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Innospec A N N U A L R E P O R T 2015
Ekati
Diavik
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CANADA
Flin Flon
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Tumbler Ridge
Calgary
Biwabik
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St Helens
Barry
Salt Lake City
Cheyenne
Carthage
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e
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a
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Louisiana, Missouri
Waggaman, Louisiana
Dinamita
Gomez Palacios
Guadalajara
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USA
MEXICO
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Meadowbank
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a
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a
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Ishpeming
North Bay
Maitland
Boisbriand
Ormstown
Simsbury
Donora
Duffield
Van Wyck
Brooksville
Graham
Wolf Lake
LATIN
AMERICA
La Serena
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Santiago
Tirana
Bucharest
Ankara
Soma
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TURKEY
CHINA
PAKISTAN
INDIA
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Linyi (Fabchem)
New Delhi
Hong Kong
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Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
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Papua New Guinea
INDONESIA
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a
Moranbah
Townsville
AUSTRALIA
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Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Warkworth
Melbourne
Geelong
Devonport
Batu Arang (TKEB)
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SOUTH
AFRICA
Sibolga
Tanjung Tabalong
Jakarta
Batu Kajang
Port Hedland
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
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Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
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Incitec Pivot Limited
Incitec Pivot Limited
Company Headquarters
Company Headquarters
Incitec Pivot Fertilisers
Incitec Pivot Fertilisers
Corporate Office
Corporate Office
Manufacturing/Distribution
Manufacturing/Distribution
Quantum Fertilisers
Quantum Fertilisers
Dyno Nobel
Dyno Nobel
Corporate Office
Corporate Office
Manufacturing/Distribution
Manufacturing/Distribution
Joint Ventures/Investments
Joint Ventures/Investments
Manufacturing legend
Manufacturing legend
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Initiation
Initiation
Emulsion
Emulsion
ANa
ANa
a Long term AN supplier
a Long term AN supplier
Tirana
Bucharest
Ankara
Soma
i e
TURKEY
CHINA
PAKISTAN
INDIA
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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
Meadowbank
e
e
a
e
i
a
e
e
e
i
i
Ishpeming
North Bay
Maitland
Boisbriand
Ormstown
Simsbury
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
Financial Report
ii
iv
vi
vii
viii
1
18
38
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 report to shareholders
as Chairman of Incitec Pivot Limited,
following a year which confirmed that we
have the right strategy for our Company
at a time when there are significant
challenges in global markets.
As always, I begin with our most
important value, being safety. Zero Harm
is our Number 1 priority. In 2015, our
programs and processes have continued
to achieve a reduction in the number of
safety incidents across our business, with
the Group’s Total Recordable Injury
Frequency Rate for the rolling 12 months
to 30 September 2015 decreasing from
0.97 to 0.67. This is a significant outcome
as we progress to our goal of Zero Harm.
However, we can never claim success in a
year in which we have suffered a fatality.
In May, one of our employees lost his life
following an incident at an underground
gold mine in the Pilbara region of Western
Australia. Following the tragedy, we
provided support to his partner and
family, as well as our own employees.
As a Company, James and the Executive
Team led a compulsory global safety
stand down for all employees to review
their individual commitment to their own
safety and the safety of their workmates.
In safety, as in all critical issues,
constructive and practical leadership by
the Board and senior management is
essential. Every time the Board and
management visit a site, the first action
we take is to review site safety processes
and re-emphasise our commitment to
Zero Harm. Similarly, at every Board
meeting, Zero Harm is the first agenda
item for discussion and the Board Health,
Safety, Environment and Community
Committee meets regularly to provide
detailed oversight of safety across the
Company.
ii
Incitec Pivot Limited Annual Report 2015
We have the strategy and the
team to ensure that Incitec Pivot
will continue to deliver value to
shareholders into the future.
Earlier this year, the Board joined the IPL
project team on site in Louisiana, USA, to
inspect construction progress on our world
scale ammonia plant, which is due for
completion in the third quarter of 2016.
On behalf of the Board, I recognised the
safety performance of our construction
contractor, KBR, which had achieved a
safety milestone of 3,000,000 work hours
without a “Days Away from Work
Incident”, a commendable performance
to date.
Turning to the Company’s financial
performance in 2015, I believe we can
be satisfied in achieving a 12% increase
in Net Profit After Tax excluding
Individually Material Items (IMIs) in a
year when our customers have been
challenged by structural and cyclical
market changes. In these markets, our
business was able to achieve $A
earnings growth in both the Explosives
and Fertiliser businesses, with Earnings
Before Interest and Tax (EBIT) in
Fertilisers rising 22% and Explosives
EBIT up 1%.
On the measure of shareholder returns,
Earnings Per Share (EPS) excluding IMIs,
increased 10% to 23.8 cents per share
(cps). The final dividend has been
declared at 7.4 cps, franked to 60%. This
brings the full year dividend to 11.8 cps,
representing an increase of 9% on the
2014 dividend of 10.8 cps. The dividend
payout ratio of 50% of NPAT excluding
IMIs is within the payout ratio endorsed
by the Board of 30-60% of NPAT
excluding IMIs.
This is a good result which can be
attributed to our strategy and to our
employees’ execution of the strategy.
As I have previously informed
shareholders, our strategy is focused on
the global dislocations – demand for hard
and soft commodities associated with
growth in Asia, and the seismic shift in
the world’s largest economy, the United
States, as a result of the shale gas boom.
Strategic development decisions must
produce results ‘through the cycle’, for
the short to long-term. The Moranbah
ammonium nitrate plant is a good
example. The decision to develop the $1
billion plant was taken to coincide with
the resources boom in Australia to feed
the immense increase in demand for
resources from Asia, particularly China.
At the same time, the decision to contract
all the production from Moranbah is now
proving a prescient judgement as the
demand for resources has cooled in the
current cycle.
The profitability of the Moranbah plant
was the differential for the Dyno Nobel
Asia Pacific (DNAP) business achieving an
acceptable result under difficult trading
conditions. The Moranbah plant produced
320,000 tonnes of ammonium nitrate and
total earnings of $131 million, offsetting
the impact of challenging mining markets
in Australia, Indonesia and Turkey.
The other key strategic decision has been
the decision to approve the construction of
a world-scale ammonia plant in Louisiana,
taken to capitalise on the shale gas boom
in the US. When this project becomes
operational in late 2016, it will be a
transformational event for our Dyno Nobel
Americas business, providing very robust
cash flows and further strengthening our
Balance Sheet, which is already in
excellent shape.
IPL Ammonia plant currently under construction at Waggaman, Louisiana.
An outstanding result in 2015 was that
Net Debt to EBITDA fell from 2.0 times to
1.6 times, even while we are financing
the construction of the Louisiana plant.
This ratio, and other measures of our
financial strength, will continue to
improve beyond 2016 and will provide us
with further scope to increase shareholder
value, which may involve a combination
of capital management and strategic
growth opportunities. In this context, the
Board will continue to be disciplined in
strategic decision making.
Another key element of any business
performance is customer relationships,
never more important than in the current
difficult global environment. This also has
been a key focus of the Board and
whenever we travel to our operations we
make it a priority to meet with customers
to engage in seeking mutual solutions to
the challenges to their businesses.
This has been a particular emphasis in
our contact with resources industry
customers in Australia and the United
States. Additionally, as part of our Board
visit to the United States in August 2015,
we met with business partners such as
Trammo, which is a major off-taker from
the Louisiana plant, and KBR, the global
project company which is constructing
the Louisiana ammonia plant.
The Company continues to be led by an
experienced Board with significant
knowledge and expertise. I am confident
that the composition of the Board, with
its collective skills, experience and
diversity (both in terms of gender and
more broadly) is well positioned to guide
the Company in implementing its
strategy. I know that diversity is a key
focus of James and his Executive Team.
While I recognise that, statistically, Incitec
Pivot has considerable progress to make
in terms of gender equity, I am confident
that the programs we have initiated as a
Company will provide the talent pipeline
to achieve our diversity objectives.
In closing, I want to sincerely thank my
fellow directors for their collegiality,
dedication and knowledgeable
contribution to Board discussion and
debate. James and his Executive Team
have shown outstanding leadership in
implementing the Company’s strategy
and delivering the positive results this
year. The Company’s performance is the
product of their hard work and initiative
and is driven by the commitment of our
5,500 employees. It is to all of our
employees that I offer my profound
appreciation.
To have achieved the result we have in
2015 in the face of such challenging
conditions gives me confidence for the
future, particularly with the
commencement of operation of the
Louisiana plant next year. We have the
strategy and the team to ensure that
Incitec Pivot will continue to deliver value
to shareholders into the future.
Paul Brasher
Chairman
Incitec Pivot Limited Annual Report 2015
iii
Managing Director’s Report
This result has been driven by our
employees using the Business Excellence
system to increase productivity and
maintain reliable production.
I am pleased to present my seventh
report as Managing Director & CEO in
a year when we realised double digit
earnings growth amid challenging
market conditions. This is a good
outcome driven by our strategic decisions
and the performance of our people.
Like the Chairman, I begin with safety,
our Number 1 priority. The tragic fatality
which occurred in May this year is a
stark reminder of the vital importance
of our relentless drive to Zero Harm.
Immediately following the tragedy, a
safety stand down was held across all
our sites globally, the focus of which was
on identifying and understanding the
fatal risks and controls in our workplace.
Despite an overall reduction in safety
incidents across the business, as
evidenced by the Company’s TRIFR
to 30 September 2015 decreasing
from 0.97 to 0.67, we still have a long
way to go.
Our safety strategy is underpinned by the
4Ps: Passionate Leadership, People
(Behaviours), Plant (Equipment) and
Procedures (System). Additionally, our
commitment to safety is reinforced by
the seven Rules to Live By which address
the most hazardous risks common to our
business and are our “safety non-
negotiables”. We have a strong belief
that injuries and illnesses are
preventable and we are committed to
eliminating these avoidable outcomes.
Conducting business safely must be the
priority of all our employees, contractors,
vendors and business partners.
Turning to the 2015 financial
performance, Net Profit After Tax (NPAT)
increased 12% against 2014 NPAT
(excluding Individually Material Items)
and both downstream businesses
achieved increases in $A earnings:
Fertilisers increasing by 22% and
Explosives by 1%. This is a result of
which everyone at Incitec Pivot can be
proud. It has been achieved despite the
impact on our Explosives business of the
global decline in demand in the
international mining industry and, in
some cases, such as the coal industry,
structural changes. Further, our Fertilisers
business was also impacted by the
challenge of a long term drought in
Northern New South Wales and
Queensland.
Operating cash flow increased by 41%
or $221 million to $756 million, driven
by strong growth in earnings and by
a continuous focus on efficient
management of our working capital.
Net Debt also decreased by 13% or
$191 million to $1.3 billion.
In looking at the 2015 result, I want to
pay tribute to our people. To a large
extent, this result has been driven by our
employees using the Business Excellence
(BEx) system to increase productivity,
eliminate waste and maintain reliable
production. BEx has given us the tools
and processes to change the way we
do business. It is our continuous
improvement culture which is now
embedded across all businesses with a
core focus on manufacturing, supply
chain and process. As a result, we have
seen some excellent outcomes with BEx
delivering year-on-year to our bottom
line. This year’s net EBIT benefits from
BEx were $41 million.
In the context of BEx, I want to highlight
our Ammonium Phosphate Value Chain
which includes the Phosphate Hill
fertiliser plant, the Mt Isa acid plant,
the logistics team at Townsville and
the sales and marketing teams. The
Phosphate Hill fertiliser plant is the
largest manufacturing complex in our
global network and, this year, achieved
record production of 1,043,000 tonnes of
ammonium phosphate fertilisers. This
represents a 35% increase on the 2014
production and is the first time the plant
has produced one million tonnes in its
15-year history, noting IPL acquired the
plant in 2006. Phosphate Hill EBIT
increased by $105 million to $142
million. Although aided by the lower $A
and higher average international prices,
the Phosphate Hill team confronted
substantially higher input costs,
particularly gas, but were still able to
leverage BEx to increase production and
achieve sustainable productivity benefits.
Now let me turn to strategy. In my
view, strategy is all about choices;
not only what you choose to do, but
equally importantly, what you choose
not to do. It starts with the foresight to
identify the strategic drivers of a
business and to then make decisions
around capital allocation. Successful
strategic decisions are those which are
made at the right time, with the
appropriate risk management approach.
Once made, they require courage to
“stay the course”.
Our strategy remains unchanged. Incitec
Pivot’s growth is linked to two global
economic engines: the industrialisation
and urbanisation of Asia and the activity
generated by the shale gas revolution in
the United States. The demand for hard
and soft commodities in Asia is what
underpins our Moranbah ammonium
nitrate plant. The re-industrialisation of
the US, driven by the shale gas
revolution, is what will underpin our
Louisiana ammonia plant.
iv
Incitec Pivot Limited Annual Report 2015
Phosphate Hill Manufacturing Plant, North West Queensland.
The Moranbah “story” as proof of our
strategy is well-known and has been
touched on by the Chairman in his
report. But no strategy can be set in
stone. As the global economic
environment changes, a strategy
needs to respond.
Our decision almost three years ago to
develop a world scale ammonia plant in
Louisiana was driven by the need to
balance our business portfolio. We
adopted a “New World/Old World”
approach. This meant that as well as
exposure to Asia, we increased our
footprint in the world’s largest economy
– the US – even though, at that time, the
US was still dealing with the aftermath of
the Global Financial Crisis. Today, the US
economy is on the road to recovery and
is arguably one of the most attractive
places in the world to do business.
The timing of the decision to develop
a plant in Louisiana meant that we
achieved the classic first mover
advantage including a lump-sum turn-
key construction contract and offtake
agreements for all production.
I am delighted with the progress of
construction of the Louisiana ammonia
plant. The project is on schedule to
commence first production in the third
quarter of calendar 2016 and will
drive significant earnings growth.
Louisiana will be our seventh ammonia
plant globally.
Notwithstanding the current market
challenges, our successful strategy, our
commitment to making the right choices
with the appropriate risk management
and the ability of our people to deliver
using BEx gives me confidence for the
future. While in the short term it is
expected that the challenging market
conditions for the resources and
agricultural industries will persist, in the
longer term, continued growth of the
Asian economies is inevitable and
reinvigoration of the US economy is
already occurring.
In closing, I want to thank the Chairman
and my fellow directors for their advice
and support. I want to express my
gratitude to my colleagues on the
Executive Team. In particular, I wish to
record my appreciation of the 5,500
employees at Incitec Pivot. I firmly
believe that our employees give us a
unique competitive advantage in terms
of their skill and commitment to deliver
on strategy and I am confident that this
will continue to produce shareholder
value into the future.
James Fazzino
Managing Director &
Chief Executive Officer
Incitec Pivot Limited Annual Report 2015
v
Board of Directors
(L to r): Rebecca McGrath, Gregory Hayes, Graham Smorgon AM, John Marlay, Kathryn Fagg, Paul Brasher, James Fazzino
Rebecca McGrath
BTP(Hons), MASc, FAICD
Non-executive director
Gregory Hayes
MAppFin, GradDipACC, BA, ACA
Non-executive director
Graham Smorgon AM
B.Juris, LLB
Non-executive director
John Marlay
BSc, FAICD
Non-executive director
Rebecca McGrath 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.
Greg Hayes was appointed as a
director on 1 October 2014. Greg
is Chairman of the Audit and
Risk Management Committee.
Graham Smorgon 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.
John Marlay 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.
Kathryn Fagg
FTSE, BE(Hons), MCom(Hons)
Non-executive director
Paul Brasher
BEc(Hons), FCA
Non-executive Chairman
James Fazzino
BEc(Hons)
Managing Director & CEO
Kathryn Fagg was appointed as
a director on 15 April 2014.
Kathryn is a member of the
Health, Safety, Environment and
Community Committee and the
Remuneration Committee.
Paul Brasher was appointed as
a director on 29 September
2010 and was appointed
Chairman on 30 June 2012.
Paul is Chairman of the
Nominations Committee.
James Fazzino 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 2015
Executive Team
James Fazzino BEc(Hons)
Managing Director & CEO
Frank Micallef BBus, MAcc, FCPA,
FFTA, FAICD
Chief Financial Officer
Frank Micallef 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 15 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 Rintel 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 President, Strategy
& Business Development in June 2008,
responsible for major growth initiatives across
the Group, including major capital projects
and mergers and acquisitions.
On 1 October 2015, Jamie was appointed
Chief Operating Officer – WALA.
James Whiteside BAgricSc,
GradDipBusAdmin, GAICD
Chief Operating Officer,
Incitec Pivot Fertilisers
James Whiteside joined Incitec Pivot (then
known as Pivot Limited) in 1992, following
extensive experience in agricultural companies
and in consulting. Over that time, 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 also
the Chief Executive Officer of Quantum
Fertilisers. He also has executive
responsibility for global procurement and
the global supply chain planning process.
Stephen Dawson BSc(Hons) Mining
Engineering, MBA
President, Manufacturing Operations
Stephen Dawson 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 Atkinson 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 Hunter joined Incitec Pivot in
October 2013. Elizabeth has over 20 years’
experience in human resources in Australia
First row (l to r):
James Fazzino,
Frank Micallef,
Jamie Rintel,
James Whiteside,
Stephen Dawson
Second row (l to r):
Simon Atkinson,
Elizabeth Hunter,
Alan Grace,
Gary Kubera
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 his current
role, 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.
Gary Kubera BA Chem, MBA
President, Dyno Nobel Americas
Gary Kubera was appointed President Dyno
Nobel Americas in February 2015, bringing a
wealth of commercial and executive
leadership experience in the chemicals and
oil and gas industries. He has held a number
of senior roles across a range of global
enterprises including Johnson Polymer,
McWhorter Technologies Inc and, more
recently, as President & CEO of the Canexus
Corporation. Additionally, he is a past
director of the Alliance for Environment
Technology and the American Chemistry
Council, both being industry trade
organisations.
Incitec Pivot Limited Annual Report 2015
vii
Sustainability Report
APPROACH
Sustainability Strategy
Incitec Pivot is committed to operating in a manner which
acknowledges and proactively manages those issues which are
most material to the long term sustainability of its business,
the environment and the communities in which it operates.
This commitment is driven by the Company’s Values which
are core to its business. Incitec Pivot defines Sustainability as
‘the creation of long term economic value whilst caring for our
people, our communities and our environment’.
Incitec Pivot’s Sustainability Strategy was formally adopted
by the Board in September 2010 and was reaffirmed in 2014
following a review. During this review 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).
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 business practices.
About this report
As in 2014, sustainability performance data has been included in
this year’s Annual Report, providing 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 can be found in the 2015
Online Sustainability Report and in prior year Sustainability
Reports on the Incitec Pivot website at www.incitecpivot.com.au.
Content selection
In order to determine the most important topics for
sustainability reporting, a materiality review is conducted
biennially. First, key stakeholders who have a direct
relationship with, or are impacted by, Incitec Pivot’s business
are identified. A comprehensive list of relevant topics is then
also identified through a review of risk registers, sector issues,
business communications, and publicly available information
on sustainability issues relating to IPL’s business areas.
Next, issues are numerically scored for prioritisation, according
to their importance to external stakeholders, by survey. These
issues are then analysed and prioritised by numerical score
internally by Incitec Pivot to determine which aspects are
‘material’ to report. This aligns to the GRI 4 materiality
approach. Further information on stakeholder engagement
and the materiality process is contained in the 2015 Online
Sustainability Report at www.incitecpivot.com.au.
During the 2015 materiality review, Incitec Pivot’s economic
performance was identified as an important sustainability
issue by a wide range of stakeholders including investors,
shareholders, suppliers, customers, employees and the
communities in which IPL operates. The other 10 most
material issues are discussed below.
WORKPLACE HEALTH AND SAFETY
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.
viii
Incitec Pivot Limited Annual Report 2015
This foundation is complemented by the corporate
commitment to continuous improvement through BEx.
The 2015 priorities towards achieving Zero Harm were:
• Continued TRIFR improvement through behavioural safety
training, identifying the root cause of near misses/incidents
and management of risk;
• Embedding effective change management processes into
key HSE initiatives;
• Leveraging the learnings from High Potential Incidents
•
across the business; and
Integrating ‘Safety Partner’ (behavioural) principles into
HSE systems and tools.
Tragically in May 2015, a fatality occurred in DNAP’s
underground operations. Immediately following the fatality, a
global safety stand down was held for all employees in the
Group to reflect on the fatality, pay tribute to their colleague
and remind all personnel of the hazards that they are exposed
to and the risks they face in their workplace every day.
Performance
The following were highlights for the 2015 year:
• Achievement of a TRIFR of 0.671, a 31% reduction from 2014.
• 92% of sites were recordable injury free.
• Near miss reporting increased 175% with investigation
and problem solving of 100% of ‘high potential’ incidents
and near misses.
• Development and release of global Risk Assessment and
Bow Tie Analysis procedures.
• Development of a global approach to ‘Permit to Work’ and
‘Job Step Analysis’ and associated training materials.
• Specific and comprehensive Executive Team ‘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.
• The continued roll out of the ‘Safety Partners’ training
program across the business divisions.
2016 priorities
The following challenges and opportunities have been
identified for 2016 and will be priorities in maintaining
Incitec Pivot’s Zero Harm focus:
•
Implementation of a global ‘Permit to Work’ process
and a global ‘Job Step Analysis’ process; and
• Continued focus on risk management and behavioural
safety training.
Dow Jones Sustainability Index (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 DJSI and its performance is
benchmarked against peers in the global ‘Chemicals’ sector. The
annual results are represented in the table below.
Dimension
Economic
Environmental
Social
Total for IPL
Chemicals sector average
2010
2011
2012
2013
2014
2015
61
51
37
49
55
61
50
45
51
57
59
51
63
58
55
70
59
68
66
52
65
60
67
64
55
67
51
63
60
58
In 2015, the FTSE Group also confirmed for the second year that
Incitec Pivot has satisfied the requirements to become a constituent
of the FTSE4Good Index Series.
1. Subject to finalisation of classification of any pending incidents
GOVERNANCE AND ETHICAL CONDUCT
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, having regard
to 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. During the year, IPL’s key
Board Charters were reviewed and updated to ensure alignment
with the revised ASX Corporate Governance Principles and
Recommendations, which took effect in the 2015 financial year.
In 2016, the IPL Code of Ethics will be reviewed and updated.
Further information on Governance, including risk oversight
and management, can be found in the Corporate Governance
Statement at www.incitecpivot.com.au/Corporate_Governance
and in the 2015 Online Sustainability Report.
MANAGING, ENGAGING AND ENSURING A
DIVERSE WORKFORCE
Incitec Pivot endeavours to be a business where Company
Values guide behaviours in the workplace and where a
culturally diverse range of 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.
2015 priorities
Key 2015 priorities were to:
• Sustainably embed new human resources policies and
•
procedures;
Implement and communicate Human Capital metrics
across the Group to promote increased diversity;
• Enhance the Incitec Pivot talent management process; and
• Deepen the Company’s continuous improvement culture
and capability.
Performance
During 2015, the focus was to utilise and reap the benefits
of 2014 infrastructure improvements and support Zero Harm
objectives. A number of new initiatives were also developed
and implemented which will support Incitec Pivot’s diversity
objectives. Further reporting on Incitec Pivot’s Diversity
Strategy can be found in the Corporate Governance Statement
at www.incitecpivot.com.au/Corporate_Governance.
Key highlights during the year were:
• Extended coverage of the Global Talent and Succession
Planning Framework to include IPL’s middle management.
• The implementation of online talent management processes
to enable managers to more effectively plan and develop
their teams.
• Maintaining the 2014 target of 2% Indigenous Employment
across IPL’s Australian businesses.
• Employee completion of ‘Organisational Climate Surveys’
across two of IPL’s business units.
• Design of training and development KPIs.
• Endorsement of the Incitec Pivot Australian Indigenous
Reconciliation Action Plan by Reconciliation Australia.
• Development and implementation of a pilot program called
‘My Potential’. A key component of the diversity program,
‘My Potential’ is specifically designed to assist women to
progress into leadership roles.
Increased utilisation of the IPL Flexible Work Policy which, in
Australia, saw 85% of women return to work from parental
leave, with 65% returning to part time roles.
•
MANAGING ENVIRONMENTAL IMPACTS
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. Incitec Pivot is committed to continuously
improving the management processes and systems in place to
make its operations and products more sustainable.
Continuous improvement during the 2015 financial year
included a further review and simplification of IPL’s Global
Environmental Standards. BEx methodologies were applied to
further refine the standards and associated management tools
that are used daily by sites in order to further mitigate
potential environmental risks. In addition, reporting of
incidents across the Australian businesses was changed to a
risk-based focus which facilitates the collection of ‘potential
impact’ incidents. Although this has increased the total
number of environmental incidents reported, it provides a
more complete and granular data set, proactively addresses
environmental risks before they manifest, informs the Group’s
strategies to prevent future incidents, and further engages
IPL’s employees in recognising and managing a broader range
of potential environmental impacts.
Performance
Incitec Pivot continues to strive to improve environmental
performance, and in the 2015 financial year focused on:
• Remediation of legacy sites, with work completed
•
successfully at Cockle Creek in Australia and progress made
at a number of sites in the United States; and
Increasing environmental incident reporting across the
Australian businesses to include ‘near miss’ or ‘potential
impact’ incidents. Further detail on environmental
compliance, including fines, can be found on page 4.
ENERGY, GREENHOUSE GASES AND WATER
IPL has a strong focus on progressively increasing resource
efficiency to ensure long term economic and environmental
sustainability. The manufacture of nitrogen-based products is
energy intensive because it requires natural gas as both an
energy source and a raw material. Because CO2 is liberated
from this natural gas during the manufacturing process, IPL is a
‘large emitter’ of greenhouse gases (GHG) as defined by the
Australian Natural Greenhouse and Energy Reporting System.
Water is also a key raw material for manufacturing. In addition
to IPL’s comprehensive annual risk management process, the
WBCSD Global Water Tool is completed each year for long term
projections and reviewed by the Chief Risk Officer. While the
majority of IPL’s major manufacturing plants are located in
regions with plentiful natural supplies of water, several smaller
sites in Australia are located in areas identified by the World
Business Council of Sustainable Development Water Tool as
being in areas which may experience water stress in the
future (2025). At Cheyenne, Wyoming, USA, water resources
are of particular concern and management involves multiple
stakeholders. IPL engages with key stakeholders including the
Wyoming State Engineer’s Office which manages stakeholder
access to the local groundwater aquifer. In other regions,
where there is higher rainfall, IPL recognises that water
management is also important.
Incitec Pivot Limited Annual Report 2015
ix
Sustainability Report
Performance
Energy and emissions
Incitec Pivot used 44,070,102 gigajoules (GJ) of energy over the
past year (2014: 41,248,949), 1,983,644 of which was
electricity (2014: 1,954,653). The absolute Scope 1 and 2
greenhouse gas (GHG) emissions from Incitec Pivot’s global
operations increased slightly to 2.8 million tonnes due to
increased production. 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, plant energy optimisation projects and
other continuous improvements.
At Moranbah, Australia, a steam trap audit and replacement
project in the ammonia plant was completed and cycles in the
gas fired boilers were increased. These actions will decrease
natural gas consumption by 34,000 GJ and GHG emissions by
1750 tCO2e per year. At the Mt Isa, Australia, site, electricity is
made from waste heat generated during the process of
making sulphuric acid. By maximising this process during the
year, purchased electricity was reduced by 15,566,685 kWh,
which reduced Scope 2 GHG emissions by 13,387 tCO2e. At
Dinamita, Mexico, solar street lighting and a solar operated
boiler were installed, and a Business Sustainability Audit was
conducted at the Simsbury, USA site with the aim of reducing
energy usage by 10% at the site in 2016.
Incitec Pivot also continued to invest in NOx reduction
technology, with work beginning on the design of a Selective
Catalytic Reduction unit for the Louisiana, Missouri, nitric acid
plant, which will be installed in 2016. Also in 2015, $90,000
was directly invested in the nitrous oxide abatement unit at
Moranbah, Queensland, which reduced potential GHG
emissions by 559,672 tCO2e.
Water use and discharge
Incitec Pivot’s gross water use in the 2015 financial year, was
40,172 megalitres (ML), a three percent reduction from 2014.
Continuous improvements made to reduce water use included
eliminating steam leaks, increasing boiler cycles to reduce
blowdown water, and increasing the amount of reused water
at several sites. At Moranbah, Australia, a new initiative
reclaimed 95,146 kL of waste water for reuse, and 68,000
kilolitres (kL) of waste water was reused in the cooling towers
at Cheyenne, Wyoming, through the use of a mobile reverse
osmosis unit. At Phosphate Hill in Australia, 199,759 kL of
water was recovered from waste gypsum stockpiles, also
recovering valuable phosphates for fertiliser production.
During 2015, IPL discharged 32,075,547 m3 of water to the
environment, approximately the same as 2014. Most (97%)
of this water was clean cooling water that was discharged to
the rivers from which it was taken, reducing IPL’s net water
use to 9,059 ML.
2016 priorities
Key 2016 priorities are to:
•
Investigate the use of renewable energy within IPL’s
manufacturing operations;
• Work with the Australian Federal Government on energy
and carbon policy to ensure favourable outcomes for both
business and the environment, and implementing processes
to meet the new Australian Safeguard Mechanism;
• Work across the global business to identify and implement
energy and water efficiencies;
• Continue the roll out of BEx across all areas of the business,
including areas which impact on the environment and
resource efficiencies; and
• Continue the focus on education, training and awareness to
further embed principles of sustainable resource use and
environmental best practice across the business.
GAS SUPPLY
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 finds 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. For more information on this
issue, see page 14 of this Report.
PRODUCT QUALITY
IPL is committed to providing quality products and services to the
agricultural, mining and quarrying sectors. IPL’s Fertiliser Quality
Policy outlines its commitment to providing products and services
that meet customers’ needs. Fertiliser manufacturing is
monitored by IPL’s own Quality Control Laboratories and all
product imports are sourced in compliance with the Fertiliser
Australia National Code of Practice for Fertiliser Description and
Labelling. Certificates of Analysis are sought from suppliers and
the delivered products are then analysed through the Company’s
Quality Control Laboratories to ensure they are within set Product
Specifications that meet statutory limits and market needs.
IPL’s Dyno Nobel explosives business is renowned as a global
provider of innovative explosive products, services and solutions,
delivering ground-breaking performance to IPL’s customers
every day. Using BEx principles, product quality is being
continuously improved by the detection, analysis and correction
of trends during processing which may impact quality and
performance. During 2015, a closer working partnership
between the Company’s research and development laboratories
and its manufacturing plants continued to improve operating
procedures, particularly where product analysis is required.
Total direct and indirect greenhouse
gas emissions
Water use by source
Total water used was 40,172 megalitres
Water discharge by destination
Total water discharged was 32,075,547m3
3.5
Million tonnes of CO2e
30,000
Megalitres
35,000
’000 m3
3.0
2.5
2.0
1.5
1.0
0.5
0
25,000
20,000
15,000
10,000
5,000
0
30,000
25,000
20,000
15,000
10,000
5,000
0
2009
2010
2011
2012
2013
2014
2015
Municipal
water
Ground
water
Recycled
water
Storm
water
Surface
water
Desalinated
water
Rain
water
Surface
waters
Ground
water
Sewers
Total water
discharged
Total GHG emissions
Scope 1
Scope 2
Water source
2013/14
2014/15
Waste discharge destination
2013/14
2014/15
x
Incitec Pivot Limited Annual Report 2015
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
30000
25000
20000
15000
10000
5000
0
35000
30000
25000
20000
15000
10000
5000
0
Continuous improvement to both the formulations and the
raw materials sourced have resulted in improved product
quality and enhanced performance. The ‘Marketing & Technology
Ideas & Work Requests Database’ accepts requests from all over
the Group for research and development assistance and will
continue to facilitate improved product quality.
SUSTAINABLE PRODUCTS AND SERVICES
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.
Phosphate rock sourcing
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. 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 phosphorus, cadmium, odour and reactivity which
must be balanced to produce a product that meets with
Australian regulations. Further information on phosphate
sourcing is available on the Incitec Pivot website.
Supplier and customer 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 major materials suppliers also contain clauses
that outline Company expectations of suppliers’ workplace
health, safety and environmental performance.
During the past year, Incitec Pivot continued to apply BEx
methodologies to its sustainable supply chain model, with a
particular focus on successfully reviewing and managing risks
to supply. The IPL Supplier Code of Conduct is under
development, and a guideline for IPL to purchase goods and
services from suppliers local to the Company’s sites has been
developed. Also during 2015, a working group involving
Supply Chain, Procurement and Sustainability leadership was
formed to further progress Supply Chain Sustainability.
Outcomes have included a reduction in the energy use and
greenhouse gases of IPL’s major road transport contractors in
Western Australia and its global shipping contractors in the
performance of their services for IPL.
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 as well as
the leaching of both ammonia and nitrates.
Highlights during the 2015 financial year were:
• The continued focus of ongoing fertiliser research and
development programs on joint development and extension
with customers.
• The commercialisation and product roll out of the Australian
TITAN 9000 high performance explosives emulsion range,
including Titan 9000xero® technology, which is specially
formulated to reduce blast fumes.
• The commercial introduction and rapid customer uptake of
Entec products in North Queensland, Australia. Entec products
are enhanced efficiency fertilisers which minimise nitrogen
losses to the atmosphere and to leaching, reducing the
environmental impact of their use.
• The provision of R&D support to facilitate the internal
recycling of both high nutrient waste waters and old product
into manufacturing.
• The testing of third party recycled customer oils and
hydrocarbons recovered from non-traditional waste materials
to replace virgin oils in explosives manufacture.
• Financial and promotional support of a 6 month ‘Farm Waste
Recovery’ trial to collect and recycle the fertiliser bags used
by sugarcane farming customers in northern Australia.
• The completion of an Australian Research Council funded
Linkage Project with the University of Sydney into
understanding the interaction of ammonium nitrate
explosives with reactive ground. This project will also provide
advice to the Australian Explosives Industry Safety Group.
SUSTAINABLE DEVELOPMENT
Ammonia Plant – Waggaman, Louisiana
During 2015, construction of the 800,000 tonne per annum
ammonia plant remained on track and on budget for production
in the third quarter of 2016. The safety target for the total
project was to achieve a TRIFR of 1.05. Over three million man
hours have been worked to date and the current TRIFR is 0.37.
When operational, the Louisiana ammonia plant will apply the
industry’s leading technology and will be among the most
efficient plants of its kind in the world, employing gas purifier
technology and recapturing steam for reuse. The plant will also
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% and will
source its cooling water sustainably from the plentiful supply
of the Mississippi River. All wastewater and stormwater
streams will also be treated onsite and returned as clean
water to the river, meeting strict water quality limits.
During 2015, IPL has continued to actively engage with the
community in Louisiana, and has also maintained regular
communications with Louisiana Economic Development,
Jefferson Parish Economic Development Commission, Jefferson
Parish, and Community Advisory Panel.
CARING FOR THE COMMUNITY
The Sustainable Communities Policy defines IPL’s approach to
community relations and community investment, and ensures
that engagement decisions are made locally, at the site level,
where community needs are best understood. During 2015,
$391,406 of community investment was made through IPL’s
‘Dollar-for-Dollar’ program, the Australian Workplace Giving
program and various site-based initiatives.
Due to the nature of the business, some IPL sites are located
in areas where the materials handled have the potential to
impact on the communities in which IPL operates. IPL has
measures in place to monitor, manage and prevent potential
negative impacts on local communities which may arise. In
addition, many sites are required by law to communicate
regularly with the community regarding Community Safety
Plans and emergency procedures which should be followed to
keep them safe in the unlikely event of a potential incident.
In North America, 51% of IPL’s sites fall into this category, and
these sites actively participate on Local Emergency Planning
Committees (LEPCs) as part of the ‘Community Right to Know
Act’. In the Asia Pacific region, 22% of sites have been
identified, and these follow ‘Safe Work Australia’ guidelines in
communicating with their communities. In addition, the IPL
Reputation and Crisis Management manual assists crisis
management teams to effectively manage communication
and engagement in the event of an incident.
Incitec Pivot Limited Annual Report 2015
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 2015 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
Mr Brasher was appointed as a director on 29 September 2010. He is a non-executive
director of Amcor Limited and the Deputy Chairman of the Essendon Football Club. He is also
a former director of Perpetual Limited. 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.
Directorships of listed entities within the past three years:
• Director, Amcor Limited (since January 2014)
• Director, Perpetual Limited (November 2009 – August 2015)
Kathryn Fagg FTSE, BE(Hons),
MCom(Hons)
Non-executive director
Member of the Health, Safety,
Environment and Community
Committee
Member of the Remuneration
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.
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.
Directorships of listed entities within the past three years:
• Director, Boral Limited (since September 2014)
• Director, Djerriwarrh Investments Limited (since May 2014)
Gregory Hayes MAppFin,
GradDipACC, BA, ACA
Non-executive director
Chairman of the Audit and Risk
Management Committee
Mr Hayes was appointed as a director on 1 October 2014. Mr Hayes is also a non-executive
director of Echo Entertainment Group Limited. 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.
Directorships of listed entities within the past three years:
• Director, Echo Entertainment Group Limited (since April 2015)
• Director, Brambles Limited (December 2009 to October 2012)
1
Incitec Pivot Limited Annual Report 2015
Name, qualifications and
special responsibilities
Experience
John Marlay BSc, FAICD
Non-executive director
Chairman of the Remuneration
Committee
Member of the Audit and Risk
Management Committee
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.
Directorships of listed entities within the past three years:
• Chairman, Cardno Limited (since August 2012) and Director (since November 2011)
• Director, Boral Limited (since December 2009)
• Director, Alesco Corporation Limited (December 2011 to December 2012)
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
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 director of Barristers Chambers Limited and Project New Dawn Ltd and 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
experience gained through significant exposure to manufacturing and supply chain
management.
Directorships of listed entities within the past three years:
• Director, Goodman Group (since April 2012)
• Director, CSR Limited (since February 2012)
• Director, Oz Minerals Limited (since November 2010)
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
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.
Directorships of listed entities within the past three years:
• Director, Arrium Limited (since September 2007)
James Fazzino BEc(Hons)
Managing Director & CEO
Member of the Health, Safety,
Environment and Community
Committee
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 is also Chairman of the Advisory Board for LaTrobe University’s Business School.
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.
Incitec Pivot Limited Annual Report 2015
2
Directors’ Report
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
J Marlay(2)
R J McGrath(2)
G Smorgon AM(2)
J E Fazzino(1)
Fully paid ordinary shares
Incitec Pivot Limited
60,600
10,000
0
37,926
18,758
13,100
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 35 of the Remuneration Report.
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 for the
operating and financial review of the Group during the
financial year and the results of these operations.
Dividends
Dividends paid since the last annual report were:
Type
Paid during the year
2014 final dividend
2015 interim dividend
Paid after end of year
2015 final dividend
Dealt with in the
financial report as:
Dividends
Subsequent event
Cents
per
share
Total
amount
$mill
Franked/
Unfranked
Date of
payment
7.3
4.4
120.8
10% franked 16 December 2014
73.7
unfranked
1 July 2015
7.4
124.7
60% franked 14 December 2015
Note
6
23
$mill
194.5
124.7
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 2015, the
directors determined to pay a final dividend for the Company
of 7.4 cents per share on 14 December 2015. The dividend is
60% franked (refer to note 6 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 2015 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.
Directors’ meetings
The number of directors’ meetings held (including meetings of committees of directors) and the number of meetings attended by
each of the directors of the Company during the financial year are listed below:
Director – Current (1),(2)
P V Brasher(3)
K Fagg(4)
J Marlay
R J McGrath
G Smorgon AM
G Hayes(5)
J E Fazzino
Director – Former
A C Larkin(6)
Board
Audit and
Risk Management
Remuneration
Nominations
Health, Safety,
Environment and
Community
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
11
11
11
11
11
11
11
3
11
11
11
11
10
10
11
3
5
5
5
1
5
5
5
1
2
4
6
6
2
4
6
6
2
2
2
2
2
2
4
4
4
4
4
4
4
4
Chairman
Member
(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 Paul Brasher was appointed as a member of the Remuneration Committee on 19 December 2013 and ceased to be a member of the Remuneration Committee
on 1 January 2015.
(4) Ms Kathryn Fagg was appointed as a member of the Remuneration Committee on 1 January 2015.
(5) Mr Gregory Hayes was appointed as a director on 1 October 2014, as a member of the Audit and Risk Management Committee on 2 October 2014 and as Chairman
of the Audit and Risk Management Committee on 19 December 2014.
(6) Mr Anthony Larkin retired as director on 19 December 2014.
3
Incitec Pivot Limited Annual Report 2015
Likely developments
The Operating and Financial Review beginning at page 5 of
this report contains information on the Company’s business
strategies and prospects for future financial years, and refers to
likely developments in the Company’s operations and the
expected results of these operations in future financial years.
Information on likely developments in the Company’s business
strategies, prospects and operations for future financial years
and the expected results of those operations together with
details that could give rise to material detriment to the
Company (for example, information that is commercially
sensitive, confidential or could give a third party a commercial
advantage) have not been included in this report where the
directors believe it would likely result in unreasonable
prejudice to the Company.
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, Chile, 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
certain aspects and potential impacts of the Group’s activities
in relation to, among other things, air and noise quality, soil,
water, biodiversity and wildlife.
The Group operates under a Global Health, Safety and
Environment Management System which sets out guidelines
on the Group’s approach to environmental management,
including a requirement for sites to undertake an
Environmental Site Assessment.
In certain jurisdictions, the Group 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,
including determination of areas of focus and assessment of
projects to be undertaken, is based not only on the actual
impact of incidents, but also upon the potential consequence,
consistent with Incitec Pivot’s risk based focus.
During the year, the Group has continued to focus on
remediation of legacy sites. Remediation works have been
completed successfully at Cockle Creek in Australia and
progress was also made at a number of sites in the US.
For the 2015 financial year, the Group received two fines for
environmental incidents: a fine of A$5,692 in relation to a loss
of containment in Australia, and a fine of US$42,614 for failure
to file certain reports regarding a site in the US.
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. The Deeds address the matters set out
in the Constitution. Pursuant to those deeds, the Company has
paid a premium in respect of a contract insuring officers of the
Company and officers of its controlled entities against liability
for costs and expenses incurred by them in defending civil or
criminal proceedings involving them as such officers, with
some exceptions. The contract of insurance prohibits disclosure
of the nature of the liability insured against and the amount of
the premium paid.
Auditor
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 $202,700 during the year ended 30 September
2015 (refer note 22 to the financial statements).
As set out in note 22 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 37.
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.
Corporate Governance Statement
The Company complies with the Australian Securities Exchange
Corporate Governance Principles and Recommendations
3rd Edition (ASX Principles). Incitec Pivot’s Corporate
Governance Statement, which summarises the Company’s
corporate governance practices and incorporates the
disclosures required by the ASX Principles, can be viewed
at www.incitecpivot.com.au/Corporate_Governance.
Incitec Pivot Limited Annual Report 2015
4
Directors’ Report
Operating and Financial Review
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.
Tragically, in May 2015 a fatality occurred in DNAP’s underground
operations. The Company held a global safety stand-down for all
5,500 employees in the Group to reflect on the fatality, pay tribute
to their colleague and remind all personnel of the hazards they are
exposed to and the risks they face in their workplace every day.
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. For the 2015 financial year, the Company delivered a TRIFR
of 0.67(2) continuing its trend of improvement and reflecting the
changing safety culture within the business. As demonstrated in
the chart below, the Group’s safety performance as measured by
TRIFR has improved by more than 65 percent in the last six years.
Incitec Pivot Group TRIFR – Sep 2009 to Sep 2015
Sep 09:
2.13
2.5
2.0
1.5
1.0
0.5
0
Long term
trend
Sep 15:
0.67
Although TRIFR is improving, the Group’s safety record can still be
improved, as we continue to strive towards zero harm. Zero harm
is possible, as it is the outcome achieved on the majority of the
Group’s sites every day. “Zero Harm for Everyone, Everywhere” is,
and continues to be, the Group’s highest priority.
Strategy
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 Asia 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 Asia
+
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 the recovery
and re-industrialisation of the United States through the DNA
business and the investment in the Louisiana ammonia plant.
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.
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 (“WALA”). The project is approximately 90
percent complete with construction and costs on track. Production
is anticipated to commence in the third quarter of the 2016
calendar year and the key business case financial metrics remain
intact. From late 2016, the project will drive significant earnings
growth in DNA by capturing the US ammonia manufacturing
margin.
In the past year, $256.4m of growth capital has been allocated
toward the project. All major structures were completed, including
the ammonia tank, the cooling tower, various steel plant structures
and the control room. The installation and alignment of the
reformers, absorber and compressors were completed and 85
percent of all piping is in place. More than 60 percent of electrical
cable has been installed and the main control system was installed
and is going through field check-out. The ammonia pipeline was
charged and rail and barge load out facilities have been completed.
Sep
09
Sep
10
Sep
11
Sep
12
Sep
13
Sep
14
Sep
15
(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 2015
2.5
2.0
1.5
1.0
0.5
0.0
Stage 1 of the truck load out facility is completed and stage 2
work is underway. The turnover and commissioning team is on
site. Cooling tower and water treatment plant pre commissioning
activities are underway and the natural gas feed line has been
flushed and cleaned. The DNA operations team is in place and
training is progressing to plan.
Cumulative capital expenditure on the plant to 30 September
2015 was approximately $US634m. Full year 2016 capital
expenditure is expected to be $US216m, bringing the total
project cost to $US850m upon completion. In addition, interest
will be capitalised during construction.
Business Excellence (“BEx”)
BEx is Incitec Pivot’s 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 – it is about
eliminating waste in all its forms.
BEx has completed its third full year and has been implemented
in a comprehensive manner in most areas and regions of
the business. Through investing in the Group’s people and
empowering them to drive productivity from the ground up,
the benefits of BEx in changing the way the Group conducts its
business operations are becoming visible.
Group Financial Performance Review
Incitec Pivot has delivered profit growth in the face of
challenging markets. Strong financial discipline 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
2015
$Amill
3,643.3
825.6
576.5
398.6
–
398.6
192.7
181.7
1.6
376.0
174.9
50.3
(1.1)
224.1
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
Change
%
9%
11%
11%
12%
61%
(5%)
10%
1%
120%
(51%)
22%
(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.
FY15 EBIT by Segment
DNAP 32%
Fertilisers 37%
DNA 31%
Net Profit After Tax excluding Individually Material Items (“NPAT
ex IMIs”) increased by 12 percent, or $42.3m to $398.6m (2014:
$356.3m), largely reflecting strong manufacturing performance
at Phosphate Hill and the benefit of the lower $A.
DNAP 32%
Group sales revenue increased by nine percent, or $291.3m,
to $3,643.3m (2014: $3,352.0m). Fertiliser revenue was higher,
reflecting the positive impact of the higher $A global fertiliser
prices and stronger production from Phosphate Hill. Explosives
revenue was higher, driven primarily by sales growth to
customers of the Moranbah ammonium nitrate plant
(“Moranbah”) and the translation benefit of the lower
$A on DNA’s $US revenues.
DNA 31%
The Explosives business was resilient in challenging markets.
DNA explosives $A EBIT increased due to a favourable foreign
exchange translation. Overall, DNA’s $US EBIT declined due to
lower global commodity prices impacting profit from fertiliser
sales and lower earnings from the Coal and Metal & Mining
(“M&M”) segments. Partially offsetting these negatives were
the benefits of growth in Quarry & Construction (“Q&C”)
segment, price improvements and efficiencies generated by BEx.
DNAP earnings contracted due to mine closures, customer cost
reduction and efficiency programs, services margins and
insourcing at some mines, only partially offset by earnings
growth from Moranbah. Moranbah produced strongly against
nameplate capacity producing 320kt.
Fertilisers 37%
The Fertilisers business delivered strong EBIT growth. The lower
$A and stronger manufacturing performance at Phosphate Hill
contributed to significant earnings growth, which was partially
offset by higher gas costs for the period. Distribution margins
have declined predominantly due to competitive forces and
seasonal impacts on margins, timing of urea purchases and
reduced production volume from the Gibson Island plant, which
is now in its fifth and final year of its five year operating
campaign. Phosphate Hill and Mt Isa produced at record rates in
2015, with production of 1,043kt of ammonium phosphates.
A detailed analysis of the performance of each business
segment is provided on the following pages.
Incitec Pivot Limited Annual Report 2015
6
Explosives
Fertilisers
17.5%
15.0
12.5
10.0
7.5
5.0
2.5
0
Directors’ Report
FY11
FY12
FY13
FY14
FY15
Group Financial Position Review
Incitec Pivot’s Balance Sheet at 30 September 2015 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
2015
$Amill
2014
$Amill
Change
$Amill
(161)
169
4,004
3,346
(112)
(530)
(739)
(136)
197
3,511
2,992
(113)
(360)
(204)
(1,289)
(1,480)
4,688
4,688
4,407
4,407
(25)
(28)
493
354
1
(170)
(535)
191
281
281
Balance Sheet Key Performance Indicators
Net tangible assets per share ($)
Fertilisers – Average TWC % Rev(2)
Explosives – Average TWC % Rev(2)
Group – Average TWC % Rev(2)
0.80
0.8%
11.1%
6.9%
0.85
1.4%
12.2%
8.0%
Financing Key Performance Indicators
Operating cash flow
Interest cover (times)(3)
Net Debt/EBITDA (times)(1),(4)
$756.2
9.7x
1.6x
$535.2
9.1x
2.0x
$221.0
(1) ‘Net Debt’ 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 excluding IMIs/net interest expense.
(4) Net Debt/EBITDA is based on Net Debt at point in time/last 12 month
historical EBITDA excluding IMIs.
Operating cash flow increased by 41 percent or $221.0m to
$756.2m (2014: $535.2m) driven by strong growth in EBITDA
and reduction in Trade Working Capital (“TWC”). TWC decreased
by $53m from 30 September 2014 to $8m, primarily due to
improved stock turns leading to lower inventory levels and the
timing of fertiliser imports, partially offset by the impact of
foreign exchange on $US balances. The Group’s lower average
13 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 $493m to
$4,004m from 30 September 2014. The significant items in this
movement include capital expenditure on WALA of $A256.4m
(2014: $388.4m), sustenance capital expenditure of $100.0m
(2014: $256.9m), a positive foreign currency translation of non
$A denominated assets of $317.1m and depreciation of
$219.4m.
The intangible assets balance increased by $354m due to a
positive translation of foreign currency denominated intangible
assets ($378.5m), partially offset by amortisation of intangibles
($29.7m).
Environmental and other provisions were in line with the prior
year at $112m (2014: $113m).
7
Incitec Pivot Limited Annual Report 2015
Tax liabilities increased by $170m to $530m (2014: $360m)
Earnings per share (before individually material items)
primarily due to the impact of foreign exchange movements on
Earnings per share (including individually material items)
$US tax liabilities, the difference between tax and accounting
Dividend declared in respect of the financial year
depreciation rates related to capital spend and the recoupment
of US chemical credits.
35 Cents
30
25
20
15
Net other liabilities increased by $535m from September 2014,
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 the positive
translation benefit of equity accounted investments.
10
5
0
2011
2015
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.
2012
2013
2014
1200 AUDm
Available limits
Drawn funds
1000
800
600
400
200
0
Maturity
Date
144A
USD500m
Bank Facility
AUD568m
Bank Facility
USD553m
Bond
AUD200m
144A
USD800m
Bank Facility
USD400m
Dec 15
Aug 18
Aug 18
Feb 19
Dec 19
Aug 20
At 30 September 2015, Incitec Pivot’s net debt was $1.3bn
(2014: $1.5bn), with committed headroom available of $2.1bn
(2014: $1.5bn), representing the $1.5bn undrawn syndicated
bank facility and cash on hand at 30 September 2015.
Two new syndicated facility agreements (“SFA”) were put in
place during the year, a three year $A and $US facility and a five
year $US facility. The new SFA will be used to repay the US$500m
144A bond which matures in December 2015.
The Net Debt/EBITDA result of 1.6 times (2014: 2.0 times)
remains within the target range of ≤2.5 times, notwithstanding
the current investment being made in WALA. Interest cover
improved over the 12 months, up to 9.7 times (2014: 9.1 times).
Investment of Capital
Incitec Pivot’s capital allocation process is centralised and
overseen by the Corporate Finance and Strategy & Business
Development functions. Capital is invested 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.
INCITEC PIVOT GROUP
Capital Expenditure
Major growth initiatives
Minor growth capital
Sustenance capital
Total Capital
Year Ended 30 September
2015
$Amill
2014
$Amill
Change
$Amill
256.4
16.4
100.0
372.8
388.4
17.1
256.9
662.4
(132.0)
(0.7)
(156.9)
(289.6)
DNAP 32%
Fertilisers 37%
DNA 31%
FY15 Capital Spend Allocation
Major Growth Initiatives 69%
Sustenance Capital 27%
Minor Growth Capital 4%
Dyno Nobel Asia Pacific
FY15 EBIT Contribution – DNAP
DNAP 32%
Major growth initiatives of $256.4m represents the investment into
the build of WALA in 2015. Minor growth capital of $16.4m (2014:
$17.1m) was tightly controlled given the capital funding being
channelled into WALA. Sustenance capital in 2015 was $100.0m,
with the major items being the St Helens turnaround and control
system upgrade, completion of the new Phosphate Hill gypsum
cell and preparatory work for the 2016 Gibson Island (“GI”)
turnaround. Sustenance spend will vary annually according to the
turnaround work completed in each year. Following significant
turnaround activity and spend in 2014, the 2015 turnaround
schedule was considerably lighter than an average year.
Shareholder Returns & Dividends
Earnings per share excluding IMIs (“EPS ex IMIs”) increased ten
percent to 23.8cps (2014: 21.7cps).
INCITEC PIVOT GROUP
Shareholder Returns
EPS ex IMIs(1)
EPS
Dividend per share(2)
Year Ended 30 September
2015
cents per
share
2014
cents per
share
Change
%
23.8
23.8
11.8
21.7
15.0
10.8
10%
59%
9%
(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 2015, the
directors determined to pay a final dividend for the Company of
7.4 cents per share on 14 December 2015. The dividend is 60
percent franked. This brings the total dividend in respect of the
2015 financial year to 11.8 cents per share. The dividend
represents a payout ratio of 50 percent.
IPL will maintain its dividend reinvestment plan (“DRP”). No
discount will be applied in determining the offer price under
the DRP. This will be executed in a manner that ensures there
will be no dilutive effect.
Company Outlook
BEx will continue to deliver benefits in 2016. The quantum of
benefits in any one year is difficult to predict. A net benefit of
at least $25m is the goal.
Corporate costs for 2016 are expected to remain in the range of
$22m to $24m.
2016 net borrowing costs are expected to be approximately
$90m assuming a slight increase in US interest rates,
capitalisation of interest related to WALA ceasing in the third
calendar quarter of 2016 and the $US500m 144A bond being
repaid from existing bank facilities. The full year effective tax
rate is expected to be approximately 22 to 24 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
(“PNG”). In particular, DNAP supplies industrial explosives and
blasting services to surface and underground miners in the
thermal coal, metallurgical coal, iron ore and other mining
sectors. DNAP is the second largest explosives supplier in
Australia – the third largest explosives market in the world.
DNA 31%
Strategy
DNAP’s strategy is to invest in capability to maximise returns
across markets directly linked to the industrialisation of Asia.
FINANCIAL SUMMARY
– DNAP
Revenue
EBIT
Performance
Year Ended 30 September
Fertilisers 37%
2015
$Amill
910.8
192.7
2014
$Amill
897.0
203.3
Change
%
2%
(5%)
Overall DNAP’s EBIT was down $10.6m or five percent to
$192.7m (2014: $203.3m). The DNAP business faced some
significant headwinds in 2015, with customer mine closures and
customers continuing their cash flow optimisation focus and
looking to drive down costs through efficiency programs. Earnings
from Moranbah grew in 2015, in line with production growth. In
addition, Indonesian earnings declined due to challenging market
conditions.
Market Summary
Total ammonium nitrate (“AN”) sales volumes were up five
percent in 2015. Across all Australian markets, cost focused
customers changed blasting patterns (slightly reducing explosives
intensity), moved to lower cost products, closed mines, increased
services productivity and insourced services at some sites.
Australia will continue to be a challenging market with
impending over capacity of regionally produced AN.
Coal (East Coast including Moranbah)
Coal region sales accounted for 58 percent of total AN sales,
with growth of four percent over 2014. With similar weather
conditions to the previous year and a small increase in
production, Bowen Basin AN volumes grew modestly. Moranbah
ran well, producing 320kt of ammonium nitrate against a
nameplate capacity of 330kt.
Incitec Pivot Limited Annual Report 2015
8
Directors’ Report
DNAP 32%
Fertilisers 37%
DNA 31%
DNAP 32%
Iron Ore (Western Australia (“WA”))
Dyno Nobel Americas
Iron Ore sales accounted for 25 percent of the AN volumes, with
an increase of six percent over 2014. Despite the volume
increase, earnings in this region contracted as growth from
increased volume was more than offset by the negative
earnings impact of existing customers’ cost reduction activities.
FY15 EBIT Contribution – DNA
Hard Rock & Underground (1)
DNA 31%
Hard Rock & Underground sales accounted for 10 percent of the
AN volumes in this period. AN volumes were 15 percent higher
for the year, due to increased mining by customers in PNG and
the WA goldfields. Many Australian customers in this segment
continue to focus on cash flow optimisation and reducing mining
costs by closing mines, mining higher grade pits where possible,
processing stockpiles and scaling back development of
underground block caving operations.
Indonesia(1)
Indonesia accounted for seven percent of the AN volumes. In
the year, volumes grew modestly as a result of some one-off
spot sales and stronger than usual volumes with several
customers due to a longer dry season than normal.
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 and initiating
systems and related products globally.
Fertilisers 37%
Additionally, DNA supplies nitrogen based products to several
agricultural and industrial chemical markets in North America.
Nitromak
Strategy
Nitromak is a Turkish subsidiary, acquired as part of the Dyno
Nobel acquisition in 2008. Nitromak earnings held reasonably
constant in 2015. Given regional instability and increased
competition in the Turkish explosives market, this is a solid
result in a challenging market.
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.
Outlook
Australia will continue to be a challenging explosives market
due to sustained low commodity prices, limited demand growth
and the impending over capacity of regionally produced AN. It
is expected that customers will continue to review the viability
of high cost mining operations, continue their cash flow
optimisation focus and look to drive down their costs through
efficiency programs. Product and services margins will continue
to be challenged in 2016.
Arrow, a party to the joint venture that supplies gas to the
Moranbah plant, has stated that the gas supply reduction at
Moranbah is not expected to persist beyond calendar year
2016. While noting the uncertainty as to the extent of the
supply reduction and its impacts, the impact for financial year
2016 if there were to be a sustained and consistent 20 percent
reduction in gas supply over the 12 month period, is estimated
to be in the order of $22m NPAT.
Consistent with soft global mining markets, the Turkish and
Indonesian explosives markets are both challenging. DNAP’s
earnings from Indonesia are expected to decline in 2016 and
Nitromak earnings are expected to be flat in 2016.
(1) In previous Annual Reports, DNAP’s PNG volumes were in the ‘Indonesia and
PNG’ segment. DNAP’s PNG volumes are now included in the ‘Hard Rock and
Underground’ segment, as the PNG market is predominantly Hard Rock and
Underground mining.
9
Incitec Pivot Limited Annual Report 2015
FINANCIAL SUMMARY
– DNA
$Am
Revenue
EBIT
$USm
Revenue
EBIT
Performance
Year Ended 30 September
2015
$mill
2014
$mill
Change
%
1,268.7
181.7
1,205.2
165.7
5%
10%
996.1
141.1
1,109.9
152.8
(10%)
(8%)
DNA’s $A EBIT increased $16.0m or 10 percent to $181.7m
(2014: $165.7m) due to the weaker $A. DNA’s $US EBIT
decrease of $11.7m or eight percent to $141.1m (2014:
$152.8m) was primarily due to lower fertiliser prices negatively
impacting revenue in the North American agricultural business
and slightly lower earnings in the explosives business.
DNA’s EBIT decline was due to the impact of challenging
markets, with reduced coal and metals volumes due to lower
demand in coal and mining markets and the closure of
Canadian iron ore and metallurgical coal mines. DNA again
delivered strong volume growth in the Q&C market and is
placed well for the continued recovery of this market. The net
sales volume reduction combined with an increase in purchased
ammonia costs and the unfavourable translation impact of the
weaker Canadian dollar negatively impacted $US earnings in
the period. These negatives were partially offset by improved
margins driven by a combination of price increases and
product and customer mix improvements, and benefits
gained through BEx.
The DNA Agriculture & Industrial Chemicals (“Ag&IC”) business
was negatively impacted by the lower realised fertiliser prices.
DNAP 32%
Fertilisers 37%
DNA 31%
DNAP 32%
The negative impact of lower production due to the turnaround
and controls system upgrade at St Helens (commenced
September 2015) was offset by BEx efficiency gains throughout
the year.
Market Summary
Quarry & Construction (“Q&C”)
Q&C accounted for 23 percent of total AN volume. Q&C volumes
are driven by the public construction, residential and non-
residential construction industries. Overall, sales volumes
were up 11 percent, with growth concentrated in the western
and southern states. The growth was driven by industrial
construction, state infrastructure spending and related activity.
DNA remains well positioned for the continued recovery in
this market.
Coal
Coal accounted for 48 percent of total AN volumes. Sales volumes
were down 22 percent, reflecting the closure of a Canadian
metallurgical coal customer, continued deterioration of the
Appalachian region, lost business in the Illinois Basin and a
negative seasonal impact to volumes into the Powder River Basin.
Metals & Mining (“M&M”)
M&M accounted for 29 percent of total AN volumes. Sales
volumes were down 19 percent, due to the impact of mine
closures (Canadian iron ore), reduced seismic activity, miners’
cost efficiency programs and some lost business in eastern
Canadian iron ore. Customers’ cost efficiency programs are
driving reduced mining operating spend, cuts to capital
expenditure and mining operations’ concentration on high
grade pits.
Outlook
Market conditions in Coal and M&M are expected to continue to
be challenging in 2016. The remaining impact of the 2014
contract wins and losses will flow into 2016. Q&C market
growth is forecast to be approximately five percent. A net
negative volume impact of approximately five percent is likely
in 2016, albeit with a positive mix of Q&C growth. With North
American and global mining markets challenged, initiating
systems volumes are expected to be weaker in 2016.
Ag&IC production volumes are expected to be in line with 2015
as St Helens will remain offline during October and early
November for the completion of the planned maintenance
turnaround and control system upgrade.
WALA is expected to be commissioned in the third quarter of
calendar 2016. WALA is expected to deliver DNA earnings
growth post commissioning.
EBIT Sensitivities
The table below shows the sensitivities associated with the
DNA business:
Sensitivity (per annum)
DNA: Urea (NOLA FOB)(1)
+/-$US10/st = +/-$US1.8m
DNA: Forex – translation of Explosives earnings(2)
+/- 1 cent = -/+$A2.3m
Assumptions:
(1) 180,000 short tonnes (DNA urea equivalent actual FY15 production) urea
equivalent sales.
(2) Based on 2015 US dollar denominated EBIT and the 2015 average exchange
rate of $A/$US0.7868 (representing the average exchange rate in the twelve
month period ended 30 September 2015).
DNA 31%
Fertilisers (Incitec Pivot Fertilisers and
Southern Cross International)
FY15 EBIT Contribution – IPF & SCI
Fertilisers 37%
Overview
Southern Cross International (“SCI”) sells manufactured fertiliser
in Australia, and actively markets its 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 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
GI plant, Geelong and Portland single superphosphate (“SSP”)
plants, SCI and imports. IPF also manufactures various industrial
chemical products used in water treatment, process
manufacturing and other industrial applications.
Strategy
The Fertilisers strategy is to maximise value by leveraging asset
positions and alternative channels to market to maximise
returns and reduce volatility in earnings.
FINANCIAL SUMMARY
– FERTILISERS
SCI
Revenue
EBIT
IPF
Revenue
EBIT
Performance
Year Ended 30 September
2015
$Amill
2014
$Amill
Change
%
755.2
174.9
542.8
79.6
39%
120%
1,034.5
50.3
953.2
103.7
9%
(51%)
SCI’s EBIT increased by $95.3m or 120 percent to $174.9m
(2014: $79.6m). A number of factors contributed to SCI’s strong
result:
• The benefit of the lower $A compared to prior year, and a
slightly stronger global di-ammonium phosphate (“DAP”)
price.
Incitec Pivot Limited Annual Report 2015
10
Directors’ Report
• Phosphate Hill and Mt Isa plants ran at record rates,
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. The
domestic market outlook is being significantly influenced by a
very hot, dry spring and the growing probability of a significant
El Nino event in 2016 producing continuing dry conditions. At
this early stage, IPF distribution margins are expected to
partially recover in 2016 and distribution volumes are expected
to be similar to 2015 (subject to reasonable weather patterns
and farm economics).
GI is expected to continue to produce at 85 percent of capacity
through to the planned turnaround scheduled to start in March
2016. The plant is expected to be back online mid-April with
the goal of producing at or above 90 percent of nameplate
capacity post the turnaround. 2016 is a full production year for
Phosphate Hill, with a nameplate production of 950kt. Higher
prices for contracted gas at Phosphate Hill will have a negative
cost impact of approximately $25m in the 2016 financial year.
For further details on input cost risks, refer to the Principal Risks
section.
The Group has hedged 90 percent of its estimated first half
2016 $US price linked fertiliser sales at a rate of $0.77, with
full participation in downward rate movements.
EBIT Sensitivities
The sensitivities shown below have been calculated based on
the 2015 achieved DAP and urea prices, at an average foreign
exchange rate between $A/$US of $0.7868 (representing the
average exchange rate in the 12 month period ended 30
September 2015), and actual 2015 urea and DAP produced
and sold.
Sensitivity (per annum)
IPF: Urea – Middle East Granular Urea (FOB)(1)
+/-$US10/t = +/-$A4.6m
SCI: DAP – Di-Ammonium Phosphate Tampa (FOB)(2) +/-$US10/t = +/-$A13.3m
Forex – transactional (DAP & Urea)(3)
+/- 1 cent =
($A9.6m)/$A9.8m
Assumptions:
(1) 360kt (Gibson Island Fertiliser actual FY15 production) urea equivalent sales at
2015 realised price of $US308/t and the 2015 average exchange rate of
$A/$US0.7868.
(2) 1,046kt (Phosphate Hill actual FY15 tonnes sold) DAP sales at a 2015 realised
price of $US466/t and the 2015 average exchange rate of $A/$US0.7868.
(3) DAP & urea volumes and FOB price based on assumptions (1) and (2)
(excludes impact of hedging).
producing 1,043kt of ammonium phosphates in 2015. The
combination of reliable production post the 2014 turnaround
and BEx-driven initiatives to debottleneck and improve plant
uptime, has led to the strong manufacturing performance.
The plants have now run reliably producing at or near
nameplate levels for the 15 months post the May/June
2014 turnaround. Reliability and efficiency of these two
plants remains a key focus for the manufacturing teams.
•
Industrial & Trading EBIT decreased as a result of reduced
revenue due to falling global urea prices, lower sales
volumes of sulphuric acid and ammonia. Quantum’s EBIT
decreased by $2.7m to $1.0m. Earnings in Quantum can vary
year to year depending on trading volumes and East Asian
market conditions.
IPF’s EBIT decreased by $53.4m or 51 percent to $50.3m
(2014: $103.7m). IPF’s EBIT was negatively impacted by lower
production from GI and a contraction in distribution margins. GI
operated at approximately 85 percent of capacity as the plant
is in the final year of its current five year operating campaign.
This resulted in lower earnings due to the negative impacts
on revenue and absorption costing from lower production.
The next turnaround is scheduled for March 2016, where the
goal is to restore the plant to at or above 90 percent of
nameplate capacity.
Distribution margins have contracted due to:
• Lower BigN sales into the Northern NSW and Queensland
cotton markets, due to drought conditions in those regions.
• The long urea market position at the start of the year due to
the abrupt end to the winter crop top dress in 2014.
• Timing of urea purchases leading into the 2015 winter crop
top dress season, leaving IPL with a slightly higher cost
stock position.
• Competitive market pressures and changing market buying
patterns driving margins lower in bulk commodity fertilisers.
Market Summary
Summer Crop
Overall, summer crop volumes were down one percent in 2015.
Strong sales growth into the sugar markets was offset by
volume contraction into cotton and sorghum markets. In the
non-irrigated cotton regions of NSW and Southern Queensland,
sales volumes were approximately 17 percent down on the
prior year due to drought in those regions.
Pasture & Dairy
Volumes in this segment were up three percent in 2015 as a
result of favourable weather conditions and some early pasture
planting due to the expectation of dry El Nino conditions in
spring and summer.
Winter Crop
Volumes sold into the winter crop market were up six percent
in 2015, due to generally favourable early season cropping
conditions for most winter cropping zones on the East Coast of
Australia.
11
Incitec Pivot Limited Annual Report 2015
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 include:
General Economic and Business Conditions
Changing
global
economic and
business
climate
The current global economic and business climate and
any sustained downturn in the North American, South
American, Asian, 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
risks.
Commodity
price 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’ demand,
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 “value at risk” and “earnings
at risk” frameworks. This allows the business to manage its
short and medium term exposures to commodity price
fluctuations while taking into account its commercial
obligations and the associated price risks.
• To ensure volume and price commitments are upheld, the
Group works with its customers and enforces customer
supply contracts.
• Where commodity price exposures cannot be eliminated
through contracted and/or other commercial arrangements,
the Group may enter into derivative contracts where
available on a needs basis, to mitigate this risk. However,
in some instances price risk exposure cannot be
economically mitigated by either contractual arrangements
or derivative 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, compliance with terms of
financing arrangements 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 dollar and
Australian dollar 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 14 (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 an
“earnings at risk” framework. This model provides guidance
in determining the amount of sales contracts and
derivatives used to allow the business to reduce and
optimise its short and medium term exposures to currency
movements to acceptable levels.
Incitec Pivot Limited Annual Report 2015
12
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot include:
Industry
structure and
competition
risks
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 assists 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 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
structural shift in the North American power sector,
which has seen a movement away from coal-fired
energy production and towards natural gas, has placed
increasing pressure on the returns enjoyed by existing
customers (therefore giving rise to increased cost
pressure on inputs to their supply) as well as resulting in
reduced demand for their outputs.
Reduced demand for steel inputs (iron ore and
metallurgical coal) can lead to a decrease in demand for
explosives in these industries.
The Fertilisers business operates in distribution and
manufacturing markets 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.
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.
Customers’ inability to pay their accounts when they fall
due, or inability to continue purchasing from the Group
due to financial distress, may expose the Group to
customer credit risks.
• Where practical, for high value customers in the Explosives
businesses, Incitec Pivot prefers to engage in long term
customer contractual relationships.
• The Group endeavours 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.
• The Group manages customer credit risks by establishing
credit limits by customer, as well as monitoring and actively
managing overdue amounts within policy guidelines.
Product
quality and/
or specification
risk
Incitec Pivot manufactures or procures product to
specific customer and industry specifications and
statutory parameters. The Group is exposed to financial
and reputational risk if these standards, requirements
and parameters are not met.
Over supply of
AN in Australia
and North
America
New ammonium nitrate (“AN”) 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.
Over supply may result in margin erosion as there is an
increased likelihood of lost customers and downward
price pressure.
•
Incitec Pivot operates and manufactures products using
detailed quality management systems. Quality Assurance
plans are in place for manufactured products intermediaries,
procured products and raw materials.
• Certificates of Analysis are provided for bulk shipments of
fertiliser into export markets.
• 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 there is an appropriate balance between value
versus volume.
13
Incitec Pivot Limited Annual Report 2015
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot include:
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, AN, initiating systems, 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 unforeseen
events which may disrupt Incitec Pivot’s operations and
materially affect its financial performance.
Timely and economic supply of key raw materials
represents a potential risk to the Group’s ability to
supply.
• 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 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 risks insurance is obtained from a
variety of highly rated insurance companies to ensure the
appropriate coverage is in place. The policies insure the
business, subject to policy limits, from damage to its plants
and property and the associated costs arising 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.
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. Availability and quality of gas are both key
factors when sourcing supply.
• The Group has medium term gas contracts in place for its
Australian manufacturing sites. The contracts have various
tenures and pricing mechanisms. As part of normal
operations the company explores new gas supply
arrangements where appropriate.
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.
In respect of the Group’s Moranbah operations, there is
risk that gas supply may be reduced or may not be
available due to issues affecting the supplier of gas to
the facility, given the existence of only a single source
of gas supply to the facility.
• The Group is exploring various treatment strategies in
relation to the gas supply risk for the Moranbah operations,
including connecting to the local power grid in order to
reduce the overall gas requirements and optimising supply
chain management by moving ammonia from Gibson Island
to Moranbah.
• 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 five 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
US on a regular basis.
Incitec Pivot Limited Annual Report 2015
14
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot include:
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 has confirmed that Mt Isa Mines has the
necessary environmental authority to operate to 2022.
Glencore has confirmed that the Mt Isa copper smelter
and Townsville copper refinery will remain open beyond
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 the end of
2020, even if the copper smelter operation ceases before
that time.
Phosphate Rock
Phosphate rock, used in the manufacture of both
ammonium phosphates and single superphosphate
fertilisers, is a naturally occurring mineral rock.
• At its own facility in Phosphate Hill, Incitec Pivot mines
phosphate rock which is used for the production of
ammonium phosphates at that facility.
Labour
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 superphosphate 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 is used in the production of single
superphosphate at Incitec Pivot’s Geelong and Portland
operations. Incitec Pivot seeks to diversify the sources of
supply of rock (subject to certain requirements regarding
the composition of rock, including cadmium and odour
considerations) required for these operations by sourcing it
from a number of international suppliers (albeit that the
sources of supply are limited).
•
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.
• With the contracting Australian mining market, there is an
increased availability of labour.
Weather
In relation to both its Fertilisers and Explosives businesses,
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.
Some plants are located in areas that are susceptible to
extreme weather events, such as hurricanes, tropical
storms and tornadoes.
• Safety and evacuation plans are in place for all personnel
and sites.
• The Group endeavours to include force majeure clauses in
agreements where relevant.
Insurance policies are in place across the Group.
•
15
Incitec Pivot Limited Annual Report 2015
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot include:
Construction, Commissioning and Start-up Risk
Louisiana
ammonia plant
(“WALA”)
construction,
commissioning
and start-up
risk
A potential risk is that the construction of WALA is
completed late and/or exceeds the budgeted capital
amount. Risks associated with construction and
commissioning of WALA and associated infrastructure
include, but are not limited to, natural disasters and
acts of God, sabotage, unforeseen human error,
terrorist attacks, major equipment failure and other
issues which may disrupt or delay the construction,
commissioning or start-up of the plant. There is also
a potential risk of the plant not operating, or not
performing to the level expected and maintaining
stable operations once commissioned.
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, commissioning and start-up phases of
WALA.
WALA offtake
and logistics
capability risk
WALA has a nameplate production capacity of 800kmt
per annum. With a plant of this size, notwithstanding
storage capacity on site, there is a risk that if
production is not sold and effectively moved into the
market, plant uptime and earnings will be negatively
impacted.
•
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. Incitec Pivot has appointed KBR Inc., an experienced
ammonia technologist and engineering, procurement and
construction company that is responsible for the
construction and commissioning.
• The construction contract with KBR 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. All operating staff have been
recruited with additional staff recruited for the first year of
operations in order to reduce start-up risk. A
comprehensive training framework has also been
implemented with all operating staff undergoing training
within the framework.
• A steering committee is in place with executive leadership
to support the team and oversee successful
implementation.
• WALA has a 100 percent committed offtake, with supply
contracts in place with DNA (internal), Cornerstone
Chemical Company and Trammo, Inc.
• The plant logistics capability allows for the offtake to be
distributed via rail, truck, barge and pipeline. In total, the
plant has a logistics capability of approximately 200
percent of the plant production capacity, providing
flexibility and allowing for future growth.
• The Group’s S&OP process and inventory management
practices provide flexibility and assurance to deal with
short term disruptions.
Incitec Pivot Limited Annual Report 2015
16
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by Incitec Pivot include:
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
Incitec Pivot operates may adversely impact its
business, financial condition and operations, or the
business, financial condition and operations of Incitec
Pivot’s customers and suppliers. This includes changes
in domestic or international laws relating to sanctions,
import and export quotas, and geopolitical risks
relating to countries with which Incitec Pivot, or its
customers and suppliers, engages to buy or sell
products and materials. In addition, changes in tax
legislation or compliance requirements in the
jurisdictions in which Incitec Pivot, or its customers and
suppliers, 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, including
potential impact on licences to operate.
Incitec Pivot’s business, and that of its customers and
suppliers, 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
and the imposition of carbon trading schemes), failure
to abide by the laws and/or licencing conditions, 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, financial penalties or
ceasing to operate.
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.
•
Incitec Pivot engages with governments and other key
stakeholders to ensure potential adverse impacts of
proposed fiscal, tax, infrastructure access and regulatory
changes are understood and, where possible, mitigated.
Loss or
exposure of
sensitive data
Sensitive data, relating to Incitec Pivot, its employees,
associates, customers or suppliers may be lost or
exposed, resulting in a negative impact on the Group’s
reputation.
• Policies, procedures and practices (e.g. firewalls) are in
place regarding the use of company information, personal
storage devices and IT security.
• External testing is performed to assess the security of the
Group’s IT systems.
17
Incitec Pivot Limited Annual Report 2015
Directors’ Report
Remuneration Report
Introduction from the Chairman of the Remuneration Committee
Dear Shareholders,
On behalf of the Remuneration Committee and the Board, I am pleased to present the Remuneration Report for 2015 which sets
out the remuneration information for the Managing Director & Chief Executive Officer, the Executive Team and the Non-Executive
Directors.
2014/15 Remuneration Outcomes
In 2015, Incitec Pivot delivered a strong financial result amid challenging market conditions, in particular, in the Group’s Explosives
business, where markets have been impacted by the end of the mining boom in Australia and by the structural changes in the coal
industry in North America.
As a result of the Group’s strong financial performance, Executives have been awarded short term incentive payments, details of
which are set out in the report.
Further, with regard to the long term incentives, the Board is pleased to report that the performance rights under the LTI 2012/15,
the performance period for which ended on 30 September 2015, will partially vest. This result is particularly pleasing as the long
term incentive is a measure of the success of the corporate strategy in driving shareholder value for the long term. The partial
vesting of the performance rights therefore reflects disciplined execution on the strategy.
2015/16 Remuneration Approach
We expect that 2016 market conditions will continue to be challenging. The Board and Executive have determined that there
will be no increases to non-executive director fees or fixed annual remuneration for Key Management Personnel for the 2016
financial year.
No significant changes are proposed to the “at risk” remuneration structure for Executives in 2016.
The Board invites you to consider the 2015 Remuneration Report. We welcome feedback on the Company’s remuneration approach
in supporting Incitec Pivot’s business strategy.
John Marlay
Chairman, Remuneration Committee
Incitec Pivot Limited Annual Report 2015
18
Directors’ Report
Remuneration Report
Contents
Section
A. Executive Remuneration Strategy
B. Non-Executive Director Remuneration
C. Executive Remuneration
Executive remuneration policy and practice
Key features of the components of Executive remuneration
− Fixed annual remuneration
− At risk remuneration – Short Term Incentive (STI) Plan
− At risk remuneration – Long Term Incentive (LTI) Plans
Analysis of relationship between the Group’s performance, shareholder wealth and remuneration
Executives’ remuneration arrangements
− Managing Director & Chief Executive Officer
− Executive Team
Details of Executive remuneration
− Executive remuneration
− Details of performance related remuneration: short term incentives
− Details of performance related remuneration: long term incentives
− Actual pay
D. Key management personnel disclosures
Page
20
21
22
22
22
22
24
27
28
28
29
30
30
31
32
34
35
19
Incitec Pivot Limited Annual Report 2015
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
2015. 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 2014/15 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.
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:
• 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;
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).
• 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.
Name
Position
Mr James Fazzino
Managing Director & CEO
Mr Frank Micallef
Chief Financial Officer
Mr Simon Atkinson
President, Dyno Nobel Asia Pacific
& Global Technology
Mr Stephen Dawson President, Manufacturing Operations
Mr Alan Grace
President, Strategic Engineering
Ms Elizabeth Hunter
Chief Human Resources Officer
Mr Gary Kubera
President, Dyno Nobel Americas
Mr Jamie Rintel
President, Strategy & Business
Development
Mr James Whiteside
Chief Operating Officer,
Incitec Pivot Fertilisers
Incitec Pivot Limited Annual Report 2015
20
Directors’ Report
Remuneration Report
B. Non-Executive Director Remuneration
Incitec Pivot’s policy is to:
• remunerate non-executive directors by way of fees and
payments which may be in the form of cash 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.
Following a review of the level of fees paid to non-executive
directors, for the 2014/15 financial year, base fees and Board
Committee fees were increased by 3% with effect from 1
October 2014. The last increase to non-executive director fees
occurred on 1 October 2011.
For the 2014/15 financial year, fees paid to non-executive
directors amounted to $1,723,000, which was within the
$2,000,000 limit approved by shareholders at the 2008 Annual
General Meeting.
For the 2015/16 financial year, the Board has determined that
there will be no increase to non-executive director fees.
Table B.1 – Non-executive directors’ remuneration
Details of the non-executive directors’ remuneration for the financial year ended 30 September 2015 are set out in the
following table:
For the year ended 30 September 2015
Short-term benefits(A)
Post-employment benefits
Other long term benefits(B)
Non-executive directors
– Current
P V Brasher, Chairman
K Fagg(1)
G J Hayes(2)
J Marlay
R J McGrath
G J Smorgon AM
Non-executive directors
– Former
A C Larkin(3)
A D McCallum(4)
Total non-executive directors
Year
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Fees
$000
514
498
192
81
202
-
218
211
226
215
202
197
54
208
–
45
1,608
1,455
Superannuation benefits
$000
$000
19
18
17
7
17
-
19
18
19
18
19
18
5
18
–
4
115
101
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
3
Total(C)
$000
533
516
209
88
219
–
237
229
245
233
221
215
59
226
–
52
1,723
1,559
(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 in the 2013/14 financial year 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.
(C) The increase in aggregate fees paid to non-executive directors for the 2014/15 financial year reflects the 3% increase to non-executive director fees for the
2014/15 financial year and the timing of director retirements and appointments in the 2013/14 financial year, noting that for part of the 2013/14 financial year
there were 5 non-executive directors.
(1) Ms Fagg was appointed to the Board as a non-executive director effective 15 April 2014.
(2) Mr Hayes was appointed to the Board as a non-executive director effective 1 October 2014.
(3) Mr Larkin retired as a non-executive director on 19 December 2014.
(4) Mr McCallum retired as a non-executive director on 19 December 2013.
21
Incitec Pivot Limited Annual Report 2015
C. Executive Remuneration
Fixed annual 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 the Group).
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 2014/15 financial year, the Remuneration Committee
received market and benchmarking 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 2014/15
financial year, the Board approved an increase of 3% to the
Executives’ FAR with effect from 1 October 2014, save that the
Chief Human Resources Officer received an increase of 9.4%
following a detailed benchmarking of this role. Refer to Table
C.4 for details of the fixed annual remuneration for the
Executives for the financial year ended 30 September 2015.
For the 2015/16 financial year, the Board has determined that
the fixed annual remuneration for the Executives, in respect of
their current roles, will not be increased.
The relative proportion of the Executives’ total remuneration
packages for the 2014/15 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 2014/15 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 2014/15 financial year
are as follows:
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 2015.
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 for the
financial year ended 30 September 2015. All of the Executives
participate in the STI Plan.
What were the STI performance measures for the 2014/15 STI?
STI Gate
To ensure STI awards are aligned with business performance
outcomes, the Group’s financial performance must meet
minimum levels of performance before any awards can be made.
This is known as the “STI Gate” and is determined by the Board.
If financial performance 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).
For the 2014/15 financial year, the STI Gates were as follows:
• for Group roles (marked * in Table C.2), Group financial
performance was required to meet the EPS growth threshold
which was determined by the Board by reference to the
prior year EPS performance; and
• for Business Unit roles (marked ** in Table C.2), Group
financial performance was required to meet 80% of the prior
year NPAT and Business Unit EBIT was required to meet the
relevant Business Unit EBIT threshold (including the cash
conversion measure).
The inclusion of a separate STI Gate for Business Unit roles was
introduced for the first time in the 2014/15 STI to encourage the
optimisation of business unit results.
Financial performance measures
There were two financial performance measures for the 2014/15
financial year:
• 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.
Non-financial and business performance measures
In addition, to ensure STI awards drive performance and
behaviours consistent with achieving the Group’s strategy for
2014/15 and Zero Harm objectives, the non-financial and
business performance measures for 2014/15 comprised:
Incitec Pivot Limited Annual Report 2015
22
Directors’ Report
Remuneration Report
• Safety: Total Recordable Injury Frequency Rate (TRIFR) of less
than or equal to 0.90 (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) manufacturing performance, in particular, production
outcomes from major operations (for example, Moranbah
ammonium nitrate production and Phosphate Hill
ammonium phosphate production) and turnaround
execution;
(ii) Business Excellence (BEx) and productivity, in particular,
delivering on specific BEx “pillars”, noting that for
Business Units, BEx is a key enabler of achieving EBIT
outcomes and is therefore embedded in the financial
performance measures of the respective Business Units;
(iii) corporate strategic objectives as to capital investments
and major projects (for example, the investment in the
Louisiana ammonia project and optimisation projects for
Phosphate Hill and Gibson Island) and objectives
aligned to customers/markets.
Table C.2 below sets out the STI performance measure
weightings for the Executives for the year ended 30 September
2015.
Table C.2 – STI performance measure weightings for Executives
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.
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 and business performance measures
These specific measures were chosen to drive performance and
behaviours consistent with achieving critical aspects of the
Group’s strategy.
For this reason, measures were set with regards to production
outcomes from the Group’s major operations, such as ammonium
nitrate volumes from the Moranbah plant, strategic initiatives
such as the Louisiana ammonia project investment as well as
ongoing initiatives to drive continuous improvement through BEx.
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, the Company sets annual targets on
TRIFR, seeking year-on-year improvements. For the 2014/15
financial year, the target was 0.90.
For the year ended
30 September 2015
J E Fazzino*
Managing Director & CEO
F Micallef*
Chief Financial Officer
S Atkinson**
President – Dyno Nobel Asia Pacific & Global Technology
S Dawson*
President – Manufacturing Operations
A Grace*
President – Strategic Engineering
E Hunter*
Chief Human Resources Officer
G Kubera**
President – Dyno Nobel Americas
J Rintel*
President – Strategy & Business Development
J D Whiteside**
Chief Operating Officer – Incitec Pivot Fertilisers
*Group role **Business Unit role
23
Incitec Pivot Limited Annual Report 2015
90%
90%
70%
50%
10%
Financial
Non-financial/business
Maximum STI
opportunity
Growth
in EPS
(before
IMIs)
Business Unit EBIT
(including cash
conversion
requirement)
Manufacturing
performance
BEx
Strategic
objectives/
customers/
markets
Safety:
TRIFR
target
≤0.90
10%
10%
100%
100%
80%
10%
10%
100%
10%
20%
70%
100%
10%
10%
70%
10%
100%
10%
20%
80%
10%
10%
70%
10%
100%
100%
100%
100%
10%
40%
10%
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 and business 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 and business performance measures, following the
annual performance review process for the Executives.
Does the 2014/15 STI include mechanisms for clawback and
deferral?
The 2014/15 STI includes a clawback provision, which requires
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.
What were the outcomes in relation to the STI for the year
ended 30 September 2015?
In relation to the financial performance measures, EPS (before
IMIs), increased 9.7% to 23.8 cents per share and, accordingly,
certain Executives have earned awards in full in respect of this
financial performance measure.
In relation to Business Unit financial performance, Incitec Pivot
Fertilisers EBIT increased 22% driven by the exceptional
performance of the Phosphate Hill plant and Phosphate value
chain. Accordingly, incentives were earned in full for this
component. The Explosives Business Units, Dyno Nobel Asia
Pacific and Dyno Nobel Americas, produced sound results with
EBIT up 1% in markets impacted by the end of the mining boom
in Australia and structural changes in the coal industry in North
America. However, the financial performance did not meet the
challenging targets that were set for these Business Units and
accordingly, no incentives were earned for this component.
In relation to the non-financial and business performance
measures:
• Safety: The STI in respect of the safety measure was
forfeited as a result of the fatality in May 2015 in the
Company’s Asia Pacific explosives business.
• Business Excellence: These measures were achieved in full
with significant progress made on specific BEx “pillars” with
respect to asset care in manufacturing and also in relation to
human capital.
• Manufacturing performance: These were partially achieved
with Phosphate Hill achieving record ammonium phosphate
production and turnaround execution objectives delivered.
Despite strong performance, Moranbah ammonium nitrate
production targets were not met in full.
• Strategic objectives, customers, markets: These were
achieved, with the Louisiana ammonia project meeting the
applicable project milestones as at 30 September 2015, and
the Phosphate Hill and Gibson Island optimisation projects
progressing to plan. Similarly, customer aligned incentives
were also awarded in full recognising the outperformance in
this area.
Details of the STI payments earned by the Executives in respect
of the financial year ended 30 September 2015 are set out in
tables C.4 and C.5.
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, on a one
right to one share basis, for no consideration at a later date. The
performance rights are issued by Incitec Pivot Limited and the
entitlement of the participants to acquire ordinary shares is
subject to the satisfaction of certain conditions. As no shares are
transferred to participants until exercise, performance rights
have no dividend entitlement. Performance rights expire on
vesting or lapsing of the rights.
The only LTI Plan to mature in the 2014/15 financial year was
the Long Term Incentive Performance Rights Plan for 2012/15
(LTI 2012/15) which matured on 30 September 2015.
There are two other LTI Plans in place:
• Long Term Incentive Performance Rights Plan for 2013/16
(LTI 2013/16); and
• Long Term Incentive Performance Rights Plan for 2014/17
(LTI 2014/17).
These plans do not mature until 30 September 2016 and
30 September 2017, respectively.
Executives and other selected managers participated in the LTI
2012/15. For the LTI 2013/16 and the LTI 2014/17,
participation was limited to the Executives who are Key
Management Personnel, with other selected and senior
managers participating in a 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.
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
Executive’s fixed annual remuneration.
Incitec Pivot Limited Annual Report 2015
24
Earnings Per Share (EPS) Condition
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 from 50%;
and
• 12.5% or greater: all performance rights in this tranche
will vest.
LTI 2014/17
For the LTI 2014/17, the performance conditions are measured
by reference to relative TSR and the delivery of certain strategic
initiatives. The TSR Condition applies to 70% of the performance
rights in a grant of performance rights made under the LTI
2014/17. The Strategic Initiatives Condition, which was
introduced for the first time in the LTI 2014/17 in place of the
EPS Condition, applies to the remaining 30%. The Strategic
Initiatives Condition was selected on the basis that the two
components of the condition align with the most significant
components of the Board’s approved strategy. The successful
delivery of the Louisiana ammonia project is expected to
transform the Dyno Nobel Americas business and create long
term shareholder value. Similarly, Business Excellence (“BEx”) is
the Company’s business and continuous improvement system,
through which the Company seeks to enhance productivity on a
sustainable basis utilising “lean” business methods. The LTI
objectives in relation to BEx are focussed on incentivising the
delivery of sustainable productivity improvements, rather than
one-off benefits.
Total Shareholder Return (TSR) Condition
The TSR Condition is determined on the same basis as under
the LTI 2012/15 and the LTI 2013/16, requiring 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.
Strategic Initiatives Condition
The Strategic Initiatives Condition comprises two equal
components relating to:
• delivery of the Louisiana ammonia project; and
• delivery of the Business Excellence System.
The following table summarises each of the two components of
the Strategic Initiatives Condition:
Directors’ Report
Remuneration Report
Whether or not those performance rights will vest is
determined in accordance with the plan rules for the LTI
2012/15, the LTI 2013/16 and the LTI 2014/17.
How is the number of performance rights calculated under the
LTI Plans?
For each of the LTI 2012/15, LTI 2013/16 and LTI 2014/17, the
number of performance rights issued to a participant was based
on the market value of the Company’s shares and was
determined by dividing the dollar value of the relevant
participant’s LTI opportunity by the Company’s volume weighted
average share price over the 20 business days up to but not
including the grant date.
What is the performance period of the LTI Plans?
The LTI 2012/15, LTI 2013/16 and LTI 2014/17 are performance
rights plans each of which has a performance period of three
years:
• LTI 2012/15 – 1 October 2012 to 30 September 2015
• LTI 2013/16 – 1 October 2013 to 30 September 2016
• LTI 2015/17 – 1 October 2014 to 30 September 2017
What are the performance conditions for the LTI Plans?
The Board approves the performance conditions on the
commencement of the relevant plan. At the end of the
performance period, the performance rights will vest only
following a determination by the Board that the performance
conditions have been met.
LTI 2012/15 and LTI 2013/16
For each of 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. Each of these conditions is equally weighted.
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.
The S&P/ASX 100 has been chosen as the comparator group
because, having regard to the business segments in which the
Group operates and, specifically, the absence of a sufficient
number of direct comparator companies, the Board considers the
S&P/ASX 100 to represent the most appropriate, and objective,
comparator group. It also represents the group of companies
against which Incitec Pivot competes for shareholder capital.
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.
25
Incitec Pivot Limited Annual Report 2015
Strategic
Initiatives Condition
component
Louisiana Ammonia
Project
(Applies to 15% of
the performance
rights in a grant)
Business Excellence
(BEx) System
(Applies to 15% of
the performance
rights in a grant)
Rationale
Scorecard
The Louisiana ammonia
project currently under
construction at Waggaman,
Louisiana, is the largest
and most significant capital
project underway within
the Incitec Pivot Group. The
project, which is scheduled
for completion in the third
quarter of 2016, underpins
the future growth of the
Dyno Nobel Americas
business.
BEx seeks to drive
productivity and deliver
sustainable year on year
improvements.
To fully achieve the
benefits of BEx requires
management to focus not
only on driving the
productivity outcomes
(‘performance’), but also
the processes, procedures,
culture and management
systems which generate
those improvements
(‘practices’).
Measurement criteria
Performance goals
Performance in relation to this
component of the Strategic
Initiatives Condition will be
measured against a Project
Scorecard comprising
performance goals based on
the Project business case, as
approved by the Board in
April 2013, related to the
following key performance
indicators:
• safety,
• capital cost,
• plant efficiency,
• output and EBITDA.
Safety: Total Recordable Injury
Frequency Rate (TRIFR) for the Louisiana
ammonia project to be less than or
equal to the Incitec Pivot Group TRIFR
Capital cost: as per Project business
case (US$850 million)
Plant efficiency: as per Project
business case (32MMBtu of gas per
metric tonne of ammonia)
Output and EBITDA: Output and EBITDA
measures comprising Year 1 output and
EBITDA consistent with the Project IRR
of 15% and aligned to the Company’s
financial year.
Performance in relation to this
component of the Strategic
Initiatives Condition will be
assessed against a Scorecard
comprising performance goals
related to:
• Business system maturity
(practices)
Business system maturity: An
absolute improvement in Business
Excellence system maturity over the
performance period measured by
reference to an external benchmark
against which the baseline and final
maturity assessments will be verified
by an independent third party.
• Cumulative productivity
benefits (performance)
• Manufacturing plant
uptime (performance)
Cumulative productivity benefits:
Delivery of cumulative savings over the
performance period against targets
approved by the Board.
Manufacturing plant uptime: Plant
uptime measured across specified
manufacturing plants, with target
performance at the end of the
performance period to be at 75th
percentile (which reflects world class
performance for ammonia and
ammonium phosphate plants globally)
adjusted for plant age.
Details of the Scorecards and specific performance goals for
each component of the Strategic Initiatives Condition were
notified to Executives on commencement of the LTI 2014/17.
These performance goals involve quantitative targets, some of
which the Company considers to be commercial-in-confidence,
with the result that publication of that information prior to the
end of the performance period may be prejudicial to the
interests of the Company. Accordingly, complete details of the
performance goals will be disclosed at the end of the
performance period in the 2017 Remuneration Report.
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 and the rights vest, 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.
In relation to the Strategic Initiatives Condition, at the end of
the performance period on 30 September 2017, the Board will
determine the outcome for each of the two components of the
Strategic Initiatives Condition having regard to the results
achieved against the performance goals across the entirety of
the Scorecards for each of those components. If the Board
determines that all of the performance goals in respect of a
component of the Strategic Initiatives Condition (that is, either
the Louisiana ammonia project component or the Business
Excellence System component) have been achieved, all of the
performance rights subject to that component will vest (that is,
15% of the performance rights in a grant).
Incitec Pivot Limited Annual Report 2015
26
Directors’ Report
Remuneration Report
Similarly, if the Board determines that all of the performance
goals in respect of both the Louisiana ammonia project
component and the BEx System component have been
achieved, all of the performance rights subject to the Strategic
Initiatives Condition will vest (ie 30% of the performance rights
in a grant).
If not all performance goals in respect of a component of the
Strategic Initiatives Condition are met over the performance
period, the extent to which that component of the Strategic
Initiatives Condition has been satisfied (if at all) will be
determined by the Board. In doing so, the Board will have
regard to the results achieved against the performance goals
across all of the components of the relevant Scorecard, without
applying a specific weighting to any particular performance
goal. This could mean, for example, that the Board may
determine that all or a proportion of the performance rights the
subject of the component vest. Similarly, the Board could
determine that none of the performance rights are to vest if
some or all of the performance goals for the relevant
component Scorecard were not satisfactorily met during the
performance period.
At the end of the performance period, the Board will disclose in
the 2017 Remuneration Report, performance against each
component of the Strategic Initiatives Condition, including the
rationale for the relevant vesting percentage.
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 will vest in respect of the
30 September 2015 financial year?
The performance period for the LTI 2012/15 ended on 30
September 2015. Following testing against the performance
conditions, in November the Board determined that the
Company’s relative TSR performance exceeded the median of
the companies in the S&P/ASX100, with the Company
achieving a relative TSR ranking of 53.33 against the
comparator group. Accordingly, 56.66% of the performance
rights granted subject to the TSR Condition will vest in the 2016
financial year (being 28.33% of the total performance rights
granted). No performance rights will vest in respect of the EPS
Condition as the minimum compound annual growth rate on
EPS was not met. The performance rights that do not vest
under the LTI 2012/15 will lapse.
The performance conditions under LTI 2013/16 and LTI 2014/17
will not be tested until after 30 September 2016 and 30
September 2017, 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;
27
Incitec Pivot Limited Annual Report 2015
• 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
Company,
the Board may give a notice that the performance rights vest
at the time specified by the Board in the notice.
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,
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.
Table C.3 – Indices relevant to the Board’s assessment of the
Group’s performance and the benefit to shareholders
2011
2012 2013
2014 2015
530.1
404.7 293.5
356.3 398.6
32.5
24.8
18.0
21.7
23.8
9.3
11.5
12.5
9.3
11.7
11.5
12.4
9.2
10.8
11.8
Net Profit After Tax excluding
non-controlling 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
(DPS (paid)) (cents)
Dividends – declared in
respect of the financial year –
per share (DPS (declared))
(cents)
Share price ($) (Year End)
3.27
2.98
2.69
2.71
3.90
Total Shareholder Return
(TSR) (%)(1)
(10)
4
(16)
(7)
43
(1) For the financial years ended 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, 30 September 2014 and 30 September
2015, TSR is calculated in accordance with the rules of the LTI 2010/13, LTI
2011/14 and LTI 2012/15 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.
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.
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 2010/11 financial year, 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 2011/12
and 2012/13 financial years, EPS (before IMIs) decreased 24%
and 27% respectively and, accordingly, no awards were made
under those plans. In the 2013/14 financial year, with EPS
(before IMIs) growing by 21% to 21.7cps, partial awards were
made to Executives under the 2013/14 STI plan. For the
2014/15 financial year EPS (before IMIs) increased by 9.7% to
23.8cps and, as a result, certain Executives earned awards in
full in respect of this performance measure.
Company performance and STI outcomes
Cents
35
30
25
20
15
10
5
0
97%
69%
70%
0%
0%
2010/11
2011/12
2012/13
2013/14
2014/15
Earnings per share (before IMIs)
Average STI payment as percentage of STI opportunity
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. The contract is 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 Managing Director & CEO are included in
Table C.4.
The following is a summary of Mr Fazzino’s employment
arrangements and remuneration.
STI
Mr Fazzino is eligible to participate in Incitec Pivot’s STI Plan.
For 2014/15, 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 2014/15
financial year.
For the 2014/15 financial year, EPS (before IMIs) was 23.8 cents
per share and, accordingly Mr Fazzino was awarded a STI
payment of $2,005,421 in respect of the period from 1 October
2014 to 30 September 2015. The safety component of Mr
Fazzino’s STI was forfeited due to a fatality.
LTI
Mr Fazzino participated in the LTI 2012/15, the performance
period for which ended on 30 September 2015. Mr Fazzino’s
maximum LTI opportunity under this plan was 100% of fixed
annual remuneration. On determination of performance
measured against the performance conditions, in accordance
with the LTI 2012/15 plan rules, 206,382 of Mr Fazzino’s
performance rights will vest in the 2016 financial year.
In addition, Mr Fazzino currently participates in the following
LTI Plans:
• 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; and
• the LTI 2014/17 pursuant to which Mr Fazzino was issued
773,696 performance rights as approved by shareholders in
accordance with the ASX Listing Rules at the 2014 Annual
General Meeting held on 19 December 2014.
Mr Fazzino’s maximum LTI opportunity under these plans is
100% of fixed annual remuneration.
The LTI 2013/16 and LTI 2014/17 are each for a three year
period and the performance conditions will not be tested until
after 30 September 2016 and 30 September 2017, 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.
Fixed annual remuneration
Termination by Managing Director & CEO
For 2014/15, Mr Fazzino’s fixed annual remuneration was
$2,228,245, effective 1 October 2014. His fixed annual
remuneration is reviewed annually having regard to Incitec
Pivot’s executive remuneration policy. For the 2014/15
financial year, the fixed annual remuneration for the Executives
was increased by 3% with effect from 1 October 2014. There is
no increase to Mr Fazzino’s fixed annual remuneration for the
financial year commencing 1 October 2015.
The agreement provides that Mr Fazzino may terminate his
employment on six months’ notice.
Effect of termination on long term incentives
For the LTI 2013/16 and the LTI 2014/17, generally the
performance rights will lapse except in circumstances of death,
total and permanent disablement, retrenchment or retirement.
In those circumstances, the performance rights will be reduced
pro rata to the proportion of days worked during the relevant
performance period.
Incitec Pivot Limited Annual Report 2015
28
Mr Frank Micallef
Mr Simon Atkinson
Mr Stephen Dawson(1)
Mr Alan Grace
Ms Elizabeth Hunter
Mr Gary Kubera(2)
Mr Jamie Rintel(3)
Mr James Whiteside(4)
Number of Weeks
26 weeks
52 weeks
26 weeks
26 weeks
26 weeks
26 weeks
26 weeks
45.41 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 Kubera joined the Company on 4 February 2015 and is considered to be a
Key Management Person from that date.
(3) With effect from 1 October 2015, Mr Rintel was appointed Chief Operating
Officer – WALA. From this date, Mr Rintel ceased to be a member of the
Executive Team and is no longer a Key Management Person.
(4) On 4 November 2015, Mr Whiteside resigned and will cease employment
with the Company on 4 December 2015.
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 2013/16 and the LTI 2014/17, 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.
Directors’ Report
Remuneration Report
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 2014/15 financial year, the fixed annual remuneration for
the Executives was increased by 3% with effect from 1 October
2014, save that Ms Hunter received a higher increase following
a detailed benchmarking of this role.
The fixed annual remuneration for the Executive Team for the
financial year commencing 1 October 2015 has not been
increased.
STI
Participation is at the Board’s discretion. For all Executives,
for the 2014/15 financial year, the maximum STI opportunity
was 100% of fixed annual remuneration and was determined
with reference to performance conditions outlined on pages
22 and 23.
LTI
Participation is at the Board’s discretion. For the LTI 2012/15,
the LTI 2013/16 and the LTI 2014/17, for all Executives, the
maximum LTI opportunity is 80% of fixed annual remuneration.
For the LTI 2012/15 and LTI 2013/16 the vesting of rights is
determined by reference to conditions based on relative TSR
and growth in EPS (before IMIs). For the LTI 2014/17 the
vesting of rights is determined by reference to relative TSR and
the delivery of strategic initiatives.
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.
29
Incitec Pivot Limited Annual Report 2015
Details of Executive remuneration
Table C.4 – Executive remuneration
Details of the remuneration for each Executive for the year ended 30 September 2015 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)
Year
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
%
2015
2,209
2,005
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2,145
1,730
898
872
745
692
745
724
745
724
561
500
517
–
870
743
745
724
19
669
–
181
–
3
825
732
76
435
535
470
535
519
522
459
56
–
688
643
611
148
–
364
–
–
–
–
–
–
–
–
–
–
4
4
–
–
30
79
292
–
–
–
–
–
55
1
–
51
–
97
19
18
19
18
19
18
19
18
19
18
19
18
–
–
19
18
19
17
–
–
–
4
–
–
74
65
21
23
16
32
31
29
17
62
6
2
–
–
11
20
24
22
–
–
–
7
–
–
2015
8,054
5,853
2014
7,977
5,500
381
232
152
147
200
262
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
371
–
–
–
1,277
–
1,277 5,584
864
420
285
318
189
350
237
339
216
221
100
106
–
350
227
350
237
–
169
–
–
–
51
(347)
517
4,475
–
420 2,183
(114)
171
1,816
–
(79)
–
(95)
–
(75)
–
–
–
–
–
(95)
–
(95)
318 1,174
110
1,287
350 1,684
142
1,387
339 1,655
141
1,464
221 1,359
100
1,158
106
971
–
–
350 1,938
132
1,556
350 1,749
142
1,053
(207)
(207)
(133)
(77)
92
1,126
–
–
–
(33)
–
–
–
18
–
614
–
118
3,731
(207)
3,524 18,164
371
2,575
(1,010)
1,565 16,054
36
36
38
38
6
32
32
32
32
34
38
40
6
–
36
39
35
13
0
30
–
0
–
0
32
32
Executives
– Current
J E Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
S Atkinson
President – Dyno Nobel Asia Pacific
and Global Technology
S Dawson
President – Manufacturing Operations
A Grace
President – Strategic Engineering
E Hunter(1)
Chief Human Resources Officer
G Kubera(2)
President – Dyno Nobel Americas
J Rintel(3)
President – Strategy & Business
Development
J D Whiteside
Chief Operating Officer
– Incitec Pivot Fertilisers
Executives
– Former
D McAtee(4)
President – Dyno Nobel Americas
K J Gleeson(5)
General Counsel & Company Secretary
B C Walsh(6)
President – Global Manufacturing
Total Executives
(A) Certain STI payments are awarded in US$. Such STI payments were converted to A$ at the spot rate on 30 September 2015, being 1.4252.
(B) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2015: 1 April 2014 to 31
March 2015) (2014: 1 April 2013 to 31 March 2014), rent and mortgage interest subsidies, relocation allowances and other allowances. For Ms Hunter, this includes
commuting costs, comprising airfares and car transfers incurred. For Mr Kubera this includes a relocation allowance. For Mr McAtee, 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 in the 2013/14 financial year which had previously been incurred as an expense in
the 2012/13 financial year relating to the issue 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.
Incitec Pivot Limited Annual Report 2015
30
Directors’ Report
Remuneration Report
The terms and conditions of each grant affecting remuneration in this or future reporting periods are as follows:
LTI 2012/15 – TSR
LTI 2012/15 – EPS
LTI 2013/16 – TSR
LTI 2013/16 – EPS
LTI 2014/17 – TSR
Grant date
25/01/2013
25/01/2013
6/01/2014
6/01/2014
30/12/2014
LTI 2014/17 – Strategic Initiatives
30/12/2014
Fair value per share treated as rights at grant date
$1.54
$2.86
$1.40
$2.39
$1.99
$2.88
Once vested, a performance right is deemed to be exercised automatically and no amount is payable on exercise.
The number of rights for the purposes of remuneration, held by each Executive is referred to in Table C.7.
Refer to “At Risk Remuneration – Long Term Incentive Plans” in section C of this Remuneration Report for further details of the LTI 2012/15, the LTI 2013/16, the LTI
2014/17 and LTIs generally.
(E) The short term incentive and other bonuses as a proportion of remuneration is calculated based on the short term incentive expense as a proportion of the total
remuneration (excluding the prior period share-based payment expense write-back).
(1) Ms Hunter became a Key Management Person from 9 October 2013.
(2) Mr Kubera commenced employment on 4 February 2015. Mr Kubera’s fixed annual remuneration is inclusive of 401K pension contributions. Mr Kubera’s payments
were converted from US$ to A$ at the average rate for 4 February 2015 to 30 September 2015, being 1.3189.
(3) Mr Rintel’s remuneration increased in 2015 to reflect additional interim duties. With effect from 1 October 2015, Mr Rintel was appointed Chief Operating Officer –
WALA. From this date, Mr Rintel ceased to be a member of the Executive Team and is no longer a Key Management Person.
(4) On 7 October 2014, Mr McAtee ceased employment with the Company. The payments received by Mr McAtee in the 2014/15 financial year include accrued annual
leave. Mr McAtee’s fixed annual remuneration was inclusive of 401K pension contributions. Mr McAtee’s payments were converted from US$ to A$ at the average
rate for 1 October 2014 to 7 October 2014 being 1.1379. The prior period share-based payment expense write-back includes the accounting value of rights written
back in relation to the LTI 2012/15 and the LTI 2013/16 upon Mr McAtee’s resignation.
(5) Mrs Gleeson ceased employment with the Company on 31 December 2013.
(6) Mr Walsh ceased employment with the Company on 1 October 2013.
Details of performance related remuneration: short term incentives
Table C.5 – Short term incentives awarded for the year ended 30 September 2015
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2015 as remuneration to each
Executive are set out below:
Short term incentive for the year ended 30 September 2015
Included in remuneration
$000
% earned
% forfeited
Executives
– Current
J E Fazzino
F Micallef
S Atkinson
S Dawson
A Grace
E Hunter
G Kubera
J Rintel
J D Whiteside
Executives
– Former
D McAtee
K J Gleeson
B C Walsh
31
Incitec Pivot Limited Annual Report 2015
2,005
825
76
535
535
522
56
688
611
–
–
–
90
90
10
70
70
90
10
90
80
–
–
–
10
10
90
30
30
10
90
10
20
–
–
–
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 2015 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:
Grant date
Granted during 2015
as remuneration(A)
$000
Exercised
in year
$000
Vested
in year(B)
%
Forfeited
in year(C)
%
Financial year
in which grant
may vest (D)
Maximum value of
outstanding rights(E)
$000
Key Management Personnel
Executives
– Current
J E Fazzino
F Micallef
S Dawson
S Atkinson
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
Performance Rights Plan 2014/17
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
J D Whiteside Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2014/17
G Kubera(3)
J Rintel
E Hunter(2)
A Grace(1)
25 January 2013
6 January 2014
30 December 2014
25 January 2013
6 January 2014
30 December 2014
25 January 2013
6 January 2014
30 December 2014
25 January 2013
6 January 2014
30 December 2014
25 January 2013
6 January 2014
30 December 2014
6 January 2014
30 December 2014
5 February 2015
25 January 2013
6 January 2014
30 December 2014
25 January 2013
6 January 2014
30 December 2014
Executives
– Former
D McAtee(4)
B C Walsh
Performance Rights Plan 2012/15
Performance Rights Plan 2013/16
Performance Rights Plan 2012/15
25 January 2013
6 January 2014
25 January 2013
–
–
1,746
–
–
575
–
–
479
–
–
479
–
–
479
–
364
317
–
–
479
–
–
479
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
–
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
2017
2018
2018
2016
2017
2018
2016
2017
2018
2016
2017
2016
1,603
1,524
1,746
528
502
575
364
346
479
440
418
479
345
418
479
299
364
317
440
418
479
440
418
479
–
–
154
(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 2014/15 to
2016/17 for the LTI 2014/17).
(B) The percentage vested in the year represents the number of rights vested due to the performance conditions or other conditions being achieved following Board
determination.
(C) The percentage forfeited in the year represents the number of rights forfeited due to performance conditions not being met or being unachievable.
(D) Whilst the LTI 2012/15 performance conditions were met and accounted for as an expense under AASB 2: Share based payment, the rights did not legally vest
under the plan rules until Board approval was received in November 2015. As a result, the vesting of these rights will be reported in the 2015/16 financial year.
(E) The maximum value of outstanding rights is based on the fair value of the performance rights at the grant date. This may be different to the value of the rights in
the event that they vest. The minimum value of rights yet to vest is $nil, as the performance criteria may not be met.
(1) Mr Grace’s rights were granted under the LTI 2012/15 based on his fixed annual remuneration prior to him becoming a Key Management Person on 1 October 2013.
(2) Ms Hunter’s employment commenced on 9 October 2013 and she is not a participant in the LTI 2012/15.
(3) Mr Kubera’s employment commenced on 4 February 2015 and he is not a participant in either the LTI 2012/15 or the LTI 2013/16.
(4) Mr McAtee ceased employment with the Company on 7 October 2014. As a result of ceasing employment during the 2014/15 financial year and in accordance
with his employment arrangements, all of Mr McAtee’s entitlements under the LTI 2012/15 and LTI 2013/16 were forfeited.
Incitec Pivot Limited Annual Report 2015
32
Directors’ Report
Remuneration Report
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
S Atkinson
S Dawson
A Grace
E Hunter
G Kubera
J Rintel
J D Whiteside
Executives
– Former
D McAtee(1)
K J Gleeson
B C Walsh
Year
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
Number of Rights
Opening
balance
Granted as
compensation(A)
Vested(B)
Forfeited(C)
Closing balance
1,532,715
1,319,122
504,597
434,278
348,238
274,717
420,498
361,899
377,231
284,170
157,621
–
–
–
420,498
327,437
420,498
361,899
356,713
173,615
–
355,787
70,127
379,907
773,696
804,218
254,715
264,763
212,263
182,721
212,263
220,636
212,263
220,636
161,111
157,621
140,552
–
212,263
220,636
212,263
220,636
–
196,095
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(590,625)
–
(194,444)
–
(109,200)
–
(162,037)
–
(127,575)
–
–
–
–
–
(127,575)
–
(162,037)
(356,713)
(12,997)
–
(355,787)
–
(309,780)
2,306,411
1,532,715
759,312
504,597
560,501
348,238
632,761
420,498
589,494
377,231
318,732
157,621
140,552
–
632,761
420,498
632,761
420,498
–
356,713
–
–
70,127
70,127
(A) For the 2014/15 financial year, this represents the rights acquired by Executives during the reporting period pursuant to the LTI 2014/17.
(B) For the 2014/15 financial year, this represents the number of rights that vested during the reporting period.
(C) For the 2014/15 financial year, this represents rights that were forfeited by Executives during the reporting period.
(1) Mr McAtee ceased employment with the Company on 7 October 2014. As a result of ceasing employment during the 2014/15 financial year and in accordance with
his employment arrangements, all of Mr McAtee’s entitlements under the LTI 2012/15 and LTI 2013/16 were forfeited.
33
Incitec Pivot Limited Annual Report 2015
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
2015. 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
S Atkinson
President – Dyno Nobel Asia Pacific
and Global Technology
S Dawson
President – Manufacturing Operations
A Grace
President – Strategic Engineering
E Hunter
Chief Human Resources Officer
G Kubera(1)
President – Dyno Nobel Americas
J Rintel(2)
President – Strategy & Business Development
J D Whiteside
Chief Operating Officer – Incitec Pivot Fertilisers
Executives
– Former
D McAtee(3)
President – Dyno Nobel Americas
K J Gleeson(4)
General Counsel & Company Secretary
B C Walsh(5)
President – Global Manufacturing
Total Executives
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2,209
2,145
898
872
745
692
745
724
745
724
561
500
482
–
889
724
745
724
21
667
–
181
–
3
8,040
7,956
1,730
–
732
–
435
–
470
–
519
–
459
–
–
–
643
–
148
–
364
–
–
–
–
–
5,500
–
–
–
–
–
–
–
4
4
–
–
30
79
292
–
–
–
–
–
55
1
–
51
–
97
381
232
19
18
19
18
19
18
19
18
19
18
19
18
–
–
19
18
19
17
–
–
–
4
–
–
152
147
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
493
–
1,241
–
1,734
Total
$000
3,958
2,163
1,649
890
1,199
710
1,238
746
1,283
742
1,069
597
774
–
1,551
742
912
741
440
668
–
729
–
1,341
14,073
10,069
(A) For Mr Kubera, Mr Rintel and Mr McAtee, the salary and fees paid in the reporting period differs from the corresponding amounts for those Executives in Table C.4
due to timing of certain payments to those Executives at year end.
(B) Represents short term incentives paid during the 2014/15 financial year in relation to incentives awarded in respect of the 2013/14 financial year under the STI 2013/14.
(C) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2015: 1 April 2014 to 31
March 2015) (2014: 1 April 2013 to 31 March 2014), rent and mortgage interest subsidies, relocation allowances and other allowances. For Ms Hunter, this includes
commuting costs, comprising airfares and car transfers incurred in the 2013/14 financial year. For Mr Kubera this includes a relocation allowance. For Mr McAtee,
Mrs Gleeson and Mr Walsh this includes annual leave paid on termination.
(D) Represents termination benefits paid. In relation to Mrs Gleeson and Mr Walsh, this includes long service leave payments on termination.
(1) Mr Kubera’s employment commenced on 4 February 2015. The disclosures for the 2014/15 financial year are from the date he become a Key Management Person,
4 February 2015. Mr Kubera’s fixed annual remuneration is inclusive of 401K pension contributions. Mr Kubera’s payments were converted from US$ to A$ at the
average rate for 4 February 2015 to 30 September 2015, being 1.3189.
(2) Mr Rintel’s remuneration increased in 2015 to reflect additional interim duties.
(3) On 7 October 2014, Mr McAtee ceased employment with the Company. Pursuant to his contract of employment dated 31 May 2012, Mr McAtee was entitled to a
payment of $439,625 in respect of his salary, short term incentive and accrued annual leave. These amounts were paid to Mr McAtee in the 2014/15 financial year.
Mr McAtee’s payments were converted from US$ to A$ at the average rate for 1 October 2014 to 7 October 2014 being 1.1379.
(4) 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.
(5) 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.
Incitec Pivot Limited Annual Report 2015
34
Directors’ Report
Remuneration Report
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
P V Brasher
K J Fagg(1)
G J Hayes(2)
J Marlay
R J McGrath
G J Smorgon
Non–executive directors
– Former
A C Larkin(3)
A D McCallum(4)
Executive directors
– Current
J E Fazzino
Executive
– Current
F Micallef
S Atkinson
S Dawson
A Grace(5)
E Hunter
G Kubera(6)
J Rintel
J D Whiteside
Executive
– Former
D McAtee(7)
K J Gleeson(8)
B C Walsh(9)
Year
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2014
2014
Number of Shares(A)
Opening
balance
Shares
acquired
Shares
disposed
Closing
balance
40,600
40,600
10,000
–
–
–
37,926
37,926
13,758
7,000
–
–
5,000
5,000
216,501
1,708,180
1,708,180
–
–
3,380
3,380
23,867
23,867
111,000
111,000
–
–
–
–
–
–
3,500
3,500
–
–
3,241
10,500
20,000
–
–
10,000
–
–
–
–
5,000
6,758
13,100
–
–
–
–
–
–
15,800
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(35,200)
–
–
–
–
–
–
–
–
–
–
–
–
(10,500)
60,600
40,600
10,000
10,000
–
–
37,926
37,926
18,758
13,758
13,100
–
5,000
5,000
216,501
1,708,180
1,708,180
15,800
–
3,380
3,380
23,867
23,867
75,800
111,000
–
–
–
–
–
–
3,500
3,500
–
–
3,241
–
(A) Includes fully paid ordinary shares and shares acquired under the Employee Share Ownership Plan (ESOP) in Incitec Pivot Limited. Details of the ESOP are set out in
note 15, Share based payments.
(1) Ms Fagg was appointed to the Board as a non-executive director effective 15 April 2014.
(2) Mr Hayes was appointed to the Board as a non-executive director effective 1 October 2014.
(3) Mr Larkin retired as a director effective 19 December 2014.
(4) Mr McCallum retired as a director effective 19 December 2013.
(5) The opening balance represents shares held as at the date of becoming a Key Management Person. Movements are from this date.
(6) Mr Kubera commenced employment on 4 February 2015.
(7) Mr McAtee ceased employment with the Company effective 7 October 2014.
(8) Mrs Gleeson ceased employment with the Company effective 31 December 2013.
(9) Mr Walsh ceased employment with the Company effective 1 October 2013.
35
Incitec Pivot Limited Annual Report 2015
(a) Loans to key management personnel
In the year ended 30 September 2015, there were no loans to key management personnel and their related parties (2014: 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 $6,534,577 during the year (2014:
$4,701,371). Mr Fazzino’s spouse did not directly provide these services. Mr Fazzino has not engaged PwC at any time for
any assignment.
(2) The spouse of Ms Fagg is a partner in the accountancy and tax firm KPMG from which the Group purchased services of
$443,761 during the year (2014: $89,078). Ms Fagg’s spouse did not directly provide these services. Ms Fagg was not
involved in any engagement of KPMG.
Signed in accordance with a resolution of the directors:
Paul V Brasher
Chairman
Dated at Melbourne this 9th day of November 2015
Incitec Pivot Limited Annual Report 2015
36
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
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
9 November 2015
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 2015, 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
37
Incitec Pivot Limited Annual Report 2015
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 39 to 71
Audit Report
Shareholder Information
Five Year Financial Statistics
40
41
42
43
44
72
73
75
76
Incitec Pivot Limited Annual Report 2015
38
Financial report
Introduction
This is the consolidated financial report of Incitec Pivot Limited (‘the Company’, ‘IPL’, or ‘Incitec Pivot’) a company domiciled in
Australia, and its subsidiaries including its interests in joint ventures and associates (collectively referred to as the ‘Group’) for
the financial year ended 30 September 2015.
Over the past year the content and structure of the financial report was reviewed to identify opportunities to make disclosures
more relevant to the users. This included:
l a thorough review of content to eliminate immaterial disclosures to enhance the usefulness of the financial report;
l
reorganisation of the notes to the financial statements into sections to assist users in understanding the Group’s financial
position and performance; and
l using graphs where appropriate, to better illustrate certain important financial information.
The purpose of these changes is to provide users with a clearer understanding of what drives the financial performance and
financial position of the Group, whilst still complying with the provisions of the Corporations Act 2001 and Australian
Accounting Standards.
Change in content and structure of the financial report
The notes to the financial statements and the related accounting policies are grouped into the following distinct sections in the
2015 financial report. The accounting policies have been consistently applied to all years presented, unless otherwise stated.
Financial performance: Provides detail on the Group’s Consolidated Statement of Profit or Loss and Other Comprehensive
Income and Consolidated Statement of Financial Position that are most relevant to forming an understanding of the
Group’s financial performance for the year.
Shareholder returns: Provides information on the performance of the Group in generating shareholder returns.
Capital structure: Provides information about the Group’s capital and funding structures.
Capital investment: Provides information on the Group’s investment in tangible and intangible assets, and the Group’s
future capital commitments.
Risk management: Provides information about the Group’s risk exposures, risk management practices, provisions and
contingent liabilities.
Other: Provides information on items that require disclosure to comply with Australian Accounting Standards and the
requirements under the Corporations Act. However, these disclosures are not considered key to understanding the Group’s
financial performance or financial position.
Information is only included in the notes to the financial statements to the extent it is considered material and relevant to the
understanding of the financial statements. A disclosure is considered material and relevant if, for example:
l
l
l
l
the dollar amount is significant in size (quantitative factor)
the item is significant by nature (qualitative factor)
the Group’s results cannot be understood without the specific disclosure (qualitative factor)
it relates to an aspect of the Group’s operations that is important to its future performance.
39
Incitec Pivot Limited Annual Report 2015
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 30 September 2015
Revenue
Financial and other income
Share of profit on equity accounted investments
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
Financial expenses
Purchased services
Repairs and maintenance
Outgoing freight
Lease payments – operating leases
Asset write-downs, clean-up and environmental provisions
Other expenses
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income, net of income tax
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit plans
Gross fair value (loss)/gain on assets at fair value through other comprehensive income
Income tax relating to items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss
Fair value (loss)/gain on cash flow hedges
Cash flow hedge (gains)/losses transferred to profit or loss
Exchange differences on translating foreign operations
Net loss on hedge of net investment
Income tax relating to items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year, net of income tax
Notes
(2)
(2)
(16)
(2)
(2)
(3)
(17)
(14)
(14)
(14)
(14)
2015
$mill
2014
$mill
3,643.3
3,352.0
51.2
38.2
59.3
33.3
(30.8)
1.0
(1,537.6)
(1,465.2)
(626.5)
(249.1)
(81.6)
(160.7)
(141.1)
(258.4)
(69.7)
(5.3)
(64.2)
507.7
(108.8)
398.9
(4.5)
(3.6)
2.7
(5.4)
(29.4)
(5.0)
657.7
(602.6)
(34.4)
(13.7)
(19.1)
(575.2)
(223.3)
(95.0)
(145.4)
(130.3)
(236.6)
(71.7)
(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
Total comprehensive income for the year
379.8
273.1
Profit attributable to:
Members of Incitec Pivot Limited
Non-controlling interest
Profit for the year
Total comprehensive income attributable to:
Members of Incitec Pivot Limited
Non-controlling interest
Total comprehensive income for the year
Earnings per share
Basic (cents per share)
Diluted (cents per share)
398.6
0.3
398.9
379.5
0.3
379.8
23.8
23.7
247.1
1.1
248.2
272.0
1.1
273.1
15.0
15.0
(5)
(5)
Incitec Pivot Limited Annual Report 2015
40
Consolidated Statement of Financial Position
As at 30 September 2015
Notes
2015
$mill
2014
$mill
(8)
(4)
(4)
(14)
(4)
(14)
(16)
(9)
(10)
(3)
(4)
(8)
(14)
(13)
(4)
(8)
(14)
(13)
(3)
(17)
(7)
606.3
288.8
401.3
38.4
9.1
1,343.9
21.2
63.2
36.0
323.6
4,003.6
3,346.3
58.5
7,852.4
9,196.3
888.5
747.1
129.1
86.9
44.6
70.5
265.5
434.1
46.6
16.9
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
1,896.2
990.1
4.6
1,806.6
77.8
93.3
543.4
86.2
2,611.9
4,508.1
4,688.2
3,430.9
(156.7)
1,411.0
3.0
10.1
1,709.0
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
4,688.2
4,407.0
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Total current assets
Non-current assets
Trade and other receivables
Other assets
Other financial assets
Equity accounted investments
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
41
Incitec Pivot Limited Annual Report 2015
Notes
(2)
(9)
(10)
(16)
(16)
(2)
(3)
(3)
(16)
Consolidated Statement of Cash Flows
For the year ended 30 September 2015
Cash flows from operating activities
Profit after tax for the year
Net finance cost
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
Deferred tax expense
Income tax expense
Changes in assets and liabilities
decrease in receivables and other operating assets
decrease/(increase) in inventories
decrease in payables, provisions and other operating liabilities
Dividends received
Interest received
Interest expense
Income tax (paid)/recovered
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
(Loans to)/payments from equity accounted investees
Payments 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 on derivatives
Dividends paid
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents held
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuation on cash and cash equivalents held
Cash and cash equivalents at the end of the year
(8)
2015
$mill
2014
$mill
Inflows/
(Outflows)
Inflows/
(Outflows)
398.9
68.8
249.1
4.5
–
1.1
(38.2)
(2.4)
4.3
59.4
49.4
5.4
47.6
(58.5)
789.4
37.0
12.8
(67.3)
(15.7)
756.2
(372.8)
7.0
(17.3)
(115.1)
(498.2)
(436.5)
805.1
–
(96.4)
272.2
530.2
70.5
5.6
606.3
248.2
76.9
223.3
53.2
37.6
26.0
(33.3)
(14.9)
0.1
7.2
56.3
93.0
(11.0)
(194.9)
567.7
23.7
18.1
(75.8)
1.5
535.2
(662.4)
24.4
5.3
(5.0)
(637.7)
(224.6)
214.4
(8.3)
(85.1)
(103.6)
(206.1)
270.6
6.0
70.5
Incitec Pivot Limited Annual Report 2015
42
Consolidated Statement of Changes in Equity
For the year ended 30 September 2015
Issued
capital
$mill
Notes
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 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 year
Total other comprehensive
income for the year
Dividends paid
(6)
Shares issued during the year
Share-based payment transactions
–
–
–
66.9
–
–
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
Balance at 1 October 2014
3,332.8
(17.4)
22.7
(141.4)
(8.7)
1,216.3
4,404.3
2.7
4,407.0
Early adoption of AASB 9
Financial instruments
Profit for the year
Total other comprehensive
income for the year
Dividends paid
Shares issued during the year
(4)
(6)
(7)
–
–
–
–
98.1
Share-based payment transactions (15)
–
–
–
(22.5)
–
–
–
–
–
–
–
–
4.3
–
–
–
–
(6.5)
(6.5)
–
(6.5)
398.6
398.6
0.3
398.9
8.8
(2.5)
(2.9)
(19.1)
–
–
–
–
–
–
(194.5)
(194.5)
–
–
98.1
4.3
–
–
–
–
(19.1)
(194.5)
98.1
4.3
Balance at 30 September 2015
3,430.9
(39.9)
27.0
(132.6)
(11.2)
1,411.0
4,685.2
3.0
4,688.2
Cash flow hedging reserve
This reserve comprises the cumulative net change in the fair value of the effective portion of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
Share-based payments reserve
This reserve comprises the fair value of rights recognised as an employee expense under the terms of the 2012/15, 2013/16
and 2014/17 Long Term Incentive Plans.
Foreign currency translation reserve
Exchange differences arising on translation of foreign controlled operations are taken to the foreign currency translation
reserve. The relevant portion of the reserve is recognised in the profit or loss 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
This reserve represents the cumulative net change in the fair value of equity instruments. The annual net change in the fair
value of investments in equity securities (including both realised and unrealised gains and losses) is recognised in other
comprehensive income.
Non-controlling interest
Represents a 35 percent outside equity interest in Quantum Fertilisers Limited, a Hong Kong based fertiliser marketing company.
43
Incitec Pivot Limited Annual Report 2015
Notes to the Consolidated Financial Statements
For the year ended 30 September 2015
Basis of preparation
Financial performance
1 Segment report
2 Revenue and expenses
3
4
Taxation
Trade and other assets and liabilities
Shareholder returns
5
Earnings per share
6 Dividends
Capital structure
7
Contributed equity
8 Net debt
Capital investment
9 Property, plant and equipment
10 Intangibles
11 Impairment of goodwill and non-current assets
12 Commitments
Risk management
13 Provisions and contingencies
14 Financial risk management
Other
15 Share based payments
16 Equity accounted investments
17 Retirement benefit obligation
18 Deed of cross guarantee
19 Parent entity disclosure
20 Investments in subsidiaries, joint ventures and associates
21 Key management personnel disclosures
22 Auditor’s remuneration
23 Events subsequent to reporting date
45
46
48
49
50
51
51
52
53
54
55
56
57
58
59
67
67
68
69
69
70
71
71
71
Incitec Pivot Limited Annual Report 2015
44
Notes to the Consolidated Financial Statements: Basis of preparation
For the year ended 30 September 2015
Basis of preparation and consolidation
Rounding of amounts
The Group is of a kind referred to in Class Order 98/0100
issued by the Australian Securities and Investments
Commission. Accordingly, 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.
Accounting standards issued
The relevant Australian Accounting Standards and
Interpretations that became effective and that were
early adopted by the Group since 30 September 2014 were:
l AASB 2015-2: Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to AASB
101. The amendments clarify that disclosure in the
financial statements should be tailored to provide users
with clear and precise information of an entity’s financial
performance and financial position.
l AASB 9: Financial Instruments. The Group early adopted
the remaining phases of AASB 9 during the year. Detail
of the impact of early adoption of the standard is
included in notes 4 and 14.
The following relevant standard was available for early
adoption but has not been applied by the Group:
l AASB 15: Revenue from Contracts with Customers.
Details of the expected impact of AASB 15 on the Group,
when it is adopted, is included in note 2.
The consolidated financial statements of the Group have been
prepared under the historical cost convention, except for
certain financial instruments which have been measured at
fair value.
The financial 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.
The consolidated financial statements were authorised for
issue by the directors on 9 November 2015.
Subsidiaries
Subsidiaries are those entities that are controlled by the
Group. The financial results and financial position of the
subsidiaries are included in the consolidated financial
statements from the date control commences until the date
control ceases.
A list of the Group’s subsidiaries is included in note 20.
Joint ventures and associates
A joint venture is an arrangement where the parties have
rights to the net assets of the venture.
Associates are those entities in respect of which the Group has
significant influence, but not control, over the financial and
operating policies of the entities.
Investments in joint ventures and associates are accounted for
using the equity method. They are initially recognised at cost,
and subsequent to initial recognition, the consolidated
financial statements include the Group’s share of the profit or
loss and other comprehensive income of the investees.
A list of the Group’s joint ventures and associates is included
in note 20.
Statement of compliance
The consolidated financial statements are general purpose
financial statements which have been prepared in accordance
with Australian Accounting Standards (including Australian
Interpretations) and the Corporations Act 2001. The
consolidated financial statements of the Group comply with
International Financial Reporting Standards and interpretations.
The Company is a for-profit entity.
Deficiency in net current assets
As at 30 September 2015, the Group’s current liabilities
exceeded its current assets by $552.3m. The Group has
undrawn financing facilities of $1,478.7m at 30 September
2015. 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. Accordingly, the
consolidated financial statements have been prepared on a
going concern basis. The Group constantly assesses the
adequacy of its financing arrangements and will establish new
funding facilities as and when required, to ensure they
appropriately support its investment grade credit profile and
liquidity requirements.
45
Incitec Pivot Limited Annual Report 2015
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2015
1. Segment report
The Group operates a number of strategic divisions that offer different products and services and operate in different markets.
For reporting purposes, these divisions are known as reportable segments. The results of each segment are reviewed monthly
by the Group’s chief operating decision-makers to assess performance and make decisions about the allocation of resources.
Description of reportable 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 and is a distributor of its manufactured fertiliser
product to wholesalers in Australia (including IPF) and the export market. SCI operates the Industrial Chemicals business and
also includes the Group’s 65 percent share of the Hong Kong marketing company, Quantum Fertilisers Limited.
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 Asia Pacific (DNAP): manufactures and sells industrial explosives and related products and services to the mining
industry in the Asia Pacific region and Turkey.
Dyno Nobel Americas (DNA): manufactures and sells industrial explosives and related products and services to the mining,
quarrying and construction industries in the Americas (USA, Canada, Mexico and Chile) and manufactures and sells
agricultural chemicals.
Explosives Elimination (Elim): represents elimination of profit in stock arising from DNA sales to DNAP at an arm’s length
transfer price.
Corporate
Corporate costs include all head office expenses that cannot be directly attributed to the operation of any of the Group’s businesses.
Reportable segments – financial information
30 September 2015
IPF
$mill
SCI
$mill
Elim
$mill
Total
Fertilisers
$mill
DNAP
$mill
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Corporate/
Group
Elim(1)
$mill
Consolidated
Group
$mill
Sales to external customers
1,034.5
755.2
(278.8) 1,510.9
910.8 1,268.7
(32.6)
2,146.9
(14.5)
3,643.3
Share of profits in equity
accounted investments
EBITDA(2)
–
–
–
–
19.2
19.0
–
38.2
–
82.2
211.6
(1.1)
292.7
271.6
280.7
1.6
553.9
(21.0)
38.2
825.6
Depreciation and amortisation
(31.9)
(36.7)
–
(68.6)
(78.9)
(99.0)
–
(177.9)
(2.6)
(249.1)
EBIT(3)
Net interest expense
Income tax expense
Profit after tax
Non-controlling interest
Profit attributable to
members of IPL
Segment assets
Segment liabilities
Net segment assets(4)
Deferred tax balances
Net assets
50.3
174.9
(1.1)
224.1
192.7
181.7
1.6
376.0
(23.6)
576.5
(68.8)
(108.8)
398.9
(0.3)
398.6
811.3
520.1
(472.9)
(112.5)
338.4
407.6
–
–
–
1,331.4 2,923.6 4,214.2
(585.4)
(221.0)
(543.5)
746.0 2,702.6 3,670.7
–
–
–
7,137.8
668.6
9,137.8
(764.5)
(2,614.8)
(3,964.7)
6,373.3
(1,946.2)
5,173.1
(484.9)
4,688.2
(1) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(2) Earnings Before Interest, related Income tax expense, Depreciation and Amortisation.
(3) Earnings Before Interest and related Income tax expense.
(4) Net segment assets exclude deferred tax balances.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Incitec Pivot Limited Annual Report 2015
46
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2015
1. Segment report (continued)
Reportable segments – financial information (continued)
30 September 2014
Sales to external customers
Share of profits in equity
accounted investments
EBITDA(1)
IPF
$mill
SCI
$mill
Total
Fertilisers
$mill
Elim
$mill
DNAP
$mill
DNA
$mill
Elim
$mill
Total
Explosives
$mill
Corporate/
Group
Elim
$mill
Consolidated
Group
$mill
953.2
542.8
(194.4)
1,301.6
897.0 1,205.2
(38.8) 2,063.4
(13.0)
3,352.0
–
–
–
–
16.5
16.8
–
33.3
–
134.1
105.8
0.1
240.0
277.2
255.6
1.5
534.3
(31.6)
33.3
742.7
Depreciation and amortisation
(30.4)
(26.2)
–
(56.6)
(73.9)
(89.9)
–
(163.8)
(2.9)
(223.3)
EBIT(1)
Net interest expense
Income tax expense
Profit after tax(1)
Non-controlling interest
Individually material items
(net of tax)
Profit attributable to members of IPL
Segment assets
Segment liabilities
Net segment assets
Deferred tax balances
Net assets
(1) Excluding individually material items.
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
760.1
563.8
(434.5)
(89.2)
325.6
474.6
–
–
–
1,323.9
3,003.2 3,207.8
(523.7)
(197.7)
(453.7)
800.2
2,805.5 2,754.1
–
–
–
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
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 2015
Australia
$mill
USA
$mill
Canada
$mill
Revenue from external customers
2,306.4
991.4
212.3
Non-current assets other than financial
assets and deferred tax assets
3,759.5
3,824.5
Trade and other receivables
178.0
46.8
30 September 2014
Australia
$mill
USA
$mill
60.9
40.3
Canada
$mill
Revenue from external customers
2,070.3
882.6
253.4
Non-current assets other than financial
assets and deferred tax assets
3,801.4
2,863.3
Trade and other receivables
116.6
48.9
62.5
50.1
Turkey
$mill
63.9
1.3
17.1
Turkey
$mill
79.0
–
19.4
Other/Elim
$mill
Consolidated
$mill
69.3
3,643.3
111.7
27.8
7,757.9
310.0
Other/Elim
$mill
Consolidated
$mill
66.7
3,352.0
115.1
37.6
6,842.3
272.6
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
47
Incitec Pivot Limited Annual Report 2015
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2015
2. Revenue and expenses
Individually material items
Notes
2015
$mill
2014
$mill
There were no items of revenue or expenses that require
separate disclosure in order to explain the Group’s financial
performance at 30 September 2015.
Profit before income tax includes the following specific expenses:
Key accounting policies
Revenue
External sales
Total revenue
Financial income
Interest income
Other income
3,643.3
3,352.0
3,643.3
3,352.0
12.8
18.1
Royalty income and management fees
(16)
29.5
23.5
Net gain on sale of property, plant
and equipment
Settlement and curtailment of
defined benefit plans
(17)
Other income
Total financial and other income
2.4
14.9
4.1
2.4
0.8
2.0
51.2
59.3
l
l
Expenses
Depreciation and amortisation
depreciation
amortisation
Recoverable amount write-down
property, plant and equipment
intangible assets
equity accounted investments
Amounts set aside to provide for:
impairment losses on trade and
other receivables
inventory losses and obsolescence
employee entitlements
environmental liabilities
legal and other provisions
Notes
(9)
(10)
(9)
(10)
(16)
(13)
(13)
(13)
restructuring and rationalisation costs (13)
Research and development expense
Defined contribution superannuation
expense
Defined benefit superannuation
expense
Financial expenses
2015
$mill
2014
$mill
219.4
194.1
29.7
29.2
249.1
223.3
4.5
–
1.1
5.6
2.9
1.5
4.4
0.8
6.4
1.4
9.7
53.2
37.6
26.0
116.8
17.2
0.6
5.7
5.6
1.7
5.0
7.3
31.9
27.8
(17)
2.8
2.2
Unwinding of discount on provisions
(13)
3.4
5.6
Net interest expense on defined
benefit obligation
(17)
Interest expenses on financial liabilities
Total financial expenses
3.0
75.2
81.6
2.9
86.5
95.0
At 30 September 2014 the Group’s profit included the
following expense items whose separate disclosure was
relevant in explaining the financial performance of the Group
in that year:
l
Impairment write-down of $61.4m (net of tax, $56.5m)
in relation to Nitromak’s intangible assets, property, plant
and equipment and trade receivables balances due to
declining business activity.
Impairment write-down of the DNA Donora plant of
$43.4m (net of tax, $26.7m) due to lower forecast
production at the plant as a result of reduced contracted
volumes with key North American customers.
Impairment write-down of DNAP’s investment in
Fabchem China Limited of $26.0m due to lower forecast
earnings as a result of a slowdown in the Chinese
nitrogen market.
Revenue
Revenue is measured at the fair value of the consideration
received or receivable by the Group. 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:
Sale of goods: revenue from the sale of goods is recognised
when the risks and rewards of ownership have been
transferred to the buyer and where the costs incurred or to
be incurred can be measured reliably.
Take-or-pay revenue: take-or-pay revenue is recognised in
line with the sale of goods policy. In circumstances where
goods are not taken by the customer, revenue is recognised
when the likelihood of the customer meeting its obligation
to ‘take goods’ becomes remote.
Services: revenue is recognised once the service is delivered.
The fee for service component is recognised separately from
the sale of goods.
Interest income is recognised as it accrues.
Issued Accounting Standards not early adopted
AASB 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. The first application date
for the Group is the financial year ending 30 September
2019 (subject to Australian Accounting Standards Board
approval). The Group did not early adopt this Standard when
it was issued during the year. However, based on preliminary
assessment of the Group’s material customer contracts, the
impact of this standard on the recognition and reporting of
the Group’s revenue is not considered material.
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). The only exception is 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 the asset or as part of the item of expenditure.
Incitec Pivot Limited Annual Report 2015
48
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2015
3. Taxation
Income tax expense for the year
Movements in net deferred tax liabilities
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Current tax expense
Current year
Adjustment to current tax expense
relating to prior years
2015
$mill
2014
$mill
52.1
60.5
(2.7)
49.4
(4.2)
56.3
Deferred tax expense
Origination and reversal of temporary differences
59.4
Total income tax expense
108.8
7.2
63.5
Income tax reconciliation to prima facie tax payable
Profit before income tax
Tax at the Australian tax rate of 30% (2014: 30%)
Tax effect of amounts which are not deductible/
(taxable) in calculating taxable income:
Impairment of intangible assets
and investment
Other foreign deductions
Joint venture income
Sundry items
Difference in overseas tax rates
Adjustment to current tax expense
relating to prior years
Income tax expense attributable to profit
2015
$mill
2014
$mill
507.7
311.7
152.3
93.5
0.3
(30.1)
(11.5)
(3.2)
3.7
(2.7)
108.8
17.0
(20.4)
(10.1)
(14.2)
1.9
(4.2)
63.5
Tax amounts recognised directly in equity
The aggregate current and deferred tax arising in the year and
not recognised in net profit or loss but directly charged to equity
is $31.7m for the year ended 30 September 2015 (2014: credit
of $10.5m).
Net deferred tax assets/(liabilities)
Deferred tax balances comprise temporary
differences attributable to the following:
Employee entitlements provision
Retirement benefit obligations
Provisions and accruals
Tax losses
Property, plant and equipment
Intangible assets
Joint venture income
Derivatives
Other
2015
$mill
2014
$mill
19.8
26.7
46.5
13.5
(350.3)
(140.7)
(17.6)
(41.0)
(41.8)
19.0
24.5
42.5
7.2
(269.1)
(117.9)
(13.4)
(8.9)
(26.7)
Net deferred tax liabilities
(484.9)
(342.8)
Presented in the Statement of
Financial Position as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
58.5
(543.4)
72.5
(415.3)
(484.9)
(342.8)
49
Incitec Pivot Limited Annual Report 2015
Opening balance at 1 October
Debited to the profit or loss
Charged to equity
Foreign exchange movements
Tax rate change
Adjustments in respect of prior years
2015
$mill
(342.8)
(55.1)
(31.7)
(51.0)
–
(4.3)
2014
$mill
(328.1)
(8.4)
10.5
(19.7)
1.7
1.2
Closing balance at 30 September
(484.9)
(342.8)
Key accounting policies
Income tax expense
Income tax expense comprises current tax (amounts payable
within 12 months) and deferred tax (amounts payable or
receivable after 12 months). Tax expense is recognised in
the profit or loss, unless it relates to items that have been
recognised in equity (as part of other comprehensive
income). In this instance, the related tax expense is also
recognised in equity.
Current tax
Current tax is the expected tax payable on the taxable
income for the year. It is calculated using tax rates applicable
at the reporting date, and any adjustments to tax payable in
respect of previous years.
Deferred tax
Deferred tax is recognised for all taxable temporary
differences and is calculated based on the carrying amounts
of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. Deferred tax is
measured at the tax rates that are expected to be applied
when the asset is realised or the liability is settled, based on
the laws that have been enacted or substantively enacted at
the reporting date.
Deferred tax assets are recognised only to the extent that it
is probable that future taxable profits will be available
against which the assets can be utilised. Deferred tax assets
are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax
benefit will be realised.
Offsetting tax balances
Tax assets and liabilities are offset when the Group has a legal
right to offset and intends either to settle on a net basis or to
realise the asset and settle the liability simultaneously.
Tax consolidation
The Company and its wholly-owned Australian resident
entities have formed a tax consolidated group. As a result it
is taxed as a single entity. The head entity of the tax
consolidated group is Incitec Pivot Limited.
Key estimates and judgments:
Provisions for potential further tax payments that may
result from audit activities by the revenue authorities of
jurisdictions in which the Group operates are recognised
if a present obligation in relation to a taxation liability is
assumed as probable and can be reliably estimated.
The assumption regarding future realisation of tax
benefits, and therefore the recognition of deferred tax
assets, may change due to the future operating
performance of the Group, as well as other factors, some
of which are outside of the control of the Group.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2015
4. Trade and other assets and liabilities
Key accounting policies
The Group’s total trade and other assets and liabilities
consists of receivables, payables and inventory balances, net
of provisions for any impairment losses.
30 September 2015
Inventory
Receivables
Payables
30 September 2014
Inventory
Receivables
Payables
Inventory by category:
Raw materials and stores
Work-in-progress
Finished goods
Provisions
Total inventory balance
Trade
$mill
Other
$mill
Total
$mill
401.3
274.3
–
401.3
35.7
310.0
(667.9) (225.2) (893.1)
7.7 (189.5) (181.8)
Trade
$mill
Other
$mill
Total
$mill
434.1
241.7
–
434.1
30.9
272.6
(614.6)
(218.5) (833.1)
61.2
(187.6)
(126.4)
2015
$mill
82.7
64.1
2014
$mill
84.6
50.4
263.7
306.8
(9.2)
(7.7)
401.3
434.1
Receivables ageing and provision for impairment
Included in the following table is an age analysis of the
Group’s trade receivables, along with impairment provisions
against these balances at 30 September:
Gross
2015
$mill
Impairment
2015
$mill
Net
2015
$mill
Gross
2014
$mill
Impairment
2014
$mill
Net
2014
$mill
Current
30 – 90 days
Over 90 days
240.5
38.8
25.7
–
240.5 210.9
–
210.9
(8.0) 30.8
(22.7)
3.0
35.5
21.5
(7.2)
(19.0)
28.3
2.5
Total
305.0
(30.7) 274.3 267.9
(26.2) 241.7
The graphs below show the Group’s trade working capital
(trade assets and liabilities) performance over a five year
period.
13 month rolling average trade working capital/
Annual net revenue
Inventories
Inventories are valued at the lower of cost and net realisable
value. The cost of manufactured goods is based on a
weighted average costing method. For third-party sourced
finished goods, cost is net cost into store.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value plus any directly attributable transaction costs.
Subsequent to initial measurement they are measured at
amortised cost less any provisions for expected impairment
losses or actual impairment losses. Credit losses and
recoveries of items previously written off are recognised in
the profit or loss.
Where substantially all risks and rewards relating to a
receivable are transferred to a third party, the receivable is
derecognised.
During the year, the Group early adopted the remaining
phases of AASB 9 Financial Instruments. As a result, the
provision for impairment losses in relation to trade
receivable balances is calculated using an expected
impairment loss model.
This change in accounting policy resulted in an opening
balance adjustment of $6.5m to retained earnings and the
provision for impairment losses.
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 the financial year, which are unpaid at the
reporting date.
Key estimates and judgments:
The expected impairment loss calculation considers the
impact of past events, and exercises judgment over the
impact of current and future economic conditions when
considering the recoverability of outstanding trade
receivable balances at the reporting date. Subsequent
changes in economic and market conditions may result
in the provision for impairment losses increasing or
decreasing in future periods.
Explosives
Fertilisers
FY11
FY12
FY13
FY14
FY15
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Dividend declared in respect of the financial year
Incitec Pivot Limited Annual Report 2015
50
17.5%
15.0
12.5
10.0
7.5
5.0
2.5
0
35 Cents
30
25
20
15
10
5
0
1000
800
600
400
200
0
Maturity
Date
2011
2012
2013
2014
2015
1200 AUDm
Available limits
Drawn funds
144A
Bank Facility
Bank Facility
Bond
144A
USD500m
AUD568m
USD553m
AUD200m
USD800m
Bank Facility
USD400m
Dec 15
Aug 18
Aug 18
Feb 19
Dec 19
Aug 20
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Shareholder returns
For the year ended 30 September 2015
5. Earnings per share
6. Dividends
Basic earnings per share
including individually
material items
excluding individually
material items
Diluted earnings per share
including individually
material items
excluding individually
material items
2015
Cents per share
2014
Cents per share
Dividends paid or declared by the Company in respect of the
year ended 30 September were:
23.8
23.8
23.7
23.7
15.0
21.7
15.0
21.7
Ordinary shares
Final dividend of 5.8 cents per share,
75 percent franked, paid 18 December 2013
Interim dividend of 3.5 cents per share,
75 percent franked, paid 1 July 2014
Final dividend of 7.3 cents per share,
10 percent franked, paid 16 December 2014
Number
Number
Interim dividend of 4.4 cents per share,
unfranked, paid 1 July 2015
2015
$000
2014
$000
–
–
94,466
57,572
120,814
73,723
–
–
Total ordinary share dividends
194,537
152,038
Since the end of the financial year, the directors have
determined to pay a final dividend of 7.4 cents per share,
60 percent franked, to be paid on 14 December 2015. The
total dividend payment will be $124.7m.
The financial effect of this dividend has not been recognised
in the 2015 Consolidated Financial Statements.
Consistent with recent years, the dividend reflects a payout
ratio of approximately 50% of net profit after tax (before
individually material items where applicable).
Dividend reinvestment plan
The Group operates a dividend reinvestment plan which
allows eligible shareholders to elect to invest dividends in
ordinary shares of Incitec Pivot Limited. The offer price for
shares is calculated using the daily volume weighted
average market price of Incitec Pivot Limited’s ordinary
shares sold on the Australian Securities Exchange, calculated
with reference to a period of ten consecutive trading days
less any discount which may apply, as determined by the
directors. Shares are provided under the plan free of
brokerage and other transaction costs to the participants and
rank equally with all other Incitec Pivot Limited ordinary
shares on issue. There was no discount applied in respect
of the 2015 final dividend.
Franking credits
Franking credits available to shareholders of the Company
amount to $5.0m (2014: $4.7m) at the 30 percent (2014:
30 percent) corporate tax rate. The final dividend for 2015 is
60 percent franked at the 30 percent corporate tax rate.
Key accounting policies
A provision for dividends payable is recognised in the
reporting period in which the dividends are paid. The
provision is for the total undistributed dividend amount,
regardless of the extent to which the dividend will be paid
in cash.
Weighted average number of
ordinary shares used in the
calculation of basic earnings
per share(1)
Weighted average number of
ordinary shares used in the
calculation of diluted earnings
per share(1)
1,673,824,398
1,643,969,800
1,678,614,972
1,649,661,656
(1) 30,658,837 shares were issued during the year ended 30 September 2015
(2014: 26,268,087), refer note 7.
Reconciliation of earnings used in the calculation
of basic and diluted earnings per share
Explosives
Fertilisers
17.5%
15.0
12.5
10.0
Profit attributable to ordinary shareholders
7.5
Individually material items after income tax
5.0
Profit attributable to ordinary shareholders
excluding individually material items
2.5
0
2015
$mill
2014
$mill
398.6
-
247.1
109.2
398.6
356.3
FY11
FY15
The graph shows the Group’s earnings per share and
dividend payout over the last five years.
FY14
FY12
FY13
Company performance and dividends declared
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Dividend declared in respect of the financial year
35 Cents
30
25
20
15
10
5
0
2011
2012
2013
2014
2015
1200 AUDm
Available limits
Drawn funds
1000
800
600
51
Incitec Pivot Limited Annual Report 2015
400
200
0
Maturity
Date
144A
Bank Facility
Bank Facility
Bond
144A
USD500m
AUD568m
USD553m
AUD200m
USD800m
Bank Facility
USD400m
Dec 15
Aug 18
Aug 18
Feb 19
Dec 19
Aug 20
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2015
7. Contributed equity
Capital management
Capital is defined as the amount subscribed by shareholders
to the Company’s ordinary shares and amounts advanced by
debt providers to the Group. The Group’s objectives when
managing capital are to safeguard its ability to continue as a
going concern while providing returns to shareholders and
benefits to other stakeholders.
The Group’s key strategies for maintenance of an optimal
capital structure include:
l Aiming to maintain 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.
l Optimising over the long term, and to the extent
practicable, the Group’s Weighted Average Cost of Capital
(WACC), while maintaining financial flexibility.
In order to optimise its capital structure the Group may
undertake one or a combination of the following actions:
l Change the amount of dividends paid to shareholders;
l Return capital or issue new shares to shareholders;
l Vary discretionary capital expenditure;
l Raise new debt funding or repay existing debt balances;
l Draw down additional debt or sell assets to reduce debt.
Key financial metrics
The Group uses a range of financial metrics to monitor the
efficiency of its capital structure, including gearing ratio (net
debt/EBITDA) and EBITDA interest cover (before individually
material items). At 30 September the Group’s position in
relation to these metrics was:
Gearing ratio (times)
equal or less than 2.5
Interest cover (times)
equal or more than 6.0
1.6
9.7
2.0
9.1
Target range
2015
2014
Metrics are maintained in excess of any debt covenant
restrictions. At 30 September 2015, the reported gearing
ratio is 1.6 times and the reported interest cover ratio is 9.7
times. These ratios are impacted by a number of factors
including the level of operating cash flows generated by the
Group, foreign exchange rates and the fair value of hedges
economically hedging the Group’s net debt.
Self-insurance
The Group also 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 2015, Coltivi Insurance Pte Limited maintained
capital in excess of the minimum requirements prescribed
under this Act. Outstanding claims are recognised when an
incident occurs that may give rise to a claim. They are
measured at the cost that the entity expects to incur in
settling the claims.
Issued capital
Ordinary shares
Ordinary shares issued are classified as equity and are fully
paid, have no par value and carry one vote per share and the
right to dividends. Incremental costs directly attributable to
the issue of new shares are recognised as a deduction from
equity, net of any related income tax benefit.
The table below includes details on movements in issued
capital and fully paid ordinary shares of the Company during
the year.
Date
Details
30 Sept
2014
Balance at the end of the
previous financial year
Shares issued during the year
16 Dec
2014
Shares issued (Dividend
Reinvestment Plan)
1 July
2015
Shares issued (Dividend
Reinvestment Plan)
30 Sept
2015
Balance at the end of
the financial year
Number
of Shares
$mill
1,654,998,194
3,332.8
20,623,269
10,035,568
59.3
38.8
1,685,657,031
3,430.9
Incitec Pivot Limited Annual Report 2015
52
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Explosives
Fertilisers
17.5%
15.0
12.5
10.0
7.5
5.0
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2015
FY12
FY11
FY14
FY13
0
2.5
FY15
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
8. Net debt
The Group’s net debt comprises the net of interest bearing
liabilities, cash and cash equivalents, and the fair value of
derivative instruments economically hedging the foreign
exchange rate and interest rate exposures of the Group’s
interest bearing liabilities at the reporting date. The Group’s
net debt at 30 September is analysed as follows:
Notes
2015
$mill
2014
$mill
Interest rate profile
The table below summarises the Group’s interest rate
profile, net of interest rate hedging, of its interest bearing
liabilities at 30 September:
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Dividend declared in respect of the financial year
35 Cents
30
25
20
Fixed interest rate financial instruments
15
2015
$mill
940.3
10
Variable interest rate financial instruments
1,613.4
2014
$mill
794.2
948.7
Interest bearing liabilities
Cash and cash equivalents
2,553.7
1,742.9
(606.3)
(70.5)
5
0
2,553.7
1,742.9
Fair value of derivatives
(14)
(658.1)
(192.4)
Net debt
1,289.3
1,480.0
Interest bearing liabilities
The Group’s interest bearing liabilities are unsecured and
expose it to various market and liquidity risks. Detail on these
risks and their mitigation are included in note 14.
The following table details the interest bearing liabilities of
the Group at 30 September:
Current
Bank loans
Fixed interest rate bonds
Loans to joint ventures and associates
Non-current
Bank facility
Fixed interest rate bonds
Total interest bearing liabilities
Fixed interest rate bonds
2015
$mill
20.1
714.9
12.1
747.1
2014
$mill
24.2
–
9.7
33.9
441.1
–
1,365.5
1,709.0
1,806.6
1,709.0
2,553.7
1,742.9
The Group has on issue the following Fixed Interest Rate
Bonds in the US 144A/Regulation S debt capital market:
l USD500m 5 year bond, with a fixed rate semi-annual
coupon of 4 percent, maturing in December 2015.
l USD800m 10 year bond, with a fixed rate semi-annual
coupon of 6 percent, maturing in December 2019.
The Group has on issue the following Fixed Interest Rate
Bond in the Australian debt capital market:
l AUD200m 5.5 year bond, with a fixed rate semi-annual
coupon of 5.75 percent, maturing in February 2019.
Bank facility
Bank facilities of AUD568m and USD953m were entered into
in August 2015 and are split into two facilities. The first
facility is for a 3 year term maturing in August 2018. This
facility has two tranches: Tranche A has a limit of AUD568m
and Tranche B has a limit of USD553m. The second facility
has a limit of USD400m and is for a 5 year term, maturing in
August 2020. These facilities replaced the AUD1,450m bank
facility and will be used for general funding purposes
including the refinancing of the 144A USD500m bond
maturing in December 2015.
53
Incitec Pivot Limited Annual Report 2015
2011
Funding profile
The graph details the Group’s available funding, its maturity
dates and drawn funds at 30 September 2015:
2014
2015
2012
2013
1200 AUDm
Available limits
Drawn funds
1000
800
600
400
200
0
Maturity
Date
144A
USD500m
Bank Facility
AUD568m
Bank Facility
USD553m
Bond
AUD200m
144A
USD800m
Bank Facility
USD400m
Dec 15
Aug 18
Aug 18
Feb 19
Dec 19
Aug 20
Cash and cash equivalents
Cash and cash equivalents at 30 September 2015 was $606.3m
(2014: $70.5m) and consisted of cash at bank of $103.2m (2014:
$70.5m) and deposits on call of $503.1m (2014: nil).
Key accounting policies
Interest bearing liabilities
Interest bearing liabilities are initially recognised at fair value
less any directly attributable borrowing costs. Subsequent to
initial recognition, interest bearing liabilities are measured at
amortised cost using the effective interest method, with any
difference between cost and redemption value recognised in
the profit or loss over the period of the borrowings.
The Group derecognises interest bearing liabilities when its
obligation is discharged, cancelled or expires. Any gains
and losses arising on derecognition are recognised in the
profit or loss.
Interest bearing liabilities are classified as current liabilities,
except for those liabilities where the Group has an
unconditional right to defer settlement for at least 12 months
after the year end, which are classified as non-current.
Cash and cash equivalents
Cash includes cash at bank, cash on hand and deposits at
call, net of bank overdrafts.
Borrowing costs
Borrowing costs include interest on borrowings and the
amortisation of premiums relating to borrowings.
Borrowing costs are expensed as incurred, unless they relate
to qualifying assets (refer note 9). In this instance, the
borrowing costs are capitalised and depreciated over the
asset’s expected useful life.
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2015
9. Property, plant and equipment
Freehold land
and buildings
$mill
Notes
Machinery,
plant and
equipment
$mill
Construction
in progress
$mill
At 1 October 2013
Cost
Accumulated depreciation
Net book amount
Year ended 30 September 2014
Opening net book amount
Additions
Disposals
Depreciation
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
Year ended 30 September 2015
Opening net book amount
Additions
Disposals
Depreciation
Impairment of assets
Reclassification from construction in progress
Foreign exchange movement
Closing net book amount
At 30 September 2015
Cost
Accumulated depreciation
Net book amount
Capitalised interest
During the year ended 30 September 2015 interest of $37.7m
(2014: $17.7m) was capitalised in relation to the funding of
expansion projects.
Key accounting policies
Property, plant and equipment is measured at cost, less
accumulated depreciation and any impairment losses.
Subsequent costs are included in the asset’s carrying amount,
or recognised as a separate asset, 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.
Borrowing costs in relation to the funding of qualifying
assets are capitalised and included in the cost of the asset.
Qualifying assets are assets that take more than 12 months
to get ready for their intended use or sale. Where funds are
borrowed generally, a weighted average interest rate is used
for the capitalisation of interest.
Property, plant and equipment is subject to impairment
testing. For details of impairment of assets, refer note 11.
746.6
(174.3)
572.3
572.3
2.7
(3.9)
(22.1)
(13.3)
21.2
6.3
563.2
753.0
(189.8)
563.2
563.2
4.5
(1.0)
(23.1)
–
11.8
26.8
582.2
2,882.3
(727.9)
2,154.4
2,154.4
153.1
(5.6)
(172.0)
(39.9)
120.0
30.1
2,240.1
3,076.8
(836.7)
2,240.1
2,240.1
38.1
(3.6)
(196.3)
(4.5)
155.8
111.3
2,340.9
306.8
–
306.8
306.8
507.8
–
–
–
(141.2)
34.7
708.1
708.1
–
708.1
708.1
361.0
–
–
–
(167.6)
179.0
1,080.5
(2)
(2)
(2)
(2)
Total
$mill
3,935.7
(902.2)
3,033.5
3,033.5
663.6
(9.5)
(194.1)
(53.2)
–
71.1
3,511.4
4,537.9
(1,026.5)
3,511.4
3,511.4
403.6
(4.6)
(219.4)
(4.5)
–
317.1
4,003.6
804.0
(221.8)
582.2
3,481.4
(1,140.5)
2,340.9
1,080.5
-
1,080.5
5,365.9
(1,362.3)
4,003.6
Depreciation
Property, plant and equipment, other than freehold land, is
depreciated on a straight-line basis. Freehold land is not
depreciated. Depreciation rates are calculated to spread the
cost of the asset (less any residual value), over its estimated
useful life. Residual value is the estimated value of the asset
at the end of its useful life.
Estimated useful lives in the current and comparative years
for each class of asset are as follows:
• Buildings and improvements
• Machinery, plant and equipment
20 – 40 years
3 – 40 years
Residual values and useful lives are reviewed and adjusted
where relevant when changes in circumstances impact the
use of the asset.
Incitec Pivot Limited Annual Report 2015
54
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2015
10. Intangibles
At 1 October 2013
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2014
Opening net book amount
Additions
Impairment of intangible assets
Amortisation
Foreign exchange movement
Closing net book amount
At 30 September 2014
Cost
Accumulated amortisation
Net book amount
Year ended 30 September 2015
Opening net book amount
Additions
Amortisation
Foreign exchange movement
Closing net book amount
At 30 September 2015
Cost
Accumulated amortisation
Net book amount
Notes
Software
$mill
Goodwill
$mill
Patents, trademarks &
customer contracts
$mill
Brand names
$mill
Total
$mill
(2)
(2)
(2)
86.2
(54.7)
31.5
31.5
0.8
(0.8)
(10.8)
0.6
21.3
87.8
(66.5)
21.3
21.3
5.2
(10.1)
1.2
17.6
98.0
(80.4)
17.6
2,537.8
–
2,537.8
2,537.8
–
(34.1)
–
76.8
2,580.5
2,580.5
–
2,580.5
2,580.5
–
–
302.7
2,883.2
2,883.2
–
2,883.2
239.7
(93.7)
146.0
146.0
–
–
(18.4)
6.5
134.1
250.9
(116.8)
134.1
134.1
–
(19.6)
22.6
137.1
294.6
(157.5)
137.1
245.7
–
245.7
245.7
–
(2.7)
–
13.4
256.4
256.4
–
256.4
256.4
–
–
52.0
308.4
308.4
–
308.4
3,109.4
(148.4)
2,961.0
2,961.0
0.8
(37.6)
(29.2)
97.3
2,992.3
3,175.6
(183.3)
2,992.3
2,992.3
5.2
(29.7)
378.5
3,346.3
3,584.2
(237.9)
3,346.3
Allocation of goodwill
For impairment testing purposes the Group identifies its cash
generating units (CGUs), which is the smallest identifiable
group of assets that generate cash inflows largely
independent of the cash inflows of other assets or other
groups of assets. Each CGU is no larger than a segment. For
impairment testing, the Group’s CGUs are the same as its
reportable segments (as set out in note 1) but with no
allocation to corporate assets and liabilities.
The Group’s indefinite life intangible assets are allocated to
the groups of CGUs as follows:
30 September 2015
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
30 September 2014
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
Goodwill
$mill
Brand names
$mill
183.8
2.6
1,132.4
1,564.4
2,883.2
–
–
40.3
268.1
308.4
Goodwill
$mill
Brand names
$mill
183.8
2.1
1,132.4
1,262.2
2,580.5
–
–
40.3
216.1
256.4
Total
$mill
183.8
2.6
1,172.7
1,832.5
3,191.6
Total
$mill
183.8
2.1
1,172.7
1,478.3
2,836.9
55
Incitec Pivot Limited Annual Report 2015
Key accounting policies
Goodwill
Goodwill on acquisition of subsidiaries is measured at cost
less any accumulated impairment losses. Goodwill is tested
for impairment annually, or more frequently if events or
circumstances indicate that it might be impaired.
Brand names
Brand names acquired by the Group have indefinite useful
lives and are measured at cost less accumulated impairment.
They are tested annually for impairment, or more frequently if
events or circumstances indicate that they might be impaired.
Other intangible assets
Other intangible assets acquired by the Group have finite lives.
They are stated at cost less accumulated amortisation and
impairment losses.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised
only when it increases the future economic benefits of the
asset to which it relates. All other such expenditure is
expensed as incurred.
Amortisation
Goodwill and brand names are not amortised.
For intangible assets with finite lives, amortisation is
recognised in the profit or loss on a straight-line basis over
their estimated useful life. The estimated useful lives of
intangible assets in this category are as follows:
• Software
• Product trademarks
• Patents
• Customer contracts
3 – 7 years
4 – 10 years
13 – 15 years
10 – 17 years
Useful lives are reviewed at each reporting date and
adjusted where relevant.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2015
11. Impairment of goodwill and
non-current assets
At 30 September 2015, the Group has identified the following
indicators of impairment:
Explosives
The global mining downturn, and consequent lower mining
commodity prices, have resulted in mining companies
reviewing their operating costs and this has led to margin
pressure for their suppliers, including explosives manufacturers.
Fertilisers
Global fertiliser prices are impacted by new supply and
varying global demand caused by regional weather patterns
and variable soft commodity pricing. In addition, there is a risk
that reliable, committed sources of natural gas and sulphuric
acid at economically viable prices may not be available to the
Group for use at its Fertilisers manufacturing operations.
In addition, the Group also identified indicators of
impairment for the Nitromak and Gibson Island assets.
Impairment testing
The Group has prepared value-in-use models for the purpose
of impairment testing as at 30 September 2015, using five
year discounted cash flow models based on Board approved
forecasts. Cash flows beyond the five year period are
extrapolated using a terminal value growth rate.
The Group’s impairment testing resulted in no impairment at
30 September 2015. In addition, no reversal of impairment
was required for the Nitromak and Donora assets that were
impaired in 2014.
Key assumptions
The estimation of future cash flows requires management to
make significant estimates and judgments on the timing of
cash flows, commodity prices and foreign exchange rates.
Details of the key assumptions used in the value-in-use
calculations at 30 September are set out below:
Key
assumptions
DAP(1)
Urea(2)
Gas(3)
AUD:USD(4)
1 – 5 years
2015
2014
$425
to $493
$265
to $325
$9.00
$0.72
to $0.76
$457 to
$482
$321
to $333
$9.00
$0.82
to $0.89
Terminal value
(after 5 years)
2015
$535
2014
$535
$336
$345
$9.18
$0.76
$9.00
$0.81
(1) Di-Ammonium Phosphate price (FOB Tampa – USD per tonne).
(2) Granular Urea price (FOB Middle East – USD per tonne).
(3) Australian East Coast natural gas price (AUD per gigajoule).
(4) AUD:USD exchange rate.
Fertiliser prices, foreign exchange rates and natural gas
prices 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 post-tax discount rate used in the value-in-use
calculations is 9% (2014: 9%) for all CGUs except Nitromak
where 17.5% (2014: 17.5%) was used. The rate reflects the
underlying cost of capital, adjusted for market risk.
The terminal value growth rate represents the forecast
consumer price index (CPI) within the respective markets, and
was 2.5% (2014: 2.5%) for all the CGUs except Nitromak,
where no growth was assumed (current and prior year).
The value-in-use models reflects management’s assumption
that all operating site leases will be extended beyond 2020.
Sensitivity analyses
Included in the table below is a sensitivity analysis of the
recoverable amounts and, where applicable, the impairment
charge considering reasonable change scenarios relating to
key assumptions at 30 September 2015:
AUD:USD
exchange
rate
DAP/Urea
price in
USD(1)
SCI
+ 5c
$mill
– Value-in-use
– Impairment charge
(342.8)
–
Gibson Island
+ 5c
$mill
– Value-in-use
– Impairment charge
(172.1)
(71.3)
DNAP
– Value-in-use
– Impairment charge
n/a
$mill
n/a
n/a
- USD40
per tonne
$mill
(468.6)
(93.5)
- USD20
per tonne
$mill
(144.5)
(43.7)
n/a
$mill
Terminal
value
growth
rate
- 1.0%
$mill
(80.2)
–
- 1.0%
$mill
(17.4)
–
- 1.0%
$mill
Australian
East Coast
natural gas
price in AUD
+ AUD2 per
gigajoule
$mill
(169.1)
–
+ AUD2 per
gigajoule
$mill
(227.3)
(126.5)
n/a
$mill
n/a
n/a
n/a
n/a
(310.3)
(131.6)
(1) DAP price impacts the value-in-use of the SCI CGU. The Urea price impacts
the value-in-use of the Gibson Island assets.
Each of the sensitivities above assumes that a specific
assumption moves in isolation, while all other assumptions
are held constant. 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.
Impairment of other property, plant and equipment
During the year ended 30 September 2015 property, plant
and equipment was impaired by $4.5m (2014: $3.6m) as a
result of the Group’s fixed asset verification procedures and
the abandonment of certain assets.
Key accounting policies
Impairment testing
The Group performs annual impairment testing at 30
September for intangible assets with indefinite useful lives.
More frequent reviews are performed for indicators of
impairment of all the Group’s assets, including operating
assets. The identification of impairment indicators involves
management judgment. Where an indicator of impairment is
identified, a formal impairment assessment is performed.
The Group’s annual impairment testing determines whether
the recoverable amount of a CGU or group of CGUs, to which
goodwill and/or indefinite life intangible assets are
allocated, exceeds its carrying amount.
Incitec Pivot Limited Annual Report 2015
56
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2015
11. Impairment of goodwill and
non-current assets (continued)
Key accounting policies (continued)
Impairment testing (continued)
A CGU is the smallest identifiable group of assets that
generate cash flows largely independent of cashflows of
other assets or other groups of assets. Goodwill and other
indefinite life intangible assets are allocated to CGUs or
groups of CGUs which are no larger than one of the Group’s
reportable segments.
12. Commitments
Capital expenditure commitments
Capital expenditure contracted but not provided for or
payable at 30 September:
no later than one year
later than one, no later than five years
2015
$mill
146.0
1.7
147.7
2014
$mill
188.1
45.3
233.4
Determining the recoverable amount
Lease commitments
Impairment testing involves comparing an asset’s
recoverable amount to its carrying amount. The recoverable
amount of an asset (excluding receivables) is determined as
the higher of its fair value less costs to sell and its value-in-
use. “Value-in-use” is a term that means an asset’s value
based on the expected future cash flows arising from its
continued use, discounted to present value. For discounting
purposes, a post-tax rate is used that reflects current market
assessments of the risks specific to the asset.
A recoverable amount is estimated for each individual asset
or, where it is not possible to estimate for individual assets,
for the CGU to which the asset belongs. Cash flows are
estimated for the asset in its current condition and do not
include cash inflows or outflows that improve or enhance the
asset’s performance or that may arise from future
restructuring.
Impairment losses
An impairment loss is recognised whenever the carrying
amount of an asset (or its CGU) exceeds its recoverable
amount. Impairment losses are recognised in the profit or loss.
Impairment losses recognised in respect of CGUs are
allocated against assets in the following order:
• Firstly, against the carrying amount of any goodwill
allocated to the CGU.
• Secondly, against the carrying amount of any remaining
assets in the CGU.
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 at 30 September:
no later than one year
later than one, no later than five years
later than five years
2015
$mill
49.5
76.5
59.8
2014
$mill
50.3
76.8
55.4
185.8
182.5
Key accounting policies
Leases are accounted for as either finance leases or
operating leases.
Finance leases
Under the terms of a finance lease, the Group assumes most
of the risks and benefits associated with ownership of the
leased asset.
Assets subject to finance leases are measured at the present
value of the minimum lease payments. The leased asset is
amortised on a straight-line basis over the period that
benefits are expected to flow from its use. A corresponding
liability is established for the lease payments. Each lease
payment is allocated between finance charges and reduction
of the liability.
Key estimates and judgments:
Operating leases
Under the terms of an operating lease, the Group does not
assume the risks and benefits associated with ownership of
the leased asset. Payments made under operating leases are
shown as lease payments in the Consolidated Statement of
Profit or Loss and Other Comprehensive Income.
The Group is required to make significant estimates and
judgments in determining whether the carrying amount
of its assets and/or CGUs has any indication of
impairment, in particular in relation to:
• key assumptions used in forecasting future cash
flows;
• discount rates applied to those cash flows; and
•
the expected long term growth in cash flows.
Such estimates and judgments are subject to change as a
result of changing economic and operational conditions.
Actual cash flows may therefore differ from forecasts and
could result in changes in the recognition of impairment
charges in future periods.
57
Incitec Pivot Limited Annual Report 2015
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
13. Provisions and contingencies
Provisions at 30 September 2015 are analysed as follows:
Employee
entitlements
$mill
Restructuring and
rationalisation
$mill
Environmental
$mill
Asset retirement
obligations
$mill
Legal
and other
$mill
Total provisions
$mill
56.1
4.4
–
(3.6)
0.5
–
57.4
51.8
5.6
7.3
1.4
–
(4.0)
–
0.2
4.9
4.7
0.2
73.9
0.8
(6.4)
(6.7)
0.4
6.8
68.8
19.0
49.8
32.1
2.5
–
(0.5)
2.5
1.6
38.2
0.5
37.7
4.7
6.4
(0.4)
(0.4)
–
0.6
10.9
10.9
–
174.1
15.5
(6.8)
(15.2)
3.4
9.2
180.2
86.9
93.3
30 September 2015
Carrying amount at 1 October 2014
Provisions made during the year
Provisions written back during the year
Payments made during the year
Unwind
Foreign currency exchange differences
Carrying amount at 30 September 2015
Current
Non-current
Key accounting policies
Provisions
Provisions are measured at management’s estimate of the
expenditure required to settle the obligation. This estimate is
based on a “present value” calculation, which involves the
application of a discount rate to the expected future cash
flows associated with settlement. The discount rate takes into
account factors such as risks specific to the liability and the
time value of money.
Employee entitlements
Provisions are made for liabilities to employees for annual
leave, long service leave and other employee entitlements.
Where the payment to employees is expected to take place in
12 months time or later, a present value calculation is
performed. In this instance, the corporate bond rate is used to
discount the liability to its present value.
Restructuring and rationalisation
Provisions for restructuring or rationalisation are only
recognised when a detailed plan has been approved and the
restructuring or rationalisation has either commenced or been
publicly announced.
Environmental
Provisions (and the related expense) relating to the
remediation of soil, groundwater, untreated waste and other
environmental contamination are made when the Group has
an obligation to carry out the clean-up operation as a result of
a past event. In addition, a provision will only be made where
it is possible to reliably estimate the costs involved.
Asset retirement
In certain circumstances, the Group has an obligation to
dismantle and remove an asset and to restore the site on
which it is located. The present value of the estimated costs
of this process is recognised as part of the asset that is
depreciated and also as a provision.
At each reporting date, the provision is remeasured in line
with changes in discount rates and the timing and amount of
future estimated cash flows. Any changes in the provision are
added to or deducted from the related asset, other than
changes associated with the passage of time. This is
recognised as a borrowing cost in the profit or loss.
Legal and other
There are a number of legal claims and other exposures,
including claims for damages arising from products and
services supplied by the Group, that arise from the ordinary
course of business. A provision is only made where it is
probable that a sacrifice of future economic benefits will be
required and the costs involved can be reliably estimated.
Key estimates and judgments:
Provisions are based on the Group’s estimate of the
timing and value of outflows of resources required to
settle or satisfy commitments and liabilities known to
the Group at the reporting date.
Contingencies
The following contingent liabilities are considered remote.
However the directors consider they should be disclosed:
• Under the terms of the ASIC Class Order 98/1418 (as
amended) dated 13 August 1998, which relieved certain
wholly-owned subsidiaries from the requirement to prepare
audited financial statements, IPL and certain wholly-owned
subsidiaries have entered into an approved deed for the
cross guarantee of liabilities with those subsidiaries
identified in note 20. No liabilities subject to the deed of
cross guarantee at 30 September 2015 are expected to
arise to IPL or the relevant subsidiaries.
• The Group is regularly subject to 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.
• Contingent liabilities arise in the normal course of
business and include a number of legal claims,
environmental clean-up requirements and bank
guarantees.
The Directors are of the opinion that no additional provisions
are required in respect of these matters, as it is either
not probable that a future sacrifice of economic benefits
will be required or the amount is not capable of reliable
measurement.
Incitec Pivot Limited Annual Report 2015
58
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
14. Financial risk management
The Group is exposed to financial risks including liquidity risk, market risk and credit risk. This note explains the Group’s
financial risk exposures and its objectives, policies and processes for measuring and managing these risks.
The Board of Directors (the ‘Board’) has overall responsibility for the establishment and oversight of the Group’s risk
management framework. The Board established the Audit and Risk Management Committee (ARMC) which is responsible for,
amongst other things, the monitoring of the Group’s risk management plans. The ARMC is assisted in its oversight role by the
Group’s Risk Management function. The Risk Management function performs reviews of the Group’s risk management controls
and procedures, the results of which are reported to the ARMC. The ARMC reports regularly to the Board on its activities.
The Group’s financial risk management framework includes policies to identify, analyse and manage the Group’s financial risks.
These policies set appropriate financial risk limits and controls, identify permitted derivative instruments and provide guidance on
how to monitor and report financial risks and adherence to set limits. Financial risk management policies, procedures and systems
are reviewed regularly to ensure they remain appropriate given changes in market conditions and/or the Group’s activities.
Financial risks
Liquidity risk: This is the risk that the Group is not able to refinance its debt obligations or meet its cash commitments
when required.
Source of risk
Exposure to liquidity risk derives from the Group’s operations
and from the external interest bearing liabilities that it holds.
This includes stress testing of critical assumptions such as
input costs, sales prices, production volumes, exchange rates
and capital expenditure.
Risk mitigation
Liquidity risk is managed by ensuring 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 earnings and
capital requirements.
The Group aims to hold a minimum liquidity buffer of at
least $500m in undrawn non-current committed funding to
meet any unforeseen cash flow requirements. Details on the
Group’s committed finance facilities, including the maturity
dates of these facilities, are included in note 8.
Outstanding financial instruments
The Group’s exposures to liquidity risk are set out in the tables below:
30 September 2015
Non-derivative
financial liabilities
Interest bearing liabilities
Contractual
cash flows(1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
30 September 2014
Contractual
cash flows (1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
2,553.7
747.1 1,806.6
Interest payments
357.4
70.0
287.4
Trade and other payables
893.1
888.5
Bank guarantees
144.4
70.7
4.6
8.4
–
–
–
Total non-derivative
cash outflows
Derivative financial
(assets)/liabilities
Forward exchange contracts
Cross currency interest
rate swaps
Interest rate swaps
Platinum forwards
Natural gas swaps
Net derivative cash
outflows
3,948.6 1,776.3 2,107.0
65.3
(3.2)
(3.2)
–
143.4
30.1
113.3
–
–
9.7
1.2
10.8
(6.2)
1.2
10.8
7.4
8.5
–
–
–
–
161.9
32.7
120.7
8.5
Non-derivative
financial liabilities
Interest bearing liabilities
1,742.9
33.9
778.2
930.8
Interest payments
422.4
100.3
294.5
27.6
Trade and other payables
65.3
Bank guarantees
Total non-derivative cash
outflows
Derivative financial
(assets)/liabilities
833.1
823.0
126.2
57.4
10.1
9.0
–
59.8
3,124.6 1,014.6 1,091.8 1,018.2
Forward exchange contracts
(0.8)
(0.8)
Foreign exchange options
9.2
9.2
–
–
Cross currency interest
rate swaps
Interest rate swaps
Net derivative cash
outflows
81.4
(26.9)
–
(15.3)
81.4
(16.1)
62.9
(6.9)
65.3
4.5
–
–
–
4.5
(1) Contractual cash flows are not discounted, include interest amounts payable, and are based on foreign exchange rates at year end. Any subsequent movements
in foreign exchange rates could impact the actual cash flows on settlement of these assets and liabilities.
59
Incitec Pivot Limited Annual Report 2015
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
14. Financial risk management (continued)
Financial risks (continued)
Market risk: Market risk is the risk that changes in foreign exchange rates, interest rates and commodity prices will affect
the Group’s earnings, cash flows and the carrying values of its financial instruments.
Foreign exchange risk
Source of risk
Risk mitigation
The Group is exposed to changes in foreign exchange rates
(primarily in USD) on the following transactions and balances:
l Sales and purchases
l Trade receivables and trade payables
l
Interest bearing liabilities
The Group is also exposed to foreign exchange rate
movements (primarily in USD) on the translation of the
earnings, assets and liabilities of its foreign operations.
Foreign exchange exposure to sales and purchases is
mitigated, to the extent possible, by entering into formal
hedging arrangements.
The Group hedges both specific transactions and net
exposures by entering into foreign exchange rate derivative
contracts.
The translation risk of USD denominated interest bearing
liabilities and net investments in foreign operations and their
earnings is also managed by entering into foreign exchange
rate derivative financial instruments.
Outstanding financial instruments and sensitivity analysis
The tables below summarises the Group’s exposures to movements in the AUD:USD exchange rate and the derivative financial
instruments that are in place to hedge these exposures at 30 September:
2015
AUD:USD
USD mill
2014
AUD:USD
USD mill
2015
AUD:USD
USD mill
2014
AUD:USD
USD mill
Transactional exposures
Trade and other receivables
Trade and other payables
Interest bearing liabilities
Translational exposures
0.2
10.3
Net investment in foreign operations
2,280.2
2,182.1
(179.0)
(242.0)
(1,573.0)
(1,300.0)
Gross exposure (before hedging)
2,280.2
2,182.1
Gross exposure (before hedging)
(1,751.8)
(1,531.7)
Hedge of translational exposures
Hedge of transactional exposures
Trade and other receivables and payables
Forward exchange contracts
176.4
235.6
Interest bearing liabilities
Cross currency interest rate swaps
(1,746.5)
(1,781.5)
Forward exchange contracts
(473.0)
(203.5)
Total hedge contract values
(2,219.5)
(1,985.0)
Net exposure (after hedging)
60.7
197.1
Forward exchange contracts
273.0
–
Cross currency interest rate swaps
1,300.0
1,300.0
Foreign exchange rates
Total hedge contract values
1,749.4
1,535.6
Net exposure (after hedging)
(2.4)
3.9
The AUD:USD foreign exchange rates used by the Group to
translate its foreign denominated earnings, assets and
liabilities are set out below:
2015
AUD:USD
USD mill
2014
AUD:USD
USD mill
30 September foreign exchange rate
0.7017
0.8705
2015
AUD:USD
2014
AUD:USD
Hedge of forecast sales and purchases
Average foreign exchange rate for the year
0.7868
0.9204
Forward exchange contracts
Foreign exchange options
Total hedge contract values
27.9
–
154.3
(165.0)
27.9
(10.7)
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Incitec Pivot Limited Annual Report 2015
60
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
14. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Foreign exchange risk (continued)
Outstanding financial instruments and sensitivity analysis (continued)
Foreign exchange rate sensitivity on outstanding financial
instruments
Sensitivity to foreign exchange rate movements during
the year (unhedged)
The table below shows the impact of a 1 cent movement
(net of hedging) in the AUD:USD exchange rate on the
Group’s profit and equity before tax in relation to foreign
denominated assets and liabilities at 30 September:
The table below shows the impact of a 1 cent movement in
foreign exchange rates on the Group’s profit before tax, in
relation to sales and earnings during the year that are
denominated in USD.
Foreign exchange sensitivity
– (net of hedging)
+1c
Trade and other receivables and payables
– (profit or loss)
Hedge of forecast transactions – (equity)
Investments in foreign operations – (equity)
-1c
Trade and other receivables and payables
– (profit or loss)
Hedge of forecast transactions – (equity)
Investments in foreign operations – (equity)
2015
AUD:USD
AUD mill
2014
AUD:USD
AUD mill
+ 1c
AUD:USD
AUD mill
2015
- 1c
AUD:USD
AUD mill
2015
+ 1c
AUD:USD
AUD mill
2014
- 1c
AUD:USD
AUD mill
2014
–
(0.6)
(1.2)
–
0.6
1.3
(0.1)
0.1
(2.6)
0.1
(0.1)
2.6
Foreign exchange
sensitivity – (unhedged)
USD Fertiliser sales from
Australian plants
North American USD
earnings
(9.6)
9.8
(5.6)
5.7
(2.9)
2.9
(2.2)
2.2
The Fertiliser sales sensitivity calculation is based on actual
tonnes manufactured by the Australian fertiliser plants and
sold during the year, the average AUD:USD exchange rate for
the year, and the average USD fertiliser price.
The North American earnings translation sensitivity
calculation is based on the earnings before interest, tax,
depreciation and amortisation from the North American
business for the year and the average AUD:USD exchange
rate achieved during the year.
Interest rate risk
Source of risk
Exposure to interest rate risk is a result of the effect of
changes in interest rates on the Group’s outstanding interest
bearing liabilities and derivative instruments.
Risk mitigation
The exposure to interest rate risk is mitigated by maintaining a
mix of fixed and variable interest rate borrowings and by
entering into interest rate derivative instruments.
Outstanding financial instruments and sensitivity analysis
The Group’s interest bearing liabilities at 30 September was $2,553.7m (2014: $1,742.9m), comprising $2,080.4m (2014:
$1,709.0m) of fixed rate borrowings and $473.3m (2014: $33.9m) of floating rate borrowings (refer note 8). The Group also
holds interest rate swap contracts as at 30 September summarised in the tables below:
30 September 2015
USD LIBOR
not later than one year
later than one year,
no later than five years
Average
pay
fixed rate
Average
receive
fixed rate
Duration
years
Net
contract
amounts
mill
–
(1.55%)
0.2
USD 500
30 September 2014
USD LIBOR
later than one year,
no later than five years
Average
pay
fixed rate
Average
receive
fixed rate
Duration
years
Net
contract
amounts
mill
3.31%
(3.17%)
4.1
USD 350
later than five years
–
(1.57%)
1.95%
–
2.1
3.6
USD 450
USD 350
later than five years
3.68%
–
3.0
USD 250
AUD BBSW
later than one year,
no later than five years
3.07%
–
3.0
AUD 100
61
Incitec Pivot Limited Annual Report 2015
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
14. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Interest rate risk (continued)
Outstanding financial instruments and sensitivity analysis (continued)
Interest rate sensitivity on outstanding financial instruments
The following table shows the sensitivity of the Group’s
profit before tax to a 1 per cent change in interest rates. The
sensitivity is calculated based on the Group’s interest bearing
liabilities and derivative financial instruments that are
exposed to interest rate movements and the AUD:USD
exchange rate at 30 September:
Interest Rate Sensitivity
LIBOR
BBSW
+ 1%
AUD mill
- 1%
AUD mill
+ 1%
AUD mill
- 1%
AUD mill
2015
2015
2014
2014
(25.1)
7.9
25.1
(7.9)
(14.7)
5.1
14.7
(5.1)
The sensitivity above is also representative of the Group’s
interest rate exposures during the year.
Commodity risk
Source of risk
Exposure to changes in commodity prices is by virtue of the
products that the Group sells and its manufacturing operations, and
can be categorised into four main commodities, namely:
Ammonium Nitrate, Ammonium Phosphate, Urea and Natural Gas.
Outstanding financial instruments and sensitivity analysis
The table below includes the Group’s derivative contracts that
are exposed to changes in natural gas prices at 30 September:
Total volume
(MMBTU)(1)
Price/
Strike(2)
Total volume
(MMBTU)(1)
2015
2015
2014
Price/
Strike(2)
2014
Contracts maturing
within 1 year
Natural gas swaps
fixed payer/(receiver)
Natural gas options
13,391,500 USD 3.34
(76,050) USD 3.98
Sold Call
Bought Call
Sold Put
Bought Put
1,499,000 USD 4.00
1,499,000 USD 3.19
1,499,000 USD 2.50
1,499,000 USD 1.50
Contracts maturing
between 1 and 5 years
Natural gas options
Bought Call
Sold Put
8,232,000 USD 4.24
8,232,000 USD 3.00
(1) Million Metric British Thermal Units
(2) Nymex Henry Hub gas price
–
–
–
–
–
–
–
–
–
–
–
–
Natural gas price sensitivity on outstanding financial
instruments
The table below shows the sensitivity of the Group’s equity
before tax to a change of USD1 per MMBTU in the natural
gas price. The sensitivity is based on natural gas derivative
contracts held by the Group at 30 September:
Natural gas price
sensitivity
+ USD1 per
1 MMBTU
AUD mill
- USD1 per
1 MMBTU
AUD mill
+ USD1 per
1 MMBTU
AUD mill
- USD1 per
1 MMBTU
AUD mill
Henry Hub USD
2015
27.3
2015
(27.3)
2014
(0.1)
2014
0.1
Risk mitigation
Price risk exposure is managed by entering into long term
contracts with suppliers and customers where possible.
Where commodity price exposures cannot be eliminated
through contracted and/or other commercial arrangements, the
Group may enter into derivative contracts where available on a
needs basis, to mitigate this risk. However, in some instances
price risk exposure can not be economically mitigated by either
contractual arrangements or derivative contracts.
Sensitivity to natural gas price movements during the year
The table below shows the sensitivity of the Group’s profit
before tax to a change of USD1 per MMBTU in the natural
gas price. The sensitivity is based on the average natural gas
price, the average AUD:USD exchange rate (excluding the
impact of hedging) and the current annual natural gas
consumption of the Group’s manufacturing operations in the
Americas that are exposed to changes in natural gas prices:
Natural gas price
sensitivity
Henry Hub USD
+ USD1 per
1 MMBTU
AUD mill
- USD1 per
1 MMBTU
AUD mill
+ USD1 per
1 MMBTU
AUD mill
- USD1 per
1 MMBTU
AUD mill
2015
(7.9)
2015
7.9
2014
(6.4)
2014
6.4
Sensitivity to fertiliser price movements during the year
The table below shows the sensitivity of the Group’s profit
before tax to a USD10 per tonne change in Ammonium
Phosphates and Urea prices. The sensitivity is based on actual
tonnes manufactured and sold by the Group during the year
and the average AUD:USD exchange rate (excluding the
impact of hedging) for the year:
Fertiliser price sensitivity
2015
Granular Urea (FOB Middle East)
DAP (FOB Tampa)
Urea (FOB NOLA)
2014
Granular Urea (FOB Middle East)
DAP (FOB Tampa)
Urea (FOB NOLA)
+ USD10
per tonne
AUD mill
- USD10
per tonne
AUD mill
Actual
Tonnes
(’000)
4.6
13.3
2.1
4.4
8.4
1.7
(4.6)
(13.3)
(2.1)
360
1,046
163
(4.4)
(8.4)
(1.7)
403
775
158
Incitec Pivot Limited Annual Report 2015
62
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
14. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Included in the table below are details of the Group’s derivative instruments at 30 September 2015, classified by hedge
accounting type and market risk category:
30 September 2015
Notes
Cash flow hedges
Foreign exchange risk on forecast sales & purchases
Forward exchange contracts
Discontinued hedge (3)
Commodity risk on forecast purchases
Natural gas swaps
Natural gas options
Platinum forwards
Discontinued hedge (3)
Interest rate risk on highly probable debt
Interest rate swaps
Discontinued hedge (3)
Total cash flow hedges
Fair value hedges(5)
Foreign exchange risk on USD borrowings
Cross currency interest rate swaps
Forward exchange contracts
Interest rate risk on fixed USD and AUD Bonds
Interest rate swaps
Discontinued hedge(4)
Total fair value hedges
Net investment hedges
Foreign exchange risk on foreign operation
Cross currency interest rate swaps
Forward exchange contracts
Discontinued hedge(3)
Total net investment hedges
Held for trading(6)
Forward exchange contracts
Interest rate swaps
Total held for trading
Offsetting contracts(1)
Equity instruments
Total net
(8)
Balance at 30 September 2015
During the period
Carrying
amount of
hedging
instrument
asset(1)
Carrying
amount of
hedging
instrument
liability(1)
Fair value
hedge
adjustment
of hedged
item
Balance of
gains/
(losses) in
reserves
before tax
Gains/
(losses)
recognised in
reserves(2)
Reclassification
of (gains)/
losses from
reserves to
profit or loss(2)
3.0
–
–
–
–
–
–
–
3.0
521.5
101.8
34.8
–
658.1
–
2.8
–
2.8
48.9
1.7
50.6
(670.6)
1.2
45.1
(2.8)
–
(10.5)
(3.3)
(1.2)
–
(43.5)
–
(61.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(522.9)
(18.9)
(41.1)
4.5
(578.4)
0.1
13.4
(9.2)
(3.4)
(1.2)
(3.6)
(41.8)
(7.7)
(53.4)
–
–
–
–
–
0.1
33.2
(9.2)
(3.4)
(1.2)
(8.2)
(39.2)
(1.5)
(29.4)
–
–
–
–
–
(665.0)
(101.8)
–
(766.8)
(47.7)
(1.7)
(49.4)
670.6
–
–
–
–
–
–
–
–
–
–
(654.3)
(76.8)
(74.7)
(805.8)
(413.0)
(67.3)
(122.3)
(602.6)
–
–
–
–
–
–
–
–
(16.0)
(3.6)
–
(14.3)
–
–
–
4.6
0.7
4.0
(5.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(206.9)
(578.4)
(875.2)
(635.6)
(5.0)
(1) Balances are included in other financial assets/liabilities in the Statement of Financial Position. Financial assets and financial liabilities that are
subject to enforceable master netting arrangements are offset in the Statement of Financial Position.
(2) Gains or losses recognised in the reserves will be reclassified to the same line item in the profit or loss as the underlying hedged item when
the underlying forecast transaction occurs.
(3) Gains or losses on discontinued hedges that were in cash flow hedge or net investment hedge relationships remain in the reserves until the
underlying transactions occur or upon disposal of the underlying net investment. At 30 September 2015, a loss of $1.4m was transferred from
reserves to profit or loss in relation to ineffective hedges, as the underlying transaction was no longer expected to occur.
(4) The fair value hedge adjustment of a hedged item where the hedging instrument is discontinued remains in the carrying amount of the
hedged item and is amortised to the profit or loss over the life of the hedged item.
(5) The total fair value of derivatives hedging the Group’s interest bearing liabilities is $658.1m. The cross currency interest rate swaps and
forward exchange contracts hedging the foreign currency exposure of the Group’s USD borrowings have a contract value of USD1,573m,
and are economic hedges of USD1,573m of the Group’s USD interest bearing liabilities. The interest rate swap contracts effectively convert
USD800m of the Group’s fixed interest rate borrowings to floating interest rates.
(6) Derivatives which are classified as held for trading are in economic hedge relationships that do not qualify for hedge accounting. These hedges
are effective economic hedges or offsetting hedges based on contractual amounts and cash flows over the life of the underlying item.
63
Incitec Pivot Limited Annual Report 2015
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
14. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Included in the table below are details of the Group’s derivative instruments at 30 September 2014, classified by hedge
accounting type and market risk category:
Balance at 30 September 2014
During the period
Carrying
amount of
hedging
instrument
asset(1)
Carrying
amount of
hedging
instrument
liability(1)
Fair value
hedge
adjustment
of hedged
item
Balance of
gains/
(losses) in
reserves
before tax
Gains/
(losses)
recognised
in reserves(2)
Reclassification
of (gains)/
losses from
reserves to
profit or loss(2)
30 September 2014
Notes
Cash flow hedges
Foreign exchange risk on forecast sales & purchases
Forward exchange contracts
Discontinued hedge(3)
Interest rate risk on highly probable debt
Interest rate swaps
Discontinued hedge(3)
Total cash flow hedges
Fair value hedges(5)
Foreign exchange risk on USD borrowings
Cross currency interest rate swaps
Interest rate risk on fixed USD and AUD Bonds
(8)
Interest rate swaps
Discontinued hedge(4)
Total fair value hedges
Net investment hedges
Foreign exchange risk on foreign operation
Cross currency interest rate swaps
Forward exchange contracts
Discontinued hedge(3)
Total net investment hedges
Held for trading(6)
Forward exchange contracts
Cross currency interest rate swaps
Interest rate swaps
Foreign exchange options
Total held for trading
Equity instruments
Total net
2.7
–
0.6
–
3.3
165.4
27.0
–
192.4
–
–
–
–
38.0
–
0.2
–
38.2
4.8
(0.2)
–
(5.5)
–
(5.7)
–
–
–
–
–
–
–
–
–
(163.5)
(34.1)
3.4
(194.2)
2.4
(7.9)
(3.1)
(10.4)
(19.0)
–
–
–
–
2.4
12.8
(3.1)
(1.3)
10.8
–
–
–
–
(247.2)
(20.9)
–
(268.1)
(18.2)
(0.5)
(0.8)
(9.7)
(29.2)
–
–
–
–
–
–
–
–
–
–
–
(207.3)
(11.1)
15.2
(203.2)
(133.6)
(9.9)
5.5
(138.0)
–
–
–
–
–
–
–
–
–
–
(12.4)
(234.6)
3.2
(124.0)
238.7
(303.0)
(194.2)
–
(1.5)
–
3.4
1.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.9
(1) Balances are included in other financial assets/liabilities in the Statement of Financial Position. Financial assets and financial liabilities that are
subject to enforceable master netting arrangements are offset in the Statement of Financial Position.
(2) Gains or losses recognised in the reserves will be reclassified to the same line item in the profit or loss as the underlying hedged item when
the underlying forecast transaction occurs.
(3) Gains or losses on discontinued hedges that were in cash flow hedge or net investment hedge relationships remain in the reserves until the
underlying transactions occur or upon disposal of the underlying net investment.
(4) The fair value hedge adjustment of a hedged item where the hedging instrument is discontinued remains in the carrying amount of the
hedged item and is amortised to the profit or loss over the life of the hedged item.
(5) The total fair value of derivatives hedging the Group’s interest bearing liabilities is $192.4m. The cross currency interest rate swaps hedging the
foreign currency exposure of the Group’s USD borrowings have a contract value of USD1,300m, and are economic hedges of USD1,300m of the
Group’s USD interest bearing liabilities. The interest rate swap contracts effectively convert USD800m of the Group’s fixed interest rate
borrowings to floating interest rates.
(6) Derivatives which are classified as held for trading are in economic hedge relationships that do not qualify for hedge accounting. These hedges
are effective economic hedges or offsetting hedges based on contractual amounts and cash flows over the life of the underlying item.
Incitec Pivot Limited Annual Report 2015
64
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
14. Financial risk management (continued)
Financial risks (continued)
Credit risk: Credit risk is the risk of financial loss to the Group as a result of customers or counterparties to financial assets
failing to meet their contractual obligations.
Source of risk
Credit risk exposure
The Group is exposed to customer and counterparty credit risk
from trade and other receivables and financial instrument
contracts that are outstanding at the reporting date.
Risk mitigation
The Group minimises the credit risk associated with trade
and other receivables balances by undertaking transactions
with a large number of customers in various countries.
The creditworthiness of customers is reviewed prior to
granting credit, using trade references and credit reference
agencies. Credit limits are established and monitored for
each customer, and these limits represent the highest level
of exposure that a customer can reach. Trade credit insurance
is purchased when required.
The Group mitigates credit risk from financial instrument
contracts by only entering into transactions with
counterparties who have sound credit ratings and, where
applicable, with whom the Group has a signed netting
agreement. Given their high credit ratings, the Group does
not expect any counterparty to fail to meet its obligations.
Fair value
The fair value of the Group’s financial assets and liabilities is
calculated using a variety of techniques depending on the
type of financial instrument as follows:
• The fair value of financial assets and financial liabilities
traded in active markets (such as equity securities and
fixed interest rate bonds) is the quoted market price at
the reporting date.
• The fair value of forward exchange contracts, interest
rate swaps, and cross currency interest rate swaps is
calculated using discounted cash flows, reflecting the
credit risk of various counterparties. Future cash flows are
calculated based on the contract rate, observable forward
interest rates and foreign exchange rates. Adjustments
for the currency basis are made 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 swaps and forward contracts is
calculated using their quoted market price, where available.
If a quoted market price is not available, then fair value is
calculated using discounted cash flows. Future cash flows
are estimated based on the difference between the
contractual price and the current observable market price,
reflecting the credit risk of various counterparties. These
future cash flows are then discounted to present value.
• The nominal value less expected credit losses of trade
receivables and payables are assumed to approximate
their fair values due to their short term maturity.
65
Incitec Pivot Limited Annual Report 2015
The Group’s maximum exposure to credit risk at 30
September is the carrying amount, net of any provision for
impairment, of the financial assets as detailed in the table
below:
Trade and other receivables
Cash and cash equivalents
Derivative assets
2015
$mill
2014
$mill
310.0
272.6
606.3
70.5
43.9
233.9
960.2
577.0
Financial assets and financial liabilities that are subject to
enforceable master netting arrangements are offset in the
Statement of Financial Position. At 30 September 2015, the
amount netted in other financial assets and other financial
liabilities is $670.6m (2014: nil).
Fair value hierarchy
The table below analyses financial instruments carried at fair
value by valuation method. The different levels have been
defined as follows:
•
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived
from prices).
Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
•
•
2015
Listed equity securities
Derivative financial assets
Derivative financial liabilities
2014
Listed equity securities
Derivative financial assets
Derivative financial liabilities
Level 1
$mill
1.2
–
–
Level 1
$mill
4.8
–
–
Level 2
$mill
–
43.9
(206.9)
Level 2
$mill
–
233.9
(303.0)
Level 3
$mill
–
–
–
Level 3
$mill
–
–
–
Fair value of financial assets and liabilities carried at
amortised cost
Cash and cash equivalents, trade and other receivables,
interest bearing liabilities, and trade and other payables are
carried at amortised cost which equals their fair value.
Interest bearing liabilities have a carrying value of
$2,553.7m (2014: $1,742.9m) – refer to note 8. The fair
value of the interest bearing financial liabilities at 30
September 2015 was $2,664.3m (2014: $1,860.0m) and was
based on the level 2 valuation methodology.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2015
14. Financial risk management (continued)
Key accounting policies
Foreign currency transactions and balances
The Group presents its accounts in Australian dollars. Foreign
currency transactions are translated into Australian dollars
using the exchange rates at the date the transaction occurs.
Balance sheet items, monetary assets (such as trade
receivables) and liabilities (such as trade creditors)
denominated in foreign currencies are translated into
Australian dollars using the exchange rate at 30 September.
Non-monetary items (for example, plant and machinery)
that are measured at historical cost in a foreign currency are
not re-translated.
Foreign exchange gains and losses relating to transactions
are recognised in the profit or loss, with the exception of
gains and losses arising from cash flow hedges and net
investment hedges that are recognised in other
comprehensive income.
Foreign operations
The assets and liabilities of the Group’s foreign operations
are translated at applicable exchange rates at 30 September.
Income and expense items are translated at the average
exchange rates for the period.
Foreign exchange gains and losses arising on translation are
recognised in the foreign currency translation reserve (FCTR).
If and when the Group disposes of the foreign operation,
these gains and losses are transferred from the FCTR to the
profit or loss.
Derivatives and hedging
The Group uses contracts known as derivative financial
instruments to hedge its financial risk exposures.
On entering into a hedging relationship, the Group formally
designates and documents details of the hedge, risk
management objective and strategy for entering into the
arrangement. The Group applies hedge accounting to
hedging relationships that are expected to be highly
effective in offsetting changes in fair value, i.e. where the
cash flows arising from the hedge instrument closely match
the cash flows arising from the hedged item.
Hedge accounting is discontinued when:
•
•
the hedging relationship no longer meets the risk
management objective.
the hedging instrument expires or is sold, terminated or
exercised.
•
the hedge no longer qualifies for hedge accounting.
Derivatives are measured at fair value. The accounting
treatment applied to specific types of hedges is set out
below.
Cash flow hedges
Changes in the fair value of effective cash flow hedges are
recognised in equity, in the cash flow hedge reserve. To the
extent that the hedge is ineffective, changes in fair value are
recognised in the profit or loss.
Fair value gains or losses accumulated in the reserve are taken
to profit or loss when the hedged item affects the profit or loss.
When the hedged item is a non-financial asset, the amount
recognised in the reserve is transferred to the carrying
amount of the asset when the asset is purchased.
Net investment hedges
Hedges of a net investment in a foreign operation are
accounted for in a similar way as cash flow hedges. Gains or
losses on the effective portion of the hedge are recognised
directly in equity (in the FCTR) while any gains or losses
relating to the ineffective portion are recognised in the profit
or loss.
On disposal of the foreign operation, the cumulative value of
gains or losses recognised in the FCTR are transferred to
profit or loss.
Fair value hedges
Changes in the fair values of both the hedging instrument
and hedged item are recognised in the profit or loss.
Hedge ineffectiveness
The Group aims to transact only highly effective hedge
relationships, and in most cases the hedging instruments
have a 1:1 hedge ratio with the hedged items. However, at
times, some hedge ineffectiveness can arise and is
recognised in profit or loss in the period in which it occurs.
Key sources of hedge ineffectiveness for the Group are as
follows:
• Maturity dates of hedging instruments not matching the
maturity dates of the hedged items.
• Credit risk inherent within the hedging instrument not
matching the movement in the hedged item.
•
Interest rates of the Group’s financing facilities not
matching the interest rates of the hedging instrument.
• Forecast transactions not occurring.
Classification of financial instruments
Financial instruments are classified into the following
categories:
• Amortised cost (cash and cash equivalents, interest
bearing liabilities and trade and other receivables and
payables).
• Fair value through other comprehensive income (listed
equity securities).
• Fair value through profit or loss (derivative financial
instruments).
Early adoption of AASB 9: Financial Instruments
The early adoption of the remaining phases of AASB 9 during
the year introduced a new hedge accounting methodology.
The new methodology had an impact on the way the Group
measures the effectiveness of its hedging arrangements. It
allowed the Group to recognise the movement in the time
value of its hedges in the hedge reserve until the underlying
transaction occurs. Previously this was recognised
immediately in the profit or loss.
The adoption of the new hedge accounting methodology did
not have a material impact on the Group’s results for the
current or prior year.
Incitec Pivot Limited Annual Report 2015
66
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2015
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
15. Share based payments
Long Term Incentive Plans (LTIs)
The LTIs are designed to link reward with the key
performance drivers that underpin sustainable growth in
shareholder value. With regard to the LTI 2012/15 and LTI
2013/16 plans, the performance conditions comprise
earnings per share growth and relative total shareholder
return. With regard to the LTI 2014/17, the performance
conditions comprise relative total shareholder return and the
delivery of certain strategic initiatives.
The arrangements support the Company’s strategy for
retention and motivation of its executives.
Employee Share Ownership Plan
The Board established the Incitec Pivot Employee Share
Ownership Plan (ESOP) on 28 October 2003. 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:
• employees are each entitled to acquire shares with a
maximum value of $1,000.
• 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.
Expenses arising from share-based payment
transactions
Total expenses arising from share-based payment
transactions recognised during the year as part of employee
benefit expense were as follows:
Accounting value of performance rights
issued under the LTI performance plans(1)
4,268
111
2015
$000
2014
$000
Number of performance rights outstanding
under the LTI performance plans
6,643,412
8,529,850
Detailed disclosure of the movements in LTIs are disclosed in
the Remuneration Report.
Key accounting policies
The rights to shares granted to employees under the terms
of the plans are measured at fair value. The fair value is
recognised as an employee expense over the period that
employees become unconditionally entitled to the rights.
There is a corresponding increase in equity, which is
reflected in the share based payments reserve.
The amount recognised as an expense is adjusted to reflect
the actual number of rights taken up, once related service
and other non-market conditions are met.
67
Incitec Pivot Limited Annual Report 2015
16. Equity accounted investments
The Group has performed an analysis of the balance sheets
and the results of each of its joint ventures and associates
(as listed in note 20) at 30 September 2015 and considers
them to be individually immaterial to the Group. As a result,
no individual disclosures are included for the Group’s
investments in joint ventures and associates.
Included in the table below is the summarised financial
information of the Group’s joint ventures and associates at
30 September:
Carrying value of joint ventures and associates
Notes
2015
$mill
2014
$mill
Carrying amount at 1 October
Share of net profits
Impairment of investment in associate
(2)
Dividends received/receivable
Elimination of profit on transactions
with joint ventures and associates
291.2
299.1
38.2
33.3
(1.1)
(37.0)
–
(26.0)
(23.7)
(0.4)
Foreign exchange movement
32.3
8.9
Carrying amount at 30 September
323.6
291.2
Carrying amount of investments in:
Joint ventures
Associates
Total carrying amount of investments in
joint ventures and associates
267.8
246.7
55.8
44.5
323.6
291.2
The investment in Fabchem China Limited has been written
down by $1.1m (2014: $26.0m) to its fair value of $3.0m at
30 September 2015 less estimated selling costs.
Transactions between subsidiaries of the Group
and joint ventures and associates
Notes
2015
$mill
315.5
(34.7)
29.5
–
(0.1)
37.0
2014
$mill
264.5
(46.8)
23.5
0.3
(0.1)
23.7
Interest income
Interest expense
Dividend income
Joint ventures and associates transactions represent amounts
that do not eliminate on consolidation.
Outstanding balances arising from transactions with
joint ventures and associates
Amounts owing to related parties
Amounts owing from related parties
Loans from joint ventures and associates
Loans to joint ventures and associates
Loans from joint ventures and associates
2015
$mill
3.7
45.6
23.6
12.1
2014
$mill
1.1
39.2
6.5
9.8
Outstanding balances arising from transactions with joint
ventures and associates are on standard market terms.
(1) The expense disclosed in 2014 is net of the prior year write-back of the LTI
2012/15 that did not meet the earnings per share performance condition.
Sales of goods/services
Purchase of goods/services
2015
Number
2014
Number
Management fees/royalties
(2)
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2015
17. Retirement benefit obligation
The Group operates a number of defined benefit plans in
North America and Australia to provide benefits for employees
and their dependants on retirement, disability or death.
Key assumptions and sensitivities
Principal actuarial assumptions
The Group also makes contributions to defined contribution
schemes.
Discount rate (gross of tax)
Future salary increases
2015
2014
3.8% – 6.3% 3.4% – 6.5%
2.0% – 5.0% 2.0% – 5.0%
Financial position and performance
Net defined benefit obligation at 30 September
Present value of obligations
Fair value of plan assets
Net defined benefit obligation
2015
$mill
2014
$mill
385.3
356.5
(299.1)
(278.4)
86.2
78.1
Maturity profile of the net defined benefit obligation
The expected maturity analysis of the undiscounted defined benefit
obligation is as follows:
Within next 10 years
Within 10 to 20 years
In excess of 20 years
2015
$mill
248.1
176.6
146.3
2014
$mill
242.2
176.9
155.8
Return on plan assets for the year ended 30 September
Actual return on plan assets
Composition plan assets at 30 September
The percentage invested in each asset class:
Equities
Fixed interest securities
Property
Other
2015
$mill
5.0
2014
$mill
24.1
2015
2014
50%
27%
9%
14%
57%
28%
6%
9%
Movements in plan assets/liabilities
Amounts recognised in Other Comprehensive Income
Gains/(losses) arising from
changes in acturial assumptions
Return on plan assets (less)/greater
than discount rate
Total recognised in Other
Comprehensive Income
2015
$mill
Notes
2014
$mill
3.3
(34.3)
(7.8)
19.5
(4.5)
(14.8)
Amounts recognised in Profit or Loss
Net interest expense
Defined benefit superannuation expense
Settlement and curtailment of
defined benefit plans
(2)
(2)
(3.0)
(2.8)
(2.9)
(2.2)
(2)
4.1
0.8
Sensitivity analysis
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 2015 would have
increased/(decreased) as a result of a change in the respective
assumption by 1 percentage point:
Discount rate
Rate of salary increase
1 percent
increase
(59.6)
20.6
1 percent
decrease
71.7
(20.6)
Key accounting policies
All employees of the group are entitled to benefits from the
Group’s superannuation plan on retirement, disability or death
or can direct the group to make contributions to a defined
contribution plan of their choice. The Group’s superannuation
plan has a defined benefit section and a defined contribution
section. The defined benefit section provides defined lump
sum benefits based on years of service and final average
salary. The defined contribution section receives fixed
contributions from group companies and the Group’s legal or
constructive obligation is limited to these contributions.
The liability or asset recognised in the balance sheet in respect
of defined benefit superannuation plans is the present value
of the defined benefit obligation at the end of the reporting
period less the fair value of plan assets.
Remeasurement gains and losses arising from experience
adjustments and changes in actuarial assumptions are
recognised in the period in which they occur, directly in other
comprehensive income. They are included in retained earnings
in the statement of changes in equity and in the balance sheet.
Changes in the present value of the defined benefit obligation
resulting from plan amendments or curtailments are
recognised immediately in profit or loss as past service costs.
Contributions to the defined contribution section of the
Group’s superannuation fund and other independent defined
contribution superannuation funds are recognised as an
expense as they become payable.
Key estimates and judgments:
The present value of the defined benefit obligation at
the reporting date is based on expected future payments
arising from membership of the fund. This is calculated
annually by independent actuaries considering the
expected future wage and salary levels of employees,
experience of employee departures and employee
periods of service.
Expected future payments are discounted using market
yields on corporate bonds at the reporting date, which
have terms to maturity and currency that match, as
closely as possible, the estimated future cash outflows.
Incitec Pivot Limited Annual Report 2015
68
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2015
18. Deed of cross guarantee
19. Parent entity disclosure
Throughout the financial year ended 30 September 2015 the
parent company of the Group was Incitec Pivot Limited.
Parent entity guarantees in respect of debts
of its subsidiaries
As at 30 September 2015 the Company’s current liabilities
exceeded its current assets by $1,220.6m. The parent entity
is a party to the Deed of Cross Guarantee, under which each
entity guarantees the debt of the other. The Group’s forecast
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
$1,478.7m at 30 September 2015 and a cash balance of
$606.3m.
Statement of Profit or Loss and Other
Comprehensive Income
Results of the parent entity
Profit for the year
Other comprehensive (loss)/income
Total comprehensive (loss)/income
for the year
Statement of Financial Position
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Share capital
Reserves
Retained earnings
Total equity
2015
$mill
438.8
2014
$mill
66.6
(18.1)
(121.5)
420.7
(54.9)
2015
$mill
2014
$mill
432.8
339.6
7,325.0
6,416.3
1,653.4
964.1
3,664.7
3,286.7
3,660.3
3,129.6
3,430.9
3,332.8
(35.3)
(222.9)
264.7
19.7
3,660.3
3,129.6
Parent entity contingencies and commitments
Contingent liabilities of Incitec Pivot Limited are disclosed in note 13.
Plant and equipment – commitments
Contracted but not yet provided
for and payable:
2015
$mill
2014
$mill
Within one year
2.4
1.6
Entities that are party to the Deed of Cross Guarantee are
included in note 20. The Statement of Profit or Loss and Other
Comprehensive Income and Statement of Financial Position for
this closed group are shown below:
Statement of Profit or Loss and Other
Comprehensive Income
Profit before income tax
Income tax expense
Profit for the year
Retained profits at 1 October
Other movements in retained earnings
Dividend paid
2015
$mill
535.0
(150.5)
384.5
2014
$mill
341.6
(76.5)
265.1
1,346.3
(1.3)
(194.5)
1,234.3
(1.1)
(152.0)
Retained profits at 30 September
1,535.0
1,346.3
Statement of Financial Position
2015
$mill
2014
$mill
419.2
175.2
261.5
12.7
9.1
877.7
134.3
4,267.9
24.3
2,184.8
260.9
181.4
7,053.6
7,931.3
644.2
734.9
118.5
61.2
50.8
1,609.6
244.6
586.0
74.5
46.8
426.3
7.3
1,385.5
2,995.1
4,936.2
19.3
140.5
316.4
24.0
16.9
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
26.0
65.5
11.9
731.4
306.2
780.4
277.0
44.3
268.3
9.1
1,685.3
2,416.7
5,259.2
3,430.9
(29.7)
1,535.0
4,936.2
3,332.8
580.1
1,346.3
5,259.2
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Equity accounted investments
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
Total equity
69
Incitec Pivot Limited Annual Report 2015
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2015
20. Investments in subsidiaries, joint
ventures and associates
The following list includes the Group’s principal operating
subsidiaries and subsidiaries that are party to the Deed of
Cross Guarantee dated 30 September 2008. Other than as
noted below, there were no changes in the Group’s existing
shareholdings in its subsidiaries, joint ventures and associates
in the financial year.
Subsidiaries
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.
Dyno Nobel Inc.
Dyno Nobel Transportation, Inc.
Simsbury Hopmeadow Street LLC
Dyno Nobel Holdings V 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.
Ownership
interest
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%
100%
99%
100%
100%
100%
100%
Name of entity
Controlled Entities – operating (continued)
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
Dyno Nobel Waggaman Inc. (3)
Joint ventures and associates
Name of entity
Joint ventures
Alpha Dyno Nobel Inc
Boren Explosives Co., Inc.
Buckley Powder Co. (4)
IRECO Midwest Inc.
Wampum Hardware Co.
Midland Powder Company
Mine Equipment & Mill Supply Company
Controlled Explosives Inc.
Western Explosives Systems Company
Newfoundland Hard-Rok Inc.
Dyno Nobel Labrador Inc.
Quantum Explosives Inc.
Dene Dyno Nobel Inc.
Qaaqtuq Dyno Nobel Inc. (5)
Denesoline Western Explosives Inc. (6)
Queensland Nitrates Pty Ltd
Queensland Nitrates Management Pty
DetNet International Limited
DetNet South Africa (Pty) Ltd
DNEX Mexico, S. De R.L. de C.V.
Explosivos De La Region Lagunera, S.A. de C.V.
Explosivos De La Region, Central, S.A. de C.V.
Nitro Explosivos de Ciudad Guzman, S.A. de C.V.
Explosivos Y Servicios Para La Construccion, S.A. de C.V.
Tenaga Kimia Ensign-Bickford Sdn Bhd
Sasol Dyno Nobel (Pty) Ltd
Associates
Labrador Maskuau Ashini Ltd
Fabchem China Ltd
Valley Hydraulics Inc.
Apex Construction Specialities Inc.
Innu Namesu Ltd
Warex Corporation
Warex LLC
Maine Drilling and Blasting Group
Independent Explosives
Ownership
interest
100%
84%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ownership
interest
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%
(1) A party to Deed of Cross Guarantee dated 30 September 2008.
(2) These entities have a 31 December financial year end.
(3) Dyno Nobel Waggaman Inc. was incorporated in the 2015 financial year.
(4) 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.
(5) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of 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.
(6) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of 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.
Incitec Pivot Limited Annual Report 2015
70
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2015
21. Key management personnel disclosures
22. Auditor’s remuneration
Key management personnel remuneration
2015
$000
2014
$000
2015
$000
2014
$000
Fees payable to the Group's auditor for
assurance services
Short-term employee benefits
15,896
15,164
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
267
200
–
248
265
371
3,524
1,565
19,887
17,613
Audit of the Group's annual report(1)
Audit of subsidiaries(2)
Audit-related assurance services(3)
927.3
608.1
167.5
924.8
557.9
170.0
Total current year assurance services
1,702.9
1,652.7
Fees payable to the Group’s auditor
for other services
Other services relating to taxation(4)
172.7
100.2
30.0
55.0
202.7
155.2
Determination of key management personnel and detailed
remuneration disclosures are provided in the Remuneration
Report.
All other services(5)
Total other services
Loans to key management personnel
In the year ended 30 September 2015, there were no loans
to key management personnel and their related parties
(2014: nil).
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 $6,534,577 during the year
(2014: $4,701,371). Mr Fazzino’s spouse does not
directly provide these services. Mr Fazzino has not
engaged PwC at any time for any assignment.
(2) The spouse of Ms Fagg is a partner in the accountancy
and tax firm KPMG from which the Group purchased
services of $443,761 during the year (2014: $89,078).
Ms Fagg’s spouse does not directly provide these
services. Ms Fagg was not involved in any engagement
of KPMG made by the Group.
Total fees paid to Group auditor
1,905.6
1,807.9
– Payable to Australian Group auditor firm
– Payable to International Group auditor
associates
1,419.8
1,511.6
485.8
296.3
(1) Comprises the fee payable to the Group’s auditors for the audit of the
Group’s financial statements.
(2) Comprises the audits of the Group’s subsidiaries.
(3) Mainly comprises review of half-year reports.
(4) Comprises taxation compliance procedures for the Group’s subsidiaries.
(5) Comprises non-statutory based assurance procedures.
From time to time, the auditors provide other services to the
Group. These services are subject to strict corporate
governance procedures which encompass the selection of
service providers and the setting of their remuneration. The
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.
23. Events subsequent to reporting date
Dividends
Since the end of the financial year, in November 2015, the
directors determined to pay a final dividend of 7.4 cents per
share on 14 December 2015. This dividend is 60 percent
franked at the 30 percent corporate tax rate.
Other than the matter reported 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.
71
Incitec Pivot Limited Annual Report 2015
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Directors’ Declaration
on the Financial Statements set out on pages 39 to 71
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 39 to 71, and the remuneration disclosures that are contained in
the Remuneration Report on pages 18 to 36 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 2015 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 on page 45; 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 20 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 2015.
Paul Brasher
Chairman
Dated at Melbourne this 9th day of November 2015
Incitec Pivot Limited Annual Report 2015
72
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne VIC 3000
GPO Box 78
Melbourne VIC 3001 Australia
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 2015, 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, pages 44 to 72
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. On page 45, 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
73
Incitec Pivot Limited Annual Report 2015
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
2015 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 the Basis of Preparation on page 45 of the Financial Report.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 18 to 36
of the directors’ report for the
year ended 30 September 2015. 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
2015, complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Tom Imbesi
Partner
Chartered Accountants
Melbourne, 9 November 2015
Incitec Pivot Limited Annual Report 2015
74
Shareholder Information
As at 9 November 2015
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
11,539
25,705
7,973
6,243
151
51,611
22.36%
49.80%
15.45%
12.10%
0.29%
100.00%
5,397,730
74,123,363
57,829,242
131,270,945
1,417,035,754
1,685,657,034
0.32%
4.40%
3.43%
7.79%
84.06%
100.00%
Included in the above total are 1,864 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 80.89% 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
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