporting date by type of customers was:
Wholesale customer
End user customer
Consolidated
2011
$mill
2010
$mill
210.1
221.4
431.5
221.0
211.3
432.3
As at the end of September 2011 and September 2010, 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 the Group’s trade receivables at the reporting date was:
Current
Past due 0 - 30 days
Past due 31 - 120 days
Total
Gross
2011
$mill
Impairment
2011
$mill
Gross
2010
$mill
Impairment
2010
$mill
355.2
42.0
46.5
443.7
-
-
12.2
12.2
392.4
27.0
24.8
444.2
-
-
11.9
11.9
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Consolidated
2011
$mill
2010
$mill
Notes
Balance at 1 October
Net impairment losses recognised / (released)
Write-offs recognised during the year
Foreign exchange movements
Balance at 30 September
(11)
11.9
9.3
(8.4)
(0.6)
12.2
6.8
6.7
(1.7)
0.1
11.9
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 2011
93
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 2011
Non-derivative financial liabilities
Interest bearing liabilities
Interest payments
Derivative financial liabilities
Forward exchange contracts
Cross currency swaps
Total
30 September 2010
Non-derivative financial liabilities
Interest bearing liabilities
Interest payments
Derivative financial liabilities
Forward commodity contracts
Total
Carrying Contractual
amount
$mill
$mill
cash flows (1)
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
1,568.5
-
1,568.5
583.9
50.2
53.4
45.5
60.2
89.1
97.0
547.7
201.5
836.0
171.8
0.6
2.9
1,572.0
0.6
2.9
2,155.9
0.6
-
104.2
-
-
105.7
-
(9.0)
177.1
-
11.9
761.1
-
-
1,007.8
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) 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 and Net Investment 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. Net investment
hedges are used to mitigate the Groups’s exposure to foreign exchange risk resulting from controlled entities that have
functional currencies that are different to the Group’s functional currency.
Forward currency risk associated with sales and purchases denominated in foreign currency is managed by entering into
forward contracts, cross currency interest rate swaps and options.
The following table indicates the periods in which the cash-flows associated with derivatives, that are cash flow hedges
and net investment hedges, are expected to occur.
Consolidated
30 September 2011
Cash Flow Hedges
- Assets
- Liabilities
Net Investment Hedges
- Assets
- Liabilities
Total
30 September 2010
Cash Flow Hedges
- Assets
- Liabilities
Net Investment Hedges
- Assets
- Liabilities
Total
Carrying
amount
$mill
Expected
cash flows
$mill
6 months
or less
$mill
6 - 12
months
$mill
1 - 2
years
$mill
8.8
0.8
32.0
2.7
37.3
45.2
-
64.9
1.7
108.4
8.8
0.8
32.0
2.7
37.3
45.2
-
64.9
1.7
108.4
8.8
0.8
32.0
(0.2)
40.2
45.2
-
(9.2)
0.8
35.2
-
-
-
-
-
-
-
45.4
0.6
44.8
-
-
-
(9.0)
9.0
-
-
21.0
0.3
20.7
2 - 5
years
$mill
-
-
-
11.9
(11.9)
-
-
7.7
-
7.7
more
than 5
years
$mill
-
-
-
-
-
-
-
-
-
-
94
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
Carrying amount
Fair value Carrying amount
Fair value
Investments - equity instruments
Trade and other receivables
Cash and cash equivalents
Cross currency interest rate swaps
Option and commodity contracts
Forward exchange contracts
Interest rate swaps
Trade and other payables
Financial liabilities
Total
2011
$mill
2011
$mill
2010
$mill
2010
$mill
10.1
468.0
379.7
32.5
5.4
(0.6)
42.8
(1,157.0)
(1,568.5)
(1,787.6)
10.1
468.0
379.7
32.5
5.4
(0.6)
42.8
(1,157.0)
(1,648.7)
(1,867.8)
30.2
452.8
48.7
90.0
(1.7)
20.1
-
(1,075.8)
(1,145.8)
(1,581.5)
30.2
452.8
48.7
90.0
(1.7)
20.1
-
(1,075.8)
(1,173.6)
(1,609.3)
Basis for determining fair value
The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments reflected in the table above.
Investments in equity securities
i.
The fair value of equity instruments 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 2011
Listed equity securities
Derivative financial assets
Derivative financial liabilities
Level 1
$mill
10.1
-
10.1
-
-
Level 2
$mill
-
83.6
83.6
3.5
3.5
Level 3
$mill
-
-
-
-
-
95
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 between Subsidiaries of the Group and Jointly controlled entities are as follows:
Sales of goods / services
Purchase of goods / services
Management fees / royalties
Interest income
Interest expense
Dividend income
Jointly controlled entities (1)
Notes
(4)
(4)
(5)
(16)
2011
$mill
191.5
(44.1)
20.7
0.8
(0.1)
8.6
2010
$mill
219.0
(4.9)
23.8
2.5
(0.3)
17.1
(1) Jointly controlled entities transactions represent amounts which do not eliminate on consolidation.
Outstanding balances arising from sales / purchases of goods and services with jointly controlled entities are on normal
current terms and are as follows:
Amounts owing to related parties
Amounts owing from related parties
Transactions between Jointly controlled entities
Jointly controlled entities
Notes
(20)
(11)
2011
$mill
4.6
42.0
2010
$mill
1.6
25.1
There were no transactions during the year between jointly controlled entities and there are no outstanding balances
between jointly controlled entities of the IPL Group as at 30 September 2011 (2010: nil).
96
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
2011
$000
15,275
272
285
-
2,919
18,751
2010
$000
14,461
304
244
1,003
1,586
17,598
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 2011, there were no loans to key management personnel and their related parties
(2010: nil).
(c) Other key management personnel transactions
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 $1,368,886 during the year (2010: $3,338,954).
Mr Fazzino’s spouse does not directly provide these services.
These transactions were on terms and conditions no more favourable than those available to other customers, suppliers
and employees.
Incitec Pivot Limited Annual Report 2011
97
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 Brasher
R J McGrath (1)
Executive directors - Current
J E Fazzino
Executives - Current
F Micallef (2)
K J Gleeson
B C Walsh
J Whiteside
G Brinkworth
S Dawson (2)
B Wallace (2)
J Rintel
S Atkinson (2)
Executives - Former
K Lynch (3)
D Brinker
A Grace (4)
Year
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2010
2010
2010
Number of Shares (A)
Opening
balance
Shares
acquired
Shares
disposed (B)
Closing balance
- - 100,000
- - 100,000
- - 216,501
- - 216,501
- - 37,926
- 37,926
- - 5,000
- - 5,000
- - -
- - -
100,000
100,000
216,501
216,501
37,926
37,693 233
5,000
5,000
-
-
- 20,600
-
400
- - -
- - 400
- 20,600
1,845,420
1,845,420
1,708,180
-
- - 1,845,420
(137,240)
22,520
22,520
89,313 258
387,600 373
429,380
429,380
300,920
300,920
292 258
- 292
23,857 10
23,429 428
57,480
57,480
117,120
117,120
22,880
22,880
-
-
(22,520)
- - 22,520
2,891
(86,680)
(298,660)
89,313
-
100,360
(329,020)
- - 429,380
-
58,500
- - 300,920
- 550
- 292
- 23,867
- 23,857
(242,420)
-
-
(57,480)
- - 57,480
-
- - 117,120
(19,500)
-
3,380
- - 22,880
-
(117,120)
53,240
-
(53,240)
-
66,680
428,420
-
-
(66,680)
(100,000)
-
328,420
(A)
(B)
(1)
(2)
(3)
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 2011
and 30 September 2010, all shares were treated as disposed as at the relevant date of cessation unless otherwise stated.
The opening balance represents shares held as at the date of becoming a key management person. Movements are from
this date.
The opening balance in the prior year 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.
(4) With Mr Grace’s role as Moranbah Project Director, Mr Grace’s sole focus was the Project and he ceased to be a member of the
Executive Team on 30 September 2010.
98
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
Executives - Current
F Micallef (1)
K J Gleeson
B C Walsh
J D Whiteside
G Brinkworth
S Dawson (2)
B Wallace (3)
J Rintel (4)
S Atkinson (5)
Executives - Former
K Lynch (6)
D Brinker (7)
A Grace (8)
Year
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2010
2010
2010
Number of Shares (treated as options) (A)
Opening
balance
Granted as
compensation
Exercised
(B)
Forfeited (C)
Closing balance
137,240
610,120
- -
-
(472,880)
(137,240)
-
- 137,240
22,520
22,520
86,680
385,340
96,320
428,160
67,420
299,720
-
-
-
-
33,280
33,280
15,160
67,420
19,500
19,500
(232,300)
(331,840)
(298,660)
- -
- -
- -
-
- -
-
- -
-
- -
- -
- -
- -
- -
- -
- -
-
- -
- -
(52,260)
(22,520)
-
- 22,520
(86,680)
-
- 86,680
(96,320)
-
- 96,320
(67,420)
-
- 67,420
- -
- -
- -
- -
-
(33,280)
- 33,280
(15,160)
-
- 15,160
(19,500)
-
- 19,500
53,240
66,680
284,780
- -
- -
-
(217,360)
(53,240)
-
- 66,680
- 67,420
(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.
Incitec Pivot Limited Annual Report 2011
99
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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.
(2) Mr Dawson became a key management person on 12 November 2009 and he was not a participant in the LTI
performance plan 2007/10.
(3) 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.
(4) Mr Rintel’s shares, treated as options, exercised during the 2010 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.
(5) 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.
(6) 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.
(7) 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.
(8) With Mr Grace’s role as Moranbah Project Director, Mr Grace’s sole focus was the Project and he ceased to be a member
of the Executive Team on 30 September 2010.
100
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
Executives
- Current
F Micallef (1)
K J Gleeson
B C Walsh
J D Whiteside
G Brinkworth
S Dawson (1)
B Wallace (1)
J Rintel
S Atkinson (1)
- Former
K Lynch (2)
D Brinker (3)
A Grace (4)
Year
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2010
2010
2010
Number of Rights (A)
Opening
balance
Granted as
compensation
(B)
Exercised Forfeited (C)
Closing balance
822,482 511,364
222,482 600,000
-
-
(222,482)
1,111,364
- 822,482
266,838 150,000
46,838 220,000
326,806 135,000
128,806 198,000
356,515 147,273
140,515 216,000
267,386 110,455
105,386 162,000
238,361 110,455
98,361 140,000
135,071 108,182
55,738 79,333
281,478 111,528
100,984 180,494
221,967 130,948
81,967 140,000
116,171 94,545
116,171
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- -
(46,838)
(98,361)
(128,806)
(105,386)
(140,515)
370,000
- 266,838
333,000
- 326,806
363,273
- 356,515
272,455
- 267,386
250,455
- 238,361
187,515
- 135,071
292,022
- 281,478
270,948
- 221,967
163,878
- 116,171
(100,984)
(55,738)
(81,967)
(46,838)
128,806
- -
(128,806)
-
207,738
- -
(126,951)
80,787
105,386 162,000
-
- 267,386
(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) The opening balance in the prior year represents shares held as at the date of becoming a key management person. Movements
are from this date.
(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.
(4) With Mr Grace’s role as Moranbah Project Director, Mr Grace’s sole focus was the Project and he ceased to be a member of the
Executive Team on 30 September 2010.
Incitec Pivot Limited Annual Report 2011
101
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 2010/13. The performance period for this plan is from
1 October 2010 to 30 September 2013.
The LTI performance rights plan 2010/13 has the following features:
• Performance rights: A performance right entitles the participant to be transferred a fully paid 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 the performance of IPL and include a condition relating to duration of employment. The
performance condition is 50% based on Incitec Pivot’s Total Shareholder Return Ranking (TSR Ranking), being the
performance of IPL’s TSR over the performance period ranked against the TSR that is achieved by companies in IPL’s
comparator Group (companies in the S&P/ASX 100 index); and 50% based on the compounding annual growth rate of
Incitec Pivot’s Earnings Per Share (before individually material items) (EPS Growth) over the performance period from
the base year (financial year ended 30 September 2010) to achieve certain absolute benchmarks.
In setting two separate performance hurdles with their own associated performance criteria, the Board considered it
had established an aggressive target to promote behaviour to achieve superior performance.
TSR Performance Condition
-
If, at the end of the relevant performance period Incitec Pivot’s TSR Ranking is:
below the 50th percentile, none of the TSR performance rights will vest;
between the 50th and 75th percentile, a percentage between 50% and 100% of the TSR
performance rights will vest, determined pro rata based on IPL’s TSR Ranking; and
equal to or above the 75th percentile, all of the TSR performance rights will vest.
-
-
EPS Performance Condition
If, at the end of the relevant performance period Incitec Pivot’s EPS Growth is:
-
-
below 7% per annum, none of the EPS performance rights will vest;
equal to or greater than 7% per annum, but less than 15% per annum, a percentage between 50%
and 100% of the EPS performance rights will vest, determined pro rata based on IPL’s EPS Growth
over the performance period and where it falls between 7% and 15% per annum; and
-
15% per annum or greater, all of the EPS 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 2010/13 is 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. Cash
payments to employees upon vesting of the plan will be determined with reference to IPL’s share price at the end of the
performance period.
102
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
36. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
Long Term Incentive Performance Rights Plans – LTI Plans 2008/11 and 2009/12
The LTI performance rights plan 2008/11 and the LTI performance rights plan 2009/12 have the same features as the
LTI Plan 2010/13 except for the following:
(cid:1)
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 period
plus the tax value of dividends paid, assuming the dividends are reinvested in the Company’s shares.
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 will 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.
Long Term Incentive Performance Cash Plans - LTI Plans 2008/11 and 2009/12
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 2008/11 and LTI
performance cash plan 2009/12 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 - LTI Plans 2008/11 and 2009/12, however the plans are settled in cash. Cash
payments to employees upon vesting of the plan will be determined with reference to IPL’s share price at the end of the
performance period.
Incitec Pivot Limited Annual Report 2011
103
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
36. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
Consolidated - 2011
Grant date
Expiry date
Performance Rights
LTI Rights - 2008/11
LTI Cash - 2008/11
LTI Rights - 2009/12
LTI Cash - 2009/12
LTI Rights - 2010/13 - TSR
LTI Rights - 2010/13 - EPS
LTI Cash - 2010/13 - TSR
19 Dec 08
30 Sep 11
19 Dec 08
30 Sep 11
16 Dec 09
16 Dec 09
23 Dec 10
23 Dec 10
23 Dec 10
30 Sep 12
30 Sep 12
30 Sep 13
30 Sep 13
30 Sep 13
LTI Cash - 2010/13 - EPS
23 Dec 10
30 Sep 13
Fair Value (1)
$0.30
$1.60
$1.60
$1.60
$2.77
$3.76
$2.77
$3.76
Total - Performance rights
Weighted average fair value
Consolidated - 2010
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
2,125,262
933,435
5,315,104
312,039
-
-
-
-
-
-
-
2,338,002
2,338,002
85,635
-
85,635
8,685,840
4,847,274
$1.04
$3.27
-
-
-
-
-
-
-
-
-
-
(83,642)
(94,412)
(180,506)
(77,998)
(80,953)
(80,953)
(26,458)
(26,458)
(651,380)
$1.71
2,041,620
839,023
5,134,598
234,041
2,257,049
2,257,049
59,177
59,177
12,881,734
$1.84
-
-
-
-
-
-
-
-
-
-
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
12 Nov 07
30 Sep 09
30 Sep 10
$1.21
$4.41
Total - Shares treated as options
Weighted average exercise price
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
19 Dec 08
19 Dec 08
16 Dec 09
16 Dec 09
30 Sep 11
30 Sep 11
30 Sep 12
30 Sep 12
Fair Value (1)
$0.30
$0.13
$1.60
$1.60
(1)
Performance rights have a $nil exercise price.
4,176,600
1,304,000
5,480,600
$1.97
2,389,353
1,148,260
-
-
-
-
-
-
-
-
5,388,742
312,039
3,537,613
5,700,781
$0.24
$1.60
(4,176,600)
-
-
(1,304,000)
(4,176,600)
(1,304,000)
$1.21
$4.41
-
-
-
-
-
-
-
-
-
-
(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
-
-
-
-
-
-
-
-
-
-
104
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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 1.14 years (2010 – 1.65 years).
Fair value of performance rights granted
LTI performance rights plan – 2010/13
In respect of the LTI performance rights plan 2010/13, the assessed fair values at grant date of the rights granted during
the year for both the TSR performance condition and the EPS performance condition are shown in the table below. 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 rights.
The model inputs for these performance rights granted during the year ended 30 September 2011 included:
Performance rights were granted at $nil per right, have a three year life, and vest after the performance
hurdles are met for the period 1 October 2010 to 30 September 2013.
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 23 December 2010)
23 Dec 2010
$3.97
$nil
35% pa
30 Sept 2013
2.0% pa
5.25% pa
Fair value at grant date: LTI Rights - 2010/13 - TSR
Fair value at grant date: LTI Rights - 2010/13 - EPS
LTI performance rights plan 2010/13
$2.77
$3.76
Incitec Pivot Limited Annual Report 2011
105
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
11-Jul-08
6-Nov-09
9-Sep-10
1-Jul-11
11-Jul-10
6-Nov-12
9-Sep-13
1-Jul-14
Number of participants as at
Number of restricted shares held as at
30-Sep-11
-
30-Sep-10
458
387
462
481
413
497
-
30-Sep-11
-
140,520
132,933
122,869
30-Sep-10
45,800
150,218
143,153
-
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
2011
$’000
2010
$’000
7,742
3,921
Total carrying amount of liabilities for cash settled arrangements
254
296
106
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
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
Incitec Pivot Finance Australia Pty Ltd
Te Moana Insurance Limited
Dyno Nobel Pty Limited
Dyno Nobel Australia LLC
Prime Manufacturing Ltd
The Dyno Nobel SPS LLC
Dyno Nobel Europe Pty Ltd
Dyno Nobel Management Pty Limited
Industrial Investments Australia Finance Pty Limited
Dyno Nobel Holdings IV LLC
Dyno Nobel Holdings USA III, Inc.
Dyno Nobel Holdings USA II
Dyno Nobel Holdings USA II, Inc.
Dyno Nobel Holdings USA, Inc.
1) Refer to footnote description on next page.
2) Refer to footnote description on next page.
Ownership
Interest
Country of
incorporation
2
2
2
2
2
2
2
1
100%
100%
100%
100%
100%
100%
100%
100%
65%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Australia
Australia
Australia
Australia
Australia
Australia
Hong Kong
Australia
Hong Kong
Hong Kong
Singapore
Australia
Australia
Australia
USA
Australia
USA
USA
Australia
New Zealand
Australia
USA
New Zealand
USA
Australia
Australia
Australia
USA
USA
USA
USA
USA
Incitec Pivot Limited Annual Report 2011
107
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
37. Investments in controlled entities (continued)
Name of Entity
Dyno Nobel Inc.
Dyno Nobel Transportation, Inc.
Independent Explosives Co. of Penna.
IR, Inc.
Simsbury Hopmeadow Street LLC
Tech Real Estate Holdings LLC
Tradestar Corporation
Dyno Nobel Explosivos Chile Limitada
CMMPM, LLC
CMMPM Holdings, L.P.
Dyno Nobel Peru S.A.
Dyno Nobel Mexico, S.A. de C.V.
Dyno Nobel Canada Inc.
Dyno Nobel Transportation Canada Inc.
Dyno Nobel Nunavut Inc.
Incitec Pivot Finance Canada Inc.
Polar Explosives 2000 Inc.
Polar Explosives Ltd
Dyno Nobel Asia Pacific Pty Limited
Dampier Nitrogen Pty Ltd
DNX Australia Pty Ltd
DNX Papua New Guinea Ltd
Dyno Nobel Moranbah Pty Ltd
Dyno Nobel Moura Pty Limited
Plenty River Ammonia Holdings Pty Ltd
PT DNX Indonesia
Nitromak DNX Kimya Sanayii A.S.
SC Romnitro Explosives Srl.
DNX-Nitro Industria Kimike Sh.p.k
In the process of being liquidated.
1)
2) Party to deed of cross guarantee dated 30 September 2008.
Ownership
Interest
Country of
incorporation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
84%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2
2
2
2
1
USA
USA
USA
USA
USA
USA
USA
Chile
USA
USA
Peru
Mexico
Canada
Canada
Canada
Canada
Canada
Canada
Australia
Australia
Australia
PNG
Australia
Australia
Australia
Indonesia
Turkey
Romania
Albania
108
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
38. Deed of Cross Guarantee
Closed Group
2011
2010
$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
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial 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
Other movements in retained earnings
Dividend paid
Retained profits at the end of the financial year
290.2
236.0
40.8
-
351.2
0.3
8.6
927.1
123.7
4,059.3
138.7
1,630.6
282.6
140.4
13.0
6,388.3
7,315.4
574.0
80.8
63.1
0.6
49.4
767.9
719.1
637.7
2.9
6.9
108.8
43.5
1,518.9
2,286.8
5,028.6
3,265.9
870.9
891.8
5,028.6
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
3,265.9
174.5
471.9
3,912.3
574.5
(149.6)
424.9
471.9
146.4
(151.4)
891.8
303.3
(33.6)
269.7
267.9
0.7
(66.4)
471.9
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. Statement of
Financial Position and Income Statement for this closed group are shown above. During the year the following
entities were added to the Deed of Cross Guarantee: Dyno Nobel Asia Pacific Pty Limited, Dyno Nobel Moranbah Pty
Ltd, Dyno Nobel Moura Pty Limited and DNX Australia Pty Ltd.
Incitec Pivot Limited Annual Report 2011
109
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
39. Parent entity disclosure
As at, and throughout, the financial year ending 30 September 2011 the parent company of the Group was Incitec Pivot
Limited.
Parent entity guarantees in respect of debts of its subsidiaries
As at 30 September 2011 the Company’s current liabilities exceeded its current assets by $161.3m. 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 undrawn financing facilities of $900.0m at 30 September 2011.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in Note 38.
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
Company
2011
$mill
259.0
(90.0)
169.0
797.8
6,259.2
974.0
2,576.6
3,682.6
3,265.9
3.0
4.7
(4.3)
413.3
3,682.6
2010
$mill
78.2
65.6
143.8
420.7
4,515.1
686.5
1,001.5
3,513.6
3,265.9
34.9
46.6
9.8
156.4
3,513.6
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 2011.
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
2011
$mill
2010
$mill
3.1
6.3
110
Incitec Pivot Limited Annual Report 2011
Notes to the Consolidated Financial Statements
For the year ended 30 September 2011
40. Events subsequent to reporting date
Dividends
Since the end of the financial year, in November 2011, the directors have determined to pay a final dividend of 8.2 cents
per share on 16 December 2011. This dividend is unfranked.
Other
•
The Commonwealth parliament has recently passed the ‘Clean Energy Future’ legislation. The legislation will
introduce a carbon pricing scheme and require the Group to purchase and surrender carbon permits in relation to its
carbon emissions in Australia. The scheme, anticipated to commence on 1 July 2012, will have a three-year fixed
price period and subsequently transition to an emissions trading scheme. It is anticipated that the introduction of a
carbon pricing scheme will have implications for the Group's Australian operations, particularly its manufacturing
operations. The financial impact for the Group cannot be estimated until the Company can assess the effect of the
industry assistance program to be implemented as part of the ‘Clean Energy Future’ legislation. However, based on
the draft regulations regarding the industry assistance program and the Group’s forecast future emissions, the impact
of the carbon pricing scheme is not, at this stage, anticipated to have a material impact on the future profitability of
the Group during the fixed price period of the carbon pricing scheme. As the market price of carbon permits under
the subsequent emissions trading scheme cannot be predicted and the details of the industry assistance program
(and its duration) are unknown, the financial impact for the Group cannot be estimated.
•
The Group announced on 27 October 2011, a feasibility study into the construction of an ammonium nitrate
manufacturing plant on the site of its fertiliser facility on Kooragang Island, Newcastle, NSW. Development of the
plant would proceed only on meeting the Group’s strict financial hurdles and achieving firm customer commitments,
regulatory approvals and support from the local and broader communities.
Other than the matters reported on above, the directors have not become aware of any other significant matter or
circumstance that has arisen since the end of the financial year, 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 2011
111
Directors’ Declaration
on the Financial Statements set out on pages 42 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 30 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 2011 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 2011.
John Watson, AM
Chairman
Dated at Melbourne this 11th day of November 2011
112
Incitec Pivot Limited Annual Report 2011
113
114
Shareholder Statistics
As at 11 November 2011
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
13,520
32,099
10,380
7,565
357
207
64,128
6,653,491
21.08%
93,610,717
50.05%
76,041,078
16.19%
141,658,922
11.80%
0.56%
24,709,970
0.32% 1,286,055,932
100.00% 1,628,730,110
0.41%
5.75%
4.67%
8.70%
1.52%
78.96%
100.00%
Included in the above total are 2,141 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 74.49% 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
AMP Life Limited
Cogent Nominees Pty Limited
Citicorp Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Australian Foundation Investment Company Limited
Cogent Nominees Pty Limited
UBS Wealth Management Australia Nominees Pty Ltd
UBS Nominees Pty Ltd
Queensland Investment Corporation
HSBC Custody Nominees (Australia) Limited - A/C 2
Argo Investments Limited
UBS Nominees Pty Ltd
INVA Custodian Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Total
Substantial shareholders
The following parties have declared a relevant interest in the number of voting shares at the date of
giving the notice under Part 6C.1 of the Corporations Act.
Name
National Australia Bank Limited
On-market buy-back
There is no current on-market buy-back.
Number of
shares Percentage
25.51%
15.90%
14.60%
5.41%
2.92%
1.60%
1.50%
1.35%
1.23%
1.16%
0.75%
0.54%
0.39%
0.32%
0.30%
0.24%
0.22%
0.19%
0.18%
0.18%
74.49%
415,488,175
258,993,545
237,839,730
88,179,875
47,500,691
25,982,537
24,421,319
21,985,474
20,053,704
18,934,411
12,163,346
8,847,713
6,412,500
5,234,542
4,828,292
3,895,530
3,521,460
3,163,785
2,968,736
2,859,315
1,213,274,680
Votes / Number of Shares
82,781,517
Incitec Pivot Limited Annual Report 2011
115
Five Year Financial Statistics
Incitec Pivot Limited and its controlled entities
Sales
Earnings before depreciation, amortisation, net borrowing costs, individually material items and tax
Depreciation and amortisation (excluding individually material items)
Earnings before net borrowing costs, individually material items and tax (EBIT)
Net borrowing costs (excluding individually material items)
Individually material items before tax
Taxation revenue / (expense)
Operating profit / (loss) after tax and individually material items
Operating profit / (loss) after tax and individually material items attributable to minority interest
Operating profit / (loss) after tax and individually material items attributable to shareholders of
Incitec Pivot Limited
Individually material items after tax
Operating profit after tax before individually material items (net of tax)
Dividends
Current assets
Property, plant and equipment
Investments
Intangibles
Other non-current assets
Total assets
Current borrowings and payables
Current provisions
Non-current borrowings and payables
Non-current provisions
Total liabilities
Net assets
Shareholders’ equity
Equity attributable to minority interests
Total shareholders’ equity
Ordinary Shares (1)
Number of shares on issue at year end (1)
Weighted average number of shares on issue (investor and ordinary) (1)
Earnings / (losses) per share (1)
before individually material items
including individually material items
Dividends (declared)
Dividends (paid)
Dividend franking
Share price range –High
Low
Year end
Stockmarket capitalisation at year end
Net tangible assets per share
Profit margin (earnings before net borrowing costs and tax/sales)
Net debt
Gearing (net debt/net debt plus equity)
Interest cover (earnings before net borrowing costs and tax/net
borrowing costs)
Net capital expenditure on plant and equipment (cash flow)
Net capital expenditure on acquisitions/(disposals) (cash flow)
Return on average shareholders funds
before individually material items
including individually material items
2011
$mill
3,906.3
2010(2)
$mill
2,931.7
920.3
(148.2)
772.1
(58.2)
(92.5)
(154.1)
467.3
4.1
463.2
(66.9)
530.1
151.4
1,388.0
2,283.3
257.1
2,942.3
131.2
7,001.9
1,064.9
98.3
2,068.2
63.8
3,295.2
3,706.7
3,701.7
5.0
3,706.7
787.3
(139.0)
648.3
(53.0)
(55.4)
(127.7)
412.2
1.7
410.5
(32.3)
442.8
66.4
979.3
1,844.1
256.5
3,010.0
220.4
6,310.3
832.8
82.6
1,701.0
82.6
2,699.0
3,611.3
3,609.2
2.1
3,611.3
2009
$mill
3,418.9
743.0
(167.3)
575.7
(107.6)
(782.7)
93.2
(221.4)
-
(221.4)
(569.2)
347.8
271.0
1,033.9
1,663.4
254.0
3,153.0
485.4
6,589.7
1,081.8
93.4
1,987.4
87.5
3,250.1
3,339.6
3,339.6
-
3,339.6
thousands
thousands
1,628,730
1,628,730
thousands
1,628,730
1,628,730
1,628,730
1,623,134
1,612,536
1,612,536
1,541,925
cents
cents
cents
cents
%
$mill
$
%
$mill
%
times
$mill
$mill
%
%
32.5
28.4
11.5
9.3
-
$4.66
$2.99
$3.27
5,325.9
0.47
19.8
1,188.8
24.3
13.3
610.4
(1.5)
14.5
12.8
27.3
25.3
7.8
4.1
-
$3.78
$2.51
$3.59
5,847.1
0.37
22.1
1,097.1
23.3
12.2
297.3
103.7
12.7
11.9
22.6
(14.4)
4.4
21.6
48
$5.18
$1.74
$2.83
4,563.5
0.12
16.8
1,463.4
30.5
5.4
340.5
2.0
10.7
(6.8)
(1) The number of shares have been restated as a result of the 20:1 share split as approved by shareholders in September 2008.
(2) Comparative information has been restated to reflect changes made in the financial statements.
116
Incitec Pivot Limited Annual Report 2011
Five Year Financial Statistics
2008
$mill
2,918.2
1,025.6
(70.3)
955.3
(80.6)
(38.2)
(231.9)
604.6
-
604.6
(42.9)
647.5
219.3
1,867.0
1,670.6
311.2
3,962.1
374.5
8,185.4
3,612.3
88.6
1,238.4
90.8
5,030.1
3,155.3
3,155.3
-
3,155.3
2007
$mill
1,373.2
348.6
(36.1)
312.5
(28.8)
3.9
(82.4)
205.3
-
205.3
2.8
202.5
75.6
909.0
502.1
1.6
193.7
32.9
1,639.3
325.6
31.2
682.8
64.7
1,104.3
535.0
535.0
-
535.0
1,217,231
1,217,231
1,008,478
1,008,478
1,069,507
1,008,478
60.5
56.5
29.7
21.8
100
$9.99
$4.11
$5.07
6,171.4
(0.66)
32.7
2,030.3
39.2
11.9
217.6
586.4
35.1
32.8
20.1
20.4
15.0
7.5
100
$4.29
$1.19
$4.28
4,313.3
0.34
22.8
411.7
43.5
10.9
62.9
257.0
44.3
44.9
(1) The number of shares have been restated as a result of the 20:1 share split as approved by shareholders in September 2008.
(2) Comparative information has been restated to reflect changes made in the financial statements.
Incitec Pivot Limited Annual Report 2011
117
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Shareholder Information
Annual General Meeting
2.00 pm Tuesday 20 December 2011
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 Limited
Level 12, 680 George Street,
Sydney New South Wales 2000,
Australia
Locked Bag A14,
Sydney South New South Wales 1235,
Australia
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:
Level 8, 28 Freshwater Place,
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
Incitec Pivot Limited
ABN 42 004 080 264
Level 8, 28 Freshwater Place,
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 2011 is Revive Pure 100% Recycled Silk. Revive Pure 100% Recycled Silk is FSC Recycled Certified
(100% post consumer waste), Certified Carbon Neutral, and the paper manufacture process is chlorine free.