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OMNOVA Solutions Inc.ANNUAL REPORT 2013
2013 Tumbler Ridge
CANADA
Ekati
Diavik
Calgary
Biwabik
St Helens
Barry
Salt Lake City
Cheyenne
Carthage
Louisiana, Missouri
Ammonia Plant, Louisiana
Dinamita
Gomez Palacios
Guadalajara
USA
MEXICO
Meadowbank
North Bay
Mount Wright
Maitland
Boisbriand
Ormstown
Simsbury
Port Ewen
Donora
Duffield
Graham
Brooksville
Wolf Lake
Lausanne
Tirana
Bucharest
Ankara
Soma
Linyi (Fabchem)
New Delhi
Hong Kong
Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
Lihir
INDONESIA
AUSTRALIA
Moranbah
Townsville
Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Melbourne
Geelong
Devonport
LATIN
AMERICA
La Serena
Santiago
TURKEY
CHINA
PAKISTAN
INDIA
SOUTH
AFRICA
Batu Arang (TKEB)
Sibolga
Tanjung Tabalong
Jakarta
Batu Kajang
Port Hedland
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
Incitec Pivot Limited
Company Headquarters
Incitec Pivot Fertilisers
Corporate Office
Manufacturing/Distribution
Quantum Fertilisers
Dyno Nobel
Corporate Office
Manufacturing/Distribution
Joint Ventures/Investments
Lausanne
Tirana
Bucharest
Ankara
Soma
Linyi (Fabchem)
New Delhi
Hong Kong
Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
Lihir
TURKEY
CHINA
PAKISTAN
INDIA
SOUTH
AFRICA
Batu Arang (TKEB)
Sibolga
Tanjung Tabalong
Jakarta
Batu Kajang
Port Hedland
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
INDONESIA
AUSTRALIA
Moranbah
Townsville
Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Melbourne
Geelong
Devonport
Ekati
Diavik
Tumbler Ridge
Calgary
Biwabik
St Helens
Barry
Salt Lake City
Cheyenne
Carthage
Louisiana, Missouri
Ammonia Plant, Louisiana
Dinamita
Gomez Palacios
Guadalajara
CANADA
USA
MEXICO
Meadowbank
North Bay
Mount Wright
Maitland
Boisbriand
Ormstown
Simsbury
Port Ewen
Donora
Duffield
Graham
Brooksville
Wolf Lake
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
ii
iv
vi
vii
1
13
28
40
VISION STATEMENT
To be the best in our markets, delivering Zero Harm
and outstanding business performance through our people,
our culture and our customer focus.
Chairman’s Report
Our strategy is sound and our
major projects are important in
delivering our financial performance.
It is a pleasure to be able to report to
shareholders following my first full year
as Chairman of Incitec Pivot Limited.
The year has been a mixed one, with the
financial results adversely impacted by a
number of factors, some beyond our
control and some which point to areas
where we need to improve our own
performance. However, I end the year
feeling more confident than ever about
our strategy and prospects. When we
look back in years to come, we will see
2013 as a year when we established a
strong foundation for the future, in the
form of the commissioning of our
Moranbah Ammonium Nitrate Plant and
the commencement of construction of
our Ammonia Plant in Louisiana. I believe
that these two projects will go a very
long way towards underpinning our
results in the years ahead.
Tragically, in 2013 there were two
fatalities in our business, one an
employee in North America and the other
a contractor working on one of our sites in
Australia. To the families of these men we
send our heartfelt condolences. In the
wake of these incidents we conducted a
global Safety Stand-down across all our
sites, while we concentrated on
reinforcing our cultural messages and
operational processes to all our
employees, which are so critical to Zero
Harm. Management and the Board will
continue to see this as the highest priority
on their respective agendas.
The financial performance of the Company
was impacted by a number of external
factors: a high Australian dollar, low global
fertiliser prices and an international
resources sector under cost pressures.
Net Profit After Tax (NPAT) excluding
Individually Material Items (IMIs)
decreased by 26% or $106.3 million
to $298.4 million. After adjusting the
previous corresponding period for the
Moranbah unfavourable contract liability
release, this was a decrease of $64.3
million, or 18%.
Earnings Per Share (EPS) excluding
IMIs, were down 26% to 18.3 Cents
Per Share (cps).
ii
Incitec Pivot Limited Annual Report 2013
The balance sheet is in a strong position
reflecting the financial discipline applied
by the Board and management
throughout the business.
Our Managing Director & CEO, James
Fazzino, discusses the financial results in
more detail in his report.
Our final dividend is 5.8 cps, bringing the
full year dividend to 9.2 cps, a decrease
of 26% on the 2012 full year dividend of
12.4 cps. This dividend payout ratio of
50% of NPAT excluding IMIs reflects the
payout ratio endorsed by the Board of
30–60% of NPAT excluding IMIs.
We have a wide range of shareholders on
our register and we are cognisant of retail
shareholders benefitting from franking
credits. Our intention is to distribute
franking credits when they are available.
For the final dividend, we were able to
maintain the 75% franking.
I would now like to turn to the Group’s
strategic direction. Our Corporate Strategy
is sound and we have aligned our
business to the two major global trends
of the industrialisation of Asia, with a
particular focus on China’s growth, and the
shale gas revolution in the US. At the core
of our business is nitrogen chemical
manufacturing and we will continue to
increase the capability of our assets to
take advantage of these market dynamics.
Building on this footprint and increasing
the capacity of the business in the
medium term is an important step in
implementing the strategy, which is why
the completion and operation of the
Moranbah Ammonium Nitrate Plant and
the commencement of construction for
the Louisiana Ammonia Plant have been
a huge part of our 2013 endeavours.
The Moranbah plant is located in the
Bowen Basin, which has some of the
lowest cost metallurgical coal delivered
into Asia, and our customers are
supportive of the investment by IPL.
The Moranbah plant will be a significant
low cost manufacturing asset of the Group
for many years. Pleasingly, the Moranbah
plant has finished the year operating at an
annualised production rate consistent with
our 2014 target of 300,000 tonnes.
The Louisiana project is a particularly
exciting one and is an excellent fit with
our strategy. We have a brownfield site
which is extremely well suited to our
operations and have negotiated a lump
sum turnkey contract with KBR, whom
we believe to be at the forefront of global
ammonia plant construction. The IPL
project team we have in place is an
experienced one, with some key team
members having also worked on the
Moranbah project.
One of the highlights of the Board’s year
was our visit to Louisiana for the ground
breaking ceremony for the new plant.
While we already understood the
compelling economics of the project, it was
good to hear from the Louisiana Governor,
Bobby Jindal, about the significance of this
project to the local community and to the
economy of Louisiana. We also spent time
with our construction contractor, KBR, and
our brownfield site partner, Cornerstone
Chemicals, discussing our approach to
ensuring that this project will come in on
time and on budget and, most importantly,
will achieve the same outstanding safety
performance achieved during the
construction of our Moranbah plant.
As James makes clear in his report, we
are not letting these two exciting projects
distract us from the immediate challenges
and, in particular, the need to improve
plant reliability. In James’ report, he
describes in detail some of the
organisational changes which have been
made to address this. This will be high
on the agenda as part of the Board’s
oversight function as we move into 2014.
During the year, the Directors had some
wonderful opportunities to visit parts of
our business, both in Australia and the
United States, and to interact with our
people and our customers.
While in the United States we met
with major customers and joint venture
partners in our Coal and Quarry &
Construction divisions. Much of the
discussion focussed upon ways in which
we could work more closely together to
add value to their businesses.
Groundbreaking ceremony at the site of the proposed Ammonia Plant in Louisiana, United States.
L to R: Conrad Appel, Senator, Louisiana State Legislature; Julie Stokes, Representative, Louisiana State
Legislature; Mark Spears, Councilman, Jefferson Parish; John Young, President, Jefferson Parish; Greg
Zoglio, CEO, Cornerstone Chemical; Christopher Leopold, Representative, Louisiana State Legislature;
Bobby Jindal, Governor of Louisiana; James Fazzino, Managing Director & CEO, Incitec Pivot Limited;
Paul Brasher, Chairman, Incitec Pivot Limited; Jerry Bologna, Executive Director, JEDCO; Robert Billiot,
Representative, Louisiana State Legislature; Stan Salathe, Chairman, JEDCO; and William Utt, CEO, KBR.
This is a major theme for our business,
not just in the Explosives division but also
in Fertilisers, and we saw many great
examples of how we are adding value
through technology and innovation. In
particular, the Dyno Nobel team at our
Lehi Technology Centre in Salt Lake City
were hugely impressive in terms of their
intellect and ingenuity and the extent to
which they are applying these to solve
our customers’ problems.
Closer to home, the Board spent time
with our site leaders and employees at
the Gibson Island production facility in
Queensland and were impressed with
the way our people are using Business
Excellence (BEx) to identify opportunities
for improvements in efficiency and
develop solutions. There have been
some very tangible outcomes as a
result of every employee’s preparedness
to take ownership of the issues,
particularly in relation to our
maintenance turnarounds, as well as
some of our ongoing plant issues.
This year marks the completion of our
2010–2013 Sustainability Agenda. In this
time, we have established a Community
Investment Framework which has
delivered many benefits to our local
communities and improved governance
of our community spend; implemented
targets to reduce the use of non-
renewable resources in our Australian
manufacturing operations; implemented
a successful indigenous employment
program; and invested in innovative
research projects that have delivered
positive environmental and commercial
outcomes for both IPL and our customers.
I am pleased to advise that our efforts
have been noticed. This year IPL has been
included in the Dow Jones Sustainability
Asia-Pacific Index for the second year
running. Moreover, we have achieved a
14% increase in our score year-on-year,
demonstrating the targeted progress
being made across the Group.
Next year, as we set out our 2014–2016
Agenda, IPL will enter the next phase of
its sustainability journey, driven by our
core values of Zero Harm for Everyone,
Everywhere and Care for the Community
and our Environment.
On the question of sustainability, one
issue which we, as a business, must
deal with is the impact on our Australian
operations of the rapidly rising cost of
natural gas, the feed stock for the
production of ammonia.
The nearly simultaneous commissioning
of six liquefied natural gas (LNG) trains in
Queensland in 2015 is having the effect
of dramatically increasing the price of gas
in Eastern Australia, imposing substantial
costs on all users of gas, as well as
significantly reducing the available supply.
This time last year, I raised the need for
this issue to be addressed. I have been
pleased to see the increase in intensity
of debate as the impact of this issue on
Australian manufacturing becomes clearer.
Whatever the outcome, it is clear that this
is an issue which requires a coherent
national policy and approach, and we
look forward to having further input into
this debate in the year ahead.
At Board level, we continue to focus
on achieving the best possible board
performance. During the year, we
commissioned an external review of
Board performance (both individual
performance and collective performance)
and Board succession planning. The result
was encouraging, but there are always
things which can be improved and in
2014 we will continue to focus on
ensuring that the Board functions not
only as an instrument of governance,
but also as an enabler of strategy.
We now have in place a formal Board
succession planning methodology
covering the next seven years and taking
into account the likely timing of board
member rotations and the skills which
will be required to allow us to drive
our strategy.
One of our long standing Directors,
Allan McCallum, is about to complete
his current three year term and will
not be seeking re-election at the AGM.
Allan has spent almost 16 years as a
Director of Incitec Pivot Limited and its
various antecedent companies and has
made a fantastic contribution to the
Company’s growth, often in very
challenging environments.
Allan’s wisdom and common sense and
his understanding of our agricultural
customers have been highly valued by
the Board. We owe Allan a huge vote of
thanks and wish him all the best.
Thank you to all of my fellow
Directors, who have been energetic
and constructive and have provided
great support to me and to our
management team.
Thank you also to James Fazzino and his
management team, and thank you to
every one of our 5,200 employees who
have contributed to IPL during 2013.
James Fazzino has mentioned several
long serving executives who retired
during the year, and I endorse James’
comments. In particular, I would like to
thank and acknowledge Kerry Gleeson,
former General Counsel and Company
Secretary, who resigned recently. Kerry
provided 10 years of dedication and
professional service to the Board and the
Company. On behalf of the Board, we
wish Kerry the very best for the future.
Looking ahead, there are some
tremendous opportunities and significant
challenges, not the least of which is the
availability and cost of major raw
materials. Our strategy is sound and our
major projects are important in delivering
our financial performance.
Your Board and I are committed to
delivering on our business targets and
major project timelines for 2014 and the
medium term. Most importantly, our
priority focus is on the safety of all our
employees, every day.
Paul Brasher
Chairman
Incitec Pivot Limited Annual Report 2013
iii
Managing Director’s Report
Our growth horizons are clearly defined. The
medium term growth platform has been set with
the Moranbah plant and the Louisiana project,
which fit our priority of being close to the core of
our existing business and existing capability.
It is my pleasure to present my fifth
report to you as Managing Director and
CEO following a year when we continued
to establish a firm foundation for the
future while managing through short-
term challenges which impacted our
profitability in 2013. We maintain
confidence in our strategic direction and
in our people to execute on the strategy
to deliver superior shareholder returns
into the future.
However, a year in which we suffered
the very sad loss of two work colleagues
is a failure. The tragedy of these two
fatalities has made me more determined
than ever to drive a Zero Harm culture.
Our approach focuses on four key areas
known as the 4Ps, that is Passionate
Leadership, People, Procedures and Plant.
During the year, we held a global Safety
Stand-down across all our manufacturing
plants, sites and offices at which teams
discussed our commitment to Zero Harm
and our 4Ps. This Safety Stand-down
gave us a chance to mourn, while also
firming each employee’s personal
commitment and continuing the process
of having everyone contribute to our
safety systems. Without doubt, loss of
life at work casts a pall over the year.
However, in the year, we saw that a
focussed drive on Zero Harm can result
overall in fewer injuries. Our aim is
world class standards in our approach
to safety: a total recordable incident
rate of less than one. In 2012/13 our
incident rate was 1.16, compared to
1.40 in 2012.
An important development was the
roll-out of our Safety Partners training
program across Manufacturing, Fertilisers
and Dyno Nobel. Safety Partners is an
innovative group-wide program that
incorporates a unique blend of best
practice processes aimed at creating a
deeper relationship between employees,
leaders and safety to deliver Zero Harm.
We also worked to standardise our HSE
governance processes and procedures.
This year we implemented a Zero Harm
Council governance structure across the
Group, updated and streamlined our
global HSE standards, and established a
iv
Incitec Pivot Limited Annual Report 2013
consistent global approach to personal
risk assessment.
Excellence program, BEx, and through
a continuous focus on efficiency.
Our Corporate strategy, while it continues
to evolve, is anchored around core
themes. We look for market dislocations
that drive above-trend returns. We have
identified two global trends: the
industrialisation of Asia, in particular
China, and the shale gas revolution in
the United States. The other key element
that we look to leverage is our core
nitrogen chemical manufacturing
capability to capitalise on these global
market dislocations.
During the year, we implemented
this strategy through the ramp-up of
production of the Moranbah Ammonium
Nitrate Plant in Queensland and the start
of construction of a world-scale ammonia
plant in Louisiana, USA. Moranbah’s
ammonium nitrate will be used to mine
the coal in the Bowen Basin mines
which feed the blast furnaces of Asia.
The decision to proceed to construct
an ammonia plant in Louisiana was
predicated in large part on the long-term
availability in the US of competitively-
priced gas for the domestic market
driven by the shale gas revolution.
Our growth horizons are clearly
defined. The medium term growth
platform has been set with the
Moranbah plant and the Louisiana
project, which fit our priority of being
close to the core of our existing business
and existing capability. By definition,
growth projects that are close to the core
are typically lower risk and this is true of
Moranbah and Louisiana. Both are fully
integrated – backed to gas – which
means that both are low cost with the
offtake from both fully sold, reducing
market risk. This strategic combination
drives compelling returns.
However, the challenge is to execute
on the strategy through maximising
returns from our current businesses and
ensuring delivery on our medium term
investments, in particular, Moranbah and
Louisiana. During the year, we progressed
the systems to support our people to
execute on strategy through our Business
In looking at the financial performance
during the year, we were challenged by
the external factors of a high Australian
dollar, low global fertiliser prices, a
decline in demand for resources and
increasing cost pressure on manufacturing
inputs. The result was also impacted by
unscheduled plant outages, particularly
at Phosphate Hill. We moved quickly to
identify the root cause of the outages
and took action to ensure the reliability
of, not only those specific plants, but of
our plants globally.
Net Profit After Tax (NPAT) excluding
Individually Material Items (IMIs)
decreased by 26% or $106.3 million to
$298.4 million. Earnings Before Interest
and Tax (EBIT) excluding IMIs decreased
by 22% or $132.9 million to $466.2
million. Earnings Per Share (EPS) were
down 27% to 22.8 Cents Per Share (cps).
EPS excluding IMIs declined to 18.3 cps,
a 26% fall. The balance sheet remains
strong, reflecting the financial discipline
throughout the business.
The performance of the individual
businesses was sound in the face of
external challenges. Incitec Pivot Fertilisers
increased EBIT by 4% to $96.4 million on
the back of increased distribution
volumes, with favourable weather
conditions and also enhanced margins,
driven in part by a new contract process
combined with a value-at-risk model
where customers committed to volumes
and prices. This new process provided
customers with security of supply and
enabled us to better manage our risk in
an environment of falling global fertiliser
prices. Fertilisers’ result was also impacted
by the higher Australian dollar and the
plant outage at Phosphate Hill, which ran
on reduced rates for the second half of
the year.
Underlying EBIT for Dyno Nobel Asia Pacific
(DNAP) rose by 15% to $149.4 million on
the back of increased sales including
ammonium nitrate and explosive emulsion
from the Moranbah plant. Moranbah
experienced some operational issues
during its first year of ramp-up to full
production. This is not unusual for a new
project as the site team takes advantage
of the staged progression to full production
to fully understand operational
characteristics. Moranbah has been
operating reliably for several months.
With the resources industry in Australia
experiencing a softening in demand, DNAP
is reviewing the costs in its operation to
ensure that it is fit for purpose in meeting
customer expectations.
While Dyno Nobel Americas (DNA) EBIT
decreased by 9% to US$178.4 million,
impacted by coal demand and fertiliser
pricing, the underlying result was
encouraging. Looking to the future, the
US coal market will continue to be
challenged. However, base demand
will remain strong, particularly for our
major customers in the Powder River
Basin, where mines are at the bottom
of the cost curve. We anticipate that
demand from our other key explosives
sectors, Metals and Quarry &
Construction, will improve with the
strengthening US economy.
A key element of our strategic execution
is to leverage our core nitrogen chemical
manufacturing capability. A crucial factor
is operational reliability. During the year,
we restructured our Global Manufacturing
team to give primacy to our engineering
expertise by focusing our manufacturing
priorities in two areas: the Strategic
Engineering function and the Operational
function. The Strategic Engineering
function will embed world class
manufacturing models and processes and
set the operational and maintenance
parameters for all plants. Alan Grace
rejoined my Executive Team, taking
the position of President Strategic
Engineering from 1 October. Alan is
a highly qualified chemical engineer
with 30 years’ experience constructing
and operating chemical processing
plants, including 13 years with IPL.
The Operational function will be
responsible for running the plants
efficiently and effectively within
parameters set by the Strategic
Engineering function. The process for
appointment of the President of
Manufacturing Operations is continuing.
In the meantime, Alan will oversee this
function with Manufacturing Operations
Vice Presidents reporting through to him.
In relation to the performance of our
plants globally, Moranbah and Phosphate
Hill, following unscheduled maintenance,
are performing to expectations, while our
US plants and the Gibson Island fertiliser
plant in Brisbane, have all been
performing well.
BEx is the tool for best practice
performance delivery and productivity. BEx
is our system for continuously improving
the way we work. Through process
discipline and investing in our people, we
are transforming the Group to achieve
outstanding business performance. In
2012, BEx was implemented across many
of IPL’s manufacturing operations. In the
past year, BEx was rolled out to the supply
chain and logistic functions. As the
businesses and operations have now
adopted the structured approach to
business improvement, the need for
corporate support has decreased and,
during the past six months, BEx has been
embedded in the businesses to improve
accountability and implementation at the
site level but also providing a line of sight
through to management. Additionally, this
means a reduction in the longer term cost
of BEx, while maintaining the benefits.
In this year, BEx has delivered $39 million
in productivity and efficiency benefits.
I am confident that we will continue to
grow operational and financial benefits
from BEx through the years.
An example of BEx in action during 2013
was the maintenance turnaround at our
ammonium nitrate plant at Cheyenne,
Wyoming, USA. The turnaround
comprised a 35-day planned outage
involving 540 workers at the peak of
maintenance activity. The application
of BEx and turnaround best practice
delivered an outstanding result: zero
injuries, on-time and on-budget.
Capital management is another area
where we have executed well. We have
completed more than $1.6 billion of
refinancing, resulting in a very strong
capital structure with excellent tenor and
investor diversity. This included the
successful refinancing of the Syndicated
Facility Agreement and new Australian
Medium Term Note issue. Consistent with
our conservative capital management
approach, we have fully pre-funded the
capital cost of the Louisiana project.
In closing, I want to thank the Chairman,
Paul Brasher, and my fellow Board
Directors, as well as my colleagues on
the IPL Executive Team for their support.
In relation to the Executive Team, we
recently welcomed Elizabeth Hunter,
who has been appointed Chief Human
Resources Officer. Also, we announced the
farewell of three long serving senior
managers, Bernard Walsh, who was
President of Global Manufacturing,
Chris Trotter, the President Business
Improvement & Human Resources,
who will retire later this year, and
Kerry Gleeson, our General Counsel
and Company Secretary, who recently
resigned. I would like to thank each
of them for the significant contribution
they have made and wish them the very
best for the future. Finally and most
importantly, I thank our 5200-member
team who are the reason that IPL is a
great company.
James Fazzino
Managing Director &
Chief Executive Officer
Moranbah Plant, Queensland, Australia
Incitec Pivot Limited Annual Report 2013
v
Board of Directors
Seated (l to r): Rebecca McGrath, Paul Brasher, James Fazzino
Standing (l to r): Graham Smorgon AM, Anthony Larkin, John Marlay, Allan McCallum
Paul Brasher
BEc(Hons), FCA
Non-executive Chairman
Anthony Larkin
FCPA, FAICD
Non-executive director
John Marlay
BSc, FAICD
Non-executive director
Allan McCallum
Dip. Ag Science, FAICD
Non-executive director
Paul was appointed as a
director on 29 September 2010
and was appointed Chairman
on 30 June 2012. Paul is
Chairman of the Nominations
Committee.
Tony was appointed as a
director on 1 June 2003. Tony is
Chairman of the Audit and Risk
Management Committee and a
member of the Nominations
Committee.
John was appointed as a
director on 20 December 2006.
John is Chairman of the
Remuneration Committee
and a member of the Audit
and Risk Management
Committee.
Allan was appointed as a
director on 15 December 1997.
Allan is Chairman of the Health,
Safety, Environment and
Community Committee and a
member of the Remuneration
Committee.
Rebecca McGrath
BTP(Hons), MASc, FAICD
Non-executive director
Graham Smorgon AM
B.Juris, LLB
Non-executive director
James Fazzino
BEc(Hons)
Managing Director & CEO
Rebecca was appointed as a
director on 15 September 2011.
Rebecca is a member of the
Audit and Risk Management
Committee, Health, Safety,
Environment and Community
Committee and Nominations
Committee.
Graham was appointed as a
director on 19 December 2008.
Graham is a member of the
Health, Safety, Environment and
Community Committee,
Nominations Committee and
Remuneration Committee.
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. James is a member of
the Health, Safety, Environment
and Community Committee.
vi
Incitec Pivot Limited Annual Report 2013
Executive Team
James Fazzino BEc(Hons)
Managing Director & CEO
Frank Micallef BBus, MAcc, FCPA,
FFTA, FAICD
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), FAICD
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 as a lawyer in Australia,
with Blake Dawson (now Ashurst), 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.
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 and is responsible for major growth
initiatives across the group, including major
capital projects and mergers and acquisitions,
as well as Business Excellence (BEx).
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 to 2003, including as General
Manager of Initiation Explosives Systems
(IES), a joint venture between Orica Limited
and Ensign Bickford Industries Inc. which
manufactured a full range of initiating
systems. Bernard was responsible
for the Group’s Ammonia, Ammonium
Nitrate and Fertiliser Manufacturing Plants.
James Whiteside BAgricSc,
GradDipBusAdmin, GAICD
Chief Operating Officer,
Incitec Pivot Fertilisers
James joined IPL (then known as Pivot
Limited) in 1992, following extensive
experience in agricultural companies and
in consulting. Since joining IPL, James has
held a number of senior management
roles including as Group Procurement
Manager. As Chief Operating Officer, Incitec
Pivot Fertilisers, James is responsible for
domestic and international fertiliser sales
and distribution and the global supply
chain process.
Stephen Dawson BSc(Hons) Mining
Engineering, MBA
President, Dyno Nobel Asia Pacific
Stephen joined the Company upon its
acquisition of Dyno Nobel in 2008, having
commenced with Dyno Nobel in 1997.
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.
First row (l to r):
James Fazzino,
Frank Micallef,
Kerry Gleeson,
Jamie Rintel,
Bernard Walsh
Second row (l to r):
James Whiteside,
Stephen Dawson,
Daniel McAtee,
Simon Atkinson
Daniel McAtee BS(ChemE)
President, Dyno Nobel US & Canada
Dan joined the Company as DNA Chief
Operating Officer in April 2012 and was
appointed President of Dyno Nobel USA &
Canada in June 2012. Dan has over 20 years’
experience across a variety of international
commercial and operational commodity
businesses, including more than 15 years
with General Electric, as well as three years
as CEO of a Canadian public steel company.
Dan is a Certified Master Black Belt in Six
Sigma methodologies.
Simon Atkinson BBus, CA
President, Dyno Nobel International
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 commercial and finance
experience, having previously been the
Company’s Commercial Finance Manager
for the Australian fertilisers business before
becoming the Company’s Deputy CFO
incorporating the Investor Relations function.
In 2009, Simon was appointed Global CFO
for the Group’s explosives business and was
appointed to his current role as President,
Dyno Nobel International in May 2010 with
sales and operational responsibility for Latin
America, Europe, Africa and China, and
functional responsibility for the Dyno Nobel
Global Marketing & Technology Group and
Global Strategic Accounts.
Incitec Pivot Limited Annual Report 2013
vii
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 2013 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
Paul Brasher BEc(Hons), FCA
Non-executive Chairman
Chairman of the Nominations
Committee
Anthony Larkin FCPA, FAICD
Non-executive director
Chairman of the Audit and Risk
Management Committee
Member of the Nominations
Committee
John Marlay BSc, FAICD
Non-executive director
Chairman of the Remuneration
Committee
Member of the Audit and Risk
Management Committee
Allan McCallum Dip. Ag Science,
FAICD
Non-executive director
Chairman of the Health, Safety,
Environment and Community
Committee
Member of the Remuneration
Committee
Rebecca McGrath BTP(Hons),
MASc, FAICD
Non-executive director
Member of the Audit and Risk
Management Committee
Member of the Health, Safety,
Environment and Community
Committee
Member of the Nominations
Committee
Experience
Paul was appointed as a director on 29 September 2010. Paul is a non-executive director
of Perpetual Limited and the Deputy Chairman of Essendon Football Club. 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 Victorian Arts Centre Trust and the
Committee for Economic Development of Australia.
Tony was appointed as a director on 1 June 2003. He is also a non-executive director of
Oakton Limited and MMG Limited. Tony was previously a non-executive director of OZ
Minerals Limited, Corporate Express Australia Limited and Eyecare Partners Limited,
Executive Director Finance of Orica Limited, Chairman of Incitec Limited and Chairman of
Ausmelt Limited. During his career with BHP Limited, which spanned 38 years, he held the
position of Group Treasurer and, prior to that, he held senior finance positions in its steel
and minerals businesses and various senior corporate roles. From 1993 to 1997, he was
seconded to Foster’s Group Limited as Senior Vice President Finance and Investor Relations.
Until early 2006, he was a Commissioner of the Victorian Essential Services Commission.
John was appointed as a director on 20 December 2006. John is Chairman of Cardno
Limited and a non-executive director of Boral Limited. He is also Chairman of Flinders Ports
Holdings Limited and independent Chairman of Tomago Aluminium Company Pty Ltd, a
joint venture between Rio Tinto, Alcan, CSR/AMP and Hydro Aluminum companies, and a
Member of the Climate Change Authority. John is a former Chief Executive Officer and
Managing Director of Alumina Limited, a former director of Alesco Corporation Limited,
Alcoa of Australia Limited and the Business Council of Australia, and the former Chairman
of the Australian Aluminium Council. He previously held executive positions with Esso
Australia Limited, James Hardie Industries Limited, Pioneer International Group Holdings
and Hanson plc.
Allan was appointed as a director on 15 December 1997. Allan is Chairman of Tassal Group
Limited, a director of Medical Developments International Limited and a member of the
Rabobank Advisory Board. He is a former Chairman of CRF Group Limited, CRF (Colac
Otway) Pty Ltd and Vicgrain Limited and a former director of Graincorp Limited. Allan has
extensive experience across agriculture and agribusiness.
Rebecca was appointed as a director on 15 September 2011. Rebecca is a non-executive
director of OZ Minerals Limited, CSR Limited and Goodman Group. Rebecca is also a
member of the Advisory Council at JP Morgan Australia. Her most recent executive position
was Chief Financial Officer & Executive Board member for BP Australia and New Zealand.
During her 23 year career with BP plc, Rebecca held a number of senior roles including as
Chief Financial Officer and Executive Board member for BP Australia and New Zealand.
Rebecca is also a former director of Big Sky Credit Union Limited.
1
Incitec Pivot Limited Annual Report 2013
Name, qualifications and
special responsibilities
Experience
Graham Smorgon AM
B.Juris, LLB
Non-executive director
Member of the Health, Safety,
Environment and Community
Committee
Member of the Nominations
Committee
Member of the Remuneration
Committee
James Fazzino BEc(Hons)
Managing Director & CEO
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 Arrium Limited, Chairman of Smorgon Consolidated Investments and the GBM
Group, and a Trustee of the Victorian Arts Centre Trust. His former roles include Chairman of
the Print Mint Group, director of Fed Square Pty Ltd, Chairman of the Arts Centre
Foundation, Chairman of Smorgon Steel Group Ltd, President of the Carlton Football Club,
Deputy Chairman of Melbourne Health, Director of The Walter and Eliza Hall Institute of
Medical Research, Chairman of Creative Brands, Chairman of GBM Logic, Member of the
Council of Bialik College, Director of the Playbox Theatre Company and Playbox Malthouse
Limited, Trustee of the Royal Melbourne Hospital Neuroscience Foundation, Chairman of
the RMIT Marketing Industry Advisory Working Committee, and partner of law firm Barker
Harty & Co, where he practised as a commercial lawyer for 10 years. In 2013, Graham was
awarded a Membership in the Order of Australia for significant service to business and to
the community in the State of Victoria.
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.
Company Secretary
During the 2012/13 financial year, Mrs Kerry Gleeson held the
office of Company Secretary. Kerry is a practising solicitor,
having been admitted to practice in England and Wales in 1991,
and in Victoria, Australia, in 2001.
Kerry was appointed as Company Secretary on 16 February
2004, having previously practised as a lawyer with Blake
Dawson (now Ashurst) in Melbourne and, prior to that, Kerry
was a partner of an English law firm. In 2012, Kerry became a
Fellow of the Australian Institute of Company Directors.
On 31 October 2013, Mrs Gleeson resigned as Company
Secretary. Ms Daniella Pereira was appointed as Company
Secretary on 31 October 2013.
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.
Operating and financial review
Refer to the operating and financial review on page 5.
Dividends
Dividends paid since the last annual report were:
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:
Type
Paid during the year
2012 final dividend
2013 interim dividend
Paid after end of year
2013 final dividend
Cents
per
share
Total
amount
$mill
Franked/
Unfranked
Date of
payment
9.1
3.4
148.2
75% franked 14 December 2012
55.4
75% franked
2 July 2013
5.8
94.5
75% franked 18 December 2013
Director
P V Brasher(1)
A C Larkin
J Marlay(1)
A D McCallum(1)
R J McGrath
G Smorgon AM
J E Fazzino(1)
Fully paid ordinary shares
Incitec Pivot Limited
40,600
5,000
37,926
216,501
7,000
0
1,708,180
Dealt with in the
financial report as:
Dividends
Subsequent event
Note
27
27
$mill
203.6
94.5
Changes in the state of affairs
There have been no significant changes to the Group’s state
of affairs during the financial year.
(1) Held both directly and indirectly.
Further details of directors’ interests in share capital are set out
in Note 34 to the financial statements, key management
personnel disclosures.
Incitec Pivot Limited Annual Report 2013
2
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:
Board
Audit and
Risk Management
Remuneration
Nominations
Health, Safety,
Environment and
Community
Director – Current (1) (2)
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
P V Brasher
A C Larkin
J Marlay
A D McCallum
R J McGrath
G Smorgon AM
J E Fazzino
11
11
11
11
11
11
11
11
11
11
11
11
11
11
Chairman
Member
4
4
4
4
4
4
4
4
4
4
4
4
3
3
3
3
3
3
3
3
4
4
4
4
4
4
4
4
(1) ‘Held’ indicates the number of meetings held during the period that the director was a member of the Board or Committee.
(2) ‘Attended’ indicates the number of meetings attended during the period that the director was a member of the Board or Committee.
Events subsequent to reporting date
Since the end of the financial year, in November 2013, the
directors determined to pay a final dividend for the Company of
5.8 cents per share on 18 December 2013. The dividend is 75%
franked (Refer Note 27 to the financial statements).
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 2013 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
Refer to the operating and financial review for information on
likely developments and future prospects of the Group.
Environmental regulation and performance
The operations of the Group are subject to environmental
regulation under the jurisdiction of the countries in which those
operations are conducted including, Australia, United States of
America, Mexico, Canada, Indonesia, Papua New Guinea and
Turkey.
The environmental laws and regulations generally address the
potential aspects and impacts of the Group’s activities in
relation to, among other things, air and noise quality, soil,
water, biodiversity and wildlife.
The Group operates under a Global Health, Safety and
Environment Management System which sets out guidelines on
the Group’s approach to environmental management, including
a requirement for sites to undertake an Environmental Site
Assessment.
In certain jurisdictions, the Group will hold licences for some of
its operations and activities from the relevant environmental
regulator. The Group measures its compliance with such licences
and reports statutory non-compliances as required.
Measurement of the Group’s environmental performance is
based upon the potential consequence (not the actual impact)
of incidents which are reported across four levels: Category 1 –
minor; Category 2 – moderate; Category 3 – serious/major; and
Category 4 – extreme/catastrophic. This is reflected in the table
below, noting the loss of containment which gave rise to a
potential consequence in Category 4 involved a small release of
gas (sulphur trioxide) into the atmosphere for which there was
no impact on either the environment or the community.
Similarly, in the case of the 39 losses of containment which
gave rise to potential consequences in Category 3, these
typically involved fertiliser product spillage during loading/
unloading or a loss of containment of product due to weather
events such as excessive rainfall.
For the 2012/13 financial year, the aggregate amount
of fines for environmental incidents reported in the table
below was $5,200.
Category
Licence Non-compliance
Site Loss of Containment
Environmental Incidents
Category 2
Category 3
Category 4
14
2
0
102
39
1
Annually, the Company publishes a Sustainability Report which
is available on its website at www.incitecpivot.com.au. The
Report provides details of the Group’s environmental
management, performance and initiatives.
3
Incitec Pivot Limited Annual Report 2013
Auditor
Deloitte Touche Tohmatsu continues in office in accordance with
section 327B(2) of the Corporations Act 2001 (Cth).
Non-audit services
Deloitte Touche Tohmatsu has provided non-audit services to
the amount of $131,400 during the year ended 30 September
2013 (Refer Note 7 to the financial statements).
As set out in Note 7 to the financial statements, the Audit and
Risk Management Committee must approve individual non-
audit engagements provided by Deloitte Touche Tohmatsu
above a value of $100,000, as well as the aggregate amount
exceeding $250,000 per annum. Further, in accordance with its
Charter, during the year the Committee has continued to
monitor and review the independence and objectivity of the
auditor, having regard to the provision of non-audit services.
Based on the advice of the Audit and Risk Management
Committee, the directors are satisfied that the provision of non-
audit services, during the year, by the auditor (or by another
person or firm on the auditor’s behalf) is compatible with the
general standard of independence for auditors imposed by the
Corporations Act 2001 and does not compromise the external
auditor’s independence.
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 Deloitte Touche Tohmatsu’s
independence as auditor.
The lead auditor’s independence declaration is set out on
page 39.
Rounding
The Company is of a kind referred to in ASIC Class Order 98/100
dated 10 July 1998 and, in accordance with that Class Order, the
amounts shown in this report and in the financial statements
have been rounded off, except where otherwise stated, to the
nearest one hundred thousand dollars.
Incitec Pivot’s sustainability performance has been recognised
nationally and internationally by independent experts through
inclusion in:
• the Dow Jones Sustainability Asia Pacific Index in 2012 and
2013; and
• the Dow Jones Sustainability Australia Index in 2012 and
2013.
In addition, for the purpose of Australian regulations which
apply to the Company itself, as an Australian listed entity:
• the Company reports its annual Australian greenhouse gas
emissions, energy consumption and production under the
National Greenhouse and Energy Reporting scheme (NGERS).
In addition, Incitec Pivot participates in the Australian
Government’s Energy Efficiency Opportunities program and
has been recognised by the Government as a “Best Practice”
participant; and
• the Company also reports its environmental release and
discharge data to the National Pollutants Inventory in
Australia.
The Company continues to devote considerable resources to
remediating legacy sites, namely sites at which operations have
ceased, in line with its corporate value “Care for the Community
& our Environment”.
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.
Incitec Pivot Limited Annual Report 2013
4
Directors’ Report
Operating and financial review
Group Overview
Incitec Pivot is an industrial chemicals company that supplies
fertilisers and industrial explosives products and services to the
agriculture and mining industries. It has operations in Australia,
North America, Europe, Asia, Latin America and Africa.
Incitec Pivot’s corporate ambition is to be the best in the
markets in which it operates, delivering Zero Harm and
outstanding business performance and above average returns
to its shareholders.
To achieve this corporate ambition Incitec Pivot’s strategy is
to leverage dislocations in the world’s two largest economies,
being the industrialisation and urbanisation of China and the
shale gas revolution in the USA. Incitec Pivot executes its
strategy by positioning itself on the input side of the value
chain, leveraging core nitrogen and high explosives chemicals
manufacturing expertise and servicing customers via aligned
downstream businesses.
Incitec Pivot operates through three business units, details of
which are set out in this section:
• Fertilisers (Incitec Pivot Fertilisers (“IPF”) and Southern Cross
International (“SCI”));
• Dyno Nobel Americas (“DNA”); and
• Dyno Nobel Asia Pacific (“DNAP”).
Overview of the 2013 Financial Year
In the 2013 financial year, Incitec Pivot faced difficult trading
conditions, given the negative impact of a higher foreign exchange
rate between Australian and US dollars and a significant decline
in global commodity markets across the fertilisers business. The
fertilisers business was impacted by large declines in the global
prices of ammonium phosphates and urea. The explosives business
faced declining volumes in North America reflecting the carry over
impact of high coal inventories from 2012.
In 2013, Incitec Pivot had unplanned plant outages at
three plants: during the commissioning phase at the new
ammonium nitrate complex at Moranbah, Queensland, and,
at the ammonium phosphates plants at Phosphate Hill and
Mt Isa, Queensland. As a result, Incitec Pivot conducted a
detailed review of its Global Manufacturing Operations, to
reinforce Incitec Pivot’s commitment to safe, reliable and
efficient production. The outcome of this review has seen the
Global Manufacturing team restructured to fully leverage the
technical expertise across the Group and provide the rigour
and focus required to achieve manufacturing excellence at
all of its sites. Operational issues associated with these three
plants and required repairs are progressing well.
Incitec Pivot has also set the growth platform for the medium
term with the commissioning of the Moranbah complex and
the announcement of the construction of a new ammonia
plant in Louisiana, USA. On 17 April 2013, Incitec Pivot
announced that it was investing US$850m to build an 800,000
metric tonne per annum ammonia plant in Louisiana, USA.
The Louisiana ammonia plant investment is strategically
attractive as it will backward integrate the US Ammonium
Nitrate business to gas and leverage Incitec Pivot’s core
manufacturing competency. The plant is being constructed
by KBR Inc, a leading engineering, construction and services
company, under a Lump Sum Turnkey contract, on a
5
Incitec Pivot Limited Annual Report 2013
brownfield site from which Incitec Pivot can leverage existing
infrastructure. The construction of the Louisiana plant began in
August 2013 and is planned to continue through to 2016.
With the medium term growth platform set, the immediate
focus for all businesses is now firmly on optimising existing
manufacturing assets, improving productivity and executing
strategies to maximise returns.
Group Financial Performance Review
Incitec Pivot reported Net Profit After Tax (“NPAT”) of $372.0m,
down $138.7m from the prior year of $510.7m. This result
was primarily driven by the significantly lower global fertiliser
prices achieved during the 2013 financial year and growth in
earnings from the Moranbah plant being offset by the impact of
the finalisation in 2012 of the Moranbah Unfavourable Contract
Liability release. Net Profit After Tax excluding Individually
Material Items (“NPAT ex IMIs”) decreased by 26 percent, or
$106.3m, to $298.4m (2012: $404.7m).
In November 2013, the directors determined to pay a final
dividend for the Company of 5.8 cps (2012: 9.1cps), which
reflected a pay-out ratio of 50 percent of NPAT ex IMIs. This
dividend will be 75 percent franked and will be paid on 18
December 2013. This takes the total dividend in respect of
the 2013 financial year to 9.2 cps, a 26 percent decrease from
the 2012 financial year. In relation to the 2013 final dividend,
Incitec Pivot has announced that it will recommence its
dividend reinvestment plan (“DRP”), which was suspended
in 2010. A discount of 1.5% will be applied in determining
the offer price under the DRP. The 2013 final dividend will
not be underwritten.
Sales Revenue decreased by 3 percent, or $97.2m, to
$3,403.7m (2012: $3,500.9m), and Earnings Before Interest
and Tax excluding Individually Material Items (“EBIT ex IMIs”)
fell by 22 percent or $132.9m to $466.2m (2012: $599.1m),
due to a 37 percent decline in Fertiliser Earnings Before
Interest and Tax (“EBIT”) and an 18 percent decline
in Explosives EBIT.
The decline in the Fertiliser business was primarily due to
lower fertiliser prices, reflecting the impact of lower global
ammonium phosphate and urea prices, the negative impact
of the higher foreign exchange rate between Australian and
US dollars on US denominated fertiliser sales and the reduced
volumes of ammonium phosphate production due to the net
impact of unplanned outages at Phosphate Hill and Mt Isa.
The Explosives business was also impacted by difficult global
market conditions for hard commodities. DNAP experienced
a decline in EBIT due to the unwind of the Moranbah
Unfavourable Contract Liability release in 2012, offset partially
by the increase in earnings from the Moranbah plant. DNA
experienced a decline in earnings due to the negative impact
of lower prices achieved by the Agricultural and Industrial
Chemicals business and the downturn in the North American
coal sector.
Despite the negative impact of global commodity prices
and demand, Incitec Pivot was able to achieve underlying
growth by focusing on execution and achieving a recovery
in the margins earned by the Fertilisers distribution
business and Quantum as a result of the new contract model
and other risk management processes having a positive
impact and stabilising margins.
Additionally there was an increase in revenue in DNAP
reflecting higher sales volumes from Moranbah. The Group’s
approach to continuous improvement, ‘Business Excellence’
(“BEx”) also achieved benefits of $39.0m. BEx has now
been embedded into the businesses with benefits and
implementation costs being recognised in each business unit.
Corporate costs for the Group declined by 56% to $31.2m in the
2013 financial year (2012: $71.7m). Significant factors driving
the decline are that BEx implementation costs are now being
recognised in the businesses whereas in the previous period they
were recognised in corporate costs and the expensed feasibility
costs in the 2012 financial year associated with the proposed
ammonium nitrate plant at Kooragang Island, New South Wales
do not repeat in the 2013 financial year.
A detailed analysis of the business segment performance is
provided on the following pages.
Group Financial Position Review
Incitec Pivot’s Balance sheet at 30 September 2013 reflects
the ongoing financial discipline throughout the business. Trade
Working Capital (“TWC”) decreased by $123m to $37m at year
end (2012: $160m), reflecting both a decrease in receivables
across the Group and an increase in Fertiliser payables trading
terms. The average thirteen month TWC as a percentage of
annual revenues for the Explosives business has decreased
again in the current year, reflecting sustained improvement in
this metric since the acquisition of Dyno Nobel.
Net property plant and equipment increased by $295m to
$3,034m (2012: $2,739m). This increase is a result of capital
expenditure and a positive foreign currency translation of US dollar
denominated assets, partially offset by depreciation and disposals.
The intangible assets balance increased reflecting the positive
translation of US dollar denominated intangible assets and
investment in business software, offset by amortisation of
intangibles and the impairment of Nitromak goodwill.
Net other liabilities/assets decreased by $134m to a liability
position of $115m (2012: asset of $19m), largely due to
an unrealised net negative movement in balance sheet
hedges. These hedge movements are matched against asset
movements elsewhere in the balance sheet.
The composition of the Group’s Net Debt(5) has changed
and the tenor of the Group’s debt facilities has increased. In
August 2013, Incitec Pivot issued notes worth $200m under
its Australian Medium Term Note program. The notes pay
interest semi-annually at a fixed rate of 5.75 percent and
mature in February 2019. The Group also renegotiated the
Syndicated bank facility in August 2013, with the new facility
limit of $1.45Bn available from September 2013. The new
Syndicated bank facility will expire in two tranches, $850m
expiring in October 2016 and the remaining $600m of the
facility expiring in September 2018. The new facility replaced
the $900m syndicated facility as well as the $250m bilateral
facilities, which were cancelled in September 2013.
Combined with the existing US144A bond facilities these new
facilities increase the tenor and diversity of the debt book
during the construction of the Louisiana project.
At 30 September 2013, Incitec Pivot’s net debt was $1.3Bn
(2012: $1.2Bn), with committed headroom available of
$1.72Bn (2012: $1.1Bn), representing the $1.45Bn undrawn
Syndicated Facility and cash on hand at 30 September 2013.
Additionally Incitec Pivot continues to maintain sound credit
metrics with Net Debt/EBITDA (excluding Individually Material
Items (“IMIs”))(1) 2.0 times (2012: 1.6 times) and interest cover
6.2 times (2012: 7.9 times).
Finally, the Incitec Pivot result also included IMIs (net of tax)
which in 2013 resulted in a net income position of $73.6m,
which comprised:
• Realised gain of $115.1m after tax following the reversal of
a contingent tax liability created on the acquisition Dyno
Nobel and recognition of tax assets.
• Nitromak goodwill impairment of $41.5m due to a subdued
outlook for the Turkish economy (consistent with Europe).
Group Results Summary
INCITEC PIVOT GROUP FINANCIALS
Sales Revenue
EBITDA ex IMIs(1)
EBIT ex IMIs(2)
NPAT ex IMIs(3)
IMIs
NPAT
Business Segment EBIT
Dyno Nobel Asia Pacific
Dyno Nobel Americas
Intercompany Elimination
Explosives
Southern Cross International
Incitec Pivot Fertilisers
Intercompany Elimination
Fertilisers
Corporate costs
EBIT
Shareholder Returns
EPS ex IMIs(4)
EPS
Dividend per share
Financing Key Performance Indicators
Year Ended 30 September
2013
A$mill
3,403.7
649.9
466.2
298.4
73.6
372.0
149.4
179.4
(1.1)
327.7
70.3
96.4
3.0
169.7
(31.2)
466.2
18.3
22.8
9.2
2012
Change
A$mill
3,500.9
754.9
599.1
404.7
106.0
510.7
211.3
190.6
(2.0)
399.9
175.3
92.3
3.3
270.9
(71.7)
599.1
%
(3%)
(14%)
(22%)
(26%)
(27%)
(29%)
(6%)
(18%)
(60%)
4%
(37%)
56%
(22%)
24.8
31.4
12.4
(26%)
(27%)
(26%)
Operating cash flows
Net Debt(5)
Interest cover (times)(7)
Net Debt/EBITDA (times)(5),(8)
614.5
620.8
(1,277.5) (1,230.8)(6)
7.9x
1.6x
6.2x
2.0x
(1%)
(4%)
(1) EBITDA ex IMIs = Earnings Before Interest, Tax, Depreciation and Amortisation,
excluding Individually Material Items (“IMIs”).
(2) EBIT ex IMIs = Earnings Before Interest, Tax, excluding IMIs.
(3) NPAT ex IMIs = Net Profit After Tax attributable to shareholders of IPL,
excluding IMIs.
(4) EPS ex IMIs = Earnings Per Share, excluding IMIs.
(5) In financial year 2013, the definition of ‘Net Debt’ was broadened to better
represent the Group’s exposure to interest bearing liabilities. The revised
definition aggregates interest bearing liabilities plus the fair value of
derivative instruments in place economically to hedge the Group’s interest
bearing liabilities, less available cash and cash equivalents.
(6) Net Debt shown for financial year 2012 has been stated per revised definition
of ‘Net Debt’.
(7) Interest cover = 12 month rolling EBITDA/interest expense before accounting
adjustment.
(8) Net Debt/EBITDA is based on Net Debt at point in time/last 12 month
historical EBITDA.
Incitec Pivot Limited Annual Report 2013
6
DNA 36%
Fertilisers 34%
DNAP 30%
Fertilisers (Incitec Pivot Fertilisers and
Southern Cross International)
DNA 36%
Financial summary
IPF
Revenue
EBIT ex IMIs
SCI
Revenue
EBIT ex IMIs
Year Ended 30 September
2013
A$mill
2012
Change
A$mill
%
1,095.4
96.4
DNAP 30%
1,159.1
92.3
(5%)
4%
562.9
70.3
731.9
175.3
(23%)
(60%)
FY13 EBIT Contribution – IPF & SCI
Fertilisers 34%
Operations
Incitec Pivot Fertilisers (“IPF”) is Australia’s largest supplier of
fertilisers, dispatching around two million tonnes each year for
use in the grain, cotton, pasture, dairy, sugar and horticulture
industries. Bulk and packaged fertiliser products are distributed
to farmers through a network of more than 200 business
partners and agents. IPF supports farmers in eastern Australia,
from tropical fruit growers in north Queensland to dairy
producers in Tasmania. IPF also manufactures various industrial
chemical products used in water treatment, process
manufacturing and other industrial applications and sources
fertilisers from the Company’s Gibson Island plant, Southern
Cross International and imports.
Southern Cross International (“SCI”) sells manufactured fertiliser
and industrial chemicals products to other importers in Australia
and actively markets Incitec Pivot’s own product in offshore
markets such as South East Asia and Latin America, via
Quantum Fertilisers, an Incitec Pivot subsidiary.
Strategy
The Fertilisers strategy is to maximise value by leveraging asset
positions and alternative channels to market to maximise
returns and reduce volatility in earnings.
Performance
IPF’s EBIT increased by $4.1m or 4 percent to $96.4m
(2012: $92.3m). This result was driven by an increase in
distribution margins earned by the Fertilisers distribution
business as a result of implementation of enhanced risk
management processes. The new contract model mitigated
margin erosion that would have otherwise occurred with the
sustained falls in urea prices in the second half. Additionally, the
business achieved an increase in production volumes for urea or
urea equivalent products (refer to Market Summary) and the
impact of both lower input costs and higher production at the
Gibson Island plant, lead to a lower overall cost per tonne of
Gibson Island product.
Directors’ Report
FY13 EBIT by Segment
DNA 36%
Fertilisers 34%
DNAP 30%
Outlook
DNA 36%
At a Group level, with the medium term growth platform set,
the priorities for the Company will be the construction of the
Louisiana ammonia plant and driving continuous improvement
through BEx principles. The Group has hedged approximately 90
percent of its estimated US dollar fertiliser sales exposure in
2014 at a maximum rate of $0.95, with full participation in
favourable moves in the Australian to US dollar exchange rate.
The Group actively manages foreign currency and interest rate
risk through hedging activities conducted with the use of
derivatives and other financial instruments. Due to the
significant negative impact that both global fertiliser prices and
the strong Australian dollar are having on earnings, Incitec Pivot
will restructure its corporate centre, functional areas and
business unit administrative activities. The restructure is
expected to deliver $20m of cost savings per annum, of which
approximately $12m will be delivered in 2014. One-off
implementation costs will be approximately $10m.
DNAP 30%
In relation to the businesses, for IPF, the focus will be on
optimising manufacturing assets and managing distribution
earnings in an environment of uncertain global fertiliser
prices and securing competitively priced sources of gas and
sulphuric acid. For DNA, the focus will turn to optimising the
market value of its products. From the third quarter of 2016
onwards, DNA will also look to successfully integrate the
Louisiana ammonia plant into the DNA portfolio. In relation to
DNAP, the completion of Moranbah’s ramp up will remain the
priority given the tougher conditions in the ammonium
nitrate market in the Asia Pacific region. More details on the
outlook for each of the businesses are set out in the relevant
sections below.
Fertilisers 34%
The outlook for the Group should be considered with regard to
the current global economic business climate and any sustained
downturn in the economies in which it operates (North
America, South America, China, India, Europe and Australia).
Consideration should also be given to the business risks, as
outlined in the relevant sections below, and their potential
impact on the Group. In addition, any loss from such risks may
not be recoverable in whole or in part under Incitec Pivot’s
insurance policies.
7
Incitec Pivot Limited Annual Report 2013
Gibson Island has the most advanced BEx implementation in
global manufacturing. This result was achieved despite the
negative net impact of fertiliser prices and the unfavourable
impact of the higher foreign exchange rate between Australian
and US dollars on US dollar denominated urea sales and
earnings.
SCI’s EBIT decreased by $105.0m or 60 percent to $70.3m
(2012: $175.3m). Earnings from the plant in Phosphate Hill,
Queensland declined due to:
• Lower average ammonium phosphate fertiliser prices in
addition to the impact of higher domestic freight rates
(coastal shipping) and softer global freight markets;
• Unfavourable impact of the higher foreign exchange rate
By contrast, the second half saw strong demand for both
sowing and topdressing, driven by favourable seasonal
conditions and attractive soft commodity prices. Overall for the
2013 financial year, IPF’s volumes sold into this market were
higher than the previous year.
Summer Crop
The first four months of the 2013 financial year were negatively
impacted by dry conditions in north east Australia, which
resulted in lower cotton and sorghum plantings. Sales then
recovered through the year to offset this decline as favourable
cropping conditions prevailed in the second half.
Pasture
between Australian and US dollars on US dollar denominated
di-ammonium phosphate sales and earnings; and
• Negative net impact of the unscheduled plant outages at
Phosphate Hill and Mt Isa, Queensland which resulted in
lost margin due to lower sales volumes and an unfavourable
cost absorption.
Single superphosphate (“SSP”) sales volumes were slightly
down on the prior year. The decline is driven by the strong
foreign exchange rate between Australian and US dollars
impacting farm incomes. Additionally, delayed rain at the start
of the season and lower milk prices, saw some market
contraction for SSP usage in Southern Australia.
Quantum earnings increased as a result of a more conservative
approach being adopted in volatile markets. This conservative
approach has delivered a modest profit as compared to the loss
incurred in 2012. The Quantum business enables Incitec Pivot to
achieve higher prices on exported ammonium phosphates,
reduce price and margin risk, achieve better procurement of key
imports and overall reduce Trade Working Capital by providing
alternate channels to market.
Earnings from the industrial chemicals business declined as a
result of lower commodity prices, the higher foreign exchange
rate between Australian and US dollars and lower sales volumes
of manufactured ammonia and urea related products sold by
the business in the 2013 financial year. Volumes were diverted
to higher netback sales in the domestic fertiliser business.
The combination of the two fertiliser businesses, SCI and IPF,
under a single management structure in March 2012, continued
to deliver benefits throughout the 2013 financial year. Through
improved visibility across value chains and better alignment of
key functions, IPF was able to access a number of sources of
value that were previously not visible, and mitigated price risk
associated with its inherent long positions. These opportunities
include reduction of risk by determining fertiliser buying
decisions based on end-to-end supply chain view, the
repositioning of cargoes destined for the domestic market into
international, industrial or wholesale markets as market
demand altered, procurement of imports with shorter lead
times by accessing existing positions within the trading business
(Quantum) and maximising earnings by shifting production
tonnes into markets with the highest net backs.
Market Summary
The IPF business sells into the following major markets:
Winter Crop
Early season sales made in the first half of the financial year
remained steady as farmers delayed any significant pre-
purchase of fertilisers due to dry conditions and relatively stable
global prices.
EBIT Sensitivities
The sensitivities shown below have been calculated based on
the 2013 achieved di-ammonium phosphate (“DAP”) and urea
prices, at a realised foreign exchange rate between Australian
and US dollars of $0.9957 (representing the rate achieved in
the twelve month period ended 30 September 2013), and
nameplate urea and DAP production.
IPF: Urea – Middle East Granular Urea (FOB)(1)
+/-US$10/t = +/-A$4.1m
SCI: DAP – Di-Ammonium Phosphate Tampa (FOB)(2) +/-US$10/t = +/-A$9.5m
Forex – transactional (DAP & Urea)(3)
+/- 1 cent = A$6.2m
Sensitivity (per annum)
Assumptions:
(1) 405,000t (nameplate Gibson Island production capacity) urea equivalent sales
at a 2013 realised price of US$373/t and the 2013 realised exchange rate of
A$/US$0.9957.
(2) 950,000t (nameplate Phosphate Hill production capacity) DAP sales at a 2013
realised price of US$482/t and the 2013 realised exchange rate of
A$/US$0.9957.
(3) DAP & urea volumes and FOB price based on assumptions (1) and (2)
(excludes impact of hedging).
Outlook
Given the potential material impact of movements in fertiliser
prices and foreign exchange markets on the Group result, the
Fertiliser business does not provide price forecasts.
Looking forward, the focus for the business will be on optimising
manufacturing assets. The 2014 financial year is a planned
major shut year at the Phosphate Hill plant. As previously
reported, the plant is being run conservatively in the months
before the May/June 2014 major shut. In order to avoid plant
damage, two shuts will occur in the 2014 financial year: a 16
day shut in October/November 2013 primarily focussed on
granulation and load out facilities and a 35 day shut in May/
June 2014 focussed on the sulphuric acid, phosphoric acid and
ammonia plants. Phosphate Hill is expected to produce 830,000t
in 2014.
In terms of the distribution business, the new risk management
processes, combined with a Value-at-Risk model, will continue
to assist Incitec Pivot in managing its distribution earnings in an
environment of uncertain global fertiliser prices.
Incitec Pivot Limited Annual Report 2013
8
The outlook for the Fertiliser business should be considered with
regard to a number of business risks which include but are not
limited to:
• Global fertiliser price deterioration.
• The appreciation of the Australian dollar against the US
dollar negatively impacting US denominated earnings. This
is particularly the case when combined with relatively low
global prices for ammonium phosphates and urea fertilisers.
• The competitive markets in which Incitec Pivot operates.
Specifically, the Fertilisers business operating in a distribution
and manufacturing market competing against manufacturers
with lower input costs and potentially regulatory and
economic advantages. A competitive market may also
lead to the loss of customers and therefore negatively
impact earnings.
• The various operational hazards, including from the
manufacture, processing and transportation of its fertiliser
products and in the provision of related services, which
could potentially result in injury or incident to employees,
contractors, the public or the environment.
• Risks associated with the manufacture, distribution and
storage of fertilisers and industrial chemicals products.
These risks include the need for plant reliability, labour,
weather and timely and economic supply of adequate raw
materials, such as natural gas, ammonia, phosphate rock,
sulphur and sulphuric acid. Specifically, the risks associated
with the economic supply of sulphuric acid and natural gas
are set out in further detail below:
Sulphuric Acid
Sulphuric acid is a major input required for the production of
ammonium phosphates. Incitec Pivot produces sulphuric acid
at its Mt Isa operations from a combination of processing
metallurgical gas sourced from Xstrata’s copper smelting
facility and from burning imported elemental sulphur. The Mt
Isa acid production is also supplemented with sulphuric acid
purchased directly from a domestic smelter to meet total
sulphuric acid requirements for the production of ammonium
phosphates at Phosphate Hill.
In May 2011, Xstrata publicly announced the planned closure
of its copper smelting operation at Mt Isa, Queensland by
the end of 2016. After the closure of the copper smelting
operation, the Group will no longer receive the free
metallurgical gas from Xstrata. Post the closure, the Mt Isa
plant will produce sulphuric acid only using elemental
sulphur, resulting in the plant producing a reduced volume of
sulphuric acid. Alternative sources of sulphuric acid to replace
the shortfall arising from the loss of metallurgical gas from
Xstrata are likely to negatively impact the cost of producing
ammonium phosphates at SCI’s Phosphate Hill facility from
that date. The quantum of the impact will depend on the
future availability and price of sulphur and/or sulphuric acid.
In 2013, Glencore Group Plc completed its takeover of
Xstrata. The impact of the takeover on Xstrata’s operations at
Mt Isa, if any, is unclear. If Glencore Xstrata were to change
the previously announced closure date of the smelter to an
earlier date, that may negatively impact the results of the
SCI business. Conversely an extension beyond 2016 may
improve the results. The quantum of the impact of an earlier
closure is uncertain and would depend on the Group’s ability
to successfully develop alternative sources of sulphuric acid
before closure of the copper smelter (and cessation of
metallurgical gas supply).
The Mt Isa site is a leased site and a lease contract is in
place with Xstrata to 2020. Accordingly, Incitec Pivot is able
to continue to produce sulphuric acid at Mt Isa using
elemental sulphur until 2020, notwithstanding cessation of
the copper smelter operation.
Sulphuric acid and sulphur are internationally traded
commodities with pricing based on international benchmarks
and, as such, 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. Fluctuations in either or both of
these variables can impact the profitability of Incitec Pivot’s
manufacturing operations.
Natural Gas
Gas is one of the major inputs required for the production of
ammonia and therefore is a critical feedstock for a number
of Incitec Pivot’s manufacturing operations.
The cost of gas impacts the variable cost of production of
ammonia and can influence a plant’s overall competitive
position, particularly for fertiliser products (for example, urea
and ammonium phosphates) given they are globally traded
commodities. In Australia, there has been upward pressure
on gas prices due to an increase in:
• demand driven by the development of the Liquefied
Natural Gas (LNG) export market; and
• costs to develop new sources of gas supply.
The Group has separate gas supply contracts for each of the
Phosphate Hill and Gibson Island manufacturing facilities,
which expire early in the 2015 financial year and the
beginning of the 2018 financial year respectively. There is a
risk that a reliable, committed source of gas at commercial
prices may not be available to the Group for use at either or
both of these sites following the expiry of current contractual
arrangements.
9
Incitec Pivot Limited Annual Report 2013
Dyno Nobel Americas
Market Summary
Financial summary
A$m
Revenue
EBIT ex IMIs
US$m
Revenue
EBIT ex IMIs
Year Ended 30 September
2013
$mill
2012
$mill
Change
%
1,204.0
DNA 36%
179.4
Fertilisers 34%
DNAP 30%
1,172.2
190.6
1,194.0
178.4
1,203.3
195.7
3%
(6%)
(1%)
(9%)
FY13 EBIT Contribution – DNA
DNA 36%
Operations
Dyno Nobel Americas (“DNA”) is a leading supplier of industrial
explosives and blasting services to the mining, quarrying and
construction industries. DNA is the market leader in North
America – the largest explosives market in the world. DNA also
includes earnings from industrial explosives products and
services sold to customers in Mexico, Chile and Turkey via Dyno
Nobel International (“DNI”). Additionally, DNA supplies nitrogen
based products to several agricultural and industrial chemical
markets.
DNAP 30%
Strategy
DNA’s strategy is to maximise value in the market and produce
improved and sustainable earnings by leveraging established
infrastructure, brand and channel strategies, as well as to
capitalise on industry size to build scale and expertise which
can be deployed into other markets.
Fertilisers 34%
Performance
DNA’s EBIT decreased by A$11.2m or 6 percent to A$179.4m
(2012: A$190.6m). On a US dollar basis, DNA’s EBIT decreased
by US$17.3m or 9 percent to US$178.4m (2012: US$195.7m).
The decline in earnings was largely driven by the negative
impact of lower urea and urea ammonium nitrate (“UAN”)
prices in the Agriculture and Industrial Chemicals business, and
the downturn in the coal sector which had the impact of
reducing ammonium nitrate sales volumes. A more detailed
explanation of sales volumes is provided in the ‘Market
Summary’ section below. The result was tempered by
efficiencies achieved by the implementation and embedding
of BEx into the business as well as higher volumes from the
St Helens plant in Oregon, US, in 2013.
DNA’s explosives business sells product into the following
major markets:
Coal
The Coal segment accounted for 55 percent of the ammonium
nitrate (“AN”) volumes sold by the DNA business. In the 2013
financial year, sales volumes to coal customers were down
compared to the prior year, reflecting the carry over impact of
high coal inventories from the previous financial year. Increases
in gas prices in 2013 have slowed the rate of switching from
coal to gas for energy generation in the US. Additionally, coal
inventories have reduced in 2013, but still remain above long
term averages, which will continue to temper demand in the
short term.
Quarries & Construction (“Q&C”)
The Q&C market accounted for 16 percent of the AN volumes
sold by the DNA business. Sales volumes grew modestly
through the second half of the financial year following a flat
first half. DNA’s Q&C volumes are driven by public construction
(50 percent), and the non-residential construction and
residential construction industries (50 percent). While US
residential starts are showing positive signs, DNA’s leverage to
this recovery is middle to late cycle. DNA remains well
positioned for future growth in this market.
Metals & Mining
The Metals and Mining market accounted for 29 percent
of the AN volumes sold by the DNA business in the 2013
financial year. AN sales volumes increased on the prior year
reflecting overall market growth.
Agriculture and Industrial Chemicals
DNA also supplies nitrogen based products into selective
agricultural and industrial chemical markets. DNA Agriculture
and Industrial Chemicals business declined in the 2013 financial
year as a result of decreases in average urea and UAN prices,
partially offset by increased volumes over the prior
corresponding period from the St Helens plant.
Dyno Nobel International
DNI earnings were relatively flat on the prior corresponding
period. The result was driven by an improvement in earnings
from the Chile business however was offset by softening prices
in Mexico and lower earnings from the Nitromak business in
Turkey. Nitromak goodwill has been impaired by $41.5m this
financial year, to reflect a subdued outlook for the Turkish
economy (consistent with Europe).
EBIT Sensitivities
The table below shows the sensitivities associated with the
DNA business:
DNA: Urea (FOB)(1)
Sensitivity (per annum)
+/-US$10/t = +/-US$1.8m
DNA: Forex – translation of Explosives earnings(2)
+/- 1 cent = A$1.8m
Assumptions:
(1) 180,000t (nameplate St Helens production capacity – short tonnes) urea
equivalent sales at 2013 NOLA Urea average price of $395/t and the 2013
realised exchange rate of A$/US$0.9957 (representing the rate achieved in
the twelve month period ended 30 September 2013).
(2) Based on 2013 US dollar denominated earnings.
Incitec Pivot Limited Annual Report 2013
10
DNA 36%
Fertilisers 34%
DNAP 30%
Outlook
Dyno Nobel Asia Pacific
The outlook for DNA’s markets in the medium to long-term
remains relatively positive. DNA’s exposure to public and non-
residential construction is expected to drive growth in the Q&C
business in the medium term, and domestic demand for iron
ore is expected to continue to drive the Metals & Mining
business as the US economy improves.
As DNA’s markets stabilise over the coming years, the focus
will turn to optimising the market value of its products. From
the third quarter of 2016 onwards, DNA will also look to
successfully integrate the ammonia plant in Louisiana into the
DNA portfolio.
The outlook for the DNA business should be considered with
regard to a number of business risks which include but are not
limited to:
• Changes in North American demand and supply of hard
commodities, such as iron ore, coal and gold.
• Deterioration of AN, urea and UAN product prices which are
likely to be affected more directly by changes in the supply
and demand dynamics in their respective markets.
• The appreciation of the Australian dollar against the US
dollar negatively impacting US dollar denominated earnings.
• Risks associated with the manufacture, distribution and
•
storage of AN and industrial explosives products. These risks
include the need for plant reliability, labour, weather and
timely and economic supply of adequate raw materials,
such as natural gas and ammonia.
In North America, the rapid expansion of shale gas reserves
and collection techniques has seen gas prices decrease from
2008 to 2013. Changes in the domestic supply/demand
balance, environmental legislation or introduction of taxes
could impact North American gas pricing into the future.
This, in turn, would impact Incitec Pivot’s cost of ammonia
production at its North American facilities.
• The explosives market in the US is facing an over-supply of
AN in addition to demand softness driven by weaker coal
markets. Longer term, there are additional regulatory risks,
depending on the US government at the time, associated
with coal-fired energy generation.
• Risks associated with the loss of customers may negatively
impact earnings.
• The various operational hazards, including from the
manufacture, processing, storage and transportation of its
explosives products and in the provision of related services,
which could potentially result in injury or incident to
employees, contractors, the public or the environment.
• Risks associated with construction of the ammonia plant in
Louisiana including unforeseen human error, energy or water
disruptions, natural disasters and acts of god, sabotage,
terrorist attacks and other events which may disrupt or delay
the construction phase. In addition, losses from such events
may not be recoverable in whole or in part under the
construction contract or Incitec Pivot’s insurance policies.
Financial summary
Revenue
EBIT ex IMIs
DNA 36%
Year Ended 30 September
2013
A$mill
781.5
149.4
2012
Change
A$mill
626.4
211.3
%
25%
(29%)
FY13 EBIT Contribution – DNAP
DNAP 30%
Operations
Dyno Nobel Asia Pacific (“DNAP”) is a leading supplier of
industrial explosives and blasting services to the mining
industry across Australia, Indonesia and Papua New Guinea. In
particular, DNAP supplies industrial explosives and blasting
services to surface and underground mining in the thermal coal,
metallurgical coal, iron ore and other metals sectors. DNAP is
the second largest supplier in Australia – the third largest
explosives market in the world.
Fertilisers 34%
Strategy
DNAP’s strategy is to invest in capability to maximise returns
across growing markets directly linked to industrialisation across
Asia, with the immediate focus on maximising returns on the
newly constructed ammonium nitrate plant in Moranbah,
Queensland and positioning for further growth in the Asia
Pacific region.
Performance
DNAP’s EBIT decreased by $61.9m or 29 percent to $149.4m
(2012: $211.3m). The 2012 result included an $81.1m positive
non-cash impact of the Moranbah Unfavourable Contract
Liability release, which has now been fully unwound. Excluding
this impact, DNAP’s EBIT increased by $19.2m or 15 percent to
$149.4m (2012: $130.2m). Significant drivers of the result
included an increase in profit from the Moranbah plant, and an
increase in earnings from DNAP’s joint venture business in
Moura, primarily driven by a stronger production performance.
However, the result was partially offset by softness in the
Hardrock & Underground market segment and the loss of a
customer in the Hunter Valley. Additionally, there was a second
half cost impact arising from purchasing AN, an increase in
operating costs associated with running the DNAP business
(including human resources and safety functions), redundancy
costs associated with right sizing the business, as well as costs
associated with embedding BEx into the business unit.
11
Incitec Pivot Limited Annual Report 2013
Outlook
With the changing mining environment in the Asia Pacific
region, the AN market is experiencing tougher conditions.
Nonetheless, DNAP is relatively well positioned given AN
volumes from the Moranbah plant are contracted, and the
DNAP business excluding Moranbah earnings is expected to be
flat. Moranbah is expected to contribute $110m EBIT in the
2014 financial year, and contribute $165m EBIT in the 2015
financial year onwards once ramp up is complete.
The outlook for the DNAP business should be considered with
regard to a number of business risks which include but are not
limited to:
• Changes in global demand and supply of hard commodities
such as, iron ore, coal and gold.
• Deterioration of AN product prices which are likely to be
affected more directly by supply and demand dynamics in
industrial explosive markets changing.
• Risks associated with the manufacture, distribution and
storage of AN and industrial explosives products, specifically
at the Moranbah plant in Queensland. These risks include
the need for plant reliability, labour, weather and timely and
economic supply of adequate raw materials, such as natural
gas and ammonia. In particular, ramp up and operating
issues at the Moranbah complex as well as interruptions to
gas supply have, in the past, resulted in unplanned
interruptions and adversely affected Incitec Pivot’s financial
performance. Any similar issues, including planned and
unplanned outages, may have a material impact on Incitec
Pivot’s financial performance. In addition, loss from such
events may not be recoverable in whole or in part under
Incitec Pivot’s insurance policies.
• Risks associated with the loss of customers may negatively
impact earnings.
• The various operational hazards, including from the
manufacture, processing, storage and transportation of its
explosives products and in the provision of related services,
which could potentially result in injury or incident to
employees, contractors, the public or the environment.
There was an unplanned plant outage at the new Moranbah
ammonium nitrate facility during the first half of the financial
year. The plant experienced issues in the commissioning phase
associated with the gas supply, steam balance and integration
of the complex as a whole. The Moranbah plant has been
operating more consistently since early July 2013. Moranbah
has exited the year with an annualised production rate
consistent with the 2014 target of 300,000t. A detailed plan
was established to address the commissioning issues, with
repairs or corrections already undertaken and with the balance
to be completed in the first half of 2014.
Market Summary
AN volumes sold were up 34 percent for the financial year.
DNAP sells into the following major markets:
Moranbah Foundation Customers
Sales of AN to Moranbah foundation customers accounted for
54 percent of the total AN sold by the DNAP business during
the financial year. Sales to Moranbah foundation customers
increased by 133,000t compared to the prior corresponding
period, to 278,000t, of which 210,000t was supplied from the
Moranbah plant.
Australian East Coast Coal excluding Moranbah
Sales of AN to other Australian east coast coal customers
accounted for 6 percent of the total AN sold by the DNAP
business during the financial year. In 2013, AN volumes sold
decreased due to the loss of a customer in the Hunter Valley.
Western Australian
Sales in Western Australia accounted for 28 percent of the AN
volumes sold by the DNAP business during the financial year.
Sales volumes increased, reflecting the growth of the business’
largest customer in the region, partially offset by lower volumes
to smaller customers who were adversely impacted by lower
commodity prices.
Hard Rock and Underground
Hard Rock and Underground sales accounted for 4 percent of the
AN volumes sold by the DNAP business in the financial year. After
a promising start to the financial year by gaining a new customer,
volumes overall fell slightly as a result of slower production in
the second half at some customer sites due to lower commodity
prices.
Indonesia and PNG
These markets accounted for 8 percent of the AN volumes
sold by the DNAP business for the financial year. In 2013,
AN volumes decreased due to Indonesian customers sourcing
AN directly.
Incitec Pivot Limited Annual Report 2013
12
Directors’ Report
Remuneration Report
Contents
Section
Page
A. Executive Remuneration Overview
14
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
15
16
16
16
16
− At risk remuneration – Long Term Incentive
18
(LTI) Plans
Analysis of relationship between the Group’s
performance, shareholder wealth and
remuneration
Executives’ remuneration arrangements
− Managing Director &
Chief Executive Officer
− Executive Team
Details of Executive remuneration
− Executive remuneration
20
21
21
22
23
23
− Details of performance related remuneration:
24
short term incentives
− Details of performance related remuneration:
25
long term incentives
13
Incitec Pivot Limited Annual Report 2013
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
2013. This Remuneration Report is audited.
This Remuneration Report forms part of the Directors’ Report.
Details of the Group’s remuneration strategy and
arrangements for the 2012/13 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.4) and the
people referred to in the table below.
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).
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 term incentive plans; and
• for the long term incentive, to apply demanding financial
performance objectives, and on the achievement of those
objectives, to result in share ownership thereby linking
remuneration to Company performance as experienced by
shareholders.
Name
Position
Mr James Fazzino
Managing Director & CEO
Mr Frank Micallef
Chief Financial Officer
Mrs Kerry Gleeson
Mr Jamie Rintel
General Counsel &
Company Secretary
President, Strategy &
Business Development
Mr Bernard Walsh
President, Global Manufacturing
Mr James Whiteside
Chief Operating Officer,
Incitec Pivot Fertilisers
Mr Stephen Dawson
President, Dyno Nobel Asia Pacific
Mr Daniel McAtee
President, Dyno Nobel United
States & Canada
Mr Simon Atkinson
President, Dyno Nobel
International
Incitec Pivot Limited Annual Report 2013
14
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 2012/13 financial
year, there were no increases to non-executive directors’ fees.
Fees paid to non-executive directors in the year amounted to
$1,630,000, which was within the $2,000,000 limit approved
by shareholders at the 2008 Annual General Meeting.
Table B.1 – Non-executive directors’ remuneration
Non-executive directors joining the Board after 31 May 2003
are not entitled to receive a retirement benefit. Mr Allan
McCallum, who was appointed as a director prior to 1 June
2003, has a contractual right to a retirement benefit. The
contract, which was entered into prior to the merger with
Incitec Fertilizers Limited in 2003, provides that on Mr
McCallum’s retirement from the Board, on condition of him
serving 10 years on the Board, he is entitled to receive a
payment calculated as to approximately 54% of the aggregate
remuneration he receives from the Company in the three years
immediately preceding his date of retirement, where the
percentage represents his years of service from the date of
appointment to 31 May 2003, as a proportion of 10 years’
service. Mr McCallum will retire as a director at the conclusion
of the 2013 Annual General Meeting and, in accordance with
his contract, will receive a payment of $351,887 on his
retirement. Refer to Table B.1 for further details.
Details of the non-executive directors’ remuneration for the financial year ended 30 September 2013 are set out in the
following table:
For the year ended 30 September 2013
Short-term benefits(A)
Post-employment benefits
Other long term benefits(B)
Non-executive directors
– Current
P V Brasher, Chairman(1)
A C Larkin
J Marlay
A D McCallum(2)
G Smorgon AM
R J McGrath
Non-executive directors
– Former
J C Watson, Chairman(3)
Total non-executive directors
Year
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Fees
$000
499
275
209
208
212
195
207
199
198
194
203
196
–
355
1,528
1,622
Superannuation benefits
$000
$000
17
17
17
18
17
16
17
17
17
17
17
16
–
32
102
133
–
–
–
–
–
–
11
11
–
–
–
–
–
23
11
34
Total
$000
516
292
226
226
229
211
235
227
215
211
220
212
–
410
1,641
1,789
(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 McCallum who was appointed to the Board prior to 1 June 2003, the
Company does not pay additional benefits to non-executive directors.
(1) Mr Brasher was appointed Chairman effective 30 June 2012.
(2) Mr McCallum will retire as a director on 19 December 2013 at the conclusion of the 2013 Annual General Meeting. In accordance with the terms of his contract, on
his retirement he will receive a payment of $351,887 which will be paid in the 2013/14 financial year. While Mr McCallum will receive this payment in the
2013/14 financial year, $11,000 was accrued in the current reporting period.
(3) Mr Watson retired as a director and Chairman on 30 June 2012. Mr Watson, who was appointed as a director prior to 1 June 2003, had a contractual right to a
retirement benefit. The contract, which was entered into prior to the merger with Incitec Fertilizers Limited in 2003, provided that on Mr Watson’s retirement from
the Board, on condition of him serving 10 years on the Board, he was entitled to receive a payment calculated as to approximately 54% of the aggregate
remuneration he received from the Company in the three years immediately preceding his date of retirement, where the percentage represents his years of service
from the date of appointment to 31 May 2003, as a proportion of 10 years’ service. In accordance with the terms of his contract, on his retirement he received a
payment of $788,737. While Mr Watson received this payment in the 2011/12 financial year, with the exception of $23,000 which was accrued in the 2011/12
financial year, all amounts were accrued and expensed in prior reporting periods.
15
Incitec Pivot Limited Annual Report 2013
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 for Executives will be benchmarked against
that paid for similar positions at the median 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 2012/13 financial year, the Remuneration Committee
received market data from Ernst & Young. Ernst & Young were
engaged by and reported directly to the Remuneration
Committee. The information did not include a “remuneration
recommendation” (as defined in the Corporations Act 2001
(Cth)). For the 2012/13 financial year, the Board approved an
increase of 3.5% to the FAR of Executives, save that three
Executives received higher increases having regard to the scope
and complexity of their roles. Refer to Table C.4 for details of
the fixed annual remuneration for the Executives for the year
ended 30 September 2013.
The relative proportion of the Executives’ total remuneration
packages for the 2012/13 financial year that was 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 2012/13 year, for each Executive, the
maximum entitlement under the Short Term Incentive (STI) or
Long Term Incentive (LTI) was taken into account.
Key features of the components of Executive
remuneration
The key features of the three components of Executive
remuneration that are relevant to the 2012/13 financial year
are set out below.
Fixed annual remuneration
The terms of employment for all Executives contain a fixed
remuneration component. Executives receive their fixed
remuneration in a variety of forms, including cash,
superannuation, and fringe benefits, such as motor vehicles.
Fixed annual remuneration is not dependent upon Company
performance and is set by reference to appropriate benchmark
information for each Executive’s role, level of knowledge, skill,
responsibilities and experience. The level of remuneration is
reviewed annually in alignment with the financial year and is
reviewed with reference to, among other things, market data
provided by an appropriately qualified and independent
external consultant.
Refer to Table C.4 for details of the fixed annual remuneration for
the Executives for the year ended 30 September 2013.
At risk remuneration – Short Term Incentive (STI) Plan
The STI is an annual “at risk” cash incentive which is dependent
on the achievement of particular performance measures in the
financial year to 30 September 2013. All of the Executives (as
well as other selected employees) participate in the STI Plan.
What were the STI performance measures for the 2012/13 STI?
STI Gate
To ensure STI awards are aligned with business performance, the
Group’s financial performance must meet the required Earnings
Per Share (EPS) growth threshold before any awards are made.
This is known as the “STI Gate”. The STI Gate is determined by
the Board by reference to the prior year’s EPS performance.
If financial performance across the Group does not meet the STI
Gate, no awards are made under the STI, save that the STI Gate
does not apply to the safety measure component of the STI
(refer to further details on the safety measure in this section).
The measures for the STI were set by the Board prior to the
commencement of the 2012/13 financial year.
Financial performance measures
There were two financial performance measures for 2012/13:
• Growth in EPS (before Individually Material Items (IMIs))
• Business Unit Earnings Before Interest and Tax (EBIT) which
included a cash conversion measure, such that part of the STI
was linked to the percentage of EBIT of the relevant business
unit (before depreciation and amortisation) that is converted
to operating cash flow.
Incitec Pivot Limited Annual Report 2013
16
Directors’ Report
Remuneration Report
Non-financial performance measures
In addition, to ensure STI awards drive performance and
behaviours consistent with achieving the Group’s strategy for
2012/13 and Zero Harm objectives, the non-financial
performance measures for 2012/13 comprised:
• Safety: All Worker Total Recordable Injury Frequency Rate
(AWTRIFR) of 1.21 (AWTRIFR is calculated based on work-
related incidents classified and reported in accordance with
the United States Occupational Safety and Health Act and
regulations). In the event of a fatality or life threatening
incident, the extent of the impact of that fatality/incident
on the achievement of the safety measure is assessed by
the Board having regard to the circumstances of the incident
and may result in all or part of this component of the STI
being forfeited.
• Business appropriate strategic and performance measures
including:
(i) production outcomes from major operations (for
example, Moranbah ammonium nitrate production);
(ii) Business Excellence (BEx) implementation and execution;
and
(iii) corporate strategic objectives as to capital investments,
projects and funding.
Table C.2 below sets out the STI performance measure
weightings for the Executives for the year ended
30 September 2013.
Why were these measures chosen?
STI Gate & Financial Measures
The STI measures (other than safety) are subject to the STI Gate
to ensure that Executive reward is aligned with the creation of
shareholder value.
EPS growth is considered an appropriate financial measure
because it is aligned with the Company’s strategic intent of
achieving top quartile performance as measured against S&P/
ASX 100 companies. In addition, the EBIT of a business segment
is also used as a measure for Executives in relevant business
segments as it ensures robust alignment of performance in a
particular business segment with reward for the Executive
managing that business segment. The inclusion of a cash
conversion requirement within the EBIT performance measure
ensures a focus on driving both profit and cash generation.
Non-financial Measures
These measures were chosen to drive performance and
behaviours consistent with achieving the Group’s strategy, to
leverage core nitrogen and high explosives chemicals
manufacturing expertise and to service customers via aligned
downstream businesses.
For this reason, measures were set with regards to production
outcomes from the Group’s major operations, such as
ammonium nitrate volumes from the Group’s plant at
Moranbah, Queensland.
Table C.2 – STI performance measure weightings for Executives
For the year ended
30 September 2013
Financial
Growth
in EPS
(before
IMIs)
Business Unit
EBIT (including
cash conversion
requirement)
Safety:
AWTRIFR
target
of 1.21
BEx
implementation
Maximum STI
opportunity
Non-financial
Production
outcomes from
major operations
(including
Moranbah)
Strategic
growth
projects
New markets
expansion
J E Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
K J Gleeson
General Counsel &
Company Secretary
J Rintel
President – Strategy &
Business Development
B C Walsh
President –
Global Manufacturing
J D Whiteside
Chief Operating Officer –
Incitec Pivot Fertilisers
S Dawson
President – Dyno Nobel
Asia Pacific
D McAtee
President – Dyno Nobel
US & Canada
S Atkinson
President – Dyno Nobel
International
90%
80%
80%
40%
10%
10%
10%
10%
10%
10%
20%
30%
10%
20%
70%
80%
10%
10%
80%
10%
10%
80%
10%
10%
100%
100%
100%
100%
100%
100%
100%
100%
60%
10%
30%
100%
17
Incitec Pivot Limited Annual Report 2013
For 2012/13, in addition to pursuing investments and projects to
support future growth, the strategic imperatives lay in driving
continuous improvement at manufacturing sites to the next level
of BEx maturity and implementation of BEx in the business units.
In addition, the introduction of a safety measure in the
2012/13 STI based on AWTRIFR is aligned with the Company’s
commitment to “Zero Harm for Everyone, Everywhere”. In 2012,
the Company adopted its five year Global HSE Strategy to drive
continued improvement in the Group’s health, safety and
environmental performance. On its journey to achieve world
class safety performance, to have an AWTRIFR of less than one,
the Company sets annual targets on AWTRIFR, seeking year-on-
year improvements. For the 2012/13 financial year, the target
was 1.21, noting the AWTRIFR for the prior year was 1.40.
At risk remuneration – Long Term Incentive (LTI) Plans
The LTI 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 transferred to participants
until exercise, performance rights have no dividend entitlement.
The only LTI Plan to mature in the 2012/13 financial year is the
Long Term Incentive Performance Rights Plan for 2010/13 (LTI
2010/13) which matured on 30 September 2013.
There are two other LTI Plans in place:
• Long Term Incentive Performance Rights Plan for 2011/14
(LTI 2011/14); and
• Long Term Incentive Performance Rights Plan for 2012/15
What is the method for determining if the measures
are satisfied?
Financial measures
Satisfaction of these measures is based on a review by the
Board of the audited accounts and the financial performance
of the Group for the financial year.
Non-financial performance measures
Executive performance is reviewed by the Board, in the case
of safety, based on a review of the AWTRIFR for the year, as
well as safety performance generally and, in relation to the
other non-financial performance measures, following the
annual performance review process for the Executives.
Does the STI include mechanisms for claw back and deferral?
No. While there is no deferral under the Company’s STI, the STI
measures are subject to the STI Gate which requires the Group’s
financial performance to meet the required growth threshold
before any awards can be made. In addition, the Board
continues to monitor legislative and governance developments
and, as part of the 2013/14 review of remuneration, the Board
intends to adopt a policy on claw back.
(LTI 2012/15).
However, these plans do not mature until 30 September 2014
and 30 September 2015, respectively.
Executives and other selected managers participate in the LTI
2010/13, the LTI 2011/14 and the LTI 2012/15.
Details of the Executives’ participation in these plans are set out
in Tables C.6 and C.7.
What is the purpose of the LTIs?
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.
What STI awards were made to Executives with respect to
the year ended 30 September 2013?
What is the process for deciding who will participate in the
LTI Plans?
None. Financial performance across the Group did not meet the
STI Gate and, accordingly, no awards were made to Executives
under the 2012/13 STI.
In relation to the safety measure, which is not subject to the
STI Gate, while the AWTRIFR for the year ended 30 September
2013 was 1.16, which was lower than the target of 1.21, no
awards were made to Executives in respect of this measure due
to there being two fatalities during the 2012/13 financial year.
Although the STI Gate was not met, certain of the non-financial
performance measures were achieved, for example:
•
In relation to BEx, implementation of the next level of BEx
maturity across the large manufacturing facilities and in the
business units was completed, with benefits of $39 million
delivered, and the foundational elements of BEx in the
corporate function and across the value chain commenced;
In relation to strategic growth, the final investment decision
was made by the Board in April 2013 with respect to the
Louisiana Ammonia Plant, with a lump sum turn-key
contract entered into with a leading EPC contractor and
offtake arrangements secured for 100% of production;
In relation to new markets, licensing and distribution
arrangements were established in new market territories.
•
•
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
2010/13, the LTI 2011/14 and the LTI 2012/15.
What is the performance period of the LTI Plans?
The LTI 2010/13, LTI 2011/14 and LTI 2012/15 are
performance rights plans each of which has a performance
period of three years:
• LTI 2010/13 – 1 October 2010 to 30 September 2013.
• LTI 2011/14 – 1 October 2011 to 30 September 2014.
• LTI 2012/15 – 1 October 2012 to 30 September 2015.
Incitec Pivot Limited Annual Report 2013
18
Directors’ Report
Remuneration Report
What are the performance conditions for the LTI Plans?
The performance rights will only vest if certain performance
conditions are met. The Board approves the performance
conditions on the commencement of the relevant plans.
For each of the LTI 2010/13, the LTI 2011/14 and the LTI
2012/15, the performance conditions are based on the relative
Total Shareholder Returns of the Company and growth in
Earnings Per Share (before IMIs).
Total Shareholder Return (TSR) Condition
The TSR Condition requires growth in the Company’s total
shareholder returns to be at or above the median of the
companies in the comparator group, being the S&P/ASX 100.
If, at the end of the performance period, the Company’s TSR
over the three year performance period is:
• below the 50th percentile of the comparator group of
companies ranked by their TSR performance: no performance
rights in this tranche will vest;
• between the 50th and 75th percentile of the comparator
group of companies ranked by their TSR performance: the
portion of performance rights in this tranche that will vest
will be increased on a pro rata basis from 50% to 100%; and
• equal to or above the 75th percentile of the comparator
group of companies ranked by their TSR performance: all
performance rights in this tranche will vest.
Earnings Per Share (EPS) Condition
For the LTI 2010/13 and the LTI 2011/14 if, at the end of the
performance period, the compound annual growth rate on EPS
over the performance period, from the base year, is:
• below 7% per annum: no performance rights in this tranche
will vest;
• equal to or greater than 7% per annum but less than 15%
per annum: the portion of performance rights in this tranche
that will vest will be increased on a pro rata basis between
50% and 100%; and
• 15% or greater: all performance rights in this tranche
will vest.
For the LTI 2012/15 if, at the end of the performance period,
the compound annual growth rate on EPS over the performance
period, from the base year, is:
• below 6% per annum: no performance rights in this tranche
will vest;
• equal to or greater than 6% per annum but less than 12.5%
per annum: the portion of performance rights in this tranche
that will vest will be increased on a pro rata basis between
50% and 100%; and
• 12.5% or greater: all performance rights in this tranche
will vest.
Each of these performance conditions are equally weighted.
Measuring the performance conditions
After the expiry of the relevant performance period, the Board
determines whether the performance conditions are satisfied.
The performance conditions are tested once, at the end of the
relevant performance period. If the performance conditions are
satisfied the participant is entitled to acquire ordinary shares in
the Company. The participant does not pay for those shares.
If the performance conditions are not satisfied during the
performance period, the performance rights will lapse.
What happens if a participant leaves the Group?
The performance rights will lapse on a cessation of employment
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.
What performance rights have vested?
No performance rights vested under the LTI 2010/13 and so
these performance rights have lapsed.
The performance conditions under LTI 2011/14 and LTI 2012/15
will not be tested until after 30 September 2014 and 30
September 2015, respectively.
In what circumstances can the performance rights vest before
the expiry of the performance period under the LTI Plans?
On the occurrence of one of the following during the relevant
performance period:
• a takeover bid is made to holders of shares in the Company;
• a statement is lodged with ASX to the effect that a person
has become entitled to not less than 50% of the shares in
the Company;
• the Court orders a meeting to be held in relation to a
proposed compromise or arrangement in connection with a
scheme for the reconstruction of the Company or its
amalgamation with any other companies;
• the Company passes a resolution for a voluntary wind-up; or
• an order is made for the compulsory winding-up the
Company,
the Board may give a notice that the performance rights vest at
the time specified by the Board in the notice.
What are the plan incentive limits in the LTI Plans?
As the LTI Plans are performance rights plans, with participation
determined by reference to the participant’s fixed annual
remuneration, there are no plan incentive limits.
19
Incitec Pivot Limited Annual Report 2013
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 Committee, has regard to financial and non-
financial indices, including the indices shown in Table C.3 in
respect of the current financial year and the preceding four
financial years.
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.
In relation to the LTI, the Company’s approach is to set
challenging targets to drive the creation of shareholder value.
LTI awards are only made where there is exceptional
performance over a sustained period.
As can be seen from Table C.3 below, in relation to the LTI plans
for which the three year performance periods matured in 2010,
2011 and 2012 respectively, and each of which used the
Company’s Total Shareholder Return as the sole performance
measure, the Company’s total shareholder return did not meet
the minimum hurdle of 10% per annum compounded.
Accordingly, no awards were made under those plans.
For the LTI 2010/13, which used relative Total Shareholder
Return and EPS growth as its performance measures, as the
Company’s relative Total Shareholder Return and EPS growth
for the three year performance period ending 30 September
2013 did not meet the minimum hurdle, no performance
rights vested.
The following graph illustrates the relationship between
Company performance and STI awards in respect of the current
financial year and the preceding four financial years. Notably, in
each of 2010 and 2011, with EPS growing 20.8% and 19%
respectively, awards were made to Executives under the
relevant STI plans applicable for each of those years. Conversely,
in respect of the 2011/12 financial year, EPS (before IMIs)
decreased 24% compared to the previous year and no awards
were made under that plan.
Similarly, in 2012/13, EPS (before IMIs) decreased by 26.2% to
18.3 cents compared to the previous year. The STI Gate was not
met and no awards were made under the 2012/13 STI plan.
Company performance and STI outomes
Cents
STI payments as percentage of STI opportunity
35
30
25
20
15
10
5
0
210
180
150
120
90
60
30
0
2009
2010
2011
2012
2013
Earnings per share (before IMIs) (LHS)
Average STI payment as percentage of STI opportunity (RHS)
Table C.3 – Indices relevant to the Board’s assessment of the Group’s performance and the benefit to shareholders
Net Profit After Tax excluding minority interests (before individually material items)
(NPAT (before IMIs)) ($m)
2009
2010
2011
2012
2013
347.8
442.8
530.1
404.7
298.4
Earnings Per Share (before individually material items) (EPS (before IMIs)) (cents)
22.6
27.3
32.5
24.8
18.3
Dividends – paid in the financial year – per share (cents)
Dividends – declared in respect of the financial year – per share (DPS (declared)) (cents)
Share price ($) (Year End)
Total Shareholder Return (TSR) (%)(1)
21.6
4.4
4.1
7.8
9.3
11.5
12.5
11.5
12.4
9.2
2.83
3.59
3.27
2.98
2.69
42
3
(10)
4
(16)
(1) For the financial years ended 30 September 2009, 30 September 2010, 30 September 2011 and 30 September 2012, the TSR was based on a 3 year compound
rate per annum. For the financial year ended 30 September 2013, TSR is calculated in accordance with the rules of the LTI 2010/13 over the 3 year performance
period, having regard to the volume weighted average price of the shares over the 20 business days up to but not including the first and last day of the
performance period.
Incitec Pivot Limited Annual Report 2013
20
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.4.
The following is a summary of Mr Fazzino’s employment
arrangements and remuneration.
In addition, Mr Fazzino currently participates in the following
LTI Plans:
• the LTI 2011/14 pursuant to which Mr Fazzino was issued
590,625 performance rights as approved by shareholders in
accordance with the ASX Listing Rules at the 2011 Annual
General Meeting held on 20 December 2011; and
• the LTI 2012/15 pursuant to which Mr Fazzino was issued
728,497 performance rights as approved by shareholders in
accordance with the ASX Listing Rules at the 2012 Annual
General Meeting held on 18 December 2012.
The LTI 2011/14 and LTI 2012/15 are each for a three year
period and the performance conditions will not be tested until
after 30 September 2014 and 30 September 2015 respectively.
Fixed annual remuneration
Termination by Incitec Pivot
For 2012/13, Mr Fazzino’s fixed annual remuneration was
$2,112,642, effective 1 October 2012. 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 2012/13, 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 2012/13
financial year.
Given EPS (before IMIs) in the 2012/13 financial year was 18.3
cents, no award was made to Mr Fazzino in respect of the period
from 1 October 2012 to 30 September 2013.
LTI
Mr Fazzino participated in the LTI 2010/13, the performance
period for which ended on 30 September 2013. On
determination of performance measured against the
performance conditions, in accordance with the LTI 2010/13
plan rules, none of Mr Fazzino’s performance rights vested.
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
For the LTI 2011/14 and the LTI 2012/15, 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.
21
Incitec Pivot Limited Annual Report 2013
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.4.
With effect from October 2013:
• Mr Alan Grace was appointed President – Strategic
Engineering; and
• Ms Elizabeth Hunter was appointed Chief Human
Resources Officer.
As both appointments commenced after the end of the
2012/13 financial year, Mr Grace’s and Ms Hunter’s
remuneration arrangements will be included in the
remuneration report for the year ending 30 September 2014.
However, their STI and LTI participation is as follows:
• STI: maximum STI opportunity is 100% of fixed annual
remuneration
• LTI: maximum LTI opportunity is 80% of fixed annual
remuneration.
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 (e.g. motor vehicles).
This component of remuneration is subject to annual review. For
the 2012/13 financial year, the fixed annual remuneration for
the Executives was generally increased by 3.5% with effect
from 1 October 2012, save for three Executives who received
higher increases having regard to the scope and complexity of
their roles.
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(1)
Mr Jamie Rintel
Mr Bernard Walsh(2)
Mr James Whiteside
Mr Stephen Dawson(3)
Mr Daniel McAtee(4)
Mr Simon Atkinson
Number of Weeks
26 weeks
26 weeks
26 weeks
61.81 weeks
45.41 weeks
26 weeks
26 weeks
52 weeks
(1) On 31 October 2013, Mrs Gleeson resigned as General Counsel &
Company Secretary and will cease employment with the Company on
31 December 2013.
(2) On 1 October 2013, Mr Walsh ceased employment with the Company
following a restructure of Global Manufacturing Operations.
(3) In addition, Mr Dawson’s contract provides where Mr Dawson is
terminated for reasons not related to performance or conduct, the Company
will also pay Mr Dawson an additional amount of one months’ FAR at the
time of termination for each completed year of continuous service, up to
12 months’ FAR.
(4) Mr McAtee joined the Company on 2 April 2012 and is considered to be a
Key Management Person from 4 June 2012. Mr McAtee’s STI and LTI
participation are as specified above.
STI
Termination by the Executive
Participation is at the Board’s discretion. For all Executives, for
the 2012/13 financial year, the maximum STI opportunity was
100% of fixed annual remuneration and was determined with
reference to performance conditions outlined on page 16.
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.
LTI
Participation is at the Board’s discretion. For the LTI 2010/13,
the LTI 2011/14 and the LTI 2012/15, for all Executives, the
maximum LTI opportunity was 80% of fixed annual
remuneration (save for Mr McAtee who was not a participant in
the LTI 2010/13 and whose participation in the LTI 2011/14
was calculated by reference to his fixed annual remuneration
prior to him becoming a KMP) and vesting of rights is
determined with reference to conditions based on Relative TSR
and growth in EPS (before IMIs).
Effect of termination on long term incentives
For the LTI 2010/13 and the LTI 2011/14, on cessation of
employment, the performance rights 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 2013
22
Directors’ Report
Remuneration Report
Details of Executive remuneration
Table C.4 – Executive remuneration
Details of the remuneration paid to each Executive is set out below.
Short-term benefits
Post-
employment
benefits
Other
long term
benefits(C)
Termination
benefits
Short Term
Incentive
& other
bonuses(A)
Other
short
term
benefits(B)
Super-
annuation
benefits
Salary
& Fees
Share-based payments
Accounting values
Current
period
expense(D)
Prior periods
expense
write-back(D)
Total
share-based
payments
Total
Short Term
Incentive
& other
bonuses as
proporation of
remuneration
Accounting
value of
current year
share-based
payments as
proportion of
remuneration(E)
Year
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
%
Executives
– Current
J E Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
K J Gleeson
General Counsel &
Company Secretary
J Rintel
President – Strategy
& Business Development
B C Walsh(1)
President –
Global Manufacturing
J D Whiteside
Chief Operating Officer
– Incitec Pivot Fertilisers
S Dawson
President – Dyno
Nobel Asia Pacific
D McAtee(2)
President – Dyno
Nobel US & Canada
S Atkinson
President – Dyno Nobel
International
Executives
– Former
G Brinkworth(3)
Chief Operating Officer –
Incitec Pivot Fertilisers
& General Manager –
Human Resources
2013
2,096
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2,041
853
840
708
674
708
551
744
735
708
700
708
700
603
187
583
472
2013
2012
–
339
B Wallace(4)
President – Dyno Nobel
Americas
2013
2012
–
674
Total Executives
2013
7,711
2012
7,913
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
115
116
–
–
–
–
119
116
17
16
17
16
17
16
17
16
17
16
17
16
17
16
–
–
17
16
–
8
–
31
136
167
78
75
7
22
21
17
38
13
30
29
26
74
29
66
–
–
24
12
–
–
–
–
–
–
–
–
–
–
–
–
904
–
–
–
–
–
–
–
–
–
940
1,331
301
430
254
373
244
315
271
406
244
331
243
285
122
3
196
224
(926)
14 2,205
–
1,331
3,463
(282)
19
896
–
430
1,308
(245)
9
755
–
373
1,080
(226)
–
(267)
18
315
781
895
4 1,699
–
406
1,186
(217)
27
778
–
331
1,121
(214)
–
(2)
–
(171)
–
29
783
285
1,067
120
3
25
224
727
190
764
840
–
271
–
71
–
1,094
–
186
–
–
–
–
–
71
–
689
–
–
186
1,985
253
308
904
2,815
(2,550)
265 9,388
1,365
3,955
–
3,955 13,824
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
%
30
38
26
33
25
34
24
35
14
34
25
30
24
27
17
2
21
27
0
10
0
9
24
29
(A) No Executives were awarded STI payments under the 2012/13 STI.
(B) Other short term benefits include the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2013: 1 April 2012 to 31 March 2013) (2012:
1 April 2011 to 31 March 2012), rent and mortgage interest subsidies, relocation allowances and other allowances. For Mr Atkinson, this includes rental, health
insurance, education support and home leave travel.
(C) Other long term benefits represents long service leave accrued during the reporting period.
(D) In accordance with accounting standards, remuneration includes the amortisation of the fair value of performance rights issued under the LTI Plans that are
expected to vest, less any write-back on performance rights lapsed or expected to lapse as a result of actual or expected performance against non-market hurdles
(“Option Accounting Value”). The value disclosed in Table C.4 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 2010/13 and LTI 2011/14, the Company wrote-back an amount of $2.6 million which had previously been incurred as an expense in the financial
years ended 30 September 2011 and 30 September 2012 relating to the issues of performance rights to Executives at that time. The accounting standards provide
that the write-back must be recorded against the remuneration of the relevant executives and directors, which is reflected in this Remuneration Report.
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 2010/13, the LTI 2011/14, the LTI 2012/15 and LTIs generally.
(E) The accounting value of current year share-based payments as proportion of remuneration is calculated based on the current period expense as a proportion of the
total remuneration (excluding the prior periods expense write-back).
23
Incitec Pivot Limited Annual Report 2013
The terms and conditions of each grant affecting remuneration in this or future reporting periods are as follows:
LTI 2010/13 – TSR
Grant date
23/12/2010
Vesting date
30/09/2013
LTI 2010/13 – EPS
23/12/2010
30/09/2013
LTI 2011/14 – TSR
02/02/2012
30/09/2014
LTI 2011/14 – EPS
02/02/2012
30/09/2014
LTI 2012/15 –TSR
25/01/2013
30/09/2015
LTI 2012/15 – EPS
25/01/2013
30/09/2015
Fair value per share treated as rights at grant date
$2.77
$3.76
$1.72
$2.90
$1.54
$2.86
Once vested, a performance right is deemed to be exercised automatically and no amount is payable on exercise.
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 34 to the financial
statements.
(1) On 1 October 2013, Mr Walsh ceased employment with the Company following a restructure of Global Manufacturing Operations, pursuant to which Global
Manufacturing Operations was split into two functions with effect from 1 October 2013. The payments to be received by Mr Walsh in the 2013/14 financial year
include a separation payment in the amount of $904,031.00 and accrued annual leave and long service leave in the amount of $434,164.00. Mr Walsh was entitled
to these payments under his contract of employment dated 17 October 2003. In relation to Mr Walsh’s long service leave and annual leave amount, $30,000.00,
was accrued in the 2012/13 financial year. The remaining amount has been accrued and expensed during the term of his employment.
(2) Mr McAtee became a Key Management Person during the 2011/12 financial year. The disclosures for the 2011/12 financial year are from the date he became a
Key Management Person, 4 June 2012. Mr McAtee’s fixed annual remuneration is inclusive of 401K pension contributions.
(3) On 26 March 2012, Mr Brinkworth ceased employment with the Group following a restructure of the domestic fertiliser business, Incitec Pivot Fertilisers, and the
international trading business, Southern Cross International. The disclosures for the 2011/12 financial year are from 1 October 2011 to that date. The payments
received by Mr Brinkworth on cessation of employment included a separation payment and accrued annual leave. Mr Brinkworth was entitled to these payments
under his contract of employment dated 10 November 2008.
(4) On 6 August 2012, Mr Wallace ceased employment with the Group on a restructure of the North American explosives business. The disclosures for the 2011/12
financial year are from 1 October 2011 to that date. The payments received by Mr Wallace on cessation of employment included a separation payment, accrued
annual leave and relocation costs. Mr Wallace was entitled to these payments under his contract of employment dated 1 February 2008. Mr Wallace’s benefits were
converted from US$ to A$ at the average rate for 1 October 2011 to 30 September 2012, being 1.02770.
Details of performance related remuneration: short term incentives
Table C.5 – Short term incentives awarded for the year ended 30 September 2013
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2013 as remuneration to each
Executive are set out below:
Included in remuneration
$000
% vested in year
% forfeited in year
Short term incentive
Executives
– Current
J E Fazzino
F Micallef
K J Gleeson
J Rintel
B C Walsh
J D Whiteside
S Dawson
D McAtee
S Atkinson
Executives
– Former
G Brinkworth
B Wallace
–
–
–
–
–
–
–
–
–
–
–
0
0
0
0
0
0
0
0
0
0
0
100
100
100
100
100
100
100
100
100
100
100
Incitec Pivot Limited Annual Report 2013
24
Directors’ Report
Remuneration Report
Details of performance related remuneration: long term incentives
Table C.6 – Details of long term incentives granted and vested in the year ended 30 September 2013 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
may vest
Key Management Personnel
Executives
– Current
J E Fazzino
F Micallef
K J Gleeson
J Rintel
B C Walsh(1)
J D Whiteside
S Dawson
D McAtee(2)
S Atkinson
Executives
– Former
G Brinkworth(3)
B Wallace(4)
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
23 December 2010
2 February 2012
25 January 2013
23 December 2010
2 February 2012
25 January 2013
23 December 2010
2 February 2012
25 January 2013
23 December 2010
2 February 2012
25 January 2013
23 December 2010
2 February 2012
25 January 2013
23 December 2010
2 February 2012
25 January 2013
23 December 2010
2 February 2012
25 January 2013
23 December 2010
4 June 2012
25 January 2013
23 December 2010
2 February 2012
25 January 2013
511,364
590,625
728,497
150,000
194,444
239,834
135,000
155,925
199,862
130,948
127,575
199,862
147,273
170,100
209,807
110,455
162,037
199,862
108,182
162,037
199,862
–
12,997
160,618
94,545
109,200
165,517
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
Performance Rights Plan 2010/13
Performance Rights Plan 2011/14
23 December 2010
2 February 2012
23 December 2010
2 February 2012
54,724
26,316
68,789
47,208
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
0
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
100
–
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2013
2014
(A) This includes the number of rights allocated to the participating Executives during the reporting period.
(B) For the 2012/13 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 2011/14 and the LTI 2012/15 are not tested until 30 September 2014 and 30 September 2015, respectively.
(1) On 1 October 2013, Mr Walsh ceased employment with the Company following a restructure of the Global Manufacturing Operations. As a result of ceasing
employment with the Company on 1 October 2013, and in accordance with his employment arrangements, a portion of Mr Walsh’s entitlements under the LTI
2011/14 and the LTI 2012/15 were forfeited. In addition, as the criteria under the LTI 2010/13 were not satisfied, none of Mr Walsh’s rights under the LTI 2010/13
vested during the 2012/13 financial year.
(2) Mr McAtee’s rights were granted under the LTI 2011/14 based on his fixed annual remuneration prior to him becoming a Key Management Person.
(3) On 26 March 2012, Mr Brinkworth ceased employment with the Group following a restructure of the domestic fertiliser business, Incitec Pivot Fertilisers, and the
international trading business, Southern Cross International. As a result of ceasing employment with the Group during the 2011/12 financial year and, in accordance
with his employment arrangements, a portion of Mr Brinkworth’s entitlements under the LTI 2010/13 and the LTI 2011/14 were forfeited. In addition, as the
criteria under the LTI 2010/13 were not satisfied, none of Mr Brinkworth’s remaining rights under the LTI 2010/13 vested during the 2012/13 financial year.
(4) On 6 August 2012, Mr Wallace ceased employment with the Group on a restructure of the North American explosives business. As a result of ceasing employment
with the Group during the 2011/12 financial year and, in accordance with his employment arrangements, a portion of Mr Wallace’s entitlements under the LTI
2010/13 and the LTI 2011/14 were forfeited. In addition, as the criteria under the LTI 2010/13 were not satisfied, none of Mr Wallace’s remaining rights under the
LTI 2010/13 vested during the 2012/13 financial year.
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 34 and 35 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.
25
Incitec Pivot Limited Annual Report 2013
Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including rights) granted to a Key Management Person have been
altered or modified by the issuing entity during the reporting period or the prior period.
Table C.7 – Analysis of movements in long term incentives during the year ended 30 September 2013
The movement during the reporting period, by value, of rights for the purposes of remuneration held by each Executive is
detailed below:
For the year ended 30 September 2013
Granted
during 2012/13
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
K J Gleeson
J Rintel
B C Walsh(1)
J D Whiteside
S Dawson
D McAtee(2)
S Atkinson(3)
Executives
– Former
G Brinkworth(4)
B Wallace(5)
Grant date
23 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
16 December 2009
23 December 2010
25 January 2013
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2012/15
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
Performance Rights Plan 2009/12
Performance Rights Plan 2010/13
16 December 2009
23 December 2010
16 December 2009
23 December 2010
–
–
1,603
–
–
528
–
–
440
–
–
440
–
–
462
–
–
440
–
–
440
–
–
353
–
–
364
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,670
–
–
490
–
–
441
–
–
428
–
–
481
–
–
361
–
–
353
–
–
–
–
–
309
–
–
179
–
225
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(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 2013 to 2015 for
the LTI 2012/15).
(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
under the LTI 2010/13 were not satisfied, no rights vested during the 2012/13 financial year.
(C) 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.4 for further details of the fair value of performance rights at the date
of forfeiture.
(D) The value of rights exercised during the year represents where rights, previously granted as compensation, were exercised during the reporting period. No
performance rights vested in relation to the Long Term Incentive Performance Rights Plan 2009/12 (LTI 2009/12), accordingly no rights were exercised during the
2012/13 financial year. Details of the LTI 2009/12 are set out in Note 35 (Share based payments).
(1) Mr Walsh ceased employment with the Company on 1 October 2013.
(2) Mr McAtee’s employment commenced on 2 April 2012 and he is not a participant in either the LTI 2009/12 or the LTI 2010/13.
(3) Mr Atkinson’s rights were granted under the LTI 2009/12 prior to him becoming a Key Management Person on 1 January 2010.
(4) Mr Brinkworth ceased employment with the Company on 26 March 2012 and, accordingly, he is not a participant in the LTI 2012/15.
(5) Mr Wallace ceased employment with the Company on 6 August 2012 and, accordingly, he is not a participant in the LTI 2012/15.
The minimum value of rights yet to vest is $nil as the performance criteria may not be met and, in such circumstances, there would be no vesting. The maximum value of
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.
Incitec Pivot Limited Annual Report 2013
26
Directors’ Report
Remuneration Report
Table C.8 – Actual Pay
The table below provides a summary of actual remuneration paid to the Executives in the financial year ended 30 September
2013. The accounting values of the Executives’ remuneration reported in accordance with the Accounting Standards may not always
reflect what the Executives have actually received, particularly due to the valuation of share based payments. The table below
seeks to clarify this by setting out the actual remuneration that the Executives have been paid in the financial year. Executive
remuneration details prepared in accordance with statutory requirements and the Accounting Standards are presented in Table C.4
of this report.
Executives
– Current
J E Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
K J Gleeson
General Counsel & Company Secretary
J Rintel
President – Strategy & Business Development
B C Walsh(1)
President – Global Manufacturing
J D Whiteside
Chief Operating Officer – Incitec Pivot Fertilisers
S Dawson
President – Dyno Nobel Asia Pacific
D McAtee
President – Dyno Nobel US & Canada
S Atkinson
President – Dyno Nobel International
Executives
– Former
G Brinkworth
Chief Operating Officer – Incitec Pivot Fertilisers
& General Manager – Human Resources
B Wallace
President – Dyno Nobel Americas
Total Executives
Year
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Short Term
Incentive
& other
bonuses(A)
$000
Salary & Fees
$000
Other
Short Term
benefits(B)
$000
Superannuation
benefits
$000
Termination
benefits(C)
$000
2,096
2,041
853
840
708
674
708
551
744
735
708
700
708
700
603
187
583
472
–
339
–
674
7,711
7,913
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
115
116
–
–
–
–
119
116
17
16
17
16
17
16
17
16
17
16
17
16
17
16
–
–
17
16
–
8
–
31
136
167
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
271
–
1,094
–
1,365
Total
$000
2,113
2,057
870
856
725
690
725
567
761
751
725
716
725
716
607
187
715
604
–
618
–
1,799
7,966
9,561
(A) No STI payments were made under the 2012/13 STI.
(B) Other short term benefits include the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2013: 1 April 2012 to 31 March 2013) (2012:
1 April 2011 to 31 March 2012), rent and mortgage interest subsidies, relocation allowances and other allowances. For Mr Atkinson, this includes rental, health
insurance, education support and home leave travel.
(C) Termination benefits paid during the financial year.
(1) On 1 October 2013, Mr Walsh ceased employment with the Company following a restructure of Global Manufacturing Operations. Pursuant to his contract of
employment dated 17 October 2003, Mr Walsh is entitled to a separation payment of $904,031.00 and payment of $434,164.00 for accrued annual leave and long
service leave. These amounts will be paid to Mr Walsh in the 2013/14 financial year.
27
Incitec Pivot Limited Annual Report 2013
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). 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 document and the Company’s
charters, policies and codes, details of which are available on
the corporate governance section of the Company’s website,
www.incitecpivot.com.au/Corporate_Governance.
The Board considers that Incitec Pivot’s corporate governance
framework and practices have complied with the ASX
Recommendations throughout the year ended 30 September
2013.
Summaries or copies of the charters, policies and codes referred
to in this statement, together with a checklist cross-referencing
the ASX Recommendations to the relevant sections of this
statement and elsewhere in this document, are available
on the corporate governance section of the Company’s website,
www.incitecpivot.com.au/Corporate_Governance.
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 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/Corporate_Governance. The Charter
sets out the Board’s own tasks and activities, as well as the
matters it has reserved for its own consideration and decision-
making.
The Board Charter has specifically reserved a number of key
matters for consideration and decision by the Board. These
responsibilities include:
• Direction and objectives – approving the Company’s
corporate strategy and budgets;
• Compliance – ensuring and monitoring compliance with all
laws, governmental regulations and accounting standards;
• Ethical – monitoring and influencing Incitec Pivot’s culture
and implementing procedures and principles to promote
ethical and responsible decision-making and confidence in
Incitec Pivot’s integrity; and
• Managing Director & CEO and direct reports –
appointing the Managing Director & CEO, approving the
appointment of the direct reports to the Managing Director
& CEO, monitoring management’s performance and
reviewing executive succession planning.
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/
Corporate_Governance.
Management performance evaluation
As part of the Board’s oversight of executive management, the
Board is to monitor and evaluate the performance of the
Managing Director & CEO and his direct reports.
All Incitec Pivot executives are subject to annual performance
reviews. The annual review involves each executive being
evaluated by his or her immediate superior, the Managing
Director & CEO. The executive is assessed against agreed
performance objectives, including business/financial/operational
targets, functional/managerial goals and personal
accountabilities.
The performance evaluation of the Managing Director & CEO is
conducted by the Chairman. This evaluation involves an
assessment of a range of performance standards as determined
by the Board, including assessing performance with regard to
execution of the strategic objectives and the overall performance
of the Company, and also incorporates feedback from the other
directors.
Performance evaluations for the 2012/13 financial year were
conducted in the final quarter of the 2013 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 seven directors, including six non-
executive directors and one executive director (being the
Managing Director & CEO). The Company engages all non-
executive directors by a letter of appointment setting out the
key terms and responsibilities of their role.
Incitec Pivot Limited Annual Report 2013
28
Directors’ Report
Corporate Governance Statement
The directors were appointed on the following dates:
• Allan McCallum: 15 December 1997;
• Anthony Larkin: 1 June 2003;
James Fazzino: 18 July 2005;
•
John Marlay: 20 December 2006;
•
• Graham Smorgon AM: 19 December 2008;
• Paul Brasher: 29 September 2010; and
• Rebecca McGrath: 15 September 2011.
In terms of the mix of skills and diversity which the Board is
looking to achieve, the key objective, as prescribed in the
Board’s Charter, is to have directors with an appropriate range
of skills, experience and expertise and an understanding of, and
competence to deal with, current and emerging issues in the
Company’s business. Further, the Board’s oversight of both its
own succession plan, as well as those for the Managing Director
& CEO and his direct reports, is designed to maintain an
appropriate balance of skills, experience, expertise and diversity
on the Board as well as in management.
The Board considers that, collectively, the directors have
significant commercial, business, operational and financial
experience in a diverse range of industries and geographies,
and that this breadth is appropriate for the Company and its
businesses. As such, the directors bring skills and expertise
which, in aggregate, combine to form a Board which is
equipped to discharge its responsibilities. The directors’
biographies together with details on their term of office and
information about their skills, expertise and experience are
set out on pages 1 and 2.
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. In this respect, two directors are
retiring at the 2013 Annual General Meeting, Mr Allan
McCallum and Mr John Marlay.
Mr John Marlay will be standing for re-election at the 2013
Annual General Meeting. Mr McCallum will not be seeking
re-election.
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.
29
Incitec Pivot Limited Annual Report 2013
Board Committees
To assist the Board in meeting its responsibilities, the Board
currently has the following four Committees:
• the Audit and Risk Management Committee;
• the Nominations Committee;
• the Remuneration 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 the 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.
Nominations Committee
The Nominations Committee was established on 23 February
2012 and has a Charter approved by the Board. A copy of the
Charter for the Nominations Committee is available on the
corporate governance section of the Company’s website,
www.incitecpivot.com.au/Corporate_Governance. Under its
Charter, the Committee assists and advises the Board on Board
composition, director selection and appointment practices,
succession planning for the Board and the executives,
performance evaluation processes, induction training and
development for directors and strategies to address Board
diversity, in each case, to ensure that the Board comprises
individuals able to discharge the responsibilities of directors,
with the benefit of a range of skills, experience, expertise,
perspectives and diversity appropriate for the Company and its
businesses and that appropriate succession plans are in place.
As part of the Nomination Committee’s role, the Committee is
to review and make recommendations to the Board on matters
relating to the size and composition of the Board and to assess,
from time to time as necessary, or at any time on request of
the Board, the appropriate mix of skills, experience, expertise
and diversity required on the Board and the extent to which
such skills are represented on the Board. As and when
necessary, the Nominations Committee will, having regard to
the skills and competencies represented on the Board and the
competencies required, implement a process to identify suitable
candidates, which may include a search being undertaken by
an appropriate third party. The Committee will evaluate
prospective candidates and make recommendations to the
Board for the appointment of new Board members. When the
Board considers that a suitable candidate has been found, that
person is appointed by the Board and, in accordance with
Incitec Pivot’s Constitution, must stand for re-election by
shareholders at the next annual general meeting.
The Committee comprises four independent non-executive
directors, being Paul Brasher (Chairman), Anthony Larkin,
Rebecca McGrath and Graham Smorgon AM.
The Committee is to meet as frequently as required but not less
than two times a year.
The attendance of the members of the Nominations Committee
at each meeting held during the financial year ended 30
September 2013 is set out on page 3.
Remuneration Committee
The Remuneration Committee has a Charter approved by the
Board. A copy of the Charter for the Remuneration Committee
is available on the corporate governance section of the
Company’s website, www.incitecpivot.com.au/Corporate_
Governance. Under its Charter, the Committee 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, with such policies
and practices to be designed to enable Incitec Pivot to attract,
retain and motivate its people to create value for shareholders.
The Committee comprises three independent non-executive
directors, being John Marlay (Chairman), Allan McCallum and
Graham Smorgon AM.
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
Committee at each meeting held during the financial year
ended 30 September 2013 is set out on page 3.
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/Corporate_Governance.
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), Rebecca McGrath, Graham Smorgon AM 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
2013 is set out on page 3.
Audit and Risk Management Committee
Details of the Audit and Risk Management Committee are set
out under the heading “Principle 4: Safeguard integrity in
financial reporting” on page 33.
Board meetings
Details of the Board meetings held during the 2012/13
financial year are set out on page 3.
The Board holds nine scheduled meetings during each year,
plus any extraordinary meetings that may be necessary to
address any significant matters, as and when they arise.
Materials for Board meetings are circulated to directors in
advance. The agendas for meetings are formulated with input
from the Managing Director & CEO and the Chairman. Directors
are free to nominate matters for inclusion on the agenda for
any Board meeting. Presentations to the Board are frequently
made by executives and senior management, and
telecommunications technologies may be used to facilitate
participation.
Director independence
The Board comprises a majority of independent non-executive
directors.
The Board, excluding the director in question, will regularly
assess the independence of each director, in light of any
interest disclosed by them. The Board considers all of the
circumstances relevant to a director in determining whether the
director is independent and free from any interest, relationship
or matter which could, or may reasonably be expected to,
interfere with the director’s ability to act in the best interests of
the Company. A range of factors is considered by the Board in
assessing the independence of its directors, including those set
out in the ASX Recommendations.
In assessing the independence of a director, consideration is
given to the underlying purpose behind any relationship a
director may have with a third party that is identified as
relevant to the assessment and overall purpose of
independence. In determining whether a sufficiently material
relationship (as defined in Box 2.1 of the ASX
Recommendations) exists between Incitec Pivot and a third
party for the purposes of determining the independence of a
director, the Board has regard to all the circumstances of the
relationship, including among other things:
• the value (in terms of aggregate and proportionate
expenses or revenues) that the relationship represents to
both Incitec Pivot and the third party;
• the strategic importance of the relationship to Incitec Pivot’s
business; and
• the extent to which the services provided by or to Incitec
Pivot are integral to the operation of Incitec Pivot’s business,
including the extent to which the services provided are
unique and not readily replaceable.
The Board considers that each of Paul Brasher, Anthony Larkin,
John Marlay, Allan McCallum, Rebecca McGrath and Graham
Smorgon AM are independent when assessed on the criteria
above, taking into account all the relevant interests, matters
and relationships of the particular director. As Managing
Director & CEO of the Company, James Fazzino is not considered
to be an independent director. In summary, of the seven
directors, the Board considers six directors are independent.
The Board Charter requires that an independent non-executive
director hold the position of Chairman.
Access to information and independent advice
Directors are entitled to full access to the information required
to discharge their responsibilities. Subject to obtaining the prior
approval of the Chairman, the directors have the right to seek
independent professional advice at Incitec Pivot’s expense to
assist in carrying out their Board duties.
Director performance evaluations
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. Assessment of individual
directors’ performance and that of the Board is a process
determined by the Chairman and the Nominations 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.
Incitec Pivot Limited Annual Report 2013
30
Directors’ Report
Corporate Governance Statement
During 2012/13, the Board engaged an external consultant to
undertake a review of the Board’s effectiveness and also
undertook an internal review of the Board’s performance in
meeting its responsibilities under its Charter and the division of
responsibilities between the Board, its Committees and the
delegations to management. The outcomes of these reviews
will be included in the 2013/14 objectives for the Board and
will be implemented throughout the Company’s 2013/14
financial year. In addition, the Chairman also conducted one-on-
one interviews with each director. For Mr Marlay, who is retiring
by rotation and standing for re-election at the 2013 Annual
General Meeting, his performance was reviewed as part of his
nomination for re-election.
Director induction, training and continuous education
The Nominations 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, meeting
arrangements and director interaction.
Additionally, the Committee ensures that continuous education
measures are in place to enhance director competencies, keep
directors up to date with new developments and enhance
directors’ knowledge and skills. These measures are to include
having access to education concerning key developments in the
Company and in the industries in which the Company operates.
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/
Corporate_Governance, are:
• Incitec Pivot’s Code of Ethics – Compliance Policies and
Guide, which is a code of conduct for all employees. The
Code’s key principles require employees to comply with the
letter and spirit of the laws affecting Incitec Pivot’s business,
as well as the Company’s policies and codes; to act honestly
and with integrity, and to strive to earn and maintain the
respect and trust of co-employees, customers and the wider
community; to use Incitec Pivot’s resources, including
information systems, in an appropriate and responsible way;
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;
31
Incitec Pivot Limited Annual Report 2013
to avoid situations which involve or may involve a conflict
between their personal interests and the interests of Incitec
Pivot; to have due regard for cultural diversity in the
workplace; and to respect the environment and ensure that
work activities are managed in an acceptable manner so as
to give benefit to society.
• Incitec Pivot’s Code of Conduct for Directors and Senior
Management, which sets out additional ethical standards
for directors and senior management reporting to the
Managing Director & CEO.
• Incitec Pivot’s Health, Safety, Environment & Community
Policy, which sets out the Company’s commitment to 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.
Anti-bribery and corruption
As part of its commitment to operating to the highest standards
of ethical behaviour, Incitec Pivot has an Anti-Bribery and
Improper Payments Policy which prohibits the making of
unlawful or improper payments to any individual or entity. The
policy also outlines the processes for ensuring that appropriate
controls are implemented in relation to third parties who are
engaged to act on behalf of the Company. The Company has
implemented mandatory and regular compliance training for
relevant persons to ensure compliance with the Policy. The Anti-
Bribery and Improper Payments Policy forms part of, and is
supported by, the Fraud and Corruption Control Framework. Anti-
bribery and corruption compliance is monitored and reported
within Incitec Pivot’s key corporate governance structures,
including by the Board’s Audit and Risk Management Committee.
In addition, the Company has adopted a Sanctions Policy, which
outlines the expected standards of conduct relevant to the
Group’s compliance with Australian and international sanctions
laws when engaging in international trade. This includes
engagement in appropriate due diligence in relation to third
parties, transactions or activities that present a potential risk in
relation to sanctions laws compliance. As with the Anti-Bribery
and Improper Payments Policy, the Sanctions Policy is supported
by compliance training and is monitored and reported within the
Company’s key governance structures, including by the Board’s
Audit and Risk Management Committee. Summaries of the Anti-
Bribery and Improper Payments Policy and Sanctions Policy are
available on the corporate governance section of the Company’s
website, www.incitecpivot.com.au/Corporate_Governance.
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 are aware of the legal restrictions on trading in
securities while a person is in possession of inside information.
Under the policy, all persons to whom the policy applies 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 individuals (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, 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 her 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 the Company’s website,
www.incitecpivot.com.au/Corporate_Governance. 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 34, Key Management Personnel disclosures.
Diversity
Incitec Pivot’s commitment to diversity is key to its corporate
ambition of generating competitive returns for shareholders
through its strategy as a leading global chemicals company.
With operations spanning the globe, Incitec Pivot recognises
that a diverse and inclusive workforce will result in improved
organisational engagement which, in turn, will improve
corporate performance.
Diversity at Incitec Pivot is led by the Company’s Diversity
Council, which during the year ended 30 September 2013 was
chaired by the General Counsel and Company Secretary, and
includes senior managers from across the business, reporting to
the Managing Director & CEO. The Diversity Council’s remit is to
promote, influence and support the implementation of the
Company’s Diversity Policy and Strategy. The Board maintains
oversight and responsibility for the Diversity Policy and the
development and implementation by management of the
Diversity Strategy.
In 2012, the Company adopted a Diversity Policy, a copy
of which is available on the corporate governance section
of the Company’s website, www.incitecpivot.com.au/
Corporate_Governance. The Diversity Policy outlines the
Company’s Diversity Vision, which is to be an inclusive and
accessible organisation through the development of a culture
that embraces diversity.
The Diversity Policy included the following three diversity
principles which were established to provide guidance for the
Company’s Diversity Strategy and its relevant policies, programs
and initiatives:
• “Shaping our Future Organisation”,
• “Respecting our Differences”,
• “Building a Flexible Organisation”.
Report on Progress
In 2013, as was the case in 2012, the Company received
confirmation from the Workplace Gender Equality Agency
that it was compliant with the Workplace Gender Equality Act
2012 (Cth).
The following table shows the proportion of women employed
as at 30 September 2013 and 30 September 2012.
% of Women
30 September 2012
30 September 2013
Board
Executive
Management
Global
14.3%
12.5%
11.8%
13.6%
14.3%
12.5%
13.3%
15.0%
The Diversity Strategy recognises that the Company’s businesses
are at different stages with regards to diversity and face
different challenges in relation to their people strategies and,
as such, the Diversity Strategy is continuing to be implemented
in a phased approach.
Accordingly, during 2012 and 2013, the focus has been on
establishing foundations for Australia, as well as taking steps to
embed the diversity principles into the human resource strategy
and work force planning strategies, with the development of
key policies and practices, for example, incorporation of pay
analytics into the performance and pay review cycles, a flexible
leave policy and cultural capability programs. Each Australian
business and the Global Manufacturing function developed its
own diversity plan, recognising the challenges and opportunities
within the particular business or function. Dyno Nobel North
America completed its diversity diagnostic which is now
informing the development of its human resource strategy
for 2013/14.
Incitec Pivot Limited Annual Report 2013
32
Directors’ Report
Corporate Governance Statement
The objectives set in 2012 were linked to the three diversity
principles and the report on progress against the objectives is
made by reference to these principles:
Shaping our Future Organisation – the objective is to strengthen
the talent pipeline, in particular to increase the number of
women, with a focus on recruitment and talent development
activities. In 2012/13 the emphasis was placed on the
Australian business, with the approach to be expanded into US
and Canada in 2013/14.
Overall the percentage of women employed in the Group
increased to 15.0% (2012: 13.6%). Within the Australian based
employees, the percentage increased to 19.2% (2012: 17.9%).
In the Company’s Australian manufacturing operations, in the
2012/13 financial year the percentage of women employed
increased to 12.7% (2012: 10.7%). The focus on the talent
pipeline with regards to the graduate recruitment program led
to the 2013 Australian Manufacturing graduate program
commencing with 36% women participants, compared to none
in the 2012 program. Recruitment for the 2014 program has
seen a 52% increase in applications from women.
With regards to the Company’s Australian indigenous
employment program, an indigenous employment policy was
developed and cultural capability programs held across the
Australian operations and during 2013, the Company met its
commitment to the Australian Employment Covenant, recruiting
over 20 indigenous employees in its Australian operations.
Respecting our Differences – the objective is to ensure equity in
the Company’s pay practices, in particular to embed gender pay
analytics into remuneration and performance policies and
practices, with the 2012/13 focus on Australia. The Company
engaged Hay Group to undertake a detailed analysis of the pay
practices within Australia, to complement the initial diagnostic
undertaken in 2011/12. Consistent with the work undertaken
in 2011/12, the analysis indicated that there was gender pay
equity across the Australian operations, noting the practice in
the Group is to grade jobs using the Hay Grading system and
process. The findings were also relevant to inform the Group’s
diversity objective for 2013/14, to focus on recruitment and
talent development activities to increase the number of women
in senior management, in positions which attract higher pay. In
addition, as part of the annual performance review and pay
review processes, gender pay analytics have been included to
ensure ongoing monitoring on pay practices.
Building a Flexible Organisation – the objective is to increase
the number of women returning to work after family leave,
with a focus on parental leave and flexible work arrangements
and to establish effective tools to “keep in touch” while on
leave. In Australia, an online support service, the IPL Family
Program, was launched. This program is designed to assist
parents with children aged 0–18 years to achieve a work-life
balance and is a source of a range of information, including on
parenting, child-care and schooling. The IPL Family Program
incorporates the “Stay in Touch” Program, which is designed to
establish regular contact with expectant parents while at work,
as well as while on family leave.
Diversity in 2013/14
For 2013/14, in accordance with its vision to be an inclusive
and accessible organisation embracing diversity and its Diversity
Strategy, the Company will seek to continue to increase the
proportion of women employed in the Group, with the focus
expanded to the operations in North America following, as in
33
Incitec Pivot Limited Annual Report 2013
the prior year, the objectives set in 2012. In addition, in
Australia, the Group will seek to utilise its recruitment processes
to assist in identifying female candidates for available
management positions. The Company will also continue to build
employees’ understanding of the Company’s commitment to
providing equality of employment opportunities by training in
relevant policies and procedures.
The Diversity Council will report to the Board on progress made
against these objectives throughout the year, as well as more
broadly with regards to the Diversity Strategy.
Further details of the Company’s Diversity Policy are available
on the Company’s website, www.incitecpivot.com.au.
Principle 4: Safeguard integrity in
financial reporting
Audit and Risk Management Committee
The Audit and Risk Management Committee has a Charter
approved by the Board. The Committee assists the Board in its
review of financial reporting principles and policies, controls and
procedures, internal control and risk management and internal
audit. It also assists the Board in its review of the integrity and
reliability of the Company’s financial statements, the external
audit and the Company’s compliance with legal and regulatory
requirements.
The current members of the Audit and Risk Management
Committee are Anthony Larkin (Chairman), John Marlay and
Rebecca McGrath, 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 1 and 2.
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 2013 is set out on page 3.
The Chief Risk Officer, 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 Chief Risk Officer and the external auditors
without the presence of other members of management.
The primary objectives of the Audit and Risk Management
Committee, as set out in its Charter, are as follows:
Financial reporting
• review of reports and analyses – review management,
internal audit and external audit reports and analyses of
financial reporting issues;
• review of financial statements – review all audited financial
statements and all other financial information prior to
release through the ASX to shareholders and the financial
community;
• accounting policies – review the critical accounting policies
with external auditors and management; and
• Managing Director & CEO and Chief Financial Officer
certification – review the certification provided by the
Managing Director & CEO and the Chief Financial Officer on
annual and half-yearly reports.
Internal control and risk management
• risk management strategies – receive reports from
management, the internal audit function and the
external auditor concerning risk management principles and
policies, strategies, processes and controls and concerning
the processes for determining and monitoring material
business risks;
•
internal audit findings – receive summaries of significant
reports to management from the internal audit function,
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 audit function;
• risk reports and monitoring – receive reports from
• communication – review the level of open communication
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
• structure/resources – review and approve the structure of the
internal audit function and resources;
• appointment/replacement – in the event the internal audit
function is fully outsourced, 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, noting that while
internal audit is managed internally, the Committee evaluates
and approves the panel of external consultants to provide
internal audit services within the internal audit plan;
• assessment – evaluate the performance of the internal audit
function together with the financial incentives for personnel in
the internal audit function;
• scope of audit and plan – review and assess the scope of the
audit and the internal audit plan;
between the internal audit function, the external auditor and
the Board and any restrictions placed on the internal audit
function by management; and
• assessment – conduct an annual assessment of the
effectiveness of internal controls and financial reporting
procedures.
External auditor
The role of the external auditor is to provide an independent
opinion that the Company’s financial reports are true and fair
and comply with the applicable regulations.
Deloitte Touche Tohmatsu is the Company’s external auditor,
appointed at the 2011 Annual General Meeting.
The lead audit partner and review partner of the Company’s
external auditor rotate every five years.
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.
The lead audit partner or appropriate alternates will attend the
Annual General Meeting to be held on 19 December 2013.
Under the Corporations Act 2001 (Cth), shareholders have the
right to submit written questions on certain topics to the
auditor, and the auditor may table answers to such questions
at the Annual General Meeting.
Internal audit
The internal audit function is managed by the Chief Risk Officer
who oversees the execution of the internal audit plan as
approved by the Audit and Risk Management Committee.
Principle 5: Make timely and
balanced disclosure
The Company is subject to continuous disclosure obligations
under the ASX Listing Rules and Corporations Act 2001 (Cth).
Subject to some limited exceptions, under the continuous
disclosure requirements, the Company must immediately notify
the market, through ASX, of any information which a
reasonable person would expect to have a material effect on
the price or value of the Company’s shares.
To achieve these objectives and satisfy the regulatory
requirements, the Board has implemented a Continuous
Disclosure Policy. The Policy aims to ensure the proper and
timely disclosure of information to shareholders and the market
in several ways, including:
•
in annual reports and financial statements, releases of
results to ASX each half and full year, and at the Company’s
Annual General Meeting;
• releasing price sensitive announcements and other relevant
significant announcements directly to the market via ASX;
Incitec Pivot Limited Annual Report 2013
34
Directors’ Report
Corporate Governance Statement
• 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 Managing Director & CEO, the Chief
Financial Officer and the Company Secretary as the Continuous
Disclosure Officers. Their role includes providing announcements
to the ASX and ensuring that 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 the Company’s website,
www.incitecpivot.com.au/Corporate_Governance.
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 ASX.
The Shareholder Communications Policy is available on the
corporate governance section of the Company’s website,
www.incitecpivot.com.au/Corporate_Governance.
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).
35
Incitec Pivot Limited Annual Report 2013
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;
• annual budgeting and monthly reporting systems to monitor
performance;
• delegations of authority;
• policies and procedures for the authorisation of capital
expenditure;
• a compliance program supported by approved guidelines
and standards addressing health, safety and environment
matters, and regulatory compliance matters;
• compliance policies and programs covering anti-bribery,
improper payments, sanctions and anti-trust;
• 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;
• business continuity plans; and
• the internal audit function.
A summary of the Group Risk Policy is available on the
corporate governance section of Incitec Pivot’s website,
www.incitecpivot.com.au/Corporate_Governance.
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 Principle 4 on page 34. 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
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, South American,
Chinese, Indian, European or Australian economy may adversely
impact Incitec Pivot’s overall performance. This may influence
profitability and demand for fertilisers, industrial chemicals,
industrial explosives and related products and services.
Product price fluctuations could adversely affect Incitec Pivot’s
business and financial performance:
• fertilisers (e.g. urea) and certain industrial chemicals
•
(e.g. ammonia) are internationally traded commodities with
pricing based on international benchmarks and are affected
by global supply and demand forces;
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,
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.
Natural Gas
Gas is one of the major inputs required for the production of
ammonia and therefore is a critical feedstock for a number of
Incitec Pivot’s manufacturing operations.
Incitec Pivot uses gas to produce ammonia at a number of its
manufacturing facilities globally.
The cost of gas impacts the variable cost of production of
ammonia and can influence the plants’ overall competitive
position, particularly for fertiliser products (e.g. urea,
diammonium phosphates) given they are globally traded
commodities.
In Australia, there has been upward pressure on gas prices due
to an increase in:
• demand driven by the development of the Liquefied Natural
Gas (LNG) export market; and
• costs for new sources of gas supply.
For its Australian plants, Incitec Pivot has separate gas supply
contracts for each of its facilities at which ammonia is produced,
which progressively expire from the beginning of the 2015
financial year through to 2025. Given the current upward pressure
on gas prices, as the Company seeks sources of gas for the future,
gas prices could be higher, which would impact the cost of
operations at that specific facility.
In addition, there is a risk that a reliable, committed source of
gas may not be available to the Group for use at some facilities
following the expiry of current contractual arrangements.
In North America, the rapid expansion of shale gas reserves and
collection techniques has seen gas prices decrease from 2008 to
2013. Changes in the domestic supply/demand balance,
environmental legislation or introduction of taxes could impact
North American gas pricing into the future. This, in turn, could
impact Incitec Pivot’s cost of ammonia production at its facilities
in North America.
Sulphuric acid & Sulphur
Sulphuric acid is used in the production of ammonium
phosphate, granular sulphate of ammonia and single
superphosphate fertilisers. Incitec Pivot produces sulphuric acid
at its Mt Isa operations from a combination of processing
metallurgical gas sourced from Xstrata’s copper smelting facility
and from burning imported elemental sulphur. The Mt Isa acid
production is also supplemented with sulphuric acid purchased
directly from a domestic smelter to meet total sulphuric acid
requirements for the production of ammonium phosphates at
Phosphate Hill.
In May 2011, Xstrata publicly announced the planned closure of
its copper smelting operation at Mt Isa, Queensland by the end
of 2016. After the closure of the copper smelting operation, the
Group will no longer receive the free metallurgical gas from
Xstrata. Post the closure, the Mt Isa plant will produce sulphuric
acid only using elemental sulphur, resulting in the plant
producing a reduced volume of sulphuric acid. Alternative
sources of sulphuric acid to replace the shortfall arising from the
loss of metallurgical gas from Xstrata are likely to negatively
impact the cost of producing ammonium phosphates at
Southern Cross International’s (SCI) Phosphate Hill facility from
that date. The quantum of the impact will depend on the future
availability and price of sulphur and/or sulphuric acid.
In 2013, Glencore Group Plc completed its takeover of Xstrata.
The impact of the takeover on Xstrata’s operations at Mt Isa, if
any, is unclear. If Glencore Xstrata were to change the
previously announced closure date of the smelter to an earlier
date, that may negatively impact the results of the SCI business.
Conversely an extension beyond 2016 may improve the results.
The quantum of the impact of an earlier closure is uncertain
and would depend on the Group’s ability to successfully develop
alternative sources of sulphuric acid before closure of the copper
smelter (and cessation of metallurgical gas supply).
The Mt Isa site is a leased site and a lease contract is in place
with Xstrata to 2020. Accordingly, Incitec Pivot is able to
continue to produce sulphuric acid at Mt Isa using elemental
sulphur until 2020, notwithstanding cessation of the copper
smelter operation.
Sulphuric acid used for the production of single superphosphate
at Incitec Pivot’s operations at Geelong and Portland is sourced
from both domestic and international suppliers.
Sulphuric acid and sulphur are internationally traded
commodities with pricing based on international benchmarks
and, as such, 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. Fluctuations in either of these variables can
impact the cost of Incitec Pivot’s manufacturing operations.
Phosphate rock
Phosphate rock, used in the manufacture of both ammonium
phosphates and single superphosphate fertilisers, is a naturally
occurring mineral rock.
Incitec Pivot mines phosphate rock at its own facility at
Phosphate Hill which is used for the production of ammonium
phosphates at this same facility.
Phosphate rock used in the production of single superphosphate
at Incitec Pivot’s Geelong and Portland operations is sourced
from international suppliers.
Incitec Pivot Limited Annual Report 2013
36
Directors’ Report
Corporate Governance Statement
Phosphate rock is an internationally traded commodity with
pricing based on international benchmarks and is 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. Fluctuations in
either of these variables can impact the cost of Incitec Pivot’s
single superphosphate manufacturing operations.
Equipment failure/breakdown
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 particular, ramp up and operating issues at the Moranbah
complex as well as interruptions to gas supply have, in the
past, resulted in unplanned interruptions and adversely affected
Incitec Pivot’s financial performance, and any similar future
issues, including planned and unplanned outages, may have a
material impact on Incitec Pivot’s financial performance.
In addition, loss from such events may not be recoverable in
whole or in part under Incitec Pivot’s insurance policies.
Labour
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.
Weather
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.
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.
One of Incitec Pivot’s key strategic objectives is its continuous
improvement system, Business Excellence (BEx), which is
designed to drive increased efficiency in the Group’s assets and
improvements in manufacturing costs. Operational and other
difficulties in the implementation of BEx across Incitec Pivot’s
operations may result in delays to the full realisation of benefits
from BEx.
Construction risks – Louisiana Ammonia Plant
In April 2013, Incitec Pivot announced the construction of a
world scale ammonia plant in Louisiana, USA. This involves the
development of a large scale industrial chemical plant which,
during the construction phase, could be vulnerable to
unforeseen human error, energy or water disruptions, natural
disasters and acts of God, sabotage, terrorist attacks and other
events which may disrupt or delay the construction phase. In
addition, losses from such events may not be recoverable in
whole or in part under the construction contract or Incitec
Pivot’s insurance policies.
The construction of such a large scale chemical plant requires
skilled personnel drawn from a range of disciplines, trades and
vocations. A shortage in skilled labour or loss of key personnel
could also impact the construction phase of the Louisiana
ammonia plant.
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 related
services, which could potentially result in injury or incident to
employees, contractors, the public or the environment.
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 Incitec Pivot’s business, financial condition and
operations. This includes changes in domestic or international
laws relating to sanctions, bribery and improper payments. In
addition, changes in tax legislation, regulation or compliance
requirements in the jurisdictions in which Incitec Pivot operates,
or changes in the policy or practices of the relevant tax
authorities in such jurisdictions, may result in additional
compliance costs and/or increased risk of regulatory action.
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 Chief Risk Officer, 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.
The internal audit function 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. The internal audit function provides written reports
to the Committee on the effectiveness of the management of
risk and internal controls, and the Chief Risk Officer meets
regularly with the Committee without the presence of other
members of management.
37
Incitec Pivot Limited Annual Report 2013
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 2013
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.4 “Executive
remuneration” in the Remuneration Report on page 23.
The attendance of the members of the Remuneration
Committee at each meeting held during the financial year to
30 September 2013 is set out on page 3.
Signed on behalf of the Board.
Paul V Brasher
Chairman
Dated at Melbourne
this 11th day of November 2013
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 2013.
CEO and CFO Declaration and Assurance
In accordance with the ASX Recommendations, for the
financial year ended 30 September 2013, 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 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 30, the Remuneration 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/Corporate_
Governance. The members of the Committee are three
independent non-executive directors, being John Marlay
(Chairman), Allan McCallum and Graham Smorgon AM.
The ASX 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 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
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 ASX 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 15. 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 2013
38
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
DX: 111
Tel: +61 (0) 3 9671 7000
Fax: +61 (0) 3 9671 7001
www.deloitte.com.au
The Board of Directors
Incitec Pivot Limited
Level 8, 28 Freshwater Place
Southbank Victoria 3006
11 November 2013
Dear Board Members
Incitec Pivot Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following
declaration of independence to the directors of Incitec Pivot Limited.
As lead audit partner for the audit of the financial statements of Incitec Pivot Limited for the financial
year ended 30 September 2013, I declare that to the best of my knowledge and belief, there have been
no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
Tom Imbesi
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
39
Incitec Pivot Limited Annual Report 2013
Financial Report
Consolidated Statement of Profit or Loss and
Other 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 41 to 112
Audit Report
Shareholder Statistics
Five Year Financial Statistics
41
42
43
44
45
113
114
116
117
Incitec Pivot Limited Annual Report 2013
40
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the year ended 30 September 2013
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
Reversal of Moranbah unfavourable contract liability
Other expenses
Profit before income tax
Income tax benefit/(expense)
Profit for the financial year
Other comprehensive income, net of income tax
Items that will not be reclassified subsequently to profit or loss
Actuarial gains/(losses) on defined benefit plans
Gross fair value loss on assets at fair value through other comprehensive income
Income tax relating to items that will not be reclassified subsequently
Items that may be reclassified subsequently to profit or loss
Fair value (loss)/gain on hedging instruments entered into for cash flow hedges
Cash-flow hedge gains transferred to profit or loss statement
Exchange differences on translating foreign operations
Net (loss)/gain on hedge of net investment
Income tax relating to items that may be reclassified subsequently
Other comprehensive income/(expense) for the period, net of income tax
Notes
(4)
(4)
(5)
(5)
(16)
(8)
Consolidated
2013
$mill
2012
$mill
3,403.7
3,500.9
59.5
40.4
19.5
(97.1)
(1,610.2)
(1,506.5)
(584.2)
(183.7)
(89.3)
(161.2)
(132.9)
(224.2)
(62.1)
33.5
(50.9)
–
(61.0)
356.5
16.1
372.6
31.1
(2.0)
(10.9)
18.2
(12.4)
(25.8)
182.0
(160.5)
18.0
1.3
19.5
(543.3)
(155.8)
(66.6)
(167.4)
(109.4)
(237.8)
(65.3)
27.4
(104.2)
261.6
(65.2)
711.7
(203.7)
508.0
(16.5)
(7.5)
8.3
(15.7)
36.7
(22.5)
(40.3)
50.3
(14.9)
9.3
(6.4)
Total comprehensive income for the financial year
392.1
501.6
Profit attributable to:
Members of Incitec Pivot Limited
Non-controlling interest
Profit for the financial year
Total comprehensive income attributable to:
Members of Incitec Pivot Limited
Non-controlling interest
Total comprehensive income for the financial year
Earnings per share
Basic (cents per share)
Diluted (cents per share)
372.0
0.6
372.6
391.5
0.6
392.1
22.8
22.8
510.7
(2.7)
508.0
504.3
(2.7)
501.6
31.4
31.4
(9)
(9)
The Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the Notes to
the Consolidated Financial Statements set out on pages 45 to 112.
41
Incitec Pivot Limited Annual Report 2013
Consolidated Statement of Financial Position
As at 30 September 2013
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Assets classified as held for sale
Current tax assets
Total current assets
Non-current assets
Trade and other receivables
Other assets
Other financial assets
Investments accounted for using the equity method
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligation
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
2013
$mill
2012
$mill
270.6
364.7
435.6
61.9
5.6
0.6
36.2
154.1
372.9
403.7
57.4
32.2
0.2
–
1,175.2
1,020.5
8.2
4.4
117.1
299.1
3,033.5
2,961.0
85.3
6,508.6
7,683.8
979.3
33.5
39.6
108.4
–
24.2
17.7
49.5
292.8
2,738.5
2,845.2
25.0
5,992.9
7,013.4
817.5
125.7
14.8
122.8
11.4
1,160.8
1,092.2
7.0
17.1
1,620.6
1,315.3
114.3
77.5
413.4
70.4
2,303.2
3,464.0
4,219.8
3,265.9
(178.6)
1,129.6
2.9
–
74.5
371.3
111.6
1,889.8
2,982.0
4,031.4
3,265.9
(178.4)
941.6
2.3
4,219.8
4,031.4
The Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Consolidated Financial
Statements set out on pages 45 to 112.
Incitec Pivot Limited Annual Report 2013
42
Consolidated Statement of Cash Flows
For the year ended 30 September 2013
Notes
Consolidated
2013
$mill
2012
$mill
Inflows/
(outflows)
Inflows/
(outflows)
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
(28)
Cash flows from investing activities
Payments for property, plant and equipment and intangibles
Payments for purchase of investments
Proceeds from sale of property, plant and equipment
Amounts advanced from 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
Realised market value gains on interest rate 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
(27)
(10)
3,791.5
(3,069.2)
3,934.5
(3,218.0)
18.5
(89.4)
30.2
(67.1)
614.5
(452.2)
–
24.0
15.0
23.8
7.4
(41.3)
24.5
(86.3)
620.8
(626.6)
(35.1)
10.0
21.2
29.2
(389.4)
(601.3)
(117.5)
200.0
1.7
(203.6)
(119.4)
105.7
154.1
10.8
270.6
(63.6)
–
5.3
(187.3)
(245.6)
(226.1)
379.7
0.5
154.1
The Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Consolidated Financial
Statements set out on pages 45 to 112.
43
Incitec Pivot Limited Annual Report 2013
Consolidated Statement of Changes in Equity
For the year ended 30 September 2013
Consolidated
Issued
capital
$mill
Cash flow
hedging
reserve
$mill
Share
-based
payments
reserve
$mill
Foreign
currency
translation
reserve
$mill
Fair
value
reserve
$mill
Retained
earnings
$mill
Total
$mill
Minority
interest
$mill
Total
equity
$mill
Balance at 1 October 2011
3,265.9
(10.5)
11.9
(189.9)
(4.3)
628.6
3,701.7
5.0
3,706.7
Profit for the financial year
Total other comprehensive income/
(expense) for the period
Dividends paid
Share-based payment transactions
Net option expense
–
–
–
–
–
10.2
–
–
Balance at 30 September 2012
3,265.9
(0.3)
–
–
–
10.4
22.3
–
–
510.7
510.7
(2.7)
508.0
(0.9)
(5.3)
(10.4)
(6.4)
–
–
–
–
(187.3)
(187.3)
–
10.4
–
–
–
(6.4)
(187.3)
10.4
(190.8)
(9.6)
941.6
4,029.1
2.3
4,031.4
Balance at 1 October 2012
3,265.9
(0.3)
22.3
(190.8)
(9.6)
941.6
4,029.1
2.3
4,031.4
Profit for the financial year
Total other comprehensive income/
(expense) for the period
Dividends paid
Share-based payment transactions
Net option expense
–
–
–
–
–
(26.4)
–
–
–
–
–
(0.1)
–
–
372.0
372.0
0.6
372.6
27.7
(1.4)
19.6
19.5
–
–
–
–
(203.6)
(203.6)
–
(0.1)
–
–
–
19.5
(203.6)
(0.1)
Balance at 30 September 2013
3,265.9
(26.7)
22.2
(163.1)
(11.0)
1,129.6
4,216.9
2.9
4,219.8
The Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated Financial
Statements set out on pages 45 to 112.
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 2010/13, 2011/14 and 2012/15
Long Term Incentive Plans. The EPS portion of the Group’s LTI plan is written back when the plan hurdles/vesting conditions
are unlikely to be met in accordance with AASB 119 Employee Benefits.
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 Statement of Profit
or Loss and Other Comprehensive Income 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 percent outside equity interest in Quantum Fertilisers Limited, a Hong Kong based fertiliser marketing company.
Incitec Pivot Limited Annual Report 2013
44
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
Significant accounting policies
Critical accounting estimates and judgments
Segment report
Revenue and other income
Expenses
Individually material items
Auditor’s remuneration
Income tax expense
Earnings per share (EPS)
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Assets classified as held for sale
Investments accounted for using the equity method
Property, plant and equipment
Intangible assets
Deferred tax assets
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligations
Issued capital
Dividends
Reconciliation of profit after income tax to net cash inflow from operating activities
Commitments
Contingent liabilities
Financial risk management
Financial instruments
Related party disclosures
Key management personnel disclosures
Share based payments
Investments in controlled entities
Deed of cross guarantee
Parent entity disclosure
Events subsequent to reporting date
45
Incitec Pivot Limited Annual Report 2013
46
55
57
60
60
61
62
63
64
64
65
65
65
66
66
67
69
72
74
75
76
77
77
79
80
82
82
83
84
85
86
93
100
101
104
109
111
112
112
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies
Incitec Pivot Limited (‘the Company’, ‘IPL’ or ‘Incitec
Pivot’) is a company domiciled in Australia. The
consolidated financial statements were authorised for
issue by the directors on 11 November 2013.
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
(AASs) (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). For the purpose of preparing the consolidated
financial statements, the Company is a for-profit entity.
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 amortised 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 judgment 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 judgment or
complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements, are
disclosed in Note 2.
Application of new and revised Accounting Standards
The principal Australian Accounting Standards and
interpretations that became effective since 30 September
2012 are:
l AASB 2011-9 Amendments to Australian Accounting
Standards – Presentation of Items of Other
Comprehensive Income [AASB1, AASB5, AASB7,
AASB101, AASB112, AASB120, AASB121, AASB132,
AASB133 and AASB134].
l AASB 2010-8 Amendments to Australian Accounting
Standards – Deferred Tax: Recovery of Underlying
Assets.
The adoption of these standards did not have a
significant impact on the Group’s results in the current
and/or prior year. However, the application of AASB
2011-9 ‘Amendments to Australian Accounting Standards
– Presentation of Items of Other Comprehensive Income’
resulted in changes to the Group’s presentation of the
Consolidated Statement of Profit or Loss and Other
Comprehensive Income.
There are no other new and revised Australian
accounting standards and interpretations adopted in
these financial statements affecting the reported results
or financial position.
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:
l 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 and enhances disclosure
requirements for defined benefit plans. The amendments
will become mandatory for the Group’s 30 September
2014 consolidated financial statements. Based on the
Group’s current assessment, AASB 119 will have an
impact on IPL’s financial statements specifically in the
following areas:
– The defined benefit expense will no longer contain the
expected return on plan assets, instead this will be
replaced by net interest income or expense, calculated
using a discount rate (based on government bond
rates) applied to the net benefit asset or liability. Had
the Group adopted these amendments in the current
reporting period there would have been no material
impact to total comprehensive income for the current
period and the statement of financial position as at
30 September 2013;
– Presentation of the defined benefit cost will be
disaggregated into three components, service cost to be
presented in the Statement of Profit or Loss and Other
Comprehensive Income, net interest on the net defined
benefit asset or liability in the Statement of Profit or
Loss and Other Comprehensive Income as part of
finance costs and re-measurements to be presented in
other comprehensive income; and
– Additional disclosures about the characteristics and risks
arising from the Group’s defined benefit plans.
Incitec Pivot Limited Annual Report 2013
46
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(i) Basis of preparation (continued)
Issued Standards not early adopted (continued)
AASB 119 also changes the measurement methodology
for employee entitlements not expected to be settled in
less than 12 months of the Group’s balance date. Based
on the Group’s assessment the change in the
measurement methodology for employee entitlements
not expected to be settled within 12 months of the
Group’s balance date at 30 September 2013 will be
immaterial to the Group’s current year results.
l 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. AASB 10 will become mandatory
for the Group’s 30 September 2014 consolidated
financial statements. Based on the Group’s
assessments, it is anticipated that the revised
definition of control will have no significant impact to
IPL’s current accounting for investments held.
Investments currently accounted for as subsidiaries
would continue to meet the revised definition of
control and therefore continue to be consolidated in
the Group’s financial statements. Investments currently
accounted for as associates and joint ventures have
been assessed against the revised control definition
and there would be no changes in the accounting
treatment for these investments. Therefore, the Group
will continue to equity account for these investments.
l AASB 11: Joint Arrangements reduces the ‘types’ of
joint arrangements from three to two and eliminates
the option to apply proportionate consolidation. The
amendments will become mandatory for the Group’s
30 September 2014 consolidated financial statements.
Based on the Group’s current assessments, the revised
definition of joint arrangements will have no impact
on IPL’s current joint arrangement classifications. The
assessment of IPL’s jointly controlled entities shows
there are no jointly controlled entities that give IPL
direct rights over assets or obligations to settle
liabilities, such that they should be classified as joint
operations. Therefore, all of these jointly controlled
entities would be classified as joint ventures and given
that IPL’s current accounting policy for jointly
controlled entities is to use the equity accounting
method, these joint ventures will remain equity
accounted for under AASB 11. Overall, the Group
expect no impact on the measurement of any of IPL’s
existing joint arrangements.
l AASB 12: Disclosure of Interests in Other Entities
requires more extensive qualitative disclosures around
judgment 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 will
become mandatory for the Group’s 30 September
2014 consolidated financial statements. Based on the
Group’s current assessment, it is expected that
additional disclosures will be required as a result of
AASB 12.
47
Incitec Pivot Limited Annual Report 2013
l 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 will become mandatory for the
Group’s 30 September 2014 consolidated financial
statements. Based on the Group’s current assessment
it is expected that additional disclosures will be
required as a result of AASB 13. Had the group early
adopted AASB 13 in the current reporting period, there
would be no material impact to the current year
results or the financial position at 30 September 2013.
l AASB 127: Separate Financial Statements (2011)
requires that when an entity prepares separate
financial statements, investments in subsidiaries,
associates and joint ventures are accounted for either
at cost, or in accordance with AASB 9 ‘Financial
Instruments’. The amendments will become
mandatory for the Group’s 30 September 2014
consolidated financial statements. The Group has
assessed that there will be no impact to its financial
statements as a result of this standard.
l AASB 128: Investments in Associates and Joint
Ventures (2011) prescribes the accounting for
investments in associates and sets out the
requirements for the application of the equity method
when accounting for investments in associates and
joint ventures. The amendments will become
mandatory for the Group’s 30 September 2014
consolidated financial statements. The Group has
assessed that there will be no impact to its financial
statements as a result of this standard.
l AASB 2011-4 Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirements: Key management
personnel disclosures will be included in the
remuneration report, but will not be required in the
financial statements, only when AASB 2011-4 is
adopted for the 30 September 2014 year-end. Early
adoption is not permitted.
l AASB 9 Financial Instruments (December 2010),
AASB 2010-7 Amendments to Australian Accounting
Standards arising from AASB 9 (December 2010),
AASB 2012-6 Amendments to Australian Accounting
Standards – Mandatory Effective Date of AASB 9 and
Transition Disclosures. The revised version of AASB 9
incorporates revised requirements for the classification
and measurement of financial liabilities, and carrying
over of the existing derecognition requirements from
AASB 139 Financial Instruments: Recognition and
Measurement. First application date for the Group, if not
early adopted, is the financial year ended 30 September
2016. The Group is currently in the process of evaluating
the impact of this Standard.
(ii) Consolidation
(a) Subsidiaries
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of Incitec Pivot
Limited as at 30 September 2013 and the results of all
subsidiaries for the year then ended.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(ii) Consolidation (continued)
(a) Subsidiaries (continued)
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 are recognised when the Group acts in the
capacity of an agent rather than as the principal in a
transaction and therefore 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
Statement of Profit or Loss and Other Comprehensive
Income 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 12 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 fair value of shares (treated as options) and rights,
granted to employees, at the grant date, 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 re-measured 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 Statement of Profit or Loss
and Other Comprehensive Income.
(vi) Taxation
Income tax expense comprises current and deferred tax
and is recognised in the profit or loss component of the
Consolidated Statement of Profit or Loss and Other
Comprehensive Income 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.
Incitec Pivot Limited Annual Report 2013
48
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(vi) Taxation (continued)
Deferred tax is recognised using the balance sheet
method in which temporary differences are calculated
based on the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used
for taxation purposes. Deferred tax is not recognised for
the following temporary differences: the initial
recognition of goodwill; the initial recognition of assets
or liabilities in a transaction that is not a business
combination and that affects neither accounting nor
taxable profit; and differences relating to investments in
subsidiaries to the extent that it is probable that they
will not reverse in the foreseeable future.
Deferred tax is measured at the tax rates that are
expected to be applied when the temporary difference
reverses, that is, when the asset is realised or the
liability is settled, based on the laws that have been
enacted or substantively enacted at the reporting date.
Deferred tax assets are recognised 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. High turnover engineering spares are
held in inventory and expensed when used.
(viii) Trade and other receivables
Trade and other receivables are recognised at their
amortised 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 Statement of Profit or Loss and Other
Comprehensive Income within other expenses. When a
trade receivable for which an impairment allowance has
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
Statement of Profit or Loss and Other Comprehensive
Income.
Where substantially all risks and rewards relating to
receivables have been transferred to a financial
institution, the receivable is de-recognised. Where this
has not occurred, the receivable and the equivalent
interest bearing liability have been recognised in the
Consolidated Statement of Financial Position.
(ix) Other financial assets
Financial assets are recognised and 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.
Investments in equity securities are designated as “fair
value through other comprehensive income”, with 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 Profit or Loss and Other
Comprehensive Income.
Dividend income is recognised as income in the profit
and loss component of the Consolidated Statement of
Profit or Loss and Other Comprehensive Income.
(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.
49
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(x) Assets (or disposal groups) held for sale
(continued)
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 de-recognition.
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.
(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:
l Buildings and improvements
l Machinery, plant and equipment
20 – 40 years
3 – 40 years
The assets’ residual values and useful lives are reviewed
when there are changes in circumstances, 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 Statement of
Profit or Loss and Other Comprehensive Income.
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 Statement of Profit or Loss and Other
Comprehensive Income 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
Statement of Profit or Loss and Other Comprehensive
Income 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 Statement of Profit or Loss and Other
Comprehensive Income 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 Statement of
Profit or Loss and Other Comprehensive Income 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.
Incitec Pivot Limited Annual Report 2013
50
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(xiii) Intangible assets (continued)
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:
l Software
l Product trademarks
l Patents
l Customer contracts
3 – 7 years
4 – 10 years
13 – 15 years
1 – 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, then the difference is recognised directly in the
Consolidated Statement of Profit or Loss and Other
Comprehensive Income, but only after a reassessment of
the identification and measurement of the net assets
acquired.
Where settlement of any part of cash consideration is
deferred the amounts payable in the future are
discounted to their present value as at the date of
exchange. The discount rate used is the entity’s
incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an
independent financier under comparable terms and
conditions. When control is obtained in successive share
purchases each significant transaction is accounted for
separately and the identifiable assets, liabilities and
contingent liabilities acquired are stated at fair value
when control is obtained.
(xv) Segment reporting
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
51
Incitec Pivot Limited Annual Report 2013
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 Statement of Profit or
Loss and Other Comprehensive Income 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. In the event
that the liabilties are derecognised, any resulting gains
and losses are recognised in the Consolidated Statement
of Profit or Loss and Other Comprehensive Income.
(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 recognised in the
Consolidated Statement of Profit or Loss and Other
Comprehensive Income as soon as the need is identified
and a reliable estimate of the liability is able to be
made.
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.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(xvii) Provisions (continued)
(a) Environmental (continued)
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 is 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 re-measured 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 Statement of Profit or Loss and Other
Comprehensive Income.
(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
considered non-current, 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.
Long term incentive plans
Equity-settled share based payments to employees are
measured at the fair value of the equity instruments at
the grant date. The fair value determined at grant date
of the equity settled share based payments is expensed
on a straight-line basis over the vesting period, based on
the Group’s estimate of equity instruments that will
eventually vest, with a corresponding increase in equity.
In respect of service and non-market vesting conditions,
at the end of each reporting period, the Group revises its
estimate of the number of equity instruments expected
to vest. The impact of the revision of the original
estimates, if any, is recognised in profit or loss such that
the cumulative expense reflects the revised estimate,
with a corresponding adjustment to the share based
payments reserve. Details regarding the determination of
the fair value of the equity-settled share based
transactions are set out in Note 35.
For cash-settled share based payments, a liability is
recognised for services provided by employees,
measured initially at the fair value of the liability. At the
end of each reporting period until the liability is settled,
and at the date of settlement, the fair value of the
liability is re-measured, with any changes in fair value
recognised in profit or loss for the year.
(e) Retirement benefit obligation
Contributions to defined contribution superannuation
funds are charged to the Consolidated Statement of Profit
or Loss and Other Comprehensive Income 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 profit
and loss component of the Consolidated Statement of Profit
or Loss and Other Comprehensive Income 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.
(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 has either
commenced or been publicly announced, or firm
contracts related to the restructuring or termination
benefits have been entered into. Costs related to ongoing
activities are not provided for.
Incitec Pivot Limited Annual Report 2013
52
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(xvii) Provisions (continued)
(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 then a liability is recognised as part of accounting
for the business combination.
(xix) Foreign currency transactions
(a) Functional and presentation currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity
operates (“the functional currency”).
The results and financial position of the Group are
expressed in Australian dollars which is the functional
currency of the Company and the presentation currency
for the consolidated financial statements.
(b) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing
at the relevant date of the particular transaction. 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
the Consolidated Statement of Profit or Loss and Other
Comprehensive Income, 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
re-translated.
(c) 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. Exchange differences arising, if any, are
recognised in the foreign currency translation reserve,
and recognised in the Consolidated Statement of Profit or
53
Incitec Pivot Limited Annual Report 2013
Loss and Other Comprehensive Income 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 other than forward sales and purchase physical
agreements.
Derivative financial instruments (which include physical
contracts to sell or purchase commodities that do not
meet the own use exemption) are recognised initially at
fair value. Subsequent to initial recognition derivative
financial instruments are stated at fair value.
The gain or loss on re-measurement to fair value is
recognised immediately in the profit and loss component
of the Consolidated Statement of Profit or Loss and Other
Comprehensive Income. However, where derivatives
qualify for hedge accounting, the gain or loss is transferred
to the cash flow hedging reserve, the foreign currency
translation reserve or through the Consolidated Statement
of Profit or Loss and Other Comprehensive Income.
(a) 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
in actuality they have been highly effective throughout
the financial reporting periods for which they are
designated.
(b) Cash flow hedges
Changes in fair value of derivative hedging instruments
designated as cash flow hedges are recognised directly
in equity to the extent that the particular hedge is
effective. To the extent that the hedge is ineffective,
changes in fair value are recognised in the profit and loss
component of the Consolidated Statement of Profit or
Loss and Other Comprehensive Income.
Amounts accumulated in equity are recycled in the profit
and loss component of the Consolidated Statement of
Profit or Loss and Other Comprehensive Income 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.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(xx) Derivative financial instruments
(continued)
(b) Cash flow hedges (continued)
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 Statement of Profit or Loss and Other
Comprehensive Income.
(c) 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 to 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
profit and loss component of the Consolidated Statement
of Profit or Loss and Other Comprehensive Income. On
disposal of the foreign operation, the cumulative value of
such gains or losses recognised directly to equity is
transferred to the profit and loss component of the
Consolidated Statement of Profit or Loss and Other
Comprehensive Income based on the amount calculated
using the direct method of consolidation.
(d) Fair value hedges
Changes in the fair value of derivatives that are designated
and qualify as fair value hedges are recognised in profit or
loss immediately, together with any changes in the fair
value of the hedged asset or liability that are attributable to
the hedged risk. The change in the fair value of the
hedging instrument and the change in the hedged item
attributable to the hedged risk are recognised in the line of
the profit and loss component of the Consolidated
Statement of Profit or Loss and Other Comprehensive
Income relating to the hedged item.
Hedge accounting is discontinued when the Group revokes
the hedging relationship, when the hedging instrument
expires or is sold, terminated, or exercised, or when it no
longer qualifies for hedge accounting. The fair value
adjustment to the carrying amount of the hedged item
arising from the hedged risk is amortised to profit or loss
from that date.
(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.
(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 re-acquires
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 Statement of Profit or Loss
and Other Comprehensive Income 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 and the appropriate quoted
market price for financial liabilities is the current ask
price. 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.
Incitec Pivot Limited Annual Report 2013
54
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
1. Significant accounting policies (continued)
(xxiv) Impairment of assets (continued)
In calculating the recoverable amount, the estimated
future cash flows are discounted to their present values
using a pre-tax discount rate that reflects the current
market assessments of the risks specific to the asset or
cash generating unit.
Cash flows are estimated for the asset in its present
condition and therefore do not include cash inflows or
outflows that improve or enhance the 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 profit and loss
component of the Consolidated Statement of Profit or
Loss and Other Comprehensive Income.
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) Accounting for the carbon pricing
mechanism
The Group accounts for carbon emission units (carbon
permits) under the Australian carbon pricing mechanism
as follows:
l Purchased carbon permits are accounted for as
intangible assets in accordance with AASB 138
Intangible Assets. Accordingly the permits are carried
at cost unless an active market for the permits exists,
in which case these could be carried at fair value. The
fair value movements are recorded within an asset
revaluation reserve within equity.
l Carbon permits under the Jobs and Competitiveness
Program are accounted for as intangible assets acquired
by way of a government grant when the permits are
received from the government. In accordance with AASB
120 Accounting for Government Grants and Disclosure of
Government Assistance, both the permits and the grant
are initially recognised at fair value. The grant is initially
recorded as deferred revenue by the entity and will be
recognised in the Consolidated Statement of Profit or
Loss and Other Comprehensive Income on a systematic
basis over the periods in which the entity recognises
the emissions expense.
Carbon emission liabilities are recognised when the
emissions are generated, and are measured at the present
value of carbon permits needed to extinguish the liability.
Carbon expense and deferred income from free carbon
permits are recorded as part of the cost of inventory.
Carbon permit assets and carbon emission liabilities are
disclosed on a gross basis in the consolidated statement
of financial position.
(xxvii) Rounding of amounts
The Group is of a kind referred to in Class order 98/0100
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.
2. Critical accounting estimates and
judgments
Estimates and judgments 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 referred to below.
Management believes the following are the critical
accounting policies and estimates used in the preparation
of the consolidated financial statements:
l the testing for impairment of assets;
l the testing for impairment of goodwill;
l income tax related assumptions and estimates;
l provision for environmental, asset retirement
obligation and restructuring liabilities;
l the calculation of annual superannuation and pension
costs and related assets and liabilities; and
l employee entitlements.
(i) Impairment of assets
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.
55
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
2. Critical accounting estimates and
judgments (continued)
(i) Impairment of assets (continued)
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 judgments concerning the
identification of impairment indicators, earnings before
interest and tax, growth rates, applicable discount rates,
useful lives and residual or terminal values.
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,
changes in the cost of capital, current replacement costs,
changes in the cost of inputs and other factors. 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 judgments
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, restructuring and
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 profit
and loss component of the Consolidated Statement of
Profit or Loss and Other Comprehensive Income in the
period in which such determination is made. Refer Note 1
(xvii) (a) & Note 1 (xvii) (g) to the consolidated financial
statements for further details of the accounting policy
relating to environmental and restructuring provisions.
Also refer to Notes 5 and 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) (e) 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:
l discount rate;
l future rate of inflation;
l expected return on plan assets; and
l future salary increases.
(vi) Employee entitlements
The determination of the provisions required for
employee entitlements is dependent on a number of
assumptions including expected wage increases, length
of employee service and bond rates. Refer to Note 1
(xvii) (d) to the consolidated financial statements for
further details of the accounting policy relating to
employee entitlements. Also refer to Note 23 for
amounts recognised for employee entitlements.
Incitec Pivot Limited Annual Report 2013
56
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
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 at least
on a monthly basis. The Executive Team does not monitor assets and liabilities at a segment level and these do not form
part of the segment report.
(b) Description of operating segments
Fertilisers
Incitec Pivot Fertilisers (IPF): manufactures and distributes fertilisers in Eastern Australia. The products that IPF
manufactures include Urea, Ammonia and Single Super Phosphate. 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 percent 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.
57
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
3. Segment report (continued)
(d) Reportable segments
30 September 2013
IPF
$mill
SCI
$mill
Elim
$mill
Total
Fertilisers
$mill
DNAP
$mill
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Corp/
Group
Elim
$mill
Consolidated
Group
$mill
Sales to external customers
1,095.4
562.9
(192.9) 1,465.4
781.5 1,204.0
(28.9) 1,956.6
(18.3)
3,403.7
–
–
–
–
18.8
14.7
–
33.5
–
33.5
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
130.6
97.5
3.0
231.1
187.2 262.0
(1.1)
448.1
(29.3)
Depreciation and amortisation
(34.2)
(27.2)
–
(61.4)
(37.8)
(82.6)
–
(120.4)
(1.9)
96.4
70.3
3.0
169.7
149.4 179.4
(1.1)
327.7
(31.2)
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
(net of tax)
Profit after tax
649.9
(183.7)
466.2
(68.2)
(99.0)
299.0
(0.6)
73.6
372.0
30 September 2012
IPF
$mill
SCI
$mill
Elim
$mill
Total
Fertilisers
$mill
DNAP
$mill
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Corp/
Group
Elim
$mill
Consolidated
Group
$mill
Sales to external customers
1,159.1
731.9
(160.3) 1,730.7
626.4 1,172.2
(28.4)
1,770.2
–
3,500.9
–
–
–
–
12.7
14.7
–
27.4
–
27.4
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
124.1
203.6
3.3
331.0
232.6
263.2
(2.0)
493.8
(69.9)
Depreciation and amortisation
(31.8)
(28.3)
–
(60.1)
(21.3)
(72.6)
–
(93.9)
(1.8)
92.3
175.3
3.3
270.9
211.3
190.6
(2.0)
399.9
(71.7)
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
(net of tax)
Profit after tax
754.9
(155.8)
599.1
(55.5)
(141.6)
402.0
2.7
106.0
510.7
Incitec Pivot Limited Annual Report 2013
58
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
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 2013
Australia
$mill
USA
$mill
Canada
$mill
Turkey
$mill
Other/Elim
$mill
Consolidated
$mill
Revenue from external customers
2,189.5
809.5
254.6
80.9
69.2
3,403.7
Non-current assets other than
financial instruments and
deferred tax assets
3,739.0
2,356.1
64.2
46.1
102.3
6,307.7
30 September 2012
Australia
$mill
USA
$mill
Canada
$mill
Revenue from external customers
2,316.3
803.9
226.9
Turkey
$mill
78.1
Other/Elim
$mill
Consolidated
$mill
75.7
3,500.9
Non-current assets other than
financial instruments and
deferred tax assets
3,659.0
2,016.5
58.4
88.4
99.7
5,922.0
59
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
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
Settlement and curtailment of defined benefit plans
Other income
Total other income
Total financial and other income
5.
Expenses
Profit before income tax includes the following specific expenses:
Depreciation and amortisation
depreciation
amortisation
Recoverable amount write-down
property, plant and equipment
intangible assets
Amounts set aside to provide for
impairment loss on trade and other receivables
employee entitlements
environmental liabilities
inventory losses and obsolescence
other provisions
restructuring
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
Loss/(gain) on interest rate swaps designated as fair value hedges
(Gain)/loss on adjustment to debt attributable to the hedged risk
in a fair value hedge relationship
Interest expenses on financial liabilities with jointly controlled entities
Total financial expenses
Consolidated
2013
$mill
2012
$mill
Notes
3,403.7
3,403.7
3,500.9
3,500.9
20.4
0.7
21.1
4.2
22.7
2.0
5.6
3.9
38.4
59.5
9.7
1.4
11.1
–
21.5
4.8
–
3.0
29.3
40.4
157.7
26.0
183.7
131.5
24.3
155.8
3.0
41.5
44.5
6.2
7.5
0.4
0.8
1.1
4.3
–
10.5
16.3
2.4
6.4
82.7
20.8
(20.8)
0.2
89.3
6.5
35.7
42.2
1.5
7.7
61.7
1.5
4.1
1.9
0.9
9.0
11.8
5.9
25.3
41.1
(11.0)
11.0
0.2
66.6
(33)
(33)
(28)
(25)
(17)
(18)
(28)
(17),(28)
(18),(28)
(23)
(23)
(23)
(25)
(28)
(33)
Incitec Pivot Limited Annual Report 2013
60
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
2013
2012
Consolidated
Notes
Gross
$mill
Tax
$mill
Net
$mill
Gross
$mill
Tax
$mill
Net
$mill
6.
Individually material items
Profit includes the following revenues/(expenses)
whose disclosure is relevant in explaining the financial
performance of the Group:
Environmental costs at various sites (1)
Reversal of Moranbah unfavourable contract liability (2)
Impairment of intangible assets (3),(4)
Tax adjustment (5)
–
–
(41.5)
–
Total individually material items
(9)
(41.5)
–
–
–
115.1
115.1
–
–
(41.5)
115.1
(58.5)
261.6
(35.0)
–
16.4
(78.5)
–
–
(42.1)
183.1
(35.0)
–
73.6
168.1
(62.1)
106.0
(1) Environmental costs associated with ground water remediation and soil treatment at the Cockle Creek (NSW), Wallaroo (SA) and Maitland (USA) sites.
(2) Reversal of the Moranbah unfavourable contract liability of $183.1m (net of tax). The commencement of production of ammonium nitrate (“AN”) at
the Moranbah plant in the last quarter of the 2012 financial year replaced the requirement to import AN to service the foundation customer contracts,
therefore removing the obligation to carry the liability for future years.
(3) Impairment write-down at 30 September 2012 relating to goodwill recognised on the acquisition of Nitromak DNX Kimya Sanayi A.S. (Nitromak).
(4) A further impairment of Nitromak’s goodwill of $41.5m was recognised in 2013 to reflect lower European forecasts and the impact of additional
competition in the Turkish explosives market.
(5) Relates to the reversal of a contingent tax liability (as the obligation to carry the liability no longer exists) that was recognised on the acquisition of
Dyno Nobel Limited, as well as an adjustment to the tax base of Australian plant and equipment as a result of the conclusion of certain reviews
under-taken by tax authorities.
61
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
7. Auditor’s remuneration
Fees payable to the Group's auditor for assurance services
Audit of the Group's annual report (1)
Audit of subsidiaries (2)
Audit-related assurance services (3)
Total current year assurance services
Assurance services related to subsidiary audits of prior periods (4)
Total assurance services
Fees payable to the Group’s auditor for other services
Other services relating to taxation (5)
Other services relating to debt issuance
All other services (6)
Total other services
Total fees paid to Group auditor
– Payable to Australian Group auditor firm
– Payable to International Group auditor associates
Consolidated
2013
$000
2012
$000
957.0
525.2
175.0
1,657.2
95.5
1,752.7
86.4
45.0
–
131.4
914.9
546.5
180.0
1,641.4
105.5
1,746.9
86.1
–
84.4
170.5
1,884.1
1,917.4
1,635.1
249.0
1,672.9
244.5
From time to time, the auditors provide other services to the Group, which are subject to strict corporate governance
procedures adopted by the Group which encompass the selection of service providers and the setting of their
remuneration. The Board Audit and Risk Management Committee must approve individual non audit engagements
provided by the Group’s auditor above a value of $100,000, as well as where the aggregate amount exceeds $250,000
per annum.
(1) Comprises the fee payable to the Group’s auditors for the audit of the Group’s financial statements.
(2) Comprises the audits of the Group’s subsidiaries.
(3) Mainly comprises review of half year reports.
(4) Comprises audits of standalone financial statements for subsidiaries related to prior years.
(5) Comprises taxation compliance procedures for the Group’s subsidiaries.
(6) Comprises non-statutory based assurance procedures.
Incitec Pivot Limited Annual Report 2013
62
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
8.
Income tax expense
(a) Income tax expense
Current tax
Current year
Under/(over) provision in prior years
Deferred tax
Origination and reversal of temporary differences
Total income tax (benefit)/expense
Consolidated
2013
$mill
2012
$mill
Notes
28.3
(1.2)
27.1
(43.2)
(16.1)
40.2
5.7
45.9
157.8
203.7
(b) Reconciliation of income tax expense and pre-tax accounting profit
Profit before income tax
356.5
711.7
Income tax expense attributable to profit before income tax
Tax at the Australian tax rate of 30% (2012 at 30%) on profit before income tax
106.9
213.5
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Research and development incentive
Participation facility
Impairment of intangible assets
Tax adjustment
Sundry items
Difference in overseas tax rates
Under/(over) provision in prior years
Income tax (benefit)/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 – (charged)/debited directly to equity
–
(8.0)
12.4
(6)
(115.1)
(11.2)
(15.0)
0.1
(1.2)
(16.1)
(2.5)
(14.5)
10.5
–
(12.1)
194.9
3.1
5.7
203.7
(7.1)
(7.1)
6.6
6.6
63
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
9.
Earnings per share (EPS)
Basic earnings per share
including individually material items
excluding individually material items
Diluted earnings per share (1)
including individually material items
excluding individually material items
2013
Cents
per share
Consolidated
2012
Cents
per share
Notes
22.8
18.3
22.8
18.3
31.4
24.8
31.4
24.8
Number
Number
Weighted average number of ordinary shares used
in the calculation of basic and diluted earnings per share (2)
(26)
1,628,730,107 1,628,730,107
(1) The total number of rights on issue (refer Note 35) are not dilutive to IPL’s earnings per share.
(2) No shares were issued during the year ended 30 September 2013 (2012: nil), 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
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
2012
$mill
510.7
510.7
(106.0)
404.7
77.4
76.7
154.1
2013
$mill
372.0
372.0
(73.6)
298.4
71.2
199.4
270.6
(6)
(28),(32)
Incitec Pivot Limited Annual Report 2013
64
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
Consolidated
2013
$mill
2012
$mill
Notes
(33)
(32)
(32)
(33)
(32)
(32)
(32)
306.0
38.0
(12.7)
331.3
28.2
5.2
33.4
364.7
0.1
8.1
8.2
87.1
58.6
296.9
(7.0)
289.9
435.6
32.8
29.1
61.9
0.4
4.0
4.4
348.1
17.5
(8.5)
357.1
7.6
8.2
15.8
372.9
2.7
21.5
24.2
74.7
44.5
292.7
(8.2)
284.5
403.7
28.0
29.4
57.4
0.4
17.3
17.7
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
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
65
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
14. Other financial assets
Current
Derivatives designated and effective as hedging instruments carried at fair value
option contracts
forward exchange contracts
cross currency swaps
Non-current
Financial assets carried at fair value through Other Comprehensive Income
investments – equity instruments
Derivatives designated and effective as hedging instruments carried at fair value
interest rate swaps
forward exchange contracts
cross currency swaps
Notes
(32)
(32)
(32)
(32)
(32)
(32)
(32)
Consolidated
2013
$mill
2012
$mill
–
5.6
–
5.6
1.5
35.2
8.0
72.4
117.1
9.6
7.2
15.4
32.2
3.6
45.4
–
0.5
49.5
See note 32(h) for further details of interest rate and foreign exchange rate exposures that are hedged by the Group.
15. Assets classified as held for sale
Land and buildings held for sale
0.6
0.6
0.2
0.2
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 2013
66
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
16. Investments accounted for using the equity method
Name of entity
Principal activity
Ownership
interest
Country of
incorporation
September
2013
September
2012
Jointly controlled entities
Alpha Dyno Nobel Inc
Boren Explosives Co., Inc.
Buckley Powder Co. (1)
IRECO Midwest Inc.
Wampum Hardware Co.
Midland Powder Company
Delivery of explosives and related products
Delivery of explosives and related products
Delivery of explosives and related products
Delivery of explosives and related products
Delivery of explosives and related products
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.
Quantum Explosives Inc.
Dene Dyno Nobel Inc.
Qaaqtuq Dyno Nobel Inc. (2)
Delivery of explosives and related products
Inactive
Delivery of explosives and related products
Delivery of explosives and related products
Denesoline Western Explosives Inc. (3)
Delivery of explosives and related products
Queensland Nitrates Pty Ltd (4)
Production of ammonium nitrate
Queensland Nitrates Management Pty (4)
Management services
DetNet International Limited
DetNet South Africa (Pty) Ltd
Distribution of electronic detonators
Development, manufacture and supply of
electronic detonators
DNEX Mexico, S. De R.L. de C.V.
Mexican investment holding company
Explosivos De La Region Lagunera, S.A. de C.V.
Distribution of explosives and related products
Explosivos De La Region, Central, S.A. de C.V.
Distribution of explosives and related products
Nitro Explosivos de Ciudad Guzman, S.A. de C.V.
Distribution of explosives and related products
Explosivos Y Servicios Para La Construccion, S.A. de C.V. Distribution of explosives and related products
Tenaga Kimia Ensign-Bickford Sdn Bhd
Manufacture of explosive accessories
Sasol Dyno Nobel (Pty) Ltd (4)
Distribution of detonators
Associates
Labrador Maskuau Ashini Ltd
Delivery of explosives and related products
Fabchem China Ltd (5)
Valley Hydraulics Inc.
Manufacture of commercial explosives
Delivery of explosives and related products
Apex Construction Specialities Inc.
Delivery of explosives and related products
Innu Namesu Ltd
Warex Corporation
Warex LLC
Delivery of explosives and related products
Delivery of explosives and related products
Delivery of explosives and related products
Maine Drilling and Blasting Group
Drilling and blasting
Independent Explosives
Delivery of explosives and related products
50%
50%
51%
50%
50%
50%
50%
50%
50%
50%
50%
50%
49%
49%
49%
50%
50%
50%
50%
49%
49%
49%
49%
49%
50%
50%
25%
30%
25%
25%
25%
25%
25%
49%
49%
50%
50%
51%
50%
50%
50%
50%
50%
50%
50%
50%
50%
49%
49%
49%
50%
50%
50%
50%
49%
49%
49%
49%
49%
50%
50%
25%
30%
25%
25%
25%
25%
25%
49%
49%
USA
USA
USA
USA
USA
USA
USA
USA
USA
Canada
Canada
Canada
Canada
Canada
Canada
Australia
Australia
Ireland
South Africa
Mexico
Mexico
Mexico
Mexico
Mexico
Malaysia
South Africa
Canada
Singapore
Canada
Canada
Canada
USA
USA
USA
USA
(1) Due to the contractual and decision making arrangement between the shareholders of the entities, despite the legal ownership exceeding 50 percent,
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 percent of the shares in Qaaqtuq Dyno Nobel
Inc. However, under the joint venture agreement, the Group is entitled to 75 percent 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 percent of the shares in Denesoline Western
Explosives Inc. However, under the joint venture agreement, the Group is entitled to 95 percent of the profit of Denesoline Western Explosives Inc.
(4) These jointly controlled entities have a 30 June financial year end. For the purpose of applying the equity method of accounting, the unaudited
financial information through to 30 September 2013 has been used.
(5) Fabchem China Ltd has a 31 March financial year end. For the purpose of applying the equity method of accounting, the unaudited financial
information through to 30 September 2013 has been used.
67
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
16. Investments accounted for using the equity method (continued)
Summarised financial information of jointly controlled entities and associates:
Notes
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Revenue
Net profit after tax
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
(28)
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
Share in joint ventures acquired during the year
Share in joint ventures transferred to controlled entities
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
(33)
Consolidated
2013
$mill
352.8
367.1
719.9
197.6
83.4
281.0
438.9
912.1
71.9
48.3
(14.8)
33.5
292.8
33.5
–
–
(43.0)
0.4
15.4
299.1
2012
$mill
325.1
356.1
681.2
150.0
90.4
240.4
440.8
866.9
52.6
39.8
(12.4)
27.4
257.1
27.4
32.7
(8.6)
(6.8)
(1.7)
(7.3)
292.8
The Group’s share of capital commitments, other expenditures and contingent liabilities is disclosed in Notes 29 and 30.
Incitec Pivot Limited Annual Report 2013
68
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
17. Property, plant and equipment
Consolidated
At 1 October 2011
Cost
Accumulated depreciation
Net book amount
Year ended 30 September 2012
Opening net book amount
Reclassification from fixed assets classified as held for sale
Additions
Disposals
Depreciation charge
Impairment of assets
Reclassification from construction in progress
Subsidiaries acquired
Foreign exchange movement
Closing net book amount
At 30 September 2012
Cost
Accumulated depreciation
Net book amount
Year ended 30 September 2013
Opening net book amount
Reclassification to fixed assets classified as held for sale
Additions
Disposals
Depreciation charge
Impairment of assets
Reclassification from construction in progress
Foreign exchange movement
Closing net book amount
At 30 September 2013
Cost
Accumulated depreciation
Net book amount
Freehold land
and buildings
$mill
Notes
Machinery,
plant and
equipment
$mill
Construction
in progress
$mill
461.3
(149.0)
312.3
1,518.7
1,021.8
(569.5)
949.2
–
1,021.8
Total
$mill
3,001.8
(718.5)
2,283.3
(5)
(5)
(5)
(5)
312.3
2.0
19.1
(2.1)
(14.5)
–
26.7
0.4
(6.4)
337.5
949.2
1,021.8
2,283.3
4.0
40.4
(0.7)
(117.0)
(6.5)
90.2
2.0
(28.1)
933.5
–
566.7
–
–
–
(116.9)
–
(4.1)
6.0
626.2
(2.8)
(131.5)
(6.5)
–
2.4
(38.6)
1,467.5
2,738.5
498.1
(160.6)
337.5
1,569.9
1,467.5
(636.4)
933.5
–
1,467.5
3,535.5
(797.0)
2,738.5
337.5
933.5
1,467.5
2,738.5
(0.4)
0.8
(0.6)
–
34.4
(21.4)
(16.5)
(141.2)
(3.0)
–
366.2
–
–
–
1,297.0
(1,534.8)
55.1
7.9
–
237.8
13.7
572.3
(0.4)
401.4
(22.0)
(157.7)
(3.0)
–
76.7
2,154.4
306.8
3,033.5
746.6
(174.3)
572.3
2,882.3
(727.9)
2,154.4
306.8
3,935.7
–
(902.2)
306.8
3,033.5
Property, plant and equipment impairment
In line with the Group’s policy for the consideration of impairment indicators, decreases in spot and forecast fertiliser prices
and expected changes in gas prices have triggered the requirement to consider the carrying value of property, plant and
equipment for the Fertilisers business. In particular property, plant and equipment held within the Southern Cross
International (SCI) CGU and the Gibson Island CGU (part of the IPF group of CGUs) have been most impacted by the sharp
decline in short to medium term fertiliser price assumptions, foreign exchange rates and the potential impact of expected
changes in short to medium term gas price assumptions.
In assessing the recoverable amount of the CGUs, the Group employs a value-in-use model as it intends to continue to use
the assets for the remainder of their useful lives and a reliable measure of their fair value in a sale scenario is not currently
available. In calculating value-in-use, the cash flows include projections of cash inflows and outflows from continuing use
of the assets. In assessing value-in-use the estimated cash flows are discounted to their present value using a post-tax
discount rate that reflects the current market assessments of the risks specific to the asset. Impairment is based on a large
number of factors, such as changes in commercial arrangements, changes in competitive position, expectations of growth,
changes in the cost of capital, current replacement costs, changes in the cost of inputs and other factors.
69
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
17. Property, plant and equipment (continued)
Key input assumptions
Fertiliser price and foreign exchange rates used in the value-in-use models are estimated by management by reference to
external market publications and market analyst estimates, and updated at each reporting date.
For its Australian Fertilisers manufacturing plants, the Group has separate gas supply contracts for Phosphate Hill and Gibson
Island, which expire early in the 2015 financial year and the beginning of the 2018 financial year respectively. There is a
risk that a reliable, committed source of gas at commercial prices may not be available to the Group for use at either or
both of these sites following the expiry of current contractual arrangements.
The estimated price of Australian east coast natural gas, used at the Phosphate Hill and Gibson Island production facilities, is
based on market analyst forecasts. Given the current upward pressure on gas prices, as the Group seeks sources of gas for
the future, costs for gas could be higher than forecast which would impact the cost of operations at each of these facilities.
The value-in-use model assumes that gas will be sourced in time and at the prices included in the table below.
In May 2011, Xstrata publicly announced the planned closure of its copper smelting operation at Mt Isa, Queensland by the
end of 2016, meaning that after the closure the Group will no longer receive free by-product metallurgical gas from Xstrata
in order to produce sulphuric acid. Alternative sources of sulphuric acid to replace the short-fall arising from the loss of
metallurgical gas from Xstrata, is likely to negatively impact the cost of producing ammonium phosphates at SCI’s Phosphate
Hill facility from that date. The quantum of the impact will depend on the future availability and price of sulphur and/or
sulphuric acid. Estimates of these additional costs have been included in the value-in-use model from 2017 onwards.
In 2013, Glencore Group Plc completed its takeover of Xstrata. The impact of the takeover on Xstrata’s operations at Mt Isa,
if any, is unclear. A change in Xstrata’s previously announced closure date of the smelter to an earlier date may negatively
impact the value-in-use, conversely an extension may increase the value-in-use. The quantum of the impact of an earlier
closure is uncertain and would depend on the Group’s ability to successfully develop alternative sources of sulphuric acid
before 2016. The Mt Isa site is a leased site and a lease contract is in place with Xstrata to 2020. The value-in-use model
reflects management’s assumption that the lease will be able to be extended beyond 2020.
The table below summarises the key assumptions used in the value-in-use calculations at 30 September 2013 to determine
the recoverable amounts of the SCI and Gibson Island CGUs.
2013
2012
DAP (FOB Tampa – USD per tonne)
Granular Urea (FOB Middle East – USD per tonne)
2014 – 2018
$435 increasing
to $464
$302 increasing
to $326
Australian East Coast Gas Price (AUD per gigajoule),
excluding transportation cost (1)
$9.90
AUD:USD Exchange rate
Discount rate (2)
Long term growth rate (3)
$0.90 declining
to $0.82
9%
n/a
Long term
(2019+)
$527
$326
$9.10
$0.81
9%
2.5%
2013 – 2017
$521 increasing
to $560
$362 increasing
to $398
$8.00
$1.00
9%
n/a
Long term
(2018+)
$560
$398
$8.50
$1.00
9%
0%
(1) Annual gas consumption at the Phosphate Hill plant is 10.5 petajoules (assuming 950kT name plate capacity of ammonium phosphates production), and
the annual gas consumption at the Gibson Island plant is 14.0 petajoules (assuming 405kT name plate capacity of urea equivalent production).
(2) The post-tax discount rate used reflects underlying cost of capital adjusted for market risk.
(3) The long term growth rate represents the forecast consumer price index (CPI) within the respective markets.
Impacts
After consideration of the key assumptions, operating projections and other key inputs it was concluded that the
recoverable amount of the SCI and Gibson Island CGUs is higher than the carrying amount and as such no impairment has
been recognised for these assets.
Incitec Pivot Limited Annual Report 2013
70
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
17. Property, plant and equipment (continued)
Sensitivity analysis
Any variation in the key assumptions used to determine the value-in-use would result in a change of the recoverable
amount of each of the CGUs. Negative variances may cause impairment in future periods.
It is estimated that changes in the key assumptions would have the following approximate impact on the recoverable
amount:
Sensitivity
Change in variable
Effect on SCI
value-in-use
AUD mill
Effect on GI
value-in-use
AUD mill
DAP (FOB Tampa – USD per tonne)
Granular Urea (FOB Middle East – USD per tonne)
AUD:USD Exchange Rate
WACC
Australian East Coast Gas Price (AUD per gigajoule)
+$10
-$10
+$10
-$10
+1c
-1c
+0.50%
-0.50%
+$1
-$1
86.2
(86.2)
n/a
n/a
(49.8)
51.1
(28.0)
32.5
(52.3)
52.3
n/a
n/a
66.6
(66.6)
(29.2)
29.2
(14.3)
16.4
(105.2)
105.1
Changes in the assumptions used in the SCI CGU value-in-use model, when considered in isolation, will result in the
following impairment impact on the profit or loss.
Sensitivity
DAP (FOB Tampa – USD per tonne)
AUD:USD Exchange Rate
WACC
Australian East Coast Gas Price (AUD per gigajoule)
Change in variable
-$10
+2c
+1.5%
+$1.5
2013
SCI CGU effect
on profit or loss
AUD mill
(16.9)
(29.3)
(6.2)
(9.1)
Changes in the assumptions used in the Gibson Island CGU value-in-use model, when considered in isolation, will result in
the following impairment impact on the profit or loss.
Sensitivity
Change in variable
Granular Urea (FOB Middle East – USD per tonne)
AUD:USD Exchange Rate
WACC
Australian East Coast Gas Price (AUD per gigajoule)
-$25
+6c
+2%
+$1.4
2013
Gibson Island CGU effect
on profit or loss
AUD mill
(26.7)
(25.6)
(2.8)
(7.4)
It must be noted that each of the sensitivities above assumes that the specific assumption moves in isolation, while all
other assumptions are held constant. In reality, a change in one of the aforementioned assumptions could be accompanied
by a change in another assumption, which may increase or decrease the net impact.
Other property, plant and equipment
During the year ended 30 September 2013 impairment of property, plant and equipment occurred to the value of $3.0m
(2012: $6.5m) as a result of the Group’s fixed asset verification procedures and the abandonment of certain assets.
Capitalised interest
During the year ended 30 September 2013 interest of $42.4m (2012: $65.6m) was capitalised relating to interest bearing
liabilities used specifically to fund qualifying assets (expansion projects) as defined under AASB 123 Borrowing Costs.
71
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
18. Intangible assets
Consolidated
At 1 October 2011
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2012
Opening net book amount
Acquisition of business
Additions
Impairment of intangible assets
Amortisation charge
Foreign exchange movement
Closing net book amount
At 30 September 2012
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2013
Opening net book amount
Additions
Impairment of intangible assets
Amortisation charge
Foreign exchange movement
Closing net book amount
At 30 September 2013
Cost
Accumulated depreciation
Net book amount
Notes
Software
$mill
Goodwill
$mill
(5)
(5)
(5)
(5)
65.3
(37.7)
27.6
2,516.6
–
2,516.6
27.6
2,516.6
–
1.8
–
(7.7)
(1.0)
20.7
–
–
(35.0)
–
(31.8)
2,449.8
65.3
(44.6)
20.7
2,449.8
–
2,449.8
20.7
18.3
–
(8.6)
1.1
31.5
–
(41.5)
–
129.5
2,537.8
86.2
(54.7)
31.5
2,537.8
–
2,537.8
2,449.8
151.2
223.5
2,845.2
Patents,
trademarks
& customer
contracts
$mill
218.3
(55.8)
162.5
162.5
12.8
–
(0.7)
(16.6)
(6.8)
151.2
221.1
(69.9)
151.2
Brand
names
$mill
Total
$mill
235.6
3,035.8
–
(93.5)
235.6
2,942.3
235.6
2,942.3
–
–
–
–
(12.1)
223.5
223.5
–
223.5
12.8
1.8
(35.7)
(24.3)
(51.7)
2,845.2
2,959.7
(114.5)
2,845.2
–
–
(17.4)
12.2
146.0
239.7
(93.7)
146.0
–
–
–
22.2
245.7
18.3
(41.5)
(26.0)
165.0
2,961.0
245.7
3,109.4
–
(148.4)
245.7
2,961.0
Incitec Pivot Limited Annual Report 2013
72
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
18. Intangible assets (continued)
(a) Allocation of goodwill
The Group’s indefinite life intangible assets are allocated to groups of CGUs as follows:
Goodwill
2013
$mill
183.8
2.0
1,132.4
1,183.6
36.0
Brand
names
2013
$mill
–
–
40.3
202.5
2.9
Total
2013
$mill
183.8
2.0
1,172.7
1,386.1
38.9
Goodwill
2012
$mill
183.8
1.8
1,132.4
1,053.7
78.1
2,537.8
245.7
2,783.5
2,449.8
Brand
names
2012
$mill
–
–
40.3
180.2
3.0
223.5
Total
2012
$mill
183.8
1.8
1,172.7
1,233.9
81.1
2,673.3
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
Nitromak
(b) Impairment testing
The carrying amount of goodwill and intangible assets with indefinite lives is 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 determined using cash flow projections based on financial forecasts for a
period of five years as approved by the Board and a terminal value calculation. As there is no reliable measure of fair value
at present a value-in-use methodology was used for all groups of CGUs.
(c) Key assumptions used for value-in-use calculations
Key assumptions used to test for impairment, include:
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
Nitromak
Terminal growth rate
Discount rate(2)
2013(1)
%
2.5
2.5
2.5
2.5
6.0
2012
%
0.0
0.0
2.5
2.5
2.5
2013
%
9.0
9.0
9.0
9.0
15.5
2012
%
9.0
9.0
9.0
9.0
15.5
(1) The terminal value growth rate represents the forecast CPI within the respective markets.
(2) The post-tax discount rate used reflects IPL’s long term underlying cost of capital adjusted for market risk.
(d) Intangible asset impairment
As a result of the impairment review, the Group recognised a non-cash impairment charge of $41.5m in the year ended
30 September 2013 (2012: $35.0m). The charge related to the write-off of goodwill in relation to the Nitromak CGU and is
largely as a result of the impact of lower European economic forecasts and increased competition in the Turkish explosive
market on the Nitromak business.
(e) Sensitivity analysis
Information on the sensitivity analyses of the SCI and Gibson Island CGUs is included in note 17. The Gibson Island CGU
forms part of the IPF group of CGUs.
The Nitromak CGU has been impaired to its carrying amount and any further forecasted downturns in the Turkish market
may result in a further impairment.
The recoverable amounts of IPL’s remaining group of CGUs, being IPF, DNAP and DNA, materially exceed their carrying
amounts. The directors believe that any plausible changes in the key assumptions on which the recoverable amount is
based would be unlikely to cause the aggregate carrying amount to exceed the aggregate recoverable amount of these
groups of CGUs.
73
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
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
Derivatives financial instruments
Unfavourable supplier contracts
Tax losses
Other
Deferred tax assets
Consolidated
2013
$mill
2012
$mill
Notes
1.3
18.8
19.8
1.1
29.3
13.5
1.4
25.1
6.8
37.6
3.7
10.1
34.5
203.0
1.3
17.9
37.6
2.0
34.2
10.2
1.3
34.1
4.1
9.9
6.3
29.1
17.3
205.3
Set-off of deferred tax liabilities pursuant to set-off provisions
(24)
(117.7)
(180.3)
Net deferred tax assets
Movements:
Opening balance at 1 October
Debited to the profit or loss
Charged to equity
Foreign exchange movement
Adjustments in respect of prior years
Closing balance at 30 September
85.3
25.0
205.3
(23.8)
(15.5)
10.8
26.2
203.0
308.7
(109.7)
8.2
(10.2)
8.3
205.3
Incitec Pivot Limited Annual Report 2013
74
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
20. Trade and other payables
Current
Trade creditors
external
bill of exchange
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
Unfavourable contracts
Consolidated
2013
$mill
2012
$mill
Notes
676.9
51.0
1.7
729.6
239.6
0.2
9.9
249.7
979.3
4.6
2.4
7.0
(33)
(33)
(32)
(32)
453.0
142.5
5.2
600.7
207.1
0.2
9.5
216.8
817.5
5.6
11.5
17.1
Unfavourable contracts were recognised as part of the acquisition of Southern Cross Fertilisers Pty Ltd in 2006. The
liability was 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 as
specified in the contracts. Where contract terms are greater than one year, cash flows are discounted by applying a pre-
tax interest rate equivalent to the Group’s cost of debt. The liability is amortised based on contracted volumes
determined in measuring the liability at acquisition date over the life of the contracts.
Significant terms and conditions
Trade creditors, including expenditures not yet billed, are recognised when the Group becomes obliged to make future
payments as a result of a purchase of goods or services. Trade payables are normally settled within 62 days from invoice
date, month end or within the agreed payment terms with the supplier.
Net fair values
The directors consider that the carrying amount of trade creditors and other payables approximate their net fair values.
75
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
Consolidated
2013
$mill
2012
$mill
Notes
21. Interest bearing liabilities
Current
Secured
bank loans
participation facilities
Unsecured
bank loans
other loans
jointly controlled entities and associates (1)
(32)
25.1
104.1
0.3
8.1
33.5
–
–
6.7
14.9
125.7
24.0
0.1
(32)
1,620.6
1,620.6
1,291.2
1,315.3
Non-current
Secured
bank loans
participation facilities
lease liability
Unsecured
fixed interest rate bonds
(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:
l In August 2013 the Group issued a A$200.0m 5.5 year Medium Term Note. The bond is denominated in Australian
dollars, has a fixed rate semi-annual coupon of 5.75 percent and matures in February 2019. The proceeds of this
funding are being used to reduce future reliance on bank funding.
l In December 2012 the Group entered into two bilateral funding arragements with a total limit of A$250.0m, maturing
in April 2014. The facilities were repaid and cancelled in full in September 2013.
l The A$900.0m Bank Facility maturing April 2014 was repaid and cancelled in full during September 2013.
l New Bank Facilities totalling A$1,450.0m were entered into in September 2013. This financing is split into two
facilities. Facility A has a limit of A$850.0m, is for a three year term and matures in October 2016. Facility B has a
limit of A$600.0m, is for a five year term and matures in September 2018. These facilities replaced the A$250.0m
bilateral facilities and the A$900.0m bank facility. Proceeds from these facilities will be used for general corporate
purposes and to provide a prudent level of committed undrawn financing.
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 US144A/Regulation S debt capital market:
l US$800.0m 10 year bond denominated in USD, with a fixed rate semi-annual coupon of 6 percent, maturing in
December 2019.
l US$500.0m 5 year bond denominated in USD, with a fixed rate semi-annual coupon of 4 percent, maturing in
December 2015.
The Group has on issue the following Fixed Interest Rate Bonds in the Australian debt capital market:
l AU$200.0m 5.5 year bond denominated in AUD, with a fixed rate semi-annual coupon of 5.75 percent, maturing in
February 2019.
Bank facility
The bank facility is a A$1,450.0m three year and five year revolving facility that may be drawn in either AUD or USD
with a maturity of October 2016 (for A$850.0m) and September 2018 (for $600.0m). At 30 September 2013, the drawn
balance was nil.
Participation facilities
The participation facility matures in September 2014. The carrying amount of the facility is A$25.1m and 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 percent for the term of the facility. During the year, a participation facility with a carrying
value of $92.5m at September 2012 was repaid in full and cancelled on the scheduled maturity date.
Incitec Pivot Limited Annual Report 2013
76
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
22. Other financial liabilities
Current
Derivatives designated and effective as hedging instruments carried at fair value
option contracts
forward exchange contracts
cross currency swaps
Non-current
Derivatives designated and effective as hedging instruments carried at fair value
interest rate swaps
forward exchange contracts
cross currency swaps
Notes
(32)
(32)
(32)
(32)
(32)
(32)
See note 32(h) for further details of interest rate and foreign exchange rate exposures that are hedged by the Group.
23. Provisions
Current
Employee entitlements
Restructuring and rationalisation
Environmental
Asset retirement obligation
Other
Non-current
Employee entitlements
Restructuring and rationalisation
Environmental
Asset retirement obligation
Aggregate employee entitlements
Current
Non-current
The present values of Group employee entitlements not expected to be settled within
twelve months of balance date have been calculated using the following assumptions:
Assumed rate of increase in wage and salary rates
Average discount rate (risk free rate)
Settlement term
Employees at year end
Full time equivalent
77
Incitec Pivot Limited Annual Report 2013
Consolidated
2013
$mill
2012
$mill
–
7.0
32.6
39.6
2.4
8.0
103.9
114.3
50.4
6.2
46.2
1.5
4.1
9.6
5.2
–
14.8
–
–
–
–
41.9
10.2
64.9
2.0
3.8
108.4
122.8
4.7
0.3
47.1
25.4
77.5
50.4
4.7
55.1
7.4
1.0
45.8
20.3
74.5
41.9
7.4
49.3
3.5% + age based scale
3.76%
10 years
2013
Number
2012
Number
5,286
5,242
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
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
2013
$mill
Notes
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
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
Foreign currency exchange differences
Carrying amount at the end of the financial year
Current provision – asset retirement obligations
Carrying amount at the beginning of the financial year
Payments made during the year
Transfers to 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
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.
(27)
(5)
(5)
(5)
–
203.6
(203.6)
–
10.2
4.3
(9.5)
0.8
0.4
6.2
64.9
0.4
(0.8)
(23.0)
3.4
1.3
46.2
2.0
(0.8)
0.3
1.5
3.8
0.8
(0.8)
0.3
4.1
Incitec Pivot Limited Annual Report 2013
78
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
23. Provisions (continued)
Reconciliations (continued)
Non-current provision – restructuring and rationalisation
Carrying amount at the beginning of the financial year
Transfers to current
Foreign currency exchange differences
Carrying amount at the end of the financial year
Non-current provision – environmental
Carrying amount at the beginning of the financial 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
See Note 1(xvii) for further details on the provisions noted above.
24. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Inventories
Property, plant and equipment
Intangible assets
Foreign exchange gains
Derivatives
Other
Deferred tax liabilities
Consolidated
2013
$mill
Notes
1.0
(0.8)
0.1
0.3
45.8
(3.4)
1.8
2.9
47.1
20.3
0.3
(0.3)
4.6
0.5
25.4
(5)
Consolidated
2013
$mill
2012
$mill
Notes
0.3
260.9
114.7
4.1
41.1
110.0
531.1
0.7
265.8
101.0
22.3
16.9
144.9
551.6
Set-off of deferred tax liabilities pursuant to set-off provisions
(19)
(117.7)
(180.3)
Net deferred tax liabilities
Movements
Opening balance at 1 October
(Credited)/debited to the profit or loss
Charged to equity
Foreign exchange movements
Adjustments in respect of prior years
Closing balance at 30 September
79
Incitec Pivot Limited Annual Report 2013
413.4
371.3
551.6
(50.6)
(22.6)
42.9
9.8
531.1
459.3
48.1
14.8
(21.6)
51.0
551.6
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
25. Retirement benefit obligations
(a) Information on plans
The Group operates a number of defined benefit plans to provide benefits for employees and their dependents 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 (‘the 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 Statement of Profit or Loss and Other Comprehensive
Income and Consolidated Statement of Financial Position are set out below.
(b) Reconciliation of the present value of the defined benefit obligation
Consolidated
Notes
Present value of defined benefit obligations at beginning of the year
Current service cost
Defined benefit plan settlement and curtailment
Interest cost
Actuarial (gains)/losses
Contributions by plan participants
Benefits paid
Foreign exchange differences on foreign plans
Present value of defined benefit obligations at end of the year
(c) Reconciliation of the fair value of plan assets
Fair value of plan assets at beginning of the year
Expected return on plan assets
Actuarial gains
Employer contributions
Contributions by plan participants
Benefits paid
Foreign exchange differences on foreign plans
Fair value of plan assets at end of the year
(d) Reconciliation of assets and liabilities recognised in the
Consolidated Statement of Financial Position
Total value of funded defined benefit obligations at end of the year
Minimum funding obligation
Fair value of plan assets at end of the year
Net liability recognised in the Consolidated Statement of Financial Position at end of the year
(e) Income/(expense) recognised in the Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Current service cost
Interest cost
Expected return on plan assets
Defined benefit plan settlement and curtailment
Income/(expense) recognised in Consolidated Statement of Profit or Loss
and Other Comprehensive Income
(5)
(5)
(5)
(4)
2013
$mill
326.6
7.4
(5.6)
11.4
(23.7)
0.7
(27.7)
28.3
317.4
215.0
16.4
12.4
15.0
0.7
(27.7)
20.2
252.0
317.4
5.0
(252.0)
70.4
(7.4)
(11.4)
16.4
5.6
3.2
2012
$mill
304.4
6.7
–
13.1
33.9
1.0
(18.3)
(14.2)
326.6
189.1
13.9
17.4
19.7
1.0
(18.3)
(7.8)
215.0
326.6
–
(215.0)
111.6
(6.7)
(13.1)
13.9
–
(5.9)
Incitec Pivot Limited Annual Report 2013
80
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
25. Retirement benefit obligations (continued)
(f) Amounts recognised in Other Comprehensive Income
Actuarial (gains)/losses (before income tax)
(g) Cumulative amount recognised in Other Comprehensive Income
Cumulative amount of actuarial losses (before income tax)
(h) Plan assets
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
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 2014
Expected employer contributions
Expected contribution by plan participants
(n) Historical information
Present value of defined benefit obligation
Minimum funding obligation
Fair value of plan assets
Deficit in plan
Experience adjustment – plan liabilities
Experience adjustment – plan assets
2013
$mill
317.4
5.0
(252.0)
70.4
(4.8)
(6.9)
2012
$mill
326.6
–
(215.0)
111.6
0.3
(11.7)
2011
$mill
304.4
–
(189.1)
115.3
7.0
6.2
Consolidated
2013
$mill
2012
$mill
(31.1)
16.5
95.9
131.6
56%
29%
7%
8%
58%
28%
8%
6%
28.8
32.0
2.0% – 6.5% 3.3% – 6.5%
6.5% – 7.8% 7.0% – 7.8%
2.0% – 5.0% 2.0% – 5.0%
4.5% – 9.0% 4.0% – 9.5%
2.5% – 4.0% 2.5% – 2.8%
15.6
0.5
2010
$mill
287.6
–
(192.3)
95.3
(2.2)
3.0
2009
$mill
288.4
–
(196.8)
91.6
3.7
(2.9)
81
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
26. Issued capital
Share capital
Ordinary shares authorised and issued – 1,628,730,107 (2012: 1,628,730,107) (1)
(1) Ordinary shares authorised and issued have no par value.
Terms and conditions
Consolidated
2013
$mill
2012
$mill
3,265.9
3,265.9
3,265.9
3,265.9
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.
Company
2013
$mill
2012
$mill
Notes
27. Dividends
Dividends paid or declared in respect of the year were:
Ordinary shares
Final dividend of 8.2 cents per share, unfranked,
paid 16 December 2011
Interim dividend of 3.3 cents per share, 50 percent franked at the 30 percent corporate rate,
paid 3 July 2012
Final dividend of 9.1 cents per share, 75 percent franked at the 30 percent corporate rate,
paid 14 December 2012
Interim dividend of 3.4 cents per share, 75 percent franked at the 30 percent corporate rate,
paid 2 July 2013
Total ordinary share dividends
(23)
–
–
148.2
55.4
203.6
133.6
53.7
–
–
187.3
Subsequent event
Since the end of the financial year, the directors have determined to pay the following dividend:
– Final dividend of 5.8 cents per share, 75 percent franked at the 30 percent corporate tax rate, to be paid on
18 December 2013. The total dividend payment will be $94.5m.
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 Company amount to $47.2m (2012: $62.6m) at the 30 percent (2012:
30 percent) corporate tax rate. The final dividend for 2013 is 75 percent franked at the 30 percent corporate tax rate.
Franking credits that will arise from payment of income tax in the year ending 30 September 2013 have been factored
into the franking account balance.
Incitec Pivot Limited Annual Report 2013
82
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
28. Reconciliation of profit after income tax
to net cash inflow from operating activities
Notes
(10)
(5)
(5)
(5)
(16)
(4)
(5)
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
Impairment of goodwill and other intangible assets
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 and other payables
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
2013
$mill
2012
$mill
270.6
270.6
372.6
183.7
3.0
41.5
(33.5)
(2.0)
(0.4)
6.4
65.6
(12.9)
(49.8)
(16.5)
(1.5)
81.2
(22.9)
614.5
154.1
154.1
508.0
155.8
6.5
35.7
(27.4)
(4.8)
10.4
25.3
94.2
66.5
19.7
179.2
0.1
(366.3)
(82.1)
620.8
83
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
29. 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
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
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
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
Consolidated
2013
$mill
2012
$mill
415.9
192.0
–
607.9
0.3
–
0.3
51.7
79.2
62.7
193.6
–
–
–
59.5
2.7
2.3
64.5
20.7
10.8
31.5
40.6
102.5
54.1
197.2
0.3
0.4
0.7
Incitec Pivot Limited Annual Report 2013
84
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
30. 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
l 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 36, Investments in controlled entities.
l Consolidated Statement of Financial Position and Consolidated Statement of Profit or Loss and Other Comprehensive
Income for the closed group are shown in Note 37, Deed of Cross Guarantee.
l The Group has entered into various long-term supply contracts under which it receives goods and services. 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.
l 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.
l There are guarantees relating to certain leases of property, plant and equipment and other agreements arising in the
ordinary course of business.
l 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.
l 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.
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 on 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
The Group is currently subject to information requests, investigations and audit activities by the Australian Taxation
Office and other revenue authorities. The outcomes of these investigations and audits depend upon several factors which
may result in further tax payments or refunds of tax payments already made by the Group. Provisions for potential
further payments have/will be recognised if a present obligation in relation to a taxation liability exists which can be
reliably estimated.
85
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
31. Financial risk management
Overview
The Group has exposure to the following financial risks:
l Market risk (foreign exchange, interest rate, commodity and equity price risk)
l Liquidity risk
l 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. Where
the cost of the premiums is considered to be prohibitive, some upside participation may be foregone to reduce the
overall cost of the structure.
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 IPL’s
Treasury function, 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.
Incitec Pivot Limited Annual Report 2013
86
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
31. 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 (FECs) are taken out to hedge those exposures. The Group applies hedge accounting
for these derivatives. The table below shows the outstanding FECs as at 30 September 2013:
Term
Buy USD/Sell AUD
Buy AUD/Sell USD
Buy EUR/Sell AUD
Buy AUD/Sell CAD
Buy AUD/Sell TRY
Weighted average
strike rate
Forward FX contract
AUD mill
AUD mill
2013
0.9564
0.9300
0.6848
–
–
2012
1.0066
1.0404
0.7875
1.0154
1.8632
2013
337.5
0.1
7.6
–
–
2012
253.4
11.5
6.0
0.5
1.4
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,
while the manufactured outputs (phosphate based fertilisers, urea and ammonia) are sold either in United States dollars
or in Australian dollars in each case based on an import parity formula impacted by the rate of exchange.
Similarly, the profitability of Dyno Nobel Americas is impacted by foreign exchange movements due to the
manufacturing inputs (gas, electricity, labour) being denominated in United States dollars, while some of the
manufactured outputs (ammonia nitrate and initiating systems) are sold in Canadian dollars.
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 option contracts to Sell USD/Buy AUD, to protect a portion of the Group’s forecast
manufactured fertiliser exposure. The market value of these options is recorded in the Consolidated Statement of
Financial Position at year end. Any movement in the intrinsic value of the option contracts is recorded in the Cash-flow
Hedge Reserve in the Consolidated Statement of Financial Position while movement in time value is recorded in the
profit or loss. Favorable outcomes on the hedge will occur when the AUD appreciates. For these option contracts, when
the AUD depreciates below the option strike price the hedge lapses and the underlying exposure participates in the
favourable movement.
The Group has entered into a series of FECs to Sell CAD/Buy USD, to protect a portion of the Group’s forecast exposure of
sales of product manufactured in the USA and sold in Canada. The market value of these FECs 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 CAD depreciates. As FECs do not offer participation when the CAD
appreciates, occasionally, options and collar contracts are entered into 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, Incitec Pivot Fertilisers and Dyno Nobel Americas at 30 September:
Term
Buy USD/Sell AUD
Buy AUD/Sell USD
Buy USD/Sell CAD
Bought AUD call/USD put, not later than one year
Sold AUD call/USD put, not later than one year
AUD/USD
exercise price
Weighted average
AUD/USD strike rate
Contract amounts
AUD mill
AUD mill
2013
0.9076
–
1.0281
–
–
2012
2013
2012
–
1.0366
0.9832
–
–
–
–
–
1.05
1.10
–
–
–
–
–
2013
41.9
–
104.4
190.5
(181.8)
2012
–
299.0
29.3
–
–
From time to time, the Group may look to reduce premium costs by transacting collars, option spreads or by selling
floors against existing bought positions. Board approved policies prevent the Group from selling naked options.
At 30 September 2013, all outstanding bought options had an outstanding matching sold option (in USD terms). The
hedge provides the Group with protection against unfavourable movements in foreign exchange rates between the
option rates, while allowing the Group to participate in favourable movements in foreign exchange rates below the
strike rate of the bought option.
87
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
31. 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 for plants, average achieved Fertiliser selling prices and
exchange rates in 2013.
Foreign exchange sensitivity
– transactional (unhedged)
USD Fertiliser sales from Australian plants
ii. Foreign exchange risk – translational
USD + 1c
AUD mill
USD - 1c
AUD mill
USD + 1c
AUD mill
USD - 1c
AUD mill
2013
(6.1)
2013
6.2
2012
(7.8)
2012
7.9
Hedge of earnings from foreign operations
The Group has foreign operations with non-AUD functional currencies and is, therefore, exposed to translation risk
resulting from the translation of the earnings from these foreign operations. The Group may, from time to time, use
FEC’s or option contracts to manage the translation risk of foreign earnings. As at 30 September 2013, there were no
derivative contracts outstanding.
The following sensitivity is based on the unhedged translational foreign currency risk exposures in existence at the
reporting date and is calculated using the Group’s USD denominated earnings before interest and tax for the reporting
period, at the average 2013 translation exchange rate.
Foreign exchange sensitivity
– translational (unhedged)
North American earnings before interest and tax
USD + 1c
AUD mill
USD - 1c
AUD mill
USD + 1c
AUD mill
USD - 1c
AUD mill
2013
(1.8)
2013
1.8
2012
(1.8)
2012
1.9
Hedge of net assets of foreign operations (net investment hedge)
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 FEC’s and cross currency swaps to create ‘synthetic’ foreign currency debt. The FEC’s rate
includes the net fixed interest rate differential for the period of the contract. The cross currency swaps pay and receive
floating rates of interest with quarterly or monthly rate resets throughout the life of the swap. The translation movement of
the Group’s net assets is recognised within the foreign currency translation reserve.
As at 30 September 2013, none of the Group’s foreign currency borrowings were designated as net investment hedges.
The table below summarises the foreign currency forwards and cross currency swaps outstanding at 30 September:
Term
not later than one year
Receive AUD/Pay USD mill
2013
–
2012
AUD 114.1/USD 103.0
later than one year, no later than five years
AUD 680.8/USD 682.9
AUD 174.5/USD 181.5
later than five years
Term
not later than one year
AUD 843.4/USD 824.0
Receive AUD/Pay CAD mill
2013
AUD 103.0/CAD 100.0
–
2012
–
Hedge of foreign currency interest-bearing liabilities (fair value hedge)
The Group has borrowings denominated in USD. Where these borrowings are held by AUD functional currency entities
and have not been designated as net investment hedges, any gains or losses resulting from the translation of the
principal balance of these borrowings to AUD are recorded in the profit or loss. The Group manages the impact of this
translation risk by using FEC’s and cross currency swaps to create ‘synthetic’ USD assets. Any gains or losses resulting
from the foreign currency revaluation of these ‘synthetic’ assets are recorded in the profit or loss.
The table below summarises the cross currency swaps designated as hedges of USD borrowings outstanding at 30 September:
Term
Pay AUD/Receive USD mill
not later than one year
later than one year, no later than five years
later than five years
2013
–
AUD 511.5/USD 500.0
AUD 818.4/USD 800.0
2012
–
–
–
Incitec Pivot Limited Annual Report 2013
88
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
31. Financial risk management (continued)
(a) Market risk (continued)
iii. Interest rate risk
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 derivatives in order to balance the Group’s fixed
and variable interest rate mix. Under interest rate swap contracts, the Group agrees to exchange the difference between
fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the
Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt and the cash flow
exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period is
determined by discounting future cash flows using the interest rate curves at the end of the reporting period.
The Group’s interest rate risk arises from long term borrowings in Australian and United States dollars. Of the AUD1,654.1m
of Interest Bearing Liabilities at the reporting date, AUD964.6m (58 percent) were exposed to floating interest rates.
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 2013 and the average variable interest
rate during the 2013 year.
Interest rate sensitivity
Current and non-current borrowings with variable interest rates
Interest rate sensitivity
Current and non-current borrowings with variable interest rates
Interest rate sensitivity
Current and non-current borrowings with variable interest rates
(1) LIBOR – London Interbank Offered Rate.
(2) CDOR – Canadian Dealer Offer Rate.
(3) BBSW – Bank Bills Swap Rate.
iv. Commodity risk
+ 1% LIBOR(1)
AUD mill
- 1% LIBOR(1)
AUD mill
+ 1% LIBOR(1)
AUD mill
- 1% LIBOR(1)
AUD mill
2013
(10.6)
2013
10.6
2012
(10.4)
2012
10.4
+ 1% CDOR(2)
AUD mill
- 1% CDOR(2)
AUD mill
+ 1% CDOR(2)
AUD mill
- 1% CDOR(2)
AUD mill
2013
(1.0)
2013
1.0
2012
n/a
2012
n/a
+ 1% BBSW(3)
AUD mill
- 1% BBSW(3)
AUD mill
+ 1% BBSW(3)
AUD mill
- 1% BBSW(3)
AUD mill
2013
3.9
2013
(3.9)
2012
2.9
2012
(2.9)
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 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 2013). 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 2013:
Contract
Contract
Contract
* Million Metric British Thermal Units
Months hedged
Monthly volume (MMBTU*)
Fixed rate USD
3
3
3
10,000
10,000
90,000
$3.85
$3.67
$3.54
The Group is exposed to price volatility on the commodities it sells. These exposures can be categorised into three main
areas: ammonium nitrate, ammonium phosphate and urea.
The Group aims to manage its price risk exposure to ammonium nitrate by entering into long term contracts with its
customers with sales prices that are adjusted for changes to input costs such as natural gas and for movements in CPI.
89
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
31. Financial risk management (continued)
(a) Market risk (continued)
iv. Commodity risk (continued)
The following sensitivity analysis is based on the gas commodity risk exposures in existence at the reporting date.
Commodity risk sensitivity
Henry Hub US$ prices per 1 MMBTU
+ US$1 per
1 MMBTU
AUD mill
- US$1 per
1 MMBTU
AUD mill
+ US$1 per
1 MMBTU
AUD mill
- US$1 per
1 MMBTU
AUD mil
2013
(5.5)
2013
5.5
2012
(3.5)
2012
3.5
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
Granular Urea (FOB Middle East – USD per tonne)
DAP (FOB Tampa – USD per tonne)
Fertiliser price sensitivity
Granular Urea (FOB Middle East – USD per tonne)
DAP (FOB Tampa – USD per tonne)
(1) Maximum production capacity of the plant
+ USD10
AUD mill
2013
4.1
9.5
+ USD10
AUD mill
2012
4.2
9.9
- USD10
AUD mill
Name plate
Tonnes (1)
2013
(4.1)
(9.5)
405,000
950,000
- USD10
AUD mill
Name plate
Tonnes (1)
2012
(4.2)
(9.9)
405,000
950,000
The Group is also exposed to fluctuations in fertiliser prices as part of the operations of Quantum Fertilisers Limited, the
Group’s fertiliser marketing business. Quantum Fertilisers Limited can hold either ‘long’ or ‘short’ physical fertiliser posi-
tions which is governed by the Group’s policy on commodity trading.
The table below summarises the open positions of Quantum Fertilisers Limited outstanding as at 30 September 2013:
Product type
Prilled Urea
v. Equity price risk
Position type
Long
Position size
2,000 tonnes
Price
US$287.5/t
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.
Incitec Pivot Limited Annual Report 2013
90
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
31. Financial risk management (continued)
(b) Liquidity risk (continued)
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:
l An unsecured Bank facility agreement of AUD850.0m for 3 years, maturing October 2016. This is a multi-currency
facility drawable in AUD or 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.
l A second unsecured Bank facility agreement of AUD600.0m for 5 years, maturing September 2018. This is a multi-
currency facility drawable in AUD or 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.
l 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 percent and matures in December 2019.
l 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 percent and matures in December 2015.
l An AUD200.0m 5.5 year Medium Term Note issued in Australia and denominated in AUD. The bond has a fixed rate
semi-annual coupon of 5.75 percent and matures in February 2019.
l A participation facility of AUD25.1m (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 percent for the term of the facility.
At reporting date, the Group has committed undrawn lines of AUD1,450.0m and cash of AUD270.6m.
Capital risk management
When managing capital, the key objectives of the Group 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:
l Maintaining an investment grade credit profile and the requisite financial metrics;
l Securing access to diversified sources of debt funding with a spread of maturity dates and sufficient undrawn
committed facility capacity; and
l 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, the amount of dividends paid to shareholders may be changed, capital
returned to shareholders or issue new shares, or management may 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.
To monitor and support the key objectives set out above, various financial ratios and internal targets are assessed and
reported to the Board, on a regular basis, by management. 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 (AUD1,450.0m) have been measured and are within the debt covenant
targets for the year ended 30 September 2013.
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 2013, Coltivi Insurance
Pte Limited maintained capital in excess of the minimum requirements prescribed under these Acts.
91
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
31. Financial risk management (continued)
(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 relevant 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 fair value. As at
30 September 2013, the sum of all contracts with a fair value was AUD135.1m (2012: AUD76.0m).
Incitec Pivot Limited Annual Report 2013
92
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
32. 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 (excluding hedging)
Forward exchange contracts (hedge of trade payables)
Net statement of financial position exposure (including hedging)
The following significant exchange rates applied during the year:
Euro
USD
(b) Interest rate risk
2013
Euro
mill
7.0
10.8
3.8
5.2
(1.4)
2012
Euro
mill
0.3
5.1
4.8
4.8
–
2013
USD
mill
3.6
2012
USD
mill
18.1
277.6
228.7
274.0
210.6
270.2
3.8
219.6
(9.0)
Average
rate
2013
0.7582
0.9957
Balance
date spot
rate
2013
0.6883
0.9288
Average
rate
2012
0.7928
1.0277
Balance
date spot
rate
2012
0.8083
1.0436
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
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 AUD7.7m (2012: AUD7.5m)
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
93
Incitec Pivot Limited Annual Report 2013
Consolidated
2013
$mill
2012
$mill
Notes
964.6
787.2
(21)
689.5
1,654.1
653.8
1,441.0
(11)
(11)
(10)
(14)
(14)
(14)
(14)
331.3
41.6
270.6
13.6
72.4
–
35.2
764.7
357.1
40.0
154.1
7.2
15.9
9.6
45.4
629.3
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
32. Financial instruments (continued)
(c) Credit risk (continued)
The maximum exposure to credit risk for trade receivables at the reporting date by country or geographical area was:
Australia
India
Europe
USA
Canada
Asia
Turkey
Other
The maximum exposure to credit risk for trade receivables
at the reporting date by type of customers was:
Wholesale customers
End user customers
Notes
Consolidated
2013
$mill
2012
$mill
121.1
145.1
15.5
0.2
43.4
58.7
26.3
37.7
28.4
0.5
0.2
56.6
47.1
67.8
31.9
7.9
(11)
331.3
357.1
123.4
207.9
331.3
148.1
209.0
357.1
(11)
As at the end of September 2013 and September 2012, the Group had no individual debtor’s balance outstanding in
excess of 10 percent of the total of the trade receivable balance.
Impairment losses
The ageing to terms of the Group’s trade receivables at the reporting date was:
Current
Past due 0 – 30 days
Past due 31 – 120 days
Total
Gross
2013
$mill
278.3
26.0
39.7
344.0
Impairment
2013
$mill
–
–
12.7
12.7
Gross
2012
$mill
275.4
42.6
47.6
365.6
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Impairment
2012
$mill
Balance at 1 October
Net impairment losses recognised
Provisions recognised/(written back) during the year
Foreign exchange movements
Balance at 30 September
Consolidated
Notes
(11)
2013
$mill
8.5
(2.1)
6.2
0.1
12.7
–
–
8.5
8.5
2012
$mill
12.2
(1.8)
(1.2)
(0.7)
8.5
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 2013
94
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
32. Financial instruments (continued)
(d) Liquidity risk – Non-derivative financial liabilities
The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of
netting payments.
Consolidated
30 September 2013
Non-derivative financial liabilities
Interest bearing liabilities
Interest payments
Trade and other payables
Total
30 September 2012
Non-derivative financial liabilities
Interest bearing liabilities
Interest payments
Trade and other payables
Total
Contractual
cash flows (1)
$mill
6 months
or less (1)
$mill
6 – 12
months (1)
$mill
1 – 2
years (1)
$mill
2 – 5
years (1)
$mill
more than
5 years (1)
$mill
1,654.1
500.9
986.3
14.0
49.7
937.3
19.4
49.3
46.6
3,141.3
1,001.0
115.3
1,441.0
463.6
834.6
2,739.2
67.5
61.5
768.6
897.6
58.2
46.3
54.2
158.7
–
95.8
2.4
98.2
24.0
74.1
9.6
107.7
545.7
222.8
–
1,075.0
83.3
–
768.5
1,158.3
495.5
166.7
2.2
664.4
795.8
115.0
–
910.8
(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 – Derivative financial instruments
The following are the contractual maturities of derivative financial instruments, including interest payments and excluding
the impact of netting payments.
Consolidated
30 September 2013
Derivative financial assets and liabilities
Assets
Forward exchange contracts
Cross currency swaps
Interest rate swaps
Liabilities
Forward exchange contracts
Cross currency swaps
Interest rate swaps
Total
Contractual
cash flows (1)
$mill
6 months
or less (1)
$mill
6 – 12
months (1)
$mill
1 – 2
years (1)
$mill
2 – 5
years (1)
$mill
more than
5 years (1)
$mill
(30.9)
69.8
41.4
80.3
29.2
(132.5)
(2.7)
(106.0)
(25.7)
1.6
2.8
7.8
12.2
(3.3)
(21.8)
(0.3)
(25.4)
(13.2)
(3.3)
(2.8)
7.7
1.6
3.3
(3.6)
(0.3)
(0.6)
1.0
(4.2)
–
13.7
9.5
4.2
–
(0.2)
4.0
13.5
(1.1)
–
11.9
10.8
1.1
(37.3)
(1.3)
(37.5)
(26.7)
(23.9)
69.8
0.3
46.2
23.9
(69.8)
(0.6)
(46.5)
(0.3)
(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.
95
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
32. Financial instruments (continued)
(e) Liquidity risk – Derivative financial instruments (continued)
Consolidated
30 September 2012
Derivative financial assets and liabilities
Assets
Forward exchange contracts
Option contracts
Cross currency swaps
Interest rate swaps
Liabilities
Forward exchange contracts
Option contracts
Total
Contractual
cash flows (1)
$mill
6 months
or less (1)
$mill
6 – 12
months (1)
$mill
1 – 2
years (1)
$mill
2 – 5
years (1)
$mill
more than
5 years (1)
$mill
8.0
9.6
16.0
51.7
85.3
(5.2)
(9.6)
(14.8)
70.5
7.2
5.3
15.4
7.1
35.0
(0.5)
(5.3)
(5.8)
29.2
0.8
4.3
–
6.9
12.0
(4.7)
(4.3)
(9.0)
3.0
–
–
0.6
12.8
13.4
–
–
–
–
–
–
20.5
20.5
–
–
–
13.4
20.5
–
–
–
4.4
4.4
–
–
–
4.4
(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.
(f) 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 Group’s exposure to foreign exchange risk resulting from controlled entities that have
functional currencies that are different to the Group’s functional currency.
Foreign currency risk associated with sales and purchases denominated in a 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 cashflows associated with derivatives, that are cash flow hedges
and net investment hedges, are expected to occur.
Consolidated
30 September 2013
Cash flow hedges
Assets
Liabilities
Net investment hedges
Assets
Liabilities
Total
30 September 2012
Cash flow hedges
Assets
Liabilities
Net investment hedges
Assets
Liabilities
Total
Contractual
cash flows
$mill
6 months
or less
$mill
6 – 12
months
$mill
1 – 2
years
$mill
2 – 5
years
$mill
more than
5 years
$mill
2.8
3.2
–
137.1
(137.5)
16.3
24.8
15.9
–
7.4
2.7
3.2
–
36.2
(36.7)
11.0
8.9
15.4
–
17.5
0.1
–
–
–
0.1
5.3
5.8
–
–
(0.5)
–
–
–
–
–
–
1.2
0.5
–
(0.7)
–
–
–
54.9
(54.9)
–
3.3
–
–
(3.3)
–
–
–
46.0
(46.0)
–
5.6
–
–
(5.6)
Incitec Pivot Limited Annual Report 2013
96
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
32. Financial instruments (continued)
(g) Fair values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Consolidated
Cash and cash equivalents
Financial assets carried at fair value through
Other Comprehensive Income
Investments – equity instruments
Financial assets/(liabilities) carried at amortised
cost through the profit and loss
Trade and other receivables
Trade and other payables
Financial liabilities
Derivatives designated and effective as
hedging instruments carried at fair value
Cross currency interest rate swaps
Forward exchange contracts
Interest rate swaps
Total
Basis for determining fair value
Carrying
amount
2013
$mill
Fair value
2013
$mill
270.6
270.6
Carrying
amount
2012
$mill
154.1
Fair value
2012
$mill
154.1
1.5
1.5
3.6
3.6
372.9
(986.3)
(1,654.1)
372.9
(986.3)
(1,749.3)
397.1
(834.6)
(1,441.0)
397.1
(834.6)
(1,507.9)
Notes
(10)
(14)
(11)
(20)
(21)
(14), (22)
(14), (22)
(14), (22)
(64.1)
(1.4)
32.8
(64.1)
(1.4)
32.8
15.9
2.0
45.4
15.9
2.0
45.4
(2,028.1)
(2,123.3)
(1,657.5)
(1,724.4)
The following summarises the significant methods and assumptions used in estimating the fair values of financial
instruments reflected in the table above.
Investments in equity securities
The fair value of equity instruments is based on the quoted bid price at the reporting date.
Derivative financial instruments
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.
Trade and other receivables & trade and other payables
The fair value of trade and other receivables, and trade and other payables, is estimated as the present value of future
cash flows, discounted at the market rate of interest at the reporting date.
Financial liabilities designated at fair value through the profit or loss
The fair value is 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.
97
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
32. Financial instruments (continued)
(g) Fair values (continued)
Fair value hierarchy
The table below analyses financial instruments carried at fair value by valuation method. The different levels have been
defined as follows:
l Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
l 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).
l Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 September 2013
Listed equity securities
Derivative financial assets
Total
Derivative financial liabilities
Total
30 September 2012
Listed equity securities
Derivative financial assets
Total
Derivative financial liabilities
Total
Level 1
$mill
Level 2
$mill
Level 3
$mill
1.5
–
1.5
–
–
3.6
–
3.6
–
–
–
121.2
121.2
153.9
153.9
–
78.1
78.1
14.8
14.8
–
–
–
–
–
–
–
–
–
–
(h) Derivative financial instruments
30 September 2013
Cross currency
swaps
Interest rate
swaps
Forward exchange
contracts
Options
contracts
Asset
$mill
Liability
$mill
Asset
$mill
Liability
$mill
Asset
$mill
Liability
$mill
Asset
$mill
Liability
$mill
–
–
–
–
–
(34.9)
2.3
(32.6)
–
–
–
–
–
–
–
–
70.9
–
1.5
72.4
72.4
–
35.2
(0.1)
(99.0)
(4.9)
(103.9)
(136.5)
–
–
35.2
35.2
–
(2.3)
(2.4)
(2.4)
2.8
–
2.8
5.6
–
–
8.0
8.0
(3.2)
(1.3)
(2.5)
(7.0)
–
(1.9)
(6.1)
(8.0)
13.6
(15.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
asset
$mill
Total
liability
$mill
Total
net
$mill
2.8
–
2.8
5.6
(3.2)
(0.4)
(36.2)
(36.2)
(0.2)
2.6
(39.6)
(34.0)
106.1
(0.1)
106.0
–
(100.9)
(100.9)
9.5
(13.3)
(3.8)
115.6
(114.3)
1.3
121.2
(153.9)
(32.7)
Current
Cash flow hedge
Net investment hedge
Held for trading
Non Current
Fair value hedge
Net investment hedge
Held for trading
During the current financial year, the Group changed its strategy to separately manage (as opposed to a net basis) the
foreign exchange risk associated with its USD borrowings and its net investments in operations. Cross currency swaps and
foreign exchange contracts were used to hedge the foreign exchange risk.
Incitec Pivot Limited Annual Report 2013
98
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
32. Financial instruments (continued)
(h) Derivative financial instruments (continued)
30 September 2012
Cross currency
swaps
Interest rate
swaps
Forward exchange
contracts
Options
contracts
Asset
$mill
Liability
$mill
Asset
$mill
Liability
$mill
Asset
$mill
Liability
$mill
Asset
$mill
Liability
$mill
Total
asset
$mill
Total
liability
$mill
Total
net
$mill
Current
Cash flow hedge
Net investment hedge
Held for trading
Non Current
Fair value hedge
Cash flow hedge
Net investment hedge
–
15.4
–
15.4
–
–
0.5
0.5
15.9
–
–
–
–
–
–
–
–
–
–
–
–
–
56.0
(10.6)
–
45.4
45.4
–
–
–
–
–
–
–
–
–
9.6
(9.6)
32.2
(14.8)
7.2
(5.1)
9.6
(9.6)
–
–
7.2
–
–
–
–
–
(0.1)
(5.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7.2
(5.2)
9.6
(9.6)
16.8
15.4
–
(14.7)
–
(0.1)
56.0
(10.6)
0.5
45.9
78.1
–
–
–
–
(14.8)
2.1
15.4
(0.1)
17.4
56.0
(10.6)
0.5
45.9
63.3
Fair value hedge
Cross Currency Swaps and Interest Rate Swaps were transacted to hedge a portion of the Group’s Interest-bearing
liabilities. The fair value of these derivative instruments is included in the calculation of the Group’s Net Debt.
Cash flow hedge
Gains or losses recognised in the cash flow hedging reserve will be continuously released to the profit or loss until
the underlying forecast transaction occurs. However, where the underlying forecast transaction is a purchase of a non
financial asset (for example property, plant and equipment) the gain or loss in the cash flow hedging reserve will be
transferred and included in the measurement of the initial cost of the asset at the date on which the asset is recognised.
Hedge for trading
Derivatives which are classified as held for trading are in economic relationships but are not in designated hedge
relationships for hedge accounting purposes. Although these held for trading derivatives did not satisfy the requirements
for hedge accounting, these are effective economic hedges based on contractual amounts and cash flows over the life of
the transaction.
Net investment hedge
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 to 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 profit and loss component of the Consolidated
Statement of Profit or Loss and Other Comprehensive Income.
99
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
33. Related party disclosures
Subsidiaries
Interest in subsidiaries is set out in Note 36.
Jointly controlled entities and associates
Interest in jointly controlled entities and associates is set out in Note 16.
Key management personnel
Disclosures relating to key management personnel are set out in Note 34.
Transactions between subsidiaries of the Group and jointly controlled entities and associates are as follows:
Sales of goods/services
Purchase of goods/services
Management fees/royalties
Interest income
Interest expense
Dividend income
(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:
Jointly controlled entities (1)
Notes
(4)
(4)
(5)
(16)
2013
$mill
217.1
(53.1)
22.7
0.7
(0.2)
43.0
2012
$mill
238.6
(28.1)
21.5
1.4
(0.2)
6.8
Amounts owing to related parties
Amounts owing from related parties
(20)
(11)
1.9
43.2
5.4
25.7
Transactions between jointly controlled entities and associates
There were no transactions during the year between jointly controlled entities and associates and there are no outstanding
balances between jointly controlled entities and associates of the IPL Group as at 30 September 2013 (2012: nil).
Incitec Pivot Limited Annual Report 2013
100
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
34. 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
2013
$000
9,358
238
264
904
265
11,029
2012
$000
9,651
300
342
1,365
3,955
15,613
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 2013, there were no loans to key management personnel and their related parties
(2012: nil).
(c) Other key management personnel transactions
The following transactions, entered into during the year and prior year with key management personnel, were on terms
and conditions no more favourable than those available to other customers, suppliers and employees:
(1) The spouse of Mr Fazzino, the Managing Director & Chief Executive Officer, is a partner in the accountancy and tax
firm PricewaterhouseCoopers (PwC) from which the Group purchased services of $9,934,124 during the year (2012:
$3,860,872). These services include taxation advice provided to the Group in relation to investigations and audit
activities undertaken by the Australian Taxation Office during the reporting period. Mr Fazzino’s spouse does not
directly provide these services. Mr Fazzino has not engaged PwC at any time for any assignments.
(2) During the year ended 30 September 2013, a related party of Mr Smorgon, a non-executive director, provided printing
services to the value of $3,300 (2012: $11,245) to the Company. The balance owing by the Company at 30 September
2013 was $nil (2012: $nil).
101
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
34. Key management personnel disclosures (continued)
(d) Movements in shareholdings of directors and executives
(1) Movements in shares in the Company
The movement during the reporting period in the number 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
P Brasher
A D McCallum
J Marlay
A C Larkin
G Smorgon
R J McGrath
Non-executive directors – former
J C Watson
Executive directors – current
J E Fazzino
Executives – current
F Micallef
K J Gleeson
J Rintel
B C Walsh (2)
J D Whiteside
S Dawson
D McAtee (1)
S Atkinson
Executives – former
G Brinkworth
B Wallace
Number of shares (A)
Opening
balance
Shares
acquired
Shares
disposed
Closing
balance
Year
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
20,600
20,600
216,501
216,501
37,926
37,926
5,000
5,000
–
–
7,000
400
2012
100,000
2013
2012
1,708,180
1,708,180
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2012
2012
–
–
3,241
2,891
–
–
100,360
100,360
58,500
58,500
23,867
23,867
–
–
3,380
3,380
550
–
20,000
–
–
–
–
–
–
–
–
–
–
6,600
–
–
–
–
–
–
350
–
–
10,140
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40,600
20,600
216,501
216,501
37,926
37,926
5,000
5,000
–
–
7,000
7,000
100,000
1,708,180
1,708,180
–
–
–
–
–
–
(100,000)
–
(55,000)
–
–
–
–
–
–
–
–
–
3,241
3,241
–
–
10,500
100,360
3,500
58,500
23,867
23,867
–
–
3,380
3,380
–
–
–
–
550
–
(A) Includes fully paid ordinary shares and shares acquired under the Employee Share Ownership Plan (ESOP). Details of the ESOP are set out in Note 35,
Share based payments.
(1) The opening balance represents shares held as at the date of becoming a key management person. Movements are from this date.
(2) B C Walsh ceased employment with the Company effective 1 October 2013.
Incitec Pivot Limited Annual Report 2013
102
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
34. Key management personnel disclosures (continued)
(d) Movements in shareholdings of directors and executives
(2) 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
K J Gleeson
J Rintel
B C Walsh
J D Whiteside
S Dawson
D McAtee (1)
S Atkinson
Executives – former
G Brinkworth
B Wallace
Year
Opening
balance
Granted as
compensation (B)
Exercised
Forfeited (C)
Closing
balance
Number of rights (A)
2013
2012
1,101,989
1,111,364
728,497
590,625
–
–
(511,364)
(600,000)
1,319,122
1,101,989
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
344,444
370,000
290,925
333,000
258,523
270,948
317,373
363,273
272,492
272,455
270,219
187,515
12,997
–
203,745
163,878
197,025
250,455
287,433
292,022
239,834
194,444
199,862
155,925
199,862
127,575
209,807
170,100
199,862
162,037
199,862
162,037
160,618
12,997
165,517
109,200
–
162,037
–
166,368
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(150,000)
(220,000)
(135,000)
(198,000)
(130,948)
(140,000)
(147,273)
(216,000)
(110,455)
(162,000)
(108,182)
(79,333)
–
–
(94,545)
(69,333)
(170,709)
(215,467)
(240,225)
(170,957)
434,278
344,444
355,787
290,925
327,437
258,523
379,907
317,373
361,899
272,492
361,899
270,219
173,615
12,997
274,717
203,745
26,316
197,025
47,208
287,433
(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 the executive director and executives while a director or executive of the Group pursuant to
the Long Term Incentive Performance Rights Plan 2012/15 (LTI 2012/15), details of which are set out in section C of the Remuneration Report.
(C) Represents rights that were forfeited under the Long Term Incentive Performance Rights Plan 2010/13 (LTI 2010/13). Refer to section C of the
Remuneration Report for further details. In the case of executives who ceased their employment during the 2012 year, all rights held by those
executives in the LTI 2009/12 were forfeited as at the relevant date of cessation. In addition, a proportion of their rights under the Long Term Incentive
Performance Rights Plan 2010/13 (LTI 2010/13) and LTI 2011/14 were forfeited as at the relevant date of cessation in accordance with the relevant
plan rules.
(1) The opening balance in the prior year represents rights held as at the date of becoming a key management person. Movements are from this date.
103
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
35. 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 EPS, 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 the Long Term Incentive Performance Rights Plan 2012/15 (LTI 2012/15). The
performance period for this plan is 1 October 2012 to 30 September 2015.
The LTI 2012/15 has the same features as the Long Term Incentive Performance Rights Plan 2011/14 (LTI 2011/14) and
Long Term Incentive Performance Rights Plan 2010/13 (LTI 2010/13). Details of these plans are summarised as follows:
l 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.
l 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. A grant of performance rights to the Executive Director is subject to shareholder approval.
l Conditions: The performance rights only vest if certain conditions are met, which are approved by the Board on
commencement of the Plan. The performance conditions are based on the relative Total Shareholder Returns of the
Company and Earnings Per Share (before IMIs):
Total Shareholder Return (TSR) Condition: The TSR Condition requires growth in the Company’s total shareholder
returns to be at or above the median of the companies in the comparator group, being the S&P/ASX 100. If, at the
end of the performance period, the Company’s TSR over the three year performance period is:
– below the 50th percentile of the comparator group of companies ranked by their TSR performance: no performance
rights in this tranche will vest;
– between the 50th and 75th percentile of the comparator group of companies ranked by their TSR performance: the
portion of performance rights in this tranche that will vest will be increased on a pro rata basis from 50 percent to
100 percent (assuming 50 percent vest at the 50th percentile); and
– equal to or above the 75th percentile of the comparator group of companies ranked by their TSR performance:
all performance rights in this tranche will vest; and
Earnings Per Share (EPS) Condition: For the LTI 2010/13 and LTI 2011/14, if, at the end of the performance period,
the compound annual growth rate on EPS (before IMIs) over the performance period, from the base year, is:
– below 7 percent per annum: no performance rights in this tranche will vest;
– equal to or greater than 7 percent per annum but less than 15 percent per annum: the portion of performance
rights in this tranche that will vest will be increased on a pro rata basis between 50 percent and 100 percent; and
– 15 percent or greater: all performance rights in this tranche will vest.
For the LTI 2012/15, if, at the end of the performance period, the compound annual growth rate on EPS (before IMIs)
over the performance period, from the base year, is:
– below 6 percent per annum: no performance rights in this tranche will vest;
– equal to or greater than 6 percent per annum but less than 12.5 percent per annum: the portion of performance
rights in this tranche that will vest will be increased on a pro rata basis between 50 percent and 100 percent; and
– 12.5 percent or greater: all performance rights in this tranche will vest.
These two performance conditions are equally weighted, in all Long Term Incentive Performance Rights Plans.
l 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 if a participant serves a notice that he or she wishes the rights to lapse.
Incitec Pivot Limited Annual Report 2013
104
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
35. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
Long Term Incentive Performance Cash Plans
Certain employees and executives based in some jurisdictions (excluding Key Management Personnel), participate in
long term incentive performance cash plans which are operated by the Group, through its offshore entities. The Long
Term Incentive Performance Cash Plan 2012/15, Long Term Incentive Performance Cash Plan 2011/14 and Long Term
Incentive Performance Cash Plan 2010/13 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. However, the plans are settled in cash.
Long Term Incentive Performance Rights Plans – LTI 2009/12
The LTI 2009/12 is similar to the LTI 2012/15, LTI 2011/14 and LTI 2010/13 in that each of the plans is a performance
rights plan with three year performance periods. Similarly the conditions focus on the performance of the Company and
include a condition relating to duration of employment. However, under the LTI 2009/12, the performance condition is
based on the Company’s Total Shareholder Return (Absolute TSR), being the percentage increase in the Company’s share
price over the three year performance period plus the after tax value of dividends paid, assuming the dividends are
reinvested in the Company’s shares.
If, at the end of the relevant performance period, Absolute TSR:
l is equal to or less than 10 percent per annum compounded over the performance period, none of the performance
rights will vest;
l is greater than 10 percent and less than 20 percent per annum compounded over the performance period, an
increasing proportion of the performance rights will vest from zero on a straight line basis; and
l is 20 percent or more per annum compounded over the performance period, all of the performance rights will vest.
Long Term Incentive Performance Cash Plan – LTI Plan 2009/12
Certain employees and executives based in some jurisdictions (excluding Key Management Personnel), participate in a
Long Term Incentive Performance Cash Plan which is operated by the Group, through its offshore entities. The Long Term
Incentive Performance Cash Plan 2009/12 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 Plan, LTI 2009/12. However, the plan is settled in cash.
105
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
35. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
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
Fair Value
Number
Number
Number
Number
Number
Number
Consolidated – 2013
Performance Rights
LTI Rights – 2010/13 – TSR
23 Dec 10
30 Sep 13
$2.77 2,132,289
LTI Rights – 2010/13 – EPS
23 Dec 10
30 Sep 13
$3.76 2,132,289
LTI Cash – 2010/13 – TSR
23 Dec 10
30 Sep 13
LTI Cash – 2010/13 – EPS
23 Dec 10
30 Sep 13
$2.77
$3.76
79,001
79,001
LTI Rights – 2011/14 – TSR
02 Feb 12
30 Sep 14
$1.72 2,626,367
LTI Rights – 2011/14 – EPS
02 Feb 12
30 Sep 14
$2.90 2,626,367
LTI Cash – 2011/14 – TSR
02 Feb 12
30 Sep 14
$1.72
107,481
LTI Cash – 2011/14 – EPS
02 Feb 12
30 Sep 14
LTI Rights – 2012/15 – TSR
25 Jan 13
30 Sep 15
LTI Rights – 2012/15 – EPS
25 Jan 13
30 Sep 15
LTI Cash – 2012/15 – TSR
25 Jan 13
30 Sep 15
LTI Cash – 2012/15 – EPS
25 Jan 13
30 Sep 15
$2.90
$1.54
$2.86
$1.54
$2.86
Total – Performance rights
Weighted average fair value
107,481
–
–
–
–
3,433,518
3,433,518
135,232
135,232
9,890,276
7,137,500
$2.74
$2.20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,132,289)
(2,132,289)
(79,001)
(79,001)
–
–
–
–
(164,144)
2,462,223
(164,144)
2,462,223
(18,403)
89,078
(18,403)
89,078
(92,177)
3,341,341
(92,177)
3,341,341
(3,068)
132,164
(3,068)
132,164
(4,978,164) 12,049,612
$3.15
$2.25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
Fair Value
Number
Number
Number
Number
Number
Number
Consolidated – 2012
Performance Rights
LTI Rights – 2008/11
LTI Cash – 2008/11
LTI Rights – 2009/12
LTI Cash – 2009/12
19 Dec 08
30 Sep 11
$0.30
2,041,620
19 Dec 08
16 Dec 09
16 Dec 09
30 Sep 11
30 Sep 12
30 Sep 12
$1.60
$1.60
$1.60
839,023
5,134,598
234,041
LTI Rights – 2010/13 – TSR
23 Dec 10
30 Sep 13
$2.77
2,257,049
LTI Rights – 2010/13 – EPS
23 Dec 10
30 Sep 13
$3.76
2,257,049
–
–
–
–
–
–
LTI Cash – 2010/13 – TSR
23 Dec 10
30 Sep 13
LTI Cash – 2010/13 – EPS
23 Dec 10
30 Sep 13
LTI Rights – 2011/14 – TSR
02 Feb 12
30 Sep 14
LTI Rights – 2011/14 – EPS
02 Feb 12
30 Sep 14
LTI Cash – 2011/14 – TSR
LTI Cash – 2011/14 – EPS
02 Feb 12
02 Feb 12
30 Sep 14
30 Sep 14
$2.77
$3.76
$1.72
$2.90
$1.72
$2.90
59,177
59,177
24,364
24,364
–
–
–
–
2,767,069
2,767,069
133,135
133,135
Total – Performance rights
Weighted average fair value
12,881,734
5,849,136
$1.17
$2.32
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,041,620)
(839,023)
(5,134,598)
(234,041)
–
–
–
–
(124,760)
2,132,289
(124,760)
2,132,289
(4,540)
(4,540)
79,001
79,001
(140,702)
2,626,367
(140,702)
2,626,367
(25,654)
(25,654)
107,481
107,481
(8,840,594)
9,890,276
$1.38
$2.74
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Incitec Pivot Limited Annual Report 2013
106
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
35. 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 1.58 years (2012 – 1.03 years).
Fair value of performance rights granted
LTI – 2012/15
In respect of the LTI 2012/15, the assessed fair values at grant date of the rights granted during the year for both the TSR
measure and the EPS 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 2013 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 2012 to 30 September 2015.
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 25 January 2013)
Fair value at grant date: LTI 2012/15 – TSR
Fair value at grant date: LTI 2012/15 – EPS
25 January 2013
$3.10
$nil
30% pa
30 September 2015
3.0% pa
2.72% pa
LTI 2012/15
$1.54
$2.86
107
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
35. 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:
l shares acquired are either newly issued shares or existing shares acquired on market.
l employees are each entitled to acquire shares with a maximum value of $1,000.
l employees salary sacrifice the value of the shares by equal deductions through to 30 June the following year.
l 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.
l employees who leave the Company must salary sacrifice any remaining amount prior to departure.
Grant date
6 Nov 09
9 Sep 10
1 Jul 11
2 Jul 12
1 Jul 13
Date shares
become unrestricted
6 Nov 12
9 Sep 13
1 Jul 14
2 Jul 15
1 Jul 16
Number of participants as at
Number of restricted shares held as at
30 Sep 13
30 Sep 12
–
–
419
562
510
334
405
431
602
–
30 Sep 13
–
–
106,588
195,314
175,523
30 Sep 12
131,475
123,589
115,903
210,783
–
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,
net of the prior year write-back of the LTI 2010/13 and LTI 2011/14 EPS portion
Consolidated
2013
$000
2012
$000
(446)
10,431
Total carrying amount of liabilities for cash settled arrangements
479
420
Incitec Pivot Limited Annual Report 2013
108
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
36. Investments in controlled entities
Ownership
interest
Country of
incorporation
September
2013
September
2012
Australia
Australia
Australia
Australia
Australia
Australia
Hong Kong
Australia
Hong Kong
Hong Kong
Singapore
Australia
Australia
Australia
USA
Australia
USA
USA
Australia
Australia
USA
New Zealand
USA
Australia
Australia
Australia
USA
USA
USA
USA
USA
100%
100%
100%
100%
100%
100%
100%
100%
65%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
65%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Name of entity
Company
Incitec Pivot Limited (1)
Controlled Entities – operating
Incitec Fertilizers Limited (1)
TOP Australia Ltd (1)
Southern Cross Fertilisers Pty Ltd (1)
Southern Cross International Pty Ltd (1)
Incitec Pivot LTI Plan Company Pty Limited
Incitec Pivot Holdings (Hong Kong) Limited
Incitec Pivot Explosives Holdings Pty Limited (1)
TinLinhe Nitrogen Limited
Quantum Fertilisers Limited
Coltivi Insurance Pte Limited
Queensland Operations Pty Limited
Incitec Pivot Investments 1 Pty Ltd (1)
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 (1)
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) Party to deed of cross guarantee dated 30 September 2008.
109
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
36. Investments in controlled entities (continued)
Name of entity
Controlled Entities – operating (continued)
Dyno Nobel Inc.
Dyno Nobel Transportation, Inc.
Independent Explosives Co. of Penna. (2)
IR, Inc. (2)
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 (1)
Dampier Nitrogen Pty Ltd
DNX Australia Pty Ltd (1)
DNX Papua New Guinea Ltd
Dyno Nobel Moranbah Pty Ltd (1)
Dyno Nobel Moura Pty Limited (1)
PT DNX Indonesia
Nitromak DNX Kimya Sanayii A.S.
SC Romnitro Explosives Srl.
DNX Nitro Industria Kimike Sh.p.k
Pepin-IRECO, Inc. (2)
Dyno Nobel Louisiana Ammonia, LLC
Ownership
interest
Country of
incorporation
September
2013
September
2012
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%
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%
100%
USA
USA
USA
USA
USA
USA
USA
Chile
USA
USA
Peru
Mexico
Canada
Canada
Canada
Canada
Canada
Canada
Australia
Australia
Australia
PNG
Australia
Australia
Indonesia
Turkey
Romania
Albania
USA
USA
(1) Party to deed of cross guarantee dated 30 September 2008.
(2) These wholly owned entities were merged into Dyno Nobel Inc. during the year and subsequently de-registered.
Incitec Pivot Limited Annual Report 2013
110
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
37. Deed of cross guarantee
Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Assets classified as held for sale
Current tax asset
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
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
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Statement of Profit or Loss and Other Comprehensive Income
Profit before income tax
Income tax 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
Closed Group
2013
$mill
2012
$mill
210.5
192.8
5.6
319.7
0.5
12.7
35.1
776.9
6.0
4,248.3
99.5
2,181.7
282.0
96.0
6,913.5
7,690.4
754.4
25.1
88.8
39.6
–
907.9
492.5
747.3
114.3
7.3
36.7
184.4
1,582.5
2,490.4
5,200.0
3,265.9
699.8
1,234.3
5,200.0
376.1
(78.3)
297.8
1,139.0
1.1
(203.6)
1,234.3
83.2
186.7
32.2
308.0
0.1
–
20.6
630.8
7.5
4,165.6
129.0
2,083.2
300.9
114.2
6,800.4
7,431.2
630.3
104.1
87.1
14.8
24.5
860.8
452.0
519.9
–
10.7
49.3
230.6
1,262.5
2,123.3
5,307.9
3,265.9
903.0
1,139.0
5,307.9
625.9
(159.2)
466.7
891.8
(32.2)
(187.3)
1,139.0
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 36, Investments in controlled entities. Statement of Financial Position and Statement of Profit or Loss
and Other Comprehensive Income for this closed group are shown above.
111
Incitec Pivot Limited Annual Report 2013
Notes to the Consolidated Financial Statements
For the year ended 30 September 2013
38. Parent entity disclosure
As at, and throughout, the financial year ended 30 September 2013 the parent company of the Group was Incitec Pivot Limited.
Parent entity guarantees in respect of debts of its subsidiaries
As at 30 September 2013 the Company’s current liabilities exceeded its current assets by $622.3m. 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 12 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 $1,450.0m at 30 September 2013 and a cash
balance of $270.6m.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in Note 37.
Results of the parent entity
Profit for the period
Other comprehensive (loss)/income
Total comprehensive (loss)/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
Parent entity contingencies
Contingent liabilities of Incitec Pivot Limited are disclosed in Note 30.
Plant and equipment
Contracted but not yet provided for and payable:
Within one year
39. Events subsequent to reporting date
Dividends
Company
2013
$mill
2012
$mill
12.5
(177.0)
(164.5)
90.8
42.2
133.0
576.6
6,537.4
1,198.9
3,267.8
3,269.6
484.8
6,387.1
1,034.8
2,751.1
3,636.0
3,265.9
3,265.9
(15.8)
(76.0)
(11.0)
106.5
3,269.6
11.8
46.4
(9.6)
321.5
3,636.0
2.6
1.5
Since the end of the financial year, in November 2013, the directors have determined to pay a final dividend of 5.8 cents
per share on 18 December 2013. This dividend is 75 percent franked at the 30 percent corporate tax rate.
Other than the matter 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 2013
112
Directors’ Declaration
on the Financial Statements set out on pages 41 to 112
I, Paul Brasher, 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 41 to 112, and the remuneration disclosures that are contained in the
Remuneration Report on pages 13 to 27 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 2013 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) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1; and
(c) there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due
and payable.
2. There are reasonable grounds to believe that the Company and the controlled entities identified in Note 36 will be able to meet
any obligations or liabilities to which they are or may become subject by virtue of the Deed of Cross Guarantee between the
Company and those subsidiaries pursuant to ASIC Class Order 98/1418 (as amended).
3. The directors have been given the declaration by the Chief Executive Officer and the Chief Financial Officer as required by section
295A of the Corporations Act 2001 for the financial year ended 30 September 2013.
Paul Brasher
Chairman
Dated at Melbourne this 11th day of November 2013
113
Incitec Pivot Limited Annual Report 2013
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
DX: 111
Tel: +61 (0) 3 9671 7000
Fax: +61 (0) 3 9671 7001
www.deloitte.com.au
Independent Auditor’s Report
to the members of Incitec Pivot Limited
Report on the Financial Report
We have audited the accompanying financial report of Incitec Pivot Limited (“the Company”), which
comprises the consolidated statement of financial position as at 30 September 2013, the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of cash flows
and the consolidated statement of changes in equity for the year ended on that date, Notes 1 to 39
comprising a summary of significant accounting policies and other explanatory information, and the
directors’ declaration of the consolidated entity, comprising the Company and the entities it controlled
at the year’s end or from time to time during the financial year.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements of the consolidated entity comply with International Financial
Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control, relevant to the entity’s
preparation of the financial report that gives a true and fair view, in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Incitec Pivot Limited Annual Report 2013
114
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001. We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of Incitec Pivot Limited, would be in the same terms if given to
the directors as at the time of this auditor’s report.
Opinion
In our opinion:
(a) the financial report of Incitec Pivot Limited is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 September
2013 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) the consolidated financial statements also comply with International Financial Reporting
Standards as disclosed in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 13 to 27 of the directors’ report for the
year ended 30 September 2013. The directors of the company are responsible for the preparation and
presentation of the Remuneration Report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
Opinion
In our opinion the Remuneration Report of Incitec Pivot Limited for the year ended 30 September
2013, complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Tom Imbesi
Partner
Chartered Accountants
Melbourne, 11 November 2013
115
Incitec Pivot Limited Annual Report 2013
Shareholder Statistics
As at 11 November 2013
Distribution of ordinary shareholder and shareholdings
Size of holding
1
– 1,000
1 ,001 – 5,000
5,001
– 10,000
10,001 – 100,000
100,0001 and over
Total
Number of holders
Percentage
Number of shares
Percentage
13,484
31,137
9,926
7,731
190
62,468
21.59%
49.84%
15.89%
12.38%
0.30%
100.00%
6,709,975
90,250,543
73,292,947
164,608,080
1,293,868,565
1,628,730,110
0.41%
5.54%
4.50%
10.11%
79.44%
100.00%
Included in the above total are 2,516 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 75.53% of that class of shares.
Twenty largest ordinary fully paid shareholders
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited
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