A N N U A L R E P O R T
Ekati
Diavik
e
e
CANADA
Flin Flon
e
Tumbler Ridge
Calgary
Biwabik
e
St Helens
Barry
Salt Lake City
Cheyenne
Carthage
e
e
i
a
i
Louisiana, Missouri
Waggaman, Louisiana
Dinamita
Gomez Palacios
Guadalajara
e
USA
MEXICO
Meadowbank
e
e
e
e
a
e
i
a
e
e
e
i
i
Ishpeming
North Bay
Fermount
Maitland
Boisbriand
Ormstown
Simsbury
Port Ewen
Donora
Duffield
Van Wyck
Brooksville
Graham
Wolf Lake
LATIN
AMERICA
La Serena
i
Santiago
Tirana
Bucharest
Ankara
Soma
i e
TURKEY
CHINA
PAKISTAN
INDIA
i
Linyi (Fabchem)
New Delhi
Hong Kong
e
e
Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
e
e
Papua New Guinea
INDONESIA
e
a
Moranbah
Townsville
AUSTRALIA
e
i
e
Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Warkworth
Melbourne
Geelong
Devonport
Batu Arang (TKEB)
i
SOUTH
AFRICA
Sibolga
Tanjung Tabalong
Jakarta
Batu Kajang
Port Hedland
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
i
i
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
e
e
e
e
a
Incitec Pivot Limited
Company Headquarters
Incitec Pivot Fertilisers
Corporate Office
Manufacturing/Distribution
Quantum Fertilisers
Dyno Nobel
Corporate Office
Manufacturing/Distribution
Joint Ventures/Investments
Manufacturing legend
i
e
Initiation
Emulsion
ANa
a Long term AN supplier
Tirana
Bucharest
Ankara
Soma
i e
TURKEY
CHINA
PAKISTAN
INDIA
i
Linyi (Fabchem)
New Delhi
Hong Kong
e
e
e
Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
SOUTH
AFRICA
i
i
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
Batu Arang (TKEB)
i
Sibolga
Tanjung Tabalong
Jakarta
Batu Kajang
e
e
e
a
Port Hedland
e
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
INDONESIA
AUSTRALIA
e
Papua New Guinea
e
a
Moranbah
Townsville
e
Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Warkworth
i
e
Melbourne
Geelong
Devonport
Ekati
Diavik
e
e
CANADA
Flin Flon
Tumbler Ridge
Calgary
Biwabik
St Helens
Barry
Salt Lake City
Cheyenne
Carthage
Louisiana, Missouri
Waggaman, Louisiana
Dinamita
Gomez Palacios
Guadalajara
e
e
e
i
a
i
e
e
USA
MEXICO
e
e
e
e
a
e
i
a
e
e
e
i
i
Meadowbank
Ishpeming
North Bay
Fermount
Maitland
Boisbriand
Ormstown
Simsbury
Port Ewen
Donora
Duffield
Van Wyck
Brooksville
Graham
Wolf Lake
LATIN
AMERICA
La Serena
Santiago
i
Contents
Chairman’s Report
Managing Director’s Report
Board of Directors
Executive Team
Sustainability Report
Directors’ Report
– Remuneration Report
– Corporate Governance
Statement
Financial Report
ii
iv
vi
vii
viii
1
16
32
42
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
I am pleased to make my third report to
shareholders as Chairman of Incitec Pivot
Limited and to outline the improvement
in our performance during 2014 and also
our success in building the strategic
platform for the future.
Our team of committed and talented
people has delivered a solid 2014 result,
reflecting the Business Excellence (BEx)
performance culture, improving
manufacturing reliability and
responsiveness to customer challenges.
The 2014 highlight has been our safety
performance which continues to advance
towards the goal of Zero Harm. When we
adopted the Global Strategy two years
ago, the goal was to achieve an all-
worker Total Recordable Injury Frequency
Rate (TRIFR) of less than 1 by 2016
(where TRIFR is determined by reference
to the number of recordable injuries per
200,000 hours worked). I am pleased to
report that we surpassed that in 2014,
with a TRIFR of 0.97, and we are
determined to continue to drive towards
zero. This year’s result is particularly
important in light of the tragedy of two
workplace fatalities last year, which will
forever remain in our minds.
Also, during the year, we remembered
our 11 Dyno Nobel colleagues killed
in an explosion at Papua New Guinea’s
Porgera mine in 1994. Members of the
Board Health, Safety, Environment
and Community Committee were in
attendance at the commemoration
ceremony at our initiation system plant
in Helidon, Queensland to mark the 20th
anniversary of the Porgera disaster. It is
because of tragic events such as this that
the Board and management of Incitec
Pivot are committed to achieving Zero
Harm; it is our highest priority for our
people and the wider communities in
which we operate.
Financially, our underlying performance
for the year was positive. Net Profit After
Tax (NPAT), excluding Individually Material
Items (IMIs), was $356.3 million, an
increase of 21% on the previous
corresponding period. This was achieved
in a business environment where our
ii
Incitec Pivot Limited Annual Report 2014
The combination of a visionary and effective strategy
with a team of people who have the expertise and
dedication to execute on the strategy will ensure that
Incitec Pivot will continue to deliver for shareholders
into the future.
customers in the global resources and
Australian agricultural industries
confronted substantial challenges.
On the measure of shareholder returns,
Earnings Per Share (EPS) excluding IMIs
were up 21% and the final dividend has
been declared at 7.3 cents per share (cps)
franked to 10%. This brings the full year
dividend to 10.8cps, representing an
increase of 17% on the 2013 full year
dividend of 9.2cps. The dividend payout
ratio of 50% of NPAT excluding IMIs
reflects the payout ratio endorsed by the
Board of 30–60% of NPAT excluding IMIs.
To briefly summarise some of the business
highlights of the past year, Dyno Nobel
Asia Pacific (DNAP) Earnings Before
Interest and Tax (EBIT) grew by 25% on
the back of the Moranbah ammonium
nitrate plant, Dyno Nobel Americas (DNA)
explosives EBIT rose by 10% and Fertilisers’
EBIT was up 9%. This was achieved despite
volume reductions in DNAP and DNA and,
for Fertilisers, lower global prices and
drought in Northern Australia.
This demonstrates that Incitec Pivot will
produce results, despite the external
environment, because of the strength
of our strategy and our commitment
to focusing on workplace productivity,
manufacturing reliability, financial
discipline and customer relationships.
Business Excellence (BEx) continues to
produce results, with another $27 million
in sustainable net benefits delivered in
the 2014 financial year. Financial discipline
continues to be a hallmark of the
Company as we again ended the year
with a strong balance sheet.
Our strategy is built upon a number
of core themes. We look for market
dislocations that allow us to make returns
at least 50% above our cost of capital.
These ‘dislocations’ are the industrialisation
of Asia, particularly China, which drives
demand for hard and soft commodities,
and the re-industrialisation of the United
States, on the back of the shale gas
revolution. A key component of our
strategic focus is our core nitrogen
chemical manufacturing expertise which
is applied to capitalise on these market
dislocations. We are comfortable that
execution of this strategy will drive
above-trend returns.
The two major strategic decisions for
the Company in the past five years,
the $1 billion Moranbah ammonium
nitrate plant and the $US850 million
Louisiana ammonia project, continue
to demonstrate delivery of shareholder
value. Moranbah is the Asian-
industrialisation strategic element,
based in the Queensland Bowen Basin
metalliferous coal province, supplying
miners with explosives to release coal
for steel mills in China and elsewhere.
Moranbah, following maintenance earlier
in the year, is now operating at nameplate
capacity. In the next year, Moranbah is
expected to generate an estimated
$140 million of EBIT.
In Louisiana, we are investing US$850
million to build a world-scale ammonia
plant. Nameplate capacity of the plant
is 800,000 metric tonnes a year, with
first production expected in the 3rd
Quarter of 2016. The strategic rationale
for this project is to capitalise on the
dislocation in energy prices between
the US and Europe, Europe being the
marginal producer of ammonia,
with gas accounting for up to 80%
of the variable cost of production.
With Louisiana, we recognised the
opportunity early and gained a ‘first
mover’ advantage. The investment
thesis is sound and the fundamentals
of the project are better than when we
announced it 18 months ago: the
construction is on track, 100% of the
production volume is already committed
to off-take arrangements from Day One
and the depth of supply in the gas
market is such that a competitive
price can be maintained.
With Moranbah operating as expected
and Louisiana some 50% complete and
meeting all key milestones to date, we
are comfortable with our position on the
strategic pathway, and planning for the
next growth horizon will look beyond the
commencement of production at Louisiana.
However, the best strategy will take a
company nowhere without rigorous
Members of the Board (l to r): Graham Smorgon AM, Paul Brasher, Rebecca McGrath, James Fazzino, Kathryn Fagg and Anthony Larkin during a visit to the
Dyno Nobel Asia Pacific operations at Newman, Western Australia.
execution of that strategy. Workplace
productivity and a performance culture
are essential elements to execution,
and both are driven by BEx.
Achieving successful engagement on
BEx requires leadership at all levels in
the organisation. As a Board, we have
sought to gain a deeper understanding
of the ‘mechanics’ of BEx as part of our
engagement with employees and
management across the organisation.
During our visit to the Pilbara earlier this
year, the Board participated in BEx
meetings at the different operational
levels, from management to mine bench.
In keeping with this, the Board will next
year visit the Wolf Lake initiation systems
plant, which is one of our ‘model’ BEx
sites in the US, to gain further insights
into BEx principles and practice.
BEx also plays a major role in the
execution of our nitrogen chemical
manufacturing expertise. Incitec Pivot
operates 17 complex manufacturing
sites across the US, Mexico and Australia.
To deliver on our strategic goal, we need
to achieve world class manufacturing
performance.
The first step in world class manufacturing
performance is predictably reliable
operations at all sites to meet the needs
of our customers. This has been a
challenge in the past, but I am confident
under the new Global Manufacturing
structure established last year by James
Fazzino and led by the President Strategic
Engineering, Alan Grace, and the President
Manufacturing Operations, Steve Dawson,
we are already substantially achieving
our reliability goals, with both Moranbah
and the fertiliser operations at Phosphate
Hill and Mt Isa operating at nameplate
capacity following their respective
turnarounds earlier this year.
I am pleased to advise that the Board is
active in engaging with many of the
Company’s key stakeholders. I have
mentioned our interaction with employees
on site visits. Engagement has also
involved shareholders, customers and
local site communities who are very
important to our continuing operation
and future success. My interaction with
shareholders has been mutually beneficial
in understanding the views – positive and
negative – of some of our largest investors
and has also allowed me the opportunity
to reinforce our strategic priorities. In
general terms, these major shareholders
are supportive of the Company’s direction
and are looking forward to the start of
operations in Louisiana. We also took the
opportunity to engage with customers on
our site visits during the year.
At a Board level, we welcomed two new
directors, Kathryn Fagg, who joined the
Board during the year, and Greg Hayes,
post year-end. Both Kathryn and Greg
are outstanding appointments and I am
delighted to have their contribution to
discussions and deliberations. Kathryn
and Greg each have significant business
experience in industries and geographies
relevant to Incitec Pivot and will bring
further diversity to the Board.
At the Annual General Meeting, one of
our long standing directors, Tony Larkin,
will complete his current three-year term
and will not be seeking re-election. Tony,
in his 10 years as a director of Incitec
Pivot and, prior to that, as a director of
Incitec Limited, has been at the centre of
many of the pivotal decisions which have
brought the Company to its current strong
position: the Incitec Pivot merger and the
acquisitions of Southern Cross and Dyno
Nobel to name just three. Through his
financial experience and expertise, Tony
has been invaluable as a Board member,
but particularly as Chair of the Audit and
Risk Management Committee. On behalf
of the Board, I would like to thank Tony
for his contribution and service to the
Company over many years. Let me also
take this opportunity to thank all of my
fellow directors for their sage advice and
support during the year. They are not only
experienced and erudite but ready
to contribute their time both in the
Boardroom and on site visits. I look
forward to continuing to work together
with them into the future.
It is similarly very rewarding to work
with James and his Executive Team.
The Company is well placed to capitalise
on the global growth drivers and I am
confident that with the leadership of
James and his management team, we
will deliver success.
While the future is positive, there will be
challenges. We supply global industries
subject to the vagaries of world markets
but we know that we will succeed by
continuing to add value to our customers’
businesses. Our Company will confront
issues beyond our control – input costs,
exchange rates, global prices – but we will
continue to succeed if we maintain our
focus on those things which underpin our
performance: BEx, manufacturing
reliability and financial discipline.
I have confidence in our future success
because I have confidence in our people.
As you will have gleaned from this report,
I have spent a good deal of my time
visiting our sites and speaking with our
people. I am constantly impressed by the
skill, good nature and commitment to the
Company’s goals and Values demonstrated
by the Incitec Pivot workforce.
The combination of a visionary and
effective strategy with a team of people
who have the expertise and dedication
to execute on the strategy will ensure
that Incitec Pivot will continue to deliver
for shareholders into the future. In 2014,
we made considerable progress on
both strategic development and on the
enhancement of our workplace systems
and, in doing so, have created the
foundations for future success.
Paul Brasher
Chairman
Incitec Pivot Limited Annual Report 2014
iii
Managing Director’s Report
As I review our performance for 2014,
I am confident that we have the right
strategy which will continue to deliver
sustainable performance.
I am pleased to present my sixth report
as Managing Director & CEO. The 2014
result was delivered in the face of
challenging market conditions and as I
review our performance for 2014, I am
confident that we have the right strategy
which will continue to deliver sustainable
performance. In 2014, we demonstrated
that we can execute on the strategy
through our people and our processes
under Business Excellence (BEx). We
also reinforced the soundness of our
key strategic developments – Moranbah
and Louisiana.
There are clear links between the
in-roads made in our safety result
towards our goal of Zero Harm and our
overall successful performance. Our
positive results in safety are significant
because they reinforce my strong belief
that no great company has a poor safety
record – the systems, processes and
culture required for business success are
also core to a strong safety culture.
In 2012, when we adopted our five-
year Global Health Safety Environment
(HSE) Strategy, we laid the foundations
for the improvements we have made in
our safety performance in the last 12
months. Our aim was to achieve an all
worker Total Recordable Injury Frequency
Rate (TRIFR) of less than 1 by 2016. At
the end of the 2014 financial year, our
TRIFR was 0.97 – ahead of our target
and a world class result. While pleased
with the progress, we continue to strive
for ‘zero’. We know that this can be
achieved, as more than 90% of our
sites were injury free in 2014.
A key highlight in 2014 has been the
performance of our ammonium nitrate
plant at Moranbah in Queensland’s
metallurgical coal province – the Bowen
Basin. In 2014, Moranbah delivered
$115 million EBIT and is expected to
generate about $140 million EBIT in
2015. This reflects both the strength of
the strategy and the depth of expertise
of our Moranbah team in delivering
reliable production for our customers,
the global miners exporting coal to
feed the rapid industrialisation of Asia,
particularly China.
iv
Incitec Pivot Limited Annual Report 2014
Also, during 2014, we continued to build
the strategic platform for the future with
the progress of construction of a world-
scale ammonia plant in Louisiana. The
project is more than 50% complete and
is on track for production in the 3rd
Quarter of the 2016 calendar year, when
it is expected to double the earnings
of our Dyno Nobel Americas (DNA)
business. The strategic rationale for this
project is the return to growth of the
world’s largest economy, the United
States, and, in particular, the shale gas
revolution in the US which will provide
the key raw material for ammonia
production. It is satisfying that when we
regularly review the parameters of this
project, we find that the business case
for development is better now than
when we committed to the project.
Turning to the Group’s financial
performance, we announced an
underlying profit of $356.3 million –
an increase of 21% or $62.8 million.
NPAT including IMIs was $247.1 million.
Excluding IMIs, EBITDA increased by 15%
or $97.5 million; EBIT increased by 13%
or $57.9 million; and Earnings Per Share
were up 21% to 21.7 cents per share.
The significance of this result is that it
was achieved during a year when the
two key industries we serve – resources
and agriculture – were challenged by
global market influences.
In looking at the result in more detail,
the noteworthy performance came from
Dyno Nobel Asia Pacific (DNAP) which
increased EBIT by 25% through earnings
growth from Moranbah, which recorded
production of 299,000 tonnes for the
year. The result for DNAP was partially
offset by volume reductions in some
market segments.
Across the Pacific, DNA has two
businesses: explosives and fertilisers.
The explosives business $US EBIT grew
by 10% to $US113.5 million as a result
of margin improvements and a $US13
million contribution from BEx. The result
was partially offset by lower earnings
from coal.
Overall, DNA’s $US EBIT declined by
$US9.5 million or 6% to $US152.8
million. The negative impact came from
fertiliser earnings which fell by 33% to
$US39.3 million as a result of lower
global prices.
Our domestic fertiliser distribution
business increased EBIT by 9% or $8.7
million to $103.7 million. This was a
sound result considering lower global
fertiliser prices and drought in northern
Australia. The business benefitted from a
weaker Australian dollar and BEx gains.
Lower global fertiliser prices also had an
impact on the result of Southern Cross
International which overcame this
negative to increase EBIT by 13% to
$79.6 million. This result included an
$11.3 million increase in Phosphate
Hill EBIT to $36.6 million. Positive
contributions came from BEx and a
lower average Australian dollar.
BEx this year delivered $27 million
in net benefits to the financial result.
The recurring reference to the positive
contribution of BEx in the results is
significant. Three years ago, I committed
to transform IPL through instilling and
inspiring a culture of continued and
focused improvement for our people
and our business performance. We
needed to take control of our own
destiny through a commitment to
continuous improvement to create long-
term, year-on-year productivity benefits
by engaging all of our 5,500 employees
globally in taking ownership of change.
Culture change is extraordinarily difficult.
Leadership is essential. I was confident
that, through utilising BEx to deliver on
the strategy, creation of shareholder
value would follow because BEx requires
each of us to perform our roles with a
core focus on the strategy.
While it is critically important that BEx
delivers financial benefits, the great
advantages are also seen in the
relationship between BEx and our safety
systems to drive to Zero Harm and in the
satisfaction our employees derive from
increased responsibility and autonomy,
which in turn supports our culture of
continuous improvement.
BEx has been an important reason
why the reliability and performance
of our manufacturing plants improved
substantially during the year. This will
continue to be a key focus area for us
because we pride ourselves on our
manufacturing expertise and
performance. Major turnarounds were
undertaken at Phosphate Hill, Mt Isa and
Moranbah in 2014 to address ongoing
reliability issues at Phosphate Hill and
Mt Isa and ramp up issues at Moranbah.
At Moranbah, pre-turnaround, 43
significant reliability risks were identified,
with only one significant risk remaining
following the turnaround, which will be
addressed this coming year. Moranbah
is now operating at the rate of
nameplate capacity.
The four-yearly turnaround at Phosphate
Hill and Mt Isa involved the largest scope
of work we had ever undertaken at the
sites and at a cost of $74 million. By
way of illustration, the scope developed
included some 30% more maintenance
scope items and direct labour hours
than any previous turnarounds at the
sites, presenting a significant logistical
challenge for Phosphate Hill. The value
of this level of commitment is shown
by the fact that pre-turnaround, 21
significant reliability risks were identified
with none remaining post turnaround.
This improved reliability is producing
results, with the plant post-turnaround
producing at an annualised rate of
nameplate capacity and higher.
It is essential that we achieve reliable
production at Phosphate Hill because
of the substantial challenges for the
operation. A major cost input is the
increase in the price of gas contracted
from February 2015, and for 2016. This
will add a $38 million cost next year and
$50 million in a full year. Incitec Pivot is
not unique among companies on the East
Coast which are being forced to deal with
the structural change in energy supply
created by the development of gas
exports. At Incitec Pivot, we identified
the looming gas supply issue several
years ago and have been working on
a portfolio of solutions. Our approach
involves working with Government on
reforms to the gas market, dealing with
the gas majors and also linking with
emerging gas companies to encourage
more supply into the market and, as a
result, create an Australian gas market
that supports both domestic and export
users. This approach, coupled with our
progress in lifting plant productivity
and efficiency through BEx and timely
maintenance programs, will provide
solutions for the short and long term.
During the year, we continued our
progress on diversity, community and
sustainability. Details of our progress
on sustainability and diversity are set
out in this Annual Report. However,
I particularly wanted to highlight our
achievements in indigenous affairs.
There were several achievements
during the year including meeting
a 2% indigenous employment rate
across our Australian businesses,
implementing the Cultural Capability
program with an 80% participation
rate across our Australian businesses
and development of an Indigenous
Relations Policy.
I would like to join with the Chairman
in welcoming Kathryn Fagg and Greg
Hayes to the Board. I would also
particularly like to express my gratitude
to Tony Larkin who is retiring from the
Board after a decade of service. Tony
and I have worked together over many
years both in an executive capacity and
as fellow directors on the Incitec Pivot
Board. Tony has made an enormous
contribution to this Company. His
technical expertise and financial acumen
are exceptional and, beyond that, I have
greatly valued his wise counsel over
many years.
I would also like to thank my fellow
Executive Team members and all of
my colleagues at all levels in our
Company, at all of our operations
globally. You have often heard
me remark that the primary pleasure
of my role as Managing Director & CEO
is visiting sites and meeting our people.
The reason is simple; I find our people
inspirational and motivating. I am both
encouraged and delighted by the
manner in which they have engaged
in our BEx journey and embraced the
challenges it brings each day. But most
importantly, I am encouraged by the
results being achieved and the way
they are being delivered – through
continuous improvement.
We have the right strategy, skilled
people, visible leadership at all levels
and a commitment to continuous
improvement to build for the future
with projects that ‘move the dial’ –
namely Moranbah and Louisiana.
We have demonstrated in 2014 that
we can meet the challenges and
achieve results for ourselves, our
communities and our shareholders.
James Fazzino
Managing Director &
Chief Executive Officer
Cooling Tower and fan installation at Louisiana.
Incitec Pivot Limited Annual Report 2014
v
Board of Directors
Standing (l to r): Gregory Hayes, Graham Smorgon AM, Anthony Larkin, Kathryn Fagg, John Marlay
Seated (l to r): Rebecca McGrath, Paul Brasher, James Fazzino
Gregory Hayes
MAppFin, GradDipACC, BA, ACA
Non-executive director
Graham Smorgon AM
B.Juris, LLB
Non-executive director
Anthony Larkin
FCPA, FAICD
Non-executive director
Greg was appointed as a director
on 1 October 2014. Greg is a
member of the Audit and Risk
Management Committee.
Graham was appointed as a
director on 19 December 2008.
Graham is a member of the
Health, Safety, Environment and
Community Committee, the
Nominations Committee and the
Remuneration 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.
Kathryn Fagg
FTSE, BE(Hons), MCom(Hons)
Non-executive director
Kathryn was appointed as a
director on 15 April 2014.
Kathryn is a member of the
Health, Safety, Environment and
Community Committee.
John Marlay
BSc, FAICD
Non-executive director
Rebecca McGrath
BTP(Hons), MASc, FAICD
Non-executive director
Paul Brasher
BEc(Hons), FCA
Non-executive Chairman
James Fazzino
BEc(Hons)
Managing Director & CEO
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.
Rebecca was appointed as a
director on 15 September 2011.
Rebecca is Chairman of the
Health, Safety, Environment
and Community Committee
and a member of the Audit
and Risk Management
Committee and the
Nominations Committee.
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 and a member of
the Remuneration Committee.
James was appointed Managing
Director & CEO on 29 July 2009.
James is a member of the
Health, Safety, Environment
and Community Committee.
vi
Incitec Pivot Limited Annual Report 2014
Executive Team
First row (l to r):
James Fazzino,
Frank Micallef,
Jamie Rintel,
James Whiteside
Second row (l to r):
Stephen Dawson,
Simon Atkinson,
Elizabeth Hunter,
Alan Grace
James Fazzino BEc(Hons)
Managing Director & CEO
Frank Micallef BBus, MAcc, FCPA,
FFTA, FAICD
Chief Financial Officer
Frank was appointed Chief Financial Officer
on 23 October 2009. Frank joined Incitec
Pivot in May 2008 as General Manager,
Treasury and Chief Financial Officer, Trading.
Prior to joining Incitec Pivot, 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. Frank has over 12 years’
experience raising debt and equity funds
and in interest rate risk management with
ASX listed companies. Prior to commencing
his corporate career, Frank was a senior staff
member at the Australian Accounting
Standards Board.
Jamie Rintel BA
President, Strategy & Business
Development
Jamie joined Incitec Pivot in February 2005,
following extensive experience in consulting
across a range of industries both in Australia
and overseas. Within Incitec Pivot, 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.
James Whiteside BAgricSc,
GradDipBusAdmin, GAICD
Chief Operating Officer,
Incitec Pivot Fertilisers
James joined Incitec Pivot (then known as
Pivot Limited) in 1992, following extensive
experience in agricultural companies and in
consulting. Since joining Incitec Pivot, James
has held a number of senior management
roles including Group Procurement Manager.
As Chief Operating Officer, Incitec Pivot
Fertilisers, James is responsible for domestic
and international fertiliser sales and is the
Chief Executive Officer of Quantum Fertilisers.
He also holds executive responsibility for
global procurement and the global supply
chain planning process.
Stephen Dawson BSc(Hons) Mining
Engineering, MBA
President, Manufacturing Operations
Stephen joined Incitec Pivot upon its
acquisition of Dyno Nobel in 2008, having
commenced with Dyno Nobel in 1997.
Stephen commenced his career with British
Coal and subsequently worked with mining
companies Amcoal Collieries Limited and
Randcoal in South Africa, as well as AECI
Explosives Limited (now AEL) in a variety
of sales and operational roles. Previously,
Stephen led the Dyno Nobel industrial
explosives business in the Asia Pacific
region. In January 2014, Stephen assumed
the leadership of Manufacturing Operations
globally.
Simon Atkinson BBus, CA
President, Dyno Nobel Asia Pacific
& Global Technology
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 Deputy CFO and Investor
Relations Manager.
In 2009, Simon was appointed Global CFO
for the Group’s explosives business and
was subsequently appointed to the role
of President, Dyno Nobel International in
May 2010. In January 2014, Simon was
appointed to his current role as President,
Dyno Nobel Asia Pacific & Global Technology.
Elizabeth Hunter BBus, MBA
Chief Human Resources Officer
Elizabeth joinied Incitec Pivot in October
2013. Elizabeth has 24 years’ experience
in human resources in Australia and
internationally across a range of industries
including financial services, health,
infrastructure, industrial contracting, and in
semi-government organisations. She has
held several senior executive leadership
roles in publicly-listed Australian companies
with global operations. Elizabeth is a
member of the Chartered Institute of
Personnel and Development (UK) and
a Fellow of the Australian Human
Resource Institute.
Alan Grace BSc (Hons) Chem Eng.
President, Strategic Engineering
A qualified Chemical Engineer, Alan Grace
joined Incitec Pivot in 2000, working at that
time for Incitec Limited. He has 30 years’
experience constructing and operating
chemical processing plants. He has worked
on many large projects in the oil and gas,
petrochemical and chemicals sector,
including ammonia and ammonium nitrate
plants. Alan was the Project Director for
Incitec Pivot’s Moranbah complex during
the construction phase and, prior to this
appointment he was the Project Director
for the Feasibility Study and early stage
construction of the Ammonia plant in
Louisiana, USA. In October 2013, Alan was
appointed President, Strategic Engineering.
Incitec Pivot Limited Annual Report 2014
vii
Sustainability Report
APPROACH
Sustainability Strategy
Incitec Pivot defines Sustainability as
‘the creation of long term economic
value whilst caring for our people, our
communities and our environment’. This
commitment to Sustainability is driven by
the Company’s Values and is core to the
way Incitec Pivot operates its business.
Incitec Pivot’s Sustainability Strategy
was formally adopted by the Board in
September 2010. During the 2014
financial year, a formal review of the
Company’s sustainability performance
to date was undertaken. The review
included two independent peer
benchmarking reviews: one investor
focused (Dow Jones) and one customer
focused (Eco Vadis). As a result of this
review the existing strategy for
operational sites was reaffirmed. It was
also determined that Incitec Pivot should
seek to influence suppliers to promote
alignment with the Company’s corporate
values and continue the sustainable
development of its supply chain (see
below).
About this report
For five years Incitec Pivot has produced
a stand-alone Sustainability Report,
incrementally improving disclosure
each year against the Global Reporting
Initiative (GRI) Guidelines. This year, for
the first time, sustainability performance
data has been included in the Annual
Report. This will provide a full account
of Incitec Pivot’s annual economic,
environmental, social and governance
performance in one document.
Further information on Incitec Pivot’s
sustainability performance and prior
year Sustainability Reports can be
found on the Incitec Pivot website
www.incitecpivot.com.au.
Content selection
In order to determine the most important
topics for sustainability reporting, a
materiality review is conducted each
year. Initially, important topics are
identified through engaging with
stakeholders throughout the year and by
research of publicly available documents
and business communications. These
potential aspects are then analysed and
prioritised internally by Incitec Pivot to
determine which aspects are ‘material’
to report. This aligns to the GRI 4
materiality approach.
viii
Incitec Pivot Limited Annual Report 2014
In the 2014 financial year, Incitec Pivot
engaged with investors, customers,
suppliers, industry groups, representatives
of national and international charities,
regulators, Governments and grass-roots
community organisations including
resident groups, councils, farmers,
sporting clubs and environmental
groups through a range of channels.
Continuous Improvement through BEx
Business Excellence (BEx) is Incitec
Pivot’s Business System through which
a culture of continuous improvement is
being built. BEx is strongly aligned to
IPL’s Corporate Values and has lean
thinking at its core. Through BEx there
is continuous review, measurement of
business performance and improvement
of the processes and systems that
support sustainable practices.
Ammonia Plant – Waggaman,
Louisiana
During the 2014 financial year,
construction progressed on Incitec
Pivot’s US$850 million ammonia plant,
which is being built in Waggaman,
Louisiana, USA. This will be the
Company’s seventh ammonia plant
globally, its 10th nitrogen facility globally
and its 10th manufacturing facility in
North America. Construction of this site
further establishes Incitec Pivot as a
global leader in the manufacture of
ammonia and demonstrates its
commitment to Sustainability.
No safety or environmental incidents
have occurred to date during construction.
As is Company policy for all major
development projects, Incitec Pivot is
engaging with the community in
Louisiana where the facility is being
built. Regular updates are given to the
Jefferson Parish President’s office,
Louisiana Economic Development, the
Jefferson Parish Economic Development
and Port District and the Cornerstone
Chemical Company Community
Advisory Panel.
When operational, the plant will apply
the industry’s leading technology and
will be among the most efficient plants
of its kind in the world. As is consistent
with Incitec Pivot’s management of all
of its operations, safety and community
engagement will be an ongoing focus
of site management.
Highlights include:
• Local employment: Louisiana
Economic Development estimates the
Louisiana ammonia project will bring
65 new permanent skilled positions
to the local area
• Efficient Energy Use: Beyond the
simple scale efficiencies, the gas
purifier technology in the new plant
will provide cleaner gas at high
precision ratios, maximising gas
efficiency. This technology also
allows the plant to operate at lower
temperatures than other plants of its
kind, thereby demanding less energy.
In addition, steam created during
manufacturing will be recaptured and
reused, further conserving energy
• Low NOx Emissions: The Louisiana
ammonia plant will use the best
available Selective Catalyst Reduction
(SCR) technology to reduce emissions
of nitrogen oxides (NO and NO2,
referred to collectively as NOx) by
up to 98%. SCR converts the NOx in
flue gases to harmless nitrogen and
water vapour
• Zero CO2 Emissions: Incitec Pivot
intends for the Louisiana site to be a
carbon neutral site with the potential
to capture and compress its carbon
dioxide (CO2) emissions for use in
other industries. Potential uses include
food grade products and/or for
geological sequestration through
enhanced oil recovery
• Clean, sustainably sourced water:
All water used in manufacturing
will be sourced from the Mississippi
River then passed through a four-
stage cleaning process in the
ammonia plant. All wastewater and
stormwater streams will also be
treated onsite and returned as clean
water to the river, meeting strict
water quality limits
GOVERNANCE
Incitec Pivot’s highest governing body,
the Board of Directors, 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
other stakeholders including employees,
creditors, customers and the community,
in a manner designed to create and
continue to build sustainable value.
The Board Charter, Code of Ethics and
other key policies and systems which
define Incitec Pivot business practices are
available on the Incitec Pivot website.
Further information on Governance,
including risk oversight and
management, can be found in the
Corporate Governance Statement at
page 32 of this Annual Report.
ENVIRONMENT
Approach
As an international manufacturer of
industrial explosives and fertilisers,
Incitec Pivot operations have the
potential to create environmental
impacts such as soil and groundwater
contamination. In addition, the
manufacture of nitrogen-based products
is energy intensive and results in the
production of greenhouse gas emissions.
Incitec Pivot is committed to continuously
improving the management processes
and systems in place to make its
operations and products more
sustainable, and to ensure that
stakeholders are kept informed in
regard to the associated environmental
impacts and dependencies.
2014 priorities
Incitec Pivot continues to strive to
improve environmental performance, and
in the 2014 financial year focused on:
• Engaging with the Australian
Federal Government on energy
and carbon policy
• The continued roll out of Business
Excellence (BEx) across all business
areas, including those that impact on
the environment and on resource
efficiencies
• Continued focus on education and
training to further embed principles
of sustainable resource use and
environmental best practice across
the business
Performance
Energy and emissions
Incitec Pivot used 41,248,949 gigajoules
(GJ) of energy over the past year,
1,954,653 of which was electricity. The
absolute Scope 1 and 2 greehouse gas
emissions from Incitec Pivot’s global
operations decreased slightly to 2.6
million tonnes whilst global production
remained stable.
In line with the sustainability strategy
to ‘Use Less’ and ‘Care for the
Environment’, Incitec Pivot’s
manufacturing plants continued to
reduce both energy use and carbon
dioxide equivalent (CO2e) emissions
through initiatives such as lighting
reviews, the Cheyenne Plant Energy
Optimization Project and continuous
improvements made during scheduled
shutdowns. In the 2014 financial year,
at St Helens, Oregon, modifications to
steam header vent valves, waste heat
boilers and ammonia reflux piping are
expected to reduce annual energy use
by over 940,000 GJ, reduce emissions
by 48,000 tonnes of carbon dioxide
equivalent (tCO2e) and also reduce the
risk of future releases of ammonia.
Incitec Pivot also continued to invest
in NOx reduction technology, replacing
both catalysts in the combustors at the
Donora, USA site. The St Helens, Oregon
site commissioned an acid tank scrubber
to remove fugitive NOx emissions and the
nitrous oxide (N2O) abatement unit at
Moranbah, Queensland reduced N2O
emissions by 554,092 tCO2e during
the year.
Water use
Incitec Pivot’s water use in the 2014
financial year, was 43,395 megalitres
(ML), approximately the same as in the
2013 financial year. Continuous
improvements made to reduce water
use included the refurbishment of the
cooling tower at the Donora, Pennsylvania
site, eliminating steam leaks as part of
the Cheyenne Plant Energy Optimization
Project and several projects to reuse
water: at Cheyenne, Wyoming, a mobile
reverse osmosis unit reclaimed 53,000
kilolitres (kL) of waste water for reuse
in the cooling towers and at Phosphate
Hill, Australia, 33,815 kL of water was
recovered from waste gypsum stockpiles.
Water discharge
During the 2014 financial year, Incitec
Pivot discharged 32,478,251 m3 of
water to the environment, approximately
the same as last year.
Most (97%) of this water was clean
cooling water that was discharged to the
rivers from which it was taken. Improved
nitrogen recovery at Cheyenne, USA has
resulted in greater recapture of nutrients
and cleaner discharge to aquifers in
the past year. At Louisiana, Missouri,
continued operation of the new Electro-
Dialysis Reduction unit reduced nitrate
discharge to the Mississippi River by
approximately 80% in the past year.
Waste
During the 2014 financial year, Incitec
Pivot produced 13,493 t of solid waste,
1,470,412 t of solid chemical waste, and
23,469 kL of liquid waste.
Continuous improvement in reducing all
types of waste and increasing recycling
has resulted in several new initiatives.
Examples include a bailer purchased at
the Graham, Kentucky plant to enable 7t
per year of solid plastics to be diverted
from landfill to reuse. At Louisiana,
Missouri a project is underway to install
an Imhoff Ozone-UV sanitary sewer
discharge system to eliminate the
current septic sewer outfall.
The Research and Development (R&D)
team in the USA is currently developing
methods to treat different types of
wastewater for reuse in product
manufacturing and also assisted the
explosives business to recycle 2,265 t
of chemical waste into making new
emulsions. The Australian R&D team
enabled the recycling of 1,400 t of similar
material into making emulsions.
Environmental Compliance and
Remediation
Continuous improvement in environmental
compliance during the 2014 financial year
included a review and simplification of IPL’s
Global Environmental Standards (as part of
a review of all HSE Standards). Developed
using BEx methodologies, the focus was to
create a management tool that would be
used daily by sites to further mitigate
potential environmental risks. Further detail
on environmental compliance, including
incidents and fines, can be found on pages
3 and 4 of the Directors’ Report.
Total direct and indirect greenhouse
gas emissions
Water use by source
Total water used was 43,395 megalitres
Solid waste by destination
Total solid waste was 13,493 tonnes
3.5
Million tonnes of CO2e
30,000
Megalitres
7,000
Tonnes
3.0
2.5
2.0
1.5
1.0
0.5
0
25,000
20,000
15,000
10,000
5,000
0
6,000
5,000
4,000
3,000
2,000
1,000
0
2009
2010
2011
2012
2013
2014
Municipal
water
Ground
water
Recycled
water
Storm
water
Surface
water
Desalinated
water
Rain
water
Landfill
Recycled
Hazardous
Contaminated
non-hazardous
Total GHG emissions
Scope 1
Scope 2
Water source
2012/13
2013/14
Waste destination
2012/13
2013/14
Incitec Pivot Limited Annual Report 2014
ix
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
30000
25000
20000
15000
10000
5000
0
7000
6000
5000
4000
3000
2000
1000
0
Sustainability Report
Remediation works have been completed
successfully at Parafield Gardens and
Wallaroo in Australia and also at the
disused burning grounds in Carthage,
USA. Progress was also made on
remediation at the Cockle Creek and
Pinkenba sites in Australia. At the
Wallaroo site, $20 million was invested
in remediating soil and groundwater
and in completing heritage works on
an area of historical significance. This
area was officially handed over to the
District of Copper Coast Council on
11 September 2014.
2015 priorities
• Working with the Australian Federal
Government on energy and carbon
policy to ensure favourable outcomes
for both business and the environment
• Working across the global business to
drive energy efficiencies, including
finalising and implementing North
American resource efficiency targets
• The continued roll out of Business
Excellence (BEx) across all areas of the
business, including areas which impact
on the environment and resource
efficiencies
• Continued focus on education and
training, embedding principles of
sustainable resource use and
environmental best practice
SUSTAINABLE PRODUCTS
AND SERVICES
Approach
Incitec Pivot aims to assess and, where
feasible, improve the environmental and
social impacts of all products across their
life cycle and work with customers to
encourage them to use these products to
achieve the best sustainability outcomes.
Raw materials
Natural gas supply is an important issue
for the Incitec Pivot business. In Australia,
access to competitively priced gas is a
well-documented challenge for the
manufacturing industry. Incitec Pivot
believes that it is essential that Australia
find a solution that balances the needs
of supplying gas to value-adding
manufacturing with those of a strong
energy export market. The company
will continue to work with Federal and
State governments on this issue.
Phosphate rock, a naturally occurring
mineral rock, is used in the production
of both single superphosphate (SSP) and
ammonium phosphate (AP) fertilisers.
AP is produced at Phosphate Hill,
Queensland using phosphate rock from
the mine adjacent to that plant.
x
Incitec Pivot Limited Annual Report 2014
At Geelong and Portland plants in
Victoria, SSP is manufactured using a
blend of imported phosphate rock. The
composition of phosphate rock varies
according to the place of origin and
presents with varying levels of available
phosphorus, cadmium, odour and
reactivity which must be balanced to
produce a product that meets Australia’s
regulations. Further information on
phosphate rock sourcing is available
on the Incitec Pivot website.
Supplier engagement
Incitec Pivot has processes in place to
assess potential and current suppliers
to ensure sustainability risks are well
understood and addressed. Potential
suppliers are assessed using a
questionnaire that covers environment,
social and governance aspects and the
Global Procurement team works with
suppliers on gap closing action plans
where required. Contracts between
Incitec Pivot and materials suppliers also
contain clauses that outline Company
expectations of suppliers’ workplace
health, safety and environmental
performance. The assessment of
suppliers and close out of assigned
actions is monitored through monthly
reporting.
During the past year, Incitec Pivot began
a review of its sustainable supply chain
model applying BEx methodologies. In
particular the current processes within
the Global Supply Chain and
Procurement teams were reviewed and
a number of opportunities were
identified which will make internal
processes more robust and encourage
better engagement with current and
future suppliers. In the past year, a
review of internal policies against the
United Nations Declaration of Human
Rights, including those relating to
supply chain was conducted.
Research and development
Work continued with customers to
promote best practice use of fertiliser
and explosives products, training in
agronomy, and offering technology
which reduces post blast fume, and the
leaching of both ammonia and nitrates.
Highlights during the 2014 financial
year were:
• The launch of the Australian TITAN
9000 high performance explosives
emulsion range, which is specially
formulated to reduce blast fumes
• Sales of new Green NV enhanced
efficiency fertiliser product doubled
• The commercialisation of the use of
waste oil in emulsion explosives
manufacture was extended beyond
Indonesia to some Australian
customers
• Research into the replacement of
bulk fillers in explosives with more
sustainable alternatives continued
• Ongoing fertiliser research and
development programs increased
their focus on joint development
and extension with customers.
New Projects include involvement
in the ‘Dairy Nitrogen for Greater
Profit Project’ and ‘Mitigation of
Nitrous Oxide Emissions in the
Vegetable Industry’, with trials
across three states
•
Incitec Pivot began to transition to
the Globally Harmonised System of
Classification and Labelling of
Chemicals (GHS) in order to improve
communication and safety as products
move between countries which use
different languages
• The Dyno Nobel business worked
closely with the Institute of Makers
of Explosives (IME) on the Safety and
Security Guidelines for Ammonium
Nitrate, promoting best industry
practices for minimising security and
safety risk. The document is available
at https://www.osha.gov/
chemicalexecutiveorder/an_
guidelines_IAFC-IME-NSSGA-ISEE.pdf
Further information on Incitec Pivot
products and services is available at:
www.dynonobel.com and
www.incitecpivotfertilisers.com.au
Dow Jones Sustainability Index (DJSI)
The DJSI is widely recognised as the
leading reference point in the growing
field of sustainability investing due to
the robustness of the assessment
process. Since 2010 IPL has been
included in the Dow Jones Sustainability
Indices (DJSI) and our performance is
benchmarked against peers in the
global ‘Chemicals’ sector. The annual
results are represented below:
Dimension
2010 2011 2012 2013 2014
Economic
Environmental
Social
Total for IPL
Chemicals
sector average
61
51
37
49
61
50
45
51
59
51
63
58
70
59
68
66
65
60
67
64
55
57
55
52
55
WORKPLACE HEALTH
AND SAFETY
Approach
At Incitec Pivot, the Company value of
“Zero Harm for Everyone, Everywhere”
is prioritised above all others. In 2012
Incitec Pivot adopted a five-year Global
HSE Strategy to achieve world-class
safety performance and an all worker
TRIFR of less than 1 by 2016.
Incitec Pivot has in place a fully
integrated HSEC Management System
which provides the foundation for
effective identification and management
of health, safety and environmental
risks. This foundation is complemented
by the corporate commitment to
continuous improvement through BEx.
2014 priorities
The 2014 priorities towards achieving
Zero Harm were to:
• Demonstrate a continuous year-on-
year reduction in injury rates
• Focus on leadership including both
Senior Management and Site leaders
• Focus on safety culture, recognising
that leaders need to model behaviour
through site interactions
• Focus on safety culture through
the behavioural safety programme
‘Safety Partners’
• Ensure that all significant risks,
including process safety, were fully
assessed, understood and mitigated
Performance
The following were highlights:
• Achievement of a TRIFR of 0.971,
a 20% reduction from 2013
• Drive to increase ‘near miss’ reporting
and investigate high potential near
miss events. Near miss reporting has
increased 185% with 100% of all
‘high potentials’ investigated
• Release of an updated HSE strategy
and standards
• Specific and comprehensive Executive
Team member ‘Zero Harm’ goals
including undertaking safety-focused
site walks during site visits, and taking
part in and reviewing risk assessments
and incident investigations
• Executive Team member led
management reviews of high
potential incidents and group wide
communication of the resulting
learnings
•
•
Implementation of a risk based
approach to Incitec Pivot’s internal
corporate audit protocol
Implementation of a global approach
to incident investigation and
production of incident investigation
training materials
• The continued roll out of the ‘Safety
Partners’ training program across the
business divisions
2015 priorities
The following challenges and
opportunities have been identified for
2015 and will be priorities in maintaining
Incitec Pivot’s Zero Harm focus:
• Continued TRIFR improvement through
behavioral safety training, identifying
the root cause of near misses/
incidents and management of risk
• Effective change management
processes embedded into key HSE
initiatives
• Leveraging the learnings from High
Potential Incidents across the business
•
Integration of ‘Safety Partner’
(behavioural) principles into HSE
systems and tools
Awards
Incitec Pivot’s commitment to ‘Zero Harm
for Everyone, Everywhere’ was
recognised with a number of awards
during the 2014 financial year focusing
on the Company’s practices to keep
employees, customers and communities
safe. In particular the following sites
were recognised:
• Graham, Kentucky received the
Governor’s Safety and Health Award in
March 2014. The plant achieved over
one million hours without a lost time
incident
• Donora, Pennsylvania received the
2014 Rear Admiral Richard E Bennis
Award for Excellence in Maritime
Security, recognising the site’s
exceptional security program and
practices
•
In June 2014 the Clermont,
Queensland team was awarded the
Mine’s first General Manager award
by the site owners, Glencore, for
achieving 1,000 days injury free
PEOPLE & CULTURE
Approach
Incitec Pivot endeavours to be a business
where Company Values guide behaviours
in the workplace and where employees
have the flexibility, tools and freedom to
learn what they need to execute
business objectives within a multi-
geography, multi-cultural organisation.
The Company’s people and culture are
the key to creating the outstanding
business performance required to be
‘best in market’ consistent with the
Company’s vision.
2014 priorities
Key 2014 priorities were to:
• Sustainably embed new human
resources policies and procedures
•
Implement and communicate Human
Capital metrics across the Group to
enable focused improvements
• Enhance the Incitec Pivot talent
management process
• Deepen the Company’s continuous
improvement culture and capability
Performance
Underpinned by BEx principles and
methodologies, in the 2014 financial
year the Human Resources team focused
on strengthening and aligning existing
processes and procedures. Critically, a
number of new initiatives were also
developed and implemented which
will support Incitec Pivot as a flexible
employer with a skilled and diverse
talent pool. A number of these initiatives
were developed with input from a range
of external stakeholder groups including
the Traditional Custodians of the lands
we operate on. Further reporting on
Incitec Pivot’s Diversity Strategy can
be found at pages 36 and 37 of this
Annual Report.
Key highlights during the year were:
• The Global Talent and Succession
Planning Framework was put in place
and made operational, supporting
career paths and movement of skilled
people across Incitec Pivot business
groups
• A target of 2% Indigenous
Employment across the Australian
businesses was met
•
Implementation of the Cultural
Capability Program across the
Australian businesses with 80% of
Company leadership and management
participating in the program
• Development of the Incitec Pivot
Australian Indigenous Relations Policy
• Development of the Incitec Pivot
Australian Reconciliation Action Plan
• Re-Launch of the Flexible Work Policy
to include flexible leave options
1. Subject to finalisation of classification of any
pending incidents
Incitec Pivot Limited Annual Report 2014
xi
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 2014 and the related auditor’s report.
Directors
The directors of the Company during the financial year and up to the date of this report are:
Name, qualifications and
special responsibilities
Experience
Paul Brasher BEc(Hons), FCA
Non-executive Chairman
Chairman of the Nominations
Committee
Member of the Remuneration
Committee
Mr Brasher was appointed as a director on 29 September 2010. He is a non-executive director
of Perpetual Limited, a non-executive director of Amcor Limited and the Deputy Chairman of
the Essendon Football Club. From 1982 to 2009, Mr Brasher was a partner of
PricewaterhouseCoopers (and its predecessor firm, Price Waterhouse), including five years as
the Chairman of the Global Board of PricewaterhouseCoopers.
Mr Brasher brings to the Board his local and global experience as a senior executive and
director, particularly in the areas of strategy, finance, audit and risk management and public
company governance, as well as his experience as a non-executive director of Australian
companies with significant overseas operations.
Kathryn Fagg FTSE, BE(Hons),
MCom(Hons)
Non-executive director
Member of the Health, Safety,
Environment and Community
Committee
Ms Fagg was appointed as a director on 15 April 2014. Ms Fagg is a non-executive member of
the Reserve Bank of Australia, and is also a non-executive director of Djerriwarrh Investments
Limited and Boral Limited. She is Chair of the Melbourne Recital Centre and a non-executive
director of the Breast Cancer Network of Australia. Ms Fagg was previously President of
Corporate Development at Linfox Logistics Group and, prior to that, she held executive roles with
BlueScope Steel and Australia and New Zealand Banking Group. Ms Fagg was also a consultant
with McKinsey and Co.
Gregory Hayes MAppFin,
GradDipACC, BA, ACA
Non-executive director
Member of the Audit and Risk
Management Committee
Ms Fagg brings to the Board extensive executive experience across a range of industries in
Australia and Asia, including logistics, manufacturing, resources, banking, professional services
and strategy consulting, as well as her experience in managing international subsidiaries for
global businesses.
Mr Hayes was appointed as a director on 1 October 2014. His prior roles include: Chief
Financial Officer and Executive Director of Brambles Limited, Chief Executive Officer & Group
Managing Director of Tenix Pty Ltd, Chief Financial Officer and later interim CEO of the
Australian Gaslight Company (AGL), CFO Australia and New Zealand of Westfield Holdings and
Executive General Manager, Finance of Southcorp Limited.
Mr Hayes is an experienced executive having worked across a range of industries including
energy, infrastructure and logistics. He brings to the Board skills and experience in the areas
of strategy, finance, mergers and acquisitions and strategic risk management, in particular in
listed companies with global operations.
Anthony Larkin FCPA, FAICD
Non-executive director
Chairman of the Audit and Risk
Management Committee
Member of the Nominations
Committee
Mr Larkin was appointed as a director on 1 June 2003. Mr Larkin is also a non-executive
director of Oakton Limited and MMG Limited. He 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.
John Marlay BSc, FAICD
Non-executive director
Chairman of the Remuneration
Committee
Member of the Audit and Risk
Management Committee
Mr Larkin has extensive knowledge of markets relevant to Incitec Pivot including fertilisers,
explosives and mining. He brings to the Board his experience in the areas of finance and
financial markets, governance, strategy and risk management and public policy.
Mr Marlay was appointed as a director on 20 December 2006. Mr Marlay is Chairman of Cardno
Limited and a non-executive director of Boral Limited. He is also the independent Chairman of
Flinders Ports Holdings Limited. Mr Marlay 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, the former Chairman of the Australian Aluminium
Council and the former independent Chairman of Tomago Aluminium Company Pty Ltd.
Mr Marlay brings extensive international experience as a public company chief executive,
operational experience including in manufacturing industries as well as non-executive director
experience in companies with global operations, particularly in North America.
1
Incitec Pivot Limited Annual Report 2014
Name, qualifications and
special responsibilities
Experience
Rebecca McGrath BTP(Hons),
MASc, FAICD
Non-executive director
Chairman of the Health, Safety,
Environment and Community
Committee
Member of the Audit and Risk
Management Committee
Member of the Nominations
Committee
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
Ms McGrath was appointed as a director on 15 September 2011. Ms McGrath is currently a
non-executive director of OZ Minerals Limited, CSR Limited and Goodman Group. Ms McGrath
is also a member of the Advisory Council at JP Morgan Australia. During her 23 year career
with BP plc, Ms McGrath held a number of senior roles including as Chief Financial Officer and
Executive Board member for BP Australia and New Zealand. Ms McGrath is also a former
director of Big Sky Credit Union Limited.
Ms McGrath brings to the Board over 20 years’ experience in the international oil industry,
senior executive experience in operations and finance, an operational and strategic
understanding of occupational health and safety both as an executive and as a director, and
has had significant exposure to manufacturing and supply chain management.
Mr Smorgon was appointed as a director on 19 December 2008. Mr Smorgon 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 Smorgon Steel Group Ltd,
Deputy Chairman of Melbourne Health, Director of The Walter and Eliza Hall Institute of
Medical Research, Chairman of Creative Brands, Chairman of GBM Logic, and partner of law
firm Barker Harty & Co, where he practised as a commercial lawyer for 10 years.
Mr Smorgon has extensive experience as both an executive and public company director in
industries relevant to Incitec Pivot including in resources and manufacturing. He brings to the
Board skills in the areas of commercial law, public company governance and risk management.
Mr Fazzino was appointed Managing Director & CEO on 29 July 2009. Mr Fazzino 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.
Mr Fazzino brings to the Board his deep knowledge of the fertilisers and explosives industries
including extensive knowledge of the global participants in these markets, as well as
manufacturing experience.
Company Secretary
Ms Daniella Pereira holds the office of Company Secretary.
Ms Pereira joined the Company in 2004, and was appointed
Company Secretary on 31 October 2013. Prior to joining the
Company, Ms Pereira practised as a lawyer with Blake Dawson
(now Ashurst). Ms Pereira holds a Bachelor of Laws (with
Honours) and a Bachelor of Arts.
Directors’ interests in share capital
The relevant interest of each director in the share capital of
the Company, as notified by the directors to the Australian
Securities Exchange (ASX) in accordance with section 205G(1) of
the Corporations Act 2001 (Cth), as at the date of this report is
as follows:
Director
P V Brasher(1)
K Fagg(1)
G Hayes
A C Larkin
J Marlay(2)
R J McGrath(1)
G Smorgon AM
J E Fazzino(1)
Fully paid ordinary shares
Incitec Pivot Limited
40,600
10,000
0
5,000
37,926
13,758
0
1,708,180
(1) Held both directly and indirectly.
(2) Held indirectly.
Further details of directors’ interests in share capital are set out
on page 30 of the Remuneration Report.
Incitec Pivot Limited Annual Report 2014
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),(3)
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
P V Brasher(4)
A C Larkin
K Fagg(5)
J Marlay
R J McGrath(6)
G Smorgon AM
J E Fazzino
Director – Former
A D McCallum(7)
10
10
4
10
10
10
10
4
10
10
4
10
10
10
10
4
Chairman
Member
4
4
4
4
4
4
4
5
5
1
4
5
5
1
2
2
2
2
2
2
2
2
1
2
4
4
4
1
1
2
4
4
4
1
(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.
(3) Mr Gregory Hayes was appointed as a director on 1 October 2014 and as a member of the Audit and Risk Management Committee on 2 October 2014.
(4) Mr Paul Brasher was appointed as a member of the Remuneration Committee and the Health, Safety, Environment and Community Committee on 19 December
2013 and ceased to be a member of the Health, Safety, Environment and Community Committee on 15 April 2014.
(5) Ms Kathryn Fagg was appointed as a director on 15 April 2014 and was also appointed as a member of the Health, Safety, Environment and Community Committee
on that date.
(6) Ms Rebecca McGrath was appointed Chairman of the Health, Safety, Environment and Community Committee on 19 December 2013.
(7) Mr Allan McCallum retired as a director on 19 December 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:
Type
Paid during the year
2013 final dividend
2014 interim dividend
Paid after end of year
2014 final dividend
Dealt with in the
financial report as:
Dividends
Subsequent event
Cents
per
share
Total
amount
$mill
Franked/
Unfranked
Date of
payment
5.8
3.5
94.5
57.6
75% franked 18 December 2013
75% franked
1 July 2014
7.3
120.8
10% franked 16 December 2014
Note
28
28
$mill
152.1
120.8
Changes in the state of affairs
There have been no significant changes to the Group’s state
of affairs during the financial year.
Events subsequent to reporting date
Since the end of the financial year, in November 2014, the
directors determined to pay a final dividend for the Company
of 7.3 cents per share on 16 December 2014. The dividend is
10% franked. (Refer to Note 28 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 2014 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 Group is committed to complying with
environmental legislation, regulations, standards and licences
relevant to its operations.
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.
3
Incitec Pivot Limited Annual Report 2014
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 $155,200 during the year ended 30 September
2014 (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 41.
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.
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 holds 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 not only on the actual impact of incidents, but also upon
the potential consequence, consistent with Incitec Pivot’s risk
based focus.
The Group has continued to focus on remediation of legacy
sites. Remediation works have been completed successfully
at Parafield Gardens and Wallaroo in Australia and also at a
disused site in Carthage, USA. Progress was also made at the
Cockle Creek and Pinkenba sites in Australia. At the Wallaroo
site, soil and groundwater remediation has been completed
together with heritage works on an area of historical
significance, involving a total investment of $20 million.
For the 2014 financial year, the aggregate amount of fines
for environmental incidents was $US1,500 which related to
a single incident at the Group’s US operations.
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 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 2014
4
Directors’ Report
Operating and Financial Review
Strategy
Group Overview
Incitec Pivot Limited is an industrial chemicals company that
supplies fertilisers and industrial explosives products and
services to the agriculture and mining industries. Through Dyno
Nobel, Incitec Pivot is a leading supplier of industrial explosives
and blasting services to the mining, quarrying, seismic and
construction industries in North America and to the mining
industry in Asia Pacific, principally Australia. Incitec Pivot
Fertilisers is Australia’s largest supplier of fertilisers, dispatching
around 1.9 million tonnes each year for use in the grain, cotton,
pasture, dairy, sugar and horticulture industries.
The Company has operations in Australia, North America,
Europe, Asia, Latin America and Africa.
Incitec Pivot operates through three business units,
details of which are set out in this review:
• Dyno Nobel Asia Pacific (“DNAP”);
• Dyno Nobel Americas (“DNA”); and
• Fertilisers (Incitec Pivot Fertilisers (“IPF”) and
Southern Cross International (“SCI”)).
Zero Harm
Incitec Pivot prioritises the “Zero Harm for Everyone, Everywhere”
company value above all others. The Company’s approach to
workplace health and safety focuses on four key areas known as
the ‘4Ps’: Passionate Leadership, People, Procedures and Plant
and is underpinned by the corporate commitment to continuous
improvement through Business Excellence (“BEx”).
Incitec Pivot has in place a fully integrated Health, Safety and
Environment (“HSE”) Management System which provides the
foundation for effective identification and management of health,
safety and environmental risks.
In 2012, Incitec Pivot adopted a five year Global HSE Strategy to
achieve world class safety performance and have an all worker
Total Recordable Injury Frequency Rate (TRIFR)(1) of less than
1.0 by 2016. The Company has continued its trend of TRIFR
improvement, delivering a TRIFR of 0.97(2) for the 2014 financial
year. As demonstrated in the chart below, the Company safety
performance as measured by TRIFR has improved by more than
50% in the last five years.
Incitec Pivot Group TRIFR – Oct 2009 to Oct 2014
Oct 09:
2.09
2.5
2.0
1.5
1.0
0.5
0
Long term
trend
Sep 14:
0.97
Oct 09
Oct 10
Oct 11
Oct 12
Oct 13
Oct 14
(1) TRIFR is expressed as the number of recordable injuries per 200,000 hours
worked.
(2) Subject to finalisation of the classification of any pending incidents.
5
Incitec Pivot Limited Annual Report 2014
As an industrial chemicals company, 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.
Industrialisation
of China
+
Shale gas
revolution
Core nitrogen
manufacturing
Input side
of value chain
Customer
aligned
downstream
businesses
In the medium term, Incitec Pivot’s growth is linked to two global
economic engines:
• Asia: The industrialisation of Asia, in particular China, through
the Moranbah ammonium nitrate plant; and
• USA: the recovery and re-industrialisation of the United States
through the DNA business, the Louisiana ammonia plant and
the $US sensitivity of the Fertiliser business.
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. BEx, Incitec Pivot’s globally
integrated continuous improvement system, aims to drive
sustainable and ongoing business efficiency and productivity
through an empowered and engaged workforce.
Moranbah Ammonium Nitrate (“AN”) Plant
Over the last 18 months, the ramp-up of the Moranbah
Ammonium Nitrate plant has been a key strategic project for
the business. Following the maintenance shut in March/April,
the plant performed well for the remainder of 2014, producing
299,000 metric tonnes and, since April 2014, has been producing
in line with the target of 330,000 metric tonnes for 2015.
Louisiana Ammonia Plant
On 17 April 2013, Incitec Pivot announced an investment of
$US850m to build an 800,000 metric tonne per annum ammonia
plant in Louisiana, USA. More than half way through the project,
construction and costs are on track. Production is anticipated to
commence in the third quarter of 2016 and the key financial
metrics remain unchanged: 15 percent IRR and a 5 year payback.
In the past year, $388.4m of growth capital has been directed
toward the project. The ammonia tank is well progressed, below
ground civil works including piling and underground piping are
complete and construction of the ground infrastructure for the plant
is well underway. The cooling tower is complete and the primary
reformer, control room and water treatment plant are currently
being installed. The main compressors have been tested and are
scheduled to be installed before the end of the calendar year.
Capital expenditure on the plant to the end of the 2014 year was
approximately $US450m. Expected capital expenditure in 2015
is $US250m and in 2016 is $US150m. In addition, interest will be
capitalised during construction.
From late 2016, the project will drive significant earnings growth
in DNA by capturing the US ammonia manufacturing margin.
2.5
2.0
1.5
1.0
0.5
0.0
Incitec Pivot reported Net Profit After Tax (“NPAT”) of $247.1m,
down $120.0m from the prior year of $367.1m. Net Profit After
Tax excluding Individually Material Items (“NPAT ex IMIs”)
increased by 21 percent, or $62.8m to $356.3m (2013:
$293.5m), which largely reflected growth in Moranbah earnings.
Group sales revenues decreased by two percent, or $51.7m, to
$3,352.0m (2013: $3,403.7m). Fertiliser revenue was lower,
reflecting the net negative impact of lower global fertiliser
prices and drought conditions in the northern region of
Australia, partly offset by the lower $A.
Explosives revenue was higher, driven primarily by sales growth
to Moranbah customers and the translation benefit of the lower
$A on DNA’s $US revenues.
Individually Material Items (IMIs) over the period resulted in a
charge of $109.2m after tax. The IMIs for 2014 relate to:
• A $56.5m after tax write down relating to impairment and
restructure costs of Nitromak (a Turkish explosives business
acquired as a part of the Dyno Nobel acquisition). Following
lower earnings and a soft outlook for this business due to
regional instability and increased competition in the Turkish
explosives market, Nitromak goodwill and property, plant
and equipment have been impaired and the business is
being restructured.
• A $26.0m after tax write down relating to impairment of
the investment in Fabchem China Limited to reflect the
excess supply of AN in China and the market value of the
shareholding. The investment in this business was acquired
as part of the Dyno Nobel acquisition.
• A $26.7m after tax impairment of Donora ammonium nitrate
(“AN”) manufacturing assets due to the loss of some
customer volumes.
The Explosives business delivered a strong earnings performance
despite difficult market conditions. DNAP delivered earnings
growth from the Moranbah ammonium nitrate plant, partially
offset by volume reductions in the more challenged Hard Rock
and Underground markets. DNA explosives EBIT grew due to the
benefits of price improvements and efficiencies generated by
BEx, partially offset by lower earnings from the Coal segment.
Overall, DNA’s $US EBIT declined due to lower global commodity
prices impacting profit from fertiliser sales.
The Fertilisers business contributed an EBIT improvement in
both IPF and SCI. The domestic distribution business delivered
a solid result in the face of low average global fertiliser prices
and drought in northern Australia. The impact of lower global
fertiliser prices was partially offset by the benefit associated
with the weaker $A.
Manufacturing reliability is a key focus area for the Group. In 2014,
significant progress was made toward improving manufacturing
reliability. Turnarounds were completed at Phosphate Hill, Mt Isa
and Moranbah and exit production rates at all plants are in line
with nameplate capacities.
The overhead reduction announced in November 2013 was
completed, with the goal of $20m savings delivered in one
year, rather than two years as originally projected.
A detailed analysis of the business segment performance is
provided on the following pages.
Incitec Pivot Limited Annual Report 2014
6
Business Excellence (“BEx”)
BEx is Incitec Pivot’s business and continuous improvement
system. Through BEx, the Company is building a culture of
continuous improvement within its businesses, which will support
productivity improvements, the focus on Zero Harm and the
furtherance of sustainability initiatives. BEx is strongly aligned to
Incitec Pivot’s corporate values and has lean principles at its core.
BEx has completed its second full year and has been implemented
in a comprehensive manner in most areas and regions of the
business. While adoption of BEx is still at an early stage, the
benefits of BEx in changing the way the Group conducts its
business operations are becoming apparent.
Group Financial Performance Review
Incitec Pivot has delivered profit growth from all businesses in
the face of challenging markets. Strong financial disciplines,
coupled with BEx, continues to drive efficiency, productivity
gains and earnings growth.
INCITEC PIVOT GROUP
FINANCIAL PERFORMANCE
Sales revenue
EBITDA ex IMIs(1)
EBIT ex IMIs(2)
NPAT ex IMIs(3)
IMIs
NPAT attributable to shareholders
Business Segment EBIT
Dyno Nobel Asia Pacific (“DNAP”)
Dyno Nobel Americas (“DNA”)
Intercompany Elimination
Explosives
Southern Cross International (“SCI”)
Incitec Pivot Fertilisers (“IPF”)
Intercompany Elimination
Fertilisers
Year Ended 30 September
2013(4)
$Amill
Change
%
2014
$Amill
3,352.0
742.7
519.4
356.3
(109.2)
247.1
203.3
165.7
1.5
370.5
79.6
103.7
0.1
183.4
3,403.7
645.2
461.5
293.5
73.6
367.1
162.3
163.2
(1.1)
324.4
70.3
95.0
3.0
168.3
(2%)
15%
13%
21%
n/a
(33%)
25%
2%
14%
13%
9%
9%
(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 Incitec
Pivot, excluding IMIs.
(4) Comparative information has been restated as a result of adopting the revised
Australian Accounting Standard, AASB 119 “Employee benefits”.
FY14 EBIT by Segment
DNAP 37%
Fertilisers 33%
DNA 30%
DNAP 37%
DNA 30%
Fertilisers 33%
Directors’ Report
Group Financial Position Review
Incitec Pivot’s Balance Sheet at 30 September 2014 reflects the
ongoing financial discipline throughout the business.
INCITEC PIVOT GROUP
Balance Sheet
Trade Working Capital – Fertilisers
Trade Working Capital – Explosives
Net property plant and equipment
Intangible assets
Environmental & restructure provisions
Tax liabilities
Net other liabilities
Net Debt(1)
Net Assets
Equity
Year Ended 30 September
2014
$Amill
2013
$Amill
Change
$Amill
(136)
197
3,511
2,992
(113)
(360)
(204)
(151)
188
3,034
2,961
(127)
(292)
(115)
15
9
477
31
14
(68)
(89)
(1,480)
(1,278)
(202)
4,407
4,407
4,220
4,220
187
187
Environmental and other provisions reduced by $14m to $113m
(2013: $127m) resulting from payments made against
environmental provisions during the course of the year as
remediation progressed.
Deferred tax increased by $68m to $360m (2013: $292m)
primarily due to the difference between tax and accounting
depreciation rates related to recent capital spend (Moranbah,
Phosphate Hill and Mt Isa turnarounds).
Net other liabilities increased, largely due to unfavourable
market value movements of derivative hedging instruments
(offsetting the foreign exchange movements in $US net assets)
and movements in the retirement benefit obligations, partially
offset by reduction in carbon tax liability and gas prepayments.
The chart below illustrates the tenor and diversity of the
Company’s debt book, with funding secure throughout the
construction phase of the Louisiana ammonia plant.
Balance Sheet Key Performance Indicators
Incitec Pivot Group Debt Book – Year ending Sep 2015 to Sep 2020
Net tangible assets per share ($)
Fertilisers – Average TWC % Rev(2)
Explosives – Average TWC % Rev(2)
Group – Average TWC % Rev(2)
0.85
1.4%
12.2%
8.0%
0.77
3.4%
14.0%
9.5%
Financing Key Performance Indicators
Interest cover (times)(3)
Net Debt/EBITDA (times)(1),(4)
9.1x
2.0x
6.2x
2.0x
(1) 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.
(2) Average TWC % Rev = 13 month average trade working capital/Annual Revenues.
(3) Interest cover = 12 month rolling EBITDA/net interest expense.
(4) Net Debt/EBITDA is based on Net Debt at point in time/last 12 month
historical EBITDA excluding IMIs.
Trade working capital (“TWC”) increased by $24m from
30 September 2013 to $61m, primarily due to the timing of
fertiliser imports. The Group’s lower average thirteen month
TWC as a percentage of the Group’s annual revenues reflected
Incitec Pivot’s continuous focus on efficient cash management,
driven by BEx.
Net property, plant and equipment increased by $477m to
$3,511m from 30 September 2013. The significant items in
this movement include: capital expenditure on the Louisiana
Ammonia plant of $388.4m (2013: $109.3m), sustenance
capital expenditure of $256.9m (2013: $169.7m), a positive
foreign currency translation of non $A denominated assets
of $71.1m, depreciation of $194.1m, asset impairments of
$53.2m and disposals of $9.5m.
The intangible assets balance increased due to a positive
translation of foreign currency denominated intangible assets,
partially offset by amortisation of intangibles and the
impairment charge related to Nitromak.
1,000 (A$m)
Syndicated Facility
MTN
144A/RegS
800
600
400
200
0
Sep 15
Sep 16
Sep 17
Sep 18
Sep 19
Sep 20
At 30 September 2014, Incitec Pivot’s net debt was $1.5bn
(2013: $1.3bn), with committed headroom available of $1.5bn
(2013: $1.7bn), representing the $1.45bn undrawn syndicated
bank facility and cash on hand at 30 September 2014.
Net Debt/EBITDA (excluding Individually Material Items (“IMIs”))
result of 2.0 (2013: 2.0) remains within the target range of ≤2.5
times, notwithstanding the current investment being made in
the Louisiana ammonia plant. Interest cover improved over the
12 months, up to 9.1 times (2013: 6.2 times).
Capital Allocation
Incitec Pivot’s capital allocation process is centralised and
overseen by the Corporate Finance and Strategy & Business
Development functions. Capital is allocated on a prioritised basis
and all submissions are assessed against Incitec Pivot’s risk,
financial, strategic and corporate governance criteria. Capital is
broadly categorised into major growth initiatives, minor growth
capital and sustenance capital. In line with the strategy, major
growth initiatives continue to receive the vast majority of the
Company’s growth capital.
1000
800
600
INCITEC PIVOT GROUP
400
Capital Allocation
Major growth initiatives
200
Minor growth capital
Sustenance capital
Total Capital
0
Year Ended 30 September
2014
$Amill
2013
$Amill
Change
$Amill
388.4
17.1
256.9
662.4
164.7
99.7
169.7
434.1
223.7
(82.6)
87.2
228.3
7
Incitec Pivot Limited Annual Report 2014
DNAP 37%
Fertilisers 33%
DNA 30%
FY14 Capital Spend Allocation
Major Growth Initiatives 59%
Sustenance Capital 39%
Minor Growth Capital 2%
Dyno Nobel Asia Pacific
FY14 EBIT Contribution – DNAP
DNAP 37%
Major growth capital of $388.4m represents the investment into
the build of the Louisiana ammonia plant in 2014. Minor growth
capital of $17.1m (2013: $99.7m) was tightly controlled to
allow capital funding to be channelled into the Louisiana
ammonia plant. Spending on sustenance capital was $256.9m
(2013: $169.7m); the major items being the Phosphate Hill,
Mt Isa and Moranbah turnarounds and the new gypsum cell
at Phosphate Hill.
Shareholder Returns & Dividends
Earnings per share excluding IMIs (“EPS ex IMIs”) increased
21 percent to 21.7cps (2013: 18.0cps).
INCITEC PIVOT GROUP
Shareholder Returns
EPS ex IMIs(1)
EPS
Dividend per share(2)
Year Ended 30 September
2014
cents per
share
2013
cents per
share
Change
%
21.7
15.0
10.8
18.0
22.5
9.2
21%
(33%)
17%
(1) EPS ex IMIs = Earnings Per Share, excluding IMIs.
(2) Dividend declared in respect of the financial year.
Since the end of the financial year, in November 2014, the
directors determined to pay a final dividend for the Company
of 7.3 cents per share on 16 December 2014. The dividend is
10% franked. This brings the total dividend in respect of the
2014 financial year to 10.8 cents per share. The dividend
represents a payout ratio of 50%.
Incitec Pivot will maintain its dividend reinvestment plan
(“DRP”). A discount of 1.5 percent will be applied in
determining the offer price under the DRP. The 2014 final
dividend will not be underwritten.
Company Outlook
BEx, Incitec Pivot’s continuous improvement system will
continue to deliver benefits in 2015. The quantum of benefits
in any one year is difficult to predict, but a net benefit similar
to the 2014 outcome is the goal.
As the 2014 overhead reduction program has been completed,
there will be no corporate restructuring costs in 2015. Corporate
costs are expected to be in the range of $22m to $24m.
2015 net borrowing costs are expected to be approximately
$90m, assuming a slight increase in US interest rates during
2015. The full year effective tax rate is expected to be
approximately 23 percent.
The business units’ outlook commentary follows within the
respective business performance overviews.
Overview
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 mining sectors. DNAP is
the second largest supplier in Australia – the third largest
explosives market in the world.
DNA 30%
Strategy
DNAP’s strategy is to invest in capability to maximise returns
across growing markets directly linked to the industrialisation
of Asia, with the immediate focus on maximising returns on
the ammonium nitrate plant in Moranbah, Queensland.
Fertilisers 33%
FINANCIAL SUMMARY
– DNAP
Revenue
EBIT
Year Ended 30 September
2013(1)
$Amill
Change
%
2014
$Amill
897.0
203.3
862.3
162.3
4%
25%
(1) As a part of the Group’s restructure in this financial year, the Turkey explosives
business (“Nitromak”) now forms part of the DNAP reporting segment,
previously formed part of the DNA reporting segment. The comparative
financial information in the DNA and DNAP sections of this report has been
updated to reflect this change. The impact is a reclassification of EBIT from
DNA to DNAP of $A12.9m.
Performance
Overall DNAP’s EBIT was up $41m or 25 percent to $203.3m
(2013: $162.3m). Moranbah represents the majority of this
earnings improvement, with production of 299,000 metric
tonnes in 2014 enabling incremental earnings. Overhead and
administration restructuring, coupled with BEx initiatives, resulted
in efficiencies that provided additional benefit for the business.
The business faced some significant headwinds in 2014, in
particular the softness of demand in the Hard Rock, Underground
and PNG markets, cost increases brought about by alternative
sourcing of AN for the Western Australia market due to an outage
at a domestic supplier, the final impact of the 2013 customer loss
in the Hunter Valley and earnings declines due to challenging
market conditions for Nitromak and Fabchem.
Incitec Pivot Limited Annual Report 2014
8
DNAP 37%
Fertilisers 33%
DNA 30%
DNAP 37%
Dyno Nobel Americas
FY14 EBIT Contribution – DNA
DNA 30%
Overview
Dyno Nobel Americas (“DNA”) is a leading supplier of industrial
explosives and blasting services to the mining, quarrying and
construction industries. DNA is a 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 Latin America.
Fertilisers 33%
Additionally, DNA supplies nitrogen based products to several
agricultural and industrial chemical markets in North America.
Strategy
DNA’s strategy is to 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.
FINANCIAL SUMMARY
– DNA
$Am
Revenue
EBIT
$USm
Revenue
EBIT
Year Ended 30 September
2013(1),(2)
$mill
2014
$mill
Change
%
1,205.2
165.7
1,127.7
163.2
1,109.9
152.8
1,118.5
162.3
7%
2%
(1%)
(6%)
(1) Comparative information has been restated as a result of adopting the revised
Australian Accounting Standard, AASB 119 “Employee benefits”.
(2) As a part of the Group’s restructure in this financial year, the Turkey explosives
business (“Nitromak”) now forms part of the DNAP reporting segment,
previously formed part of the DNA reporting segment. The comparative
financial information in the DNA and DNAP sections of this report has been
updated to reflect this change. The impact is a reclassification of EBIT from
DNA to DNAP of $A12.9m.
Performance
DNA’s $US EBIT decrease of $9.5m or six percent to $152.8m
(2013: $162.3m) was primarily due to lower fertiliser prices
impacting revenue of the North American agricultural business.
The North American Explosives business delivered an EBIT
improvement due to financial benefits gained through its BEx
system, improved margins driven by a combination of product
and customer mix, transportation savings and price increases
and a reduction in overhead and administration costs. These
gains were offset by the impact of lower global sales of
Initiating Systems primarily into Indonesia and Latin America,
and the margin and translation impact of the weaker
Canadian dollar.
Directors’ Report
Market Summary
Coal (East Coast incl. Moranbah)
Coal region sales accounted for 55 percent of total AN sales,
with growth of 24 percent over 2013. Consistent with a relatively
dry wet season, the volume sold was skewed to AN prill.
Moranbah is now fully operational, with the majority of
production sold into the plant footprint. The final impact of the
2013 Hunter Valley customer loss impacted first half earnings.
Iron Ore (Western Australia)
Iron Ore sales accounted for 29 percent of the AN volumes,
with growth of 13 percent in 2014. Earnings in this region grew
slightly, after the adverse margin impact related to the four
month force majeure outage at a domestic supplier and cost
focused customers structuring their businesses to lower product
and services costs and implement in-sourcing services at some
sites. Looking forward, this will be an increasingly challenging
market with impending over-capacity of regionally produced AN.
Hard Rock & Underground
Hard Rock and Underground sales accounted for five percent
of the AN volumes. In the face of lower commodity prices
(particularly gold), AN volumes were 35 percent lower for the
year. In order to focus on cash flow optimisation, customers
reduced mining costs by closing mines, moving mining operations
to higher grade pits, processing stockpiles and scaling back
explosives intensive development of block caving operations.
Indonesia and Papua New Guinea (“PNG”)
Indonesia and PNG markets accounted for 11 percent of the
AN volumes. Volumes grew modestly in Indonesia and fell in
PNG due to a customer in the gold sector reducing mining
activities and processing stockpiles.
Nitromak
Nitromak is a Turkish subsidiary, acquired as part of the
Dyno Nobel acquisition in 2008. The business has delivered
reasonably constant earnings until the current financial year.
Nitromak earnings declined in 2014. The outlook is negative
for this business due to regional instability and increased
competition in the Turkish explosives market.
Outlook
With the challenging mining environment globally, DNAP is
experiencing tougher market conditions. Nonetheless, DNAP is
relatively well positioned given the contractual commitments
for AN volumes from the Moranbah plant. Based on anticipated
contracted volumes, in 2015 Moranbah is projected to produce
330,000 metric tonnes and EBIT of $140m.
Outside of earnings growth generated from Moranbah, earnings
from the Australian market are expected to decline in 2015 as
customers review the viability of high cost mining operations
and continue their cashflow optimisation focus and look to drive
down their costs through efficiency programs.
Consistent with soft global mining markets, the Turkish and
Indonesian explosives markets are both challenging markets.
DNAP’s earnings from these regions are expected to decline
in 2015.
9
Incitec Pivot Limited Annual Report 2014
The North American Agriculture & Industrial Chemicals business
was negatively impacted by the lower realised fertiliser prices,
increased purchased ammonia costs, increased gas prices and
slightly lower production volume which increased the unit cost
of fertiliser production.
Agriculture & Industrial Chemicals (“AG & IC”) production
volumes are expected to be lower than 2014 (producing
approximately 150,000 metric tonnes urea equivalent in 2015),
as St Helens will be taken offline for 60 days for a control
system upgrade and a planned maintenance turnaround.
DNAP 37%
Fertilisers 33%
DNA 30%
Market Summary
Quarry & Construction (“Q&C”)
Q&C accounted for 18 percent of total AN volume. Sales
volumes were up seven percent for the year, with growth
experienced across both residential and non-residential
construction. Q&C volumes are driven by public construction,
non-residential construction and the residential construction
industries. Non-residential construction is primarily driven by
the shale gas and tight oil boom, where low priced gas has led
to a significant investment in the petrochemical sector across
the USA. In the residential market, sustained positive US
residential starts has led to some growth in new housing
estates. DNA remains well positioned for the recovery in
this market.
Coal
Coal accounted for 52 percent of total AN volumes. Volumes
were flat, reflecting the negative impact of the carryover of
high coal inventories and an extremely cold winter in the first
half followed by production growth in the second half,
predominantly in the Powder River Basin.
Notwithstanding that, the moderate US summer tempered
coal production growth in the second half of the year.
Metals & Mining
Metals & Mining accounted for 30 percent of total AN volumes.
Sales volumes were consistent with 2013, reflecting both the
impact from extreme cold winter conditions in the first half
and miners reducing spend by cutting capital expenditure
and concentrating mining operations on high grade pits. In
the current low price environment for hard commodities, it is
expected that miners will continue to look for cash flow
optimisation and for cost efficiency opportunities.
Outlook
The explosives segment earnings are expected to be flat
in 2015.
Market conditions in Coal and Metals are expected to be
relatively flat in 2015, with up to four percent growth in
Quarry & Construction activity.
During the 2014 year, a number of customer contracts were
renegotiated, with some wins and some losses. The net impact
is an expected 10 percent decline in volumes in the 2015 year.
Notwithstanding this volume impact, the net EBIT outcome of
contract negotiations will be positive.
Offsetting this positive is a short term increased cost of
purchased ammonia feedstock. Interim supply agreements
have now been finalised for the period until the Louisiana
ammonia plant start-up. These interim agreements reflect the
tightness in the global ammonia market, the attractiveness of
the gas to ammonia part of the AN value chain, both of which
confirm the Louisiana ammonia plant investment case.
Global Initiating Systems volumes are expected to be
consistent with 2014.
EBIT Sensitivities
DNAP 37%
The table below shows the sensitivities associated with the
DNA business:
DNA: Urea (NOLA FOB)(1)
Sensitivity (per annum)
+/-$US10/t = +/-$US1.8m
DNA: Forex – translation of Explosives earnings(2)
+/- 1 cent = -/+$A2.2m
Assumptions:
(1) 180,000 short tonnes (nameplate St Helens production capacity) urea
equivalent sales.
(2) Based on 2014 US dollar denominated earnings and the 2014 average
exchange rate of $A/$US0.9204 (representing the average exchange rate in
the twelve month period ended 30 September 2014).
DNA 30%
Fertilisers (Incitec Pivot Fertilisers and
Southern Cross International)
FY14 EBIT Contribution – IPF & SCI
Fertilisers 33%
Overview
Incitec Pivot Fertilisers (“IPF”) is Australia’s largest supplier of
fertilisers, dispatching around 1.9 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, and sources fertilisers from the Group’s
Gibson Island plant, Southern Cross International and imports.
IPF also manufactures various industrial chemical products used
in water treatment, process manufacturing and other industrial
applications.
Southern Cross International (“SCI”) sells manufactured fertiliser
to other importers in Australia and actively markets IPF’s own
product in offshore markets such as South East Asia and Latin
America, via Quantum Fertilisers, an Incitec Pivot subsidiary.
In addition, SCI sells manufacturing by-products and fertiliser
products into non-Agricultural markets through its Industrial
Chemicals business.
Incitec Pivot Limited Annual Report 2014
10
Directors’ Report
Strategy
Winter Crop
Early season sales made in the first half of the financial year
were stronger than the first half of 2013. However, rainfall
deficiencies and extended frost conditions across Southern NSW,
Victoria and South Australia in the June to September period,
drove below average nitrogen top dress for broadacre grains.
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. Seasonal
conditions remain a challenge and volume is largely reliant
on rainfall. At this early stage, IPF distribution margins are
expected to approximate 2014 levels. As a result of persistent
dry conditions in northern NSW and Queensland, along with
weak soft commodity prices, distribution volumes are expected
to be similar to 2014.
2015 is a full production year, with no scheduled turnarounds.
Phosphate Hill’s production milestone for 2015 is to produce
above 900,000 metric tonnes, with the goal of achieving
nameplate capacity of 950,000 metric tonnes. Phosphate Hill
has a higher gas cost from February 2015, which will have a
negative cost impact of $38m in 2015 financial year. This cost
increase will be offset by the benefit of increased production.
The full year gas cost impact is approximately $50m. For further
details on input cost risks, refer to the Principal Risks section.
The Group has hedged 90% of its estimated first half 2015
$US referenced fertiliser sales at a rate of $0.89, with
participation in positive rate movements to $0.82. The second
half hedging program will be put in place during the first half
of the 2015 financial year.
EBIT Sensitivities
The sensitivities shown below have been calculated based on
the 2014 achieved di-ammonium phosphate (“DAP”) and urea
prices, at an average foreign exchange rate between Australian
and US dollars of $0.9204 (representing the average exchange
rate in the twelve month period ended 30 September 2014),
and nameplate urea and DAP production.
Sensitivity (per annum)
IPF: Urea – Middle East Granular Urea (FOB)(1)
+/-$US10/t = +/-$A4.4m
SCI: DAP – Di-Ammonium Phosphate Tampa (FOB)(2) +/-$US10/t = +/-$A10.3m
Forex – transactional (DAP & Urea)(3)
+/- 1 cent =
($A6.5m)/$A6.7m
Assumptions:
(1) 405,000 metric tonnes (nameplate Gibson Island production capacity) urea
equivalent sales at a 2014 realised price of $US323/t and the 2014 average
exchange rate of $A/$US0.9204.
(2) 950,000 metric tonnes (nameplate Phosphate Hill production capacity) DAP
sales at a 2014 realised price of $US450/t and the 2014 average exchange
rate of $A/$US0.9204.
(3) DAP & urea volumes and FOB price based on assumptions (1) and (2)
(excludes impact of hedging).
The Fertilisers strategy is to maximise value by leveraging asset
positions and alternative channels to market to maximise
returns and reduce volatility in earnings.
FINANCIAL SUMMARY
– FERTILISERS
IPF
Revenue
EBIT
SCI
Revenue
EBIT
Year Ended 30 September
2013(1)
$Amill
Change
%
2014
$Amill
953.2
103.7
1,095.4
95.0
(13%)
9%
542.8
79.6
562.9
70.3
(4%)
13%
(1) Comparative information has been restated as a result of adopting the revised
Australian Accounting Standard, AASB 119 “Employee benefits”.
Performance
IPF’s EBIT increased by $8.7m or 9 percent to $103.7m (2013:
$95.0). IPF’s EBIT was negatively impacted by lower global
fertiliser prices and the impact of lower distribution volumes
due to unfavourable growing conditions. These deficiencies
were offset with a lower average $A:$US exchange rate
compared to 2013, BEx efficiencies, improved distribution
margins and profit on sale of excess assets.
SCI’s EBIT increased by $9.3m or 13 percent to $79.6m (2013:
$70.3m). A number of factors contributed to SCI’s result:
• The favourable $A:$US compared to prior year, together with
BEx initiatives were sufficient to counter the revenue impact
of DAP being $US32/t less than the average price of 2013.
• Phosphate Hill produced 772,000 metric tonnes with time
down for reliability issues and a planned turnaround. Since
the turnaround, the Phosphate Hill and Mt Isa plants ran
reliably producing 255,000 tonnes of ammonium phosphates
in the July to September period. This is a good result,
although it is acknowledged that this is only the first quarter
post turnaround. Reliability of these two plants remains a
key focus for the manufacturing teams.
•
Industrial & Trading EBIT decreased primarily as a result of
reduced revenue due to falling global urea prices impacting
product prices. Quantum’s EBIT increased marginally and the
Quantum business continues to provide value and flexibility
to the broader fertiliser business.
Market Summary
Summer Crop
Drought in the northern region of Australia negatively impacted
cotton and sorghum crops. In the non-irrigated cotton regions
of NSW and Southern Queensland, sales volumes were
approximately 25 percent down on the prior year.
Pasture Markets
The strong seasonal sales in the first half fuelled the overall
growth for the year. With drier conditions in the last quarter in
the southern dairy and pasture regions, the outlook for the
market is mixed.
The Single Superphosphate strategic review announced at the
Investor Day in September 2014 continues. The review is
focused on maximising returns from the manufacturing and
logistics assets in Geelong and Portland.
11
Incitec Pivot Limited Annual Report 2014
Principal Risks
Set out below are the principal risks and uncertainties associated with Incitec Pivot’s business and operations. These risks, which
may occur individually or concurrently, could significantly affect the Group’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. In addition, any loss
from such risks may not be recoverable in whole or in part under Incitec Pivot’s insurance policies. The treatment strategies do not
remove the risks, but may in some cases either partially or fully mitigate the exposure.
The Group’s process for managing risk is set out in the Corporate Governance Statement (Principle 7: Recognise and manage risk).
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot
General Economic and Business Conditions
Changing
global
economic and
business
climate
Commodity
price risks
The current global economic and business climate and
any sustained downturn in the North American, South
American, Chinese, Indian, European or Australian
economies may adversely impact Incitec Pivot’s overall
performance. This may affect demand for fertilisers,
industrial chemicals, industrial explosives and related
products and services, and profitability in respect
of them.
• Diversification across explosives and fertilisers markets in
numerous geographical locations helps spread exposures.
• BEx provides long term sustainable competitiveness and
business fluidity, through its focus on continuous
improvement in productivity and efficiency.
• Continuous review and management of country specific
business climate risks.
Pricing for fertilisers, certain industrial chemicals
and ammonium nitrate are linked to internationally
traded commodities (e.g. urea, DAP, ammonia); price
fluctuations in these products could adversely affect
Incitec Pivot’s business. The pricing of internationally
traded commodities is based on international
benchmarks and is affected by global supply and
demand forces.
Weaker hard and soft commodity prices (particularly
coal, iron ore, gold, corn, wheat, cotton and sugar) could
have an adverse impact on the Group’s customers and
has the potential to impact the customers’ propensity to
purchase, impacting volume and market prices.
• The Group seeks to maintain low cost positions in its chosen
markets, which helps its business units to compete in
changing and competitive environments.
• Sales and operations planning (“S&OP”) process helps
inventory management to minimise profit in stock risk.
•
Incitec Pivot Fertilisers employs a “value at risk” framework
to help mitigate its short and medium term commercial
exposure to commodity price fluctuations.
• To ensure volume and price commitments are upheld, the
Group works with its customers and enforces customer
supply contracts.
External
financial risk
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.
Other financial risks that can impact Incitec Pivot’s
earnings include the cost and availability of funds
to meet its business needs and movements in
interest rates.
•
Incitec Pivot’s capital management strategy is aimed at
maintaining an investment grade credit profile to allow it to
optimise the weighted average cost of capital over the long
term while maintaining an appropriate mix of $US and $A
debt, provide funding flexibility by accessing different debt
markets and reduce refinance risk by ensuring a spread of
debt maturities. A detailed discussion of financial risks is
included in Note 32 (Financial Risk Management).
• Group Treasury undertakes financial risk management in
accordance with policies approved by the Board. Hedging
strategies are adopted to manage, to the extent possible
and appropriate, currency and interest rate risks.
• As part of the S&OP process, the IPF business employs a
value at risk framework and customer term contracts to help
mitigate its short and medium term commercial exposure to
currency movements.
Industry
structure and
competition
risks
Incitec Pivot operates in highly competitive markets with
varying competitor dynamics and industry structures.
•
The actions of established or potential competitors could
have a negative impact on sales and market share and
hence the Group’s financial performance.
The balance between supply and demand of the
products that Incitec Pivot manufactures and sells can
greatly influence prices and plant utilisation.
The Fertilisers business operates in a distribution and
manufacturing market competing against manufacturers
with lower input costs and potentially having regulatory
and economic advantages. A competitive market may
also lead to the loss of customers which may negatively
impact earnings.
Incitec Pivot seeks to maintain competitive cost positions in
its chosen markets, whilst maintaining quality product and
service offerings. This focus on cost and quality help its
business units compete over the medium to longer term in
changing and competitive environments.
• Where practical, Incitec Pivot prefers to engage in long term
customer and supply contractual relationships.
• Pricing and risk management processes exist in all
businesses.
Incitec Pivot Limited Annual Report 2014
12
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot
Customer risks
Incitec Pivot has strong relationships with key customers
for the supply of products and services. These
relationships are fundamental to the Group’s success,
and the loss of key customers may have a negative
impact on Incitec Pivot’s financial performance. This is
particularly relevant in the Explosives business where
supply contracts tend to be longer term and significant
high value customers are represented.
• Where practical, for high value customers in the explosives
businesses, Incitec Pivot prefers to engage in long term
customer contractual relationships.
• The Group attempts to diversify its customer base, to reduce
the potential impact of the loss of any single customer.
• Sales and customer plans are developed in line with the
business strategy.
Oversupply of
AN in Australia
and North
America
New ammonium nitrate capacity has recently been
or is soon to be introduced in both the DNAP and DNA
geographic regions. In both instances, the markets are
predominantly domestically supplied and the new
capacity may create a supply/demand imbalance.
Excess supply may result in margin erosion as there is
an increased likelihood of lost customers and downward
price pressure.
• Where practical, for high value customers in the explosives
businesses, Incitec Pivot prefers to engage in long term
customer contractual relationships.
•
Incitec Pivot seeks to maintain competitive cost positions in
its chosen markets, whilst maintaining quality product and
service offerings.
• Planning, pricing and risk management processes are in place
to ensure appropriate emphasis on value versus volume.
Operational Risks
Production,
transportation
and storage
risks
Incitec Pivot operates 17 key manufacturing and
assembly sites and is exposed to operational risks
associated with the manufacture, transportation and
storage of fertilisers, ammonium nitrate, industrial
chemicals and industrial explosives products.
Incitec Pivot’s manufacturing systems are vulnerable to
equipment breakdowns, energy or water disruptions,
natural disasters and acts of God, unforeseen human
error, sabotage, terrorist attacks and other events which
may disrupt Incitec Pivot’s operations and materially
affect its financial performance.
Timely and economic supply of key raw materials, such
as ammonia, represents a potential risk to the Group’s
ability to supply.
Natural gas risk
Gas is one of the major inputs required for the
production of ammonia and therefore is a critical
feedstock for Incitec Pivot’s nitrogen manufacturing
operations.
The Group has various gas contracts and supply
arrangements for its plants across Australia and
North America.
In respect of the Australian fertiliser operations
there is a risk that a reliable, committed source
of gas at economically viable prices may not be
available following the expiry of current contractual
arrangements. The cost of gas impacts the variable
cost of production of ammonia and can influence the
plants’ overall competitive position.
13
Incitec Pivot Limited Annual Report 2014
• Comprehensive HSE management system is in place with
clear principles and policies communicated to employees.
• HSE risk management strategies are employed at all times
and across all sites. Incidents are investigated and learnings
are shared throughout the Group.
• Global appropriate workers compensation programs are in
place to assist employees who have been injured while at
work, including external insurance coverage.
• Management undertakes risk identification and mitigation
strategies across all sites.
•
Incitec Pivot undertakes business continuity planning and
disaster preparedness across all sites.
• Global industrial special risk insurance is obtained from a
variety of highly rated insurance companies to ensure the
appropriate coverage is in place. The policies protect the
business, subject to policy limits, from damage to its plants
and property and the associated costs from business
interruptions.
• Flexible supply chain and, in many instances, alternative
sourcing solutions are maintained as a contingency.
• The S&OP process and inventory management practices
provide flexibility and assurance to deal with short term
disruptions.
• The Group has strict processes around the stewardship,
movement and safe handling of dangerous goods and
other chemicals.
• The Group has medium term gas contracts in place for its
Australian manufacturing sites. The contracts have various
tenures and pricing mechanisms.
• The US gas market is a liquid market, with offtake facilitated
by an extensive gas pipeline infrastructure and pricing
commonly referenced to a quoted market price. DNA has
short term gas supply arrangements in place for its gas
needs with market referenced pricing mechanisms.
• Gas supply has been contracted for the new Louisiana
ammonia plant for its first 5 years of production with
market referenced pricing mechanisms.
•
In respect of the DNA business (including the Louisiana
ammonia plant), there is some ability to hedge gas prices
and the Group reviews its approach to gas hedging in the
USA on a regular basis.
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot
Sulphuric acid
cost and supply
into Phosphate
Hill
Sulphuric acid is a major raw material required for the
production of ammonium phosphates. Approximately
40 percent of Phosphate Hill’s sulphuric acid needs
come from processing metallurgical gas sourced from
Glencore’s Mt Isa Mines copper smelting facility.
Glencore publicly announced the planned closure of its
copper smelting operation at Mt Isa, Queensland by the
end of 2016. Alternative sources of sulphuric acid are
likely to negatively impact the cost of producing
ammonium phosphates at the Phosphate Hill facility.
The quantum of the impact will depend on the future
availability and price of sulphur and/or sulphuric acid
and the prevailing $A:$US rate.
Sulphuric acid supply into Phosphate Hill may be
negatively impacted from a volume and/or price
perspective, after the closure of the Mt Isa Mines
copper smelter.
• The Group has several sources of sulphuric acid for supply
for Phosphate Hill. Along with sulphuric acid produced from
metallurgical gas capture, Mt Isa produces sulphuric acid
from burning imported elemental sulphur. Phosphate Hill’s
operations are also supplemented with sulphuric acid
purchased directly from a domestic smelter to meet total
sulphuric acid requirements for the production of
ammonium phosphates. In addition, Phosphate Hill uses
phosphoric acid reclaimed from its gypsum stacks in place
of sulphuric acid. It is unlikely that the majority of the lost
sulphuric acid can be replaced but the cost impact is yet to
be determined.
• The Mt Isa site is a leased site, with a lease contract in place
with Mt Isa Mines to 2020. Accordingly, Incitec Pivot is able
to continue to produce sulphuric acid at Mt Isa (albeit at a
higher cost) by burning elemental sulphur until 2020,
notwithstanding cessation of the copper smelter operation.
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 that facility.
Phosphate rock is an internationally traded commodity
with pricing based on international benchmarks and is
affected by global supply and demand forces and its
cost for single superphospate manufacturing purposes is
also impacted by fluctuations in foreign currency
exchange rates, particularly the $A/$US rate.
Fluctuations in either of these variables can impact the
cost of Incitec Pivot’s single superphosphate
manufacturing operations, as these operations rely on
rock imported from limited foreign supply sources.
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.
Incitec Pivot has operations in regional and remote
locations where it can be difficult to attract and retain
critical and diverse talent.
• Phosphate rock used in the production of single
superphosphate at Incitec Pivot’s Geelong and Portland
operations is sourced from a small number of
international suppliers.
•
Incitec Pivot’s scale provides some, albeit limited, ability to
relocate staff to cover shortages or losses of critical staff.
• The Group has policies and procedures, including flexible
working arrangements and competitive compensation
structures, designed to help attract and retain workforce.
• Management identifies critical roles and attempts to
implement policies to help ensure that appropriate
succession and retention plans are in place.
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.
• The S&OP process incorporates forecasting which enables
scenario planning and some supply flexibility. Forecasts are
based on typical weather conditions and are reviewed
monthly as the seasons progress to help align supply to
changing demand.
Labour
Weather
Incitec Pivot Limited Annual Report 2014
14
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot
Construction Risk
Louisiana
ammonia plant
construction
and
commissioning
risk
A potential risk is that the construction of the Louisiana
ammonia plant is completed late and/or exceeds the
budgeted capital amount. Risks associated with
construction and commissioning of the Louisiana
ammonia plant and associated infrastructure include,
but are not limited to, natural disasters and acts of God,
sabotage, unforeseen human error, terrorist attacks and
other issues which may disrupt or delay the construction
and commissioning phase.
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.
•
Incitec Pivot has a competent project team on site,
managing the outside battery limits works and reviewing
the contractors activity for all inside battery limits (“IBL”)
works.
• The construction contract for all IBL works is a lump sum
turn-key contract, with allowance for specific variations only.
• Management undertakes risk identification and mitigation
strategies across all sites and has engaged an external party
to conduct regular audit services on Incitec Pivot’s risk
management in respect of this project.
• Management identifies critical roles and, where possible,
ensures that appropriate recruitment, succession and
retention plans are in place.
• A steering committee is in place with Executive leadership
to support the team and oversee successful implementation.
Compliance, Regulatory and Legal Risk
Compliance,
regulatory
and legal risk
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,
and geopolitical risks relating to countries with which
Incitec Pivot engages to buy or sell products and
materials. In addition, changes in tax legislation 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 (for example,
increased regulation of coal fired energy generation in
the US), 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, and property damage and personal
injury claims in connection with its operations.
• 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 the business. This is
managed through an annual risk workshop, risk register
and internal audits aligned to the material business risks.
• Corporate functions are in place to provide sufficient support
and guidance to ensure regulatory risks are identified and
addressed within the business well in advance.
• Country regulatory risk is regularly reviewed through the
Group’s risk management framework.
• Where possible, Incitec Pivot appoints local business
leaders and management teams who bring a strong
understanding of the local operating environment and
strong customer relationships.
• Comprehensive HSE management system is in place with
clear principles and policies communicated to employees.
• HSE risk management strategies are employed at all times
and across all sites. Incidents are investigated and learnings
are shared throughout the Group.
• The Group has strict processes regarding the stewardship,
movement and safe handling of dangerous goods and
other chemicals.
15
Incitec Pivot Limited Annual Report 2014
Directors’ Report
Remuneration Report
Introduction from the Chairman of the
Remuneration Committee
Contents
Section
Dear Shareholders,
A. Executive Remuneration Strategy
Page
17
On behalf of the Remuneration Committee and the Board,
I am pleased to present the Remuneration Report for 2014.
The 2014 result was delivered in the face of challenging
markets and has set a solid platform for the future. The year’s
strong performance resulted in Executives being awarded short
term incentives for the first time since 2011. No long term
incentives vested during the year based on the three year
retrospective performance in relative total shareholder return
and compound annual growth in earnings per share.
During the year, the Remuneration Committee reviewed a
number of aspects of the Company’s remuneration design, in
particular, the structure and design of the short and long term
incentives, to further enhance the approach to remuneration
and performance. As a result, the following changes have been
implemented for the 2015 financial year:
B. Non-Executive Director Remuneration 18
C. Executive Remuneration
Executive remuneration policy and practice
Key features of the components of
Executive remuneration
− Fixed annual remuneration
− At risk remuneration – Short Term Incentive
(STI) Plan
− At risk remuneration – Long Term Incentive
• adoption of a policy on clawback for short term incentives
(LTI) Plans
which will apply in the event there is a material
misstatement in the Company’s financial statements;
• adjustment to the structure of long term incentives so that
the majority (70%) of the long term incentive grant is based
on relative total shareholder return, with the remaining 30%
to be based on a new performance measure linked to the
Company’s strategic initiatives.
The directors are confident that the Company’s strategic intent
of delivering top quartile performance as measured against
S&P/ASX 100 companies will be enhanced by these changes.
On behalf of the Board and the Remuneration Committee,
I invite you to read the 2014 Remuneration Report and
welcome your feedback on the Company’s approach to, and
disclosure of, its remuneration arrangements.
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
− Details of performance related remuneration:
short term incentives
19
19
19
19
21
23
23
23
24
25
25
26
John Marlay
Chairman, Remuneration Committee
− Details of performance related remuneration:
27
long term incentives
D. Key management personnel
30
disclosures
Incitec Pivot Limited Annual Report 2014
16
Directors’ Report
Remuneration Report
Remuneration Report
The directors of Incitec Pivot Limited (the Company or Incitec
Pivot) present the Remuneration Report prepared in accordance
with section 300A of the Corporations Act 2001 (Cth) for the
Company and its controlled entities (collectively referred to in
this report as the “Group”) for the year ended 30 September
2014. 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 2013/14 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.
The term “Executives”, when used in this Remuneration Report,
means the people listed in the following table (and certain
former executives, as the context requires).
Name
Position
Mr James Fazzino
Managing Director & CEO
Mr Frank Micallef
Chief Financial Officer
Mr Jamie Rintel
Mr James Whiteside
President, Strategy &
Business Development
Chief Operating Officer,
Incitec Pivot Fertilisers
Mr Stephen Dawson President, Manufacturing Operations
Mr Daniel McAtee
President, Dyno Nobel Americas
Mr Simon Atkinson
President, Dyno Nobel Asia Pacific
& Global Technology
Ms Elizabeth Hunter
Chief Human Resources Officer
Mr Alan Grace
President, Strategic Engineering
A. Executive Remuneration Strategy
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:
17
Incitec Pivot Limited Annual Report 2014
• to reward strategic outcomes at both the Group and business
unit level that create top quartile long term shareholder
value;
• to encourage integrity and disciplined risk management in
business practice;
• to drive strong alignment with shareholder interests through
delivering part of the reward in the form of equity;
• to structure the majority of executive remuneration to be
“at risk” and linked to demanding financial and non-financial
performance objectives;
• to reward Executives for high performance within their role
and responsibilities, and ensure rewards are competitive
within the industry and market for their role in respect of
pay level and structure; and
• to ensure the remuneration framework is simple, transparent
and easily implemented.
Overview of Remuneration Changes for 2014/15
During the year, the Remuneration Committee reviewed several
aspects of the Company’s remuneration design, including the
structure and design of the short and long term incentives. As a
result, the Board has implemented the following changes to
the remuneration arrangements for the Executives for the
2014/15 financial year:
Introduction of Clawback: A clawback provision has been
included in the Short Term Incentive (STI) plan for Executives for
the 2014/15 financial year which will require the repayment
of all or part of any STI awarded within three years after a
payment is made in the event of a material misstatement
which results in a restatement of the financial accounts.
Changes to Long Term Incentive performance conditions:
The performance conditions for the Long Term Incentive (LTI)
plan have been revised. For the three year performance period
commencing 1 October 2014 and ending 30 September 2017,
the performance conditions will be measured by reference to
the relative Total Shareholder Return (TSR) of the Company
(measuring TSR against companies in the S&P/ASX 100) (TSR
Condition) and the delivery of certain strategic initiatives
(Strategic Initiatives Condition). The TSR Condition will apply to
70% of the performance rights in a grant of performance rights
made under the 2014/17 LTI Plan. The Strategic Initiatives
Condition will apply to the remaining 30%.
The Strategic Initiatives Condition, which has been introduced
for the first time in the 2014/17 LTI Plan, replaces the earnings
per share growth condition previously used. It will comprise two
equal components of 15% relating to:
(i) delivery of the Louisiana Ammonia Project (based on the
Project business case as approved by the Board in April
2013); and
(ii) delivery of the Business Excellence System (comprising
measures for business system maturity, cumulative
productivity benefits and manufacturing plant uptime).
Further details of the 2014/17 LTI Plan will be disclosed in the
Company’s 2015 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 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. A review of the level of fees
paid to Incitec Pivot’s non-executive directors was undertaken
during the financial year, and the directors determined to
increase non-executive fees for the 2014/15 financial year
by 3%, with effect from 1 October 2014. The last increase to
non-executive director fees occurred on 1 October 2011.
For the 2013/14 financial year, fees paid to non-executive
directors amounted to $1,559,000, which was within the
$2,000,000 limit approved by shareholders at the 2008 Annual
General Meeting.
Table B.1 – Non-executive directors’ remuneration
Details of the non-executive directors’ remuneration for the financial year ended 30 September 2014 are set out in the
following table:
For the year ended 30 September 2014
Short-term benefits(A)
Post-employment benefits
Other long term benefits(B)
Superannuation benefits
$000
$000
Non-executive directors
– Current(1)
P V Brasher, Chairman
K Fagg(2)
A C Larkin
J Marlay
R J McGrath
G Smorgon AM
Non-executive directors
– Former
A D McCallum(3)
Total non-executive directors
Year
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Fees
$000
498
499
81
–
208
209
211
212
215
203
197
198
45
207
1,455
1,528
Total
$000
516
516
88
–
226
226
229
229
233
220
215
215
–
–
–
–
–
–
–
–
–
–
–
–
3
11
3
11
52
235
1,559
1,641
18
17
7
–
18
17
18
17
18
17
18
17
4
17
101
102
(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 paid to 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) On 1 October 2014, Mr Gregory Hayes was appointed to the Board as a non-executive director.
(2) Ms Fagg was appointed to the Board as a non-executive director effective 15 April 2014.
(3) Mr McCallum retired as a director on 19 December 2013. Mr McCallum, 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 McCallum’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 prior to his 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
$351,887 which was paid in the 2013/14 financial year. While Mr McCallum received this payment in the 2013/14 financial year, with the exception of $2,519
which was accrued in the 2013/14 financial year, all amounts were accrued and expensed in prior reporting periods.
Incitec Pivot Limited Annual Report 2014
18
Directors’ Report
Remuneration Report
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 (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 2013/14 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 provided by Ernst & Young did not
include a “remuneration recommendation” (as defined in the
Corporations Act 2001 (Cth)). For the 2013/14 financial year,
the Board approved an increase of 2.4% to the FAR of
Executives with effect from 1 October 2013. In addition, Mr
Atkinson received a further increase with effect from 1 January
2014 on his appointment to the role of President, Dyno Nobel
Asia Pacific & Global Technology, such that his effective increase
for the 2013/14 financial year was 24%.
The relative proportion of the Executives’ total remuneration
packages for the 2013/14 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 2013/14 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 2013/14 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 any applicable fringe benefits. 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 2014.
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 2014. All of the Executives (as
well as other selected employees) participate in the STI Plan.
What were the STI performance measures for the 2013/14 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, principally, 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 2013/14 financial year.
Financial performance measures
There were two financial performance measures for 2013/14:
• 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 was
converted to operating cash flow.
19
Incitec Pivot Limited Annual Report 2014
Non-financial performance measures
In addition, to ensure STI awards drive performance and
behaviours consistent with achieving the Group’s strategy for
2013/14 and Zero Harm objectives, the non-financial
performance measures for 2013/14 comprised:
• Safety: All Worker Total Recordable Injury Frequency Rate
(TRIFR) of 1.05 (TRIFR 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 and
Phosphate Hill ammonium phosphate production);
(ii) Business Excellence (BEx) and productivity, in particular,
delivering the next level of BEx maturity across
manufacturing and supply chain and the implementation
of the BEx human capital module; and
(iii) corporate strategic objectives as to capital investments
and major projects (for example, the investment in
Louisiana).
Table C.2 below sets out the STI performance measure
weightings for the Executives for the year ended
30 September 2014.
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 unit is
also used as a measure for Executives in relevant business units
as it ensures robust alignment of performance in a particular
business unit with reward for the Executive managing that
business unit. 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 as well as continuing to pursue
initiatives established in 2012/13 to drive continuous
improvement to the next level of BEx maturity.
Table C.2 – STI performance measure weightings for Executives
Financial
Non-financial
Maximum STI
opportunity
Growth
in EPS
(before
IMIs)
Business Unit
EBIT (including
cash conversion
requirement)
For the year ended
30 September 2014
J E Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
J Rintel
President – Strategy & Business Development
J D Whiteside
Chief Operating Officer – Incitec Pivot Fertilisers
S Dawson
President – Manufacturing Operations
D McAtee
President – Dyno Nobel Americas
S Atkinson
President – Dyno Nobel Asia Pacific
& Global Technology
E Hunter
Chief Human Resources Officer
A Grace
President – Strategic Engineering
90%
80%
60%
60%
Safety:
TRIFR
target
of 1.05
10%
10%
10%
80%
10%
10%
80%
10%
80%
10%
10%
10%
Business
Excellence and
productivity
targets
Production
outcomes from
major operations
(including
Moranbah)
Objectives
for strategic
growth
projects
100%
100%
20%
100%
100%
100%
100%
10%
100%
100%
100%
80%
70%
10%
10%
10%
10%
10%
30%
20%
Incitec Pivot Limited Annual Report 2014
20
Directors’ Report
Remuneration Report
In addition, since 2012/13, the STI has included a safety measure
based on TRIFR which 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 a TRIFR of less than one, the Company sets
annual targets on TRIFR, seeking year-on-year improvements. For
the 2013/14 financial year, the target was 1.05.
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 TRIFR 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 clawback and deferral?
For the 2013/14 STI, there was no deferral or clawback under
the Company’s STI. However, the STI measures were subject to
the STI Gate which required the Group’s financial performance
to meet the required growth threshold before any awards can
be made.
What were the outcomes in relation to the STI for the year
ended 30 September 2014?
In relation to the financial performance measures,
notwithstanding EPS (before IMIs) grew 21% to 21.7 cents
per share and increases in Business Unit EBIT, Executives
received only partial STI awards in respect of the financial
performance measures.
In relation to the non-financial performance measures:
• Safety: The Group achieved a TRIFR of 0.97, which was
better than the target of 1.05.
• Business Excellence and productivity: These were
achieved in full with BEx delivering $27 million of net
benefits in 2014, the majority of which was delivered from
the manufacturing and supply chain functions consistent
with an improved business maturity level. Implementation
of the BEx Human Capital module progressed to plan. The
overhead reduction program was completed in full, with
$21 million in cost savings delivered, well above the 2014
target of $13 million.
• Production outcomes from major operations: These were
partially achieved. While nitrogen production targets were
met overall, Phosphate Hill ammonium phosphate
production did not meet the required target.
• Objectives for strategic growth projects: These were
achieved, with the Louisiana ammonia project meeting the
applicable project milestones as at 30 September 2014 and
the Moranbah earnings for 2014 delivered in full.
Details of the STI payments made to the Executives in respect
of the financial year ended 30 September 2014 are set out in
tables C.4 and C.5.
21
Incitec Pivot Limited Annual Report 2014
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 2013/14 financial year was
the Long Term Incentive Performance Rights Plan for 2011/14
(LTI 2011/14) which matured on 30 September 2014.
There are two other LTI Plans in place:
• Long Term Incentive Performance Rights Plan for 2012/15
(LTI 2012/15); and
• Long Term Incentive Performance Rights Plan for 2013/16
(LTI 2013/16).
These plans do not mature until 30 September 2015 and 30
September 2016, respectively.
Executives and other selected managers participate in the LTI
2011/14 and the LTI 2012/15. For the LTI 2013/16,
participation was limited to the Executives who are Key
Management Personnel, with other selected and senior
managers participating in a new cash-based, deferred payment
performance plan (being the Sustained Performance Plan). The
primary objective of the Sustained Performance Plan is to align
value creation with factors that are directly within the control of
an employee and, in doing so, achieve a higher correlation
between contribution to Company performance and individual
outcomes.
Details of the Executives’ participation in LTI 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 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. Rewards resulting in share ownership on the
achievement of demanding targets, ties remuneration to
Company performance, as experienced by shareholders. The
arrangements also support the Company’s strategy for retention
and motivation of the Executives.
What is the process for deciding who will participate in the
LTI Plans?
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
2011/14, the LTI 2012/15 and the LTI 2013/16.
What is the performance period of the LTI Plans?
The LTI 2011/14, LTI 2012/15 and LTI 2013/16 are performance
rights plans each of which has a performance period of three
years:
• LTI 2011/14 – 1 October 2011 to 30 September 2014
• LTI 2012/15 – 1 October 2012 to 30 September 2015
• LTI 2013/16 – 1 October 2013 to 30 September 2016
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 2011/14, the LTI 2012/15 and the LTI
2013/16, 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%; 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 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
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, becomes 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 2011/14 and so
these performance rights have lapsed.
The performance conditions under LTI 2012/15 and LTI 2013/16
will not be tested until after 30 September 2015 and 30
September 2016, 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 of the
will vest;
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.
• 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 and LTI 2013/16 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.
Incitec Pivot Limited Annual Report 2014
22
Directors’ Report
Remuneration Report
Analysis of relationship between the Group’s performance,
shareholder wealth and remuneration
In considering the Group’s performance, the benefit to
shareholders and appropriate remuneration for the Executives
and other selected senior employees, the Board, through its
Remuneration 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 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
2011, with EPS (before IMIs) growing 19% awards were made
to Executives under the relevant STI plan applicable for that
year. Conversely, in respect of the 2012 and 2013 financial
years, EPS (before IMIs) decreased 24% and 27% respectively
and, accordingly, no awards were made under those plans. In
2014, with EPS (before IMIs) growing by 21% to 21.7cps,
awards were made to Executives under the 2013/14 STI plan.
Table C.3 – Indices relevant to the Board’s assessment of the
Group’s performance and the benefit to shareholders
Company performance and STI outomes
2010
2011 2012 2013(2) 2014
442.8
530.1 404.7
293.5 356.3
27.3
32.5
24.8
18.0
21.7
Cents
35
30
25
20
15
10
5
0
STI opportunity
(%)
100
75
50
25
0
4.1
9.3
11.5
12.5
9.3
2010
2011
2012
2013
2014
Earnings per share (before IMIs) (LHS)
Average STI payment as percentage of STI opportunity (RHS)
7.8
11.5
12.4
9.2
10.8
Net Profit After Tax excluding
minority interests (before
individually material items)
(NPAT (before IMIs)) ($m)
Earnings Per Share (before
individually material items)
(EPS (before IMIs)) (cents)
Dividends – paid in the
financial year – per share
(cents)
Dividends – declared in
respect of the financial year –
per share (DPS (declared))
(cents)
Share price ($) (Year End)
3.59
3.27
2.98
2.69
2.71
Total Shareholder Return
(TSR) (%)(1)
3
(10)
4
(16)
(7)
(1) For the financial years ended 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 years ended 30 September 2013 and 30 September
2014, TSR is calculated in accordance with the rules of the LTI 2010/13 and
LTI 2011/14 respectively 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.
(2) Comparative information has been restated as a result of the Group adopting
the revised AASB 119 “Employee Benefits”.
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.
For the LTI 2011/14, 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 2014 did not
meet the minimum hurdle, no performance rights vested.
23
Incitec Pivot Limited Annual Report 2014
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.
Fixed annual remuneration
For 2013/14, Mr Fazzino’s fixed annual remuneration was
$2,163,345, effective 1 October 2013. 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 2013/14, Mr Fazzino’s maximum STI opportunity was 100%
of his fixed annual remuneration and was determined by
reference to growth in EPS (before IMIs) in the 2013/14
financial year.
Given EPS (before IMIs) grew 21% in the 2013/14 financial year,
Mr Fazzino was awarded a STI payment of $1,730,166 in respect
of the period from 1 October 2013 to 30 September 2014.
LTI
Mr Fazzino participated in the LTI 2011/14, the performance
period for which ended on 30 September 2014. On
determination of performance measured against the
performance conditions, in accordance with the LTI 2011/14
plan rules, none of Mr Fazzino’s performance rights vested.
In addition, Mr Fazzino currently participates in the following
LTI Plans:
• 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; and
• the LTI 2013/16 pursuant to which Mr Fazzino was issued
804,218 performance rights as approved by shareholders in
accordance with the ASX Listing Rules at the 2013 Annual
General Meeting held on 19 December 2013.
The LTI 2012/15 and LTI 2013/16 are each for a three year
period and the performance conditions will not be tested until
after 30 September 2015 and 30 September 2016, respectively.
Termination by Incitec Pivot
The Company may terminate Mr Fazzino’s employment:
•
immediately for cause, without payment of any separation
payment, save as to accrued fixed annual remuneration,
accrued annual leave and long service leave;
• otherwise, without cause, with or without notice, in which
case the Company must pay a separation payment plus
accrued fixed annual remuneration, accrued annual leave
and long service leave. The separation payment will be
equal to 52 weeks of fixed annual remuneration as at the
date of termination.
Termination by Managing Director & CEO
The agreement provides that Mr Fazzino may terminate his
employment on six months’ notice.
Effect of termination on long term incentives
For the LTI 2012/15 and the LTI 2013/16, 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.
Executive Team
Remuneration and other terms of employment for the
Executives (excluding Mr Fazzino, whose arrangements are set
out above) 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.
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 2013/14 financial year, the fixed annual remuneration
for the Executives was increased by 2.4% with effect from
1 October 2013. In addition, Mt Atkinson received a further
increase to his fixed annual remuneration on his appointment
to the role of President, Dyno Nobel Asia Pacific & Global
Technology on 1 January 2014.
STI
Participation is at the Board’s discretion. For all Executives,
for the 2013/14 financial year, the maximum STI opportunity
was 100% of fixed annual remuneration and was determined
with reference to performance conditions outlined on pages
19 and 20.
LTI
Participation is at the Board’s discretion. For the LTI 2011/14,
the LTI 2012/15 and the LTI 2013/16, for all Executives, the
maximum LTI opportunity was 80% of fixed annual
remuneration (save for Mr McAtee, 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).
Termination by Incitec Pivot
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. The following table sets out the “capped”
number of weeks for each Executive.
Mr Frank Micallef
Mr Jamie Rintel
Mr James Whiteside
Mr Stephen Dawson(1)
Mr Daniel McAtee(2)
Mr Simon Atkinson
Ms Elizabeth Hunter(3)
Mr Alan Grace(4)
Number of Weeks
26 weeks
26 weeks
45.41 weeks
26 weeks
26 weeks
52 weeks
26 weeks
26 weeks
(1) 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.
(2) Mr McAtee ceased employment with the Company on 7 October 2014.
(3) Ms Hunter joined the Company on 9 October 2013 and is considered to be a
Key Management Person from that date.
(4) Mr Grace became a Key Management Person on 1 October 2013.
Termination by the Executive
An Executive may terminate his/her employment on 13 weeks’
notice (save for Mr Atkinson and Mr Grace who may terminate on
8 weeks’ notice) and the Company may require the Executive to
serve out the notice period or may make payment in lieu.
Effect of termination on long term incentives
For the LTI 2012/15 and the LTI 2013/16, 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 2014
24
Directors’ Report
Remuneration Report
Details of Executive remuneration
Table C.4 – Executive remuneration
Details of the remuneration paid to each Executive for the year ended 30 September 2014 are 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 a
proportion of
remuneration(E)
Accounting
value of
current year
share-based
payments as a
proportion of
remuneration(F)
Year
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
Executives
– Current
J E Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
J Rintel
President – Strategy
& Business Development
J D Whiteside
Chief Operating Officer
– Incitec Pivot Fertilisers
2013
2014
2013
2014
2013
2014
2013
S Dawson(1)
President – Manufacturing
Operations
2014
2013
D McAtee(2)
President – Dyno
Nobel Americas
S Atkinson(3)
President – Dyno Nobel
Asia Pacific & Global
Technology
E Hunter(4)
Chief Human
Resources Officer
A Grace(5)
President – Strategic
Engineering
Executives
– Former
K J Gleeson(6)
General Counsel &
Company Secretary
B C Walsh(7)
President – Global
Manufacturing
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2,145
1,730
2,096
872
853
743
708
724
708
724
708
669
603
692
583
–
732
–
643
–
148
–
470
–
364
–
435
–
–
–
–
–
–
–
–
4
–
1
4
–
–
115
500
459
79
–
–
724
519
–
–
–
–
–
181
708
3
744
–
–
–
–
51
–
97
–
232
119
18
17
18
17
18
17
17
17
18
17
–
–
18
17
18
–
18
–
4
17
–
17
65
78
23
7
20
38
22
26
29
29
–
–
32
24
2
–
62
–
7
21
–
30
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
371
–
–
904
864
940
285
301
227
244
237
244
237
243
169
122
189
196
100
–
216
–
–
254
51
271
(347)
(926)
(114)
(282)
(95)
(226)
(95)
(217)
(95)
(214)
(77)
(2)
(79)
(171)
–
–
(75)
–
–
(245)
(33)
(267)
517 4,475
14
2,205
171 1,816
19
896
132 1,556
18
781
142 1,053
27
778
142 1,387
29
783
92 1,126
120
727
110 1,287
25
764
100 1,158
–
–
141 1,464
–
–
–
9
614
755
18
118
4
1,699
147
136
262
253
371
2,575
(1,010)
1,565 16,054
904
2,815
(2,550)
265
9,388
Total Executives
2014
7,977
5,500
2013
7,711
–
%
36
0
38
0
39
0
13
0
32
0
30
0
32
0
40
0
34
0
0
0
0
0
32
0
%
18
30
15
26
14
24
21
25
16
24
14
17
14
21
9
0
14
0
0
25
34
14
15
24
(A) Certain STI payments are awarded in US$. Such STI payments were converted to A$ at the spot rate on 30 September 2014, being 1.149.
(B) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2014: 1 April 2013 to 31
March 2014) (2013: 1 April 2012 to 31 March 2013), rent and mortgage interest subsidies, relocation allowances and other allowances. For Mr Atkinson, this
includes rental, health insurance, education support and home leave travel in relation to his former role as President, Dyno Nobel International. For Ms Hunter, this
includes commuting costs, comprising airfares and car transfers. For Mrs Gleeson and Mr Walsh, this includes annual leave paid on termination.
(C) Other long term benefits represent 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 2012/15, the Company wrote-back an amount of $1.0 million which had previously been incurred as an expense in the financial year ended
30 September 2013 relating to the issues of performance rights to Executives at that time. The accounting standards provide that prior period expenses must be
written back in certain circumstances. Where these write-backs relate to named executives and directors in the remuneration report, the write-back has been
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 2011/14, the LTI 2012/15, the LTI 2013/16 and LTIs generally.
(E) The short term incentive and other bonuses as a proportion of remuneration is calculated based on the short term incentive expense as a proportion of the total
remuneration (excluding the prior period share-based payment expense write-back).
(F) The accounting value of current year share-based payments as a proportion of remuneration is calculated based on the current period expense as a proportion of
the total remuneration (excluding the prior period’s expense write-back).
25
Incitec Pivot Limited Annual Report 2014
The terms and conditions of each grant affecting remuneration in this or future reporting periods are as follows:
LTI 2011/14 – TSR
Grant date
02/02/2012
Vesting date
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
LTI 2013/16 – TSR
06/01/2014
30/09/2016
LTI 2013/16 – EPS
06/01/2014
30/09/2016
Fair value per share treated as rights at grant date
$1.72
$2.90
$1.54
$2.86
$1.40
$2.39
Once vested, a performance right is deemed to be exercised automatically and no amount is payable on exercise.
The number of rights for the purposes of remuneration, held by each Executive is referred to in section C of this Remuneration Report.
(1) On 1 January 2014, Mr Dawson was appointed President, Manufacturing Operations. Prior to that Mr Dawson held the role of President, Dyno Nobel Asia Pacific.
(2) Mr McAtee’s fixed annual remuneration is inclusive of 401K pension contributions. Mr McAtee’s payments were converted from US$ to A$ at the average rate for
1 October 2013 to 30 September 2014, being 1.0865. On 7 October 2014, Mr McAtee ceased employment with the Company.
(3) On 1 January 2014, Mr Atkinson was appointed President, Dyno Nobel Asia Pacific & Global Technology. Prior to that, Mr Atkinson held the role of President,
Dyno Nobel International.
(4) Ms Hunter commenced employment during the 2014 financial year. The disclosures for the 2014 year are from the date she became a Key Management Person,
9 October 2013.
(5) Mr Grace became a Key Management Person on 1 October 2013. The disclosures for the 2014 year are from that date.
(6) On 31 October 2013, Mrs Gleeson resigned as General Counsel and Company Secretary, and ceased employment with the Company on 31 December 2013. The
payments received by Mrs Gleeson in the 2014 financial year included a separation payment in the amount of $370,944 and accrued annual leave and long service
leave in the amount of $50,519 and $122,225 respectively. Mrs Gleeson was entitled to these payments under her contract of employment dated 19 January 2004.
In relation to Mrs Gleeson’s long service leave and annual leave payment, $6,544 was accrued in the 2014 financial year. The remaining amount was accrued and
expensed during the term of her employment.
(7) 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 received by Mr Walsh in the 2013/14 financial year include a
separation payment in the amount of $904,031 and accrued annual leave and long service leave in the amount of $96,850 and $337,314 respectively. Mr Walsh
was entitled to these payments under his contract of employment dated 17 October 2003.
Details of performance related remuneration: short term incentives
Table C.5 – Short term incentives awarded for the year ended 30 September 2014
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2014 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
J Rintel
J D Whiteside
S Dawson
D McAtee
S Atkinson
E Hunter
A Grace
Executives
– Former
K J Gleeson
B C Walsh
1,730
732
643
148
470
364
435
459
519
–
–
80
82
87
20
63
52
59
87
70
–
–
20
18
13
80
37
48
41
13
30
–
–
Incitec Pivot Limited Annual Report 2014
26
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 2014 and the vesting profile of
long term incentives granted as remuneration
The movement during the reporting period, by value, of rights for the purposes of remuneration held by each Executive and the vesting
profile of long term incentives granted as remuneration are detailed below:
Key Management Personnel
Executives
– Current
J E Fazzino
J Rintel
F Micallef
S Dawson
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
J D Whiteside Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
D McAtee(1)
S Atkinson
E Hunter(2)
A Grace(3)
Grant date
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
6 January 2014
2 February 2012
25 January 2013
25 January 2013
Executives
– Former
K J Gleeson(4)
B C Walsh(5)
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
Performance Rights Plan 2011/14
Performance Rights Plan 2012/15
2 February 2012
25 January 2013
2 February 2012
25 January 2013
Granted during
2014 as
remuneration(A)
$000
Vested in
year(B)
$000
Forfeited
in year(C)
$000
Exercised
in year(D)
$000
% Vested
in year
% Forfeited
in year(E)
Financial
year in
which grant
may vest
–
–
1,524
–
–
502
–
–
418
–
–
418
–
–
418
–
–
372
–
–
346
–
–
299
–
–
418
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,364
–
–
449
–
–
295
–
–
374
–
–
374
–
–
30
–
–
252
–
–
–
–
–
295
–
–
360
440
262
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
–
0
–
0
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
–
–
100
100
100
–
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2014
2015
(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 2014 to 2016
for the LTI 2013/16).
(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 2011/14 were not satisfied, no rights vested during the 2013/14 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 LTI 2011/14, accordingly no rights were exercised during the 2013/14 financial year.
(E) 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 2012/15 and the LTI 2013/16 are not tested until 30 September 2015 and 30 September 2016, respectively.
(1) Mr McAtee’s employment commenced 2 April 2012. 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. Mr McAtee ceased employment with the Company on 7 October 2014.
(2) Ms Hunter’s employment commenced on 9 October 2013 and she is not a participant in either the LTI 2011/14 or the LTI 2012/15.
(3) Mr Grace’s rights were granted under the LTI 2011/14 and LTI 2012/15 based on his fixed annual remuneration prior to him becoming a Key Management Person
on 1 October 2013.
(4) On 31 December 2013, Mrs Gleeson ceased employment with the Company. As a result of ceasing employment during the 2013/14 financial year and, in
accordance with her employment arrangements, a portion of Mrs Gleeson’s entitlements under the LTI 2011/14 and the LTI 2012/15 were forfeited. Additionally,
during the financial year, Mrs Gleeson elected to forfeit all of her remaining rights under the LTI 2011/14 and the LTI 2012/15, together with 18,134 performance
rights issued to her in respect of the performance period 1 October 2013 to 30 September 2016.
(5) 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 2011/14 were not satisfied, none of Mr Walsh’s remaining rights under the
LTI 2011/14 vested during the 2013/14 financial year.
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.
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 Note 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.
27
Incitec Pivot Limited Annual Report 2014
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.
Table C.7 – 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:
Key Management Personnel
Executives
– Current
J E Fazzino
F Micallef
J Rintel
J D Whiteside
S Dawson
D McAtee
S Atkinson
A Grace(1)
E Hunter(1)
Executives
– Former
K J Gleeson
B C Walsh
Year
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Number of Rights
Opening
balance
Granted as
compensation(A)
Vested(B)
Forfeited(C)
Closing balance
1,319,122
1,101,989
434,278
344,444
327,437
258,523
361,899
272,492
361,899
270,219
173,615
12,997
274,717
203,745
284,170
–
–
–
355,787
290,925
379,907
317,373
804,218
728,497
264,763
239,834
220,636
199,862
220,636
199,862
220,636
199,862
196,095
160,618
182,721
165,517
220,636
–
157,621
–
–
199,862
–
209,807
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(590,625)
(511,364)
(194,444)
(150,000)
(127,575)
(130,948)
(162,037)
(110,455)
(162,037)
(108,182)
(12,997)
–
(109,200)
(94,545)
(127,575)
–
–
–
(355,787)
(135,000)
(309,780)
(147,273)
1,532,715
1,319,122
504,597
434,278
420,498
327,437
420,498
361,899
420,498
361,899
356,713
173,615
348,238
274,717
377,231
–
157,621
–
–
355,787
70,127
379,907
(A) For the 2013/14 financial year, this represents the rights acquired by Executives during the reporting period pursuant to the LTI 2013/16.
(B) For the 2013/14 financial year, this represents the number of rights that vested during the reporting period.
(C) For the 2013/14 financial year, this represents rights that were forfeited by Executives during the reporting period under the LTI 2011/14. In the case of Mr Walsh
and Mrs Gleeson who ceased employment during the reporting period, a portion of the rights held by these Executives under the LTI 2012/15 were also forfeited as
at the relevant date of cessation, in accordance with the plan rules. Mrs Gleeson subsequently forfeited her remaining rights under the LTI 2012/15.
(1) The opening balance in the current year represents rights held as at the date of becoming a key management person. Movements are from this date.
Incitec Pivot Limited Annual Report 2014
28
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
2014. 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.
Salary & Fees(A)
Year
$000
Short Term
Incentive
& other
bonuses(B)
$000
Other
Short Term
benefits(C)
$000
Superannuation
benefits
$000
Termination
benefits(D)
$000
Executives
– Current
J E Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
J Rintel
President – Strategy & Business Development
J D Whiteside
Chief Operating Officer – Incitec Pivot Fertilisers
S Dawson
President – Manufacturing Operations
D McAtee(1)
President – Dyno Nobel Americas
S Atkinson
President – Dyno Nobel Asia Pacific
& Global Technology
E Hunter
Chief Human Resources Officer
A Grace
President – Strategic Engineering
Executives
– Former
K J Gleeson(2)
General Counsel & Company Secretary
B C Walsh(3)
President – Global Manufacturing
Total Executives
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2,145
2,096
872
853
724
708
724
708
724
708
667
603
692
583
500
–
724
–
181
708
3
744
7,956
7,711
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
–
1
4
–
115
79
–
–
–
51
–
97
–
232
119
18
17
18
17
18
17
17
17
18
17
–
–
18
17
18
–
18
–
4
17
–
17
147
136
Total
$000
2,163
2,113
890
870
742
725
741
725
746
725
668
607
710
715
597
–
742
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
493
–
1,241
–
1,734
–
729
725
1,341
761
10,069
7,966
(A) For Mr Rintel and Mr McAtee, the salary and fees paid in the reporting period differs from the corresponding amounts for those Executives in Table C.4 due to
timing of certain payments to those Executives at year end.
(B) Represents short term incentives paid during the financial year.
(C) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2014: 1 April 2013 to 31
March 2014) (2013: 1 April 2012 to 31 March 2013), rent and mortgage interest subsidies, relocation allowances and other allowances. For Mr Atkinson, this
includes rental, health insurance, education support and home leave travel in relation to this former role as President, Dyno Nobel International. For Ms Hunter, this
includes commuting costs, comprising airfares and car transfers. For Mrs Gleeson and Mr Walsh, this includes annual leave paid on termination.
(D) Termination benefits paid during the financial year. In relation to Mrs Gleeson and Mr Walsh, this includes long service leave payments on termination.
(1) On 7 October 2014, Mr McAtee ceased employment with the Company. Pursuant to his contract of employment dated 31 May 2012, Mr McAtee is entitled to a
payment of US$48,164 in respect of accrued annual leave. These amounts will be paid to Mr McAtee in the 2014/15 financial year.
(2) On 31 December 2013, Mrs Gleeson ceased employment with the Company. Pursuant to her contract of employment dated 19 January 2004. Mrs Gleeson was
entitled to a separation payment of $370,944 and payment of $50,519 for accrued annual leave and $122,225 for accrued long service leave. These amounts were
paid to Mrs Gleeson in the 2013/14 financial year.
(3) 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 was entitled to a separation payment of $904,031 and payment of $96,850 for accrued annual leave and $337,314
for accrued long service leave. These amounts were paid to Mr Walsh in the 2013/14 financial year.
29
Incitec Pivot Limited Annual Report 2014
D. Key management personnel disclosures
Table D.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(1)
P V Brasher
K Fagg(2)
A C Larkin
J Marlay
R J McGrath
G Smorgon
Non-executive directors
– Former
A D McCallum(3)
Executive directors
– Current
J E Fazzino
Executive
– Current
F Micallef
J Rintel
A Grace(2)
J D Whiteside
S Dawson
D McAtee(4)
S Atkinson
E Hunter(2)
Executive
– Former
K J Gleeson(5)
B C Walsh(6)
Year
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
Number of Shares(A)
Opening
balance
Shared
acquired
Shares
disposed
Closing
balance
40,600
20,600
–
–
5,000
5,000
37,926
37,926
7,000
7,000
–
–
216,501
216,501
1,708,180
1,708,180
–
–
–
–
111,000
–
3,500
58,500
23,867
23,867
–
–
3,380
3,380
–
–
3,241
3,241
10,500
100,360
–
20,000
10,000
–
–
–
–
–
6,758
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(55,000)
–
–
–
–
–
–
–
–
–
–
–
10,140
–
–
(10,500)
(100,000)
40,600
40,600
10,000
–
5,000
5,000
37,926
37,926
13,758
7,000
–
–
216,501
216,501
1,708,180
1,708,180
–
–
–
–
111,000
–
3,500
3,500
23,867
23,867
–
–
3,380
3,380
–
–
3,241
3,241
–
10,500
(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) On 1 October 2014, Mr Gregory Hayes was appointed to the Board as a non executive director.
(2) The opening balance represents shares held as at the date of becoming a key management person. Movements are from this date.
(3) Mr McCallum retired as a director effective 19 December 2013.
(4) Mr McAtee ceased employment with the Company effective 7 October 2014.
(5) Mrs Gleeson ceased employment with the Company effective 31 December 2013.
(6) Mr Walsh ceased employment with the Company effective 1 October 2013.
Incitec Pivot Limited Annual Report 2014
30
Directors’ Report
Remuneration Report
(a) Loans to key management personnel
In the year ended 30 September 2014, there were no loans to key management personnel and their related parties (2013: nil).
(b) 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 $4,701,371 during the year (2013:
$9,934,124). Mr Fazzino’s spouse did not directly provide these services. Mr Fazzino has not engaged PwC at any time for
any assignment.
(2) During the year ended 30 September 2013, a related party of Mr Smorgon provided printing services to the value of
$3,300. No services were provided by the related party to the Company during the year ended 30 September 2014.
The balance owing by the Company at 30 September 2014 was $nil (2013: $nil).
(3) The spouse of Ms Fagg is a partner in the accountancy and tax firm KPMG from which the Group purchased services of
$89,078 during the year (2013: $770,435). Ms Fagg’s spouse did not directly provide these services. Ms Fagg, who was
appointed to the Board on 15 April 2014, was not involved in any engagement of KPMG.
31
Incitec Pivot Limited Annual Report 2014
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 financial year ended
30 September 2014.
In March 2014, the ASX Corporate Governance Council released
the third edition of the ASX Recommendations (Third Edition),
which applies to ASX listed companies in respect of their first full
financial year commencing on or after 1 July 2014. Accordingly,
the Third Edition will apply to Incitec Pivot for its financial year
ending 30 September 2015. The Board has commenced work to
review its corporate governance framework and practices to
ensure they comply with the recommendations in the Third
Edition, and Incitec Pivot’s Corporate Governance Statement for
its financial year ending 30 September 2015 will report its
compliance against those recommendations. The disclosures in
this statement respond to the second edition of the ASX
Recommendations (Second Edition).
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 – 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 monitors and evaluates 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 2013/14 financial year were
conducted in the final quarter of the 2014 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.
Incitec Pivot Limited Annual Report 2014
32
Directors’ Report
Corporate Governance Statement
The Board comprises eight directors, including seven non-
executive directors and one executive director (being the
Managing Director & CEO). The Company engages all non-
executive directors by a letter of appointment setting out the
key terms and responsibilities of their role.
The directors were appointed on the following dates:
• 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;
• Rebecca McGrath: 15 September 2011;
• Kathryn Fagg: 15 April 2014; and
• Gregory Hayes: 1 October 2014.
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 2014 Annual General Meeting, Ms Rebecca
McGrath and Mr Anthony Larkin.
Ms McGrath will be standing for re-election at the 2014 Annual
General Meeting. Mr Larkin will not be seeking re-election.
In addition, the Company’s Constitution provides that a director
appointed by the directors must retire at the next annual
general meeting, and is eligible for re-election at that meeting.
Ms Kathryn Fagg, who was appointed as a director on 15 April
2014, and Mr Gregory Hayes, who was appointed as a director
on 1 October 2014, will stand for re-election at the 2014
Annual General Meeting.
The Managing Director & CEO serves as a director until he
ceases to be the Managing Director & CEO.
The roles of Chairman and Managing Director & CEO are
separate.
The Board’s role is assisted by the Company Secretary. The
Company Secretary is responsible for assisting the Chairman in
developing and maintaining information systems and processes
that are appropriate for the Board to fulfil its role and to
achieve Incitec Pivot’s objectives. The Company Secretary is also
responsible to the Board for ensuring that Board procedures and
the Constitution are complied with. The Board appoints and
removes the Company Secretary and the Company Secretary is
accountable to the Board, through the Chairman, on all
governance matters.
Board 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 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.
33
Incitec Pivot Limited Annual Report 2014
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 2014 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), Graham Smorgon AM
and Paul Brasher.
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 2014 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 to comprise at least
four members, three of whom will be non-executive directors
and one of whom will be the Managing Director & CEO. The
current members of the Committee are Rebecca McGrath
(Chairman), Graham Smorgon AM, Kathryn Fagg 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
2014 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 37.
Board meetings
Details of the Board meetings held during the financial year
ended 30 September 2014 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, Rebecca McGrath, Graham Smorgon AM, Kathryn
Fagg and Gregory Hayes are independent when assessed on
the criteria above, taking into account all the relevant interests,
matters and relationships of the particular director. As Managing
Director & CEO of the Company, James Fazzino is not considered
to be an independent director. In summary, of the eight
directors, the Board considers seven directors are independent.
The Board Charter requires that an independent non-executive
director hold the position of Chairman.
Access to information and independent advice
Directors are entitled to full access to the information required
to discharge their responsibilities. Subject to obtaining the prior
approval of the Chairman, the directors have the right to seek
independent professional advice at Incitec Pivot’s expense to
assist in carrying out their Board duties.
Incitec Pivot Limited Annual Report 2014
34
Directors’ Report
Corporate Governance Statement
Director performance evaluations
Each year, as provided for by the Board Charter, the Board
undertakes an annual performance evaluation. The process for
the review of the Board’s performance and the evaluation of
individual directors’ performance is overseen 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.
The Board’s annual performance review took place in September
2014 by way of assessment of the Board’s role, structure and
processes with one-on-one interviews conducted by the
Chairman with each director. For Ms McGrath, who is retiring by
rotation and standing for re-election at the 2014 Annual General
Meeting, her performance was reviewed as part of her
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;
35
Incitec Pivot Limited Annual Report 2014
to work safely and with due regard for the safety and well-
being of fellow employees, contractors, customers and all
persons affected by Incitec Pivot’s operations or products; to
avoid situations which involve or may involve a conflict
between their personal interests and the interests of Incitec
Pivot; to have due regard for cultural diversity in the
workplace; and to respect the environment and ensure that
work activities are managed in an acceptable manner so as
to give benefit to society.
Incitec Pivot’s Code of Conduct for Directors and Senior
Management, which sets out additional ethical standards for
directors and senior management reporting to the Managing
Director & CEO.
Incitec Pivot’s Health, Safety, Environment & Community
Policy, which sets out the Company’s commitment to 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 the Remuneration Report, Key Management Personnel
disclosures.
Diversity
Incitec Pivot’s commitment to diversity is key to its corporate
ambition to deliver outstanding business performance and
above average returns to its shareholders. With operations
spanning the globe, Incitec Pivot recognises that a diverse and
inclusive workforce gives rise to improved organisational
engagement and corporate performance.
Diversity at Incitec Pivot is led by the Executive Team,
supported by the Company’s Diversity Council, which during the
year ended 30 September 2014 was chaired by the Chief
Human Resources Officer and included senior managers from
across the business. The Diversity Council’s remit is to promote
and support the implementation of the Company’s Diversity
Policy and Diversity Strategy. The Board maintains oversight of,
and responsibility for, the Diversity Policy and the development
and implementation by management of the Diversity Strategy.
The Company’s Diversity Policy 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 includes the following three diversity
principles which were established to provide guidance for the
Company’s Diversity Strategy and its related policies, programs
and initiatives:
• “Shaping our Future Organisation”,
• “Respecting our Differences”,
• “Building a Flexible Organisation”.
Report on Progress
In 2014, as was the case in 2012 and 2013, 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 2014.
% of Women
30 September 2013
30 September 2014
Board
Executive
Management
Global
14.3%
12.5%
13.3%
15.0%
28.6%
12.5%
13.9%
15.7%
The Diversity Strategy recognises that the Company’s businesses
are at different stages with regard 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 tailored approach within a Company-wide framework.
Each of the Australian and North American business units and
functions has now developed its own diversity plan aligned to
the Diversity Strategy and has also developed measurable
objectives tailored to their particular challenges and
opportunities. In addition, Dyno Nobel Americas completed its
diversity diagnostic during the 2013/14 financial year, and that
continues to inform the development of its human resource
strategy for 2014/15.
Incitec Pivot Limited Annual Report 2014
36
Directors’ Report
Corporate Governance Statement
During 2014, management undertook a review of the
Company’s progress towards fulfilling the aims of its Diversity
Strategy. As a result of this review, action plans have been
refocussed towards improving leadership decisions and
fostering behaviours that will assist in integrating diversity and
inclusion initiatives into the Company’s talent processes
(including appointments and recruitment) and supporting
women through a tailored career development program.
With regard to measurable objectives, for the 2013/14 financial
year, the Board approved measurable objectives against each of
the key priority areas of the Company’s Diversity Strategy.
These objectives 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.
Overall the percentage of women employed in the Group
increased to 15.7%. With regard to the graduate recruitment
program, as a result of the focus on the talent pipeline, the 2014
Australian Manufacturing graduate program resulted in a female
participation rate of 25%. Recruitment for the 2015 program has
seen an encouraging response in applications from women.
With regard to the Company’s Australian Indigenous
Employment Program, an Australian Indigenous Relations policy
was developed and cultural capability programs were held
across the Australian operations. During 2014, the Company
maintained its commitment to the Australian Employment
Covenant, and met a 2% Indigenous employment rate across
the organisation nationally.
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.
The Company continues to review gender pay equity on an
annual basis at a Company-wide and business unit level.
The gender pay analysis for 2014 identified no significant
differentials at a senior management level. At middle
management and professional levels, the pay differentials
identified largely reflected the qualifications and experience of
the workforce and the concentration of women in particular
sectors of the Company.
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
supported by the ongoing utilisation of effective tools to “keep
in touch” while women are on family leave. The Flexible Work
Policy was reviewed and re-launched globally in 2014. As part
of this review, the existing policies have been enhanced with
the introduction of Cultural and Ceremonial Leave specific to
Indigenous Employees and Annual Leave Purchase to further
support work-life balance.
Diversity in 2014/15
For 2014/15, in accordance with the Company’s Diversity Vision
to be an inclusive and accessible organisation through the
development of a culture that embraces diversity, and its
Diversity Strategy, the Company will work with Traditional
Indigenous Custodians and Reconciliation Australia in the
development of a Reconciliation Action Plan and will continue
to build on providing meaningful employment to Indigenous
Australians, with a 2.5% Indigenous Employment rate targeted
37
Incitec Pivot Limited Annual Report 2014
for the Australian business for 2014/15.
As a cornerstone to support the focus of the Diversity Strategy,
the Company proposes to develop more robust measures to
increase the percentage of women, in the form of two year-on-
year incremental targets for:
• women within the business overall; and
• women in senior roles.
These measures will co-exist with the existing measurable
objectives. The objective of these targets is to move the
Company from current participation rates, to rates equal to or
better than other companies in similar industries and/or sectors
which, on the basis of publicly available information, is in the
range of 20–25%. As the targets are based on head count,
rather than recruitment, they assume that each year’s base
level of women is retained. Progress will be reported in the
2015 Corporate Governance Statement.
The Company will also be addressing the inclusion of pay equity
considerations in its remuneration policies during 2014/15, and
will continue to build employees’ understanding of its
commitment to providing equality of employment opportunities
by training employees in relevant policies and procedures.
In the US, the Company will also conduct its annual review to
identify opportunities to improve representation of females and
minority groups in areas where they are currently
underrepresented.
The Diversity Council will report to the Board on progress made
against these objectives during the year, as well as more
broadly with regard to the Diversity Strategy.
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 Audit and Risk Management Committee comprises four
independent non-executive directors being, Anthony Larkin
(Chairman), John Marlay, Rebecca McGrath and Gregory Hayes
(who was appointed 2 October 2014).
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 2014 is set out on page 3.
The Chief Risk Officer, external auditors, the Managing Director
& CEO, the Chief Financial Officer and the Group Financial
Controller 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:
Internal audit
• structure/resources – review and approve the structure of the
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 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;
• risk reports and monitoring – receive reports from
management on risk implications from new and emerging
risks, changes in the economic and business environment
and other factors relevant to the Group’s performance and
strategy, receive reports from management and monitor
resolution of significant risk exposures;
• compliance – receive reports from management, monitor
and oversee compliance with applicable laws relating to the
operation of the business and review and monitor policies
and systems to manage compliance risk;
• disclosure – review the form of disclosure to be made in the
Annual Report given by the Managing Director & CEO and
Chief Financial Officer as to the effectiveness of the
Company’s management of material business risks; and
insurance – receive reports from management and monitor
the insurance strategy of the Group and recommend
approval or variation of insurance policies.
•
External audit
• appointment/replacement – manage the relationship
between the Company and the external auditor, including
making recommendations to the Board on the selection,
evaluation and replacement of the external auditor;
• terms of engagement – determine the terms of engagement
and remuneration of the external auditor and make
recommendations to the Board;
• effectiveness and independence – monitor the effectiveness
and independence of the external auditor, including
requiring the external auditor to prepare and deliver an
annual statement as to its independence;
• scope of audit – review the scope of the external audit with
the external auditor; and
• non-audit services – review and assess the provision of non-
audit services by the external auditor, provide pre-approval
or otherwise of all non-audit services which may be
provided by the external auditor and ensure disclosure to
shareholders of the Committee’s approval of non-audit work.
internal audit 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;
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;
• communication – review the level of open communication
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 2014.
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.
Incitec Pivot Limited Annual Report 2014
38
Directors’ Report
Corporate Governance Statement
Principle 5: Make timely and
balanced disclosure
The Company is subject to continuous disclosure obligations
under the ASX Listing Rules and Corporations Act 2001 (Cth).
Subject to some limited exceptions, under the continuous
disclosure requirements, the Company must immediately notify
the market, through ASX, of any information which a
reasonable person would expect to have a material effect on
the price or value of the Company’s shares.
To achieve these objectives and satisfy the regulatory
requirements, the Board has implemented a Continuous
Disclosure Policy. The Policy aims to ensure the proper and
timely disclosure of information to shareholders and the market
in several ways, including:
•
in annual reports and financial statements, releases of
results to ASX each half and full year, and at the Company’s
Annual General Meeting;
• releasing price sensitive announcements and other relevant
significant announcements directly to the market via ASX;
• conducting briefings with analysts and institutions from time
to time – in doing so, Incitec Pivot recognises the importance
of ensuring that any price sensitive information provided
during these briefings is made available to all shareholders
and the market at the same time and in accordance with
the requirements of the Corporations Act 2001 (Cth), ASX
and the Australian Securities and Investments Commission;
and
• providing information on the Company’s website, which
contains information about the Company and its activities,
including statutory reports and investor information.
The Policy appoints the 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.
39
Incitec Pivot Limited Annual Report 2014
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).
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 37. 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 Operating and Financial Review on page 12 outlines the
material risks associated with Incitec Pivot’s business and
operations.
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 Register 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.
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 2014.
CEO and CFO Declaration and Assurance
In accordance with the ASX Recommendations, for the financial
year ended 30 September 2014, 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 34, 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), Graham Smorgon AM and Paul Brasher.
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 18. The Company’s policy is that
non-executive directors should not be remunerated by way of
options, shares, performance rights, bonuses nor incentive-
based payments.
Under the Company’s Constitution, the maximum remuneration
payable by the Company for the services of non-executive
directors in total must not exceed the amount approved by
shareholders in general meeting, which is $2,000,000 as
approved at the Annual General Meeting held on 19 December
2008. The total remuneration paid to the non-executive
directors during the financial year ended 30 September 2014
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 25.
The attendance of the members of the Remuneration
Committee at each meeting held during the financial year to
30 September 2014 is set out on page 3.
Signed on behalf of the Board.
Paul V Brasher
Chairman
Dated at Melbourne
this 10th day of November 2014
Incitec Pivot Limited Annual Report 2014
40
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
10 November 2014
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 2014, 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
41
Incitec Pivot Limited Annual Report 2014
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 43 to 107
Audit Report
Shareholder Statistics
Five Year Financial Statistics
43
44
45
46
47
108
109
111
112
Incitec Pivot Limited Annual Report 2014
42
Consolidated Statement of Profit or Loss and
Other Comprehensive Income
For the year ended 30 September 2014
Revenue
Financial and other income
Operating expenses
Changes in inventories of finished goods and work in progress
Raw materials and consumables used and finished goods purchased for resale
Employee expenses
Depreciation and amortisation expense
Financial expenses
Purchased services
Repairs and maintenance
Outgoing freight
Lease payments – operating leases
Share of profit on equity accounted investments
Asset write-downs, clean-up and environmental provisions
Other expenses
Profit before income tax
Income tax (expense)/benefit
Profit for the financial year
Other comprehensive income, net of income tax
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit plans
Fair value gain/(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 gain/(loss) on hedging instruments entered into for cash flow hedges
Cash flow hedge losses/(gains) transferred to profit or loss statement
Exchange differences on translating foreign operations
Loss on hedge of net investment
Income tax relating to items that may be reclassified subsequently
Other comprehensive income for the period, net of income tax
Notes
(4)
(4)
(5)
(5)
(16)
(8)
Consolidated
2014
$mill
2013 *
$mill
3,352.0
3,403.7
59.3
59.5
1.0
19.5
(1,465.2)
(1,610.2)
(575.2)
(223.3)
(95.0)
(145.4)
(130.3)
(236.6)
(71.7)
33.3
(134.9)
(56.3)
311.7
(63.5)
248.2
(14.8)
3.2
5.5
(6.1)
10.8
1.9
151.3
(138.0)
5.0
31.0
24.9
(588.9)
(183.7)
(92.3)
(161.2)
(132.9)
(224.2)
(62.1)
33.5
(50.9)
(61.0)
348.8
18.9
367.7
38.8
(2.0)
(13.7)
23.1
(12.4)
(25.8)
182.0
(160.5)
18.0
1.3
24.4
Total comprehensive income for the financial year
273.1
392.1
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)
247.1
1.1
248.2
272.0
1.1
273.1
15.0
15.0
367.1
0.6
367.7
391.5
0.6
392.1
22.5
22.5
(9)
(9)
* Comparative information has been restated as a result of the Group adopting the revised Australian Accounting Standard, AASB 119 ‘Employee Benefits’.
Refer Note 1 for further details.
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 47 to 107.
43
Incitec Pivot Limited Annual Report 2014
Consolidated Statement of Financial Position
As at 30 September 2014
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
Non-controlling interest
Total equity
Notes
(10)
(11)
(12)
(13)
(14)
(15)
(11)
(13)
(14)
(16)
(17)
(18)
(20)
(21)
(22)
(23)
(24)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
Consolidated
2014
$mill
2013
$mill
70.5
265.5
434.1
46.5
16.9
0.1
–
833.6
7.1
40.3
221.8
291.2
3,511.4
2,992.3
72.5
7,136.6
7,970.2
823.0
33.9
26.0
90.5
16.7
990.1
270.6
364.7
435.6
61.9
5.6
0.6
36.2
1,175.2
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
–
1,160.8
10.1
7.0
1,709.0
1,620.6
277.0
83.6
415.3
78.1
2,573.1
3,563.2
4,407.0
3,332.8
(144.8)
1,216.3
2.7
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
4,407.0
4,219.8
The Consolidated Statement of Financial Position should be read in conjunction with the Notes to the Consolidated Financial
Statements set out on pages 47 to 107.
Incitec Pivot Limited Annual Report 2014
44
Consolidated Statement of Cash Flows
For the year ended 30 September 2014
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Financial expenses paid
Other revenue received
Income taxes refunded/(paid)
Net cash flows from operating activities
Cash flows from investing activities
Payments for property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment
Amounts advanced from equity-accounted investees
(Payments)/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 (losses)/gains on derivatives
Dividends paid
Net cash flows from financing activities
Notes
(29)
(24),(28)
Net (decrease)/increase in cash and cash equivalents held
Cash and cash equivalents at the beginning of the financial year
Effect of exchange rate fluctuation on cash and cash equivalents held
Cash and cash equivalents at the end of the financial year
(10)
Consolidated
2014
$mill
2013
$mill
Inflows/
(outflows)
Inflows/
(outflows)
3,820.8
(3,254.1)
3,791.5
(3,069.2)
18.1
(75.8)
24.7
1.5
535.2
18.5
(89.4)
30.2
(67.1)
614.5
(662.4)
(452.2)
24.4
5.3
(5.0)
24.0
15.0
23.8
(637.7)
(389.4)
(224.6)
214.4
(8.3)
(85.1)
(103.6)
(206.1)
270.6
6.0
70.5
(117.5)
200.0
1.7
(203.6)
(119.4)
105.7
154.1
10.8
270.6
The Consolidated Statement of Cash Flows should be read in conjunction with the Notes to the Consolidated Financial
Statements set out on pages 47 to 107.
45
Incitec Pivot Limited Annual Report 2014
Consolidated Statement of Changes in Equity
For the year ended 30 September 2014
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
Non-
controlling
interest
$mill
Total
$mill
Total
equity
$mill
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)
–
–
367.1
367.1
0.6
367.7
27.7
(1.4)
24.5
24.4
–
–
–
–
(203.6)
(203.6)
–
(0.1)
–
–
–
24.4
(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
Balance at 1 October 2013
3,265.9
(26.7)
22.2
(163.1)
(11.0)
1,129.6
4,216.9
2.9
4,219.8
Profit for the financial year
Total other comprehensive income/
(expense) for the period
Dividends paid
–
–
–
Shares issued during the period
66.9
Share-based payment transactions
Net option expense
–
–
9.3
–
–
–
–
–
–
–
0.5
–
–
247.1
247.1
1.1
248.2
21.7
2.3
(8.4)
24.9
–
24.9
–
–
–
–
–
–
(152.0)
(152.0)
(1.3)
(153.3)
–
–
66.9
0.5
–
–
66.9
0.5
Balance at 30 September 2014
3,332.8
(17.4)
22.7
(141.4)
(8.7)
1,216.3
4,404.3
2.7
4,407.0
The Consolidated Statement of Changes in Equity should be read in conjunction with the Notes to the Consolidated Financial
Statements set out on pages 47 to 107.
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 rights recognised as an employee expense over the relevant
vesting period and transactions associated with the 2011/14, 2012/15 and 2013/16 Long Term Incentive Plans. The EPS
portion of each of the Group’s LTI plans 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.
Non-controlling interest
Represents a 35 percent outside equity interest in Quantum Fertilisers Limited, a Hong Kong based fertiliser marketing company.
Incitec Pivot Limited Annual Report 2014
46
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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
Impairment of goodwill and non-current 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
Key management personnel disclosures
Share based payments
Investments in controlled entities
Deed of cross guarantee
Parent entity disclosure
Events subsequent to reporting date
47
Incitec Pivot Limited Annual Report 2014
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Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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 10 November 2014.
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 joint
ventures 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.
Where applicable, comparatives have been adjusted to
disclose them on the same basis as current period
figures.
Deficiency on net current assets
As at 30 September 2014, the Company and Group’s
current liabilities exceeded its current assets by $624.5m
and $156.5m respectively. The Group has un-drawn
financing facilities of $1,450.0m at 30 September 2014
and cash balances of $70.5m. In addition, the Group’s
forecast cash flow for the next twelve months indicates
that it will be able to meet current liabilities as and
when they fall due, therefore the consolidated financial
statements have been prepared on a going concern
basis.
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
2013 are:
l AASB 10 ‘Consolidated Financial Statements’
l AASB 11 ‘Joint Arrangements’
l AASB 12 ‘Disclosure of Interests in Other Entities’
l AASB 127 ‘Separate Financial Statements’ (2011)
l AASB 128 ‘Investments in Associates and Joint
Ventures’ (2011)
l AASB 2011-7 ‘Amendments to Australian Accounting
Standards arising from the Consolidation and Joint
Arrangements Standards’
l AASB 13 ‘Fair Value Measurement’ and AASB 2011-8
‘Amendments to Australian Accounting Standards
arising from AASB 13’
l AASB 119 ‘Employee Benefits’ (2011) and AASB 2011-
10 ‘Amendments to Australian Accounting Standards
arising from AASB 119’ (2011)
l AASB 2012-2 ‘Amendments to Australian Accounting
Standards – Disclosures – Offsetting Financial Assets
and Financial Liabilities’
l AASB 2012-5 ‘Amendments to Australian Accounting
Standards arising from Annual Improvements 2009–
2011 Cycle’
l AASB 2012-10 ‘Amendments to Australian Accounting
Standards – Transition Guidance and Other
Amendments’
l AASB 2011-4 ‘Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirements’
Incitec Pivot has elected to early adopt certain Australian
Accounting Standards and interpretations which permit
early adoption. The principal standards and
interpretations that have been early adopted are:
l AASB 2014-1 ‘Amendments to Australian Accounting
Standards – Part A: Annual Improvements 2010-2012
and 2011-2013 cycles’
l AASB 2012-3 ‘Amendments to Australian Accounting
Standards – Offsetting Financial Assets and Financial
Liabilities (Amendments to AASB 132)’
Incitec Pivot Limited Annual Report 2014
48
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(i) Basis of preparation (continued)
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 adoption of the revised
AASB 119 ‘Employee Benefits’, that became effective for
the Group during the year ended 30 September 2014,
resulted in a restatement of $4.9m between Employee
expenses, Financial expenses and Actuarial gains on
defined benefits plans in the Group’s 30 September 2014
Consolidated Statement of Profit or Loss and Other
Comprehensive Income.
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 The International Standards Board (IASB) published the
final version of IFRS 9 Financial Instruments in July 2014
which brings together the classification and measurement,
impairment and hedge accounting phases of the IASB’s
project. The standard also includes an expected credit loss
model that will result in more timely recognition of loan
losses and is a single model that is applicable to all
financial instruments subject to impairment accounting.
AASB 9 Financial Instruments and its related
amendments incorporate revised requirements for the
classification and measurement of financial liabilities and
also introduces a new hedge accounting model, together
with corresponding disclosures surrounding risk
management activity.
First application date for the Group, if not early adopted,
is the financial year ended 30 September 2019. Based on
management’s preliminary assessment of this standard, it
is not expected to have a material impact on the financial
results of the Group. However, the new standard will
result in expanded disclosures and a change in
presentation of the Group’s hedging arrangements.
l IFRS 15 Revenue from Contracts with Customers establishes
principles for reporting the nature, amount, timing and
uncertainty of revenue and cash flows arising from an
entity’s contracts with customers. First application date for
the Group, if not early adopted, is the financial year ended
30 September 2018. Based on management’s preliminary
assessment of this standard, it is not expected to have a
material impact on the financial results of the Group.
(ii) Consolidation
(a) Subsidiaries
The consolidated financial statements incorporate the
assets and liabilities of all entities controlled by Incitec
Pivot Limited and its subsidiaries.
The Company reassesses whether or not it controls an
investee if facts and circumstances change that will likely
impact the Company’s control over an investee.
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)).
49
Incitec Pivot Limited Annual Report 2014
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 joint ventures
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. A joint venture is a
joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of
the joint arrangement. Joint control is the contractually
agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require
unanimous consent of the parties sharing control.
Associates and joint ventures 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.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(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 remeasured during each
reporting period and at settlement date. Any changes in the
fair value of the liability are recognised as employee
expenses in the Consolidated 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.
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.
Incitec Pivot Limited Annual Report 2014
50
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(xi) Property, plant and equipment and
(viii) Trade and other receivables (continued)
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.
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.
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.
51
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(xiii) Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an
acquisition over the fair value of the Group’s share of the
net identifiable assets of the acquired subsidiary at the
date of acquisition. Goodwill on acquisition of
subsidiaries is included in intangible assets. Goodwill is
not amortised. Instead, goodwill is tested for impairment
annually, or more frequently if events or changes in
circumstances indicate that it might be impaired, and is
carried at cost less accumulated impairment losses. Gains
and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
(b) Research and development
Expenditure on research activities, undertaken with the
prospect of gaining new scientific or technical knowledge
and understanding, is recognised in the 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. 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 non-controlling
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
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.
Incitec Pivot Limited Annual Report 2014
52
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(xv) Segment reporting (continued)
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 liabilities 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.
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.
53
Incitec Pivot Limited Annual Report 2014
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 remeasured in line with changes in
discount rates, timing and estimated cash flows. Any
changes in the liability are added to or deducted from
the related asset, other than the unwinding of the
discount which is recognised as an interest expense in
the Consolidated 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.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(h) Onerous contracts
(xvii) Provisions (continued)
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 remeasured, 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 or 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 the net defined benefit obligations, and the effect of
any curtailments or settlements. 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 have arisen 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.
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 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
Loss and Other Comprehensive Income on disposal of the
foreign operation.
Incitec Pivot Limited Annual Report 2014
54
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(xix) Foreign currency transactions (continued)
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 for 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 remeasurement 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 effective gain or loss is transferred
to the cash flow hedging reserve, or through the foreign
currency translation reserve in the other comprehensive
income component of 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 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.
55
Incitec Pivot Limited Annual Report 2014
If the hedged transaction is no longer expected to take
place, then the cumulative 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 a monetary item that is accounted
for as part of the net investment, are accounted for in a
similar way as cash flow hedges. Gains or losses on the
hedging instrument relating to the effective portion of
the hedge are recognised 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 in 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, 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 profit and loss component
of the Consolidated Statement of Profit or Loss and Other
Comprehensive Income.
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 reacquires
its own equity instruments, eg as the result of a share
buy-back, those instruments are deducted from equity
and the associated shares are cancelled. No gain or loss is
recognised in the Consolidated 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.
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(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, reflecting the
credit risk of various counterparties. The Group uses a
variety of methods and makes assumptions that are
based on market conditions existing at each reporting
date.
The fair value of forward exchange contracts, interest
rate swaps, and cross currency interest rate swaps is
based on discounted cash flows, reflecting the credit risk
of various counterparties. Future cash flows are
estimated based on contract rates and observable
forward interest and exchange rates, and currency basis
at the end of the reporting period. The fair value of
option contracts is calculated using the contract rates and
observable market rates at the end of the reporting
period, reflecting the credit risk of various counterparties.
The valuation technique is consistent with the Black-
Scholes methodology and utilises Monte Carlo
simulations.
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 observable market price
at the end of the reporting period, reflecting the credit
risk of various counterparties.
The nominal value less estimated credit adjustments
of trade receivables and payables are assumed to
approximate their fair values. The fair value of non-
derivative financial liabilities not traded in active markets
is estimated by discounting the future cash flows at the
current market interest rate that is available to the Group
for similar financial instruments, reflecting the Group’s
credit risk.
(xxiv) Impairment of assets
The carrying amounts of the Group’s tangible and
intangible assets are reviewed at each reporting date to
determine whether there is any indication of
impairment. If such indication exists, the asset is tested
for impairment by comparing its recoverable amount to
its carrying amount. Goodwill and indefinite lived
intangible assets are tested for impairment annually.
The recoverable amount of an asset 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 (‘CGUs’) to which the asset belongs.
A cash generating unit is the smallest identifiable group
of assets that generate cash inflows largely independent
of the cash inflows of other assets or group of assets
with each cash generating unit being no larger than a
segment. In calculating 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 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.
Incitec Pivot Limited Annual Report 2014
56
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
1. Significant accounting policies (continued)
(xxvi) Accounting for the carbon pricing
mechanism (continued)
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 goodwill and
l Carbon permits under the Jobs and Competitiveness
non-current assets;
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 goodwill and non-current
assets
These assessments require the use of estimates and
assumptions such as discount rates, exchange rates,
commodity prices, future operating development,
sustaining capital requirements and operating
performance. Refer Note 19 to the consolidated financial
statements for key estimates and assumptions used for
impairment testing.
(ii) Income taxes
The Group is subject to income taxes in Australia and
overseas jurisdictions. There are a number of 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.
(iii) 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 24 for amounts recognised for
environmental and restructuring provisions.
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 as emissions are
generated and 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.
The Australian Government has abolished the carbon tax,
with effect from 1 July 2014. As a result, the Group
discontinued the accounting of ongoing carbon
emmissions from this date.
(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.
57
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
2. Critical accounting estimates and
judgments (continued)
(iv) 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 26 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.
(v) 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 24 for
amounts recognised for employee entitlements.
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 (representing the chief
operating decision maker) in assessing performance and
in determining the allocation of resources.
The operating segments are identified by management
and are based on the market and region in which
product is sold. Discrete financial information about each
of these operating businesses is reported to the
Executive Team on at least a monthly basis.
(b) Description of operating segments
Fertilisers
Incitec Pivot Fertilisers (IPF): manufactures and distributes
fertilisers in Eastern Australia. The products that IPF
manufactures include 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 the sale of SCI
manufactured products to IPF at an import parity price.
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 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 and Turkey.
Explosives Eliminations (Elim): represents eliminations of
profit in stock arising from DNA sales to DNAP.
Following the Group’s management restructure during
the current financial year, the operating segments were
changed to align with the reports that are used by the
Group’s Executive Team. As a result, Nitromak now forms
part of the Dyno Nobel Asia Pacific (DNAP) reporting
segment. Nitromak previously formed part of the Dyno
Nobel Americas (DNA) reporting segment.
(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.
Incitec Pivot Limited Annual Report 2014
58
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
3. Segment report (continued)
(d) Reportable segments
30 September 2014
IPF
$mill
SCI
$mill
Elim
$mill
Total
Fertilisers
$mill
DNAP
$mill
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Corp(1)/
Group
Elim
$mill
Consolidated
Group
$mill
Sales to external customers
953.2
542.8
(194.4) 1,301.6
897.0 1,205.2
(38.8) 2,063.4
(13.0)
3,352.0
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
–
–
–
–
16.5
16.8
–
33.3
–
33.3
134.1
105.8
0.1
240.0
277.2
255.6
1.5
534.3
(31.6)
742.7
Depreciation and amortisation
(30.4)
(26.2)
–
(56.6)
(73.9)
(89.9)
–
(163.8)
(2.9)
(223.3)
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
(attributable to members
of Incitec Pivot Limited)
103.7
79.6
0.1
183.4
203.3
165.7
1.5
370.5
(34.5)
519.4
(76.9)
(85.1)
357.4
(1.1)
(109.2)
247.1
Segment assets
760.1
563.8
Segment liabilities
(434.5)
(89.2)
Net segment assets(2)
325.6
474.6
Deferred tax balances
Total net assets per statement
of financial position
Investments accounted for
using the equity method
Additions of property, plant,
equipment and intangibles
Impairment of property, plant
and equipment
Impairment of intangibles
Impairment of inventories
Impairment of trade receivables
Impairment of investment
–
–
16.5
135.2
–
0.7
0.3
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,323.9 3,003.2 3,207.8
(523.7)
(197.7)
(453.7)
800.2 2,805.5 2,754.1
–
121.1
170.1
151.7
43.6
468.1
0.7
0.3
0.1
–
–
7.9
44.3
37.3
–
15.1
26.0
–
0.5
2.1
–
–
–
–
–
–
–
–
–
–
–
6,211.0
362.8
7,897.7
(651.4) (1,972.8)
(3,147.9)
5,559.6
(1,610.0)
4,749.8
(342.8)
4,407.0
291.2
–
291.2
511.7
1.0
664.4
52.2
0.3
37.3
0.5
17.2
26.0
–
–
–
–
53.2
37.6
0.6
17.2
26.0
(1) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(2) Net segment assets exclude deferred tax balances.
59
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
3. Segment report (continued)
(d) Reportable segments
30 September 2013
IPF(3)
$mill
SCI
$mill
Total
Fertilisers(3)
$mill
Elim
$mill
DNAP(4)
$mill
DNA(3),(4)
$mill
Elim(4)
$mill
Total
Explosives(3)
$mill
Corp(1)/
Group
Elim
$mill
Consolidated
Group(3)
$mill
Sales to external customers
1,095.4
562.9
(192.9)
1,465.4
862.3 1,127.7
(33.4)
1,956.6
(18.3)
3,403.7
Share of profits in associates
and joint ventures accounted for
by the equity method
Earnings before interest,
related income tax expense,
depreciation and amortisation
and individually material items
–
–
–
–
18.8
14.7
–
33.5
–
33.5
129.2
97.5
3.0
229.7
201.0
244.9
(1.1)
444.8
(29.3)
645.2
Depreciation and amortisation
(34.2)
(27.2)
–
(61.4)
(38.7)
(81.7)
–
(120.4)
(1.9)
(183.7)
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
(attributable to members
of Incitec Pivot Limited)
95.0
70.3
3.0
168.3
162.3
163.2
(1.1)
324.4
(31.2)
461.5
(71.2)
(96.2)
294.1
(0.6)
73.6
367.1
Segment assets
923.8
473.5
Segment liabilities
(591.2)
(108.8)
Net segment assets(2)
332.6
364.7
Deferred tax balances
Total net assets per statement
of financial position
Investments accounted for
using the equity method
Additions of property, plant,
equipment and intangibles
Impairment of property, plant
and equipment
Impairment of intangibles
Impairment of inventories
Impairment of trade receivables
–
–
17.9
55.8
–
–
0.1
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
1,397.3 3,113.5 2,717.3
(700.0)
(195.4)
(433.9)
697.3 2,918.1 2,283.4
–
141.4
157.7
73.7
130.5
215.5
–
–
0.1
0.6
2.5
0.5
41.5
0.4
4.8
–
0.3
0.8
–
–
–
–
–
–
–
–
–
5,830.8
370.4
7,598.5
(629.3)
(1,721.3)
(3,050.6)
5,201.5
(1,350.9)
4,547.9
(328.1)
4,219.8
299.1
419.7
3.0
41.5
0.8
6.2
299.1
346.0
3.0
41.5
0.7
5.6
–
–
–
–
–
–
(1) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(2) Net segment assets exclude deferred tax balances.
(3) Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
(4) Comparative information has been restated as a result of a change to the Group’s internal management structure. Nitromak DNX Kimya Sanayii A.S.
now forms part of the DNAP operating segment.
Incitec Pivot Limited Annual Report 2014
60
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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 2014
Australia
$mill
USA
$mill
Canada
$mill
Turkey
$mill
Other/Elim
$mill
Consolidated
$mill
Revenue from external customers
2,070.3
882.6
253.4
79.0
66.7
3,352.0
Non-current assets other than
financial instruments and
deferred tax assets
3,806.2
2,863.3
62.5
–
115.1
6,847.1
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
4. Revenue and other income
Revenue
External sales
Total revenue
Financial income
Interest income from external parties
Interest income from joint ventures
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
Consolidated
2014
$mill
2013 *
$mill
Notes
3,352.0
3,352.0
3,403.7
3,403.7
17.8
0.3
18.1
0.2
23.5
14.9
0.8
1.8
41.2
59.3
20.4
0.7
21.1
4.2
22.7
2.0
5.6
3.9
38.4
59.5
(16)
(16)
(29)
(26)
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
61
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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
investment in associates
Amounts set aside to provide for
impairment loss on trade and other receivables
employee entitlements
environmental liabilities
inventory losses and obsolescence
other provisions
restructuring
Research and development expense
Defined contribution superannuation expense
Defined benefit superannuation/pension expense
Financial expenses
Unwinding of discount on provisions and other payables
Net interest expense on defined benefit obligation
Interest expenses on financial liabilities
Loss on interest rate swaps designated as fair value hedges
Gain on adjustment to debt attributable to the hedged risk
in a fair value hedge relationship
Interest expenses on financial liabilities with joint ventures
Total financial expenses
Notes
Consolidated
2014
$mill
2013 *
$mill
(17)
(18)
(29)
(17),(29)
(18),(29)
(16),(29)
(33)
(24)
(24)
(24)
(26)
(29)
(26)
(16)
194.1
29.2
223.3
53.2
37.6
26.0
116.8
17.2
5.7
5.6
0.6
3.4
5.0
7.3
27.8
2.2
5.6
2.9
86.4
8.2
(8.2)
0.1
95.0
157.7
26.0
183.7
3.0
41.5
–
44.5
6.2
7.5
0.4
0.8
1.1
4.3
10.5
25.9
7.4
6.4
2.7
83.0
20.8
(20.8)
0.2
92.3
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
2014
2013
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:
Tax adjustment(1)
Impairment of assets and business restructure costs
– Nitromak(2),(3)
Impairment of property, plant and equipment(4)
Impairment of investment in associate(5)
Total individually material items
(8)
–
–
–
–
115.1
115.1
(61.4)
(43.4)
(26.0)
4.9
(56.5)
(41.5)
16.7
–
(26.7)
(26.0)
–
–
–
–
–
(41.5)
–
–
(9)
(130.8)
21.6
(109.2)
(41.5)
115.1
73.6
(1) Reversal of tax liabilities raised on the acquisition of Dyno Nobel Limited.
(2) Impairment write-down at 30 September 2013 relating to goodwill recognised on the acquisition of Nitromak DNX Kimya Sanayii A.S. (Nitromak).
(3) Impairment write-down of Nitromak’s intangible assets, property, plant and equipment and trade receivables balances due to declining business
activity, which also resulted in restructuring expenditure being incurred at 30 September 2014.
(4) Impairment write-down of property, plant and equipment due to lower forecast production at the DNA Donora plant as a result of reduced contracted
volumes with key North American customers.
(5) Impairment write-down of the investment in Fabchem China Limited was recognised in 2014 to reflect lower forecast earnings as a result of a
slowdown in the Chinese nitrogen market.
Incitec Pivot Limited Annual Report 2014
62
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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
2014
$000
2013
$000
924.8
557.9
170.0
1,652.7
–
1,652.7
100.2
–
55.0
155.2
957.0
525.2
175.0
1,657.2
95.5
1,752.7
86.4
45.0
–
131.4
1,807.9
1,884.1
1,511.6
296.3
1,635.1
249.0
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) 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.
63
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
8.
Income tax expense
(a) Income tax expense
Current tax
Current year
Over provision in prior years
Deferred tax
Origination and reversal of temporary differences
Total income tax expense/(benefit)
Notes
Consolidated
2014
$mill
2013 *
$mill
60.5
(4.2)
56.3
7.2
63.5
28.3
(1.2)
27.1
(46.0)
(18.9)
(20),(25)
(b) Reconciliation of income tax expense and pre-tax accounting profit
Profit before income tax
311.7
348.8
Income tax expense attributable to profit before income tax
Tax at the Australian tax rate of 30% (2013 at 30%) on profit before income tax
93.5
104.6
Tax effect of amounts which are not deductible/(taxable) in calculating taxable income:
Participation facility
Impairment of intangible assets and investment
Tax adjustment
JV income
Capital losses recouped
Capital structures
Sundry items
Difference in overseas tax rates
Over provision in prior years
Income tax expense attributable to profit
(c) Amounts recognised directly in equity
(6)
(2.4)
17.0
–
(10.1)
(4.9)
(20.4)
(6.9)
65.8
1.9
(4.2)
63.5
(8.0)
12.4
(115.1)
(9.4)
–
(16.4)
14.6
(17.3)
(0.4)
(1.2)
(18.9)
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 directly to equity
(20),(25)
(10.5)
(10.5)
(4.3)
(4.3)
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
Incitec Pivot Limited Annual Report 2014
64
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
2014
Cents
per share
Consolidated
2013 *
Cents
per share
Notes
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
Weighted average number of ordinary shares used
in the calculation of basic and diluted earnings per share(2)
(1) The total number of performance rights on issue (refer Note 35) is not dilutive to IPL’s earnings per share.
(2) 26,268,087 shares were issued during the year ended 30 September 2014 (2013: nil), refer Note 27.
15.0
21.7
15.0
21.7
22.5
18.0
22.5
18.0
Number
Number
1,643,969,800 1,628,730,107
Consolidated
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
11. Trade and other receivables
Current
Trade debtors
external
joint ventures and associates
Less impairment losses
external
Sundry debtors/loans
external
joint ventures and associates
Non-current
Sundry debtors/loans
external
joint ventures and associates
2014
$mill
247.1
247.1
109.2
356.3
70.5
–
70.5
228.7
39.2
(26.2)
241.7
20.7
3.1
23.8
265.5
3.7
3.4
7.1
(6)
(29),(33)
(16)
(33)
(33)
(16)
(33)
(33)
(16)
(33)
2013 *
$mill
367.1
367.1
(73.6)
293.5
71.2
199.4
270.6
306.0
38.0
(12.7)
331.3
28.2
5.2
33.4
364.7
0.1
8.1
8.2
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
65
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
12. Inventories
Raw materials and stores at cost
Work in progress at cost
Finished goods
at cost
less provision for inventory losses, obsolescence and net realisable value
Finished goods
13. Other assets
Current
Prepayments
Other
Non-current
Prepayments
Other
14. Other financial assets
Current
Derivatives designated and effective as hedging instruments carried at fair value
forward exchange contracts
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
Consolidated
2014
$mill
2013
$mill
Notes
84.6
50.4
306.8
(7.7)
299.1
434.1
27.4
19.1
46.5
34.3
6.0
40.3
87.1
58.6
296.9
(7.0)
289.9
435.6
32.8
29.1
61.9
0.4
4.0
4.4
(33)
(33)
(33)
(33)
(33)
16.9
16.9
5.6
5.6
4.8
1.5
27.8
23.8
165.4
221.8
35.2
8.0
72.4
117.1
See note 32 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
0.1
0.1
0.6
0.6
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 2014
66
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
16. Investments accounted for using the equity method
Name of entity
Principal activity
Ownership
interest
Country of
incorporation
September
2014
September
2013
Joint ventures
Alpha Dyno Nobel Inc(6)
Boren Explosives Co., Inc.(6)
Buckley Powder Co.(1)
IRECO Midwest Inc.(6)
Wampum Hardware Co.(6)
Midland Powder Company(6)
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(6)
Delivery of explosives and related products
Controlled Explosives Inc.(6)
Delivery of explosives and related products
Western Explosives Systems Company(6)
Delivery of explosives and related products
Newfoundland Hard-Rok Inc.(6)
Delivery of explosives and related products
Dyno Nobel Labrador Inc.(6)
Quantum Explosives Inc.(6)
Dene Dyno Nobel Inc.(6)
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 Ltd(4)
Management services
DetNet International Limited(6)
DetNet South Africa (Pty) Ltd(6)
Distribution of electronic detonators
Development, manufacture and supply of
electronic detonators
DNEX Mexico, S. De R.L. de C.V.(6)
Mexican investment holding company
Explosivos De La Region Lagunera, S.A. de C.V.(6)
Distribution of explosives and related products
Explosivos De La Region, Central, S.A. de C.V.(6)
Distribution of explosives and related products
Nitro Explosivos de Ciudad Guzman, S.A. de C.V.(6)
Distribution of explosives and related products
Explosivos Y Servicios Para La Construccion, S.A. de C.V.(6) Distribution of explosives and related products
Tenaga Kimia Ensign-Bickford Sdn Bhd(6)
Manufacture of explosive accessories
Sasol Dyno Nobel (Pty) Ltd(4)
Distribution of detonators
Associates
Labrador Maskuau Ashini Ltd(6)
Delivery of explosives and related products
Fabchem China Ltd(5)
Valley Hydraulics Inc.(6)
Manufacture of commercial explosives
Delivery of explosives and related products
Apex Construction Specialities Inc.(6)
Delivery of explosives and related products
Innu Namesu Ltd(6)
Warex Corporation(6)
Warex LLC(6)
Delivery of explosives and related products
Delivery of explosives and related products
Delivery of explosives and related products
Maine Drilling and Blasting Group(6)
Drilling and blasting
Independent Explosives(6)
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 joint ventures 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 2014 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 2014 has been used.
(6) These joint ventures have a 31 December financial year end. For the purpose of applying the equity method of accounting, the unaudited financial
information through to 30 September 2014 has been used.
67
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
16. Investments accounted for using the equity method (continued)
(a) Investments in joint ventures and associates
Carrying amount of investments in joint ventures and associates
Carrying amount at the beginning of the year
Share of net profit from joint ventures and associates
Impairment of investment in associate(1)
Dividends received/receivable
Elimination of profit on transactions with joint ventures and associates
Foreign exchange movement
Carrying amount of investments in joint ventures and associates at end of the financial year
Carrying amount of investments in:
Joint ventures
Associates
Carrying amount of investments in joint ventures and associates
Consolidated
Notes
2014
$mill
2013
$mill
(29)
(5)
299.1
33.3
(26.0)
(23.7)
(0.4)
8.9
291.2
246.7
44.5
291.2
292.8
33.5
–
(43.0)
0.4
15.4
299.1
230.3
68.8
299.1
(1) On 30 May 2014, Singapore based Fabchem China Limited announced an impairment of its ammonium nitrate assets due to the continued slowdown
in the Chinese nitrogen market. As a result of the Group’s impairment review, the investment has been impaired to its market value at
30 September 2014, less estimated selling costs. The market value of $3.7m is based on the closing market bid price of SGD0.098 per share on the
Singapore stock exchange (SGX) on 30 September 2014. The carrying value will be reviewed at each balance date with reference to the closing share
price on the SGX.
(b) Share of profits from joint ventures and associates
Aggregate financial information of joint ventures:
Share of joint ventures' profit:
Share of joint ventures' profit before tax
Share of joint ventures' income tax expense
Share of joint ventures' profit
Aggregate financial information of associates:
Share of joint associates' profit:
Share of joint associates' profit before tax
Share of joint associates' income tax expense
Share of joint associates' profit
Consolidated
2014
$mill
2013
$mill
50.9
(16.4)
34.5
(0.7)
(0.5)
(1.2)
47.8
(15.8)
32.0
3.1
(1.6)
1.5
The Group has performed an analysis of the balance sheets and the results of each of its joint ventures and associates at
30 September 2014 and considers them to be individually immaterial to the Group. As a result, no separate disclosures are
included for the Group’s investments in joint ventures and associates.
The Group’s share of the capital commitments, other expenditures and contingent liabilities of its joint ventures and
associates are disclosed in Notes 30 and 31.
Incitec Pivot Limited Annual Report 2014
68
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
16. Investments accounted for using the equity method (continued)
(c) Transactions between subsidiaries of the Group and joint ventures
and associates are as follows:
Sales of goods/services
Purchase of goods/services
Management fees/royalties
Interest income
Interest expense
Dividend income
Notes
(4)
(4)
(5)
(d) Outstanding balances arising from sales and/or purchases of goods and services
with joint ventures and associates are on normal current terms and are as follows:
Amounts owing to related parties
Amounts owing from related parties
Loans from joint ventures are as follows:
Loans to joint ventures
Loans from joint ventures
(21)
(11)
(11)
(21),(22)
Joint ventures
and associates(1)
2014
$mill
2013
$mill
264.5
(46.8)
23.5
0.3
(0.1)
23.7
1.1
39.2
6.5
9.8
217.1
(53.1)
22.7
0.7
(0.2)
43.0
1.7
38.0
13.3
8.3
(1) Joint ventures and associate transactions represent amounts which do not eliminate on consolidation.
(e) Transactions between joint ventures and associates
There were no significant transactions during the year between the Group’s joint ventures and associates and there are no
outstanding balances between joint ventures and associates of the Group as at 30 September 2014 (2013: nil).
69
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
17. Property, plant and equipment
Consolidated
At 1 October 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
Year ended 30 September 2014
Opening net book amount
Additions
Disposals
Depreciation charge
Impairment of assets
Reclassification from construction in progress
Foreign exchange movement
Closing net book amount
At 30 September 2014
Cost
Accumulated depreciation
Net book amount
Capitalised interest
Freehold land
and buildings
$mill
Notes
Machinery,
plant and
equipment
$mill
Construction
in progress
$mill
498.1
(160.6)
337.5
1,569.9
1,467.5
(636.4)
933.5
–
1,467.5
Total
$mill
3,535.5
(797.0)
2,738.5
337.5
933.5
1,467.5
2,738.5
(5)
(5),(19)
(5)
(5),(19)
(0.4)
0.8
(0.6)
(16.5)
–
237.8
13.7
572.3
746.6
(174.3)
572.3
–
34.4
(21.4)
(141.2)
(3.0)
–
366.2
–
–
–
1,297.0
(1,534.8)
55.1
2,154.4
2,882.3
(727.9)
2,154.4
(0.4)
401.4
(22.0)
(157.7)
(3.0)
–
76.7
3,033.5
3,935.7
(902.2)
3,033.5
3,033.5
663.6
(9.5)
(194.1)
(53.2)
–
71.1
3,511.4
7.9
306.8
306.8
–
306.8
306.8
507.8
–
–
–
(141.2)
34.7
708.1
572.3
2,154.4
2.7
(3.9)
(22.1)
(13.3)
21.2
6.3
153.1
(5.6)
(172.0)
(39.9)
120.0
30.1
563.2
2,240.1
753.0
(189.8)
563.2
3,076.8
(836.7)
2,240.1
708.1
4,537.9
–
(1,026.5)
708.1
3,511.4
During the year ended 30 September 2014 interest of $17.7m (2013: $42.4m) was capitalised relating to interest bearing
liabilities used specifically to fund qualifying assets (expansion projects) as defined under AASB 123 Borrowing Costs.
Incitec Pivot Limited Annual Report 2014
70
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
18. Intangible assets
Consolidated
At 1 October 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 amortisation
Net book amount
Year ended 30 September 2014
Opening net book amount
Additions
Impairment of intangible assets
Amortisation charge
Foreign exchange movement
Closing net book amount
At 30 September 2014
Cost
Accumulated depreciation
Net book amount
Allocation of goodwill
Notes
Software
$mill
Goodwill
$mill
Patents,
trademarks
& customer
contracts
$mill
Brand
names
$mill
223.5
–
223.5
Total
$mill
2,959.7
(114.5)
2,845.2
2,449.8
–
2,449.8
221.1
(69.9)
151.2
(5),(19)
(5)
(5),(19)
(5)
65.3
(44.6)
20.7
20.7
18.3
–
(8.6)
1.1
31.5
86.2
(54.7)
31.5
31.5
0.8
(0.8)
(10.8)
0.6
21.3
87.8
(66.5)
21.3
2,449.8
151.2
223.5
2,845.2
–
(41.5)
–
129.5
2,537.8
2,537.8
–
2,537.8
–
–
(17.4)
12.2
146.0
239.7
(93.7)
146.0
–
–
–
22.2
245.7
245.7
–
245.7
18.3
(41.5)
(26.0)
165.0
2,961.0
3,109.4
(148.4)
2,961.0
2,537.8
146.0
245.7
2,961.0
–
(34.1)
–
76.8
2,580.5
–
–
(18.4)
6.5
134.1
–
(2.7)
–
13.4
256.4
0.8
(37.6)
(29.2)
97.3
2,992.3
2,580.5
–
2,580.5
250.9
(116.8)
134.1
256.4
3,175.6
–
(183.3)
256.4
2,992.3
The Group’s indefinite life intangible assets are allocated to groups of CGUs as follows:
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
Nitromak
Goodwill
2014
$mill
183.8
2.1
1,132.4
1,262.2
–
2,580.5
Brand
names
2014
$mill
–
–
40.3
216.1
–
256.4
Total
2014
$mill
183.8
2.1
1,172.7
1,478.3
–
2,836.9
Goodwill
2013
$mill
183.8
2.0
1,132.4
1,183.6
36.0
2,537.8
Brand
names
2013
$mill
–
–
40.3
202.5
2.9
245.7
Total
2013
$mill
183.8
2.0
1,172.7
1,386.1
38.9
2,783.5
71
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
19. Impairment of goodwill and non-current assets
In accordance with the Group’s accounting policies, the Group performs its impairment testing at least annually at
30 September for intangible assets with indefinite useful lives. More frequent reviews are performed for indications
of impairment of all of the Group’s assets including operating assets. Where an indication of impairment is identified a
formal impairment assessment is performed.
The group has identified the following indicators of impairment at 30 September 2014:
l Sustained pressure on fertiliser prices and high input costs (including natural gas supply) in Australia.
l
l
Increased competition in the Turkish explosives market and the impact of political and economic instability in that region.
Lower forecast production at the Donora ammonium nitrate plant as a result of reduced contracted volumes with
key customers.
As a result, the Group assessed the recoverable amounts of each of the Southern Cross International (SCI), Gibson Island,
Donora, and Nitromak Cash Generating Units (‘CGUs’). In addition the Group has performed the annual impairment testing
for the groups of CGUs to which goodwill or indefinite life intangibles have been allocated.
Impairment testing
In accordance with the Group’s accounting policies, the Group has evaluated whether the recoverable amount of a CGU or
group of CGUs exceeds its carrying amount. The recoverable amount is determined to be the higher of its fair value less
costs to sell or its value-in-use. In all instances the Group has prepared a value-in-use model for the purpose of impairment
testing as at 30 September 2014.
In calculating value-in-use, the cash flows include projections of cash inflows and outflows from continuing use of the group of
assets making up the CGUs and of cash flows associated with disposal of any of these assets. The cash flows are estimated for
the assets of the CGUs in their current condition and discounted to their present value using a pre-tax discount rate that
reflects the current market assessments of the risks specific to the CGUs. The group uses a 5 year discounted cash flow model
based on board approved budgets with a terminal growth rate for years beyond the 5 year budget period.
The identification of impairment indicators and the estimation of future cash flows require management to make
significant estimates and judgments. Details of the key assumptions used in the value-in-use calculations at 30 September
2014 are included below:
Key assumptions
Key assumptions for Groups of CGUs to which indefinite life intangible assets have been allocated
Incitec Pivot Fertilisers (IPF)(1),(2)
Southern Cross International (SCI)(1),(2)
Dyno Nobel Asia Pacific (DNAP)(1),(2)
Dyno Nobel Americas (DNA)(1),(2)
Nitromak(3)
Terminal growth rate
Discount rate
2014
%
2.5
2.5
2.5
2.5
–
2013
%
2.5
2.5
2.5
2.5
6.0
2014
%
13.0
13.0
13.0
12.0
22.0
2013
%
13.0
13.0
13.0
12.0
19.5
(1) The terminal value growth rate represents the forecast CPI within the respective markets.
(2) The pre-tax discount rate used reflects IPL’s long term underlying weighted average cost of capital adjusted for market and country risk.
(3) Due to changing conditions in the Turkish explosives market, no growth has been factored in for forecast earnings.
Incitec Pivot Limited Annual Report 2014
72
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
19. Impairment of goodwill and non-current assets (continued)
Key assumptions for CGUs where indications of impairment have been identified
The table below summarises the key assumptions used in the value-in-use calculations for the CGUs where impairment
indicators were identified. These include the SCI, Gibson Island, Donora and Nitromak CGUs.
DAP (FOB Tampa – USD per tonne)
Granular Urea (FOB Middle East – USD per tonne)
Australian East Coast Gas Price (AUD per gigajoule),
excluding transportation cost(1)
AUD:USD Exchange rate
Discount rate(2)
SCI
Gibson Island
Donora
Nitromak
Long term growth rate
SCI(3)
Gibson Island(3)
Donora(3)
Nitromak(4)
2014
2013
2015 – 2019
$482 decreasing
to $457
$321 increasing
to $333
$9.00
$0.89 declining
to $0.82
13.0%
13.0%
12.0%
22.0%
n/a
n/a
n/a
n/a
n/a
Long term
(2020+)
$535
$345
$9.00
$0.81
13.0%
13.0%
12.0%
22.0%
2.5%
2.5%
2.5%
2.5%
–
2014 – 2018
$435 increasing
to $464
$302 increasing
to $326
$9.90
$0.90 declining
to $0.82
13.0%
13.0%
12.0%
19.5%
n/a
n/a
n/a
n/a
n/a
Long term
(2019+)
$527
$326
$9.10
$0.81
13.0%
13.0%
12.0%
19.5%
2.5%
2.5%
2.5%
2.5%
6.0%
(1) Annual gas consumption at the Phosphate Hill plant is 10.5 petajoules (assuming 950kT per annum name plate capacity of ammonium phosphates production),
and the annual gas consumption at the Gibson Island plant is 14.0 petajoules (assuming 405kT per annum name plate capacity of urea equivalent production).
(2) The pre-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.
(4) Due to changing conditions in the Turkish explosives market, no growth has been factored in for forecast earnings.
Southern Cross International and Gibson Island CGUs
Fertiliser price and foreign exchange rates used in the value-in-use models are estimated by reference to external market
publications and market analyst estimates, and updated at each reporting date.
The Group has a gas supply contract for SCI which will expire during the 2017 financial year. The Group also has gas supply
agreements for Gibson Island which expire at the end of the 2017 financial year, although these agreements allow for
banked gas to be taken in the year following the expiry of the supply term. 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 value-in-use model assumes that gas will be sourced by the time current supply
arrangements cease and at the prices included in the table above. The gas prices have been based on market analyst
forecasts of the Australian east coast natural gas price. However, costs for gas could be higher than forecast, which would
adversely impact the cost of operations at each of these facilities.
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 by-product metallurgical gas from Glencore
(which acquired Xstrata in 2013) in order to produce low cost sulphuric acid. Alternative supply sources of sulphuric acid are
likely to increase the cost of producing ammonium phosphates at SCI. 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.
The SCI Mt Isa site is a leased site with a lease contract with a Glencore subsidiary to 2020. The value-in-use model reflects
management’s assumption that the lease will be able to be extended beyond 2020.
At 30 September 2014, 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.
Nitromak CGU
The Nitromak business in Turkey has endured a significant downturn as a result of changed conditions in the Turkish
explosives market. These changes are a result of economic, political and industry pressures which have included a number
of new competitors entering the explosives market in that region. As a result, the Group has restructured the Nitromak
business which will result in reduced activities and a lower cost base. Lower forecast earnings and growth rates were
included in the value-in-use calculation performed at 30 September 2014.
At 30 September 2014, the recoverable amount of Nitromak’s assets is lower than the carrying amount. As a result, the
Group has recognised an impairment of $43.0m at 30 September 2014 (2013: $41.5m). This includes the impairment of
property, plant and equipment and all goodwill previously allocated to the CGU.
Donora CGU
Lower production is forecast for the Donora ammonium nitrate plant due to a reduction in contracted volumes with key
customers from January 2015. The lower production volumes will adversely impact the plant’s cash flow during the forecast
period. The recoverable amount of the Donora CGU is lower than the carrying amount and as such the Group has
recognised an impairment of $43.4m at 30 September 2014.
73
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
19. Impairment of goodwill and non-current assets (continued)
Sensitivity analysis
Sensitivity analyses for CGUs where indications of impairment have been identified
Changes in the key assumptions in the table below would have the following approximate impact on the recoverable
amount of the SCI and Gibson Island CGUs.
Sensitivity
Change in variable
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)
Sulphur
+$10
-$10
+$10
-$10
+1c
-1c
+0.5%
-0.5%
+$1
-$1
+$10
-$10
Effect on SCI
value-in-use
AUD mill
102.7
(102.7)
n/a
n/a
(62.3)
63.9
(33.5)
39.1
(83.7)
83.7
(38.9)
38.9
Effect on GI
value-in-use
AUD mill
n/a
n/a
66.7
(66.7)
(32.3)
33.1
(11.7)
13.4
(108.8)
108.8
n/a
n/a
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)
Sulphur
Change in variable
-$5
+1c
+1.0%
+$1
+$15
2014
SCI CGU effect
on profit or loss
AUD mill
(10.5)
(21.5)
(21.5)
(42.8)
(17.5)
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)
-$20
+4c
+12.0%
+$1.2
2014
Gibson Island CGU effect
on profit or loss
AUD mill
(13.8)
(4.9)
(4.5)
(11.0)
It must be noted that each of the sensitivities above assumes that a 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.
Sensitivity analyses for CGUs where indications of impairment have not been identified
The recoverable amount of the DNAP CGU exceeds the carrying amount. However, an increase of 0.9% in the discount rate
used to determine the value-in-use will result in an impairment charge of $1.2m at 30 September 2014.
The recoverable amounts of the IPF and DNA CGUs materially exceed their carrying amounts. The directors believe that any
reasonably expected 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.
Other property plant and equipment impairment
During the year ended 30 September 2014 impairment of property, plant and equipment occurred to the value of $3.6m
(2013: $3.0m) as a result of the Group’s fixed asset verification procedures and the abandonment of certain assets.
Incitec Pivot Limited Annual Report 2014
74
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
Consolidated
2014
$mill
2013
$mill
Notes
20. 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
Unfavourable supplier contracts
Tax losses
Other
Deferred tax assets
Set-off of deferred tax assets pursuant to set-off provisions
(25)
Net deferred tax assets
Movements:
Opening balance at 1 October
Debited to the profit or loss
Charged to equity
Foreign exchange movement
Tax rate change
Adjustments in respect of prior years
Closing balance at 30 September
(8)
(8)
(8)
4.8
19.0
24.5
0.7
24.5
12.5
1.5
2.3
3.1
0.7
7.2
42.8
143.6
(71.1)
72.5
143.2
(18.1)
4.2
5.5
1.7
7.1
143.6
1.3
18.8
19.8
1.1
29.3
11.5
1.4
2.9
6.8
3.7
10.1
36.5
143.2
(57.9)
85.3
164.1
(42.4)
(15.5)
10.8
–
26.2
143.2
75
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
21. Trade and other payables
Current
Trade creditors
external
bill of exchange
joint ventures and associates
Sundry creditors and accrued charges
external
joint ventures and associates
unfavourable sales/supplier contracts
Non-current
Sundry creditors and accrued charges
external
unfavourable sales/supplier contracts
Unfavourable contracts
Consolidated
2014
$mill
2013
$mill
Notes
613.5
–
1.1
614.6
205.9
0.1
2.4
208.4
823.0
10.1
–
10.1
(16)
(16)
(33)
(33)
676.9
51.0
1.7
729.6
239.6
0.2
9.9
249.7
979.3
4.6
2.4
7.0
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 amounts of trade creditors and other payables approximate their net fair values.
Incitec Pivot Limited Annual Report 2014
76
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
22. Interest bearing liabilities
Current
Secured
bank loans
participation facilities
Unsecured
bank loans
other loans
joint ventures and associates (1)
Non-current
Unsecured
fixed interest rate bonds
Consolidated
2014
$mill
2013
$mill
Notes
–
24.2
9.7
33.9
25.1
0.3
8.1
33.5
1,709.0
1,709.0
1,620.6
1,620.6
(16)
(33)
(33)
(1) Loans from joint ventures and associates relate to unsecured loans from joint venture Wampum Hardware Co.
During the year, the Group did not undertake any new financing activities.
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 Bond 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 AU$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 AU$850.0m) and September 2018 (for AU$600.0m). At 30 September 2014, the
drawn balance was nil.
Participation facilities
During the year, the participation facility with a carrying value of $25.1m at September 2013 was repaid in full and
cancelled on the scheduled maturity date.
77
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
23. Other financial liabilities
Current
Derivatives designated and effective as hedging instruments carried at fair value
interest rate swaps
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
(33)
(33)
(33)
(33)
(33)
(33)
(33)
See note 33(h) for further details of interest rate and foreign exchange rate exposures that are hedged by the Group.
24. 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
49.5
7.3
28.2
0.8
4.7
90.5
6.6
–
45.7
31.3
83.6
49.5
6.6
56.1
Consolidated
2014
$mill
2013
$mill
0.8
9.7
15.5
–
26.0
5.5
23.8
247.7
277.0
–
–
7.0
32.6
39.6
2.4
8.0
103.9
114.3
50.4
6.2
46.2
1.5
4.1
108.4
4.7
0.3
47.1
25.4
77.5
50.4
4.7
55.1
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
3.5%
3.46%
10 years
2014
Number
2013
Number
5,064
5,286
Incitec Pivot Limited Annual Report 2014
78
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
24. 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.
Notes
(28)
(27)
(5)
(5)
Consolidated
2014
$mill
–
152.0
(85.1)
(66.9)
–
6.2
5.0
(1.3)
(3.0)
0.3
0.1
7.3
46.2
(5.7)
(16.0)
3.5
0.2
28.2
1.5
(0.9)
0.1
0.1
0.8
4.0
1.7
(0.4)
(0.7)
0.1
4.7
Current provision – dividends
Carrying amount at the beginning of the financial year
Provisions made during the year
Payments made during the year
Settled via Dividend Reinvestment Plan
Carrying amount at the end of the financial year
Current provision – restructuring and rationalisation
Carrying amount at the beginning of the financial year
Provisions made during the year
Provisions written back during the year
Payments made during the year
Transfer 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 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
Foreign currency exchange differences
Carrying amount at the end of the financial year
Current provision – other
Carrying amount at the beginning of the financial year
Provisions made during the year
Provisions written back during the year
Payments made during the year
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.
79
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
24. Provisions (continued)
Reconciliations (continued)
Non-current provision – restructuring and rationalisation
Carrying amount at the beginning of the financial year
Transfers to current
Carrying amount at the end of the financial year
Non-current provision – environmental
Carrying amount at the beginning of the financial year
Provisions made during the year
Provisions written back during the year
Transfers to current
Discount unwind
Foreign currency exchange differences
Carrying amount at the end of the financial year
Non-current provision – asset retirement obligations
Carrying amount at the beginning of the financial year
Provisions made during the year
Transfers to current
Discount unwind
Foreign currency exchange differences
Carrying amount at the end of the financial year
See Note 1(xvii) for further details on the provisions noted above.
Notes
(5)
(5)
Consolidated
2014
$mill
0.3
(0.3)
–
47.2
5.6
(6.0)
(3.5)
1.5
0.9
45.7
25.4
1.7
(0.1)
4.1
0.2
31.3
Consolidated
2014
$mill
2013 *
$mill
Notes
25. Deferred tax liabilities
The balance comprises temporary differences attributable to:
Property, plant and equipment
Intangible assets
Foreign exchange gains
Derivatives
Joint venture income
Other
Deferred tax liabilities
269.1
117.9
1.3
8.9
13.4
75.8
486.4
Set-off of deferred tax liabilities pursuant to set-off provisions
(20)
(71.1)
Net deferred tax liabilities
Movements
Opening balance at 1 October
Credited to the profit or loss
Charged to equity
Foreign exchange movements
Adjustments in respect of prior years
Closing balance at 30 September
415.3
471.3
(9.7)
(6.3)
25.2
5.9
486.4
(8)
(8)
(8)
238.7
114.7
4.1
3.5
11.5
98.8
471.3
(57.9)
413.4
510.4
(72.0)
(19.8)
42.9
9.8
471.3
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
Incitec Pivot Limited Annual Report 2014
80
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
26. 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 Group’s plans are exposed to inflation, credit risk, liquidity risk and market risk. Market risk includes interest rate risk,
equity price risk and foreign currency risk. The strategic investment policy of the fund is to build a diversified portfolio of
assets across equities, alternative investments, fixed interest securities and cash to generate sufficient growth to match the
projected liabilities of the defined benefit plan while providing appropriate liquidity to meet the expected timing of such
liabilities, in line with the fund’s actuarial reviews.
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
Present value of defined benefit obligations at beginning of the year
Current service cost
Defined benefit plan settlement and curtailment
Interest cost
Actuarial losses/(gains)
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
Interest income 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
Notes
2014
$mill
317.4
2.2
(0.8)
13.6
34.3
0.7
(25.7)
14.8
356.5
247.0
10.7
19.5
16.5
0.7
(25.7)
9.7
278.4
2013 *
$mill
326.6
7.4
(5.6)
11.4
(23.7)
0.7
(27.7)
28.3
317.4
215.0
8.7
15.1
15.0
0.7
(27.7)
20.2
247.0
(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
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) Net income/(expense) recognised in the Consolidated Statement of Profit or Loss
and Other Comprehensive Income
356.5
(278.4)
78.1
317.4
(247.0)
70.4
Current service cost
Interest cost
Interest income on plan assets
Defined benefit plan settlement and curtailment
Expense recognised in Consolidated Statement of Profit or Loss
and Other Comprehensive Income
(5)
(5)
(5)
(4)
(2.2)
(13.6)
10.7
0.8
(4.3)
(7.4)
(11.4)
8.7
5.6
(4.5)
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
81
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
26. Retirement benefit obligations (continued)
Consolidated
2014
$mill
2013 *
$mill
(f) Amounts recognised in Other Comprehensive Income
Measurement of the net defined benefit liability:
Return on plan assets (excluding amounts included in net interest expense)
Actuarial gains and losses arising from changes in demographic assumptions
Actuarial gains and losses arising from changes in financial assumptions
Actuarial gains and losses arising from experience adjustment changes in financial assumptions
Components of defined benefits costs recognised in other comprehensive income
19.5
(17.4)
(15.2)
(1.7)
(14.8)
15.1
–
28.2
(4.5)
38.8
(g) Cumulative amount recognised in Other Comprehensive Income
Cumulative amount of actuarial losses (before income tax)
107.6
92.8
(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) Actual return on plan assets
Actual return on plan assets
(k) Principal actuarial assumptions at the reporting date
Discount rate (gross of tax)
Future salary increases
Future inflation
(l) Expected contributions
Expected contributions in year ending 30 September 2015
Expected employer contributions
Expected contribution by plan participants
(m) Maturity profile of Defined Benefit Obligation
The expected maturity analysis of undiscounted defined benefit obligations is as follows:
Within next 10 years
Within 10 to 20 years
In excess of 20 years
(n) Sensitivity analysis
57%
28%
6%
9%
56%
29%
7%
8%
24.1
28.8
3.4% – 6.5%
3.9% – 6.5%
2.0% – 5.0%
2.5% – 4.0%
2.0% – 5.0%
2.5% – 4.0%
10.7
0.5
242.2
176.9
155.8
15.6
0.5
228.4
165.1
123.2
The sensitivity analysis is based on a change in a significant actuarial assumption while holding all
other assumptions constant. The following table summarises how the defined benefit obligation
as at 30 September would have increased/(decreased) as a result of a change in the respective
assumption by 1 percentage point:
Discount rate
Rate of salary increase
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
1 percent
increase
(62.1)
21.2
1 percent
decrease
73.3
(21.2)
Incitec Pivot Limited Annual Report 2014
82
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
27. Issued capital
Share capital
Ordinary shares authorised and issued – 1,654,998,194 (2013: 1,628,730,107) (1)
Movements in issued and fully paid ordinary shares of the Company during the financial year:
Date
Details
30 September 2013
Balance at the end of the previous financial year
Shares issued during the period
18 December 2013
Shares issued (Dividend Reinvestment Plan)
1 July 2014
Shares issued (Dividend Reinvestment Plan)
Consolidated
2014
$mill
2013
$mill
3,332.8
3,332.8
3,265.9
3,265.9
Number
of Shares
1,628,730,107
16,188,987
10,079,100
$mill
3,265.9
39.6
27.3
30 September 2014
Balance at the end of the financial year
1,654,998,194
3,332.8
(1) Ordinary shares authorised and issued have no par value.
Terms and conditions
Holders of ordinary shares are entitled to receive dividends from time to time and are entitled to one vote per share at
shareholders’ meetings.
Shares issued during financial year
On 18 December 2013, 16,188,987 ordinary shares ($39.6m) were issued to Dividend Reinvestment Plan (DRP)
participants in respect of 2013 final dividend payment.
On 1 July 2014, 10,079,100 ordinary shares ($27.3m) were issued to Dividend Reinvestment Plan (DRP) participants for
the 2014 interim dividend payment.
28. Dividends
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary shares
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
Final dividend of 5.8 cents per share, 75 percent franked at the 30 percent corporate rate,
paid 18 December 2013
Interim dividend of 3.5 cents per share, 75 percent franked at the 30 percent corporate rate,
paid 1 July 2014
Total ordinary share dividends
Subsequent event
Company
2014
$000
2013
$000
Notes
–
–
148,214
55,377
94,466
57,572
–
–
(24)
152,038
203,591
Since the end of the financial year, the directors have determined to pay the following dividend:
– Final dividend of 7.3 cents per share, 10 percent franked at the 30 percent corporate tax rate, to be paid on
16 December 2014. The total dividend payment will be $120.8m.
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 $4.7m (2013: $47.2) at the 30 percent (2013:
30 percent) corporate tax rate. The final dividend for 2014 is 10 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 2014 have been factored
into the franking account balance.
83
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
29. Reconciliation of profit after income tax
to net cash inflow from operating activities
Notes
(10)
(5)
(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
Impairment of equity accounted investments
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
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
30. Commitments
(a) Capital expenditure commitments
Capital expenditure on property, plant and equipment contracted but not provided for and payable:
no later than one year
later than one, no later than five years
Share of capital expenditure commitments of the joint ventures and associates:
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
Share of non-cancellable operating lease commitments of the jointly controlled entities:
no later than one year
later than one, no later than five years
later than five years
Consolidated
2014
$mill
2013 *
$mill
70.5
70.5
248.2
223.3
53.2
37.6
26.0
(33.3)
(14.9)
0.1
5.6
128.9
(11.0)
81.4
(68.0)
1.3
(194.9)
51.7
535.2
188.1
45.3
233.4
0.4
0.5
0.9
50.3
76.8
55.4
182.5
2.9
8.0
0.3
11.2
270.6
270.6
367.7
183.7
3.0
41.5
–
(33.5)
(2.0)
(0.4)
6.4
65.6
(12.9)
(49.8)
(16.5)
(1.5)
86.1
(22.9)
614.5
415.9
192.0
607.9
0.3
–
0.3
51.7
79.2
62.7
193.6
3.4
9.8
1.2
14.4
Incitec Pivot Limited Annual Report 2014
84
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
31. Contingent liabilities
The following contingent liabilities are generally considered remote. However, the directors consider they should be
disclosed. The directors are of the opinion that provisions are not required.
Contracts, claims, guarantees and warranties
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 regularly subject to information requests, investigations and audit activities by the revenue authorities of
jurisdictions in which the Group operates. The outcome of these investigations and audits depends 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 is assessed as probable
and can be reliably estimated.
85
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
32. 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 2014
86
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
32. Financial risk management (continued)
(a) Market risk (continued)
i. Foreign exchange risk – transactional (continued)
Contractual exposures: As the Group both imports and exports fertilisers and raw materials in foreign currency, its
profitability is impacted by foreign exchange movements. Timing differences between receipts and payments of foreign
currency are managed using foreign exchange swaps. Where there is a net excess or shortfall of foreign currency,
forward 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:
Term
Buy USD/Sell AUD
Buy AUD/Sell USD
Buy EUR/Sell AUD
Weighted average
strike rate
FEC contract value
AUD mill
AUD mill
2014
0.9026
–
0.6663
2013
0.9564
0.9300
0.6848
2014
271.8
–
11.8
2013
337.5
0.1
7.6
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 (ammonium 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.
In general, the Group manages its foreign currency exposure on a gross basis. In order to strike an appropriate balance
between the level of participation the hedge provides and the cost of the hedge, the Group uses different types of
instruments ranging from FECs to a variety of option structures. As part of the currency hedging program, the Group has
entered into a series of options and FECs to protect a portion of the Group’s forecast manufactured fertiliser exposure and
to protect a portion of the Group’s USD import exposure. The market value of these FECs and options is recorded in the
Consolidated Statement of Financial Position at year end. Any movement in the market value of outstanding positions from
contract price to year end price is recorded in the Cash Flow Hedge Reserve in the Consolidated Statement of Financial
Position. To the extent that the FECs are closed out by offsetting options, the market value of the closed out FECs, from
contract price to the close out price, is recorded in the Cash Flow Hedge Reserve in the Consolidated Statement of
Financial Position.
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 the currency
exposure associated with activities of Southern Cross International, Incitec Pivot Fertilisers and Dyno Nobel at 30 September:
Term
AUD/USD
exercise price
Weighted average
AUD/USD strike rate
Contract amounts
AUD mill
AUD mill
2014
2013
2014
2013
2014
2013
Forward exchange contracts
Buy USD/Sell AUD
Buy AUD/Sell USD
Buy USD/Sell CAD
Foreign currency option contracts
Bought AUD call/USD put, not later than one year
Sold AUD put/USD call, not later than one year
Sold AUD call/USD put, not later than one year
0.8735
0.8720
1.1049
0.9076
–
1.0281
–
–
–
–
–
–
–
–
–
0.9151
0.9151
–
–
–
–
1.05
–
1.10
222.8
57.3
51.5
180.3
180.3
–
41.9
–
104.4
190.5
–
(181.8)
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 2014, all outstanding options had an outstanding matching FEC (in USD face value terms), effectively
closing out the structure.
87
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
32. Financial risk management (continued)
(a) Market risk (continued)
i. Foreign exchange risk – transactional (continued)
The following sensitivity is based on the unhedged transactional foreign currency risk exposures in existence at the
reporting date and is calculated based on name plate capacity for plants, average achieved Fertiliser selling prices and
exchange rates in 2014.
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
2014
(6.5)
2014
6.7
2013
(6.1)
USD - 1c
AUD mill
2013
6.2
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 FECs
or option contracts to manage the translation risk of foreign earnings. As at 30 September 2014, 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, tax, depreciation and
amortisation for the reporting period, at the average 2014 translation exchange rate.
Foreign exchange sensitivity
– translational (unhedged)
North American earnings before interest, tax, depreciation and amortisation
USD + 1c
AUD mill
USD - 1c
AUD mill
USD + 1c
AUD mill
2014
(2.2)
2014
2.2
2013
(1.8)
USD - 1c
AUD mill
2013
1.8
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 forward exchange contracts and cross currency swaps to create ‘synthetic’ foreign currency
debt. The forward exchange contracts 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 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 2014, none of the Group’s foreign currency borrowings were designated as net investment hedges.
The table below summarises the forward exchange contracts and cross currency swaps outstanding at 30 September:
Term
not later than one year
Receive AUD/Pay USD mill
2014
–
2013
–
later than one year, no later than five years
AUD 1,215.5/USD 1,185.0
AUD 680.8/USD 682.9
later than five years
Term
not later than one year
AUD 818.4/USD 800.0
AUD 843.4/USD 824.0
Receive AUD/Pay CAD mill
2014
–
2013
AUD 103.0/CAD 100.0
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 forward exchange contracts 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
not later than one year
later than one year, no later than five years
later than five years
Pay AUD/Receive USD mill
2014
–
2013
–
AUD 511.5/USD 500.0
AUD 511.5/USD 500.0
AUD 818.4/USD 800.0
AUD 818.4/USD 800.0
Incitec Pivot Limited Annual Report 2014
88
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
32. 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 borrowings in Australian and United States dollars. Of the AUD1,742.9m of
Interest Bearing Liabilities at the reporting date, AUD948.7m (54 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 2014 and the average variable
interest rate during the 2014 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
2014
(14.7)
2014
14.7
2013
(10.6)
2013
10.6
+ 1% CDOR(2)
AUD mill
- 1% CDOR(2)
AUD mill
+ 1% CDOR(2)
AUD mill
- 1% CDOR(2)
AUD mill
2014
–
2014
–
2013
(1.0)
2013
1.0
+ 1% BBSW(3)
AUD mill
- 1% BBSW(3)
AUD mill
+ 1% BBSW(3)
AUD mill
- 1% BBSW(3)
AUD mill
2014
5.1
2014
(5.1)
2013
3.9
2013
(3.9)
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 2014). 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:
Months hedged
Monthly volume
(MMBTU*)
Fixed rate USD
Months hedged
Monthly volume
(MMBTU*)
Fixed rate USD
Contract
Contract
Contract
2014
3
3
3
2014
3,900
16,450
5,000
2014
$3.79
$4.04
$3.91
2013
3
3
3
2013
10,000
10,000
90,000
2013
$3.85
$3.67
$3.54
* Million Metric British Thermal Units
89
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
32. Financial risk management (continued)
(a) Market risk (continued)
iv. Commodity risk (continued)
The Group is exposed to price volatility on the commodities it sells. These exposures can be categorised into three main
areas: ammonium nitrate, ammonium phosphate and urea.
The Group aims to manage its price risk exposure to ammonium nitrate by entering into long term contracts with its
customers with sales prices that are adjusted for changes to input costs such as natural gas and for movements in CPI.
The following sensitivity analysis is based on the gas commodity risk exposures in existence at the reporting date.
Commodity risk sensitivity
Henry Hub US$ 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
2014
(5.9)
2014
5.9
2013
(5.5)
2013
5.5
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.
Incitec Pivot Fertiliser and Southern Cross International
Fertiliser price sensitivity
Granular Urea (FOB Middle East – USD per tonne)
DAP (FOB Tampa – USD per tonne)
+ USD10
AUD mill
- USD10
AUD mill
Name plate
Tonnes (1)
+ USD10
AUD mill
- USD10
AUD mill
Name plate
Tonnes (1)
2014
4.4
10.3
2014
(4.4)
(10.3)
2014
405,000
950,000
2013
4.1
9.5
2013
(4.1)
(9.5)
2013
405,000
950,000
Dyno Nobel Americas
Fertiliser price sensitivity
Urea (FOB NOLA – USD per short tonne)
(1) Maximum production capacity of the plant
+ USD10
USD mill
- USD10
USD mill
Name plate
short
tonnes (1)
2014
1.8
2014
(1.8)
2014
180,000
+ USD10
USD mill
2013
1.8
- USD10
USD mill
2013
(1.8)
Name plate
short
tonnes (1)
2013
180,000
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
positions which are governed by the Group’s policy on commodity trading.
At 30 September 2014, Quantum Fertilisers Limited had no open contracts. Quantum Fertilisers Limited had an outstanding
position of 2,000 tonnes of ‘long’ prilled urea at a contract price of US$287.5 per tonne at 30 September 2013.
v. Equity price risk
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.
Incitec Pivot Limited Annual Report 2014
90
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
32. Financial risk management (continued)
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s
approach to managing liquidity is to ensure that there are sufficient committed funding facilities available to meet the
Group’s financial commitments in a timely manner. The Group’s forecast liquidity requirements are continually
reassessed based on regular forecasting of capital requirements including stress testing of critical assumptions such as
input costs, sales prices, production volumes, exchange rates and capital expenditure.
Typically, the Group aims to hold a minimum liquidity buffer of AUD500.0m in undrawn committed funding at all times
to meet any unforeseen cash flow 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
multicurrency 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.
At reporting date, the Group has committed undrawn lines of AUD1,450.0m and cash of AUD70.5m.
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 new shares issued, 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 and Interest
cover. The Gearing ratio is ‘Net Debt’ over Earnings before Interest, Tax, Depreciation and Amortisation, excluding
individually material items (EBITDA). ‘Net Debt’ is the sum of interest bearing liabilities plus the fair value of derivative
instruments, economically hedging the Group’s interest bearing liabilities, less available cash and cash equivalents.
Interest cover is the average 12 month rolling EBITDA over Net Interest expense before accounting adjustments.
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 2014.
The Group self-insures for certain insurance risks under the Singapore Insurance Act. Under this Act, 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 2014, Coltivi Insurance Pte Limited maintained capital in excess of
the minimum requirements prescribed under this Act.
91
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
32. 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 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 that 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 2014, the sum of all contracts with a fair value was AUD244.3m (2013: AUD135.10m).
Incitec Pivot Limited Annual Report 2014
92
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
33. Financial instruments
(a) Foreign exchange risk
The Group’s exposure to foreign exchange risk at reporting date was:
Consolidated
Trade receivables
Trade payables
Gross statement of financial position exposure (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
2014
Euro
mill
0.2
8.6
8.4
7.9
0.5
2013
Euro
mill
7.0
10.8
2014
USD
mill
10.3
194.0
2013
USD
mill
3.6
277.6
3.8
183.7
274.0
5.2
(1.4)
187.6
(3.9)
270.2
3.8
Average
rate
2014
0.6786
0.9204
Balance
date spot
rate
2014
0.6861
0.8705
Average
rate
2013
0.7582
0.9957
Balance
date spot
rate
2013
0.6883
0.9288
At the reporting date, after taking into account the effect of hedging, 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 or loss by AUD9.6m (2013: AUD7.7m)
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
Interest rate swaps
93
Incitec Pivot Limited Annual Report 2014
Consolidated
2014
$mill
2013
$mill
Notes
948.7
964.6
(22)
794.2
1,742.9
689.5
1,654.1
(11)
(11)
(10)
(14)
(14)
(14)
241.7
30.9
70.5
40.7
165.4
27.8
577.0
331.3
41.6
270.6
13.6
72.4
35.2
764.7
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
33. 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
2014
$mill
92.0
–
0.5
44.9
46.6
28.5
19.8
9.4
2013
$mill
121.1
15.5
0.2
43.4
58.7
26.3
37.7
28.4
(11)
241.7
331.3
68.9
172.8
241.7
123.4
207.9
331.3
(11)
As at the end of September 2014 and September 2013, 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
2014
$mill
210.9
21.2
35.8
267.9
Impairment
2014
$mill
–
–
26.2
26.2
Gross
2013
$mill
278.3
26.0
39.7
344.0
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
Impairment
2013
$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
(5)
(11)
2014
$mill
12.7
(3.8)
17.2
0.1
26.2
–
–
12.7
12.7
2013
$mill
8.5
(2.1)
6.2
0.1
12.7
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 2014
94
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
33. 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 2014
Non-derivative financial liabilities
Interest bearing liabilities
Interest payments
Trade and other payables
Total
30 September 2013
Non-derivative financial liabilities
Interest bearing liabilities
Interest payments
Trade and other payables
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
1,742.9
422.4
833.1
2,998.4
1,654.1
500.9
986.3
33.9
50.2
795.7
879.8
14.0
49.7
937.3
–
50.1
27.3
77.4
19.5
49.3
42.0
582.3
89.0
4.3
675.6
–
95.8
7.0
195.9
205.5
5.8
407.2
930.8
27.6
–
958.4
545.6
222.8
–
1,075.0
83.3
–
Total
3,141.3
1,001.0
110.8
102.8
768.4
1,158.3
(1) Contractual cash flows are not discounted and 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 2014
Derivative financial assets and liabilities
Assets
Forward exchange contracts
Cross currency swaps
Interest rate swaps
Liabilities
Forward exchange contracts
Option 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
19.2
163.5
34.1
216.8
(18.4)
(9.2)
(244.9)
(7.2)
(279.7)
(62.9)
16.1
–
8.5
24.6
(15.3)
(9.2)
–
(1.0)
(25.5)
(0.9)
–
–
8.0
8.0
–
–
–
(0.2)
(0.2)
7.8
–
62.9
10.7
73.6
–
–
(144.3)
(0.1)
(144.4)
(70.8)
3.1
–
4.2
7.3
(3.1)
–
–
1.3
(1.8)
5.5
–
100.6
2.7
103.3
–
–
(100.6)
(7.2)
(107.8)
(4.5)
(1) Contractual cash flows are not discounted and 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 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
33. Financial instruments (continued)
(e) Liquidity risk – Derivative financial instruments (continued)
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 not discounted and 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 cash flows associated with derivatives, that are cash flow hedges
and net investment hedges, are expected to occur.
Consolidated
30 September 2014
Cash flow hedges
Assets
Liabilities
Net investment hedges
Assets
Liabilities
Total
30 September 2013
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
3.3
5.7
–
268.1
(270.5)
2.8
3.2
–
137.1
(137.5)
3.3
5.7
–
–
(2.4)
2.7
3.2
–
36.2
(36.7)
–
–
–
–
–
0.1
–
–
–
0.1
–
–
–
145.1
(145.1)
–
–
–
–
–
–
–
–
20.9
(20.9)
–
–
–
54.9
(54.9)
–
–
–
102.1
(102.1)
–
–
–
46.0
(46.0)
Incitec Pivot Limited Annual Report 2014
96
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
33. 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 or loss
Trade and other receivables
Trade and other payables
Financial liabilities
Derivatives designated and effective as
hedging instruments carried at fair value
Cross currency swaps
Option contracts
Forward exchange contracts
Interest rate swaps
Total
Basis for determining fair value
Carrying
amount
2014
$mill
Fair value
2014
$mill
70.5
70.5
Carrying
amount
2013
$mill
270.6
Fair value
2013
$mill
270.6
4.8
4.8
1.5
1.5
272.6
(833.1)
(1,742.9)
272.6
(833.1)
(1,860.0)
372.9
(986.3)
(1,654.1)
372.9
(986.3)
(1,749.3)
Notes
(10)
(14)
(11)
(21)
(22)
(14),(23)
(23)
(14),(23)
(14),(23)
(82.3)
(9.7)
1.4
21.5
(82.3)
(9.7)
1.4
21.5
(64.1)
–
(1.4)
32.8
(64.1)
–
(1.4)
32.8
(2,297.2)
(2,414.3)
(2,028.1)
(2,123.3)
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, interest rate swaps, and cross currency interest rate swaps is based on
discounted cash flows, reflecting the credit risk of various counterparties. Future cash flows are estimated based on
contract rates and observable forward interest and exchange rates, and currency basis at the end of the reporting period.
The fair value of option contracts is calculated using the contract rates and observable market rates at the end of the
reporting period, reflecting the credit risk of various counterparties. The valuation technique is consistent with the Black-
Scholes methodology and utilises Monte Carlo simulations.
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 observable market price at the end of the reporting period, reflecting the credit risk of various counterparties.
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.
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 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
33. 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 2014
Listed equity securities
Derivative financial assets
Total
Derivative financial liabilities
Total
30 September 2013
Listed equity securities
Derivative financial assets
Total
Derivative financial liabilities
Total
(h) Derivative financial instruments
Level 1
$mill
Level 2
$mill
Level 3
$mill
4.8
–
4.8
–
–
1.5
–
1.5
–
–
–
233.9
233.9
303.0
303.0
–
121.2
121.2
153.9
153.9
–
–
–
–
–
–
–
–
–
–
30 September 2014
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
Held for trading
Non-current
Cash flow hedge
Fair value hedge
Net investment hedge
Held for trading
–
–
–
–
165.4
–
–
–
–
–
–
–
–
–
–
0.6
27.0
(247.2)
–
(0.5)
0.2
27.8
27.8
165.4
(247.7)
165.4
(247.7)
–
(0.8)
(0.8)
(5.5)
–
–
–
(5.5)
(6.3)
2.7
14.2
16.9
(0.2)
(15.3)
(15.5)
–
–
–
23.8
23.8
–
–
(20.9)
(2.9)
(23.8)
40.7
(39.3)
–
–
–
–
–
–
–
–
–
–
(9.7)
(9.7)
2.7
14.2
16.9
(0.2)
2.5
(25.8)
(11.6)
(26.0)
(9.1)
–
–
–
–
–
0.6
(5.5)
(4.9)
192.4
–
192.4
–
(268.1)
(268.1)
24.0
(3.4)
20.6
217.0
(277.0)
(60.0)
(9.7)
233.9
(303.0)
(69.1)
Incitec Pivot Limited Annual Report 2014
98
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
33. Financial instruments (continued)
(h) Derivative financial instruments (continued)
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
–
–
–
–
70.9
–
1.5
72.4
72.4
–
(34.9)
2.3
(32.6)
–
–
–
–
–
–
–
–
–
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
–
9.5
115.6
121.2
(100.9)
(100.9)
(13.3)
(114.3)
(153.9)
(3.8)
1.3
(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 prior financial year, the Group changed its strategy to separately manage (as opposed to a net basis) the
forward exchange risk associated with its USD borrowings and its new investments in operations. Cross currency swaps
and foreign exchange contracts were used to hedge the foreign exchange risk.
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.
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 as cash flow hedges. Gains or losses on the hedging instrument
relating to the effective portion of the hedge are recognised directly in equity (foreign currency translation reserve) while
any gains or losses relating to the ineffective portion are recognised in the profit or loss component of the Consolidated
Statement of Profit or Loss and Other Comprehensive Income.
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.
99
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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
2014
$000
2013
$000
15,164
9,358
248
265
371
1,565
17,613
238
264
904
265
11,029
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 2014, there were no loans to key management personnel and their related parties
(2013: $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 $4,701,371 during the year (2013:
$9,934,124). Mr Fazzino’s spouse did not directly provide these services. Mr Fazzino has not engaged PwC at any time
for any assignment.
(2) During the year ended 30 September 2013, a related party of Mr Smorgon provided printing services to the value of
$3,300. No services were provided by the related party to the Company during the year ended 30 September 2014.
The balance owing by the Company at 30 September 2014 was $nil (2013: $nil).
(3) The spouse of Ms Fagg is a partner in the accountancy and tax firm KPMG from which the Group purchased services
of $89,078 during the year (2013: $770,435). Ms Fagg’s spouse did not directly provide these services. Ms Fagg, who
was appointed to the Board on 15 April 2014, was not involved in any engagement of KPMG made by the Group.
Incitec Pivot Limited Annual Report 2014
100
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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 2013/16 (LTI 2013/16) for
key management personnel. The performance period for this plan is 1 October 2013 to 30 September 2016.
The LTI 2013/16 has the same features as the Long Term Incentive Performance Rights Plan 2012/15 (LTI 2012/15) and
Long Term Incentive Performance Rights Plan 2011/14 (LTI 2011/14). 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 conditions focus on the performance of the Company and include a condition relating
to duration of employment. 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 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 2012/15 and 2013/16, 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.
101
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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 KMP), 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 and Long Term Incentive Performance Cash Plan 2011/14 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. Cash payments to
employees upon vesting of the plan will be determined with reference to the Company’s share price at the end of the
performance period.
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 – 2014
Performance Rights
LTI Rights – 2011/14 – TSR
02 Feb 12
30 Sep 14
$1.72 2,462,223
LTI Rights – 2011/14 – EPS
02 Feb 12
30 Sep 14
$2.90 2,462,223
LTI Cash – 2011/14 – TSR
02 Feb 12
30 Sep 14
LTI Cash – 2011/14 – EPS
02 Feb 12
30 Sep 14
$1.72
$2.90
89,078
89,078
LTI Rights – 2012/15 – TSR
25 Jan 13
30 Sep 15
$1.54 3,341,341
LTI Rights – 2012/15 – EPS
25 Jan 13
30 Sep 15
$2.86 3,341,341
LTI Cash – 2012/15 – TSR
25 Jan 13
30 Sep 15
LTI Cash – 2012/15 – EPS
25 Jan 13
30 Sep 15
LTI Rights – 2013/16 – TSR
06 Jan 14
30 Sep 16
LTI Rights – 2013/16 – EPS
06 Jan 14
30 Sep 16
$1.54
$2.86
$1.40
$2.39
Total – Performance rights
Weighted average fair value
132,164
132,164
–
–
1,243,981
1,243,981
12,049,612
2,487,962
$2.25
$1.89
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,462,223)
(2,462,223)
(89,078)
(89,078)
–
–
–
–
(446,818)
2,894,523
(446,818)
2,894,523
(5,743)
126,421
(5,743)
126,421
–
–
1,243,981
1,243,981
(6,007,724)
8,529,850
$2.29
$2.11
–
–
–
–
–
–
–
–
–
–
–
–
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
LTI Rights – 2010/13 – EPS
23 Dec 10
30 Sep 13
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
02 Feb 12
30 Sep 14
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
LTI Cash – 2012/15 – EPS
25 Jan 13
25 Jan 13
30 Sep 15
30 Sep 15
$2.77
$3.76
$2.77
$3.76
$1.72
$2.90
$1.72
$2.90
$1.54
$2.86
$1.54
$2.86
Total – Performance rights
Weighted average fair value
2,132,289
2,132,289
79,001
79,001
2,626,367
2,626,367
107,481
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)
(18,403)
89,078
89,078
(92,177)
3,341,341
(92,177)
3,341,341
(3,068)
(3,068)
132,164
132,164
(4,978,164)
12,049,612
$3.15
$2.25
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The weighted average remaining contractual life of shares treated as options and rights outstanding at the end of the
period was 1.29 years (2013 – 1.58 years).
Incitec Pivot Limited Annual Report 2014
102
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
35. Share based payments (continued)
(a) Long Term Incentive Plans (LTIs) (continued)
Fair value of performance rights granted
LTI 2013/16
In respect of the LTI 2013/16, 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.
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 2013 to 30 September 2016.
The model inputs for these performance rights granted during the year ended 30 September 2014 included:
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 6 January 2014)
Fair value at grant date: LTI 2013/16 – TSR
Fair value at grant date: LTI 2013/16 – EPS
(b) Employee Share Ownership Plan
6 January 2014
$2.66
$nil
27.5% pa
30 September 2016
4.0% pa
3.02% pa
LTI 2013/16
$1.40
$2.39
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
1-Jul-11
2-Jul-12
1-Jul-13
1-Jul-14
Date shares
become unrestricted
1-Jul-14
2-Jul-15
1-Jul-16
1-Jul-17
Number of participants as at
Number of restricted shares held as at
30 Sep 14
30 Sep 13
–
497
457
441
419
562
510
–
30 Sep 14
–
172,547
157,673
150,674
30 Sep 13
106,588
195,314
175,523
–
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 2012/15 EPS portion
(2013: net of prior year write-back of the LTI 2010/13 and LTI 2011/14 EPS portions).
Total carrying amount of liabilities for cash settled arrangements
103
Incitec Pivot Limited Annual Report 2014
Consolidated
2014
$000
111
133
2013
$000
(446)
479
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
36. Investments in controlled entities
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.
Ownership
interest
Country of
incorporation
September
2014
September
2013
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%
Incitec Pivot Limited Annual Report 2014
104
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
36. Investments in controlled entities (continued)
Name of entity
Controlled entities – operating (continued)
Dyno Nobel Inc.
Dyno Nobel Transportation, Inc.
Simsbury Hopmeadow Street LLC
Tech Real Estate Holdings LLC
Tradestar Corporation
Dyno Nobel Explosivos Chile Limitada
CMMPM, LLC
CMMPM Holdings, L.P.
Dyno Nobel Peru S.A.
Dyno Nobel Mexico, S.A. de C.V.
Dyno Nobel Canada Inc.
Dyno Nobel Transportation Canada Inc.
Dyno Nobel Nunavut Inc.
Incitec Pivot Finance Canada Inc.
Polar Explosives 2000 Inc.
Polar Explosives Ltd
Dyno Nobel Asia Pacific Pty Limited (1)
Dampier Nitrogen Pty Ltd
DNX Australia Pty Ltd (1)
DNX Papua New Guinea Ltd (2)
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
Dyno Nobel Louisiana Ammonia, LLC
(1) Party to deed of cross guarantee dated 30 September 2008.
(2) These entities have a 31 December financial year end.
Ownership
interest
Country of
incorporation
September
2014
September
2013
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%
99%
100%
100%
100%
100%
100%
84%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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
105
Incitec Pivot Limited Annual Report 2014
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
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
Other assets
Current tax asset
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
2014
$mill
2013 *
$mill
19.3
140.5
16.9
316.4
0.1
23.9
–
517.1
129.4
4,331.2
54.3
2,255.9
270.6
117.4
7,158.8
7,675.9
604.0
24.0
65.5
26.0
11.9
731.4
306.2
780.4
277.0
9.1
44.3
268.3
1,685.3
2,416.7
5,259.2
3,332.8
580.1
1,346.3
5,259.2
341.6
(76.5)
265.1
1,234.3
(1.1)
(152.0)
1,346.3
210.5
192.8
5.6
319.7
0.5
35.1
12.7
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
374.4
(77.8)
296.6
1,139.0
2.3
(203.6)
1,234.3
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
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.
Incitec Pivot Limited Annual Report 2014
106
Notes to the Consolidated Financial Statements
For the year ended 30 September 2014
38. Parent entity disclosure
As at, and throughout, the financial year ended 30 September 2014 the parent company of the Group was Incitec Pivot Limited.
Parent entity guarantees in respect of debts of its subsidiaries
As at 30 September 2014 the Company’s current liabilities exceeded its current assets by $624.5m. 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 2014 and a cash
balance of $70.5m.
Further details of the Deed of Cross Guarantee and the subsidiaries subject to the deed, are disclosed in Notes 36 and 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 31.
Plant and equipment
Contracted but not yet provided for and payable:
Within one year
* Comparative information has been restated as a result of the Group adopting the revised AASB 119 ‘Employee Benefits’.
Company
2014
$mill
2013 *
$mill
66.6
(121.5)
(54.9)
11.3
(175.8)
(164.5)
339.6
6,416.3
964.1
3,286.7
3,129.6
3,332.8
(7.8)
(206.4)
(8.7)
19.7
576.6
6,537.4
1,198.9
3,267.8
3,269.6
3,265.9
(15.8)
(76.0)
(11.0)
106.5
3,129.6
3,269.6
1.6
2.6
39. Events subsequent to reporting date
Dividends
Since the end of the financial year, in November 2014, the directors have determined to pay a final dividend of 7.3 cents
per share on 16 December 2014. This dividend is 10 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.
107
Incitec Pivot Limited Annual Report 2014
Directors’ Declaration
on the Financial Statements set out on pages 43 to 107
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 43 to 107, and the remuneration disclosures that are contained in
the Remuneration Report on pages 16 to 31 of the Directors’ Report, are in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the financial position of the Company and the Group as at 30 September 2014 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 2014.
Paul Brasher
Chairman
Dated at Melbourne this 10th day of November 2014
Incitec Pivot Limited Annual Report 2014
108
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 2014, 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
109
Incitec Pivot Limited Annual Report 2014
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
2014 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 16 to 31 of the directors’ report for the
year ended 30 September 2014. 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
2014, complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Tom Imbesi
Partner
Chartered Accountants
Melbourne, 10 November 2014
Incitec Pivot Limited Annual Report 2014
110
Shareholder Statistics
As at 10 November 2014
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
12,507
28,761
8,994
7,089
166
57,517
21.74%
50.00%
15.64%
12.33%
0.29%
100.00%
6,039,707
82,715,623
65,753,126
149,435,765
1,351,053,976
1,654,998,197
0.37%
5.00%
3.97%
9.03%
81.63%
100.00%
Included in the above total are 2,323 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 78.24% 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
BNP Paribas Noms Pty Ltd
Australian Foundation Investment Company Limited
Citicorp Nominees Pty Limited
AMP Life Limited
HSBC Custody Nominees (Australia) Limited
UBS Wealth Management Australia Nominees Pty Ltd
RBC Investor Services Australia Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
QIC Limited
UBS Nominees Pty Ltd
ARGO Investments Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Avanteos Investments Limited
Djerriwarrh Investments Limited
INVIA Custodian Pty Limited
Total
Substantial shareholders
Number of shares
Percentage
476,514,656
282,576,616
257,946,622
117,499,164
43,140,476
21,483,212
16,177,075
15,314,678
13,160,551
7,468,667
7,414,364
6,206,878
5,945,978
4,560,000
4,095,530
3,302,068
3,080,012
3,027,005
2,906,445
2,490,149
28.79%
17.07%
15.59%
7.10%
2.61%
1.30%
0.98%
0.93%
0.80%
0.45%
0.45%
0.38%
0.36%
0.28%
0.25%
0.20%
0.19%
0.18%
0.18%
0.15%
1,294,310,146
78.24%
The following parties have declared a relevant interest in the number of voting shares at the date of giving the notice under
Part 6C.1 of the Corporations Act.
Votes/Number of shares
154,188,030
141,367,041
Harris Associates L.P.
Schroder Investment Management Australia Limited
On-market buy-back
There is no current on-market buy-back.
111
Incitec Pivot Limited Annual Report 2014
Five Year Financial Statistics
Incitec Pivot Limited and its controlled entities
Sales
Earnings before depreciation, amortisation, net borrowing costs,
individually material items and tax
Depreciation and amortisation (excluding individually material items)
Earnings before net borrowing costs, individually material items and tax (EBIT)
Net borrowing costs (excluding individually material items)
Individually material items before tax
Taxation revenue/(expense)
Operating profit/(loss) after tax and individually material items
Operating profit/(loss) after tax and individually material items
attributable to non controlling interest
Operating profit/(loss) after tax and individually material items
attributable to shareholders of Incitec Pivot Limited
Individually material items after tax
Operating profit after tax before individually material items (net of tax)
Dividends
Current assets
Property, plant and equipment
Investments
Intangibles
Other non-current assets
Total assets
Current borrowings and payables
Current provisions
Non-current borrowings and payables
Non-current provisions
Total liabilities
Net assets
Shareholders’ equity
Equity attributable to non controlling interest
Total shareholders’ equity
Ordinary Shares
2014
$mill
2013 (1)
$mill
2012
$mill
2011
$mill
2010
$mill
3,352.0
3,403.7
3,500.9
3,545.3
2,931.7
742.7
645.2
754.9
920.3
787.3
(223.3)
519.4
(76.9)
(130.8)
(63.5)
248.2
(183.7)
461.5
(71.2)
(41.5)
18.9
367.7
(155.8)
599.1
(55.5)
168.1
(203.7)
508.0
(148.2)
772.1
(58.2)
(92.5)
(154.1)
467.3
(139.0)
648.3
(53.0)
(55.4)
(127.7)
412.2
1.1
0.6
(2.7)
4.1
1.7
247.1
367.1
510.7
463.2
410.5
(109.2)
356.3
152.0
833.6
3,511.4
291.2
73.6
293.5
203.6
1,175.2
3,033.5
299.1
106.0
404.7
187.3
1,020.5
2,738.5
292.8
(66.9)
530.1
151.4
1,388.0
2,283.3
257.1
(32.3)
442.8
66.4
979.3
1,844.1
256.5
2,992.3
2,961.0
2,845.2
2,942.3
3,010.0
341.7
215.0
116.4
131.2
220.4
7,970.2
7,683.8
7,013.4
7,001.9
6,310.3
899.6
90.5
1,052.4
108.4
969.4
122.8
1,064.9
98.3
832.8
82.6
2,489.5
2,225.7
1,815.3
2,068.2
1,701.0
83.6
3,563.2
4,407.0
4,404.3
2.7
77.5
3,464.0
4,219.8
4,216.9
2.9
74.5
2,982.0
4,031.4
4,029.1
2.3
63.8
3,295.2
3,706.7
3,701.7
5.0
82.6
2,699.0
3,611.3
3,609.2
2.1
4,407.0
4,219.8
4,031.4
3,706.7
3,611.3
thousands
1,654,998
1,628,730
1,628,730
1,628,730
1,628,730
Number of shares on issue at year end
thousands 1,654,998 1,628,730 1,628,730 1,628,730 1,628,730
Weighted average number of shares on issue (investor and ordinary)
thousands
1,643,970
1,628,730
1,628,730
1,628,730
1,623,134
Earnings/(losses) per share
before individually material items
including individually material items
Dividends (declared)
Dividends (paid)
Dividend franking
Share price range
Stockmarket capitalisation at year end
Net tangible assets per share
Profit margin (earnings before net borrowing costs,
individually material items and tax/sales)
cents
cents
cents
cents
%
High
Low
Year end
21.7
15.0
10.8
9.3
31
$3.20
$2.37
$2.71
18.0
22.5
9.2
12.5
75
$3.34
$2.59
$2.69
24.8
31.4
12.4
11.5
68
$3.68
$2.62
$2.98
32.5
28.4
11.5
9.3
–
$4.66
$2.99
$3.27
27.3
25.3
7.8
4.1
–
$3.78
$2.51
$3.59
$mill
4,485.0
4,381.3
4,853.6
5,325.9
5,847.1
$
%
0.85
0.77
0.73
0.47
0.37
15.5
13.6
17.1
21.8
22.1
Net borrowings (interest bearing liabilities less cash)
$mill
1,672.4
1,383.5
1,286.9
1,188.8
1,097.1
Gearing (net borrowings/net borrowings plus equity)
%
27.5
24.7
24.2
24.3
23.3
Interest cover (earnings before net borrowing costs and
tax/net borrowing costs)
Net capital expenditure on plant and equipment (cash flow)
Net capital expenditure on acquisitions/(disposals) (cash flow)
Return on average shareholders funds
before individually material items
including individually material items
times
$mill
$mill
%
%
6.8
638.0
–
8.3
5.7
6.5
428.2
–
7.1
8.9
10.8
616.6
35.1
10.5
13.1
13.3
610.4
(1.5)
14.5
12.8
12.2
297.3
103.7
12.7
11.9
(1) Comparative information has been restated to reflect changes made in the financial statements.
Incitec Pivot Limited Annual Report 2014
112
This page is intentionally blank
113
Incitec Pivot Limited Annual Report 2014
Shareholder Information
Annual General Meeting
2.00 pm (Melbourne time)
Friday, 19 December 2014
The Auditorium,
Level 2, Melbourne Exhibition Centre,
2 Clarendon Street,
South Wharf Victoria,
Australia
Securities Exchange Listing
Incitec Pivot Limited’s shares are listed on the
Australian Securities Exchange (ASX) and
are traded under the ASX code IPL
Share Registry
Link Market Services Limited
Level 12, 680 George Street,
Sydney New South Wales 2000,
Australia
Locked Bag A14,
Sydney South New South Wales 1235,
Australia
Telephone: +61 1300 303 780
General Facsimile: +61 2 9287 0303
Proxy Facsimile: +61 2 9287 0309
Email: registrars@linkmarketservices.com.au
Website: www.linkmarketservices.com.au
Auditor
Deloitte Touche Tohmatsu
550 Bourke Street,
Melbourne Victoria 3000,
Australia
Incitec Pivot Limited
Registered address and head office:
Level 8, 28 Freshwater Place,
Southbank Victoria 3006,
Australia
GPO Box 1322,
Melbourne Victoria 3001,
Australia
Telephone: +61 3 8695 4400
Facsimile: +61 3 8695 4419
www.incitecpivot.com.au
Incitec Pivot Limited
ABN 42 004 080 264
Level 8, 28 Freshwater Place,
Southbank Victoria 3006,
Australia
Postal Address
Incitec Pivot Limited
GPO Box 1322,
Melbourne Victoria 3001,
Australia
Telephone: +61 3 8695 4400
Facsimile: +61 3 8695 4419
www.incitecpivot.com.au
This publication has been printed in Australia by a printer that employs a documented ISO 14001 environmental management system and has Forest Stewardship Council (FSC) chain of custody certification.
The paper used is Monza Recycled which is Certified Carbon Neutral by The Carbon Reduction Institute (CRI) in accordance with the global Greenhouse Protocol and ISO 14040 framework. Monza Recycled contains
55% recycled fibre and is FSC Mix Certified, which ensures that all virgin pulp is derived from well-managed forests and controlled sources. Monza Recycled is manufactured by an ISO 14001 certified mill.