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Albemarle A N N U A L R E P O R T 2 0 1 6
GLOBAL DIVERSIFIED INDUSTRIAL CHEMICALS
OUR OPERATIONS
Tirana
Bucharest
Ankara
Soma
i e
TURKEY
CHINA
PAKISTAN
INDIA
i
Linyi (Fabchem)
New Delhi
Hong Kong
Batu Arang (TKEB)
i
SOUTH
AFRICA
Sibolga
Tanjung Tabalong
Jakarta
Batu Kajang
Port Hedland
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
i
i
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
e
e
e
e
a
Cover photograph: New IPL World Class Ammonia Plant, Louisiana USA
e
e
Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
e
e
Papua New Guinea
INDONESIA
e
a
Moranbah
Townsville
AUSTRALIA
e
i
e
Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Warkworth
Melbourne
Geelong
Devonport
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.
Ekati
Diavik
e
e
CANADA
Flin Flon
e
Tumbler Ridge
Calgary
Biwabik
St Helens
Barry
Salt Lake City
Cheyenne
Carthage
a
e
e
a
e
i
a
i
Louisiana, Missouri
Waggaman, Louisiana
Dinamita
Gomez Palacios
Guadalajara
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
i
Santiago
Tirana
Bucharest
Ankara
Soma
i e
TURKEY
CHINA
PAKISTAN
INDIA
i
Linyi (Fabchem)
New Delhi
Hong Kong
e
e
e
Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
SOUTH
AFRICA
i
i
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
Batu Arang (TKEB)
i
Sibolga
Tanjung Tabalong
Jakarta
Batu Kajang
e
e
e
a
Port Hedland
e
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Adelaide
Portland
INDONESIA
AUSTRALIA
e
Papua New Guinea
e
a
Moranbah
Townsville
e
Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Warkworth
i
e
Melbourne
Geelong
Devonport
Ekati
Diavik
e
e
CANADA
Flin Flon
Tumbler Ridge
Calgary
Biwabik
St Helens
Barry
Salt Lake City
Cheyenne
Carthage
Louisiana, Missouri
Waggaman, Louisiana
Dinamita
Gomez Palacios
Guadalajara
e
e
a
e
i
a
i
e
a
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
Incitec Pivot Limited
Company Headquarters
Incitec Pivot Fertilisers
Corporate Office
Manufacturing/Distribution
Quantum Fertilisers
Dyno Nobel
Corporate Office
Manufacturing/Distribution
Joint Ventures/Investments
Manufacturing legend
i
e
Initiation
Emulsion
ANa
a Long term AN supplier
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
24
44
Chairman’s Report
I am pleased to report to shareholders
as Chairman of Incitec Pivot Limited,
following a year of market challenges
and change.
As always I will start with our number
one priority, that being Safety. Back in
2012, when we introduced our five year
safety strategy to drive Zero Harm
globally across IPL, we set a target
to achieve a Total Recordable Injury
Frequency Rate (TRIFR) of less than
1.0 by 2016. We achieved this target
a year early in 2015 and have had a
comparable performance in 2016, with
our TRIFR for 2016 standing at 0.76,
compared to 1.38 in 2012.
Other safety indicators in 2016 have
been even better. Two particularly
important ones, the Lost Time Injury
Frequency Rate and the Employee Lost
Day Severity Rate, have decreased by
61% and 70% respectively during the
past twelve months.
These are excellent performances
and reflect the fact that safety is a
fundamental part of our culture and is
being embraced as such at all locations
and all levels within IPL. Notwithstanding
that, safety is one area in which we can
never feel complacent or even satisfied
and it will remain the first agenda item
at all board meetings and site visits.
Our safety focus was also clearly
demonstrated throughout construction
of our new world scale ammonia plant
in Waggaman, Louisiana. While the
project is notable for a number of
milestones, it is the safety outcome that
was most pleasing. Five million work
hours were completed on this project
without a single Lost Time Injury. This is
a commendable result and is testament
to our close partnership with construction
partner KBR Inc. and our onsite
neighbour, Cornerstone Chemical
Company Inc.
ii
Incitec Pivot Limited Annual Report 2016
Manufacturing performance in 2016
has been outstanding across the Group.
Turning to the Company’s financials,
there is no denying the fact that 2016
was a very difficult year for us and for a
number of our customers. In the
fertilisers business we suffered from the
impact of lower global commodity
prices, particularly Diammonium
Phosphate (DAP) and Urea which were
respectively 23.2% and 29.5% lower on
average than in 2015. In explosives,
structural changes in US coal markets
and a cyclical oversupply of ammonium
nitrate in Asia Pacific and the Americas
put pressure on volumes and margins.
Despite some compensation from a
number of positive factors, the Group
result was a reduction in underlying
Earnings Before Interest and Tax (EBIT)
to $428.1 million compared with $576.5
million in 2015. Net Profit After Tax
(NPAT), excluding Individually Material
Items (IMIs) and minority interests was
$295.2 million, compared to $398.6
million in the prior year.
The Group balance sheet remains strong,
with leverage as at 30 September 2016
inside the target range of less than 2.5x
Net Debt/EBITDA notwithstanding the
Louisiana ammonia project spend.
Importantly, we have maintained our
investment grade credit rating through
the period of construction of the
Louisiana plant. The Company has a
range of debt facilities in place to fund
its operations and strong liquidity with in
excess of $800 million of undrawn
committed debt facilities.
In the current environment, it is
pointless to bemoan the factors
beyond our control. Instead, we need to
devote all of our energies to controlling
the factors we can control. Two items
which fit into this category are the
efficiency of our manufacturing
operations and the structure and
cost base of our businesses.
Manufacturing performance in 2016
has been outstanding across the
Group, with particularly noteworthy
performances at Moranbah, where
we achieved record production, and
Phosphate Hill, where we achieved
near record production, despite the
December 2015 train derailment.
At the same time we have reviewed
our structure and cost base to ensure
that these are the most appropriate to
the world in which we now operate.
Applying our Business Excellence (BEx)
philosophy, we have commenced an
Organisation Focussed Improvement
Program with the target of achieving
$100 million of annual cash savings.
As shareholders would expect, we
have carefully reviewed our Company
strategy and we believe it continues to
be the correct one, notwithstanding
some of the structural and cyclical
changes facing our industries and our
customers. As a global diversified
chemicals company, we will continue to
leverage our manufacturing excellence
to capitalise on opportunities,
particularly those driven by the
industrialisation and urbanisation of
China, which will continue to be a
long term growth story, and those
opportunities driven by longer term
economic sources of gas in the
United States.
The most significant of the United
States opportunities has been our
US$850 million investment in
construction of an ammonia plant at
Waggaman, Louisiana. This was a major
investment decision in 2013, which
made it tremendously gratifying for the
Board to be able to visit Louisiana in
September this year to celebrate
completion of construction on time
and under budget.
Governor John Bel Edwards and representatives from the State of Louisiana, Louisiana Economic Development and the
IPL Board marking the completion of construction of the ammonia plant at Waggaman, Louisiana.
The Louisiana plant is anchored around
taking first mover advantage of the
shale gas revolution in the US and
positions our Company to significantly
increase earnings and cash flows from
our Dyno Nobel business in the US
from 2017.
Successful completion of the
Louisiana plant is a tribute to many
people and organisations with whom
we have worked over the past three
years. Within IPL, I would particularly
like to recognise James Fazzino and his
Executive Team for their foresight in
identifying the strategic opportunity
and for their drive and commitment
in seeing the project through to
completion.
A priority of the Board is to ensure we
engage with our customers, understand
new innovations and continue our
understanding of the industry dynamics
in our key markets. While in the US to
mark the completion of construction of
the Louisiana plant, the Board also met
with our major joint venture partners
who, along with Dyno Nobel,
participated in MINExpo International
2016, the largest mining trade show of
its kind in the world.
We were able to hear and see first-hand
from our business partners, a range of
solutions that make it possible for the
mining industry to meet the challenges
and capitalise on the opportunities in a
rapidly changing world in need of
metals, minerals and energy. These
solutions include imaginative new
products and services and innovative
technologies. What I drew from this was
that our innovation in new products in
industrial blasting is world class and,
more importantly, is aligned with
customer needs and expectations.
I would like to take this opportunity to
thank my fellow Board members for
their contributions in 2016. Sadly, we
will be farewelling John Marlay, who
will retire as a director of the Company
at the conclusion of the 2016 Annual
General Meeting. John has been a
significant support and major
contributor in the past ten years and we
wish him well in his future endeavours.
The Board, through the Nominations
Committee, is conducting a search for a
new non-executive director and will be
prioritising candidates with appropriate
experience in the United States. This
will complement our mix of diversity,
skills and attributes in line with the
Company strategy of driving a greater
proportion of the Company’s earnings
from the US.
I would also like to thank James
Fazzino, his Executive Team and the
4,500 employees in our Company
globally. In a difficult environment,
their efforts have been outstanding.
Going forward into 2017, we will
continue to face structural and cyclical
challenges. The test for our Board and
Executive Team will be our ability to
anticipate and respond to these
changes. I am confident that we
have the people, the assets and the
flexibility to allow us to do that.
Paul Brasher
Chairman
Incitec Pivot Limited Annual Report 2016
iii
Managing Director’s Report
The completion of the Louisiana ammonia plant
now positions IPL as a truly global diversified
industrial chemicals company.
I am pleased to present my 8th report
as Managing Director and CEO.
Like the Chairman, I begin my report
with safety. Safety is fundamental to our
right to operate and is at the forefront of
everything we do. Our commitment to
“Zero Harm for Everyone, Everywhere” is
underpinned by our belief that injuries
and illnesses are preventable and that
conducting business safely must be a key
priority of all our employees, contractors,
vendors and business partners.
Looking across our safety scorecard in
2016, IPL achieved outstanding results,
not only in respect of our performance
across key safety metrics such as injury
severity and lost time injury frequency,
where we recorded significant reductions
from 2015, but also in relation to our
progress in embedding the core safety
processes which have set the foundation
for driving a step change in process
safety management.
These results are the product of the five
year Global HSE Strategy which we
adopted in 2012. Through this strategy
we have embedded a culture of safety
leadership across all our plants and
operations, led by the Executive Team
who, collectively, spent over 100 days on
site safety visits during the year. More
specifically, the manufacturing leadership
team spent almost 400 days on site
safety visits over the past 12 months.
Equally significant was the safety
performance during the construction
of our world scale ammonia plant in
Louisiana, which is discussed later in
this report.
While 2016 has been a year of significant
achievement and progress, we must
continue to remain vigilant in our focus
on Zero Harm. Importantly, we will
continue to apply our culture of
continuous improvement through
Business Excellence (BEx) to drive
improvement in our safety performance
and processes, recognising that safety is
at the forefront of everything we do.
iv
Incitec Pivot Limited Annual Report 2016
The past year has seen significant
cyclical and structural change in our
markets including explosives, industrial
chemicals and fertilisers and, as a result,
Net Profit After Tax (NPAT) decreased by
$271 million to $128 million. In 2016,
cyclical and structural factors, including
commodity prices, impacted Earnings
Before Interest & Tax (EBIT) by $231
million, which we partly offset by a
$71 million positive contribution through
focusing on our internal productivity and
continuous improvements driven by BEx.
As our business is subject to commodity
price fluctuations, we have deep
experience in managing ‘through the
cycle’. Our experience has demonstrated
that, in these tough conditions, you must
dig deep in ‘controlling the controllables’.
Specifically for IPL, this means focusing
on Zero Harm (as outlined above); BEx
efficiencies and productivity benefits;
and manufacturing performance.
In 2013, we launched the IPL Business
System for continuous and focussed
improvement – BEx, leveraging lean
manufacturing principles. BEx has
delivered over $162 million in net
benefits since inception, $71 million of
which were delivered in 2016. In early
2016, we accelerated our response to
the current market outlook by launching
a global Organisation Focused
Improvement (OFI) program, leveraging
our BEx methodology to improve
operating efficiencies and reduce costs.
By 2017, IPL aims to deliver $80 million
in operating efficiencies and $20 million
reduction in capital expenditure from the
BEx OFI program. This program also
forms the foundation for IPL’s long term
sustainable productivity benefits.
The Chairman has already outlined IPL’s
outstanding manufacturing performance
in 2016 at our Moranbah and Phosphate
Hill sites. These results and those at our
other manufacturing sites are testament
to our people who work at the plants and
their disciplined and rigorous approach to
the ongoing evolution of BEx over the
last 4 years.
As I have stated previously, BEx is a
journey and these results just set a new
benchmark from which the teams will
now measure their performance in their
ongoing pursuit of increased efficiencies
and productivity.
To highlight a few of the major
achievements in manufacturing over
the last 12 months:
• Phosphate Hill produced 1,010,000
tonnes of DAP/MAP despite the train
derailment in December 2015. This
included production records at several
of the plants in the integrated
Phosphate Hill/Mt Isa complex. It is
also worth noting Phosphate Hill gas
costs will reduce by $55 million in
2019, as compared to today’s costs, as
a result of the Northern Gas Pipeline
contract which IPL signed in
November 2015, including $20 million
from the interim gas contract starting
in January 2017.
• Moranbah produced a record 344,700
tonnes of ammonium nitrate in 2016,
and, in May 2016, achieved the
milestone of 1,000,000 tonnes of
aggregate production since it was
first commissioned.
• Cheyenne also produced a record
191,000 tonnes of ammonia in 2016.
These results clearly demonstrate
that the continuous improvement
methodology underpinned by BEx is
now firmly embedded in IPL’s culture.
IPL continues to be a financially
disciplined organisation as demonstrated
by the fact that credit metrics remained
inside target range through the
construction of the Louisiana plant and
the structural/cyclical downturn in our
core markets. Another highlight was the
continued improvement in working
capital across the Group.
New IPL world scale ammonia plant in Louisiana, USA.
2016 saw the continued transformation
of IPL into a global diversified industrial
chemicals company. Just 13 years ago IPL
was a farmers’ cooperative, with the core
business focused solely on the domestic
Australian East Coast fertiliser market.
The most recent step in the
transformation of IPL has been the
investment in the construction of our
world scale ammonia plant in Louisiana,
USA over the last three years. The
highlight for me in 2016 was seeing the
construction completed on time, under
budget and – more importantly – with
zero lost time injuries, and the
subsequent commissioning of the plant.
Based on this performance, IPL’s
Louisiana ammonia plant project was
benchmarked as being in the top 2% of
construction projects in the world by a
global management consultancy (by
reference to schedule and cost for
projects in the oil and gas, mining and
chemical industries in excess of $1
billion).
The completion of the Louisiana
ammonia plant also now positions IPL
as a truly global diversified industrial
chemicals company.
IPL’s strategy has been well documented
and it is anchored around our exposure
to the world’s two largest economies:
• growth in demand for hard and
soft commodities – driven by the
industrialisation and urbanisation
of China; and
• the global energy disconnect – driven
by the shale gas revolution in the US.
Given the composition of IPL’s business
portfolio today, I believe we are more
balanced due to the diversification we
offer in terms of both geography and end
market exposure:
• From a geographic perspective,
approximately half of the Group’s
earnings are derived from Asia
Pacific and, with the commissioning
of our Louisiana ammonia plant,
the other half will be derived from
North America.
•
In terms of end market exposures post
Louisiana, approximately 50% of IPL’s
exposure will be linked to explosives,
approximately 30% to industrial
chemicals, and the remaining 20% to
fertilisers, with the largest contributor
being the Louisiana ammonia plant.
Following the completion of our Louisiana
ammonia plant, strategically we now
have more options in relation to the
future direction of our Company. However,
as we have invested approximately $1
billion in Australian assets and an
equivalent amount in the US over the last
five years, we clearly recognise the need
to earn the right to grow.
Looking ahead to 2017, the market
conditions may be just as challenging as
in 2016. However, by continuing to focus
on the assets we have and driving
efficiencies from them, we are well
placed to deliver acceptable returns at a
low point in the cycle and exceptional
returns when the cycle turns.
My role as a ‘Male Champion of Change’,
is reflective of the fact that diversity is
very important to me. I believe that IPL
will become a better company if we are
more diverse. This starts with gender
diversity. One third of my Executive Team
now comprises women. However, we still
have a long way to go with women
comprising only 16% of our employees
globally. For the year ahead, my Executive
Team has again affirmed its support for
diversity as a core priority and through
IPL’s Diversity Program, IPL will continue
to focus on ensuring that diversity
considerations are built into our ongoing
activities such that diversity becomes
inherent to the way we do business.
Further details of our progress and future
plans for diversity are set out in IPL’s
2016 Corporate Governance Statement.
In closing, I would like to thank the
Chairman and my fellow directors for
their advice and support over the last
year. In particular, I would like to express
my gratitude to John Marlay, who is
retiring from the Board. John and I have
worked closely over many years and
I have greatly valued his enormous
contribution to the Company.
I would also like to thank my colleagues
on the Executive Team who are an
outstanding group and the exceptional
employees across the organisation. I
firmly believe that we have the strategy
and the team to continue to deliver
shareholder value into the future.
James Fazzino
Managing Director &
Chief Executive Officer
Incitec Pivot Limited Annual Report 2016
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
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.
Kathryn Fagg
FTSE, BE(Hons), MCom(Hons),
Hon.DBus(UNSW)
Non-executive director
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.
Gregory Hayes
MAppFin, GradDipACC, BA, ACA
Graham Smorgon AM
B.Juris, LLB
John Marlay
BSc, FAICD
Non-executive director
Non-executive director
Non-executive director
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.
Paul Brasher
BEc(Hons), FCA
Non-executive Chairman
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
BEc(Hons), Adjunct Professor,
La Trobe Business School
Managing Director & CEO
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 2016
Executive Team
James Fazzino BEc(Hons)
Managing Director & CEO
Member of the Health, Safety,
Environment and Community Committee
James was appointed Managing Director &
CEO of IPL on 29 July 2009. James was first
appointed as a director on 18 July 2005,
following his appointment as Chief Financial
Officer in May 2003. Before joining IPL,
he had many years’ experience with Orica
Limited in several business financial roles,
including Investor Relations Manager, Chief
Financial Officer for Orica Chemicals and
Project Leader of Orica’s group restructure
in 2001. James is also Chairman of the
Advisory Board for La Trobe University’s
Business School and an Adjunct Professor
of the La Trobe Business School.
Alan Grace BSc(Hons) Chem Eng.
President, Global Manufacturing
A qualified chemical engineer, Alan joined
IPL on its merger with Incitec Fertilizers
Limited in 2003, having commenced with
Incitec Limited in 2000. 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 IPL’s
Moranbah complex during the construction
phase and, prior to his current appointment
he was the Project Director for the Feasibility
Study and early stage construction of the
Louisiana ammonia plant.
Simon Atkinson BBus, CA
President, Dyno Nobel Asia Pacific &
Incitec Pivot Fertlisers
Simon joined the Company on its merger
with Incitec Fertilizers Limited in 2003,
having previously worked with Orica Limited
(1999–2001) and Incitec Limited (2001–
2003). He has extensive commercial finance
experience, working as Commercial Finance
Manager for the Australian fertilisers
business (2003–2006) and as IPL’s Deputy
CFO and Investor Relations Manager (2006–
2009). In 2010 Simon was appointed
President of Dyno Nobel International
charged with the growth of the Dyno Nobel
business outside the established North
American and Asia Pacific regions. In 2013
Simon was appointed President, Dyno Nobel
Asia Pacific & Global Technology and in 2016
was appointed President of the Group’s Asia
Pacific downstream business incorporating
the customer facing functions in Asia Pacific
of Incitec Pivot Fertilisers and Dyno Nobel
Asia Pacific.
Leah Balter B Eng UNSW (Hons),
MBA, MAICD
President, Strategy & Business
Development
Leah joined IPL on 1 August 2016 as
President, Strategy & Business Development
with leadership and responsibility for the
Group’s global strategy and new market
opportunities. Previously, Leah was an
Associate Principal at McKinsey & Company
where she worked in various countries and
industries for nine years, and was the head
of McKinsey’s Melbourne office. Leah has
deep experience in banking and private
investment built from her career with the
ANZ Bank, where she held senior executive
banking positions including Head of Strategy
and Chief of Staff to the Australian CEO. Leah
was also previously an advisor to a number
of private company boards and non-for-
profit organisations.
First row (l to r): James Fazzino,
Alan Grace, Simon Atkinson
Second row (l to r): Leah Balter,
Frank Micallef, Elizabeth Hunter
Frank Micallef BBus, MAcc, FCPA,
FFTA, FAICD
Chief Financial Officer
Frank was appointed as Chief Financial
Officer on 23 October 2009. Frank joined IPL
in May 2008 as General Manager, Treasury
and Chief Financial Officer, Trading. Prior to
joining IPL, Frank had significant experience
in the explosives and mining industries as
Global Treasurer and Investor Relations
Manager at Orica Limited and General
Manager Accounting at North Limited. Frank
is responsible for the finance, tax, treasury,
legal, company secretarial and procurement
functions globally.
Elizabeth Hunter BBus, MBA
Chief Human Resources Officer &
Shared Services
Elizabeth joined IPL as Chief Human
Resources Officer in October 2013, and was
appointed to her current role incorporating
global Shared Services in June 2016.
Elizabeth has over 20 years’ experience in
Human Resources, both in Australia and in
the UK. She has held roles on executive
teams of ASX listed companies with global
footprints for the last 10 years. Prior to
joining IPL, Elizabeth had experience across
healthcare, banking and financial services,
industrial contracting and infrastructure
industries.
Incitec Pivot Limited Annual Report 2016
vii
Sustainability Report
Approach
Sustainability Strategy
IPL 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. IPL defines Sustainability as ‘the creation
of long term economic value whilst caring for our people, our
communities and our environment’.
The Company’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 IPL should seek to influence suppliers to promote
alignment with the Company’s corporate values and continue
the sustainable development of its supply chain.
Continuous Improvement through BEx
Business Excellence (BEx) is IPL’s business system through which
a culture of continuous improvement is being built. BEx is
strongly aligned to IPL’s company values and has lean thinking
at its core. Through BEx there is continuous review, measurement
of business performance and improvement of processes and
systems that support sustainable business practices.
About this report
Since 2014, sustainability performance data has been included in
the IPL Annual Report, providing a full account of the Company’s
annual economic, environmental, social and governance
performance in one document. Further information on IPL’s
sustainability performance can be found in the 2016 Online
Sustainability Report and in prior year Sustainability Reports on
the IPL 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, IPL’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 IPL to determine which aspects are ‘material’ to
report. This aligns to the Global Reporting Initiative (GRI4)
materiality approach. Further information on stakeholder
engagement and the materiality process is contained in the
2016 Online Sustainability Report at www.incitecpivot.com.au.
During the most recent materiality review in 2015, IPL’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 IPL, the Company value of Zero Harm for Everyone,
Everywhere is prioritised above all others. In 2012, the Company
adopted a five-year Global HSE Strategy to achieve world-class
safety performance and an all-worker Total Recordable Injury
Frequency Rate (TRIFR) of less than 1 by 2016. IPL has in place a
fully integrated Health, Safety, Environment and Community
Management System which provides the foundation for effective
identification and management of health, safety and
environmental risks. This foundation is complemented by the
corporate commitment to continuous improvement through BEx.
viii
Incitec Pivot Limited Annual Report 2016
The 2016 priorities towards achieving Zero Harm were:
•
Improvement in safety metrics through behavioural safety
training, identifying the root cause of near misses/incidents
and management of risk.
• Continuing to embed effective change management
processes into key HSE initiatives.
• Leveraging the learnings from High Potential Incidents across
the business.
Performance
The following were highlights for the 2016 year:
• A global TRIFR of 0.761.
• 69.5 percent reduction in Employee Lost Day Severity Rate.
• 60.7 percent reduction in Lost Time Injury Frequency Rate (LTIFR).
• 51.7 percent reduction in Tier 1 process safety incidents.
• 83 percent of sites were recordable injury free.
• Near miss and hazard reporting increased by 18 percent with
45,306 of these reports raised in 2016.
• 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 rollout of 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 global communication of the resulting
learnings.
• The continued roll out of the Safety Partners training program
across the business divisions.
2017 priorities
The following initiatives will be priorities in maintaining IPL’s
Zero Harm focus in 2017:
• Executive Team member leadership and coaching of
employees during site visits to review site risk registers and
investigate high potential incidents to identify root causes.
• Continued improvement of risk management across all parts
of the business, including the quality of risk register content.
Implementation of a critical control management process.
Critical controls are those which relate directly to Fatal Risks.
•
• Embedding the standardised Permit to Work and Job Step
Analysis processes at manufacturing sites and the roll out of
these across explosives and fertiliser operations.
• Development of an improved and standardised Management
of Change process.
• Maintaining a global TRIFR of less than 1 and the gains made
in decreasing injury severity rate.
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 its 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 2016
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
74
60
65
67
56
In 2016, the FTSE Group also confirmed for the third year that
IPL has satisfied the requirements to remain a constituent of the
FTSE4Good Index Series.
1. Subject to finalisation of classification of any pending incidents
Governance and ethical conduct
IPL’s 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 Conduct and other key
policies and systems which define IPL business practices are
available on IPL’s website.
During 2016, several governance documents were updated.
IPL’s Code of Ethics and Code of Conduct for Directors and Senior
Management were reviewed and replaced with a single Code of
Conduct which better reflects the Company’s current policies
and business practices. The Audit and Risk Management
Committee Charter was amended to reflect a newly adopted
Internal Audit Charter, and the Anti-Bribery and Improper
Payments Policy was updated to reflect recent changes to
Australian law. Face-to-face training in bribery and competition
was conducted for applicable employees and mandatory Fraud
& Corruption Awareness Training for all employees was
conducted through IPL’s Learning and Development Platform.
Further information on Governance, including risk oversight
and management, can be found in the 2016 Corporate
Governance Statement at www.incitecpivot.com.au and in
the 2016 Online Sustainability Report.
Managing, engaging and ensuring a diverse
workforce
IPL 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 key to creating the outstanding
business performance required to be ‘best in market’
consistent with the Company’s vision.
Performance
During 2016, the Company’s focus was to fully utilise its
diversity policies and practices, improve IPL’s learning systems
to better support compliance, and to involve and support its
employees to develop and implement change as the Company
responded to the structural and cyclical shifts it has
experienced in its markets. Many people across the Company,
from site to senior levels, were involved in using BEx
methodologies to successfully develop this response. The
frameworks and infrastructure built over the prior two years
were utilised to achieve intended benefits on a sustainable
basis, particularly in relation to diversity. Further reporting on
IPL’s Diversity Strategy can be found in the 2016 Corporate
Governance Statement at www.incitecpivot.com.au
Key highlights during the year were:
• The provision of role based development opportunities for the
Company’s employees. Over 50 percent of senior employees
have experienced a broadening of their role, a role
promotion, or other role responsibility change during 2016.
• Maintenance of the 2015 target of 2 percent Indigenous
•
employment across IPL’s Australian businesses.
Increased representation of women on the Executive Team,
and within the next levels of the organisation.
• Commencement of the implementation of an online
learning management system in North America, which will
be complete in the first half of 2017.
• Broadening of the use of the change management
framework to give effect to the Company’s value of Respect,
Recognise and Reward during change in work practices,
structures and processes.
Managing environmental impacts
As an international manufacturer of industrial explosives,
industrial chemicals and fertilisers, IPL operations have the
potential to create environmental impacts such as soil and
groundwater contamination. IPL is committed to continuously
improving the management processes and systems in place to
make its operations and products more sustainable. Continuous
improvement during the 2016 financial year was focused
around risk management, compliance and increased reporting
of potential incidents and hazardous observations. While this
has increased the total number of incidents reported globally in
2016, over 90 percent of these were reports of near misses
which informed mitigation strategies and allowed potential
environmental incidents to be avoided.
Performance
Highlights during the 2016 financial year included the following:
• The review of all Australian licensed sites’ Compliance
Management Plans and Risk Registers to identify environmental
risks and implement improved mitigation controls.
• The rollout of a new Environmental Compliance Audit Tool to
an additional 21 sites in North America.
• The auditing of Spill Prevention, Control and Countermeasure
Plans across North American sites, and the use of Visual
Management tools and 5S processes to increase loss of
containment awareness globally. This resulted in increased
operational control of product and a reduction in
environmental risks associated with product tracking and spills.
• The maintenance of the Environmental Incident Frequency
Rate (EIFR) below 1 at just 0.32.
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 carbon dioxide (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 World
Business Council of Sustainable Development (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 WBCSD Water Tool as being in
areas which may experience water stress by 2025. At Cheyenne,
Wyoming, 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.
Performance
Energy and emissions
IPL used 44,972,204 gigajoules (GJ) of energy over the past year
(2015: 44,070,102), 1,971,644 of which was electricity (2015:
1,983,644). The absolute Scope 1 and 2 GHG emissions from the
Company’s global operations decreased slightly to 2.7 million
tonnes (2015: 2.8 million tonnes). In line with the sustainability
strategy to Use Less and Care for the Environment, IPL’s
manufacturing plants continued to reduce both energy intensity
and carbon dioxide equivalent (CO2e) emissions through
initiatives such as lighting reviews, plant energy optimisation
Incitec Pivot Limited Annual Report 2016
ix
Sustainability Report
projects and other continuous improvements. At St Helens,
Oregon, pneumatically controlled instrumentation was converted
to electronic instrumentation, reducing air compressor loads. At
Cheyenne, Wyoming, natural gas use was reduced at one plant
by increasing purge gas feed from another plant, and a full site
energy audit was conducted at Graham, Kentucky, with plans to
implement improvements in 2017. At the new Waggaman,
Louisiana ammonia plant, 10 percent of the CO2 generated will
be captured and exported for use in making urea and melamine.
IPL also continued to invest in nitrogen oxide (NOx) reduction
technology, with work almost completed on the installation of a
Selective Catalytic Reduction (SCR) unit at the Louisiana, Missouri,
nitric acid plant, which will reduce NOx emissions at the site by
90 percent. Also in 2016, studies to evaluate the effectiveness of
NOx scrubbers at several of IPL’s North American initiating
systems manufacturing sites commenced, with more effective
alternatives being investigated. The Company directly invested
over $1,000,000 in the nitrous oxide abatement unit at
Moranbah, Queensland, which reduced GHG emissions by
358,270 tonnes CO2e in 2016.
Water use and discharge
IPL’s gross water use in the 2016 financial year, was 43,823
mega litres (ML), a five percent increase from 2015. The
Company’s 2015 gross water use has been restated from
40,172 to 41,591 ML due to improvements in cooling water
data collection systems. Continuous improvements made to
reduce water use included multiple projects in 2016. At
Cheyenne, Wyoming, the recovery of boiler blowdown water,
and the reclamation of waste water streams through a reverse
osmosis unit and a brine concentrator unit saved 70,000 kL. At
Carthage, Missouri, the installation of a reverse osmosis water
filtration system reduced the amount of boiler blowdown water
by approximately 90 percent, also reducing waste water
amounts by 3,800 kL and energy use by 35 GJ per year. At
Phosphate Hill, Queensland, 162,917 kL of water was recovered
from waste gypsum stockpiles, also recovering valuable
phosphates for fertiliser production.
During 2016, IPL discharged 35,579,618 m3 of water to the
environment, an increase of 10 percent from 2015. Most (98.7
percent) of this water was clean cooling water that was
discharged to the rivers from which it was taken, reducing the
Company’s net water use to 9,311 ML (restated to 10,477 ML
for 2015).
2017 priorities
• Working 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.
• Working across the global business to identify and implement
energy and water efficiencies.
• Continued focus on education, training and awareness to
further embed principles of sustainable resource use and
environmental best practice across the business.
• Continued improvement in reducing NOx and sulphur oxide
(SOx) emissions globally, including: the completion of the
installation of a new SCR unit at Louisiana, Missouri; a new
wet scrubber system at Carthage, Missouri; the installation of
a NOx analyser at St Helens, Oregon; the installation of an
improved SOx reduction catalyst at Mt Isa, Queensland; and
the evaluation of NOx scrubber efficiencies at other sites.
Gas supply
Natural gas supply is an important issue for the IPL business.
In Australia, access to competitively priced gas is a well-
documented challenge for the manufacturing industry. IPL
believes that it is essential that Australia find a solution that
balances the imperative of supplying gas to value-adding
manufacturing with the needs 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 20 of this Report.
Product quality
IPL is committed to providing quality products and services to the
agricultural, mining and quarry & construction 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 is renowned as a global provider of innovative explosive
products, services and solutions under the Dyno Nobel brand,
delivering ground-breaking performance to its 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 2016, 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. Continuous
improvement to both the product 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.
Total direct and indirect greenhouse
gas emissions
Water use by source
Total water used was 43,823 ML
Water discharge by destination
Total water discharged was 35,579,618m3
3.5
Million tonnes of CO2e
35,000
ML
35,000
’000 m3
3.0
2.5
2.0
1.5
1.0
0.5
0
30,000
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
2016
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
2014/15
2015/16
Waste discharge destination
2014/15
2015/16
x
Incitec Pivot Limited Annual Report 2016
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
35000
30000
25000
20000
15000
10000
5000
0
35000
30000
25000
20000
15000
10000
5000
0
Sustainable products and services
IPL aims to assess and, where feasible, improve the
environmental and social impacts of all products across their
life cycle and to 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 the 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 IPL website.
Supplier and customer engagement
IPL 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
IPL and major materials suppliers also contain clauses that
outline Company expectations of suppliers’ workplace health,
safety and environmental performance. During the past year, IPL
continued to apply BEx methodologies and risk management
tools to its sustainable supply chain model, with a particular
focus on engaging more of its suppliers through improved
contracts with more focused KPIs. The results have included
better contractor equipment standards, leading to greater
energy efficiency and lowered emissions. The Company also
worked to reset its cost base in challenging market conditions,
with significant cost savings.
IPL engages directly with fertiliser customers during
collaborative tailoring of product use through the IPL Nutrient
Advantage laboratory, which conducts soil and plant testing,
as well as through Nutrient Advantage Advice interactive
software, and through IPL’s own online Farmer Community
and Agronomy Community. Customers and agronomists also
attend IPL Agronomy Community Forums, and formal
complaint and product feedback processes exist to resolve
customer issues quickly. IPL works closely with explosives
customers at their sites to deliver high performance solutions
tailored to customer needs. The business participates in
specialist customer sustainability questionnaires, holds
customer focused technical workshops and has dedicated
Customer Relationship Managers.
Research and development
Work continued on collaborative research and product
development with customers, as well as the promotion
of best practice use of fertiliser and explosives products to
reduce environmental impacts and increase safety.
Highlights during the 2016 financial year included:
•
Increased customer uptake of Entec products in north
Queensland, Australia. Entec products were commercially
introduced last year and are enhanced efficiency fertilisers
which minimise nitrogen losses to the atmosphere and to
leaching, reducing the environmental impact of their use.
• The continued development and marketing of explosive
products and delivery systems that reduce blast fume
emissions and minimize groundwater nitrate leaching, with
strong sales growth and excellent results for customers.
• The continued testing of recycled oils and hydrocarbons
recovered from other waste materials to replace virgin oils in
explosives manufacture. Testing was extended to include
hydro-treated recycled oils and oils made from natural gas.
• Financial and promotional support to allow a six month Farm
Waste Recovery trial to be converted into a permanent
program to collect and recycle empty fertiliser bags. Offered
to IPL’s sugarcane farming customers in northern Australia
last year, this initiative has now been extended to all of IPL’s
fertiliser customers across eastern Australia.
• The completion of two joint research projects with the
University of Melbourne into reducing GHG emissions from
agriculture and the establishment of two new projects
relating to the use of GHG inhibitors in fertilisers.
Sustainable development
Waggaman, Louisiana Ammonia Plant
During 2016, construction of IPL’s 800,000 metric tonne per
annum ammonia plant was completed, with a dedication
ceremony on Thursday 29 September 2016 led by Louisiana
Governor John Bel Edwards and IPL Chairman Paul Brasher.
The plant achieved a TRIFR of 0.3 in 2016. During the plant’s
construction over the past three years, more than five million
man hours were worked with no lost time injuries recorded and
a total project TRIFR of 0.31.
The Waggaman, Louisiana ammonia plant uses the industry’s
leading technology and is among the most efficient plants of its
kind in the world, employing gas purifier technology and
recapturing steam for reuse. The plant is also fitted with SCR
technology to reduce emissions of NOx by up to 98 percent. The
plant sources its cooling water sustainably from the Mississippi
River, and all wastewater and stormwater streams are treated
onsite to meet strict water quality limits. Cooling water is
returned as clean water to the river.
During 2016, IPL 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, Waggaman Civic Association and Cornerstone Chemicals
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 2016,
$354,806 of community investment was made globally
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 could 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 percent of IPL’s sites fall into this category,
and these sites actively participate in Local Emergency
Planning Committees (LEPCs) as part of the ‘Community Right
to Know Act’. In the Asia Pacific region, 22 percent of sites
have been identified, and these follow Safe Work Australia
guidelines in communicating with their communities. In
addition, the IPL Issues Response Manual assists crisis
management teams to effectively manage communication
and engagement in the event of an incident.
Incitec Pivot Limited Annual Report 2016
xi
Directors’ Report
The directors of Incitec Pivot Limited (the Company or IPL) present the directors’ report, together with the financial report, of the
Company and its controlled entities (collectively referred to in this report as the Group) for the year ended 30 September 2016 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.
Kathryn Fagg FTSE, BE(Hons),
MCom(Hons), Hon.DBus(UNSW)
Non-executive director
Member of the Health, Safety,
Environment and Community
Committee
Member of the Remuneration
Committee
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)
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, Chair of Breast Cancer
Network Australia and a board member of the Australian Centre for Innovation. Ms Fagg is also
President-elect of Chief Executive Women. 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. after commencing her career as a chemical engineer.
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 The Star Entertainment Group Limited, Precision Group and Aurrum Holdings Pty
Ltd. 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, The Star Entertainment Group Limited (since April 2015)
1
Incitec Pivot Limited Annual Report 2016
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 a non-executive
director of Boral Limited. He is also the independent Chairman of Flinders Ports Holdings
Limited. Mr Marlay is the former Chairman of Cardno Limited, 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:
• Director, Boral Limited (since December 2009)
• Chairman, Cardno Limited (August 2012 to January 2016, having commenced
as a Director in November 2011)
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
Chairman of Investa Office Management Holdings Pty Limited and non-executive director of
Goodman Group and OZ Minerals Limited. She is also an independent director of Scania
Australia Pty Ltd and Barristers Chambers Limited. 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 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, Oz Minerals Limited (since November 2010)
• Director, CSR Limited (February 2012 to October 2016)
Graham Smorgon AM
B.Juris, LLB
Non-executive director
Member of the Health, Safety,
Environment and Community
Committee
Member of the Nominations
Committee
Member of the Remuneration
Committee
James Fazzino BEc(Hons),
Adjunct Professor, La Trobe
Business School
Managing Director & CEO
Member of the Health, Safety,
Environment and Community
Committee
Mr Smorgon was appointed as a director on 19 December 2008. Mr Smorgon is Chairman of
Smorgon Consolidated Investments and the GBM Group, and a Trustee of the Victorian Arts
Centre Trust. His former roles include non-executive director of Arrium Limited, 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 IPL 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 (September 2007 to November 2015)
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 IPL, he had many years of experience with Orica Limited in
several business financial roles, including Investor Relations Manager, Chief Financial
Officer for the Orica Chemicals group and Project Leader of Orica’s group restructure in 2001.
Mr Fazzino is also Chairman of the Advisory Board for La Trobe University’s Business School
and an Adjunct Professor of La Trobe 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 2016
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) (Act), as at the date of this
report is as follows:
Director
P V Brasher(1)
K Fagg(1)
G Hayes(2)
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
10,000
37,926
18,758
13,100
1,914,562
(1) Held both directly and indirectly.
(2) Held indirectly.
Further details of directors’ interests in share capital are set out
on page 42 of the Remuneration Report.
Principal activities
The principal activities of the Group during the course of the
financial year were the manufacture and distribution of industrial
explosives, industrial chemicals and fertilisers, 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 6 for
the operating and financial review of the Group during the
financial year and the results of these operations.
Dividends
Dividends since the last annual report:
Type
Cents
per
share
Total
amount
$mill
Franked/
Unfranked
Date of
payment
Paid during the year
2015 final dividend
2016 interim dividend
7.4
4.1
124.9
60% franked
14 December 2015
69.2 100% franked
1 July 2016
To be paid after
end of year
2016 final dividend
Dealt with in the
financial report as:
Dividends
Subsequent event
4.6
77.6
unfranked
13 December 2016
Note
6
23
$mill
194.0
77.6
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
K Fagg
J Marlay
R J McGrath
G Smorgon AM
G Hayes
J E Fazzino
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
11
11
11
11
11
10(3)
11
5
5
5
5
5
5
6
6
6
6
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 Hayes was an apology for an extraordinary meeting which was convened at short notice.
3
Incitec Pivot Limited Annual Report 2016
Unissued shares under IPL’s long term
incentive performance rights plans
The table below describes the unissued ordinary shares or
interests under IPL’s long term incentive performance rights
plans as at the date of this report. Each performance right
entitles the participant to acquire ordinary shares in Incitec
Pivot Limited, on a one right to one share basis, for no
consideration upon vesting. Vesting of the performance rights
is subject to the satisfaction of certain conditions. Prior to
vesting, holders of these rights are not entitled to participate in
any share issue or interest issue of the Company. Performance
rights expire on vesting or lapsing of the rights. Refer to the
Remuneration Report commencing on page 24 for further
details in relation to the performance rights.
Likely developments
The Operating and Financial Review beginning at page 6 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
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 IPL’s risk based focus.
During the year, the Group has continued to focus on licence
compliance and identification and mitigation of environmental
risks. Remediation works have also either been completed
successfully or progress accomplished at a number of sites in
the US.
For the 2016 financial year, the Group received fines in
aggregate of approximately A$60,500 for incidents relating to
its fertiliser operations in Australia and a fine of US$100,000
for failure to conform strictly with an air quality permit in
relation to one of its plants in the US.
Date performance
rights granted
6 January 2014
30 December 2014
5 February 2015
21 January 2016
25 August 2016
Total unissued ordinary shares
under performance rights
Number of ordinary shares
under performance rights
2,231,273
2,121,853
93,744
1,385,940
150,941
5,983,751
Shares issued on exercise of
performance rights
1,513,487 ordinary shares in Incitec Pivot Limited were issued
by the Company during the 2016 financial year as a result of
the equivalent number of performance rights vesting under
the Company’s 2012/15 Long Term Incentive Plan. The rights
entitled the holder to acquire the shares for zero consideration
with nil amount unpaid on each of the ordinary shares issued.
As at the date of this report, no shares or interests have been
issued as a result of an exercise of performance rights since
the end of the 2016 financial year.
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, the Company announced
the successful completion of the performance testing process
for its ammonia plant at Waggaman, Louisiana on 19 October
2016. IPL took over management and operation of the
ammonia plant effective from this date. The final cash cost of
the project will be below the budget of US$850 million.
Further, in November 2016, the directors determined to pay a
final dividend for the Company of 4.6 cents per share on 13
December 2016. The dividend is unfranked (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 the end of the financial year,
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.
Incitec Pivot Limited Annual Report 2016
4
Non-audit services
Deloitte Touche Tohmatsu has provided non-audit services to
the amount of $183,400 during the year ended 30 September
2016 (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 Act 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 43.
Rounding
The Company is of a kind referred to in ASIC Legislative
Instrument, ASIC Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191 issued by the Australian
Securities and Investments Commission dated 24 March 2016
and, in accordance with that Legislative Instrument, 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). IPL’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.
Directors’ Report
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 was appointed as the Company’s
external auditor at the 2011 Annual General Meeting and
continues in office in accordance with section 327B(2) of the
Act. Since Deloitte Touche Tohmatsu’s appointment, Mr Tom
Imbesi has been appointed as the Company’s lead audit
partner. Under the Act, the Board may grant approval for a
lead audit partner to continue to play a significant role in the
audit of a company beyond 5 successive financial years.
In accordance with the requirements of the Act, and on
recommendation of the Audit and Risk Management
Committee, the Board, in June 2016, approved Mr Tom Imbesi
to continue as lead audit partner for an additional two
successive financial years, being the financial years ending
30 September 2017 and 30 September 2018. In its
deliberations, the Board and Audit and Risk Management
Committee noted that:
•
IPL is in the process of commissioning and integrating its
Louisiana Ammonia Plant and whilst this process is
continuing, the cumulative audit knowledge and
understanding of the project which Mr Imbesi has built up
and Mr Imbesi’s prior experience in respect of the
Company’s commissioning history, should be retained; and
• Given that IPL is currently undergoing a period of challenge
and change, Mr Imbesi’s extensive knowledge of the
Company, its operating businesses and financial control
environment, the industry and its end markets, is
important.
In granting the approval, the Board noted that the Audit and
Risk Management Committee was satisfied that the quality of
the audit provided to IPL would be maintained and the
approval would not give rise to a conflict of interest situation
(as defined in the Act).
Further details in relation to the extension of Mr Imbesi’s term
can be found in IPL’s 2016 Corporate Governance Statement.
5
Incitec Pivot Limited Annual Report 2016
Operating and Financial Review
Business Presentation
In May 2016, IPL announced its strategic response to the
unprecedented challenges facing the markets in which it
operates. This response included the acceleration of its
Business Excellence Organisation Focused Improvement
(BEx OFI) program that is designed to deliver $80m of
sustainable operating efficiencies and $20m of sustainable
capital expenditure savings by 2017.
The BEx OFI program included changes to the Group’s operating
model and management structures, which now comprise two
operating businesses, Asia Pacific and Americas.
The Asia Pacific business consists of the Dyno Nobel Asia Pacific
(DNAP) segment and the Fertilisers segment, which in turn
comprises Southern Cross International (SCI) and Incitec Pivot
Fertilisers (IPF). The Americas business comprises the Dyno
Nobel Americas (DNA) segment.
Each of the businesses serve three sectors, consisting of
Explosives, Industrial Chemicals and Fertilisers. The businesses
and respective sectors can be reconciled to IPL’s reportable
segments as set out in the following exhibit, which is adjusted
for Individually Material Items (IMIs):
REPORTED SEGMENT
Revenue
EBIT ex IMIs
2016
2015
2016
2015
PRESENTATION
Revenue
EBIT ex IMIs
2016
2015
2016
2015
DNAP
920.8
910.8
186.1
192.7
Explosives
920.8
910.8
186.1
192.7
1,341.9 1,510.9
104.2
224.1
1,150.6
1,286.7
159.6
181.7
Fertilisers
• IPF
• SCI
• Elimination
DNA
• Explosives
• Agriculture
& Industrial
Chemicals
(“Ag&IC”)
C
I
F
I
C
A
P
A
I
S
A
S
A
C
I
R
E
M
A
Fertilisers
• IPF
• SCI, excluding
Industrials & Trading
(“I&T”) component
• Elimination
Industrial Chemicals
• I&T component of SCI
Explosives
• Explosives
Fertilisers
• Agriculture
component of Ag&IC
Industrial Chemicals
• Industrial Chemicals
component of Ag&IC
1,241.4 1,410.9
75.3
191.9
100.5
100.0
28.9
32.2
958.3
1,056.3
129.2
141.5
60.1
63.0
23.8
9.8
132.2
149.4
6.6
30.4
Group Overview
IPL is a global diversified industrial chemicals company that
manufactures and distributes industrial explosives, industrial
chemicals and fertilisers. It has operations primarily in Australia,
where it operates under the globally recognised Dyno Nobel
and Incitec Pivot Fertilisers brands, and in North America where
it also operates under the Dyno Nobel brand.
IPL is managed through an upstream/downstream model that
leverages a common nitrogen manufacturing core. Engineering
synergies are achieved through the upstream Global
Manufacturing organisation, whereas market-facing activity is
conducted through its downstream organisations.
As noted above, IPL restructured its operations into two
downstream businesses in 2016, comprising:
• Asia Pacific; and
• Americas.
Both businesses serve three sectors, consisting of:
• Explosives;
•
• Fertilisers.
Industrial Chemicals; and
Incitec Pivot Limited Annual Report 2016
6
Directors’ Report
IPL’s businesses and sectors, as well as its primary products, are set out in the exhibit below.
ASIA PACIFIC
GLOBAL
MANUFACTURING
AMERICAS
PRIMARY PRODUCTS
S
E
V
I
S
O
L
P
X
E
Upstream
Common
Nitrogen
Core
• Explosives: Ammonium nitrate based explosives
• Initiating Systems: Boosters, detonators and control systems
• Services: Consulting and site support
L
A
I
R
T
S
U
D
N
S
L
A
C
I
M
E
H
C
I
S
R
E
S
I
L
I
T
R
E
F
Zero Harm
IPL prioritises its “Zero Harm for Everyone, Everywhere”
Company value above all others. It does so through a fully
integrated Health, Safety and Environment (HSE) system
that provides the foundation for effective identification and
management of HSE risks. Central to IPL’s HSE system are
the ‘4Ps’:
• Passionate Leadership;
• People;
• Procedures; and
• Plant.
In 2012, IPL adopted a five year Group HSE goal of achieving
world class safety performance. Among other measures, this
included reducing Total Recordable Injury Frequency Rate
(TRIFR)(1) to less than 1.0 by 2016. For the 2016 financial
year, IPL achieved a TRIFR of 0.76(2) representing a 45 percent
decline since 2012. As demonstrated in the following chart,
Employee Lost Day Severity Rate(3) also declined significantly
over the same period.
IPL also delivered benchmark safety performance during
construction of the Waggaman, Louisiana ammonia plant with
more than five million hours worked without a lost time injury.
• Ammonia
• Carbon Dioxide (CO2)
• Diesel Exhaust Fluid (DEF)
• Fluorosilicic Acid
• Nitric Acid
• Sulphuric Acid
• Industrial Urea
• Ammonia
• Di/mono-ammonium phosphate (DAP/MAP)
• Granulated Ammonium Sulphate (GranAm)
• Single Super Phosphate (SSP)
• Urea
• Urea ammonium nitrate (UAN)
TRIFR and Employee Lost Day Severity Rate
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
40
30
20
10
0
FY12
FY13
FY14
FY15
FY16
12 Month Rolling TRIFR (LHS)
Employee Lost Day Severity Rate (RHS)
The 2016 result and the safe completion of the Waggaman,
Louisiana ammonia plant are important milestones
toward achieving IPL’s vision of “Zero Harm for Everyone,
Everywhere”. Notwithstanding progress to date, IPL will
continue to focus on further improvement of its safety
performance.
IPL’s HSE system works in tandem with the Business
Excellence (BEx) continuous and focussed improvement
system described on the following page.
(1) TRIFR calculated as the number of recordable injuries per 200,000 hours worked; includes contractors.
(2) Subject to finalisation of the classification of any pending incidents.
(3) Employee Lost Day Severity Rate calculated as the number of employee lost workdays per 200,000 hours worked represented in days; does not include contractors.
7
Incitec Pivot Limited Annual Report 2016
Total GHG emissions
Strategy
As a diversified industrial chemicals company, IPL’s strategy is
to leverage core nitrogen and high explosive manufacturing
competencies by aligning to major market dislocations (for
example, US energy revolution and industrialisation and
urbanisation of Asia). It does so through an upstream/
downstream model that leverages a common nitrogen
manufacturing core.
Underpinning IPL’s strategy is its commitment to Zero Harm,
which reflects the primacy of safety within the organisation.
The immediate focus for IPL is firmly on optimising existing
manufacturing assets, improving productivity and executing
strategies to maximise returns. BEx, IPL’s globally integrated
continuous and focussed improvement system, aims to drive
sustainable and ongoing business efficiency and productivity
through an empowered and engaged workforce.
In the medium term, IPL’s growth is linked to the recovery
of the United States through the ramp up of the Waggaman,
Louisiana ammonia plant.
Waggaman, Louisiana Ammonia Plant
In April 2013, IPL announced an investment of US$850m to
build an 800,000 metric tonne per annum ammonia plant
in Waggaman, Louisiana. Construction of the plant was
completed in September 2016 and IPL assumed management
of the plant on 19 October 2016.
The plant is expected to operate at an average of 80 percent
of nameplate capacity in 2017 as it ramps up to full
production.
The plant is expected to be depreciated over an average life
of approximately 35 years for accounting purposes, with the
majority of the plant depreciated over the first six years for tax
purposes.
BEx OFI
Through BEx, IPL has built a culture that fosters productivity
improvements and sustainability initiatives, while also
prioritising Zero Harm. BEx is strongly aligned with IPL’s
corporate values and has lean principles at its core.
As noted above, in 2016 IPL announced the BEx OFI program to
deliver $100m cost savings during the 2017 year, comprising
$80m in operating efficiencies, and $20m reduction in capital
expenditure. Using BEx methodology, operating efficiencies
in overhead, procurement, supply chain and manufacturing
productivity across IPL have been identified and progressed.
BEx Asset Care efficiencies have been identified which will
reduce capital expenditure.
As at 30 September 2016, net savings from the BEx OFI
program of $16m had been delivered.
Group Financial Performance
IPL delivered Net Profit After Tax (NPAT) excluding minority
interests of $128.1m, down $270.5m on 2015. This result
included IMIs of $167.1m. NPAT excluding Individually Material
Items (ex IMIs) was $295.2m, down $103.4m on 2015.
IMIs
IMIs in the period consist of an impairment write-down in
relation to Gibson Island’s manufacturing plant and related
assets, costs incurred in the business restructure, and the
impairment of certain operating assets and site exit costs.
• Impairment of Gibson Island: The impairment of $105.6m
after tax was recognised at 31 March 2016, and reflects the
impact of lower forecast fertiliser prices and higher forecast
gas prices on the recoverable amount of the asset.
• Business Restructuring Costs: In May 2016, IPL announced
that it was responding to the cyclical and structural changes
in the markets that it serves through the BEx OFI program.
Total restructuring costs were $90.5m before tax with
expected cash benefit from the BEx OFI of $100m ($80m
of operating efficiencies and $20m of capital expenditure
savings) per annum by 2017. Total restructuring costs
include $26.8m of asset impairments and site exit costs.
Group Performance
Group EBIT ex IMIs decreased 26 percent, or $148.4m, to
$428.1m, as compared to 2015.
Revenue
EBITDA ex IMIs(1)
EBIT ex IMIs(2)
NPAT ex IMIs(3)
IMIs after tax
NPAT
Business EBIT ex IMIs
Asia Pacific
Americas
Elimination and Corporate
Group EBIT ex IMIs
EBIT margin ex IMIs
Sector EBIT ex IMIs
Explosives
Industrial Chemicals
Fertilisers
Elimination and Corporate
Group EBIT ex IMIs
EBIT margin ex IMIs
Year Ended 30 September
2016
$mill
2015
$mill
Change
%
3,353.7
3,643.3
672.6
428.1
295.2
(167.1)
128.1
290.3
159.6
(21.8)
428.1
12.8%
315.3
52.7
81.9
(21.8)
428.1
12.8%
825.6
576.5
398.6
–
398.6
416.8
181.7
(22.0)
576.5
15.8%
334.2
42.0
222.3
(22.0)
576.5
15.8%
(7.9)
(18.5)
(25.7)
(25.9)
–
(67.9)
(30.4)
(12.2)
0.9
(25.7)
(5.7)
25.5
(63.2)
0.9
(25.7)
(1) EBITDA ex IMIs = Earnings Before Interest, Tax, Depreciation and Amortisation,
excluding IMIs.
(2) EBIT ex IMIs = Earnings Before Interest and Tax, excluding IMIs.
(3) NPAT ex IMIs = Net Profit After Tax attributable to shareholders excluding IMIs.
Incitec Pivot Limited Annual Report 2016
8
Explosives (DNA, DNAP)
Fertilisers
FY12
FY13
FY14
FY15
FY16
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Dividend declared in respect of the financial year
%
17.5
15.0
12.5
10.0
7.5
5.0
2.5
0
(2.5)
Cents
35
30
25
20
15
10
5
0
The tenor and diversity of IPL’s debt is set out in the
following exhibit:
2015
2012
2013
2014
2016
Debt Profile
AUDm
1200
1000
800
600
400
200
0
Maturity
Date
Available limits
Drawn funds
Bank facility
AUD568m
Bank facility
USD553m
Bond
AUD200m
144A/reg S
USD800m
Bank facility
USD400m
Oct 18
Oct 18
Feb 19
Dec 19
Aug 20
Property, Plant & Equipment decreased by $110.9m to
$3,892.7m. Significant movements included depreciation of
$218.8m, impact of foreign currency translation of non-A$
denominated assets of $153.0m, Gibson Island impairment of
$146.4m before tax, write-down of $22.8m in operating
assets in relation to the business restructure, partially offset by
capital expenditure on the Waggaman, Louisiana ammonia
plant of $243.5m (including capitalised interest), minor
growth spend of $30.2m and sustenance capital expenditure
of $159.6m.
Intangible assets decreased by $175.9m mainly as a result of
the impact of foreign currency translation of non-A$
denominated assets and amortisation of intangibles.
Tax liabilities decreased by $114.6m over the period to
($414.9m) mainly due to lower pre-tax earnings for 2016, the
impact of the higher A$ on foreign currency denominated tax
liabilities and timing differences between tax and accounting
depreciation rates related to property, plant and equipment
and intangibles.
Net other liabilities decreased by $247.9m over the period to
($490.8m) mainly due to favourable market value movements
of derivative hedging instruments (offsetting foreign exchange
movements in US$ net assets), partially offset by movements
in the retirement benefit obligations.
Capital Allocation
IPL’s capital allocation process is centralised and overseen by
the Group Corporate Finance and Strategy & Business
Development functions. Capital is invested on a prioritised
basis and all submissions are assessed against IPL’s risk, HSE,
financial, strategic and corporate governance criteria. Capital is
broadly categorised into major growth capital, minor growth
capital and sustenance capital.
Directors’ Report
EBIT from the Asia Pacific business declined 30 percent over
the period, with Explosives earnings contracting 3 percent and
Fertiliser earnings contracting 61 percent, largely in line with a
decline in global fertiliser prices. Industrial Chemicals earnings
also contracted during the period.
EBIT from the Americas business fell 12 percent as compared
to 2015 on an A$-basis. This was driven by a $12.3m decline
in Explosives earnings reflecting lower coal market volumes
and a $23.8m contraction in Fertilisers earnings in line with a
decline in global fertiliser prices. These declines were offset by
a $14.0m increase in Industrial Chemicals earnings primarily
reflecting net proceeds from contractual arrangements in
relation to the Waggaman, Louisiana ammonia plant.
A detailed analysis of the performance of each business and
respective outlook is provided on the following pages.
Group Cash Flow and Financial Position
Operating cash flow decreased 24 percent to $575.3m as
compared to 2015. This decline was driven by a fall in EBITDA
largely attributable to falling commodity prices, but partially
offset by an improvement in Trade Working Capital (TWC).
Average 13 month TWC as a percentage of annual revenue
declined to five percent during the period, primarily as a result
of effective cash management efficiency initiatives and lower
commodity prices reflected in purchased inventory.
IPL’s Balance Sheet remains sound, reflecting the Group’s
ongoing commitment to financial discipline and effective
cash management. As at 30 September 2016, IPL had net
debt of $1,393.8m.(1) Net debt/EBITDA ex IMIs of 2.1x remained
within IPL’s target range of less than 2.5x, after significant
capital expended since 2013 on the Waggaman, Louisiana
ammonia plant.
Balance Sheet
Assets
Group TWC
Net PP&E
Intangible assets
Total Assets
Liabilities
Environmental & restructure provisions
Tax liabilities
Net other liabilities
Net debt(1)
Total Liabilities
Net Assets
Equity
Key Performance Indicators
Net tangible assets/share
Average TWC as % Revenue(2)
Credit Metrics
EBITDA ex IMIs
Interest cover(3)
Net debt/EBITDA ex IMIs
Year Ended 30 September
2016
$mill
2015
$mill
Change
$mill
(49.2)
3,892.7
3,170.4
7.7
4,003.6
3,346.3
(56.9)
(110.9)
(175.9)
7,013.9
7,357.6
(343.7)
(129.9)
(414.9)
(490.8)
(1,393.8)
(2,429.4)
(111.9)
(529.5)
(738.7)
(1,289.3)
(2,669.4)
(18.0)
114.6
247.9
(104.5)
240.0
4,584.5
4,688.2
(103.7)
4,584.5
4,688.2
(103.7)
0.84
5.0%
672.6
7.9x
2.1x
0.80
6.9%
825.6
9.7x
1.6x
(153.0)
(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 as % Revenue = 13 month average trade working capital/
annual revenue.
(3) Interest cover = 12 month rolling EBITDA ex IMIs/net interest expense.
9
Incitec Pivot Limited Annual Report 2016
Capital Expenditure
Major growth capital
Asia Pacific
Americas
Minor growth capital
Asia Pacific
Americas
Sustenance
Total
Year Ended 30 September
2016
$mill
2015
$mill
Change
%
(215.2)
(256.4)
(10.7)
(19.1)
(29.8)
(126.9)
(63.6)
(3.6)
(430.6)
(16.4)
(81.7)
(12.8)
(51.5)
(48.5)
16.1
16.4
(146.4)
(31.1)
(90.5)
(16.8)
(190.5)
(100.0)
(435.5)
(372.8)
Major growth capital expenditure of $215.2m (which includes
capitalised interest during the period of $48.0m) relates to the
construction of the Waggaman, Louisiana ammonia plant.
Total project spend in relation to the plant as at 30 September
2016 was US$778.3m.
Minor growth capital expenditure was $29.8m and sustenance
capital expenditure was $190.5m during the year, which
included turnaround activity at the Mt Isa and Gibson Island
plants as well as turnaround activity at the St Helens,
Oregon plant.
In the period following the commissioning of the Waggaman,
Louisiana ammonia plant, capital expenditure is expected to
relate primarily to sustenance.
Group Outlook and Sensitivities
IPL does not provide profit guidance, particularly due to the
variability of global fertiliser prices and foreign exchange
movements. The following represents an outlook for business
performance expectations for the 2017 financial year.
The markets in which IPL operates are expected to remain
challenging in 2017.
Explosives
Structural changes in US coal markets and the cyclical
oversupply of ammonium nitrate in Asia Pacific and the
Americas are expected to continue in 2017.
Industrial Chemicals
Industrial Chemicals earnings are expected to grow as
Waggaman, Louisiana ramps up through 2017. Earnings from
the plant will be impacted by movements in global ammonia
and US natural gas prices.
Fertilisers
The cyclical reduction in global fertiliser prices may continue
into 2017. Water availability in eastern Australia looks
favourable as a result of recent rainfall, enhancing distribution
volume prospects.
Phosphate Hill gas contracts secured during the year are
expected to reduce IPL’s gas costs from calendar year 2017
to 2028 as compared to IPL’s gas costs at the time the
contracts were announced.
Shareholder Returns and Dividends
Group
Earnings per share (EPS) ex IMIs decreased 6.3 cents per share
to 17.5 cents per share as compared to 2015.
Year Ended 30 September
2016
cents per
share
2015
cents per
share
Outlook for certain corporate items as they relate to 2017 are
set out below:
• BEx OFI: To deliver $80m of sustainable operating
efficiencies and $20m of sustainable capital expenditure
savings by 2017.
Change
• Corporate: Corporate costs are expected to remain between
$22m and $24m.
• Borrowing Costs: Net borrowing expense is expected to
increase to approximately $128.9m as the Group will no
longer capitalise interest in relation to the Waggaman,
Louisiana ammonia plant.
• Tax: Full year effective tax rate is expected to continue to be
approximately 22 to 24 percent.
• Hedging: 75 percent of estimated first half 2017 US$ linked
Group fertiliser sales are hedged at a rate of $0.76 with full
participation in downward rate movements.
Shareholder Returns
EPS
EPS ex IMIs(1)
Dividend per share(2)
7.6
17.5
8.7
23.8
23.8
11.8
(16.2)
(6.3)
(3.1)
(1) EPS ex IMIs = Earnings Per Share, excluding IMIs.
(2) Dividend declared in respect of the financial year.
In November 2016, the Directors of IPL determined to pay
an unfranked final dividend of 4.6 cents per share payable in
December 2016, bringing total dividends paid with respect to
the 2016 financial year to 8.7 cents per share. This represents
approximately a 50 percent payout ratio for the 2016
financial year.
The Board also determined to maintain the Dividend
Reinvestment Plan (DRP) with respect to the 2016 financial
year, with no discount applied in determining the offer price
under which the plan would be implemented. The Board
further determined that the DRP would be implemented in a
manner that ensures no dilutive effect to shareholders.
Incitec Pivot Limited Annual Report 2016
10
Directors’ Report
Sensitivities
IPL’s earnings are influenced by movements in global fertiliser
prices, commodity prices and foreign exchange. Investors should
be cognisant of these factors.
The following table provides sensitivities to key earning drivers
as they relate to the 2016 financial year.
Ame rica s
35%
Full Year EBIT Sensitivies
Asia Pacific
Urea (FOB Middle East)(1)
DAP (FOB Tampa)(2)
FX transactional (DAP/urea)(3)
Americas
Urea (FOB NOLA)(4)
FX earnings translation(5)
+/- US$10/mt = +/- A$4.7m
+/- US$10/mt = +/- A$13.8m
+/- US$0.01 = -/+ A$8.0m
+/- US$10/mt = +/- US$1.7m
+/- US$0.01 = -/+ A$2.2m
Full Year Indicative Waggaman, Louisiana EBIT Sensitivies(6)
Americas
Ammonia Tampa CFR
Henry Hub Natural Gas
FX earnings translation
+/- US$10/mt = +/- US$6.1m
+/- US$0.10/mmbtu = -/+ US$2.0m
EBIT will be US$ denominated and
subject to translation movements
(1) 347,000 metric tonnes urea equivalent (Gibson Island actual sales) at 2016
realised exchange rate of A$/US$ 0.7393.
(2) 1,017,300 metric tonnes DAP (Phosphate Hill actual sales) and realised
exchange rate of A$/US$ 0.7393.
(3) DAP and urea volumes and prices based on footnotes 1 & 2 above (excludes
impact of hedging).
(4) 165,000 metric tonnes urea equivalent (St Helens nameplate).
(5) Based on actual FY16 Americas EBIT of US$118.2m and an average exchange
rate of A$/US$ 0.7359.
(6) 640,000 metric tonnes ammonia (80% Waggaman, Louisiana ammonia plant
nameplate capacity).
Asia Pacific
FY16 EBIT(1)
Contribution
Asia Pacific
65%
(1) Excludes elimination
The Asia Pacific business comprises three downstream sectors,
consisting of:
• Explosives;
•
• Fertilisers.
Industrial Chemicals; and
Downstream operations market and sell the output of fully
integrated upstream Global Manufacturing assets and third
party sourced products.
EBIT from the Asia Pacific business declined $126.5m or 30
percent to $290.3m as compared to 2015. This result included
a 3 percent contraction in Explosives earnings, a 61 percent
decline in Fertilisers earnings and a 10 percent contraction in
Industrial Chemicals earnings. These movements are discussed
in greater detail below.
Year Ended 30 September
ASIA PACIFIC
Explosives
Industrial Chemicals
Fertilisers
Elimination
Revenue
Explosives
Industrial Chemicals
Fertilisers
EBIT
EBIT margin
Explosives
2015
$mill
Change
%
2016
$mill
920.8
100.5
1,241.4
(14.9)
910.8
100.0
1,410.9
(14.5)
2,247.8
2,407.2
186.1
28.9
75.3
290.3
12.9%
192.7
32.2
191.9
416.8
17.3%
1.1
0.5
(12.0)
2.8
(6.6)
(3.4)
(10.2)
(60.8)
(30.4)
Through Dyno Nobel, IPL provides ammonium nitrate based
industrial explosives, initiating systems and services to the Coal
and Base & Precious Metals sectors in Australia, and
internationally to a number of countries including Indonesia,
Malaysia, Papua New Guinea and Turkey through its
subsidiaries and joint ventures. Ammonium nitrate is often sold
in conjunction with proprietary initiating systems and services.
Dyno Nobel is the second largest industrial explosives
distributor in Australia by volume, which in turn is the world’s
third largest industrial explosives market. In Australia, Dyno
Nobel primarily supplies its products to metallurgical coal
mines in the east and to iron ore mines in the west.
11
Incitec Pivot Limited Annual Report 2016
Explosives comprised 65 percent of Asia Pacific business
earnings and contracted 3 percent in 2016 as compared to
2015. The result was driven by strong manufacturing
performance which was offset by a modest decline in Base &
Precious Metals earnings and a 7 percent decline in
International earnings.
Year Ended 30 September
Plant
2016
2015
Change
%
Moranbah
344.7
344.7
460.5
333.5
127.0
920.8
186.1
20.2%
310.2
310.2
11.1
11.1
5.3
(0.9)
(7.4)
1.1
(3.4)
437.3
336.4
137.2
910.8
192.7
21.2%
EXPLOSIVES
Thousand metric tonnes
Ammonium nitrate(1)
Manufactured product
$mill
Coal
Base & precise metals
International
Revenue
EBIT
EBIT margin
Manufacturing
In Australia, Dyno Nobel manufactures ammonium nitrate at its
Moranbah, Queensland ammonium nitrate plant (Moranbah),
which is located in the Bowen Basin, the world’s premier
metallurgical (met) coal region. It also sources third party
ammonium nitrate from time to time.
Moranbah was commissioned in 2012 and has delivered
increased production each year, largely due to BEx initiatives. In
particular, Moranbah produced 345 thousand metric tonnes of
ammonium nitrate in 2016, representing 11 percent production
growth as compared to 2015. In addition to record ammonium
nitrate output, production records were set in the ammonia and
downstream plants despite 2016 being the last year of a 4-year
turnaround cycle, and despite previously disclosed gas supply
curtailments.
Initiating systems are manufactured in Australia at Dyno Nobel’s
Helidon, Queensland facility and are also sourced from IPL
facilities in the Americas and from DetNet South Africa (Pty)
Ltd, an IPL electronics joint venture (DetNet). Initiating systems
production was consistent with ammonium nitrate volume
production during the year.
Moranbah Ammonium Nitrate Production(1)
Thousand metric tonnes
Coal
54 percent of Asia Pacific ammonium nitrate volume sold
was supplied to the Coal sector in Australia’s east in 2016,
the majority of which was supplied to metallurgical coal
mines in Queensland’s Bowen Basin. In aggregate, sales to
the Coal sector comprised 49 percent of Asia Pacific
Explosives revenue.
Volume to both the metallurgical and thermal coal sectors
increased in 2016 with customers using volume leverage to
reduce cost per tonne metrics. This was offset by the closure
or curtailment of production at some marginal mines.
Demand for services contracted during the period as
customers insourced the activity, though to a lesser extent
than in 2015.
Asia Pacific Explosives
Volume
Asia Pacific Explosives
Revenue
Met Coa l
49%
Therma l Coa l
5%
Met Coa l
43%
Therma l Coal
6%
Base & Precious Metals
32 percent of Asia Pacific ammonium nitrate volume sold
was supplied to the Base & Precious Metals sector in
Australia in 2016. In aggregate, 24 percent of Explosives
volume sold was supplied to iron ore mines primarily in
Western Australia, with the remainder supplied to hard rock
and underground mines. Sales to the Base & Precious Metals
sector comprised 37 percent of Asia Pacific Explosives
revenue.
As with the Coal sector, volume to the Base & Precious
metals sector increased in 2016. This was largely driven by a
recovery in commodity prices, particularly iron ore, and
increased volume output from miners in Western Australia,
but was somewhat offset by the closure or curtailments of
some marginal customer mines in Australia. Demand for
initiating systems grew in tandem with ammonium nitrate
volume, however demand for services contracted during
the period.
310
345
290
Asia Pacific Explosives
Volume
Asia Pacific Explosives
Revenue
400
300
200
180
100
0
FY13
FY14
FY15
FY16
(1) Ammonium nitrate expressed as dry metric tonnes for comparative
purposes; previously reported as wet metric tonnes
P recious
Meta ls
8%
Iron Ore
24%
P recious
Meta ls
17%
Iron Ore
20%
Incitec Pivot Limited Annual Report 2016
12
Directors’ Report
International
Fertilisers
14 percent of Asia Pacific ammonium nitrate volume was
sold internationally including in Indonesia, Malaysia, Papua
New Guinea and Turkey. In these regions, Dyno Nobel
sources ammonium nitrate from third parties, manufactures
proprietary emulsion explosives, and combines them with
proprietary initiating systems and services. International
sales comprised 14 percent of Asia Pacific Explosives
revenue.
Volume sold within the International market was broadly flat
in 2016, despite ammonium nitrate oversupply in Southeast
Asia, particularly Indonesia, and political instability in Turkey.
Demand for initiating systems and services was also broadly
flat during the period.
Asia Pacific Explosives
Volume
Asia Pacific Explosives
Revenue
Interna tiona l
14%
Interna tiona l
14%
IPF is Australia’s largest domestic manufacturer and supplier
of fertilisers by volume, dispatching 1.8m metric tonnes of
fertilisers in 2016 to the domestic market. IPF produces
nitrogen and phosphate fertilisers for application in
Australia’s grain, cotton, fruit, pasture, dairy, sugar, sorghum
and horticulture industries in New South Wales, Victoria,
Queensland, South Australia and Tasmania. Fertiliser is
distributed to farmers and through a network of more than
200 dealers and agents.
Internationally, IPF sells to major offshore agricultural
markets in Asia Pacific, the Indian subcontinent and Brazil. It
also procures fertilisers from overseas manufacturers to meet
domestic seasonal peaks. Much of this activity is conducted
through Quantum Fertilisers Limited, a Hong Kong based
subsidiary.
IPF manufactures the following fertilisers at four locations:
• Phosphate Hill (Queensland): DAP and MAP;
• Gibson Island (Queensland): Ammonia (Big N), GranAm
and Urea; and
• Geelong and Portland (Victoria): SSP.
IPF’s business model is illustrated in the following exhibit:
Manufacturing
• Phosphate Hill
• Gibson Island
• Geelong
• Portland
International
Sales & Marketing
International
3rd Parties
Domestic
Sales & Marketing
Domestic
Dealers
Domestic
Farmers
Domestic
Wholesalers
Outlook
The Explosives sector is expected to remain challenged
through 2017 largely due to regional oversupply of
ammonium nitrate and ongoing customer cost focus.
Industrial Chemicals
The Asia Pacific business manufactures and distributes
industrial chemicals under the Incitec Pivot brand in eastern
Australia. Products include ammonia, CO2, DEF, fluorosilicic
acid and industrial urea. These products are primarily
manufactured at the Gibson Island plant.
EBIT from Industrial Chemicals comprised 10 percent of Asia
Pacific business earnings.
INDUSTRIAL CHEMICALS
Revenue
EBIT
EBIT margin
Outlook
Year Ended 30 September
2016
$mill
100.5
28.9
2015
$mill
100.0
Change
%
0.5
32.2
(10.2)
28.8%
32.2%
Industrial Chemicals volumes in 2017 are expected to be
broadly consistent with those of 2016, with earnings subject
to movements in commodity prices.
13
Incitec Pivot Limited Annual Report 2016
EBIT from Fertilisers comprised 26 percent of Asia Pacific
business earnings and declined 61 percent in 2016 as
compared to 2015. This was driven primarily by declining
fertiliser prices, but somewhat offset by favourable foreign
exchange movements and strong manufacturing
performance at Phosphate Hill.
FERTILISERS
Plant
2016
2015
Change
%
Year Ended 30 September
Thousand metric tonnes
DAP/MAP
Urea, GranAm
and Ammonia
SSP
Phosphate Hill
Gibson Island
1,009.6
350.3
1,043.3
369.7
(3.2)
(5.2)
Phosphate Hill Ammonium Phosphate Production
Thousand metric tonnes
1,200
1,100
1,000
900
800
700
600
1,043
1,039
1,010
788
772
Portland & Geelong
385.7
349.1
10.5
FY13
FY14
FY15
FY16
Manufactured product for sale
1,745.6
1,762.1
(0.9)
Annual Production
Lost Production due to Derailment
$mill
Domestic Sales & Marketing
International Sales & Marketing
Revenue
EBIT
EBIT margin
Manufacturing
960.8
280.6
1,082.4
328.5
(11.2)
(14.6)
1,241.4
1,410.9
(12.0)
75.3
191.9
(60.8)
6.1%
13.6%
Phosphate Hill produced 1,010 thousand metric tonnes of
ammonium phosphates in 2016, slightly below the record
annual production of 1,043 thousand metric tonnes achieved
in 2015. It did so despite a train derailment in late December
2015 that interrupted rail services for several weeks. As
disclosed at the half year, the derailment caused
approximately 29 thousand metric tonnes of lost ammonium
phosphates production. The year also included four record
production months as well as record ammonia production.
In November 2015, IPL announced that it had entered an
agreement providing gas to Phosphate Hill from the
commencement of supply from the Northern Gas Pipeline
(anticipated in 2019), through to 2028. This ten year supply
will reduce IPL’s gas costs by $55m per annum versus IPL’s
gas cost at the time of the announcement.
In March 2016, IPL announced that it had entered into an
agreement for gas supply to Phosphate Hill in calendar years
2017 and 2018, reducing IPL’s gas costs by approximately
$20m per annum compared with IPL’s gas cost at the time
of that announcement. This bridging contract will cease once
supply from the Northern Gas Pipeline commences.
Domestic Sales & Marketing
Revenue from Domestic Sales & Marketing decreased 11
percent as compared to 2015. This was largely due to a
decline in fertiliser prices but somewhat offset by favourable
foreign exchange movements. Weather also played a factor
during the year, with wet conditions in the grain growing
regions driving record demand for top-dress nitrogen during
the June to August period. However, subsequent higher
rainfall, including the wettest September on record for much
of the east coast of Australia, slowed demand in all regions
as many areas became too wet for fertiliser application.
Distribution margin recovered during 2016 due to improved
position management and BEx initiatives.
International Sales & Marketing
Revenue from International Sales & Marketing decreased by
15 percent as a result of lower fertiliser prices.
Outlook
The wetter than average conditions in the second half of
2016 have the potential to drive increased fertiliser demand
in 2017. However, depressed global fertiliser prices may
persist in the short term.
Incitec Pivot Limited Annual Report 2016
14
Directors’ Report
Americas
Explosives
FY16 EBIT(1)
Contribution
Ame rica s
35%
(1) Excludes elimination
The Americas business comprises three downstream sectors,
consisting of:
• Explosives;
•
• Fertilisers.
Industrial Chemicals; and
As with the Asia Pacific business, downstream operations
market and sell the output of fully integrated upstream
Global Manufacturing assets and third party sourced
products.
EBIT from Americas decreased $22.1m or US$22.9m in 2016.
The following commentary is based on local currency of US$.
AMERICAS
US$mill
Explosives
Industrial Chemicals
Fertilisers
Revenue
Explosives
Industrial Chemicals
Fertilisers
EBIT
EBIT margin
A$mill
Revenue
EBIT
EBIT margin
Year Ended 30 September
2016
2015
Change %
705.3
97.3
44.2
846.8
95.7
17.6
4.9
118.2
14.0%
829.3
117.3
49.5
996.1
109.9
7.6
23.6
141.1
14.2%
1,150.6
1,268.7
159.6
13.9%
181.7
14.3%
(15.0)
(17.1)
(10.7)
(15.0)
(12.9)
131.6
(79.2)
(16.2)
(9.3)
(12.2)
Notes
1. Translation A$/US$ exchange rate
0.74
0.79
(6.0)
Through Dyno Nobel, IPL provides ammonium nitrate based
explosives, initiating systems and services to the Coal, Base
& Precious Metals and Quarry & Construction sectors
primarily in the US, Canada and Mexico. As in the Asia Pacific
business, ammonium nitrate is often sold in conjunction with
higher margin proprietary initiating systems and services.
Asia Pacific
65%
Dyno Nobel is the second largest industrial explosives
distributor in North America by volume. It supplies
manufactured and third party ammonium nitrate to the
Coal sector in the Powder River Basin, Illinois Basin and
Appalachia, and to the Base & Precious Metals sector in
the US midwest, US west and Canada. It also provides
ammonium nitrate to the Quarry & Construction sector in
the southern US, northeast US and Canada.
Explosives comprised 81 percent of Americas business
earnings in 2016 and declined 13 percent as compared to
2015. This was driven by a contraction in the Coal, Base &
Precious Metals and Quarry & Construction sectors. These
movements are discussed in detail below.
EXPLOSIVES
Coal
Base & Precious Metals
Quarry & Construction
Revenue
EBIT
EBIT margin
Manufacturing
Year Ended 30 September
2016
US$mill
2015
US$mill
Change
%
187.8
196.6
321.0
705.3
258.1
246.5
324.8
(27.2)
(20.2)
(1.2)
829.3
(15.0)
95.7
109.9
(12.9)
13.6%
13.3%
In North America, Dyno Nobel manufactures ammonium
nitrate at its Cheyenne, Wyoming and Louisiana, Missouri
plants. The Cheyenne, Wyoming plant is adjacent to the
Powder River Basin, North America’s most competitive
thermal coal mining region. The Louisiana, Missouri plant has
a competitive logistic footprint from which to support mining
in the both Appalachia and the Illinois Basin.
Production from the Cheyenne, Wyoming and Louisiana,
Missouri plants contracted during 2016, reflecting lower
market demand and mirrored the broader contraction in
regional demand for ammonium nitrate. Despite this market-
related contraction, the Cheyenne, Wyoming plant delivered
its second highest ammonia production result to date.
Initiating systems are manufactured at Dyno Nobel’s facilities
in Connecticut, Kentucky, Illinois, Missouri, Chile and Mexico,
and are also sourced from DetNet.
15
Incitec Pivot Limited Annual Report 2016
Coal
Quarry & Construction
43 percent of Americas ammonium nitrate volume sold was
supplied to the Coal sector in 2016, the majority of which
was supplied to thermal coal mines in the Powder River
Basin. In aggregate, sales to the Coal sector comprised 26
percent of Americas Explosives revenue.
Volume to the Coal sector contracted 22 percent in 2016 as
compared to 2015. This contraction was in part a
consequence of excess coal inventory levels at electrical
generators evident at the beginning of the period. Powder
River Basin, Dyno Nobel’s core region, fared better than the
Illinois Basin and Appalachia, largely due to lower coal
production costs.
Demand for initiating systems and services also contracted
during the period in line with demand for ammonium
nitrate volume.
28 percent of Americas ammonium nitrate volume sold was
supplied to the Quarry & Construction (Q&C) sector in 2016.
Dyno Nobel has a leading position in this sector. Sales to
Q&C comprised 46 percent of Americas Explosives revenue
and benefits from a favourable mix of high grade explosives
and proprietary initiating systems and services.
Ammonium nitrate volume sold to Q&C grew 2 percent in
2016, following 11 percent growth in 2015. Growth
moderated in the second half with a slowdown in energy
infrastructure markets. In aggregate, revenue from Q&C
contracted 2 percent in the year reflecting product mix.
Americas Explosives
Volume
Americas Explosives
Revenue
Americas Explosives
Volume
Americas Explosives
Revenue
Qua rry &
Construction
28%
Qua rry &
Construction
46%
Therma l
Coa l
25%
Met Coa l
1%
Therma l
Coa l
41%
Met Coa l
2%
Base & Precious Metals
28 percent of Americas ammonium nitrate volume sold was
supplied to the Base & Precious Metals sector in 2016, the
majority of which was supplied to iron ore mines in the US
midwest and west. Sales to the Base & Precious Metals
sector comprised 28 percent of Americas Explosives revenue.
Ammonium nitrate volume to the Base & Precious Metals
sector contracted in 2016. This was largely driven by
subdued commodity prices, particularly during the first half
of the year, but benefited from tariffs imposed in March
2016 on steel imports into the US. Demand for initiating
systems and services contracted during the period in tandem
with ammonium nitrate demand.
Americas Explosives
Volume
Americas Explosives
Revenue
B a se &
P recious
Meta ls
28%
B a se &
P recious
Meta ls
28%
Outlook
The Explosives sector is expected to remain challenged
through 2017 with an oversupply of ammonium nitrate and
ongoing customer cost focus.
The sector may benefit from a five-year US$305Bn US
highway spending bill announced in December 2015 that
includes US$205Bn for highways and US$48Bn for transit
projects.
Industrial Chemicals
The Americas business manufactures and distributes
industrial chemicals under the Dyno Nobel brand in the US.
These products include ammonium nitrate solution, CO2, DEF
and nitric acid, and are produced at the Louisiana, Missouri;
Cheyenne, Wyoming; and St Helens, Oregon plants.
A ramp up of production at Waggaman, Louisiana will
contribute significant revenue to this segment in 2017.
EBIT from Industrial Chemicals increased US$10.0m as
compared to 2015, reflecting net income from Waggaman,
Louisiana related contractual arrangements, which was
partially offset by other operational factors.
INDUSTRIAL CHEMICALS
Revenue
EBIT
Outlook
Year Ended 30 September
2016
$USmill
2015
$USmill
Change
%
97.3
17.6
117.3
(17.1)
7.6
131.6
Industrial Chemicals earnings is expected to grow as the
Waggaman, Louisiana plant ramps up. Earnings will be
impacted by global ammonia prices and US natural gas
prices. In 2017, the plant is expected to average 80 percent
of nameplate capacity as it ramps up to full production.
Incitec Pivot Limited Annual Report 2016
16
Directors’ Report
Fertilisers
Dyno Nobel manufactures and distributes nitrogen-based
fertilisers in the United States at two locations:
• St Helens, Oregon: Urea and UAN; and
• Cheyenne, Wyoming: Urea and UAN.
EBIT from Fertilisers comprised 4 percent of Americas
business earnings and declined 79 percent as compared to
2015. As with the Asia Pacific business, this was driven
primarily by declining global fertiliser prices, but somewhat
offset by stronger manufacturing performance and
efficiencies achieved in the fertiliser supply chain.
Year Ended 30 September
FERTILISERS
Thousand metric tonnes
Plant
2016
2015
UAN
UAN
St Helens, OR
Cheyenne, WY
54.4
198.3
53.1
194.0
Manufactured product for sale
252.7
247.1
Change
%
2.4
2.2
2.3
US$mill
Revenue
EBIT
EBIT margin
Manufacturing
44.2
4.9
49.5
23.6
(10.7)
(79.2)
11.0%
47.7%
The St Helens and Cheyenne plants together produced
253,000 mt of UAN in 2016, a 2 percent increase on 2015.
St Helens underwent an eight-week turnaround that spanned
both 2015 and 2016 equally (four weeks in each year).
America UAN Production
Thousand metric tonnes
288
230
247
253
300
200
100
0
FY13
FY14
FY15
FY16
Cheyenne, Wyoming
St Helens, Oregon
Outlook
Fertiliser earnings in 2017 will remain subject to movements
in commodity prices, in particular ammonia, urea and UAN.
17
Incitec Pivot Limited Annual Report 2016
Principal Risks
Set out below are the principal risks and uncertainties associated with IPL’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 IPL 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 IPL’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 IPL
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 IPL’s overall performance. This may
affect demand for industrial explosives, industrial
chemicals and fertilisers 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 of country specific risks enables proactive
management of potential exposures.
Commodity
price risks
Pricing for fertilisers, ammonia, ammonium nitrate and
certain other industrial chemicals are linked to
internationally traded commodities (for example,
ammonia, ammonium phosphates and urea); price
fluctuations in these products could adversely affect
IPL’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 businesses to compete in changing
and competitive environments.
• Sales and Operations Planning (S&OP) process helps
inventory management to reduce price risk of stock on
hand.
•
IPL employs a “value at risk” framework with respect to its
Australian fertiliser operations. This allows the business to
better 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 A$ against the
US$ may materially affect IPL’s financial performance.
•
A large proportion of IPL’s sales are denominated either
directly or indirectly in foreign currencies, primarily the
US$.
In addition, IPL also borrows funds in US$, and the A$
equivalent of these borrowings and the interest payable
on them will fluctuate with the exchange rate.
Other financial risks that can impact IPL’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.
IPL’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$/A$ debt,
provide funding flexibility by accessing different debt
markets and reduce refinance risk by ensuring a spread of
debt maturities. A detailed discussion of financial risks is
included in Note 16 (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.
Incitec Pivot Limited Annual Report 2016
18
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
Industry
structure and
competition
risks
Customer risks
IPL 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 IPL 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 increased pressure on
existing customers (therefore giving rise to increased
cost pressure on inputs to their supply) and has also
resulted in reduced demand for their outputs.
Reduced demand for steel inputs (in particular iron ore
and metallurgical coal) can lead to a decrease in
demand for explosives in these industries.
IPL’s fertiliser operations compete 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.
IPL has strong relationships with key customers for the
supply of products and services. These relationships are
fundamental to the Group’s financial performance, on
which the loss of key customer(s) may have a negative
impact. This is particularly relevant to the Explosives
sectors where supply contracts tend to be longer term
and significant high value customers are represented.
Customer(s)’ 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.
Product
quality and/
or specification
risk
IPL manufactures or produces product to specific
customer and industry specifications and statutory
parameters. The Group is exposed to financial and
reputational risk if these standards, requirements and
limits are not met.
IPL seeks to maintain competitive cost positions in its
chosen markets, whilst maintaining quality product and
service offerings. This focus on cost and quality positions its
business units to compete over the medium to longer term
in changing and competitive environments.
• Where practical, IPL prefers to engage in long term
customer and supply contractual relationships.
• Pricing and risk management processes exist in all
businesses.
• Where practical, for customers in the Explosives sector, IPL
prefers to engage in long term customer contractual
relationships.
• The Group attempts to diversify its customer base to reduce
the potential impact of the loss of any single customer.
• Sales and customer plans are developed in line with IPL’s
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.
• From time to time, the Group purchases trade credit
insurance to minimise credit risk.
•
IPL 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.
Oversupply of
ammonium
nitrate in Asia
Pacific and
Americas
New ammonium nitrate capacity has recently been or is
soon to be introduced in both the Asia Pacific and
Americas geographic regions. In both instances, the
markets are predominantly domestically supplied and
the new capacity may create a supply/demand
imbalance.
• Where practical, for customers in the Explosives sector, IPL
prefers to engage in long term customer contractual
relationships.
•
IPL seeks to maintain competitive cost positions in its chosen
markets, whilst maintaining quality product and service
offerings.
19
Incitec Pivot Limited Annual Report 2016
Risk
Description and potential consequences
Treatment strategies employed by IPL
Operational risks
Production,
transportation
and storage
risks
IPL’s operations are inherently dangerous. IPL operates
15 key manufacturing and assembly sites and is
exposed to operational risks associated with the
manufacture, transportation and storage of fertilisers,
ammonium nitrate, initiating systems, industrial
chemicals and industrial explosives products.
IPL’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 IPL’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.
Natural gas
supply and
price risk
Natural gas is one of the major inputs required for the
production of ammonia and therefore is a critical
feedstock for IPL’s nitrogen manufacturing operations.
Availability and quality of natural gas are both key
factors when sourcing supply. Potential disruption of
supply also poses a risk.
The Group has various natural gas contracts and supply
arrangements for its plants. In respect of the Australian
fertiliser operations there is a risk that a reliable,
committed source of natural gas at economically viable
prices may not be available following the expiry of
current contractual arrangements. The cost of natural
gas impacts the variable cost of production of ammonia
and can influence the plants’ overall competitive
position.
• 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 reported and investigated,
and learnings are shared throughout the Group.
• Appropriate workers’ compensation programs are in place
globally to assist employees who have been injured while
at work, including external insurance coverage.
• Management undertakes risk identification and mitigation
strategies across all sites.
•
IPL undertakes business continuity planning and disaster
preparedness across all sites.
• Global industrial special risk insurance is obtained from a
variety of highly rated insurance companies to ensure the
appropriate coverage is in place. The policies insure the
business, subject to policy and retention limits, from
damage to its plants and property and the associated costs
arising from business interruptions.
• Where possible, flexible supply chain and alternative
sourcing solutions are maintained as a contingency.
• The S&OP process and inventory management practices
provide flexibility to deal with short term disruptions.
• The Group has strict processes around the stewardship,
movement and safe handling of dangerous goods and other
chemicals.
• The Group has medium term gas contracts in place for its
Australian manufacturing sites, with the exception of Gibson
Island in respect of which contracted gas supply is in place
through to September 2018. The contracts have various
tenures and pricing mechanisms. As part of normal
operations, IPL explores new gas supply arrangements
where appropriate.
• The US natural gas market is a liquid market, with offtake
facilitated by an extensive pipeline infrastructure and pricing
commonly referenced to a quoted market price. The
Americas business has short term gas supply arrangements
in place for its gas needs with market referenced pricing
mechanisms.
• Gas supply has been substantially contracted for the
Waggaman, Louisiana ammonia plant for its first five years
of production with pricing determined by reference to the
price for gas traded through the Henry Hub.
•
In respect of the Americas business (including the
Waggaman, 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 2016
20
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
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.
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 sourced from Glencore could 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 2028. Accordingly, IPL would be able to
continue to produce sulphuric acid at Mt Isa (albeit at a
higher cost) by burning elemental sulphur until 2028, should
the copper smelter operation cease 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, IPL mines phosphate
rock which is used for the production of ammonium
phosphates at that facility.
Phosphate rock is an internationally traded commodity
with pricing based on international benchmarks and is
affected by global supply and demand forces. 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 IPL’s single
superphosphate manufacturing operations, as these
operations rely on rock imported from limited foreign
supply sources.
• Phosphate rock is used in the production of single
superphosphate at IPL’s Geelong and Portland operations.
IPL seeks to diversify the sources of supply of rock (subject
to certain requirements regarding the composition of the
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).
A shortage of skilled labour or loss of key personnel
could disrupt IPL’s business operations or adversely
affect IPL’s business and financial performance. IPL’s
manufacturing plants require skilled operators drawn
from a range of disciplines, trades and vocations.
IPL has operations in regional and remote locations
where it can be difficult to attract and retain critical and
diverse talent.
•
IPL’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.
Seasonal conditions (particularly rainfall), are a key factor
for determining demand and sales of explosives and
fertilisers. Any prolonged adverse weather conditions
could impact the future profitability and prospects of IPL.
Some plants are located in areas that are susceptible to
extreme weather events, such as hurricanes, tropical
storms and tornadoes.
• 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.
• 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.
•
Labour
Weather
21
Incitec Pivot Limited Annual Report 2016
Risk
Description and potential consequences
Treatment strategies employed by IPL
Ramp-up
and initial
operations of
the Waggaman,
Louisiana
ammonia plant
While performance testing has been successfully
completed and management and operation of the
plant has transitioned to IPL, there is a potential risk of
the plant not performing to the level expected and/or
not maintaining stable operations, particularly in its
first year of operation following commissioning.
Waggaman,
Louisiana
ammonia
plant offtake
and logistics
capability risk
Waggaman, Louisiana ammonia plant has a nameplate
production capacity of 800,000mt 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 may be negatively impacted.
• Management will ensure that operations are conducted
consistent with Group-wide standards and processes, and
will draw on Group resources to assure this and assist in
addressing concerns.
• Management identifies critical roles and, where possible,
ensures that appropriate recruitment, succession and
retention plans are in place so that there are appropriate
skilled and experienced personnel equipped to deal with
issues that may arise. A comprehensive training framework
has also been implemented with all operating staff
undergoing training within the framework.
•
IPL enjoys certain contractual protections by way of
warranties and defect rectification following handover of
the plant.
• The Waggaman, Louisiana ammonia plant has a 100
percent committed offtake, with supply contracts in place
with the Americas business (internal), Cornerstone
Chemical Company and Trammo Inc.
• The Waggaman, Louisiana ammonia 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 2016
22
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
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
IPL operates may adversely impact its business,
financial condition and operations, or the business,
financial condition and operations of IPL’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 IPL, 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
IPL, 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
licenses to operate.
IPL’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 licensing conditions, or changes to
licence conditions, may have a detrimental effect on
IPL’s operations and financial performance, including
the need to undertake environmental remediation,
financial penalties or ceasing to operate.
IPL 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, IPL 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 reported and 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.
•
IPL 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 IPL, 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 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.
23
Incitec Pivot Limited Annual Report 2016
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 2016 which
sets out the remuneration information for the Managing Director & Chief Executive Officer, the Executive Team and the non-
executive directors.
2016 financial year remuneration outcomes
The 2016 financial result was achieved in the face of challenging conditions, with the Group’s financial performance largely
reflecting the continued global decline in fertiliser prices as well as the structural and cyclical challenges impacting the Group’s
end markets.
As a result, the only short term incentives awarded under the 2016 plan were in relation to the successful completion of the
Louisiana Ammonia Project as well as the Group’s safety performance. No short term incentives were awarded in relation to the
Group’s financial performance.
Similarly, in relation to the long term incentive plan, no performance rights will vest in respect of the performance period which
ended on 30 September 2016.
2017 financial year remuneration approach
We expect that 2017 market conditions will continue to be challenging. As was the case for the 2016 financial year, the Board has
determined that there will be no increase to non-executive director fees nor to the fixed annual remuneration for the executives
for the 2017 financial year.
In relation to the “at risk” or performance related component of the executives’ remuneration for the 2017 financial year, the
incentive opportunities available to the executives for both the short term incentives and long term incentives will remain
unchanged. However, the Board has made changes to the structure of the at risk remuneration applicable to the executives for the
2017 financial year as follows:
• Short term incentive: 30% of the opportunity in 2017 will be allocated to achievement of the BEx OFI program which was
announced during the 2016 financial year in recognition of the importance of this program in aligning IPL’s cost base with the
structural and cyclical shifts in the Company’s markets. Safety, which remains a critical objective, comprises 10% of the short
term incentive plan opportunity, with the remaining 60% of the plan opportunity reflecting financial (EPS and EBIT) objectives.
• Long term incentive: Consistent with market practice of balancing a market based measure (such as total shareholder return)
with internal financial measures, the Board has approved the introduction of growth in Return on Equity as an additional
internal financial measure into the long term incentive (along with the existing performance conditions relating to relative TSR
and Strategic Initiatives of the Company). This additional measure, which will have a 30% weighting within the long term
incentive plan, has been chosen as a performance condition as it rewards the improvement in the efficiency with which the
Company uses the capital entrusted to it. As a result of the introduction of the Return on Equity performance condition, the long
term incentive plan structure has been amended such that 40% of the opportunity under the plan will relate to the TSR
performance condition, with the remaining 30% relating to the Strategic Initiative performance condition.
Further details of the changes to the at risk remuneration for IPL’s executives for 2017 are set out in section 2.3 of the
Remuneration Report.
The Board invites you to consider the 2016 Remuneration Report. We welcome feedback on the Company’s remuneration approach
in supporting IPL’s business strategy.
John Marlay
Chairman, Remuneration Committee
Incitec Pivot Limited Annual Report 2016
24
Directors’ Report: Remuneration Report
Contents
Section
1. Introduction
2. Executive Remuneration & Governance
2.1 Executive Remuneration Strategy
2.2 Executive Remuneration Governance
2.3 Overview of Remuneration changes for the 2017 financial year
3. 2016 Executive Remuneration Framework
3.1 Overview
3.2 Fixed annual remuneration
3.3 Short term incentive
3.4 Long term incentive
3.5 LTI performance conditions
4. Remuneration outcomes in 2016 financial year and link to
2016 financial year performance
4.1 Analysis of relationship between the Group’s performance, shareholder wealth and remuneration
4.2 2015/16 STI Outcomes
4.3 2013/16 LTI Outcomes
4.4 LTI: Performance related remuneration
4.5 Further details of Executive remuneration
5. Executives – Summary of terms of employment
5.1 MD & CEO
5.2 Executives
5.3 Service agreement terms
6. Non-Executive Director Remuneration
7. Shareholdings in IPL
8. Other KMP Disclosures
25
Incitec Pivot Limited Annual Report 2016
Page
26
26
26
27
27
28
28
29
29
31
32
34
34
35
35
36
38
40
40
40
40
41
42
42
1.
Introduction
The directors of IPL present the Remuneration Report prepared in accordance with the Corporations Act 2001 (Cth) for the Group for
the year ended 30 September 2016. This Remuneration Report is audited.
This Remuneration Report sets out remuneration information for Key Management Personnel (KMP) who had authority and
responsibility for planning, directing and controlling the activities of the Group during the 2016 financial year, being each of the
non-executive directors and the Executives. The use of the term “Executives” in this report is a reference to the Managing Director
& Chief Executive Officer (MD&CEO) and each of his direct reports (current and former) during the 2016 financial year. Refer to
Table 1 below for all individuals comprising IPL’s KMP for the 2016 financial year.
Table 1: Individuals forming IPL’s KMP for the 2016 financial year
Non-executive Directors
Mr Paul Brasher
Ms Kathryn Fagg
Mr Gregory Hayes
Mr John Marlay
Ms Rebecca McGrath
Mr Graham Smorgon AM
Executives
Current
Mr James Fazzino
Mr Frank Micallef
Mr Simon Atkinson(1)
Ms Leah Balter(2)
Mr Alan Grace(1)
Ms Elizabeth Hunter(1)
Former
Mr Stephen Dawson(1)
Mr Gary Kubera(3)
Mr James Whiteside(4)
Chairman and Independent, Non-executive Director
Independent, Non-executive Director
Independent, Non-executive Director
Independent, Non-executive Director
Independent, Non-executive Director
Independent, Non-executive Director
Managing Director & Chief Executive Officer
Chief Financial Officer
President, Dyno Nobel Asia Pacific & Incitec Pivot Fertilisers
President, Strategy & Business Development
President, Global Manufacturing
Chief Human Resources Officer & Shared Services
President, Manufacturing Operations
President, Dyno Nobel Americas
Chief Operating Officer, Incitec Pivot Fertilisers
(1) With effect from 7 June 2016, Mr Atkinson, Mr Grace and Ms Hunter’s roles were expanded from President, Dyno Nobel Asia Pacific & Global Technology (Mr
Atkinson), President, Strategic Engineering (Mr Grace) and Chief Human Resources Officer (Ms Hunter), to the roles noted above. In addition, also with effect from
this date, Mr Dawson ceased to be a member of the Executive Team and a KMP.
(2) On 1 August 2016, Ms Balter commenced employment with the Company and became a KMP.
(3) On 30 August 2016, Mr Kubera resigned and he ceased employment with the Company on 30 September 2016.
(4) On 4 November 2015, Mr Whiteside resigned and he ceased employment with the Company on 4 December 2015.
2. Executive Remuneration & Governance
2.1 Executive Remuneration Strategy
IPL is a diversified industrial chemicals company. The Company recognises that to generate competitive returns for its shareholders,
it requires talented people who are capable, committed and motivated. IPL’s remuneration strategy is designed to support the
objectives of the business and enable the Group to attract, retain and reward Executives of the necessary skill and calibre.
The key principles of the Company’s remuneration strategy are to:
• reward strategic outcomes at both the Group and business unit level that create top quartile long term shareholder value;
• encourage integrity and disciplined risk management in business practice;
• drive strong alignment with shareholder interests through delivering part of the reward in the form of equity;
• structure the majority of executive remuneration to be “at risk” and linked to demanding financial and non-financial
performance objectives;
• 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
• ensure the remuneration framework is simple, transparent and easily implemented.
Incitec Pivot Limited Annual Report 2016
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Directors’ Report: Remuneration Report
2.2 Executive Remuneration Governance
The remuneration of the Executives is set by the Board, having regard to recommendations from the Remuneration Committee.
Remuneration arrangements for Executives are reviewed annually in accordance with IPL’s remuneration strategy.
Where appropriate, the Remuneration Committee engages external advisors to provide input to the process of reviewing Executive
and non-executive director remuneration. For the 2016 financial year, the Remuneration Committee received market and
benchmarking data from Ernst & Young and KPMG, both of whom were engaged by and reported directly to the Remuneration
Committee. The information provided by Ernst & Young and KPMG did not constitute a remuneration recommendation for the
purposes of the Corporations Act 2001 (Cth).
Further information in relation to the Board and the Remuneration Committee can be found in the IPL’s Corporate Governance
Statement available on IPL’s website.
2.3 Overview of Remuneration changes for the 2017 financial year
During the 2016 financial year, the Board reviewed the design of the Company’s remuneration arrangements, in particular, the
structure and design of the short term incentives and the long term incentives for the Executives. In undertaking its review, the
Board recognised that the successful completion of the Louisiana ammonia plant marks a significant step in executing on IPL’s
strategy. The Company will continue to focus on maximising the operational efficiency of its operating assets, which now includes
the Louisiana ammonia plant. Further, in response to the current economic environment, in particular, the structural and cyclical
challenges in IPL’s end markets (and more specifically, the continued decline in fertiliser prices), the Company has implemented
the BEx OFI program, as announced during the 2016 financial year, through which the Company is targeting delivery of $100
million in cash benefits (comprising $80 million of operating efficiencies which will be reflected in the income statement and $20
million of capital expenditure savings) by the end of the 2017 financial year.
Within the above context, the Board determined to implement changes to the remuneration arrangements for the Executives for
the 2017 financial year. The changes outlined below are consistent with the Board’s historical approach of aligning the Executives’
at risk remuneration with the Company’s strategic intent of delivering top quartile performance through the cycle as measured
against S&P/ASX 100 companies. While IPL operates in inherently cyclical commodity markets, the Board considers that the targets
for at risk remuneration should consistently reflect outcomes that represent top quartile performance of the S&P/ASX 100
regardless of the prevailing economic environment in which the Company is operating (that is, through the fertiliser and
commodity price cycle).
Short term incentive (STI)
In relation to the STI, while the broad structure of the existing STI plan has been retained, the Board has made design
enhancements to the performance conditions for the 2017 STI as well as to their weighting as explained in the table below:
Current Structure
New Structure
Rationale
Performance conditions:
Performance conditions:
• Zero Harm (10% weighting).
• Zero Harm (10% weighting).
• Group and Business Unit
Financial Performance (60% –
90% weighting, depending on
Executive’s role).
• Group and Business Segment
Financial Performance (60%
weighting for all Executives).
•
Individual strategic objectives/
other business specific priorities
(up to 30% weighting).
• Group wide strategic outcomes
(30% weighting). This component
has been restructured as a Group
wide strategic outcomes
performance condition applicable
to all Executives, with objectives
which can be financially measured.
For the 2017 financial year, the
measure for this performance
condition will be the achievement
of the BEx OFI program.
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Incitec Pivot Limited Annual Report 2016
Safety remains the only non-financial measure
in the STI program. The retention of a 10%
weighting for this performance condition
recognises that Zero Harm forms the basis of
the Company’s right to operate. This condition
will continue to be based on a balanced
scorecard of safety measures.
In recognition of the importance of the
achievement of financial outcomes, the
STI remains heavily weighted towards the
Group and Business Segment Financial
performance condition which has the
highest weighting at 60%.
The inclusion of the BEx OFI program as
the measure for the strategic outcomes
performance condition recognises the financial
importance of this program in aligning IPL’s
cost base with the structural and cyclical shifts
in the Company’s markets. In recognition of
the importance of achieving this measure, a
30% weighting has been allocated to this
performance condition.
Long term incentive (LTI)
In relation to the LTI performance rights plan for the performance period commencing 1 October 2016 and ending on 30
September 2019 (LTI 2016/19), the Board has introduced an additional condition relating to Growth in Return on Equity, and the
conditions have been re-weighted as explained in the table below.
Current Structure New Structure
Rationale
Two performance
conditions:
• Relative TSR
(70%
weighting).
• Strategic
Initiative
(30%
weighting).
Three performance conditions:
• Relative TSR (weighting decreased to 40%).
• Strategic Initiative (30% weighting maintained). This performance
condition previously comprised two components (equally
weighted) being the successful delivery of the Louisiana Ammonia
Project and BEx. With the commissioning of the Louisiana
ammonia plant, BEx, which continues as a major strategic
initiative to maintain operational excellence, will become the sole
component for the Strategic Initiative performance condition. The
BEx Strategic Initiative Condition will continue to be focussed on
incentivising the delivery of sustainable productivity
improvements, with three performance goals linked to business
system maturity, productivity benefits and manufacturing plant
uptime, each of which can drive improved financial performance.
The performance goal relating to productivity benefits includes, for
the first year of the LTI 2016/19 plan, the operating efficiencies
from the BEx OFI program. The BEx OFI program is a relevant
measure for both the 2017 STI and the LTI 2016/19 as it is the
program through which the Company will achieve a step change
in productivity during the 2017 financial year as well as being the
foundation on which the Company’s long term sustainable
productivity benefits are built. To achieve the performance goal
within the LTI 2016/19, the Executives must initially deliver
operating efficiencies from the BEx OFI program in the first year of
the plan. However, it is important to note that delivery of the BEx
OFI operating efficiencies will not, of itself, satisfy the criteria for
this performance goal. In assessing whether any award is to be
made in relation to this goal, the operating efficiencies achieved
from the BEx OFI program in year 1 of the LTI 2016/19 must be
preserved in years 2 and 3 and, additionally, further productivity
targets are also prescribed for years 2 and 3 of the plan.
Furthermore, the balanced scorecard for this condition comprises
three performance goals, of which productivity is only one goal.
• Introduction of a third performance condition, being Growth in
Return on Equity (weighting 30%).
The changes to the LTI design have been
considered in the context of IPL’s
strategy, with the Company moving
from a period of significant investment,
to a period focussed primarily on
maximising operational efficiency of the
Group’s existing assets. The introduction
of growth in Return on Equity, as an
additional performance condition, is
consistent with market practice of
balancing a market based measure
(such as relative TSR) with an internal
financial metric. Growth in Return on
Equity has been chosen as it is a widely
recognised and reported measure and is
a key determinant of efficient use of the
capital entrusted to management by
shareholders. The stretch measure under
this condition requires compound annual
growth of 11% over the performance
period. In order to ensure that the
Executives do not pursue growth in
return on equity through inappropriate
use of debt, a gateway will be placed
on the performance condition requiring
the Company to maintain an investment
grade credit rating. Further details in
relation to the LTI 2016/19 are disclosed
in the 2016 Notice of Annual General
Meeting.
In addition to the changes outlined above, where an Individually Material Item (IMI) is separately recognised in the financial report, the
Board will have discretion to include or exclude an IMI for the purposes of determining any STI or LTI award taking into account the nature
of the IMI, and having regard to whether, in the circumstances, it would be appropriate for the IMI to be attributable to the Executives.
3. 2016 Executive Remuneration Framework
3.1 Overview
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 (STI and LTI) 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).
The tables below set out the relative proportion of the Executives’ total remuneration package for the 2016 financial year:
MD & CEO
Fixed
33%
FAR
33%
STI
33%
Fixed
33%
LTI
34%
STI
33%
Other Executives
STI
36%
FAR
33%
At Risk
67%
Fixed
36%
At Risk
67%
FAR
36%
LTI
34%
FAR
36%
At Risk
64%
Fixed
36%
LTI
28%
STI
36%
LTI
28%
At Risk
64%
In calculating the “at risk” compensation as a proportion of total remuneration for the 2016 financial year for each Executive, the
maximum entitlement that could potentially be awarded under the STI or LTI was taken into account.
Incitec Pivot Limited Annual Report 2016
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Directors’ Report: Remuneration Report
3.2 Fixed annual remuneration
Executives receive their fixed remuneration in a variety of forms, including cash, superannuation, and any applicable fringe
benefits. The Executives’ FAR 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 with reference to, among other things, Company performance and market data provided by an appropriately qualified
and independent external consultant.
For the 2016 financial year, the Board determined that the Executives’ FAR would not be increased. Refer to Table 7 for details of
the Executives’ FAR for the 2016 financial year. For the 2017 financial year, the Board has again determined that there will be no
increase in the FAR for the Executives in respect of their current roles.
3.3 Short term incentive
The STI is an annual “at risk” cash incentive which is dependent on the achievement of particular performance measures.
The following table summarises the STI plan that applied in the 2016 financial year (2016 STI):
What was the
performance
period?
Who was eligible
for the STI?
What was the
target and
maximum STI
opportunity?
What were the
Performance
Conditions and
Measures?
The performance period for the 2016 STI was the financial year from 1 October 2015 to 30 September
2016.
Participation was at the Board’s discretion. The MD&CEO and all Executives participated in the 2016
STI, save for Ms Balter who commenced employment on 1 August 2016 and Mr Whiteside who ceased
employment with the Company on 4 December 2015.
Target STI levels were 50% of FAR for all Executives. Maximum STI (for stretch outcomes) was capped at
100% of FAR for all Executives.
Performance conditions under the STI are determined by the Board for each financial year.
The performance conditions for the 2016 STI are set out below:
Performance
Conditions
Measures to assess satisfaction
of Performance Condition
Rationale for the
Performance Conditions
Group Financial
Performance
Business Unit
Financial
Performance
Zero Harm
Growth in EPS (before IMIs)(1).
To align with the Company’s strategic intent of
achieving top quartile performance as measured
against S&P/ASX 100 companies.
EBIT which includes a cash conversion
measure, such that part of the STI was linked
to the percentage of EBITDA (EBIT before
depreciation and amortisation) of the
relevant business unit that was converted to
operating cash flow.
To ensure 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.
Safety performance balanced scorecard,
comprising objectives relating to:
• risk management, permit to work and job
step analysis processes;
• safety leadership; and
• safety targets for recordable injuries and
injury severity.
To align 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
which set a target of achieving TRIFR of less than
1.0 by the end of 2016.
For the 2016 STI, the Zero Harm performance
condition was established as a balanced scorecard
comprising leading and lagging indicators. The
balanced scorecard was introduced with the aim of
driving a greater focus on core safety processes to
enable a reduction in injury severity as well as
injury frequency and to set the foundation for a
step change in process safety management.
To drive performance and behaviours consistent
with achieving critical aspects of the Group’s
strategy.
Strategy and
business specific
priorities
Measures based on performance outcomes
from the execution and implementation of
strategic objectives and business priorities.
These included measures relating to:
• manufacturing performance, in particular,
turnaround execution and production
outcomes from major operations;
• BEx and productivity;
• the Company’s major capital investments
and projects (eg. the Louisiana Ammonia
Project); and
• the Company’s customers and markets.
(1) In the event of an IMI, the Board retains a discretion to include the IMI for the purpose of calculating the STI award having regard to the
nature of the IMI.
Satisfaction of the above measures was based on a review by the Board of the audited financial report and
performance of the Group for the financial year, following the annual performance review process for the Executives.
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Incitec Pivot Limited Annual Report 2016
Are there
minimum
performance
levels which
must be
achieved
before awards
can be made
under the STI?
What were the
weightings for
the STI
performance
measures?
To ensure STI awards are aligned with business performance outcomes, the Board has determined that a
minimum level of financial performance, known as the “STI Gate”, must be met before any awards can
be made. 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 any awards payable in relation to the Zero Harm performance condition
reflecting the primacy of safety. In addition, for the 2016 STI, the STI Gate did not apply to the measures
relating to the Louisiana Ammonia Project (WALA).
For the 2016 financial year, the STI Gates were:
• for Group roles (marked * in Table 2 below), 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 2 below), 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).
In relation to the Zero Harm performance condition, the Board retains a discretion to forfeit all or part of
the award payable for this performance condition in the event of a fatality or life threating incident having
regard to the circumstances of the incident.
The STI performance measures weightings for the Executives for the 2016 STI were:
Table 2
Executives – Current
J Fazzino*
Managing Director & CEO
F Micallef*
Chief Financial Officer
S Atkinson**
President, Dyno Nobel Asia Pacific
& Incitec Pivot Fertilisers
A Grace*
President, Global Manufacturing
E Hunter*
Chief Human Resources Officer
& Shared Services
Executives – Former
S Dawson*
President, Manufacturing
Operations
G Kubera**
President, Dyno Nobel Americas
Financial
Growth
in EPS
(before
IMIs)
Business
Unit
EBIT
Non-financial/business
Maximum STI
opportunity
Manufacturing/
BEx
Safety
WALA
Human
capital
Strategic
objectives/
customers/
markets
90%
90%
10%
10%
100%
100%
20%
60%
10%
10%
100%
20%
70%
10%
10%
60%
10%
20%
20%
10%
70%
100%
100%
100%
20%
60%
10%
10%
100%
*Group role **Business Unit role
Ms Balter commenced as a KMP on 1 August 2016 and was not a participant in the 2016 STI.
Mr Whiteside ceased as a KMP on 4 December 2015 and was not a participant in the 2016 STI.
Was there a
mechanism for
clawback and
deferral?
The 2016 STI included 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 audited financial report.
Incitec Pivot Limited Annual Report 2016
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Directors’ Report: Remuneration Report
3.4 Long term incentive
The LTI is the long term incentive component of remuneration for Executives. The LTI is provided in the form of performance rights.
What LTI plans
were applicable
for the 2016
financial year?
The LTI Plans applicable to the 2016 financial year were the:
• Long Term Incentive Performance Rights Plan for 2013/16 (LTI 2013/16);
• Long Term Incentive Performance Rights Plan for 2014/17 (LTI 2014/17); and
• Long Term Incentive Performance Rights Plan for 2015/18 (LTI 2015/18),
(together, the LTI Plans).
Under the LTI Plans, participants are entitled 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.
What is the
purpose of the
LTIs?
The LTI is designed to link reward with the key performance drivers which underpin sustainable growth
in shareholder value. As rights under the LTI Plans result in share ownership on the achievement of
demanding targets, the LTI 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
determining
eligibility?
What is the
maximum LTI
opportunity
under the LTI
Plans?
How was the
number of
performance
rights calculated
under the LTI
Plans?
What are the
performance
conditions,
performance
period and
status of the
LTI Plans?
The decision to grant performance rights under the LTI Plans 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 FAR.
The maximum LTI opportunities under each LTI Plan are:
• for the MD&CEO, 100% of FAR; and
• for all other Executives, 80% of FAR.
For the LTI 2013/16, LTI 2014/17 and LTI 2015/18, the number of performance rights issued to a partici-
pant 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 first date of the relevant performance period.
LTI Plan
Performance
Conditions
Weighting of
Performance
Condition
Performance
Period
Status
LTI 2013/16
• TSR Condition
• EPS Condition
50%
50%
1 October 2013 to
30 September 2016
LTI 2014/17
LTI 2015/18
• TSR Condition
• Strategic Initiatives
70%
30%
Condition
• TSR Condition
• Strategic Initiatives
70%
30%
Condition
1 October 2014 to
30 September 2017
1 October 2015 to
30 September 2018
Performance period completed.
Following testing in November,
the Board determined that no
performance rights will vest
under this plan.
Testing to occur after
completion of performance
period.
Testing to occur after
completion of performance
period.
The performance conditions are determined by the Board annually. Refer to section 3.5 for a discussion of
the performance conditions.
When are the
performance
conditions
measured?
After the expiry of the relevant performance period, the Board determines whether the performance
conditions of the LTI Plans 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.
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Incitec Pivot Limited Annual Report 2016
What happens
if a participant
leaves the
Group?
Generally, the performance rights granted under the LTI Plans 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.
The Board may provide a notice to the Participants specifying that the performance rights will vest at a
time stipulated in the notice on the occurrence of one of the following events in relation to the Company:
• a takeover bid;
• a change of control;
• the Court ordering a meeting be held in connection with a scheme for the reconstruction of the Company
or its amalgamation with any other companies; or
• a voluntary or compulsory winding-up.
In what other
circumstances
may the
performance
rights vest
(which may be
before or after
the expiry of
the performance
period) under
the LTI Plans?
3.5 LTI performance conditions
For the LTI 2013/16, the performance conditions were measured by reference to the relative Total Shareholder Returns of IPL,
measuring TSR against companies in the S&P/ASX 100 (TSR Condition) and the compound annual growth rate on Earnings Per
Share (before IMIs) over the performance period (EPS Condition). For the LTI 2014/17 and LTI 2015/18, the performance
conditions are measured by reference to the TSR Condition and the Company’s Strategic Initiatives. Details of the performance
conditions for each of the LTI 2013/16, LTI 2014/17 and LTI 2015/18 are set out below.
EPS Condition
The EPS Condition is applicable to the LTI 2013/16. EPS measures the earnings generated by the Company attributable to each IPL
share. EPS was chosen as it represents a measure of overall business performance and aligns remuneration with sustainable
growth in shareholder value creation.
The table below sets out the EPS Condition, and the percentage of the performance rights that will vest based on satisfaction of
this condition:
% Compound annual growth rate on EPS
% of performance rights subject to the EPS Condition that will vest
Less than 6%
Nil
At or greater than 6% but less than 12.5% pa
Pro rata from 50% on a straight line basis
At 12.5% pa or greater
100%
TSR Condition
The TSR Condition (applicable to each of the LTI 2013/16, LTI 2014/17 and LTI 2015/18) 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. This
condition provides shareholder alignment as it takes into account the Company’s share price movement as well as dividends paid,
relative to other organisations comparable to the Company. 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 the Company competes for shareholder capital.
The table below sets out the TSR Condition, and the percentage of the performance rights that will vest based on satisfaction of
this condition.
Relative TSR ranking of IPL
Less than 50th percentile
% of performance rights subject to the TSR Condition that will vest
Nil
At or greater than 50th percentile but less than 75th percentile
Pro rata from 50% on a straight line basis
At 75th percentile or greater
100%
Incitec Pivot Limited Annual Report 2016
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Directors’ Report: Remuneration Report
Strategic Initiatives Condition
The Strategic Initiatives Condition relates to the delivery of significant aspects of the Board approved strategy. The Strategic
Initiatives Condition was introduced for the first time in 2014 and applies to the LTI 2014/17 and the LTI 2015/18. For these two
plans, the Strategic Initiatives Condition comprises two equal components: (i) the Louisiana Ammonia Project; and (ii) Business
Excellence System. The table below summarises each of these two components:
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 at Waggaman,
Louisiana underpins the
future growth of the Dyno
Nobel Americas business
and will create long term
shareholder value.
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 performance goals
in relation to BEx are
focussed on incentivising
the delivery of sustainable
productivity improvements,
rather than one-off
benefits.
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: TRIFR for the Louisiana
Ammonia Project to be less than or
equal to the IPL Group TRIFR.
Capital cost (only applicable to the LTI
2014/17): as per Project business case
(US$850 million) excluding capitalised
interest.
Plant efficiency: as per Project
business case (32MMBtu of gas per
metric tonne of ammonia).
Output and EBITDA: Output and EBITDA
measures consistent with the project
business case for Year 1 (in the case of
the LTI 2014/17) and Year 2 (in the
case of the LTI 2015/18).
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:
An absolute improvement in Business
Excellence system maturity over the
performance period, with the final
maturity score to be verified by an
independent third party.
• Business system maturity
(practices)
• 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 each applicable LTI plan. These performance goals involve commercial-in-confidence quantitative
targets and, as such, complete details of the performance goals will be disclosed at the end of the performance period in the 2017
Remuneration Report (in relation to the LTI 2014/17) and the 2018 Remuneration Report (in relation to the LTI 2015/18).
The Board will determine the outcome for each of the two components of the Strategic Initiatives Condition under each LTI plan
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 have been achieved, all of the performance rights subject to that component will vest.
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.
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Incitec Pivot Limited Annual Report 2016
4. Remuneration outcomes in 2016 financial year and link to 2016 financial year performance
4.1 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 the below
table in respect of the current financial year and the preceding four financial years.
Table 3 – Indices relevant to the Board’s assessment of the Group’s performance and the benefit to shareholders
2012
2013
2014
Net Profit After Tax excluding non-controlling interests (NPAT) (before IMIs) ($m)
404.7
293.5
356.3
Earnings Per Share (EPS) (before IMIs) (cents)
24.8
18.0
21.7
Dividends – paid in the financial year – per share (DPS (paid)) (cents)
11.5
12.5
Dividends – declared in respect of the financial year – per share (DPS (declared)) (cents)
12.4
9.2
Share price ($) (Year End)
Total Shareholder Return (TSR) (%)(1)
2.98
2.69
4
(16)
9.3
10.8
2.71
(7)
2015
398.6
2016
295.2
23.8
11.7
11.8
3.90
43
17.5
11.5
8.7
2.82
14
(1) For the 2012 financial year, the TSR was based on a 3 year compound rate per annum. For the 2013 financial year and subsequent financial years, TSR is calculated
in accordance with the rules of the LTI 2010/13, LTI 2011/14, LTI 2012/15 and LTI 2013/16 as applicable 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.
Relationship between the Group’s performance and STI outcomes
This graph illustrates the relationship between the Group’s
performance and STI awards in respect of the current financial
year and the preceding four financial years. In the 2012 and
2013 financial years, EPS (before IMIs) decreased 24% and
27% respectively and, accordingly, no awards were made
under those plans. In the 2014 financial year, with EPS (before
IMIs) growing 21% to 21.7cps, partial awards were made to
Executives under the 2014 STI plan. Similarly, in the 2015
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. For the 2016 financial
year, with EPS (before IMIs) declining by 26.5% to 17.5 cps, no
awards were made under the 2016 STI, save for in relation to
the successful completion of the Louisiana Ammonia Project as
well as the Group’s safety performance.
Relationship between the Group’s performance and LTI outcomes
This graph illustrates the relationship between IPL’s Absolute
Total Shareholder Return (TSR) and its percentile ranking
relative to its S&P/ASX 100 peer group. Over the five
performance periods outlined, IPL’s TSR outranked the 50th
percentile TSR for the ASX 100 peer group for the 2012–2015
performance period with a 53rd percentile ranking. As a
consequence, the LTI 2012/15 partially vested as outlined in
the 2015 Annual Report (28.33% of the performance rights
granted). The performance rights in the 3 previous plans
(LTI 2009/12, LTI 2010/13, LTI 2011/14) did not meet the
performance conditions of the plans (including a TSR condition)
and lapsed. IPL’s absolute TSR for the 2013–2016 period was
14% with a ranking against the ASX 100 peer group at the
36th percentile (rounded). The treatment of the performance
rights for LTI 2013/16, which were subject to both relative TSR
and growth in Earnings per Share, is outlined in section 4.3 of
this report. Absolute TSR was positive for 3 out of the 5 periods
reported.
Group performance and STI outcomes
Cents
)
S
I
M
I
E
R
O
F
E
B
(
E
R
A
H
S
R
E
P
I
S
G
N
N
R
A
E
35
30
25
20
15
10
5
0
2012
2013
2014
2015
2016
Earnings per share (before IMIs)
Total STI payout
IPL Absolute TSR % and ASX 100 Percentile Ranking
R
S
T
E
T
U
L
O
S
B
A
L
P
I
%
50
40
30
20
10
0
-10
-20
$mill
T
U
O
Y
A
P
I
T
S
L
A
T
O
T
8
7
6
5
4
3
2
1
0
%
60
50
40
30
20
10
0
0
0
1
X
S
A
N
I
I
G
N
K
N
A
R
E
L
I
T
N
E
C
R
E
P
L
P
I
2009–2012
2010–2013
2011–2014
2012–2015
2013–2016
IPL Absolute TSR
IPL Percentile Ranking in ASX 100
Notes:
(1) The absolute TSR for IPL and for the ASX100 has been calculated using the
methodology noted in Table 3 above.
(2) The percentile ranking for the LTI 2009/12 is not available as only absolute
TSR was measured under this plan.
Incitec Pivot Limited Annual Report 2016
34
Directors’ Report: Remuneration Report
4.2 2016 STI Outcomes
The only awards made to Executives in relation to the 2016 STI were in respect of Zero Harm performance and the completion of
the Louisiana Ammonia Project. In relation to the Zero Harm performance condition, which was not subject to the STI Gate, this
comprised a balanced scorecard across objectives relating to key safety processes, safety leadership and targets. On assessment of
the scorecard results, Executives were awarded 95% of the maximum STI opportunity (10%) for this performance condition in
recognition of the outstanding safety performance in 2016. The scorecard objectives relating to safety processes and safety
leadership were achieved and while the TRIFR for the 2016 financial year increased slightly from the prior year, it remained well
below the 5 year HSE target (of less than 1). Importantly, the Company also achieved a significant improvement in key safety
metrics including a 70% reduction in Employee Lost Day Severity Rate and a 61% reduction in Lost Time Injury Frequency Rate.
Mr Alan Grace also earned a partial STI award for his role in overseeing the successful construction and commissioning of the
Louisiana Ammonia Project. Mr Grace’s award was 75% of the maximum STI opportunity (60%) for this performance condition.
With the exception of the above, no awards were made under the 2016 STI in relation to the financial performance conditions or
other business specific performance conditions as the Group financial performance and the Business Unit financial performance did
not meet the applicable STI Gates.
Table 4 – Short term incentives awarded for the year ended 30 September 2016
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2016 as remuneration to each
Executive are set out below:
Short term incentive for the year ended 30 September 2016
Included in remuneration
$000
% earned
% forfeited
Executives – Current
J Fazzino
F Micallef
S Atkinson
A Grace
E Hunter
Executives – Former
S Dawson
G Kubera
212
87
73
416
55
50
75
9.5
9.5
9.5
54.5
9.5
9.5
9.5
90.5
90.5
90.5
45.5
90.5
90.5
90.5
Ms Balter was not a participant in the 2016 STI as she commenced employment with the Company on 1 August 2016.
Mr Whiteside was not a participant in the 2016 STI as he ceased employment with the Company on 4 December 2015.
4.3 2013/16 LTI Outcomes
The performance period for the LTI 2013/16 ended on 30 September 2016. Following testing against the performance conditions,
the Board determined in November 2016 that as neither the EPS Condition nor the TSR Condition had been met, no performance
rights would vest under the LTI 2013/16. Details of the lapsed rights under the LTI 2013/16 will be reported in the 2017
Remuneration Report.
35
Incitec Pivot Limited Annual Report 2016
4.4 LTI: Performance related remuneration
Table 5 – Details of long term incentives granted and vested in the year ended 30 September 2016 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. Details of performance rights vested and forfeited set out in
the table below relate to the performance rights granted under the LTI 2012/15 (performance period: 1 October 2012 to 30 September
2015), which, following testing in November 2015, partially vested in the 2016 financial year. In relation to the LTI 2013/16 (performance
period: 1 October 2013 to 30 September 2016), following testing in November 2016, the Board determined that no performance rights
would vest under the LTI 2013/16. This will be reported in the 2017 Remuneration Report.
Key Management
Personnel
Executives – Current
J Fazzino
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
Executives – Former
S Dawson
G Kubera
J Whiteside
LTI plan
Grant date
Granted during 2016
as remuneration(A)
$000
Exercised
in year
$000
Vested
in year
%
Forfeited
in year
%
Financial year
in which grant
may vest
Maximum value of
outstanding rights(B)
$000
2012/15
2013/16
2014/17
2015/18
2012/15
2013/16
2014/17
2015/18
2012/15
2013/16
2014/17
2015/18
2015/18
2012/15
2013/16
2014/17
2015/18
2013/16
2014/17
2015/18
2012/15
2013/16
2014/17
2015/18
2014/17
2015/18
2012/15
2013/16
2014/17
25 January 2013
6 January 2014
30 December 2014
21 January 2016
25 January 2013
6 January 2014
30 December 2014
21 January 2016
25 January 2013
6 January 2014
30 December 2014
21 January 2016
25 August 2016
25 January 2013
6 January 2014
30 December 2014
21 January 2016
6 January 2014
30 December 2014
21 January 2016
25 January 2013
6 January 2014
30 December 2014
21 January 2016
5 February 2015
21 January 2016
25 January 2013
6 January 2014
30 December 2014
–
–
–
1,025
–
–
–
337
–
–
–
281
275
–
–
–
281
–
–
213
–
–
–
281
–
315
–
–
–
318
–
–
–
105
–
–
–
72
–
–
–
–
68
–
–
–
–
–
87
–
–
–
–
–
87
–
–
28
–
–
–
28
–
–
–
28
–
–
–
–
28
–
–
–
–
–
28
–
–
–
–
–
28
–
–
72
–
–
–
72
–
–
–
72
–
–
–
–
72
–
–
–
–
–
72
–
–
–
33
67
72
27
61
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2019
2016
2017
2018
2019
2017
2018
2019
2016
2017
2018
2019
2018
2019
2016
2017
2018
–
1,524
1,746
1,025
–
502
575
337
–
346
479
281
275
–
418
479
281
299
364
213
–
418
479
281
212
105
–
303
188
(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 below. This amount is allocated to the remuneration of the applicable Executive over the vesting period (that is, in the 2016, 2017 and 2018
financial years).
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 Initiative
30/12/2014
LTI 2015/18 - TSR
21/01/2016
LTI 2015/18 - Strategic Initiative
21/01/2016
Fair value per share treated
as rights at grant date
$1.54
$2.86
$1.40
$2.39
$1.99
$2.88
$1.29
$3.06
(B) 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.
Incitec Pivot Limited Annual Report 2016
36
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 KMP have been altered or modified by
the issuing entity during the reporting period.
Table 6 – 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 KMP, including their related parties, is as follows:
Number of Rights
Key Management Personnel
Opening balance
Granted as compensation(A)
Vested(B)
Forfeited(C)
Closing balance
Executives – Current
J Fazzino
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
Executives – Former
S Dawson
G Kubera
J Whiteside
2,306,411
759,312
560,501
–
589,494
318,732
632,761
140,552
632,761
562,688
185,247
154,372
150,941
154,372
117,171
154,372
172,839
(206,382)
(67,944)
(46,890)
(522,115)
(171,890)
(118,627)
–
–
(44,363)
(112,232)
–
–
(56,620)
(143,242)
–
(161,929)
–
(56,620)
(332,820)
2,140,602
704,725
549,356
150,941
587,271
435,903
587,271
151,462
243,321
(A) For the 2016 financial year, this represents the rights acquired by Executives during the reporting period under the LTI 2015/18.
(B) For the 2016 financial year, this represents the number of rights that vested during the reporting period under the LTI 2012/15. Each right entitled the participating
Executive to acquire a fully paid ordinary share in IPL for no consideration.
(C) For the 2016 financial year, this represents rights that were forfeited by Executives during the reporting period under the LTI 2012/15. In addition, in the case of Mr
Whiteside who ceased employment during the reporting period, a portion of his rights held under the LTI 2013/16 and the LTI 2014/17 was also forfeited as at the
date of cessation, in accordance with the plan rules. Similarly, in the case of Mr Kubera who ceased employment on 30 September 2016, a portion of his rights held
under the LTI 2014/17 and the LTI 2015/18 was forfeited at that date in accordance with the plan rules.
37
Incitec Pivot Limited Annual Report 2016
4.5 Further details of Executive remuneration
Table 7 – Executive remuneration
Details of the remuneration for each Executive for the year ended 30 September 2016 are set out below (noting that for
individuals who ceased to be KMP in the 2015 financial year, only comparative information is shown in the table).
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
$000
Executives – Current
J Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
S Atkinson(1)
President, Dyno Nobel Asia Pacific
and Incitec Pivot Fertilisers
L Balter
President, Strategy & Business
Development
A Grace
President, Global Manufacturing
E Hunter(2)
Chief Human Resources Officer
& Shared Services
Executives – Former
S Dawson
President, Manufacturing Operations
G Kubera(3)
President, Dyno Nobel Americas
J Whiteside(4)
Chief Operating Officer,
Incitec Pivot Fertilisers
J Rintel(5)
President, Strategy & Business
Development
D McAtee(5)
President, Dyno Nobel Americas
Total Executives
1,111
1,277
(641)
470
2,953
–
1,277
5,584
2016
2,209
212
2015
2016
2015
2016
2015
2,209
2,005
898
898
896
745
87
825
73
76
–
–
–
–
–
–
2016
124
–
300
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
745
745
545
561
510
745
815
517
134
745
416
535
55
522
50
535
75
56
–
611
–
–
12
30
3
4
48
292
63
–
19
19
19
19
19
19
3
19
19
19
19
13
19
–
–
5
19
43
74
24
21
16
16
1
17
17
7
6
15
31
–
–
2
24
–
–
–
–
–
–
–
–
–
–
–
753
–
420
–
964
–
366
420
296
318
21
305
339
229
221
305
350
211
106
37
350
2015
870
688
–
19
11
–
350
(211)
–
(146)
–
–
(176)
–
(126)
–
(176)
–
–
–
155
420
150
318
1,183
2,183
1,154
1,174
21
449
129
339
103
221
129
350
211
106
1,326
1,655
741
1,359
1,473
1,684
1,569
971
(127)
(90)
1,078
–
–
350
1,749
350
1,938
2015
19
2016
6,876
–
968
2015
8,054
5,853
55
426
381
–
–
–
–
(207)
(207)
(133)
116
152
125
200
2,137
2,881
(1,603)
1,278 11,926
–
3,731
(207)
3,524 18,164
%
6
36
6
38
6
6
–
28
32
6
38
3
32
5
6
–
35
36
–
7
32
(A) Certain STI payments are awarded in US$. Such STI payments were converted to A$ at the spot rate on 30 September 2016, being 1.3113.
(B) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2016: 1 April 2015 to
31 March 2016) (2015: 1 April 2014 to 31 March 2015), rent and mortgage interest subsidies, relocation allowances and other allowances. For Ms Balter, who
commenced employment on 1 August 2016, this includes a one off payment of $300,000 (less applicable taxes) for incentives foregone due to cessation of
employment with her previous employer. Refer to section 5.3 for further details. For Mr Whiteside and Mr Kubera, this includes annual leave paid on cessation of
employment.
(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 the above Table 7 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.
(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) Mr Atkinson’s remuneration increased in the 2016 financial year to reflect additional interim duties.
(2) Ms Hunter’s remuneration decreased in the 2016 financial year due to unpaid leave taken.
(3) Mr Kubera’s FAR is inclusive of 401K pension contributions. The payments accrued to Mr Kubera in the 2016 financial year included a separation payment of
US$300,000 in accordance with his employment contract as well as employer contributions to medical and dental benefits in the amount of US$9,336 and accrued
annual leave of US$39,123. Mr Kubera’s payments were converted from US$ to A$ at the average rate for 1 October 2015 to 30 September 2016, being 1.3588.
(4) Termination payments received by Mr Whiteside in the 2016 financial year include a separation payment in the amount of $667,304 and long service leave in the
amount of $296,980.
(5) Mr Rintel and Mr McAtee ceased to be KMP in the 2015 financial year and, accordingly, the disclosures in this table relate to the 2015 financial year only.
Incitec Pivot Limited Annual Report 2016
38
Directors’ Report: Remuneration Report
Table 8 – Actual Pay
The table below provides a summary of actual remuneration paid to the Executives in the 2016 financial year (noting that for
individuals who ceased to be KMP in the 2015 financial year, only comparative information is shown in the table). 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 7 of this report.
Executives – Current
J Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
S Atkinson
President, Dyno Nobel Asia Pacific
and Incitec Pivot Fertilisers
L Balter
President, Strategy & Business Development
A Grace
President, Global Manufacturing
E Hunter
Chief Human Resources Officer & Shared Services
Executives – Former
S Dawson
President, Manufacturing Operations
G Kubera(1)
President, Dyno Nobel Americas
J Whiteside(2)
Chief Operating Officer, Incitec Pivot Fertilisers
J Rintel(3)
President, Strategy & Business Development
D McAtee(3)
President, Dyno Nobel Americas
Total Executives
Year
2016
2015
2016
2015
2016
2015
2016
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2015
2015
2016
2015
Other
Short Term
benefits(C)
$000
Superannuation
benefits
Termination
benefits
$000
$000
Short Term
Incentive
& other
bonuses(B)
$000
2,005
1,730
825
732
76
435
535
519
522
459
535
470
56
–
611
148
643
Salary
& Fees(A)
$000
2,209
2,209
898
898
896
745
124
745
745
545
561
510
745
815
482
134
745
889
21
6,876
8,040
364
5,165
5,500
–
300
–
–
–
–
–
–
–
–
12
30
3
4
46
292
63
–
–
55
424
381
Total
$000
4,233
3,958
1,742
1,649
991
1,199
427
1,299
1,283
1,098
1,069
1,061
1,238
917
774
1,777
912
1,551
440
13,545
14,073
19
19
19
19
19
19
3
19
19
19
19
13
19
–
–
5
19
19
–
116
152
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
964
–
–
–
964
–
(A) For Mr Kubera, Mr Rintel and Mr McAtee, the salary and fees reported differ from the corresponding amounts reported in Table 7 due to the timing of certain
payments made to them at year end.
(B) Represents short term incentives paid during the 2016 financial year in relation to incentives awarded in respect of the 2015 financial year under the STI 2014/15.
(C) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2016: 1 April 2015 to
31 March 2016) (2015: 1 April 2014 to 31 March 2015), relocation allowances and other allowances. For Mr Whiteside and Mr Kubera, this includes annual leave
paid on cessation of employment.
(1) Payments received by Mr Kubera in the 2016 financial year include a payment for accrued annual leave of US$39,123 which was converted from US$ to A$ at the
average rate for 1 October 2015 to 30 September 2016, being 1.3588.
(2) Termination payments received by Mr Whiteside in the 2016 financial year include a separation payment in the amount of $667,304 and long service leave in the
amount of $296,980.
(3) Mr Rintel and Mr McAtee ceased to be KMP in the 2015 financial year and, accordingly, the disclosures in this table relate to the 2015 financial year only.
39
Incitec Pivot Limited Annual Report 2016
5. Executives – Summary of terms of employment
5.1 MD & CEO
Mr James Fazzino was appointed as Managing Director & CEO on 29 July 2009. The terms of Mr Fazzino’s appointment as MD & CEO
are set out in a single contract of service dated 29 July 2009. The contract is unlimited in term but capable of termination. Refer to
section 5.3 for specific information relating to the terms of Mr Fazzino’s service agreement.
For the 2016 financial year, Mr Fazzino’s FAR remained at $2,228,245 and did not increase from the 2015 financial year. There will
again be no increase in Mr Fazzino’s FAR for the 2017 financial year.
Mr Fazzino participated in the 2016 STI. With EPS decreasing 26.5% to 17.5 cps, no award was made to Mr Fazzino in respect of the
Group’s financial performance. However, Mr Fazzino was awarded $211,683 in respect of the Zero Harm performance condition
under the 2016 STI.
Mr Fazzino also participated in the LTI 2013/16. On determination of performance measured against the performance conditions, in
accordance with the LTI 2013/16 plan rules, no performance rights vested. Mr Fazzino also participates in the LTI 2014/17 and the
LTI 2015/18, pursuant to which Mr Fazzino was granted 773,696 performance rights (under the LTI 2014/17) and 562,688
performance rights (under the LTI 2015/18). Each grant was approved by shareholders at the relevant Annual General Meeting. The
LTI 2014/17 and the LTI 2015/18 are each for a three year period and the performance conditions will not be tested until after 30
September 2017 and 30 September 2018, respectively.
Refer to sections 3 and 4 for further details in relation to the Company’s STI and LTI plans, including the outcomes of each plan.
5.2 Executives
As with Mr Fazzino, remuneration and other terms of employment for the other Executives are also formalised in service
agreements. Most Executives are engaged on similar contractual terms, with minor variations to address differing circumstances.
Refer to section 5.3 for specific information relating to the service agreements.
FAR for the Executives comprises salary paid in cash and mandatory employer superannuation contributions. FAR may also come in
other forms such as fringe benefits (eg motor vehicles). Consistent with the approach taken for Mr Fazzino’s FAR, in relation to the
other Executives’ FAR, no increase from the 2015 financial year had been made for the 2016 financial year and there will again be
no increase in the FAR for the 2017 financial year.
Details of the Executives’ participation in the Company’s STI and LTI plans, including the outcomes of each plan, are set out in
sections 3 and 4.
5.3 Service agreement terms
Each Executive service agreement is unlimited in term however each service agreement provides that the Company may terminate
the Executive’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 notice period to be provided by the Executive is set out in the table below:
Notice period to be provided by the Executive
Current Executives
J Fazzino
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
Former Executives
S Dawson
G Kubera
J Whiteside
6 months
13 weeks
13 weeks
13 weeks
8 weeks
13 weeks
13 weeks
13 weeks
13 weeks
The separation payment included in each Executive’s contract is capped at an amount equivalent to a specified number of weeks
of FAR for the Executive. Mr Fazzino’s separation payment is equal to 52 weeks of FAR as at the date of termination. All other
Executives’ contracts provide for a separation payment of 26 weeks of FAR, save for Mr Atkinson, Mr Dawson and Mr Whiteside.
Mr Atkinson and Mr Dawson’s contracts provide for a separation payment equal to 52 weeks of FAR. Mr Whiteside’s contract
provides for a separation payment equal to 45.41 weeks of FAR. Additionally, Mr Micallef and Mr Grace’s service agreements
further provide that IPL may terminate the agreement on notice in the case of incapacity, in which case the Company must pay the
separation payment plus accrued fixed annual remuneration, accrued annual leave and long service leave.
Ms Balter commenced employment on 1 August 2016. Her contract includes a provision for a $300,000 payment (less applicable
taxes). This payment compensates Ms Balter for incentives foregone due to cessation of employment with her previous employer
and is a one off payment. The payment to Ms Balter is disclosed in Tables 7 and 8.
Incitec Pivot Limited Annual Report 2016
40
Directors’ Report: Remuneration Report
6. Non-Executive Director Remuneration
IPL’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 IPL Group to attract
and retain directors of an appropriate calibre.
Non-executive directors are not remunerated by way of options, shares, performance rights, bonuses nor by incentive-based
payments.
Non-executive directors receive a fee for being a director of the Board and non-executive directors, other than the Chairman of the
Board, receive additional fees for either chairing or being a member of a Board Committee. The level of fees paid to a non-
executive director is determined by the Board after an annual review and reflects a non-executive director’s time commitments
and responsibilities.
For the 2016 financial year, there were no increases to non-executive directors’ fees. Fees paid to non-executive directors
amounted to $1,674,000, which was within the $2,000,000 maximum aggregate fee pool approved by shareholders at the 2008
Annual General Meeting. For the 2017 financial year, the Board has again determined that there will be no increase to non-
executive director fees. The table below sets out the Board and Committee fees as at 30 September 2016:
Board Fees
Chairperson
Members
Committee Fees
Audit & Risk Management Committee
Chairperson
Members
Remuneration Committee
Chairperson
Members
Health, Safety, Environment & Community Committee
Chairperson
Members
Nominations Committee
Chairperson
Members
$532,500
$177,500
$47,200
$23,600
$35,400
$17,700
$35,400
$17,700
N/A
$8,250
Table 9 – Non-executive directors’ remuneration
Details of the non-executive directors’ remuneration for the financial year ended 30 September 2016 are set out in the
following table:
Non-executive directors – Current
P Brasher, Chairman
K Fagg
G Hayes
J Marlay
R McGrath
G Smorgon AM
Non-executive directors – Former
A Larkin
Total non-executive directors
Board and
Committee Fees (A)
Fees
$000
514
514
196
192
207
202
218
218
226
226
202
202
54
1,563
1,608
Year
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2015
2016
2015
Post-employment benefits
Other long term benefits
Superannuation benefits
$000
$000
19
19
17
17
18
17
19
19
19
19
19
19
5
111
115
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$000
533
533
213
209
225
219
237
237
245
245
221
221
59
1,674
1,723
(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.
41
Incitec Pivot Limited Annual Report 2016
7. Shareholdings in IPL
Table 10 – 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
KMP, including their related parties, is set out in the table below:
Opening balance
Shares acquired
Shares disposed
Closing balance
Number of Shares(A)
Non-executive directors – Current
P Brasher
K Fagg
G Hayes
J Marlay
R McGrath
G Smorgon AM
Executive directors – Current
J Fazzino
Executive – Current
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
Executive – Former
S Dawson
G Kubera
J Whiteside
60,600
10,000
–
37,926
18,758
13,100
–
–
10,000
–
–
–
1,708,180
206,382
15,800
3,380
–
75,800
–
23,867
–
3,500
68,444
46,890
–
44,363
–
56,620
–
56,620
–
–
–
–
–
–
–
(33,500)
–
–
(44,363)
–
(56,912)
–
(56,620)
60,600
10,000
10,000
37,926
18,758
13,100
1,914,562
50,744
50,270
–
75,800
–
23,575
–
3,500
(A) Includes fully paid ordinary shares and shares acquired under IPL’s incentive plans. Details of these plans are set out in note 17, Share-based payments.
8. Other KMP Disclosures
Loans to KMP
In the 2016 financial year, there were no loans to KMP or their related parties (2015: nil).
Other KMP transactions
The following transactions, entered into during the 2016 and 2015 financial years with KMP, 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 $962,735 during the year (2015: $6,534,577).
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
$494,202 during the year (2015: $443,761). 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 7th day of November 2016
Incitec Pivot Limited Annual Report 2016
42
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
7 November 2016
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 2016, 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
43
Incitec Pivot Limited Annual Report 2016
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 45 to 80
Audit Report
Shareholder Information
Five Year Financial Statistics
46
47
48
49
50
81
82
84
85
Incitec Pivot Limited Annual Report 2016
44
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 2016.
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
2016 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 in 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.
Information is being included in the notes to the financial report only 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 result 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.
45
Incitec Pivot Limited Annual Report 2016
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 30 September 2016
Revenue
Financial and other income
Share of profit of 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 impairment write-downs and restructuring costs
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 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 gains/(losses) on cash flow hedges
Cash flow hedge losses/(gains) transferred to profit or loss
Exchange differences on translating foreign operations
Net gain/(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
Total comprehensive income for the year
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)
Notes
(2)
(2)
(13)
(2)
(2)
(2)
(3)
(18)
(16)
(16)
(16)
(16)
(5)
(5)
2016
$mill
2015
$mill
3,353.7
3,643.3
56.2
35.9
51.2
38.2
10.4
(30.8)
(1,494.0)
(1,537.6)
(637.6)
(244.5)
(59.1)
(144.0)
(144.1)
(231.3)
(66.5)
(241.3)
(57.2)
136.6
(7.2)
129.4
(21.9)
(0.1)
7.5
(14.5)
3.2
5.9
(282.5)
237.9
9.7
(25.8)
(626.5)
(249.1)
(81.6)
(160.7)
(141.1)
(258.4)
(69.7)
–
(69.5)
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)
(40.3)
(19.1)
89.1
379.8
128.1
1.3
129.4
87.8
1.3
89.1
7.6
7.6
398.6
0.3
398.9
379.5
0.3
379.8
23.8
23.7
Incitec Pivot Limited Annual Report 2016
46
Consolidated Statement of Financial Position
As at 30 September 2016
Notes
(8)
(4)
(4)
(16)
(4)
(16)
(13)
(9)
(10)
(3)
(4)
(8)
(16)
(15)
(4)
(8)
(16)
(15)
(3)
(18)
(7)
2016
$mill
2015
$mill
427.1
256.1
405.7
39.3
9.2
4.5
606.3
288.8
401.3
38.4
9.1
–
1,141.9
1,343.9
20.7
62.8
37.2
318.0
3,892.7
3,170.4
23.2
7,525.0
8,666.9
939.5
11.1
5.2
114.4
–
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
1,070.2
1,896.2
7.3
4.6
2,278.3
1,806.6
96.9
88.1
442.6
99.0
3,012.2
4,082.4
4,584.5
3,436.8
(187.3)
1,330.7
4.3
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
4,584.5
4,688.2
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Current tax 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
47
Incitec Pivot Limited Annual Report 2016
Consolidated Statement of Cash Flows
For the year ended 30 September 2016
Cash flows from operating activities
Profit after tax for the year
Adjusted for non-cash items
Net finance cost
Depreciation and amortisation
Write-down of property, plant and equipment
Impairment of equity accounted investments
Share of profit of equity accounted investments
Net gain on sale of property, plant and equipment
Non-cash share-based payment transactions
Deferred tax (benefit)/expense
Income tax expense
Changes in assets and liabilities
decrease in receivables and other operating assets
(increase)/decrease in inventories
increase/(decrease) in payables, provisions and other operating liabilities
Adjusted for cash items
Dividends received
Interest received
Interest paid
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Payments for property, plant and equipment and intangibles
Proceeds from sale of property, plant and equipment
Payments from/(loans to) 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
Dividends paid
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents held
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash and cash equivalents held
Cash and cash equivalents at the end of the year
Notes
2016
$mill
2015
$mill
Inflows/
(Outflows)
Inflows/
(Outflows)
129.4
398.9
(2)
(9)
(13)
(13)
(3)
(3)
(13)
(8)
(8)
(6)
(8)
50.2
244.5
172.3
–
(35.9)
(0.8)
1.2
(27.5)
34.7
14.5
(18.7)
99.4
663.3
35.6
8.9
(50.8)
(81.7)
575.3
(435.5)
1.2
0.4
(46.5)
(480.4)
(828.3)
759.6
(194.0)
(262.7)
(167.8)
606.3
(11.4)
427.1
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
Incitec Pivot Limited Annual Report 2016
48
Consolidated Statement of Changes in Equity
For the year ended 30 September 2016
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 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
(6)
–
–
–
–
Shares issued during the year
98.1
Share-based payment transactions (17)
–
–
–
(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
Balance at 1 October 2015
3,430.9
(39.9)
27.0
(132.6)
(11.2)
1,411.0
4,685.2
3.0
4,688.2
Profit for the year
Total other comprehensive
income for the year
Dividends paid
Shares issued during the year
(6)
(7)
Share-based payment transactions (17)
–
–
–
5.9
–
–
6.3
–
–
–
–
–
–
(5.9)
1.2
–
–
128.1
128.1
1.3
129.4
(32.1)
(0.1)
(14.4)
(40.3)
–
–
–
–
–
–
(194.0)
(194.0)
–
–
–
1.2
–
–
–
–
(40.3)
(194.0)
–
1.2
Balance at 30 September 2016
3,436.8
(33.6)
22.3
(164.7)
(11.3)
1,330.7
4,580.2
4.3
4,584.5
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 LTI 2013/16,
LTI 2014/17 and LTI 2015/18.
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.
49
Incitec Pivot Limited Annual Report 2016
Notes to the Consolidated Financial Statements
For the year ended 30 September 2016
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
13 Equity accounted investments
14 Investments in subsidiaries, joint ventures and associates
Risk management
15 Provisions and contingencies
16 Financial risk management
Other
17 Share-based payments
18 Retirement benefit obligation
19 Deed of cross guarantee
20 Parent entity disclosure
21 Key management personnel disclosures
22 Auditor’s remuneration
23 Events subsequent to reporting date
51
52
54
55
56
57
57
58
59
61
62
63
65
65
66
68
69
77
78
79
79
80
80
80
Incitec Pivot Limited Annual Report 2016
50
Notes to the Consolidated Financial Statements: Basis of preparation
For the year ended 30 September 2016
Basis of preparation and consolidation
Rounding of amounts
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 7 November 2016.
The Company is of a kind referred to in ASIC Legislative
Instrument, ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, issued by the
Australian Securities and Investments Commission dated
24 March 2016 and, in accordance with that Legislative
Instrument, 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.
Accounting standards issued
The relevant Australian Accounting Standards and
interpretations that became effective and that were adopted
or early adopted by the Group since 30 September 2015
were:
l AASB 2016-2: Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendment to AASB
107. The amendment requires additional disclosures that
will enable users of financial statements to evaluate
changes in liabilities arising from financing activities,
including both changes arising from cash flows and non-
cash items. The Group has elected to early adopt the
amendment to AASB 107. As a result, additional
disclosures are included in note 8.
The following relevant standards were available for early
adoption but have 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, are included in note 2.
l AASB 16: Leases
Details of the expected impact of AASB 16 on the Group,
when it is adopted, are included in note 12.
Subsidiaries
Subsidiaries are 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 14.
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 14.
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.
Key estimates and judgments
Key accounting estimates and judgments are continually
evaluated and are based on historical experience and other
factors, including expectation of future events that may
have a financial impact on the Group and that are believed
to be reasonable under the circumstances.
The resulting accounting estimates will, by definition,
seldom equal the subsequent related actual result. The
estimates and judgments that have a significant risk of
causing a material adjustment to the carrying amounts of
the assets and liabilities within the next financial year are
set out in the notes.
51
Incitec Pivot Limited Annual Report 2016
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2016
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
Asia Pacific
Fertilisers is made up of the following reportable segments:
l
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.
l 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.
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.
Asia Pacific Eliminations (Elim): represents elimination of profit in stock arising from IPF and SCI sales to DNAP at an arm’s
length transfer price.
Americas
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). It also manufactures and sells industrial
chemicals and fertilisers, which is immaterial in size to the Group.
Corporate
Corporate costs include all head office expenses that cannot be directly attributed to the operation of any of the Group’s businesses.
Group Eliminations (Group Elim): represents elimination of profit in stock arising from intersegment sales at an arm’s length
transfer price.
Reportable segments – financial information
30 September 2016
Notes
IPF
$mill
SCI
$mill
Elim
$mill
Asia Pacific
Total
Fertilisers
$mill
Americas
DNAP
$mill
Elim
$mill
Total
$mill
DNA
$mill
Group
Elim
$mill
Corporate(i)
$mill
Consolidated
Group
$mill
Revenue from external customers
(2)
906.1
631.8 (196.0) 1,341.9
920.8
(14.9) 2,247.8
1,150.6
(44.7)
–
3,353.7
Share of profits of equity
accounted investments
EBITDA(ii)
(13)
–
–
71.2
98.3
–
2.1
–
15.5
171.6
267.6
–
–
15.5
439.2
20.4
253.5
Depreciation and amortisation
(2)
(26.9)
(40.5)
–
(67.4)
(81.5)
– (148.9)
(93.9)
–
1.5
–
–
(21.6)
35.9
672.6
(1.7)
(244.5)
EBIT(iii)
Net interest expense
Income tax expense
Profit after tax
Non-controlling interest
Individually material items (net of tax)
(2)
Profit attributable to members of IPL
Segment assets
Segment liabilities
Net segment assets(iv)
Deferred tax balances
Net assets
(3)
44.3
57.8
2.1
104.2
186.1
–
290.3
159.6
1.5
(23.3)
428.1
(50.2)
(81.4)
296.5
(1.3)
(167.1)
128.1
676.4
515.7
– 1,192.1 2,861.7
– 4,053.8
4,079.7
–
510.2
8,643.7
(482.5)
(100.2)
193.9
415.5
–
–
(582.7)
(249.2)
– (831.9)
(540.8)
– (2,267.1)
(3,639.8)
609.4 2,612.5
– 3,221.9
3,538.9
– (1,756.9)
5,003.9
(419.4)
4,584.5
(i) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(ii) Earnings Before Interest, related income Tax expense, Depreciation and Amortisation and individually material items.
(iii) Earnings Before Interest, related income Tax expense and individually material items.
(iv) Net segment assets excluding 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 2016
52
EBIT(iii)
Net interest expense
Income tax expense
Profit after tax
Non-controlling interest
Individually material items (net of tax)
Profit attributable to members of IPL
Segment assets
Segment liabilities
Net segment assets(iv)
Deferred tax balances
Net assets
(3)
(3)
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2016
1. Segment report (continued)
Reportable segments – financial information (continued)
30 September 2015
Notes
IPF
$mill
SCI
$mill
Elim
$mill
Asia Pacific
Total
Fertilisers
$mill
Americas
DNAP
$mill
Elim
$mill
Total
$mill
DNA
$mill
Group
Elim
$mill
Corporate(i)
$mill
Consolidated
Group
$mill
Revenue from external customers
(2)
1,034.5
755.2
(278.8) 1,510.9
910.8
(14.5) 2,407.2
1,268.7
(32.6)
–
3,643.3
Share of profits of equity
accounted investments
EBITDA(ii)
(13)
–
–
–
–
19.2
82.2
211.6
(1.1)
292.7
271.6
Depreciation and amortisation
(2)
(31.9)
(36.7)
–
(68.6)
(78.9)
50.3
174.9
(1.1)
224.1
192.7
–
–
–
–
19.2
564.3
19.0
280.7
(147.5)
(99.0)
416.8
181.7
–
1.6
–
1.6
–
(21.0)
38.2
825.6
(2.6)
(249.1)
(23.6)
576.5
(68.8)
(108.8)
398.9
(0.3)
–
398.6
811.3
520.1
– 1,331.4 2,923.6
– 4,255.0
4,214.2
–
668.6
9,137.8
(472.9)
(112.5)
338.4
407.6
–
–
(585.4)
(221.0)
–
(806.4)
(543.5)
– (2,614.8)
(3,964.7)
746.0 2,702.6
– 3,448.6
3,670.7
– (1,946.2)
5,173.1
(484.9)
4,688.2
(i) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(ii) Earnings Before Interest, related income Tax expense, Depreciation and Amortisation and individually material items.
(iii) Earnings Before Interest, related income Tax expense and individually material items.
(iv) Net segment assets excluding deferred tax balances.
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 location, 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 2016
Australia
$mill
USA
$mill
Canada
$mill
Revenue from external customers
2,151.5
885.1
182.4
Non-current assets other than financial
assets and deferred tax assets
3,568.2
3,710.2
Trade and other receivables
30 September 2015
118.4
Australia
$mill
71.5
USA
$mill
52.8
34.3
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
60.9
40.3
Turkey
$mill
57.9
1.4
12.2
Turkey
$mill
63.9
1.3
17.1
Other/Elim
$mill
Consolidated
$mill
76.8
3,353.7
132.0
7,464.6
40.4
276.8
Other/Elim
$mill
Consolidated
$mill
69.3
3,643.3
111.7
27.8
7,757.9
310.0
53
Incitec Pivot Limited Annual Report 2016
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 2016
2. Revenue and expenses
Revenue
External sales
Total revenue
Financial income
Interest income
Other income
Other income from operations
Total financial and other income
Expenses
Notes
2016
$mill
2015
$mill
3,353.7
3,643.3
3,353.7
3,643.3
8.9
12.8
47.3
56.2
38.4
51.2
Profit before income tax includes the following specific expenses:
Depreciation and amortisation
depreciation
amortisation
Total depreciation and amortisation
Recoverable amount write-down
property, plant and equipment
equity accounted investments
Total recoverable write-down
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)
(13)
(4)
(4)
(15)
(15)
(15)
restructuring and rationalisation costs (15)
Research and development expense
Defined contribution superannuation
expense
Defined benefit superannuation
expense
Financial expenses
2016
$mill
2015
$mill
218.8
219.4
25.7
29.7
244.5
249.1
172.3
–
172.3
3.1
9.4
3.6
2.3
15.9
43.3
10.2
4.5
1.1
5.6
2.9
1.5
4.4
0.8
6.4
1.4
9.7
31.6
31.9
(18)
4.4
2.8
Unwinding of discount on provisions
(15)
5.0
3.4
Net interest expense on defined
benefit obligation
(18)
Interest expenses on financial liabilities
Total financial expenses
3.3
50.8
59.1
3.0
75.2
81.6
Individually material items
Profit after tax includes the following expenses whose
disclosure is relevant in explaining the financial performance
of the Group:
2016
Impairment of Gibson Island(1)
Business restructuring costs(2)
Gross
$mill
Tax
$mill
Net
$mill
150.8
(45.2)
105.6
restructuring and other direct costs
employee redundancies and allowances
20.4
43.3
(6.1)
(13.7)
14.3
29.6
impairment of operating assets
and site exit costs
26.8
(9.2)
17.6
Total individually material items
241.3
(74.2)
167.1
(1) The impairment write-down of $150.8m (after tax $105.6m) in relation to
Gibson Island’s manufacturing plant and related assets. The impairment is
mainly as a result of lower forecast fertiliser prices and the forecast for higher
cost of natural gas delivered to the Australian East Coast. Refer to note 11.
(2) Costs incurred directly due to the business restructure which included
redundancies and related costs, asset impairment write-downs and site exit
and reconfiguration costs.
Key accounting policies
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: 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. The Group did not early adopt this Standard when it
was issued. 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.
Other income
Other income from operations represents gains that are not
revenue. This includes royalty income and management fees
from the Group’s joint ventures and associates, and income from
contractual arrangements that are not considered revenue.
Incitec Pivot Limited Annual Report 2016
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: Financial performance
For the year ended 30 September 2016
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
Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense
2016
$mill
2015
$mill
33.0
52.1
1.7
34.7
(2.7)
49.4
(27.5)
59.4
7.2
108.8
Income tax reconciliation to prima facie tax payable
Profit before income tax
Tax at the Australian tax rate
of 30% (2015: 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/(benefit)
attributable to profit
Pre-IMI
$mill
2016
IMI(1)
$mill
Net
$mill
2015
$mill
377.9
(241.3) 136.6 507.7
113.4
(72.4)
41.0 152.3
–
(25.9)
(10.9)
1.8
0.9
–
–
–
–
(1.8)
–
(25.9)
(10.9)
1.8
(0.9)
0.3
(30.1)
(11.5)
(3.2)
3.7
2.1
–
2.1
(2.7)
81.4
(74.2)
7.2 108.8
(1) Refer note 2 for detail on items of revenue or expenses that required
separate disclosure (individually material items) for the year ended
30 September 2016. In 2015, the Group had no items of revenue or
expenses requiring separate disclosure.
Tax amounts recognised directly in equity
The aggregate current and deferred tax arising in the financial
year and not recognised in net profit or loss but directly charged
to equity is $17.2m for the year ended 30 September 2016
(2015: debit of $31.7m).
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
Net deferred tax liabilities
Presented in the Statement of
Financial Position as follows:
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
55
Incitec Pivot Limited Annual Report 2016
2016
$mill
2015
$mill
20.0
31.4
53.5
8.9
(340.4)
(124.7)
(14.5)
(40.4)
(13.2)
(419.4)
19.8
26.7
46.5
13.5
(350.3)
(140.7)
(17.6)
(41.0)
(41.8)
(484.9)
23.2
(442.6)
(419.4)
58.5
(543.4)
(484.9)
Opening balance at 1 October
Credited/(debited) to the profit or loss
Charged to equity
Foreign exchange movements
Tax rate change
Adjustments in respect of prior years
2016
$mill
(484.9)
27.4
17.2
20.8
0.5
(0.4)
2015
$mill
(342.8)
(55.1)
(31.7)
(51.0)
–
(4.3)
Closing balance at 30 September
(419.4)
(484.9)
Key accounting policies
Income tax expense
Income tax expense comprises current tax (amounts payable
or receivable 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
benefits 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
For details on the Company’s tax consolidated group refer to
note 20.
Key estimates and judgments
Provisions for potential 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 the control of the Group.
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2016
4. Trade and other assets and liabilities
The Group’s total trade and other assets and liabilities
consists of receivables, payables and inventory balances, net
of provisions for any impairment losses.
The graph below shows the Group’s trade working capital
(trade assets and liabilities) performance over a five year
period.
Trade
$mill
Other
$mill
Total
$mill
405.7
210.3
–
405.7
66.5
276.8
(665.2) (281.6) (946.8)
(49.2) (215.1) (264.3)
Trade
$mill
Other
$mill
Total
$mill
401.3
274.3
–
401.3
35.7
310.0
(667.9)
(225.2) (893.1)
13 month rolling average trade working capital/
Annual net revenue
Explosives (DNA, DNAP)
Fertilisers
%
17.5
15.0
12.5
10.0
7.5
5.0
2.5
0
7.7
(189.5)
(181.8)
(2.5)
FY12
FY13
FY14
FY15
FY16
30 September 2016
Inventories
Receivables
Payables
30 September 2015
Inventories
Receivables
Payables
Inventory by category:
Raw materials and stores
Work-in-progress
Finished goods
Provisions
Total inventory balance
Provision movement:
30 September 2016
Carrying amount at 1 October 2015
Provisions made during the year
Provisions written back during the year
Amounts written off against provisions
Foreign exchange rate movements
2016
$mill
76.7
39.8
2015
$mill
82.7
64.1
299.1
263.7
(9.9)
(9.2)
405.7
401.3
Trade
receivables
$mill
Inventories
$mill
(30.7)
(3.1)
1.0
1.0
2.0
(9.2)
(9.4)
0.9
7.7
0.1
Carrying amount at 30 September 2016
(29.8)
(9.9)
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:
2016
Current
30–90 days
Over 90 days
Total
2015
Current
30–90 days
Over 90 days
Total
Gross
$mill
Impairment
$mill
Net
$mill
196.4
14.7
29.0
240.1
(0.7)
(2.3)
(26.8)
195.7
12.4
2.2
(29.8)
210.3
Gross
$mill
Impairment
$mill
Net
$mill
240.5
38.8
25.7
305.0
–
240.5
(8.0)
(22.7)
(30.7)
30.8
3.0
274.3
Key accounting policies
Cents
35
Inventories
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Inventories are valued at the lower of cost and net realisable
Dividend declared in respect of the financial year
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.
25
30
Trade and other receivables
20
15
5
10
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.
2012
2015
2016
2014
2013
0
AUDm
1200
Where substantially all risks and rewards relating to a
receivable are transferred to a third party, the receivable is
Drawn funds
derecognised.
Available limits
1000
Trade and other payables
800
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.
600
400
Bond
AUD200m
Bank facility
USD553m
Bank facility
AUD568m
200
Key estimates and judgments
0
The expected impairment loss calculation for trade
Bank facility
receivables considers the impact of past events, and
USD400m
exercises judgment over the impact of current and future
Maturity
Date
economic conditions when considering the recoverability
of outstanding 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.
144A/reg S
USD800m
Aug 20
Dec 19
Feb 19
Oct 18
Oct 18
Incitec Pivot Limited Annual Report 2016
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
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 2016
5. Earnings per share
6. Dividends
2016
Cents per share
2015
Cents per share
Dividends paid or declared by the Company in the year
ended 30 September were:
Basic earnings per share
including individually
material items
excluding individually
material items
Diluted earnings per share
including individually
material items
excluding individually
material items
7.6
17.5
7.6
17.4
23.8
23.8
23.7
23.7
Ordinary shares
Final dividend of 7.3 cents per share,
10 percent franked, paid 16 December 2014(1)
Interim dividend of 4.4 cents per share,
unfranked, paid 1 July 2015(2)
2016
$000
2015
$000
–
–
120,814
73,723
Final dividend of 7.4 cents per share,
60 percent franked, paid 14 December 2015
124,851
Number
Number
Interim dividend of 4.1 cents per share,
100 percent franked, paid 1 July 2016
69,175
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)
1,686,971,487
1,673,824,398
1,691,861,561
1,678,614,972
(1) 1,513,487 shares were issued during the year ended 30 September 2016
(2015: 30,658,837), refer note 7.
Reconciliation of earnings used in the calculation
of basic and diluted earnings per share
Explosives (DNA, DNAP)
%
17.5
Fertilisers
15.0
12.5
Note
2016
$mill
2015
$mill
10.0
Profit attributable to ordinary shareholders
128.1
398.6
7.5
Individually material items after income tax
(2)
167.1
–
Total ordinary share dividends
194,026 194,537
(1) The 2014 final dividend comprised of $61.5m cash payments and
$59.3m of the Company’s shares issued under the Group’s Dividend
Reinvestment Plan.
(2) The 2015 interim dividend comprised of $34.9m cash payments and
$38.8m of the Company’s shares issued under the Group’s Dividend
Reinvestment Plan.
Since the end of the financial year, the directors have
determined to pay a final dividend of 4.6 cents per share,
unfranked, to be paid on 13 December 2016. The total
dividend payment will be $77.6m.
The financial effect of this dividend has not been recognised
in the 2016 Consolidated Financial Statements.
Consistent with recent years, the dividend reflects a payout
ratio of approximately 50 percent of net profit after tax
(before individually material items).
–
–
295.2
398.6
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 the Company’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 2016 final dividend.
Franking credits
Franking credits available to shareholders of the Company
amount to $7.0m (2015: $5.0m) at the 30 percent (2015:
30 percent) corporate tax rate. The final dividend for 2016
is unfranked.
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.
5.0
Profit attributable to ordinary shareholders
excluding individually material items
2.5
0
The graph below shows the Group’s earnings per share and
dividend payout over the last five years.
(2.5)
FY13
FY14
FY15
FY16
FY12
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
2012
2013
2014
2015
2016
Available limits
Drawn funds
Cents
35
30
25
20
15
10
5
0
AUDm
1200
1000
800
600
57
Incitec Pivot Limited Annual Report 2016
400
200
0
Maturity
Date
Bank facility
Bank facility
AUD568m
USD553m
Bond
AUD200m
144A/reg S
USD800m
Bank facility
USD400m
Oct 18
Oct 18
Feb 19
Dec 19
Aug 20
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2016
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 any Group entity. 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:
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
Number
of Shares
$mill
30 Sept 2015 Balance at the end of the
1,685,657,034
3,430.9
previous financial year
Shares issued during the year
18 Nov 2015 Shares issued (LTI
1,513,487
5.9
2012/15 Performance
Rights Plan)
30 Sept 2016 Balance at the end of
1,687,170,521
3,436.8
l change the amount of dividends paid to shareholders;
the financial year
l return capital or issue new shares to shareholders;
l vary discretionary capital expenditure;
l raise new debt funding or repay existing debt balances;
and
l draw down additional debt or sell non-core assets to
reduce debt.
Key financial metrics
The Group uses a range of financial metrics to monitor the
efficiency of its capital structure, including EBITDA interest
cover and gearing ratio (net debt/EBITDA) before individually
material items. Metrics are maintained in excess of any debt
covenant restrictions. 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
2.1
7.9
1.6
9.7
Target range
2016
2015
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 2016, 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.
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 2016
58
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2016
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
Fixed interest rate bonds
The Group has the following fixed interest rate bonds:
l USD800m 10 year bonds on issue in the US 144A/
Regulation S debt capital market. The bonds have a fixed
rate semi-annual coupon of 6 percent and mature in
December 2019.
l AUD200m 5.5 year bonds on issue in the Australian debt
capital market. The bonds have a fixed rate semi-annual
coupon of 5.75 percent and mature in February 2019.
Bank facilities
Bank facilities of AUD568m and USD953m were entered into
in August 2015 and are split into two facilities as follows:
l 3 year facility domiciled in Australia consisting of
two tranches: Tranche A has a limit of AUD568m and
Tranche B has a limit of USD553m. The facility matures
in October 2018; and
l 5 year facility domiciled in the USA with a limit of
USD400m. The facility matures in August 2020.
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:
Interest bearing liabilities
Cash and cash equivalents
Notes
2016
$mill
2015
$mill
2,289.4
2,553.7
(427.1)
(606.3)
Fair value of derivatives
(16)
(468.5)
(658.1)
Net debt
1,393.8
1,289.3
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 16.
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 facilities
Fixed interest rate bonds
Total interest bearing liabilities
2016
$mill
2015
$mill
–
–
11.1
11.1
20.1
714.9
12.1
747.1
1,009.0
441.1
1,269.3
1,365.5
2,278.3
1,806.6
2,289.4
2,553.7
The table below includes detail on the movements in the Group’s interest bearing liabilities for the year ended 30 September 2016:
Cash flow
Non-cash changes
1 October
2015
$mill
Financing activities
Proceeds
$mill
Repayments
$mill
Foreign
exchange
movement
$mill
Fair value
adjustment
$mill
Funding costs
amortisation
$mill
30 September
2016
$mill
Current
Bank loans
Fixed interest rate bonds
Loans to joint ventures and associates
Non-current
Bank facilities
Fixed interest rate bonds
20.1
714.9
12.1
6.6
–
–
(26.8)
(682.6)
0.1
(29.9)
(0.2)
–
441.1
753.0
(118.7)
1,365.5
–
–
(67.9)
(93.4)
Total liabilities from financing activities
2,553.7
759.6
(828.3)
(191.1)
Derivatives held to hedge interest bearing liabilities
(658.1)
–
–
180.3
Debt after hedging
1,895.6
759.6
(828.3)
(10.8)
–
(2.8)
(0.8)
–
(4.8)
(8.4)
9.3
0.9
–
0.4
–
1.5
2.0
3.9
–
–
–
11.1
1,009.0
1,269.3
2,289.4
(468.5)
3.9
1,820.9
59
Incitec Pivot Limited Annual Report 2016
%
17.5
15.0
Explosives (DNA, DNAP)
Fertilisers
12.5
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2016
10.0
7.5
5.0
8. Net debt (continued)
2.5
0
(2.5)
Interest bearing liabilities (continued)
FY13
FY12
FY15
FY14
FY16
Interest rate profile
The table below summarises the interest rate profile, net
of interest rate hedging, of the Group’s 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
Cents
35
2016
$mill
2015
$mill
30
Fixed interest rate financial instruments
Variable interest rate financial instruments
25
20
15
1,511.5
940.3
777.9
1,613.4
2,289.4
2,553.7
10
Detail on the Group’s interest hedging profile and duration is
included in note 16.
5
0
Funding profile
2012
The graph below details the Group’s available funding limit,
its maturity dates and drawn funds at 30 September 2016:
2013
2014
2015
2016
AUDm
1200
1000
800
600
400
200
0
Maturity
Date
Available limits
Drawn funds
Bank facility
AUD568m
Bank facility
USD553m
Bond
AUD200m
144A/reg S
USD800m
Bank facility
USD400m
Oct 18
Oct 18
Feb 19
Dec 19
Aug 20
The Group has undrawn financing facilities of $804.0m at
30 September 2016.
Cash and cash equivalents
Cash and cash equivalents at 30 September 2016 was
$427.1m (2015: $606.3m) and consisted of cash at bank of
$164.2m (2015: $103.2m) and short term investments of
$262.9m (2015: $503.1m).
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 short term
investments, 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.
Incitec Pivot Limited Annual Report 2016
60
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 2016
9. Property, plant and equipment
Freehold land
and buildings
$mill
Notes
Machinery,
plant and
equipment
$mill
Construction
in progress
$mill
Total
$mill
At 1 October 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
Year ended 30 September 2016
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 2016
Cost
Accumulated depreciation
Net book amount
Capitalised interest
(2)
(2)
(2)
(2)
753.0
(189.8)
563.2
563.2
4.5
(1.0)
(23.1)
–
11.8
26.8
582.2
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
804.0
(221.8)
582.2
3,481.4
(1,140.5)
2,340.9
582.2
3.3
(0.1)
(25.3)
(18.3)
12.7
(13.4)
541.1
2,340.9
15.9
(0.3)
(193.5)
(154.0)
155.1
(49.2)
2,114.9
708.1
–
708.1
4,537.9
(1,026.5)
3,511.4
708.1
361.0
–
–
–
(167.6)
179.0
1,080.5
1,080.5
–
1,080.5
1,080.5
414.4
–
–
–
(167.8)
(90.4)
1,236.7
3,511.4
403.6
(4.6)
(219.4)
(4.5)
–
317.1
4,003.6
5,365.9
(1,362.3)
4,003.6
4,003.6
433.6
(0.4)
(218.8)
(172.3)
–
(153.0)
3,892.7
796.1
(255.0)
541.1
3,489.2
(1,374.3)
2,114.9
1,236.7
–
1,236.7
5,522.0
(1,629.3)
3,892.7
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 for each class of asset are as follows:
• Buildings and improvements
• Machinery, plant and equipment
20 – 50 years
3 – 50 years
Residual values and useful lives are reviewed and adjusted
where relevant when changes in circumstances impact the
use of the asset.
During the year ended 30 September 2016 interest of $48.0m
(2015: $37.7m) was capitalised in relation to the funding for
the construction of the Waggaman, Louisiana ammonia plant.
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.
61
Incitec Pivot Limited Annual Report 2016
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 2016
10. Intangibles
At 1 October 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
Year ended 30 September 2016
Opening net book amount
Additions
Amortisation
Foreign exchange movement
Closing net book amount
At 30 September 2016
Cost
Accumulated amortisation
Net book amount
Notes
Software
$mill
Goodwill
$mill
Patents, trademarks &
customer contracts
$mill
Brand names
$mill
Total
$mill
(2)
(2)
87.8
(66.5)
21.3
21.3
5.2
(10.1)
1.2
17.6
98.0
(80.4)
17.6
17.6
5.4
(6.4)
(0.9)
15.7
96.5
(80.8)
15.7
2,580.5
–
2,580.5
2,580.5
–
–
302.7
2,883.2
2,883.2
–
2,883.2
2,883.2
–
–
(125.1)
2,758.1
2,758.1
–
2,758.1
250.9
(116.8)
134.1
134.1
–
(19.6)
22.6
137.1
294.6
(157.5)
137.1
137.1
–
(19.3)
(8.2)
109.6
276.6
(167.0)
109.6
256.4
–
256.4
256.4
–
–
52.0
308.4
308.4
–
308.4
308.4
–
–
(21.4)
287.0
287.0
–
287.0
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
3,346.3
5.4
(25.7)
(155.6)
3,170.4
3,418.2
(247.8)
3,170.4
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 an operating
segment.
The Group’s indefinite life intangible assets are allocated to
groups of CGUs as follows:
30 September 2016
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
30 September 2015
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
Goodwill
$mill
Brand names
$mill
Total
$mill
183.8
2.4
1,132.4
1,439.5
2,758.1
–
–
40.3
246.7
287.0
Goodwill
$mill
Brand names
$mill
183.8
2.6
1,132.4
1,564.4
2,883.2
–
–
40.3
268.1
308.4
183.8
2.4
1,172.7
1,686.2
3,045.1
Total
$mill
183.8
2.6
1,172.7
1,832.5
3,191.6
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.
Incitec Pivot Limited Annual Report 2016
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: Capital investment
For the year ended 30 September 2016
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
11. Impairment of goodwill and
non-current assets
At 30 September 2016, the Group has identified the
following indicators of impairment:
•
the ongoing global mining downturn;
lower global fertiliser prices; and
•
• availability of committed sources of natural gas at
economically viable prices for fertiliser manufacturing in
Australia.
Impairment testing
At the half year, the recoverable amount of the Gibson Island
assets (which form part of the IPF CGU) was lower than the
carrying amount. This was as a result of the impact of lower
forecast fertiliser prices and the forecast for higher cost of
natural gas delivered to the Australian East Coast, on the
future profitability of these assets. As a result, the Group
recognised an impairment of $150.8m (after tax $105.6m)
at 31 March 2016.
The impairment charge could reverse in future years should
there be favourable changes in the market conditions
impacting the economic viability of the Gibson Island
manufacturing facility. The maximum extent to which an
impairment charge may be reversed is to return the
impaired asset to the carrying amount that would have been
determined, net of depreciation, if no impairment charge
had been recognised.
The Group’s impairment testing at 30 September 2016
resulted in no further impairment of any CGU.
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 impairment
testing at 30 September are set out below:
Key
assumptions
1 – 5 years
Terminal value
(after 5 years)
2016
2015
2016
DAP(1)
$320 to $462 $425 to $493
$490
Urea(2)
$185 to $305 $265 to $325
$324
2015
$535
$336
Gas(3)
$9.00
$9.00
$9.93
$9.18
Ammonia(4) $230 to $405 $439 to $452
$405
$439
AUD:USD(5) $0.72 to $0.76 $0.72 to $0.76
$0.73
$0.76
(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) Ammonia price (CFR Tampa – USD per tonne).
(5) AUD:USD exchange rate.
Fertiliser prices, foreign exchange rates and natural gas
prices used in the calculations are estimated by reference to
external market publications and market analyst estimates,
and are updated at each reporting date.
The post-tax discount rate used in the calculations is 9%
(2015: 9%) for the IPF and SCI CGUs and 8.5% for the DNA
and DNAP CGUs (2015: 9%). The rate reflects the underlying
cost of capital adjusted for market risk.
63
Incitec Pivot Limited Annual Report 2016
The terminal value growth rate represents the forecast
consumer price index (CPI) of 2.5% (2015: 2.5%) for
all CGUs.
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 2016:
AUD:USD
exchange
rate
+5c
$mill
(327.9)
(129.4)
DAP/
Ammonia
Price in
USD(1)
-USD20
per tonne
$mill
(248.1)
(49.7)
Growth
rate
-1.0%
$mill
(57.6)
–
n/a
$mill
n/a
n/a
n/a
$mill
n/a
n/a
-1.0%
$mill
(409.2)
(53.6)
Natural
gas price
in USD
n/a
$mill
n/a
n/a
n/a
$mill
n/a
n/a
n/a
-USD60
per tonne
-1.0%
+US$2 per
gigajoule
USDmill
USDmill
USDmill
n/a
n/a
(471.1)
(25.5)
(428.7)
–
USDmill
(490.7)
(45.2)
SCI
– Value-in-use
– Impairment
charge
DNAP
– Value-in-use
– Impairment
charge
DNA
– Value-in-use
– Impairment
charge
(1) DAP price impacts the value-in-use of the SCI CGU. The Ammonia price
impacts the value-in-use of the DNA CGU.
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 2016 other property,
plant and equipment was impaired by $25.9m (2015:
$4.5m) as a result of the Group’s fixed asset verification
procedures and the abandonment of certain assets following
a strategic review of the Group’s operating 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 judgement. 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.
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2016
11. Impairment of goodwill and
non-current assets (continued)
Key accounting policies (continued)
A CGU is the smallest identifiable group of assets that
generate cash flows largely independent of cashflows of 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.
Key estimates and judgments
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
Determining the recoverable amount
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.
Impairment testing involves comparing an asset’s
recoverable amount to its carrying amount. The recoverable
amount of an asset 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.
The Group has prepared value-in-use models for the purpose
of impairment testing as at 30 September 2016, 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.
For Gibson Island, the Group prepared a Fair Value Less Cost
of Disposal (FVLCD) model to determine the recoverable
amount. The FVLCD of the Gibson Island assets was
determined as the present value of the estimated future
cash flows for two years of operation until 2018 when
supply under the existing favourable gas contract ends, less
the present value of what would be received on its eventual
disposal, taking into consideration the assumptions that an
independent market participant would use. The fair value
measurement is categorised as a Level 3 fair value based on
the inputs used in the valuation (refer note 16: Financial risk
management for explanation of the valuation hierarchy).
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.
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 2016
64
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2016
12. Commitments
13. Equity accounted investments
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
2016
$mill
13.3
1.6
14.9
2015
$mill
146.0
1.7
147.7
Lease commitments
Non-cancellable operating lease commitments comprise a
number of operating lease arrangements for the provision of
certain equipment. These leases have varying durations and
expiry dates. The future minimum rental commitments are as
follows at 30 September:
no later than one year
later than one, no later than five years
later than five years
2016
$mill
47.6
90.1
83.4
2015
$mill
49.5
76.5
59.8
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 14) at 30 September 2016 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 amount of joint ventures and associates
Note
2016
$mill
2015
$mill
Carrying amount at 1 October
Share of net profit
Impairment of investment in associate
(2)
Dividends received/receivable
Foreign exchange movement
323.6
291.2
35.9
–
38.2
(1.1)
(35.6)
(37.0)
(5.9)
32.3
Carrying amount at 30 September
318.0
323.6
221.1
185.8
Carrying amount of investments in:
Joint ventures
Associates
Carrying amount of investments in
joint ventures and associates
266.9
267.8
51.1
55.8
318.0
323.6
Transactions between subsidiaries of the Group
and joint ventures and associates
Sales of goods/services
Purchase of goods/services
Management fees/royalties
Interest expense
Dividend income
2016
$mill
307.1
(31.3)
24.3
(0.2)
35.6
2015
$mill
315.5
(34.7)
29.5
(0.1)
37.0
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
2016
$mill
0.5
40.8
2015
$mill
3.7
45.6
Loans with joint ventures and associates
Loans to joint ventures and associates
Loans from joint ventures and associates
23.2
11.1
23.6
12.1
Outstanding balances arising from transactions with joint
ventures and associates are on standard market terms.
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.
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.
Issued standards not early adopted
The Group is currently evaluating the implications of AASB
16: Leases. Information on the undiscounted amount of the
Group’s operating lease commitments at 30 September 2016
under AASB 117, the current leases standard, is disclosed
above. Under AASB 16, the present value of these
commitments would be shown as a liability on the balance
sheet together with an asset representing the right-of-use.
The ongoing income statement classification of what is
currently predominantly presented as ‘Lease payments –
operating leases’ will be split between amortisation and
interest expense. The first application date for the Group is
the financial year ending 30 September 2020.
65
Incitec Pivot Limited Annual Report 2016
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 2016
14. 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. There were no changes in the Group’s existing shareholdings in its subsidiaries, joint
ventures and associates in the financial year, other than DetNet International Limited which was deregistered in August 2016.
The Group previously held a 50 percent interest in this joint venture.
Subsidiaries
Name of entity
Company
Incitec Pivot Limited(1)
Controlled Entities – operating
Incorporated in Australia
Incitec Fertilizers Pty Limited
(previously Incitec Fertilizers Limited)(1)
TOP Australia Pty Limited
(previously 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 Explosives Holdings Pty Limited(1)
Queensland Operations Pty Limited
Incitec Pivot Investments 1 Pty Ltd(1)
Incitec Pivot Investments 2 Pty Ltd
Incitec Pivot US Holdings Pty Ltd
Incitec Pivot Finance Australia Pty Ltd(1)
Dyno Nobel Pty Limited
Dyno Nobel Europe Pty Ltd
Dyno Nobel Management Pty Limited
Industrial Investments Australia Finance Pty Limited
Dyno Nobel Asia Pacific Pty Limited(1)
Dampier Nitrogen Pty Ltd
DNX Australia Pty Ltd(1)
Dyno Nobel Moranbah Pty Ltd(1)
Dyno Nobel Moura Pty Limited(1)
Incorporated in USA
Incitec Pivot US Investments
Incitec Pivot Management LLC
Incitec Pivot Finance LLC
Dyno Nobel Australia LLC
The Dyno Nobel SPS LLC
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
CMMPM, LLC
CMMPM Holdings L.P.
Dyno Nobel Louisiana Ammonia, LLC
Ownership
interest
Name of entity
Ownership
interest
Controlled Entities – operating (continued)
Incorporated in Canada
Dyno Nobel Canada Inc.
Dyno Nobel Transportation Canada Inc.
Dyno Nobel Nunavut Inc.
Incitec Pivot Finance Canada Inc.
Polar Explosives 2000 Inc.
Dene Dyno Nobel (Polar) Inc.
(previously Polar Explosives Ltd)
Dyno Nobel Waggaman Inc.
Incorporated in Hong Kong
Incitec Pivot Holdings (Hong Kong) Limited
TinLinhe Nitrogen Limited
Quantum Fertilisers Limited
Incorporated in Singapore
Coltivi Insurance Pte Limited
Incorporated in New Zealand
Prime Manufacturing Ltd
Incorporated in Chile
Dyno Nobel Explosivos Chile Limitada
Incorporated in Peru
Dyno Nobel Peru S.A.
Incorporated in Mexico
Dyno Nobel Mexico, S.A. de C.V.
Incorporated in Papua New Guinea
DNX Papua New Guinea Ltd(2)
Incorporated in Indonesia
PT DNX Indonesia
Incorporated in Turkey
Nitromak DNX Kimya Sanayii A.S.
Incorporated in Romania
SC Romnitro Explosives Srl.
Incorporated in Albania
DNX Nitro Industrial Kimike Sh.p.k
100%
100%
100%
100%
100%
84%
100%
100%
100%
65%
100%
75%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(1) A party to Deed of Cross Guarantee dated 30 September 2008.
(2) This entity has a 31 December financial year end.
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 2016
66
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2016
14. Investments in subsidiaries, joint ventures and associates (continued)
Joint ventures and associates
Name of entity
Joint ventures
Incorporated in USA
Alpha Dyno Nobel Inc.
Boren Explosives Co., Inc.
Buckley Powder Co. (1)
IRECO Midwest Inc.
Wampum Hardware Co.
Midland Powder Company
Mine Equipment & Mill Supply Company
Controlled Explosives Inc.
Western Explosives Systems Company
Incorporated in Canada
Newfoundland Hard-Rok Inc.
Dyno Nobel Labrador Inc.
Quantum Explosives Inc.
Dene Dyno Nobel Inc.
Qaaqtuq Dyno Nobel Inc. (2)
Dene Dyno Nobel (DWEI) Inc. (3)
Dyno Nobel Baffin Island Inc.
Incorporated in Australia
Queensland Nitrates Pty Ltd
Queensland Nitrates Management Pty
Incorporated in South Africa
DetNet South Africa (Pty) Ltd
Sasol Dyno Nobel (Pty) Ltd
Incorporated in Mexico
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.
Incorporated in Malaysia
Tenaga Kimia Ensign-Bickford Sdn Bhd
Ownership
interest
Name of entity
Ownership
interest
Associates
Incorporated in USA
Warex Corporation
Warex LLC
Maine Drilling and Blasting Group
Independent Explosives
Incorporated in Canada
Labrador Maskuau Ashini Ltd
Valley Hydraulics Inc.
Apex Construction Specialities Inc.
Innu Namesu Ltd
Incorporated in Singapore
Fabchem China Ltd
25%
25%
49%
49%
25%
25%
25%
25%
30%
50%
50%
51%
50%
50%
50%
50%
50%
50%
50%
50%
50%
49%
49%
49%
50%
50%
50%
50%
50%
49%
49%
49%
49%
49%
50%
(1) Due to the contractual and decision making arrangements between the shareholders of the entity, despite the legal ownership exceeding 50 percent, this
entity is not considered to be a subsidiary.
(2) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of shares in Qaaqtuq Dyno Nobel Inc. However,
under the joint venture agreement, the Group is entitled to 75 percent of the profit of Qaaqtuq Dyno Nobel Inc.
(3) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of shares in Dene Dyno Nobel (DWEI) Inc.
(previously Denesoline Western Explosives Inc.) However, under the joint venture agreement, the Group is entitled to 95 percent of the profit of Dene Dyno
Nobel (DWEI) Inc.
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
67
Incitec Pivot Limited Annual Report 2016
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2016
15. Provisions and contingencies
Provisions at 30 September 2016 are analysed as follows:
30 September 2016
Carrying amount at 1 October 2015
Provisions made during the year
Provisions written back during the year
Payments made during the year
Interest unwind
Foreign exchange movement
Carrying amount at 30 September 2016
Current
Non-current
Employee
entitlements
$mill
Restructuring and
rationalisation
$mill
Environmental
$mill
Asset retirement
obligations
$mill
Legal
and other
$mill
Total provisions
$mill
57.4
3.6
–
(4.7)
2.0
–
58.3
49.9
8.4
4.9
43.3
(0.4)
(22.5)
–
(0.2)
25.1
24.9
0.2
68.8
2.3
(0.4)
(6.5)
0.7
(3.5)
61.4
22.3
39.1
38.2
4.7
(0.2)
(0.7)
2.3
(0.9)
43.4
3.0
40.4
10.9
15.9
(2.3)
(9.7)
–
(0.5)
14.3
14.3
–
180.2
69.8
(3.3)
(44.1)
5.0
(5.1)
202.5
114.4
88.1
Key accounting policies
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 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 obligations
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 are of the view that 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 (identified in note 14) have entered into an
approved deed for the cross guarantee of liabilities.
No liabilities subject to the Deed of Cross Guarantee at
30 September 2016 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 2016
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: Risk management
For the year ended 30 September 2016
16. 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: The risk that the Group is not able to refinance its debt obligations or meet other cash outflow obligations
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 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:
Contractual
cash flows(1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
30 September 2015
Contractual
cash flows (1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
30 September 2016
Non-derivative
financial liabilities
Interest bearing liabilities
2,289.4
11.1 2,278.3
Interest payments
261.6
68.6
193.0
Trade and other payables
946.8
939.5
Bank guarantees
133.4
61.5
7.3
8.9
Total non-derivative
cash outflows
Derivative financial
(assets)/liabilities
Forward exchange contracts
Cross currency interest
rate swaps
Interest rate swaps
Commodity swaps
Commodity options
Net derivative cash
outflows
3,631.2 1,080.7 2,487.5
63.0
4.8
2.4
2.4
29.5
35.6
-
(2.6)
29.5
32.0
(17.0)
(6.4)
(10.6)
1.7
1.0
0.7
–
–
6.2
–
–
54.6
(5.6)
54.0
6.2
Non-derivative
financial liabilities
Interest bearing liabilities
Interest payments
Trade and other payables
–
–
–
63.0
Bank guarantees
Total non-derivative
cash outflows
Derivative financial
(assets)/liabilities
Cross currency interest
rate swaps
Interest rate swaps
Commodity swaps
Net derivative cash
outflows
2,553.7
747.1 1,806.6
357.4
70.0
287.4
893.1
888.5
144.4
70.7
4.6
8.4
–
–
–
65.3
3,948.6 1,776.3 2,107.0
65.3
143.4
30.1
113.3
9.7
12.0
(6.2)
12.0
7.4
–
–
–
8.5
–
161.9
32.7
120.7
8.5
Forward exchange contracts
(3.2)
(3.2)
–
(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.
69
Incitec Pivot Limited Annual Report 2016
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 2016
16. Financial risk management (continued)
Financial risks (continued)
Market risk: 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:
Foreign exchange exposure to sales and purchases is
managed by entering into formal hedging arrangements.
l Sales and purchases
l Trade receivables and trade payables
l
Interest bearing liabilities
The Group is also exposed to foreign exchange movements
(primarily in USD) on the translation of the earnings, assets
and liabilities of its foreign operations.
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 table below summarises the Group’s exposure to movements in the AUD:USD exchange rate and the derivative financial
instruments that are in place to hedge these exposures at 30 September:
Transactional exposures
Trade and other receivables
Trade and other payables
Interest bearing liabilities
2016
AUD:USD
USD mill
2015
AUD:USD
USD mill
187.5
0.2
(244.3)
(1,573.0)
(179.0)
(1,573.0)
Foreign exchange rates
The AUD:USD foreign exchange rates used by the Group to
translate its foreign denominated earnings, assets and
liabilities are set out below:
2016
AUD:USD
2015
AUD:USD
Gross exposure (before hedging)
(1,629.8)
(1,751.8)
30 September foreign exchange rate
0.7626
0.7017
Average foreign exchange rate for the year
0.7359
0.7868
58.1
176.4
Foreign exchange rate sensitivity on outstanding financial
instruments
Hedge of transactional exposures
Trade and other receivables and payables
Forward exchange contracts
Interest bearing liabilities
Forward exchange contracts
Cross currency interest rate swaps
Total hedge contract values
Net exposure (after hedging)
Hedge of forecast sales and purchases
Forward exchange contracts
Total hedge contract values
273.0
1,300.0
1,631.1
1.3
2016
AUD:USD
USD mill
273.0
1,300.0
1,749.4
(2.4)
2015
AUD:USD
USD mill
(198.2)
(198.2)
2016
AUD:USD
USD mill
27.9
27.9
2015
AUD:USD
USD mill
Translational exposures
Net investment in foreign operations
2,654.8
2,280.2
Gross exposure (before hedging)
2,654.8
2,280.2
Hedge of translational exposures
Cross currency interest rate swaps
Forward exchange contracts
Total hedge contract values
Net exposure (after hedging)
(1,781.5)
(73.0)
(1,854.5)
800.3
(1,746.5)
(473.0)
(2,219.5)
60.7
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:
+ 1c
AUD:USD
AUD mill
2016
- 1c
AUD:USD
AUD mill
2016
+ 1c
AUD:USD
AUD mill
2015
- 1c
AUD:USD
AUD mill
2015
Foreign exchange
sensitivity – (net of
hedging)
Trade and other
receivables and payables
– (profit or loss)
Hedge of forecast
transactions – (equity)
Investments in foreign
operations – (equity)
(0.1)
0.1
0.1
(0.1)
3.4
(3.5)
(0.6)
(13.6)
13.9
(1.2)
0.6
1.3
Incitec Pivot Limited Annual Report 2016
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: Risk management
For the year ended 30 September 2016
16. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Foreign exchange risk (continued)
Outstanding financial instruments and sensitivity analysis (continued)
Sensitivity to foreign exchange rate movements during
the year (unhedged)
The table below shows the impact of a 1 cent movement in
the AUD:USD foreign exchange rates on the Group’s profit
before tax, in relation to sales and earnings during the year
that were denominated in USD.
+ 1c
AUD:USD
AUD mill
2016
- 1c
AUD:USD
AUD mill
2016
+ 1c
AUD:USD
AUD mill
2015
- 1c
AUD:USD
AUD mill
2015
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 for the year.
USD Fertiliser sales from
Australian plants
North American USD
earnings
(8.0)
8.2
(9.6)
(2.7)
2.8
(2.9)
9.8
2.9
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 holds interest rate swap and option contracts at 30 September summarised in the tables below:
Interest rate swaps
2016
not later than one year
later than one year,
no later than five years
later than one year,
no later than five years
later than five years
2015
not later than one year
later than one year,
no later than five years
later than five years
Average
pay
fixed rate(1)
Average
receive
fixed rate(1)
Duration
(years)
Net contract
amounts
USD mill
1.45%
3.01%
–
–
–
2.11%
(3.17%)
–
–
(1.55%)
3.31%
3.68%
(3.17%)
–
0.2
3.8
3.2
2.8
0.2
4.1
3.0
400
550
300
450
500
350
250
Interest rate options
Contracts maturing between
1 and 5 years
Sold cap
Bought cap
Sold floor
Bought floor
(1) LIBOR
Net contract
amounts
USD mill
2016
Strike (1)
2016
Duration
(years)
350
350
350
350
3.75%
2.58%
1.50%
0.01%
0.8
0.8
0.8
0.8
Interest rate options
Contracts maturing later than
5 years
Sold cap
Bought cap
Sold floor
Bought floor
(1) LIBOR
Net contract
amounts
USD mill
2016
Strike (1)
2016
Duration
(years)
350
350
350
350
3.75%
2.58%
1.50%
0.01%
3.2
3.2
3.2
3.2
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
2016
- 1%
AUD mill
2016
+ 1%
AUD mill
2015
- 1%
AUD mill
2015
(13.8)
6.0
13.8
(6.0)
(25.1)
7.9
25.1
(7.9)
The sensitivity above is also representative of the Group’s
interest rate exposures during the year.
71
Incitec Pivot Limited Annual Report 2016
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 2016
16. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Commodity price 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)
2016
Price/Strike
USD(2)
2016
Total volume
(MMBTU)(1)
2015
Price/Strike
USD(2)
2015
Contracts maturing
within 1 year
Natural gas swaps
fixed payer/(receiver)
Natural gas options
–
– 13,391,500
3.34
Sold Call
Bought Call
Sold Put
Bought Put
–
3,833,000
3,833,000
–
–
4.36
3.07
–
1,499,000
1,499,000
1,499,000
1,499,000
4.00
3.19
2.50
1.50
Contracts maturing
between 1 and 5 years
Natural gas options
Bought Call
Sold Put
1,600,000
1,600,000
4.52
3.28
8,232,000
8,232,000
4.24
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
+ US$1 per
1 MMBTU
AUD mill
2016
- US$1 per
1 MMBTU
AUD mill
2016
+ US$1 per
1 MMBTU
AUD mill
2015
- US$1 per
1 MMBTU
AUD mill
2015
Henry Hub USD
2.3
(2.3)
27.3
(27.3)
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
+ US$1 per
1 MMBTU
AUD mill
2016
- US$1 per
1 MMBTU
AUD mill
2016
+ US$1 per
1 MMBTU
AUD mill
2015
- US$1 per
1 MMBTU
AUD mill
2015
Henry Hub USD
(8.3)
8.3
(7.9)
7.9
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
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 cannot be economically mitigated by either
contractual arrangements or derivative contracts.
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
2016
Granular Urea (FOB Middle East)
DAP (FOB Tampa)
Urea (FOB NOLA)
2015
Granular Urea (FOB Middle East)
DAP (FOB Tampa)
Urea (FOB NOLA)
+ USD10
per tonne
AUD mill
- USD10
per tonne
AUD mill
Actual
Tonnes
(’000s)
4.7
13.7
2.4
4.6
13.3
2.1
(4.6)
(13.7)
(2.4)
(4.6)
(13.3)
(2.1)
347
1,010
178
360
1,046
163
The table below includes the Group’s derivatives contracts
that are exposed to changes in Brent oil prices at 30
September 2016;
Total volume
(barrels)
2016
Price
USD(1)
2016
Total volume
(barrels)
2015
Price(1)
2015
Contracts maturing
between 1 and 5 years
Oil swaps fixed payer
2,137,488
47.30
–
–
(1) Oil-Brent (DTD)-Platts Marketwire
The Group has entered into a gas supply agreement in
Australia with pricing referenced to the USD Brent oil price.
As a result, the Group entered into Brent oil fixed price swaps
to eliminate the exposure to changes in the Brent oil price.
Incitec Pivot Limited Annual Report 2016
72
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2016
16. 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 2016, classified by hedge
accounting type and market risk category:
Balance at 30 September 2016
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 2016
Notes
Cash flow hedges
Foreign exchange risk on forecast sales & purchases
Forward exchange contracts
Discontinued hedge (3)
Commodity price risk on forecast purchases
Commodity swaps
Commodity options
Discontinued hedge (3)
Interest rate risk on highly probable debt
Interest rate swaps
Interest rate options
Discontinued hedge (3)
Total cash flow hedges
Fair value hedges(4)
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(5)
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)
0.9
–
16.7
–
–
0.1
–
–
17.7
371.4
71.6
25.5
–
468.5
–
0.1
–
0.1
0.8
1.2
2.0
1.1
46.4
(3.7)
–
(0.1)
(1.5)
–
(60.1)
(5.4)
–
(70.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(234.0)
(1.9)
(29.5)
3.3
(262.1)
(2.5)
20.5
16.6
(1.9)
(2.3)
(58.5)
(6.1)
(10.1)
(44.3)
–
–
–
–
–
(2.5)
15.5
17.8
1.6
(2.1)
(16.7)
(6.2)
(4.2)
3.2
–
–
–
–
–
(401.2)
(71.6)
–
(472.8)
(0.4)
(1.1)
(1.5)
–
–
–
–
–
–
–
–
–
–
(404.0)
(48.3)
(115.6)
(567.9)
203.2
31.1
3.6
237.9
–
–
–
–
–
–
–
–
(16.1)
(0.1)
(443.0)
443.0
0.2
(8.7)
–
–
12.5
–
–
1.9
5.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(102.1)
(262.1)
(628.3)
241.0
5.9
(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. At 30 September 2016, a loss of $10.9m 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 total fair value of derivatives hedging the Group’s interest bearing liabilities is $468.5m. 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 USD300m of
the Group’s fixed interest rate borrowings to floating interest rates.
(5) 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.
(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.
73
Incitec Pivot Limited Annual Report 2016
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 2016
16. 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:
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)
30 September 2015
Notes
Cash flow hedges
Foreign exchange risk on forecast sales & purchases
Forward exchange contracts
Discontinued hedge(3)
Commodity price 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(4)
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(5)
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)
3.0
–
–
–
–
–
–
–
3.0
521.5
101.8
34.8
–
658.1
–
2.8
–
2.8
48.9
1.7
50.6
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)
–
–
–
–
–
–
–
–
–
–
(654.3)
(76.8)
(74.7)
(805.8)
(413.0)
(67.3)
(122.3)
(602.6)
–
–
–
–
–
–
–
–
(16.0)
(875.2)
(3.6)
(635.6)
(670.6)
670.6
(206.9)
(578.4)
–
(14.3)
–
–
–
4.6
0.7
4.0
(5.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(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 total fair value of derivatives hedging the Group’s interest bearing liabilities was $658.1m at 30 September 2015. The cross currency
interest rate swaps and forward exchange contracts hedging the foreign currency exposure of the Group’s USD borrowings had a contract value
of USD1,573m, and were economic hedges of USD1,573m of the Group’s USD interest bearing liabilities at 30 September 2015. The interest
rate swap contracts effectively convert USD800m of the Group’s fixed interest rate borrowings to floating interest rates.
(5) 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.
(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 2016
74
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 2016
16. Financial risk management (continued)
Financial risks (continued)
Credit risk: 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 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
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.
75
Incitec Pivot Limited Annual Report 2016
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
2016
$mill
2015
$mill
276.8
310.0
427.1
606.3
45.3
43.9
749.2
960.2
Financial assets and financial liabilities that are subject to
enforceable master netting arrangements are offset in the
Statement of Financial Position. At 30 September 2016, the
amount netted in other financial assets and other financial
liabilities is $443.0m (2015: $670.6m).
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).
•
•
2016
Listed equity securities
Derivative financial assets
Derivative financial liabilities
2015
Listed equity securities
Derivative financial assets
Derivative financial liabilities
Level 1
$mill
1.1
–
–
Level 1
$mill
1.2
–
–
Level 2
$mill
–
45.3
(102.1)
Level 2
$mill
–
43.9
(206.9)
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
$2,289.4m (2015: $2,553.7m) – refer to note 8. The fair
value of the interest bearing financial liabilities at 30
September 2016 was $2,367.0m (2015: $2,664.3m) 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 2016
16. Financial risk management (continued)
Key accounting policies
Foreign currency transactions and balances
Cash flow hedges
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; or
•
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.
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 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
The change in the fair value of the hedging instrument and
the change in the 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).
Incitec Pivot Limited Annual Report 2016
76
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 2016
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
17. 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 2013/16 plan, the
performance conditions comprise earnings per share growth
and relative total shareholder returns. With regard to the LTI
2014/17 and LTI 2015/18 plans, 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 period as part of
employee benefit expense were as follows:
Accounting value of performance rights
issued under the LTI performance plans
2016
$mill
2015
$mill
1.2
4.3
2016
Number
2015
Number
Number of performance rights outstanding
under the LTI performance plans
5,983,751
6,643,412
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.
77
Incitec Pivot Limited Annual Report 2016
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2016
18. Retirement benefit obligation
The Group operates a number of defined benefit plans in the
America’s and Asia Pacific 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
2016
2015
3.0% – 6.2% 3.8% – 6.3%
3.0% – 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
2016
$mill
2015
$mill
387.3
385.3
(288.3)
(299.1)
99.0
86.2
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
2016
$mill
260.4
181.6
38.9
2015
$mill
248.1
176.6
146.3
Return on plan assets for the year ended 30 September
Actual return on plan assets
Composition of plan assets at 30 September
The percentage invested in each asset class:
Equities
Fixed interest securities
Property
Other
2016
$mill
24.0
2015
$mill
5.0
2016
2015
57%
28%
7%
8%
50%
27%
9%
14%
Movements in plan assets/liabilities
Amounts recognised in Other Comprehensive Income
(Losses)/gains arising from
changes in acturial assumptions
Return on plan assets greater/(less)
than discount rate
Total recognised in other
comprehensive income
Notes
2016
$mill
2015
$mill
(36.0)
3.3
14.1
(7.8)
(21.9)
(4.5)
Amounts recognised in profit or loss
Net interest expense
Defined benefit superannuation expense
Settlement and curtailment of
defined benefit plans
(2)
(2)
(3.3)
(4.4)
(3.0)
(2.8)
–
4.1
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 2016 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
(63.7)
20.5
1 percent
decrease
79.0
(19.3)
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 Consolidated
Statement of Financial Position.
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 2016
78
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 2016
19. Deed of cross guarantee
20. Parent entity disclosure
Entities that are party to a Deed of Cross Guarantee are
included in note 14. The Statement of Profit or Loss and Other
Comprehensive Income and the Statement of Financial Position
for this closed group are shown below:
Statement of Profit or Loss and Other
Comprehensive Income
(Loss)/profit before income tax
Income tax benefit/(expense)
(Loss)/profit for the year
2016
$mill
(61.6)
47.6
(14.0)
2015
$mill
535.0
(150.5)
384.5
Retained profits at 1 October
Other movements in retained earnings
Dividend paid
1,535.0
(6.6)
(194.0)
1,346.3
(1.3)
(194.5)
Retained profits at 30 September
1,320.4
1,535.0
Throughout the financial year ended 30 September 2016 the
parent company of the Group was Incitec Pivot Limited.
Parent entity guarantees in respect of debts
of its subsidiaries
As at 30 September 2016 the Company’s current liabilities
exceeded its current assets by $135.5m. The parent entity is
part of a Deed of Cross Guarantee, under which each entity
guarantees the debt of the others. 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
$804.0m at 30 September 2016 and a cash balance of
$427.1m.
Statement of Profit or Loss and Other
Comprehensive Income
Statement of Financial Position
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Inventories
Current tax assets
Other 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
Provisions
Other financial liabilities
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Retirement benefit obligation
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
79
Incitec Pivot Limited Annual Report 2016
2016
$mill
2015
$mill
Results of the parent entity
Profit for the year
Other comprehensive loss
2016
$mill
130.8
(8.9)
2015
$mill
438.8
(18.1)
Total comprehensive income for the period
121.9
420.7
Statement of Financial Position
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Share capital
Reserves
Retained earnings
Total equity
2016
$mill
2015
$mill
626.5
432.8
7,154.8
7,325.0
762.0
1,653.4
3,560.8
3,664.7
3,594.0
3,660.3
3,436.8
3,430.9
(37.7)
194.9
(35.3)
264.7
3,594.0
3,660.3
Parent entity contingencies and commitments
Contingent liabilities of Incitec Pivot Limited are disclosed in
note 15.
Capital expenditure – commitments
Contracted but not yet provided
for and payable:
2016
$mill
2015
$mill
Within one year
0.5
2.4
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.
70.4
383.2
9.3
299.5
1.9
14.3
778.6
337.9
4,044.0
16.2
2,026.2
253.8
164.2
6,842.3
7,620.9
697.8
–
82.1
4.7
–
784.6
293.2
1,092.0
95.9
16.1
49.5
361.5
1,908.2
2,692.8
4,928.1
419.2
175.2
9.1
261.5
–
12.7
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
61.2
118.5
50.8
1,609.6
244.6
586.0
74.5
7.3
46.8
426.3
1,385.5
2,995.1
4,936.2
3,436.8
170.9
1,320.4
4,928.1
3,430.9
(29.7)
1,535.0
4,936.2
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 2016
21. Key management personnel disclosures
22. Auditor’s remuneration
Key management personnel remuneration
2016
$000
2015
$000
2016
$000
2015
$000
Fees payable to the Group's auditor for
assurance services
Short-term employee benefits
9,833
15,896
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
227
125
2,137
1,278
267
200
–
3,524
13,600
19,887
Audit of the Group's annual report(1)
Audit of subsidiaries(2)
Audit-related assurance services(3)
927.3
610.5
167.5
927.3
608.1
167.5
Total current year assurance services
1,705.3
1,702.9
Fees payable to the Group’s auditor
for other services
Other services relating to taxation(4)
143.4
172.7
40.0
30.0
183.4
202.7
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 2016, there were no loans
to key management personnel and their related parties
(2015: 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 $962,735 during the year
(2015: $6,534,577). 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 $494,202 during the year (2015: $443,761).
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
1,888.7
1,905.6
– Payable to Australian Group auditor firm
– Payable to International Group auditor
associates
1,339.8
1,419.8
548.9
485.8
(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
Louisiana ammonia plant
Since the end of the financial year, the Company announced
the successful completion of the performance testing process
for its ammonia plant at Waggaman, Louisiana on 19
October 2016. IPL took over management and operation of
the ammonia plant effective from this date. The final cash
cost of the project will be below the budget of US$850m.
Dividends
In November 2016, the directors determined to pay a final
dividend of 4.6 cents per share on 13 December 2016. This
dividend is unfranked.
Other than the matters reported on above, the directors
have not become aware of any other significant matter or
circumstance that has arisen since the end of the financial
year, that has affected or may affect the operations of the
Group, the results of those operations, or the state of affairs
of the Group in subsequent years, which has not been
covered in this report.
Incitec Pivot Limited Annual Report 2016
80
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 Consolidated Financial Statements set out on pages 45 to 80
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 consolidated financial statements and notes, set out on pages 45 to 80, and the remuneration disclosures that are
contained in the Remuneration Report on pages 24 to 42 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 2016 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 51; 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 14 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 2016.
Paul Brasher
Chairman
Dated at Melbourne this 7th day of November 2016
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
81
Incitec Pivot Limited Annual Report 2016
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 2016, 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 50 to 81
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 51, the
directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial
Statements, that the financial statements of the consolidated entity comply with International Financial
Reporting Standards.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we comply
with relevant ethical requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the financial report, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control, relevant to the entity’s
preparation of the financial report that gives a true and fair view, in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by the directors, as well
as evaluating the overall presentation of the financial report.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
Incitec Pivot Limited Annual Report 2016
82
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
2016 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 51 of the Financial Report.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 24 to 42
of the directors’ report for the
year ended 30 September 2016. 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
2016, complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Tom Imbesi
Partner
Chartered Accountants
Melbourne, 7 November 2016
83
Incitec Pivot Limited Annual Report 2016
Shareholder Information
As at 7 November 2016
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
11,501
25,796
8,609
7,090
177
53,173
21.64%
48.51%
16.19%
13.33%
0.33%
100.00%
5,407,632
75,113,988
62,854,917
151,725,711
1,392,068,273
1,687,170,521
0.32%
4.45%
3.73%
8.99%
82.51%
100.00%
Included in the above total are 2,294 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 79.79% 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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