More annual reports from Incitec Pivot Limited:
2023 ReportPeers and competitors of Incitec Pivot Limited:
Iofina PlcANNUAL REPORT 2018
OUR 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
OUR PURPOSE
Making people’s lives better by
unlocking the world’s natural
resources through innovation
on the ground.
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
Managing Director & CEO’s Report
Board of Directors
Executive Team
Sustainability Report
Directors’ Report
– Remuneration Report
Financial Report
ii
iii
iv
v
vi
1
23
45
Chairman’s Report
I am pleased to report to our shareholders on
your Company’s strong result under new executive
leadership in the 2018 financial year.
FY18 has been an important year for the Company, as your
Board and the businesses welcomed Jeanne Johns as our new
Managing Director & CEO. Jeanne has focused on evolving our
strategic agenda, in close consultation with the Board, and
has put in place a new executive leadership team and
structure to support its delivery. This includes a sharp focus
on execution and leveraging of our premium technology
across our global customer base.
The Board remains committed to a step change in the
Company’s Zero Harm strategy and is confident that it will
continue to improve safety performance across the Group. Zero
Harm remains the Company’s number one priority for its
people, customers and stakeholders every day and everywhere.
We have high quality, strategically located assets in our
chosen markets and we are seeing some improvement in
market conditions. Our business is underpinned by strong
fundamentals with our customers’ businesses driven by
the growth in demand for food across Asia and continued
demand for the resources needed to build infrastructure and
technology across the globe.
We reported a 9% increase in Net Profit After Tax of $347.4
million (excluding individually material items of $139.5 million)
and this was underpinned by a strong operating performance in
both our Explosives and our Fertilisers businesses. Earnings
Before Interest and Tax increased 11% to $556.7 million and
Earnings Per Share also increased 11% to 20.9 cents per share,
versus 18.9 cents in FY17. Further information on our
businesses’ results is included in the Operating and Financial
Review commencing on page 6.
While our manufacturing performance was impacted by
turnarounds at Phosphate Hill, Cheyenne and St Helens, the
team delivered outstanding results at our Waggaman plant,
which ran at 103% of nameplate production for the year,
and record production at Moranbah. We also saw increased
penetration of our premium technology with considerable
more potential to be unlocked as this is rolled out across
key markets and sectors.
Aligned with our commitment to deliver returns to our
shareholders we spent $210 million as part of our $300
million share buyback and this buy-back program is expected
to be completed in the first half of calendar year 2019. In
addition, the Board declared a final dividend of 6.2 cents per
share 20% franked, taking the full year dividend to 10.7 cents
per share, representing a payout ratio for the year of
approximately 50%. We have a strong balance sheet and
finished the year with a Net Debt to EBITDA ratio of 1.6 times.
The Board is confident that the Company’s strategic direction
is well placed to take advantage of our high-quality assets
and improving market conditions. We will continue to focus
on driving organic growth through delivering on our strategic
agenda as well as investigating inorganic growth aligned to
ii
Incitec Pivot Limited Annual Report 2018
our core competencies in fertilisers and explosives. We will of
course be disciplined and driven by shareholder returns.
We continue to be committed to proactively managing those
issues which are most material to the long-term sustainability
of our business, the environment and the communities in which
we operate, as outlined in our Sustainability Report on page vi.
In assessing the risks and opportunities associated with climate
change, we have strengthened our Risk Management processes
using future climate scenarios to assess the Company’s risks and
opportunities. Those risks considered to be material are
reported in the Principal Risks section on page 15.
We also remain committed to the gender diversity target we
set last year of 25% participation of women in our workforce
by September 2022.
Our commitment to sustainability is also recognised with our
inclusion in the 2018 Dow Jones Sustainability Index, which is
widely recognised as a leading reference point for its robust
assessment process. Incitec Pivot Limited has been above the
Chemicals Sector average for the last seven years and has
been included in this index since 2010.
I would like to take this opportunity to thank my fellow Board
members for their contribution during the 2018 financial year.
Graham Smorgon, who is retiring this year, has been an
outstanding Non-Executive Director of Incitec Pivot Limited
with his manufacturing experience and commercial expertise.
On behalf of the whole Board, I would like to thank Graham
for his wisdom and guidance.
With Graham Smorgon’s retirement at the Annual General
Meeting on 20 December 2018, I would like to welcome Bruce
Brook, a highly experienced company director in Australian and
US listed companies, who joins the Board as a Non-Executive
Director from 3 December 2018. Mr Brook will offer himself for
re-election at this year’s shareholders’ meeting.
I would also like to thank shareholders for their support,
particularly over the last couple of years as the business has
navigated some challenging market conditions. And of course,
I must thank and recognise our resources, agricultural and
industrial customers, whose support is integral to the success
of our business. Finally, I would like to thank our Managing
Director & CEO, the executive leadership team and our whole
team of 4,500 people across the Americas and Asia Pacific.
In looking ahead, the Board is confident the Company has the
right strategy, team and assets to generate value for its
shareholders well into the future.
Paul Brasher
Chairman
Managing Director & CEO’s Report
I am pleased to have the opportunity to report to
you in my first year as Managing Director & CEO
which has delivered a strong result across the Group,
with an improved outlook in our key markets.
Our deep commitment to Zero Harm for our people and all
our stakeholders continues to be our number one priority.
Whilst we achieved our core safety target of Total Recordable
Injury Frequency Rate (TRIFR) <1 in FY18, we are not
satisfied with this performance. We are applying our
continuous improvement mindset to re-focus our Zero Harm
strategy, broadening and setting year-on-year improvement
objectives across environmental care and process safety as
well as targeting a 30% improvement in TRIFR by FY2021.
Reflecting on FY18, IPL delivered a strong result with EBIT
excluding IMIs up 11% to $556.7 million, reflecting the
growth across both Explosives businesses, the exceptional
operations at the new Waggaman facility in the US, solid
underlying performance of the Australian Fertilisers business,
and a strong operating cash flow of $662.7 million as
referred to in the Operating and Financial Review
commencing on page 6.
The year, however, was not without its challenges, as our
long-term gas supply contract for the Gibson Island facility in
Brisbane expired. We successfully secured interim gas supply
for 2019, as well as a gas tenement for a potential long-
term supply solution. We are continuing to explore economic
bridging gas supply for 2020 and 2021 and will leave no
stone unturned to try to secure the future of the plant.
We have also made significant progress with our strategic
agenda through the year, which builds on our proud heritage
and focuses on our core competencies, driving increased
returns through our six value drivers – Zero Harm, Talented
& Engaged People, Customer Focus, Leading Technology
Solutions, Manufacturing Excellence and Profitable Growth.
We call this One IPL, working collaboratively across the
Company to deliver “Innovation on the Ground” to better
serve our customers.
Key to delivery of our One IPL mindset is a new leadership
structure. Reflecting the importance of product technology,
we elevated this function to the executive leadership team,
promoting Rob Rounsley to the role of Group Chief
Technology Development Officer. We also improved our
Group commercial competency during the year with the
appointment of Seth Hobby as Executive Commercial
Director. Our three business Presidents all have a strong
external customer focus, with the newest, Stephan Titze,
President of Fertilisers, joining us in January 2019.
Tim Wall joined as President of Global Manufacturing &
Corporate HSE on 1 November to drive our focus on
manufacturing excellence across all of our assets. We have
the “right people in the right roles” in the Executive
Leadership Team to deliver on our strategy.
We are leveraging our premium technology platform
throughout all our geographies and sectors, including our
proprietary Differential Energy offering. DeltaE has been in
operation across the US over the last three years and is well
established in the quarry and construction and hard rock
segments where customers value its safety, environmental,
and efficiency benefits. This technology is now being rolled
out in the Asia Pacific business with trials being completed
during the year in gold, iron ore and coal applications.
We look towards FY19 with confidence as our businesses are
well positioned in key markets. There is more upside from
leveraging our premium technology in the US and we are
building upon our reputation for innovative technology
solutions with customers throughout the Asia Pacific.
Australian customers are embracing our DigiShot Plus.4G
detonator system and our DeltaE proprietary technology has
strong demand for trials in the gold and iron ore markets in
Australia. The business is well placed to benefit from the
continued execution of our strategy as well as improved
conditions across our markets.
I would like to thank our team for all their hard work during
the year and also thank our customers, shareholders and
other stakeholders who have supported our business during
the year. I am looking forward to working with our team and
customers to continue to drive our strategic agenda in the
year ahead.
Jeanne Johns
Managing Director & CEO
Incitec Pivot Limited Annual Report 2018
iii
Board of Directors
Brian Kruger
BEc
Non-executive director
Brian Kruger was appointed
as a director on 5 June 2017.
Brian is Chairman of the Audit
and Risk Management
Committee and a member of
the Remuneration Committee.
Board of Directors as at 13 November 2018:
First row (l to r): Paul Brasher, Joseph Breunig, Kathryn Fagg, Brian Kruger.
Second row (l to r): Rebecca McGrath, Graham Smorgon AM, Jeanne Johns.
Paul Brasher
BEc(Hons), FCA
Non-executive Chairman
Paul Brasher was appointed
as a director on 29 September
2010 and was appointed
Chairman on 30 June 2012.
Paul is also Chairman of the
Nominations Committee and a
member of the Audit and Risk
Management Committee.
Joseph Breunig
BS(Chemical Engineering),
MBA
Non-executive director
Joseph Breunig was appointed
as a director on 5 June 2017.
Joe is a member of the Health,
Safety, Environment and
Community Committee.
Rebecca McGrath
BTP(Hons), MASc, FAICD
Graham Smorgon AM
B.Juris, LLB
Non-executive director
Non-executive director
Rebecca McGrath was
appointed as a director on
15 September 2011. Rebecca
is Chairman of the Health,
Safety, Environment and
Community Committee and a
member of the Audit and Risk
Management Committee and
the Nominations Committee.
Graham Smorgon was
appointed as a director on
19 December 2008. Graham
is a member of the
Nominations Committee and
the Remuneration 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.
Jeanne Johns
B.S. Chemical Engineering,
magna cum laude
Managing Director & CEO
Jeanne Johns commenced as
Managing Director & CEO on
15 November 2017. A global
executive and chemical
engineer building over 25
years’ experience with BP in
the international refining,
petrochemicals, oil and gas
industries, Jeanne has held a
number of executive leadership
roles across China, the United
States and the United Kingdom.
Jeanne is a member of the
Health, Safety, Environment
and Community Committee.
iv
Incitec Pivot Limited Annual Report 2018
Executive Team
Executive Team for FY18 (L-R): James Crough, Alan Grace, Robert Rounsley, Greg Hayne, Jeanne Johns, Frank Micallef, Elizabeth Hunter, Seth Hobby,
Nick Stratford.
Jeanne Johns B.S. Chemical
Engineering, magna cum laude
Managing Director & CEO
See Board of Directors page.
Frank Micallef BBus, MAcc, FCPA,
FFTA, FAICD
Chief Financial Officer
Frank joined IPL in May 2008 as General
Manager, Treasury & Chief Financial Officer,
Trading. Frank has significant experience in
the explosives and mining industries and has
held a variety of senior management
positions in accounting and finance, treasury
and investor relations. Frank was appointed
as Chief Financial Officer in October 2009 and
is currently a Board member of Queensland
Nitrates Pty Ltd.
James Crough Bcomm, FCPA, MBA
President, Incitec Pivot Fertilisers
(interim)
Jamie joined the Australian fertilisers
business in November 2005, most recently
holding the role of Chief Financial Officer
across the Asia Pacific region before being
appointed as Interim President of Incitec
Pivot Fertilisers in January 2018. Jamie has
been involved in a range of international
commodity trading, global manufacturing,
integrated supply chain, procurement,
product management, sales and marketing
activities for the business.
Alan Grace BSc(Hons) Chem Eng.
President, Global Manufacturing
& Corporate HSE
Alan joined IPL in 2000. He has over 30
years’ experience in constructing and
operating chemical processing plants. Alan
has worked on many large projects in the
oil and gas, petrochemical and chemicals
sector, including ammonia and ammonium
nitrate plants.
In November 2018, Alan commenced the
transition of the President Global
Manufacturing & Corporate HSE role to
Tim Wall.
Greg Hayne BComm, MBA
President, Dyno Nobel Asia Pacific
With over 20 years’ experience in
international business development,
operations and P&L management, Greg has
held a number of senior leadership positions
across Dyno Nobel US and Asia Pacific
operations, including Vice President
International Operations, Vice President South
East Asia, President of Dyno Nobel Indonesia
and Vice President of Marketing. Greg was
appointed as President, Dyno Nobel Asia
Pacific in January 2018.
Seth Hobby LL.B (Hons), Juris Doctorate
Executive Commercial Officer
Seth was appointed Executive Commercial
Officer in January 2018 and brings to the role
over ten years of international legal and
business experience from across the IPL
Group in both Asia Pacific and the US and
has been involved in a number of major
commercial and growth projects. Seth was
previously Senior Vice President Nitrogen for
Dyno Nobel Americas, and was pivotal in the
build and commissioning of IPL’s world scale
ammonia plant in Waggaman, Louisiana.
Elizabeth Hunter BBus, MBA
Chief Human Resources Officer
& Shared Services
Elizabeth joined IPL as Chief HR Officer in
October 2013, and in June 2016 was given
the additional remit for developing IPL’s
global Shared Services proposition. Elizabeth
has over 20 years’ HR experience across
healthcare, banking & financial services,
industrials contracting & infrastructure
industries.
Robert Rounsley MSc (Chem),
BSc Hons (Chem), MBA
Chief Technology Development Officer
With over 20 years’ experience Rob was
previously Senior Vice President Technology
across the Asia Pacific and US regions.
Rob was appointed as Chief Technology
Development Officer in January 2018 and
now leads IPL’s Global Technology Group,
bringing an increased focus on value
creation for IPL’s global explosives and
fertiliser customers through technology
and innovation.
Nick Stratford B.Ec, CA
President, Dyno Nobel Americas
Nick joined IPL in September 2008 and has
held the roles of Group Financial Controller,
General Manager Investor Relations and,
after moving to the US in 2013, Chief
Operating Officer and Chief Financial Officer
for Dyno Nobel Americas. Nick was appointed
as President of the North American business
in August 2016 and brings over 20 years of
experience in international finance and
business management.
INCOMING PRESIDENT GLOBAL
MANUFACTURING & CORPORATE HSE
Tim Wall LBE(Hons) Electrical Engineering,
CPEng, GAICD
President Global Manufacturing
& Corporate HSE (Commenced 1 November 2018)
Tim was appointed in November 2018.
Tim’s previous role was General Manager,
Manufacturing at Caltex Australia, and prior
to this he worked across Australia and the UK
for BP. Tim is currently a board member of
National Association of Women in Operations.
Incitec Pivot Limited Annual Report 2018
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’. Since
its initial approval by the Board, IPL’s Sustainability Strategy
has undergone review, and now includes the sustainable
development of its supply chain. Our Company Purpose and
seven Values guide our approach to sustainability:
PURPOSE STATEMENT
“Our purpose is to make people’s lives better by unlocking
the world’s natural resources through innovation on the
ground. We believe that we can fulfill our purpose through
collaboration with the people that are most important to us,
our Customers, our Employees and our Shareholders.”
OUR VALUES
Our Values define who we are and what we do every day.
These are what guide our actions:
Continuous Improvement through Business Excellence (BEx)
Challenging and improving the status quo is one of IPL’s values
which is actioned through continuous improvement efforts. 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 2014 are represented below.
Dimension
Economic
Environmental
Social
Total for IPL
Chemicals sector average
2014
2015
2016
2017
2018
65
60
67
64
55
67
51
63
60
58
74
60
65
67
56
73
61
68
68
53
71
64
57
65
44
In 2018, the FTSE Group also confirmed for the fifth year that IPL
has satisfied the requirements to remain a constituent of the
FTSE4Good Index Series.
vi
Incitec Pivot Limited Annual Report 2018
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 2018 IPL Sustainability
Report which will be available on IPL’s website (www.
incitecpivot.com.au) in March 2019.
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 (www.incitecpivot.com.au).
During the most recent 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.
Workplace health and safety
IPL’s Zero Harm company value is prioritised above all others.
IPL has an integrated Health, Safety, Environment and
Community Management System (HSECMS) which provides the
foundation for effective identification and management of
Health, Safety and Environmental (HSE) risks.
In 2018, IPL refreshed its Zero Harm ambition to extend beyond
personal safety to include a greater focus on process safety and
environmental management. This refresh aims to ensure that
Zero Harm is a way of life not only for employees, but for other
stakeholders, and extends beyond the Company to make a
positive impact on the greater community. IPL also revised its
Zero Harm strategic plan with a new three-year focus aimed at
achieving a number of key safety measures, including a
sustainable benchmark TRIFR of 0.7 by 2021. In 2018, IPL
achieved a TRIFR of 0.961.
The 2018 priorities for achieving Zero Harm were:
• Executive Team leadership and coaching of employees
during site visits to review site risk registers and to review
Critical Control Verifications (CCVs). Critical controls are those
which relate directly to fatal risks;
• Continued improvement of risk management across all
parts of the business, including the quality of risk register
content;
• Development of the global standardised Management of
Change (MoC) process; and
• Achieving ongoing continuous improvement in IPL’s safety
metrics, including TRIFR.
1. Subject to finalisation of classification of any pending incidents
Performance highlights during 2018 include:
• TRIFR of 0.961;
• 84 percent of sites recordable injury free;
• 29 percent reduction in process safety management Center
for Chemical Process Safety (CCPS) Tier 1 Incidents since 2017;
• Team member led management reviews of high potential
incident and Group wide communication of the resulting
relevant learnings;
• Continued implementation of the CCV management process;
• Refresher training in the IPL Safety Partner Group Standard;
• Effective use of globally standardised Job Step Analysis (JSA)
and Permit to Work (PTW) processes;
Integration of behavioural safety training into the IPL HSECMS;
•
• Completion of the design for the global standardised MoC
process and database tool;
• Completion of the design of a customised Zero Harm Culture
assessment tool across Global Manufacturing that is consistent
with the way IPL measures culture;
• Development of Process Safety Management (PSM)
competency training content; and
• The Global launch of a refreshed Rules to Live by program
across the business in conjunction with World Safety Day.
2019 priorities include:
• Continued risk management implementation and
simplification;
• Development of a Safety Leadership Framework;
• Communication of the redefined Zero Harm culture vision;
• Development of a Zero Harm mindfulness approach;
• Continued improvement in the key areas of MoC processes
and the on-site delivery of explosives products to customers
(Explosives Management System);
Improved PSM and operator competency;
•
Injury management consistency across the IPL Group; and
•
• Simplification of the HSECMS, including standardising core
and common processes.
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 2018, the IPL Group Whistleblower Protection Policy
was reviewed for consistency with Australian Standard AS
8004. Training in competition/anti-trust law was conducted for
all relevant IPL personnel and face-to-face training in anti-
bribery and sanctions laws was conducted in Hong Kong,
Mexico, Turkey, Chile and Indonesia. Anti-bribery and sanctions
training materials were translated into Bahasa to facilitate the
continued training of employees at IPL sites in Indonesia. In
addition, a comprehensive review of the performance of the
Board and the Committees for the 2018 financial year was
undertaken. The review was externally conducted by an
independent consultant and undertaken in the context of the
Company’s strategic agenda and priorities.
Further information on Corporate Governance, including risk
oversight and management, can be found in the 2018
Corporate Governance Statement and the online Sustainability
Report at www.incitecpivot.com.au.
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 support 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 deliver growth and innovation.
Performance
During 2018, IPL focused on developing leaders to build
professional skills and increase diversity and employee
engagement. Independent and recognised industry experts
Gallup were engaged to conduct a Company-wide employee
engagement survey. With over 80 years of research and
experience in understanding what matters most to people in
their workplace, Gallup provided valuable assistance in helping
IPL to identify where the Company could improve the experience
of its employees. Over 700 managers received individual reports
on employee engagement in their business. In order to
strengthen customer relationships and better meet customer
needs, the business was also restructured, providing employees
across IPL with new opportunities for career development.
Key highlights during the year were:
• Continued training of leaders in coaching and associated skills
to further develop leadership capability and strengthen
Company-wide collaboration;
• The piloting of Continuous Performance Conversations to
further facilitate leadership as coaching;
• Exceeding a two percent target of Indigenous employees
across IPL’s Australian businesses, reaching 2.6 percent in
2018; and
• Expanding the diversity of IPL’s workforce by focusing on
measures to increase gender diversity 10% year on year to
reach 25% by 2022. In Australia, 33 percent of IPL’s external
hires during 2018 were female, increasing female
participation across IPL’s Australian workforce to 22 percent.
Further reporting on IPL’s Diversity Strategy can be found in
the 2018 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 improved product handling, compliance
management and risk management.
Performance highlights during 2018 include:
•
Implementation of an engineering framing assessment model
to identify engineering and operational opportunities to
improve environmental outcomes;
• Extension of the use of iAuditor from fertiliser distribution sites
to Australian manufacturing sites to conduct daily site photo
logs which facilitate continuous improvement in product
handling, compliance management and risk management;
• Performance of Environmental Site Assessments at 22 sites
across North America;
• Continued auditing of spill prevention, control and
countermeasure plans, including stormwater pollution
prevention controls, across North America;
Incitec Pivot Limited Annual Report 2018
vii
Sustainability Report
• Continued 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 and setting of a new target of Zero Significant
Environmental Incidents2 for 2019.
2019 priorities include:
• Continued focus on improving environmental awareness
through training, with emphasis on loss of containment, spill
prevention, site cleaning processes and stormwater pollution
prevention; and
• The rollout of the IPL Environmental Awareness Training
module for the businesses, which will be delivered through
the IPL Learning Management System.
Further detail on environmental compliance, including fines, can
be found on page 4.
Managing impacts of climate change
IPL’s main manufacturing process currently relies on sustainable
access to natural gas and water, and is GHG emissions intensive.
In addition, farming and mining customers, and therefore IPL’s
markets, can be impacted by extreme weather events such as
droughts, floods, hurricanes and tropical cyclones, as can its own
manufacturing facilities. For these reasons, the risks associated
with emissions, access to natural gas and water, and the physical
impacts of extreme weather events have been integrated into
IPL’s existing risk management processes and corporate strategy
for many years, with geographical and market diversification
remaining a key management strategy.
During 2018, this integrated risk assessment process was
strengthened with the engagement of an expert third party to
complete two key actions aligned with the recommendations of
the Task Force on Climate-related Financial Disclosures (TCFD).
Firstly, a comprehensive assessment of IPL’s physical and
transitional (market-based) risks and opportunities associated
with climate change was conducted using two future climate-
related scenarios: a two-degree scenario (2D) and a four-degree
scenario (4D). Secondly, IPL’s comprehensive Risk Management
process was reviewed with a view to including the medium-
term (3-6 years) and longer term (6+ years) risk horizons
associated with climate change. These will be built into IPL’s
Emerging Risk processes in 2019. Risks considered to be material
are reported under ‘Principal Risks’ on page 19. For more
detailed reporting on climate change related risks and
opportunities, and the governance of these at IPL, see the online
2018 IPL Sustainability Report at www.incitecpivot.com.au/
sustainability.
Energy, emissions 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
nitric 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.
2. Incidents rated by the IPL Risk Matrix as Category 5 or 6. A category 5 incident
is ‘a major event or repeat non-compliance with regulatory, licence or permit
conditions leading to prosecution or restriction of operations’ and a Category 6
incident is one which results in ‘permanent or long-term impacts to water,
land, biodiversity, air or ecosystems and requires significant remediation,
rectification or investment in mitigation’.
viii
Incitec Pivot Limited Annual Report 2018
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.
Performance
Energy and emissions
IPL used 68,500,621 gigajoules (GJ) of energy over the past
year (2017: 61,972,212), of which 2,113,300 was electricity
(2017: 2,244,029). The increase in energy use was due to
increased production, and therefore gas use, at our Waggaman,
Louisiana plant. The absolute Scope 1 and 2 GHG emissions
from IPL’s global operations increased to 3.8 million tonnes
(2017: 3.1 million tonnes). While a portion of this increase was
due to increased production, an unexpected maintenance issue
at IPL’s nitric acid plant at Moranbah in Australia resulted in an
increase in emissions of N2O at the site.
Energy efficiency improvements resulted in the maintenance
of targeted global reductions in GHG emissions per tonne of
ammonia. However, due to the increased emissions at
Moranbah, IPL’s global GHG per tonne of nitric acid increased
by 2 percent. New equipment has been fabricated and
delivered to the site and will be installed early in the 2019
financial year to address this issue.
Energy Sources in 2018
Natural gas
95%
Natural gas
95%
4.0
Million tonnes of CO2e
Natural gas: 95%
Electricity: 3.3%
Diesel, raw material: 0.9%
Natural gas: 95%
Diesel: 0.5%
Electricity: 3.3%
– Electricity from chemical heat: 0.3%
– Petroleum: 0.01%
Diesel, raw material: 0.9%
– Propane: 0.006%
Diesel: 0.5%
– Fuel Oil: 0.001%
– Electricity from chemical heat: 0.3%
– Petroleum: 0.01%
– Propane: 0.006%
– Fuel Oil: 0.001%
Total GHG emissions
Scope 1
Scope 2
Total direct and indirect GHG emissions
3.0
4.0
Million tonnes of CO2e
Total GHG emissions
Scope 1
Scope 2
2.0
3.0
1.0
2.0
0
1.0
2009
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
3.0
tCO2e
GHG intensity (tCO2e) per tonne of ammonia produced
2.0
3.0
tCO2e
1.0
2.0
0
1.0
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2010
2011
2012
2013
2014
2015
2016
2017
2018
4.0
3.5
4.0
3.0
3.5
2.5
3.0
2.0
2.5
1.5
2.0
1.0
1.5
0.5
1.0
0.0
0.5
0.0
3
3
2
2
1
1
0
0
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 intensity through energy efficiency initiatives.
At Cheyenne, Wyoming, the replacement of a prism
membrane and painting of the primary reformer with an
internal coating to improve firing efficiency will reduce natural
gas use. At Louisiana, Missouri, 617 lighting fixtures
throughout the plant were rewired to use LED bulbs, improving
lighting, reducing annual energy use by 28,700 kWh and
reducing annual costs by $29,750. At Carthage, Missouri, an
explosives manufacturing optimisation project reduced annual
energy use by 160,000 kWh and scope 2 GHG emissions by
110 tCO2e. 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 each year. During 2018, IPL’s Waggaman, Louisiana
ammonia plant captured 10,990 tCO2e for use by a
neighbouring melamine manufacturing plant, avoiding the
release of these GHG emissions to air.
IPL also continued to invest in the ongoing maintenance of
abatement technology which captures, treats and so reduces
process emissions to air. During 2018, the US$7,700,000
Selective Catalytic Reduction unit installed at the Louisiana,
Missouri nitric acid plant last year reduced potential emissions
of nitrogen oxides (NOx) by 98 percent. In Australia, the more
efficient $1,480,000 sulphur oxide (SOx) reduction catalyst
installed last year at Mt Isa, Queensland reduced SOx
emissions by 32 percent against 2016 SOx emissions.
Water use and discharge
IPL’s gross water use during the year was 50,511 mega litres,
a six percent increase due to increased production.
Opportunities for reducing water use in manufacturing are
continuously being sought. At Cheyenne, Wyoming, continued
use of reverse osmosis units recycled a total of 30,968 kL of
water for reuse during 2018. At Phosphate Hill, Queensland,
59,367 kL of water was recovered from waste gypsum
stockpiles, also recovering valuable phosphates for fertiliser
production. During 2018, water balance projects were begun
at three major Australian manufacturing sites in Geelong,
Gibson Island and Moranbah. During 2018, IPL discharged
30,901,050 m3 of water to the environment, a decrease of
five percent from 2017. The majority of this water (97 percent)
was clean cooling water that was discharged to the rivers from
which it was taken, reducing IPL’s net water use to 22,978
mega litres.
Water Use by Source
50,511
ML
50,511
ML
Surface water: 75%
Ground water: 14%
Municipal water: 9%
Surface water: 75%
Recycled water: 1.5%
Ground water: 14%
Municipal water: 9%
Recycled water: 1.5%
Storm water: 0.1%
Desal water: 0.004%
Rain water: 0.00004%
Storm water: 0.1%
Desal water: 0.004%
Rain water: 0.00004%
Water Discharge by Destination
Clean water to
surface waters
Clean water to
surface waters
97% clean water
to surface waters
97% clean water
to surface waters
Surface waters: 97.4%
Groundwater: 2.3%
Sewers: 0.3%
Surface waters: 97.4%
Groundwater: 2.3%
Sewers: 0.3%
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 finds 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 18 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, IPL’s manufacturing quality standards were
extended to apply to the fertiliser distribution business and the
IPF Quality Assurance Council was established to drive
continuous improvement.
IPL is a global provider of innovative explosive products,
services and solutions under the renowned Dyno Nobel brand.
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 across both
explosives and fertiliser products, particularly where product
analysis is required. During 2018, the Marketing & Technology
Ideas & Work Requests Database was upgraded. This platform
not only provides research and development assistance across
the organisation, but also facilitates knowledge sharing and
collaboration between IPL’s employees across the globe as
they find innovative ways to improve product quality.
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 has 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.
Incitec Pivot Limited Annual Report 2018
ix
4.0
3.5
4.0
3.0
3.5
2.5
3.0
2.0
2.5
1.5
2.0
1.0
1.5
0.5
1.0
0.0
0.5
0.0
3
3
2
2
1
1
0
0
Sustainability Report
Supplier and customer engagement
IPL has procedures 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 has processes in place to work 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. During 2018, IPL began a review
of current procurement processes against the ISO:20400
Standard for Sustainable Procurement and identified areas for
improvement which align with current progress. ISO:20400
was released in 2017 and provides guidance, rather than
certification, on building sustainable procurement processes
and developing a sustainable supply chain.
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 Agronomy Community. Quarterly
reports are assessed through Fertshed, IPL’s online customer
transactional portal. Customers and agronomists also attend
IPL Agronomy Community Forums, and formal complaint and
product feedback processes exist to resolve customer issues
quickly. In 2017, new customer survey software, Net Promoter
Score, which uses a popular methodology for summarising
customer satisfaction, was implemented across the entire
Australian fertiliser customer base. During 2018, this was
extended to IPL’s Australian industrial chemicals customers,
and will be introduced to Australian explosives customers
in 2019.
IPL continues to work 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
During 2018, IPL reviewed its strategy, governance and
funding of research and development. The position of Chief
Technology Officer was added to the IPL Executive Leadership
Team and six core technology programs were identified to
advance IPL’s ability to strategically partner with customers to
improve their productivity and safety, and reduce their
environmental and social impacts. Work continued on
collaborative research and product development, including the
promotion of best practice use of fertiliser and explosives
products. Highlights during the year included:
• A joint research project with the University of Melbourne
into new fertiliser technologies for sustained food security,
which resulted in the development and testing of
prototype products;
• The commercialisation, at a number of distribution sites, of
novel fertiliser nutrient delivery systems including trace
element coating of fertilisers, with further installations
planned for 2019;
• Continued promotion of IPL’s enhanced efficiency fertilisers,
Entec and Green Urea, with a 32 percent increase in Green
Urea volumes. These products minimise nitrogen losses to
waterways and to the atmosphere as GHG;
x
Incitec Pivot Limited Annual Report 2018
• Upgrading of the Nutrient Advantage support software and
introduction of the LabSTREAM mobile sampling application
to allow ‘on the go’ logging for testing of soil and plant
samples, with simultaneous geolocation;
• Continued testing of recycled, reclaimed and treated oils,
hydrocarbons and waxes to supplement the use of virgin
fuel sources in emulsion-based explosives;
• Continued testing of oxidiser (an ingredient of explosives)
sourced from internal and customer waste streams, with
the successful commercialisation of one source. This has
reduced waste and generated cost savings for customers;
• Continued collaboration with customers to test ore samples
and selectively modify emulsion products for hot and
reactive ground in north America;
• Continued development and marketing of explosive
products and delivery systems that reduce blast fume
emissions and minimise groundwater nitrate leaching,
including a joint research project with Murdoch University;
• Commencement of a new Australian Research Council
funded project with the University of Sydney to further
develop inhibited emulsion explosives for safer blasting in
extreme (hot and reactive) geothermal environments; and
• The introduction of Differential Energy technology to the
Australian explosives market. This product continues to
result in reduced NOx emissions, reduced energy use, less
noise and ground vibration and increased productivity for
customers.
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 2018,
$467,343 of community investment was made globally
through IPL’s Dollar-for-Dollar program, the Australian
Workplace Giving program and various site-based initiatives.
This is an increase of more than 20 percent on last year’s
community contributions, and included $30,000 raised to feed
livestock on drought affected farms in Australia. IPF’s ‘Farm
Aid’ efforts will continue beyond 30 September 2018 into the
2019 IPL financial year.
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, 53 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.
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 2018 and
the related auditor’s report.
Directors
The directors of the Company during the financial year and up to the date of this report are:
Name, qualifications and
special responsibilities
Experience
Paul Brasher BEc(Hons), FCA
Non-executive Chairman
Chairman of the Nominations
Committee
Member of the Audit and Risk
Management Committee
Joseph Breunig BS(Chemical
Engineering), MBA
Non-executive director
Member of the Health, Safety,
Environment and Community
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)
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.
Mr Breunig brings considerable North American experience to the Board, as well as extensive
leadership experience across industrial chemical manufacturing and process safety
management.
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 Chairman of Boral Limited,
Chair of the Melbourne Recital Centre, Chair of Breast Cancer Network Australia, a non-
executive director of Djerriwarrh Investments Limited, a board member of the
Commonwealth Scientific and Industrial Research Organisation (CSIRO), a board member of
the Grattan Institute and a board member of the Australian Centre for Innovation. Ms Fagg is
also President of Chief Executive Women. Ms Fagg was previously a non-executive member
of the Reserve Bank of Australia and President of Corporate Development at Linfox Logistics
Group. 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) and Chairman (since July 2018)
• Director, Djerriwarrh Investments Limited (since May 2014)
Incitec Pivot Limited Annual Report 2018
1
Directors’ Report
Name, qualifications and
special responsibilities
Experience
Brian Kruger BEc
Non-executive director
Chairman of the Audit and Risk
Management Committee
Member of the Remuneration
Committee
Rebecca McGrath BTP(Hons),
MASc, FAICD
Non-executive director
Chairman of the Health, Safety,
Environment and Community
Committee
Member of the Audit and Risk
Management Committee
Member of the Nominations
Committee
Graham Smorgon AM
B.Juris, LLB
Non-executive director
Member of the Nominations
Committee
Member of the Remuneration
Committee
Jeanne Johns
B.S. Chemical Engineering,
magna cum laude
Managing Director & CEO
Member of the Health, Safety,
Environment and Community
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.
Mr Kruger brings to the Board significant experience in the industrial sector and a deep
knowledge of manufacturing operations including in North America, as well as executive
leadership experience in the Australian listed company environment.
Directorships of listed entities within the past three years:
• Managing Director, Toll Holdings Limited (January 2012 to December 2016)
Ms McGrath was appointed as a director on 15 September 2011. Ms McGrath is currently
Chairman of Oz Minerals Ltd. She is a non-executive director of Goodman Group, a non-executive
director of ICPF Holdings Limited and 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.
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. His former roles include Trustee of
the Victorian Arts Centre Trust, 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)
Ms Johns was appointed Managing Director & CEO on 9 August 2017 and commenced in the
role on 15 November 2017. Ms Johns 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, Ms Johns 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, Global) and Head of Safety & Operational Risk, BP
Downstream (United Kingdom, Global). Ms Johns is a former non-executive director of Tate &
Lyle plc and Parsons Corporations.
Ms Johns brings to the Board her broad experience in the chemicals and energy sectors,
having worked and led teams in multiple jurisdictions and executive roles during her
extensive career. Her global experience includes a deep understanding of the strategic and
operational issues facing companies in cyclical and commodity based businesses.
Directorships of listed entities within the past three years:
• Director, Tate & Lyle plc (October 2016 – October 2017)
2
Incitec Pivot Limited Annual Report 2018
Company Secretary
During the financial year and up to 17 August 2018,
Ms Daniella Pereira held 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.
Ms Pereira resigned as Company Secretary effective 17 August
2018. Ms Jennifer Neoh was appointed Acting Company
Secretary effective 16 August 2018.
Ms Neoh joined the Company in 2015 as Senior Legal Counsel -
Secretariat. Prior to joining the Company, Ms Neoh held senior
legal and company secretariat roles in Australia and senior
legal roles in London. Ms Neoh holds a Bachelor of Laws, a
Bachelor of Commerce (Accounting) and a Graduate Diploma in
Applied Finance and Investment.
Directors’ interests in share capital
The relevant interest of each director in the share capital of the
Company, as notified by the directors to the Australian
Securities Exchange (ASX) in accordance with section 205G(1)
of the Corporations Act 2001 (Cth) (Act), as at the date of this
report is as follows:
Director
P V Brasher(1)
J Breunig
K Fagg(1)
B Kruger(2)
R J McGrath(2)
G Smorgon AM
J M Johns
(1) Held both directly and indirectly.
(2) Held indirectly.
Fully paid ordinary shares
Incitec Pivot Limited
60,600
0
10,000
14,620
25,008
0
0
Further details of directors’ interests in share capital are set out
on page 43 of the Remuneration Report.
Principal activities
The principal activities of the Group during the course of the
financial year were the manufacture and distribution of
industrial explosives, industrial chemicals and fertilisers,
and the provision of related services. No significant changes
have occurred in the nature of these activities during the
financial year.
Operating and financial review
Refer to the Operating and Financial Review on page 6 for the
operating and financial review of the Group during the
financial year and the results of these operations.
Dividends
Dividends since the last annual report:
Type
Paid during the year
2017 final dividend
2018 interim dividend
To be paid after
end of year
2018 final dividend
Dealt with in the
financial report as:
Dividends
Subsequent event
Cents
per
share
Total
amount
$mill
Franked/
Unfranked
Date of
payment
4.9
4.5
82.7
74.7
unfranked
19 December 2017
unfranked
2 July 2018
6.2
101.1*
20% franked
17 December 2018
Note
6
23
$mill
157.4
101.1*
* Based on the number of ordinary shares issued by the Company as at
30 September 2018.
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
B Kruger(5)
R J McGrath
G Smorgon AM
J M Johns(6)
Director – Former
J E Fazzino(7)
G Hayes(8)
Board
Held
13
13
13
13
13
13
13
2
4
Attended
13
12
13
13
13
13
13
2
4
Chairman
Member
Audit and
Risk Management
Held
4
Attended
4
Remuneration
Nominations
Held
Attended
Held
2
Attended
2
Health, Safety, Environment
and Community
Held
Attended
7
7
7
7
7
7
2
2
2
2
4
4
4
3
1
4
4
4
3
1
5
5
1
5
5
1
(1) ‘Held’ indicates the number of meetings held during the period that the director was a member of the Board or Committee.
(2) ‘Attended’ indicates the number of meetings attended during the period that the director was a member of the Board or Committee.
(3) Mr Brasher was appointed as a member of the Audit and Risk Management Committee with effect from 21 December 2017.
(4) Mr Breunig was in transit and was an apology for an extraordinary meeting convened at short notice.
(5) Mr Kruger was appointed as chairman of the Audit and Risk Management Committee with effect from 21 December 2017.
(6) Ms Johns commenced as Managing Director & CEO on 15 November 2017 and was appointed as a member of the Health, Safety, Environmental and Community
Committee with effect from 21 December 2017.
(7) Mr Fazzino retired as Managing Director & CEO on 14 November 2017.
(8) Mr Hayes retired as a director on 21 December 2017.
Incitec Pivot Limited Annual Report 2018
3
Directors’ Report
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.
Date performance
rights granted
21 January 2016
25 August 2016
25 January 2017
19 April 2017
30 January 2018
1 March 2018
Total unissued ordinary shares
under performance rights
Number of ordinary shares
under performance rights
986,150
150,941
1,179,176
228,832
1,563,220
323,560
4,431,879
Shares issued on exercise of
performance rights
No ordinary shares in Incitec Pivot Limited were issued by the
Company during the 2018 financial year. 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 2018
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
On 22 October 2018, the Company announced the extension of
its on-market share buyback for a further 12 months from 29
November 2018 to 28 November 2019.
In November 2018, the directors determined to pay a final
dividend for the Company of 6.2 cents per share on 17
December 2018. The dividend is 20% franked (refer to note 6
to the financial statements).
Other than the matters reported on above, the directors have
not become aware of any other significant matter or
circumstance that has arisen since 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.
4
Incitec Pivot Limited Annual Report 2018
Likely developments
The Operating and Financial Review beginning at page 6 of this
report contains information on the Company’s business
strategies and prospects for future financial years, and refers to
likely developments in the Company’s operations and the
expected results of these operations in future financial years.
Information on likely developments in the Company’s
operations for future financial years and the expected results of
those operations together with details that could give rise to
material detriment to the Company (for example, information
that is commercially sensitive, confidential or could give a third
party a commercial advantage) have not been included in this
report where the directors believe it would likely result in
unreasonable prejudice to the Company.
Environmental regulation and performance
The operations of the Group are subject to environmental
regulation under the jurisdiction of the countries in which
those operations are conducted including Australia, United
States of America, Mexico, Chile, Canada, Indonesia, Papua
New Guinea and Turkey. The Group is committed to complying
with environmental legislation, regulations, standards and
licences relevant to its operations.
The environmental laws and regulations generally address
certain aspects and potential impacts of the Group’s activities
in relation to, among other things, air and noise quality, soil,
water, biodiversity and wildlife.
The Group operates under a Global Health, Safety and
Environment Management System which sets out guidelines
on the Group’s approach to environmental management,
including a requirement for sites to undertake an
Environmental Site Assessment.
In certain jurisdictions, the Group holds licences for some of its
operations and activities from the relevant environmental
regulator. The Group measures its compliance with such
licences and reports statutory non-compliances as required.
Measurement of the Group’s environmental performance,
including determination of areas of focus and assessment of
projects to be undertaken, is based not only on the actual
impact of incidents, but also upon the potential consequence,
consistent with IPL’s risk based focus.
During the year, the Group has continued to focus on licence
compliance and identification and mitigation of environmental
risks. Remediation works have progressed at a number of sites
in the U.S. as dictated by regulatory approvals.
In 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 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. Following an appeal in
December 2017, the fine was reduced to $360,000.
For the 2018 financial year, the Group received two penalty
infringement notices issued by a regulatory authority arising
from the overflow of a site containment pond in Queensland,
Australia, which resulted in fines totalling $25,230. The Group
also received a fine of US$250,000 for untimely reporting of an
inadvertent release of anhydrous ammonia into the air at a
site in the U.S.
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.
The Company worked with Deloitte Touche Tohmatsu on
transitioning Mr Imbesi and on-boarding Mr Imbesi’s successor
during the 2018 financial year. Mr Tim Richards is Mr Imbesi’s
successor and will be the Company’s lead audit partner for the
2019 financial year.
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 $401,100 during the year ended 30 September
2018 (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 44.
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 Council’s 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.
Incitec Pivot Limited Annual Report 2018
5
Directors’ Report
Operating and Financial Review
Group Overview
IPL is a leading international explosives and blasting services
company and the largest fertilisers manufacturing and
distribution business in Australia. 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 leverages a common nitrogen manufacturing core,
with engineering synergies achieved through the Global
Manufacturing organisation.
The Company has operations in Australia, North America,
Europe, Asia, Latin America and Africa.
Incitec Pivot operates through three business units, details of
which are set out in this review:
• Dyno Nobel Americas (“DNA”);
• Dyno Nobel Asia Pacific (“DNAP”); and
• Fertilisers, that consists of Incitec Pivot Fertilisers (“IPF”)
and Southern Cross International (“SCI”).
Strategy
IPL’s focus is to deliver distinctive value to our shareholders
and customers by leveraging our differentiated technologies
to solve our customers challenges on the ground. This is
built on our core competencies of nitrogen and explosives
manufacturing and delivering practical technology solutions to
our customers.
IPL’s strategy is to deliver growth and increase shareholder
value, primarily through six value drivers:
• Zero Harm;
• Talented and Engaged People;
• Customer Focus;
• Leading Technology Solutions;
• Manufacturing Excellence; and
• Profitable Growth.
IPL has set performance improvement targets against each of
the six value drivers, to be achieved over the next three years
to 2021. The Company’s Executive Remuneration Framework
for 2019, as set out in the Remuneration Report on pages 23
to 43, was adjusted to ensure alignment between the key
value drivers and Executive incentives.
Sustainability
IPL’s commitment to operating sustainably is driven by the
Company’s values which are core to the way it does business.
IPL defines Sustainability as “the creation of long-term
economic value whilst caring for our people, our communities
and our environment.”
Since its initial adoption by the Board in September 2010, IPL’s
sustainability strategy has undergone review and now includes
the sustainable development of its supply chain.
IPL has a strong focus on both abatement technologies and
progressively increasing resource efficiencies to reduce its
impacts on the environment, including greenhouse gas (GHG)
emissions which contribute to climate change.
Detail on IPL’s Environmental, Social and Governance (ESG)
considerations that are material to the sustainability of the
Company are included in the summary Sustainability Report on
pages vi to x and its 2018 Sustainability Report, which will be
published in March 2019.
Zero Harm
IPL prioritises its “Zero Harm for Everyone, Everywhere”
Company value above all others. It does so through an
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 the 2018 financial year, IPL achieved a Total Recordable
Injury Frequency Rate (TRIFR)(1) of 0.96(2), consistent with our
target of < 1.
The increasing trend in the Company’s TRIFR over the last three
years has stabilised and improved since the half year (1.02) as
the Company reaffirmed its Zero Harm commitment.
TRIFR
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
TRIFR
Target
1.38
1.21
0.97
0.73
0.82
0.95
0.96
FY12
FY13
FY14
FY15
FY16
FY17
FY18
6
Incitec Pivot Limited Annual Report 2018
Total GHG emissions
In its drive for continuous improvement in HSE performance,
the following Zero Harm targets were set as one of the
outcomes from the Zero Harm strategic review completed
in 2018:
• 30% improvement in TRIFR by 2021;
• Sustainable year-on-year reduction in Tier 1 and Tier 2
Process Safety Incidents(3);
• Sustainable year-on-year reduction in Potential High
Severity Incidents(4); and
• Zero Significant Environmental Incidents(5).
The 2018 result will form the baseline against which
performance improvement will be measured over the next
three years to 2021.
Group Financial Performance
IPL delivered Net Profit After Tax (NPAT) after minority
interests of $207.9m in 2018. NPAT excluding Individually
Material Items (IMIs) of $347.4m increased $28.7m when
compared to 2017 NPAT.
The Group recognised $139.5m of after tax IMIs at 31 March
2018. The IMIs consisted of a $236.0m write down of goodwill
in the DNAP business, offset in part by the tax benefit of
$96.5m arising from the restatement of the Group’s US net
deferred tax liabilities.
Group Performance
2018 Group EBIT ex IMIs of $556.7m increased $55.5m, or 11.1
percent, as compared to 2017.
Year Ended 30 September
FY18
A$m
FY17
A$m
Change
%
3,856.3
3,473.4
11.0
851.0
774.5
556.7
501.2
347.4
318.7
(139.5)
–
9.9
11.1
9.0
na
207.9
318.7
(34.8)
278.6
228.4
22.0
205.4
189.0
104.6
103.9
(0.6)
0.3
8.7
0.7
na
(31.3)
(20.4)
(53.4)
556.7
501.2
11.1
14.4%
14.4%
The Group’s 2018 performance against key HSE metrics is
included in the table below:
IPL GROUP
ZERO HARM
Key Metrics
TRIFR
Potential High Severity Incidents
Process Safety Incidents
Significant Environmental Incidents
FY18
0.96
42
26
1
FY17
0.95
41
28
1
(1) TRIFR calculated as the number of recordable injuries per 200,000 hours worked and
includes contractors.
Reported Revenue and Earnings
Revenue
EBITDA ex IMIs(1)
EBIT ex IMIs(2)
NPAT ex IMIs(3)
IMIs after tax
NPAT
(2) Subject to finalisation of the classification of any pending incidents.
(3) Tier 1 and Tier 2 process safety incidents as defined by the Center for Chemical
Business EBIT ex IMIs
DNA
DNAP
Fertilisers
Eliminations
Corporate
Group EBIT ex IMIs
EBIT margin ex IMIs
Process Safety.
(4) Potential High Severity Incidents (excluding all near misses and hazards) with
potential consequences of 5 or higher on a 6-level scale.
(5) Significant Environmental Incidents as assessed against IPL’s internal risk matrix
(consequence 5 or higher incident on a 6-level scale).
Gender Diversity
The Company remains committed to expanding the diversity
of its workforce and has a target to increase gender diversity
by 10% year-on-year to reach 25% by 2022. Further details
on IPL’s approach in relation to Gender Diversity are included
on pages vi to x of the summary Sustainability Report that
forms part of IPL’s 2018 Annual Report, as well as in IPL’s 2018
Corporate Governance Statement.
Managing Impacts of Climate Change
During 2018, the Company engaged an independent expert
to complete a detailed assessment of the financial risks and
opportunities associated with climate change, as it relates to
IPL. The Company’s financial resilience was assessed against
two future climate scenarios, being a 2-degree and a 4-degree
change in climate, as recommended by the Taskforce on
Climate-related Financial Disclosures (TCFD).
IPL’s risk assessment and treatment strategies as they relate to
the impacts of climate change on the Group in both a 2-degree
and a 4-degree scenario are detailed in the Principal Risks
section of the Directors’ Report.
(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.
EBIT from the DNA business of US$211.6m increased by
US$38.5m, or 22.2 percent compared to 2017 mainly due to
higher margins in the Explosives business and increased
earnings from the Waggaman operations in 2018.
DNAP earnings of $205.4m increased by $16.4m, or 8.7
percent as compared to 2017, driven by increased efficiencies
at the Moranbah plant and higher sales volumes across the
Australian business, in particular to Metallurgical Coal
customers in the Bowen Basin.
Fertilisers earnings of $104.6m increased $0.7m, or 0.7 percent
as compared to 2017. This result was mainly driven by higher
commodity prices, mostly offset by lower sales volumes as a
result of plant downtime due to turnarounds and unplanned
outages, and the impact of dry weather on the East Coast.
A detailed analysis of the performance of each business and
respective outlook is provided on the following pages.
Incitec Pivot Limited Annual Report 2018
7
Explosives (DNA, DNAP)
Fertilisers
Group
FY14
FY15
FY16
FY17
FY18
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Dividend declared in respect of the financial year
%
17.5
15.0
12.5
10.0
7.5
5.0
2.5
0
(2.5)
Cents
25
20
15
10
5
0
2014
2015
2016
The tenor and diversity of IPL’s debt is set out in the
following exhibit:
2017
2018
Available limits
Drawn funds
AUDm
1200
1000
800
600
400
200
0
Bond
AUD200m
144A/reg S
USD800m
Bank facility
AUD260m
Bank facility
USD220m
Bank facility
USD500m
Reg S
USD400m
Maturity
Date
Feb 19
Dec 19
Aug 21
Aug 21
Oct 21
Aug 27
In September 2018, IPL refinanced its Syndicated Term Loan
(AUD360m and USD217m) that was due to mature in October
2018. The refinanced Syndicated Term Loan is domiciled in
Australia and consists of two tranches: Tranche A has a limit of
AUD260m and Tranche B has a limit of USD220m. The facility
matures in August 2021.
The Company holds the following debt that matures in 2019:
Directors’ Report
Cash Flow
Operating cash inflows increased $15.0m as compared to
2017. This increase is largely attributable to a $76.5m, or 9.9
percent increase in EBITDA ex IMIs, offset in part by increased
interest costs and the Waggaman delayed compensation
payments received in 2017.
Investing cash outflows increased $35.7m mainly due to spend
on major plant turnarounds in 2018 and lower proceeds from
asset sales. This was partially offset by the decrease in growth
capital spend as a result of the completion of the Waggaman
plant construction in 2017.
Financing cash outflows increased largely due to the $210.3m
spend on the repurchase of IPL shares under the $300m share
buyback program in 2018.
Financial Position
IPL’s Balance Sheet remains sound, reflecting the Group’s
ongoing commitment to financial discipline and effective cash
management. As at 30 September 2018, IPL had net debt of
$1,371.6m and Net debt/EBITDA of 1.6x which remained well
within IPL’s target range of less than 2.5x.
Year Ended 30 September
FY18
A$m
FY17
A$m
Change
A$m
IPL GROUP
Balance Sheet
Assets
TWC – Fertilisers
TWC – Explosives
Group TWC
Net PP&E
(164.8)
(170.2)
113.0
119.7
(51.8)
(50.5)
5.4
(6.7)
(1.3)
4,004.3
3,854.8
149.5
• AUD200m 5.5-year bonds on issue in the Australian debt
capital market, maturing February 2019.
• USD800m (AUD1,110m) 10-year bonds on issue in the
US 144A/Regulation S debt capital market, maturing
December 2019.
Intangible assets
3,046.6
3,121.0
(74.4)
Total Assets
Liabilities
6,999.1
6,925.3
73.8
Environmental & restructure provisions
(121.2)
(115.5)
(5.7)
Tax liabilities
Net other liabilities
Net debt
Total Liabilities
Net Assets
Equity
(521.5)
(499.3)
(22.2)
(240.6)
(259.5)
18.9
(1,371.6)
(1,291.9)
(79.7)
(2,254.9) (2,166.2)
(88.7)
4,744.2
4,759.1
(14.9)
4,744.2
4,759.1
(14.9)
Key Performance Indicators
Net tangible assets per share
1.04
0.97
Group – Average TWC as % Rev(1)
5.1%
4.7%
Credit Metrics
Net debt(2)
Interest cover(3)
Net debt/LTM EBITDA ex IMIs(4)
(1,371.6)
(1,291.9)
(79.7)
7.3x
1.6x
7.9x
1.7x
(1) Average TWC as % Revenue = 13 month average trade working capital/
12 months rolling revenue.
(2) Net debt aggregates interest bearing liabilities plus the fair value of
derivative instruments in place to economically hedge the Group’s interest
bearing liabilities, less available cash and cash equivalents.
(3) Interest cover = 12 month rolling EBITDA ex IMIs/net interest expense.
(4) Net debt/LTM EBITDA ratio is calculated using 12 month rolling EBITDA ex IMIs.
The Company expects to refinance the maturing debt with
similar long-term financing during 2019.
Net Property, Plant & Equipment increased by $149.5m mainly
due to sustenance capital expenditure of $229.7m (including
plant turnarounds); spend on minor growth projects of
$35.2m; and the impact of foreign currency translation of non-
A$ denominated assets of $158.9m. This was offset in part by
the depreciation charge for the year of $271.5m and asset
disposals/write-offs of $7.8m.
Intangible assets decreased by $74.4m mainly as a result of
the impairment of DNAP goodwill of $236.0m and the
amortisation of intangibles of $22.8m. This was partially offset
by the impact of foreign currency translation of non-A$
denominated assets of $150.7m and spend on digital
technology, product delivery solutions and IT system upgrades
of $32.0m.
Tax liabilities increased by $22.2m mainly due to the timing
differences between tax and accounting depreciation related
to property, plant and equipment and intangibles. This was
partially offset by the impact of lower US tax rates on US
deferred tax balances.
Net other liabilities decreased by $18.9m mainly due to
payments against 2017 capital commitments, offset in part by
the utilisation of prepaid gas in the Fertilisers business in
2018.
8
Incitec Pivot Limited Annual Report 2018
Net debt of $1,371.6m was up $79.7m relative to 2017 due in
part to the impact of the Group’s share buyback of $210.3m
and increased capital expenditure on turnarounds. This was
partially offset by increased cashflows from higher earnings
and the higher fair value of balance sheet hedges. The fair
value of net debt hedges at 30 September 2018 was $414.7m
(2017: $304.3m).
Capital Allocation
DNAP
35%
IPL’s capital allocation process is centralised and overseen by
the Group’s Corporate Finance function. Capital is invested on
a prioritised basis and all submissions are assessed against
IPL’s risk, HSE, financial, strategic and corporate governance
criteria. Capital is broadly categorised into major growth
capital, minor growth capital and sustenance capital.
IPL GROUP
Capital Expenditure
Waggaman
Major growth capital
DNA
DNAP
Fertilisers
Minor growth capital
DNA
DNAP
Fertilisers
Sustenance
Total
Year Ended 30 September
FY18
A$m
FY17 Change
A$m
A$m
–
–
17.0
10.6
37.0
64.6
74.5
14.4
Fertilisers
18%
83.1
83.1
16.3
6.9
28.8
83.1
83.1
(0.7)
(3.7)
(8.2)
52.0
(12.6)
71.5
69.9
(3.0)
55.5
171.8
43.2
(128.6)
260.7
184.6
(76.1)
325.3
319.7
(5.6)
Sustenance capital spend in 2018 was $260.7m primarily
relating to major turnaround campaigns completed at the
Phosphate Hill, Mt Isa, Cheyenne and St Helens plants in 2018.
Minor growth spend of $64.6m in 2018 was mainly to support
volumes growth in Explosives and investment in technology.
Shareholder Returns and Dividends
Earnings per share (EPS) ex IMIs of 20.9 cents per share
increased 10.6 percent compared to 2017 ex IMIs (18.9 cents).
The Company completed $210.3m of the $300m share
buyback program in 2018. The timeframe for the completion of
the program was extended and it is expected to be completed
during the first half of calendar 2019.
In November 2018, the Directors of IPL determined to pay a
20% franked final dividend of 6.2 cents per share payable in
December 2018, bringing total dividends paid with respect to
the 2018 financial year to 10.7 cents per share. This represents
a payout ratio of approximately 50 percent for the 2018
financial year (before individually material items).
Dyno Nobel Americas
2018 EBIT Contribution(1)
2018 Revenue Contribution(1)
DNA
47%
DNA
37%
DNAP
25%
(1) Excludes elimination
The Dyno Nobel Americas business comprises three
downstream businesses, consisting of:
• Explosives;
• Waggaman; and
• Agriculture & Industrial Chemicals (Ag & IC).
Fertilisers
38%
EBIT from the Dyno Nobel Americas business in 2018 of
US$211.6m increased US$38.5m, or 22.2 percent mainly due
to higher margins in the Explosives business, driven by
increased sales volume; and higher earnings from
Waggaman operations.
DYNO NOBEL AMERICAS
Year Ended 30 September
Explosives
Waggaman
Ag & IC
Total Revenue
Explosives
Waggaman
Ag & IC
EBIT
EBIT margin
A$m
Revenue
EBIT
EBIT margin
FY18
US$m
804.6
187.0
118.5
1,110.1
130.2
76.2
5.2
211.6
19.1%
FY17
US$m
735.8
91.4
126.8
954.0
117.8
50.5
4.8
173.1
18.1%
1,462.3
1,251.4
278.6
228.4
19.1%
18.3%
Change
%
9.4
104.6
(6.5)
16.4
10.5
50.9
8.3
22.2
16.9
22.0
Incitec Pivot Limited Annual Report 2018
9
Directors’ Report
Explosives
Waggaman Operations
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 business increased US$12.4m,
or 10.5 percent as compared to 2017, primarily due to
higher sales volumes and cost efficiency gains. This was
partially offset by the impact of the plant turnaround
completed at Cheyenne during the year.
The Dyno Nobel Americas business manufactures and
distributes ammonia at its Waggaman, Louisiana plant in the
United States. Ammonia produced at Waggaman is used in the
manufacturing process at Dyno Nobel’s Louisiana, Missouri and
Cheyenne, Wyoming plants, and sold to third parties under
long term contractual arrangements.
Waggaman earnings for 2018 of $76.2m increased US$25.7m,
or 50.9% as compared to 2017. The increase in earnings was
mainly due to higher commodity prices, increased sales
volumes and improved production efficiencies. This was
partially offset by construction delay compensation of
US$35.1m received in 2017.
WAGGAMAN
Year Ended 30 September
EXPLOSIVES
Revenue
EBIT
EBIT margin
Year Ended 30 September
FY18
US$m
804.6
130.2
FY17
US$m
Change
%
735.8
117.8
9.4
10.5
16.2%
16.0%
Revenue
EBIT
EBIT margin
FY18
US$m
187.0
76.2
FY17
US$m
91.4
50.5
40.7%
55.3%
Change
%
104.6
50.9
Agriculture & Industrial Chemicals (Ag & IC)
The Dyno Nobel Americas business manufactures and
distributes nitrogen-based fertilisers in the United States
primarily from its St Helens, Oregon plant. Nitrogen based
fertilisers and other industrial chemicals products are also
produced as a by-product at the Louisiana, Missouri and
Cheyenne, Wyoming plants.
Ag & IC earnings of US$5.2m increased US$0.4m, or 8.3
percent as compared to 2017. This was largely due to higher
global fertilisers prices, offset by the impact of the St Helens
plant turnaround completed in March 2018, and the
unplanned outage of the nitric acid plant at Cheyenne in
April 2018.
Ag & IC
Revenue
EBIT
EBIT margin
Year Ended 30 September
FY18
US$m
FY17
US$m
Change
%
118.5
126.8
5.2
4.8
4.4%
3.8%
(6.5)
8.3
Quarry & Construction
40 percent of Dyno Nobel Americas Explosives revenue was
generated from the Quarry & Construction sector in 2018.
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.
Volumes from the sector grew 7.4 percent as compared to
2017. Growth was strong across the US, due to both market
and share growth.
Base & Precious Metals
32 percent of Dyno Nobel Americas Explosives revenue was
generated from the Base & Precious Metals sector in 2018,
the majority of which was from iron ore and copper mines in
the US.
Volumes from the sector grew 5.1 percent compared to 2017
largely due to the full year impact of 2017 contract wins and
favourable market drivers in the industry.
Coal
28 percent of Dyno Nobel Americas Explosives revenue was
generated by the Coal sector in 2018, the vast majority of
which was from product supplied to thermal coal mines in
the Powder River and Illinois Basins.
Volumes from the sector grew 16.0 percent compared to
2017 largely due to the full year impact of the 2017 contract
win in the Illinois Basin.
10
Incitec Pivot Limited Annual Report 2018
Manufacturing – Dyno Nobel Americas
Dyno Nobel Asia Pacific
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 the Illinois Basin and Appalachia.
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.
As noted above, the business also produces nitrogen-based
fertilisers and industrial chemicals across four locations, that are
delivered to its end markets via an integrated supply chain.
Manufacturing performance in the Dyno Nobel Americas
business in 2018 was as follows:
Waggaman, Louisiana – the plant operated at 103 percent
of nameplate capacity, producing 823,700 metric tonne of
ammonia for the year, up 52.5 percent on 2017.
Cheyenne, Wyoming – UAN production was down 9.8
percent compared to 2017, as a result of the turnaround
completed in November 2018 and an unplanned outage in
April 2018.
Ammonium nitrate production from the plant increased by
2.9 percent compared to 2017, with the major turnaround
commencing in September 2017 impacting production in
both the 2017 and 2018 financial years.
Louisiana, Missouri – Nitric Acid production from the Louisiana,
Missouri plant increased 7.8 percent compared to 2017.
St Helens, Oregon – Urea production from the St Helens
plant was down 10.2 percent compared to 2017 as a result
of the turnaround that was completed in March 2018.
2018 EBIT Contribution(1)
2018 Revenue Contribution(1)
DNAP
35%
(1) Excludes elimination
DNAP
25%
DNA
47%
DNA
37%
Through Dyno Nobel Asia Pacific, IPL provides ammonium
nitrate based industrial explosives, initiating systems and
services to the Metallurgical Coal and Base & Precious Metals
sectors in Australia, and internationally to a number of
countries including Indonesia, Papua New Guinea and Turkey
through its subsidiaries and joint ventures. Ammonium nitrate
is often sold in conjunction with proprietary initiating systems
and services.
Fertilisers
18%
Fertilisers
38%
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.
Dyno Nobel Asia Pacific earnings for 2018 of $205.4m
increased by $16.4m, or 8.7 percent as compared to 2017.
Increased earnings were mainly driven by improved plant
efficiencies at the Moranbah, Queensland plant and increased
sales volumes across the Australian business, in particular to
Metallurgical Coal customers in the Bowen Basin. This was
partially offset by the impact of lost contracts in Western
Australia in 2018.
DYNO NOBEL ASIA PACIFIC
Metallurgical Coal
Base & Precious Metals
International
Revenue
EBIT
EBIT margin
Year Ended 30 September
FY18
A$m
FY17
A$m
Change
%
491.1
442.6
11.0
351.3
352.3
136.2
138.3
978.6
933.2
205.4
189.0
21.0%
20.3%
(0.3)
(1.5)
4.9
8.7
Metallurgical Coal
50 percent of Dyno Nobel Asia Pacific revenue for the year
was generated from the Metallurgical Coal sector, most of
which was from supply to mines in the Bowen Basin.
Volumes from the Metallurgical Coal sector increased 10.3
percent as compared to 2017, largely driven by increased
customer demand, underpinned by strong mining activity.
Incitec Pivot Limited Annual Report 2018
11
Directors’ Report
DNAP
35%
DNAP
25%
DNA
47%
DNA
37%
Base & Precious Metals
Fertilisers Asia Pacific
36 percent of Dyno Nobel Asia Pacific revenue was
generated from the Base & Precious Metals sector, which
comprises iron ore mines in Western Australia and hard rock
and underground mines throughout Australia.
Volumes from the sector increased 1.0 percent compared to
2017, with higher customer demand largely offset by lost
business in Western Australia.
International
14 percent of Dyno Nobel Asia Pacific revenue was
generated internationally including in Indonesia, Turkey and
Papua New Guinea.
International volumes decreased 3.6 percent as compared to
2017, mainly driven by lower mining activity at a customer
site in Indonesia, mostly offset by growth in the Turkish
business.
Manufacturing – Dyno Nobel Asia Pacific
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.
The Moranbah plant was commissioned in 2012 and produced
370,700 metric tonnes of ammonium nitrate equivalent
product in 2018, an increase of 15.4 percent on 2017. The
plant has been operating at record levels since the major
turnaround completed in April 2017.
Moranbah Ammonium Nitrate Production
Thousand metric tonnes
400
300
200
160
162
100
130
149
0
1H
2H
182
189
176
169
182
139
2018 EBIT Contribution(1)
2018 Revenue Contribution(1)
Fertilisers
18%
Fertilisers
38%
(1) Excludes elimination
IPL’s Fertilisers business in Australia is the largest domestic
manufacturer and supplier of fertilisers by volume.
Internationally, the Fertilisers business sells to major offshore
agricultural markets in Asia Pacific, the Indian subcontinent,
Brazil and the United States. 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.
The Fertilisers business manufactures the following fertilisers
at four locations:
• Phosphate Hill: Di/mono-ammonium phosphate (DAP/MAP);
• Gibson Island: Ammonia (Big N), Granulated ammonium
sulphate (GranAm) and Urea; and
• Geelong and Portland: Single Super Phosphate (SSP).
Fertilisers earnings in 2018 of $104.6m increased $0.7m, or
0.7 percent as compared to 2017. This result was mainly
driven by higher commodity prices, particularly DAP and
Urea. However, it was largely offset by lower sales volumes
and increased manufacturing costs as a result of the
turnarounds completed at Phosphate Hill and Mt Isa in 2018;
the impact of unplanned outages at the Gibson Island plant;
and the adverse impact of drought conditions in New South
Wales and Southern Queensland on sales mix and volumes.
Year Ended 30 September
2014
2015
2016
2017
2018
FERTILISERS ASIA PACIFIC
Initiating systems are manufactured in Australia at Dyno
Nobel’s Helidon, Queensland facility and are also sourced from
IPL facilities in the Americas and from DetNet.
Phosphate Hill
Industrial & Trading
Quantum Fertilisers
SCI Revenue
IPF Revenue
Fertilisers Elimination
Fertilisers Revenue
SCI EBIT
IPF EBIT
Profit-in-stock elimination
Fertilisers EBIT
EBIT margin
FY17
A$m
Change
%
FY18
A$m
480.0
111.2
13.8
445.3
94.4
13.6
605.0
553.3
1,088.4
1,010.3
(221.7)
(213.8)
1,471.7
1,349.8
69.1
37.7
(2.2)
45.9
56.8
1.2
104.6
103.9
7.1%
7.7%
7.8
17.8
1.5
9.3
7.7
3.7
9.0
50.5
(33.6)
na
0.7
Fertilisers sales volumes were 2.3 percent down in 2018 at
3.01 million metric tonnes (2017: 3.08 million metric
tonnes).
12
Incitec Pivot Limited Annual Report 2018
Southern Cross International (SCI)
Group Outlook and Sensitivities
Phosphate Hill manufactured tonnes sold to the IPF business,
at import parity price, decreased 8.3 percent compared to
2017 mainly as a result of the plant turnaround completed in
April 2018.
Benefits from higher global ammonium phosphates prices
more than offset the impact from production outages in
2018.
Industrial & Trading and Quantum Fertilisers earnings in 2018
were largely flat on 2017.
Incitec Pivot Fertilisers (IPF)
Incitec Pivot Fertilisers domestic distribution volumes
decreased to 2.18 million metric tonnes, down 2.1 percent
compared to 2017.
Distribution earnings were adversely impacted by sales mix
in 2018, with drought conditions in NSW and Southern
Queensland dampening nitrogen demand for winter crop
application in these regions. The impact of dry weather was
somewhat mitigated by higher global Urea prices, higher
sales volumes in non-drought affected regions and higher
distribution margins.
Manufacturing – Fertilisers
Gibson Island – The plant produced 488,800 metric tonnes
of urea equivalent product, down 1.5 percent on 2017. The
lower production was a result of unplanned downtime to
complete risk mitigation activities.
Phosphate Hill – Ammonium phosphates production of
850,400 metric tonnes in 2018 decreased 9.6 percent
compared to 2017, mainly due to the Phosphate Hill/Mt Isa
turnarounds that were completed in May 2018. Integrity
issues with the liner in one of the Phosphate Hill plant’s
phosphoric acid tanks was identified during the turnaround,
resulting in additional plant downtime during the year. The
affected vessel has since been replaced and the issue
resolved.
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.
Dyno Nobel Americas
The Explosives business is expected to generate moderate
earnings growth in 2019 via higher volumes in the Quarry
& Construction (mid-single digit) and Base & Precious Metals
(low single digit) sectors. Coal sector volumes are expected to
remain flat in 2019, with retirements of coal fired electricity
generators continuing.
Absent major turnarounds at Cheyenne and St Helens in 2019,
earnings are expected to benefit from improved plant
efficiencies, increased production volumes and lower
manufacturing costs.
The Waggaman plant is expected to continue its strong
production performance from 2018, at slightly above its
800,000 metric tonne nameplate capacity, with no planned
outages scheduled for 2019. The operational earnings of
Waggaman are subject to movements in ammonia and
natural gas prices.
Agriculture & Industrial Chemicals production volumes are
expected to be higher, with no major turnarounds planned for
2019 and all known material production issues at Cheyenne
and St Helens now resolved. Operational earnings are subject
to movements in global fertilisers prices, particularly Urea
and UAN.
Dyno Nobel Asia Pacific
Sales volumes are expected to remain strong across all sectors
in 2019 underpinned by robust mining activity, particularly in
the Bowen Basin.
Moranbah production is expected to be in line with 2018
record production at approximately 370,000 metric tonnes of
ammonium nitrate.
The impact of contract losses in the Base & Precious Metals
sector for 2019 is $14m ($10m after tax) versus 2018
earnings.
The business remains focussed on actively working with its
customers through contract reviews and renewals over the
next two years.
The ammonium nitrate oversupply position in Australia is
expected to keep pressure on pricing and margin.
Incitec Pivot Limited Annual Report 2018
13
Directors’ Report
Fertilisers Asia Pacific
Sensitivities
The following table provides sensitivities to key earnings
drivers as they relate to the 2018 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.
2018 Sensitivities
Commodity
Proxy Index
EBIT Sensitivies
Americas
Ammonia(1)
CFR Tampa
+/- US$10/mt = +/- US$6.5m
Natural Gas(2)
Henry Hub
+/- US$0.10/mmbtu = -/+ US$2.7m
Urea(3)
FOB NOLA
+/- US$10/mt = +/- US$1.7m
FX EBIT Translation(4)
Asia Pacific
+/- A$/US$0.01 = -/+ A$3.6m
DAP(5)
Urea(6)
FOB Tampa
+/- US$10/mt = +/- A$11.3m
FOB Middle East
+/- US$10/mt = +/- A$4.4m
FX transactional(5,6)
+/- A$/US$0.01 = -/+ A$7.4m
(1) Based on actual 2018 Waggaman manufactured and sold ammonia of 823.7k
metric tonnes.
(2) Based on actual 2018 Waggaman natural gas consumption.
(3) Based on St Helens plant capacity of 175k metric tonnes of urea equivalent
product.
(4) Based on actual 2018 Americas EBIT of US$211.6m and an average 2018
exchange rate of A$/US$ 0.76.
(5) Based on actual 2018 Phosphate Hill manufactured and sold DAP of 861k
metric tonnes, 2018 average exchange rate of A$/US$ 0.76, and average
2018 realised DAP price of US$400/metric tonne.
(6) Based on actual 2018 Gibson Island manufactured and sold urea equivalents
of 335k metric tonnes, 2018 average exchange rate of A$/US$ 0.76, and
2018 average realised urea price of US$259/metric tonne.
Fertilisers earnings will continue to be dependent on global
fertilisers prices, the A$/US$ exchange rate and weather
conditions.
Recent tightness in the global fertilisers supply/demand
balance has seen fertilisers prices firmer. However, the dry
conditions in Queensland and NSW could impact irrigation
water availability in these key summer crop markets in 2019.
Distribution margins are expected to be materially consistent
with 2018, subject to global fertilisers prices
and the potential impact of ongoing dry weather across
Eastern Australia.
The Phosphate Hill plant is expected to produce approximately
1 million metric tonnes of ammonium phosphates in 2019,
with no planned turnarounds in the year and known material
production issues now resolved.
The Power and Water Corporation contract remains on track
to deliver natural gas to Phosphate Hill by January 2019,
reducing the plant’s gas cost by approximately $25m in 2019.
Short term gas supply arrangements for Gibson Island expire
on 31 December 2019. If economically viable gas cannot be
secured for the period beyond 31 December 2019, it is likely
that the facility will cease manufacturing operations. Gibson
Island production volumes expected to be lower than 2018,
with a planned 9-week shutdown in early 2019. The impact
of higher gas cost on operational earnings is approximately
$50m for 2019. Exploration activities of the acreage awarded
to Central Petroleum Ltd in March 2018 will take place
during 2019.
Group
Outlook for certain corporate items as they relate to 2019 are
set out below:
• Corporate: Corporate costs for 2019 are expected to be flat
on 2018.
• Share Buyback: The timeframe for the completion of the
share buyback program was extended and the remaining
$90m of the program is expected to be completed during
the first half of calendar 2019.
• Borrowing Costs: Net borrowing costs are expected to be
approximately $135m, which includes the expected impact
of increased interest rates in the global economy and the
anticipated weaker Australian dollar.
• Taxation: Considering the broader impact of US tax reform
legislation and based on current legislation and known
regulations released to date, the effective tax rate in 2019
is expected to be between 19% and 21%.
• Hedging Program: 50% of estimated first half 2019 US$
linked fertilisers sales are hedged at a rate of $0.75 with
full participation in downward rate movements. IPL’s
foreign currency exposure relating to fertilisers sales will
continue to be actively managed.
• BEx Efficiency Benefits: Targeting at least $25m of
sustainable net productivity benefits in 2019.
14
Incitec Pivot Limited Annual Report 2018
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.
Commodity
price risks
Pricing for fertilisers, ammonia, ammonium nitrate and
certain other industrial chemicals is 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.
• Diversification across explosives and fertilisers markets in
numerous geographical locations helps diversify exposures.
• Long term sustainable competitiveness and business fluidity
is managed through continuous improvement in productivity
and efficiency.
• Continuous review of country specific risks helps proactive
management of potential exposures.
• The Group seeks to maintain or achieve low cost positions in
its chosen markets, which helps its businesses to compete
in changing and competitive environments.
•
•
Integrated Business Planning (IBP) processes assist in
optimising inventory 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 has firm and enforceable 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. In relation to ammonium nitrate for DNAP, IPL also
maintains multiple supply sources to help with both supply
and commodity price risk.
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, movements in interest rates and the
imposition or removal of tariffs.
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.
Incitec Pivot Limited Annual Report 2018
15
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
IPL operates in highly competitive markets with varying
competitor dynamics and industry structures.
•
IPL seeks to maintain or develop 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 utilises Net Promoter Scores and “Voice of Customer”
programs to enhance its customer relationships and to help
identify customer related issues early.
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.
Industry
structure and
competition
risks
Customer risks
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 global
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.
Refer to ‘Climate Change Risks’ for potential risks and
consequences related to industry structure and
competition as a result of climate change.
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.
16
Incitec Pivot Limited Annual Report 2018
Risk
Description and potential consequences
Treatment strategies employed by IPL
Oversupply of
ammonium
nitrate in Asia
Pacific and
Americas
New ammonium nitrate capacity has recently been
introduced in the Asia Pacific geographic region. The
new capacity in Asia Pacific has created a supply/
demand imbalance. In the Americas market, the supply
of ammonium nitrate is currently higher than demand
and this position is expected to continue for a number
of years.
• Where practical, for customers in the Explosives sector, IPL
prefers to engage in long term customer contractual
relationships to manage both manufactured and supply
positions.
•
IPL seeks to maintain or develop competitive cost positions in
its chosen markets, whilst maintaining quality product and
service offerings.
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.
These operational risks include an unintended
detonation of explosives, or unintended toxic release
during manufacture, transportation or storage.
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. In some markets in which IPL operates,
economic supply of key raw materials to the Group is
reliant on only a few external parties.
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.
• A Health, Safety and Environment (HSE) management
system is in place with clear principles and policies
communicated to employees.
• HSE risk identification, mitigation and 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.
•
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 IBP process and inventory management practices
provide flexibility to mitigate the impacts of 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 endeavours to include liability provisions and
force majeure clauses in agreements where relevant.
Incitec Pivot Limited Annual Report 2018
17
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
Natural gas
supply and
price risk
Sulphuric acid
cost and supply
into Phosphate
Hill
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, while
short term gas supply arrangements have been secured
for Gibson Island, those arrangements expire on 31
December 2019 and if economically viable gas cannot
be secured for the period beyond 31 December 2019, it
is likely the facility will cease manufacturing operations.
The cost of natural gas impacts the variable cost of
production of ammonia and significantly influences the
plants’ overall competitive position.
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 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 the end of 2019. 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.
• 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
economically.
• The Mt Isa site is a leased site, with a lease contract in place
with Mt Isa Mines to 2028. Accordingly, IPL would be able to
continue to produce sulphuric acid at Mt Isa (albeit at a
higher cost) by burning elemental sulphur until 2028, should
the copper smelter operation cease before that time.
Phosphate rock
Phosphate rock, used in the manufacture of both
ammonium phosphates and single superphosphate
fertilisers, is a naturally occurring mineral rock.
• At its own facility in Phosphate Hill, IPL mines phosphate
rock which is used for the production of ammonium
phosphates at that facility.
Phosphate rock is an internationally traded commodity,
with pricing based on international benchmarks, and is
affected by global supply and demand forces. Its cost for
single superphosphate manufacturing purposes is also
impacted by fluctuations in foreign currency exchange
rates, particularly the A$/US$ rate. Fluctuations in either
of these variables can impact the cost of IPL’s single
superphosphate manufacturing operations, as these
operations rely on rock imported from limited foreign
supply sources.
• Phosphate rock is used in the production of single
superphosphate at IPL’s Geelong and Portland operations.
IPL seeks to diversify the sources of supply of rock (subject
to certain requirements regarding the composition of the
rock, including cadmium and odour considerations) required
for these operations by sourcing it from a number of
international suppliers (albeit that the sources of supply
are limited).
A shortage of skilled labour or loss of key personnel
could disrupt IPL’s business operations or adversely
affect IPL’s business and financial performance. IPL’s
manufacturing plants require skilled operators drawn
from a range of disciplines, trades and vocations.
IPL has operations in regional and remote locations
where it can be difficult to attract and retain critical and
diverse talent.
•
IPL’s scale provides some, albeit limited, ability to relocate
staff to cover shortages or losses of critical staff.
• The Group has policies and procedures, including flexible
working arrangements and competitive compensation
structures, designed to help attract and retain workforce.
• Management identifies critical roles and attempts to
implement policies to help ensure that appropriate
succession and retention plans are in place for those roles.
Labour
18
Incitec Pivot Limited Annual Report 2018
Risk
Weather
Description and potential consequences
Treatment strategies employed by IPL
Seasonal conditions (particularly rainfall), are a key factor
for determining demand and sales of explosives and
fertilisers. Any prolonged change in weather patterns &
severity of adverse weather conditions could impact the
future profitability and prospects of IPL.
• The IBP process incorporates forecasting on a rolling
24-month basis 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.
Further disclosure on climate related risks can be found
in the Climate Change Risks sub-sections of this report.
•
•
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.
IPL’s international explosives businesses operate across
geographically diverse locations, principally Australia and
North America with exposures to diverse sectors including
coal, iron ore, quarry & construction and metals mining.
Climate change risks associated with a 2 Degree Scenario risk analysis
The ‘2 Degree Scenario’: A scenario in which climate change is limited to 2 degrees by 2100 requires rapid decarbonisation of the global economy
and is in keeping with the global agreement to reduce carbon dioxide equivalent (carbon) emissions which was reached through the United
Nations Framework Convention on Climate Change agreement in Paris in 2015. It represents a future in which stringent climate policies are put in
place in the short to medium term, leading to a decline in carbon emissions after 2040. This scenario projects an average global temperature
increase of between 0.9°C and 2°C by 2050 and between 1.1°C and 2.6°C degrees by 2090. Because this scenario assumes rapid global action is
taken to reduce emissions, acute and chronic physical risks associated with a greater degree of warming are not as severe. While extreme
weather events, droughts and floods are expected to continue to increase in this scenario, the risks associated with these impacts were not
identified as individually material by the IPL Risk Matrix. The material financial risks identified for IPL during a risk analysis against the 2-degree
scenario are associated with the rapid transitioning of the economy towards decarbonisation.
•
•
IPL has a large, diverse supplier group, which would assist in
avoiding carbon pricing pass through in the short-term.
IPL customer agreements provide for the pass through of
carbon pricing where possible.
• Domestic co-location of critical products will reduce carbon
costs associated with transport. Diversification away from
single source suppliers, already being managed, will also
assist in managing the potentially volatile/variable costs
associated with increased regulation, including carbon
pricing, in the period between 2030 and 2040.
Policy and
legal risks
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
regulation 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
functioning as currently operated. This risk would be
heightened if regulatory changes are implemented
inconsistently across regions or countries so that IPL’s
facilities (principally located in Australia and North
America) are impacted by regulatory changes while
manufacturing facilities of competitors operating in other
jurisdictions are less impacted.
Carbon pricing currently applies in Australia, and under a
2-degree scenario, rapid action to limit climate change
would include a global carbon price by 2020 (short-term
risk: 1-3 years). Carbon pricing would increase
operational costs as well as costs to transport products,
which could impact until 2025, when most shipping
options would be retrofitted with zero or low carbon
mobility options (e.g. hydrogen). The transition to a
global carbon price may give rise to a period of volatility
where IPL would not be able to pass through the
immediate carbon costs to customers, who may choose
to source products more locally where available to avoid
these carbon costs.
Incitec Pivot Limited Annual Report 2018
19
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
Market risks(1)
Under a 2-degree scenario, transitioning away from fossil
fuels is likely to significantly decrease demand for
thermal coal, with impacts beginning in the short term
(1-3 years). However, the technologies associated with
renewable energy such as electric vehicles and large-
scale batteries are likely to expand dramatically, with
World Bank estimates indicating that demand for the
metals required for these technologies could grow by
1000% under a 2-degree scenario. While these mining
operations (which use explosives) mitigate the loss of
revenue from the thermal coal market, “new world
commodities” do not require the same quantity of
explosives as bulk commodities, resulting in lower
overall demand and potentially leading to a supply/
demand imbalance.
•
•
•
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.
In the 2-degree scenario the reduction in demand for
explosives supplying the thermal coal markets will be partly
offset by the mining of new world commodities required for
renewable technologies which could be higher margin
activity.
IPL currently buys in a portion of its ammonium nitrate to
fulfil current demand and could manage the rapid market
change away from thermal coal through reduced purchasing
of third-party ammonium nitrate.
• Where practical, IPL prefers to engage in long term
customer and supply contractual relationships.
• Pricing and risk management processes exist in all
businesses.
Climate change risks associated with a 4 Degree Scenario risk analysis
The ‘4 Degree Scenario’ assumes negligible and/or ineffective policy and action to limit carbon emissions, which results in an average increase in
temperature of between 2.6°C and 4.8°C by 2100. The lack of effective progress to reduce emissions in this scenario results in ‘business as usual’
in regard to carbon regulation. While market transition risks (such as risks from changed consumption patterns) occur in this 4-degree scenario,
the material risks are associated with ‘chronic’ physical risks (e.g. creeping changes in climate which cause drought and sea level rise) and ‘acute’
physical risks (e.g. more severe and more frequent extreme weather events such as hurricanes, drought and flooding from intense rain events
and storm surges). The resulting social consequences are expected to be severe, with food and water scarcity and resulting conflict impacting on
some economies.
Risks
associated
with Acute(2)
and Chronic(3)
physical events
Impacts on Product Demand:
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 the number and/or intensity of
storms, hurricanes and other extreme weather events
may impact IPL’s end markets, primarily mining and
agriculture.
A 4-degree climate change scenario indicates fertiliser
demand increasing in the short term, as emerging
markets demand more meat, before a significant
downturn associated with the economic impacts of acute
extreme weather events and chronic changes in climatic
conditions impacting the ability to grow crops. IPL’s Asia-
Pacific fertiliser revenue from exports may be impacted
in the long-term (6+ years) by a decline in offshore
market demand with most South-east Asian countries,
which currently are IPL’s predominant fertiliser export
market, and small island developing states being ranked
among the most vulnerable in the world by the Climate
Risk Index (CRI).
IPL currently sells up to 15% of its Asia Pacific explosives
into international markets, with most of these countries
considered emerging or developing. Under a 4-degree
climate change scenario, explosives demand in the Asia
Pacific region may be impacted in the long term (6+
years) by reduced demand in climate vulnerable nations,
as indicated by the (CRI).
• Fertiliser demand is likely to grow due to restoration of
degraded land to meet growing population needs for food
and increased meat and dairy consumption.
•
•
IPL currently exports fertilisers from Australia and may be
able to ship to other locations where demand is retained as
markets are impacted by chronic changes in climate.
IPL currently sells fertilisers on the spot market to a
geographically diverse group of customers and has no long-
term reliance on a particular customer segment. IPL also has
the competitive advantage of having manufacturing sites
located primarily in Australia and the US. These are wealthy
countries which can afford to rebuild their port infrastructure
in the event of rising sea-levels and damage from storm
surges and other acute climate changes. For this reason, it is
anticipated that IPL will be able to ship to other offshore
markets which retain demand in the event that current
export regions are impacted.
• Under a 4-degree climate scenario, the physical impacts of
climate change mean that the Quarry & Construction sector
is likely to assume a portion of the demand that was
previously taken by climate vulnerable nations in the Asia
Pacific region. Many new mines are expected to be
developed to supply “new world commodities” for batteries,
renewables and mobility options, however, “new world
commodities” are not expected to require the same
quantity of explosives as bulk commodities. Therefore,
overall explosive volumes would be expected to decrease.
(1) While the ways in which markets could be affected by climate change are varied and complex, one of the major ways is through shifts in supply and demand
for certain commodities, products, and services as climate-related risks and opportunities are increasingly taken into account. (Financial Stability Board,
Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p6)
(2) Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods.
(Financial Stability Board, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p 6)
(3) Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.
(Financial Stability Board, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p 6)
20
Incitec Pivot Limited Annual Report 2018
Risk
Description and potential consequences
Treatment strategies employed by IPL
Risks
associated
with Acute
and Chronic
physical events
(continued)
Impacts on Operations:
Some of IPL’s manufacturing 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 more
frequent disruption to IPL’s operations directly or as a
result of supply chain disruption, which includes
transportation of raw materials and finished product via
road, rail and water. Impacts such as these may increase
in the short term (1-3 years). Under this scenario,
insurance premiums would be expected to increase
along with a possibility that some events may be
excluded from cover.
Water is a key raw material for manufacturing, with the
majority used for cooling purposes. Under a 4-degree
climate change scenario, it is predicted that average
annual rainfall will be reduced and longer periods of
prolonged drought will be created, especially in Eastern
Australia. While this may be offset somewhat by
increased 1 in 20-year flooding events at some locations,
and up to 15% more rainfall than historical averages in
each single rain event, water restrictions may become
more frequent in some areas. In addition, the possibility
of less frequent, higher intensity rainfall events may lead
to the risk of storm water pond overflows. These impacts
could occur in the short-term (1-3 years), with very low
dam levels being recorded near some sites in the recent
past.
Several manufacturing sites are located on coasts and
are very close to sea level. A significant rise in sea level
combined with a king tide may cause flooding events at
these sites from 2030 onwards (considered a long-term
risk) particularly with increased storm activity causing
storm surges to become more intense.
•
IPL’s own manufacturing facilities are considered resilient to
the anticipated acute physical impacts of climate change,
with measures currently in place to manage exposure
where sites are located in tornado or hurricane zones.
• Due to its location in a hurricane zone, the Waggaman
Louisiana plant was built to comply with wind codes set out
by the International Building Code Design Standard IBC 20
and Minimum Design Loads for Buildings and Other
Structures ASCE 7-05. The design was signed off by a
Louisiana based certified Professional Engineer with
experience in design standards for the region, where the
impacts of future hurricanes must be considered.
• 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.
• The location of the Moranbah facility close to high quality
metallurgical coal producers would provide IPL with a
strategic advantage over its competitors in the event of
supply chain disruption due to extreme weather events.
• Domestic co-location of critical products and diversification
away from single source suppliers, already being managed,
will assist in managing supply chain interruption.
• Water scarcity concerns could prompt the need for
additional storage. The cost of creating additional storage
(dams) in these locations is considered immaterial. Water
restrictions as a result of longer periods of drought and
therefore increased regulation, may also prompt IPL to seek
alternative water sources. At present, no operations have
been identified where sourcing of new water is considered
to be too costly or unavailable.
• Ongoing and long-term water management strategies are
in place to ensure overflows of storm water ponds due to
higher intensity rainfall events are avoided.
• The construction of sea-level management infrastructure
(levies, etc.) will be considered in the long-term where
required for the identified manufacturing sites to manage
the risk of flooding due to storm surges and sea level rise.
Incitec Pivot Limited Annual Report 2018
21
Directors’ Report
Risk
Description and potential consequences
Treatment strategies employed by IPL
Compliance, regulatory and legal risk
Compliance,
regulatory
and legal risk
Changes in federal or state government legislation,
regulations or policies in any of the countries in which
IPL operates 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, tariffs 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, 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 and other commercial disputes, and
property damage and personal injury claims in
connection with its operations.
Loss or
exposure of
sensitive data
and cyber
security
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.
• A 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.
• Security Operations Centre, threat intelligence, advanced
threat analytics and system / network controls are used
for detection and prevention of cyber threats.
• Disaster Recovery and IT Business Continuity Planning
arrangements are in place to help IPL recover quickly and
effectively should a cyber incident occur.
22
Incitec Pivot Limited Annual Report 2018
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 2018 which sets
out the remuneration information for the Managing Director & Chief Executive Officer, Executive Key Management Personnel and
the Non-Executive Directors.
Performance alignment
The 2018 financial year has delivered a solid set of results for IPL. These results are reflected in the outcomes for Executives under
the Company’s remuneration programme.
Fixed remuneration
After two years of no fixed increases for Executives, market-aligned median increases of 2% were awarded across the Executive
team for the 2018 financial year.
More information on fixed remuneration changes for the 2018 financial year is provided in section 4.2 of this report.
Short-term incentive
It has been an important underpinning of the executive STI programme that no payments are made for the heavily weighted
financial component if a designated Group financial STI Gate is not achieved. In addition, the Board retains a discretion to forfeit all
or part of the STI award payable for the Zero Harm performance condition in the event of a fatality or major incident.
The 2018 average STI outcome of 81 per cent of stretch target compares to 78 per cent of stretch target last year, and 16 per cent
of stretch target in 2016, with the variability in outcomes each year demonstrating the strong alignment between actual financial
performance and executive remuneration.
Individual STI outcomes in 2018 incorporate the delivery of key strategic projects which are essential to the long-term business
success of the Company. Each individual’s performance on all measures in 2018 has been assessed as between 58 per cent and 94
per cent of stretch target – a range which demonstrates the challenging nature of the objectives set given the overall level of
performance and help to differentiate degrees of performance.
More information on the Company’s 2018 performance and resulting STI outcomes is provided in section 4.3 of this report.
Long-term incentive
In relation to the LTI plan, the performance period for which ended on 30 September 2018, the performance conditions were
relative total shareholder returns (weighted at 70%) and the delivery of strategic initiatives (weighted at 30%) based around
Business Excellence and the Louisiana Ammonia Project. As the Company delivered relative total shareholder return below the
median of the S&P/ASX 100 for the performance period, no benefit will trigger to participants for this component. However,
there will be partial vesting of 15% of performance rights emanating from achievements against the strategic initiatives
component of the plan.
More information on the LTI programme, including the 2015 – 2018 performance, is provided in section 4.4 of this report.
Review of Remuneration for the 2019 financial year
In order to remain competitive for talent, the Remuneration Committee conducts a comprehensive review of market remuneration
for executive roles when deemed appropriate. 2018 saw such a review conducted.
The review considered market trends and the emerging practice of peers in the context of the existing approach to remuneration
and the strategy of Incitec Pivot. The Committee strongly believes that the current remuneration framework is robust, however
adjustments are sometimes necessary to ensure it remains fit for purpose and focuses the Executives’ efforts on the long term
strength of the Company. Accordingly, in relation to the Executives’ remuneration arrangements, the Board has determined to
make minor adjustments to the fixed remuneration, to update LTI performance measures in line with Company strategy, and
introduce a significant change to STI through the introduction of a financial performance measure of earnings adjusted for foreign
exchange and some commodity price movements in addition to Group NPAT. Further, mandatory sacrifice of STI will be introduced
in order to satisfy a newly created Minimum Shareholding Requirement.
A separate minimum shareholding requirement will also be applicable to Non-Executive Directors.
As was the case for the 2018 financial year, the Board has determined that there will be no increase to Non-Executive Director fees
in 2019, noting that fees were last increased in October 2014. More information on the changes that will come into effect in the
2019 financial year is provided in section 5 of this report.
The Board invites you to consider the 2018 Remuneration Report. We welcome feedback on the Company’s remuneration approach
in supporting IPL’s business strategy.
Kathryn Fagg
Chairman, Remuneration Committee
Incitec Pivot Limited Annual Report 2018
23
Directors’ Report: Remuneration Report
Contents
Section
1. Introduction
2. Executive Remuneration & Governance
2.1 Executive Remuneration Overview
2.2 Executive Remuneration Strategy
2.3 Executive Remuneration Governance
3. 2018 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
3.6 Executives Service Agreement Terms
4. Remuneration outcomes in 2018 financial year and link to
2018 financial year performance
4.1 Analysis of relationship between the Company’s performance, shareholder wealth and remuneration
4.2 2018 Fixed annual remuneration outcomes
4.3 2018 STI Outcomes
4.4 2015/18 LTI Outcomes
4.5 LTI: Performance related remuneration
4.6 Further details of Executive remuneration
5. Overview of Remuneration changes for the 2019 financial year
6. Non-Executive Director Remuneration
7. Shareholdings in IPL
8. Other KMP Disclosures
24
Incitec Pivot Limited Annual Report 2018
Page
25
26
26
27
27
27
27
27
28
30
31
33
34
34
35
35
36
37
39
41
42
43
43
1.
Introduction
The directors of Incitec Pivot Limited (IPL) present the Remuneration Report prepared in accordance with the Corporations Act 2001
(Cth) for the Company for the year ended 30 September 2018. 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 Company during the 2018 financial year, being each of the
Non-Executive Directors and designated Executives. The use of the term “Executives” in this report is a reference to the Managing
Director & Chief Executive Officer (MD&CEO) and certain direct reports during the 2018 financial year. Refer to Table 1 below for all
individuals comprising IPL’s KMP for the 2018 financial year.
Table 1: Individuals forming IPL’s KMP for the reporting period
Non-executive Directors
Current
Mr Paul Brasher
Mr Joseph Breunig
Ms Kathryn Fagg
Mr Brian Kruger
Ms Rebecca McGrath
Mr Graham Smorgon AM
Former
Mr Greg Hayes(1)
Executives
Current
Ms Jeanne Johns(2)
Mr Frank Micallef
Mr Alan Grace(3)
Mr Greg Hayne(4)
Mr Nicholas Stratford
Ms Elizabeth Hunter(5)
Former
Mr James Fazzino(6)
Mr Simon Atkinson(7)
Ms Leah Balter(5),(8)
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
Managing Director & Chief Executive Officer
Chief Financial Officer
President, Global Manufacturing
President, Dyno Nobel Asia Pacific
President, Dyno Nobel Americas
Chief Human Resources Officer & Shared Services
Managing Director & Chief Executive Officer
President, Dyno Nobel Asia Pacific & Incitec Pivot Fertilisers
President, Strategy & Business Development
(1) On 21 December 2017, Mr Hayes retired from the Board as a Non-Executive Director.
(2) Ms Johns commenced as MD&CEO on 15 November 2017 and became a KMP.
(3) Mr Grace has resigned and ceased being President, Global Manufacturing on 31 October 2018. Mr Wall has been appointed to succeed Mr Grace in the role of
President, Global Manufacturing commencing from 1 November 2018.
(4) Mr Hayne commenced as President, Dyno Nobel Asia Pacific on 30 January 2018 and became a KMP.
(5) On 29 January 2018, the Company announced to the ASX changes to its organisational structure with effect from 30 January 2018. Following from these changes,
the following roles were determined to be KMP for the purposes of this Remuneration Report: MD&CEO, Chief Financial Officer, President, Global Manufacturing and
President of business divisions (permanent appointees) with the remaining direct reports to the MD&CEO being excluded as KMP with effect from 30 January 2018.
(6) Mr Fazzino ceased as MD&CEO on 14 November 2017.
(7) Mr Atkinson ceased as President, Dyno Nobel Asia Pacific & Incitec Pivot Fertilisers on 29 January 2018.
(8) Ms Balter resigned and ceased employment with the Company on 30 September 2018.
Incitec Pivot Limited Annual Report 2018
25
Directors’ Report: Remuneration Report
2. Executive Remuneration & Governance
2.1 Executive Remuneration Overview
In alignment with its remuneration strategy, the Board’s policy on Executive remuneration is that it comprises both a fixed
remuneration component (FAR) and an “at risk” or performance-related component (short term incentive (STI) and long term
incentive (LTI)) where:
(i) the majority of Executive remuneration is “at risk”; and
(ii) the level of FAR for Executives is 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 Company).
A summary of the Company’s approach to Executive remuneration for the 2018 financial year, including performance conditions
and their link to the overall remuneration strategy is set out below:
Performance Conditions
Remuneration Strategy/Performance Link
Fixed Annual
Remuneration
Salary and
other benefits
(including statutory
superannuation).
Refer section 3.2 for
more details
Short Term Incentive
Programme
Annual incentive
opportunity delivered
50 per cent in cash
and 50 per cent in
deferred equity (or
cash equivalent) for
the MD&CEO, and 100%
in cash for all other
Executives.
Refer section 3.3 for
more details
Long Term Incentive
Programme
Three-year incentive
opportunity delivered
through performance
rights.
Refer section 3.4 and
3.5 for more details
Considerations
• Scope of individual’s role
• Individual’s level of knowledge, skills and expertise
• Company and individual performance
• Market benchmarking
Zero Harm
The award payable for the Zero Harm performance
condition may be forfeited in the event of a fatality
or major incident having regard to its circumstances.
Safety measures
(generally a maximum of 10 per cent of STI award)
• Safety performance balanced scorecard across
the dimensions of behavioural safety and
process safety management comprising input
and output measures
Net Profit After Tax (NPAT) ‘gateway’
Minimum NPAT threshold performance level that
must be achieved before any financial component
of the STI is payable.
• Ensure a minimum acceptable level of financial
performance before Executives receive any of
the financial component of the STI
• Requires Executives to exceed a Group NPAT
threshold determined by the Board by reference
to the prior year’s NPAT performance
Financial measures
(generally a maximum of 90 per cent of STI award,
incorporating metrics relevant to an Executive’s
area of influence)
• Earnings per share
• Business Unit earnings before interest and tax
Strategic objectives
(for most of the Executives, a maximum of 10 per
cent of STI award) aligned to personal strategic
objectives.
Performance conditions
Distinct categories of performance that are weighted
to align with the Group’s focus over the three-year
period that each tranche of the plan spans.
• Relative total shareholder returns
• Strategic initiatives
• Return on equity growth (for the LTI 16/19 & 17/20
tranches)
Set to attract, retain and motivate the right talent
to deliver on IPL’s strategy and contribute to the
Company’s financial and operational performance.
For the company’s Executives, the aim is to set
fixed remuneration at market relevant levels and
link any future increases to individual performance
and effectiveness whilst continuing to have regard
to market relevance.
To align with the Company’s commitment to
“Zero Harm for Everyone, Everywhere”.
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.
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.
Performance conditions are designed to support
the financial direction of the Company (the
achievement of which is intended to translate
through to shareholder return) and are clearly
defined and measurable.
Key strategic and growth objectives targeted at
delivering ongoing benefit to the Company.
Performance conditions designed to encourage
Executives to focus on the key performance
drivers which underpin sustainable growth in
shareholder value. The mix of performance
conditions is designed to ensure the quality of the
share price growth is supported by the Company’s
ROE growth performance as well as strategic
initiatives, and not market factors alone.
Total Remuneration
The combination of these elements is designed to attract, retain and motivate appropriately qualified and experienced individuals, encourage
a strong focus on performance, support the delivery of outstanding returns to shareholders and align Executive and stakeholder interests
through share ownership.
26
Incitec Pivot Limited Annual Report 2018
2.2 Executive Remuneration Strategy
IPL’s purpose is to make people’s lives better by unlocking the world’s natural resources through innovation on the ground. IPL’s
value drivers underpin the Company’s business and form the platform for the Company’s future earnings growth and shareholder
returns. One of IPL’s value drivers is talented and engaged people. IPL 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 to enable the Company 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;
• attract and retain the best available talent;
• 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.
2.3 Executive Remuneration Governance
The remuneration of the Executives is set by the Board, having regard to recommendations from the Remuneration Committee.
Where appropriate, the Remuneration Committee of the Board engages external advisors to provide input to the process of
reviewing Executive and Non-Executive Director remuneration. For the 2018 financial year, the Remuneration Committee received
market and benchmarking data from KPMG and HR Ascent. In addition, Korn Ferry Hay Group provided job grading analysis of
Executive roles to the Remuneration Committee. The information provided for the 2018 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 IPL’s Corporate Governance
Statement available on IPL’s website.
3. 2018 Executive Remuneration Framework
3.1 Overview
The charts below set out the relative proportion of the Executives’ total remuneration package for the 2018 financial year:
MD & CEO
STI – cash
19%
Fixed
25%
FAR
Fixed
25%
25%
FAR
25%
STI – cash
19%
STI –
deferred
equity
19%
STI –
deferred
equity
19%
At Risk
75%
Other Executives
STI – cash
36%
STI – cash
36%
At Risk
75%
Fixed
36%
FAR
Fixed
36%
36%
FAR
36%
At Risk
64%
At Risk
64%
LTI
37%
LTI
37%
LTI
28%
LTI
28%
In calculating the “at risk” compensation as a proportion of total remuneration for the 2018 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 and individual performance and market data provided by an
appropriately qualified and independent external data specialist.
Incitec Pivot Limited Annual Report 2018
27
Directors’ Report: Remuneration Report
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 2018 financial year (2018 STI):
What was the
performance
period?
The performance period for the 2018 STI was the financial year from 1 October 2017 to
30 September 2018.
Who was eligible
for the STI?
Participation was at the Board’s discretion. The MD&CEO and all other Executives participated in the
2018 STI.
What was the
target and
maximum STI
opportunity?
What were the
Performance
Conditions and
Measures?
Target STI opportunity was 100% of FAR for the MD&CEO, and 50% of FAR for all other Executives.
Maximum STI opportunity (for stretch outcomes) was 150% for the MD&CEO, and 100% of FAR for all
other Executives.
Performance conditions under the STI are determined by the Board for each financial year. The
performance conditions for the 2018 STI are set out below:
Performance
Conditions
Measures to assess satisfaction
of Performance Condition
Rationale for the
Performance Conditions
Group Financial
Performance
Earnings per share (EPS).
Business Unit
Financial
Performance
Zero Harm
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
Measures based on performance criteria for
the execution and implementation of strategic
objectives and business priorities. These
include measures related to manufacturing
turnaround performance, product innovation,
customers and organic growth.
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.
Tailored to individual Executive’s role, to drive
performance and behaviours consistent with
achieving critical aspects of the Group’s strategy.
(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.
Are there
minimum
performance
levels which
must be
achieved
before awards
can be made
under the STI?
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 Financial Gate”, must be met before any
awards can be made. If financial performance does not meet the STI Financial Gate, no awards are made
under the STI, save that the STI Financial Gate does not apply to any awards payable in relation to the Zero
Harm performance condition, reflecting the primacy of safety.
For the 2018 financial year, the STI Financial Gate reflected a requirement to exceed a Group NPAT
threshold which was determined by the Board by reference to the prior year’s NPAT 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 major incident having regard to
the circumstances of the incident.
28
Incitec Pivot Limited Annual Report 2018
What were the
weightings for
the STI
performance
measures?
The weighting of Executives’ STI performance measures (as a percentage of 100%) for 2018 were:
Table 2
Executives – Current
J Johns*
Managing Director & CEO
F Micallef*
Chief Financial Officer
A Grace**
President, Global Manufacturing
G Hayne**
President, Dyno Nobel Asia Pacific
N Stratford**
President, Dyno Nobel Americas
E Hunter*
Chief Human Resources Officer & Shared Services
Executives – Former
J Fazzino*(1)
Managing Director & CEO
S Atkinson**(1)
President, Dyno Nobel Asia Pacific
& Incitec Pivot Fertilisers
L Balter*
President, Strategy & Business Development
*Group role **Business Unit role
Financial
EPS
Business Unit
EBIT
Non-financial/
Business/Strategic
Strategic
Safety
Outcomes
As a percentage
of Maximum
opportunity
80%
90%
10%
10%
10%
20%
60%
10%
10%
20%
60%
10%
10%
20%
60%
10%
10%
80%
90%
10%
10%
10%
100%
100%
100%
100%
100%
100%
100%
20%
60%
10%
10%
100%
50%
10%
40%
100%
(1) Mr Fazzino and Mr Atkinson ceased as a KMP on 14 November 2017 and 29 January 2018 respectively and were not participants in the
2018 STI.
The 2018 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.
Was there a
mechanism for
clawback and
deferral?
Incitec Pivot Limited Annual Report 2018
29
Directors’ Report: Remuneration Report
3.4 Long term incentive
The LTI is the long term incentive component of remuneration for Executives. The LTI is provided in the form of performance rights.
What LTI plans
were applicable
for the 2018
financial year?
The LTI Plans applicable to the 2018 financial year were the:
• Long Term Incentive Performance Rights Plan for 2015/18 (LTI 2015/18);
• Long Term Incentive Performance Rights Plan for 2016/19 (LTI 2016/19); and
• Long Term Incentive Performance Rights Plan for 2017/20 (LTI 2017/20),
(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, 150% of FAR; and
• for all other Executives, 80% of FAR.
For the LTI 2015/18, LTI 2016/19 and LTI 2017/20, 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 day of the relevant performance period.
LTI Plan
Performance
Conditions
Weighting of
Performance
Condition
Performance
Period
Status
LTI 2015/18
• TSR Condition
• Strategic Initiatives
70%
30%
1 October 2015 to
30 September 2018
Condition
Performance period completed.
Following testing in November,
the Board determined that 15%
of the performance rights in total
will vest in the 2019 financial
year. Refer to section 4.4 for
further details.
LTI 2016/19
LTI 2017/20
• TSR Condition
• Strategic Initiatives
Condition
• ROE Growth Condition
• TSR Condition
• Strategic Initiatives
Condition
40%
30%
30%
50%
15%
• ROE Growth Condition
35%
1 October 2016 to
30 September 2019
Testing to occur after
completion of performance
period.
1 October 2017 to
30 September 2020
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.
30
Incitec Pivot Limited Annual Report 2018
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
Company?
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, retires or,
for the LTI 2017/20, is terminated without cause. 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 2015/18 the performance conditions are measured by reference to relative Total Shareholder Returns (TSR) 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 and LTI 2017/20, the performance conditions are measured by reference to the TSR
Condition, a Strategic Initiatives Condition and growth in Return on Equity (ROE Growth Condition). Details of the performance
conditions for each of the LTI 2015/18, LTI 2016/19 and LTI 2017/20 are set out below.
TSR Condition
The TSR Condition (applicable to each of the LTI 2015/18, LTI 2016/19 and LTI 2017/20) requires growth in the Company’s TSR 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 Company 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 2015/18, the LTI 2016/19 and the LTI 2017/20. For 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 and LTI 2017/20, the Strategic Initiatives Condition relates solely to the Business Excellence System.
Incitec Pivot Limited Annual Report 2018
31
Directors’ Report: Remuneration Report
The table below summarises the Strategic Initiatives Condition components for the LTI 2015/18, the LTI 2016/19 and the LTI 2017/20:
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 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 grants for
the LTI 2015/18
and LTI 2017/20
and 30% of the
performance rights
in the 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 was
measured against a 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,
• production volumes,
• 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 volume
(performance)
Safety: Total Recordable Injury Frequency Rate
(TRIFR) for the Louisiana Ammonia Project for the
performance period to be less than or equal to the IPL
Company TRIFR over the same period.
Plant efficiency: As per Project business case (32GJ of
gas per metric tonne of ammonia).
Output: Measure consistent with the project business
case for Year 2.
EBITDA: Financial performance measure consistent
with the project business case for Year 2.
Business system maturity:
An absolute improvement in Business Excellence
system maturity over the performance period, or
satisfaction of an exit score requirement at the end of
the performance period.
Cumulative productivity benefits: Delivery of
cumulative savings over the performance period
against targets approved by the Board.
Manufacturing plant uptime and volume:
• For LTI 2015/18 and LTI 2016/19 – 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.
• For LTI 2017/20 – Achievement of target volumes
of particular products at particular manufacturing
plants operated by the Group as approved by
the Board.
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
2015/18, these details are set out in section 4.4. For the LTI 2016/19 and the LTI 2017/20, the relevant details will be set out in
the 2019 Remuneration Report and the 2020 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.
32
Incitec Pivot Limited Annual Report 2018
ROE Growth Condition
The ROE Growth Condition was introduced for the first time in 2016 and applies to the LTI 2016/19 and LTI 2017/20. The ROE
Growth Condition measures the compound annual growth in 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%
3.6. Executives Service Agreement Terms
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. Each agreement is unlimited in
term; however, each agreement provides that the Company may terminate an Executive’s employment immediately for cause
without any separation payment, save for accrued amounts such as leave, or otherwise without cause, with or without notice, in
which case the Company must pay a separation payment plus accrued amounts such as leave.
The notice period to be provided by the Executives is set out in the table below:
Notice period to be provided by the Executive
Current Executives
J Johns
F Micallef
A Grace
G Hayne
N Stratford
E Hunter
Former Executives
J Fazzino
S Atkinson
L Balter
52 weeks
13 weeks
8 weeks
26 weeks
13 weeks
13 weeks
26 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. Ms Johns’ and 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, Mr Stratford’s and Mr Hayne’s contracts which
provided 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, outstanding fixed annual remuneration plus accrued annual leave and accrued long service leave.
Incitec Pivot Limited Annual Report 2018
33
Directors’ Report: Remuneration Report
4. Remuneration outcomes in 2018 financial year and link to 2018 financial year performance
4.1 Analysis of relationship between the Company’s performance, shareholder wealth and remuneration
In considering the Company’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 Company’s performance and the benefit to shareholders
NPAT before IMIs and excluding non-controlling interests ($m)
EPS before IMIs (cents)
Dividends per share (DPS) paid in the financial year (cents)
DPS declared in respect of the financial year (cents)
Share price ($) (Financial Year End)(1)
TSR (%)(2)
On-market share buyback ($m)
2014
356.3
2015
398.6
2016
295.2
21.7
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
–
2018
347.4
20.9
9.4
10.7
3.98
14
(210.3)
(1) Share Price as at the end of the 2013 financial year was 2.69.
(2) TSR is calculated in accordance with the rules of the LTI 2011/14, LTI 2012/15, LTI 2013/16, LTI 2014/17 and LTI 2015/18 as applicable over the three-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 Company’s performance and STI outcomes
This graph illustrates the relationship between the Company’s
performance and STI awards in respect of the current and
preceding four years. 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 Company’s
safety performance. For the 2017 financial year, EPS (before
IMIs) increased 8% to 19.9 cps resulting in certain Executives
earning partial STI awards in respect of this measure. For the
2018 financial year, Group EPS (before IMIs) has increased
10.6% to 20.9 cps resulting in Executives earning full STI
awards in respect of this measure.
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
2014
2015
2016
2017
2018
Earnings per share (before IMIs)
Total STI awarded
Relationship between the Company’s performance and LTI outcomes
This graph illustrates the relationship between IPL’s Absolute
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
2014-17 performance period with a 53rd percentile ranking
(Absolute TSR: achieved 36%). The 2015-18 performance
period has achieved an Absolute TSR increase of 14%,
delivering fourth quartile performance.
As a consequence, the LTI 2012/15 and LTI 2014/17 partially
vested and the LTI 2015/18 TSR will not vest as outlined in
section 4.4 of this report.
The performance rights in the LTI 2011/14 and LTI 2013/16
plans did not meet the performance conditions set out in
those plans (including a TSR condition) and lapsed, despite
the fact that positive TSR has been achieved in 4 out of the
5 periods reported.
34
Incitec Pivot Limited Annual Report 2018
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
2014
2015
2016
2017
2018
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 (2) Table 3.
$mill
D
E
D
R
A
W
A
I
T
S
L
A
T
O
T
7
6
5
4
3
2
1
0
%
60
50
40
30
20
10
0
-10
-20
0
0
1
X
S
A
N
I
I
G
N
K
N
A
R
E
L
I
T
N
E
C
R
E
P
L
P
I
4.2 2018 Fixed annual remuneration outcomes
The FAR of Executives (other than the MD&CEO) 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 financial years 2016
and 2017. The increase was designed to maintain the competitive market positioning of Executives in the context of inflation and
forecast market movements.
4.3 2018 STI Outcomes
Performance Condition
Outcome
Group Financial Performance
With EPS increasing by 10.6% from 18.9 cents per share to 20.9 cents per share, Executives in Group roles were
awarded 100% of the STI opportunity for this measure. (Refer to Table 2 for Group roles).
Business Unit Financial
Performance
Zero Harm
Strategic Outcomes
As the EBIT performance of the Dyno Nobel Americas business exceeded stretch performance, Mr Stratford was
awarded 100% of the STI opportunity for this measure. The EBIT performance of the Dyno Nobel Asia Pacific
business was between the threshold and target performance measure and accordingly, Mr Hayne received a
partial award for this measure. Mr Grace had a composite of Americas and Asia Pacific EBIT as a performance
measure. This result was between the target and stretch performance measure and accordingly, Mr Grace was
awarded a partial award for this measure.
The balanced scorecard which applied to all Executives, across the dimensions of process and behavioural safety
management, was partially achieved. The TRIFR at the end of 2018 was 0.96, which whilst below the target was
above the 2017 result. Other scorecard metrics were also partially achieved, with key gains in critical control
verifications, environmental risk management and a 7% improvement in process safety over the previous
corresponding period.
The strategic objectives aligned with the company’s strategy Value Drivers, particularly in relation to creating
value for customers, manufacturing turnaround performance and product innovation. In addition, pursuing sources
of economic gas for the short and longer term in relation to the Gibson Island plant in Brisbane. Progress was
made during the year in relation to these objectives with outcomes achieved between threshold and stretch.
The Board approved the STI outcomes in November 2018 with the outcomes reflected in the range of 2018 STIs awarded as set out
in the following two tables:
Table 4a – Performance against individual STI metrics for the year ended 30 September 2018
Threshold
Target
Stretch
Group Financial
Business Unit Financial
Zero Harm
Strategic Outcomes
2018 financial year
range of performance
Table 4b – Short term incentives awarded for the year ended 30 September 2018
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2018 as remuneration to each
Executive are set out below:
Short term incentive for the year ended 30 September 2018
Included in remuneration
$000
% earned of
maximum opportunity
% forfeited of
maximum opportunity
Executives – Current
J Johns(1)
F Micallef
A Grace
G Hayne
N Stratford
E Hunter(2)
Executives – Former
J Fazzino
S Atkinson
L Balter(2)
1,393
879
626
243
781
176
–
–
150
92
94
80
58
92
91
–
–
59
8
6
20
42
8
9
100
100
41
(1) Under the terms of the 2018 STI in which Ms Johns participated, total STI awarded was $2.09m, of this, 50% will be paid in cash in 2018, with the remaining
approximately 25% of the award to vest on 30 November 2019 and approximately 25% of the award to vest on 30 November 2020, subject to Ms Johns meeting
a service condition. On each relevant vesting date and subject to satisfying the service condition, Ms Johns will receive the award amount in cash or in fully paid
ordinary shares in the Company, as determined by the Board.
(2) Ms Hunter and Ms Balter ceased as KMP with effect from 30 January 2018. Payments represent pro-rata amounts for time served as KMP.
Incitec Pivot Limited Annual Report 2018
35
Directors’ Report: Remuneration Report
4.4 LTI 2015/18 Outcomes
The performance period for the LTI 2015/18 ended on 30 September 2018. Following testing against the performance conditions,
in November the Board determined that 15% 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 period did not achieve median performance of
the comparator group of S&P/ASX100 companies. Accordingly, 0% of the performance rights granted subject to the TSR Condition
will vest (being 70% 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 50%
of the performance rights granted subject to this condition will vest (being 15% of the total performance rights granted under the
plan). Commentary on the performance against the scorecard is set out in the following table.
Strategic Initiatives
Condition component
Commentary on Performance Against Scorecard
Louisiana Ammonia
Project
In contrast to the prior period which consisted predominantly of project construction, this performance period
consisted predominantly of commercial operations.
The performance measures in the plan were Safety, Plant Efficiency, Output and EBITDA.
The Safety goal was for TRIFR for the Louisiana Ammonia Project to be less than or equal to the IPL Company
TRIFR over the same period. The safety performance target was met.
The Output goal was to operate at or above nameplate of 800,000 metric tonnes per annum. Above
nameplate output was achieved again in 2018.
The Efficiency goal of 32GJ of gas per metric tonne of ammonia was partially achieved. The plant continues
to meet plant design parameters during operations excluding downtime inefficiencies.
The EBITDA performance against goals was partially achieved during the performance period, with
performance against the EBITDA measure impacted by ammonia pricing.
Overall assessment: having regard to the outcomes in relation to all the measures, the Board determined
that the performance goals were partially delivered against the balanced scorecard.
Business Excellence
(BEx) System
The performance goals for the BEx scorecard comprised of non-financial input and financial and non-financial
output measures.
In relation to the input measures, the Business System Maturity goal outcome was verified by an
independent third party. Progress was made, however the required stretch exit score was not achieved.
Manufacturing Uptime target performance at the end of the performance period was to be at 75th
percentile across specified manufacturing plants, adjusted for plant age. Whilst some plants met the
75th-90th percentile performance, the performance goals were partially but not fully met.
The outcome in relation to the input measures is reflected in the output measure of Cumulative Productivity
benefits. The Company delivered $274.4m in cumulative productivity benefits, which is in excess of the $75m
stretch target established 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 partially delivered against the balanced scorecard.
Overall, 15% of the Performance Rights allocated under the LTI 2015/18 will vest (with the remaining 85% to lapse).
The number of rights vested and lapsed will be reported in the 2019 Remuneration Report.
Actual
Vesting (%)
67%
of Rights
for this
component
33%
of Rights
for this
component
36
Incitec Pivot Limited Annual Report 2018
4.5 LTI: Performance related remuneration
Table 5 – Details of long term incentives granted and vested in the year ended 30 September 2018 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 2014/17 (performance period: 1 October 2014 to 30 September
2017) which, following testing in November 2017 resulted in the Board determining that 68.8% vested. In relation to the LTI 2015/18
(performance period: 1 October 2015 to 30 September 2018), following testing in November 2018, the Board determined that 15% of
the performance rights will vest. This will be reported in the 2019 Remuneration Report.
Key Management
Personnel
Executives – Current
J Johns
F Micallef
A Grace
G Hayne
N Stratford
E Hunter
Executives – Former
J Fazzino
S Atkinson(1)
L Balter
LTI plan
Grant date
Granted during 2018
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
2017/20
30 January 2018
1,820
2014/17
2015/18
2016/19
2017/20
2014/17
2015/18
2016/19
2017/20
30 December 2014
21 January 2016
25 January 2017
30 January 2018
30 December 2014
21 January 2016
25 January 2017
30 January 2018
2017/20
1 March 2018
2016/19
2017/20
2014/17
2015/18
2016/19
2017/20
2014/17
2015/18
2016/19
2014/17
2015/18
2016/19
2017/20
2015/18
2016/19
2017/20
19 April 2017
30 January 2018
30 December 2014
21 January 2016
25 January 2017
30 January 2018
30 December 2014
21 January 2016
25 January 2017
30 December 2014
21 January 2016
25 January 2017
30 January 2018
25 August 2016
25 January 2017
30 January 2018
–
–
–
567
–
–
–
473
316
–
476
–
–
–
359
–
–
–
–
–
–
52
–
–
473
–
417
–
–
–
347
–
–
–
–
–
–
263
–
–
–
1,265
–
–
347
–
–
–
–
–
–
–
69
–
–
–
69
–
–
–
–
–
–
69
–
–
–
69
–
–
69
–
–
–
–
–
–
–
31
–
–
–
31
–
–
–
–
–
–
31
–
–
–
31
29
63
31
100
100
–
–
–
–
2020
2017
2018
2019
2020
2017
2018
2019
2020
2020
2019
2020
2017
2018
2019
2020
2017
2018
2019
2017
2018
2019
2020
2018
2019
2020
1,820
–
337
855
567
–
281
713
473
316
736
476
–
213
541
359
–
725
973
–
–
–
52
275
713
473
(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 footnotes under Table 7. This amount is allocated to the remuneration of the applicable Executive over the vesting period (that is, in the 2018,
2019 and 2020 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 zero, as the performance criteria may not be met.
(1) Mr Atkinson, who ceased employment on 29 January 2018, received an allocation of rights relating to the 2017/20 plan for the period he was employed in the
2018 financial year.
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.
Incitec Pivot Limited Annual Report 2018
37
Directors’ Report: Remuneration Report
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 Johns
F Micallef
A Grace
G Hayne
N Stratford
E Hunter
Executives – Former
J Fazzino
S Atkinson
L Balter
–
705,751
588,126
–
228,832
446,397
2,143,719
588,126
372,432
674,157
–
210,182
(175,157)
175,152
(145,964)
116,907
176,297
–
–
–
(79,558)
(66,299)
–
–
132,943
(110,789)
(50,322)
–
(532,039)
19,337
(145,964)
175,152
–
(910,990)
(442,162)
–
674,157
661,218
551,015
116,907
405,129
418,229
700,690
19,337
547,584
(A) For the 2018 financial year, this represents the rights granted to Executives during the reporting period under the LTI 2017/20. The grant of rights under the LTI
2017/20 to Ms Johns was approved by shareholders at the Company’s 2017 Annual General Meeting.
(B) For the 2018 financial year, this represents the number of rights that vested during the reporting period under the LTI 2014/17. Each right entitled the participating
Executive to acquire a fully paid ordinary share in IPL for no consideration.
(C) For the 2018 financial year, this represents rights that were forfeited by Executives during the reporting period under the LTI 2014/17. In addition, in the case of Mr
Fazzino who ceased employment during the reporting period, a portion of his rights held under the LTI 2015/18 and the LTI 2016/19 were also forfeited as at the
date of cessation, in accordance with the plan rules. In the case of Mr Atkinson who ceased employment on 29 January 2018, 100% of his rights held under the LTI
2015/18 and LTI 2016/19 were forfeited at that date in accordance with the plan rules.
38
Incitec Pivot Limited Annual Report 2018
%
38
36
32
33
31
26
37
37
35
32
–
30
–
24
26
36
30
31
4.6 Further details of Executive remuneration
Table 7 – Executive remuneration
Details of the remuneration for each Executive for the year ended 30 September 2018 are set out below (noting that for
individuals who ceased to be KMP in the 2017 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
Year
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
Executives – Current
J Johns(1)
Managing Director & CEO
F Micallef
Chief Financial Officer
A Grace
President, Global Manufacturing
G Hayne(2)
President, Dyno Nobel Asia Pacific
N Stratford
President, Dyno Nobel Americas
E Hunter(3)
Chief Human Resources Officer
& Shared Services
Executives – Former
J Fazzino(4)
Managing Director & CEO
S Atkinson(5)
President, Dyno Nobel Asia Pacific
and Incitec Pivot Fertilisers
L Balter(6)
President, Strategy &
Business Development
Total Executives
2018
1,407
1,393
257
2018
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
915
897
759
744
404
792
504
186
560
879
726
626
579
243
781
494
176
459
264
2,209
244
744
–
1,763
–
394
248
744
150
605
–
–
–
–
75
94
63
6
34
12
–
–
–
–
–
–
20
20
20
20
14
20
13
7
20
6
20
10
20
7
20
6
24
9
18
20
78
19
32
7
4
4
43
7
18
5
4
607
3,670
–
–
–
–
–
–
–
–
–
–
607
587
589
489
491
105
404
245
124
373
–
–
–
–
–
–
–
–
–
–
587
589
489
491
105
404
245
124
373
632
–
766
–
71
1,790
6
491
–
–
162
329
(741)
–
(425)
–
–
–
(670)
1,790
(419)
491
162
329
2,425
2,241
1,912
1,854
919
2,110
1,351
506
1,450
248
5,825
608
1,667
572
1,702
2018
2017
5,219
6,402
4,248
5,020
444
97
104
133
168
130
1,398
–
2,555
4,308
(1,166)
–
1,389 12,970
16,090
4,308
(A) Certain STI payments are awarded in US$. Such STI payments were converted to A$ at the spot rate on 30 September 2018, being 1.3875.
(B) Other short term benefits include the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2018: 1 April 2017 to 31 March 2018) (2017:
1 April 2016 to 31 March 2017), 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 Mr Hayne, this amount related to relocation allowances paid in the 2018 financial year. For Ms Johns, an
allowance was paid on 26 October 2017 and 15 November 2017 totalling $134,582 for duties undertaken prior to Ms Johns becoming a KMP as well as relocation
benefits of $122,436 were paid in the 2018 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 at grant date 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.
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
LTI 2017/20 - TSR
LTI 2017/20 - Strategic Initiative
LTI 2017/20 - ROE Growth
Grant date
30/12/2014
30/12/2014
21/01/2016
21/01/2016
25/01/2017
25/01/2017
25/01/2017
30/01/2018
30/01/2018
30/01/2018
Fair value per share treated
as rights at grant date
$1.99
$2.88
$1.29
$3.06
$2.87
$3.45
$3.45
$1.98
$3.42
$3.42
(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 Johns became a KMP on 15 November 2017 and the disclosures for the 2018 financial year are from that date.
(2) Mr Hayne became a KMP on 30 January 2018 and the disclosures for the 2018 financial year are from that date.
(3) Ms Hunter continues in her role as Chief Human Resources Officer & Shared Services however ceased being a KMP from 30 January 2018 onwards. Disclosures for
the 2018 financial year are from 1 October 2017 to 29 January 2018.
(4) Mr Fazzino ceased being a KMP on 14 November 2017. Termination benefits received by Mr Fazzino in the 2018 financial year included a separation payment of
$631,818 in accordance with his contract of employment.
(5) Mr Atkinson ceased being a KMP on 29 January 2018. Termination benefits received by Mr Atkinson in the 2018 financial year included a separation payment of
$765,834 in accordance with his contract of employment.
(6) Ms Balter ceased being a KMP from 30 January 2018 onwards. Disclosures for the 2018 financial year are from 1 October 2017 to 29 January 2018.
Incitec Pivot Limited Annual Report 2018
39
Directors’ Report: Remuneration Report
Table 8 – Actual Pay
The table below provides a summary of actual remuneration paid to the Executives in the 2018 financial year (noting that for
individuals who ceased to be KMP in the 2017 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 their capacity as KMP during the financial year.
Executive remuneration details prepared in accordance with statutory requirements and the Accounting Standards are presented in
Table 7 of this report.
Salary
& Fees
$000
Year
Short Term
Incentive
& other
bonuses(A)
$000
Other
Short Term
benefits(B)
$000
Superannuation
benefits
Other
Long Term
benefits(C)
Termination
benefits
$000
$000
$000
Executives – Current
J Johns
Managing Director & CEO
F Micallef
Chief Financial Officer
A Grace
President, Global Manufacturing
G Hayne
President, Dyno Nobel Asia Pacific
N Stratford
President, Dyno Nobel Americas
E Hunter
Chief Human Resources Officer
& Shared Services
Executives – Former
J Fazzino
Managing Director & CEO
S Atkinson
President, Dyno Nobel Asia Pacific
and Incitec Pivot Fertilisers
L Balter
President, Strategy &
Business Development
Total Executives
2018
1,407
–
236
2018
2017
2018
2017
2018
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
915
897
759
744
404
792
504
186
560
264
2,209
244
744
248
744
5,219
6,402
726
87
579
416
–
494
–
459
55
1,763
212
394
73
605
–
5,020
843
–
–
–
–
75
94
63
6
34
234
–
53
–
–
–
698
97
–
20
20
20
20
14
20
13
7
20
6
20
10
20
7
20
–
–
–
–
–
–
–
–
–
–
1,022
–
134
–
–
–
–
–
–
–
–
–
–
–
–
–
632
–
766
–
–
–
Total
$000
1,643
1,661
1,004
1,358
1,180
493
1,400
580
658
669
3,921
2,441
1,601
837
860
764
104
133
1,156
–
1,398
–
13,595
7,475
(A) Represents short term incentives paid during the 2018 financial year in relation to incentives awarded in respect of the 2017 financial year under the 2017 STI.
(B) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2018: 1 April 2017 to
31 March 2018) (2017: 1 April 2016 to 31 March 2017), rent and mortgage interest subsidies, relocation allowances and other allowances.
(C) Other long term benefits include long service leave paid on cessation of employment.
40
Incitec Pivot Limited Annual Report 2018
5. Overview of Remuneration Changes for the 2019 Financial Year
During the 2018 financial year, the Board undertook a broad review of executive remuneration that included all three key
individual components of the Company’s remuneration structure. The outcomes of this review, and corresponding impacts to the
2019 financial year’s arrangements are summarised below.
Fixed Annual Remuneration
The Board reviewed the Fixed Annual Remuneration (FAR) of all Executives and concluded that the FAR remains appropriate. With
adjustments to be made to Short Term Incentive opportunities (see next section) it was decided to maintain existing FAR levels for
all but the MD&CEO, who will receive a 2.5% increase effective 1 October 2018 driven by performance to date and overall market
movements in this space.
Short Term Incentive
STI opportunity for all Executives (other than the MD&CEO) was found to be below current market practice when compared to ASX
listed companies of a similar size and complexity to IPL. Accordingly, the Board has determined to increase target STI opportunity
from 50% to 60% and maximum opportunity from 100% to 120% of FAR (effective 1 October 2018) for all Executives other than
the MD&CEO, who will remain on her existing 100% target and 150% maximum STI opportunity.
Whilst the overall STI opportunity for all Executives will remain heavily weighted to financial metrics, a decision has been taken by
the Board to introduce a combination of headline (40% – 50%) and adjusted financial performance (30%– 40%) targets into the STI
structure. The adjusted performance measure is Group Profit or Business Unit EBIT, adjusted for the impact of foreign exchange and
some commodity price movements. The intent of this change is to focus Executive efforts on controllable factors as well as
remaining mindful of the impacts of the broader currency and commodity cycle impacts.
Long Term Incentive
Taking into account the longer term strategic intent of the Company, the Board has revised the weighting of the three LTI
components for the performance period commencing 1 October 2018 and ending 30 September 2021 (LTI 2018/21) 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 set at 40% of the maximum LTI opportunity.
• The ROE Growth Condition targeting operational efficiency of the Group’s assets has been maintained, with the weighting set at
30% of the maximum LTI opportunity.
• The Strategic Initiatives Condition focuses on delivery of world-class performance in manufacturing excellence and reflects the
Company’s commitment to drive continuous improvement on productivity. Additionally, by focusing on leading technology
solutions and customer relationships, the Strategic Initiatives Condition aims to incentivise the participating Executives to create
tangible and deliverable new sources of revenue through growth in technology sales and at the same time partner and build
strong relationships with the Company’s customers. This component has been maintained with the weight set at 30% of the
maximum LTI opportunity.
Minimum Shareholding Requirements
As a result of the remuneration review undertaken in 2018, the Board has determined to introduce policies that are intended to
formalise expectations around minimum shareholding requirements.
During the 2019 financial year, the Board intends to introduce a requirement for all Non-Executive Directors residing in Australia to
be holding the minimum equivalent of 100% of their annual board fee in IPL ordinary shares within a five-year period.
The Board intends to introduce a similar requirement for all Executives to hold a minimum of 50% of their FAR (100% for the
MD&CEO). A portion of the Executives’ 2019 STI will be withheld and applied towards the acquisition of shares necessary to build
the Executives’ minimum shareholder requirement. Deferral of short-term incentives into restricted shares will increase Executives’
exposure to the Incitec Pivot share price and dividends. The introduction of this policy will enhance the alignment to shareholder
interests already provided by the Company’s long-term incentive programme.
In order to deliver alignment amongst the entire Executive Team, the MD&CEO will transfer to this new minimum shareholding
arrangement for the 2019 financial year. The MD&CEO may also receive deferred equity under the 2018 STI as described in sections
2.1 and 4.3.
Incitec Pivot Limited Annual Report 2018
41
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 the 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 2018 financial year, there were no increases to Non-Executive Directors’ fees. Fees paid to Non-Executive Directors amounted to
$1,726,000 which was within the $2,000,000 maximum aggregate fee pool approved by shareholders at the 2008 Annual General
Meeting.
For the 2019 financial year, the Board has again determined that there will be no increase in Non-Executive Director fees.
The table below sets out the Board and Committee fees as at 30 September 2018:
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 2018 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
J Breunig(1)
K Fagg
B Kruger
R McGrath
G Smorgon AM
Non-Executive Directors – Former
G Hayes
Total Non-Executive Directors
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Fees
$000
513
513
195
64
211
207
217
65
225
225
186
198
46
206
1,593
1,478
Superannuation
benefits
$000
$000
$000
–
–
30
10
–
–
–
–
–
–
–
–
–
7
30
17
20
20
–
–
20
19
20
6
20
20
18
19
5
19
103
103
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
$000
533
533
225
74
231
226
237
71
245
245
204
217
51
232
1,726
1,598
(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) 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.
42
Incitec Pivot Limited Annual Report 2018
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(B)
Number of Shares(A)
Non-Executive Directors – Current
P Brasher
J Breunig
K Fagg
B Kruger
R McGrath
G Smorgon AM
Non-Executive Director – Former
G Hayes
Executive Director – Current
J Johns
Executive Director – Former
J Fazzino
Executives – Current
F Micallef
A Grace
G Hayne
N Stratford
E Hunter
Executives – Former
S Atkinson
L Balter
60,600
–
10,000
14,620
18,758
13,100
10,000
–
–
–
–
–
6,250
–
–
–
–
–
–
–
–
(13,100)
–
–
60,600
–
10,000
14,620
25,008
–
10,000
–
1,914,562
904,467
(904,467)
1,914,562
16,534
75,800
8,633
19,620
–
50,270
–
175,157
146,744
–
–
110,789
145,964
–
(175,157)
(75,800)
–
–
(110,789)
(196,234)
–
16,534
146,744
8,633
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.
(B) Where a director or an Executive has ceased to be a KMP during the reporting year, the balance stated in this column represents the number of shares held as at the
date the director or Executive ceased to be a KMP.
8. Other KMP Disclosures
Loans to KMP
In the year ended 30 September 2018, there were no loans to key management personnel and their related parties (2017: nil).
Other KMP transactions
The following transactions, entered into during the year with key management personnel (including their related parties), were on
terms and conditions no more favourable than those available to other customers, suppliers and employees:
(1) The spouse of Mr Fazzino, former Managing Director & Chief Executive Officer, is a partner in the accountancy and tax firm
PricewaterhouseCoopers (PwC) from which the Group purchased services of $1,139,272 during the year (2017: $505,742).
Mr Fazzino’s spouse does not directly provide these services. Mr Fazzino did not engage PwC at any time for any assignment.
(2) The spouse of Ms Fagg was a partner in the accountancy and tax firm KPMG from which the Group purchased services of
$851,572 during the year (2017: $1,063,677). Ms Fagg’s spouse did not directly provide these services. Ms Fagg was not
involved in any engagement of KPMG made by the Group. Ms Fagg’s spouse ceased employment with KPMG on
31 December 2017.
Signed in accordance with a resolution of the directors:
Paul V Brasher
Chairman
Dated at Melbourne this 13th day of November 2018
Incitec Pivot Limited Annual Report 2018
43
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
13 November 2018
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 2018, 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
44
Incitec Pivot Limited Annual Report 2018
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 46 to 82
Audit Report
Shareholder Information
Five Year Financial Statistics
47
48
49
50
51
83
84
89
90
Incitec Pivot Limited Annual Report 2018
45
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 2018.
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
2018 financial report. The accounting policies have been consistently applied to all years presented, unless otherwise stated.
Section
Description
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
Risk management
Other
Provides information on the Group’s investment in tangible and intangible assets, and the
Group’s future capital commitments.
Provides information about the Group’s risk exposures, risk management practices, provisions
and contingent liabilities.
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.
46
Incitec Pivot Limited Annual Report 2018
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 30 September 2018
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
Other expenses
Profit before income tax
Income tax benefit/(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 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 transferred to profit or loss
Exchange differences on translating foreign operations
Net (losses)/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)
(2)
(3)
(19)
(16)
(16)
(16)
(5)
(5)
2018
$mill
2017
$mill
3,856.3
3,473.4
44.0
44.7
102.3
39.9
93.0
(28.9)
(1,809.7)
(1,537.7)
(652.5)
(294.3)
(133.5)
(175.3)
(149.4)
(271.7)
(67.5)
(240.6)
(50.8)
192.7
18.1
210.8
4.9
(0.2)
(3.0)
1.7
86.6
(35.4)
254.1
(127.2)
(33.5)
144.6
(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)
146.3
11.3
357.1
332.9
207.9
2.9
210.8
354.2
2.9
357.1
12.5
12.5
318.7
2.9
321.6
330.0
2.9
332.9
18.9
18.8
Incitec Pivot Limited Annual Report 2018
47
Consolidated Statement of Financial Position
As at 30 September 2018
Notes
2018
$mill
2017
$mill
(8)
(4)
(4)
(16)
(4)
(16)
(13)
(9)
(10)
(3)
(4)
(8)
(16)
(15)
(4)
(8)
(16)
(15)
(3)
(19)
(7)
588.5
311.5
494.9
63.3
13.3
627.9
337.7
388.6
76.2
22.6
1,471.5
1,453.0
12.6
36.3
29.6
336.1
4,004.3
3,046.6
17.0
7,482.5
8,954.0
1,045.0
212.9
18.3
75.6
55.6
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
1,407.4
1,165.0
13.6
14.9
2,161.9
2,212.0
7.4
104.0
482.9
32.6
2,802.4
4,209.8
4,744.2
3,226.5
(55.4)
1,566.6
6.5
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
4,744.2
4,759.1
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Total current assets
Non-current assets
Trade and other receivables
Other assets
Other financial assets
Equity accounted investments
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligation
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Non-controlling interest
Total equity
48
Incitec Pivot Limited Annual Report 2018
Consolidated Statement of Cash Flows
For the year ended 30 September 2018
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
Impairment of goodwill and other intangibles
Share of profit of equity accounted investments
Net gain on sale of property, plant and equipment
Non-cash share-based payment transactions
Income tax (benefit)/expense
Changes in assets and liabilities
Decrease/(increase) in receivables and other operating assets
(Increase)/decrease 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 (loss)/gain on derivatives
Dividends paid to members of Incitec Pivot Limited
Dividends paid to non-controlling interest holder
Purchased shares for IPL employees
Payment for buy-back of shares
Net cash flows from financing activities
Net (decrease)/increase in cash and cash equivalents held
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash and cash equivalents held
Cash and cash equivalents at the end of the year
Notes
2018
$mill
2017
$mill
Inflows/
(Outflows)
Inflows/
(Outflows)
210.8
321.6
(2)
(9)
(10)
(13)
(2)
(17)
(3)
(13)
(8)
(8)
(6)
(8)
128.0
294.3
4.0
236.6
(44.7)
(2.4)
3.2
(18.1)
40.1
(101.2)
10.1
760.7
29.9
5.5
(121.9)
(11.5)
662.7
108.7
273.3
4.7
–
(39.9)
(19.8)
4.6
70.9
(50.3)
11.0
32.9
717.7
34.9
5.3
(97.3)
(12.9)
647.7
(325.3)
(319.7)
6.2
(5.8)
2.2
(1.3)
(324.0)
(504.3)
501.4
(4.3)
(157.4)
(2.4)
(5.1)
(210.3)
(382.4)
(43.7)
627.9
4.3
588.5
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
Incitec Pivot Limited Annual Report 2018
49
Consolidated Statement of Changes in Equity
For the year ended 30 September 2018
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 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
Balance at 1 October 2017
3,436.8
(20.1)
26.9
(192.9)
(11.8)
1,514.2
4,753.1
6.0
4,759.1
Profit for the year
Total other comprehensive
income for the year
Dividends paid
Share buy-back
(6)
(7)
Purchased shares for IPL employees
Share-based payment transactions (17)
–
–
–
(210.3)
–
–
–
35.7
–
–
–
–
Balance at 30 September 2018
3,226.5
15.6
–
–
–
–
(5.1)
3.2
25.0
–
–
207.9
207.9
2.9
210.8
108.9
(0.2)
1.9
146.3
–
146.3
–
–
–
–
–
–
–
–
(157.4)
(157.4)
(2.4)
(159.8)
–
–
–
(210.3)
(5.1)
3.2
–
–
–
(210.3)
(5.1)
3.2
(84.0)
(12.0)
1,566.6
4,737.7
6.5
4,744.2
Cash flow hedging reserve
This reserve comprises the cumulative net change in the fair value of the effective portion of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
Share-based payments reserve
This reserve comprises the fair value of rights recognised as an employee expense under the terms of the 2015/18, 2016/19
and 2017/20 Long Term Incentive Plans.
Foreign currency translation reserve
Exchange differences arising on translation of foreign controlled operations are taken to the foreign currency translation
reserve. The relevant portion of the reserve is recognised in the profit or loss when the foreign operation is disposed of.
The foreign currency translation reserve is also used to record gains and losses on hedges of net investments in foreign
operations.
Fair value reserve
This reserve represents the cumulative net change in the fair value of equity instruments. The annual net change in the fair
value of investments in equity securities (including both realised and unrealised gains and losses) is recognised in other
comprehensive income.
Non-controlling interest
Represents a 35 percent outside equity interest in Quantum Fertilisers Limited, a Hong Kong based fertiliser marketing company.
50
Incitec Pivot Limited Annual Report 2018
Notes to the Consolidated Financial Statements
For the year ended 30 September 2018
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 arrangements 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
52
53
55
56
58
59
59
60
61
63
64
65
66
67
68
70
71
79
79
80
81
81
82
82
Incitec Pivot Limited Annual Report 2018
51
Notes to the Consolidated Financial Statements: Basis of preparation
For the year ended 30 September 2018
Basis of preparation and consolidation
Rounding of amounts
The consolidated financial statements of the Group have been
prepared under the historical cost convention, except for
certain financial instruments that 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 13 November 2018.
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, 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.
AASB 9: Financial Instruments is mandatory for annual
periods starting on or after 1 January 2018. The Group has
early adopted this standard in the 2015 financial year.
The following relevant standards were available for early
adoption but have not been applied by the Group:
l AASB 15: Revenue from Contracts with Customers
Details of the expected impact of AASB 15 on the Group,
when it is adopted, are included in note 2.
l AASB 16: Leases
Details of the expected impact of AASB 16 on the Group,
when it is adopted, are included in note 12.
Subsidiaries
Subsidiaries are entities that are controlled by the Group. The
financial results and financial position of the subsidiaries are
included in the consolidated financial statements from the
date control commences until the date control ceases.
A list of the Group’s subsidiaries is included in note 14.
Joint arrangements and associates
A joint venture is an arrangement where the parties have
rights to the net assets of the venture.
A joint operation is an arrangement where the parties each
have rights to the assets and liabilities relating to the
arrangement.
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.
The interest in joint operations are brought to account
recognising the Group’s share of jointly controlled assets;
liabilities; expenses; and income from the joint operation.
A list of the Group’s joint arrangements 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.
52
Incitec Pivot Limited Annual Report 2018
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2018
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 executive management team (the chief operating decision makers) to assess performance and make decisions about
the allocation of resources.
Description of reportable segments
Asia Pacific
Fertilisers is made up of the following reportable segments:
l
Incitec Pivot Fertilisers (IPF): manufactures and distributes fertilisers in Eastern Australia. The products that IPF
manufactures include urea, ammonia and single super phosphate. IPF also imports products from overseas suppliers and
purchases ammonium phosphates from Southern Cross International for resale.
l Southern Cross International (SCI): manufactures ammonium phosphates and is a distributor of its manufactured fertiliser
product to wholesalers in Australia (including IPF) and the export market. SCI operates the Industrial Chemicals business
and also includes the Group’s 65 percent share of the Hong Kong marketing company, Quantum Fertilisers Limited.
Fertilisers Eliminations (Fertilisers Elim): represent 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): represent 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 or reasonably attributed to the operation of any of the
Group’s businesses.
Group Eliminations (Group Elim): represent elimination of sales and profit in stock arising from intersegment sales at an arm’s
length transfer price.
Reportable segments – financial information
30 September 2018
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) 1,088.4
605.0 (221.7) 1,471.7
978.6 (12.1) 2,438.2
1,462.3
(44.2)
Share of profits of equity
accounted investments
EBITDA(ii)
(13)
–
–
–
–
17.4
67.7
116.7
(2.2)
182.2
288.8
Depreciation and amortisation
(2)
(30.0)
(47.6)
–
(77.6)
(83.4)
37.7
69.1
(2.2)
104.6
205.4
EBIT(iii)
Net interest expense
Income tax expense (excluding IMIs)
(3)
Profit after tax(iv)
Non-controlling interest
Individually material items (net of tax)
Profit attributable to members of IPL
Segment assets
Segment liabilities
Net segment assets(v)
Deferred tax balances
Net assets
700.8
613.4
(503.1) (160.4)
197.7
453.0
–
–
–
1,314.2 2,585.2
(663.5)
(284.0)
650.7 2,301.2
(3)
–
–
–
–
–
–
–
–
–
3,856.3
44.7
851.0
17.4
471.0
27.3
–
410.3
(0.6)
(29.7)
(161.0)
(131.7)
–
(1.6)
(294.3)
310.0
278.6
(0.6)
(31.3)
556.7
(128.0)
(78.4)
350.3
(2.9)
(139.5)
207.9
3,899.4
4,332.2
(947.5)
(484.2)
2,951.9
3,848.0
–
–
–
705.4
8,937.0
(2,295.2)
(3,726.9)
(1,589.8)
5,210.1
(465.9)
4,744.2
(i) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(ii) Earnings Before Interest, related income Tax expense, Depreciation and Amortisation and individually material items.
(iii) Earnings Before Interest, related income Tax expense and individually material items.
(iv) Profit after tax (excluding individually material items).
(v) Net segment assets excluding deferred tax balances.
Incitec Pivot Limited Annual Report 2018
53
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 2018
1. Segment report (continued)
Reportable segments – financial information (continued)
30 September 2017
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) 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
(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
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
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
–
–
–
–
–
–
–
16.0
444.4
23.9
348.7
–
0.3
–
–
(18.9)
3,473.4
39.9
774.5
(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
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 2018
Australia
$mill
USA
$mill
Canada
$mill
Turkey
$mill
Other/Elim
$mill
Consolidated
$mill
Revenue from external customers
2,322.0
1,249.6
189.1
66.5
29.1
3,856.3
Non-current assets other than financial
assets and deferred tax assets
3,310.6
3,902.6
Trade and other receivables
157.3
75.8
30 September 2017
Australia
$mill
USA
$mill
57.0
30.3
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
55.5
40.8
1.3
15.9
Turkey
$mill
61.6
1.4
16.9
164.4
7,435.9
44.8
324.1
Other/Elim
$mill
Consolidated
$mill
36.4
3,473.4
123.2
42.3
7,328.5
342.8
54
Incitec Pivot Limited Annual Report 2018
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 2018
2. Revenue and expenses
Revenue
External sales
Total revenue
Financial income
Interest income
Other income
Notes
2018
$mill
2017
$mill
3,856.3
3,473.4
3,856.3
3,473.4
Individually material items
Profit includes the following benefits/(expenses) whose
disclosure is relevant in explaining the financial performance
of the Group:
5.5
5.3
Tax restatement(1)
Impairment of goodwill(2)
September 2018
Gross
$mill
–
(236.0)
(236.0)
Tax
$mill
96.5
–
96.5
Net
$mill
96.5
(236.0)
(139.5)
Income from delay damages
–
Royalty income and management fees
(13)
29.4
Net gain on sale of property, plant
and equipment
Other income from operations
2.4
6.7
47.2
23.2
19.8
6.8
(1) On 22 December 2017, the US government enacted tax reform legislation
which reduced the US federal tax rate from 35% to 21%, effective 1 January
2018. As a result, the Group recognised a one-off benefit of $96.5m arising
from the restatement of its US net deferred tax liabilities.
(2) Impairment of goodwill relating to the DNAP CGU as set out in note 11.
Total financial and other income
44.0
102.3
Key accounting policies
Expenses
Profit before income tax includes the following specific expenses:
Depreciation and amortisation
depreciation
amortisation
Total depreciation and amortisation
Recoverable amount write-down
property, plant and equipment
intangible assets
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
Notes
(9)
(10)
(9)
(10)
(4)
(4)
(15)
(15)
(15)
restructuring and rationalisation costs (15)
2018
$mill
2017
$mill
271.5
249.6
22.8
23.7
294.3
273.3
4.0
236.6
240.6
4.9
3.2
6.4
3.5
1.8
0.4
4.7
–
4.7
5.6
1.1
0.6
0.4
2.4
0.4
Research and development expense
12.6
11.9
Defined contribution superannuation
expense
Defined benefit superannuation
expense
31.0
28.1
(19)
3.1
4.6
Financial expenses
Unwinding of discount on provisions
(15)
4.4
Net interest expense on defined
benefit obligation
(19)
Interest expenses on financial liabilities
Total financial expenses
1.2
127.9
133.5
4.9
2.9
106.2
114.0
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 the service component is recognised separately
from the sale of goods.
Interest income is recognised as it accrues using the
effective interest method.
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 standard requires the
identification of distinct performance obligations in a contract
and an allocation of the transaction price to these
performance obligations. Per the standard, revenue should
only be recognised when the performance obligation is
satisfied and the control of the goods or services is
transferred to the customer. Currently the Group recognises
revenue from the sale of goods at the time that control is
transferred to the customer. Services revenue is recognised
separate from the sale of goods, when the service obligation
is satisfied. Based on assessment of the Group’s revenue
streams, contracts with customers and existing revenue
recognition policies against the requirements of AASB 15,
the impact of the new standard on the recognition and
reporting of the Group’s revenue is not considered material.
The first application date for the Group is the financial year
ending 30 September 2019.
Incitec Pivot Limited Annual Report 2018
55
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 2018
2. Revenue and expenses (continued)
Key accounting policies (continued)
3. Taxation
Income tax expense for the year
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 external sales.
Current tax expense
Current year
Adjustments in respect of prior years
Deferred tax expense
Current year
Adjustments in respect of prior years
Income tax expense (excluding IMIs)
Tax rate change
Total income tax (benefit)/expense
2018
$mill
2017
$mill
59.6
(2.8)
56.8
21.6
–
78.4
(96.5)
(18.1)
26.3
2.9
29.2
41.9
(0.2)
70.9
–
70.9
Income tax reconciliation to prima facie tax payable
Profit before income tax
Tax at the Australian tax rate
of 30% (2017: 30%)
Tax effect of amounts which are not deductible/
(taxable) in calculating taxable income:
Other foreign deductions
Joint venture income
Sundry items
Tax rate change
Goodwill impairment
Difference in overseas tax rates
Adjustments in respect of prior years
Income tax (benefit)/expense
attributable to profit
2018
$mill
2017
$mill
192.7
392.5
57.8
117.8
(32.2)
(30.1)
(13.0)
(12.0)
9.5
(7.9)
(96.5)
70.8
(11.7)
(2.8)
–
–
0.4
2.7
(18.1)
70.9
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 $36.5m for the year ended 30 September 2018
(2017: debit of $13.4m).
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
2018
$mill
2017
$mill
16.1
8.9
43.2
90.3
(442.1)
(99.4)
(9.0)
(69.2)
(4.7)
(465.9)
15.4
13.4
44.4
68.7
(460.2)
(134.5)
(13.0)
(40.7)
19.0
(487.5)
17.0
(482.9)
(465.9)
21.6
(509.1)
(487.5)
56
Incitec Pivot Limited Annual Report 2018
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 2018
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.
3. Taxation (continued)
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 to the profit or loss
Charged to equity
Foreign exchange movements
Tax rate change
Adjustments in respect of prior years
2018
$mill
2017
$mill
(487.5)
(439.7)
(21.6)
(41.9)
(36.5)
(13.4)
(16.8)
96.5
–
7.3
–
0.2
Closing balance at 30 September
(465.9)
(487.5)
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
Incitec Pivot Limited Annual Report 2018
57
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2018
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.
30 September 2018
Inventories
Receivables
Payables
30 September 2017
Inventories
Receivables
Payables
Inventory by category:
Raw materials and stores
Work-in-progress
Finished goods
Provisions
Total inventory balance
Provision movement:
30 September 2018
Carrying amount at 1 October 2017
Provisions made during the year
Provisions written back during the year
Amounts written off against provisions
Foreign exchange rate movements
Trade
$mill
494.9
289.2
Other
$mill
–
34.9
Total
$mill
494.9
324.1
(835.9)
(222.7) (1,058.6)
(51.8)
(187.8)
(239.6)
Trade
$mill
388.6
310.7
Other
$mill
–
32.1
Total
$mill
388.6
342.8
(749.8)
(308.8)
(1,058.6)
13 month rolling average trade working capital/
Annual net revenue
Explosives (DNA, DNAP)
Fertilisers
Group
%
17.5
15.0
12.5
10.0
7.5
5.0
2.5
0
(50.5)
(276.7)
(327.2)
(2.5)
FY14
FY15
FY16
FY17
FY18
2018
$mill
101.8
55.2
2017
$mill
88.5
45.7
348.5
262.8
(10.6)
(8.4)
494.9
388.6
Trade
receivables
$mill
Inventories
$mill
(31.6)
(4.9)
4.5
0.7
2.6
(8.4)
(3.2)
0.5
0.7
(0.2)
Key accounting policies
Cents
25
Inventories
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Dividend declared in respect of the financial year
Inventories are valued at the lower of cost and net realisable
value. The cost of manufactured goods is based on a
weighted average costing method. For third party sourced
goods, cost is net cost into store.
20
15
Trade and other receivables
10
5
0
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.
2015
2017
2016
2014
2018
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
Carrying amount at 30 September 2018
(28.7)
(10.6)
Receivables ageing and provision for impairment
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
144A/reg S
USD800m
200
Key estimates and judgments
0
The expected impairment loss calculation for trade
Bank facility
receivables considers the impact of past events, and
AUD260m
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.
Bank facility
USD500m
Bank facility
USD220m
Reg S
USD400m
Aug 21
Aug 21
Aug 27
Dec 19
Feb 19
Oct 21
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 2018
Current
30–90 days
Over 90 days
Total
30 September 2017
Current
30–90 days
Over 90 days
Total
Gross
$mill
Impairment
$mill
Net
$mill
283.6
5.2
29.1
317.9
(1.6)
(0.9)
(26.2)
282.0
4.3
2.9
(28.7)
289.2
Gross
$mill
Impairment
$mill
Net
$mill
295.2
13.9
33.2
342.3
(1.0)
(0.8)
(29.8)
(31.6)
294.2
13.1
3.4
310.7
58
Incitec Pivot Limited Annual Report 2018
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Shareholder returns
For the year ended 30 September 2018
5. Earnings per share
6. Dividends
2018
Cents per share
2017
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
12.5
20.9
12.5
20.8
18.9
18.9
18.8
18.8
Ordinary shares
Final dividend of 4.6 cents per share,
unfranked, paid 13 December 2016
Interim dividend of 4.5 cents per share,
unfranked, paid 3 July 2017
Final dividend of 4.9 cents per share,
unfranked, paid 19 December 2017
Number
Number
Interim dividend of 4.5 cents per share,
unfranked, paid 2 July 2018
2018
$000
2017
$000
–
–
77,610
75,923
82,671
74,749
–
–
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
1,664,616,914
1,687,170,521
1,667,794,091
1,691,087,236
Reconciliation of earnings used in the calculation
of basic and diluted earnings per share
Fertilisers
Explosives (DNA, DNAP)
Group
%
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
2018
$mill
2017
$mill
207.9
318.7
139.5
–
347.4
318.7
0
The graph below shows the Group’s earnings per share and
dividend payout over the last five years.
(2.5)
FY14
FY15
FY16
FY17
FY18
Company performance and dividends declared
Earnings per share (before individually material items)
Earnings per share (including individually material items)
Dividend declared in respect of the financial year
2014
2015
2016
2017
2018
Available limits
Drawn funds
Cents
25
20
15
10
5
0
AUDm
1200
1000
800
600
400
200
0
Maturity
Date
Bond
144A/reg S
Bank facility
Bank facility
Bank facility
Reg S
AUD200m
USD800m
AUD260m
USD220m
USD500m
USD400m
Feb 19
Dec 19
Aug 21
Aug 21
Oct 21
Aug 27
Total ordinary share dividends
157,420
153,533
Since the end of the financial year, the directors have
determined to pay a final dividend of 6.2 cents per share,
20 percent franked, to be paid on 17 December 2018. The
total dividend payment based on the issued ordinary shares
as at 30 September 2018 will be $101.1m.
The financial effect of this dividend has not been recognised
in the 2018 Consolidated Financial Statements.
Consistent with recent years, the dividend reflects a payout
ratio of approximately 50 percent of net profit after tax
(before individually material items).
Franking credits
Franking credits available to shareholders of the Company
were $9.5m (2017: $0.4m). The final dividend for 2018
is 20 percent franked.
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 2018
59
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 2018
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 2018, 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 2018 amounted to
$3,226.5m on 1,630,213,573 ordinary shares (2017:
1,687,170,521). On 14 November 2017, the Company
announced an on-market share buy-back of up to $300.0m
to be conducted over a twelve month period. During the
financial year ended 30 September 2018, the Company
bought back and cancelled 56,956,948 shares at an average
price per share of $3.693. On 22 October 2018, the Company
announced the extension of its on-market share buyback for
a further 12 months from 29 November 2018 to 28
November 2019.
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 Net debt/EBITDA before individually material
items. Financial metric targets are maintained inside debt
covenant restrictions. At 30 September the Group’s position
in relation to these metrics was:
Net debt/EBITDA (times)
equal or less than 2.5
Interest cover (times)
equal or more than 6.0
1.6
7.3
1.7
7.9
Target range
2018
2017
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.
60
Incitec Pivot Limited Annual Report 2018
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2018
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
Fair value of derivatives
Net debt
Notes
(16)
2018
$mill
2,374.8
(588.5)
(414.7)
2017
$mill
2,224.1
(627.9)
(304.3)
1,371.6
1,291.9
At 30 September 2018, the Group’s Net debt/EBITDA before
individually material items was 1.6 times (2017: 1.7 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. Details of
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
Fixed interest rate bonds
Non-current
Other loans
Bank facilities
Fixed interest rate bonds
Total interest bearing liabilities
2018
$mill
1.3
11.8
199.8
212.9
2017
$mill
1.3
10.8
–
12.1
4.5
499.6
1,657.8
5.4
472.4
1,734.2
2,161.9
2,212.0
2,374.8
2,224.1
Fixed interest rate bonds
The Group has on issue the following fixed interest rate
bonds:
l USD800m 10 year bonds on issue in the US 144A/
Regulation S debt capital market. The bonds have a fixed
rate semi-annual coupon of 6 percent and mature in
December 2019.
l AUD200m 5.5 year bonds on issue in the Australian debt
capital market. The bonds have a fixed rate semi-annual
coupon of 5.75 percent and mature in February 2019.
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
The Group holds the following bank facilities:
l 3 year facility domiciled in Australia, entered into in
August 2018, consisting of two tranches: Tranche A has a
limit of AUD260m and Tranche B has a limit of USD220m.
The facility matures in August 2021; and
l 5 year facility of USD500m domiciled in the USA,
entered into in August 2015, with an initial maturity of
August 2020. In 2017 the maturity was extended to
October 2021.
Tenor of interest bearing liabilities
The Group’s average tenor of its interest bearing liabilities at
30 September 2018 is 3.3 years (2017: 3.6 years).
The table below includes detail on the movements in the Group’s interest bearing liabilities for the year ended 30 September 2018:
Cash flow
Financing
activities
1 October
2017
$mill
Proceeds/
(Repayments)
$mill
Reclassification
$mill
Non-cash changes
Foreign
exchange
movement
$mill
Fair value
adjustment
$mill
Funding costs
amortisation
$mill
30 September
2018
$mill
Notes
(13)
Current
Other loans
Loans from joint ventures
Bank facilities
Fixed interest rate bonds
Non-current
Other loans
Bank facilities
Fixed interest rate bonds
Total liabilities from financing activities
Derivatives held to hedge interest
bearing liabilities
1.3
10.8
–
–
5.4
472.4
1,734.2
2,224.1
(1.3)
–
(503.0)
–
–
501.4
–
(2.9)
Debt after hedging
1,919.8
(2.9)
(16)
(304.3)
–
1.3
–
474.9
200.0
(1.3)
(474.9)
(200.0)
–
–
–
–
1.0
27.6
–
0.4
–
–
–
–
(0.5)
–
–
134.8
(13.3)
163.8
(13.8)
(118.0)
45.8
7.6
(6.2)
–
–
0.5
0.3
–
0.7
2.1
3.6
–
3.6
1.3
11.8
–
199.8
4.5
499.6
1,657.8
2,374.8
(414.7)
1,960.1
Incitec Pivot Limited Annual Report 2018
61
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
Group
12.5
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2018
10.0
7.5
5.0
8. Net debt (continued)
2.5
0
(2.5)
Interest bearing liabilities (continued)
FY15
FY14
FY17
FY16
Interest rate profile
FY18
The table below summarises the Group’s interest rate
profile of its interest bearing liabilities, net of hedging,
at 30 September:
Earnings per share (before individually material items)
Earnings per share (including individually material items)
2018
Dividend declared in respect of the financial year
$mill
Cents
25
Cash and cash equivalents
Cash and cash equivalents at 30 September 2018 were
$588.5m (2017: $627.9m) and consisted of cash at bank of
$126.8m (2017: $245.8m) and short term investments of
$461.7m (2017: $382.1m).
2017
$mill
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.
Fixed interest rate financial instruments
20
1,931.8
1,984.3
Variable interest rate financial instruments
15
443.0
239.8
2,374.8
2,224.1
10
Detail on the Group’s interest hedging profile and duration is
included in note 16.
5
0
Funding profile
2014
The graph below details the Group’s available funding limits,
its maturity dates and drawn funds at 30 September 2018:
2016
2017
2018
2015
Available limits
Drawn funds
AUDm
1200
1000
800
600
400
200
0
Bond
AUD200m
144A/reg S
USD800m
Bank facility
AUD260m
Bank facility
USD220m
Bank facility
USD500m
Reg S
USD400m
Maturity
Date
Feb 19
Dec 19
Aug 21
Aug 21
Oct 21
Aug 27
The Group has undrawn financing facilities of $756.0m
(2017: $798.4m) at 30 September 2018.
62
Incitec Pivot Limited Annual Report 2018
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 2018
9. Property, plant and equipment
Freehold land
and buildings
$mill
Notes
At 1 October 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 work in progress
Foreign exchange movement
Closing net book amount
At 30 September 2017
Cost
Accumulated depreciation
Net book amount
Year ended 30 September 2018
Opening net book amount
Additions
Subsidiaries acquired
Disposals
Depreciation
Impairment of assets
Reclassification from work in progress
Foreign exchange movement
Closing net book amount
At 30 September 2018
Cost
Accumulated depreciation
Net book amount
(2)
(2)
(2)
(2)
Machinery,
plant and
equipment
$mill
3,489.2
(1,374.3)
2,114.9
2,114.9
54.3
3.8
(7.5)
(221.4)
(4.7)
1,202.9
(40.1)
3,102.2
Work in
progress
$mill
1,236.7
–
1,236.7
1,236.7
212.3
–
–
–
–
(1,334.7)
(1.6)
112.7
Total
$mill
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
796.1
(255.0)
541.1
541.1
17.2
0.7
(15.9)
(28.2)
–
131.8
(6.8)
639.9
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
639.9
6.0
1.9
–
(27.4)
–
28.1
20.6
669.1
3,102.2
13.7
3.1
(3.8)
(244.1)
(4.0)
224.9
134.4
3,226.4
112.7
245.2
–
–
–
–
(253.0)
3.9
108.8
3,854.8
264.9
5.0
(3.8)
(271.5)
(4.0)
–
158.9
4,004.3
969.2
(300.1)
669.1
4,934.2
(1,707.8)
3,226.4
108.8
–
108.8
6,012.2
(2,007.9)
4,004.3
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 2018
63
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 2018
10. Intangibles
At 1 October 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
Year ended 30 September 2018
Opening net book amount
Additions
Subsidiaries acquired
Impairment of assets
Amortisation
Foreign exchange movement
Closing net book amount
At 30 September 2018
Cost
Accumulated amortisation
Net book amount
Notes
Software
$mill
Goodwill
$mill
Patents, trademarks
& customer contracts
$mill
Brand names
$mill
Total
$mill
(2)
(2)
(2)
96.5
(80.8)
15.7
15.7
9.3
–
(5.9)
(0.7)
18.4
102.7
(84.3)
18.4
18.4
32.0
–
(0.6)
(4.2)
0.9
46.5
136.5
(90.0)
46.5
2,770.2
–
2,770.2
2,770.2
–
1.5
–
(40.0)
2,731.7
2,731.7
–
2,731.7
2,731.7
–
0.1
(236.0)
–
122.6
2,618.4
2,618.4
–
2,618.4
276.6
(167.0)
109.6
109.6
–
1.1
(17.8)
(2.0)
90.9
271.9
(181.0)
90.9
90.9
–
2.2
–
(18.6)
5.9
80.4
292.3
(211.9)
80.4
287.0
–
287.0
287.0
–
–
–
(7.0)
280.0
280.0
–
280.0
280.0
–
–
–
–
21.3
301.3
301.3
–
301.3
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
3,121.0
32.0
2.3
(236.6)
(22.8)
150.7
3,046.6
3,348.5
(301.9)
3,046.6
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 2018
Incitec Pivot Fertilisers (IPF)
Southern Cross International (SCI)
Dyno Nobel Asia Pacific (DNAP)
Dyno Nobel Americas (DNA)
30 September 2017
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
2.5
908.5
1,523.6
2,618.4
–
–
40.3
261.0
301.3
Goodwill
$mill
Brand names
$mill
183.8
2.4
1,144.5
1,401.0
2,731.7
–
–
40.3
239.7
280.0
183.8
2.5
948.8
1,784.6
2,919.7
Total
$mill
183.8
2.4
1,184.8
1,640.7
3,011.7
Key accounting policies
Goodwill
Goodwill on acquisition of subsidiaries is measured at cost
less any accumulated impairment losses. Goodwill is tested
for impairment annually, or more frequently if events or
circumstances indicate that it might be impaired.
Brand names
Brand names acquired by the Group have indefinite useful
lives and are measured at cost less accumulated impairment.
They are tested annually for impairment, or more frequently if
events or circumstances indicate that they might be impaired.
Other intangible assets
Other intangible assets acquired by the Group have finite lives.
They are stated at cost less accumulated amortisation and
impairment losses.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised
only when it increases the future economic benefits of the
asset to which it relates. All other such expenditure is
expensed as incurred.
Amortisation
Goodwill and brand names are not amortised.
For intangible assets with finite lives, amortisation is
recognised in the profit or loss on a straight-line basis over
their estimated useful life. The estimated useful lives of
intangible assets in this category are as follows:
• Software
• Product trademarks
• Patents
• Customer contracts
3 – 7 years
4 – 10 years
13 – 15 years
10 – 17 years
Useful lives are reviewed at each reporting date and
adjusted where relevant.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
64
Incitec Pivot Limited Annual Report 2018
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2018
11. Impairment of goodwill and
non-current assets
During 2018, the Group has identified the following indicators
of impairment:
• Availability of committed sources of natural gas at
economically viable prices in Australia; and
• Decline of explosives product and services margins in
Australia.
Impairment testing of goodwill
At the half year, the recoverable amount of the DNAP CGU
was lower than its carrying amount. This was as a result of
the impact of IPL ceasing to be the contracted supplier of
explosive products to key customers in Western Australia; the
general forecast decline in product and services margins; and
the long term gas production cost forecast.
As a result, the Group recognised an impairment of $236.0m
at 31 March 2018 against goodwill relating to the DNAP CGU.
The Group’s impairment testing at 30 September 2018
resulted in no further impairment of any CGU.
Key assumptions
Details of the key assumptions used in the recoverable
amount calculations at 30 September are set out below:
Key
assumptions
1 – 5 years
Terminal value
(after 5 years)
DAP(1)
Urea(2)
Gas (DNA CGU)(3)
Ammonia(4)
AUD:USD(5)
Gas (DNAP CGU)(6)
2018
US$
380 to 463
260 to 343
3.00 to 3.45
300 to 389
0.75 to 0.76
AU$
4.49 to 4.91
2017
US$
321 to 410
230 to 320
3.11 to 3.15
250 to 372
0.76 to 0.77
AU$
4.41 to 4.75
2018
US$
523
366
3.43
406
0.75
AU$
6.70
2017
US$
474
322
3.22
422
0.76
AU$
5.30
(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.
(6) Long term gas production cost forecast, relating to DNAP’s Moranbah plant
(AUD per gigajoule).
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.
Discount and growth rates
The post-tax discount rate used in the calculations is 9%
(2017: 9%) for the IPF and SCI CGUs and 8.5% for the DNA
and DNAP CGUs (2017: 8.5%). The rate reflects the underlying
cost of capital adjusted for market and asset specific risks.
In relation to the DNAP CGU, the short to medium term
growth rate assumption is -3.4% (2017: +1.2%)
The terminal value growth rate represents the forecast
consumer price index (CPI) of 2.5% (2017: 2.5%) for all CGUs.
Sensitivity analyses
Included in the table below is a sensitivity analysis of the
recoverable amounts and, where applicable, the impairment
charge considering reasonable change scenarios relating to
key assumptions at 30 September 2018:
Post-tax
discount
rate
Short to
medium
term average
growth rate
Terminal
value
growth
rate
+0.5%
$mill
-1.0%
$mill
-1.0%
$mill
(179.8)
(134.0)
(273.9)
Natural gas
price
+AU$1 per
gigajoule
$mill
(47.9)
DNAP
– Fair value less cost
of disposal
– Impairment charge
(146.9)
(101.1)
(241.0)
(15.0)
DNA
– Value-in-use
– Impairment charge
Post-tax
discount
rate
+0.5%
$mill
Ammonia
price
-US$50
per tonne
$mill
Terminal
value
growth rate
-1.0%
$mill
Natural gas
price
+US$1 per
mmbtu
$mill
(247.8)
(384.7)
(353.3)
(364.4)
–
Post-tax
discount
rate
–
AUD:USD
exchange
rate
Terminal
value
growth rate
–
–
DAP
Price
-US$50
per tonne
$mill
(576.9)
(190.2)
SCI
– Value-in-use
– Impairment charge
+0.5%
$mill
(53.6)
–
+5c
$mill
(335.3)
–
-1.0%
$mill
(75.1)
–
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 2018 property, plant and
equipment was impaired by $4.0m (2017: $4.7m) as a result
of the Group’s fixed asset verification procedures and the
abandonment of certain assets.
As at 31 March 2016, the Group recognised a non-cash
impairment charge of $150.8m against the Gibson Island
assets largely due to the impact of lower forecast fertiliser
prices and higher cost of natural gas delivered to the
Australian East Coast.
On 25 June 2018, the Group announced that it had entered
into a joint operation with Central Petroleum Limited for the
development of acreage in Queensland that could deliver
economic gas to the Gibson Island manufacturing facility.
Any potential reversal of the previous impairment will be
dependent on the outcome of the drilling activities and other
economic factors at the time. In the event that Gibson Island’s
manufacturing operations were to cease, the latest estimate
of closure costs is approximately $70m. Proceeds from the
sale of excess land at Gibson Island, that could be available
for sale in the event of a plant closure, are estimated at
approximately $60m depending on the ongoing operational
requirements at the site. It is noted that the timing of cash
flows from closing costs and proceeds from the sale of land
may differ depending on market conditions.
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.
Incitec Pivot Limited Annual Report 2018
65
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 2018
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)
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.
Determining the recoverable amount
The recoverable amount of an asset is determined as the
higher of its fair value less cost of disposal 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 in its current condition, 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.
Impairment testing is performed 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 has prepared value-in-use models for all CGUs, with
the exception of the DNAP CGU. For the DNAP CGU, the Group
prepared a fair value less cost of disposal model to determine
the recoverable amount. The fair value less cost of disposal
was determined as the present value of the estimated future
cash flows expected to arise from the continued use of the
assets, including the cash flow effects of growth capital
expenditure to enhance production and reduce cost, less costs
of disposal. The fair value measurement is categorised as a
level 3 valuation model as the expected future cash flows
incorporate inputs that are not based on observable market
data (refer note 16: Financial risk management for
explanation of the valuation hierarchy).
Impairment losses
An impairment loss is recognised whenever the carrying
amount of an asset (or its CGU) exceeds its recoverable
amount. Impairment losses are recognised in the profit or loss.
Impairment losses recognised in respect of CGUs are allocated
against assets in the following order:
• Firstly, against the carrying amount of any goodwill
allocated to the CGU.
• Secondly, against the carrying amount of any remaining
assets in the CGU.
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.
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
•
Such estimates and judgments are subject to change as a
result of changing economic, operational, environmental
and weather conditions. Actual cash flows may therefore
differ from forecasts and could result in changes in the
recognition of impairment charges in future periods.
the expected long term growth in cash flows.
66
Incitec Pivot Limited Annual Report 2018
12. Commitments
Capital expenditure commitments
Capital expenditure contracted but not provided for or
payable at 30 September:
no later than one year
later than one, no later than five years
2018
$mill
84.2
–
84.2
2017
$mill
25.2
–
25.2
Lease commitments
Non-cancellable operating lease commitments comprise a
number of operating lease arrangements for the provision of
certain property and 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
2018
$mill
40.9
99.6
101.0
241.5
2017
$mill
44.8
85.5
77.8
208.1
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
AASB 16: Leases specifies how to recognise, measure and
disclose leases. At the reporting date the Group has non-
cancellable operating lease commitments of $241.5m. 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 Group does not currently
intend to bring short term leases (12 months or less) or low
value leases on balance sheet. The first application date for the
Group is the financial year ending 30 September 2020. Some of
the operating leases currently held expire prior to the
implementation of the standard and decisions on future leases
will be made as the Group moves closer to the expiry date of
these leases.
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2018
12. Commitments (continued)
13. Equity accounted investments
Key accounting policies (continued)
As such the Group has not finalised its quantification of the
effect of the new standard. However, the following impacts are
expected:
•
The total assets and total liabilities on the balance sheet will
increase. However total net assets are expected to decrease
as the right-of-use asset is depreciated on a straight-line
basis whilst the liability reduces by the principal amount of
repayments after the impact of interest.
• Operating lease expenses will be replaced by a depreciation
charge for the right-of-use asset and interest expense on the
lease liabilities.
• Repayment of the principal portion of the lease liabilities
will be classified as financing activities in the Statement of
Cash flows. Currently, operating lease payments are
classified as operating activities.
To date work on the new lease standard has focused on the
identification and understanding of the provisions of the
standards, impact analysis and the review of system
requirements. Work on these matters and their resolution will
continue during 2019.
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 2018
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
2018
$mill
316.9
44.7
2017
$mill
318.0
39.9
–
5.6
(5.7)
(7.2)
(29.9)
(34.9)
10.1
(4.5)
Carrying amount at 30 September
336.1
316.9
Carrying amount of investments in:
Joint ventures
Associates
Carrying amount of investments in
joint ventures and associates
274.2
265.2
61.9
51.7
336.1
316.9
Transactions between subsidiaries of the Group
and joint ventures and associates
Sales of goods/services
Purchase of goods/services
Management fees/royalties
Interest income
Interest expense
Dividend income
2018
$mill
374.6
(34.6)
29.4
0.5
(0.4)
29.9
2017
$mill
335.1
(26.5)
23.2
0.5
(0.2)
34.9
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
2018
$mill
3.1
50.0
2017
$mill
2.1
51.1
Loans with joint ventures and associates
Loans to joint ventures and associates
Loans from joint ventures and associates
13.1
11.8
15.0
10.8
Outstanding balances arising from transactions with joint
ventures and associates are on standard market terms.
Incitec Pivot Limited Annual Report 2018
67
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 2018
14. Investments in subsidiaries, joint arrangements 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)
Incitec Pivot Queensland Gas Pty Ltd(2)
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
Midland Powder LLC
Mine Equipment & Mill Supply Company
Controlled Explosives Inc.
Drisk Insurance Inc.(2)
Boren Explosives Co., 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.(4)
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%
100%
100%
(1) A party to Deed of Cross Guarantee dated 30 September 2008.
(2) Incitec Pivot Queensland Gas Pty Ltd and Drisk Insurance Inc. were incorporated in the 2018 financial year.
(3) The remaining 50 percent interest in Boren Explosives Co., Inc. was acquired in the 2018 financial year.
(4) This entity has a 31 December financial year end.
68
Incitec Pivot Limited Annual Report 2018
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 2018
14. Investments in subsidiaries, joint arrangements and associates (continued)
Joint arrangements and associates
Name of entity
Joint ventures
Incorporated in USA
Alpha Dyno Nobel Inc.
Buckley Powder Group(1)
IRECO Midwest Inc.
Wampum Hardware Co.
Western Explosives Systems Company
Warex Corporation
Warex LLC
Warex Transportation LLC
Vedco Holdings, Inc.
Virginia Explosives & Drilling Company Inc.
Austin Sales LLC
Virginia Drilling Company, LLC
Incorporated in Canada
Newfoundland Hard-Rok Inc.
Dyno Nobel Labrador Inc.
Quantum Explosives Inc.
Dene Dyno Nobel Inc.
Qaaqtuq Dyno Nobel Inc.(2)
Dene Dyno Nobel (DWEI) Inc.(3)
Dyno Nobel Baffin Island Inc.
Incorporated in Australia
Queensland Nitrates Pty Ltd
Queensland Nitrates Management Pty 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%
Joint operation
IPL has a 50% interest in an unincorporated joint operation with
Central Petroleum Limited for the development of gas acreage in
Queensland, Australia, which commenced in the 2018 financial year.
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) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of shares in Qaaqtuq Dyno Nobel Inc. However,
under the joint venture agreement, the Group is entitled to 75 percent of the profit of Qaaqtuq Dyno Nobel Inc.
(3) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of shares in Dene Dyno Nobel (DWEI) Inc.
However, under the joint venture agreement, the Group is entitled to 95 percent of the profit of Dene Dyno Nobel (DWEI) Inc.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Incitec Pivot Limited Annual Report 2018
69
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2018
15. Provisions and contingencies
Provisions at 30 September 2018 are analysed as follows:
30 September 2018
Carrying amount at 1 October 2017
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 2018
Current
Non-current
Employee
entitlements
$mill
Restructuring and
rationalisation
$mill
Environmental
$mill
Asset retirement
obligations
$mill
Legal
and other
$mill
Total
provisions
$mill
51.7
6.4
(0.1)
(4.9)
0.9
0.1
54.1
47.6
6.5
5.4
0.4
(0.1)
(3.6)
–
–
2.1
2.1
–
48.5
3.5
(0.7)
(5.8)
0.6
2.1
48.2
19.5
28.7
61.6
6.2
(0.3)
(1.4)
2.9
1.9
70.9
2.1
68.8
5.9
1.8
(1.8)
(1.8)
–
0.2
4.3
4.3
–
173.1
18.3
(3.0)
(17.5)
4.4
4.3
179.6
75.6
104.0
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.
70
Incitec Pivot Limited Annual Report 2018
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 payment or restitution 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 unlikely.
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 2018 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, patent claims 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 2018
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:
30 September 2018
Non-derivative
financial liabilities
Interest bearing liabilities
Contractual
cash flows(1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
30 September 2017
Contractual
cash flows(1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
2,374.8
212.9 1,613.4
548.5
Non-derivative
financial liabilities
Interest bearing liabilities
2,224.1
12.1 1,705.3
506.7
Interest payments
288.0
72.3
128.0
87.7
Interest payments
368.0
85.6
181.7
100.7
Trade and other payables
1,058.6 1,045.0
Bank guarantees
126.8
49.2
13.6
2.9
–
Trade and other payables
1,058.6 1,043.7
74.7
Bank guarantees
108.8
40.0
14.9
7.3
–
61.5
Total non-derivative
cash outflows
Derivative financial
(assets)/liabilities
Forward exchange contracts
Foreign exchange options
Cross currency interest
rate swaps
Interest rate swaps
Interest rate options
Commodity swaps
Commodity options
Net derivative cash
outflows
3,848.2 1,379.4 1,757.9
710.9
1.0
–
14.5
(13.6)
(10.5)
1.0
–
14.5
(0.9)
–
–
–
(12.7)
–
–
–
–
–
(7.9)
(2.6)
(12.2)
(12.2)
–
–
–
–
–
–
(20.8)
2.4
(20.6)
(2.6)
Total non-derivative
cash outflows
Derivative financial
(assets)/liabilities
Forward exchange contracts
Foreign exchange options
Cross currency interest
rate swaps
Interest rate swaps
Interest rate options
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
–
(12.7)
0.8
11.8
0.1
–
(11.3)
0.8
1.3
–
–
–
–
–
11.4
1.9
–
(1.4)
–
–
–
–
10.3
(2.9)
11.3
1.9
(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.
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 2018
71
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2018
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:
2018
AUD:USD
2017
AUD:USD
30 September foreign exchange rate
0.7207
0.7846
Average foreign exchange rate for the year
0.7606
0.7620
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
2018
- 1c
AUD:USD
AUD mill
2018
+ 1c
AUD:USD
AUD mill
2017
- 1c
AUD:USD
AUD mill
2017
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)
(0.8)
(0.5)
0.8
0.6
0.1
(0.1)
1.7
(1.7)
7.6
(7.8)
6.4
(6.6)
(25.8)
26.5
(22.7)
23.3
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(1)
2018
AUD:USD
USD mill
2017
AUD:USD
USD mill
327.1
(237.8)
(1,573.0)
(1,483.7)
271.2
(238.3)
(1,573.0)
(1,540.1)
(269.0)
(270.4)
220.5
228.5
Cross currency interest rate swaps
1,173.0
1,173.0
Total hedge contract values
Net exposure (after hedging)
Hedge of forecast sales and purchases
Forward exchange contracts
Total hedge contract values
1,124.5
(359.2)
2018
AUD:USD
USD mill
28.7
28.7
2018
AUD:USD
USD mill
1,131.1
(409.0)
2017
AUD:USD
USD mill
(106.2)
(106.2)
2017
AUD:USD
USD mill
Translational exposures
Net investment in foreign operations
2,532.7
2,380.3
Gross exposure (before hedging)
2,532.7
2,380.3
Hedge of translational exposures
Cross currency interest rate swaps
Forward exchange contracts
Foreign exchange options
Total hedge contract values
Net exposure (after hedging)
(1,173.0)
–
–
(1,173.0)
1,359.7
(1,654.5)
640.0
50.0
(964.5)
1,415.8
72
Incitec Pivot Limited Annual Report 2018
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 2018
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
2018
- 1c
AUD:USD
AUD mill
2018
+ 1c
AUD:USD
AUD mill
2017
- 1c
AUD:USD
AUD mill
2017
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
(7.4)
(3.6)
7.6
3.7
(6.8)
(2.9)
6.9
3.0
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/(rec)
fixed rate(1)
Average
pay/(rec)
fixed rate(2)
Duration
(years)
Net contract
amounts
mill
3.09%
–
2.70%
(3.11%)
2.39%
3.24%
(3.11%)
2.02%
(2.62%)
–
(1.81%)
–
–
0.2
0.4
2.4
1.2
0.2
2.9
2.2
3.0
5.0
USD 400
AUD 200
USD 900
USD 300
USD 400
USD 550
USD 300
USD 350
USD 100
Strike(1)
2017
Duration
(years)
–
–
–
–
–
Net
contract
amounts
USD mill
2017
Net
contract
amounts
USD mill
2018
Strike(1)
2018
Duration
(years)
Net
contract
amounts
USD mill
2018
Net
contract
amounts
USD mill
2017
Strike(1)
2018
Duration
(years)
Strike(1)
2017
Duration
(years)
350 3.75%
350 2.58%
350 1.50%
350 0.01%
1.2
1.2
1.2
1.2
350 3.75%
350 2.58%
350 1.50%
350 0.01%
2.2
2.2
2.2
2.2
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%
2.8
2.8
2.8
2.8
350 3.75%
350 2.58%
350 1.50%
350 0.01%
1.8
1.8
1.8
1.8
Interest rate sensitivity
LIBOR
BBSW
+ 1%
AUD mill
2018
- 1%
AUD mill
2018
+ 1%
AUD mill
2017
- 1%
AUD mill
2017
(2.4)
(2.0)
2.4
2.0
(0.2)
(2.1)
0.2
2.1
The sensitivity above is also representative of the Group’s
interest rate exposures during the year.
Incitec Pivot Limited Annual Report 2018
73
2018
Less than 1 year
Less than 1 year
1 to 5 years
1 to 5 years
2017
Less than 1 year
1 to 5 years
1 to 5 years
Later than 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
(2) BBSW
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 2018
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, Oil 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 and oil prices at
30 September:
Total volume
(MMBTU)(1)
2018
Price/Strike
USD(2)
2018
Total volume
(MMBTU)(1)
2017
Price/Strike
USD(2)
2017
396,000
2.68
–
–
Natural gas
Contracts maturing
within 1 year
Natural gas swaps
fixed payer
Natural gas options
Bought Call
Sold Put
Contracts maturing
between 1 and 5 years
Natural gas swaps
fixed payer
554,400
2.68
–
–
(1) Million Metric British Thermal Units
(2) Nymex Henry Hub gas price
Total volume
(barrels)
2018
Price
USD(1)
2018
Total volume
(barrels)
2017
Price
USD(1)
2017
Oil(2)
Contracts maturing
within 1 year
Oil swaps fixed payer
267,186
48.84
1,157,806
47.89
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 natural gas price movements during the year
The table below shows the sensitivity of the Group’s profit
before tax to a change of US$1 per MMBTU in the US Henry
Hub 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:
Henry Hub USD
34.9
(34.9)
(33.1)
33.1
Sensitivity to fertiliser price and ammonia movements
during the year
The table below shows the sensitivity of the Group’s profit
before tax to a US$10 per tonne change in Ammonium
Phosphates, Urea and Ammonia prices. The sensitivity is
based on actual tonnes manufactured and sold by the Group
that is sensitive to commodity price changes and the average
AUD:USD exchange rate (excluding the impact of hedging) for
the year:
–
–
–
–
1,450,000
1,450,000
4.53
3.30
Natural gas price
sensitivity
+ US$1 per
1 MMBTU
AUD mill
2018
- US$1 per
1 MMBTU
AUD mill
2018
+ US$1 per
1 MMBTU
AUD mill
2017
- US$1 per
1 MMBTU
AUD mill
2017
Contracts maturing
between 1 and 5 years
Oil swaps fixed payer
–
–
178,124
48.84
Price sensitivity
2018
Granular Urea (FOB Middle East)
DAP/MAP (FOB Tampa)
Urea (FOB NOLA)
Ammonia (FOB Tampa)
2017
Granular Urea (FOB Middle East)
DAP/MAP (FOB Tampa)
Urea (FOB NOLA)
Ammonia (FOB Tampa)
(1) Oil-Brent (DTD)-Platts Marketwire
(2) 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.
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 US$1 per MMBTU in the US Henry
Hub 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
2018
- US$1 per
1 MMBTU
AUD mill
2018
+ US$1 per
1 MMBTU
AUD mill
2017
- US$1 per
1 MMBTU
AUD mill
2017
Henry Hub USD
1.3
(1.3)
0.7
(1.8)
74
Incitec Pivot Limited Annual Report 2018
+ US$10
per tonne
AUD mill
- US$10
per tonne
AUD mill
4.4
11.3
2.3
8.6
5.3
12.3
1.7
7.1
(4.4)
(11.3)
(2.3)
(8.6)
(5.3)
(12.3)
(1.7)
(7.1)
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2018
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 2018, classified by hedge
accounting type and market risk category:
Balance at 30 September 2018
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)
30 September 2018
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
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)
Interest rate swaps
Discontinued hedge
Total fair value hedges
Held for trading(6)
Forward exchange contracts
Total held for trading
Offsetting contracts(1)
Equity instruments
Total net
1.1
–
11.7
–
–
18.4
7.5
–
38.7
(0.1)
–
(0.3)
–
–
(7.1)
(1.0)
–
(8.5)
–
–
–
(427.7)
–
(427.7)
–
–
–
–
–
–
–
–
–
–
–
–
1.0
2.9
11.5
–
(5.6)
11.8
6.7
(3.3)
25.0
4.6
15.1
(1.4)
1.4
23.3
35.4
7.0
1.2
86.6
(427.6)
(198.1)
(625.7)
(132.6)
5.4
(127.2)
427.7
(14.2)
(291.6)
1.4
–
(8)
429.1
0.3
0.3
(0.2)
–
(14.4)
(2.6)
(2.6)
(427.5)
427.5
2.3
42.9
–
(2.9)
3.8
(290.7)
–
–
–
–
–
–
–
–
–
–
–
(16.9)
–
–
–
–
–
–
–
–
(25.7)
(290.7)
(617.6)
(40.6)
(35.4)
(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. 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 $414.7m. The cross currency interest rate swaps hedging the
foreign currency exposure of the Group’s USD borrowings have a contract value of USD 1,173m, and are economic hedges of an equivalent
amount of the Group’s USD borrowings (including USD exposures as a result of hedging).
(5) Interest rate swap contracts effectively convert USD300m and AUD200m 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 2018, a gain of $2.4m was transferred from reserves to profit or loss in relation to ineffective hedges.
Incitec Pivot Limited Annual Report 2018
75
–
(11.4)
–
–
(25.9)
–
–
1.9
(35.4)
–
–
–
–
–
–
–
–
–
–
–
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 2018
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)
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
(8)
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(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)
(541.6)
(0.8)
121.3
–
(31.2)
–
–
(5.2)
–
–
1.6
(34.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(34.8)
2.3
41.2
–
(47.7)
(203.1)
(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. 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.
76
Incitec Pivot Limited Annual Report 2018
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 2018
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
2018
$mill
324.1
588.5
40.6
2017
$mill
342.8
627.9
38.9
953.2
1,009.6
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 2018, the amount netted
in other financial assets and other financial liabilities is
$427.5m (2017: $292.8m).
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).
•
•
2018
Listed equity securities
Derivative financial assets
Derivative financial liabilities
2017
Listed equity securities
Derivative financial assets
Derivative financial liabilities
Level 1
$mill
2.3
–
–
Level 1
$mill
2.3
–
–
Level 2
$mill
–
40.6
(25.7)
Level 2
$mill
–
38.9
(47.7)
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, and
trade and other payables are carried at amortised cost which
equals their fair value.
Interest bearing liabilities are carried at amortised cost and have
a carrying value of $2,374.8m (2017: $2,224.1m) – refer to
note 8. The fair value of the interest bearing financial liabilities
at 30 September 2018 was $2,374.5m (2017: $2,300.7m) and
was based on the level 2 valuation methodology.
Incitec Pivot Limited Annual Report 2018
77
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 2018
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
78
Incitec Pivot Limited Annual Report 2018
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2018
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 2015/18, 2016/19
and 2017/20 Long Term Incentive Plans, the performance
conditions comprise relative total shareholder return, the
delivery of certain strategic initiatives and, in the case of the
2016/19 and 2017/20 LTI plans, 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
2018
$mill
2017
$mill
3.2
4.6
2018
Number
2017
Number
Number of performance rights outstanding
under the LTI performance plans
4,431,879
5,469,485
Details 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
2018
$000
2017
$000
Short-term employee benefits
11,534
13,062
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payments
207
168
1,398
1,389
240
130
–
4,308
14,696
17,740
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 2018, there were no loans
to key management personnel and their related parties
(2017: nil).
Other key management personnel transactions
The following transactions, entered into during the year with
key management personnel (including their related parties),
were on terms and conditions no more favourable than those
available to other customers, suppliers and employees:
(1) The spouse of Mr Fazzino, former Managing Director &
Chief Executive Officer, is a partner in the accountancy
and tax firm PricewaterhouseCoopers (PwC) from which
the Group purchased services of $1,139,272 during the
year (2017: $505,742). Mr Fazzino’s spouse does not
directly provide these services. Mr Fazzino did not engage
PwC at any time for any assignment.
(2) The spouse of Ms Fagg was a partner in the accountancy
and tax firm KPMG from which the Group purchased
services of $851,572 during the year (2017: $1,063,677).
Ms Fagg’s spouse did not directly provide these services.
Ms Fagg was not involved in any engagement of KPMG
made by the Group. Ms Fagg’s spouse ceased
employment with KPMG on 31 December 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 2018
79
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2018
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
2018
2017
3.5% – 8.1% 3.3% – 7.2%
2.5% – 5.0% 2.5% – 5.0%
Financial position and performance
Net defined benefit obligation at 30 September
Present value of obligations
Fair value of plan assets
2018
$mill
2017
$mill
302.2
289.8
(269.6)
(251.6)
Net defined benefit obligation
32.6
38.2
Maturity profile of the net defined benefit obligation
The expected maturity analysis of the undiscounted defined benefit
obligation is as follows:
Within next 10 years
Within 10 to 20 years
In excess of 20 years
2018
$mill
203.1
132.3
44.5
2017
$mill
216.4
141.2
35.3
Return on plan assets for the year ended 30 September
Actual return on plan assets
Composition of plan assets at 30 September
The percentage invested in each asset class:
Equities
Fixed interest securities
Property
Other
2018
$mill
14.9
2017
$mill
29.6
2018
2017
47%
39%
6%
8%
45%
39%
7%
9%
Movements in plan assets/liabilities
Amounts recognised in Other Comprehensive Income
Notes
2018
$mill
2017
$mill
(0.7)
20.7
5.6
4.9
21.0
41.7
(2.9)
(4.6)
(Losses)/gains arising from
changes in actuarial assumptions
Return on plan assets greater
than discount rate
Total recognised in other
comprehensive income
Amounts recognised in Profit or Loss
Net interest expense
Defined benefit superannuation expense
(2)
(2)
(1.2)
(3.1)
80
Incitec Pivot Limited Annual Report 2018
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 2018 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
(24.6)
1.2
1 percent
decrease
30.9
(0.3)
Key accounting policies
All employees of the group are entitled to benefits from the
Group’s superannuation plan on retirement, disability or death
or can direct the group to make contributions to a defined
contribution plan of their choice. The Group’s superannuation
plan has a defined benefit section and a defined contribution
section. The defined benefit section provides defined lump
sum benefits based on years of service and final average
salary. The defined contribution section receives fixed
contributions from group companies and the Group’s legal or
constructive obligation is limited to these contributions.
The liability or asset recognised in the 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 Consolidated 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.
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 2018
20. Deed of cross guarantee
21. Parent entity disclosure
2018
$mill
78.3
31.8
2017
$mill
238.7
14.7
253.4
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 before income tax
Income tax expense
Profit for the year
Retained profits at 1 October
Profit for the year
Other movements in retained earnings
Dividend paid
2018
$mill
367.8
(70.0)
297.8
2017
$mill
194.2
(24.4)
169.8
1,332.6
297.8
(3.0)
(157.4)
1,312.2
169.8
4.1
(153.5)
Throughout the financial year ended 30 September 2018 the
parent company of the Group was Incitec Pivot Limited.
Parent entity guarantees in respect of debts
of its subsidiaries
As at 30 September 2018 the Company’s current liabilities
exceeded its current assets by $23.7m. The Group’s forecast
cash flows for the next 12 months indicate that it will be
able to meet current liabilities as and when they fall due.
In addition, the Group has undrawn financing facilities of
$756.0m at 30 September 2018 and a cash balance of
$588.5m.
Statement of Profit or Loss and Other
Comprehensive Income
Retained profits at 30 September
1,470.0
1,332.6
Statement of Financial Position
Results of the parent entity
Profit for the year
Other comprehensive income
2018
$mill
2017
$mill
Total comprehensive income for the year
110.1
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Other financial liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligation
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
57.9
742.4
344.0
22.1
13.2
1,179.6
246.1
3,542.1
2,044.6
247.4
161.1
6,241.3
7,420.9
1,008.3
199.8
18.3
54.6
52.0
1,333.0
211.6
501.2
7.4
61.3
421.3
11.6
1,214.4
2,547.4
4,873.5
182.5
495.5
268.0
56.6
22.6
1,025.2
234.6
3,525.7
2,011.5
248.5
149.8
6,170.1
7,195.3
737.5
–
18.8
56.6
10.6
823.5
331.6
557.9
28.2
53.1
378.6
8.1
1,357.5
2,181.0
5,014.3
3,226.5
177.0
1,470.0
4,873.5
3,436.8
244.9
1,332.6
5,014.3
Statement of Financial Position
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Share capital
Reserves
Retained earnings
Total equity
2018
$mill
2017
$mill
877.8
970.6
7,396.3
7,334.9
901.5
920.9
3,960.0
3,641.0
3,436.3
3,693.9
3,226.5
3,436.8
7.8
202.0
(26.9)
284.0
3,436.3
3,693.9
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:
2018
$mill
2017
$mill
Within one year
20.3
12.5
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 2018
81
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 2018
22. Auditor’s remuneration
23. Events subsequent to reporting date
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)
2018
$000
2017
$000
On 22 October 2018, the Company announced the extension
of its on-market share buyback for a further 12 months from
29 November 2018 to 28 November 2019.
992.3
604.0
174.9
946.9
596.4
171.5
In November 2018, the directors determined to pay a final
dividend for the Company of 6.2 cents per share on 17
December 2018. The dividend is 20 percent franked (refer to
note 6).
Total current year assurance services
1,771.2
1,714.8
Fees payable to the Group’s auditor
for other services
Other services relating to taxation(4)
All other services(5)
Total other services
401.1
–
401.1
209.9
146.3
356.2
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.
Total fees paid to Group auditor
2,172.3
2,071.0
– Payable to Australian Group auditor firm
– Payable to International Group auditor
associates
1,402.2
1,499.7
770.1
571.3
(1) Comprises the fee payable to the Group’s auditors for the audit of the
Group’s financial statements.
(2) Comprises the audits of the Group’s subsidiaries.
(3) Mainly comprises review of half-year reports.
(4) Comprises taxation compliance procedures for the Group’s subsidiaries.
(5) Comprises non-statutory based assurance procedures.
From time to time, the auditors provide other services to the
Group. These services are subject to strict corporate
governance procedures which encompass the selection of
service providers and the setting of their remuneration. The
Audit and Risk Management Committee must approve
individual non audit engagements provided by the Group’s
auditor above a value of $100,000, as well as where the
aggregate amount exceeds $250,000 per annum.
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
82
Incitec Pivot Limited Annual Report 2018
Directors’ Declaration
on the Consolidated Financial Statements set out on pages 46 to 82
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 46 to 82, and the remuneration disclosures that are
contained in the Remuneration Report on pages 23 to 43 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 2018 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 52; 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 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 2018.
Paul Brasher
Chairman
Dated at Melbourne this 13th day of November 2018
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 2018
83
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 2018,
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 2018 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
84
Incitec Pivot Limited Annual Report 2018
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
Refer to Note 9 Property, plant and
equipment, Note 10 Intangibles and Note 11
Impairment of goodwill and non-current
assets
As at 30 September 2018, the Group held
goodwill of $2,618.4 million, intangible
assets of $428.2 million and property, plant
and equipment of $4,004.3 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 and market conditions such as
future commodity prices, exchange rates
and operating performance including the
timing and approval of future capital and
operating expenditure, and
the most
appropriate discount rate.
Included within the goodwill balance is the
Dyno Nobel Asia Pacific (DNAP) CGU, which
was impaired by $236.0 million, reducing
the goodwill amount to $908.5 million. The
recoverable amount was determined on a
fair value less costs of disposal (FVLCD)
basis, which represented a change from
value in use as at 30 September 2017, and
includes the following key judgements:
•
•
The change in DNAP’s contract
positions
The general decline in products and
services margin
in
Australia during the current period
of supply imbalance; and
observed
Our procedures included, but were not limited to:
•
• Understanding the process that management
had undertaken to assess the recoverable
amount
In conjunction with our valuation specialists:
o evaluating the appropriateness of the
models used by management
to
calculate the value in use or FVLCD of
the individual CGUs
o Assessing key inputs to the models
including revenue based on forecast
commodity prices and production rates,
including natural gas and
costs
sulphuric
capital
expenditure, foreign exchange rates,
discount rates and growth rates. We
challenged these inputs by:
prices,
acid
Corroborating the key market
based assumptions to external
published
analysts’
reports,
industry growth
and
industry reports
rates
Corroborating
the key non-
market based assumptions by
comparing forecasts to historical
performance to test the accuracy
of management’s projections,
and
Comparing the discount rate with
an independently developed rate
• Agreeing relevant amounts in the models to
•
the Board approved forecasts
For CGU’s with a higher risk of impairment,
including DNAP, performing a range of
sensitivity analysis including natural gas
price in the terminal value, discount and
growth rate assumptions
• Assessing
the appropriateness of
the
• Updated long term gas production
financial statement disclosures
forecast.
Incitec Pivot Limited Annual Report 2018
85
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
Provisions for uncertain tax positions
Refer to Note 3 Taxation and Note 15
Provisions and contingencies
Our procedures included, but were not limited to:
is
subject
jurisdictions
The Group operates across a large number
to
and
of
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.
• Understanding the process that management
has undertaken to identify and assess
the
uncertain
monitoring and consideration of guidance
issued by regulatory authorities
In conjunction with our tax specialists:
tax positions,
including
•
o Gaining an understanding of the current
tax assessments and
to
in ongoing
status of
investigations and
monitor developments
disputes
the process
o Reviewing external tax advice where
available, and
o Reviewing
recent
rulings
local
and
correspondence with
tax
authorities, to satisfy ourselves that the
tax provisions had been appropriately
recorded or adjusted to reflect the
latest external developments
• Assessing
the appropriateness 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 2018, 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.
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
86
Incitec Pivot Limited Annual Report 2018
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 2018
87
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 23 to 43 of the Director’s Report for the
year ended 30 September 2018.
In our opinion, the Remuneration Report of the Incitec Pivot Limited, for the year ended 30 September
2018, 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, 13 November 2018
88
Incitec Pivot Limited Annual Report 2018
Shareholder Information
As at 13 November 2018
Distribution of ordinary shareholder and shareholdings
Size of holding
– 1,000
1
– 5,000
1,001
5,001
– 10,000
10,001 – 100,000
100,001 and over
Total
Number of holders
Percentage
Number of shares
Percentage
10,024
21,025
6,533
5,384
112
43,078
23.27%
48.81%
15.17%
12.50%
0.25%
100.00%
4,540,448
61,530,844
47,528,447
113,153,019
1,403,460,815
1,630,213,573
0.28%
3.77%
2.92%
6.94%
86.09%
100.00%
Included in the above total are 1,715 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 84.70% 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 Nominees Pty Ltd
Continue reading text version or see original annual report in PDF format above