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Green Plains A N N U A L R E P O R T 2 0 1 7
ANNUAL REPORT 2017
GLOBAL DIVERSIFIED INDUSTRIAL CHEMICALS
FERTILISERSINDUSTRIAL CHEMICALSEXPLOSIVESOUR OPERATIONS
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
i
i
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
Port Hedland
Mt Isa
Phosphate Hill
Kalgoorlie
Perth
Port Lincoln
Port Adelaide
Portland
e
e
e
e
a
e
e
Muara Tuhup
Tenggarong
Berau
PAPUA NEW GUINEA
Lihir
e
e
INDONESIA
e
a
Moranbah
Townsville
AUSTRALIA
e
i
e
Moura
(Queensland Nitrates)
Gibson Island
Helidon
Kooragang Island
Warkworth
Melbourne
Geelong
Devonport
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
Mary River
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
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.
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
e
Lihir
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 Lincoln
Port Adelaide
Portland
INDONESIA
AUSTRALIA
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
Mary River
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
Board of Directors
Executive Team
Sustainability Report
Directors’ Report
– Remuneration Report
Financial Report
ii
iv
v
vi
1
23
44
Chairman’s Report
I am pleased to report to shareholders on the 2017 year, a
year of significant changes in the IPL Group, in which an
excellent result has been achieved despite some very
challenging external conditions.
Some of the most significant features of our 2017 year were:
• Continued strong performance in the areas of personal and
process safety, with our employees in all parts of the Group
demonstrating their commitment to ensuring that they and
their colleagues go home safely each day.
• Adverse movements in commodity prices in many of
our businesses, exacerbated by a stubbornly strong
Australian dollar.
• Challenging economic conditions facing some of our
businesses.
• Strong growth in our Explosives business, particularly in
the United States, driven by sustained Quarry and
Construction growth and resurgent Coal and Base and
Precious Metals activity.
• The first full year of production at our new ammonia plant
at Waggaman in Louisiana, which contributed an additional
US$35 million in operational earnings and delay damages.
• An increase in interest expense of $59 million, following
completion of interest capitalisation to the Waggaman
project.
• The organisation saw the challenges coming and
implemented a major Organisation Focussed Improvement
program, applying our Business Excellence (BEx) system to
accelerate productivity improvements and cost reductions
amounting to $176 million in net benefits in the 2017
financial year.
The net result was an increase of 8% in Net Profit after Tax
(NPAT), before Individually Material Items, from $295 million
to $319 million.
Following the 2017 result and the completion of
commissioning at Waggaman, and with net debt reducing
by 7.3%, the Board believes IPL is in a strong position to
meet the challenging market conditions. For this reason,
we announced an on-market share buyback of up to $300
million, in addition to the final unfranked dividend of 4.9
cents per share, maintaining a 50% payout ratio for the
2017 financial year.
SAFETY
Everywhere I go in the Group, it is clear that all our people
share our objective of Zero Harm. In 2012 we set a number
of 5-year targets in the area of safety, including reducing the
Total Recordable Injury Frequency Rate (TRIFR) to less than 1.
In 2017 we achieved a TRIFR of 0.9, a 35% reduction since
2012, and, in addition, our Employee Lost Day Severity Rate
declined by 89% over the same period.
While these are very encouraging results, we recognise
that there can never be room for complacency in the area
of safety. 84% of our sites were free of recordable injury
in 2017 and this must be our objective everywhere
we operate.
ii
Incitec Pivot Limited Annual Report 2017
OPERATING RESULTS
Earnings before Interest and Tax (EBIT) in our Americas
business was up 46% to US$173 million, driven largely by
growth in our Explosives business, particularly in Quarrying
and Construction, initial earnings from Waggaman and
savings resulting from various BEx initiatives. These advances
were partially offset by reduced Fertiliser earnings stemming
from a further decline in global nitrogen prices.
In our Asia Pacific business, EBIT increased slightly to $293
million. Explosives EBIT grew from $186 million to $189
million. The result was underpinned by resilient customer
demand, partially offset by a scheduled turnaround at our
Moranbah plant. Fertilisers EBIT (excluding industrial
chemicals) increased from $75 million to $78 million in the
face of headwinds which included subdued global fertiliser
prices, strengthening of the Australian dollar and utility cost
escalation. That the business was still able to increase EBIT in
these challenging market conditions was largely a result of
BEx initiatives and increased distribution volumes.
In both the Americas and Australia, management deserves
credit for “controlling the controllables” in the face of
uncontrollable external factors.
DEBT AND LEVERAGE
Our balance sheet remains robust, with the tenor and
diversification of funding enhanced by a US$400 million
issuance into the Regulation S debt capital market. The
Group’s net debt at year end was $1,292 million, down
$102 million relative to 2016. Investment grade credit
ratings were maintained and the Group’s net leverage
(defined as Net Debt divided by last twelve months’ EBITDA)
was reduced from 2.1 times to 1.7 times.
MANUFACTURING
Performance in our plants continued to be strong. All of our
major facilities operated at greater than 90% uptime, with
two exceptions.
The first was Phosphate Hill, where reduced production
resulted from the impact of maintenance that was brought
forward in light of depressed DAP prices.
The other was our new plant at Waggaman, Louisiana,
which, in its first year of operation, delivered 74% of its
nameplate capacity of 800,000 metric tonnes per annum.
After rectifying some mechanical issues, the plant operated
at greater than 100% of its nameplate capacity in September
and October. The construction and commissioning of
Waggaman have been an outstanding achievement by our
management team, with total final project spend of US$820
million, 4% below the initial project budget.
The most challenging of our manufacturing operations is
our fertiliser plant at Gibson Island in Brisbane. As has been
widely publicised of late, and as we have foreshadowed for
several years, obtaining new contracts for supply of gas at
economic prices is a massive challenge for Australian
manufacturers. The current gas supply arrangements for
Gibson Island will cease on 30 September 2018 and, while
we have explored numerous possibilities to secure an
economically viable gas supply for the period beyond
expiry of the current arrangements, to date we have been
unsuccessful. We are continuing to pursue a number of
possible options, but if no solution is found, it is likely the
facility will cease manufacturing operations.
DIVERSITY
In 2017, we have continued to progress our diversity
agenda with a particular focus on strengthening the talent
pipeline so that we can increase the number of women in
the Company.
To meet this commitment, the Board and management have
established a target to increase the percentage of women
across the business by 10% year-on-year and to achieve a
minimum participation rate globally of 25% women by
30 September 2022.
This is an important strategic action which is underpinned by
our diversity principle of “Shaping our Future Organisation”.
MANAGING DIRECTOR & CEO TRANSITION
James Fazzino stepped down as Managing Director & CEO on
14 November 2017 after almost 9 years in the role. In that
time, James has done an outstanding job in transforming
Incitec Pivot from a small, regional fertiliser business into a
major global diversified chemicals company.
In growing the Company six-fold, James has led a number of
key initiatives, including the integration of the Dyno Nobel
acquisition, the construction and successful operation of two
world scale nitrogen plants at Moranbah and Waggaman and
the establishment of IPL’s business model for continuous
improvement and productivity, BEx. All of these have
demanded courage, vision, strategic and operational
excellence and enormous dedication. The Company owes
James a huge vote of thanks and we wish him, and his wife
Helen, all the very best for the future.
In August, after a global search, I was delighted to
announce the appointment of Jeanne Johns as James’
successor. Jeanne assumed the role on 15 November 2017.
She is a truly global executive, who has successfully run
major industrial and commodity-based businesses in the
United States, Asia and the United Kingdom and has also had
responsibility for the Australian refining operations of her
previous employer, BP. A chemical engineer, Jeanne has
outstanding credentials to drive our manufacturing
operations for optimum, safe performance to meet the
needs of our valued customers. She and her husband Marc
have recently relocated to Melbourne.
BOARD CHANGES
One of the key roles of the Board is to ensure we have the
right mix of skills, experience and geographical exposure
aligned not only to the Incitec Pivot of today, but also to
support our future growth directions. In that context, I was
pleased to announce the appointment of Joseph Breunig and
Brian Kruger to the board in June 2017.
Joe and Brian bring significant experience in global industrial
and chemical manufacturing businesses. Their detailed CVs
are contained in the Directors’ Report. As the United States
continues to grow in its importance to IPL, accounting for
46% of Group EBIT in 2017, their experience in the United
States market will be invaluable. Joe is based in the United
States and is well connected in the U.S. industrial arena.
Brian has also spent significant periods of his career living in
the U.S. and running U.S. businesses. He is also highly
experienced in the important area of logistics, having most
recently served as Chief Executive of a major Australian
public company in that industry.
Chairman Paul Brasher with Jeanne Johns at the
announcement of her appointment as Managing
Director & CEO
We are very fortunate to have Joe and Brian join our
Board. Both will stand for election at the 2017 Annual
General Meeting.
Unfortunately, we will soon bid farewell to Greg Hayes,
who will not be standing for re-election when his current
term expires at the 2017 Annual General Meeting. Greg is
retiring from all of his public company boards to concentrate
on his burgeoning personal business interests. Greg has
made an outstanding contribution to our Board, not least in
his role as Chairman of the Audit and Risk Management
Committee. We will miss Greg and wish him all the best in
his various interests. I am pleased to report that Brian Kruger
will replace him as Chairman of the Audit and Risk
Management Committee.
CONCLUSION
While 2017 has been challenging in many ways, it has
demonstrated the talent and resilience of our people, and
I would like to thank James Fazzino, his Executive Team,
my Board colleagues and all our employees globally for all
of their efforts. I would also like to thank all of our other
stakeholders, including customers, suppliers and
shareholders for their continued support.
Our business strategy remains unchanged. Having rebased
the Company, we are well positioned to maximise
shareholder returns in whatever market conditions we face
in 2018 and beyond.
Paul Brasher
Chairman
Incitec Pivot Limited Annual Report 2017
iii
Board of Directors
Board of Directors as at 14 November 2017:
First row (l to r): Paul Brasher, Joseph Breunig, Kathryn Fagg, Gregory Hayes
Second row (l to r): Brian Kruger, Rebecca McGrath, Graham Smorgon AM, James Fazzino
Paul Brasher
BEc(Hons), FCA
Joseph Breunig
BS(Chemical Engineering), MBA
Non-executive Chairman
Non-executive director
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.
Joseph Breunig was appointed
as a director on 5 June 2017.
Joe is a member of the Health,
Safety, Environment and
Community Committee.
Gregory Hayes
MAppFin, GradDipACC, BA, ACA
Non-executive director
Greg Hayes was appointed as a
director on 1 October 2014. Greg
is Chairman of the Audit and
Risk Management Committee.
Kathryn Fagg
FTSE, BE(Hons), MCom(Hons),
Hon.DBus(UNSW),
Hon.DChemEng(UQ)
Non-executive director
Kathryn Fagg was appointed as a
director on 15 April 2014.
Kathryn is Chairman of the
Remuneration Committee and a
member of the Health, Safety,
Environment and Community
Committee.
Brian Kruger
BEc
Rebecca McGrath
BTP(Hons), MASc, FAICD
Graham Smorgon AM
B.Juris, LLB
Non-executive director
Non-executive director
Non-executive director
Brian Kruger was appointed as
a director on 5 June 2017. Brian
is a member of the Audit and
Risk Management Committee
and the Remuneration
Committee.
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.
Graham Smorgon was
appointed as a director on
19 December 2008. Graham is
a member of the Nominations
Committee and the
Remuneration Committee.
James Fazzino
BEc(Hons), Adjunct Professor,
La Trobe Business School
James Fazzino was the
Managing Director & CEO for
the 2017 financial year and
ceased as Managing Director &
CEO on 14 November 2017.
iv
Incitec Pivot Limited Annual Report 2017
Executive Team
First row (l to r): Frank Micallef,
Simon Atkinson, Leah Balter
Second row (l to r): Alan Grace,
Elizabeth Hunter, Nick Stratford
As at 14 November 2017, the Executive
Team included Mr James Fazzino. Mr
Fazzino was succeeded by Ms Jeanne Johns
on 15 November 2017. Details of the
Executive Team are set out below.
James Fazzino BEc(Hons)
Managing Director & CEO
James Fazzino was the Managing Director
& CEO for the 2017 financial year. James
ceased as Managing Director & CEO on
14 November 2017.
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.
Simon Atkinson BBus, CA
President, Dyno Nobel Asia Pacific &
Incitec Pivot Fertilisers
Simon joined the Company on its merger
with Incitec Fertilizers Limited in 2003,
having previously worked with Orica Limited
and Incitec Limited. He has extensive
commercial finance experience, having
previously worked as Commercial Finance
Manager for the Australian fertilisers
business and as IPL’s Deputy CFO and
Investor Relations Manager. 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(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.
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.
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.
Nick Stratford B.Ec, CA
President, Dyno Nobel Americas
Nick commenced with IPL in September
2008, and joined the Dyno Nobel Americas
business in August 2013. Nick has over
20 years’ experience in international finance
and business management and has worked
previously for firms such as Deloitte &
Touche (based out of Melbourne and Los
Angeles) and Reckitt Benckiser (based in
Europe). Since joining IPL, Nick has
performed the roles of Group Financial
Controller, General Manager Investor
Relations and Chief Financial Officer for the
North American business. More recently, as
the North America Chief Operating Officer,
Nick also served as a board member on
seven of the Group’s U.S. joint ventures. In
February 2017, Nick was appointed to the
role of President, Dyno Nobel Americas.
MANAGING DIRECTOR & CEO
TRANSITION
Jeanne Johns B.S. Chemical Engineering,
magna cum laude
Managing Director & CEO
(from 15 November 2017)
Jeanne Johns was appointed Managing
Director & CEO on 9 August 2017 and
commenced in the role on 15 November
2017. Jeanne is a global executive and
chemical engineer with over 25 years’
experience in the international refining,
petrochemicals, oil and gas industries.
After joining BP in 1986, Jeanne worked
throughout her career with BP in various
locations and executive roles including as
President, Asian Olefins and Derivatives
(China), President, BP North America
Natural Gas Liquids (United States), Head of
Operating Management System Excellence
for BP Group (United Kingdom) and Head of
Safety & Operational Risk, BP Downstream
(United Kingdom). Until recently, Jeanne
was also a non-executive director of Tate
& Lyle plc and Parsons Corporation.
Incitec Pivot Limited Annual Report 2017
v
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 IPL’s company values. IPL defines sustainability
as ‘the creation of long term economic value whilst caring
for our people, our communities and our environment’. IPL’s
Sustainability Strategy was formally adopted by the Board in
September 2010 and has since been reviewed to include the
sustainable development of its supply chain.
Continuous Improvement through BEx
Business Excellence (BEx) is IPL’s continuous improvement
business system. Through BEx, IPL has built a culture that fosters
productivity improvements and sustainability initiatives, while
prioritising IPL’s company value of Zero Harm for Everyone,
Everywhere (Zero Harm).
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 its assessment process. Since
2010 IPL has been included in the DJSI where performance is
benchmarked against peers in the global Chemicals sector. The
results since 2012 are represented below.
Dimension
Economic
Environmental
Social
Total for IPL
Chemicals sector average
2012
2013
2014
2015
2016
2017
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
73
61
68
68
53
In 2017, the FTSE Group also confirmed for the fourth year that
IPL has satisfied the requirements to remain a constituent of the
FTSE4Good Index Series.
About this report
Since 2014, sustainability performance data has been included in
IPL’s Annual Report, providing a summary account of IPL’s
economic, environmental, social and governance performance in
one document. Further information on IPL’s sustainability
performance can be found in the full annual Sustainability
Reports available on IPL’s website (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
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 these 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 online
Sustainability Report which can be found on IPL’s website
(www.incitecpivot.com.au).
During the 2017 materiality review, 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.
vi
Incitec Pivot Limited Annual Report 2017
Workplace health and safety
IPL’s Zero Harm company value is prioritised above all others.
In 2012, IPL adopted a long-term objective of achieving world
class safety performance. Among other measures, this included
reducing Total Recordable Injury Frequency Rate (TRIFR) to less
than 1.00. In 2017, IPL achieved a TRIFR of 0.90 representing a
35 percent decline since 2012. IPL has a fully integrated Health,
Safety, Environment and Community (HSEC) Management
System which provides the foundation for effective identification
and management of Health, Safety and Environmental (HSE)
risks. BEx complements the HSEC Management System.
The 2017 priorities for achieving Zero Harm were:
• Continued improvement in safety culture through Executive
Team member leadership and coaching of employees, with a
focus on the sharing of systemic learnings;
• A strong focus on Process Safety Management, including
the standardisation and roll out of key processes;
• Continued focus on risk management through ongoing
improvement in the quality and use of risk registers;
• Continuing to embed effective change management
processes into key HSE initiatives; and
• Achieving ongoing improvement in IPL’s safety metrics,
including TRIFR.
Performance highlights during 2017 include:
• TRIFR of 0.901;
• 62 percent reduction in Employee Lost Day Severity Rate
since 2016;
• 6 percent reduction in Lost Time Injury Frequency Rate
since 2016;
• 84 percent of sites recordable injury free;
• 15 percent reduction in process safety incidents since 2015;
• Development and roll out of a Zero Harm video narrated by
operational employees to communicate strategic themes and
emphasise key safety concepts;
• Confirmation, via employee feedback through an Appreciative
Enquiry across IPL’s Global Manufacturing operations, that the
Zero Harm strategy is understood and that the program is
meaningful and is creating a safer workplace and culture;
• Completion of the design for the global standardised
management of change process and database tool;
• Completion of the implementation of global standardised Job
Step Analysis (JSA) and Permit to Work (PTW) processes across
Asia Pacific and all Global Manufacturing sites; and
• Commencement of standardised Critical Control Verifications
(CCVs). Critical controls are those which relate directly to
fatal risks.
2018 priorities include:
• Executive Team leadership and coaching of employees during
site visits to review site risk registers and to review CCVs;
• Continued implementation of the CCV management process;
Integration of behavioural safety training into the IPL HSEC
•
Management System;
• Continued improvement of risk management across all parts
of the business, including the quality of risk register content;
• Extension of the implementation of the standardised PTW
•
and JSA processes to all North American sites;
Implementation of the global standardised Management of
Change process; and
• Maintaining a TRIFR of less than 1 and continued focus in
decreasing injury severity rate.
1. Subject to finalisation of classification of any pending incidents
Governance and ethical conduct
IPL’s Board of Directors is responsible for charting IPL’s
direction, policies, strategies and financial objectives.
The Board serves the interests of IPL and its shareholders,
having regard to other stakeholders, including employees,
customers, creditors and the community, in a manner
designed to create and continue to build sustainable value.
The Board Charter, Code of Conduct and key policies and
systems which define IPL business practices are available on
IPL’s website.
During 2017, several governance documents were updated
and a dedicated Global Conflict of Interest for Personnel policy
was developed. A mandatory online fraud and corruption
training course was implemented for all employees, and
face-to-face training in anti-bribery and sanctions laws was
conducted for all applicable employees.
Further information on Corporate Governance, including risk
oversight and management, can be found in the 2017
Corporate Governance Statement at www.incitecpivot.com.au
and in the 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. IPL’s people and
culture are key to creating the outstanding business
performance required to be ‘best in market’.
Performance
During 2017, IPL’s continued focus was to achieve intended
benefits through its diversity policies and practices, and
through its improved learning systems. In addition, IPL
continued to involve and support its employees to develop
and implement change as it responded to the structural and
cyclical shifts it experienced in its markets. The frameworks
and infrastructure built over the prior two years were
employed to achieve benefits on a sustainable basis,
particularly in relation to diversity.
Key highlights during the year were:
• Company-wide employee participation in BEx projects, which
contributed to the BEx Organisation Focused Improvement
(OFI) program. The OFI program has not only generated
sustainable financial benefits, but provided role-based
development opportunities and innovation opportunities for
employees;
• Training of leaders in coaching and associated skills to further
develop BEx leadership capability;
• Maintaining a two percent target of Indigenous employees
across IPL’s Australian businesses;
• New Enterprise Bargaining Agreements, which meet market
demands and provide sustainable pay outcomes, within the
Australian explosives and manufacturing businesses;
• Completion of the implementation of the global Learning
Business System, which began in 2016, to provide company-
wide standards for learning and development; and
• Completion of the implementation of the Learning
Management System in North America which enables
compliance, regulatory and mandatory technical training of
employees and contractors.
Further reporting on IPL’s Diversity Strategy can be found in
the 2017 Corporate Governance Statement on the IPL website
(www.incitecpivot.com.au).
Managing environmental impacts
As an international manufacturer of industrial explosives,
industrial chemicals and fertilisers, IPL’s operations have the
potential to impact the environment through emissions to air and
the contamination of soil and groundwater. 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 year was focused on
improving product handling, compliance management and risk
management, including the amendment of the IPL Risk
Assessment matrix to better recognise environmental risk.
Performance highlights during 2017 include:
• Development of an engineering framing assessment model to
identify engineering and operational opportunities to improve
environmental outcomes;
Introduction of iAuditor across the fertiliser distribution business to
conduct daily site photo logs. In the first three months, 321 daily
photo logs identified 568 potential issues;
•
• Performance of Environmental Site Assessments at 32 sites across
North America;
• Continued auditing of spill prevention, control and countermeasure
plans across North America, and the use of visual management
tools and lean processes, particularly 5S, to increase loss of
containment awareness globally. This has resulted in increased
operational control of product and a reduction in environmental
risks associated with product tracking and spills; and
• Maintenance of the Environmental Incident Frequency Rate below
1 at just 0.49.
2018 priorities include:
• Continued focus on improving environmental awareness through
training, with emphasis on loss of containment, spill prevention
and stormwater pollution prevention;
• Extension of iAuditor to Australian manufacturing sites; and
•
Implementation of environmental ‘Gemba’ walks and metrics
which will be used as a leading indicator to track environmental
performance across North American sites. Also used as a safety
tool, Gemba walk is the term used to describe structured site
visits focused on observing activities and processes.
Further detail on environmental compliance, including fines, can
be found on page 4.
Energy, greenhouse gases and water
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 is liberated from natural gas
during the manufacturing process, in Australia, IPL is a Large
Emitter of greenhouse gases (GHG) as defined by the Australian
National Greenhouse and Energy Reporting System. Nitrogen oxide
(NOx) and nitrous oxide (N2O), a potent GHG, are also released
during the making of nitic acid. IPL has a strong focus on both
abatement technologies and progressively increasing resource
efficiencies to reduce its impacts on the environment, including
GHG emissions which contribute to climate change.
Cooling water is also a key necessity for manufacturing. In addition
to IPL’s comprehensive annual risk management process, the
World Business Council of Sustainable Development 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 have
been identified by the Water Tool as being located in areas which
may experience water stress by 2025. In North America, water
resources are of particular concern at Cheyenne, Wyoming. IPL
engages with key stakeholders, including the Wyoming State
Engineer’s Office, which manages stakeholder access to the local
groundwater aquifer. In other regions, where there is higher
rainfall, IPL recognises that water management is also important.
Incitec Pivot Limited Annual Report 2017
vii
Sustainability Report
Performance
Energy and emissions
IPL used 61,972,212 gigajoules (GJ) of energy over the past year
(2016: 44,972,204), of which 2,244,029 was electricity (2015:
1,971,644). The absolute Scope 1 and 2 GHG emissions from
IPL’s global operations increased to 3.1 million tonnes (2016:
2.7 million tonnes). These increases were due to the newly
commissioned Waggaman, Louisiana plant, which increased IPL’s
ammonia production. However, targeted global reductions in
GHG emissions per tonne of product were achieved, with a five
percent reduction per tonne of ammonia produced and a nine
percent reduction per tonne of nitric acid produced.
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 energy efficiency initiatives. At St
Helens, Oregon, a project to convert the pneumatically-
controlled plant instrumentation to electronic instrumentation
reduced annual electricity use at the site by 161,971 kWh. At
Cheyenne, Wyoming, energy efficiency projects included pump
and boiler optimisation and steam saving projects, which saved
over 1,000,000 kWh and 73,000GJ of natural gas during 2017.
The application of an internal coating to the reformer at
Cheyenne, Wyoming will deliver further reductions in gas use
during 2018. At Moranbah, Queensland, a project to preheat
deaerator feedwater with process heat currently lost to the
atmosphere is expected to save 196,000 GJ of natural gas,
reduce GHG emissions by 10,000 tCO2e and save over
$1,000,000. The installation of variable speed drives on
cooling tower fans at Mt Isa, Queensland is expected to save
2,916,667 kWh of energy, reduce emissions by 2,305 tCO2e
and reduce costs by over $400,000.
IPL also continued to invest in NOx abatement technology,
with work completed on the US$7,700,000 Selective Catalytic
Reduction unit at the Louisiana, Missouri, nitric acid plant.
During 2017, this unit reduced NOx emissions at the site by
more than 95 percent, which enabled IPL to achieve its 2017
global target of a 30 percent reduction in NOx emissions per
tonne of nitric acid produced. All of IPL’s nitric acid plants are
now fitted with NOx reduction technology. During 2017, the
N2O abatement unit at Moranbah, Queensland reduced GHG
emissions by 463,290 tonnes of CO2e. IPL also invested
$1,480,000 in the installation of a more efficient sulphur oxide
(SOx) reduction catalyst at Mt Isa, Queensland, which will
reduce SOx emissions at the site significantly.
Water use and discharge
IPL’s gross water use during the year was 47,629 mega litres,
a nine percent increase due to increased production. Opportunities
for reducing water use in manufacturing are continuously being
sought. At Cheyenne, Wyoming, the recovery of boiler blowdown
water and the reclamation of waste water streams through
reverse osmosis and brine concentrator units saved 89,941 kL
during the year. At Phosphate Hill, Queensland, 64,937 kL of
water was recovered from waste gypsum stockpiles, also
recovering valuable phosphates for fertiliser production. During
2018, water balance projects will be conducted at three major
Australian manufacturing sites in Geelong, Gibson Island and
Moranbah. During 2017, IPL discharged 32,446,002m3 of water
to the environment, a decrease of nine percent from 2016. The
majority of this water (98.5 percent) was clean cooling water
that was discharged to the rivers from which it was taken,
reducing IPL’s net water use to 15,670 mega litres.
Gas supply
Natural gas supply is an important issue for IPL. In Eastern
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. IPL will continue to work with Federal and State
governments on this issue. For more information on this issue
see page 19 of this report.
Product quality
IPL is committed to providing quality products and services to the
explosives, industrial chemicals and fertilisers 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 to ensure they are within set product specifications that
meet statutory limits and market needs. During 2018,
improvement initiatives will include a focus to extend IPL’s
quality standards throughout the fertiliser distribution business.
IPL is a global provider of innovative explosive products, services
and solutions under the renowned Dyno Nobel brand. Using BEx
principles, product quality is being continuously improved by the
detection, analysis and correction of trends during processing to
enhance quality and performance. Since 2015, a working
partnership between IPL’s explosives research and development
laboratories and its manufacturing plants has served to further
improve operating procedures, particularly where product
analysis is required. Ongoing improvements in both the product
formulations and the raw materials sourced have resulted in
improved explosives product quality and enhanced performance.
During 2017, this collaboration between the explosives
research and development laboratories and manufacturing
teams was extended to IPL’s fertiliser production plant at
Gibson Island, Queensland. The Marketing & Technology Ideas
& Work Requests Database, which will be upgraded in 2018,
provides research and development assistance across the
organisation, to facilitate improvements in product quality.
Total direct and indirect greenhouse
gas emissions
Water use by source
Total water used was 47,629 ML
Water discharge by destination
Total water discharged was 32,446,002m3
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
2017
Surface
water
Ground
water
Municipal
water
Recycled
water
Storm
water
Desalinated
water
Rain
water
Surface
waters
Ground
water
Sewers
Total water
discharged
Total GHG emissions
Scope 1
Scope 2
Water source
2015/16
2016/17
Waste discharge destination
2015/16
2016/17
viii
Incitec Pivot Limited Annual Report 2017
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. APs are 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. IPL purchases phosphate rock from several
countries, after undertaking a detailed review of each supply
source having regard to social, environmental and economic
factors. Further information on phosphate sourcing is available
on the IPL website at www.incitecpivot.com.au.
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 requirements
that are consistent with IPL’s expectations of suppliers’
workplace health, safety and environmental performance.
In 2017, IPL continued to apply BEx methodologies and risk
management tools to its sustainable supply chain model,
with a particular focus on continued improvement in the
management and engagement of existing suppliers.
IPL engages directly with fertiliser customers during collaborative
tailoring of product use via its Nutrient Advantage laboratory,
which conducts soil and plant testing, as well as through
Nutrient Advantage Advice interactive software and IPL’s online
Farmer Community and Agronomy Community. Quarterly reports
are assessed through Fertshed, IPL’s online customer
transactional portal. In 2017 a new customer survey software,
Net Promoter Score, which uses a popular methodology for
summarising customer satisfaction, was implemented across the
entire fertiliser customer base. Net Promoter Score will be
extended to IPL’s Australian industrial chemicals customers in
2018. 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
In 2017, work continued on collaborative research and product
development with customers, including the promotion of best
practice use of fertiliser and explosives products to reduce
environmental impacts and increase safety. Highlights during
the year included:
• New joint research project with the University of Melbourne
into new fertiliser technologies for sustained food security, with
further development of prototype products planned for 2018;
• Development of novel fertiliser nutrient delivery systems,
including trace element coating of fertilisers on despatch;
• Continued market growth of IPL’s enhanced efficiency
fertilisers, Entec and Green Urea, which minimise nitrogen
losses to the atmosphere as GHG and to waterways;
• Continued development and marketing of explosive products
and delivery systems that reduce blast fume emissions and
minimise groundwater nitrate leaching, including the
commencement of a new joint research project with
Murdoch University;
• Continued testing of recycled, reclaimed and treated oils,
hydrocarbons and waxes to supplement the use of virgin fuel
sources in emulsion-based explosives;
• Testing of oxidiser, an ingredient of explosives, sourced from
internal and customer waste streams; and
• Collaboration with customers to develop and test new
products, processes and methods of product delivery which
increase safety and efficiency where explosives are used in
hot and reactive ground conditions in North America and in
underground applications in Australia.
Sustainable development
Waggaman, Louisiana Ammonia Plant
IPL assumed operational management of the newly constructed
800,000 metric tonne per annum ammonia plant on 19 October
2016. The 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 Selective Catalytic Reduction
technology to reduce emissions of NOx. Cooling water for the
plant is sourced 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.
As the plant was being completed, IPL engaged a third party to
assist in the development of a range of Social Return on
Investment (SROI) metrics. SROI is a principles-based method for
measuring the extra-financial value created by companies through
investments such as the development of the Louisiana Ammonia
Plant. Built on a brownfield site, the development required no
land clearing and created 65 above-average wage positions and
4662 flow-on positions (which were valued at average wage).
The SROI estimated that for every dollar IPL invested in the
US$820 million Waggaman, Louisiana Ammonia Plant, US$3.40
of social value has been created in the local community.
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 2017,
$379,086 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 they operate. 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, 50
percent of IPL’s sites fall into this category. These sites engage
with communities and emergency first responders, with many
actively participating in Local Emergency Planning Committees
(LEPCs) as part of the Community Right to Know Act. In the Asia
Pacific region, 21 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 2017
ix
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 2017 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 and became Chairman on 30
June 2012. He is a non-executive director of Amcor Limited, Deputy Chairman of the Essendon
Football Club and a board member of Teach For Australia. He is also a former director of
Perpetual Limited. From 1982 to 2009, Mr Brasher was a partner of PricewaterhouseCoopers
(and its predecessor firm, Price Waterhouse), including five years as the Chairman of the
Global Board of PricewaterhouseCoopers.
Mr Brasher brings to the Board his local and global experience as a senior executive and
director, particularly in the areas of strategy, finance, audit and risk management and public
company governance, as well as his experience as a non-executive director of Australian
companies with significant overseas operations.
Directorships of listed entities within the past three years:
• Director, Amcor Limited (since January 2014)
• Director, Perpetual Limited (November 2009 – August 2015)
Joseph Breunig BS(Chemical
Engineering), MBA
Non-executive director
Member of the Health, Safety,
Environment and Community
Committee
Mr Breunig was appointed as a director on 5 June 2017. Mr Breunig is a U.S. resident and is
currently a non-executive director of Mineral Technologies Inc. Mr Breunig was previously
Executive Vice President, Chemicals at Axiall Corporation (formerly Georgia Gulf Corporation)
and, prior to that, spent 24 years at BASF Corporation where he held a number of senior
executive positions including Executive Vice President and Chief Operating Officer, BASF
Corporation, and President, Market and Business Development, North America, BASF SE.
Directorships of listed entities within the past three years:
• Director, Mineral Technologies Inc. (since November 2014)
Kathryn Fagg FTSE, BE(Hons),
MCom(Hons), Hon.DBus(UNSW),
Hon.DChemEng(UQ)
Non-executive director
Chairman of the Remuneration
Committee
Member of the Health, Safety,
Environment and Community
Committee
Ms Fagg was appointed as a director on 15 April 2014. Ms Fagg is a non-executive member of
the Reserve Bank of Australia, and is also a non-executive director of Djerriwarrh Investments
Limited and Boral Limited. She is Chair of the Melbourne Recital Centre, Chair of Breast Cancer
Network Australia and a board member of the Australian Centre for Innovation. Ms Fagg is also
President 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 director of The
Precision Group and Aurrum Holdings Pty Ltd. His prior roles include: non-executive director of
The Star Entertainment Group Limited, 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 (April 2015 – October 2017)
1
Incitec Pivot Limited Annual Report 2017
Name, qualifications and
special responsibilities
Experience
Brian Kruger BEc
Non-executive director
Member of the Audit and Risk
Management Committee
Member of the Remuneration
Committee
Mr Kruger was appointed as a director on 5 June 2017. Mr Kruger is the former Managing
Director & CEO of Toll Holdings Limited, having joined Toll in 2009 as Chief Financial Officer,
before being appointed Managing Director in 2012. Prior to joining Toll, Mr Kruger had a career
spanning 25 years in the resources and industrial sectors in Australia and the U.S., initially with
BHP and subsequently with BlueScope Steel which he joined on its demerger from BHP. During
his time at BlueScope, he held a number of senior corporate finance and management roles,
including President, North America & Corporate Strategy & Innovation, President, Australian
Manufacturing Markets and was the company’s inaugural Chief Financial Officer. Mr Kruger is
also Chairman of Racing Victoria Limited.
Directorships of listed entities within the past three years:
• Managing Director, Toll Holdings Limited (January 2012 to December 2016)
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 Oz Minerals Ltd and Investa Office Management Holdings Pty Limited. She is a non-
executive director of Goodman Group and is independent Chairman of Scania Australia Pty Ltd.
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.
Graham Smorgon AM
B.Juris, LLB
Non-executive director
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
Directorships of listed entities within the past three years:
• Director, Goodman Group (since April 2012)
• Director, Oz Minerals Limited (since November 2010) and Chairman (since May 2017)
• Director, CSR Limited (February 2012 to October 2016)
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 and will cease as
Managing Director & CEO on 14 November 2017.
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. In September 2017, Mr Fazzino
was appointed as Chairman of Manufacturing Australia.
Incitec Pivot Limited Annual Report 2017
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:
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:
Director
P V Brasher(1)
J Breunig
K Fagg(1)
G Hayes(2)
B Kruger(2)
R J McGrath(2)
G Smorgon AM(2)
J E Fazzino(1)
Fully paid ordinary shares
Incitec Pivot Limited
60,600
0
10,000
10,000
14,620
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.
Type
Paid during the year
2016 final dividend
2017 interim dividend
To be paid after
end of year
2017 final dividend
Dealt with in the
financial report as:
Dividends
Subsequent event
Cents
per
share
Total
amount
$mill
Franked/
Unfranked
Date of
payment
4.6
4.5
77.6
75.9
unfranked
13 December 2016
unfranked
3 July 2017
4.9
82.7
unfranked
19 December 2017
Note
6
23
$mill
153.5
82.7
Directors’ meetings
The number of directors’ meetings held (including meetings of committees of directors) and the number of meetings attended by
each of the directors of the Company during the financial year are listed below:
Director – Current(1,2)
P V Brasher(3)
J Breunig(4)
K Fagg
G Hayes
B Kruger(5)
R J McGrath(6)
G Smorgon AM(7)
J E Fazzino(8)
Director – Former
J Marlay(9)
Board
Audit and
Risk Management
Remuneration
Nominations
Health, Safety,
Environment and
Community
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
11
4
11
11
4
11
11
11
2
11
3
11
11
4
10
9
10
2
3
6
1
6
2
3
6
1
6
2
1
4
2
4
1
1
4
2
4
1
3
3
3
3
3
3
1
4
4
3
4
1
4
4
3
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 Brasher was appointed as a member of the Remuneration Committee and the Audit and Risk Management Committee on 16 December 2016 and retired as a
member of both the Remuneration Committee and the Audit and Risk Management Committee with effect from 1 July 2017.
(4) Mr Breunig was appointed as a director on 5 June 2017 and as a member of the Health, Safety, Environment and Community Committee with effect from 1 July 2017.
Mr Breunig was an apology for one meeting due to a long-standing commitment which had arisen prior to his appointment as a director of the Company.
(5) Mr Kruger was appointed as a director on 5 June 2017 and as a member of the Remuneration Committee and the Audit and Risk Management Committee with
effect from 1 July 2017.
(6) Ms McGrath was an apology for an extraordinary meeting which was convened at short notice.
(7) Mr Smorgon retired as a member of the Health, Safety, Environment and Community Committee with effect from 1 July 2017. Mr Smorgon was an apology for two
meetings due to illness, noting that one of the meetings was an extraordinary meeting convened at short notice.
(8) Mr Fazzino was not in attendance for an extraordinary meeting which related to his cessation of employment and transition arrangements.
(9) Mr Marlay retired as a director on 16 December 2016.
3
Incitec Pivot Limited Annual Report 2017
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 23 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.
Date performance
rights granted
30 December 2014
5 February 2015
21 January 2016
25 August 2016
25 January 2017
19 April 2017
Total unissued ordinary shares
under performance rights
Number of ordinary shares
under performance rights
1,785,446
93,744
1,304,810
150,941
1,905,712
228,832
5,469,485
Shares issued on exercise of
performance rights
No ordinary shares in Incitec Pivot Limited were issued by the
Company during the 2017 financial year as no performance
rights vested under the Company’s 2013/16 Long Term
Incentive Plan. 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 2017 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
In November 2017, the directors determined to pay a final
dividend for the Company of 4.9 cents per share on 19
December 2017. The dividend is unfranked (refer to note 6 to
the financial statements).
On 14 November 2017, the Company announced an on-market
share buyback of up to $300.0m to be conducted over the next
twelve months.
As announced to the ASX on 9 August 2017, Mr James Fazzino
will cease as the Managing Director & CEO and will cease
employment with the Company on 14 November 2017, and Ms
Jeanne Johns will commence as the Managing Director & CEO on
15 November 2017.
On 14 November 2017, the Company announced that Mr Greg
Hayes will retire from the Board with effect from the end of the
2017 Annual General Meeting to be held on 21 December 2017.
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.
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 U.S.
For the 2017 financial year, the Group received fines in
aggregate of $23,319 for incidents relating to its fertiliser
operations in Australia. On 31 May 2017, the Land and
Environment Court of New South Wales ordered a subsidiary
of the Company to pay a fine of $460,000 and costs of
$72,750 to the Environment Protection Authority in connection
with an incident at the Group’s Warkworth manufacturing
facility in New South Wales involving an inadvertent release of
waste water during remediation works on site in 2015. The
Company is appealing the fine in the New South Wales Court
of Criminal Appeal, and the appeal is listed for hearing in late
November 2017.
Incitec Pivot Limited Annual Report 2017
4
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.
Further details in relation to the extension of Mr Imbesi’s term
can be found in IPL’s 2016 Corporate Governance Statement.
Non-audit services
Deloitte Touche Tohmatsu has provided non-audit services to
the amount of $356,200 during the year ended 30 September
2017 (refer to 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.
5
Incitec Pivot Limited Annual Report 2017
Operating and Financial Review
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.
IPL operates two downstream businesses, comprising:
• Asia Pacific; and
• Americas.
Both businesses serve three sectors, consisting of:
• Explosives;
•
• Fertilisers.
Industrial Chemicals; and
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
• 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)
Incitec Pivot Limited Annual Report 2017
6
Directors’ Report
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) and excludes corporate elimination:
REPORTED SEGMENT
Revenue
EBIT ex IMIs
2017
2016
2017
2016
PRESENTATION
Revenue
EBIT ex IMIs
2017
2016
2017
2016
DNAP(1)
933.2
920.8
189.0
186.1
Explosives
933.2
920.8
189.0
186.1
1,349.8 1,341.9
103.9
104.2
Fertilisers
• Incitec Pivot
Fertilisers (IPF)
• Southern Cross
International
(SCI)
• Elimination
Elimination
(19.2)
(14.9)
Fertilisers
• IPF
• SCI, excluding
Industrials & Trading
(I&T) component
• Elimination
Industrial Chemicals
• I&T component of SCI
Elimination
1,280.0 1,261.8
78.2
75.3
69.8
80.1
25.7
28.9
(19.2)
(14.9)
Total
2,263.8 2,247.8
292.9
290.3
2,263.8 2,247.8
292.9
290.3
1,251.4
1,150.6
228.4
159.6
DNA(2)
• Explosives
• Agriculture
& Industrial
Chemicals
(Ag&IC)
Explosives
• Explosives
Fertilisers
• Agriculture
component of Ag&IC
Industrial Chemicals
• Industrial Chemicals
component of Ag&IC
965.1
958.3
155.4
129.2
99.1
132.2
2.2
6.6
187.2
60.1
70.8
23.8
Total
1,251.4 1,150.6
228.4
159.6
1,251.4 1,150.6
228.4
159.6
C
I
F
I
C
A
P
A
I
S
A
S
A
C
I
R
E
M
A
(1) Dyno Nobel Asia Pacific (2) Dyno Nobel Americas
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 long-term 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. In the 2017 financial year, IPL
achieved a TRIFR of 0.90(2) representing a 35 percent decline
since 2012.
Three major manufacturing sites were free of recordable
injuries in 2017 as follows:
• Cheyenne, Wyoming (ammonium nitrate plant)
• Graham, Kentucky (initiating systems plant)
• Helidon, Queensland (initiating systems plant)
As demonstrated in the following chart, Employee Lost Day
Severity Rate(3) also declined significantly. Since 2012, this
measure has fallen 89 percent.
7
Incitec Pivot Limited Annual Report 2017
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
2012
2013
2014
2015
2016
2017
12 Month Rolling TRIFR (LHS)
Employee Lost Day Severity Rate (RHS)
The 2017 result is an important milestone 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 focused 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.
Total GHG emissions
Strategy
IPL’s strategy is to leverage its core nitrogen and high
explosive manufacturing competencies by aligning to
major market dislocations. 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 to optimise existing
manufacturing assets, improve productivity and execute
strategies to maximise returns. BEx, IPL’s globally integrated
continuous and focused improvement system, aims to drive
sustainable and ongoing business efficiency and productivity
through an empowered and engaged workforce.
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 (Waggaman). Construction of the
plant was completed in September 2016 and IPL assumed
management of the plant on 19 October 2016. Earnings from
the plant were recognised in IPL’s result from 1 November
2016.
The plant delivered 74 percent of its 800,000 metric tonne
per annum nameplate capacity in 2017 when measured from
1 November 2016. It is expected to operate at nameplate in
2018.
BEx
BEx is IPL’s continuous and focused improvement system.
Based on the Toyota Production System and launched in 2012,
BEx is deployed throughout IPL’s global organisation and is
integral to the way in which IPL operates.
Through BEx, IPL has built a culture that fosters productivity
improvements and sustainability initiatives, while also
prioritising Zero Harm.
A bottom-up business system, BEx reflects IPL’s corporate
values and has lean principles at its core.
In 2016, IPL announced its strategic response to the challenges
facing the markets in which it operated. This response included
the acceleration of BEx through an Organisation Focused
Improvement (OFI) program that was designed to deliver
$80m of sustainable operating efficiencies and $20m of
sustainable capital expenditure savings by 2017.
Net productivity benefits from the OFI program in 2017
were $176m. Together with $16m in 2016, the OFI program
delivered $192m of net productivity benefits overall.
Total cash benefit from the OFI program, which concluded on
30 September 2017, was $214m.
Group Financial Performance
IPL delivered Net Profit After Tax (NPAT) excluding minority
interests of $318.7m in 2017, an increase of $190.6m when
compared to 2016 NPAT.
Group Performance
Group EBIT increased 17 percent, or $73.1m, to $501.2m, as
compared to 2016, excluding 2016 Individually Material Items
(ex IMIs) of $167.1m.
Year Ended 30 September
IPL GROUP
Revenue
EBITDA ex IMIs(1)
EBIT ex IMIs(2)
NPAT ex IMIs(3)
IMIs after tax
NPAT
Business EBIT ex IMIs
Americas
Asia Pacific
Elimination and Corporate
Group EBIT ex IMIs
Sector EBIT ex IMIs
Explosives
Industrial Chemicals
Fertilisers
Elimination and Corporate
Group EBIT ex IMIs
EBIT margin ex IMIs
2017
A$m
3,473.4
774.5
501.2
318.7
–
318.7
228.4
292.9
(20.1)
501.2
344.4
96.5
80.4
(20.1)
2016
A$m
Change
%
3,353.7
672.6
428.1
295.2
(167.1)
128.1
3.6
15.2
17.1
8.0
–
148.8
159.6
290.3
(21.8)
428.1
315.3
52.7
81.9
(21.8)
43.1
0.9
7.8
17.1
9.2
83.1
(1.8)
7.8
17.1
501.2
14.4%
428.1
12.8%
(1) EBITDA ex IMIs = Earnings Before Interest, Tax, Depreciation and Amortisation,
excluding IMIs.
(2) EBIT ex IMIs = Earnings Before Interest and Tax, excluding IMIs.
(3) NPAT ex IMIs = Net Profit After Tax attributable to shareholders excluding IMIs.
US$ EBIT from the Americas business increased 46 percent to
US$173.1m largely due to BEx initiatives, continued Quarry &
Construction growth and initial Waggaman operational earnings
and delay damages. These advances were partially offset by
reduced Fertiliser earnings resulting from a further decline in
global nitrogen prices.
EBIT from the Asia Pacific business increased 1 percent to
$292.9m. Contributing factors included resilient Explosives
demand and a strong Fertilisers result in the face of persisting
headwinds.
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 increased $72.4m as compared to 2016.
This increase is largely attributable to a 15 percent increase in
EBITDA and a decline in net income tax paid, but somewhat
offset by increased net interest paid.
IPL’s Balance Sheet remains sound, reflecting the Group’s
ongoing commitment to financial discipline and effective cash
management. As at 30 September 2017, IPL had net debt of
$1,291.9m(1). Net debt/LTM(2) EBITDA of 1.7x remained within
IPL’s target range of less than 2.5x.
(1) Net debt aggregates interest bearing liabilities plus the fair value of
derivative instruments in place economically to hedge the Group’s interest
bearing liabilities, less available cash and cash equivalents.
(2) LTM: Last Twelve Months.
Incitec Pivot Limited Annual Report 2017
8
Directors’ Report
Year Ended 30 September
2017
A$m
2016
A$m
Change
A$m
Intangible assets decreased by $61.5m mainly as a result
of the impact of foreign currency translation of non-A$
denominated assets and amortisation of intangibles.
IPL GROUP
Balance Sheet
Assets
%
TWC – Fertilisers
17.5
TWC – Explosives
15.0
Group TWC
Net PP&E
12.5
Intangible assets
10.0
Explosives (DNA, DNAP)
(170.2)
119.7
(50.5)
3,854.8
3,121.0
(169.6)
120.4
(49.2)
3,892.7
3,182.5
Fertilisers
(0.6)
(0.7)
(1.3)
(37.9)
(61.5)
Total Assets
7.5
Liabilities
5.0
Environmental & restructure provisions
Tax liabilities
Net other liabilities
Net debt
(2.5)
2.5
0
6,925.3
7,026.0
(100.7)
(115.5)
(499.3)
(259.5)
(1,291.9)
(129.9)
(435.2)
(490.8)
(1,393.8)
14.4
(64.1)
231.3
101.9
Total Liabilities
FY12
FY13
Net Assets
Equity
Key Performance Indicators
(2,166.2)
(2,449.7)
FY15
FY16
283.5
FY14
4,759.1
4,576.3
4,759.1
4,576.3
182.8
182.8
Net tangible assets/share
Group – Average TWC as % Rev(1)
Basic earnings per share (before individually material items)
0.14
Basic earnings per share (including individually material items)
Dividend declared in respect of the financial year
0.83
5.0%
0.97
4.7%
Cents
35
Credit Metrics
30
Net debt
Interest cover(2)
Net debt/LTM EBITDA ex IMIs
20
25
(1,291.9)
7.9x
1.7x
(1,393.8)
7.9x
2.1x
101.9
Tax liabilities increased by $64.1m to $499.3m largely due to
timing differences between tax and accounting depreciation
rates related to property, plant and equipment and
intangibles, partially offset by the impact of the higher A$
on foreign currency denominated tax liabilities.
Net other liabilities decreased by $231.3m over the period to
$259.5m mainly due to favourable market value movements
of derivative hedging instruments (offsetting foreign exchange
movements in US$ net assets), and movements in retirement
benefit obligations.
Net debt of $1,291.9m was down $101.9m relative to 2016
due in part to increased cash flow from Waggaman. The fair
value of balance sheet hedges as at 30 September 2017
was $304.3m.
Capital Allocation
IPL’s capital allocation process is centralised and overseen by
the Group’s Corporate Finance and Strategy & Business
Development functions. Capital is invested on a prioritised
basis and all submissions are assessed against IPL’s risk, HSE,
financial, strategic and corporate governance criteria. Capital is
broadly categorised into major growth capital, minor growth
capital and sustenance capital.
(1) Average TWC as % Revenue = 13 month average trade working capital/
15
annual revenue.
IPL GROUP
10
(2) Interest cover = 12 month rolling EBITDA ex IMIs/net interest expense.
5
Capital Expenditure (Cash Flow)
Year Ended 30 September
2017
A$m
2016 Change
%
A$m
(83.1)
(215.2)
61.4
(83.1)
(35.7)
(16.3)
(52.0)
(113.1)
(71.5)
(215.2)
(10.7)
(19.1)
(29.8)
(126.9)
(63.6)
61.4
(233.6)
14.7
(74.5)
10.9
(12.4)
(184.6)
(190.5)
3.1
(319.7)
(435.5)
26.6
Waggaman
Major growth capital
Asia Pacific
Americas
Minor growth capital
Asia Pacific
Americas
Sustenance
Total
Major growth capital expenditure of $83.1m relates to the
construction of Waggaman (including payments against
balances outstanding from 2016 of $49.5m). Total project
spend in relation to Waggaman as at 30 September 2017 was
US$814.7m (excluding capitalised interest of US$86.1m), 4
percent below initial project budget.
Minor growth capital expenditure was $52.0m and sustenance
capital expenditure was $184.6m primarily relating to
turnaround activity at the Moranbah, Mt Isa (part of the
Phosphate Hill complex) and Cheyenne, Wyoming plants.
Shareholder Returns and Dividends
Earnings per share (EPS) increased 1.4 cents per share to 18.9
cents per share as compared to 2016 ex IMIs.
In November 2017, the Directors of IPL determined to pay an
unfranked final dividend of 4.9 cents per share payable in
December 2017, bringing total dividends paid with respect to
the 2017 financial year to 9.4 cents per share. This represents
a payout ratio of approximately 50 percent for the 2017
financial year.
0
The tenor and diversity of IPL’s debt is set out in the
following exhibit:
2013
2015
2014
2016
2017
Available limits
Drawn funds
Debt Profile
AUDm
1200
1000
800
600
400
200
0
Bank facility
AUD360m
Bank facility
USD217m
Bond
AUD200m
144A/reg S
USD800m
Bank facility
USD500m
Reg S
USD400m
Maturity
Date
Oct 18
Oct 18
Feb 19
Dec 19
Oct 21
Aug 27
Net Property, Plant & Equipment decreased by $37.9m to
$3,854.8m. Significant movements included depreciation of
($249.6m), impact of foreign currency translation of non-A$
denominated assets of ($48.5m) and asset disposals of
($23.4m). This was partially offset by capital expenditure on
Waggaman of $33.6m (including capitalised interest), minor
growth spend of $34.7m and sustenance capital expenditure of
$215.5m (including plant turnarounds).
9
Incitec Pivot Limited Annual Report 2017
Sensitivities
The following table provides sensitivities to key earnings
drivers as they relate to the 2017 financial year. As
demonstrated, IPL’s earnings are influenced by movements in
global commodity prices and foreign exchange rates. Investors
should be cognisant of these factors.
2017 Sensitivities
Commodity
Proxy Index
EBIT Sensitivies
Americas
Ammonia(1)
Natural Gas(2)
UAN(3)
Urea(4)
FX EBIT Translation(5)
Asia Pacific
DAP(6)
Urea(7)
FX transactional(6,7)
CFR Tampa
Henry Hub
FOB NOLA
FOB NOLA
+/- US$10/mt = +/- US$5.4m
+/- US$0.10/mmbtu = -/+ US$2.5m
+/- US$10/mt = +/- US$2.1m
+/- US$10/mt = +/- US$1.3m
+/- A$/US$0.01 = -/+ A$2.9m
FOB Tampa
FOB Middle East
+/- US$10/mt = +/- US$12.3m
+/- US$10/mt = +/- US$5.3m
+/- A$/US$0.01 = -/+ A$6.9m
(1) Based on actual 2017 Waggaman manufactured and sold ammonia of 540.2k
metric tonnes.
(2) Based on actual 2017 Waggaman and St Helens natural gas consumption of
25,228.5mmbtu.
(3) Based on actual 2017 St Helens and Cheyenne manufactured and sold UAN
of 213.2k metric tonnes.
(4) Based on actual 2017 St Helens and Cheyenne manufactured and sold urea
of 127.9k metric tonnes.
(5) Based on actual 2017 Americas EBIT of US$173.1m and an average 2017
exchange rate of A$/US$ 0.762.
(6) Based on actual 2017 Phosphate Hill manufactured and sold DAP of 938.0k
metric tonnes, 2017 average exchange rate of A$/US$ 0.762, and average
2017 realised DAP price of US$331.8/metric tonne.
(7) Based on actual 2017 Gibson Island manufactured and sold urea equivalents
of 403.0k metric tonnes, 2017 average exchange rate of A$/US$ 0.762, and
2017 average realised urea price of US$214.1/metric tonne.
Group Outlook and Sensitivities
IPL does not provide profit guidance primarily due to the
variability of commodity prices and foreign exchange
movements. Instead, IPL provides an outlook for business
performance expectations and sensitivities to key earnings
drivers based on management’s view at the time of this
Report.
Explosives
In Americas, continued growth in the Quarry & Construction
sector is expected to benefit earnings in 2018.
In Asia Pacific, recent Coal, Base & Precious Metals and
International activity has been encouraging, with the long-
term production outlook improving, particularly in
Queensland’s Bowen Basin.
Industrial Chemicals
Operational earnings are expected to grow as Waggaman
continues to increase production levels. These earnings are
subject to movements in global ammonia and natural gas
prices.
Fertilisers
Earnings will continue to be dependent on global fertiliser
prices and the A$/US$ exchange rate.
A major turnaround of Phosphate Hill is scheduled to
commence in mid-March 2018, with an expected duration of
six weeks.
The QGC gas contract will benefit Phosphate Hill for the full
12 months of 2018 (nine months in 2017). The PWC contract
remains on track to deliver gas from the Northern Territory
from 2019.
The current gas supply arrangement for Gibson Island will
cease on 30 September 2018 and if economically viable gas
cannot be secured for the period commencing 1 October 2018,
it is likely the facility will cease manufacturing operations.
Group
Outlook for certain corporate items as they relate to 2018 are
set out below:
• Corporate: Corporate costs are expected to be
approximately $22m.
• Buyback: In November 2017, IPL announced an on-market
share buyback of up to $300m to be conducted over the
next 12 months.
• Borrowing Costs: Net borrowing expense is expected to be
approximately $130m, which includes the expected impact
of increased interest rates in the global economy.
• Hedging: 60 percent of estimated first half 2018 US$ linked
fertiliser sales are hedged at a rate of $0.80 with full
participation in downward rate movements.
• Turnarounds: A major turnaround of Phosphate Hill is
scheduled to commence in mid-March 2018, with an
expected duration of six weeks. The Cheyenne, Wyoming
plant turnaround, which commenced in September 2017,
was completed in October 2017.
• BEx: Targeting at least $25m of sustainable net productivity
benefits.
Incitec Pivot Limited Annual Report 2017
10
Directors’ Report
Americas
Explosives
Asia Pacific
56%
2017 EBIT
Contribution(1)
Ame rica s
44%
(1) Excludes elimination
The Americas 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 Americas business increased 46 percent to
US$173.1m largely due to BEx initiatives, continued Quarry &
Construction growth and initial Waggaman operational
earnings and delay damages. These advances were partially
offset by reduced Fertiliser earnings resulting from a further
decline in global nitrogen prices.
AMERICAS
Year Ended 30 September
2017
2016
Change
%
US$m
Explosives
Industrial Chemicals
Fertilisers
Revenue
Explosives
Industrial Chemicals
Fertilisers
EBIT
EBIT margin
A$m
Revenue
EBIT
EBIT margin
735.8
142.7
75.6
705.3
44.2
97.3
954.1
846.8
117.8
53.7
1.6
173.1
18.1%
95.7
17.6
4.9
118.2
14.0%
1,251.4
1,150.6
228.4
159.6
18.3%
13.9%
4.3
222.9
(22.3)
12.7
23.1
205.1
(67.3)
46.4
8.8
43.1
11
Incitec Pivot Limited Annual Report 2017
Through Dyno Nobel, IPL provides ammonium nitrate based
explosives, initiating systems and services to the Quarry &
Construction, Base & Precious Metals and Coal sectors in
North America. Ammonium nitrate is often sold in
conjunction with higher margin proprietary initiating systems
and services.
Dyno Nobel is the second largest industrial explosives
distributor in North America by volume. It provides
ammonium nitrate, initiating systems and services to the
Quarry & Construction sector in the southern US, northeast
US and Canada, 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.
Earnings from the Explosives sector increased US$22.1m as
compared to 2016, primarily due to continued growth in the
Quarry & Construction sector, increased Coal and Base &
Precious Metals volume and BEx initiatives.
EXPLOSIVES
Thousand metric tonnes
Quarry & Construction
Base & Precious Metals
Coal
Products sold
US$m
Quarry & Construction
Base & Precious Metals
Coal
Other(1)
Revenue
EBIT
EBIT margin
Year Ended 30 September
2017
2016
Change
%
193.8
202.8
316.5
713.1
260.0
171.3
158.0
146.5
735.8
117.8
16.0%
179.6
182.3
279.4
641.3
249.4
152.8
145.9
157.2
705.3
7.9
11.2
13.3
11.2
4.3
12.1
8.3
(6.8)
4.3
95.7
23.1
13.6%
(1) Other includes IPL Asia Pacific and 3rd Party Initiating Systems revenue.
Also includes Dyno Nobel Transportation (DNTI) and Tradestar revenue.
Manufacturing
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 both Appalachia and the Illinois Basin.
Ammonium nitrate production from the Cheyenne, Wyoming
and Louisiana, Missouri plants increased 24 percent in
aggregate during the period as compared to 2016 with both
plants fully utilised in the second half. The period included
the scheduled major turnaround of the Cheyenne, Wyoming
plant which was completed in October 2017.
Initiating systems are manufactured at Dyno Nobel’s facilities
in Connecticut, Kentucky, Illinois, Missouri, Chile and Mexico,
and are also sourced from DetNet South Africa (Pty) Ltd
(DetNet), an IPL electronics joint venture.
Qua rry &
Construction
27%
Qua rry &
Construction
44%
Quarry & Construction
44 percent of Americas Explosives revenue was generated
from the Quarry & Construction sector in 2017. Dyno Nobel
has a leading position in this end market, which benefits
from a favourable mix of high grade explosives, proprietary
initiating systems and services.
Sector volume grew 8 percent as compared to 2016 with
revenue up 4 percent. Volume growth was strong across the
US, with the largest volume growth coming through Dyno
Nobel joint venture operations. Reported revenue does not
reflect the value added products and services provided by the
joint ventures, which are equity accounted.
Base &
Precious
Metals
28%
Base &
Precious
Metals
29%
Americas Explosives
Volume
Americas Explosives
Revenue(1)
Met Coal
1%
Thermal
Coal
26%
Met Coal
2%
Thermal
Coal
43%
(1) Excludes Other
Outlook
Americas Explosives
Volume
Americas Explosives
Revenue(1)
Continued growth in the Quarry & Construction sector is
expected to benefit Americas earnings in 2018.
Qua rry &
Construction
27%
Qua rry &
Construction
44%
(1) Excludes Other
Base & Precious Metals
29 percent of Americas Explosives revenue was generated from
the Base & Precious Metals sector in the year, the majority of
which was from iron ore and copper mines in the US.
Qua rry &
Construction
27%
Sector revenue increased 12 percent during the period with
volumes up 11 percent. The growth can be attributed to the
impact of favourable market fundamentals for iron ore
and copper.
Base &
Precious
Metals
28%
Base &
Precious
Metals
29%
Qua rry &
Construction
44%
Americas Explosives
Volume
Americas Explosives
Revenue(1)
Met Coal
2%
Met Coal
1%
Thermal
Coal
43%
Base &
Precious
Metals
28%
Thermal
Coal
26%
Base &
Precious
Metals
29%
(1) Excludes Other
Coal
Met Coal
2%
27 percent of Americas Explosives revenue was generated
Met Coal
by the Coal sector in 2017, the vast majority of which was
1%
from product supplied to thermal coal mines in the Powder
River Basin.
Thermal
Coal
26%
Thermal
Coal
43%
Coal revenue increased 8 percent during the period as
compared to 2016, with volumes up 13 percent. As above,
this can be partially attributed to improved conditions and
the impact of a contract awarded in the first half which was
disclosed in May 2017.
Industrial Chemicals
The Americas business manufactures and distributes industrial
chemicals under the Dyno Nobel brand in the US. These
products include ammonia, ammonium nitrate solution, CO2,
DEF and nitric acid, and are produced at the Louisiana,
Missouri; Cheyenne, Wyoming and St Helens, Oregon plants.
Industrial Chemicals earnings increased US$36.1m as
compared to 2016, which included initial operational
earnings from Waggaman of US$15.4m and delay damages
of US$35.1m as disclosed on 18 January 2017.
INDUSTRIAL CHEMICALS
Year Ended 30 September
Plant
2017
2016
Thousand metric tonnes
Ammonia
Manufactured product
Waggaman
US$m
Waggaman Internal Revenue(1)
Waggaman External Revenue(2)
Other
Revenue
Waggaman Operational Earnings
Waggaman Delay Damages
Other
EBIT
EBIT margin
EBITDA
EBITDA margin
540.2
540.2
79.1
91.5
51.2
142.7
15.4
35.1
3.2
53.7
37.6%
75.3
52.8%
42.0
42.0
–
–
44.2
44.2
–
15.6
2.0
17.6
39.8%
8.0
18.1%
(1) Internal revenue comprised of revenue generated from Dyno Nobel entities,
which is eliminated in reporting.
(2) External revenue comprised of revenue from third parties.
Manufacturing
As noted above, Waggaman delivered 74 percent of its
800,000 metric tonne per annum nameplate capacity in 2017
when measured from 1 November 2016. It is expected to
operate at nameplate in 2018.
Outlook
Industrial Chemicals operational earnings are expected to
grow as Waggaman continues to increase production levels.
These earnings are subject to movements in ammonia and
natural gas prices.
Incitec Pivot Limited Annual Report 2017
12
Directors’ Report
Fertilisers
Asia Pacific
Dyno Nobel manufactures and distributes nitrogen-based
fertilisers in the United States at two locations:
• St Helens, Oregon; and
• Cheyenne, Wyoming.
Fertilisers earnings declined US$3.3m as compared to 2016.
This was largely due to lower global prices as well as the
impact of the scheduled Cheyenne, Wyoming plant
turnaround, but partially offset by BEx initiatives.
Year Ended 30 September
2017 EBIT
Contribution(1)
Asia Pacific
56%
Ame rica s
44%
(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 increased 1 percent to
$292.9m. Contributing factors included resilient Explosives
demand and a strong Fertilisers result in the face of
persisting headwinds.
Year Ended 30 September
ASIA PACIFIC
Explosives
Industrial Chemicals
Fertilisers
Asia Pacific Elimination
Revenue
Explosives
Industrial Chemicals
Fertilisers
EBIT
EBIT margin
Explosives
2016
A$m
Change
%
2017
A$m
933.2
69.8
1,280.0
(19.2)
920.8
80.1
1,261.8
(14.9)
2,263.8
2,247.8
189.0
25.7
78.2
292.9
12.9%
186.1
28.9
75.3
290.3
12.9%
1.3
(12.9)
1.4
28.9
0.7
1.6
(11.1)
3.9
0.9
Through Dyno Nobel, IPL provides ammonium nitrate based
industrial explosives, initiating systems and services to the Coal
and Base & Precious Metals sectors in Australia, and
internationally to a number of countries including Indonesia,
Malaysia, Papua New Guinea and Turkey through its
subsidiaries and joint ventures. Ammonium nitrate is often sold
in conjunction with proprietary initiating systems and services.
Dyno Nobel is the second largest industrial explosives
distributor in Australia by volume, which in turn is the world’s
third largest industrial explosives market. In Australia, Dyno
Nobel primarily supplies its products to metallurgical coal
mines in the east and to iron ore mines in the west.
Plant
2017
2016
Cheyenne
St Helens
Cheyenne
St Helens
FERTILISERS
Thousand metric tonnes
UAN
Urea
Manufactured product
UAN and Urea
Product sold
US$m
Revenue
EBIT
EBIT margin
Manufacturing
Change
%
(22.0)
15.4
(5.4)
25.9
(4.5)
0.9
0.9
154.7
58.5
24.4
103.5
198.3
50.7
25.8
82.2
341.1
357.0
351.1
348.0
351.1
348.0
75.6
1.6
2.1%
97.3
(22.3)
4.9
(67.3)
5.0%
In aggregate, the St Helens, Oregon and Cheyenne, Wyoming
plants produced 341.1k metric tonnes of UAN and urea in
2017, a 5 percent decrease period on period. As noted
above, this included the impact of a major turnaround at
the Cheyenne, Wyoming plant, which was completed in
October 2017.
Outlook
Americas Fertilisers earnings will remain subject to movements
in commodity prices, in particular urea and UAN.
13
Incitec Pivot Limited Annual Report 2017
Explosives earnings increased by $2.9m as compared to 2016,
driven by resilient customer demand but partially offset by the
impact of the scheduled Moranbah turnaround. The result was
underpinned by sustained Bowen Basin metallurgical coal
demand, privileged position of the Moranbah plant and growth
in the Western Australia Base & Precious Metals sector.
Year Ended 30 September
EXPLOSIVES
Plant
2017
2016
Thousand metric tonnes
Ammonium nitrate
Moranbah
321.2
344.7
Manufactured product (ex JVs)
321.2
344.7
Change
%
(6.8)
(6.8)
0.7
9.8
378.0
243.8
113.1
375.4
222.1
93.6
20.8
734.9
691.1
6.3
442.6
352.3
138.3
460.4
333.4
127.0
933.2
920.8
189.0
186.1
20.3%
20.2%
(3.9)
5.7
8.9
1.3
1.6
Coal
Base & Precious Metals
International
Product sold
A$m
Coal
Base & Precious Metals
International
Revenue
EBIT
EBIT margin
Manufacturing
In Australia, Dyno Nobel manufactures ammonium nitrate at its
Moranbah ammonium nitrate plant, which is located in the
Bowen Basin, the world’s premier metallurgical coal region. It
also sources third party ammonium nitrate from time to time.
Moranbah was commissioned in 2012 and produced a record
345k metric tonnes of ammonium nitrate in 2016. As set out
below, the plant continued to produce at record levels in 2017,
manufacturing 321k metric tonnes of ammonium nitrate
notwithstanding a scheduled four-yearly major turnaround.
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.
Moranbah Ammonium Nitrate Production
Thousand metric tonnes
400
300
200
100
0
290
160
130
310
161
149
345
176
169
346
182
25
139
2014
2015
2016
2017
1H
2H
Approximate Lost Production due to Turnaround
Coal
47 percent of Asia Pacific Explosives revenue was generated
from the Coal sector in 2017, the majority of which was from
supply to metallurgical coal mines in the Bowen Basin. In
aggregate, 52 percent of Asia Pacific ammonium nitrate
volume was supplied to the sector.
Revenue from the Coal sector declined 4 percent as
compared to 2016, largely driven by the impact of the
Moranbah turnaround and Cyclone Debbie. This result
highlighted the resilience of the Bowen Basin as the world’s
premier metallurgical coal mining region, with Coal exports
up over the course of the year.
Asia Pacific Explosives
Volume
Asia Pacific Explosives
Revenue
Met Coal
48%
Met Coal
43%
Thermal Coal
4%
Thermal Coal
4%
Base & Precious Metals
Precious
Metals
8%
38 percent of Asia Pacific Explosives revenue was generated
from the Base & Precious Metals sector in 2017. In
aggregate, 33 percent of Asia Pacific ammonium nitrate
volume was supplied to the sector, which comprises iron ore
mines in Western Australia and hard rock and underground
Iron Ore
25%
mines throughout Australia.
Precious
Metals
17%
Iron Ore
21%
Met Coal
43%
Met Coal
48%
Revenue from the sector increased by 6 percent during the
period, largely driven by a recovery in commodity prices,
particularly iron ore, and increased volume output from
miners in Western Australia.
Thermal Coal
4%
Thermal Coal
4%
Asia Pacific Explosives
Volume
Asia Pacific Explosives
Revenue
Precious
Metals
8%
Iron Ore
25%
International
Precious
Metals
17%
Iron Ore
21%
15 percent of Asia Pacific Explosives revenue was generated
internationally including in Indonesia, Malaysia, Papua New
Guinea and Turkey.
International revenue increased 9 percent as compared to
2016, largely driven by activity in Indonesia as well as in
Turkey and Papua New Guinea.
Outlook
Recent Coal, Base & Precious Metals and International activity
has been encouraging, with the long-term production outlook
improving, particularly in the Bowen Basin.
Incitec Pivot Limited Annual Report 2017
14
Directors’ Report
Industrial Chemicals
IPF’s business model is illustrated in the following exhibit:
69.8
80.1
(12.9)
25.7
28.9
(11.1)
36.8%
36.1%
Fertilisers earning increased $2.9m or 4% as compared to
2016. This result was largely driven by increased distribution
volume and BEx initiatives.
Manufacturing
• Phosphate Hill
• Gibson Island
• Geelong
• Portland
International
Sales & Marketing
International
3rd Parties
Domestic
Sales & Marketing
Domestic
Dealers
Domestic
Farmers
Domestic
Wholesalers
FERTILISERS
Year Ended 30 September
Plant
2017
2016
Change
%
Thousand metric tonnes
DAP/MAP
Urea/GranAm,
Ammonia
SSP
Phosphate Hill
Gibson Island
Portland
& Geelong
940.5
500.8
1,009.6
436.5
(6.8)
14.7
347.4
385.7
(9.9)
Manufactured product
1,788.7
1,831.8
(2.4)
Product sold
2,836.6
2,561.3
10.7
A$m
Domestic Sales & Marketing
International Sales & Marketing
Fertilisers Elimination
Revenue
EBIT
EBIT margin
1,274.8
219.0
(213.8)
1,164.2
293.6
(196.0)
1,280.0
1,261.8
78.2
6.1%
75.3
6.0%
9.5
(25.4)
(9.1)
1.4
3.9
The Asia Pacific business manufactures and distributes
industrial chemicals under the IPF brand in eastern Australia.
Products include ammonia, CO2, DEF, specialty chemicals and
industrial urea. These products are primarily manufactured at
the Gibson Island plant.
Industrial Chemicals earnings declined by $3.2m as
compared to 2016 primarily driven by falling nitrogen
commodity prices.
Year Ended 30 September
Plant
2017
2016
Gibson Island
Gibson Island
Gibson Island
Portland &
Geelong
18.6
42.9
13.0
3.1
24.0
41.7
9.3
2.9
77.6
77.9
245.7
248.0
Change
%
(22.5)
2.9
39.8
6.9
(0.4)
(0.9)
INDUSTRIAL CHEMICALS
Thousand metric tonnes
Ammonia
Urea
DEF
Specialty Chemicals
Manufactured product
Product sold
A$m
Revenue
EBIT
EBIT margin
Outlook
Industrial Chemicals volumes in 2018 are expected to be
broadly consistent with those of 2017, with earnings subject
to movements in commodity prices.
Fertilisers
IPF is Australia’s largest domestic manufacturer and supplier
of fertilisers by volume.
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: DAP and MAP;
• Gibson Island: Ammonia (Big N), GranAm and Urea; and
• Geelong and Portland: SSP.
15
Incitec Pivot Limited Annual Report 2017
Manufacturing
Phosphate Hill produced 940.5k metric tonnes of ammonium
phosphates in 2017. The period included the impact of
maintenance that was accelerated to coincide with
depressed DAP prices. Since 2015, the plant has produced an
average of approximately 1,000k metric tonnes annually.
Delivery of gas to Phosphate Hill under the QGC contract
secured in 2016 commenced on 1 January 2017, reducing
realised gas costs to the plant for nine months of 2017. The
QGC contract will benefit Phosphate Hill for the full 12
months of 2018.
Phosphate Hill Ammonium Phosphate Production
Thousand metric tonnes
1,200
1,000
800
600
400
200
0
Average:
~1,000k metric tonnes
1,043
536
1,010
509
772
376
396
507
501
941
498
442
2014
2015
2016
2017
1H
2H
Domestic Sales & Marketing
Revenue from Domestic Sales & Marketing increased 10
percent as compared to 2016, primarily driven by increased
distribution volume which was up 21 percent. This tailwind
was partially offset by a further decline in realised DAP and
urea prices which remain below long-term trend.
The Pinkenba Primary Distribution Centre was sold during the
year which generated $13.2m of earnings.
International Sales & Marketing
Revenue from International Sales & Marketing decreased
25 percent largely due to a decline in DAP and urea prices.
Outlook
Fertilisers earnings will continue to be dependent on global
fertiliser prices and the A$/US$ exchange rate.
A major turnaround of Phosphate Hill is scheduled to
commence in mid-March 2018, with an expected duration of
six weeks.
As noted above, the QGC gas contract will benefit
Phosphate Hill for the full 12 months of 2018 (nine months
in 2017). The PWC contract remains on track to deliver gas
from the Northern Territory from 2019.
The current gas supply arrangement for Gibson Island will
cease on 30 September 2018 and if economically viable gas
cannot be secured for the period commencing 1 October 2018,
it is likely the facility will cease manufacturing operations.
Incitec Pivot Limited Annual Report 2017
16
Directors’ Report
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; while in
some cases they may either partially or fully mitigate the exposure, residual risk remains.
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.
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 refinancing 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.
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.
17
Incitec Pivot Limited Annual Report 2017
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.
Additionally, the Group endeavours to negotiate contractual
terms that provide protection to address customer non-
payment or financial distress.
• 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.
Incitec Pivot Limited Annual Report 2017
18
Directors’ Report
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.
There is a risk that if production is not sold and
effectively moved from site, plant uptime and earnings
could be negatively impacted should storage at site
become full.
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. In particular, the
current gas supply arrangement for Gibson Island will
cease on 30 September 2018 and if economically viable
gas cannot be secured for the period commencing
1 October 2018, it is likely the facility will cease
manufacturing operations.
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.
• Plants have storage capacity, as well as logistics capability
that allows for offtake to be distributed. For example, at the
Waggaman Louisiana plant offtake may be distributed via
rail, truck, barge and pipeline.
• 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 through to 2021, 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 an ability to
hedge gas prices and the Group reviews its approach to gas
hedging in the US on a regular basis.
19
Incitec Pivot Limited Annual Report 2017
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, should the Mt Isa Mines copper smelter
close.
• 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).
Labour
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 for those roles.
Incitec Pivot Limited Annual Report 2017
20
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
Weather &
climate change
Seasonal conditions (particularly rainfall), are a key factor
for determining demand and sales of explosives and
fertilisers. Any prolonged adverse weather conditions,
including the potential impacts of climate change, could
impact the future profitability and prospects of IPL.
• The S&OP process incorporates forecasting which enables
scenario planning and some supply flexibility. Forecasts are
based on typical weather conditions and are reviewed on an
ongoing basis as the seasons progress to help align supply to
changing demand.
Some plants are located in areas that are susceptible to
extreme weather events, such as hurricanes, tropical
storms and tornadoes. An increase in the severity and/or
frequency of these extreme weather events as a result of
climate change may cause additional disruption to plants
and may interrupt IPL’s supply chain, which includes
transportation of raw materials and finished product via
road, rail and water.
IPL has manufacturing facilities across various geographical
locations that may be impacted by regulatory changes
aimed at reducing the impact of, or otherwise addressing,
climate change. Any changed regulations could result in
an increase to the cost base or operating cost of these
plants, and it may not be possible to alter sales prices to
offset these cost increases. This includes, but is not
restricted to, any regulations relating to reducing carbon
emissions. Alternatively, any such regulatory changes may
potentially impact the ability of these plants to continue
operating as currently operated.
IPL provides products and services to end markets,
individual customers and suppliers that may be impacted
by changes to weather patterns resulting from climate
change. Changes to temperature, the amount of rainfall or
the number and/or intensity of storms and other weather
events may impact IPL’s end markets, primarily mining
and agriculture.
• 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.
• Risk management processes exist in all businesses. Emerging
risks, such as climate change, and appropriate treatment
strategies are monitored on an ongoing basis and reported on
to the Board through the established risk management
process.
•
IPL’s Australian fertilisers business operates in all Australian
States other than Western Australia. In addition to
geographical diversity, there is also diversity across crops –
IPL supplies fertilisers for a wide range of agricultural
applications – and customers serviced.
• The explosives business is primarily aligned to customers with
tier 1 assets, being those with the most efficient operations
and best resources. Also, there is diversity with regard to the
customer base (with products and services supplied for iron
ore, base and precious metals, quarry and construction and
coal customers) and geographic spread of the operations.
• Research and development activity is ongoing, reducing the
carbon footprint of products (eg slow release fertilisers and
low fume explosives products).
•
IPL has increased its focus in recent years on ensuring that
customers in both the explosives and fertilisers businesses
use no more product than is necessary, through activity such
as use of soil sampling data and differential energy
explosives products.
• New plants, most particularly the Waggaman Louisiana plant,
and upgrades of existing plants, adopt technology designed
for carbon efficiency. For example NOx abatement activity has
been undertaken in the US.
21
Incitec Pivot Limited Annual Report 2017
Risk
Description and potential consequences
Treatment strategies employed by IPL
Compliance, regulatory and legal risk
Compliance,
regulatory
and legal risk
Loss or
exposure of
sensitive data
and cyber
security
Changes in federal or state government legislation,
regulations or policies in any of the countries in which
IPL operates or in which it has dealings 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.
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.
IPL may be the target of cyber attacks which could
result in commercial, financial and/or reputational
impacts, including loss of data, financial losses,
business or customer service interruption, an impact to
IPL’s products or a loss of production.
• 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.
• Policies, procedures and practices are in place regarding
the use of company information, personal storage devices
and IT security.
• A data breach response plan has been established to
respond to, and mitigate the effects of, any instances of
sensitive data breaches should they occur.
• External testing is performed to assess the security of the
Group’s IT systems.
• Threat analysis and intelligence analytics are used to
monitor the security of IPL’s systems, including network
perimeter blocking and monitoring.
Incitec Pivot Limited Annual Report 2017
22
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 2017 which
sets out the remuneration information for the Managing Director & Chief Executive Officer, the Executive Team and the
non-executive directors.
2017 remuneration outcomes
The Company has delivered a strong result in 2017 with EBIT up 17% despite a significant impact from lower global fertiliser prices
and a higher Australian dollar. The Company’s solid financial performance reflects the action taken in 2016 to address the structural
and cyclical changes in IPL’s end markets and, specifically, the decline of global fertiliser prices, through the implementation of the
BEx OFI program which, at the end of the financial year, had delivered $176 million in net benefits, substantially exceeding the
$100 million stretch target that was set for the BEx OFI in 2016.
As a result, the Executives have been awarded short term incentive payments, details of which are set out in the report.
In relation to the long term incentive plan, the performance period for which ended on 30 September 2017, the performance
conditions were relative total shareholder returns (weighted at 70%) and the delivery of two strategic initiatives, being the
Louisiana Ammonia Project and Business Excellence (weighted at 30%). The successful delivery of these two strategic priorities is
reflected in the Company’s shareholder returns performance, with the Company delivering total shareholder returns of 36% over
the period. Accordingly, the Board is pleased to report that the performance rights under the long term incentive plan for the three
year performance period ended 30 September 2017 will partially vest.
2018 remuneration approach
In relation to the Executives’ remuneration arrangements, the Board has determined to increase the Executives’ fixed annual
remuneration by 2% with effect from 1 October 2017, noting that the Executives’ fixed remuneration was last increased in
October 2014.
In relation to the “at risk” or performance related component of executive remuneration for the 2018 year, the incentive
opportunities available to the Executives (other than for the new Managing Director & Chief Executive Officer) for both 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 2018 financial year as follows:
• STI – following completion of the BEx OFI program, the short term incentive structure will revert to a structure similar to previous
programs with the majority of the short term incentive opportunity allocated to financial measures reflecting the importance of
achieving financial outcomes, and the balance allocated to safety measures and strategic outcomes/business priorities.
• LTI – the weightings of the long term incentive measures have been adjusted to place a greater emphasis on relative total
shareholder returns and growth in return on equity.
As was the case for the 2017 financial year, the Board has determined that there will be no increase to non-executive director fees,
noting that fees were last increased in October 2014.
CEO transition arrangements
In February 2017, the Company announced that Mr Fazzino would be stepping down from the role of Managing Director & Chief
Executive Officer. Mr Fazzino will cease as Managing Director & Chief Executive Officer on 14 November 2017. Details of Mr
Fazzino’s remuneration arrangements during the 2017 financial year and the arrangements in relation to his cessation of
employment are set out in section 5.1 of the Remuneration Report.
Ms Jeanne Johns, whose appointment was announced on 9 August 2017, will commence as Managing Director & Chief Executive
Officer on 15 November 2017. In determining the appropriate remuneration settings for Ms Johns, consideration was given to
benchmark data and market trends. Ms Johns’ remuneration will comprise fixed annual remuneration of $1.6 million and “at risk”
remuneration in the form of short and long term incentives. While Ms Johns’ total maximum opportunity is comparable with the
outgoing Chief Executive Officer’s, a greater proportion of her remuneration will be “at risk”. The “at risk” components will continue
to be subject to demanding performance criteria which have been consistently applied by the Company. In addition, half of the STI
component will be deferred into equity to be released over a two-year period. Details of Ms Johns’ remuneration and other
contractual arrangements are outlined in the ASX announcement dated 9 August 2017 and a summary is included in section 5.1 of
the Remuneration Report.
The Board invites you to consider the 2017 Remuneration Report. We welcome feedback on the Company’s remuneration approach
in supporting IPL’s business strategy.
Kathryn Fagg
Chairman, Remuneration Committee
23
Incitec Pivot Limited Annual Report 2017
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 2018 financial year
3. 2017 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 2017 financial year and link to
2017 financial year performance
4.1 Analysis of relationship between the Group’s performance, shareholder wealth and remuneration
4.2 2016/17 STI Outcomes
4.3 2014/17 LTI Outcomes
4.4 LTI: Performance related remuneration
4.5 Further details of Executive remuneration
5. Executives – Summary of terms of employment
5.1 CEO Transition
5.2 Executives
5.3 Service agreement terms
6. Non-Executive Director Remuneration
7. Shareholdings in IPL
8. Other KMP Disclosures
Page
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26
26
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Incitec Pivot Limited Annual Report 2017
24
Directors’ Report: Remuneration Report
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 2017. 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 2017 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 2017 financial year. Refer to
Table 1 below for all individuals comprising IPL’s KMP for the 2017 financial year.
Table 1: Individuals forming IPL’s KMP for the reporting period
Non-executive Directors
Current
Mr Paul Brasher
Ms Kathryn Fagg
Mr Greg Hayes
Ms Rebecca McGrath
Mr Graham Smorgon AM
Mr Joseph Breunig(1)
Mr Brian Kruger(1)
Former
Mr John Marlay(2)
Executives
Current
Mr James Fazzino(3)
Mr Frank Micallef
Mr Simon Atkinson
Ms Leah Balter
Mr Alan Grace
Ms Elizabeth Hunter
Mr Nicholas Stratford(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
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, Dyno Nobel Americas
(1) On 5 June 2017, Mr Breunig and Mr Kruger were appointed to the Board as non-executive directors.
(2) On 16 December 2016, Mr Marlay retired from the Board as a non-executive director.
(3) As announced to the ASX on 9 August 2017, Mr Fazzino will cease as Managing Director & Chief Executive Officer on 14 November 2017. In October 2017,
Ms Jeanne Johns commenced as CEO Designate, and she will commence as Managing Director & Chief Executive Officer on 15 November 2017.
(4) On 6 February 2017, Mr Stratford was appointed President, Dyno Nobel Americas and became a Key Management Person.
25
Incitec Pivot Limited Annual Report 2017
2. Executive Remuneration & Governance
2.1 Executive Remuneration Strategy
IPL is a global 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.
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 or the Board engages external advisors to provide input to the process of
reviewing Executive and non-executive director remuneration. For, and in respect of, the 2017 financial year, the Remuneration
Committee received market and benchmarking data and strategic advice from 3 degrees consulting. 3 degrees consulting was
acquired by KPMG in early 2017. The information provided by 3 degrees consulting for, and in respect of, the 2017 financial year
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 2018 financial year
During the 2017 financial year, the Board reviewed the following aspects of the Company’s remuneration arrangements.
Fixed Annual Remuneration
The Fixed Annual Remuneration (FAR) of Executives (other than the Managing Director & Chief Executive Officer) was reviewed and
increased by 2% effective from 1 October 2017. Other than for new appointments, the Executives’ FAR was last increased in
October 2014 with fixed remuneration frozen for 2016 and 2017. The increase is designed to maintain the competitive market
positioning of Executives in the context of inflation and forecast market movements in the order of 2%.
Variable Remuneration
The changes to the short term incentive (STI) and long term incentive (LTI) arrangements set out 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 in particular 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
With the completion of the BEx OFI program, the STI design for the Executives has been realigned as follows, with a primary focus
on achievement of financial outcomes, balanced by a continuing focus on safety and strategic outcomes/business priorities:
• 10% of the STI opportunity continues to be focused on safety, with the measures to comprise a balanced scorecard across the
dimensions of behavioural safety and process safety management similar to the measures applied in 2017.
• 80% – 90% of the STI opportunity is allocated to Group and Business Segment financial performance depending on the
Executive’s role (other than the role of President, Strategy & Business Development for whom this condition will comprise 50%
of her STI opportunity).
• 10% of the STI opportunity is focused on strategic outcomes/business priorities (other than the role of President, Strategy &
Business Development for whom this condition will comprise 40% of her STI opportunity and noting that this condition will not
apply to the Chief Financial Officer).
For the incoming Managing Director & Chief Executive Officer, Ms Jeanne Johns, her STI will be similar in structure, with 10% of the
STI opportunity allocated to safety, 80% allocated to Group financial performance, and the remaining 10% allocated to specific
objectives in relation to strategy, organisation development and other business priorities. 50% of any STI award earned will be
deferred into equity to be released over a two-year period. Further details are set out in section 5.1.
Incitec Pivot Limited Annual Report 2017
26
Directors’ Report: Remuneration Report
Long Term Incentive
With the completion of the Louisiana Ammonia Project in October 2016, for the performance period commencing 1 October 2017
and ending 30 September 2020 (LTI 2017/20), the Board has realigned the performance conditions as follows:
• The TSR Condition, which is based on the Company’s TSR performance relative to the S&P/ASX100 comparator group, has been
maintained, with the weighting increased from 40% of the maximum LTI opportunity to 50% of the maximum LTI opportunity.
• The ROE Growth Condition introduced in 2016 also continues, with the weighting increased from 30% to 35%. The targets in
this performance condition have been set to maximise the operational efficiency of the Group’s assets through the cycle.
• The Strategic Initiative Condition has also been continued and, as was the case in the 2016/19 plan, BEx will be the sole
component. With the completion of the BEx OFI program, this condition will be weighted at 15% rather than 30% of the
maximum LTI opportunity and the performance goals will comprise specific objectives relating to ongoing improvement in
business system maturity, delivery of productivity benefits and manufacturing production.
3. 2017 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 (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 2017 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 2017 financial year for each Executive, the
maximum entitlement that could potentially be awarded under the STI and LTI was taken into account.
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 2017 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 2017 financial year. For the 2018 financial year, the Board has determined that FAR will be increased
by 2%.
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Incitec Pivot Limited Annual Report 2017
3.3 Short term incentive
The STI is an annual “at risk” incentive which is dependent on the achievement of particular performance measures.
The following table summarises the STI plan that applied in the 2017 financial year (2017 STI):
What was the
performance
period?
The performance period for the 2017 STI was the financial year from 1 October 2016 to
30 September 2017.
Who was eligible
for the STI?
Participation was at the Board’s discretion. The MD&CEO and all other Executives participated in the
2017 STI.
What was the
target and
maximum STI
opportunity?
What were the
Performance
Conditions and
Measures?
Target STI opportunity was 50% of FAR for all Executives. Maximum STI opportunity (for stretch outcomes)
was 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 2017 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 Earnings per Share (EPS).
Business Unit Earnings Before Interest and
Tax (EBIT).
Safety performance balanced scorecard
across the dimensions of behavioural safety
and process safety management comprising
input and output measures.(1)
Strategic
outcomes
Delivery of $100 million in cash benefits
through the Group-wide BEx OFI program.
To align with the Company’s strategic intent of
achieving top quartile performance as measured
against S&P/ASX 100 companies.
To ensure robust alignment of performance in a
particular business unit with reward for the
Executive managing that business unit.
To align with the Company’s commitment to “Zero
Harm for Everyone, Everywhere”. In 2017, the
Company adopted its second five-year Global HSE
Strategy to continue to drive improvement in the
Group’s health, safety and environmental
performance.
To recognise the financial importance of the BEx
OFI program in aligning the Company’s cost base
with the structural and cyclical shifts in the
Company’s end markets. The performance
condition was structured as a Group-wide
performance condition applicable to all
Executives.
(1) In assessing the safety balanced scorecard, the Board may, in its discretion, have regard to the results achieved against the measures
comprising the scorecard without applying a specific weighting to any particular measure.
Where any Individually Material Item (IMI) is separately recognised in the financial report, the Board will have
discretion to include or exclude the IMI for the purpose of determining any STI 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.
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.
Incitec Pivot Limited Annual Report 2017
28
Directors’ Report: Remuneration Report
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.
For the 2017 financial year, the STI Financial 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.
In addition, with regard to the BEx OFI performance measure which required delivery of $100 million
in cash benefits, the Board retained discretion to determine the appropriate STI award (if any) for this
measure having regard to the Company’s overall financial performance.
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 2017 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
L Balter*
President, Strategy & Business Development
A Grace**
President, Global Manufacturing
Financial
Growth
in EPS
Business Unit
EBIT
Non-financial/
Business/Strategic
BEx OFI
Safety
Program
Maximum STI
opportunity
60%
60%
10%
30%
10%
30%
100%
100%
60%
10%
30%
100%
60%
10%
30%
60%
10%
30%
E Hunter*
Chief Human Resources Officer & Shared Services
60%
10%
30%
N Stratford**
President, Dyno Nobel Americas
*Group role **Business Unit role
60%
10%
30%
100%
100%
100%
100%
Was there a
mechanism for
clawback and
deferral?
The 2017 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.
29
Incitec Pivot Limited Annual Report 2017
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 2017
financial year?
The LTI Plans applicable to the 2017 financial year were the:
• Long Term Incentive Performance Rights Plan for 2014/17 (LTI 2014/17);
• Long Term Incentive Performance Rights Plan for 2015/18 (LTI 2015/18); and
• Long Term Incentive Performance Rights Plan for 2016/19 (LTI 2016/19),
(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 provided 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?
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.
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 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 2014/17, LTI 2015/18 and LTI 2016/19, the number of performance rights issued to a
participant was based on the market value of the Company’s shares and was determined by dividing the
dollar value of the relevant participant’s LTI opportunity by the Company’s volume weighted average share
price over the 20 business days up to but not including the first date of the relevant performance period.
LTI Plan
Performance
Conditions
Weighting of
Performance
Condition
Performance
Period
Status
LTI 2014/17
• TSR Condition
• Strategic Initiatives
70%
30%
Condition
1 October 2014 to
30 September 2017
LTI 2015/18
• TSR Condition
• Strategic Initiatives
70%
30%
Condition
1 October 2015 to
30 September 2018
LTI 2016/19
• TSR Condition
• Strategic Initiatives
40%
30%
1 October 2016 to
30 September 2019
Condition
• ROE Growth
Condition
30%
Performance period completed.
Following testing in November,
the Board determined that
68.8% of the performance rights
will vest in the 2018 financial
year. Refer to section 4.3 for
further details.
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.
Incitec Pivot Limited Annual Report 2017
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Directors’ Report: Remuneration Report
When are the
performance
conditions
measured?
After the expiry of the relevant performance period, the Board determines whether the performance
conditions of the relevant 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 receive ordinary shares in the Company. The participant does not pay for those shares.
To the extent the performance conditions are not satisfied during the performance period, the performance
rights will lapse.
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 2014/17 and LTI 2015/18, the performance conditions are measured by reference to relative Total Shareholder Returns
of IPL, measuring TSR against companies in the S&P/ASX 100 (TSR Condition) and the Company’s Strategic Initiatives (Strategic
Initiatives Condition). For the LTI 2016/19, the performance conditions are measured by reference to the TSR Condition, a
Strategic Initiative Condition and growth in Return on Equity (ROE Growth Condition). Details of the performance conditions for
each of the LTI 2014/17, LTI 2015/18 and LTI 2016/19 are set out below.
TSR Condition
The TSR Condition (applicable to each of the LTI 2014/17, LTI 2015/18 and LTI 2016/19) 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%
Strategic Initiatives Condition
The Strategic Initiatives Condition relates to the delivery of significant aspects of the Board approved strategy. The Strategic
Initiatives Condition applies to the LTI 2014/17, the LTI 2015/18 and the LTI 2016/19. For the LTI 2014/17 and the LTI 2015/18,
the Strategic Initiatives Condition comprises two equal components: (i) the Louisiana Ammonia Project; and (ii) the Business
Excellence System. For the LTI 2016/19, the Strategic Initiatives Condition relates solely to the Business Excellence System.
31
Incitec Pivot Limited Annual Report 2017
The table below summarises the Strategic Initiatives Condition components for the LTI 2014/17, the LTI 2015/18 and the LTI 2016/19:
Rationale
Scorecard
Measurement criteria
Performance goals
Strategic
Initiatives Condition
component
Louisiana
Ammonia Project
(Applies to
15% of the
performance
rights in a grant
for the LTI
2014/17 and the
LTI 2015/18)
The Louisiana ammonia
project at Waggaman,
Louisiana, construction of
which completed on 19
October 2016, underpins
the future growth of the
Dyno Nobel Americas
business and will create
long term shareholder
value.
Business
Excellence
(BEx) System
(Applies to
15% of the
performance
rights in a grant
for the LTI
2014/17 and
the LTI 2015/18
and 30% of the
performance
rights in a grant
for the LTI
2016/19 )
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.
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.
Performance in relation to
this component of the
Strategic Initiatives Condition
will be assessed against a
Scorecard comprising
performance goals related to:
• Business system maturity
(practices)
• Cumulative productivity
benefits (performance)
• Manufacturing plant
uptime (performance)
Safety: Total Recordable Injury Frequency Rate
(TRIFR) for the Louisiana Ammonia Project to be
less than or equal to the IPL Group TRIFR.
Capital cost (only applicable to the 2014/17
LTI): as per Project business case (US$850
million).
Plant efficiency: as per Project business case
(32GJ 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).
Business system maturity:
An absolute improvement in Business Excellence
system maturity over the performance period.
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, details of the performance goals are disclosed only at the end of the performance period. For the LTI
2014/17, these details are set out in section 4.3. For the LTI 2015/18 and the LTI 2016/19, the relevant details will be set out in
the 2018 Remuneration Report and the 2019 Remuneration Report respectively.
The Board will determine the outcome for the relevant component of the Strategic Initiatives Condition under each LTI plan having
regard to the results achieved against the performance goals across the entirety of the Scorecard for that component. 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.
ROE Growth Condition
The ROE Growth Condition was introduced for the first time in 2016 and applies to the LTI 2016/19. The ROE Growth Condition
measures the compound annual growth in Return on Equity (ROE) over the performance period. ROE was chosen as it is a widely
recognised and reported metric, is a key determinant of efficient use of the capital entrusted to management by shareholders,
reflects all of the levers to create shareholder value and is a transparent metric which can be calculated directly from the
Company’s financial report.
The table below sets out the ROE Growth Condition, and the percentage of performance rights that will vest based on satisfaction
of this condition:
ROE Compound Annual Growth Rate
% of performance rights subject to the ROE Growth Condition that will vest
Less than 7%
Nil
At or above 7% but less than 11%
Pro rata from 50% on a straight line basis
11% or greater
100%
Incitec Pivot Limited Annual Report 2017
32
Directors’ Report: Remuneration Report
4. Remuneration outcomes in 2017 financial year and link to 2017 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
Net Profit After Tax excluding non-controlling interests (NPAT) (before IMIs) ($m)
Earnings Per Share (EPS) (before IMIs) (cents)
Dividends – paid in the financial year – per share (DPS (paid)) (cents)
Dividends – declared in respect of the financial year – per share (DPS (declared)) (cents)
Share price ($) (Year End)
Total Shareholder Return (TSR) (%)(1)
2013
2014
293.5
356.3
2015
398.6
2016
295.2
18.0
21.7
12.5
9.2
2.69
(16)
9.3
10.8
2.71
(7)
23.8
11.7
11.8
3.90
43
17.5
11.5
8.7
2.82
14
2017
318.7
18.9
9.1
9.4
3.60
36
(1) TSR is calculated in accordance with the rules of the LTI 2010/13, LTI 2011/14, LTI 2012/15, LTI 2013/16 and LTI 2014/17 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 and
preceding four years. In 2013, EPS (before IMIs) decreased
27% and no STI awards were made. In 2014, EPS (before
IMIs) grew 21% to 21.7 cps resulting in partial awards being
made to Executives under the 2014 STI. Similarly, in the 2015
financial year, EPS (before IMIs) increased by 9.7% to 23.8
cps and, as a result, certain Executives earned awards in full
in respect of this 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 in relation to the
successful completion of the Louisiana Ammonia Project as
well as the Group’s safety performance. For the 2017
financial year, EPS (before IMIs) has increased 8% to 18.9 cps
resulting in certain Executives earning partial STI awards in
respect of this measure.
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.
IPL outranked the 50th percentile TSR for the ASX 100 peer
group for the 2012–2015 performance period with a 53rd
percentile ranking (Absolute TSR achieved 43%) and for the
2014–2017 performance period with a 53rd percentile
ranking (Absolute TSR achieved 36%). As a consequence, the
LTI 2012/15 partially vested and the LTI 2014/17 will also
partially vest as outlined in section 4.3 of this report.
The performance rights in the LTI 2010/13, LTI 2011/14 and
the LTI 2013/16 did not meet the performance conditions set
out in those plans (including a TSR condition) and lapsed. TSR
has been positive for three out of the five periods reported.
33
Incitec Pivot Limited Annual Report 2017
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
2013
2014
2015
2016
2017
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
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T
8
7
6
5
4
3
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1
0
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60
50
40
30
20
10
0
0
0
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E
L
I
T
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C
R
E
P
L
P
I
2010–2013
2011–2014
2012–2015
2013–2016
2014–2017
IPL Absolute TSR
IPL Percentile Ranking in ASX 100
Note:
(1) The absolute TSR for IPL and for the ASX100 has been calculated using the
methodology noted in footnote (1) Table 3.
4.2 2017 STI Outcomes
Performance Condition
Outcome
Group Financial Performance
With EPS increasing 8% from 17.5 cents per share to 18.9 cents per share, Executives in Group roles
were awarded 65% of the STI opportunity for this measure. (Refer to Table 2 for Group roles).
Business Unit Financial Performance
As the EBIT outcomes for the Dyno Nobel Americas business exceeded stretch performance,
Mr Stratford and Mr Grace were awarded 100% of their respective STI opportunity for this measure.
Zero Harm
In relation to the Asia Pacific business, as the EBIT results for the Incitec Pivot Fertilisers and
Dyno Nobel Asia Pacific segments slightly exceeded threshold performance, Mr Atkinson and
Mr Grace were each granted a partial award in respect of this measure (being 39% of their
respective STI opportunity).
The balanced scorecard applied across the dimensions of behavioural safety and process safety
management was achieved in full. The TRIFR as at the end of the 2017 financial year was 0.90, which
was below the target of 1.0. In addition, the Company also achieved a significant improvement in other
key safety metrics, including:
• a 62% reduction in the Employee Lost Day Severity Rate; and
• a 6% reduction in the LTIFR.
Accordingly, Executives were awarded 100% of the STI opportunity for this measure.
Strategic Outcomes – BEx OFI
The BEx OFI Program substantially exceeded the stretch targets set in 2016 with the Company
delivering net savings of $176 million as at 30 September 2017. Accordingly, Executives were awarded
100% of the STI opportunity for this measure.
These outcomes are reflected in the STI payments awarded as set out in Table 4 below:
Table 4 – Short term incentives awarded for the year ended 30 September 2017
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2017 as remuneration to each
Executive are set out below:
Short term incentive for the year ended 30 September 2017
Included in remuneration
$000
% earned
% forfeited
Executives – Current
J Fazzino
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
N Stratford
1,763
726
394
605
579
459
494
79
79
52
79
76
79
100
21
21
48
21
24
21
–
4.3 LTI 2014/17 Outcomes
The performance period for the LTI 2014/17 ended on 30 September 2017. Following testing against the performance conditions,
in November the Board determined that 68.8% of the performance rights granted under the plan will vest. Details in relation to
each of the performance conditions are set out below.
TSR Condition
In relation to the TSR Condition, the Company’s relative TSR performance over the performance period exceeded the performance
of the median of the companies in the S&P/ASX100, with the Company achieving a percentile ranking of 52.69 against the
comparator group. Accordingly, 55.4% of the performance rights granted subject to the TSR Condition will vest in the 2018 financial
year (being 38.8% of the total performance rights granted under the plan).
Strategic Initiatives Condition
In relation to the Strategic Initiatives Condition for which there were two components – the Louisiana Ammonia Project and
Business Excellence – the Board assessed each component against a balanced scorecard and determined the outcome having
regard to the results achieved for the performance goals across the entirety of the scorecard. The Board has determined that 100%
of the performance rights granted subject to this condition will vest in the 2018 financial year (being 30% of the total performance
rights granted under the plan). Commentary on the performance against the scorecard is set out in the following table.
Incitec Pivot Limited Annual Report 2017
34
Directors’ Report: Remuneration Report
Strategic Initiatives
Condition component
Louisiana Ammonia
Project
Actual
Vesting (%)
100
Commentary on Performance Against Scorecard
The performance period for the Project covered plant construction, commissioning and year one of
operation. As the construction and commissioning stages comprised the majority of the performance
period, greater weighting was given to these measures.
The performance goals in relation to safety, capital cost, efficiency and output were all achieved, with
significant outperformance in relation to safety and capital cost:
• Safety: 5.23 million hours were worked during the construction of the plant without a lost time injury.
This safety performance has set a new benchmark for construction projects in North America. The TRIFR
for the Project was significantly below the IPL Group TRIFR for the performance period.
• Capital cost: the Project was completed at a cost of US$820 million, approximately 4% below the budget
of US$850 million set at Project sanction in April 2013.
• Efficiency: the plant efficiency of 32GJ of gas per metric tonne of ammonia was met at performance
testing and during operation.
• Output and EBITDA: While the EBITDA was not met as a result of the cyclical downturn in ammonia
prices, the output measure was deemed to be satisfied based on actual production as well as
compensation received as liquidated damages from the contractor in relation to the timing of handover
of the plant. The long term Project metrics remain compelling, with the plant demonstrating capacity to
operate at or above nameplate of 800,000 metric tonnes per annum.
In assessing the scorecard, the Board also had regard to external benchmarks. When measured against
similar nitrogen projects sanctioned or completed within the period of the Project’s construction, the
Louisiana Ammonia Project outperformed in the areas of safety, capital cost, completion to schedule and
time taken to achieve nameplate capacity. As noted above, the plant has demonstrated capacity to
operate above nameplate, producing 108% of nameplate capacity in September 2017, which represents
world class performance for the first year of production. An independent global consultancy benchmarked
the Project in the top 2% by reference to schedule and cost for projects in the oil and gas, mining and
chemical industries worldwide. When considered against project benchmarks, the Board has assessed this
as the standout nitrogen project completed in North America during the current nitrogen “boom”.
Overall assessment: As the Project was completed safely, on time, below budget and with a
demonstrated capacity to operate at or above nameplate of 800,000 metrics tonnes per annum, the
Board determined that the performance goals were delivered against the balanced scorecard.
Business Excellence
(BEx) System
The performance goals for the BEx scorecard comprised non-financial (input) and financial (output) measures.
100
In relation to the input measures, being business system maturity and manufacturing plant uptime, the
performance goals were met with the majority of the selected plants achieving an uptime near or above
the 90th percentile. Similarly, in relation to business system maturity, which is measured on a scale of 1 to
5, an absolute improvement of 1.01 in the maturity score was achieved at the end of the performance
period, exceeding the target. The final maturity score was verified by an independent third party.
The outcomes in relation to these input measures are reflected in the output measure, with the Company
delivering $288 million in cumulative productivity benefits at the end of the performance period,
significantly exceeding the $75 million target set at the commencement of the performance period.
Overall assessment: Having regard to the outcomes in relation to the input and output measures, the
Board determined that the performance goals were delivered against the balanced scorecard.
Overall, 68.8% of the Performance Rights allocated under the LTI 2014/17 will vest (with the remaining 31.2% to lapse).
The number of rights vested and lapsed will be reported in the 2018 Remuneration Report.
35
Incitec Pivot Limited Annual Report 2017
4.4 LTI: Performance related remuneration
Table 5 – Details of long term incentives granted and vested in the year ended 30 September 2017 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 2013/16 (performance period: 1 October 2013 to 30 September
2016) which, following testing in November 2016, did not result in any rights vesting. In relation to the LTI 2014/17 (performance period:
1 October 2014 to 30 September 2017), following testing in November 2017, the Board determined that 68.8% of the performance
rights will vest. This will be reported in the 2018 Remuneration Report.
Key Management
Personnel
Executives – Current
J Fazzino
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
N Stratford
LTI plan
Grant date
Granted during 2017
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
2013/16
2014/17
2015/18
2016/19
2013/16
2014/17
2015/18
2016/19
2013/16
2014/17
2015/18
2016/19
2015/18
2016/19
2013/16
2014/17
2015/18
2016/19
2013/16
2014/17
2015/18
2016/19
2016/19
6 January 2014
30 December 2014
21 January 2016
25 January 2017
6 January 2014
30 December 2014
21 January 2016
25 January 2017
6 January 2014
30 December 2014
21 January 2016
25 January 2017
25 August 2016
25 January 2017
6 January 2014
30 December 2014
21 January 2016
25 January 2017
6 January 2014
30 December 2014
21 January 2016
25 January 2017
19 April 2017
–
–
–
2,598
–
–
–
855
–
–
–
713
–
713
–
–
–
713
–
–
–
541
736
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
100
–
–
–
100
–
–
–
–
–
100
–
–
–
100
–
–
–
–
2016
2017
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2018
2019
2016
2017
2018
2019
2016
2017
2018
2019
2019
–
1,746
1,025
2,598
–
575
337
855
–
479
281
713
275
713
–
479
281
713
–
364
213
541
736
(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
to the right. This amount is allocated to the remuneration of
the applicable Executive over the vesting period (that is, in the
2017, 2018 and 2019 financial years).
(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.
LTI 2013/16 - TSR
LTI 2013/16 - EPS
LTI 2014/17 - TSR
LTI 2014/17 - Strategic Initiative
LTI 2015/18 - TSR
LTI 2015/18 - Strategic Initiative
LTI 2016/19 - TSR
LTI 2016/19 - Strategic Initiative
LTI 2016/19 - ROE Growth
Grant date
6/01/2014
6/01/2014
30/12/2014
30/12/2014
21/01/2016
21/01/2016
25/01/2017
25/01/2017
25/01/2017
Fair value per share treated
as rights at grant date
$1.40
$2.39
$1.99
$2.88
$1.29
$3.06
$2.87
$3.45
$3.45
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:
Key Management Personnel
Opening balance
Granted as compensation(A)
Vested(B)
Forfeited(C)
Closing balance
Number of Rights
Executives – Current
J Fazzino(1)
F Micallef
S Atkinson
L Balter(2)
A Grace
E Hunter
N Stratford(2)
2,140,602
704,725
549,356
150,941
587,271
435,903
–
807,335
265,789
221,491
221,491
221,491
168,115
228,832
–
–
–
–
–
–
–
(804,218)
(264,763)
(182,721)
–
(220,636)
(157,621)
–
2,143,719
705,751
588,126
372,432
588,126
446,397
228,832
(A) For the 2017 financial year, this represents the rights granted to Executives during the reporting period under the LTI 2016/19.
(B) For the 2017 financial year, this represents the number of rights that vested during the reporting period.
(C) For the 2017 financial year, this represents rights that were forfeited by Executives during the reporting period under the LTI 2013/16.
(1) This represents the closing balance as at 30 September 2017. Section 5.1 sets out details of rights to be vested, retained and forfeited by Mr Fazzino after the
reporting period.
(2) Ms Balter and Mr Stratford were not participants in the LTI 2013/16.
Incitec Pivot Limited Annual Report 2017
36
Directors’ Report: Remuneration Report
4.5 Further details of Executive remuneration
Table 7 – Executive remuneration
Details of the remuneration for each Executive for the year ended 30 September 2017 are set out below (noting that for
individuals who ceased to be KMP in the 2016 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
Short term
incentive
& other
bonuses as a
proportion of
remuneration(E)
Total
%
30
6
32
6
24
6
36
–
31
28
32
6
37
3
5
–
31
7
Year
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
Executives – Current
J Fazzino
Managing Director & CEO
F Micallef
Chief Financial Officer
S Atkinson
President, Dyno Nobel Asia Pacific
and Incitec Pivot Fertilisers
L Balter(1)
President, Strategy &
Business Development
A Grace
President, Global Manufacturing
E Hunter
Chief Human Resources Officer
& Shared Services
N Stratford(2)
President, Dyno Nobel Americas
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2,209
2,209
1,763
212
897
898
744
896
744
124
744
745
560
545
726
87
394
73
605
–
579
416
459
55
2017
504
494
–
–
–
–
–
–
–
300
–
–
34
12
63
20
19
20
19
20
19
20
3
20
19
20
19
13
43
43
9
24
18
16
4
1
20
17
4
7
32
–
–
–
–
–
–
–
–
–
–
–
–
–
1,790
1,111
589
366
491
296
329
21
491
305
373
229
245
–
(641)
–
(211)
–
(146)
–
–
–
(176)
–
(126)
1,790
470
589
155
491
150
329
21
491
129
373
103
5,825
2,953
2,241
1,183
1,667
1,154
1,702
449
1,854
1,326
1,450
741
–
245
1,351
Executives – Former
S Dawson(3)
President, Manufacturing Operations 2016
510
50
3
13
15
753
305
(176)
129
1,473
G Kubera(4)
President, Dyno Nobel Americas
2016
815
75
48
2016
134
–
63
–
5
–
2
420
211
–
211
1,569
964
37
(127)
(90)
1,078
J Whiteside(5)
Chief Operating Officer,
Incitec Pivot Fertilisers
Total Executives
2017
2016
6,402
6,876
5,020
968
97
426
133
116
130
125
–
2,137
4,308
2,881
–
(1,603)
4,308
1,278
16,090
11,926
(A) Certain STI payments are awarded in US$. Such STI payments were converted to A$ at the spot rate on 30 September 2017, being 1.2745.
(B) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2017: 1 April 2016 to
31 March 2017) (2016: 1 April 2015 to 31 March 2016), rent and mortgage interest subsidies, relocation allowances and other allowances. For Mr Stratford, this
includes rental subsidies in relation to his role as President, Dyno Nobel Americas. For Ms Hunter, this amount related to relocation allowances paid in the 2017
financial year.
(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) Ms Balter commenced employment with the Company and became a KMP on 1 August 2016 and the disclosures for the 2016 financial year are from that date.
Ms Balter’s contract included a one-off payment of $300,000 (less applicable taxes) as compensation for incentives foregone arising from cessation of her
employment with her previous employer. The payment was made in the 2016 financial year.
(2) Mr Stratford’s fixed remuneration payments were converted from US$ to A$ at the average rate for 6 February 2017 to 30 September 2017, being 1.3365.
(3) Mr Dawson ceased to be a member of the Executive Team and a KMP with effect from 7 June 2016.
(4) Mr Kubera ceased employment with the Company on 30 September 2016. 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.
(5) Mr Whiteside ceased employment with the Company on 4 November 2015. Termination payments received by Mr Whiteside in the 2016 financial year included a
separation payment in the amount of $667,304 and long service leave in the amount of $296,980.
37
Incitec Pivot Limited Annual Report 2017
Table 8 – Actual Pay
The table below provides a summary of actual remuneration paid to the Executives in the 2017 financial year (noting that for
individuals who ceased to be KMP in the 2016 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
N Stratford
President, Dyno Nobel Americas
Executives – Former
S Dawson
President, Manufacturing Operations
G Kubera
President, Dyno Nobel Americas
J Whiteside
Chief Operating Officer, Incitec Pivot Fertilisers
Total Executives
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2016
2016
2017
2016
Short Term
Incentive
& other
bonuses(A)
$000
Other
Short Term
benefits(B)
$000
Superannuation
benefits
Termination
benefits
$000
$000
212
2,005
87
825
73
76
–
–
416
535
55
522
–
535
56
611
843
5,165
–
–
–
–
–
–
–
300
–
–
34
12
63
3
46
63
97
424
20
19
20
19
20
19
20
3
20
19
20
19
13
13
–
5
133
116
–
–
–
–
–
–
–
–
–
–
–
–
–
–
964
–
964
Salary
& Fees
$000
2,209
2,209
897
898
744
896
744
124
744
745
560
545
504
510
815
134
6,402
6,876
Total
$000
2,441
4,233
1,004
1,742
837
991
764
427
1,180
1,299
669
1,098
580
1,061
917
1,777
7,475
13,545
(A) Represents short term incentives paid during the 2017 financial year in relation to incentives awarded in respect of the 2016 financial year under the 2016 STI.
(B) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2017: 1 April 2016 to
31 March 2017) (2016: 1 April 2015 to 31 March 2016), rent and mortgage interest subsidies, relocation allowances and other allowances.
Incitec Pivot Limited Annual Report 2017
38
Directors’ Report: Remuneration Report
5. Executives – Summary of terms of employment
5.1 CEO Transition
Mr James Fazzino was appointed as Managing Director & Chief Executive Officer on 29 July 2009. In February 2017, the Company
announced that Mr Fazzino would be stepping down from the role of Managing Director & Chief Executive Officer. Mr Fazzino will
cease as Managing Director & Chief Executive Officer on 14 November 2017. This section provides details of Mr Fazzino’s
remuneration during the 2017 financial year and his cessation arrangements. Refer to section 5.3 for specific information relating to
the terms of Mr Fazzino’s service agreement.
As announced to the ASX on 9 August 2017, Ms Jeanne Johns will commence as Managing Director & Chief Executive Officer on
15 November 2017. Details of Ms Johns’ remuneration and other contractual arrangements are outlined in the ASX announcement
dated 9 August 2017 and a summary is included below.
Outgoing CEO remuneration and cessation arrangements
For the 2017 financial year, Mr Fazzino’s FAR was $2,228,245.
Mr Fazzino participated in the 2017 STI. For the 2017 financial year, Mr Fazzino’s maximum STI opportunity was 100% of his FAR.
Mr Fazzino was awarded a STI payment of $1,763,024.
Mr Fazzino also participated in the LTI 2014/17. On determination of performance measured against the performance conditions, in
accordance with the LTI 2014/17 plan rules, 532,039 of Mr Fazzino’s performance rights will vest in the 2018 financial year. Mr
Fazzino also participates in the LTI 2015/18 and the LTI 2016/19, pursuant to which Mr Fazzino was granted 562,688 performance
rights (under the LTI 2015/18) and 807,335 performance rights (under the LTI 2016/19). Each grant was approved by shareholders
at the relevant Annual General Meeting.
Mr Fazzino will cease employment with the Company on 14 November 2017. In accordance with the terms of his service
agreement, Mr Fazzino will receive:
• payment in lieu of notice of $631,818, for the period 15 November 2017 to 24 February 2018 (being the balance of his 12
month notice period); and
• payment of accrued annual leave and accrued long service leave.
Mr Fazzino will also retain a pro rata portion of his unvested LTI grants from previous years, reflecting the portion of the relevant
performance period that he will have served as at the date of cessation of his employment. As a result, he will retain the following
unvested performance rights:
• 398,400 performance rights granted under the LTI 2015/18; and
• 302,290 performance rights granted under the LTI 2016/19.
Mr Fazzino’s retained performance rights will remain subject to their original terms. They will be tested against the relevant
performance conditions at the end of the relevant performance periods. There will be no relaxation of the performance hurdles and
no acceleration of the testing of those hurdles.
No other payments will be made to Mr Fazzino in respect of his cessation of employment.
Incoming CEO service agreement terms
The ASX announcement dated 9 August 2017 sets out material terms of Ms Johns’ service agreement. Ms Johns’ service agreement
is unlimited in term but is capable of termination. This section includes a summary of the terms of Ms Johns’ service agreement in
respect of her remuneration.
FAR
STI
LTI
$1,600,000 per annum, reviewed annually. This includes superannuation guarantee
contributions required to comply with superannuation guarantee legislation, if payable (noting
that Ms Johns’ salary will be exempt from the Superannuation Guarantee Scheme pursuant to
current legislative provisions).
For the financial year ending 30 September 2018, the maximum opportunity will be 150% of
FAR for stretch performance and 100% of FAR for target performance. 50% of any STI earned
will be deferred into equity to be released over a two-year period following the making of an
STI award, subject to meeting a service condition.
For the financial year ending 30 September 2018, the maximum opportunity will comprise
performance rights to the value of 150% of FAR, subject to shareholder approval. The amount
which vests is dependent on meeting vesting conditions.
39
Incitec Pivot Limited Annual Report 2017
Notice and Termination
12 months written notice must be provided by either party to terminate without cause. Ms
Johns may be required to serve out the whole or part of the notice period on an active or
passive basis or be paid in lieu of notice at the Board’s discretion.
Ms Johns may terminate the agreement by giving notice within 30 days of an event giving
rise to a fundamental change, being a circumstance where either:
• Ms Johns ceases to be the most senior executive of the Group; or
• there is a substantial diminution in her responsibilities or authority,
but excludes any change or diminution arising through termination or notice of termination
given under another provision of her service agreement, or arising with Ms Johns’ consent.
The Company may terminate Ms Johns’ employment immediately for cause.
Termination payments
Treatment of any STI or LTI plan benefits on termination will be determined by the rules of the
applicable plans.
No payment will be made in respect of termination of employment in excess of the amount
lawfully payable under Part 2D.2 of the Corporations Act 2001 without shareholder approval.
5.2 Executives
Remuneration and other terms of employment for the Executives are 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). In relation to the Executives’ FAR, no increase from the 2016 financial year
was made for the 2017 financial year. For the 2018 financial year, the Board has determined to increase the Executives’ FAR by 2%
with effect from 1 October 2017.
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 accrued 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 accrued 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
J Fazzino
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
N Stratford
6 months
13 weeks
13 weeks
13 weeks
8 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 (subject to the
provisions relating to termination benefits in Part 2D.2 of the Corporations Act 2001). All other Executives’ contracts provide for a
separation payment of 26 weeks of FAR, save for Mr Atkinson’s and Mr Stratford’s contracts. Mr Atkinson’s and Mr Stratford’s
contracts provide for a separation payment equal to 52 weeks of FAR. Additionally, Mr Micallef’s and Mr Grace’s contracts 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 accrued long service leave.
Incitec Pivot Limited Annual Report 2017
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 2017 financial year, there were no increases to non-executive directors’ fees. Fees paid to non-executive directors
amounted to $1,650,000, which was within the $2,000,000 maximum aggregate fee pool approved by shareholders at the 2008
Annual General Meeting.
For the 2018 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 2017:
Board Fees
Chairperson
Members
Committee Fees
Audit & Risk Management Committee
Chairperson
Members
Remuneration Committee
Chairperson
Members
HSEC 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 2017 are set out in the
following table:
Board and
Committee Fees
Cash allowances
and other short
term benefits(A)
Post-employment
benefits
Other long
term benefits
Non-executive directors – Current
P Brasher, Chairman
K Fagg
G Hayes(1)
R McGrath
G Smorgon AM
J Breunig(2)
B Kruger
Non-executive directors – Former
J Marlay
Total non-executive directors
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2017
2017
2016
2017
2016
Fees
$000
513
514
207
196
206
207
225
226
198
202
64
65
46
218
1,524
1,563
Superannuation
benefits
$000
$000
$000
–
–
–
–
7
–
–
–
–
–
10
–
2
–
19
–
20
19
19
17
19
18
20
19
19
19
–
6
4
19
107
111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$000
533
533
226
213
232
225
245
245
217
221
74
71
52
237
1,650
1,674
(A) Cash allowances and other short term benefits include travel allowances and the taxable value of fringe benefits paid attributable to the fringe benefits tax year.
(1) This relates to travel benefits received by Mr Hayes that were subject to fringe benefits tax.
(2) Mr Breunig resides in the United States and receives a travel allowance of $5,000 per trip to Australia to attend Board and/or Committee meetings.
41
Incitec Pivot Limited Annual Report 2017
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(1)
P Brasher
K Fagg
G Hayes
R McGrath
G Smorgon AM
J Breunig
B Kruger
Executive directors
J Fazzino
Executive
F Micallef
S Atkinson
L Balter
A Grace
E Hunter
N Stratford
60,600
10,000
10,000
18,758
13,100
–
–
–
–
–
–
–
–
14,620
1,914,562
–
–
–
–
–
–
–
–
–
50,744
50,270
–
75,800
–
19,620
234
(34,444)
–
–
–
–
–
–
–
–
–
–
60,600
10,000
10,000
18,758
13,100
–
14,620
1,914,562
16,534
50,270
–
75,800
–
19,620
(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.
(1) Mr John Marlay ceased to be a non-executive director on 16 December 2016 and, at that time, held 37,926 shares in the Company. Mr Marlay did not transact any
ordinary shares during the period in the 2017 financial year during which he was a director.
8. Other KMP Disclosures
Loans to KMP
In the 2017 financial year, there were no loans to KMP or their related parties (2016: nil).
Other KMP transactions
The following transactions, entered into during the 2017 and 2016 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 $505,742 during the year (2016: $962,735).
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
$1,063,667 during the year (2016: $494,202). 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 14th day of November 2017
Incitec Pivot Limited Annual Report 2017
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
14 November 2017
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 2017, 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 2017
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 81
Audit Report
Shareholder Information
Five Year Financial Statistics
46
47
48
49
50
82
83
88
89
Incitec Pivot Limited Annual Report 2017
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 2017.
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
2017 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 included in the notes to the financial report only to the extent it is considered material and relevant to the
understanding of the financial report. 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 2017
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 30 September 2017
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 gain/(losses) on defined benefit plans
Gross fair value losses 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 on cash flow hedges
Cash flow hedge (gains)/losses transferred to profit or loss
Exchange differences on translating foreign operations
Net gains 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)
(3)
(19)
(16)
(16)
(16)
(16)
(5)
(5)
2017
$mill
2016
$mill
3,473.4
3,353.7
102.3
39.9
56.2
35.9
(28.9)
10.4
(1,537.7)
(1,494.0)
(596.3)
(273.3)
(114.0)
(152.4)
(135.2)
(265.1)
(61.6)
(4.7)
(53.9)
392.5
(70.9)
321.6
41.7
(0.8)
(14.9)
26.0
52.9
(34.8)
(103.5)
69.2
1.5
(14.7)
(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)
11.3
(40.3)
332.9
89.1
318.7
2.9
321.6
330.0
2.9
332.9
18.9
18.8
128.1
1.3
129.4
87.8
1.3
89.1
7.6
7.6
Incitec Pivot Limited Annual Report 2017
46
Consolidated Statement of Financial Position
As at 30 September 2017
Notes
(8)
(4)
(4)
(16)
(4)
(16)
(13)
(9)
(10)
(3)
(4)
(8)
(16)
(15)
(4)
(8)
(16)
(15)
(3)
(19)
(7)
2017
$mill
2016
$mill
627.9
337.7
388.6
76.2
22.6
–
427.1
256.1
405.7
39.3
9.2
4.5
1,453.0
1,141.9
5.1
30.7
18.6
316.9
3,854.8
3,121.0
21.6
7,368.7
8,821.7
1,043.7
12.1
19.4
78.0
11.8
20.7
62.8
37.2
318.0
3,892.7
3,182.5
23.2
7,537.1
8,679.0
939.5
11.1
5.2
114.4
–
1,165.0
1,070.2
14.9
7.3
2,212.0
2,278.3
28.3
95.1
509.1
38.2
2,897.6
4,062.6
4,759.1
3,436.8
(197.9)
1,514.2
6.0
96.9
88.1
462.9
99.0
3,032.5
4,102.7
4,576.3
3,436.8
(187.3)
1,322.5
4.3
4,759.1
4,576.3
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 2017
Consolidated Statement of Cash Flows
For the year ended 30 September 2017
Cash flows from operating activities
Profit after tax for the year
Adjusted for non-cash items
Net finance cost
Depreciation and amortisation
Impairment of property, plant and equipment
Share of profit of equity accounted investments
Net gain on sale of property, plant and equipment
Non-cash share-based payment transactions
Deferred tax expense/(benefit)
Current tax expense
Changes in assets and liabilities
(Increase)/decrease in receivables and other operating assets
Decrease/(increase) in inventories
Increase 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 for acquisition of subsidiaries
Repayments of 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
Realised market value gain on derivatives
Dividends paid to members of Incitec Pivot Limited
Dividends paid to non-controlling interest holder
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents held
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash and cash equivalents held
Cash and cash equivalents at the end of the year
Notes
2017
$mill
2016
$mill
Inflows/
(Outflows)
Inflows/
(Outflows)
321.6
129.4
(2)
(9)
(13)
(2)
(17)
(3)
(3)
(13)
(8)
(8)
(6)
(8)
108.7
273.3
4.7
(39.9)
(19.8)
4.6
41.7
29.2
(50.3)
11.0
32.9
717.7
34.9
5.3
(97.3)
(12.9)
647.7
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
(319.7)
(435.5)
39.8
(2.5)
12.5
(18.4)
(288.3)
(505.1)
508.0
2.8
(153.5)
(1.2)
(149.0)
210.4
427.1
(9.6)
627.9
1.2
–
0.4
(46.5)
(480.4)
(828.3)
759.6
–
(194.0)
–
(262.7)
(167.8)
606.3
(11.4)
427.1
Incitec Pivot Limited Annual Report 2017
48
Consolidated Statement of Changes in Equity
For the year ended 30 September 2017
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 2015
3,430.9
(39.9)
27.0
(132.6)
(11.2)
1,402.8
4,677.0
3.0
4,680.0
Profit for the year
Total other comprehensive
income for the year
Dividends paid
(6)
Shares issued during the year
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)
1,322.5
4,572.0
4.3
4,576.3
Balance at 1 October 2016
3,436.8
(33.6)
22.3
(164.7)
(11.3)
1,322.5
4,572.0
4.3
4,576.3
Profit for the year
Total other comprehensive
income for the year
Dividends paid
(6)
Share-based payment transactions (17)
–
–
–
–
–
13.5
–
–
–
–
–
4.6
–
–
318.7
318.7
2.9
321.6
(28.2)
(0.5)
26.5
11.3
–
11.3
–
–
–
–
(153.5)
(153.5)
(1.2)
(154.7)
–
4.6
–
4.6
Balance at 30 September 2017
3,436.8
(20.1)
26.9
(192.9)
(11.8)
1,514.2
4,753.1
6.0
4,759.1
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 2014/17, LTI
2015/18 and LTI 2016/19.
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 2017
Notes to the Consolidated Financial Statements
For the year ended 30 September 2017
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 Key management personnel disclosures
19 Retirement benefit obligation
20 Deed of cross guarantee
21 Parent entity disclosure
22 Auditor’s remuneration
23 Events subsequent to reporting date
51
52
54
55
57
58
58
59
60
62
63
64
66
66
67
69
70
78
78
79
80
80
81
81
Incitec Pivot Limited Annual Report 2017
50
Notes to the Consolidated Financial Statements: Basis of preparation
For the year ended 30 September 2017
Basis of preparation and consolidation
Rounding of amounts
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 Group adopted all amendments to Standards and
Interpretations issued by the Australian Accounting Standards
Board (AASB) that are relevant to its operations and
effective for the current year. The adoption of these revised
Standards and Interpretations did not have a material impact
on the Group’s results.
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.
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 14 November 2017.
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 (IFRS) 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 2017
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2017
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-maker 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 (Fertilisers Elim): represents the elimination of sales and 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 (APAC Elim): represents elimination of sales and 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 to the agriculture and specialist industries.
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 sales and profit in stock arising from intersegment sales at an
arm’s length transfer price.
Reportable segments – financial information
30 September 2017
Notes
IPF
$mill
SCI
$mill
Fertilisers
Elim
$mill
Total
Fertilisers
$mill
DNAP
$mill
APAC
Elim
$mill
Total
$mill
DNA
$mill
Group
Elim
$mill
Corporate(i)
$mill
Consolidated
Group
$mill
Asia Pacific
Americas
Revenue from external customers
(2) 1,010.3
553.3 (213.8) 1,349.8
933.2 (19.2) 2,263.8
1,251.4
(41.8)
Share of profits of equity
accounted investments
EBITDA(ii)
(13)
–
–
–
–
16.0
84.9
85.0
1.2
171.1
273.3
Depreciation and amortisation
(2)
(28.1)
(39.1)
–
(67.2)
(84.3)
EBIT(iii)
Net interest expense
Income tax expense
Profit after tax
Non-controlling interest
Profit attributable to members of IPL
Segment assets
Segment liabilities
Net segment assets(iv)
Deferred tax balances
Net assets
(3)
(3)
56.8
45.9
1.2
103.9
189.0
696.8
503.5
(495.0)
(123.7)
201.8
379.8
–
–
–
1,200.3
2,870.0
(618.7)
(250.6)
581.6
2,619.4
–
–
–
–
–
–
–
–
–
3,473.4
39.9
774.5
16.0
444.4
23.9
348.7
–
0.3
(18.9)
(151.5)
(120.3)
–
(1.5)
(273.3)
292.9
228.4
0.3
(20.4)
501.2
(108.7)
(70.9)
321.6
(2.9)
318.7
4,070.3
4,021.8
(869.3)
(484.2)
3,201.0
3,537.6
–
–
–
708.0
8,800.1
(2,200.0)
(3,553.5)
(1,492.0)
5,246.6
(487.5)
4,759.1
(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.
(iii) Earnings Before Interest, related income Tax expense.
(iv) Net segment assets excluding deferred tax balances.
Incitec Pivot Limited Annual Report 2017
52
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2017
1. Segment report (continued)
Reportable segments – financial information (continued)
30 September 2016
Notes
IPF
$mill
Fertilisers
Elim
$mill
Total
Fertilisers
$mill
SCI
$mill
DNAP
$mill
APAC
Elim
$mill
Total
$mill
DNA
$mill
Group
Elim
$mill
Corporate
$mill
Consolidated
Group
$mill
Asia Pacific
Americas
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)
Share of profits of equity
accounted investments
EBITDA
(13)
–
–
–
–
15.5
71.2
98.3
2.1
171.6
267.6
Depreciation and amortisation
(2)
(26.9)
(40.5)
–
(67.4)
(81.5)
EBIT
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
Deferred tax balances
Net assets
44.3
57.8
2.1
104.2
186.1
676.4
515.7
(482.5)
(100.2)
193.9
415.5
–
–
–
1,192.1 2,873.8
(582.7)
(249.2)
609.4 2,624.6
(3)
–
–
–
–
–
–
–
15.5
439.2
20.4
253.5
(148.9)
(93.9)
–
1.5
–
–
–
(21.6)
3,353.7
35.9
672.6
(1.7)
(244.5)
290.3
159.6
1.5
(23.3)
428.1
(50.2)
(81.4)
296.5
(1.3)
(167.1)
128.1
4,065.9
4,079.7
(831.9)
(540.8)
3,234.0
3,538.9
–
–
–
510.2
8,655.8
(2,267.1)
(3,639.8)
(1,756.9)
5,016.0
(439.7)
4,576.3
Geographical information – secondary reporting segments
The Group operates in four principal countries being Australia (country of domicile), USA, Canada and Turkey.
In presenting information on the basis of geographical information, revenue is based on the geographical location of the entity
making the sale. Assets are based on the geographical location of the assets.
30 September 2017
Australia
$mill
USA
$mill
Canada
$mill
Revenue from external customers
2,155.2
1,046.8
173.4
Non-current assets other than financial
assets and deferred tax assets
3,513.5
3,634.9
Trade and other receivables
171.3
71.5
30 September 2016
Australia
$mill
USA
$mill
55.5
40.8
Canada
$mill
Revenue from external customers
2,151.5
885.1
182.4
Non-current assets other than financial
assets and deferred tax assets
3,580.3
3,710.2
Trade and other receivables
118.4
71.5
52.8
34.3
Turkey
$mill
61.6
1.4
16.9
Turkey
$mill
57.9
1.4
12.2
Other/Elim
$mill
Consolidated
$mill
36.4
3,473.4
123.2
7,328.5
42.3
342.8
Other/Elim
$mill
Consolidated
$mill
76.8
3,353.7
132.0
40.4
7,476.7
276.8
53
Incitec Pivot Limited Annual Report 2017
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 2017
2. Revenue and expenses
Notes
2017
$mill
2016
$mill
Revenue
External sales
Total revenue
Financial income
Interest income
Other income
Income from delay damages
Royalty income and management fees
(13)
Net gain on sale of property, plant
and equipment
Other income from operations
3,473.4
3,353.7
3,473.4
3,353.7
5.3
8.9
47.2
23.2
19.8
6.8
20.6
24.3
0.8
1.6
Total financial and other income
102.3
56.2
Expenses
Profit before income tax includes the following specific expenses:
Depreciation and amortisation
depreciation
amortisation
Notes
(9)
(10)
Total depreciation and amortisation
Recoverable amount write-down
property, plant and equipment
(9)
Total recoverable amount 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
(4)
(4)
(15)
(15)
(15)
restructuring and rationalisation costs (15)
2017
$mill
2016
$mill
249.6
218.8
23.7
25.7
273.3
244.5
4.7
4.7
5.6
1.1
0.6
0.4
2.4
0.4
172.3
172.3
3.1
9.4
3.6
2.3
15.9
43.3
10.2
Research and development expense
11.9
Defined contribution superannuation
expense
Defined benefit superannuation
expense
28.1
31.6
(19)
4.6
4.4
Financial expenses
Unwinding of discount on provisions
(15)
Net interest expense on defined
benefit obligation
(19)
Interest expenses on financial liabilities
Total financial expenses
4.9
2.9
106.2
114.0
5.0
3.3
50.8
59.1
Individually material items
There were no items of revenue or expenses that require
separate disclosure in order to explain the Group’s financial
performance at 30 September 2017.
The Group’s 2016 profit included the $150.8m (after tax
$105.6m) impairment write-down of the Gibson Island
manufacturing assets and business restructure costs of
$90.5m (after tax $61.5m).
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 2017
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 2017
Movements in net deferred tax liabilities
The table below sets out movements in net deferred tax
balances for the period ended 30 September:
Opening balance at 1 October
(Debited)/credited to the profit or loss
Charged to equity
Foreign exchange movements
Tax rate change
Adjustments in respect of prior years
2017
$mill
2016
$mill
(439.7)
(505.2)
(41.9)
(13.4)
7.3
–
0.2
27.4
17.2
20.8
0.5
(0.4)
Closing balance at 30 September
(487.5)
(439.7)
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 21.
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
3. Taxation
Income tax expense for the year
Current tax expense
Current year
Adjustments in respect of prior years
Deferred tax expense
Current year
Tax rate change
Adjustments in respect of prior years
Total income tax expense
2017
$mill
2016
$mill
26.3
2.9
29.2
41.9
–
(0.2)
41.7
70.9
33.0
1.7
34.7
(27.4)
(0.5)
0.4
(27.5)
7.2
Income tax reconciliation to prima facie tax payable
Profit before income tax
Tax at the Australian tax rate
of 30% (2016: 30%)
Tax effect of amounts which are not deductible/
(taxable) in calculating taxable income:
Other foreign deductions
Joint venture income
Sundry items
Difference in overseas tax rates
Adjustments in respect of prior years
Income tax expense attributable to profit
2017
$mill
2016
$mill
392.5
136.6
117.8
41.0
(30.1)
(12.0)
(7.9)
0.4
2.7
70.9
(25.9)
(10.9)
1.8
(0.9)
2.1
7.2
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 $13.4m for the year ended 30 September 2017
(2016: credit of $17.2m).
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
2017
$mill
2016
$mill
15.4
13.4
44.4
68.7
(460.2)
(134.5)
(13.0)
(40.7)
19.0
(487.5)
20.0
31.4
53.5
8.9
(340.4)
(145.0)
(14.5)
(40.4)
(13.2)
(439.7)
21.6
(509.1)
(487.5)
23.2
(462.9)
(439.7)
55
Incitec Pivot Limited Annual Report 2017
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2017
3. Taxation (continued)
Key accounting policies (continued)
Change in accounting policy
Recent guidance was published by the International Financial
Reporting Interpretation Committee (IFRIC) on applicable
indefinite life intangibles for the purposes of measuring
deferred tax in accordance with AASB 112 Income Taxes.
This latest interpretation requires the recognition of deferred
tax liabilities on intangibles assets with indefinite lives if
there is no intent to sell the asset. Prior to this
interpretation, the Group did not recognise deferred tax
liabilities on indefinite life intangibles (Brand Names).
As such, the Group has retrospectively changed its
accounting policy which has resulted in the recognition of a
deferred tax liability of $20.3m, an increase in goodwill of
$12.1m, and a decrease in retained earnings of $8.2m
relating to the acquisition of Dyno Nobel. These adjustments
impacted the Group’s 1 October 2015 balances.
Key estimates and judgments
Uncertain tax matters
The Group is subject to income taxes in Australia and
foreign jurisdictions and as a result the calculation of the
Group’s tax charge involves a degree of estimation and
judgment in respect of certain items. In addition, there are
transactions and calculations relating to the ordinary
course of business for which the ultimate tax
determination is uncertain. The Group recognises liabilities
for potential tax audit issues based on management’s
assessment of whether additional taxes may be payable.
Where the final tax outcome of these matters is different
from the amounts that were initially recorded, these
differences impact the current and deferred tax provisions
in the period in which such determination is made.
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 2017
56
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2017
4. Trade and other assets and liabilities
The Group’s total trade and other assets and liabilities
consists of inventory, receivables and payables 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
388.6
310.7
Other
$mill
–
32.1
Total
$mill
388.6
342.8
(749.8)
(308.8) (1,058.6)
(50.5)
(276.7)
(327.2)
Trade
$mill
405.7
210.3
Other
$mill
–
66.5
Total
$mill
405.7
276.8
(665.2)
(281.6)
(946.8)
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
(49.2)
(215.1)
(264.3)
(2.5)
FY13
FY14
FY15
FY16
FY17
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
30 September 2017
Inventories
Receivables
Payables
30 September 2016
Inventories
Receivables
Payables
Inventory by category:
Raw materials and stores
Work-in-progress
Finished goods
Provisions
Total inventory balance
Provision movement:
2017
$mill
88.5
45.7
2016
$mill
76.7
39.8
262.8
299.1
(8.4)
(9.9)
388.6
405.7
Trade
receivables
$mill
(29.8)
(5.6)
0.4
0.3
3.1
Inventories
$mill
(9.9)
(1.1)
1.7
0.9
–
30 September 2017
Carrying amount at 1 October 2016
Provisions made during the year
Provisions written back during the year
Amounts written off against provisions
Foreign exchange rate movements
Carrying amount at 30 September 2017
(31.6)
(8.4)
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:
30 September 2017
Current
30–90 days
Over 90 days
Total
30 September 2016
Current
30–90 days
Over 90 days
Total
Gross
$mill
Impairment
$mill
Net
$mill
295.2
13.9
33.2
342.3
(1.0)
(0.8)
(29.8)
294.2
13.1
3.4
(31.6)
310.7
Gross
$mill
Impairment
$mill
Net
$mill
196.4
14.7
29.0
240.1
(0.7)
(2.3)
(26.8)
(29.8)
195.7
12.4
2.2
210.3
57
Incitec Pivot Limited Annual Report 2017
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.
30
25
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.
2016
2013
2014
2015
2012
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 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 trade receivable balances at the reporting
date. Subsequent changes in economic and market
conditions may result in the provision for impairment
losses increasing or decreasing in future periods.
144A/reg S
USD800m
Aug 20
Dec 19
Feb 19
Oct 18
Oct 18
Notes to the Consolidated Financial Statements: Shareholder returns
For the year ended 30 September 2017
5. Earnings per share
6. Dividends
2017
Cents per share
2016
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
18.9
18.9
18.8
18.8
7.6
17.5
7.6
17.4
Ordinary shares
Final dividend of 7.4 cents per share,
60 percent franked, paid 14 December 2015
Interim dividend of 4.1 cents per share,
100 percent franked, paid 1 July 2016
Final dividend of 4.6 cents per share,
unfranked, paid 13 December 2016
Number
Number
Interim dividend of 4.5 cents per share,
unfranked, paid 3 July 2017
2017
$000
2016
$000
–
–
124,851
69,175
77,610
75,923
–
–
Weighted average number of
ordinary shares used in the
calculation of basic earnings
per share
Weighted average number of
ordinary shares used in the
calculation of diluted earnings
per share
1,687,170,521 1,686,971,487
1,691,087,236 1,691,861,561
Reconciliation of earnings used in the calculation
of basic and diluted earnings per share
Explosives (DNA, DNAP)
Fertilisers
%
17.5
15.0
12.5
Profit attributable to ordinary shareholders
10.0
Individually material items after income tax
7.5
Profit attributable to ordinary shareholders
excluding individually material items
5.0
2.5
2017
$mill
2016
$mill
318.7
128.1
–
167.1
318.7
295.2
0
The graph below shows the Group’s earnings per share and
dividend payout over the last five years.
(2.5)
FY12
FY13
FY14
FY15
FY16
Company performance and dividends declared
Basic earnings per share (before individually material items)
Basic earnings per share (including individually material items)
Dividend declared in respect of the financial year
2013
2014
2015
2016
2017
Available limits
Drawn funds
Cents
35
30
25
20
15
10
5
0
AUDm
1200
1000
800
600
400
200
0
Maturity
Date
Bank facility
Bank facility
Bond
144A/reg S
Bank facility
Reg S
AUD360m
USD217m
AUD200m
USD800m
USD500m
USD400m
Oct 18
Oct 18
Feb 19
Dec 19
Oct 21
Aug 27
Total ordinary share dividends
153,533 194,026
Since the end of the financial year, the directors have
determined to pay a final dividend of 4.9 cents per share
unfranked, to be paid on 19 December 2017. The total
dividend payment will be $82.7m.
The financial effect of this dividend has not been recognised
in the 2017 Consolidated Financial Statements.
Consistent with recent years, the dividend reflects a payout
ratio of approximately 50 percent of net profit after tax.
Franking credits
Franking credits available to shareholders of the Company
were $0.4m (2016: $7.0m). The final dividend for 2017
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.
Incitec Pivot Limited Annual Report 2017
58
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2017
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 2017, Coltivi Insurance Pte Limited maintained
capital in excess of the minimum requirements prescribed
under this Act.
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.
Issued capital as at 30 September 2017 amounted to
$3,436.8m on 1,687,170,521 ordinary shares (2016:
1,687,170,521).
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
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, to the extent practicable,
the Group’s Weighted Average Cost of Capital (WACC),
while maintaining financial flexibility.
In order to optimise its capital structure, the Group may
undertake one or a combination of the following actions:
l change the amount of dividends paid to shareholders;
l return capital or issue new shares to shareholders;
l vary discretionary capital expenditure;
l raise new debt funding or repay existing debt balances;
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 inside 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
1.7
7.9
2.1
7.9
Target range
2017
2016
These ratios are impacted by a number of factors, including
the level of cash retained from operating cash flows
generated by the Group after paying all of its commitments
(including dividends or other returns of capital), movements
in foreign exchange rates, changes to market interest rates
and the fair value of hedges economically hedging the
Group’s net debt.
59
Incitec Pivot Limited Annual Report 2017
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2017
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
2017
$mill
2016
$mill
2,224.1
2,289.4
(627.9)
(427.1)
Fair value of derivatives
(16)
(304.3)
(468.5)
Net debt
1,291.9
1,393.8
At 30 September 2017, the Group’s gearing ratio was 1.7
times (2016: 2.1 times). Refer note 7 for detail on the key
financial metrics related to the Group’s capital structure.
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
Other loans
Loans from joint ventures
Non-current
Other loans
Bank facilities
Fixed interest rate bonds
Total interest bearing liabilities
2017
$mill
1.3
10.8
12.1
2016
$mill
–
11.1
11.1
5.4
472.4
1,734.2
–
1,009.0
1,269.3
2,212.0
2,278.3
2,224.1
2,289.4
Fixed interest rate bonds
The Group held the following fixed interest rate bonds at 30
September 2017:
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.
l USD400m 10 year bonds on issue in the Regulation S
debt capital market. The bonds have a fixed rate semi-
annual coupon of 3.95 percent and mature in August
2027.
Bank facilities
Bank facilities of AUD360m and USD717m were entered into
in August 2015 and are structured into two facilities as
follows:
l 3 year facility domiciled in Australia consisting of two
tranches: Tranche A has a limit of AUD360m and Tranche
B has a limit of USD217m. The facility matures in October
2018; and
l 5 year facility domiciled in the USA with a limit of
USD500m. The facility matures in October 2021.
Tenor of interest bearing liabilities
The Group’s average tenor of its interest bearing liabilities at
30 September 2017 is 3.6 years (2016: 1.6 years).
The table below includes detail on the movements in the Group’s interest bearing liabilities for the year ended 30 September 2017:
Notes
(13)
Current
Other loans
Loans from joint ventures
Non-current
Other loans
Bank facilities
Fixed interest rate bonds
Total liabilities from financing activities
Derivatives held to hedge interest
bearing liabilities
(16)
Debt after hedging
Cash flow
Non-cash movements
Financing activities
Proceeds
$mill
Repayments
$mill
Foreign
exchange
movement
$mill
Fair value
adjustment
$mill
Funding costs
amortisation
$mill
30 September
2017
$mill
1.3
–
5.4
–
–
–
–
(505.1)
501.3
–
–
(0.3)
–
(33.8)
(23.7)
–
–
–
–
(14.6)
508.0
(505.1)
(57.8)
(14.6)
–
–
508.0
(505.1)
153.0
95.2
11.2
(3.4)
–
–
–
2.3
1.9
4.2
–
4.2
1.3
10.8
5.4
472.4
1,734.2
2,224.1
(304.3)
1,919.8
1 October
2016
$mill
–
11.1
–
1,009.0
1,269.3
2,289.4
(468.5)
1,820.9
Incitec Pivot Limited Annual Report 2017
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
%
17.5
15.0
Explosives (DNA, DNAP)
Fertilisers
12.5
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2017
10.0
7.5
5.0
Cash and cash equivalents
Cash and cash equivalents at 30 September 2017 were $627.9m
(2016: $427.1m) and consisted of cash at bank of $245.8m
(2016: $164.2m) and short term investments of $382.1m
(2016: $262.9m).
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.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
8. Net debt (continued)
2.5
0
(2.5)
Interest bearing liabilities (continued)
FY13
FY14
FY12
FY15
Interest rate profile
FY16
The table below summarises the Group’s interest rate
profile of its interest bearing liabilities, net of hedging,
at 30 September:
Basic earnings per share (before individually material items)
Basic earnings per share (including individually material items)
2017
Dividend declared in respect of the financial year
$mill
2016
$mill
Cents
35
30
Fixed interest rate financial instruments
25
Variable interest rate financial instruments
20
15
1,224.4
1,511.5
999.7
777.9
2,224.1
2,289.4
10
Detail on the Group’s interest hedging profile and duration is
included in note 16.
5
0
Funding profile
2013
The graph below details the Group’s available funding limits,
its maturity dates and drawn funds at 30 September 2017:
2014
2015
2016
2017
Available limits
Drawn funds
AUDm
1200
1000
800
600
400
200
0
Bank facility
AUD360m
Bank facility
USD217m
Bond
AUD200m
144A/reg S
USD800m
Bank facility
USD500m
Reg S
USD400m
Maturity
Date
Oct 18
Oct 18
Feb 19
Dec 19
Oct 21
Aug 27
The Group has undrawn financing facilities of $798.4m at
30 September 2017.
61
Incitec Pivot Limited Annual Report 2017
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2017
9. Property, plant and equipment
Freehold land
and buildings
$mill
Notes
At 1 October 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
Year ended 30 September 2017
Opening net book amount
Additions
Subsidiaries acquired
Disposals
Depreciation
Impairment of assets
Reclassification from construction in progress
Foreign exchange movement
Closing net book amount
At 30 September 2017
Cost
Accumulated depreciation
Net book amount
(2)
(2)
(2)
(2)
Machinery,
plant and
equipment
$mill
3,481.4
(1,140.5)
2,340.9
2,340.9
15.9
(0.3)
(193.5)
(154.0)
155.1
(49.2)
2,114.9
804.0
(221.8)
582.2
582.2
3.3
(0.1)
(25.3)
(18.3)
12.7
(13.4)
541.1
Construction
in progress
$mill
1,080.5
–
1,080.5
1,080.5
414.4
–
–
–
(167.8)
(90.4)
1,236.7
1,236.7
–
1,236.7
796.1
(255.0)
541.1
3,489.2
(1,374.3)
2,114.9
541.1
17.2
0.7
(15.9)
(28.2)
–
131.8
(6.8)
639.9
2,114.9
54.3
3.8
(7.5)
(221.4)
(4.7)
1,202.9
(40.1)
3,102.2
1,236.7
212.3
–
–
–
–
(1,334.7)
(1.6)
112.7
Total
$mill
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
5,522.0
(1,629.3)
3,892.7
3,892.7
283.8
4.5
(23.4)
(249.6)
(4.7)
–
(48.5)
3,854.8
910.5
(270.6)
639.9
4,608.4
(1,506.2)
3,102.2
112.7
–
112.7
5,631.6
(1,776.8)
3,854.8
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.
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.
Incitec Pivot Limited Annual Report 2017
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 2017
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
10. Intangibles
At 1 October 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
Year ended 30 September 2017
Opening net book amount
Additions
Subsidiaries acquired
Amortisation
Foreign exchange movement
Closing net book amount
At 30 September 2017
Cost
Accumulated amortisation
Net book amount
Notes
Software
$mill
Goodwill
$mill
(2)
(2)
98.0
(80.4)
17.6
17.6
5.4
(6.4)
(0.9)
15.7
96.5
(80.8)
15.7
15.7
9.3
–
(5.9)
(0.7)
18.4
102.7
(84.3)
18.4
2,895.3
–
2,895.3
2,895.3
–
–
(125.1)
2,770.2
2,770.2
–
2,770.2
2,770.2
–
1.5
–
(40.0)
2,731.7
2,731.7
–
2,731.7
Patents,
trademarks
& customer
contracts
$mill
294.6
(157.5)
137.1
137.1
–
(19.3)
(8.2)
109.6
276.6
(167.0)
109.6
109.6
–
1.1
(17.8)
(2.0)
90.9
271.9
(181.0)
90.9
Brand
names
$mill
308.4
–
308.4
308.4
–
–
(21.4)
287.0
287.0
–
287.0
287.0
–
–
–
(7.0)
280.0
280.0
–
280.0
Total
$mill
3,596.3
(237.9)
3,358.4
3,358.4
5.4
(25.7)
(155.6)
3,182.5
3,430.3
(247.8)
3,182.5
3,182.5
9.3
2.6
(23.7)
(49.7)
3,121.0
3,386.3
(265.3)
3,121.0
Allocation of indefinite life intangible assets
The Group’s indefinite life intangible assets are allocated to
groups of cash generating units (CGUs) as follows:
30 September 2017
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
30 September 2016
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
1,144.5
1,401.0
2,731.7
–
–
40.3
239.7
280.0
Goodwill
$mill
Brand names
$mill
183.8
2.4
1,144.5
1,439.5
2,770.2
–
–
40.3
246.7
287.0
183.8
2.4
1,184.8
1,640.7
3,011.7
Total
$mill
183.8
2.4
1,184.8
1,686.2
3,057.2
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.
63
Incitec Pivot Limited Annual Report 2017
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2017
11. Impairment of goodwill and
Sensitivity analyses
non-current assets
At 30 September 2017, the Group has identified lower global
fertiliser prices; lower nitrogen prices; and the higher
AUD:USD exchange rate as indicators of impairment.
Impairment testing of goodwill
The Group has prepared value-in-use models for the purpose
of impairment testing as at 30 September 2017, using five
year discounted cash flow models based on Board approved
forecasts. Cash flows beyond the five year period are
extrapolated using a terminal value growth rate.
The Group’s impairment testing at 30 September 2017
resulted in no impairment of any CGU. In addition, no
reversal of impairment from prior years was required during
the year as the circumstances that resulted in these
impairments remain unchanged.
Key assumptions
The estimation of future cash flows requires management to
make significant estimates and judgments on the timing of
cash flows, commodity prices and foreign exchange rates.
Details of the key assumptions used in the value-in-use
calculations at 30 September are set out below:
Key
assumptions
DAP(1)
Urea(2)
Henry Hub
Gas(3)
1 – 5 years
Terminal value
(after 5 years)
2017
2016
2017
2016
$321 to $410 $320 to $462
$474
$490
$230 to $320 $185 to $305
$322
$324
$3.11 to $3.15 $2.90 to $3.21
$3.22
$3.21
Ammonia(4)
$250 to $372 $230 to $405
$422
$405
AUD:USD(5)
$0.76 to $0.77 $0.72 to $0.76
$0.76
$0.73
(1) Di-Ammonium Phosphate price (FOB Tampa – USD per tonne).
(2) Granular Urea price (FOB Middle East – USD per tonne).
(3) Henry Hub natural gas price (USD per mmbtu).
(4) Ammonia price (CFR Tampa – USD per tonne).
(5) AUD:USD exchange rate.
Fertiliser prices, foreign exchange rates and natural gas
prices 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%
(2016: 9%) for the IPF and SCI CGUs and 8.5% for the DNA
and DNAP CGUs (2016: 8.5%). The rate reflects the
underlying cost of capital adjusted for market and asset
specific risks.
The terminal value growth rate represents the forecast
consumer price index (CPI) of 2.5% (2016: 2.5%) for all
CGUs.
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 2017:
AUD:USD
exchange
rate
+3c
$mill
(185.8)
(23.8)
n/a
$mill
–
–
n/a
USDmill
–
–
DAP/
Ammonia
Price in
USD(1)
-USD20
per tonne
$mill
(234.5)
(72.4)
n/a
$mill
–
–
-USD60
per tonne
USDmill
(424.0)
(16.9)
Growth
rate
-1.0%
$mill
(47.8)
–
-1.0%
$mill
(393.2)
(99.9)
-1.0%
USDmill
(316.9)
–
Natural
gas price
in USD
n/a
$mill
–
–
n/a
$mill
–
–
+US$1.2 per
gigajoule
USDmill
(424.6)
(17.4)
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 2017 property, plant
and equipment was impaired by $4.7m (2016: $25.9m) as a
result of the Group’s fixed asset verification procedures and
the abandonment of certain assets.
Key accounting policies
Impairment testing
The Group performs annual impairment testing as 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.
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.
Incitec Pivot Limited Annual Report 2017
64
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2017
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
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.
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 (continued)
Key accounting policies (continued)
Determining the recoverable amount
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 2017, 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.
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.
An impairment loss recognised in a prior period for an asset
other than goodwill (or its CGU) may be reversed only if
there has been a change in the estimates used to determine
the recoverable amount of the asset (or its CGU) since the
last impairment loss was recognised. When this is the case,
the carrying amount of the asset is increased to its
recoverable amount.
65
Incitec Pivot Limited Annual Report 2017
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2017
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
2017
$mill
25.2
–
25.2
2016
$mill
13.3
1.6
14.9
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
2017
$mill
44.8
85.5
77.8
2016
$mill
47.6
90.1
83.4
208.1
221.1
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 2017 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 classification in the
Consolidated Statement of Profit or Loss of what is currently
predominantly presented as ‘Lease payments – operating leases’
will be presented as amortisation and interest expense. Initial
assessment activities have been undertaken on the Group’s
current leases, however the impact of the standard will depend
on the leases in place on transition. Detailed review of lease
contracts, financial reporting impacts and system requirements
will continue. The first application date for the Group is the
financial year ending 30 September 2020.
The Group has performed an analysis of the statements of
financial position and the results of each of its joint ventures
and associates (as listed in note 14) at 30 September 2017
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
Notes
Carrying amount at 1 October
Share of net profit
Share in joint ventures acquired
during the year
Share in joint venture transferred to
controlled entities
(14)
(14)
Dividends received/receivable
Foreign exchange movement
2017
$mill
318.0
39.9
5.6
(7.2)
2016
$mill
323.6
35.9
–
–
(34.9)
(35.6)
(4.5)
(5.9)
Carrying amount at 30 September
316.9
318.0
Carrying amount of investments in:
Joint ventures
Associates
Carrying amount of investments in
joint ventures and associates
265.2
51.7
266.9
51.1
316.9
318.0
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
2017
$mill
335.1
(26.5)
23.2
(0.2)
34.9
2016
$mill
307.1
(31.3)
24.3
(0.2)
35.6
Joint ventures and associates transactions represent amounts
that do not eliminate on consolidation.
Outstanding balances arising from transactions with joint
ventures and associates
Amounts owing to related parties
Amounts owing from related parties
Loans with joint ventures and associates
Loans to joint ventures and associates
Loans from joint ventures and associates
2017
$mill
1.2
32.4
15.0
10.8
2016
$mill
0.5
40.8
23.2
11.1
Outstanding balances arising from transactions with joint
ventures and associates are on standard market terms.
Incitec Pivot Limited Annual Report 2017
66
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2017
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. Other than as noted below, there were no changes in the Group’s existing shareholdings in
its subsidiaries, joint ventures and associates in the financial year.
Subsidiaries
Name of entity
Company
Incitec Pivot Limited(1)
Controlled Entities – operating
Incorporated in Australia
Incitec Fertilizers Pty Limited(1)
TOP Australia Pty Limited(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
Nobel Labs, LLC(2)
Midland Powder Company(3)
Midland Powder LLC(3)
Mine Equipment & Mill Supply Company(3)
Controlled Explosives Inc.(3)
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.
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 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(4)
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%
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%
100%
100%
100%
100%
100%
(1) A party to Deed of Cross Guarantee dated 30 September 2008.
(2) Nobel Labs, LLC was incorporated in the 2017 financial year.
(3) The remaining 50 percent interest in Midland Powder Company, Midland Powder LLC, Mine Equipment & Mill Supply Company and Controlled Explosives Inc. was
acquired in the 2017 financial year.
(4) This entity has a 31 December financial year end.
67
Incitec Pivot Limited Annual Report 2017
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 2017
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.
Western Explosives Systems Company
Warex Corporation(2)
Warex LLC(2)
Warex Transportation LLC(2)
Vedco Holdings, Inc.(3)
Virginia Explosives & Drilling Company Inc.(3)
Austin Sales LLC(3)
Virginia Drilling Company, LLC(3)
Incorporated in Canada
Newfoundland Hard-Rok Inc.
Dyno Nobel Labrador Inc.
Quantum Explosives Inc.
Dene Dyno Nobel Inc.
Qaaqtuq Dyno Nobel Inc.(4)
Dene Dyno Nobel (DWEI) Inc.(5)
Dyno Nobel Baffin Island Inc.
Incorporated in Australia
Queensland Nitrates Pty Ltd
Queensland Nitrates Management Pty Ltd
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
Maine Drilling and Blasting Group
Independent Explosives
Incorporated in Canada
Labrador Maskuau Ashini Ltd
Valley Hydraulics Inc.
Innu Namesu Ltd
49%
49%
25%
25%
25%
50%
50%
51%
50%
50%
50%
50%
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 arrangement between the shareholders of the entities, despite the legal ownership exceeding 50 percent, this
entity is not considered to be a subsidiary.
(2) A 25 percent interest in Warex Corporation, Warex LLC and Warex Transportation LLC was acquired in the 2017 financial year.
(3) A 50 percent interest in Vedco Holdings, Inc., Virginia Explosives & Drilling Company Inc., Austin Sales LLC and Virginia Drilling Company, LLC was acquired in the
2017 financial year.
(4) 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.
(5) 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.
However, under the joint venture agreement, the Group is entitled to 95 percent of the profit of Dene Dyno Nobel (DWEI) Inc.
Incitec Pivot Limited Annual Report 2017
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 2017
15. Provisions and contingencies
Provisions at 30 September 2017 are analysed as follows:
30 September 2017
Carrying amount at 1 October 2016
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 2017
Current
Non-current
Employee
entitlements
$mill
Restructuring and
rationalisation
$mill
Environmental
$mill
Asset retirement
obligations
$mill
Legal
and other
$mill
Total
provisions
$mill
58.3
0.6
(3.6)
(4.6)
1.0
–
51.7
45.0
6.7
25.1
0.4
(2.3)
(17.4)
–
(0.4)
5.4
5.2
0.2
61.4
0.4
(2.3)
(12.0)
1.2
(0.2)
48.5
19.9
28.6
43.4
17.1
–
(0.8)
2.7
(0.8)
61.6
2.0
59.6
14.3
2.4
(4.1)
(6.4)
–
(0.3)
5.9
5.9
–
202.5
20.9
(12.3)
(41.2)
4.9
(1.7)
173.1
78.0
95.1
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
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.
69
Incitec Pivot Limited Annual Report 2017
Legal and other
There are a number of legal claims and other exposures,
including claims for damages arising from products and
services supplied by the Group, that arise from the ordinary
course of business. A provision is only made where it is
probable that a sacrifice of future economic benefits will be
required and the costs involved can be reliably estimated.
Key estimates and judgments
Provisions are based on the Group’s estimate of the
timing and value of outflows of resources required to
settle or satisfy commitments and liabilities known to
the Group at the reporting date.
Contingencies
The following contingent liabilities are considered remote.
However the directors consider they should be disclosed:
• Under the terms of the ASIC Legislative Instrument, ASIC
Corporations (Wholly-owned Companies) Instrument
2016/785, issued by the Australian Securities and
Investments Commission dated 17 December 2016, 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 additional liabilities subject to the Deed of
Cross Guarantee at 30 September 2017 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.
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 2017
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 2016
Contractual
cash flows(1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
30 September 2017
Non-derivative
financial liabilities
Interest bearing liabilities
2,224.1
12.1 1,705.3
506.7
Non-derivative
financial liabilities
Interest bearing liabilities
Interest payments
368.0
85.6
181.7
100.7
Interest payments
Trade and other payables
1,058.6 1,043.7
Bank guarantees
108.8
40.0
14.9
7.3
–
Trade and other payables
61.5
Bank guarantees
Total non-derivative
cash outflows
Derivative financial
(assets)/liabilities
Forward exchange contracts
Foreign exchange options
Cross currency interest
rate swaps
Interest rate swaps
Commodity swaps
Commodity options
Net derivative cash
outflows
3,759.5 1,181.4 1,909.2
668.9
(4.2)
1.2
(5.5)
1.2
11.8
13.4
11.8
0.1
(12.7)
(11.3)
0.8
0.8
1.3
–
–
11.4
(1.4)
–
–
–
–
1.9
–
–
10.3
(2.9)
11.3
1.9
Total non-derivative
cash outflows
Derivative financial
(assets)/liabilities
Cross currency interest
rate swaps
Interest rate swaps
Commodity swaps
Commodity options
Net derivative cash
outflows
2,289.4
11.1 2,278.3
261.6
68.6
193.0
946.8
939.5
133.4
61.5
7.3
8.9
–
–
–
63.0
3,631.2 1,080.7 2,487.5
63.0
29.5
–
29.5
35.6
(17.0)
1.7
(2.6)
(6.4)
1.0
32.0
(10.6)
0.7
–
–
6.2
–
–
54.6
(5.6)
54.0
6.2
Forward exchange contracts
4.8
2.4
2.4
(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.
Incitec Pivot Limited Annual Report 2017
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 2017
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:
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:
2017
AUD:USD
2016
AUD:USD
30 September foreign exchange rate
0.7846
0.7626
Average foreign exchange rate for the year
0.7620
0.7359
Foreign exchange rate sensitivity on outstanding financial
instruments
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
2017
- 1c
AUD:USD
AUD mill
2017
+ 1c
AUD:USD
AUD mill
2016
- 1c
AUD:USD
AUD mill
2016
Foreign exchange
sensitivity – (net of
hedging)
Trade and other
receivables and payables
– (profit or loss)
Hedge of forecast
transactions – (equity)
Interest bearing liabilities
(equity)
Investments in foreign
operations – (equity)
0.1
(0.1)
(0.1)
0.1
1.7
(1.7)
3.4
(3.5)
6.4
(6.6)
–
–
(22.7)
23.3
(13.6)
13.9
Transactional exposures
Trade and other receivables
Trade and other payables
Interest bearing liabilities
Gross exposure (before hedging)
Hedge of transactional exposures
Trade and other receivables
Forward exchange contracts
Trade and other 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
2017
AUD:USD
USD mill
2016
AUD:USD
USD mill
271.2
(238.3)
(1,573.0)
(1,540.1)
187.5
(244.3)
(1,573.0)
(1,629.8)
(270.4)
(186.0)
228.5
244.1
–
1,173.0
1,131.1
(409.0)
2017
AUD:USD
USD mill
(106.2)
(106.2)
2017
AUD:USD
USD mill
273.0
1,300.0
1,631.1
1.3
2016
AUD:USD
USD mill
(198.2)
(198.2)
2016
AUD:USD
USD mill
Translational exposures
Net investment in foreign operations
2,380.3
2,654.8
Gross exposure (before hedging)
2,380.3
2,654.8
Hedge of translational exposures
Cross currency interest rate swaps
Forward exchange contracts
Foreign exchange options(1)
Total hedge contract values
Net exposure (after hedging)
(1,654.5)
640.0
50.0
(964.5)
1,415.8
(1,781.5)
(73.0)
–
(1,854.5)
800.3
(1) Bought AUD put at AUD:USD 0.74 and sold AUD call at 0.77 maturing
within 1 year.
71
Incitec Pivot Limited Annual Report 2017
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 2017
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
2017
- 1c
AUD:USD
AUD mill
2017
+ 1c
AUD:USD
AUD mill
2016
- 1c
AUD:USD
AUD mill
2016
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 and tax
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
(6.8)
6.9
(8.0)
(2.9)
3.0
(2.7)
8.2
2.8
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 tables below include the Group’s derivative contracts that are exposed to changes in interest rates at 30 September:
Interest rate swaps
Average
pay
fixed rate(1)
Average
receive
fixed rate(1)
Duration
(years)
Net contract
amounts
USD mill
2.39%
3.24%
–
2.02%
–
1.45%
3.01%
–
2.11%
–
–
(3.11%)
–
(2.62%)
–
–
(3.17%)
–
0.2
2.9
2.2
3.0
5.0
0.2
3.8
3.2
2.8
400
550
300
350
100
400
550
300
450
Net
contract
amounts
USD mill
2017
Net
contract
amounts
USD mill
2016
Strike(1)
2017
Duration
(years)
Strike(1)
2016
Duration
(years)
Net
contract
amounts
USD mill
2017
Net
contract
amounts
USD mill
2016
Strike(1)
2017
Duration
(years)
Strike(1)
2016
Duration
(years)
350 3.75%
350 2.58%
350 1.50%
350 0.01%
2.2
2.2
2.2
2.2
350 3.75%
350 2.58%
350 1.50%
350 0.01%
3.2
3.2
3.2
3.2
Interest rate
options
Contracts maturing
later than 5 years
Sold cap
Bought cap
Sold floor
Bought floor
(1) LIBOR
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:
350 3.75%
350 2.58%
350 1.50%
350 0.01%
1.8
1.8
1.8
1.8
350 3.75%
350 2.58%
350 1.50%
350 0.01%
0.8
0.8
0.8
0.8
Interest rate sensitivity
LIBOR
BBSW
+ 1%
AUD mill
2017
- 1%
AUD mill
2017
+ 1%
AUD mill
2016
- 1%
AUD mill
2016
(0.2)
(2.1)
0.2
2.1
(13.8)
6.0
13.8
(6.0)
The sensitivity above is also representative of the Group’s
interest rate exposures during the year.
Incitec Pivot Limited Annual Report 2017
72
2017
less than 1 year
1 to 5 years
1 to 5 years
later than 5 years
later than 5 years
2016
less than 1 year
1 to 5 years
1 to 5 years
later than 5 years
Interest rate
options
Contracts maturing
between 1 and
5 years
Sold cap
Bought cap
Sold floor
Bought floor
(1) LIBOR
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 2017
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
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 six main
commodities, namely: Ammonia, Ammonium Nitrate,
Ammonium Phosphate, Urea-Ammonium Nitrate (UAN),
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)
2017
Price/Strike
USD(2)
2017
Total volume
(MMBTU)(1)
2016
Price/Strike
USD(2)
2016
Contracts maturing
within 1 year
Natural gas options
Bought Call
Sold Put
1,450,000
1,450,000
4.53
3.30
3,833,000
3,833,000
4.36
3.07
Contracts maturing
between 1 and 5 years
Natural gas options
Bought Call
Sold Put
–
–
–
–
1,600,000
1,600,000
4.52
3.28
(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
2017
- US$1 per
1 MMBTU
AUD mill
2017
+ US$1 per
1 MMBTU
AUD mill
2016
- US$1 per
1 MMBTU
AUD mill
2016
Henry Hub USD
0.7
(1.8)
2.3
(2.3)
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
2017
- US$1 per
1 MMBTU
AUD mill
2017
+ US$1 per
1 MMBTU
AUD mill
2016
- US$1 per
1 MMBTU
AUD mill
2016
Henry Hub USD
(33.1)
33.1
(8.3)
8.3
73
Incitec Pivot Limited Annual Report 2017
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
2017
Granular Urea (FOB Middle East)
DAP/MAP (FOB Tampa)
UAN (FOB Nola)
Urea (FOB NOLA)
2016
Granular Urea (FOB Middle East)
DAP/MAP (FOB Tampa)
UAN (FOB Nola)
Urea (FOB NOLA)
+ USD10
per tonne
AUD mill
- USD10
per tonne
AUD mill
Actual
Tonnes
(’000s)
5.3
12.3
2.8
1.7
4.7
13.7
3.4
1.5
(5.3)
(12.3)
(2.8)
(1.7)
(4.6)
(13.7)
(3.4)
(1.5)
403
938
213
128
347
1,010
249
108
Sensitivity to ammonia 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 Ammonia 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:
Ammonia price sensitivity
+ USD10
per tonne
AUD mill
- USD10
per tonne
AUD mill
Actual
Tonnes
(’000s)
Ammonia (FOB Tampa)
7.1
(7.1)
540
The Group has a gas supply agreement in Australia with
pricing referenced to the USD Brent oil price. As a result, the
Group holds Brent oil fixed price swaps to eliminate the
exposure to changes in the Brent oil price.
The table below includes the Group’s derivatives contracts
that are exposed to changes in Brent oil prices at 30
September 2017:
Total volume
(barrels)
2017
Price
USD(1)
2017
Total volume
(barrels)
2016
Price
USD(1)
2016
Contracts maturing
between 1 and 5 years
Oil swaps fixed payer
1,335,930
48.02
2,137,488
47.30
(1) Oil-Brent (DTD)-Platts Marketwire
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2017
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 2017, classified by hedge
accounting type and market risk category:
30 September 2017
Note
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
Net investment hedges
Foreign exchange risk on foreign operation
Cross currency interest rate swaps
Forward exchange contracts
Foreign exchange options
Discontinued hedge(3)
Total net investment hedges
Fair value hedges
Foreign exchange risk on USD borrowings(4)
Cross currency interest rate swaps
Interest rate risk on fixed USD and AUD bonds(5)
(8)
Interest rate swaps
Discontinued hedge
Total fair value hedges
Held for trading(6)
Forward exchange contracts
Interest rate swaps
Total held for trading
Offsetting contracts(1)
Equity instruments
Total net
Balance at 30 September 2017
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(2,7)
1.2
–
13.3
–
–
2.6
0.7
–
17.8
–
8.1
–
–
8.1
292.8
11.5
–
304.3
1.4
0.1
1.5
(4.7)
–
(0.5)
(0.5)
–
(27.1)
(0.2)
–
(33.0)
(305.1)
–
(1.6)
–
(306.7)
–
–
–
–
(0.8)
–
(0.8)
(292.8)
292.8
2.3
41.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(190.1)
(14.2)
1.2
(203.1)
–
–
–
–
–
(3.6)
(0.8)
12.9
(1.4)
(3.0)
(23.6)
(0.3)
(6.4)
(26.2)
(306.8)
8.2
(1.2)
(198.7)
(498.5)
–
–
–
–
–
–
–
–
(1.1)
9.9
(3.7)
0.5
4.5
34.9
5.8
2.1
52.9
60.4
8.2
(1.2)
1.8
69.2
–
–
–
–
–
–
–
–
(16.9)
(0.8)
–
(31.2)
–
–
(5.2)
–
–
1.6
(34.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(47.7)
(203.1)
(541.6)
121.3
(34.8)
(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. The balance of discontinued hedges in net investment hedges
includes the market value of USD400m of derivatives that were discontinued during the year. Any changes in the market value of the
discontinued hedges are recognised in the profit or loss from discontinuation.
(4) The total fair value of derivatives hedging the Group’s interest bearing liabilities is $304.3m. The cross currency interest rate swaps hedging the
foreign currency exposure of the Group’s USD borrowings have a contract value of USD1,173m, and are economic hedges of an equivalent
amount of the Group’s USD interest bearing liabilities. Derivatives with a contract value of USD400m and a contract rate of AUD:USD 0.97 were
discontinued during the year.
(5) Interest rate swap contracts effectively convert USD400m of the Group’s fixed interest rate borrowings to floating interest rates. 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.
(7) At 30 September 2017, a gain of $0.3m was transferred from reserves to profit or loss in relation to ineffective hedges.
Incitec Pivot Limited Annual Report 2017
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 2017
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:
30 September 2016
Note
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
Net investment hedges
Foreign exchange risk on foreign operation
Cross currency interest rate swaps
Forward exchange contracts
Discontinued hedge(3)
Total net investment hedges
Fair value hedges
Foreign exchange risk on USD borrowings(4)
Cross currency interest rate swaps
Forward exchange contracts
Interest rate risk on fixed USD and AUD bonds(5)
(8)
Interest rate swaps
Discontinued hedge
Total fair value hedges
Held for trading(6)
Forward exchange contracts
Interest rate swaps
Total held for trading
Offsetting contracts(1)
Equity instruments
Total net
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)
0.9
–
16.7
–
–
0.1
–
–
17.7
–
0.1
–
0.1
371.4
71.6
25.5
–
468.5
0.8
1.2
2.0
(3.7)
–
(0.1)
(1.5)
–
(60.1)
(5.4)
–
(70.8)
(401.2)
(71.6)
–
(472.8)
–
–
–
–
–
(0.4)
(1.1)
(1.5)
(443.0)
443.0
–
–
–
–
–
–
–
–
–
–
–
–
–
(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
(404.0)
(48.3)
(115.6)
(567.9)
203.2
31.1
3.6
237.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(16.1)
(628.3)
(0.1)
241.0
0.2
(8.7)
–
–
12.5
–
–
1.9
5.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.9
1.1
46.4
–
(102.1)
(262.1)
(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.
(5) Interest rate swap contracts effectively convert USD300m of the Group’s fixed interest rate borrowings to floating interest rates. 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.
75
Incitec Pivot Limited Annual Report 2017
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 2017
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 that 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 commodity
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.
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
2017
$mill
342.8
627.9
38.9
2016
$mill
276.8
427.1
45.3
1,009.6
749.2
Financial assets and financial liabilities that are subject to
enforceable master netting arrangements and are intended
to be settled on a net basis are offset in the Statement of
Financial Position. At 30 September 2017, the amount netted
in other financial assets and other financial liabilities is
$292.8m (2016: $443m).
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).
•
•
2017
Listed equity securities
Derivative financial assets
Derivative financial liabilities
2016
Listed equity securities
Derivative financial assets
Derivative financial liabilities
Level 1
$mill
2.3
–
–
Level 1
$mill
1.1
–
–
Level 2
$mill
–
38.9
(47.7)
Level 2
$mill
–
45.3
(102.1)
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
$2,224.1m (2016: $2,289.4m) – refer to note 8. The fair
value of the interest bearing financial liabilities at 30
September 2017 was $2,300.7m (2016: $2,367m) and was
based on the level 2 valuation methodology.
Incitec Pivot Limited Annual Report 2017
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: Risk management
For the year ended 30 September 2017
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.
Monetary assets (such as trade receivables) and liabilities
(such as trade creditors) denominated in foreign currencies
are translated into Australian dollars using the exchange rate
at 30 September. Non-monetary items (for example, plant
and machinery) that are measured at historical cost in a
foreign currency are not re-translated.
Foreign exchange gains and losses relating to transactions
are recognised in the profit or loss with the exception of
gains and losses arising from cash flow hedges and net
investment hedges that are recognised in other
comprehensive income.
Foreign operations
The assets and liabilities of the Group’s foreign operations
are translated at applicable exchange rates at 30 September.
Income and expense items are translated at the average
exchange rates for the period.
Foreign exchange gains and losses arising on translation are
recognised in the foreign currency translation reserve (FCTR).
If and when the Group disposes of the foreign operation,
these gains and losses are transferred from the FCTR to the
profit or loss.
Derivatives and hedging
The Group uses contracts known as derivative financial
instruments to hedge its financial risk exposures.
On entering into a hedging relationship, the Group formally
designates and documents details of the hedge, risk
management objective and strategy for entering into the
arrangement. The Group applies hedge accounting to
hedging relationships that are expected to be highly
effective in offsetting changes in fair value, i.e. where the
cash flows arising from the hedge instrument closely match
the cash flows arising from the hedged item.
Hedge accounting is discontinued when:
• The hedging relationship no longer meets the risk
management objective.
• The hedging instrument expires or is sold, terminated or
exercised.
• The hedge no longer qualifies for hedge accounting.
Derivatives are measured at fair value. The accounting
treatment applied to specific types of hedges is set out
below.
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 except those that are in a designated hedge
relationship).
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
77
Incitec Pivot Limited Annual Report 2017
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2017
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 2014/17, LTI
2015/18 and LTI 2016/19 plans, the performance conditions
comprise relative total shareholder return, the delivery of
certain strategic initiatives and, in the case of the LTI
2016/19 plan, also includes growth in return on equity.
The arrangements support the Company’s strategy for
retention and motivation of its executives.
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
2017
$mill
2016
$mill
4.6
1.2
2017
Number
2016
Number
Number of performance rights outstanding
under the LTI performance plans
5,469,485
5,983,751
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.
18. Key management personnel disclosures
Key management personnel remuneration
2017
$000
2016
$000
Short-term employee benefits
13,062
9,833
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
240
130
–
4,308
227
125
2,137
1,278
17,740
13,600
Determination of key management personnel and detailed
remuneration disclosures are provided in the Remuneration
Report.
Loans to key management personnel
In the year ended 30 September 2017, there were no loans
to key management personnel and their related parties
(2016: 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 $505,742 during the year
(2016: $926,735). 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 $1,063,677 during the year (2016:
$494,202). Ms Fagg’s spouse does not directly provide
these services. Ms Fagg was not involved in any
engagement of KPMG made by the Group.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Incitec Pivot Limited Annual Report 2017
78
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2017
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
19. Retirement benefit obligation
The Group operates a number of defined benefit plans in the
Americas 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
2017
2016
3.3% – 7.2% 3.0% – 6.2%
2.5% – 5.0% 3.0% – 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
2017
$mill
2016
$mill
289.8
387.3
(251.6)
(288.3)
38.2
99.0
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
2017
$mill
216.4
141.2
35.3
2016
$mill
260.4
181.6
38.9
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
2017
$mill
29.6
2016
$mill
24.0
2017
2016
45%
39%
7%
9%
57%
28%
7%
8%
Movements in plan assets/liabilities
Amounts recognised in Other Comprehensive Income
Gains/(losses) arising from
changes in actuarial assumptions
Return on plan assets greater
than discount rate
Total recognised in other
comprehensive income
Notes
2017
$mill
2016
$mill
20.7
(36.0)
21.0
14.1
41.7
(21.9)
Amounts recognised in Profit or Loss
Net interest expense
Defined benefit superannuation expense
(2)
(2)
(2.9)
(4.6)
(3.3)
(4.4)
79
Incitec Pivot Limited Annual Report 2017
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 2017 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
(27.8)
1.0
1 percent
decrease
36.2
(0.8)
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 Consolidated Statement
of Financial Position 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.
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2017
20. Deed of cross guarantee
21. 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
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) for the year
Retained profits at 1 October
Profit/(loss) for the year
Other movements in retained earnings
Dividend paid
2017
$mill
194.2
(24.4)
169.8
2016
$mill
(61.6)
47.6
(14.0)
1,312.2
169.8
4.1
(153.5)
1,526.8
(14.0)
(6.6)
(194.0)
Throughout the financial year ended 30 September 2017 the
parent company of the Group was Incitec Pivot Limited.
Parent entity guarantees in respect of debts
of its subsidiaries
The parent entity is part of a Deed of Cross Guarantee, under
which each entity guarantees the debt of the others.
Statement of Profit or Loss and Other
Comprehensive Income
Results of the parent entity
Profit for the year
Other comprehensive income
2017
$mill
238.7
14.7
2016
$mill
130.8
(8.9)
Total comprehensive income for the period
253.4
121.9
Retained profits at 30 September
1,332.6
1,312.2
Statement of Financial Position
Statement of Financial Position
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 financial assets
Investment in controlled entities
Equity accounted investments
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Other financial liabilities
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligation
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
2017
$mill
2016
$mill
182.5
495.5
268.0
56.6
22.6
–
1,025.2
234.6
15.3
3,491.5
18.9
2,011.5
248.5
149.8
6,170.1
7,195.3
70.4
383.2
299.5
14.3
9.3
1.9
778.6
337.9
65.9
3,978.1
16.2
2,026.2
265.9
164.2
6,854.4
7,633.0
737.5
18.8
56.6
10.6
823.5
697.8
4.7
82.1
–
784.6
293.2
331.6
1,092.0
557.9
95.9
28.2
49.5
53.1
381.8
378.6
16.1
8.1
1,928.5
1,357.5
2,181.0 2,713.1
4,919.9
5,014.3
3,436.8
244.9
1,332.6
5,014.3
3,436.8
170.9
1,312.2
4,919.9
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Share capital
Reserves
Retained earnings
Total equity
2017
$mill
2016
$mill
970.6
626.5
7,334.9
7,154.8
920.9
762.0
3,641.0
3,560.8
3,693.9
3,594.0
3,436.8
3,436.8
(26.9)
284.0
(37.7)
194.9
3,693.9
3,594.0
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:
2017
$mill
2016
$mill
Within one year
12.5
0.5
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.
Incitec Pivot Limited Annual Report 2017
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
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2017
22. Auditor’s remuneration
23. Events subsequent to reporting date
2017
$000
2016
$000
In November 2017, the directors determined to pay a final
dividend for the Company of 4.9 cents per share on 19
December 2017. The dividend is unfranked (refer to note 6).
On 14 November 2017, the Company announced an on-market
share buyback of up to $300.0m to be conducted over the next
twelve months.
As announced to the ASX on 9 August 2017, Mr James Fazzino
will cease as the Managing Director & CEO and will cease
employment with the Company on 14 November 2017, and
Ms Jeanne Johns will commence as the Managing Director & CEO
on 15 November 2017.
On 14 November 2017, the Company announced that Mr Greg
Hayes will retire from the Board with effect from the end of the
2017 Annual General Meeting to be held on 21 December 2017.
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.
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
Fees payable to the Group's auditor for
assurance services
Audit of the Group's annual report(1)
Audit of subsidiaries(2)
Audit-related assurance services(3)
946.9
596.4
171.5
927.3
610.5
167.5
Total current year assurance services
1,714.8
1,705.3
Fees payable to the Group’s auditor
for other services
Other services relating to taxation(4)
All other services(5)
Total other services
209.9
146.3
356.2
143.4
40.0
183.4
Total fees paid to Group auditor
2,071.0
1,888.7
– Payable to Australian Group auditor firm
– Payable to International Group auditor
associates
1,499.7
1,339.8
571.3
548.9
(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.
81
Incitec Pivot Limited Annual Report 2017
Directors’ Declaration
on the Consolidated Financial Statements set out on pages 45 to 81
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 81, and the remuneration disclosures that are
contained in the Remuneration Report on pages 23 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 2017 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 Legislative Instrument, ASIC Corporations (Wholly-owned Companies)
Instrument 2016/785.
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 2017.
Paul Brasher
Chairman
Dated at Melbourne this 14th day of November 2017
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 2017
82
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne, VIC, 3000
GPO Box 78
Melbourne VIC 3001 Australia
Phone: +61 3 9671 7000
www.deloitte.com.au
Independent Auditor’s Report
to the members of Incitec Pivot Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Incitec Pivot Limited (the Company) and its subsidiaries (the
Group), which comprises the consolidated statement of financial position as at 30 September 2017,
the consolidated statement of profit or loss and other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the year then ended,
and notes to the financial statements, including a summary of significant accounting policies and other
explanatory information, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 September 2017 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
83
Incitec Pivot Limited Annual Report 2017
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
Key Audit Matter
How the scope of our audit responded to
the Key Audit Matter
Carrying value of goodwill and non-
current assets
to Note 9 Property, plant and
Refer
equipment, Note 10 Intangibles and Note 11
Impairment of goodwill and non-current
assets
At 30 September 2017, the Group held
goodwill of $2,731.7 million, intangible assets
of $389.3 million and property, plant and
equipment of $3,854.8 million, allocated to its
group of cash generating units (CGUs).
The assessment of the recoverable amount is
based on management’s view of key variables
future
and market conditions such as
commodity prices, exchange rates and
operating performance including the timing
and approval of future capital and operating
expenditure, and
the most appropriate
discount rate.
The Southern Cross International (SCI) CGU
has been identified as having higher risk of
impairment due to sustained pressure on
fertiliser prices (primarily Di-Ammonium
Phosphate (DAP)), movement in AUD:USD
exchange rates, high input costs including the
cost of sulphuric acid and supply into
Phosphate Hill from Mt Isa Mines. The Group
have prepared a value-in-use model to
determine the recoverable amount of the SCI
CGU.
the
Accordingly,
recoverable amount of these assets
considered to be a key audit matter.
assessment
of
the
is
Our procedures included but were not limited
to:
Understanding
process
that
the
management had undertaken to assess the
recoverable amount
In
specialists:
conjunction with
valuation
our
o Evaluating the appropriateness of the
to
model used by management
calculate the value in use of the
individual CGUs
prices
commodity
o Assessing key inputs to the value in
use model including revenue based on
and
forecast
production
including
rates, costs
natural gas and sulphuric acid prices,
capital expenditure, foreign exchange
rates, discount rates and growth rates.
We challenged these inputs by:
Corroborating
the key market
based assumptions to external
analysts’
published
reports,
industry growth rates and industry
reports
Corroborating the key non-market
based assumptions by comparing
forecasts to historical performance
of
to
management’s projections
accuracy
test
the
Comparing the discount rate with
an independently developed rate
Agreeing relevant amounts in the value in
use models to the FY2018 budget
For CGUs with a higher risk of impairment,
including SCI, performing a range of
sensitivity analysis
/
Ammonia Price in USD, natural gas price in
USD, AUD:USD exchange rate, discount
and growth rate assumptions
including DAP
Assessing the adequacy of the financial
statement disclosures
Incitec Pivot Limited Annual Report 2017
84
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
Key Audit Matter
How the scope of our audit responded to
the Key Audit Matter
Provisions for uncertain tax positions
Refer to Note 3 Taxation and Note 15
Provisions and contingencies
Our procedures included:
The Group operates across a large number of
jurisdictions and is subject to investigations
and audit activities by revenue authorities on
a range of tax matters during the normal
course of business, including transfer pricing,
indirect taxes and transaction related tax
matters.
The outcomes of these investigations and
audits depend upon several factors and as a
result management exercise judgement in
the determination of the tax position and the
estimates and assumptions in relation to the
provision for taxes. Consequently this was
considered a key audit matter.
Understanding
process
that
the
management had undertaken to identify
and assess uncertain
tax positions,
including the monitoring and consideration
of guidance issued by regulatory authorities
In conjunction with our tax specialists:
o Gaining an understanding of the current
status
and
investigations and the process to monitor
developments in ongoing disputes
assessments
tax
of
o Reviewing external tax advice where
available, and
o Reviewing
with
recent
rulings
local
and
tax
correspondence
authorities, to satisfy ourselves that the
tax provisions had been appropriately
recorded or adjusted to reflect the latest
external developments
Assessing the adequacy of the financial
statement disclosures
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 September 2017, but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If,
based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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 gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
85
Incitec Pivot Limited Annual Report 2017
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
Conclude on the appropriateness of the director’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial report or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain
solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Incitec Pivot Limited Annual Report 2017
86
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 23 to 42 of the Director’s Report for the
year ended 30 September 2017.
In our opinion, the Remuneration Report of the Incitec Pivot Limited, for the year ended 30 September
2017, complies with section 300A of the Corporations Act 2001.
Responsibilities
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.
DELOITTE TOUCHE TOHMATSU
Tom Imbesi
Partner
Chartered Accountants
Melbourne, 14 November 2017
87
Incitec Pivot Limited Annual Report 2017
Shareholder Information
As at 14 November 2017
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
10,760
23,328
7,538
6,304
160
48,090
22.38%
48.51%
15.67%
13.11%
0.33%
100.00%
4,933,809
68,119,762
54,782,417
134,637,828
1,424,696,705
1,687,170,521
0.29%
4.04%
3.25%
7.98%
84.44%
100.00%
Included in the above total are 1,795 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 81.6% of that class of shares.
Twenty largest ordinary fully paid shareholders
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Noms Pty Ltd
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