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Flotek IndustriesANNUAL REPORT 2012
cONTENTs
AbOUT ORicA
chAiRmAN’s mEssAgE
mANAgiNg diREcTOR’s mEssAgE
REviEw Of OPERATiONs ANd fiNANciAL PERfORmANcE
REviEw Of bUsiNEss PERfORmANcE
bOARd mEmbERs
ExEcUTivE cOmmiTTEE
cORPORATE gOvERNANcE sTATEmENT
sUsTAiNAbiLiTy
fiNANciAL REPORT
diREcTORs’ REPORT
diREcTORs’ REPORT – REmUNERATiON REPORT
LEAd AUdiTOR’s iNdEPENdENcE dEcLARATiON
iNcOmE sTATEmENT
sTATEmENT Of cOmPREhENsivE iNcOmE
bALANcE shEET
sTATEmENT Of chANgEs iN EqUiTy
sTATEmENT Of cAsh fLOws
NOTEs TO ThE fiNANciAL sTATEmENTs
diREcTORs’ dEcLARATiON
iNdEPENdENT AUdiTOR’s REPORT
shAREhOLdERs’ sTATisTics
TEN yEAR fiNANciAL sTATisTics
shAREhOLdER iNfORmATiON
shAREhOLdER TimETAbLE
1
2
3
4
7
10
11
12
18
20
21
24
47
48
49
50
51
52
53
126
127
129
130
132
134
ORicA LimiTEd
AbN 24 004 145 868
Orica also supplies general chemicals
across a diverse range of markets,
including agriculture, building
and construction, food and beverage,
pharmaceutical and personal care,
plastics, pulp and paper and water
treatment industries.
Headquartered in melbourne, australia,
Orica is listed on the australian Securities
exchange with a diverse workforce of
over 15,000 people from more than 130
nationalities and has operations in more
than 50 countries and customers in more
than 100.
at Orica, we’re committed to developing
tomorrow’s technologies and solving
today’s challenges for our customers.
1
Orica is the wOrld’s largest prOvider Of cOmmercial explOsives and blasting systems tO the mining and infrastructure markets, the glObal leader in the prOvisiOn Of grOund suppOrt in mining and tunnelling and the leading supplier Of sOdium cyanide fOr gOld extractiOn.2012 AnnuAl RepoRtAbout oricA chAiRmAN’s mEssAgE
in 2012, Orica delivered a modest increase in underlying
profit in a year marked by a deteriorating external
environment as well as challenges of our own making.
in addition, in light of revised forecasts, directors wrote
down the carrying value of minova to a value which is
regarded as more realistic.
Statutory net profit after tax and individually material
items was $403 million. Net profit after tax before
individually material items was $650.2 million, up
1 percent. this is a satisfactory performance in the face
of market headwinds and operational disruption and
illustrates the resilience and underlying strength of your
company’s businesses. the Board is pleased to declare
a final dividend of 54 cents per share.
Orica strives to achieve “No accidents today” or any day.
this year we have continued to reduce the number and
severity of accidents recorded at Orica workplaces, but
the sad death of one employee at our antofagasta plant
in chile serves as a constant reminder of our obligation
to drive further improvements.
in February, we welcomed new leadership to the company
with ian Smith commencing his role as managing director
and ceO. ian has enjoyed a distinguished career, most
recently as the ceO of Newcrest mining. He brings
three decades of experience and insight as a senior
resources sector executive to the company. ian has
rapidly taken steps to strengthen Orica’s ability to exploit
its opportunities.
the success of Orica’s strategy to focus on the mining
and infrastructure sectors has created a strong underlying
business with a commanding global footprint across
50 countries. during 2012, management, with full
Board support, has taken a number of steps to improve
the strategic, operational and financial performance
of your company. these have included a move to a
functional structure and greater focus on operational
excellence, customer intimacy and product innovation.
Notwithstanding the economic slowdown, Orica continues
to have ample exciting opportunities for profit growth.
the difficult external economic environment will
require a disciplined approach to capital allocation
and a strong focus on maintaining the strength of the
company’s balance sheet. With this in mind, Orica
continues to pursue a number of value-accretive growth
initiatives in attractive markets which will deliver value
for shareholders.
an example of this is Orica’s joint venture to build a
330,000 tonnes per annum industrial grade ammonium
nitrate plant in Western australia and a distribution and
marketing joint venture for mining customers in the
Pilbara iron ore region. Orica will own 45 percent of both
joint ventures. these projects, with production expected
in 2016, will complement a wider supply chain Orica is
establishing in the region.
a significant effort has been directed in 2012 to
implementing the lessons learned from the disappointing
events of 2011 at Kooragang island. the company
has made significant investments to re-engineer the
production processes at Kooragang island in order to
improve operational efficiency and, in particular, to
minimise the risk that the breach of containment events
are repeated. While we have made physical changes to
the plant, the relationship of trust with the community
will take longer to repair. Orica is making diligent efforts
to engage openly and honestly. the community will tell us
how successful we are in achieving this goal.
On 1 July, 2012, the Federal Government’s carbon
tax legislation came into effect. Orica’s sustainability
policy has set a target for the company to become
carbon neutral, that is, to make no net contribution to
greenhouse gases in the atmosphere. towards this goal,
we have over the past 12 months begun to install carbon
abatement technology at four of the company’s nitric acid
plants; generating a greenhouse gas saving equivalent
to removing 150,000 cars from the road each year.
Orica is a truly global company with customers in more
than 100 countries and 60 to 65 percent of its operations
located outside of australia. While australia is our largest
single and most important market, many opportunities
for growth will be outside of our borders in africa,
South america and asia. Orica’s capacity to service these
growth markets represents a unique opportunity for the
company not shared by our competitors.
the globalisation of our business is matched by the
diversity of our shareholders. more than one third are
now domiciled outside australia. in setting a progressive
dividend policy the Board continues to pay close attention
to the dividend aspirations of our shareholders whether
retail or institutional, domestic or offshore, as well as the
company’s capacity to distribute franking credits.
Since threshold economic performance was not achieved
during the year no short-term incentives have been paid
to senior executives. ian Smith’s contract, as new ceO,
entitled him to receive a short-term incentive, however,
as his team is not receiving one, he has chosen to forego
the very significant amount which he would have received.
Following the normal review, the decision was taken
not to increase salaries of the executive committee.
the Board has decided that the review of its fees, which
would normally have been carried out during 2013,
will be postponed until the following year.
On behalf of the Board and all employees i would like to
take this opportunity to thank former managing director
and ceO Graeme Liebelt for his service to the company.
Graeme’s strategic vision and distinguished track record
of delivering growth and shareholder value have played
a fundamental part in creating the strong company that
Orica is today.
michael Beckett retired from the Board at the end of 2011
after ten years. His contribution has been substantial and
on behalf of the Board i extend him my thanks.
more than 15,000 people work for Orica each day across
many hundreds of sites in more than 50 countries around
the world. it is the expertise and commitment of each and
every one of our employees that contributes to Orica’s
ongoing success. this performance has been set against
both a difficult market environment and a significant
re-orientation of the business which has taken place over
the past year to provide greater focus on our customers
and operational excellence.
i would like to thank all of our employees and the Orica
management team for their significant efforts in a
challenging year. the Board believes the energy and focus
being directed to unleashing the full potential of our
company, positions Orica for another year of success
in 2013.
ORicA cONTiNUEs TO
PURsUE A NUmbER
Of vALUE-AccRETivE
gROwTh iNiTiATivEs
iN ATTRAcTivE
mARkETs which
wiLL dELivER vALUE
fOR shAREhOLdERs.
P J b dUNcAN
chAiRmAN
2
Orica Limited mANAgiNg diREcTOR’s mEssAgE
ORicA’s sTRATEgy
is TO PROvidE
diffERENTiATEd
PROdUcTs, sERvicEs
ANd sOLUTiONs
which ENhANcE
vALUE fOR OUR
miNiNg cUsTOmERs
AcROss ThE gLObE.
iAN k smiTh
mANAgiNg diREcTOR
ANd cEO
Orica is a global leader in the provision of explosives,
products and services to the resources sector. the company
enjoys 28 percent market share, sales in over 100 countries,
a strong manufacturing position, unrivalled capabilities
in research and development and attractive industry
fundamentals. it is from this position of strength that the
company is working to capture the opportunities ahead.
to succeed in all market conditions, Orica’s strategy is
to provide differentiated products, services and solutions
which enhance value for our mining customers across
the globe. this is achieved through low-cost, multi-source,
flexible supply chains of mining inputs to customers in
key markets delivered through Orica’s own manufacturing
capabilities, capital-efficient joint ventures or alliances
with supply partners.
at the same time Orica is leveraging its unrivalled
research and development expertise to develop
game-changing technologies that increase mine
productivity and profitability.
Orica is uniquely placed to benefit from the current
market environment but will not succeed unless it earns
and maintains its social licence to operate. this is why
social responsibility underpins Orica’s business model.
Orica’s commitment to this is detailed in the Sustainability
report and has been a significant focus in 2012.
Project Sustain was launched to set Orica on a course
to become a global leader and innovator for industry in
safety, health, environmental performance, community
engagement and risk assessment. this project captures
operations at each of Orica’s sites around the world and
will drive a process of continuous improvement across all
of the company’s operations.
Programs are also being deployed across the company
to achieve excellence in manufacturing by focusing
on consistent and constant production through process
and maintenance excellence and superior understanding
of customer demand.
in the course of the year, a number of environmental
improvement projects at Kooragang island and Yarwun
were either completed or progressed in accordance with
timetables agreed with regulators.
OPERATiONAL highLighTs ANd gROwTh
OPPORTUNiTiEs
Beneficial production commenced at Orica’s Bontang
ammonium nitrate plant in July 2012 with 60,000 tonnes
of ammonium nitrate produced. the plant has proven its
capacity to manufacture to its nameplate capacity and
has been completed under budget. the Bontang plant
is locally staffed and managed and forms an important
part of Orica’s unique network of ammonium nitrate
production that provides a flexible supply chain across
the australian and asian markets which deliver 50 percent
of the company’s earnings before interest and tax.
kOORAgANg isLANd
Orica is investing more than $200 million over three
years on projects to improve ammonia management
and environmental performance of the Kooragang
island plant following the events of 2011. as a result
of the first of these projects, maintenance, safety and
environmental performance at Kooragang island have
all improved. the same process of identifying steps to
enhance manufacturing operations will be progressively
implemented at all of Orica’s manufacturing sites.
in 2012, Orica received regulatory approvals for an
expansion of the Kooragang island plant to a capacity
of 750,000 tonnes per annum. Feasibility studies and
engineering pathways have been completed and most
long-lead items have been ordered. Orica will hold
discussions with customers to confirm their demand
profiles before confirming a construction timetable which,
at the earliest, will commence in late 2013 or early 2014.
PiLbARA gROwTh
iron ore production in the Pilbara is expected to exceed
800 million tonnes per annum by the end of 2015.
two projects reinforce Orica’s emerging presence in
the region. Site work has commenced in preparation
for construction of the 330,000 tonnes per annum
ammonium nitrate plant on the Burrup Peninsula with
joint venture partners Yara and apache. the parties have
also agreed to form a distribution and marketing joint
venture to distribute all ammonium nitrate and associated
products and services to mining customers in the Pilbara.
Orica’s first bulk emulsion plant at Port Hedland, which
will have a capacity up to 150,000 tonnes per annum,
is nearing commissioning.
hONcE
Production from the HONce non-electronic detonator
facility at Nanling in china is scheduled to commence
in 2013, recruitment and training of staff underway.
although completion of this plant has been delayed, it
is expected to be completed within the initial budget set
aside for the project.
PROJEcT OPTimOvA
minova is a leading provider of ground support and
tunnelling technology to the underground mining and
infrastructure sectors. minova experienced intense
competition and soft demand, particularly in the US coal
market in the second half of the year and margin pressure
in china. minova’s market position in the underground
mining sector represents an attractive entry point
and growth option for Orica’s suite of explosives and
mining chemicals and service products. to capture this
opportunity Project Optimova will simplify the business,
optimise its manufacturing base and reduce costs.
Over the next two years minova’s operations around the
globe will be progressively integrated into the broader
Orica business.
divERsiTy
Orica continues to make progress to improve the
diversity of its workforce to reflect the globalisation of
the company’s operations. Since the inception of Orica’s
diversity Strategy in 2009 the gender diversity of women
in senior management has increased from 5 percent to
16 percent in 2012 while the proportion of non-australian/
New Zealand senior managers has increased from 40
percent to 47 percent over the same period.
OUTLOOk
Orica’s low-cost, flexible, secure and reliable supply chain
and unique capacity to deliver value enhancing solutions to
customers, positions the company well to capitalise on the
opportunities the market will present over the next year.
Subject to global economic conditions, the Orica Board
anticipates that net profit after tax (pre individually
material items) in 2013 will be higher than reported
in 2012.
3
2012 AnnuAl RepoRt REviEw Of OPERATiONs
ANd fiNANciAL PERfORmANcE
sTATUTORy NET PROfiT AfTER TAx (NPAT) ANd
iNdividUALLy mATERiAL iTEms(1) fOR ThE fULL
yEAR ENdEd 30 sEPTEmbER 2012 wAs $403m.
ThE PREviOUs cORREsPONdiNg PERiOd (PcP)
wAs $642m.
OUTLOOk – 2013
• We expect Group net profit after tax
(pre individually material items) in 2013 to be
higher than that reported in 2012, subject to
global economic conditions.
ThE iNdividUALLy mATERiAL iTEm AfTER
TAx wAs A LOss Of $247m RELATiNg TO AN
imPAiRmENT Of gOOdwiLL iN miNOvA.
sTATUTORy NPAT bEfORE iNdividUALLy
mATERiAL iTEms(2) wAs $650m (PcP: $642m).
fiNANciAL highLighTs
• Sales revenue up 8% to $6.7B;
• earnings before interest and tax(3) (eBit) down 1%;
• rolling trade working capital to sales(4) at 13.3%;
REvENUE
• Sales revenue of $6.7B increased by $492m (8%),
driven primarily by:
– Stronger underlying demand in australian, asian
and Latin american mining markets;
– improved weather conditions in australia
and asia;
– improved ammonium nitrate (aN) pricing
conditions, particularly in North america; and
– Higher average caustic and sodium cyanide prices.
• earnings per ordinary share before individually
material items at 177.9c, up from 173.5c in the pcp;
Partly offset by:
• Gearing(5) of 41.5%, up from 26.6% in the pcp, due
in part to the repurchase of the Step-Up Preference
Securities (SPS) and lower statutory net profit;
• interest cover of 8.0 times(6); and
– Unfavourable foreign exchange movements
($109m);
– Pricing pressure in minova from competitor
activity and softer volumes in US coal markets
in the second half; and
• Final ordinary dividend is 54 cents per share (cps) –
– Softer demand for chemicals from industrial
franked at 24 cps.
bUsiNEss highLighTs
• improved demand in most mining markets
and improved pricing partly offset the adverse
$90m (pcp $21m) eBit impact arising from
the loss of containment incidents at
Kooragang island (australia);
• Foreign exchange movements, net of hedging,
adversely impacted eBit by $52m;
• mining Services eBit down 3% to $790m.
the adverse financial impact of the Kooragang
island incidents was mostly offset by improved
volumes in australia, asia and Latin america
together with some improvement in pricing;
• minova eBit up 4% to $109m reflecting strong
demand in australia and Kazakhstan which offset
the impact of lower demand from North american
coal markets and lower margins due to competitive
pressure in the US, china and Poland; and
• chemicals eBit of $211m, 8% ahead of the
prior year. Strong demand from mining markets
for emulsifiers and improved pricing for sodium
cyanide offset the impact of generally subdued
conditions in most industrial markets in australia
and New Zealand.
markets in australia and New Zealand.
• Other income of $68m was $18m below the prior
period due mostly to lower currency gains and
higher profit from land sales.
EARNiNgs bEfORE iNTEREsT ANd TAx (EbiT)
• eBit decreased by 1% to $1,023m (pcp $1,028m).
decreased earnings were attributed to:
– Unfavourable foreign exchange
movements ($52m);
– Higher fixed costs of $40m due primarily to
higher depreciation and inflationary factors; and
– Unfavourable lag impact on the recovery of
ammonia and aN cost increases ($25m).
Offset by:
– Net volume and margin improvements of $150m
reflecting improved underlying demand in most
mining markets, improved weather conditions,
higher emulsifier volumes and higher aN, caustic
and sodium cyanide prices; and
– Profit from land sales and the non-recurrence
of monclova plant closure costs ($31m).
1 equivalent to Net profit for the period attributable to
4 rolling 12-month average trade working capital / 12-month
shareholders of Orica Limited disclosed in note 2 to the Orica
annual report (Segment report).
2 equivalent to Profit after income tax expense before individually
material items attributable to shareholders of Orica Limited
disclosed in the Segment report.
3 eBit (equivalent to Profit/loss before individually material items,
net financing costs and income tax expense disclosed in the
Segment report).
total sales.
5 Net debt / (net debt + book equity).
6 eBit / Net interest expense
certain non-iFrS information has been included in this report.
this information is considered by management in assessing
the operating performance of the business and has not been
reviewed by the Group’s external auditor. these measures are
defined in the footnotes to this report.
Numbers in this report are subject to rounding.
4
SHAREHOLDER
SCORECARD
6
.
4
7
1
0
.
0
7
1
6
.
5
8
1
9
.
7
7
1
5
.
3
7
1
08
09
10
11
12
Earnings per share (c)
Earnings per
share (c)
(Before individually
material items)
(Before individually
material items)
1
7
.
5
2
0
5
.
3
2
7
8
.
4
2
8
4
.
3
2
5
9
.
0
2
08
09
10
11
12
year end share
Year end
price ($)
share price ($)
08
09
10
11
12
Return on
Return on
shareholders’ funds
shareholders
(%)
funds (%)
(Before individually
(Including individually
material items)
material items)
7
9
.
0
5
9
.
0
4
9
.
0
0
9
.
0
2
9
.
0
08 09 10 11
12
dividends per share
Dividends per
($)
share ($)
– the shutdown of the Kooragang island ammonia
and aN plants following loss of containment
issues ($69m);
9
.
8
1
3
.
8
1
7
.
7
1
9
.
6
1
0
.
6
1
Orica Limited iNTEREsT
• Net interest expense of $128m was 4% higher
bALANcE shEET
• key balance sheet movements since
FINANCIAL
SUMMARY
than the pcp ($124m) due to the impact of higher
debt levels following the repurchase of the SPS in
November 2011, partially offset by the benefit from
a lower average interest rate;
• capitalised interest was $38m (pcp: $37m); and
• interest cover was 8.0 times (pcp: 8.3 times).
cORPORATE cENTRE ANd sUPPORT cOsTs
• corporate centre and other support costs decreased
3% to $87m (pcp $90m).
TAx ExPENsE
• an effective underlying tax rate of 25.0%
(pcp: 26.7%).
NET PROfiT
• NPat before individually material items increased
1% to $650m (pcp: $642m); and
• NPat and individually material items decreased 37%
to $403m (pcp: $642m).
iNdividUALLy mATERiAL iTEms
• the individually material item after tax was a loss
of $247m (pcp: nil), representing an impairment
of goodwill in minova. this reflects challenging
market conditions in the US, and continued margin
pressure in china.
dividENd
• the directors have declared a final ordinary dividend
of 54 cps – franked at 24 cps; and
• it is anticipated that dividends in the near future are
unlikely to be franked at a rate of more than 40%.
dEbT fAciLiTiEs
• the weighted average tenor of drawn debt facilities
is approximately 5.2 years;
• total US Private Placement debt is
approximately $1.4B;
• drawn debt under bilateral bank facilities and
export credit agency funding is approximately $0.7B
and $0.1B respectively. total facilities are $2.3B; and
• in July and august 2012, Orica refinanced $200m
of bilateral bank facilities. Weighted average tenor
of bilateral bank facilities is approximately 2.2 years.
september 2011 were:
– trade working capital (tWc) has increased by
$121m from the pcp as a result of an underlying
increase of $152m and acquisitions of $2m,
partially offset by a favourable foreign exchange
impact of $30m and divestments of $3m;
– the underlying increase in tWc mostly reflects
an increase in inventories due to Bontang
commissioning, increased contingency stock
levels following the Kooragang island incident
and stock build in North america ahead of a
planned supplier plant shutdown;
– rolling tWc to sales(1) is comparable to 2011
at 13.3% (pcp 13.2%);
– Net property, plant and equipment (PP&e) is
$325m up on the pcp due to spend on growth
projects ($368m), sustenance capital ($226m),
capitalised interest ($35m) and PP&e from
acquired businesses ($5m). these were offset
by depreciation ($215m), foreign exchange
translation ($65m) and disposals ($30m).
Significant growth spend since the pcp within
mining Services included Bontang ($73m),
Kooragang island ($87m) and Nanling ($21m);
– intangible assets decreased by $459m pcp due
to the impairment of minova goodwill ($367m),
the impact of foreign exchange translation
($109m) and amortisation ($37m), offset
by acquisition of businesses/entities ($9m),
capital expenditure ($42m) and capitalised
interest ($3m);
– Net other liabilities have decreased by $275m.
major movements include an increased deferred
tax asset ($119m) relating to the impairment
of minova goodwill, earnout payments ($29m)
on prior years’ acquisitions, increased deferred
receipts from sale of assets ($45m) and increased
net indirect tax receivables ($33m);
– Net debt increased by $891m due primarily to
the repurchase of the SPS ($500m) which were
previously classified as equity, dividend payments
and capital expenditure, offset by operating cash
flows; and
– Orica shareholders’ equity decreased by $633m,
mainly due to the repurchase of the SPS and
a decrease in the foreign currency translation
reserve ($215m) offset by increased earnings net
of dividends declared and an increase in shares on
issue to satisfy the settlement of dividends under
the dividend reinvestment Plan.
1 rolling 12-month average tWc / 12-month total sales.
1
1
4
,
4 7
4
5
,
6
9
3
5
,
6
2
8
1
,
6
4
7
6
,
6
08 09 10 11
12
sales ($m)
Sales ($M)
3
8
0
,
1
1
0
1
,
1
0
7
9
8
2
0
,
1
3
2
0
,
1
08 09 10 11
12
EbiT ($m)
EBIT ($M)
(Before individually
material items)
6
7
6
6
4
6
2
4
6
0
5
6
2
7
5
08 09 10 11
12
NPAT ($m)
Net profit after
tax before
(Before individually
material items net
individually
of tax)
material items
net of tax ($M)
5
5
8
4
0
8
8
5
7
7
3
7
4
4
5
08
09
10
11
12
cash flow from
Cash flow
operating activities
from operating
($m)
activities ($M)
5
2012 AnnuAl RepoRt REviEw Of OPERATiONs ANd fiNANciAL PERfORmANcE
FINANCIAL
LEVERAGE
9
9
2
,
2
8
0
4
,
2 1
5
0
,
1
5
9
0
,
1
1
2
0
,
1
08 09 10 11
12
Net debt ($m)
Net Debt ($M)
5
.
1
4
4
.
1
3
8
.
7
2
5
.
6
2
8
.
3
2
08 09 10 11
12
Adjusted gearing (%)
Adjusted Gearing
(%)
(Before individually
material items)
8
.
7
3
.
7
1
.
6
4
.
6
1
.
6
08 09 10 11
12
interest cover
Interest Cover
(times)
(times)
target >5x
Target >5x
8
6
4
2
0
gEARiNg
• Gearing(1) increased to 41.5% from 26.6% at
30 September 2011. in accordance with accounting
standards, the SPS were previously recognised
as equity. the repurchase of the SPS in November
2011 was funded with debt and partly contributed
to the increased gearing; and
• adjusted gearing(2) treated the SPS in 2011 as 50%
equity and 50% debt (Standard & Poors credit
rating treatment). at 30 September 2012, this is
equal to gearing of 41.5% (pcp 31.4%).
cAsh fLOw
• Net operating cash inflows decreased by $214m
to $544m, compared with the pcp mainly due to:
– the earnings impact of Kooragang island
of $69m;
– a higher cash outflow from the movement
in trade working capital of $125m, due mainly
to increased contingency stock levels following
the Kooragang island incident, a small increase
in debtor days, increased payments to ammonia
creditors due to the closure of Kooragang island
ammonia plant in 2011, partly offset by the
benefit from improved creditor days;
ORicA sPs
• a distribution of $16m on the SPS was paid
during the period of which $5m was classified
as interest; and
• On 29 November 2011 Orica repurchased the
SPS using existing bilateral banking facilities.
the repurchased amount was $500m.
bUsiNEss dEvELOPmENT
during the period, work continued on a number
of growth projects, including:
• the commissioning of the aN plant in Bontang,
indonesia. Beneficial operation started on
1 July 2012. the plant produced 60,000 tonnes
of aN in the period. the final capital cost (excluding
capitalised interest) will be less than US$500m;
• the expansion of the aN plant at Kooragang island,
australia, to bring total capacity to 750,000 tonnes
per annum. the project team have optimised the
design of the plant and confirmed an engineering
pathway for construction. current market
conditions are such that further consultation with
customers will be undertaken to determine the
optimal timing of construction;
– increased outflows from non trade working
• the fully integrated non-electric detonator facility
capital of $87m; and
at Nanling, Hunan Province, china;
– adverse FX movements on debt and reserves
of $70m.
• Net investing cash outflows decreased by $92m
to $674m, compared with the pcp due to:
– decreased spending on growth capital projects
of $57m;
– an increase in the proceeds from sale of surplus
assets in the current period of $21m;
– decreased spend on acquisitions of $8m from the
pcp. the current period has included spend of
$41m for Burrup and $29m of earnout payments
relating to prior years’ acquisitions; and
– Lower sustenance capital of $7m.
• Net financing cash inflows increased by $14m to
$33m compared with the pcp, mainly due to:
– reduced SPS distribution of $21m;
– additional share proceeds of $12m primarily
received for repayment of Long term employee
equity incentive Plan (LteiP) loans; and
– Lower dividends paid to Non controlling interest
shareholders of $7m.
• Partly offset by:
– a net decrease in proceeds from external
borrowings of $12m;
– Higher dividends paid to ordinary shareholders
of $9m; and
– increased payments of $6m for shares purchased
on market for the LteiP plan.
1 Net debt/(net debt + equity).
2 calculation as per Note (1) with SPS notionally treated as
50% debt and 50% equity in 2011.
• the new emulsion plant at Kurri Kurri, australia,
which was commissioned in december 2011.
the plant has capacity of 250,000 tonnes per
annum; and
• the first bulk emulsion plant in the Pilbara region,
australia. the plant will have up to 150,000 tonnes
per annum capacity, and is currently on-track to be
commissioned in the 2012 calendar year.
cORPORATE AcTiviTy
in may Orica announced it had agreed to form a joint
venture with Yara and apache to build a 330,000
tonnes per annum industrial grade aN plant on the
Burrup peninsula. construction of the plant is expected
to have a capital cost of approximately US$800m and
be completed by the end of 2015.
the joint venture will be owned 45% (Orica),
45% (Yara) and 10% (apache). Yara will manage
construction and ongoing operation of the aN plant.
the parties also agreed to form a distribution
and marketing joint venture to distribute all aN
and associated products and services to mining
customers in the Pilbara. this joint venture will
be owned in the same proportions as the aN plant
joint venture, but will be managed by Orica.
in addition to its share of the construction cost,
Orica will also pay approximately US$110m,
to be split between Yara and apache, payable upon
commencement of construction.
in October 2011, minova purchased the self-drilling
anchor business from atlas copco mai GmbH.
the acquisition extends minova’s product offering
in the tunnelling and civils market.
6
Orica Limited REviEw Of bUsiNEss PERfORmANcE
ORicA miNiNg sERvicEs
EbiT dOwN 3% TO $790m
kEy POiNTs
• Loss of containment incidents at Kooragang
island and associated plant shutdowns negatively
impacted eBit by $87m ($21m in the pcp);
• aN volumes up 2% with improved demand from
mining markets in australia, asia and Latin america
partly offset by weak US coal markets;
• Strong demand from metals markets in
North america;
• Strong growth in electronic Blasting Systems (eBS)
with volumes up 14% versus the pcp;
LATiN AmERicA
• eBit of $86m, down 23% ($26m) on the pcp due
to the transfer of specific commercial functions
to the Global Hub in the prior year;
• Strong underlying performance reflecting stronger
demand with aN volumes up 17% versus pcp; and
• Steady pricing conditions and cost management
EUROPE, middLE EAsT ANd TURkEy (EmET)
• eBit of $74m, up 25% ($15m) on the pcp;
• improved volumes in construction markets in
Norway and stronger volumes in estonia more than
offset generally soft demand conditions in most
other markets;
• improved pricing conditions, particularly in the
• margins negatively impacted by increased
North american market; and
competition;
• Negative impact on eBit from unfavourable foreign
exchange movements, net of hedging, of $47m.
• Favourable eBit impact from land sales; and
• Negative impact from foreign currency translation.
bUsiNEss sUmmARiEs
AUsTRALiA/AsiA
• eBit of $412m, down 12% ($54m) on the pcp,
due mostly to the shutdown of the Kooragang
island ammonia and aN plants following loss
of containment issues;
• aN volumes up 5% with growth in all regions,
particularly Western australia;
• modest pricing improvements; and
OThER (iNcLUdiNg ThE gLObAL hUb)
• eBit of $107m, up 39% ($30m) on the pcp due
mainly to the transfer of specific commercial
functions in Latin america to the Global Hub in
the prior year.
PERsPEcTivEs fOR 2013
• Steady demand in mining markets in australia and
Latin america;
• coal markets in North america to remain reasonably
• Negative lag in recovery of ammonia input costs.
weak; and
NORTh AmERicA
• eBit of $111m, up 7% ($8m) on the pcp due to
improved pricing and stronger demand from metals
markets, partly offset by weak demand from coal
markets; and
• aN volumes down 7% on the pcp.
• Slow recovery in infrastructure markets in North
america and most european markets.
a$m
Sales Revenue
EBIT
Operating Net Assets
EBIT
Australia/Asia
North America
Latin America
EMET
Other
*F – Favourable, (U) – Unfavourable
Year ended September
2012
4,377.1
789.7
3,763.0
412.3
110.6
85.9
74.4
106.5
2011
Change F/(U)*
3,938.0
817.0
3,271.1
466.5
102.9
111.6
59.4
76.6
11%
(3%)
15%
(12%)
7%
(23%)
25%
39%
21
18
15
12
9
6
3
0
0
.
7
1
8
7
.
9
8
7
7
.
7
6
7
5
.
6
3
7
6
.
5
3
6
08 09 10 11
12
EBIT ($M) and
EbiT ($m) and EbiT
margin graph
EBIT margin
eBit margin %
EBIT Margin %
7
2012 AnnuAl RepoRt REviEw Of bUsiNEss PERfORmANcE
miNOvA
EbiT UP 4% TO $109m
kEy POiNTs
• an impairment of goodwill of $367m before tax
has been recognised in the period;
• Strong demand in australia and the commonwealth
of independent States (ciS);
• Lower demand from North american coal markets
in the second half;
• Subdued activity in tunnelling markets in many parts
of europe due to difficult economic conditions;
• Steady volumes in most other markets;
EUROPE, middLE EAsT ANd AfRicA (EmEA)
• Steady demand in ciS and the czech republic;
• improved contribution from tunnelling markets
versus the pcp, though conditions in most civil
markets in Western europe remain weak;
• Softer demand in Germany;
• margin pressure in Poland due to aggressive
competition;
• Steady demand in South africa despite recent
industrial disputes; and
• efficiency programs established in response
to margin pressures.
• continued competitive pressure in the US, Poland
and china preventing margin recovery; and
AUsTRALiA
• Volume growth in the coal and hard-rock mining
• continued focus on the introduction of new
products and efficiency programs.
markets; and
• margins positively impacted by increased sales of
chemical related products and application services.
bUsiNEss sUmmARiEs
AmERicAs
• Volumes down 7% versus the pcp, mostly due to
softer demand from coal markets in the second half
of the year;
chiNA
• Volumes in line with the pcp;
• margin pressure due to increased competition from
new market entrants; and
• margins down on pcp due to competitor activity,
• continued focus on the introduction of
though margins were in line with H2 2011;
differentiated products.
• input costs relatively stable; and
• efficiency program delivering benefits.
a$m
Sales Revenue
EBIT
Operating Net Assets
*F – Favourable, (U) – Unfavourable
8
PERsPEcTivEs fOR 2013
• Steady demand in australian mining markets;
• continued softness in demand and competitive
pressures in North american coal markets;
• demand from tunnelling expected to remain
weak in parts of Western europe due to difficult
economic conditions; and
• continue to pursue operational efficiencies and
differentiated offerings across all regions.
Year ended September
2011
Change F/(U)*
2012
854.1
109.0
821.9
105.1
1,082.5
1,508.0
4%
4%
(28%)
21
18
15
12
9
6
3
0
1
.
0
5
1
3
.
7
4
1
1
.
5
4
1
0
.
9
0
1
1
.
5
0
1
08 09 10 11 11
08 09 10
12
11
EbiT ($m) and EbiT
EBIT ($M) and
margin graph
EBIT margin
eBit margin %
EBIT Margin %
Orica Limited wATERcARE
• Sales were down by 4% on the pcp due to
unseasonal wet and mild summer conditions on the
australian east coast, offset partly by higher global
caustic soda prices; and
• Watercare chemical sales in New Zealand
were steady.
miNiNg chEmicALs
• Sales up 14% on the pcp due to improved pricing
for sodium cyanide and stronger demand for
emulsifiers and specialty mining chemicals; and
• record production of emulsifiers with sales up 15%
on the pcp.
PERsPEcTivEs fOR 2013
• Firm demand from mining markets globally for
sodium cyanide and emulsifiers; and
• conditions in most other market segments
in australia and New Zealand expected to
remain difficult.
chEmicALs
EbiT UP 8% TO $211m
kEy POiNTs
• Strong demand for sodium cyanide and emulsifiers;
• Generally subdued conditions in most industrial
markets in australia and New Zealand, partly
impacted by strong local currencies;
• adverse impact caused by supply disruptions to
industrial customers of ammonia and carbon
dioxide from Kooragang island ($3m);
• Solid growth in the industrial market segments
in Latin america; and
• Higher global caustic soda prices.
bUsiNEss sUmmARiEs
gENERAL chEmicALs
• Sales up 5% on the pcp due mainly due to stronger
trading volumes into mining markets;
• Generally soft demand from manufacturing markets
in australia and New Zealand with customer
volumes impacted by strong local currencies;
• Good demand from the dairy market for cleaning
chemicals in New Zealand;
• Volume growth in Bronson and Jacobs, though
strong competition in some market segments
negatively impacted margins; and
• Good growth in industrial and construction markets
in Latin america.
a$m
Sales Revenue
EBIT
Operating Net Assets
Business Sales
General Chemicals
Watercare
Mining Chemicals
*F – Favourable, (U) – Unfavourable
Year ended September
2012
1,592.8
211.2
832.7
1,082.6
215.9
342.9
2011
Change F/(U)*
1,510.0
196.0
830.6
1,031.6
224.6
299.8
5%
8%
0%
5%
(4%)
14%
15
12
9
6
3
0
2
.
1
1
2
0
.
6
9
1
0
.
8
8
4 1
.
0
7
1
1
.
6
4
1
08 09 10 11
12
EBIT ($M) and
EbiT ($m) and EbiT
margin graph
EBIT margin
eBit margin %
EBIT Margin %
9
2012 AnnuAl RepoRt bOARd mEmbERs
P J b dUNcAN
BChE (Hons), GradDip (Bus),
FIEAust, FAICD
chairman, Non-executive
director since June 2001,
appointed chairman in
december 2009. chairman of
the corporate Governance and
Nominations committee.
chairman of Scania australia.
Former director of National
australia Bank Limited, GasNet
australia Limited, Woodside
Petroleum Limited and cSirO
and former member of Siemens
australia advisory Board. Former
chief executive Officer of the Shell
Group of companies in australia.
iAN k smiTh
BE Mining (Hons), BFin Admin
managing director and
chief executive Officer since
February 2012. member of
corporate Governance and
Nominations committee.
Prior to joining Orica, was the
managing director and chief
executive Officer of Newcrest
mining Limited. Former Global
Head of Operational and technical
excellence with rio tinto,
London and managing director –
comalco aluminium Smelting of
rio tinto, Brisbane.
director of transurban Holdings
Limited and transurban
international Limited. President of
the australian mines and metals
association. Former director of the
australian chamber of commerce
and industry.
NOEL A mEEhAN
BSc (Hons), FCPA
executive director Finance since
September 2005. member of
corporate Governance and
Nominations committee. Former
chief Financial Officer of Orica
chemicals, Orica Group investor
relations manager and corporate
reporting manager.
Prior to joining Orica, held a variety
of finance roles both within Qantas
airways Limited and australian
airlines Limited.
gARRy A hOUNsELL
BBus (Accounting) FCA,
CPA, FAICD
Non-executive director since
September 2004. member of
the audit and risk committee,
Human resources and
compensation committee and
the corporate Governance and
Nominations committee.
chairman of Panaust Limited.
director of Qantas airways
Limited, duluxGroup Limited and
treasury Wine estates Limited.
Former director of Nufarm Limited.
Former chief executive Officer
and country managing Partner of
arthur andersen and former Senior
Partner of ernst & Young.
NORA schEiNkEsTEL
Ph D, LLB (Hons), FAICD,
Non-executive director since
august 2006. chairman of the
audit and risk committee.
member of the Human resources
and compensation committee
and the corporate Governance
and Nominations committee.
director of amP Limited, Pacific
Brands Limited and telstra
corporation Limited. Former
director of numerous companies
including PaperlinX Limited,
Newcrest mining Limited, mayne
Group Ltd, mayne Pharma Limited
and North Ltd, former chairman
of South east Water Limited and
the energy 21 and Stratus Group.
member of the takeovers
Panel and associate Professor,
melbourne Business School.
awarded the centenary medal for
services to business leadership.
michAEL TiLLEy
GradDip, BA, FAICD
Non-executive director since
November 2003. chairman of
the Safety, Health & environment
committee. member of the
audit and risk committee and
the corporate Governance and
Nominations committee.
Former managing director
and chief executive Officer
of challenger Financial Services
Group Limited. Former member
of the takeovers Panel. Former
Non-executive director of incitec
Ltd and former chairman and
chief executive Officer of merrill
Lynch australasia.
RUssELL R cAPLAN
LLB, FAICD
Non-executive director since
October 2007. chairman
of the Human resources
and compensation
committee. member of the
corporate Governance and
Nominations committee.
director of Qr National Limited.
chairman of crc care Limited.
Former chairman of the Shell
Group of companies in australia.
Former director of Woodside
Petroleum Limited.
iAN cOckERiLL
BSc (Hons) Geology, MSc
(Mining), MDP, AMP
Non-executive director since July
2010. member of the Safety,
Health & environment committee
and the corporate Governance
and Nominations committee.
chairman of the Petmin Limited.
chairman of Hummingbird
resources Plc. Former chief
executive Officer of anglo coal
and Gold Fields Limited. Former
executive with angloGold ashanti
and anglo american Group.
Lim chEE ONN
BSc (Hons), MPA, D.Eng
(Honorary)
Non-executive director since July
2010. member of the Safety,
Health & environment committee
and the corporate Governance
and Nominations committee.
Senior international adviser to
Singbridge Private Limited. Former
member of the Singaporean
parliament and served as Political
Secretary in the ministry of Science
and technology.
ANNETTE m cOOk
Dip Bus (Accounting), Dip Bus
(Data Processing), CPA
company Secretary of Orica
Limited since 16 February 2005
and prior to that was assistant
company Secretary from august
2002. Joined Orica in July 1987
and has had a variety of roles in
Business Services, it and Finance.
10
Orica Limited ExEcUTivE cOmmiTTEE
iAN k smiTh
BE Mining (Hons), BFin Admin
Managing Director and Chief
Executive Officer (CEO)
ian joined Orica as managing
director and ceO on 27 February,
2012 after five years as managing
director and ceO with Newcrest
mining Ltd. ian has 30 years
experience in the global mining
industry, in operational and project
management roles including Global
Head of Operational and technical
excellence with rio tinto, London
and managing director – comalco
aluminium Smelting of rio tinto,
Brisbane among other general
manager positions.
NOEL mEEhAN
BSc (Hons), FCPA
Executive Director Finance
Noel joined Orica in april 1999
as corporate reporting manager.
Since then, he has held a number
of other senior finance roles
within the Group, including cFO
for chemicals and Orica Group
investor relations manager.
Noel was appointed to the role of
chief Financial Officer in may 2005
and executive director Finance in
September 2005.
ANdREw LARkE
LLB, BComm, Grad
Dip (Corporations and
Securities Law)
Executive Global Head, Strategy,
Planning and Mergers and
Acquisitions
andrew has more than 20 years
experience in corporate strategy,
mergers and acquisitions,
divestments and corporate advisory.
He joined Orica in 2002 and has
been responsible for leading Orica’s
corporate strategy and mergers
and acquisitions program since
that time.
Prior to joining Orica, andrew was
Head of mergers and acquisitions
at resources company North Limited.
cRAig ELkiNgTON
BBus (Acc), CPA
Executive Global Head, Mining
Services
craig joined Orica in 1994 and
has held cFO positions in the
company’s former subsidiary incitec
Ltd and Orica mining Services.
in 2008, craig was appointed
President, Orica mining Services,
North america, before returning
to melbourne in the role of chief
executive Officer, minova, in 2011.
gAviN JAckmAN
MPP, ANU
Executive Global Head,
Corporate Affairs & Social
Responsibility
Gavin commenced with Orica in
July 2012, bringing with him a
wide range of private and public
sector experience. most recently
he worked as Group executive
Public affairs for Santos Limited.
Prior to that, Gavin was director
of Government affairs for BP
australia and held senior executive
roles in the federal government
and public service.
gREg wiTcOmbE
BSc
Executive Global Head,
Chemicals
Greg joined Orica in 1977 as
a research chemist with the
agricultural Products business
before moving into a series
of commercial roles in the
chemicals business.
His senior management positions
have included General manager
of trading and mining chemicals,
General manager of Polyethylene
Group, manager director of
incitec Ltd and managing director
of incitec Pivot Ltd and General
manager People and community.
Greg has been in his current
position since 2008.
JEREmy (JEz) smiTh
B.Sc. (Hons.), M.Phil, M. Mktg.
Executive Global Head, Research
and Development (R&D)
Jez has more than 31 years
experience in the fields of
r&d, marketing, commercial
management, planning and
operations which relate to
explosives and blasting technology.
He joined what was then ici and
which became Orica in 1980
and has worked in South africa,
canada, australia and Singapore.
Jez has authored a number of
papers relating to his areas of
expertise and has been inventor
or co-inventor of more than
twenty patents.
mOLLy zhANg
MChem, PhD in Chemical
Engineering
Manufacturing Executive,
Mining Systems
molly joined Orica in September
2011 as General manager for
global manufacturing and supply
chain for the mining services
business and was appointed
to her current position in may
2012. molly brings to Orica her
many years of global leadership
experience including roles such
as Global Business Vice President,
managing director for joint
ventures, manufacturing director
for asia Pacific, and board member
in various joint ventures and
non profit organisations.
sEAN wiNsTONE
BE (Chem, Hons), Grad
Cert Business Management
(Executive)
Manufacturing Executive,
Continuous Plants
Sean joined incitec Ltd in 1989
as a graduate engineer.
more recently he has held various
senior manufacturing positions
in Orica including Kooragang
island Site manager and Global
ammonium Nitrate manufacturing
manager. Prior to his current
position, Sean was the australia/
asia Sustainability manager for
Orica mining Services.
RON dOUgLAs
BEng
Executive Global Head, Projects
ron brings to Orica 30 years
experience in management
of operational performance
and capital development
throughout australia, United
Kingdom, the United States,
South east asia and africa across
the mineral processing and
petrochemical industries.
in his most recent role as
executive General manager
Projects and development at
Newcrest mining, ron was
accountable for delivery of all
studies and capital development
for the Newcrest organisation.
RichARd hOggARd
BEng (Sand) Chemical
Engineering
Executive Global Head
Manufacturing
richard has more than 25 years
manufacturing experience. Since
1987 he has worked for ici UK,
ici australia, incitec and Orica
in a variety of manufacturing,
engineering and commercial roles.
most recently he completed a four
year assignment in Latin america.
TRishA mcEwAN
Dip Bus (Admin)
Executive Global Head, Human
Resources
trisha joined Orica in June 2009
after seven years as Group Hr
director for telecom NZ. She has
over 25 years of cross functional
Hr experience and has worked
largely for industrial multi-national/
global companies.
11
2012 AnnuAl RepoRt cORPORATE gOvERNANcE sTATEmENT
Orica’s directors and management are committed to
conducting the company’s business ethically and in
accordance with the highest standards of corporate
governance. this statement describes Orica’s approach
to corporate governance.
the Board believes that Orica’s policies and practices
comply with the australian Securities exchange
(aSX) corporate Governance council Principles
and recommendations. the company’s corporate
governance policies can be viewed on the company’s
website at www.orica.com.
ThE bOARd ROLE
the Board of Orica Limited sees its primary role as the
protection and enhancement of long-term shareholder
value. the Board is accountable to shareholders for the
performance of the company. it oversees and monitors
the business and affairs of the company on behalf
of shareholders and is responsible for the company’s
overall corporate governance.
the Board responsibilities include appointing the
managing director; succession planning; approving
major strategic plans; monitoring the integrity and
consistency of management’s control of risk; agreeing
business plans and budgets; approving major capital
expenditure, acquisitions and divestments; approving
funding plans, capital raisings and setting dividends;
agreeing corporate goals and reviewing performance
against approved plans; and taking all reasonable steps
to ensure that reporting to shareholders and other
stakeholders is true and fair.
responsibility for managing, directing and promoting
the profitable operation and development of the
company, consistent with the primary objective of
enhancing long-term shareholder value, is delegated
to the managing director, who is accountable to
the Board.
the Board recognises the respective roles and
responsibilities of the Board and management in the
charters prepared for the Board, managing director
and chairman and in the company’s reserved
authorities approved by the Board.
iNTEgRiTy Of REPORTiNg
the company has controls in place that are designed
to safeguard the company’s interests and integrity
of its reporting. these include accounting, financial
reporting, safety, health and environment and
other internal control policies and procedures.
these controls and procedures are also directed at
monitoring whether the company complies with
regulatory requirements and community standards.
at each reporting period, both the managing director
and executive director Finance are required to state
in writing to the Board that:
• the company’s financial statements and associated
notes give a true and fair view of the Group’s
financial position and performance and are in
accordance with relevant accounting standards; and
• these statements are founded on a sound system
of risk management and internal control and that
the system is operating effectively in all material
respects in relation to financial reporting risks.
due to inherent limitations, internal controls over
financial reporting risks can only provide reasonable
but not absolute assurance, and may not prevent error
or fraud.
these assurances are based on a financial letter of
assurance that cascades down through management
and includes sign-off by functional global heads and
business chief financial officers.
comprehensive practices have been adopted
to monitor:
• that capital expenditure, revenue and expense
commitments above a certain limit obtain prior
Board approval;
• financial exposures including the use of derivatives;
• safety, health and environment standards and
management systems designed to achieve high
standards of performance and compliance; and
• that business transactions are properly authorised
and executed.
internal audit has a mandate for reviewing and
recommending improvements to controls, processes
and procedures used by the company across its
corporate and business activities. the company’s
internal audit is managed by the General manager
internal audit, assurance and compliance and
supported by an independent external firm
of accountants.
the company’s financial statements are subject
to an annual audit by an independent, professional
auditor who also reviews the company’s half
year financial statements. the Board audit and
risk committee oversee this process on behalf
of the Board.
12
Orica Limited Risk idENTificATiON ANd mANAgEmENT
Orica recognises the importance of risk management
practices across all businesses and operations. effective
risk management enables the business to identify and
understand the potential impact of uncertainty on the
realisation of Orica’s objectives. management is then
able to develop coordinated responses to control or
mitigate known risks and, make risk informed decisions
in delivery of the company’s strategy.
Orica aims to maintain a consistent and effective
organisation-wide approach to the management
of risks by maintaining a risk management Framework
that provides a transparent approach to managing
risk across Orica consistent with the principles of
iSO 31000:2009, including regular reporting to
management and the Board of risks for the company.
the Board establishes the policies for the oversight
and management of material business risks and
internal controls. the design and implementation
of the risk management and internal control systems
to manage the company’s material business risks is
the responsibility of management.
the Board, through the Board audit and risk
committee, satisfies itself that management has
developed and implemented a sound system of risk
management and internal control.
the managing director and executive director Finance
have provided a report to the Board that the risk
management and internal control systems have been
designed and implemented to manage the company’s
material business risks, and management has reported
to the Board as to the effectiveness of the company’s
and consolidated entity’s management of its material
business risks.
the risk management and internal control functions
in the company are managed by the General manager
risk and the General manager internal audit,
assurance and compliance. Both of these roles have
direct access to the Board audit and risk committee.
Where instances of non-compliance occur,
Orica procedures require that internal investigations
are conducted to determine the cause of the
non-compliance and to ensure the risk of recurrence
is minimised.
bOARd cOmPOsiTiON ANd PROcEssEs
the Board considers that its structure, size, focus,
experience and use of committees enables it to
operate effectively and add value to the company.
Orica maintains a majority of non-executive directors
on its Board and separates the role of chairman and
managing director.
the Board currently comprises nine directors: seven
independent non-executive directors, including the
chairman, and two executive directors, being the
managing director and the executive director Finance.
details of the directors as at the date of this report,
including their qualifications and experience, are set
out on page 10.
the composition of the Board seeks to achieve the
necessary competencies as well as a diversity of
perspective through a range of experience, skills,
knowledge and backgrounds. in reviewing the
Board’s composition and in assessing nominations
for appointment as non-executive directors, the Board
uses external professional advice as well as its own
resources to identify candidates for appointment
as directors.
two non-executive directors are domiciled outside
australia and the Board has had continued female
representation since 1998. the Board is committed
to an ongoing program of Board renewal, including
increased internationalisation and gender diversity.
iNdEPENdENcE
the Board recognises the special responsibility of
non-executive directors for monitoring executive
management and the importance of independent
views. the chairman and all non-executive directors
are independent of executive management and
free of any business or other relationship that could
materially interfere with the exercise of unfettered
and independent judgement or compromise their
ability to act in the best interests of the company.
the independence of each director is considered on
a case by case basis from the perspective of both the
company and the director. materiality is assessed by
reference to each director’s individual circumstances,
rather than by applying general materiality thresholds.
each director is obliged to immediately inform the
company of any fact or circumstance, which may
affect the director’s independence.
if a significant conflict of interest arises, the director
concerned does not receive the relevant Board papers
and is not present at the meeting whilst the item is
considered. directors must keep the Board advised,
on an ongoing basis, of any interests that could
potentially conflict with those of the company.
sELEcTiON ANd APPOiNTmENT Of diREcTORs
the directors are conscious of the need for members
to possess the skill and experience required to fulfil the
obligations of the Board. in considering membership of
the Board, directors take into account the appropriate
characteristics needed to maximise effectiveness
and the blend of skills, knowledge and experience
necessary for the present and future needs of the
company. Nominations for appointment to the Board
are considered by the corporate Governance and
Nominations committee and approved by the Board.
Non-executive directors are subject to shareholder
re-election by rotation at least every three years, and
normally do not serve more than 10 years.
all directors must obtain the chairman’s prior approval
before accepting directorships or other significant
appointments. an orientation program is offered to
new directors including a program of site visits and
briefings on Orica’s businesses and operations and key
policies and controls.
13
2012 AnnuAl RepoRt cORPORATE gOvERNANcE sTATEmENT
bOARd mEETiNgs
the Board has seven scheduled meetings per year,
of which four are two days duration and one is
three days. additional meetings are held as the
business of the company may require. directors
receive comprehensive Board papers in advance of
the Board meetings. regular Board meetings are
held to review business plans, performance and
strategic issues, in addition to a dedicated meeting to
comprehensively review company strategy. directors
receive regular exposure to Orica’s businesses and the
major regulatory controls relevant to the company.
in addition directors undertake site visits to a range
of Orica operations to meet with employees, customers
and other stakeholders.
in those months that Board meetings are not
scheduled, directors receive financial and safety,
health and environment reports and an update from
the managing director on the performance of the
company and any issues that have arisen since the
last Board meeting. in conjunction with or in addition
to scheduled Board meetings, the non-executive
directors meet together without the presence of
management and the executive directors to discuss
company matters.
to aid the effectiveness of Board meetings each
scheduled Board meeting is subject to a critical
review evaluating the standard of information and
material presented to the Board and the quality of the
contribution made by directors to the consideration
of issues on the agenda.
bOARd ANd ExEcUTivE PERfORmANcE
Orica has in place a range of formal processes
to evaluate the performance of the Board, Board
committees and executives. these processes can
be viewed on the Orica website at www.orica.com.
at the conclusion of the year, the Board carries out
a review of its performance. directors standing for
re-election are subject to a performance review
conducted by the Board. in addition, each Board
committee reviews its effectiveness. an independent
review of Board, committee and director performance
is undertaken periodically. during the year the annual
Board and committee reviews were conducted in
respect of the previous financial year by an external
facilitator. as announced on 24 October 2011 ian
Smith was appointed as managing director with
effect from 27 February 2012. the non-executive
directors are responsible for regularly evaluating the
performance of the managing director. the evaluation
is based on specific criteria, including the company’s
business performance, short- and long-term strategic
objectives and the achievement of personal objectives
agreed annually with the managing director.
14
all Orica executives are subject to an annual
performance review. the review involves an executive
being evaluated by their immediate superior by
reference to their specific performance agreement for
the year, including the completion of key performance
indicators and contributions to specific business
and company plans. all Orica executives, including
the managing director, have had their performance
evaluated during the year in accordance with the
process set out above.
AccEss TO iNfORmATiON ANd iNdEPENdENT
AdvicE
each director has the right of access to all relevant
company information and to the company’s
executives and, subject to prior consultation with the
chairman or with the approval of a majority of the
Board, may seek independent professional advice at
the company’s expense. Pursuant to a deed executed
by the company and each director, a director also has
the right to have access to all documents which have
been presented to meetings or made available whilst
in office, or made available in relation to their position
as director for a term of ten years after ceasing to
be a director or such longer period as is necessary to
determine relevant legal proceedings that commenced
during this term.
shAREhOLdiNgs Of diREcTORs ANd
EmPLOyEEs
the Board has approved guidelines for dealing in
securities. directors and employees must not, directly
or indirectly, buy or sell the shares or other securities of
Orica when in possession of price sensitive information
which is not publicly available, which could materially
affect the value of those securities. Subject to this
restriction, directors and employees may buy or sell
Orica shares during the following trading windows:
• in the period of 28 days commencing one day after
the announcement of the Orica’s half-year results;
• in the period of 28 days commencing one day
after the announcement of the Orica’s full-year
results; and
• in the period of 28 days commencing one day after
Orica’s annual general meeting.
directors and employees must receive clearance from
the chairman or company Secretary for any proposed
dealing in Orica shares outside of a trading window.
in addition to observing the procedures set out above,
directors and employees are prohibited from trading
in Orica securities during the following periods:
• between 1 april and the opening of the
next ”window” (which will be one day
after announcement of Orica’s half-yearly
results); and
• between 1 October and the opening of the
next ”window” (which will be one day after
announcement of Orica’s full-year results).
clearance will not be granted during these
blackout periods.
Orica Limited directors and employees must not deal in Orica
securities on a short-term basis or enter into short-term
derivative arrangements in any circumstances. directors
and employees may deal in securities via a margin loan
arrangement in relation to their Orica securities where:
• the Orica securities are not held subject to
restrictions under an Orica employee, executive
or director plan;
• the margin lending arrangement does not, of
itself, trigger a transfer in the legal or beneficial
ownership of the underlying securities;
• the arrangement is entered into during a trading
window; and
• the company Secretary is notified prior to the
margin lending arrangement being entered into.
• directors and employees may create or enter
into a derivative arrangement in relation to Orica
securities where:
• the Orica securities are not held subject to
restrictions under an Orica employee, executive
or director plan;
• the derivative arrangement would not be considered
a short-term derivative arrangement; and
• the company Secretary is notified prior to the
derivative arrangement being entered into.
any transaction conducted by directors in Orica
securities is notified to the aSX. each director has
entered into an agreement with the company to
provide information to allow the company to notify
the aSX of any transaction within five business days.
the current shareholdings are shown in Note 37.
diREcTORs’ fEEs ANd ExEcUTivE
REmUNERATiON
the remuneration report on page 24 sets out details
regarding the company’s remuneration policy, fees
paid to directors for the past financial year, and specific
details of executive remuneration.
bOARd cOmmiTTEEs
the Board has charters for each of its committees.
charters are reviewed annually and objectives set for
each committee. the committees report back to the
Board and do not have formal delegation of decision
making authority. the committee chairmen report
on the committees as a standing item of the Board
agenda. additionally, any director is welcome to attend
any committee, and minutes of the committees are
circulated to the Board. the charters may be viewed
on the Orica website at www.orica.com.
bOARd AUdiT ANd Risk cOmmiTTEE
the Board audit and risk committee comprises three
independent non-executive directors with relevant
experience and financial literacy. the chairman of
the Board audit and risk committee is separate
from the chairman of the Board. Nora Scheinkestel
is the current chairman of the Board audit and risk
committee and the other members are Garry Hounsell
and michael tilley. the chairman, managing director
and executive director Finance attend ex officio.
the committee is charged with assessing the adequacy
of the company’s financial and operating controls,
oversight of risk management systems and compliance
with legal requirements and the code of conduct
affecting the company. the committee meets at least
four times per year.
details of directors’ attendance at meetings of the
Board audit and risk committee are set out in the
directors’ report on page 21.
the committee assesses and reviews external and
internal audits, risk reviews and any material issues
arising from these audits or reviews. it assesses and
reviews the accounting policies and practices of
the group as an integral part of reviewing the half
year and full year accounts for recommendation
to the Board. it also makes recommendations to
the Board regarding the appointment of external
auditors and the level of their fees and provides a
facility, if necessary, to convey any concerns raised
by the internal and external auditors independent
of management influence. the external and internal
auditors attend committee meetings and meet
privately with the committee at least twice per year.
the Board audit and risk committee monitors the
level of any other services provided by the external
auditor to ensure auditor independence is maintained.
restrictions are placed on other services performed
by the external auditor and projects outside the
scope of the approved audit program require the
approval of the chairman of the Board audit and risk
committee. any other services with a value of greater
than $20,000 must be submitted to the committee for
approval in advance of the work being undertaken.
the committee is asked to ratify any other services less
than $20,000 in value. the fees paid to the company’s
external auditors for audit and other services are set
out in Note 31.
15
2012 AnnuAl RepoRt cORPORATE gOvERNANcE sTATEmENT 2012
hUmAN REsOURcEs ANd cOmPENsATiON
cOmmiTTEE
the Human resources and compensation committee
comprises russell caplan (chairman), Garry Hounsell
and Nora Scheinkestel. the Board chairman attends
ex officio and the managing director and executive
director Finance attend by invitation. details of
directors attendance at meetings of the Human
resources and compensation committee are set out
in the directors’ report on page 21.
the committee assists the Board in the effective
discharge of its responsibilities for the oversight
of management process and performance in the
provision of human resources necessary to effectively
execute the company’s strategy over the long term.
the committee recommends to the Board on the
company’s recruitment, organisational and people
development, retention, employee relations, diversity
strategy and workplace capability, including the
capability and diversity of candidates considered
for succession to managing director and executive
committee positions.
remuneration arrangements and termination
payments for the managing director, executive
directors and executives reporting to the managing
director, including short-term incentive payments,
performance targets and bonus payments, remain
matters for all non-executive directors. remuneration
is set by reference to independent data, external
professional advice, the company’s circumstances
and the requirement to attract and retain high
calibre management.
cORPORATE gOvERNANcE ANd NOmiNATiONs
cOmmiTTEE
the corporate Governance and Nominations
committee comprises all directors. the committee
monitors developments in corporate governance
practices and evaluates the company’s policies
and practices in response to changing external and
internal factors and the ethical guidelines affecting
the company. this committee also deals with the
nomination of directors and considers the most
appropriate processes for review of the Board’s
composition and performance.
the committee evaluates the composition of the Board
and the annual program of matters considered by
the Board to determine whether the appropriate mix
of skills and experience exists to enable the Board to
discharge its responsibilities to shareholders. details
of directors’ attendance at meetings of the corporate
Governance and Nominations committee are set out
in the directors’ report on page 21.
sAfETy, hEALTh ANd ENviRONmENT cOmmiTTEE
the Safety, Health and environment (SH&e) committee
comprises michael tilley (chairman), ian cockerill
and Lim chee Onn. the Board chairman, managing
director and executive director Finance attend
ex officio. the committee assists the Board in the
effective discharge of its responsibilities in relation
to safety, health and environmental matters arising
16
out of activities within the company as they affect
employees, contractors, customers, visitors and the
communities in which it operates. the committee also
reviews the company’s compliance with environment
policy and legislation and reviews safety, health and
environmental objectives, targets and due diligence
processes adopted by the company.
a Letter of assurance for SH&e is written by the
managing director and presented to the SH&e
committee on an annual basis after a thorough
process of assessment by each business. details
of directors’ attendance at meetings of the SH&e
committee are set out in the directors’ report
on page 21.
ExEcUTivE ANd sPEciAL cOmmiTTEEs
in addition, there is a standing executive committee
comprising the chairman, the managing director, the
executive director Finance and any other non-executive
director who is available (but at least one), which is
convened as required, to deal with matters that need
to be dealt with between Board meetings. From time
to time special committees may be formed on an
as-needs basis to deal with specific matters.
cONTiNUOUs discLOsURE ANd kEEPiNg
shAREhOLdERs iNfORmEd
the company seeks to provide relevant and timely
information to its shareholders and is committed
to fulfilling its obligations to the broader market for
continuous disclosure and enabling equal access
to material information about the company.
the Board has approved a continuous disclosure policy
so that the procedures for identifying and disclosing
material and price sensitive information in accordance
with the corporations act and aSX Listing rules are
clearly articulated. this policy sets out the obligations
of employees and guidelines relating to the type of
information that must be disclosed and may be viewed
on the Orica website at www.orica.com.
information provided to and discussions with analysts
are subject to the continuous disclosure policy. material
information must not be selectively disclosed prior to
being announced to the aSX. the company Secretary
is the person responsible for communication with
the aSX.
the www.orica.com website contains copies of
the annual report, aSX announcements, investor
relations publications, briefings and presentations
given by executives, (including webcasts), plus links
to information on the company’s products and
services. Shareholders may elect to receive electronic
notification of releases of information by the company
and receive their notice of meeting and proxy form by
email. electronic submission of proxy appointments
and power of attorney are also available to
shareholders. Page 132 of this report contains details
of how information provided to shareholders may
be obtained.
Orica Limited the Board encourages participation of shareholders
at the annual General meeting. important issues are
presented to the shareholders as individual resolutions.
the external auditor attends annual general meetings
to answer any questions concerning the audit and the
content of the auditor’s report.
cOdE Of cONdUcT
Orica acknowledges the need for directors, executives,
employees and contractors to observe the highest
ethical standards of corporate and business behaviour.
Orica has adopted a code of conduct (entitled: Your
Guide To How We Do Business) which applies to
all countries in which Orica operates. the code of
conduct sets out the standards of business conduct
required of all employees and contractors of the
company. it is aimed at ensuring the company
maintains its good reputation and that its business
is conducted with integrity and in an environment
of openness.
the code of conduct provides clear direction and
guidance with regard to expected standards of
behaviour and conduct with respect to (amongst
other things):
• safety, health and environment;
• protection of information and the company’s
resources;
• competition law and trade practices compliance;
• privacy;
• conflict of interest;
• insider trading and dealing in securities;
• equal employment opportunity and harassment;
• gifts and benefits;
• prevention of bribery and facilitation payments; and
• prevention of, and dealing with, fraud.
the code of conduct is periodically reviewed
and approved by the corporate Governance and
Nominations committee and processes are in place to
promote and communicate the code of conduct and
relevant company policies and procedures. an integrity
hotline (the Speak Up line) and associated website
and email facility have been established to enable
employees to report (on an anonymous basis) breaches
of the code of conduct. if a report is made, it is
escalated as appropriate for investigation and action.
the code of conduct is overseen by the Orica Business
conduct committee comprising the executive director
Finance, executive Global Head Human resources,
the Group General counsel and the General manager
internal audit, assurance and compliance, who
review compliance with the code of conduct over the
relevant reporting period and make recommendations
to the corporate Governance and Nominations
committee to address any systemic issues.
the code of conduct has been translated into Orica’s
family of languages. it may be viewed on the Orica
website at www.orica.com.
divERsiTy
diversity of people and thought is a critical part
of Orica’s global growth strategy, and as such Orica’s
Board approved a formal diversity strategy in 2009.
the diversity strategy focuses on gender and
international diversity, with leadership and culture
as key enablers.
Over the past three years, improvement targets have
been set for both gender and internationalisation
at senior management levels. these targets,
in conjunction with specific diversity initiatives,
have seen the representation of women in senior
management ranks increase from 5 percent in 2009
to 16 percent in 2012. the company has an aspiration
to increase the percentage of women in senior
management positions to greater than 20 percent
(Orica has an employee population of over 15,000
and approximately 18 percent of the population
are women). the proportion of non-australian/
New Zealand senior managers has increased from
40 percent in 2009 to 47 percent in 2012.
Specific diversity initiatives in relation to graduate
recruitment, executive search and selection, women’s
leadership networks, and leadership development
remain in place and continue to deliver improvements
to Orica’s level of diversity. this strategy will remain
a key area of focus for the company into 2013
and beyond.
dONATiONs
the equivalent of dividends payable on a shareholding
of approximately 0.5 percent of the company’s
ordinary issued capital is allocated for donation
at the direction of the corporate Governance and
Nominations committee. From the amount allocated
for corporate donations, Orica matches employee
“dare to Share” contributions. the amount remaining
is distributed to selected community and charitable
organisations in accordance with published criteria.
in addition, Orica’s operations contribute to their
local communities with donations, sponsorship
and practical support.
Orica does not make political donations.
sAfETy, hEALTh & ENviRONmENT
Orica considers the successful management of
safety, health and environment issues as vital for its
employees, customers, communities and business
success. at each Board meeting the directors receive
a report on current safety, health and environment
issues and performance in the group. the Board
receives more detailed presentations on safety,
health and environment every six months. a separate
Board SH&e committee reviews and monitors
environmental issues at Board level. For more in-depth
information on the company’s SH&e and Sustainability
commitments in 2012, visit the Orica website:
www.orica.com/sustainability.
the Sustainability section of this annual report details
the actions being undertaken by the company to
improve its environmental performance.
17
2012 AnnuAl RepoRt sUsTAiNAbiLiTy
iNTROdUcTiON
Orica values people and the environment. in 2012
the company continued to work towards its value
of ‘No accidents today’, striving to operate its assets
to the highest possible standards without harm to
people or the environment.
sUsTAiNAbiLiTy gOvERNANcE
the company aims to have sound business and risk
management processes that deliver financial returns
while meeting social and environmental expectations.
Orica’s risk management methodology is used
to identify and assess material impacts, risks and
opportunities. these challenges may be actual
or potential, and consider both the company’s
circumstances and global trends.
the views of key stakeholders, including employees
and contractors, shareholders, local communities,
customers and government, are also considered.
in 2012, Orica launched Project Sustain, a global
initiative to review the company’s systems and
structures for performance and to develop an
organisational approach to a more detailed risk
assessment process. When finalised, this approach
will be adopted in future assessments of the
company’s key challenges.
the company has retained its inclusion in the
dow Jones Sustainability index (dJSi) (chemicals sector)
and the FtSe4Good index; and Orica participated
in mandatory greenhouse gas emission reporting and
trading schemes in several regions of operation.
Orica has applied its plant design and operating
standards to new investments such as Bontang,
indonesia and Nanling, china. the company is proud
of its role in encouraging and training local businesses
involved in these major projects. the majority of
employees at these sites are nationals. a large number
of Bontang employees undertook extensive training
at Orica’s Yarwun, Queensland, facility in preparation
for the plant’s commissioning.
sAfETy, hEALTh & ENviRONmENT
(sh&E)
Orica believes that all work related injuries, illnesses and
environmental incidents are preventable. the company
is committed to its value of ‘No accidents today’.
Sadly, there was one fatality at the company’s eHm
site in antofagasta, chile this year. Orica expresses
its sincerest condolences to the employee’s family,
friends and fellow employees. an investigation has
concluded and details, including learnings for the
business, will be shared to prevent a recurrence.
in 2012, Orica achieved the same all Worker
recordable case rate as 2011, at 0.47 per 200,000
hours worked. While this achievement compares
favourably with other global companies across the
mining, oil and gas, and chemicals sector, Orica will
continue to improve performance.
18
Orica’s expert Panels manage the company’s most
critical process safety risks. the explosives expert
Panel updated a number of global standards
to reduce risks associated with pumping explosive
materials and aluminium dust explosion hazards
during manufacturing.
Orica’s Groundwater treatment Plant in Botany,
australia, treated 1,800 million litres of contaminated
groundwater in 2012, of which 1,105 million litres
was recycled and sold to industrial customers at the
Botany industrial Park, reducing reliance on potable
water supply.
Orica is continuing to implement energy saving
improvements at its sites around the world.
For example, steam, energy and lighting use
improvements at chemicals’ deer Park site (australia)
have reduced greenhouse gas emissions by
approximately 175 tonnes per year.
installation of additional nitrous oxide abatement
technology in australian nitric acid plants has begun.
an estimated reduction of over 390,000 tonnes of
carbon dioxide equivalent per year is expected from
new abatement in four of Orica’s australian nitric acid
plants, equivalent to the removal of 150,000 cars from
the road. New abatement was also installed in Nitric
acid Plant (NaP) 2 at carseland, canada in march
2012 and has already achieved a reduction of over
63,000 tonnes of carbon dioxide equivalent in less
than seven months.
For the second year in a row, Watercare was awarded
the prestigious “Green ribbon” for Sustainability by
the american Water Works association.
PROdUcT sTEwARdshiP
Orica aims to adopt life cycle thinking in the creation
and delivery of its products and services and engage
with customers to understand and respond to their
evolving needs. the company’s approach is based
on the international chemical council’s responsible
care® Product Stewardship code of Practice and
is embedded by Product Stewardship coordinators
in each Orica business. in 2012 a cross-business
Stewardship Group completed an international review
of the company’s suite of product stewardship model
procedures which will see a new company-wide model
procedure published.
in 2012 Orica’s transportation expert Panel
implemented check point audits to measure and
benchmark compliance to Orica’s Supply chain Global
transportation Standards. mining Services has adopted
a Lights On at all times (LOat) Policy to enhance
vehicle visibility and reduce risks during the movement
of company product.
Fifty-three basic life cycle risk assessments were
completed on Bronson & Jacobs, Watercare and
chemicals (australia and Latin america) products
during 2012.
Orica Limited Orica is a member of the global explosives Safety
Group, SaFeX. the company is contributing to the
development of a safety training course for new
managers within the industry which will be piloted
next year.
Orica is a signatory to the voluntary international
cyanide management code for the manufacture,
transport and Use of cyanide in the Production
of Gold. Orica mining chemicals is classed as a
“cosignor’, recognising the business’ close relationship
and active management of its carriers in the safe
handling of the product.
PEOPLE & cOmmUNiTy
Orica supports the principles of equal employment
Opportunity (eeO) and recruits staff purely on a merit
basis. the company does not tolerate discrimination,
harassment and/or bullying of its employees,
contractors or members of the general public and
appropriate action is taken if its anti-Harassment Policy
is breached.
during the reporting period there were three
allegations of discrimination made to the company’s
Speak Up line by employees. Full investigations were
completed for two of these allegations in the period.
the third was still under investigation at the end
of the reporting period.
Orica established a diversity Strategy, with specific
initiatives and targets, in 2009. Since this time,
the gender diversity of senior management has
increased from 5 percent female to 16 percent,
while the proportion of non-australian/New Zealand
senior managers has increased from 40 percent
to 47 percent.
in 2012 the Orica Women in Leadership network
was extended to other regions and now includes
two additional groups of emerging and Senior
Female Leaders from a wide range of nationalities
and professional backgrounds. in late 2012 a Latin
american group was also launched.
Orica has 121 graduates in its global development
program, of which 26 percent are female. With
graduate programs now being run in australia,
New Zealand, asia, Latin america and North america,
the company’s pipeline of international talent is also
increasing. Six graduates were offered international
twelve-month assignments this year in mexico,
Brazil, chile, colombia and australia. Orica also
offers scholarships to university students in australia,
New Zealand, asia and Latin america.
Orica’s Global indigenous council is currently assessing
local environmental conditions to tailor action plans to
regional needs. For example, this year Orica canada
implemented the Global indigenous People Strategy
that was formed in June 2011. efforts to develop
long term, meaningful relationships with First Nation
Groups has seen a joint-venture agreement signed
for the supply of explosives and blasting services
for any new developments in the Haisla territories,
maximising social and economic benefits for the Haisla
Nation through opportunities such as employment
and training.
Orica’s corporate donations program is funded to the
equivalent of dividends payable on a shareholding
of 0.5 percent of ordinary Orica shares. in 2012
this included a $445,000 donation to the Nature
conservancy for biodiversity conservation programs
in chile and australia. in addition, many local and
regional activities are supported by Orica sites around
the world.
ENgAgEmENT & cOmmUNicATiON
Orica aims to engage with its employees, customers,
business partners, shareholders and, importantly, the
communities in which it operates in order to build their
trust and support for the company’s operations.
the company is a signatory to the responsible
care® “community right to Know” code of
Practice. in 2012, Orica’s major sites continued to
implement their community engagement Plans and
processes to monitor and respond to local concerns
and expectations.
Orica is working with the local community and
regulatory authorities to rebuild trust around its
Kooragang island operation following environmental
incidents in 2011. in addition to the technical and
environmental improvements that were made this year
to facilitate start up of the facility, Orica undertook
a range of activities with the local community and
regulators during the reporting period. regular
community reference Group meetings, community
information sessions and site tours have been held,
as well as emergency response briefings. the site has
also improved its website, community newsletter,
phone and mobile phone SmS communications.
the company also worked with local residents and
regulators to install new air quality monitoring in the
area. data from the air quality station in Stockton
is available on a public website to provide more
comprehensive information to the local community
about air quality impacts from Orica and other
local industries.
For more information, please read our 2012
Sustainability report online at www.orica.com.
19
2012 AnnuAl RepoRt fiNANciAL REPORT
diREcTORs’ REPORT
diREcTORs’ REPORT – REmUNERATiON REPORT
LEAd AUdiTORs’ iNdEPENdENcE dEcLARATiON
iNcOmE sTATEmENT
sTATEmENT Of cOmPREhENsivE iNcOmE
bALANcE shEET
sTATEmENT Of chANgEs iN EqUiTy
sTATEmENT Of cAsh fLOws
NOTEs TO ThE fiNANciAL sTATEmENTs
diREcTORs’ dEcLARATiON
iNdEPENdENT AUdiTOR’s REPORT
shAREhOLdERs’ sTATisTics
TEN yEAR fiNANciAL sTATisTics
21
24
47
48
49
50
51
52
53
126
127
129
130
20 ORicA LimiTEd
21
Directors’ Report Orica Limited 21The directors of Orica Limited (‘the Company’ or ‘Orica’) present the financial report of the Company and its controlled entities (collectively ‘the consolidated entity’ or ‘the Group’) for the year ended 30 September 2012 and the auditor’s report thereon. Directors The directors of the Company during the financial year and up to the date of this report are: P J B Duncan, Chairman I K Smith, Managing Director (appointed 27 February 2012) I D Cockerill G A Hounsell G R Liebelt, Managing Director (retired 27 February 2012) Lim C O N A Meehan, Executive Director Finance N L Scheinkestel M E Beckett (retired 15 December 2011) M Tilley R R Caplan Particulars of directors’ qualifications, experience and special responsibilities are detailed on page 10 of the annual report. A Cook (Dip Bus (Accounting), Dip Bus (Data Processing), CPA) has been Company Secretary of Orica Limited since 16 February 2005 and prior to that was Assistant Company Secretary from August 2002, following a series of roles in Orica over 24 years. Directors’ meetings The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the financial year are listed below: Director Scheduled Board Meetings (1) Audit and Risk Committee (1) Human Resources and Compensation Committee (1) Corporate Governance and Nominations Committee (1) Safety, Health and Environment Committee (1) Held Attended Held Attended Held Attended Held Attended Held Attended P J B Duncan 7 7 - - - - 6 6 - - I K Smith (2) 4 4 - - - - 3 3 - - G R Liebelt (3) 3 3 - - - - 3 3 - - N A Meehan 7 7 - - - - 6 6 - - M E Beckett (4) 2 2 - - - - 2 2 - - R R Caplan 7 7 - - 6 6 6 6 - - I D Cockerill 7 6 - - - - 6 6 5 5 G A Hounsell 7 7 4 4 6 6 6 6 - - Lim C O 7 7 - - - - 6 6 5 5 N L Scheinkestel 7 7 4 4 6 6 6 6 - - M Tilley 7 7 4 4 - - 6 6 5 5 (1) Shows the number of meetings held and attended by each director during the period the director was a member of the Board or Committee. In addition to the Board meetings referred to in the above table, available directors attended five meetings during the year to address business matters arising between scheduled Board meetings. (2) Appointed 27 February 2012. (3) Retired 27 February 2012. (4) Retired 15 December 2011. Directors’ interests in share capital The relevant interest of each director in the share capital of the Company as at the date of this report is disclosed in note 37. Directors’ interests shown in this note are as at 30 September 2012, however there has been no change in holdings to the date of this report. Principal activities The principal activities of the consolidated entity in the course of the financial year were the manufacture and distribution of mining and chemical products and services. 2012 AnnuAl RepoRt Directors’ Report
Likely developments
Likely developments in the operations of the consolidated entity and the expected results of those operations are covered generally
in the review of operations and financial performance of the consolidated entity on pages 4 to 9 of the annual report. Further
information as to likely developments in the operations of the consolidated entity and the expected results of those operations in
subsequent financial years has not been included in this report because, in the opinion of the directors, disclosure would be likely
to result in unreasonable prejudice to the consolidated entity.
Review and results of operations
A review of the operations of the consolidated entity during the financial year and of the results of those operations is contained on
pages 4 to 9 of the annual report.
Dividends
Dividends paid or declared since the end of the previous financial year were:
Final dividend at the rate of 53.0 cents per share on ordinary shares, franked to 100% (53.0 cents)
at the 30% corporate tax rate, paid 9 December 2011.
Interim dividend declared at the rate of 38.0 cents per share on ordinary shares, franked to 36.8% (14.0 cents)
at the 30% corporate tax rate, paid 2 July 2012.
Total dividends paid
Since the end of the financial year, the directors have declared a final dividend to be paid at the rate of 54.0 cents
per share on ordinary shares. This dividend will be franked to 44.4% (24.0 cents) at the 30% corporate tax rate.
Distributions on Step-Up Preference Securities
Distributions paid since the end of the previous financial year were:
Distribution at the rate of 6.52% per annum, per security, unfranked paid 30 November 2011 for the period from
31 May 2011 to 29 November 2011.
$m
192.0
137.9
329.9
$m
11.1
On 13 October 2011 Orica elected to repurchase the Step-Up Preference Securities (SPS) and the SPS were
reclassified to interest bearing liabilities from that date. Until 12 October 2011 the SPS were treated as equity for
accounting purposes. SPS were repurchased for $100 per SPS on 29 November 2011.
Changes in the state of affairs
Particulars of significant changes in the state of affairs of the consolidated entity during the year ended 30 September 2012 are as
follows:
Acquisitions
On 21 May 2012 Orica Ltd announced that it has agreed to form a joint venture with Yara and Apache to build a 330,000 tonnes
per annum industrial grade ammonium nitrate plant on the Burrup peninsula in Western Australia. Construction of the plant is
expected to have a capital cost of approximately US$800 million and be completed by the end of 2015.
Events subsequent to balance date
On 12 November 2012, the directors declared a final dividend of 54.0 cents per ordinary share payable on 14 December 2012.
The financial effect of this dividend is not included in the financial statements for the year ended 30 September 2012 and will be
recognised in the 2013 financial statements.
Legal proceedings issued by the Queensland Department of Environment and Heritage Protection against Orica in relation to
stormwater and effluent discharges at Orica's Chemical Complex at Yarwun, Queensland have been dealt with in the Gladstone
Magistrates Court. Orica was fined $182,000 and also ordered to pay $250,000 to three environment projects in the Gladstone
area. No convictions were recorded.
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2012,
that has affected or may affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the
consolidated entity in subsequent years, which has not been covered in this report.
22
22
Orica Limited
Orica Limited
Directors’ Report
Environmental regulations
Orica aspires to become a business that does no harm to people and the environment.
To deliver on this aspiration, Orica, as a minimum, seeks to be compliant with all applicable environmental laws and regulatory
permissions relevant to its operations. Where instances of non-compliance occur, Orica procedures require that internal
investigations are conducted to determine the cause of the non-compliance and to ensure the risk of recurrence is minimised.
Orica procedures further require that the relevant governmental authorities are notified in compliance with statutory requirements.
The Company has experienced a series of incidents at its operational facilities in New South Wales and Queensland during the
year. The Company has committed major investments, both in terms of capital and resources, to improve its environmental
performance at these sites in addition to the maintenance program. The Company is also working closely and co-operatively with
regulators and government agencies in relation to these initiatives, as well as enhancing community engagement and consultation.
More specific details about Orica's sustainability initiatives and performance, including safety, health and environment, can be
found on the Orica website – www.orica.com/sustainability.
Greenhouse gas and energy data reporting requirements
The Group is subject in Australia to the reporting requirements of both the Energy Efficiency Opportunities Act 2006 and the
National Greenhouse and Energy Reporting Act 2007.
The Energy Efficiency Opportunities Act 2006 requires the Group to assess its energy usage in Australia, including the
identification, investigation and evaluation of energy saving opportunities, and to report publicly on the assessments undertaken,
including what action the Group intends to take as a result. As required under this Act, the Group has registered with the
Department of Resources, Energy and Tourism as a participant entity and reported results as required under this Act.
The National Greenhouse and Energy Reporting Act 2007 requires the Group to report its annual Australian greenhouse gas
emissions and energy consumption and production. The Group has implemented new systems and processes for the collection
and reporting of the data required and, in compliance with the legislation, has submitted its reports as required under this Act.
Environmental prosecutions
Orica is currently the subject of legal proceedings issued by the New South Wales Environment Protection Authority and the
Queensland Department of Environment and Heritage Protection in relation to incidents at its Kooragang Island and Gladstone
facilities respectively.
Orica continues to devote considerable resources to cleaning up legacy sites and is committed to dealing with environmental
issues from the past in an honest and practical way.
Indemnification of officers
The Company's Constitution requires the Company to indemnify any person who is, or has been, an officer of the Company,
including the directors, the secretaries and other executive officers, against liabilities incurred whilst acting as such officers to the
extent permitted by law.
In accordance with the Company's Constitution, the Company has entered into a Deed of Access, Indemnity and Insurance with
each of the Company’s Directors and in a few cases specific indemnities have been provided. No director or officer of the
Company has received benefits under an indemnity from the Company during or since the end of the year.
The Company has paid a premium of $737,500 in respect of a contract insuring officers of the Company and of controlled entities,
against a liability for costs and expenses incurred by them in defending civil or criminal proceedings involving them as such
officers, with some exceptions.
Non-audit services
During the year, KPMG, the Company’s auditor, performed certain other services in addition to its audit responsibilities.
The Board is satisfied that the provision of non-audit services during the year by the auditor is compatible with, and did not
compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:
(cid:121) all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed
by the Board Audit and Risk Committee to ensure they do not impact the integrity and objectivity of the auditor; and
(cid:121)
the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in
a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks
and rewards.
No officer of the Company was a former partner or director of KPMG. A copy of the lead auditor’s independence declaration as
required under Section 307C of the Corporations Act is contained on page 47 of the annual report and forms part of this Directors’
report.
Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services
provided during the year are disclosed in note 31.
Orica Limited
23
23
2012 AnnuAl RepoRt
Directors’ Report – Remuneration Report
Remuneration Report – audited
The directors of Orica Limited present the Remuneration Report (which forms part of the Directors’ Report) prepared in accordance
with section 300A of the Corporations Act for the Company and its controlled entities for the year ended 30 September 2012.
Key developments and summary of performance for 2012
Orica is a company that enjoys a strong performance based culture which the Board has sought to foster through rewarding
executives for the achievement of the Company’s short-term and long-term strategy and business objectives with a view to
generating above average returns for shareholders.
This report explains how the Company’s performance for the 2012 Financial Year has driven remuneration outcomes for our senior
executives. EBIT is defined as earnings before interest, tax and individually material items. NPAT is defined as Net Profit After Tax
before individually material items attributable to shareholders of Orica Limited.
Cumulative Total Shareholders Return
(since 2008). Years 2008 to 2010 includes
DuluxGroup.
2008
2009
2010
2011
2012
%
R
S
T
40%
20%
0%
-20%
-40%
s
t
n
e
C
S
P
E
200
180
160
140
120
100
80
60
40
20
0
EPS and Year End Share price. Years 2008 to
2010 includes DuluxGroup.
35.0
$
e
c
i
r
p
e
r
a
h
S
E
Y
/
30.0
25.0
20.0
15.0
10.0
5.0
0.0
TSR Orica
TSR ASX100
2008
2009
2010
2011
2012
EPS
Y/E Share Price
NPAT and Dividends. Years 2008 to 2010
includes DuluxGroup.
M
$
T
A
P
N
700
680
660
640
620
600
580
560
540
520
s
t
n
e
c
S
P
D
120
100
80
60
40
20
0
2008
2009
2010
2011
2012
NPAT
Dividends
Sales
EBIT
1,200
1,000
M
$
T
B
E
I
800
600
400
200
0
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
Sales excl. DuluxGroup
DuluxGroup Sales
EBIT excl.DuluxGroup
DuluxGroup EBIT
Orica Limited
M
$
s
e
a
S
l
8,000
6,000
4,000
2,000
0
24
24
Orica Limited
Directors’ Report – Remuneration Report
The table below summarises key indicators of the performance of the Group and relevant shareholder returns over the past five
financial years:
2008
847.5
94.0
20.95
Financial year ended 30 September
EBIT ($m) (1) (3)
Dividends per ordinary share (cents)
Closing share price
($ as at 30 September)
EPS growth (%) (3)
NPAT ($m) (2) (3)
External Sales ($m) (1)
Cumulative TSR (%)
(1) Excluding DuluxGroup which was demerged from Orica on 9 July 2010.
(2) Including DuluxGroup which was demerged from Orica on 9 July 2010.
(3) Before individually material items.
13.71%
572.3
5,668.9
(9.86)
2009
953.6
97.0
23.50
2.71%
646.1
6,470.9
(13.54)
2010
1,009.0
95.0
25.71
6.30%
675.8
5,812.1
12.57
2011
1,028.3
90.0
23.48
(6.52%)
642.3
6,182.3
14.85
2012
1,022.6
92.0
24.87
2.54%
650.2
6,674.1
20.37
The Board has set challenging financial and non-financial performance targets for management and has directly aligned Executive
Key Management Personnel (KMP) incentives to the achievement of those targets. The link is clear: when target performance is
achieved, target rewards are earned, and when above target performance is achieved, Executive KMP earn above target rewards.
Where Group performance does not meet the Board’s performance targets, Executive KMP will receive reduced or no benefit from
their ‘at risk’ short term or long term incentive components.
Over the past five years:
(cid:190)
cumulative growth in total shareholder return (movement in the Company’s share price plus dividends received) was 20.37 per
cent;
(cid:190) an average of 93.6 cents per ordinary share per annum has been paid to shareholders under the Company’s dividend policy;
and
(cid:190)
compound earnings per share (EPS) growth was 3.54%.
This strong financial performance has however, resulted in highly variable financial outcomes for Executive KMP:
(cid:190)
(cid:190)
the actual Short Term Incentive (STI) awards made over the five years (2008 – 2012) varied between 0% and 97.1% of target
for the previous Managing Director with an average of 54.3% and between 0% and 96.7% of target for other Executive KMP
with an average of 62.3%; and
the Long Term Equity Incentive Plan (LTEIP) has provided a capital appreciation benefit to Plan participants in three of the
past five years and a partial loan forgiveness benefit in two of those years (although in both, the benefit granted was around
target and not at maximum).
A summary of the key developments in our remuneration arrangements and key outcomes for the 2012 Financial Year is set out
below:
Element of
remuneration
Outcomes
Fixed annual
remuneration (FAR)
(cid:190)
(cid:190)
(cid:190)
Executive remuneration was reviewed by the Human Resources and
Compensation Committee of the Board during the year. The outcomes from this
review are set out in section C.1.
As part of the January 2012 salary review, the Executive KMP (excluding the
Executive Director Finance) received an average adjustment to their FAR of
4%.
The Executive Director Finance received a one-off 14% adjustment reflecting a
review of his role and responsibilities and having regard to remuneration of other
ASX 50 Finance Directors.
Further
discussion in
Report
Section C.1
Short term incentive
(STI)
(cid:190) References to Short Term Incentive within this report (other than for Ian Smith)
Section C.2
pertain to the plan framework that the executives, including Graeme Liebelt,
worked under throughout the year.
(cid:190)
Before executives could be considered for a short term incentive, economic profit
for the Group for the 2012 year had to exceed that earned for the 2011 year. The
2012 threshold performance condition for Executive KMP was not satisfied.
Accordingly, the performance conditions applicable to these participants were not
tested and no STI was awarded for the 2012 year.
Orica Limited
25
25
2012 AnnuAl RepoRt
Directors’ Report – Remuneration Report
Long term incentive
(LTI)
Other changes
(cid:190)
(cid:190)
(cid:190)
Following the review of his remuneration, the Executive Director Finance’s target
STI was increased from 40% of FAR to 50% of FAR, reflecting his role and
responsibilities within the Group and relativities with other ASX 50 Finance
Directors.
Ian Smith, the Managing Director, whose STI arrangements differed from those of
other Executive KMP, was entitled to an STI payment for 2012. In light of the fact
that no STIs have been awarded to KMP, Ian Smith has chosen to forego this
payment.
A revised Short Term Incentive Plan, consistent with that put in place for the new
Managing Director, with different performance conditions and weightings, will be
introduced for the 2013 Financial Year. Details of the new Plan terms are set out
in section C.2.3.
(cid:190) During November 2011, the 2008 long term equity incentive plan (LTEIP) grant
was eligible for testing. Compound annual growth rate (CAGR) in Total
Shareholders Return (TSR) over the three year performance period was 26.8%.
This resulted in above target loan forgiveness. This is the first time in four years
that the performance condition giving rise to forgiveness of part of the loan was
satisfied.
Section C.3
(cid:190)
(cid:190)
(cid:190)
(cid:190)
The 2011 LTEIP grant was made in December 2011, applying a performance
hurdle based on CAGR in earnings per share (EPS) over the performance period.
The Board regularly reviews the appropriateness of executive remuneration
arrangements. This year the design of the LTEIP was examined. As a result of
this review the Board has confirmed that LTEIP remains the preferred vehicle for
the long term incentive for the Executive KMP. However, the Board has decided
to apply an additional performance hurdle to LTEIP going forward, with loan
forgiveness being tested against both EPS growth and relative TSR targets.
Details of these changes are set out in section C.3.
As announced on 24 October 2011, Ian Smith was appointed as Managing
Director and Chief Executive Officer with effect from 27 February 2012. Details
concerning Ian Smith’s employment arrangements and remuneration can be
found in section C.1 and C.2.2.
Section C &
Section D
In order to secure their ongoing services during the changeover period of
Managing Director, the Board approved the offer of retention arrangements to
certain executives (excluding the retiring Managing Director) as at 31 December
2011. For all but one of those executives, (Greg Witcombe chose to take his offer
in cash) the retention arrangements take the form of share rights (ie rights to be
allocated fully paid ordinary shares in Orica) granted in January 2012 equal in
value at that time to 0.5 x FAR. In general, the rights vest where the participant’s
personal performance has been rated satisfactory or better by the Managing
Director and, except where departing as a good leaver, the participant is still
employed by Orica on 31 March 2013. John Beevers and Greg Witcombe, who
will both leave Orica after the end of Financial Year 2012, have satisfied the
applicable terms for these incentives and their respective incentives will vest on
31 March 2013. The use of share rights means the ultimate value of the incentive
will vary directly in line with changes in share price over the period. In return for
these arrangements, each of those executives agreed to a change in their
contractual severance payments, bringing them into line with the limits in the laws
relating to termination payments. Details of the retention arrangements can be
found in section D.2.
(cid:190)
There was no increase to Directors’ fees in Financial Year 2012 and the Board
has chosen to defer a planned Financial Year 2013 review of fees until 2014.
Table 1
Details of the remuneration arrangements for Non-Executive Directors are set out in section E.
26
26
Orica Limited
Orica Limited
Directors’ Report – Remuneration Report
Section A. Key management personnel
Key Management Personnel (KMP) include each of the directors, both executive and non-executive, and those members of the
Executive Committee who have authority and responsibility for planning, directing and controlling the activities of Orica. In this
report, “Executive KMP” refers to the KMP other than the Non-Executive Directors. Non–Executive Directors have oversight of the
strategic direction of the Group but no direct involvement in the day to day management of the business.
Particulars of KMP qualifications, experience and special responsibilities are detailed on pages 10 to 11 of the annual report.
The KMP to whom this Report applies are:
Name
Non-Executive
Current
Peter Duncan
Role
Non-Executive Director, Chairman
Russell Caplan
Non-Executive Director
Ian Cockerill
Garry Hounsell
Lim Chee Onn
Non-Executive Director
Non-Executive Director
Non-Executive Director
Nora Scheinkestel
Non-Executive Director
Michael Tilley
Former
Michael Beckett
Executives
Current
Ian Smith
Noel Meehan
John Beevers(1)
Craig Elkington
Andrew Larke
Patricia McEwan
Greg Witcombe(2)
Former
Graeme Liebelt
Non-Executive Director
Non-Executive Director
Managing Director and Chief Executive Officer
Executive Director Finance
Chief Executive Officer, Orica Mining Services
Chief Executive Officer, Minova
Group General Manager, Mergers and Acquisitions, Strategy
and Technology
General Manager, Human Resources and Communications
Chief Executive Officer, Chemicals
Managing Director and Chief Executive Officer
Table 2
(1) As previously announced, John Beevers will leave Orica on 1 October 2012.
(2) As previously announced, Greg Witcombe will leave Orica on 24 December 2012.
Commencement date in
current role
1 June 2001
1 October 2007
12 July 2010
21 September 2004
12 July 2010
1 August 2006
10 November 2003
Date ceased to hold office
15 December 2011
27 February 2012
1 May 2005
13 November 2008
4 April 2011
1 June 2006
1 June 2009
22 September 2008
Date ceased to hold office
27 February 2012
The table of key management personnel set out above reflects the key management personnel and role titles in place during
Financial Year 2012. As announced at the time of Orica’s half year results announcement, an organisational restructure has been
undertaken during the second half of the year which has resulted in a number of new appointments and progressive changes in
responsibilities of some key management personnel. The new structure and changes in responsibilities became effective on 1
October 2012. The new organisational roles are reflected on page 11 of the annual report.
Orica Limited
27
27
2012 AnnuAl RepoRt
Directors’ Report – Remuneration Report
Section B. Executive remuneration – policy and framework
The Human Resources and Compensation Committee is delegated responsibility by the Board for reviewing and making
recommendations on remuneration policies for the Group, including in particular, the policies governing the remuneration of executives.
The Committee receives survey data sourced from external specialists and received external advice on matters relating to remuneration
from Egan & Associates and JWS Consulting. The advice received did not constitute remuneration recommendations for the purpose
of the Corporations Act. Further information regarding the objectives and role of the Human Resources and Compensation Committee
is contained in its Charter, which is available on the Company’s website at www.orica.com.
Orica’s remuneration framework is underpinned by the following objective – to attract, motivate, reward and retain executives through a
remuneration approach that is globally relevant, competitive, aligns with shareholder interests and has a high perceived value.
The executive remuneration framework for 2012 consisted of the following components:
Base Salary
At-risk component
Fixed annual remuneration (FAR)
Short term incentive (STI) paid as cash
Long term equity incentive plan (LTEIP)
In setting FAR:
(cid:190) FAR is generally set with reference
to the market median for listed
companies of a comparable market
capitalisation to Orica
(cid:190) FAR is set having regard to an
individual’s responsibilities,
performance, qualifications, skills
and experience
(cid:190) consideration is given to business
and individual performance as well
as the ability to retain key talent
(cid:190) additional sector or industry-
specific data is taken into
consideration in benchmarking the
senior executives where
appropriate
Table 3
(cid:190) a ‘threshold’ financial performance
hurdle, that economic profit for 2012
exceeded that for 2011, had to be met
before any reward could be earned
(cid:190) performance conditions:
(cid:190) in addition to the ‘threshold’, included
business-specific financial targets;
and
(cid:190) non-financial performance measures
set to drive leadership performance
and behaviours consistent with
achieving the Group’s long-term
objectives
(cid:190) eligible executives are provided with an
interest free, non-recourse loan for the
sole purpose of acquiring shares in the
Company
(cid:190) any dividends paid on the shares are
applied (on an after-tax basis) towards
repaying the loan
(cid:190) future forgiveness of part of the loan
may be granted based on achievement
of performance conditions measured
over a three year performance period,
which in relation to the December 2011
grant was based on EPS growth
(cid:190) maximum rewards under LTEIP arise
where there is both strong share price
performance and strong EPS growth to
ensure a clear link with the creation of
shareholder value
The Board considers that a significant portion of executive remuneration should be ‘at risk’ in order to provide a strong alignment with
this framework and the interests of the Company’s shareholders.
Orica’s mix of fixed and at-risk components for each of the Executive KMP, as a percentage of total annual remuneration is as follows:
Managing Director
Executive Director Finance
Other Executive KMP
Relative components of Total Annual Remuneration
Fixed (1)
35%
45%
50%
At-risk
Short term
incentive (2)
20%
25%
20%
Long term
incentive (3)
45%
30%
30%
Table 4
(1) Fixed annual remuneration for each Executive KMP is set out in table 5 in section C.1.
(2) The percentage attributable to the short term incentive is for performance ‘at target’ against the applicable performance conditions. Actual STI Awards
for 2012 and the maximum STI opportunity (%) are set out in table 6 in section C.2.2.
(3) The percentage attributable to LTEIP is based on the five year moving average of actual returns to participants. The actual LTEIP loans made and
shares acquired are set out in table 9 in section C.3.4 and table 10 in section C.3.5, respectively.
For full details of the remuneration of the Executive KMP for the 2012 Financial Year, refer to section F.
Section C. Executive remuneration components
C.1 Fixed annual remuneration
All executives (including the Executive KMP) receive a fixed remuneration component, the basis for which is set out in section B
above. In general, this is expressed as a total amount of base salary and other benefits (including statutory superannuation
contributions) that may be taken in an agreed form, including cash and superannuation.
As a result of a review of executive remuneration by the Human Resources and Compensation Committee during 2012, the
Executive KMP (excluding Noel Meehan) received an average adjustment to their FAR of 4% on 1 January 2012.
Noel Meehan received a one-off 14% adjustment to his FAR (effective 1 January 2012) following a review of his role,
responsibilities and performance and having regard to FAR levels for other ASX 50 Finance Directors.
Orica Limited
28
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Orica Limited
Directors’ Report – Remuneration Report
In March 2012, a special 10% adjustment was made to the fixed remuneration component of John Beevers. This adjustment was
made pursuant to a contractual entitlement to counter the negative currency impact to his FAR since assuming his Singapore-based
role in 2009.
Set out below is the fixed annual remuneration for each of the Executive KMP as at the end Financial Year 2012:
Term of Agreement
27 February 2017
Open
Name
Current Executive Directors
I K Smith
N A Meehan
Current Executive KMP
J R Beevers
Open
C B Elkington Open
Open
A J P Larke
P McEwan
Open
G J Witcombe Open
Fixed
Annual
Remuneration (1)
2,500,000
1,250,000
1,104,567
780,000
888,200
645,900
871,400
Table 5
(1) Fixed salary, inclusive of superannuation, is reviewed annually by Orica’s non-executive directors following the end of each financial year and
adjustments are, in general, effective from the next 1 January. Accordingly, the amounts set out in the table above are the Executive KMPs’ fixed
annual remuneration as at 30 September 2012. As part of the normal annual review of remuneration, fixed annual remuneration fo r all Executive
KMP will be reviewed and, where appropriate, adjusted during the 2013 financial year.
C.2 At-risk remuneration – Short Term Incentive Plan (STI Plan)
The Orica STI Plan is the short term incentive component of the remuneration mix for the Executive KMP and is paid annually in
cash. The STI Plan provides a reward for meeting annual performance targets linked to both financial and non-financial
components. The Board believes that the STI Plan provides appropriately challenging targets for participants. The actual STI
awards granted to individual Executive KMP over this period, which are disclosed in past Remuneration Reports, vary based upon
actual performance against the financial and non-financial performance targets specific to each executive. The actual STI awards
made over the five years (2008 – 2012) varied between 0% and 97.1% of target with an average of 54.3% for the previous
Managing Director and between 0% and 96.7% of target with an average of 62.3% for other Executive KMP.
The 2012 threshold performance condition for Executive KMP (excluding Ian Smith) was not satisfied. Accordingly, the performance
conditions applicable to these participants were not tested and no STI was awarded for the 2012 year. Ian Smith, whose STI
arrangements differed from those of other Executive KMP, was entitled to an STI payment for 2012. In light of the fact that no STIs
have been awarded to KMP, Ian Smith has chosen to forego this payment.
C.2.1 Key features of the STI Plan as it applied in 2012
Structure and purpose of the plan
What is the STI Plan?
An annual cash incentive plan linked to specific annual financial and non-financial targets.
‘Gateway’ and performance conditions
What is the ‘threshold’
level of performance
required before any STI
is awarded?
The 2012 STI Plan required that Orica’s economic profit for the year must exceed the economic profit
earned in the previous year, before any entitlement to an STI award would arise.
The STI arrangements for the new Managing Director, who was appointed in February 2012, differed
from those of other Executive KMP. Instead of a single financial gateway, each of the Group and
Personal performance objectives operated independently and the weighted result for each of the
Group and Personal objectives are then multiplied together to determine the final STI amount. Each of
the applicable Group and Personal objectives require a minimum threshold level of performance to be
achieved prior to any part of that component of the STI being earned.
During the year an internal restructure was undertaken resulting in a move to a global functional
structure. The Board has decided that Net Profit After Tax (NPAT) will replace economic profit for
assessing performance under the STI Plan. This change is one of several under a new STI plan
design that will align all Executive KMP under the same plan as the new Managing Director worked
during this year. Full details of the new 2013 STI Plan can be found in section C.2.3.
What are the STI
performance conditions?
The performance metrics applied to the STI Plan vary from year to year depending on business
requirements. The metrics and weightings applicable to the Executive KMP (other than the current
Managing Director) for the 2012 STI are outlined below:
Orica Limited
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Directors’ Report – Remuneration Report
Financial Targets
Financial targets make up approximately 60% of each Executive KMP’s total target STI.
All Executive KMP have a portion of their STI tied to overall Group economic profit. Business Unit
heads had specific financial targets relating to operating cash and rolling trade working capital in their
area of operation.
Non-Financial Targets
Non-financial targets represented approximately 40% of each Executive KMP’s total target opportunity.
All Executive KMP had a portion of their STI based on overall Group performance in the areas of
safety, health and environment.
All participating executives also had targets relating to:
(cid:120)
(cid:120)
organisational alignment initiatives relevant to their specific roles. Objectives may have
included strategy development, engagement, diversity, resourcing and succession planning;
and
business unit or functional project-based objectives specific to their relevant role.
As performance conditions are set at both a Group level and an individual business level, STI
performance varied between businesses and individuals.
Setting targets and assessing performance
Who sets the targets and
assesses performance?
The Board approves the targets for the Managing Director at the beginning of each year and assesses
performance against those targets at the end of the financial year.
The Managing Director, in consultation with the Board, sets the applicable targets for the Executive
KMP and assesses their performance against those targets at the end of each financial year.
The Board believes that the financial and non-financial performance targets set for the STI Plan
represent appropriately challenging targets. This can be seen in the variability of awards made over
the past five years, outlined in the introduction to section C.2 above.
Reward opportunity
Is there an opportunity
for an additional benefit
to be earned for ‘stretch’
performance?
Yes. The STI and the performance conditions set under the STI Plan operating for Financial Year
2012 have been designed to motivate and reward high performance. Against the major financial
metrics Executive KMP (excluding the Managing Director) could have earned up to 150% of the
weighting relating to that item.
This will change for 2013 (see below).
Cessation of employment or a change of control
What happens in the
event of cessation of
employment?
A participant will not be eligible for a payment if terminated due to misconduct or poor performance
nor, in general, if they resign.
In circumstances approved by the Board (such as bona fide redundancy), the Board may award a pro
rata payment of the STI.
How would a change of
control impact on STI
entitlements?
Where there is a change of control, the Board has the discretion to pay some or all of the STI available
for that financial year.
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Directors’ Report – Remuneration Report
C.2.2 Awards to Executive KMP under STI Plan
Details of the 2012 STI percentage for the Executive KMP is set out in the table below:
For the year ended
30 September 2012
Current Executive KMP
I K Smith (4)
N A Meehan
J R Beevers
C B Elkington
A J P Larke
P McEwan
G J Witcombe
Former Executive KMP
G R Liebelt
Table 6
Maximum
STI
opportunity
$000 (1)
1,783.6
1,250.0
883.7
624.0
1,421.1
516.7
697.1
1,251.5
Actual STI
payment
$000 (2) (3)
Actual STI payment
as % of maximum
STI (1)
% of maximum STI
payment
forfeited/forgone
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
(1) In general, for 2012, the Executive KMP (excluding the Managing Director and the Executive Director Finance) could have earned 40% of FAR for ‘at
target’ performance and 80% of FAR ‘at maximum’. The Executive Director Finance could have earned 50% of FAR at target and 100% of FAR at
maximum. In addition, they could have achieved greater than maximum STI as there was an opportunity to earn up to 150% of the weighting attaching to
the major financial metric. The Managing Director could have earned 60% of FAR at target and 120% of FAR at maximum (with no additional
opportunity).
(2) STI provided for a potential cash incentive to be earned during 2012. As indicated above, no STI awards were made in relation to 2012.
(3) For the Executive KMP (excluding the Managing Director) a minimum level of economic profit had to be achieved before any STI wa s earned. As the
economic profit target was not met the value of the STI for the financial year was nil.
(4) Ian Smith, whose STI arrangements differed from those of other Executive KMP, was entitled to an STI payment for 2012. In light of the fact that no
STIs have been awarded to KMP, Ian Smith has chosen to forego this payment.
C.2.3 New STI Plan for 2013
The operation of the STI Plan was reviewed during the year to ensure it continued to serve Orica and its shareholders as intended. A
new STI Plan has been agreed by the Board for 2013. Details of the new 2013 STI Plan are set out below.
The revised STI arrangements are consistent with those put in place for the new Managing Director, Ian Smith following his
appointment.
All STI participants, regardless of their level within Orica, will be subject to Group performance and personal performance metrics. A
key feature of the new STI is the greater emphasis which will be placed on safety, health and the environment as a performance
measure – increasing its weighting from 10% to 25% of maximum STI.
The new STI Plan differs from the old STI Plan in a number of respects. First, it is not possible to earn an STI in excess of maximum
(which is 2 times target). In addition, instead of a single financial gateway, each of the Group and Personal performance objectives
operate independently and the weighted result for each of the Group and Personal objectives are then multiplied together to determine
the final STI amount.
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The Group and personal performance measures for the Executive KMP will, in general, be structured as follows:
Performance objectives Metrics/objectives
Weighting
Comment
All Executive KMP members share a
common set of Group objectives.
These are divided equally between
Safety, Health and Environment
(SH&E), Earnings measures, Margin
measures and discretion.
The Plan design allows for a maximum
of 200% of target reward to be earned
(1.25 for Group Objectives multiplied by
1.60 for Personal Objectives).
Under the multiplicative nature of the
model, each of the performance
objectives (Group or Personal) has the
capacity to detract up to 25% from the
maximum 200% of target STI earnable
under the STI Plan. For example, if an
Executive KMP were adjudged to have
delivered the maximum possible
performance in seven out of the eight
measures within his/her set of
objectives (but received 0% for the
Group’s Safety Health & Environment
performance) then 150% of target STI
would be paid.
Group objectives
Each of the four
objectives carries
equal weighting of
25% of the
possible 100% for
this category.
Maximum stretch
outcome is 1.25
times the 100%
target.
Achievement of specific
targets relating to:
(cid:120)
Safety, Health &
Environment – relating to
All Worker Recordable
Case Rate and
improvements in process
safety.
Earnings – relating to
improving on the
previous year’s net profit
after tax.
Margin – relating to both
Gross Margin
percentage and Cash
Conversion.
Board discretion.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Personal objectives
Table 7
Three objectives in this section
are to be role specific (which
may be financial or non-
financial), with the fourth
objective being Board
discretion.
Examples may include
functional financial targets
(NPAT, Gross Margin
percentage, Cash Conversion)
and Projects specific to an
executive’s area of influence.
Each of the four
objectives carries
equal weighting of
25% of the
possible 100% for
this category.
Maximum stretch
outcome is 1.60
times the 100%
target.
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Directors’ Report – Remuneration Report
C.3 At-risk remuneration – Long Term Equity Incentive Plan (LTEIP) December 2011 grant
C.3.1 Overview
The Orica LTEIP is the long term incentive component of the remuneration arrangements for members of the Executive Committee
including each of the Executive KMP. In Financial Year 2012, all other senior (non Executive Committee) executives, formerly on
LTEIP, were moved to a hurdled performance rights plan.
An overview of the benefits of the LTEIP Plan to its various stakeholders is set out below:
Stakeholder Benefits
Shareholder benefits
> Applicable performance conditions encourage growth
in shareholder returns (increases in the share price
and dividends) and EPS growth.
>
Immediate share ownership aligns participants’
interests with those of shareholders.
Participant benefits
Company benefits
> For Australian participants, shares are taxed under the
>
concessional capital gains tax regime.
> Derive rewards for both share price growth and EPS
performance.
> After tax dividends are applied in repaying the loan –
building value in the LTEIP progressively.
The shares are held as security for the loans and
dividends are applied on an after tax basis to
repay the loan.
> Concessional tax treatment of the shares in the
hands of the employee means the cost to the
Company of providing a given LTI value is lower
than alternate instruments (as less of the benefit
is taxable).
The LTEIP Plan has, in effect, two performance measures which aim to deliver a benefit to participants in two ways.
(cid:120) Capital appreciation - a benefit is provided through share price increases and dividends over the period of the loan, directly
reflecting shareholder value created. When participants repay the loan at the end of the loan period, they gain through share
price appreciation. Participants may surrender the shares in full satisfaction of the loan if the value of the shares at the end of
the loan period does not exceed the outstanding loan balance; and
(cid:120)
Forgiveness of part of the loan - a performance-based incentive in the form of forgiving part of the outstanding loan balance
in return for performance against an EPS growth condition. The targets applicable to the December 2011 LTEIP are:
Compound EPS growth per annum
Less than 5%
5%
10% (Target Loan Forgiveness)
15% (Maximum Loan Forgiveness)
Percentage of the loan that is
forgiven if the EPS hurdle is met (1)
0%
11%
22%
33%
(1) For an executive located in Australia. Participants based outside Australia must pay withholding tax to participate in the LTEIP. To
compensate for this, minimum loan forgiveness starts at approximately 21% of the loan increasing in a straight line to a maximum loan
forgiveness of 62%. Loan forgiveness ‘at target’ for overseas executives is set at approximately 42% of the loan.
For the next grant under the LTEIP (to be made in early 2013), the Board has decided to introduce an additional performance condition.
Accordingly, part of the loan forgiveness benefit may be earned for achieving the requisite levels of EPS growth and a part of the loan
forgiveness benefit may be earned for achieving the requisite level of performance in terms of relative growth in total shareholder return
(TSR) against the companies in the ASX100 (with no exclusions).
Long term incentive - outcomes for 2012
The December 2008 LTEIP awards were tested at the end of 2011. The performance conditions for the 2008 LTEIP included a target
level of loan forgiveness if a 20% per annum absolute TSR growth was achieved. Absolute compound annual growth rate (CAGR) in
TSR over the three year performance period was 26.8%. While this performance resulted in above target loan forgiveness, it did not
result in maximum loan forgiveness, which required CAGR in TSR of 30% over the performance period. This is the first time in four
years that the performance condition relating to forgiveness of part of the loan was satisfied.
Why a loan plan instead of a more traditional option or performance shares plan?
The Board continues to prefer a loan based scheme over more common performance right or performance share schemes because, as
compared to those other schemes, it delivers the same ultimate benefit to the participants at a lower cost to the Company.
Orica Limited
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How does Orica’s loan plan deliver the same benefit at less cost?
In Australia, as a result of the LTEIP shares being acquired by the employee for full market value at the date of acquisition, the shares
are taxed under the capital gains tax regime rather than the income tax deferral provisions that relate to the other types of schemes.
Accordingly, once the shares have been held for 12 months (and they must be held for three years under the LTEIP), Australian
participants of the Plan qualify for concessional capital gains tax treatment.
While the Company is required to pay fringe benefits tax in relation to any performance based loan forgiveness that may occur, this cost
has been factored into the level of the forgiveness granted (such that the true ‘cost’ is effectively borne by the participant out of their
target award).
While the LTEIP is an equity plan pursuant to which shares are acquired up front through the provision of a non-recourse loan from the
Company, this structure operates very much like a traditional option plan, as the outstanding loan balance is effectively the ‘exercise
price’ that must be paid before any value can be realised.
The Plan has an aspirational design to deliver to participants a net benefit of one times fixed annual remuneration when target
performance is achieved. In the case of the Managing Director, his participation has been designed to provide a net benefit in excess
of two times FAR for target performance. As may be seen from table 8 in section C.3.3 below, the performance components of the
Plan, have been suitably challenging. As a result, over the past five years, LTEIP has, on average, delivered a net benefit to
participants of approximately half the target opportunity.
C.3.2 Key Features of LTEIP
Structure of awards (including how the loan operates)
How is the amount of
the loan determined?
The key metrics of the LTEIP Plan including the manner of determining the amount of the loan to be
granted and the level of partial loan forgiveness that may be granted to participants have been calculated
to deliver a net benefit of 100% of FAR to the participant for ‘at target’ performance. This calculation
factors in a notional interest charge on the loan and the fringe benefits tax cost of the partial loan
forgiveness.
As indicated above, notwithstanding this design aspiration, over the past five years LTEIP has, on
average, delivered a net benefit to participants of approximately half the target opportunity.
What is the term of the
loan?
The loan period runs from the allocation date until shortly after the performance condition of the LTEIP is
tested, a period of approximately three years.
Is the loan interest
free?
An interest component is taken into account in determining the level of performance based loan
forgiveness that may be awarded to participants. There is no interest charge to the executive on the loan
itself.
How are shares
acquired for allocation
to executives under the
LTEIP?
Shares are acquired at full market value. The Company has the flexibility under the LTEIP rules to acquire
shares on-market, issue new shares, or reallocate forfeited shares to participants in the Plan.
The Company proposes to acquire shares on-market for the LTEIP offer expected to be made to
Executive Directors in February 2013, and therefore, consistent with the ASX Listing Rules, is not strictly
required to seek shareholder approval for the grant to each of its Executive Directors. However, the
Company has determined that shareholder approval will be sought for these LTEIP grants.
No. The shares are held as security for the loan.
During the loan period, 51.5% of any dividends paid on the shares are applied in part repayment of the
loan. The remainder (after withholding tax, where applicable) is paid directly to the participant to fund their
tax liability on the dividends received.
The loan balance can also be reduced at the end of the performance period through the performance
based partial loan forgiveness (discussed in further detail below).
Participants are not entitled to make any additional voluntary repayments on the loan.
Yes, executives must repay their loan at the end of the performance period.
Executives can either repay their loan out of their own funds or sell some or all of their shares and apply
the proceeds of sale to repay the loan. Shares remain restricted until the loan is repaid.
If the value of the shares is less than the outstanding loan balance at the end of the performance period,
the executive surrenders and forfeits the shares to Orica in full settlement of the loan balance and no
benefit accrues to the executive. This is why the loan is regarded as ‘non-recourse’.
LTEIP has over the past five years constituted 30% of total remuneration for Executive KMP and 45% of
total remuneration for the Managing Director. If the shares are forfeited at the end of the loan period, the
executives have missed out on a material part of their remuneration. The Board believes this to be an
adequate penalty for the executives, without them also owing a debt to the Company for that part of the
loan balance not covered by the then current (and transitory) value of the shares.
No. Surrendered shares are held in the Orica Share Plan Trust and reallocated under future LTEIP
grants.
Orica Limited
Are executives entitled
to deal with shares
during the loan period?
How is the balance of
the loan reduced over
time?
If the loan is non-
recourse, do
executives have to
repay the loan?
Does the Company
buy back or cancel
shares surrendered by
executives under the
non-recourse feature of
the LTEIP?
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Performance condition
Is there a share price-based
hurdle applicable to LTEIP?
Partial loan forgiveness may
be granted subject to EPS
performance. What is EPS
and how is it calculated?
Why did the Board select
this as the performance
condition?
LTEIP is, in effect, a dual performance hurdle plan. LTEIP has the EPS growth target that
determines the level of loan forgiveness to be granted (discussed in further detail below) and the
second, inbuilt performance condition, relates to the fact that the loan must be repaid at the end of
the loan period. This is effectively a TSR performance condition. To obtain maximum benefit under
LTEIP both strong total shareholder return growth (share price growth plus dividends) and earnings
per share growth must be achieved.
EPS stands for Earnings per Share and is calculated by dividing Orica’s net profit after tax by the
undiluted weighted average number of ordinary shares on issue during the relevant performance
period.
The Board has retained discretion to adjust EPS in exceptional circumstances for individually
material items (disclosed in note 6 of Orica’s financial statements) whether positively or negatively.
The Board has not, to date, exercised this discretion.
The Board considers that growth in EPS maintains a strong correlation with long term shareholder
return, whilst reducing the plan’s susceptibility to short term share price volatility as share price may
be influenced by market factors that are not always representative of the Company’s performance.
Additionally, the Board believes it is an aggressive target to maintain EPS growth at 10% per annum
compound over the three year performance period. When selecting this target, the Board had
reference to both the general performance of the market (where EPS growth of 10% per annum
generally reflects high end performance within the ASX 100) and Orica’s historical EPS growth which
has averaged about 3.5% per annum over the past five years.
How is the EPS performance
condition tested?
Earnings per share growth is measured from the reported EPS for the financial year immediately
preceding the grant, against the EPS for the third financial year after the grant date.
Is the performance condition
re-tested?
No, the performance condition is only tested once at the end of the performance period.
Cessation of employment or a change of control
What happens if a LTEIP
participant ceases
employment prior to
repayment of the loan?
If a participant resigns from the Group or is terminated for cause during the loan period, in general,
the shares are forfeited and surrendered to the Group (in full settlement of the loan) and the
individual has no further interest in the shares. However, the Board retains a discretion to determine
otherwise in appropriate circumstances which may include allowing a participant to repay the loan
and retain the capital appreciation or, where performance warrants, grant partial loan forgiveness on
a pro rata basis. The Board may also determine to leave the loan in place for the remainder of the
performance period and test the loan forgiveness provisions at the end of the performance period in
appropriate circumstances.
How would a change of
control impact on LTEIP
entitlements?
The LTEIP rules provide that the loan becomes immediately repayable upon a change of control
event, with the outstanding loan balance reduced by the target forgiveness amount, except where
the Board determines otherwise. The Board’s current intention is that it would not exercise its
discretion to vary this default position in the event of an actual change of control.
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C.3.3 Historical analysis of benefits under the Long Term Equity Incentive Plan (LTEIP)
Plan
Hurdles
Allocation
price
Performance
period
Status
Performance
Was a capital benefit
derived (ie did the
participating
executives keep
their shares?)
Was loan
forgiveness /
waiver granted?
Was the
maximum
loan
forgiveness
granted?
$20.16
3 years
Complete
YES
YES
NO
$20.67
3 years
Complete
NO
NO
NO
$23.77
3 years
Complete
YES
NO
NO
$31.76
3 years
Complete
NO
NO
NO
$16.13
3 years
Complete
YES
YES
NO
TSR growth
(average 15% pa or
greater
(compound))
TSR growth
(average 15% pa or
greater
(compound))
TSR growth
(average 15% pa or
greater
(compound))
TSR growth
(average 15% pa or
greater
(compound))
TSR growth
(average 10% pa or
greater
(compound))
2004 Offer
2005 Offer
2006 Offer
2007 Offer
2008 Offer
Table 8
The 2008 LTEIP awards were tested at the end of 2011. Absolute CAGR in TSR over the three year performance period was 26.8%.
This resulted in above target loan forgiveness. As outlined in the table above, this is the first time in four years that the performance
condition relating to forgiveness of part of the loan was satisfied.
C.3.4 Loans to Executive KMP under Group long term incentive plans
For the year ended
30 September 2012
Opening
balance
$
Current Executive Directors
I K Smith
N A Meehan
Current Executive KMP
J R Beevers (4)
C B Elkington
A J P Larke
P McEwan
G J Witcombe (4)
Former Executive Director
G R Liebelt
Total Executive Key
Management Personnel
-
4,188,811
3,895,387
2,367,638
3,309,005
2,449,053
3,309,005
20,198,444
39,717,343
Advances
during the
year (1)
$
8,029,443
1,568,437
1,446,012
1,076,244
1,225,485
891,120
1,214,003
Other
repayments
during the
year (2)
$
Cash
repayments
during the
year (3)
$
Closing
balance
$
Interest free
value
$
Highest
indebtedness
$
-
414,905
765,088
230,392
514,397
250,591
328,461
59,748
929,777
7,969,695
4,412,566
236,414
212,661
8,029,443
4,450,284
559,206
518,649
549,869
581,190
735,715
4,017,105
2,694,841
3,470,224
2,508,392
3,458,832
194,146
128,454
167,354
121,987
167,586
4,051,221
2,717,749
3,499,897
2,529,836
3,488,415
7,503,212
1,991,250
4,463,811
21,246,595
1,050,353
25,553,727
22,953,956
4,495,084
8,397,965
49,778,250
2,278,955
54,320,572
Table 9
(1) Under the LTEIP, eligible executives are provided with an interest free, non-recourse loan from the Group for the sole purpose of acquiring shares in Orica.
Executives must apply net cash dividends to the repayment of the loan balance, and executives may not deal with the shares while the loan remains
outstanding. Accounting Standards require that shares issued under employee incentive share plans in conjunction with non-recourse loans are to be
accounted for as options. As a result, the amounts receivable from employees in relation to these loans have not been recognised in the financial statements.
(2) Constitutes loan forgiveness amounts under the LTEIP plans.
(3) Constitutes repayments including after tax dividends paid on the shares applied against the loan and forfeiture of LTEIP options.
(4) J R Beevers ceases employment on 1 October 2012 and G J Witcombe ceases employment on 24 December 2012. In both cases the Board has
determined that their 2009 LTEIP grants will be tested as normal in November 2012 and both will be entitled to any capital appreciation on the December
2009 LTEIP grant. Their 2010 and 2011 LTEIP grants will be tested and loan forgiveness may be granted on a pro rata basis. Both executives will be
required to repay their outstanding loan (after any loan forgiveness benefit being granted) by 31 January 2013.
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C.3.5 Equity instruments granted to and exercised by Executive KMP
As outlined in C.3.4, although shares allocated to Executive KMP under the LTEIP are “shares” for legal and taxation purposes,
Accounting Standards require that they be treated as “options” for accounting purposes. Share rights and retention rights are also
treated as options for accounting purposes.
The value of “options” granted during the year and the value of any “options” granted in a previous year that were exercised during the
year relating to Executive KMP is set out below. The value of the “options” granted, as valued by PricewaterhouseCoopers (PWC), is
the fair value calculated at grant date using an adjusted form of the Black Scholes option pricing model.
For the year ended
30 September 2012
Current Executive Directors
I K Smith
N A Meehan (5)
Current Executive KMP
J R Beevers (5)
C B Elkington (5)
A J P Larke (5)
P McEwan (5)
G J Witcombe
Former Executive Director
G R Liebelt
Total Executive Key
Management Personnel
Options
Granted
Number
305,302
88,158
88,914
58,884
67,050
48,757
48,213
Options
Granted
(1) (2) (3)
$
2,842,362
1,095,992
1,231,920
714,920
814,072
591,984
386,186
Options
Exercised (4)
Number
Options
Exercised (4)
$
-
85,406
84,516
47,418
67,613
40,580
67,613
-
826,800
737,876
411,976
601,964
829,602
613,658
297,983
2,386,844
409,872
6,121,341
1,003,261
10,064,280
803,018
10,143,217
Table 10
(1) Accounting Standards require that shares issued under employee incentive share plans in conjunction with non-recourse loans are to be accounted for
as options. As a result, the amounts receivable from eligible executives in relation to these loans have not been recognised in the financial statements.
Further details are set out in sections C.3, G and H of this report.
(2) The LTEIP options have been valued by PWC at $9.31 for I K Smith and at $8.01 per option for all other executives. The benefit of the options granted
under the November 2009 and subsequent LTEIP offers may lapse during future years if the executives cease employment with the Group before the end
of the three year performance period.
(3) The minimum potential value of grants made during the year under LTEIP is nil.
(4) As explained above, Accounting Standards require the LTEIP plan be treated as an option scheme for accounting purposes. The value of each
“option” exercised is the market value of Orica shares on the date of exercise, less the exercise price paid (ie effectively the outstanding loan balance at
that date).
(5) N A Meehan, J R Beevers, C B Elkington, A J P Larke and P McEwan have rights granted under the Retention Rights Plan. These have been valued
by PWC at $23.08 per right. Further details are set out in section H.
Section D. Service Agreements and the Executive Retention Scheme
D.1 Executive KMP Service Agreements
Remuneration and other terms of employment for the Executive KMP are formalised in service agreements.
All of the Executive KMP have contracts of no fixed term except for Ian Smith whose agreement is for a defined period which ends
on 27 February 2017 (with an option to extend the contract by agreement between Ian Smith and the Company for a further term).
Should the Company wish to terminate any of the Executive KMP (except Ian Smith) for convenience, the Company must provide
the executive a payment equal to one times their average fixed annual remuneration over the preceding three years. Should the
Company wish to terminate Ian Smith, it must provide him with six months notice together with a severance payment equal to six
months fixed annual remuneration. All of the Executive KMP must provide the Company with six months notice if they wish to
resign.
Each of the Executive KMP has also agreed to restraints and non-solicitation undertakings as part of their service agreements,
which will apply upon cessation of their employment to protect the legitimate business interests of Orica. John Beevers and Greg
Witcombe will be restrained from joining any of Orica’s major competitors for a period of 12 months following the date they cease
employment.
D.2 Executive Retention Scheme
Following the announcement in late 2011 of the retirement of Graeme Liebelt and the appointment of Ian Smith as Chief Executive
Officer and Managing Director to take effect in early 2012, the Board approved retention arrangements being offered to a select
group of senior executives, including the Executive Director Finance (but excluding the then Managing Director). As the transition
to a new Managing Director can lead to a period of uncertainty for senior executives and leave them more susceptible to outside job
offers, this program was instituted to secure the services of those executives who have been instrumental in Orica’s strong,
sustained financial performance and whom the Board considered would be beneficial in maintaining the momentum of Orica’s
strategy during the Managing Director’s transition period.
In return for the retention arrangements, participating executives agreed to a reduction in their historically agreed ‘grandfathered’
contractual termination entitlements to ensure that they will fall within the current limits on termination payments that may be made
to Orica’s key management personnel pursuant to the Corporations Act.
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Share rights (ie rights to allocated fully paid ordinary shares in Orica) have been allocated to participating executives and will vest
subject to the condition that each participant’s personal performance be rated satisfactory or better by the Managing Director and
the participant must remain employed by Orica on 31 March 2013. Refer section H of the Remuneration Report for further details of
the scheme.
The participant will forfeit his or her entitlement (and the applicable share rights will lapse) if the participant resigns or is terminated
for cause or performance related issues prior to 31 March 2013. In circumstances where employment is terminated by Orica for
other reasons prior to 31 March 2013, the share rights will vest on 31 March 2013. With an internal restructure across Orica’s entire
global operation adopting more of a functional model, it was decided that John Beevers and Greg Witcombe, who will leave the
Group after the end of Financial Year 2012, have both satisfied the terms applicable to the retention bonus. John Beevers’ rights
will vest and Greg Witcombe will become entitled to a cash payment (see below) on 31 March 2013.
Details of the share rights allocated during the year to certain members of the Executive KMP, which other than as specifically
noted below represent an amount equal to 50% of their individual FAR for the year, are as follows:
Name
Current Executive Directors
N A Meehan
Current Executive KMP
J R Beevers (1)
C B Elkington
A J P Larke
P McEwan
Share Rights Allocated (2)(3)
25,869
34,487
16,142
18,381
13,367
(1) J R Beevers received an additional allocation of share rights equal in value to 0.28 x FAR in part recognition of the reduction in his contractual benefit
on termination by Orica for convenience from 1.28 times FAR to one times average FAR (that is, the average for the three years immediately preceding
the date of termination of employment). As indicated above, J R Beevers, who will leave the Group on 1 October 2012, has satisfied the terms applicable
to his rights and the rights will vest on 31 March 2013.
(2) The share rights were granted on 9 January 2012. The fair value of each right was $23.08. Details of the assumptions adopted in valuing the rights
are set out in section H. No amount was payable by a participant for the grant of the right.
(3) The maximum value of the grant is dependent upon the price of Orica’s shares on the vesting date of 31 March 2013. The minimum value is nil (if the
rights lapse).
Greg Witcombe was not allocated share rights, but is eligible for a cash retention bonus of $592,552. In return Greg Witcombe
agreed to reduce his contractual benefit on termination by Orica for convenience from 1.68 times FAR to one times average FAR.
The cash bonus is subject to satisfaction of the same conditions outlined above. Greg Witcombe, who will leave the Group on 24
December 2012, has satisfied the terms applicable to his retention payment which will be paid on 31 March 2013.
Section E. Non-Executive Director Remuneration
E.1 Overview of remuneration policy and principles
The key principles relating to Non-Executive Directors’ remuneration are set out below:
Principle
Comment
Remuneration is structured to
preserve independence whilst
creating alignment
Aggregate Board and Committee
fees are approved by
shareholders
Fees are set by reference to key
considerations
To preserve independence and impartiality, Non-Executive Directors are not entitled to any
form of incentive payments and the level of their fees is not set with reference to measures
of Company performance.
However, to create alignment between Directors and shareholders, the Board has adopted
guidelines that encourage Non-Executive Directors to hold (or have a benefit in) shares in
the Company equivalent in value to at least one year’s base fees. Such holdings must be
acquired in a manner of the Director’s choosing (subject to the Company’s Share Trading
Policy), using personal funds.
The current aggregate fee pool for Non-Executive Directors of $2,500,000 was approved by
shareholders at the Company’s 2010 Annual General Meeting. These fees exclude
superannuation benefits and other payments in accordance with rule 48.1 of Orica’s
constitution. Notwithstanding rule 48.1 of the constitution, the Company does, in practice,
pay both superannuation and committee fees to the Non-Executive Directors out of the
maximum aggregate fee pool.
There was no increase to Directors’ fees in Financial Year 2012 and the Board has chosen
to defer a planned Financial Year 2013 review of fees until 2014.
Board and Committee fees are set by reference to a number of relevant considerations
including:
• responsibilities and time commitment attaching to the role of Director;
• the Company’s existing remuneration policies;
• survey data sourced from external specialists;
• fees paid by comparable companies; and
• the level of remuneration required to attract and retain directors of the appropriate calibre.
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Directors’ Report – Remuneration Report
Principle
Comment
Flexibility in how fees are
received
Non-Executive Directors can elect how they wish to receive their total fees – ie. as a
contribution of cash, superannuation contributions or charitable donations.
No retirement benefits
Generally, no additional benefits are paid to the Non-Executive Directors upon their
retirement from office. The Chairman, P J B Duncan, however, has a grandfathered
retirement entitlement of $154,800 (preserved as at July 2004 with no indexation).
E.2 Non-Executive Director fees and other benefits
Element
Description
Included in the
shareholder
approved cap?
Board fees
Chair of Board (1)
Other Non-Executive
Directors
Yes
$510,000
$170,000
Committee fees
Chair of Committee
Committee member
Yes
Audit and Risk Committee
$45,000
Human Resources and Compensation Committee $45,000
Safety, Health and Environment Committee
$45,000
$22,500
$22,500
$22,500
Superannuation
Other fees/benefits
Yes
Superannuation contributions are made on behalf of the
Non-Executive Directors at a rate of 9% (being the
current superannuation guarantee contribution rate).
Superannuation contributions are only made to the extent
required to satisfy the Company's statutory
superannuation obligations. Directors do not receive the
9% superannuation contribution on the total amount of
their fees, as the Company only makes contributions up
to the amount required to avoid imposition of the
superannuation guarantee charge.
No
Non-Executive Directors receive a travel allowance
based on the hours travelled to a board meeting. If travel
to attend a meeting takes between 3 hours and 12 hours,
the allowance paid is $2,500 per meeting. If travel time
exceeds 12 hours, the allowance paid is $5,000 per
meeting. Non-Executive Directors are also permitted to
be paid additional fees for extra services or special
exertions. No payments were made to any Non-
Executive Director for extra services or special exertions
during Financial Year 2012.
(1) Committee fees are not paid to the Chairman of the Board.
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E.3 Non-Executive Director Remuneration
Details of Non-Executive Directors’ remuneration is set out in the following table:
For the year to 30 September
2012
Directors
Fees (1)
Committee Fees (1)
SH&E
HR&C
Audit
and Risk
Current Directors
P J B Duncan, Chairman (5)
2012
2011
R R Caplan
2012
2011
I D Cockerill (4)
2012
2011
G A Hounsell
2012
2011
Lim C O
2012
2011
N L Scheinkestel
2012
2011
M Tilley
2012
2011
Former Director
M E Beckett (4) (6)
2012
2011
$000
$000
$000
$000
510.0
486.0
170.0
162.0
170.0
162.0
170.0
162.0
170.0
162.0
170.0
162.0
170.0
162.0
42.5
162.0
-
-
-
-
-
-
-
-
-
-
22.5
21.3
-
-
45.0
42.5
-
-
22.5
21.3
-
-
22.5
21.3
-
-
22.5
21.3
-
-
45.0
42.5
22.5
21.3
-
-
-
-
22.5
21.3
45.0
42.5
5.6
21.3
-
-
-
-
Total Non-Executive Directors
2012
2011
1,572.5
1,620.0
90.0
85.1
95.6
106.4
90.0
85.1
Super-
annuation (2)
$000
Other
Benefits (3)
Total
$000
$000
15.9
15.3
15.9
15.3
15.9
15.3
15.9
15.3
15.9
15.3
15.9
15.3
15.9
15.3
3.9
15.3
115.2
122.4
2.5
2.5
2.5
2.5
20.0
37.5
2.5
2.5
7.5
7.5
2.5
2.5
2.5
2.5
53.4
20.0
93.4
77.5
528.4
503.8
233.4
222.3
228.4
236.1
233.4
222.4
215.9
206.1
255.9
243.6
255.9
243.6
105.4
218.6
2,056.7
2,096.5
Table 11
(1) Represents Directors’ remuneration earned during the financial year.
(2) Company superannuation contributions made on behalf of Non-Executive Directors.
(3) These benefits include travel allowances payable to Non-Executive Directors.
(4) Other benefits include spousal travel (inclusive of any fringe benefits tax) (M E Beckett during financial years 2012 and 2011, I D Cockerill –
during financial year 2011).
(5) Orica has discontinued retirement allowances for all Non-Executive Directors. P J B Duncan was appointed prior to 1 July 2002 and has had his
retirement allowance preserved (as at 1 July 2004) with no indexation and the allowance will be paid upon his retirement. In accordance with rule
48.1 of Orica’s constitution, those retirement benefits do not fall within the maximum aggregate fee cap for Non-Executive Directors. If P J B
Duncan had ceased to be a Director on 30 September in each year, the following benefits would have been payable under the grandfathered
Directors’ Retirement Scheme: $154,800 (2011 $154,800). These benefits have been fully provided for in the financial statements.
(6) Retired on 15 December 2011.
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Directors’ Report – Remuneration Report
Section F. Executive KMP – Remuneration
Particulars of Executive KMP qualifications, experience and special responsibilities are detailed on page 11 of the annual repo rt.
Details of the nature and amount of each element of remuneration of Executive KMP are set out in the following table:
Short term employee benefits
Post
employ-
ment
benefits
Fixed
Salary
$000
STI
Payment (1)
$000
Other
Benefits (2)
$000
Super-
annuation
Benefits
$000
Termination
Benefits
$000
Other Long
Term
Benefits (3)
$000
Total
excluding
SBP *
Expense
$000
Share
Based
Payments
Expense (4)
$000
Total
$000
Current Executive Directors
1,477.4
1,194.8
1,067.1
2,672.2
1,067.1
1,025.1
2,407.0
3,697.3
3,474.1
1,130.6
929.2
I K Smith
2012
N A Meehan
2012
2011
Total Current
Executive Directors
2012
2011
Former Executive Director
G R Liebelt (5)
2012
2011
Total Executive
Directors
2012
2011
Current Executive KMP
J R Beevers (6)
2012
2011
C B Elkington (6) (7)
2012
2011
A J P Larke
2012
2011
P McEwan (7)
2012
2011
G J Witcombe
2012
2011
Total Current
Executive KMP
2012
2011
Former Executive
KMP
M Reich (6)
2011
Total Executive KMP
2012
2011
Total
2012
2011
756.6
662.1
863.7
832.4
623.7
599.8
849.1
826.5
363.8
4,223.7
4,213.8
7,921.0
7,687.9
4,223.7
3,850.0
-
134.5
10.7
-
546.5
61.9
29.9
-
546.5
196.4
29.9
15.9
15.3
26.6
15.3
-
-
-
-
-
-
1,622.6
585.2
2,207.8
53.4
26.3
1,326.0
1,685.1
869.9
459.3
2,195.9
2,144.4
53.4
26.3
2,948.6
1,685.1
1,455.1
459.3
4,403.7
2,144.4
-
1,096.6
49.5
44.1
7.9
15.3
3,806.6
-
54.0
66.2
4,943.1
3,629.2
2,465.5
2,213.0
7,408.6
5,842.2
-
1,643.1
245.9
74.0
34.5
30.6
-
470.7
-
375.0
-
635.0
-
280.5
-
474.3
473.4
488.6
19.4
248.3
61.4
46.3
7.4
32.5
19.2
(3.6)
-
2,235.5
580.8
812.1
-
10.1
15.9
15.3
15.9
15.3
15.9
15.3
15.9
15.3
63.6
71.3
3,806.6
-
-
-
-
-
-
-
-
-
-
-
-
-
107.4
92.5
7,891.7
5,314.3
3,920.6
2,672.3
11,812.3
7,986.6
95.2
6.6
22.0
55.2
20.2
17.7
-
-
1,699.2
1,905.2
813.9
1,355.9
961.2
1,546.7
647.0
928.1
29.0
23.4
913.2
1,335.9
944.7
416.7
529.1
260.8
657.5
364.7
493.4
310.3
402.0
363.1
2,643.9
2,321.9
1,343.0
1,616.7
1,618.7
1,911.4
1,140.4
1,238.4
1,315.2
1,699.0
166.4
102.9
5,034.5
7,071.8
3,026.7
1,715.6
8,061.2
8,787.4
-
-
2,235.5
169.4
8.1
743.0
-
1,284.3
307.7
1,592.0
580.8
981.5
63.6
79.4
-
743.0
166.4
102.9
5,034.5
8,356.1
3,026.7
2,023.3
8,061.2
10,379.4
-
3,878.6
826.7
1,055.5
98.1
110.0
3,806.6
743.0
273.8
195.4
12,926.2
13,670.4
6,947.3
4,695.6
19,873.5
18,366.0
Table 12
*
Share Based Payments (SBP).
(1) STI Payment includes payments relating to 2011 performance accrued but not paid until financial year 2012.
(2) These benefits include relocation costs, car parking, medical costs, movement in annual leave accrual, spousal travel and costs associated with
services related to employment (inclusive of any applicable fringe benefits tax).
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Directors’ Report – Remuneration Report
(3) This benefit includes the movement in long service leave accrual.
(4) Includes the value calculated under AASB 2 Share Based Payments to Executive KMP which vest over three years. Value only accrues to the
KMP when performance conditions have been met. The amounts that appear under the heading Share Based Payments Expense are the
amounts required under Accounting Standards to be expensed by Orica in respect of the allocation of long term incentives to Executive KMP.
Each year, the Board may decide to allocate long term incentives to Executive KMP. The Share Based Payments expense in table 12 represents
the expense incurred during the year in respect of current and past incentive allocations to Executive KMP. These amounts are therefore not
amounts actually received by Executive KMP during the year. The mechanism which determines whether or not long term incentives vest in the
future is described in section C.3, D.2 and note 36 (a).
(5) G R Liebelt departed from the Group on 31 March 2012. In addition to his statutory entitlements to accrued leave, under the terms of G R
Liebelt’s service agreement, he was entitled to a severance payment of $3,806,550 upon cessation of his employment (equivalent to 1.5 times his
fixed remuneration). G R Liebelt also participated in the Company’s STI Plan through to the date of cessation of employment under which he was
entitled to a pro rata STI payment upon cessation. No amount was paid to G R Liebelt following testing of the applicable performance targets.
Additionally, as a participant in LTEIP, the Board determined that, notwithstanding his cessation of employment, G R Liebelt would continue to
participate in the LTEIP offers that remain ‘on foot’ and his participation would be treated in accordance with the relevant LTEIP rules in the same
manner as all other participating executives.
(6) For overseas based executives (C B Elkington until 1 July 2011), other benefits include up to 100% of relocation and travel allowances,
reimbursement of accommodation and living away from home expenses, health insurance, family travel and taxation expenses.
(7) The 2011 Actual STI payments for C B Elkington and P McEwan have been restated from those shown in last year’s report to reflect adjustments
that were made by the Board after finalising the 2011 financial results which were not reflected in the 2011 Remuneration Report. The STI
payments actually made to these two executives in relation to 2011 are shown in the table above, being $375,000 for C B Elkington (2011 reported
$308,700) and $280,543 for P McEwan (2011 reported $305,400).
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Section G. Equity instruments held by Executive KMP
The number of equity instruments that comprise LTEIP and share rights held by Executive KMP is shown in the following table:
For the year
ended 30
September
2012
Granted
during the
year
Exercised
during the
year (1) (2)
Outstanding
at year
end
Exercise
price
$
Lapsed
Grant date
Value of
options at
grant date (3)
$
Value of options
included in
compensation
for the year (3)
$
Current Executive Directors
I K Smith
N A Meehan
24 Feb 12
19 Dec 08
15 Dec 09
17 Dec 10
19 Dec 11
9 Jan 12 (4)
Former Executive Director
19 Dec 08
G R Liebelt
15 Dec 09
17 Dec 10
19 Dec 11
305,302
-
-
-
62,289
25,869
-
-
-
297,983
A J P Larke
C B Elkington
Current Executive KMP
J R Beevers
19 Dec 08
15 Dec 09
17 Dec 10
19 Dec 11
9 Jan 12 (4)
19 Dec 08
15 Dec 09
17 Dec 10
19 Dec 11
9 Jan 12 (4)
19 Dec 08
15 Dec 09
17 Dec 10
19 Dec 11
9 Jan 12 (4)
26 Jun 09
15 Dec 09
17 Dec 10
19 Dec 11
9 Jan 12 (4)
G J Witcombe 19 Dec 08
15 Dec 09
17 Dec 10
19 Dec 11
P McEwan
-
-
-
54,427
34,487
-
-
-
42,742
16,142
-
-
-
48,669
18,381
-
-
-
35,390
13,367
-
-
-
48,213
-
85,406
-
-
-
-
409,872
-
-
-
84,516
-
-
-
-
47,418
-
-
-
-
67,613
-
-
-
-
40,580
-
-
-
-
67,613
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
305,302
-
59,043
59,754
62,289
25,869
-
285,296
288,730
297,983
-
54,180
53,224
54,427
34,487
-
33,631
34,036
42,742
16,142
-
46,598
47,159
48,669
18,381
-
33,574
33,978
35,390
13,367
-
46,598
47,159
48,213
N/A
N/A
N/A
N/A
N/A
-
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-
N/A
N/A
N/A
N/A
-
N/A
N/A
N/A
N/A
-
N/A
N/A
N/A
N/A
-
N/A
N/A
N/A
-
2,842,362
330,521
525,483
552,725
498,935
597,057
1,586,205
2,539,134
2,670,753
2,386,844
327,077
482,202
492,322
435,960
795,960
183,508
299,316
314,833
342,363
372,557
261,662
414,722
436,221
389,839
424,233
330,321
298,809
314,297
283,474
308,510
261,662
414,722
436,221
386,186
585,192
27,543
175,161
184,251
124,734
358,234
132,184
846,378
890,251
596,711
27,256
160,734
164,107
114,998
477,576
15,292
99,772
104,944
85,591
223,534
21,805
138,241
145,407
97,460
254,540
33,032
99,603
104,766
70,869
185,106
21,805
138,241
145,407
96,547
Table 13
(1) The combination of shares and the loan provided to fund those shares under LTEIP constitutes an option under AASB 2. These options vest over
three years. Under the terms of the LTEIP, the loan must be repaid before the Executive KMP can deal with the shares. Accordingly, the exercise
period of these options is the loan repayment period, which commences following the testing of the performance condition, typically in November
after the annual results announcement, and continues through to 31 January of the following year. The options expire if the loan is not repaid within
the repayment window.
(2) There were no amounts outstanding on shares issued as a result of the exercise of the options.
(3) The option valuation prepared by PWC uses methodologies consistent with assumptions that apply under an adjusted form of the Black Scholes
option pricing model and reflects the value (as at grant date) of options held at 30 September 2012.
(4) Share rights under the Executive Retention Scheme – refer section D.2.
Orica Limited
43
43
2012 AnnuAl RepoRt
Directors’ Report – Remuneration Report
Section H. Equity instruments held by executives
(a) The number of option (LTEIP) issues, values and related executive loan information in relation to Orica executives is shown in
the following table (details of the Long Term Incentive Rights Plan (LTIRP) are in note 36):
Number
of options
issued
Grant date
As at 30 September 2012
24 Feb 12
19 Dec 11
17 Dec 10
15 Dec 09
305,302
592,713
305,302
592,713
1,886,701 1,685,589
1,973,965 1,531,590
4,758,681 4,115,194
Number
of options
held at
30 Sep
Number of
participants
at 30 Sep
Total loan at
grant date
$
Total loan at
30 Sep
$
Maximum
loan waiver
opportunity
over full
loan period
$
Loan
repayments
through
dividends
during year
$
Value of
options
at grant
date (1)
$
1
7
275
234
8,029,443
14,924,513
47,601,466
48,934,592
119,490,014
7,969,695
14,808,519
41,416,270
36,023,858
100,218,342
1,794,786
3,616,963
13,753,036
13,560,090
32,724,875
59,748
115,994
818,076
853,713
1,847,531
2,842,362
4,747,631
17,451,984
17,568,289
42,610,266
Table 14
(1) The assumptions underlying the options valuations are:
Grant date
24 Feb 12
19 Dec 11
17 Dec 10
15 Dec 09
Price of Orica
Shares
at grant date
$26.62
$24.68
$25.20
$25.23
Expected
volatility in
share price
25%
25%
25%
35%
Dividends
expected
on shares
Nil
Nil
Nil
Nil
Risk free
interest
rate
3.71%
2.99%
5.19%
4.53%
Fair value
per option (2)
$
9.31
8.01
9.25
8.90
Table 15
(2) Under the December 2010 and subsequent LTEIP schemes, a portion of the loan was forgiven based on Orica’s compound growth in earnings
per share over a pre-determined performance period. Under accounting standards, the share based payments expense (fair value per option) is
adjusted to an expense based on the actual EPS growth achieved. The range of fair values per option is:
Grant date
24 Feb 12
19 Dec 11
17 Dec 10
Less than 5% EPS
growth per annum
EPS growth of 5% per
annum
EPS growth of 10% per
annum
EPS growth of 15% or
higher per annum
5.87
5.02
6.10
7.44
6.37
7.50
9.31
8.01
9.25
11.32
9.89
11.10
On the demerger of DuluxGroup Limited on 9 July 2010, participating employees of both Orica and DuluxGroup received one
DuluxGroup share for every one Orica share held previously under the Orica LTEIP scheme. At demerger date, the price of Orica
shares was $25.68. The sale of these DuluxGroup shares result in the proceeds being applied towards repaying the loan (against
which each tranche of shares were granted). For continuing Orica employees, the TSR target of each tranche was
proportionately reduced to take account of DuluxGroup no longer being part of the Orica Group.
As a result of modifying the period in which the employees could exercise the options for DuluxGroup employees and the TSR
targets for continuing Orica employees, an incremental share based payments expense was incurred. The incremental value per
option was valued by PWC.
The assumptions underlying the options valuations are:
Number of
options held at
9 July 2010
Grant date
Continuing Orica Employees
Expected
volatility in
share price
Dividends
expected
on shares
15 Dec 09
1,785,616
30%
Nil
Risk free
interest
rate
4.50%
Incremental value
per option
$
0.65
Table 16
The terms of the LTEIP Plan apply equally to Executive KMP and other eligible executives of the Company.
The option valuations prepared by PWC use methodologies consistent with assumptions that apply under an adjusted form of the
Black Scholes option pricing model and reflect the value (as at grant date) of options held at 30 September 2012. The
assumptions underlying the option valuations are: (a) the exercise price of the option, (b) the life of the option, (c) the current price
of the underlying securities, (d) the expected volatility of the share price, (e) the dividends expected on the shares, and (f) the risk-
free interest rate for the life of the option. The share based payments expense recognised in the Income Statement for share
based payment schemes in 2012 was $17.9 million (2011 $15.1 million).
Shares issued under employee incentive share plans in conjunction with non-recourse loans are accounted for as options. As a
result, they are measured at fair value at the date of grant using an option valuation model which generates possible future sh are
prices based on similar assumptions that underpin the Black Scholes option pricing model and reflects the value (as at grant date)
of options granted. The amounts receivable from employees in relation to these loans and share capital issued under these
schemes are not recognised and any shares purchased on-market are recognised as a share buy-back and deducted from
shareholders equity.
44
44
Orica Limited
Orica Limited
Directors’ Report – Remuneration Report
(b) The number of Retention Rights allocations, values and related executive loan information in relation to Orica executives is
shown in the following table:
The number of Retention Rights allocations, values and information is shown in the following table:
Grant date
As at 30 September 2012
09 Jan 12
31 March 13
Vesting date
Number of
rights
issued
Number of
rights held at
30 September
Number of
participants at
30 September
Value of rights
at grant date (1)
$
108,246
108,246
5
2,498,318
(1) The assumptions underlying the rights valuations are:
Price of Orica
Shares
at grant date
$
24.24
Expected
volatility in
share price
%
25
Grant date
09 Jan 12
Fair value
per right(2)
$
23.08
(2) The option valuations prepared by PWC use methodologies consistent with assumptions that apply under an adjusted form of the Black Scholes
option pricing model and reflect the value (as at grant date) of options held at 30 September 2012. The assumptions underlying the option
valuations are: (a) the exercise price of the option, (b) the life of the option, (c) the current price of the underlying securities, (d) the expected
volatility of the share price, (e) the dividends expected on the shares, and (f) the risk-free interest rate for the life of the option.
Dividends
expected
on shares
%
4
Risk free
interest
rate
%
3.48
Orica Limited
45
45
2012 AnnuAl RepoRt
Directors’ Report
Rounding
The amounts shown in this report and in the financial statements have been rounded off, except where otherwise stated, to the
nearest tenth of a million dollars, the Company being in a class specified in the ASIC Class Order 98/100 dated 10 July 1998.
This Directors’ Report is signed on behalf of the Board in accordance with a resolution of the directors of Orica Limited.
P J B Duncan
Chairman
Dated at Melbourne this 12th day of November 2012.
46
46
Orica Limited
Orica Limited
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of Orica Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30
September 2012 there have been:
(i)
(ii)
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in
relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Gordon Sangster
Partner
Melbourne
12 November 2012
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG Internat ional Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
47
47
2012 AnnuAl RepoRt
Income Statement
For the year ended 30 September
Sales revenue
Other income
Expenses
Changes in inventories of finished goods and work in progress
Raw materials and consumables used and finished goods purchased for resale
Share based payments
Other employee benefits expense
Depreciation expense
Amortisation expense
Purchased services
Repairs and maintenance
Impairment of goodwill
Outgoing freight
Lease payments - operating leases
Other expenses
Share of net profit of associates accounted for using the equity method
Profit from operations
Net financing costs
Financial income
Financial expenses
Net financing costs
Profit before income tax expense
Income tax expense
Net profit for the year
Net profit for the year attributable to:
Shareholders of Orica Limited
Non-controlling interests
Net profit for the year
Earnings per share
Earnings per share attributable to ordinary shareholders of Orica Limited:
Total attributable to ordinary shareholders of Orica Limited:
Basic
Diluted
Consolidated
2012
$m
2011
$m
Notes
(3)
(3)
6,674.1
67.5
6,182.3
85.7
(4c)
(4c)
(4d)
(11)
(4a)
(4b)
(5)
47.9
(3,306.0)
(17.9)
(1,096.3)
(214.7)
(36.7)
(283.7)
(182.6)
(367.2)
(302.7)
(67.0)
(296.7)
37.4
(6,086.2)
655.4
32.9
(161.1)
(128.2)
527.2
(103.4)
423.8
402.8
21.0
423.8
43.1
(3,007.4)
(15.1)
(1,041.8)
(187.5)
(36.7)
(262.0)
(157.8)
-
(276.1)
(65.9)
(271.4)
38.9
(5,239.7)
1,028.3
32.4
(155.9)
(123.5)
904.8
(241.4)
663.4
642.3
21.1
663.4
cents
cents
(6)
(6)
109.2
109.1
173.5
169.8
The Income Statement is to be read in conjunction with the notes to the financial statements set out on pages 53 to 125.
48
48
Orica Limited
Orica Limited
Statement of Comprehensive Income
For the year ended 30 September
Profit for the year
Net loss on hedge of net investments in foreign subsidiaries
Cash flow hedges
- Effective portion of changes in fair value
- Transferred to carrying value of non current assets
- Transferred to Income Statement
Exchange differences on translation of foreign operations
Actuarial (losses)/benefits on defined benefit plans
Income tax on income and expense in other comprehensive income
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year
Attributable to:
Shareholders of Orica Limited
Non-controlling interests
Total comprehensive income for the year
Notes
Consolidated
2012
$m
2011
$m
423.8
663.4
(5c)
(99.8)
(38.5)
(5c)
(5c)
(5c)
(5c)
(5c)(38)
(5c)
3.5
-
(9.4)
(103.6)
(58.0)
(0.2)
(267.5)
156.3
2.3
0.1
(43.0)
(38.9)
(37.4)
37.1
(118.3)
545.1
142.6
13.7
156.3
529.6
15.5
545.1
The Statement of Comprehensive Income is to be read in conjunction with the notes to the financial statements
set out on pages 53 to 125.
Orica Limited
49
49
2012 AnnuAl RepoRt
Balance Sheet
As at 30 September
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Other financial assets - derivative assets
Total current assets
Non-current assets
Trade and other receivables
Investments accounted for using the equity method
Other financial assets - derivative assets
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Other financial liabilities - derivative liabilities
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Other financial liabilities - derivative liabilities
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Ordinary shares
Reserves
Retained earnings
Total equity attributable to ordinary shareholders of Orica
Equity attributable to Step-Up Preference Securities' holders
Non-controlling interests in controlled entities
Total equity
Consolidated
2012
$m
2011
$m
Notes
(7)
(8)
(9)
(10)
(12)
(8)
(11)
(12)
(12)
(13)
(14)
(15)
(10)
(16)
(16)
(17)
(18)
(19)
(16)
(16)
(17)
(20)
(19)
(21)
(22)
(22)
(21)
(23)
235.8
1,035.3
693.6
61.3
12.0
2,038.0
50.0
206.4
3.7
0.6
3,034.4
2,046.8
223.8
19.9
5,585.6
7,623.6
1,058.9
10.4
346.0
2.4
162.6
1,580.3
12.4
73.7
2,189.0
56.4
465.3
2,796.8
4,377.1
3,246.5
346.9
941.6
614.5
75.2
7.0
1,985.2
1.8
172.1
4.6
0.6
2,709.7
2,505.4
241.7
7.1
5,643.0
7,628.2
1,141.0
11.5
76.5
30.4
198.0
1,457.4
25.6
65.2
1,678.5
95.3
430.6
2,295.2
3,752.6
3,875.6
1,795.1
(1,049.8)
2,376.2
3,121.5
-
125.0
3,246.5
1,749.9
(849.0)
2,363.4
3,264.3
490.0
121.3
3,875.6
The Balance Sheet is to be read in conjunction with the notes to the financial statements set out on pages 53 to 125.
50
50
Orica Limited
Orica Limited
1
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B
51
2012 AnnuAl RepoRt
Statement of Cash Flows
For the year ended 30 September
Cash flow s from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrow ing costs
Dividends received
Other operating revenue received
Net income taxes paid
Net cash flow s from operating activities
Cash flow s from investing activities
Payments for property, plant and equipment
Payments for intangibles
Payments for purchase of investments
Payments for purchase of non-controlling interests
Payments for purchase of businesses/controlled entities
Payments of deferred consideration from prior acquisitions
Proceeds from sale of property, plant and equipment
Proceeds from sale of investments
Proceeds from sale of businesses/controlled entities
Net cash flow s used in investing activities
Cash flow s from financing activities
Proceeds from long term borrow ings
Repayment of long term borrow ings
Net movement in short term financing
Payments for finance leases
Proceeds from issue of ordinary shares
Proceeds from issue of shares to non-controlling interests
Payments for buy-back of ordinary shares - LTEIP
Dividends paid - Orica ordinary shares
Distributions paid - Step-Up Preference Securities
Dividends paid - non-controlling interests
Net cash from financing activities
Net (decrease)/increase in cash held
Cash at the beginning of the year
Effects of exchange rate changes on cash
Cash at the end of the year
Notes
Consolidated
2012
$m
Inflow s/
(Outflow s)
2011
$m
Inflow s/
(Outflow s)
7,069.6
(6,239.9)
32.9
(191.1)
31.2
15.5
(174.1)
544.1
6,494.3
(5,418.0)
31.8
(175.6)
30.1
25.3
(229.7)
758.2
(586.5)
(42.4)
(40.9)
-
(13.8)
(29.3)
28.5
8.0
2.5
(673.9)
7,284.5
(7,178.3)
235.1
(5.4)
24.3
1.2
(19.9)
(289.1)
(11.1)
(8.5)
32.8
(97.0)
343.3
(18.4)
227.9
(663.3)
(29.3)
(0.6)
(4.4)
(56.5)
(30.2)
16.7
1.6
-
(766.0)
1,265.9
(738.3)
(174.6)
(5.4)
7.9
5.8
(14.1)
(280.3)
(32.2)
(15.8)
18.9
11.1
345.3
(13.1)
343.3
(26)
(27)
(27)
(28)
(26)
The Statement of Cash Flow s is to be read in conjunction w ith the notes to the financial statements set out on pages 53 to 125.
52
52
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September 2012
1
2
3
4
5
6
7
8
9
Accounting policies
Segment report
Sales revenue and other income
Specific profit and loss income and expenses
Income tax expense
Earnings per share (EPS)
Cash and cash equivalents
Trade and other receivables
Inventories
10 Other assets
11 Investments accounted for using the equity method
12 Other financial assets
13 Property, plant and equipment
14 Intangible assets
15 Deferred tax assets
16 Trade and other payables
17 Interest bearing liabilities
18 Current tax liabilities
19 Provisions
20 Deferred tax liabilities
21 Contributed equity
22 Reserves and retained earnings
23 Non-controlling interests in controlled entities
24 Parent Company disclosure - Orica Limited
25 Dividends and distributions
26 Notes to the statement of cash flows
27 Businesses and non-controlling interests acquired
28 Businesses disposed
29 Impairment testing of goodwill and intangibles with indefinite lives
30 Commitments
31 Auditors’ remuneration
32 Critical accounting judgements and estimates
33 Contingent liabilities
34 Financial and capital management
35 Events subsequent to balance date
36 Employee share plans
37 Related party disclosures
38 Superannuation commitments
39 Investments in controlled entities
40 Deed of cross guarantee
54
61
65
65
66
69
70
70
73
73
74
75
76
78
79
79
80
81
81
83
84
86
87
88
89
90
91
93
94
95
96
96
99
101
110
111
114
116
122
125
Orica Limited
53
53
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September 2012
1. Accounting policies
The significant accounting policies adopted in preparing the
financial report of Orica Limited (‘the Company’ or ‘Orica’) and
of its controlled entities (collectively ‘the consolidated entity’ or
‘the Group’) are stated below to assist in a general
understanding of this financial report.
(i) Basis of preparation
The financial report has been prepared on a historical cost
basis, except for derivative financial instruments and
investments in financial assets (other than controlled entities
and associates) which have been measured at fair value. The
carrying values of recognised assets and liabilities that are
hedged items in fair value hedges, and are otherwise carried at
cost, are adjusted to record changes in the fair value
attributable to the risks that are being hedged.
(ii) Statement of compliance
The financial report is a general purpose financial report which
has been prepared by a for-profit entity in accordance with the
requirements of applicable Australian Accounting Standards
including Australian Interpretations and the Corporations Act
2001 and complies with International Financial Reporting
Standards (IFRS) and interpretations adopted by the
International Accounting Standards Board.
The financial statements were approved by the Board of
Directors on 12 November 2012. The financial report is
presented in Australian dollars which is Orica’s functional and
presentation currency.
This financial report has been prepared on the basis of
Australian Accounting Standards and Interpretations on issue
that are effective, or early adopted by Orica as at 30
September 2012.
Except as described below, the accounting policies applied by
the Group in the financial report are the same as those applied
by the consolidated entity in its consolidated financial report for
the year ended 30 September 2011. The standard relevant to
Orica that has been adopted during the year is:
(cid:121)
AASB 1048 Interpretation of Standards (revised) -
applicable for annual reporting periods ending on or after
30 June 2012.
This standard has had no significant impact on the financial
statements.
The standards and interpretations relevant to Orica that have
not been early adopted are:
(cid:121)
AASB 2011-9 Amendments to Australian Accounting
Standards – Presentation of Items of Other
Comprehensive Income - applicable for annual reporting
periods beginning on or after 1 July 2012.
(cid:121)
(cid:121)
(cid:121)
AASB 9 Financial Instruments - applicable for annual
reporting periods beginning on or after 1 January 2015.
AASB 2009-11 Amendments to Australian Accounting
Standards arising from AASB 9 – [AASB 1, 3, 4, 5, 7,
101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136,
139, 1023 & 1038 and Interpretations 10 & 12] -
applicable for annual reporting periods beginning on or
after 1 January 2013.
AASB 2010-7 Amendments to Australian Accounting
Standards arising from AASB 9 (December 2010) –
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
(cid:121)
applicable for annual reporting periods on or after 1
January 2013.
AASB 10 Consolidated Financial Statements – applicable
for annual reporting periods beginning on or after 1
January 2013.
AASB 11 Joint Arrangements – applicable for annual
reporting periods beginning on or after 1 January 2013.
AASB 12 Disclosure of Interests in Other Entities –
applicable for annual reporting periods beginning on or
after 1 January 2013.
AASB 127 Separate Financial Statements – applicable
for annual reporting periods beginning on or after 1
January 2013.
AASB 128 Investments in Associates and Joint Ventures
– applicable for annual reporting periods beginning on or
after 1 January 2013.
AASB 2011-7 Amendments to Australian Accounting
Standards arising from the Consolidation and Joint
Arrangements Standards – applicable for annual
reporting periods beginning on or after 1 January 2013.
AASB 119 Employee Benefits – applicable for annual
reporting periods on or after 1 January 2013.
AASB 2011-4 Amendments to Australian Accounting
Standards to Remove Individual Key Management
Personnel Disclosure Requirements – applicable for
annual reporting periods beginning on or after 1 July
2013.
AASB 13 Fair Value Measurement – applicable for
annual reporting periods beginning on or after 1 January
2013.
AASB 2011-8 Amendments to Australian Accounting
Standards arising from AASB 13 – applicable for annual
reporting periods beginning on or after 1 January 2013.
AASB 2011-10 Amendments to Australian Accounting
Standards arising from AASB 119 (September 2011) -
applicable for annual reporting periods beginning on or
after 1 January 2013.
AASB 2012-2 Amendments to Australian Accounting
Standards – Disclosures – Offsetting Financial Assets
and Financial Liabilities - applicable for annual reporting
periods beginning on or after 1 January 2013.
AASB 2012-3 Amendments to Australian Accounting
Standards – Offsetting Financial Assets and Financial
Liabilities - applicable for annual reporting periods
beginning on or after 1 January 2014.
AASB 2012-5 Amendments to Australian Accounting
Standards arising from Annual Improvements 2009–2011
Cycle - applicable for annual reporting periods beginning
on or after 1 January 2013.
The consolidated entity expects to adopt these standards and
interpretations in the 2013 and subsequent financial years -
however the financial impact of adopting the new or amended
standards has not yet been determined.
(iii) Consolidation
The consolidated financial statements are prepared by
combining the financial statements of all the entities that
comprise the consolidated entity, being the Company (the
54
54
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September 2012
1. Accounting policies (continued)
parent entity) and its subsidiaries as defined in Accounting
Standard AASB 127 Consolidated and Separate Financial
Statements.
Consistent accounting policies are employed in the preparation
and presentation of the consolidated financial statements. On
acquisition, the assets, liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of
acquisition.
Any excess of the cost of acquisition over the fair values of the
identifiable net assets acquired is recognised as goodwill. If,
after reassessment, the fair values of the identifiable net assets
acquired exceed the cost of acquisition, the excess is credited
to the Income Statement in the period of acquisition.
The non-controlling interest’s share of net assets is stated at
their proportion of the fair values of the assets and liabilities
and contingent liabilities recognised of each subsidiary.
The consolidated financial statements include the information
and results of each subsidiary from the date on which the
Company obtains control until such time as the Company
ceases to control such entity. In preparing the consolidated
financial statements, all intercompany balances, transactions
and unrealised profits arising within the consolidated entity are
eliminated in full.
(iv) Revenue recognition
Sales revenue
External sales are measured at the fair value of the
consideration received or receivable, net of returns, trade
discounts and volume rebates. External sales are recognised
when the significant risks and rewards of ownership are
transferred to the purchaser, recovery of the consideration is
probable, the associated costs and possible return of goods
can be estimated reliably, there is no continuing management
involvement with the goods, and the amount of revenue can be
measured reliably.
Other income
Profits and losses from sale of businesses, controlled entities
and other non-current assets are recognised when there is a
signed unconditional contract of sale. Dividends are
recognised in the Income Statement when declared.
Construction contracts
Contract revenue and expenses are recognised on an
individual contract basis using the percentage of completion
method when the stage of contract completion can be reliably
determined, costs to date can be clearly identified and total
contract revenue and costs to complete can be reliably
estimated. Stage of completion is measured by reference to
an assessment of physical work completed to date as a
percentage of estimated total work for each contract. An
expected loss is recognised immediately as an expense.
(v) Financial income & borrowing costs
Financial income
Financial income includes interest income on funds invested
and the non designated portion of the net investment hedging
derivatives. These are recognised in the Income Statement as
accrued.
Borrowing costs
Borrowing costs include interest, unwinding of the effect of
discounting on provisions, amortisation of discounts or
premiums relating to borrowings and amortisation of ancillary
costs incurred in connection with the arrangement of
borrowings, including lease finance charges. Borrowing costs
are expensed as incurred unless they relate to qualifying
assets. Where funds are borrowed specifically for the
production of a qualifying asset, the interest on those funds is
capitalised, net of any interest earned on those borrowings.
Where funds are borrowed generally, borrowing costs are
capitalised using a weighted average interest rate.
(vi) Research and development costs
Research costs are expensed as incurred. Development costs
are expensed as incurred except when it is probable that future
economic benefits associated with the item will flow to the
consolidated entity, in which case they are capitalised.
(vii) Share based payments
Equity settled share based payments are externally measured
at fair value at the date of grant using an option valuation
model. This valuation model generates possible future share
prices based on similar assumptions that underpin relevant
option pricing models and reflects the value (as at grant date)
of options granted. The assumptions underlying the options
valuations are: (a) the exercise price of the option, (b) the life
of the option, (c) the current price of the underlying securities,
(d) the expected volatility of the share price, (e) the dividends
expected on the shares and (f) the risk-free interest rate for the
life of the option.
The fair value determined at the grant date of the equity settled
share based payments is expensed in the Income Statement
on a straight-line basis over the relevant vesting period.
The amount recognised is adjusted to reflect the actual number
of share options that vest, except for those that fail to vest due
to vesting conditions not being met.
For the December 2010 and subsequent years Long Term
Equity Incentive schemes, the share based payment expense
will be adjusted to an expense based on actual EPS growth
achieved.
Shares issued under employee incentive share plans in
conjunction with non-recourse loans are accounted for as
options. As a result, the amounts receivable from employees
in relation to these loans and share capital issued under these
schemes are not recognised and any shares purchased on-
market are recognised as a share buy-back and deducted from
shareholders equity.
(viii) Carbon emissions
Allocated carbon emissions permits are initially recognised at
nominal value (nil value). Carbon emissions permits
purchased to meet the Group's settlement requirements are
initially recorded at cost within intangible assets. A liability is
recognised when the Group’s carbon emissions exceed the
emissions permits held. The liability is measured at nominal
value up to the level of allocated permits held and at the cost of
purchased permits up to the level of purchased permits held.
That portion exceeding the carbon emissions permits held is
recognised at fair value at the reporting date.
(ix) Taxation
Income tax on the profit or loss for the year comprises current
and deferred tax and is recognised in the Income Statement.
Orica Limited
55
55
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September 2012
1. Accounting policies (continued)
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted
at reporting date, and any adjustments to tax payable in
respect of previous years.
Under AASB 112 Income Taxes, deferred tax balances are
determined using the balance sheet method which calculates
temporary differences based on the carrying amounts of an
entity's assets and liabilities in the balance sheet and their
associated tax bases. Current and deferred taxes attributable
to amounts recognised directly in equity are also recognised in
equity.
The amount of deferred tax provided will be based on the
expected manner of realisation of the asset or settlement of the
liability, using tax rates enacted or substantively enacted at
reporting date.
A deferred tax asset will be recognised only to the extent that it
is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets will be
reduced to the extent it is no longer probable that the related
tax benefit will be realised.
Tax consolidation
Orica Limited is the parent entity in the tax consolidated group
comprising all wholly-owned Australian entities.
Due to the existence of a tax sharing agreement between the
entities in the tax consolidated group, the parent entity
recognises the tax effects of its own transactions and the
current tax liabilities and the deferred tax assets arising from
unused tax losses and unused tax credits assumed from the
subsidiary entities.
Current tax income/expense, deferred tax liabilities and
deferred tax assets arising from temporary differences of the
members of the tax-consolidated group are recognised in the
separate financial statements of the members of the tax-
consolidated group using the ‘separate taxpayer within group’
approach by reference to the carrying amounts of assets and
liabilities in the separate financial statements of each entity and
the tax values applying under tax consolidation. In accordance
with the tax sharing agreement, the subsidiary entities are
compensated for the assets and liabilities assumed by the
parent entity as intercompany receivables and payables and
for amounts which equal the amounts initially recognised by
the subsidiary entities. There is no adjustment for tax
consolidation contribution by (or distribution to) equity
participants.
(x) Inventories
Inventories are valued at the lower of cost and net realisable
value. Net realisable value is the estimated selling price in the
ordinary course of business less the estimated cost of
completion and selling expenses. Cost is based on the first-in,
first-out or weighted average method based on the type of
inventory. For manufactured goods, cost includes direct
material and fixed overheads based on normal operating
capacity. For merchanted goods, cost is net cost into store.
(xi) Construction work in progress
Where the Group manufactures equipment for sale, the work in
progress is carried at cost plus profit recognised to date based
on the value of work completed less progress billings and less
provision for foreseeable losses allocated between amounts
due from customers and amounts due to customers.
(xii) Trade and other receivables
Trade and other receivables are recognised at their cost less
any impairment losses.
Collectability of trade and other receivables is reviewed on an
ongoing basis. Debts that are known to be uncollectible are
written off. An impairment loss is recognised when there is
objective evidence that the Group will not be able to collect
amounts due according to the original terms of the receivables.
(xiii) Investments accounted for using the equity
method
Investments in associates are accounted for in the
consolidated financial statements using the equity method of
accounting. Associates are those entities over which the
consolidated entity exercises significant influence but does not
control.
(xiv) Other financial assets
The consolidated entity’s interests in financial assets other
than controlled entities and associates are stated at market
value.
Investments in subsidiaries and associates are accounted for
in the financial statements at their cost of acquisition.
(xv) Non-current assets held for sale and disposal
groups
Immediately before classification as held for sale, the
measurement of the assets (and all assets and liabilities in a
disposal group) is reassessed in accordance with applicable
accounting standards. Then, on initial classification as held for
sale, non-current assets and disposal groups are recognised at
the lower of carrying amount and fair value less costs to sell.
Impairment losses on initial classification as held for sale are
included in the Income Statement. The same applies to gains
and losses on subsequent remeasurement.
Classification as a disposal group occurs when the operation
meets the criteria to be classified as held for sale.
(xvi) Property, plant and equipment and
depreciation
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment. Cost includes
expenditure that is directly attributable to the acquisition of the
item. Subsequent costs are included in the asset’s carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the item will flow to the consolidated entity and
the cost of the item can be measured reliably. Property, plant
and equipment, other than freehold land, is depreciated on a
straight-line basis at rates calculated to allocate the cost less
the estimated residual value over the estimated useful life of
each asset to the consolidated entity.
The assets' residual values, useful lives and depreciation
methods are reviewed, and adjusted if appropriate, at each
financial year end.
Estimated useful lives of each class of asset are as follows:
Buildings and improvements
Machinery, plant and equipment
25 to 40 years
3 to 30 years
Profits and losses on disposal of property, plant and equipment
are taken to the Income Statement.
Orica Limited
56
56
Orica Limited
Notes to the Financial Statements
For the year ended 30 September 2012
1. Accounting policies (continued)
(xvii) Leased assets
Leases under which the consolidated entity assumes
substantially all the risks and benefits of ownership are
classified as finance leases. Other leases are classified as
operating leases.
Assets under finance lease are capitalised at the present value
of the minimum lease payments and amortised on a straight-
line basis over the period during which benefits are expected to
flow from the use of the leased assets.
A corresponding liability is established and each lease
payment is allocated between finance charges and reduction of
the liability.
Operating leases are not capitalised and lease rental payments
are taken to the Income Statement on a straight-line basis.
(xviii) Intangible assets
Identifiable intangibles
Amounts paid for the acquisition of identifiable intangible
assets are capitalised at the fair value of consideration paid
determined by reference to independent valuations.
Identifiable intangible assets with a finite life (customer
contracts, patents, software, brand names, trademarks and
licences) are amortised on a straight-line basis over their
expected useful life to the consolidated entity, being up to thirty
years.
Identifiable intangible assets with an indefinite life (brand
names and trademarks) are not amortised but the recoverable
amount of these assets is tested for impairment at least
annually as explained under impairment of assets (see note
xxvi).
Unidentifiable intangibles
Where the fair value of the consideration paid for a business
acquisition exceeds the fair value of the identifiable assets,
liabilities and contingent liabilities acquired, the difference is
treated as goodwill. Goodwill is not amortised but the
recoverable amount is tested for impairment at least annually
as explained under impairment of assets (see note xxvi).
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is
capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other
expenditure is expensed as incurred.
(xix) Interest-bearing liabilities
Interest-bearing liabilities are initially recognised at fair value
less attributable transaction costs. Subsequent to initial
recognition, interest-bearing liabilities are stated at amortised
cost with any difference between cost and redemption value
being recognised in the Income Statement over the period of
the liabilities on an effective interest basis.
Amortised cost is calculated by taking into account any issue
costs and any discount or premium on issuance. Gains and
losses are recognised in the Income Statement in the event
that the liabilities are derecognised.
(xx) Provisions
A provision is recognised when there is a legal or constructive
obligation as a result of a past event and it is probable that a
future sacrifice of economic benefits will be required to settle
the obligation, the timing or amount of which is uncertain. If
the effect is material, a provision is determined by discounting
the expected future cash flows (adjusted for expected future
risks) required to settle the obligation at a rate that reflects
current market assessments of the time value of money and
the risks specific to the liability.
The unwinding of the effect of discounting on provisions is
recognised as a borrowing cost.
Environmental
Estimated costs for the remediation of soil, groundwater and
untreated waste that have arisen as a result of past events are
provided for where a legal or constructive obligation exists and
a reliable estimate of the liability is able to be assessed.
However, where the cost relates to land held for resale then, to
the extent that the expected realisation exceeds both the book
value of the land and the estimated cost of remediation, the
cost is capitalised as part of the holding value of that land.
For sites where there are uncertainties with respect to what
Orica’s remediation obligations might be or what remediation
techniques might be approved and no reliable estimate can
presently be made of regulatory and remediation costs, no
amounts have been capitalised, expensed or provided for.
Decommissioning
The present value of the estimated costs of dismantling and
removing an asset and restoring the site on which it is located
are recognised as an asset within property, plant and
equipment which is depreciated on a straight line basis over its
estimated useful life and a corresponding provision is raised
where a legal or constructive obligation exists. At each
reporting date, the liability is remeasured in line with changes
in discount rates, timing and estimated cash flows. Any
changes in the liability are added or deducted from the related
asset, other than the unwinding of the discount which is
recognised as borrowing costs in the Income Statement.
Self insurance
The Group self-insures for certain insurance risks.
Outstanding claims are recognised when an incident occurs
that may give rise to a claim and are measured at the cost that
the entity expects to incur in settling the claims.
Employee entitlements
Provisions are made for liabilities to employees for annual
leave, sick leave and other current employee entitlements that
represent the amount for which the consolidated entity has a
present obligation. These have been calculated at nominal
amounts based on the wage and salary rates that the
consolidated entity expects to pay as at each reporting date
and include related on-costs. Liabilities for employee
entitlements which are not expected to be settled within twelve
months of balance date, such as long service leave, are
accrued at the present value of future amounts expected to be
paid.
The present value is determined using interest rates applicable
to government guaranteed securities with maturities
approximating the terms of the consolidated entity’s
obligations.
A liability is recognised for bonus plans on the achievement of
predetermined bonus targets and the benefit calculations are
formally documented and determined before signing the
financial report.
Orica Limited
57
57
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September 2012
1. Accounting policies (continued)
Contingent liabilities on acquisition of controlled entities
A provision is recognised on acquisition of a business for
contingent liabilities of that business.
Superannuation
Contributions to defined contribution superannuation funds are
taken to the Income Statement in the year in which the
expense is incurred.
For each defined benefit scheme, the cost of providing
pensions is charged to the Income Statement so as to
recognise current and past service costs, interest cost on
defined benefit obligations, and the effect of any curtailments
or settlements, net of expected returns on plan assets. All
actuarial gains and losses are recognised in other
comprehensive income. The consolidated entity’s net
obligation in respect of defined benefit pension plans is
calculated by estimating the amount of future benefit that
employees have earned in return for their service in the current
and prior periods; that benefit is discounted to determine its
present value, and the fair value of any plan assets is
deducted. The discount rate is the yield at the balance sheet
date on high quality corporate bonds or in countries where
there is no deep market in such bonds, the market yields on
government bonds that have maturity dates approximating the
terms of the consolidated entity’s obligations. The calculation
is performed annually by a qualified actuary using the
projected unit credit method.
Restructuring and employee termination benefits
Provisions for restructuring or termination benefits are only
recognised when a detailed plan has been approved and the
restructuring or termination has either commenced or been
publicly announced, or firm contracts related to the
restructuring or termination benefits have been entered into.
Costs related to ongoing activities are not provided for.
Onerous contracts
A provision for onerous contracts is recognised after
impairment losses on assets dedicated to the contract have
been recognised and when the expected benefits are less than
the unavoidable costs of meeting the contractual obligations.
A provision is recognised to the extent that the contractual
obligations exceed unrecognised assets.
(xxi) Trade and other payables
Dividends
A liability for dividends payable (including distributions on the
Step-Up Preference Securities) is recognised in the reporting
period in which the dividends are declared, for the entire
undistributed amount, regardless of the extent to which they
will be paid in cash.
(xxii) Foreign currency
Functional currency
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(the functional currency).
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to the functional currency of
the entity at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are
recognised in the Income Statement. Non-monetary assets
and liabilities that are measured at historical cost in a foreign
currency are translated using the exchange rate ruling at the
date of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair
value are translated to the functional currency of the entity at
foreign exchange rates ruling at the dates the fair value was
determined.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated to Australian dollars at foreign exchange rates
ruling at the balance sheet date.
The revenues and expenses of foreign operations, excluding
foreign operations in hyperinflationary economies, are
translated to Australian dollars at rates approximating the
foreign exchange rates ruling at the dates of the transactions.
The revenues and expenses of foreign operations in
hyperinflationary economies are translated to Australian dollars
at the foreign exchange rates ruling at the balance sheet date.
Foreign exchange differences arising on retranslation are
recognised directly in a separate component of equity. Prior to
translating the financial statements of foreign operations in
hyperinflationary economies, the financial statements,
including comparatives, are restated to account for changes in
the general purchasing power of the local currency. The
restatement is based on relevant price indices at the balance
sheet date.
Net investment in foreign operations
Exchange differences arising from the translation of the net
investment in foreign operations, and of related hedges are
taken to the translation reserve. They are released into the
Income Statement upon disposal.
(xxiii) Financial instruments
The consolidated entity uses financial instruments to hedge its
exposure to foreign exchange and interest rate risks arising
from operational, financing and investment activities. In
accordance with its treasury policy, the consolidated entity
does not hold or issue financial instruments for trading
purposes. However, financial instruments that do not qualify
for hedge accounting, but remain economically effective, are
accounted for as trading instruments.
Financial instruments are recognised initially at cost.
Subsequent to initial recognition, financial instruments are
stated at fair value. The gain or loss on remeasurement to fair
value is recognised immediately in the Income Statement.
However, where financial instruments qualify for hedge
accounting, recognition of any resultant gain or loss depends
on the nature of the item being hedged.
Hedging
Cash flow hedges
Where a financial instrument is designated as a hedge of the
variability in cash flows of a recognised asset or liability, or a
highly probable forecasted transaction, the effective part of any
gain or loss on the financial instrument is recognised in other
comprehensive income.
Orica Limited
58
58
Orica Limited
Notes to the Financial Statements
For the year ended 30 September 2012
1. Accounting policies (continued)
When the forecasted transaction subsequently results in the
recognition of a non-financial asset or non-financial liability, the
associated cumulative gain or loss is removed from equity and
included in the initial cost or other carrying amount of the non-
financial asset or liability.
If a hedge of a forecasted transaction subsequently results in
the recognition of a financial asset or a financial liability, then
the associated gains and losses that were recognised directly
in equity are reclassified into the Income Statement in the
same period or periods during which the asset acquired or
liability assumed affects the Income Statement.
For cash flow hedges, other than those covered by the
preceding two policy statements, the associated cumulative
gain or loss is removed from other comprehensive income and
recognised in the Income Statement in the same period or
periods during which the hedged forecast transaction affects
the Income Statement.
The ineffective part of any gain or loss is recognised
immediately in the Income Statement.
When a hedging instrument expires or is sold, terminated or
exercised, or the entity revokes designation of the hedge
relationship but the hedged forecast transaction is still
expected to occur, the cumulative gain or loss at that point
remains in equity and is recognised in accordance with the
above policy when the transaction occurs.
If the hedged transaction is no longer expected to take place,
then the cumulative unrealised gain or loss recognised in
equity is recognised immediately in the Income Statement.
Fair value hedges
The consolidated entity uses fair value hedges to mitigate the
risk of changes in the fair value of its foreign currency
borrowings from foreign currency and interest rate fluctuations
over the hedging period.
Under a fair value hedge gains or losses from remeasuring the
fair value of the hedging instrument are recognised in the
Income Statement, together with gains or losses in relation to
the hedged item.
Hedge of monetary assets and liabilities
When a financial instrument is used to hedge economically the
foreign exchange exposure of a recognised monetary asset or
liability, hedge accounting is not applied and any gain or loss
on the hedging instrument is recognised in the Income
Statement.
Investments in debt and equity securities
Financial instruments held for trading are classified as current
assets and are stated at fair value, with any resultant gain or
loss recognised in the Income Statement.
Other financial instruments held by the consolidated entity
classified as being available-for-sale are stated at fair value,
with any resultant gain or loss recognised directly in equity,
except for impairment losses and, in the case of monetary
items such as debt securities, foreign exchange gains and
losses. Where these investments are derecognised, the
cumulative gain or loss previously recognised directly in other
comprehensive income is recognised in the Income Statement.
Where these investments are interest-bearing, interest
calculated using the effective interest method is recognised in
the Income Statement. The fair value of financial instruments
classified as held for trading and available for sale is their
quoted market price at the balance sheet date.
Financial instruments classified as held for trading or available
for sale investments are recognised/derecognised by the
consolidated entity on the date it commits to purchase/sell the
investments. Securities held to maturity are recognised/
derecognised on the day they are transferred to/by the
consolidated entity.
Hedge of net investment in foreign operations
The portion of the gain or loss on an instrument used to hedge
a net investment in a foreign operation that is determined to be
an effective hedge is recognised directly in the foreign currency
translation reserve in equity. The ineffective portion is
recognised immediately in the Income Statement.
Anticipated transactions
Foreign currency transactions are translated at the exchange
rate prevailing at the date of the transaction. Foreign currency
receivables and payables outstanding at balance date are
translated at the exchange rates current at that date.
Exchange gains and losses on retranslation of outstanding
receivables and payables are taken to the Income Statement.
Where a hedge transaction is designated as a hedge of the
anticipated purchase or sale of goods or services, purchase of
qualifying assets, or an anticipated interest transaction, gains
and losses on the hedge, arising up to the date of the
anticipated transaction, together with any costs or gains arising
at the time of entering into the hedge, are deferred and
included in the measurement of the anticipated transaction
when the transaction has occurred as designated. Any gains
or losses on the hedge transaction after that date are included
in the Income Statement.
The net amount receivable or payable under open swaps,
forward rate agreements and futures contracts and the
associated deferred gains or losses are not recorded in the
Income Statement until the hedged transaction matures. The
net receivables or payables are then revalued using the foreign
currency, interest or commodity rates current at balance date.
When the anticipated transaction is no longer expected to
occur as designated, the deferred gains and losses relating to
the hedged transaction are recognised immediately in the
Income Statement.
Gains and losses that arise prior to and upon the maturity of
transactions entered into under hedge strategies are deferred
and included in the measurement of the hedged anticipated
transaction if the transaction is still expected to occur as
designated. If the anticipated transaction is no longer
expected to occur as designated, the gains and losses are
recognised immediately in the Income Statement.
(xxiv) Cash and cash equivalents
Cash includes cash at bank, cash on hand and deposits at call
which are readily convertible to cash on hand and which are
used in the cash management function and are disclosed for
the purposes of the Statement of Cash Flows, net of bank
overdrafts.
(xxv) Share capital
When share capital recognised as equity is repurchased, the
amount of the consideration paid, including directly attributable
costs, is recognised as a deduction from total equity.
Orica Limited
59
59
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September 2012
1. Accounting policies (continued)
Transaction costs of an equity transaction are accounted for as
a deduction from equity, net of any related income tax benefit.
Step-Up Preference Securities
Step-Up Preference Securities were included in equity. A
provision for distributions payable was recognised in the
reporting period in which the distributions were declared (refer
to note 21).
(xxvi) Impairment of assets
The carrying amount of Orica’s and the Group’s non-current
assets excluding defined benefit fund assets and deferred tax
assets is reviewed at each reporting date to determine whether
there are any indicators of impairment. If such indicators exist,
the asset is tested for impairment by comparing its recoverable
amount to its carrying amount. The recoverable amount of an
asset is determined as the higher of fair value less costs to sell
and value in use.
The recoverable amount is estimated for each individual asset
or where it is not possible to estimate for individual assets, it is
estimated for the cash generating unit to which the asset
belongs.
A cash generating unit is the smallest identifiable group of
assets that generate cash inflows largely independent of the
cash inflows of other assets or group of assets with each cash
generating unit being no larger than a segment.
In calculating recoverable amount, the estimated future cash
flows are discounted to their present values using a pre-tax
discount rate that reflects the current market assessments of
the risks specific to the asset or cash generating unit.
Cash flows are estimated for the asset in its present condition
and therefore do not include cash inflows or outflows that
improve or enhance the asset’s performance or that may arise
from future restructuring.
An impairment loss is recognised whenever the carrying
amount of an asset or its cash generating unit exceeds its
recoverable amount.
Impairment losses are recognised in the Income Statement.
Impairment losses recognised in respect of cash generating
units are allocated first to reduce the carrying amount of any
goodwill allocated to cash generating units and then to reduce
the carrying amount of the other assets in the unit.
Reversals of impairment
An impairment loss is reversed if the subsequent increase in
recoverable amount can be related objectively to an event
occurring after the impairment loss was recognised.
An impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
An impairment loss in respect of goodwill is not reversed.
(xxvii) Goods and services tax
Revenues, expenses, assets and liabilities other than
receivables and payables, are recognised net of the amount of
goods and services tax (GST), except where the amount of
GST incurred is not recoverable from the relevant taxation
authorities. In these circumstances, the GST is recognised as
part of the cost of acquisition of the asset or as part of an item
of expense. The net amount of GST recoverable from, or
payable to, the relevant taxation authorities is included as a
current asset or liability in the Balance Sheet.
Cash flows are included in the Statement of Cash Flows on a
gross basis. The GST components of cash flows arising from
investing and financing activities which are recoverable from,
or payable to, the relevant taxation authorities are classified as
operating cash flows.
(xxviii) Rounding
The amounts shown in the financial statements have been
rounded off, except where otherwise stated, to the nearest
tenth of a million dollars, the Company being in a class
specified in the ASIC Class Order 98/100 dated 10 July 1998.
(xxix) Comparatives
Where applicable, comparatives have been adjusted to
disclose them on the same basis as current period figures.
60
60
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September 2012
2. Segment report
Segment information is presented in respect of the consolidated entity’s internal management structure as reported to the Group’s
Chief Operating Decision Maker (CODM). The CODM for the Group has been assessed as the Group’s Managing Director.
The consolidated entity’s operations have been divided into eight reportable segments comprising: Mining Services: Australia/Asia,
North America, Latin America, EMET (Europe, Middle East & Turkey) and Other; Minova; Chemicals and Other.
The consolidated entity's policy is to transfer products internally at negotiated commercial prices. Other income includes royalties,
profit on sale of property, plant and equipment, profit from the sale of businesses, investments and controlled entities and foreign
currency gains.
The major products and services from which the above segments derive revenue are:
Defined reportable segments
Mining Services
- Australia/Asia
- North America
- Latin America
- EMET
- Other *
Minova
Chemicals
Other
Products/services
Manufacture and supply of explosives and mining services, initiating systems and blasting
technology to the mining, quarrying, construction and exploration industries.
Manufacture and supply of specialty bolts, accessories and chemicals for stabilisation and
ventilation systems in underground mining and civil tunnelling works.
Manufacture, distribution and trading of a broad range of industrial and specialty chemicals for
use in a wide range of industries, which include water treatment, pulp and paper, food and
beverage, construction and mining.
Minor activities, operation of the Botany Groundwater Recycling Business, non-operating assets,
corporate and support costs and financial items such as foreign currency gains/losses.
* Mining Services Other segment includes Mining Services global head office, research and development and global purchasing
and supply chain and Commonwealth of Independent States (CIS), Mongolia, Africa and China regions (CISMAC).
Following the implementation of the Orica restructure from 1 October 2012, Orica will review the Segment information in financial
year 2013.
Orica Limited
61
61
2012 AnnuAl RepoRt
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63
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n
I
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
2. Segment report (continued)
Geographical segments
The pres entation of the geographical segments is based on the geographical location of customers. Segment as sets are based on
the geographical location of the assets.
2012
$m
Revenue from external customers
External s ales from continuing operations
Location of non-current assets
Non-current assets **
2011
$m
Revenue from external customers
External s ales from continuing operations
Location of non-current assets
Non-current assets **
f
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s
n
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*
r
e
h
O
t
2,329.1
833.3
3,511.7
6,674.1
2,120.6
652.7
2,583.8
5,357.1
f
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e
h
O
t
2,145.8
851.2
3,185.3
6,182.3
1,883.1
1,024.9
2,487.5
5,395.5
* Sales to other countries are individually less than 10% of the total external sales.
** Excluding: other financial ass ets, deferred tax assets and post-employment benefit assets.
64
64
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
3. Sales revenue and other income
Sales revenue
Other income
Royalty income
Dividend income
Other income
Net foreign currency gains
Profit from sale of businesses/controlled entities/investments
Profit on sale of property, plant and equipment
Total other income
4. Specific profit and loss income and expenses
a) Financial income:
Interest income received/receivable from:
external parties
Total financial income
b) Financial expenses:
Borrow ing costs paid/payable to:
external parties
capitalised interest
unw inding of discount on provisions
finance charges – finance leases
Total financial expenses
Net financing costs
c) Profit before income tax expense is arrived at after charging/(crediting):
Depreciation on property, plant and equipment:
buildings and improvements
machinery, plant and equipment
Total depreciation on property, plant and equipment
Amortisation of intangibles
Amounts provided for:
trade receivables impairment
doubtful debts – other receivables
employee entitlements
environmental liabilities
inventory impairment
investment impairment
restructuring and rationalisation provisions
other provisions
Bad debts w ritten off to impairment allow ance
Bad debts w ritten off in respect of other receivables
Lease payments – operating leases
Research and development
Consolidated
2012
$m
2011
$m
6,674.1
6,182.3
0.3
-
15.0
15.7
3.7
32.8
67.5
0.3
0.2
25.0
48.4
1.0
10.8
85.7 `
32.9
32.9
32.4
32.4
192.7
(38.1)
5.9
0.6
161.1
128.2
179.5
(37.4)
12.7
1.1
155.9
123.5
22.1
192.6
214.7
36.7
3.9
0.1
55.6
36.2
4.2
0.1
1.0
11.5
2.0
0.5
67.0
46.8
11.8
175.7
187.5
36.7
3.8
0.3
47.5
16.1
5.6
0.2
4.4
22.1
1.9
0.3
65.9
47.6
Orica Limited
65
65
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
Gross
$m
2012
Tax
$m
Net
$m
Gross
$m
2011
Tax
$m
4. Specific profit and loss income and expenses (continued)
d) Profit after income tax includes the follow ing
individually material items of (expense)/income:
Impairment of intangibles
Write dow n of goodw ill in Minova (see note 29)
Individually material items
Non-controlling interests in individually material items
Individually material items attributable to shareholders of Orica
(367.2)
(367.2)
-
(367.2)
119.8
119.8
-
119.8
(247.4)
(247.4)
-
(247.4)
-
-
-
-
-
-
-
-
Net
$m
-
-
-
-
5.
Income tax expense
a) Income tax expense recognised in the income statement
Current tax expense
Current year
Deferred tax
Over provided in prior years
Total income tax expense in income statement
b) Reconciliation of income tax expense to prima facie tax payable
Income tax expense attributable to profit before individually
material items
Prima facie income tax expense calculated at 30%
on profit before individually material items
Tax effect of items w hich (decrease)/increase tax expense:
variation in tax rates of foreign controlled entities
tax over provided in prior years
non allow able share based payments
non taxable profit on sale of property, plant and equipment
other foreign deductions
sundry items
Income tax expense attributable to profit before individually
material items
Income tax (benefit)/expense attributable to individually material items
Prima facie income tax (benefit)/expense calculated at 30%
on (loss)/profit from individually material items
Tax effect of items w hich (decrease)/increase tax expense:
variation in tax rates of foreign controlled entities
non allow able impairment of intangibles - Minova
Income tax benefit attributable to
loss from individually material items
Consolidated
2012
$m
2011
$m
129.0
(21.2)
(4.4)
103.4
201.2
45.7
(5.5)
241.4
268.3
271.4
(10.7)
(4.4)
5.4
(5.3)
(33.8)
3.7
(8.1)
(5.5)
4.5
-
(30.5)
9.6
223.2
241.4
(110.2)
(27.6)
18.0
(119.8)
-
-
-
-
Income tax expense reported in the income statement
103.4
241.4
66
66
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
5.
Income tax expense (continued)
c) Income tax recognised in comprehensive income:
Net loss on hedge of net investments in foreign subsidiaries
Cash flow hedges
- Effective portion of changes in fair value
- Transferred to carrying value of non current assets
- Transferred (loss)/income to Income Statement
Exchange differences on translation of foreign operations
Actuarial (losses)/benefits on defined benefit plans
$m
Before
tax
2012
$m
Tax
(expense)
benefit
Consolidated
$m
$m
Net of tax
Before
tax
2011
$m
Tax
(expense)
benefit
$m
Net of tax
(99.8)
(18.4)
(118.2)
(38.5)
13.1
(25.4)
3.5
-
(9.4)
(103.6)
(58.0)
(267.3)
(1.1)
-
2.8
-
16.5
(0.2)
2.4
-
(6.6)
(103.6)
(41.5)
(267.5)
2.3
0.1
(43.0)
(38.9)
(37.4)
(155.4)
(0.7)
-
12.9
-
11.8
37.1
1.6
0.1
(30.1)
(38.9)
(25.6)
(118.3)
d) Recognised deferred tax assets and liabilities
Balance Sheet
Income Statement
Consolidated
Deferred tax assets
Trade and other receivables
Inventories
Property, plant and equipment
Intangible assets
Trade and other payables
Interest bearing liabilities
Provision for employee entitlements
Provision for retirement benefit obligations
Provisions for restructuring and rationalisation
Provisions for environmental
Provisions for decommissioning
Tax losses
Other items
Deferred tax assets
Less set-off against deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities
Inventories
Property, plant and equipment
Intangible assets
Interest bearing liabilities
Undistributed profits of foreign subsidiaries
Other items
Deferred tax liabilities
Less set-off against deferred tax assets
Net deferred tax liabilities
Deferred tax (benefit)/expense
Notes
2012
$m
2011
$m
2.1
12.4
20.5
62.5
34.6
51.5
30.0
56.1
1.1
53.1
3.2
61.2
4.1
392.4
2.0
13.8
16.4
12.9
46.4
101.0
26.6
47.5
1.7
64.1
3.2
73.2
5.3
414.1
(15)
(168.6)
223.8
(172.4)
241.7
5.2
148.0
29.8
20.4
11.1
10.5
225.0
4.9
128.8
88.5
20.8
10.5
14.2
267.7
2012
$m
(0.1)
1.4
(4.1)
(49.6)
11.8
32.8
(3.4)
7.9
0.6
11.0
-
12.0
1.2
0.3
19.2
(58.7)
(0.4)
0.6
(3.7)
2011
$m
1.6
(2.1)
7.8
2.4
23.7
(10.3)
0.2
3.3
0.7
12.4
0.6
(21.3)
0.4
0.1
6.0
9.7
10.0
1.1
(0.6)
(20)
(168.6)
56.4
(172.4)
95.3
(21.2)
45.7
Orica Limited
67
67
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
5.
Income tax expense (continued)
e) Unrecognised deferred tax assets and liabilities
Tax losses not booked
Capital losses not booked
Temporary differences not booked
Geographical analysis of tax losses not booked at 30 September 2012:
Australia
Other
f) Unrecognised temporary differences
Temporary differences relating to investments in subsidiaries for
w hich deferred tax liabilities have not been recognised
Unrecognised deferred tax liabilities relating to the above
temporary differences
Consolidated
2012
$m
5.5
33.9
0.9
2011
$m
8.3
37.8
0.9
Capital
losses Expiry date
$m
33.0
0.9
33.9
Indefinite
Betw een 2013 and 2030
Tax
losses
$m
0.6
4.9
5.5
Consolidated
2012
$m
2011
$m
703.9
722.3
68.2
71.6
68
68
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
6. Earnings per share (EPS)
(i) As reported in the incom e statem ent
Consolidated
2012
$m
2011
$m
Reconciliation of earnings used in the calculation of EPS attributable to ordinary shareholders of Orica
Net profit for the period
Net profit for the period from operations attributable to non-controlling interests
Distribution on Orica Step-Up Preference Securities (net of tax benefit)
Earnings used in calculation of basic EPS attributable to ordinary shareholders of Orica
Add back distribution on Orica Step-Up Preference Securities (net of tax benefit)*
Earnings used in calculation of diluted EPS attributable to ordinary shareholders of Orica
* On 13 October 2011 Orica decided to repurchase the SPS and the SPS w ere reclassified to interest bearing liabilities from that date.
Until 12 October 2011 the SPS w ere treated as equity for accounting purposes.
423.8
(21.0)
(8.9)
393.9
-
393.9
663.4
(21.1)
(22.2)
620.1
22.2
642.3
Weighted average num ber of shares used as the denom inator:
Num ber for basic earnings per share
Effect of executive share options and rights
Effect of Orica Step-Up Preference Securities
Num ber for diluted earnings per share
The follow ing Orica Long Term Equity Incentive Plans (LTEIP) have not been included
in the calculation for diluted earnings per share as they are not dilutive:
Issue date: Exercisable betw een:
- 26 Jun 2009 - 18 Nov 11 to 23 Jan 12
- 15 Dec 2009 - 19 Nov 12 to 23 Jan 13
- 17 Dec 2010 - 19 Nov 13 to 23 Jan 14
- 19 Dec 2011 - 18 Nov 14 to 23 Jan 15
- 24 Feb 2012 - 18 Nov 14 to 23 Jan 15
Total attributable to ordinary shareholders of Orica
Basic earnings per share
Diluted earnings per share
(ii) Adjusted for individually m aterial item s
Reconciliation of earnings used in the calculation of EPS adjusted for individually m aterial item s
attributable to ordinary shareholders of Orica
Net profit for the period
Net profit for the period from operations attributable to non-controlling interests
Distribution on Orica Step-Up Preference Securities (net of tax benefit)
Adjusted for individually material items from continuing operations
Earnings used in calculation of basic EPS attributable to ordinary shareholders of Orica
Add back distribution on Orica Step-Up Preference Securities (net of tax benefit)
Earnings used in calculation of diluted EPS attributable to ordinary shareholders of Orica
Total attributable to ordinary shareholders of Orica before individually m aterial item s
Basic earnings per share
Diluted earnings per share
Num ber
Number
360,571,799
523,432
-
361,095,231
357,493,869
706,144
20,113,815
378,313,828
5,670
1,553,482
1,718,641
464,427
183,181
40,580
1,634,031
1,799,507
-
-
Consolidated
2012
Cents
per share
2011
Cents
per share
109.2
109.1
173.5
169.8
$m
$m
423.8
(21.0)
(8.9)
247.4
641.3
-
641.3
663.4
(21.1)
(22.2)
-
620.1
22.2
642.3
Cents
per share
Cents
per share
177.9
177.6
173.5
169.8
Orica Limited
69
69
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
7. Cash and cash equivalents
Cash at bank and on hand
Deposits at call
external
Consolidated
2012
$m
2011
$m
206.3
320.1
29.5
235.8
26.8
346.9
(i) Fair values
The directors consider the net carrying amount of cash and cash equivalents to approximate their fair value due to their short term
to maturity.
8.
Trade and other receivables
Current
Trade receivables (i)
external
associated companies
Less allow ance for impairment (i) (ii)
external
Other receivables (iii)
external
Less allow ance for impairment (iii) (iv)
external
Non-current
Other receivables (vii)
external (1)
retirement benefit surplus (see note 38)
Consolidated
2012
$m
2011
$m
892.7
4.1
(12.7)
884.1
838.7
20.1
(12.9)
845.9
151.7
96.9
(0.5)
151.2
1,035.3
(1.2)
95.7
941.6
49.6
0.4
50.0
1.2
0.6
1.8
(1) This includes $18.6 million that was paid during the financial year ended 30 September 2012 to the A ustralian Taxation Office (ATO) in relation to a tax audit.
The ATO is currently conducting a tax audit in relation to a financing arrangement by Orica of its US group between 2004 and 2006. The A TO has issued
amended assessments in relation to the 2004, 2005 and 2006 years totalling $50.6 million (including interest and penalties). Orica has objected to all three
assessments. In accordance with the ATO administrative practice, Orica has paid 50% of the primary tax and interest arising from the assessments, which has
been recognised as a non-current receivable.
70
70
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
8.
Trade and other receivables (continued)
(i) Trade receivables and allow ance for impairment
The ageing of trade receivables and allow ance for impairment is detailed below :
Consolidated
Consolidated
Not past due
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61 - 90 days
Past due 91 - 120 days
Past 120 days
2012
2012
Gross Allow ance
$m
-
(0.1)
(0.1)
(0.1)
(0.1)
(12.3)
(12.7)
$m
753.5
67.9
27.7
11.2
5.2
31.3
896.8
2011
2011
Gross Allow ance
$m
-
(0.1)
-
(0.2)
(0.1)
(12.5)
(12.9)
$m
736.1
57.8
23.1
9.3
8.6
23.9
858.8
Trade receivables are carried at amounts due. Receivables that are not past due and not impaired are considered recoverable.
Payment terms are generally 30 days from end of month of invoice date. A risk assessment process is used for all accounts, w ith
a stop credit process in place for most long overdue accounts. Credit insurance cover is obtained w here appropriate.
The collectability of trade receivables is assessed continuously and at balance date specific allow ances are made for any
doubtful trade receivables based on a review of all outstanding amounts at year end. Bad debts are w ritten off during the year
in w hich they are identified.
The follow ing basis has been used to assess the allow ance for doubtful trade receivables:
- a statistical approach to determine the historical allow ance rate for various tranches of receivables;
- an individual account by account assessment based on past credit history; and
- prior know ledge of debtor insolvency or other credit risk.
No material security is held over trade receivables.
Trade receivables have been aged according to their due date in the above ageing analysis.
There are no individually significant receivables that have had renegotiated terms that w ould otherw ise, w ithout that renegotiation,
have been past due or impaired.
(ii) Movement in allow ance for impairment of trade receivables
The movement in the allow ance for impairment in respect of trade receivables is detailed below :
Opening balance
Allow ances made during the year
Additions through acquisition of entities
Allow ances utilised during the year
Allow ances w ritten back during the year
Foreign currency exchange differences
Closing balance
Consolidated
2012
$m
(12.9)
(3.9)
(0.8)
2.0
1.7
1.2
(12.7)
2011
$m
(15.0)
(3.8)
(0.4)
1.9
4.3
0.1
(12.9)
Orica Limited
71
71
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
8.
Trade and other receivables (continued)
(iii) Current other receivables and allow ance for impairment
Consolidated
Consolidated
Not past due
Past due 0 - 30 days
Past due 31 - 60 days
Past due 61 - 90 days
Past due 91 - 120 days
Past 120 days
2012
2012
Gross Allow ance
$m
-
-
-
-
-
(0.5)
(0.5)
$m
140.1
2.9
2.6
-
-
6.1
151.7
2011
2011
Gross Allow ance
$m
-
-
-
-
-
(1.2)
(1.2)
$m
90.0
2.4
0.6
0.6
0.5
2.8
96.9
Other receivables generally arise from transactions outside the usual operating activities of the consolidated entity.
Interest may be charged w here the terms of repayment exceed agreed terms.
Other receivables are carried at amounts due. Payment terms vary. A risk assessment process is used for all accounts, w ith a stop
credit and follow up process in place for most long overdue accounts.
Other receivables have been aged according to their due date in the above ageing analysis.
The collectability of other receivables is assessed at balance date and specific allow ances are made for any doubtful receivables
based on a review of all outstanding amounts at year end. Bad debts are w ritten off during the year in w hich they are identified.
There are no individually significant receivables that have had renegotiated terms that w ould otherw ise, w ithout that renegotiation,
have been past due or impaired.
(iv) Movement in allow ance for impairment of current other receivables
The movement in the allow ance for impairment in respect of current other receivables is detailed below :
Opening balance
Allow ances made during the year
Allow ances utilised during the year
Allow ances w ritten back during the year
Foreign currency exchange differences
Closing balance
Consolidated
2012
$m
(1.2)
(0.1)
0.5
0.2
0.1
(0.5)
2011
$m
(5.3)
(0.3)
0.3
3.7
0.4
(1.2)
(v) Fair values
The net carrying amount of trade and other receivables approximates their fair values. For receivables w ith a remaining life
of less than one year, carrying value reflects fair value. All other significant receivables are discounted to determine carrying
value and fair value.
The maximum exposure to credit risk is the carrying value of receivables. No material collateral is held as security over any of the
receivables.
72
72
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
8.
Trade and other receivables (continued)
(vi) Concentrations of credit risk
The consolidated entity is exposed to the follow ing concentrations of credit risk in regards to its current trade and other receivables:
Mining Services:
- Australia/Asia
- North America
- Latin America
- EMET
- Other
Minova
Chemicals
Corporate
Australia
New Zealand
Asia
North America
Latin America
Europe
Other
Consolidated
2012
2011
%
%
22.9
7.4
15.3
11.5
7.7
13.2
19.0
3.0
100.0
21.3
9.3
13.5
11.8
6.3
14.7
21.0
2.1
100.0
2012
2011
%
28.1
2.6
16.5
9.4
22.0
17.0
4.4
100.0
%
26.8
2.9
18.2
12.3
18.3
18.6
2.9
100.0
(vii) Non current receivables
All non current receivables are carried at amounts that approximate their fair value. As at 30 September none are past due. None are
considered impaired.
9.
Inventories
Raw materials and stores
Work in progress
Finished goods
10. Other assets
Current
Prepayments and other assets
Non-current
Prepayments and other assets
Orica Limited
Consolidated
2012
$m
2011
$m
278.6
24.9
390.1
693.6
247.4
28.6
338.5
614.5
61.3
61.3
19.9
19.9
75.2
75.2
7.1
7.1
73
73
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
11.
Investments accounted for using the equity method
Name
Beijing Sino-Australia Orica Watercare
Technology and Equipment Co. Ltd (1)
Burrup Nitrates Pty Ltd (a)
Botany Industrial Park Pty Limited
Controladora DNS de RL de CV (3) (b)
Orica-UMMC LLC (4)
Exor Explosives Limited (5)
FiReP Holding AG (11)
Geneva Nitrogen LLC (6)
Geodynamics B.V. (7) (c)
Irish Mining Emulsion Systems Ltd (8)
Kitikmeot Blasting Services Inc. (2)
MicroCoal Inc. (6) (d)
MSW-Chemie GmbH (9)
Nelson Brothers, LLC (6)
Nelson Brothers Mining Services LLC (6)
Norabel Ignition Systems AB (10) (e)
Pigment Manufacturers of Australia
Limited
PIIK Limited Partnership (2)
Sahtu Explosives Limited (2)
Servicios Petroleros Oricorp Mexico,
SA de CV (3) (e)
Southw est Energy LLC (6)
Sprew a Sprengmittel GmbH (9)
SVG&FNS Philippines Holdings Inc (12)
Thai Nitrate Company Ltd (13) (f)
Tlicho Blasting Services Inc. (2)
Troisdorf GmbH (9)
Ulaex SA (14)
Wurgendorf GmbH (9)
Principal activity
Sale of w ater treatment equipment and resin
Manufacture and sale of explosives
Facility management service
Manufacture and sale of explosives
Manufacture and sale of explosives
Manufacture and sale of explosives
Manufacture and sale of strata support and
ventilation products
Manufacture and sale of explosives
Manufacture and sale of explosives
Manufacture and sale of explosives
Explosives service provider
Development and commercialisation of
coal dew atering process
Manufacture and sale of explosives
Manufacture and sale of explosives
Supply of explosives
Manufacture and sale of explosives
Non-operating company
Sale of explosives
Explosives service provider
Manufacture and sale of explosives
Sale of explosives
Sale of explosives
Investment company
Manufacture and sale of explosives
Explosives service provider
Holder of operating permits
Manufacture and sale of explosives
Holder of operating permits
Consolidated
2012
%
2011
%
2012
$m
2011
$m
Ow nership Carrying amount
Balance
date
30 Sep
31 Dec
30 Sep
30 Sep
31 Dec
31 Dec
45.0
45.0
33.4
-
50.0
50.0
31 Dec
25.0
30 Sep
31 Dec
30 Sep
31 Oct
31 Dec
31 Dec
31 Dec
31 Dec
31 Dec
31 Dec
30 Sep
31 Oct
31 Dec
30 Sep
31 Dec
31 Dec
31 Dec
31 Oct
30 Sep
31 Dec
31-Dec
50.0
-
50.0
49.0
41.8
31.5
50.0
50.0
-
50.0
49.0
49.0
-
50.0
24.0
40.0
50.0
49.0
50.0
50.0
50.0
45.0
-
33.4
49.0
50.0
50.0
25.0
50.0
27.3
50.0
49.0
50.0
31.5
50.0
50.0
-
50.0
49.0
49.0
-
50.0
24.0
40.0
50.0
49.0
50.0
50.0
50.0
0.3
40.6
-
-
3.7
0.6
2.4
7.3
-
0.2
0.4
-
0.5
25.3
20.6
-
-
-
-
-
73.6
0.7
-
27.1
0.1
-
2.9
0.1
206.4
0.4
-
-
0.1
3.4
0.7
2.9
7.3
6.2
0.2
0.5
-
0.5
26.7
22.1
-
-
-
-
-
66.5
0.8
-
30.5
0.1
-
3.1
0.1
172.1
Entities are incorporated in Australia except: (1) China, (2) Canada, (3) Mexico, (4) Russia, (5) UK, (6) USA, (7) Holland, (8) Ireland, (9) Germany,
(10) Sw eden, (11) Sw itzerland, (12) Philippines, (13) Thailand, (14) Cuba.
(a) Acquired in 2012.
(b) Consolidated as a subsidiary: Controladora DNS de RL de CV from 1 October 2011.
(c) Disposed of in 2012.
(d) Partial disposal in 2012.
(e) Disposed of in 2011.
(f) Orica holds its 50% equity interest in Thai Nitrate Company Ltd (TNC) through tw o subsidiary companies, Orica Norw ay AS (39%) and
Ammonium Nitrate Development and Production Limited (11%). The remaining 50% equity interest in TNC is held by TPI Polene PLC (TPIP),
an entity listed on the Thailand Stock Exchange, and four Thailand nationals. The South Bangkok Civil Court issued a judgement on 5
October 2011 that Orica Norw ay AS transfer its 39% shareholding in TNC to TPIP for a consideration equal to the relevant portion of
TNC's net asset value at June 2006, less dividends paid since that date. This equates to approximately $17 million less than the carrying
value of those shares. Orica has received legal advice to the effect that this judgement is w ithout merit and is vigorously pursuing its
legal appeal rights in the Thailand courts against this decision.
On 1 November 2011 the Court granted a temporary stay of execution of its earlier judgement.
74
74
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
11.
Investments accounted for using the equity method (continued)
Results of associates
Share of associates’ profit from ordinary activities before income tax
Share of associates’ income tax expense relating to profit from ordinary activities
Share of associates’ net profit equity accounted
Share of post-acquisition accumulated losses and reserves attributable to associates
Share of associates’ accumulated losses at the beginning of the year
Share of associates’ net profit equity accounted
Less dividends from associates
Share of associates’ accumulated losses at the end of the year
Movements in carrying amounts of investments
Carrying amount of investments in associates at the beginning of the year
Investments in associates acquired during the year
Investments in associates disposed of/consolidated as a subsidiary during the year
Adjustment to deferred consideration
Impairment of investments
Share of associates’ net profit equity accounted
Less dividends from associates
Effects of exchange rate changes
Carrying amount of investments in associates at the end of the year
Summary of profit and loss and balance sheets of associates on a 100% basis
The aggregate revenue, net profit after tax, assets and liabilities of associates are:
Revenue
Net profit after tax
Assets
Liabilities
12. Other financial assets
Current - other financial assets - derivative assets (i)
cross currency interest rate sw aps - net investment
forw ard rate exchange agreements
forw ard foreign exchange contracts/options
interest rate sw aps
Non-current - other financial assets - derivative assets (i)
cross currency interest rate sw aps - net investment
interest rate sw aps
Non-current - other financial assets
Interest in unlisted entities
at cost
(i) Derivative assets
Refer to note 34 for details on the financial risk management and use of derivative financial instruments.
Orica Limited
Consolidated
2012
$m
2011
$m
37.4
-
37.4
40.0
(1.1)
38.9
(6.9)
37.4
(31.2)
(0.7)
172.1
40.9
(6.0)
5.0
(0.1)
37.4
(31.2)
(11.7)
206.4
(15.9)
38.9
(29.9)
(6.9)
162.6
3.2
(0.6)
-
(0.2)
38.9
(29.9)
(1.9)
172.1
709.6
78.7
397.0
113.2
675.8
77.0
370.5
132.6
4.9
-
7.0
0.1
12.0
0.5
3.2
3.7
0.6
0.6
0.2
0.1
6.7
-
7.0
0.2
4.4
4.6
0.6
0.6
75
75
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
13. Property, plant and equipment
Land, buildings and improvements
at cost
accumulated depreciation
Total carrying value
Machinery, plant and equipment
Gross book value
at cost
under finance lease
Accumulated depreciation
at cost
under finance lease
Net carrying value
at cost
under finance lease
Total carrying value
Total net carrying value of property, plant and equipment
Consolidated
2012
$m
2011
$m
621.8
(163.5)
458.3
610.8
(212.6)
398.2
4,155.4
34.5
4,189.9
3,770.3
35.3
3,805.6
(1,603.2)
(10.6)
(1,613.8)
(1,485.2)
(8.9)
(1,494.1)
2,552.2
23.9
2,576.1
2,285.1
26.4
2,311.5
3,034.4
2,709.7
(i) Capitalised borrow ing costs
Interest amounting to $35.3 million (2011 $37.0 million) w as capitalised to property, plant and equipment, calculated at the average
rate of 5.7% (2011 6.2%).
(ii) Significant assets under construction
Included in Property, Plant and Equipment is an amount of $182.6 million (2011 $678.6 million) of assets under construction relating to:
Ammonium Nitrate plant, Bontang, Indonesia (1)
Kooragang Island plant uprate (1)
Nanling detonator plant
Consolidated
2012
$m
-
109.0
73.6
182.6
2011
$m
468.9
154.2
55.5
678.6
(1) The Bontang and Kooragang Island ammonia plants have been commissioned during the financial year 2012.
Note that the assets under construction balances are translated at year end foreign exchange rates and includes capitalised
interest on the projects.
76
76
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
13. Property, plant and equipment (continued)
(iii) Reconciliations
Reconciliations of the carrying values of property, plant and equipment at the beginning and end of the years
are set out below :
Consolidated
2011
Carrying amount at the beginning of the year 01-Oct-2010
Additions
Disposals
Additions through acquisition of entities (see note 27)
Fair value adjustment on prior year acquisitions
Depreciation expense
Impairment of property, plant and equipment
Foreign currency exchange differences
Carrying amount at the end of the year 30-Sep-2011
2012
Additions
Disposals
Additions through acquisition of entities (see note 27)
Disposals through disposal of entities (see note 28)
Depreciation expense
Impairment of property, plant and equipment
Foreign currency exchange differences
Carrying amount at the end of the year 30-Sep-2012
Land,
buildings and
improvements
$m
M achinery,
plant and
equipment
$m
355.7
57.0
(3.5)
3.2
-
(11.8)
-
(2.4)
398.2
103.2
(15.3)
-
-
(22.1)
-
(5.7)
458.3
1,879.5
643.0
(13.1)
3.8
(2.1)
(175.7)
(1.9)
(22.0)
2,311.5
525.8
(13.2)
4.7
(1.1)
(192.6)
(0.2)
(58.8)
2,576.1
Total
$m
2,235.2
700.0
(16.6)
7.0
(2.1)
(187.5)
(1.9)
(24.4)
2,709.7
629.0
(28.5)
4.7
(1.1)
(214.7)
(0.2)
(64.5)
3,034.4
Orica Limited
77
77
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
14.
Intangible assets
Goodw ill
Less impairment losses
Total net book value of goodw ill
Patents, trademarks and rights
Less accumulated amortisation
Total net book value of patents, trademarks and rights
Brand names
Less accumulated amortisation
Total net book value of brand names
Softw are
Less accumulated amortisation
Total net book value of softw are
Customer contracts and relationships
Less accumulated amortisation
Total net book value of customer contracts and relationships
Consolidated
2012
$m
2011
$m
2,158.6
(401.4)
1,757.2
2,249.1
(34.2)
2,214.9
124.0
(57.5)
66.5
18.1
(11.7)
6.4
132.8
(45.6)
87.2
243.5
(114.0)
129.5
123.7
(49.4)
74.3
18.6
(9.9)
8.7
89.9
(40.8)
49.1
258.1
(99.7)
158.4
Total net book value of intangibles
2,046.8
2,505.4
Reconciliations of the carrying values of intangible assets at the beginning and end of the years are set out below :
Consolidated
2011
Carrying amount at the beginning of the year
Additions
Additions through acquisition of entities (see note 27)
Fair value adjustment on prior year
acquisitions
Amortisation expense
Impairment expense
Foreign currency exchange differences
Carrying amount at the end of the year
2012
Additions
Additions through acquisition of entities (see note 27)
Fair value adjustment on prior year
acquisitions (see note 27)
Disposals through disposal/demerger
of entities (see note 28)
Amortisation expense
Impairment expense (see note 29)
Foreign currency exchange differences
Carrying amount at the end of the year
Patents
trademarks
and
rights
$m
77.9
2.0
-
-
(4.7)
-
(0.9)
74.3
0.6
2.4
-
-
(8.7)
-
(2.1)
66.5
Goodwill
$m
2,206.4
-
43.4
1.0
-
-
(35.9)
2,214.9
-
4.5
2.0
(0.2)
-
(367.2)
(96.8)
1,757.2
Brand names
$m
Software
$m
Customer
contracts
$m
Total
$m
2,510.9
29.8
43.6
1.0
(36.7)
(2.2)
(41.0)
2,505.4
45.3
6.9
2.0
184.0
-
0.2
-
(22.3)
-
(3.5)
158.4
-
-
-
-
(20.0)
-
(8.9)
129.5
(0.2)
(36.7)
(367.2)
(108.7)
2,046.8
11.1
-
-
-
(2.1)
-
(0.3)
8.7
-
-
-
-
(2.1)
-
(0.2)
6.4
31.5
27.8
-
-
(7.6)
(2.2)
(0.4)
49.1
44.7
-
-
-
(5.9)
-
(0.7)
87.2
Capitalised borrow ing costs
Interest amounting to $2.8 million (2011 $0.4 million) w as capitalised to intangibles assets, calculated at the average rate of 7.0%
(2011 7.1%).
78
78
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
15. Deferred tax assets
Net deferred tax assets (see note 5)
16. Trade and other payables
Current
Trade payables
external
associated companies
Other payables
external
Current - other financial liabilities - derivative liabilities
Derivative financial instruments
cross currency interest rate sw aps - debt principal
cross currency interest rate sw aps - net investment
forw ard foreign exchange contracts
interest rate sw aps
Non-current
Other payables
external
Non-current - other financial liabilities - derivative liabilities
Derivative financial instruments
cross currency interest rate sw aps - debt principal
cross currency interest rate sw aps - net investment
interest rate sw aps
Consolidated
2012
$m
2011
$m
223.8
241.7
854.3
1.5
834.3
25.5
203.1
1,058.9
281.2
1,141.0
4.9
0.1
5.4
-
10.4
12.4
12.4
45.4
6.5
21.8
73.7
-
2.9
8.4
0.2
11.5
25.6
25.6
40.1
7.2
17.9
65.2
Significant terms and conditions
Trade and other payables, including expenditures not yet billed, are recognised w hen the consolidated entity becomes obliged to
make future payments as a result of a purchase of goods or services. Trade payables are normally settled w ithin 60 days from
invoice date or w ithin the agreed payment terms w ith the supplier.
Fair values
The carrying amount of trade and other payables approximate their fair values due to their short term nature.
Derivative financial instruments
Refer to note 34 for details on the financial risk management of derivative financial instruments.
Orica Limited
79
79
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
17.
Interest bearing liabilities
Current
Unsecured
bank overdrafts
bank loans
commercial paper
other short term borrow ings
other loans
private placement (1)
Lease liabilities (see note 30)
Non-current
Unsecured
bank loans
other loans
private placement (1)
export finance facility (2)
other
Lease liabilities (see note 30)
Consolidated
2012
$m
2011
$m
7.9
-
292.3
6.2
38.4
1.2
346.0
3.6
61.5
-
6.0
-
5.4
76.5
743.1
123.1
1,347.2
89.9
2.7
6.1
2,189.0
1,443.4
102.4
3.0
6.6
1,678.5
(1) Private placement
Orica Limited guaranteed senior notes issued in the US private placement market in 2000, 2003, 2005 and 2010.
The notes have maturities betw een 2012 and 2030 (2011: betw een 2012 and 2030).
(2) Export finance facility
Ten year loans provided to Orica Limited in financial year 2010 by Australia’s export credit agency (Export Finance
and Insurance Corporation), and by banks, guaranteed by Germany's export credit agency (Euler Hermes
Kreditversicherungs-AG (Hermes)).
Fair values
The carrying amounts of the consolidated entity's current and non-current interest bearing liabilities approximate
their fair values. The fair values have been calculated by discounting the expected future cash flow s at prevailing market interest
rates as at 30 September 2012 varying from 0.1% to 4.3% (2011 0.1% to 4.9%) depending on the type of borrow ing.
Assets pledged as security
The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are:
Finance leases
Property, plant and equipment
In the event of default by Orica, the rights to the leased assets transfer to the lessor.
Defaults and breaches
During the current and prior year, there w ere no defaults or breaches of covenants on any loans.
Consolidated
2012
$m
2011
$m
23.9
23.9
26.4
26.4
80
80
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
18. Current tax liabilities
Provision for income tax
19. Provisions
Current
Employee entitlements
Restructuring and rationalisation
Environmental
Decommissioning
Other
Non-current
Employee entitlements
Retirement benefit obligations (see note 38)
Environmental
Decommissioning
Contingent liabilities on acquisition of controlled entities
Other
Aggregate employee entitlements
Current
Non-current
Reconciliations
Reconciliations of the consolidated carrying amounts of provisions at the beginning and end of the
current financial year are set out below :
Current provision - restructuring and rationalisation
Carrying amount at the beginning of the year
Provisions made during the year
Provisions w ritten back during the year
Payments made during the year
Foreign currency exchange differences
Carrying amount at the end of the year
Consolidated
2012
$m
2011
$m
2.4
30.4
75.3
3.7
61.3
2.1
20.2
162.6
46.4
240.9
141.4
8.7
17.4
10.5
465.3
75.3
287.3
362.6
70.3
5.8
83.7
5.7
32.5
198.0
41.7
206.6
143.0
6.9
18.9
13.5
430.6
70.3
248.3
318.6
Consolidated
$m
5.8
1.0
(1.4)
(1.8)
0.1
3.7
Orica Limited
81
81
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
19. Provisions (continued)
Current provision - environmental
Carrying amount at the beginning of the year
Fair value adjustment on prior year acquisitions (see note 27)
Provisions made during the year
Provisions w ritten back during the year
Payments made during the year
Provision transferred from non-current
Foreign currency exchange differences
Carrying amount at the end of the year
Current provision - decommissioning
Carrying amount at the beginning of the year
Payments made during the year
Provision transferred to non-current
Carrying amount at the end of the year
Current provision - other
Carrying amount at the beginning of the year
Provisions made during the year
Provisions w ritten back during the year
Payments made during the year
Provision transferred from non-current
Foreign currency exchange differences
Carrying amount at the end of the year
Non-current provision - environmental
Carrying amount at the beginning of the year
Provisions w ritten back during the year
Payments made during the year
Unw inding of discount on provisions (see note 4)
Provision transferred to current
Foreign currency exchange differences
Carrying amount at the end of the year
Consolidated
$m
83.7
1.4
36.2
(13.1)
(50.9)
4.9
(0.9)
61.3
5.7
(0.8)
(2.8)
2.1
32.5
8.5
(6.3)
(14.3)
0.1
(0.3)
20.2
143.0
(1.3)
(0.2)
5.9
(4.9)
(1.1)
141.4
82
82
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
19. Provisions (continued)
Non-current provision - decommissioning
Carrying amount at the beginning of the year
Provisions w ritten back during the year
Provision transferred from current
Carrying amount at the end of the year
Non-current provision - contingent liabilities on acquisition of controlled entities
Carrying amount at the beginning of the year
Foreign currency exchange differences
Carrying amount at the end of the year
Non-current provision - other
Carrying amount at the beginning of the year
Provisions made during the year
Provisions w ritten back during the year
Payments made during the period
Provision transferred to current
Foreign currency exchange differences
Carrying amount at the end of the year
Consolidated
$m
6.9
(1.0)
2.8
8.7
18.9
(1.5)
17.4
13.5
3.0
(4.1)
(1.3)
(0.1)
(0.5)
10.5
Environmental provision
Estimated costs for the remediation of soil, groundw ater and untreated w aste that have arisen as a result of past events have
been provided w here a legal or constructive obligation exists and a reliable estimate of the liability is able to be assessed
(refer to notes 32 and 33).
Consolidated
2012
$m
2011
$m
Total environmental provision comprises:
Botany Groundw ater remediation
Hexachlorobenzene (HCB) w aste remediation
Botany Mercury remediation
Dyno Nobel sites remediation
Seneca remediation
Yarraville remediation
Villaw ood remediation
Other environmental provisions
Total environmental provisions
Decommissioning provision
A provision is recognised for the present value of the estimated costs of dismantling and removing an asset and restoring the site on
w hich it is located w here a legal or constructive obligation exists and a reliable estimate of the liability is able to be assessed
(refer to note 32).
55.9
39.8
15.7
25.6
11.2
19.5
16.7
18.3
202.7
51.4
64.8
22.5
25.3
12.8
2.8
29.5
17.6
226.7
Contingent liabilities on acquisition of controlled entities
A provision is recognised on acquisition of a business for contingent liabilities of that business.
Other provision
The Group self-insures for certain insurance risks. Outstanding claims are recognised w hen an incident occurs that may give rise to
a claim and are measured at the cost that the entity expects to incur in settling the claims.
20. Deferred tax liabilities
Net deferred tax liabilities (see note 5)
Orica Limited
Consolidated
2012
$m
2011
$m
56.4
95.3
83
83
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
21. Contributed equity
Issued and fully paid:
Step-Up Preference Securities - nil (2011 5,000,000) (1)
Ordinary shares - 365,642,802 (2011 363,966,570)
Balance at end of year
Consolidated
2012
$m
2011
$m
-
1,795.1
1,795.1
490.0
1,749.9
2,239.9
(1) The Group issued Step-Up Preference Securities (SPS) via a prospectus dated 17 February 2006. The SPS w ere stapled securities
comprising a fully paid Preference Share and a fully paid unsecured note. The SPS had no fixed repayment date.
On 13 October 2011 Orica elected to repurchase the SPS and the SPS w ere reclassified to interest bearing liabilities from that date.
Until 12 October 2011 the SPS w ere treated as equity for accounting purposes. SPS w ere repurchased for $100 per SPS on
29 November 2011.
Movements in issued and fully paid shares of Orica since 1 October 2010 w ere as follow s:
Details
Step-Up Preference Securities
Opening balance - gross (1)
Opening balance - costs (1)
Balance at end of the year
Date
Num ber
of shares
Issue
price $
1-Oct-2010
5,000,000
100.00
30-Sep-11
5,000,000
Reclassification to interest bearing liabilities
Transfer to retained earnings
Balance at end of the year
13-Oct-11
13-Oct-11
30-Sep-12
(5,000,000)
100.00
-
Ordinary shares
Opening balance of ordinary shares issued
Shares issued under the Orica dividend reinvestment plan (note 25)
Shares issued under the Orica dividend reinvestment plan (note 25)
Share movements under the Orica LTEIP plan (Remuneration Report) (3)
Shares issued under the Orica GEESP plan (note 36) (2)
Balance at end of the year
Shares issued under the Orica dividend reinvestment plan (note 25)
Shares issued under the Orica dividend reinvestment plan (note 25)
Share movements under the Orica LTEIP plan (Remuneration Report) (3)
Shares issued under the Orica GEESP plan (note 36) (2)
Balance at end of the year
1-Oct-10 362,100,430
10-Dec-10 1,089,406
742,803
33,931
1-Jul-11
30-Sep-11
9-Dec-11
2-Jul-12
-
363,966,570
1,040,467
635,765
-
-
30-Sep-12
365,642,802
25.62
25.77
24.40
24.18
$m
500.0
(10.0)
490.0
(500.0)
10.0
-
1,709.1
27.9
19.1
(7.5)
1.3
1,749.9
25.4
15.4
3.0
1.4
1,795.1
(1) Shares issued and costs incurred in 2006 pursuant to the Step-Up Preference Securities issued in accordance w ith the prospectus
dated 17 February 2006.
(2) Shares issued under the Orica general employee exempt share plan.
84
84
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
21. Contributed equity (continued)
Details
Date
Num ber
of shares
Issue
price * $
(3) Share m ovem ents under the Orica LTEIP plans (Rem uneration Report section H)
2010/2011
Shares issued
Shares bought back
Shares issued - loan repayment
Movement for the year
31-Jan-11
Various
Various
30-Sep-11
2011/2012
Shares bought back
Shares issued - loan repayment
Movement for the year
Various
Various
30-Sep-12
25.23
33,931
-
33,931
-
-
$m
-
(14.1)
6.6
(7.5)
(19.9)
22.9
3.0
Under the LTEIP, eligible executives are provided w ith a three year, interest free, non-recourse loan from Orica for the sole purpose of
acquiring shares in Orica. Executives may not deal w ith the shares w hile the loan remains outstanding and any dividends paid
on the shares are applied (on an after-tax basis) tow ards repaying the loan. The shares issued to the executives are either purchased
on market, issued new shares by Orica or reissued unvested shares by Orica. Shares issued under this plan in conjunction w ith
non-recourse loans are accounted for as options. As a result, the amounts receivable from employees in relation to these loans are
not recognised in the financial statements. Shares issued under this plan are recognised as shares issued at nil value, w ith a share
based payments expense recognised in the income statement based on the value of the options. Shares purchased on-market under
the plans are recognised as a share buy-back. Repayments of share loans are recognised as share capital.
The LTEIP vests after three years.
* Issue price w as based on VWAP (volume-w eighted average price) at the time of issue.
The amounts recognised in the financial statements of Orica in relation to executive share options
during the financial year w ere:
Bought back ordinary share capital
Consolidated
2012
$m
(19.9)
2011
$m
(14.1)
LTEIP options over unissued shares (refer to Rem uneration Report Section H):
Exercisable betw een
18 Nov 14 23 Jan 15
18 Nov 14 23 Jan 15
19 Nov 13 23 Jan 14
19 Nov 12 23 Jan 13
18 Nov 11 23 Jan 12
18 Nov 11 23 Jan 12
17 Nov 10 21 Jan 11
Total
Balance
30 Sep 10
-
-
-
1,785,616
40,580
2,455,267
1,041,353
5,322,816
Issued Exercised
during
during
year
year
-
-
-
-
(41,008)
1,886,701
(48,740)
-
-
-
(66,540)
-
(3,789)
-
(160,077)
1,886,701
Lapsed
Balance
during 30 Sep 11
year
-
-
(46,186)
(102,845)
-
(117,764)
(1,037,564)
(1,304,359)
-
-
1,799,507
1,634,031
40,580
2,270,963
-
5,745,081
Issued Exercised
during
during
year
year
305,302
-
592,713
-
(18,216)
-
(26,640)
-
(40,580)
-
- (2,265,048)
-
-
898,015 (2,350,484)
Lapsed
Balance
during 30 Sep 12
year
-
-
(95,702)
(75,801)
-
(5,915)
-
(177,418)
305,302
592,713
1,685,589
1,531,590
-
-
-
4,115,194
Rights over unissued shares (refer to note 36 and Rem uneration Report section H):
Vesting date
19 Dec 14
30 Nov 12
31 Mar 13
01 Sep 13
Total
Balance
30 Sep 11
Issued Exercised
during
during
year
year
-
664,845
-
7,942
-
108,246
-
6,148
-
787,181
-
-
-
-
-
Lapsed
Balance
during 30 Sep 12
year
(15,680)
-
-
-
(15,680)
649,165
7,942
108,246
6,148
771,501
Orica Limited
85
85
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
22. Reserves and retained earnings
(a) Reserves
Share based payments
Cash flow hedging
Foreign currency translation
Equity - arising from purchase of non-controlling interests
Balance at end of the year
Movement in reserves during the year
Share based payments
Balance at beginning of year
Share based payments expense
Balance at end of the year
Cash flow hedging
Balance at beginning of year
Movement for period
Tax effect of movement in cash flow hedge reserve
Balance at end of the year
Foreign currency translation
Balance at beginning of year
Translation of overseas controlled entities at the end of the year
Tax effect of translation of overseas controlled entities at the end of the year
Balance at end of the year
Equity - arising from purchase of non-controlling interests
Balance at beginning of year
Purchase of non-controlling interests (see note 27)
Balance at end of the year
(b) Retained earnings
Retained earnings at the beginning of the year
Profit after income tax attributable
to shareholders of Orica
Defined benefit fund superannuation movement (net of tax)
Transfer of cost related to issue of Step-Up Preference Securities
Disposal of non-controlling interests
Dividends/distributions:
Step-Up Preference Securities distributions
Less tax credit on Step-Up Preference Securities distributions
Ordinary dividends – interim
Ordinary dividends – final
Retained earnings at end of the year
Notes
Consolidated
2012
$m
2011
$m
83.3
(15.7)
(930.0)
(187.4)
(1,049.8)
65.4
17.9
83.3
(11.5)
(5.9)
1.7
(15.7)
(715.5)
(196.1)
(18.4)
(930.0)
(187.4)
-
(187.4)
65.4
(11.5)
(715.5)
(187.4)
(849.0)
50.3
15.1
65.4
16.9
(40.6)
12.2
(11.5)
(656.8)
(71.8)
13.1
(715.5)
(183.0)
(4.4)
(187.4)
(38)
(25)
2,363.4
2,096.2
402.8
(41.5)
(10.0)
0.3
(11.1)
2.2
(137.9)
(192.0)
2,376.2
642.3
(25.6)
-
-
(32.2)
10.0
(133.2)
(194.1)
2,363.4
Share based payments reserve
The amount charged to the share based payments reserve each year represents the share based payments expense.
Cash flow hedging reserve
The amount in the cash flow hedging reserve represents the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred.
Foreign currency translation reserve
The foreign currency translation reserve records the foreign currency differences arising from the translation of foreign
operations, the translation of transactions that hedge net investment in a foreign operation or the translation
of foreign currency monetary items forming part of the net investment in a foreign operation.
Equity reserve arising from purchase of non-controlling interests
The equity reserve represents the excess of the cost of investment in purchasing non-controlling interests in subsidiaries over the net
assets acquired and non-controlling interests share of goodw ill at the date of original acquisition of the subsidiary.
The movement for the year ended 30 September 2011 relates to purchase of non-controlling interests in Minería, Explosivos y Servicios,
S.A. and Orica Philippines Inc.
86
86
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
23. Non-controlling interests in controlled entities
Ordinary share capital of controlled entities held by
non-controlling interests in:
Altona Properties Pty Ltd
Ammonium Nitrate Development and Production Limited
Bamble Mekaniske Industri AS
Bronson & Jacobs International Co. Ltd
CJSC (ZAO) Carbo-Zakk
Dyno Nobel VH Company LLC
Emirates Explosives LLC
Explosivos de Mexico S.A. de C.V.
GeoNitro Limited
Hunan Orica Nanling Civil Explosives Co., Ltd
Jiangsu Orica Banqiao Mining Machinery Company Limited
Minova MineTek Private Limited
Minova Mining Services SA
Minova Ukraina OOO
Nitro Asia Company Inc.
Northw est Energetic Services LLC
OOO Minova TPS
Orica Blast & Quarry Surveys Limited
Orica-CCM Energy Systems Sdn Bhd
Orica-GM Holdings Ltd
Orica Eesti OU
Orica Med Bulgaria AD
Orica Mining Services Peru S.A.
Orica Mongolia LLC (3)
Orica Nitrates Philippines Inc
Orica Nitro Patlayici Maddeler Sanayi ve Ticaret Anonim Sirketi
Orica Panama S.A. (1)
Orica Philippines Inc (1)
Orica (Weihai) Explosives Co Ltd
PT Kaltim Nitrate Indonesia
Teradoran Pty Limited (3)
Transmate S.A.(2)
TOO "Minova Kasachstan"
Non-controlling interests in shareholders' equity at balance date is as follow s:
Contributed equity
Reserves
Retained earnings
(1) Non-controlling interests purchased by Orica during the 2011 year.
(2) Non-controlling interests acquired through new acquisitions by Orica during the 2011 year.
(3) Non-controlling interests disposed of by Orica during the 2012 year.
Consolidated
2012
%
2011
%
Consolidated
2012
$m
2011
$m
37.4
0.1
40.0
51.0
6.3
49.0
35.0
1.3
35.0
49.0
49.0
24.0
49.0
10.0
41.6
48.7
6.3
25.0
45.0
49.0
35.0
40.0
0.9
15.0
4.0
49.0
40.0
5.5
20.0
10.0
-
29.8
40.0
37.4
0.1
40.0
51.0
6.3
49.0
35.0
1.3
35.0
49.0
49.0
24.0
49.0
10.0
41.6
48.7
6.3
25.0
45.0
49.0
35.0
40.0
0.9
-
4.0
49.0
40.0
5.5
20.0
10.0
33.0
29.8
40.0
-
-
0.3
-
0.1
1.0
2.1
-
0.5
14.6
0.9
0.2
1.4
0.3
0.1
1.8
-
0.6
0.6
12.6
2.6
2.6
-
-
0.2
1.7
0.5
0.1
6.1
11.0
-
-
0.5
62.4
-
-
0.3
-
0.1
1.0
2.1
-
0.5
14.6
0.9
0.2
1.4
0.3
0.1
1.8
-
0.6
0.6
12.6
2.6
2.6
-
-
0.2
1.7
0.5
0.1
6.1
9.8
-
-
0.5
61.2
62.4
(22.3)
84.9
125.0
61.2
(15.0)
75.1
121.3
Orica Limited
87
87
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
24. Parent Company disclosure - Orica Limited
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Ordinary shares
Retained earnings
Total equity attributable to ordinary shareholders of Orica
Equity attributable to Step-Up Preference Securities' holders
Total equity
Net profit for the year
Company
2012
$m
2011
$m
510.7
2,475.1
300.3
301.8
1,795.1
378.2
2,173.3
-
2,173.3
969.7
2,915.3
186.1
186.2
1,749.9
489.2
2,239.1
490.0
2,729.1
237.8
472.5
The Company did not have any contractual commitments for the acquisition of property, plant or equipment in the current or
previous years.
Contingent liabilities and contingent assets
Under the terms of a Deed of Cross Guarantee entered into in accordance w ith the ASIC Class Order 98/1418 dated 13 August
1998 (as amended), each company w hich is a party to the Deed has covenanted w ith the Trustee of the Deed to guarantee the
payment of any debts of the other companies w hich are party to the Deed w hich might arise on the w inding up of those
companies. The closed group of entities w hich are party to the Deed are disclosed in note 40. A consolidated balance sheet and
income statement for this closed group is show n in note 40.
Orica Limited has provided guarantees to Export Finance and Insurance Corporation and banks for loans relating to the
Bontang Ammonium Nitrate plant (see note 17).
Orica Limited guaranteed senior notes issued in the US private placement market in 2000, 2003, 2005 and 2010. The notes
have maturities betw een 2012 and 2030 (2011: betw een 2012 and 2030) (see note 17).
Orica Limited Statement of Changes in Equity
2011
Balance at 1 Oct 2010
Profit for the year
Total comprehensive income for the year
Transactions w ith ow ners, recorded directly in equity
Total changes in contributed equity
Dividends/distributions paid
Balance at the end of the year 30-Sep-2011
2012
Profit for the year
Transactions w ith ow ners, recorded directly in equity
Total changes in contributed equity
Reclassification to interest bearing liabilities
Dividends/distributions
Balance at the end of the year 30-Sep-2012
Ordinary
shares
Retained
earnings
Total
$m
$m
$m
1,709.1
-
-
40.8
-
1,749.9
366.2
472.5
472.5
-
(349.5)
489.2
2,075.3
472.5
472.5
40.8
(349.5)
2,239.1
Step-Up
Preference
Securities
$m
490.0
-
-
-
-
490.0
Total equity
$m
2,565.3
472.5
472.5
40.8
(349.5)
2,729.1
-
237.8
237.8
-
237.8
45.2
-
-
1,795.1
-
(10.0)
(338.8)
378.2
45.2
(10.0)
(338.8)
2,173.3
-
(490.0)
-
-
45.2
(500.0)
(338.8)
2,173.3
88
88
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
25. Dividends and distributions
Dividends paid or declared in respect of the year ended 30 September w ere:
Ordinary shares
interim dividend of 37 cents per share, 48.6% franked at 30%, paid 1 July 2011
interim dividend of 38 cents per share, 36.8% franked at 30%, paid 2 July 2012
final dividend of 54 cents per share, 100% franked at 30%, paid 10 December 2010
final dividend of 53 cents per share, 100% franked at 30%, paid 9 December 2011
Distributions paid in respect of the year ended 30 September w ere:
Step-Up Preference Securities
distribution at 6.30% per annum, per security, unfranked, paid 30 November 2010
for the period from 31 May 2010 to 29 November 2010
distribution at 6.60% per annum, per security, unfranked, paid 31 May 2011
for the period from 30 Nov 2010 to 30 May 2011
distribution at 6.52% per annum, per security, unfranked, paid 30 November 2011
for the period from 31 May 2011 to 29 November 2011 (1)
Dividends paid in cash or satisfied by the issue of shares under the dividend
reinvestment plan during the year w ere as follow s:
paid in cash
satisfied by issue of shares
Distributions paid in cash (1)
No distributions w ere satisfied by the issue/purchase of shares.
Consolidated
2012
$m
2011
$m
133.2
194.1
15.8
16.4
137.9
192.0
11.1
289.1
40.8
280.3
47.0
16.3
32.2
(1) Total distribution paid for current period w as $16.3 million and has been allocated betw een dividends ($11.1 million) and
interest ($5.2 million) based on the equity/debt classification over the distribution period.
Subsequent events
Since the end of the financial year, the directors declared the follow ing dividend:
Final dividend on ordinary shares of 54 cents per share, 44.4% franked at 30%, payable 14 December 2012.
Total franking credits related to this dividend are $37.6 million.
The financial effect of the final dividend on ordinary shares has not been brought to account in the financial statments for
the year ended 30 September 2012 - how ever w ill be recognised in the 2013 annual financial report.
Franking credits
Franking credits available at the 30% corporate tax rate after allow ing for tax payable in respect of the current year's profit and the
payment of the final dividend for 2012 are $42.0 million (2011 $49.5 million).
Orica Limited
89
89
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
26. Notes to the statement of cash flows
Reconciliation of cash
Cash at the end of the year as show n in the
statements of cash flow s is reconciled to the related
items in the balance sheet as follow s:
Cash
Bank overdraft
Reconciliation of profit from ordinary activities
after income tax to net cash flow s from operating activities
Profit from ordinary activities after income tax expense
Depreciation and amortisation
Share based payments expense
Share of associates' net (profit)/loss after adding back dividends received
Finance charges - finance leases
Unw inding of discount on provisions
(Decrease)/increase in net interest payable
Increase/(decrease) in net interest receivable
Impairment of intangibles
Impairment of property, plant and equipment
Impairment of inventories
Impairment of investments
Net profit on sale of businesses and controlled entities/investments
Net profit on sale of property, plant and equipment
Changes in w orking capital and provisions excluding the effects of
acquisitions and disposals of businesses/controlled entities
increase in trade and other receivables
increase in inventories
(decrease)/increase in deferred taxes payable
(decrease)/increase in payables and provisions
decrease in income taxes payable
Net cash flow s from operating activities
Consolidated
2012
$m
2011
$m
Notes
(7)
(17)
235.8
(7.9)
227.9
346.9
(3.6)
343.3
423.8
251.4
17.9
(6.2)
0.6
5.9
(4.2)
0.1
367.2
0.2
4.2
0.1
(3.7)
(32.8)
(90.4)
(82.2)
(37.1)
(224.2)
(46.5)
544.1
663.4
224.2
15.1
(9.0)
1.1
12.7
6.2
(0.6)
2.2
1.9
5.6
0.2
(1.0)
(10.8)
(76.8)
(78.2)
32.7
4.5
(35.2)
758.2
90
90
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
27. Businesses and non-controlling interests acquired
Accounting standards require the fair value of the net assets acquired to be recognised. These financial statements include the
preliminary purchase price allocation of acquired net assets. Accounting standards permit a measurement period during w hich
acquisition accounting can be finalised follow ing the acquisition date. The measurement period shall not exceed one year
from the acquisition date.
Consolidated - 2012
Acquisition of businesses and controlled entities
The consolidated entity acquired the follow ing businesses:
Businesses
Business assets of Atlas Copco MAI GmbH on 6 October 2011.
2012
Consideration
cash paid
Outflow of cash
Total consideration
Fair value of net assets of businesses/controlled entities acquired
inventories
property, plant and equipment
intangibles
provision for employee entitlements
Goodw ill on acquisition
Book
va lue s
$m
Fa ir va lue
a djustme nts
$m
13.8
13.8
13.8
2.5
4.7
2.4
(0.3)
9.3
-
-
-
-
-
-
-
-
Results contributed by acquired entities since acquisition date:
Revenue for the period
Earnings before interest, tax, depreciation and amortisation (EBITDA) for the period
Tota l
$m
13.8
13.8
13.8
2.5
4.7
2.4
(0.3)
9.3
4.5
$m
25.2
2.6
The unaudited operating revenue and earnings before interest, tax, depreciation and amortisation for the acquired
businesses and entities for the tw elve months to 30 September 2012 are as follow s:
Operating revenue
EBITDA
$m
25.2
2.6
The unaudited information at the time of acquisition w as compiled by Orica management based on financial information available
to Orica during due diligence and assuming no material transactions betw een Orica and the acquired business. Goodw ill on
the purchase of this entity is attributable mainly to the skills and technical talent of the acquired business's w ork force and
the synergies expected to be achieved from integrating this business. None of the goodw ill recognised is expected to be
deductible for income tax purposes.
Orica Limited
91
91
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
27. Businesses and non-controlling interests acquired (continued)
Consolidated - 2011
Acquisition of businesses and controlled entities
The consolidated entity acquired the follow ing businesses and entities (100% unless stated otherw ise):
Forbusi Importadora e Exportadora Ltda on 1 October 2010.
Mineria, Explosivos y Servicios, S.A. on 12 October 2010, Orica acquired an additional 4% shareholding.
Orica Philippines Inc, at various times, Orica acquired an additional 4.4% shareholding.
Titanobel Belgique S.A. and its subsidiaries on 1 April 2011.
Sociedade de Explosivos Civis, S.A. on 2 June 2011.
Businesses
Business assets of 1723416 Ontario Limited "MHA" on 21 October 2010.
Business assets of Rajahdysainepalvelu Kiviniemi Oy on 14 April 2011.
Book
values
$m
Fair value
adjustments
$m
54.5
2.0
56.5
0.3
56.8
14.1
3.2
7.0
0.2
0.1
(7.9)
(0.9)
(1.4)
-
14.4
-
-
-
-
-
(0.4)
-
-
-
0.5
-
(1.1)
-
-
(1.0)
2011
Consideration
cash paid
net overdraft acquired
Outflow of cash
deferred settlement
Total consideration
Fair value of net assets of businesses/controlled entities acquired
trade and other receivables
inventories
property, plant and equipment
intangibles
other assets
trade and other payables
provision for employee entitlements
provision for environmental
provision for deferred tax
Goodw ill on acquisition
Acquisition of non-controlling interest:
2011
Equity reserve
Total consideration
Results contributed by acquired entities since acquisition date:
Revenue for the year
EBITDA for the year
Amended
Ac quisitions
$m
-
-
-
-
(0.8)
-
-
-
-
-
-
(1.4)
0.2
(2.0)
2.0
Total
$m
54.5
2.0
56.5
0.3
56.8
12.9
3.2
7.0
0.2
0.6
(7.9)
(2.0)
(2.8)
0.2
11.4
45.4
Total
$m
54.5
2.0
56.5
0.3
56.8
13.7
3.2
7.0
0.2
0.6
(7.9)
(2.0)
(1.4)
-
13.4
43.4
Total
$m
4.4
4.4
$m
19.4
3.4
The unaudited operating revenue and earnings before interest, tax, depreciation and amortisation for the acquired
businesses and entities for the tw elve months to 30 September 2011 are as follow s:
Operating revenue
EBITDA
$m
43.1
8.0
The unaudited information at the time of acquisition w as compiled by Orica management based on financial information available to
Orica during due diligence and assuming no material transactions betw een Orica and the acquired businesses. Goodw ill on the
purchase of these entities is attributable mainly to the skills and technical talent of the acquired businesses' w ork forces and
the synergies expected to be achieved from integrating these businesses. None of the goodw ill recognised is expected to be
deductible for income tax purposes.
92
92
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
28. Businesses disposed
Disposal of businesses/controlled entities
The follow ing businesses and controlled entities w ere disposed of:
2012:
Teradoran Pty Limited on 10 February 2012.
2011:
Taiko Trucking Inc. on 1 January 2011.
Consideration
cash received
cash disposed
debt disposed
Inflow of cash
Net consideration
Carrying value of net assets of businesses/controlled entities disposed
trade and other receivables
inventories
property, plant and equipment
intangibles
other assets
payables and interest bearing liabilities
provision for employee entitlements
provision for income tax
Less non-controlling interests at date of disposal
Profit on sale of business/controlled entities
Consolidated
2012
$m
2011
$m
2.0
(0.1)
0.6
2.5
2.5
1.2
1.3
1.1
0.2
0.3
(0.7)
(0.3)
-
3.1
(0.9)
2.2
0.3
-
-
-
-
-
0.2
-
-
-
-
(0.5)
-
0.1
(0.2)
-
(0.2)
0.2
Orica Limited
93
93
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
29.
Impairment testing of goodwill and intangibles with indefinite lives
Impairment testing is conducted annually at the individual cash generating unit (CGU) level w here goodw ill and intangibles w ith
indefinite lives are allocated and monitored for management purposes.
The carrying amounts of goodw ill w ith indefinite lives are as follow s:
Mining Services:
- Australia/Asia
- North America
- Latin America
- EMET
- Other
Minova
Chemicals
Total
Consolidated
2012
$m
2011
$m
Goodw ill
131.3
66.6
118.8
352.8
216.7
724.7
146.3
1,757.2
132.4
69.5
120.9
373.8
215.6
1,156.0
146.7
2,214.9
The recoverable amount of goodw ill w ith indefinite lives is assessed based on value in use. The value in use calculations
use cash flow projections based on actual operating results and the business five year plan approved by the Board of Directors.
Cash flow projections beyond the five year period w ere calculated using the plan cash flow of the fifth year and industry
grow th rates going forw ard.
The discount rates for each CGU w ere calculated using rates based on an external assessment of the Group's pre-tax w eighted
average cost of capital in conjunction w ith risk specific factors to the countries in w hich the CGUs operate. The pre-tax
discount rates applied in the discounted cash flow model range betw een 9% and 23% (2011 9% - 24%). Foreign currency cash
flow s are discounted using the functional currency of the CGUs and then translated to Australian Dollars using the closing
exchange rate.
The value in use calculations are sensitive to changes in discount rates, earnings and foreign exchange rates varying from the
assumptions and forecast data used in the impairment testing. As such, sensitivity analysis w as undertaken to examine the effect
of a change in a variable on each CGU. For the Orica Group, a one percentage point change in discount rates w ould affect
overall value in use by an estimated $925 million w hile a 10% change in earnings or foreign exchange rates w ould affect value in
use by $1.5 billion and $261 million respectively w hich should be compared to the market capitalisation of Orica at balance date of
$9.1 billion.
For the interim period ending 31 March 2012, impairment testing indicated that the Minova Segment w as not impaired. How ever,
since that time, there have been continued competitive pressures preventing margin recovery in a number of countries and low er
demand from North American coal markets in the second half. A reassessment of the business forecasts has been undertaken
and the carrying value of intangibles in Minova USA, China and the Minova Group have been w ritten dow n by $367.2m to their
recoverable amount. For the Minova USA CGU, a terminal grow th rate of 1% (2011 3%) w as used and given the tax deductibility
of acquired goodw ill in the USA, a post-tax discount rate of 10% (2011 9%) w as used. For Minova China a pre-tax discount rate
of 19% and a terminal grow th rate of 5% w as used. The remaining Minova Group CGU's pre-tax discount rates vary from 9% to
23% w ith grow th rates varying from 0% to 6%. The recoverable amount of intangibles w ould be impacted by any adverse
changes in earnings, discount rates or terminal grow th rates.
Follow ing the w ritedow n, the Minova Segment includes in their USA CGU an amount of goodw ill of $306.1 million (2011 $655.2
million). There are no other individual CGU’s that have significant goodw ill and intangibles w ith indefinite lives.
The impairment charge for intangibles w ith indefinite lives during the year for the Minova Segment w as:
Consolidated
2012
$m
367.2
367.2
2011
$m
-
-
Orica Limited
Goodw ill
Total
94
94
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
30. Commitments
Capital expenditure commitments
Capital expenditure on property, plant and equipment and
business acquisitions contracted but not provided for and payable:
no later than one year
later than one, no later than five years
Consolidated
2012
$m
2011
$m
60.5
1.6
62.1
55.1
5.0
60.1
On 21 May 2012 Orica Ltd announced that it has agreed to form a joint venture w ith Yara and Apache to build a 330,000 tonnes
per annum industrial grade ammonium nitrate plant on the Burrup peninsula. The joint venture is ow ned 45% (Orica), 45%
(Yara) and 10% (Apache). Construction of the plant is expected to have a capital cost of approximately US$800 million and be
completed by the end of 2015. In addition to its share of the construction cost, Orica w ill also pay approximately US$110 million,
to be split betw een Yara and Apache, payable upon commencement of construction. At 30 September 2012, approximately
$38.2 million has been paid to the joint venture entity.
Lease commitments
Lease expenditure contracted for at balance date but not
recognised in the financial statements and payable:
no later than one year
later than one, no later than five years
later than five years
Representing:
cancellable operating leases
non-cancellable operating leases
Non-cancellable operating lease commitments
payable:
no later than one year
later than one, no later than five years
later than five years
Finance lease commitments payable:
no later than one year
later than one, no later than five years
later than five years
Less future finance charges
Present value of minimum lease payments provided for as a liability
Representing lease liabilities: (see note 17)
current
non-current
64.0
258.2
31.7
353.9
158.9
195.0
353.9
19.6
160.3
15.1
195.0
1.2
5.2
2.1
8.5
(1.2)
7.3
1.2
6.1
7.3
63.8
132.2
58.5
254.5
150.2
104.3
254.5
23.3
54.1
26.9
104.3
5.4
5.0
3.1
13.5
(1.5)
12.0
5.4
6.6
12.0
Orica Limited
95
95
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
31. Auditors’ remuneration
Total remuneration received, or due and receivable, by the auditors for:
Audit services
Auditors of the Company – KPMG Australia
– Audit and review of financial reports
– Other regulatory audit services
Auditors of the Company – overseas KPMG firms
– Audit and review of financial reports (1)
Other services (2)
Auditors of the Company – KPMG Australia
– other assurance services
Consolidated
2012
$000
2011
$000
4,834
356
1,696
6,886
52
52
6,938
4,636
116
2,017
6,769
-
-
6,769
Fro m time to time, KPM G, the auditors of Orica, provide other services to the Gro up, which are subject to strict co rpo rate go vernance pro cedures adopted by
the Co mpany which enco mpass the selectio n o f service providers and the setting of their remuneration.
(1) Fees paid or payable for o verseas subsidiaries' local lodgement purpo ses.
(2) The Bo ard Audit and Risk Co mmittee must approve any other services pro vided by KPM G abo ve a value o f $ 20,000 per assignment and it also reviews and
approves at year end o ther services provided by KPM G below a value of $ 20,000. The guidelines ado pted by KPM G fo r the pro visio n o f other services ensure
their statuto ry independence is no t co mpromised.
32. Critical accounting judgements and estimates
Management determines the development, selection and disclosure of the consolidated entity’s critical accounting policies,
estimates and accounting judgements and the application of these policies and estimates. Management necessarily makes
estimates and judgements that have a significant effect on the amounts recognised in the financial statements. Estimates and
judgements are continually evaluated and are based on historical experience and other factors, including reasonable expectations
of future events. Management believes the estimates used in preparing the financial report are reasonable and in accordance with
accounting standards. Changes in the assumptions underlying the estimates may result in a significant impact on the financial
statements. The most critical of these assumptions and judgements are:
Contingent liabilities
In the normal course of business, contingent liabilities may arise from product-specific and general legal proceedings, from
guarantees or from environmental liabilities connected with current or former sites. Where management are of the view that
potential liabilities have a low probability of crystallising or it is not possible to quantify them reliably, management disclose them as
contingent liabilities. These are not provided for in the financial statements but are disclosed in note 33.
Environmental and decommissioning provisions
The business of the Group is subject to a variety of laws and regulations in the jurisdictions in which it operates or maintains
properties. Provisions for expenses (refer to note 19) that may be incurred in complying with such laws and regulations are set
aside if environmental inquiries or remediation measures are probable and the costs can be reliably estimated. For sites where
there are uncertainties with respect to what Orica’s remediation obligations might be or what remediation techniques might be
approved and no reliable estimate can presently be made of regulatory and remediation costs, no amounts have been provided for.
It is also assumed that the methods planned for environmental remediation will be able to treat the issues within the expected time
frame.
It is difficult to estimate the future costs of environmental remediation because of many uncertainties, particularly with regard to the
status of laws, regulations and the information available about conditions in the various countries and at the individual sites.
Significant factors in estimating the costs include the work of external consultants and/or internal experts, previous experiences in
similar cases, expert opinions regarding environmental programs, current costs and new developments affecting costs,
management’s interpretation of current environmental laws and regulations, the number and financial position of third parties that
may become obligated to participate in any remediation activities on the basis of joint liability, and the remediation methods which
are likely to be deployed.
Changes in the assumptions underlying these estimated costs may impact future reported results. Subject to these factors, but
taking into consideration experience gained to date regarding environmental matters of a similar nature, Orica believes the
provisions to be appropriate based upon currently available information. However, given the inherent difficulties in estimating
liabilities in this area, it cannot be guaranteed that additional costs will not be incurred beyond the amounts provided. It is possible
that final resolution of these matters may require expenditures to be made in excess of established provisions over an extended
period of time that may result in changes in timing of anticipated cash flows from those assumed and in a range of amounts that
cannot be reasonably estimated.
96
96
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
32. Critical accounting judgements and estimates (continued)
In respect of the Botany Groundwater (New South Wales, Australia) contamination, Orica is continuing to conduct extensive
remediation activities, including the operation of a Groundwater Treatment Plant, to treat the groundwater at Botany, which is
contaminated with pollutants from historical operations. A provision exists (refer to note 19) to cover the estimated costs
associated with remediation until 2017. Costs are expected to be incurred after this date, but it is not possible to predict t he time
frame over which remediation will be required or the form the remediation will take and therefore it is not possible to reliably
estimate any associated costs. In light of ongoing discussions with regulatory authorities and following an assessment of currently
available technologies to treat the contamination, Orica intends to maintain a provision at current levels that takes into account the
estimated costs associated with remediation commitments over this period. The provision will continue to be re-evaluated based
on future regulatory assessments and advancements in appropriate technologies.
On 18 August 2010, the Australian Federal Government and the Danish Government respectively issued export and import permits
under the Basel Convention for the shipment of 6,100 tonnes of Hexachlorobenzene (HCB) waste from Orica’s Botany site to the
Kommunekemi plant in Nyborg, Denmark for environmentally sound destruction. On 24 December 2010, the Danish Government
stated that for political reasons it would not accept shipments of HCB waste from Orica. Orica is committed to finding a solut ion for
destruction of the HCB waste. There are no facilities to treat the HCB waste locally or in Australia and Orica's export applications
have been unsuccessful. Given the complex technical, social and political aspects of the HCB Waste, Orica continues to safely
store the waste. A provision has been established in respect of this matter (refer to note 19).
Orica received results indicating elevated concentrations of mercury in soil and groundwater at the southern end of the Botany site
and at adjacent offsite locations. Orica started remediating the site in May 2011 using a soil washing technology to remove
mercury. The soil washing plant was not able to sustain adequate reliable operation and Orica decided to suspend the works.
Orica has submitted a new remediation action plan which satisfied the NSW Environment Protection Authority requirements, and
Orica aims to restart works in 2013. A provision has been established for remediation activities in respect of this matter.
Legal proceedings
The outcome of currently pending and future legal, judicial, regulatory, administrative and other proceedings of a litigious nature
(“Proceedings”) cannot be predicted with certainty. Thus, an adverse decision in Proceedings could result in additional costs that
are not covered, either wholly or partially, under insurance policies and that could significantly impact the business and results of
operations of the Group. Proceedings as a rule raise difficult and complex legal issues and are subject to many uncertainties and
complexities including, but not limited to, the facts and circumstances of each particular case, issues regarding the jurisdiction in
which each Proceeding is brought and differences in applicable law. Upon resolution of any pending Proceedings, the Group may
be forced to incur charges in excess of the presently established provisions and related insurance coverage. It is possible th at the
financial position, results of operations or cash flows of the Group could be materially affected by an unfavourable outcome of
those Proceedings. Proceedings are evaluated on a case-by-case basis considering the available information, including that from
legal counsel, to assess potential outcomes. Where it is considered probable that a future obligation will result in an outflow of
resources, a provision is recorded in the amount of the present value of the expected cash outflows if these are deemed to be
reliably measurable.
Warranties and Indemnities
In the course of acquisitions and disposals of businesses and assets, Orica routinely negotiates warranties and indemnities across
a range of commercial issues and risks, including environmental risks associated with real property. Management uses the
information available and exercises judgement in the overall context of these transactions, in determining the scope and extent of
these warranties and indemnities. In assessing Orica’s financial position, management relies on warranties and indemnities
received, and considers potential exposures on warranties and indemnities provided. It is possible that the financial position,
results of operations and cash flows of the Group could be materially affected if circumstances arise where warranties and
indemnities received are not honoured, or for those provided, circumstances change adversely.
Orica Limited
97
97
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
32. Critical accounting judgements and estimates (continued)
Defined benefit superannuation fund obligations
The expected costs of providing post-retirement benefits under defined benefit arrangements relating to employee service during
the period are charged to the income statement. Any actuarial gains and losses, which can arise from differences between
expected and actual outcomes or changes in actuarial assumptions, are recognised immediately in the statement of
comprehensive income. In all cases, the superannuation costs are assessed in accordance with the advice of independent
qualified actuaries but require the exercise of significant judgement in relation to assumptions for future salary and
superannuation increases, long term price inflation and investment returns. While management believes the assumptions used
are appropriate, a change in the assumptions used may impact the earnings and equity of the Group.
Property, plant and equipment and definite life intangible assets
The Group’s property, plant and equipment and intangible assets, other than indefinite life intangible assets, are
depreciated/amortised on a straight line basis over their useful economic lives. Management reviews the appropriateness of
useful economic lives of assets at least annually and any changes to useful economic lives may affect prospective depreciation
rates and asset carrying values.
Financial instruments at fair value
The Group measures a number of financial instruments at fair value. These fair values are based on observable market data
which is used to estimate future cash flows and discount them to present value. Management's aim is to use and source this data
consistently from period to period. While management believes the assumptions used are appropriate, a change in assumptions
would impact the fair value calculations.
Impairment of assets
The Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that
those assets are impaired. In making the assessment for impairment, assets that do not generate independent cash flows are
allocated to an appropriate cash generating unit (CGU). The recoverable amount of those assets, or CGUs, is measured as the
higher of their fair value less costs to sell or value in use. Management necessarily applies its judgement in allocating assets that
do not generate independent cash flows to appropriate CGUs.
The determination of value in use requires the estimation and discounting of future cashflows. The estimation of the cashflows
considers information available at balance date which may result in cashflows deviating from actual developments. This includes,
among other things, expected revenue from sales of products, the return on assets, future costs and discount rates. Subsequent
changes to the CGU allocation or to the timing and quantum of cash flows may impact the carrying value of the respective assets.
Current asset provisions
In the course of normal trading activities, management uses its judgement in establishing the net realisable value of various
elements of working capital – principally inventory and accounts receivable. Provisions are established for obsolete or slow
moving inventories, bad or doubtful receivables and product warranties. Actual expenses in future periods may be different from
the provisions established and any such differences would impact future earnings of the Group.
Taxation
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is
required in determining the worldwide provision for income taxes. There are many transactions and calculations undertaken
during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for
tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different
from the amounts that were initially recorded, such differences will impact the current and deferred tax provision in the period in
which such determination is made.
In addition, deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable profits are available to utilise those temporary differences and losses, and the tax losses continue to be
available having regard to the nature and timing of their origination and compliance with the relevant tax legislation associated
with their recoupment.
Assumptions are also made about the application of income tax legislation. These assumptions are subject to risk and
uncertainty and there is a possibility that changes in circumstances or differences in opinions will alter expectations which may
impact the amount of deferred tax assets and deferred tax liabilities recorded on the Balance Sheet and the amount of tax losse s
and timing differences not yet recognised. In these circumstances, the carrying amount of deferred tax assets and liabilities may
change, resulting in an impact on the earnings of the Group.
98
98
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
33. Contingent liabilities
(i) General
A number of sites within the Group have been identified as requiring environmental remediation or review. Appropriate
implementation of remediation actions to meet Orica’s obligations for these sites is continuing.
In accordance with the current accounting policy, for sites where the requirements have been assessed and are capable of
reliable measurement, estimated regulatory and remediation costs have been capitalised, expensed as incurred or provided for.
For environmental matters where there are significant uncertainties with respect to the extent of Orica’s remediation obligations or
the remediation techniques that might be approved, no reliable estimate can presently be made of regulatory and remediation
costs and any costs are expensed as incurred.
There can be no assurance that new information or regulatory requirements with respect to known sites or the identification of
new remedial obligations at other sites will not require additional future provisions for environmental remediation and such
provisions could be material.
Orica has entered into arrangements with the relevant regulatory authorities for a number of sites to investigate land and
groundwater contamination and, where appropriate, undertake voluntary remediation activities on these sites. Where reliable
estimates are possible and remediation techniques have been identified for these sites, provisions have been established in
accordance with current accounting policy.
Orica is investigating suitable remediation options for Dense Non-Aqueous Phase Liquid (DNAPL) source areas at Botany which
give rise to the groundwater contamination which is being remediated by the Groundwater Treatment Plant. No provision has
been established for remediation activities in respect of DNAPL as a reliable estimate is not possible at this time.
(ii) Investigations and audits
Consistent with other companies of the size and diversity of Orica, the Group is the subject of ongoing information requests,
investigations and audit activities by Tax and Regulatory Authorities in jurisdictions in which Orica operates. Orica co-operates
fully with the Tax and Regulatory Authorities. It is possible that Orica may incur fines and/or other penalties as a consequence of
these investigations and audits.
(iii) Brazilian Tax Action
The Brazilian Taxation authority is claiming unpaid taxes relating to the 1997 financial year of approximately $25 million. ICI Plc,
the vendor of the business to Orica, has been notified to preserve Orica's rights under the tax indemnity obtained upon acquisition
of the business which provides indemnity for amounts exceeding certain limits. The Brazilian Taxation authority has been granted
security over the Lorena site as well as a bank guarantee of up to approximately $9 million.
(iv) Norway Tax Action
In August 2009, the Central Tax Office for Large Enterprises (CTO) sent a letter to Dyno Nobel AS (now Orica Norway AS) in
Norway regarding a possible reassessment of that company’s tax return for the 2005 income year relating to a transfer of the
Dyno Nobel house brand in conjunction with Orica’s acquisition of Dyno Nobel’s explosives business. The Tax Office has issued
a final office decision confirming its view and Orica now awaits the final invoice for tax and interest which is expected to amount to
approximately $32.5 million. Orica has received external legal advice and intends to pursue this matter through an administrative
complaints process and/or through the Norwegian courts.
(v) Australian Tax Audit
The Australian Taxation Office (“ATO”) is currently conducting a tax audit in relation to a financing arrangement by Orica of its US
group between 2004 and 2006. The ATO has issued amended assessments in relation to the 2004, 2005 and 2006 years
totalling $50.6m. Orica has objected against all three assessments. In accordance with the ATO administrative practice, Orica
has paid 50% of the primary tax and interest arising from the assessments, which has been recognised as a non-current
receivable.
(vi) Environmental Prosecutions
The NSW Environment Protection Authority has issued legal proceedings against Orica in relation to environmental incidents at
the Botany and Kooragang Island sites that occurred during 2010 and 2011. Orica has entered guilty pleas in relation to some of
the charges involved in those legal proceedings. A sentencing and mitigation hearing of those proceedings involving guilty pleas
is scheduled for December 2012. The remaining legal proceedings are progressing through Court processes.
It is possible that Orica may incur fines and other penalties as a consequence of these legal proceedings. However where it is not
possible to reliably assess the amount of any such fines or other penalties, no provisions have been made with respect to these
environmental prosecutions.
Orica Limited
99
99
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
33. Contingent liabilities (continued)
Guarantees, indemnities and warranties
(cid:120)
The consolidated entity has entered into various long term supply contracts. For some contracts, minimum charges are
payable regardless of the level of operations, but the levels of operations are expected to remain above those that would
trigger minimum payments.
(cid:120)
(cid:120)
(cid:120)
There are a number of legal claims and exposures which arise from the ordinary course of business. There is significant
uncertainty as to whether a future liability will arise in respect of these items. The amount of liability, if any, which may arise
cannot be reliably measured at this time.
The consolidated entity has entered into various sales contracts where minimum savings are guaranteed to customers and
such savings are expected to be achieved in the ordinary course of business.
There are guarantees relating to certain leases of property, plant and equipment and other agreements arising in the ordinary
course of business.
(cid:120) Contracts of sale covering companies and assets which were divested during the current and prior years include commercial
warranties and indemnities to the purchasers.
(cid:120) Orica Limited guaranteed senior notes issued in the US private placement market in 2000, 2003, 2005 and 2010. The notes
have maturities between 2012 and 2030.
100
Orica Limited
100
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management
Capital management
Orica’s objectives when managing capital (net debt and total equity) are to safeguard the Group’s ability to continue as a going
concern and to ensure that the capital structure enhances, protects and balances financial flexibility against minimising the cost of
capital.
In order to maintain the appropriate capital structure, the Group may adjust the amount of dividends paid to shareholders, utilise a
dividend reinvestment plan, return capital to shareholders or issue new equity, in addition to incurring an appropriate mix of long
and short term borrowings. Currently, Orica’s dividend policy is to pay a progressive dividend.
Orica monitors capital on the basis of the accounting gearing ratio (which is calculated as net debt divided by net debt plus
shareholders equity) and in previous years an adjusted gearing ratio (which was calculated by notionally reclassifying $250 mil lion
of the $500 million Orica Step-Up Preference Securities (SPS) from equity to debt). In addition, Orica monitors various other
credit metrics, principally an interest cover ratio (EBIT excluding individually material items, divided by net financing costs adjusted
for capitalised borrowing cost) and funds from operations (FFO) divided by total debt measure.
The Group’s current target level for adjusted gearing is 35% to 45% and for interest cover is 5 times or greater. These, together
with an appropriate FFO/total debt measure, are targeted to maintain a strong investment grade credit profile, which should
facilitate access to borrowings from a diverse range of sources. Ratios may move outside of these target ranges for relatively
short periods of time after major acquisitions or other significant transactions.
The gearing level and interest cover are also monitored to ensure an adequate buffer against covenant levels under various
facilities.
The net debt to gearing ratios are calculated as follows :
Interes t bearing borrowings
Less cash and cash equivalents
Net debt
Notional adjustment for SPS
Adjusted net debt
Tot al equity
Notional adjustment for SPS
Adjusted equity
Adjusted net debt and adjusted equity
Gearing ratio (%)
Adjusted gearing ratio (%)
The interest c over ratio is calculated as follows:
(1)
EBIT
Net financing costs
Capitalised borrowing costs
Interest cover ratio (times)
(1)
Bef ore individually material items
Consolidated
2012
$m
2011
$m
2,535.0
(235.8)
2,299.2
-
2,299.2
3,246.5
-
3,246.5
5,545.7
41.5%
41.5%
1,755.0
(346.9)
1,408.1
250.0
1,658.1
3,875.6
(250.0)
3,625.6
5,283.7
26.6%
31.4%
2012
$m
2011
$m
1,022.6
128.2
38.1
166.3
6.1
1,028.3
123.5
37.4
160.9
6.4
The Group self-insures for certain insurance risks under the Singapore Insurance Act. Under this Act, authorised general
insurers, including Anbao Insurance Pte Ltd (the Orica self-insurance company), are required to maintain a minimum amount of
capital. For the financial year ended 30 September 2012, Anbao Insurance Pte Ltd maintained capital in excess of the minimum
requirements prescribed under this Act.
Orica Limited
101
101
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
Financial risk factors
The Group’s principal financial risks are associated with foreign exchange, interest rate, liquidity and credit risk.
The Group’s overall risk management program seeks to mitigate these risks and reduce volatility of Orica’s financial performance.
Financial risk management is carried out centrally by the Group’s Treasury department under policies approved by the Board of
Directors. The Board provides written principles for overall risk management and policies covering specific areas, such as foreign
exchange, interest rate and credit risk as well as the use of derivative and non-derivative financial instruments and the investment
of excess liquidity. Orica enters into derivative instruments for risk management purposes only. Derivative transactions are
entered into to hedge the risks relating to underlying physical positions arising from business activities. Derivative transac tions to
hedge risks such as interest rate and foreign currency movements principally include interest rate swaps, cross currency interest
rate swaps, forward exchange contracts and vanilla European option contracts.
Classification of financial assets and financial liabilities
The Group’s principal financial instruments comprise cash and cash equivalents, receivables, payables, interest bearing liabili ties
and derivatives.
For measurement purposes the Group classifies financial assets and financial liabilities into the following categories: (a) financial
assets and liabilities at fair value through profit and loss, (b) loans and other receivables and (c) financial liabilities at amortised
cost. The Group does not have any financial assets categorised as held-to-maturity or as available-for-sale.
Financial assets and liabilities at fair value through profit and loss
This category combines financial assets and liabilities that are held for trading. A financial asset or liability is classified in this
category if it is acquired principally for the purpose of selling in the short term or if it is so designated by management. The Group
holds a number of derivative instruments for economic hedging purposes under Board approved risk management policies, which
do not meet the criteria for hedge accounting under Accounting Standards. These derivatives are required to be categorised as
held for trading. Assets and liabilities in this category are classified as current if they are either held for trading or are expected to
be realised within 12 months of the balance sheet date (refer notes 12 and 16). Movements in the fair value of those derivatives
that meet the accounting criteria as cash flow hedges and are designated as such are recognised in to the cash flow hedge
reserve in equity.
Loans and other receivables
Loans and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except where maturities are greater than 12 months after the balance sheet
date when they are classified as non-current. Loans and receivables are classified as ‘receivables’ in the balance sheet (refer
note 8).
Amortised cost
Financial liabilities measured in this category are initially recognised at their fair value and are then subsequently re-measured at
amortised cost using the effective interest rate method. This includes the Group’s short-term non-derivative financial instruments
(refer note 16) and its interest bearing liabilities (refer note 17).
Risks and mitigation
The risks associated with the financial instruments and the policies for minimising these risks are detailed below:
Interest rate risk management
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate
due to changes in market interest rates.
The Group is primarily exposed to interest rate risk on outstanding interest bearing liabilities. Non-derivative interest bearing
assets are predominantly short-term liquid assets. Interest bearing liabilities issued at fixed rates expose the Group to fair value
interest rate risk while borrowings issued at a variable rate give rise to cash flow interest rate risk.
Interest rate risk on long-term interest bearing liabilities is managed by adjusting the ratio of fixed interest debt to variable interest
debt. This is managed within policies determined by the Orica Board of Directors via the use of interest rate swaps and cross
currency interest rate swaps. Under the policy, up to 90% of debt with a maturity of less than one year can be fixed. This reduces
on a sliding scale to year five where a maximum 50% of debt with a maturity of between five and ten years can be fixed. Debt
issuance with fixed interest payments can exceed ten years but requires Board approval. The Group operated within this range
during both the current year and the prior year.
102
102
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
Interest Rate Sensitivity
The table below s hows the effect on profit from operations, net profit after tax and shareholders' equity if interest rates at year
end had been 10% higher or lower based on the relevant interest rate yield curve applicable to the underlying currency the
borrowings are denominated in (including Australian dollars, Euros, Canadian dollars, New Zealand dollars and United States
dollars) with all other variables held constant, taking into account all underlying exposures and related hedges and does not
include the impact of any management action that might take place if thes e events occurred. A sensitivity of 10% has been
selec ted as this is considered reasonable given the current level of both short-term and long-term interest rates. Directors c annot
nor do not seek to predict movements in interest rates.
Effect on profit before tax increase/(decrease)
If interest rates were 10% higher, with all other variables held constant
If interest rates were 10% lower, with all other variables held constant
Effect on profit after tax increase/(decrease)
If interest rates were 10% higher, with all other variables held constant
If interest rates were 10% lower, with all other variables held constant
Effect on shareholders' equity increase/(decrease)
If interest rates were 10% higher, with all other variables held constant
If interest rates were 10% lower, with all other variables held constant
Consolidated
2012
$m
2011
$m
(3.2)
3.2
(2.2)
2.2
0.8
(0.8)
(2.6)
2.8
(1.9)
2.0
2.5
(1.9)
Foreign exchange risk management
Foreign exchange risk - transactional
Foreign exchange risk refers to the risk that the value of a financial commitment, recognised asset or liability or cash flow will
fluctuate due to changes in foreign currency rates.
The Group is exposed to foreign exchange risk primarily due to significant sales and/or purchases denominated, either directly or
indirectly, in currencies other than the functional currencies of the Group’s subsidiaries.
In regard to foreign currency risk relating to sales and purchases, the Group hedges up to 100% of committed exposures.
Anticipated exposures are hedged by applying a declining percentage of cover the further the time to the transaction date. Only
exposures that can be forecast to a high probability are hedged. Transactions can be hedged for up to five years. The derivative
instruments used for hedging purchase and sale exposures are bought vanilla option contracts and forward exchange contracts.
Forward exchange contracts may be used only under Board policy for committed exposures and anticipated exposures expected
to occur within 12 months. Bought vanilla option contracts may be used for all exposures. These contracts are designated as
cash flow hedges and are recognised at their fair value. The currencies giving rise to this risk are primarily U.S. Dollar (US D),
Euro (EUR), Canadian Dollar (CAD), New Zealand Dollar (NZD), Norwegian Kroner (NOK), Swedish Kronor (SEK) and Great
Britain Pound (GBP).
Orica Limited
103
103
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
Exchange rate sensitivity
The table below shows the effect on profit and equity of the Group if exchange rates as at 30 September had been 10% higher or
lower with all other variables held constant, taking into account all underlying exposures and related hedges and does not include
the impact of any management actions that might take place if these events occurred. A sensitivity of 10% has been selected, as
this is considered reasonably possible given the current level and volatility of exchange rates based on an historical analysis .
Directors cannot nor do not seek to predict movements in exchange rates. However, it should be noted that it is unlikely that all
currencies would move in the same direction and by the same percentage. Major exposures are against the USD, CAD, NZD,
NOK, SEK, EUR and GBP.
The Group's exposure to foreign currency risk including both external balanc es and internal balances
(eliminated on c ons olidation) at the reporting date was as follows (Australian dollar equivalents):
(1)
Cash
Trade and other receivables
Trade and other payables
Interest bearing liabilities
Net derivatives
Net exposure
(1)
USD
$m
CAD
$m
NZD
$m
2012
NOK
$m
SEK
$m
EUR
$m
GBP
$m
2,511.4
206.8
(247.4)
(2,166.0)
351.6
656.4
46.6
33.3
(29.3)
(35.6)
(48.8)
(33.8)
1.7
0.2
(1.7)
(54.9)
(39.3)
(94.0)
63.0 1,076.8
9.9
(12.2)
(453.5)
-
621.0
0.3
(1.5)
(5.7)
(83.6)
(27.5)
1,124.4
41.0
(46.4)
(939.7)
(81.6)
97.7
308.8
1.7
(2.4)
(64.6)
-
243.5
USD
$m
CAD
$m
NZD
$m
2011
NOK
$m
SEK
$m
EUR
$m
G BP
$m
(1)
Cash
Trade and other receivables
Trade and other payables
Interest bearing liabilities (1)
Net derivatives
Net exposure
2,864.1
240.1
(318.6)
(2,706.2)
432.6
512.0
47.4
31.4
(27.2)
4.7
(49.3)
7.0
2.8
1.3
(1.0)
(34.5)
(39.6)
(71.0)
62.5
0.3
(0.3)
(13.3)
(70.4)
(21.2)
162.3
0.8
(11.6)
(83.1)
-
68.4
746.5
36.6
(53.9)
(523.5)
(90.8)
114.9
306.4
0.8
(1.1)
(60.5)
-
245.6
(1) Includes internal deposits and interest bearing liabilities used for Group cash management
purposes.
104
104
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
A 10% sensitivity would move year end rates as follows (against the Australian Dollar):
10%
lower
2012
As
reported
10%
higher
10%
lower
2011
As
reported
10%
higher
0.9415
0.9220
1.1300
5.3629
6.1355
0.7281
0.5792
1.0461
1.0244
1.2555
5.9588
6.8172
0.8090
0.6436
1.1507
1.1268
1.3811
6.5547
7.4989
0.8899
0.7080
0.8784
0.9134
1.1513
5.1145
6.0026
0.6493
0.5635
0. 9760
1. 0149
1. 2792
5. 6828
6. 6696
0. 7214
0. 6261
1.0736
1.1164
1.4071
6.2511
7.3366
0.7935
0.6887
U.S. Dollar
Canadian Dollar
New Zealand Dollar
Norwegian Kroner
Swedish Kronor
Euro
Great Britain Pound
The effect on profit from operations, net profit after tax and shareholders' equity of a movement in individual
exchange rates with all other variables held constant is as follows:
Effect on profit/(loss) from operations from a movement in:
U.S. Dollar
Canadian Dollar
New Zealand Dollar
Norwegian Kroner
Swedish Kronor
Euro
Great Britain Pound
Effect on net pr ofit after tax from a movement in:
U.S. Dollar
Canadian Dollar
New Zealand Dollar
Norwegian Kroner
Swedish Kronor
Euro
Great Britain Pound
Increase/(decrease) on shareholders' equity from a movement in:
U.S. Dollar
Canadian Dollar
New Zealand Dollar
Norwegian Kroner
Swedish Kronor
Euro
Great Britain Pound
2012
(10%)
$m
10%
$m
2011
(10%)
$m
10%
$m
(0.8)
0.8
(1.0)
(0.2)
(0.3)
(0.5)
-
(0.5)
0.6
(0.7)
(0.1)
(0.2)
(0.4)
-
52.9
(2.6)
(7.3)
(2.2)
48.3
10.0
18.9
(2.0)
(0.7)
0.8
0. 2
0. 3
0.4
-
(1.4)
(0.5)
0.6
0.1
0.2
0.3
-
(39.2)
2.1
5. 9
1.8
(39.5)
(8.0)
(15.5)
(6.3)
1.2
(0.7)
0.2
(1.2)
(2.5)
-
(4.4)
0.8
(0.5)
0.1
(0.9)
(1.7)
-
52.0
0.5
(5.4)
(1.8)
5.3
7.9
19.1
4.5
(0.9)
0.5
(0.2)
1.0
1.9
-
3.1
(0.7)
0.4
(0.1)
0.7
1.4
-
(38.7)
(0.4)
4.4
1.5
(4.3)
(8.3)
(15.6)
Orica Limited
105
105
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
Foreign currency risk - translational
Foreign currency earnings translation risk arises primarily as a result of earnings in USD, NZD, NOK, SEK, Chilean Peso (CLP),
Mexican Peso (MXN) and CAD being translated into AUD. Derivative contracts to hedge earnings exposures do not qualify for
hedge accounting under Accounting Standards. However, Board approved policy allows hedging of this exposure in order to
reduce the volatility of full year earnings resulting from changes in exchange rates. At 30 September 2012, the fair value of these
derivatives was $nil (2011 $nil).
Foreign currency net investment translation risk is managed within policies determined by the Board of Directors. Hedging of
exposures is undertaken centrally by the Group’s Treasury department primarily through originating debt in the currency of the
foreign operation or by raising debt in a different currency and effectively swapping the debt to the currency of the foreign
operation (see below cross currency interest rate swaps under interest rate risk management). The remaining translation
exposure is managed, where considered appropriate, through forward foreign exchange derivative instruments. Gains and losses
resulting from these hedging activities are recorded in the foreign currency translation reserve within the equity section of the
balance sheet and offset against the foreign exchange impact resulting from the translation of the net assets of foreign operations.
Twenty six percent of the Group’s investment in foreign operations was hedged in this manner as at 30 September 2012 (2011
23.0%).
As at reporting date, derivative instruments designated as hedging net investment exposures had a fair value of $81.0 million loss
(2011 $95.4 million loss).
Credit risk management
Credit risk represents the loss that would be recognised if counterparties failed to meet their obligations under a contract or
arrangement. The Group has exposure to credit risk on all financial assets included within the balance sheets. For discussion on
how this risk in relation to receivables is managed refer to note 8. In regards to credit risk arising from derivatives and cash, this is
the credit exposure to financial institutions that are counterparties to derivative contracts and cash deposits, with a positive fair
value from Orica’s perspective. As at 30 September 2012, the sum of all contracts with a positive fair value was $15.7 million
(2011 $11.6 million).
To manage this risk, the Group restricts dealings to highly rated counterparties approved within its credit limit policy. The higher
the credit rating of the counterparty, the higher the Group’s allowable exposure is to that counterparty under the policy. The
Group does not hold any credit derivatives to offset its credit exposures.
106
106
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
Liquidity risk management
Liquidity risk arises from the possibility that there will be insufficient funds available to make payment as and when required.
The Group manages this risk via:
- maintaining an adequate level of undrawn committed facilities in various c urrencies that can be drawn upon at short notice;
- generally uses instruments that are readily tradeable in the financial markets;
- monitors duration of long term debt;
- s preads, to the extent prac ticable, the maturity dates of long-term debt facilities; and
- performs a comprehensive analysis of all inflows and outflows that relate to financial assets and liabilities.
Facilities available and the amounts drawn and undrawn are as follows:
Unsecured bank overdraft facilities
Unsecured bank overdraft facilities available
Amount of facilities undrawn
Com mitted standby and loan facilities
Committed standby and loan facilities available
Amount of facilities unused
2012
$m
2011
$m
105.3
97.4
109.7
106.1
3,724.1
1,505. 5
3,809.1
2,078.7
The bank overdrafts are payable on demand and are subjec t to an annual review. The repayment dates of the committed
standby and loan facilities range from 24 O ctober 2012 to 25 October 2030 (2011 28 February 2012 to 25 October 2030).
The contractual maturity of the Groups' fixed and floating rate financial instruments and derivatives are shown in the
table below. The amounts shown represent the future undiscounted principal and interest cash flows:
Consolidated
As at 30 September 2012
As at 30 September 2011
Non-derivative financial assets
Cash
Trade and other receivables (1)
Derivative financial asset s
Financial assets
Non-derivative financial liabilities
Trade and other payables (1)
Bank overdrafts
Bank loans
Export finance facility
Other short term borrowings
Private placement
Other long term borrowings
Lease liabilities
Derivative financial liabilities
Financial liabilities
Less than
1 year
$m
235.8
1,035.3
871.2
2,142. 3
1,058.9
7.9
37.4
1.8
6.2
100. 2
-
1.3
878.7
2,092. 4
1 to 2
year s
$m
-
49.6
50.7
100. 3
12.4
-
540. 7
1.8
-
60.3
1.7
1.5
61.2
679. 6
2 to 5
year s
$m
Over 5
year s
$m
Less than
1 year
$m
-
-
137.7
137. 7
-
-
396.9
396.9
346.9
941.6
539.1
1,827.6
-
-
250.2
5.5
-
800. 5
1.0
3.3
186.0
1,246. 5
-
-
-
96.6
-
858.0
-
2.1
470.8
1,427. 5
1,141.0
3.6
70.3
1.7
6.0
76.3
-
5.8
546.3
1,851.0
1 to 2
years
$m
-
1.2
65.1
66.3
25.6
-
141.9
1.7
-
116.9
2.1
1.3
73.5
363.0
2 to 5
years
$m
Over 5
years
$m
-
-
183.6
183.6
-
-
-
5.1
-
575.5
0.9
3.3
240.0
824.8
-
-
434.8
434.8
-
-
-
110.4
-
1,260.7
-
3.1
518.6
1,892.8
Net inflow/(outflow)
49.9
(579.3)
(1,108.8)
(1,030.6)
(23.4)
(296.7)
(641.2)
(1,458.0)
(1)
Exc ludes derivative financial ins truments.
Orica Limited
107
107
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
Cash flow hedges
Cash flow hedges are used to hedge exposures relating to borrowings and ongoing business activities, where there is a highly
probable sale, purchase or settlement commitment in foreign currencies.
Foreign exchange transactions
The hedging of foreign exchange transactions is described under foreign currency risk above.
The fair value of forward exchange contracts and options used as hedges of foreign exchange transactions at 30 September 2012
was a net $1.6 million gain (2011 $1.7 million loss), comprising assets of $7.0 million (2011 $6.7 million) and liabilities of $5.4
million (2011 $8.4 million).
Gains and losses recognised in the cash flow hedge reserve on all foreign currency hedges of anticipated purchases and sales
and the timing of their anticipated recognition as part of sales or purchases are:
Term
Net deferred (gains)/losses
2011
$m
2012
$m
Not later than one year
Later than one year but not later than two years
Later than two year but no later than five years
Total
(0.6)
-
-
(0.6)
(3.7)
-
-
(3.7)
The terms of the forward exchange contracts have been negotiated to match the terms of the commitments.
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in
equity. When the hedged asset or liability affects the Income Statement, the Group transfers the related amount deferred in
equity into the Income Statement.
Interest rate swap contracts
Interest rate or cross currency interest rate swaps are classified as cash flow hedges if they are used to transfer floating rate debt
into fixed rate debt and they are stated at fair value. All gains and losses attributable to the hedged risk are taken directly to
equity and reclassified into the Income Statement when the interest expense is recognised. All swaps are matched directly
against the appropriate loans and interest expense. There was a derivative liability of $21.8 million as at 30 September 2012
(2011 $18.1 million).
The notional amounts of interest rate swaps as summarised below represent the contract or face values of these derivatives. The
notional amounts do not represent amounts exchanged by the parties. The amounts to be exchanged are net settled and will be
calculated with reference to the notional amounts and the pay and receive interest rates determined under the terms of the
derivative contracts. Each contract involves quarterly or semi-annual payment or receipt of the net amount of interest:
Floating to fixed swaps
One to five years
Fair value hedges
Cross currency interest rate and interest rate swap contracts
2012
$m
350.0
2011
$m
511.5
During the period the Group held cross currency interest rate and interest rate swaps to mitigate the Group’s exposure to changes
in the fair value of foreign denominated debt from fluctuations in foreign currency and interest rates. The hedged items
designated were a portion of the Group’s foreign currency denominated borrowings. The changes in the fair values of the hedged
items resulting from movements in exchange rates and interest rates are offset against the changes in the value of the cross
currency interest rate and interest rate swaps. The objective of this hedging is to convert foreign currency borrowings to floating
rate Australian dollar borrowings.
For the Group, re-measurement of the hedged items resulted in a gain before tax of $20.8 million (2011 $6.3 million loss) and the
changes in the fair value of the hedging instruments resulted in a loss before tax of $20.0 million (2011 $5.5 million gain) resulting
in a net gain before tax of $0.8 million (2011 $0.8 million loss) recorded in finance costs.
The fair value of these swaps at 30 September 2012 was $39.3 million (2011 $57.2 million), comprising assets of $84.0 million
(2011 $92.2 million) and liabilities of $44.7 million (2011 $35.0 million).
Derivatives not designated in a hedging relationship
Certain derivative instruments do not qualify for hedge accounting, despite being commercially valid economic hedges of the
relevant risks. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised
immediately in the Income Statement (for example, changes in the fair value of vanilla bought European options used to hedge
translation of foreign earnings).
Orica Limited
108
108
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
34. Financial and capital management (continued)
Interest rate swaps
The change in fair value of swaps executed as economic hedges for which hedge accounting was not applied was nil million for
the financial year ending 30 September 2012 (2011 $0.4 million gain).
Fair values of derivatives
The carrying value of derivatives disclosed in notes 12 and 16 equal their fair values. Valuation techniques include where
applicable, reference to prices quoted in active markets, discounted cash flow analysis, fair value of recent arm’s length
transactions involving the same instruments or other instruments that are substantially the same, and option pricing models.
The fair value of forward exchange contracts are calculated by reference to forward exchange market rates for contracts within
similar maturity profiles at the time of valuation.
The fair values of cross currency interest rate swaps and interest rate swaps and other financial liabilities measured at fair value
are determined using valuation techniques which utilise data from observable markets. Assumptions are based on market
conditions existing at each balance date. The fair value is calculated as the present value of the estimated future cash flows
using an appropriate market based yield curve, which is independently derived and representative of Orica’s cost of borrowings.
Fair value hierarchy
The table below analyses financial ins truments carried at fair value, by valuation method. The different levels have been defined as follows:
- Level 1: quoted prices (unadjusted) in active market 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); and
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 September 2012
Derivative financial assets
Derivative financial liabilities
30 September 2011
Derivative financial assets
Derivative financial liabilities
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
-
-
-
-
-
-
15.7
(84.1)
(68.4)
11.6
(76.7)
(65.1)
-
-
-
-
-
-
15.7
(84.1)
(68.4)
11.6
(76.7)
(65.1)
During the current and previous year there were no transfers between the fair value hierarchy levels.
Orica Limited
109
109
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
35. Events subsequent to balance date
On 12 November 2012, the directors declared a final dividend of 54.0 cents per ordinary share payable on 14 December 2012.
The financial effect of this dividend is not included in the financial statements for the year ended 30 September 2012 and will be
recognised in the 2013 financial statements.
Legal proceedings issued by the Queensland Department of Environment and Heritage Protection against Orica in relation to
stormwater and effluent discharges at Orica's Chemical Complex at Yarwun, Queensland have been dealt with in the Gladstone
Magistrates Court. Orica was fined $182,000 and also ordered to pay $250,000 to three environment projects in the Gladstone
area. No convictions were recorded.
The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2012,
that has affected or may affect the operations of the consolidated entity, the results of those operations, or the state of affairs of
the consolidated entity in subsequent years, which has not been covered in this report.
110
Orica Limited
110
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
36. Employee share plans
Employees’ options entitlement
Other than the LTEIP shares which are treated as options for accounting purposes, Long Term Incentive Rights Plan ( LTIRP),
Sign-on and Retention Rights Plans, there are no other options over Orica shares outstanding at 30 September 2011 or 30
September 2012.
(a) (i) Long Term Incentive Rights Plan (LTIRP)
LTIRP was adopted this year as the long term incentive component of remuneration for senior executives (excluding the
Executive Committee) selected by the Board based on the role of the individual in guiding the future success of the Company.
Invitations to participate in LTIRP are made on the following basis:
(cid:120)
Senior executives are granted a number of rights, which vest upon the satisfaction of the relevant performance hurdle. The
number of rights granted to each employee is based on a specified percentage in the range of 15% to 60% of their fixed
remuneration, depending on the individual’s role and responsibility.
(cid:120)
Each right is an entitlement to be allocated one ordinary share in Orica (or such other number adjusted in accordance with
the terms of the LTIRP rules).
(cid:120) Rights are unlisted and do not carry any dividend or voting rights.
(cid:120)
(cid:120)
Shares allocated upon vesting of rights may be either newly issued shares or existing shares acquired on market.
As the LTIRP is offered to senior executives below the Executive Committee level, it was considered more appropriate to set
a single hurdle representing a minimum level of acceptable performance before vesting should occur, rather than the
aggressive conditions applicable to LTEIP. The relevant performance hurdle for the Financial Year 2012 grant is based on
Orica achieving 2% EPS compound growth per annum over three years.
(cid:120) Holders of rights that leave the consolidated entity prior to the end of the performance period will, in general, forfeit their
rights. The Board has discretion to allow a number of rights to be tested and vest if the holder leaves due to death, disabili ty
or other Board approved reasons.
(cid:120)
These long term incentives are expensed over the three year vesting period.
The number of LTIRP issued, values and information is shown in the following table:
Vesting date
Grant date
As at 30 September 2012
19 Dec 11
19 Dec 14
Number of
rights
issued
Number of
rights held at
30 Sep
Number of
participants at
30 Sep
Value of rights
at grant date (1)
$
664,845
649,165
310
14,586,699
(1) The assumptions underlying the rights valuations are:
Price of Orica
Shares
at grant date
$
24.68
Expected
volatility in
share price
%
25
Dividends
expected
on shares
%
4
Grant date
19 Dec 11
Risk free
interest
rate
%
2.99
Fair value
per right (2)
$
21.94
(2) The option valuations prepared by PWC use methodologies consistent with assumptions that apply under an adjusted form of the Black Scholes
option pricing model and reflect the value (as at grant date) of options held at 30 September 2012. The assumptions underlying the option
valuations are: (a) the exercise price of the option, (b) the life of the option, (c) the current price of the underlying securities, (d) the expected
volatility of the share price, (e) the dividends expected on the shares, and (f) the risk-free interest rate for the life of the option.
(a) (ii) Sign-on Rights Allocations
For a select group of senior managers who join Orica post allocation of a LTIRP grant (and generally having forgone at-risk
remuneration from their previous employer) rights may be allocated at the discretion of the Orica Board. Allocations are made on
the following basis:
(cid:120)
Employees are granted a number of rights, which vest upon the satisfaction of a time based hurdle, generally aligned to their
anniversary of joining Orica.
(cid:120)
The number of rights granted to each employee is based on either a specified percentage of their fixed remuneration, or a
straight dollar value. The value is determined on an individual basis, but generally aligned to either their future LTIRP grant
percentage or the foregone at-risk remuneration from their previous employer.
Each right is an entitlement to be allocated one ordinary share in Orica.
(cid:120)
(cid:120) Rights are unlisted and do not carry any dividend or voting rights.
(cid:120)
Shares allocated upon vesting of rights may be either newly issued shares or existing shares acquired on market.
Orica Limited
111
111
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
36. Employee share plans (continued)
(cid:120) Holders of rights that leave the consolidated entity prior to the end of the performance period will, in general, forfeit their
rights. The Board has discretion to allow a number of rights to be tested and vest if the holder leaves due to death, disabili ty
or other Board approved reason.
Sign-on Rights allocations, values and information is shown in the following table:
Vesting date
Grant date
As at 30 September 2012
19 Dec 11
01 Sep12
30 Nov 12
01 Sep 13
Number of
rights
issued
Number of
rights held at
30 Sep
Number of
participants at
30 Sep
Value of rights
at grant date (1)
$
7,942
6,148
14,090
7,942
6,148
14,090
1
1
188,861
143,064
331,925
(1) The assumptions underlying the rights valuations are:
Price of Orica
Shares
at grant date
$
Expected
volatility in
share price
%
Dividends
expected
on shares
%
Risk free
interest
rate
%
Grant date
Fair value
per right(2)
$
24.68
24.20
19 Dec 11
01 Sep 12
23.78
23.27
(2) The option valuations prepared by PWC use methodologies consistent with assumptions that apply under an adjusted form of the Black Scholes
option pricing model and reflect the value (as at grant date) of options held at 30 September 2012. The assumptions underlying the option
valuations are: (a) the exercise price of the option, (b) the life of the option, (c) the current price of the underlying securities, (d) the expected
volatility of the share price, (e) the dividends expected on the shares, and (f) the risk-free interest rate for the life of the option.
3.34
2.86
25
25
4
4
(b) Employee Share Plan
The Employee Share Plan (ESP) operated between 1987 and 2002. The ESP is administered by Link Market Services Limited.
Eligible employees, as determined by the Board, were invited to purchase shares in Orica funded by the provision of an interest
free loan repayable over ten years. The balance of loans receivable from employees participating in the ESP at 30 September
2012 was nil (2011 $0.1 million).
Grant date
Pre 1 Oct 01
31 Dec 01
05 Jul 02
Date shares
become
unrestricted
-
31 Dec 11
05 Jul 12
Number of
participants
2012
-
-
-
-
Number of
participants
2011
3
1
23
Average issue
price
$
-
7.32
9.48
Shares held at
30 September
2012
-
-
-
-
Shares held at
30 September
2011
900
400
10,300
11,600
112
Orica Limited
112
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
36. Employee share plans (continued)
shares acquired are either newly issued shares or existing shares acquired on market;
(c) (i) General Employee Exempt Share Plan - Australia
The General Employee Exempt Share Plan (GEESP) has operated since 1998. It is administered by Link Market Services
Limited. Invitations are made to eligible employees as determined by the Board on the following basis:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
employees salary sacrifice the value of the shares by equal twelve monthly deductions since the date of acquisition;
employees who leave the consolidated entity must salary sacrifice any remaining amount prior to departure; and
employees cannot dispose of the shares for a period of three years from date of acquisition or until they leave their
employment with the consolidated entity, whichever occurs first.
employees are each entitled to acquire shares with a market value of approximately $1,000 per year;
Date shares
become
unrestricted
8 Jan 13
10 Jan 14
9 Jan 15
Number of
participants at
30 September
2012
1,062
1,248
1,352
Number of
participants at
30 September
2011
1,131
1,323
-
Grant date
8 Jan 10
10 Jan 11
9 Jan 12
Shares held at
30 September
2012
40,356
48,672
55,432
144,460
Shares held at
30 September
2011
42,978
51,597
-
94,575
(c) (ii) General Employee Exempt Share Plan - New Zealand
A separate GEESP has operated for New Zealand employees since 1999. It is administered internally. Invitations are made to
eligible employees as determined by the Board on the following basis:
(cid:120)
(cid:120)
(cid:120)
employees salary sacrifice the value of the shares by equal deductions between the date of acquisition and 30 September
the following year;
employees are each entitled to acquire shares with a market value of approximately NZ$780 per year;
shares acquired are either newly issued shares or existing shares acquired on market;
(cid:120)
(cid:120)
(cid:120)
employees who leave the consolidated entity because of redundancy, retirement or sickness, have the option to salary
sacrifice any remaining amounts prior to departure, if they wish to retain their shares;
employees who leave the consolidated entity because of resignation, will be paid the market value of the shares in proportion
to their contributions to date; and
employees cannot dispose of the shares for a period of three years from date of acquisition or until they leave their
employment with the consolidated entity and they are entitled to retain their shares, whichever occurs first.
Date shares
become
unrestricted
30 Sept 10
30 Sept 11
30 Sept 12
30 Sept 13
30 Sept 14
Number of
participants at
30 September
2012
35
51
63
75
80
Number of
participants at
30 September
2011
35
59
64
77
-
Grant date
1 Oct 07
1 Oct 08
1 Oct 09
1 Oct 10
1 Oct 11
Shares held at
30 September
2012
805
1,428
1,638
1,725
2,160
7,756
Shares held at
30 September
2011
805
1,652
1,664
1,771
-
5,892
Orica Limited
113
113
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
37. Related party disclosures
(a) Key Management Personnel compensation summary
As deemed under AASB 124 Related Parties Disclosures, Key Management Personnel (KMP) include each of the directors, both
executive and non-executive, and those members of the Executive Committee who have authority and responsibility for planning,
directing and controlling the activities of Orica. In this report, “Executive KMP” refers to the KMP other than the Non-Executive
Directors. Non–Executive Directors have oversight of the strategic direction of the Group but no direct involvement in the day to
day management of the business.
A summary of the Key Management Personnel compensation is set out in the following table:
Short term employee benefits
Other long term benefits
Post employment benefits
Share-based payments
Termination benefits
Consolidated
2012
$000
10,689.2
273.8
213.3
6,947.3
3,806.6
21,930.2
2011
$000
14,596.1
195.4
232.4
4,695.6
743.0
20,462.5
Information regarding individual directors and executives compensation and some equity instruments disclosure as permitted by
Corporation Regulation 2M.3.03 is provided in the remuneration report section of the directors’ report.
(b) Key Management Personnel’s transactions in shares and options
The relevant interests of Key Management Personnel in the share capital of the consolidated entity are:
As at 30 September
2012
Non-Executive Directors
P J Duncan
R R Caplan
I Cockerill
G A Hounsell
Lim C O
N L Scheinkestel
M Tilley
Former
M E Beckett *
As at 30 September
2011
Non-Executive Directors
P J Duncan
M E Beckett
R R Caplan
I Cockerill
G A Hounsell
Lim C O
N L Scheinkestel
M Tilley *
Balance
1 October
2011
Acquired (1)
Net
change
other (2)
Fully paid ordinary
shares held at
30 September
2012 (3)
15,936
8,825
6,000
11,918
1,000
18,032
6,329
78,235
146,275
-
2,466
94
441
10,000
3,094
-
1,700
17,795
Balance
1 October
2010
Acquired (1)
15,936
75,536
2,752
-
16,138
-
16,827
6,329
133,518
-
2,699
6,073
6,000
4,870
1,000
1,205
-
21,847
-
-
-
-
-
-
-
-
-
Net
change
other (2)
-
-
-
-
(9,090)
-
-
-
(9,090)
15,936
11,291
6,094
12,359
11,000
21,126
6,329
79,935
164,070
Fully paid ordinary
shares held at
30 September
2011 (3)
15,936
78,235
8,825
6,000
11,918
1,000
18,032
6,329
146,275
* Closing balance is at cessation of directorship.
114
Orica Limited
114
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
37. Related party disclosures (continued)
As at 30 September
2012
Fully paid ordinary
shares held at
1 October
2011
Acquired (1)
Net
change
other (2)
Fully paid ordinary
shares held at
30 September
2012 (3)
Options for fully paid
ordinary shares held at
30 September
2012 (4) (5)
Executive KMP
I K Smith
N A Meehan
J Beevers
C B Elkington
A J P Larke
P McEwan
G J Witcombe
Former
G R Liebelt *
-
54,949
4,750
-
-
-
143,535
639,548
842,782
-
85,406
84,516
47,418
67,613
40,580
67,613
-
(70,000)
(84,516)
(47,418)
(67,613)
(40,580)
(27,613)
409,872
803,018
(250,000)
(587,740)
-
70,355
4,750
-
-
-
183,535
799,420
1,058,060
305,302
206,955
196,318
126,551
160,807
116,309
141,970
872,009
2,126,221
As at 30 September
2011
Fully paid ordinary
shares held at
1 October
2010
Acquired (1)
Net
change
other (2)
Fully paid ordinary
shares held at
30 September
2011 (3)
Options for fully paid
ordinary shares held at
30 September
2011 (4)
Executive KMP
G R Liebelt **
N A Meehan
J Beevers
C B Elkington
A J P Larke **
P McEwan
G J Witcombe
Former
M Reich *
639,548
54,949
4,750
-
-
-
143,535
-
842,782
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
639,548
54,949
4,750
-
-
-
143,535
-
842,782
983,898
204,203
191,920
115,085
161,370
108,132
161,370
134,906
2,060,884
* Closing balance is at cessation of employment with Orica.
** In addition, as at 30 September 2011 the following Executive KMP held Orica Step-Up Preference Securities: A J P Larke 3,000,
G R Liebelt 427.
(1) Includes purchase and exercise of options by Executive KMP and shares acquired, including through the Dividend Reinvestment Plan (DRP), by
Non-Executive directors and Executive KMP.
(2) Net change other includes changes resulting from sales during the year by Non-Executive directors and Executive KMP.
(3) Includes trust shares for Executive KMP under the LTEIP scheme.
(4) These interests include shares acquired under a loan agreement. A general description of these agreements (LTEIP) is provided in the
Remuneration Report. Under AASB 2 Share-based Payments, LTEIP plans are deemed to be option plans for compensation purposes and the
amounts receivable from employees in relation to these loans and share capital issued under these schemes are not recognised. The LTEIP vests
after three years.
(5) Including rights held under Rights schemes.
(c) Controlled entities
Interests in subsidiaries are set out in note 39.
(d) Transactions with controlled entities
Transactions between Orica and entities in the Group during the year included:
(cid:120)
(cid:120) Dividend revenue received by Orica;
Interest revenue received and paid by Orica for money deposited with or borrowed from Orica Finance Limited;
All the above transactions with controlled entities are made on normal commercial terms and conditions and in the ordinary
course of business.
Interest revenue/(expense) received and paid by Orica for
money deposited with or borrowed from Orica Finance Limited
Dividend revenue received by Orica
Orica Limited
2012
$000
1,952
2011
$000
8,990
200,000
450,000
115
115
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
37. Related party disclosures (continued)
(e) Transactions with other related parties
All transactions with other related parties are made on normal commercial terms and conditions and in the ordinary course of
business.
Transactions during the year with Non-Executive directors were:
Orica purchased wine for the amount of $6,600 from Toolangi Vineyards Pty. Ltd. Toolangi Vineyards Pty. Ltd. is a related entity
to G A Hounsell.
Transactions during the year with associates were:
Sales of goods to associates
Purchases of goods from associates
Dividend income received from associates
2012
$000
228,568
65,077
31,241
2011
$000
277,782
42,866
29,940
Additional related party disclosures
Additional relevant related party disclosures are shown throughout the notes to the financial statements as follows:
Dividend income
Financial income and expenses
Trade and other receivables
Investments
Trade and other payables
Interest bearing liabilities
Options
note 3
note 4
note 8
note 11, 39
note 16
note 17
note 21, 36
38. Superannuation commitments
(a) Superannuation plans
The consolidated entity contributes to a number of superannuation plans that exist to provide benefit for employees and their
dependants on retirement, disability or death. The superannuation plans cover company sponsored plans, other qualifying plans
and multi-employer industry/union plans.
Company sponsored plans
(cid:120)
The principal benefits are pensions or lump sum payments for members on resignation, retirement, disability or death. The
benefits are provided on either a defined benefit basis or a defined contribution basis.
(cid:120)
(cid:120)
Employee contribution rates are either fixed by the rules of the plans or selected by members from time to time from a
specified range of rates. The employer entities contribute the balance of the cost required to fund the defined benefits or, in
the case of defined contribution plans, the amounts required by the rules of the plan.
The contributions made by the employer entities to defined contribution plans are in accordance with the requirements of the
governing rules of such plans or are required under law.
Government plans
(cid:120)
Some controlled entities participate in government plans on behalf of certain employees, which provide pension benefits.
There exists a legally enforceable obligation on employer entities to contribute as required by legislation.
116
Orica Limited
116
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
38. Superannuation commitments (continued)
Industry plans
(cid:120)
(cid:120)
Some controlled entities participate in industry plans on behalf of certain employees.
These plans operate on an accumulation basis and provide lump sum benefits for members on resignation, retirement,
disability or death.
(cid:120)
(cid:120)
The employer entities have a legally enforceable obligation to contribute a regular amount for each employee member of
these plans.
The employer entities have no other legal liability to contribute to the plans.
(b) Defined contribution pension plans
The consolidated entity contributes to several defined contribution pension plans on behalf of its employees. The amount
recognised as an expense for the financial year ended 30 September 2012 was $45.4 million (2011 $40.8 million).
(c) Defined benefit pension plans
The consolidated entity participates in several local and overseas defined benefit post-employment plans that provide benefits to
employees upon retirement. Plan funding is carried out in accordance with the requirements of trust deeds and the advice of
actuaries. The information within these financial statements has been prepared by the local plan external actuaries. Orica were
assisted by Towers Watson Australia to globally consolidate those results. During the year, the consolidated entity made
employer contributions of $32.5 million (2011 $35.6 million) to defined benefit plans. The Group’s external actuaries have
forecast total employer contributions and benefit payments to defined benefit plans of $30.1 million for 2013.
(c) (i) Balance sheet amounts
The amounts recognised in the balance sheet are determined as follows:
Present value of the funded defined benefit obligations
Present value of unfunded defined benefit obligations
Fair value of defined benefit plan assets
Deficit
Restriction on assets recognised
Net liability in the balance sheet
Amounts in balance sheet:
Liabilities
Assets
Net liability recognised in balance sheet at end of year
(c) (ii) Categories of plan assets
The major categories of plan assets are as follows:
Cash and net current assets
Equity instruments
Fixed interest securities
Property
Other assets
2012
$m
630.1
84.2
(474.1)
240.2
0.3
240.5
240.9
(0.4)
240.5
2011
$m
562.3
79.9
(437.3)
204.9
1.1
206.0
206.6
(0.6)
206.0
2012
$m
43.4
215.2
141.4
41.4
32.7
474.1
2011
$m
48.5
206.7
117.8
36.4
27.9
437.3
Orica Limited
117
117
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
38. Superannuation commitments (continued)
c) (iii) Reconciliations
Reconciliation of present value of the defined benefit obligations:
Balance at the beginning of the year
Current service cost
Interest cost
Actuarial losses/(gains)
Contributions by plan participants
Benefits paid
Acquisitions
Settlements/curtailments
Exchange differences on foreign funds
Balance at the end of the year
2012
$m
642.2
14.3
27.9
72.7
3.3
(35.5)
-
(0.1)
(10.5)
714.3
2011
$m
631.8
14.4
30.2
20.4
3.5
(35.9)
3.1
(19.6)
(5.7)
642.2
Reconciliation of the fair value of the plan assets:
Balance at the beginning of the year
Expected return on plan assets
Actuarial gains/(losses)
Contributions by plan participants
Contributions by employer
Benefits paid
Acquisitions
Settlements/curtailments
Exchange differences on foreign funds
Balance at the end of the year
The fair value of plan assets does not include any amounts relating to the consolidated entity’s own financial instruments, property
occupied by, or other assets used by, the consolidated entity.
439.0
29.8
(20.8)
3.5
35.6
(35.9)
2.0
(12.9)
(3.0)
437.3
437.3
29.4
13.9
3.3
32.5
(35.5)
-
(0.8)
(6.0)
474.1
(c) (iv) Amounts recognised in the income statement
The amounts recognised in the income statement are as follows:
Current service cost
Interest cost
Expected return on plan assets
Curtailment or settlement losses/(gains)
Total included in employee benefits expense
(c) (v) Principal actuarial assumptions
The principal actuarial assumptions used were as follows:
Discount rate
Expected return on plan assets
Future salary increases
Future inflation
Future pension increases
Healthcare cost trend rates (ultimate)
2012
$m
14.3
27.9
(29.4)
0.7
13.5
2011
$m
14.4
30.2
(29.8)
(6.7)
8.1
2012
2.25% - 9.20%
4.00% - 9.62%
2.25% - 7.00%
1.75% - 4.50%
0.10% - 4.50%
4.40% - 4.50%
2011
3.20% - 10.88%
4.00% - 12.32%
2.25% - 7.00%
1.75% - 4.50%
1.30% - 4.50%
4.40% - 5.00%
118
Orica Limited
118
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
38. Superannuation commitments (continued)
A one percentage point change in assumed healthcare cost trend rates would have the following effects:
Effect on the aggregate of the service cost and interest cost
Effect on the defined benefit obligation
(c) (vi) Historic summary
Amounts for the current and previous periods are as follows:
Defined benefit plan obligation
Plan assets
Restriction on assets recognised
Deficit
Experience adjustments arising on plan liabilities - loss/(gain)
Experience adjustments arising on plan assets - gain/(loss)
Actual return on plan assets
One
percentage
point
increase
$m
0.3
3.4
One
percentage
point
decrease
$m
(0.2)
(2.7)
2012
$m
714.3
(474.1)
0.3
240.5
5.5
14.2
43.6
2011
$m
642.2
(437.3)
1.1
206.0
(4.7)
(20.8)
9.0
2010
$m
631.8
(439.0)
4.9
197.7
8.8
(8.4)
26.8
2009
$m
715.7
(545.8)
2.9
172.8
(7.5)
(61.4)
(19.2)
2008
$m
788.2
(613.4)
3.7
178.5
(16.6)
(67.4)
(22.4)
(c) (vii) Amounts included in the statement of comprehensive income
Net actuarial losses
Change in the effect of asset ceiling
Total losses recognised via the Statement of Comprehensive Income
Tax credit on total losses recognised via the Statement of Comprehensive Income
Total losses after tax recognised via the Statement of Comprehensive Income
2012
$m
(58.8)
0.8
(58.0)
16.5
(41.5)
2011
$m
(41.2)
3.8
(37.4)
11.8
(25.6)
The consolidated entity has elected under AASB 119 Employee Benefits, to recognise all actuarial gains/losses in the Statement
of Comprehensive Income. The cumulative amount of net actuarial losses/gains (before tax) included in the Statement of
Comprehensive Income as at 30 September 2012 is $199.2 million - loss (2011 $140.4 million - loss).
(c) (viii) Expected rate of return on assets assumption
The overall expected rate of return on assets assumption is determined by weighting the expected long-term rate of return for
each asset class by the target allocation of plan assets to each class. The rates of return used for each class are net of
investment tax and investment fees.
Orica Limited
119
119
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
38. Superannuation commitments (continued)
(c) (ix) Surplus/(deficit) for major defined benefit plans
30 September 2012
Plan
Accrued
Benefits
Fund
Assets
Accrued
(deficit)/
surplus
Current
contribution
recommendation
Discount
rate
Expected
return on
plan assets
Future
salary
increases
The Flexible Benefits Super Fund (2a)
Pension Plan for Employees of Orica
Canada Inc (2b)
Post Retirement
Benefits (Canada) (2c)
Orica Pension Scheme (UK) (2b)
Dyno Nobel Sweden AB (2d)
Nitro Consult AB (Sweden) (2d)
Dyno DNE (Norway) (2e)
Dyno Defence (Norway) (2e)
Dynea HK (Norway) (2e)
Orica New Zealand Ltd Retirement
Plan (2b)
Orica USA Inc. Retirement Income
Plan (2b)
Minova USA Retirement
Plans (2b)
Orica’s Benefit Plan (Brazil) (2b)
Other (1)
Restriction on assets recognised
$m
347.5
$m
257.4
$m
(90.1)
115.3
93.0
(22.3)
18.8
37.7
32.7
11.3
19.5
3.4
7.0
-
31.0
-
-
17.9
3.4
3.6
(18.8)
(6.7)
(32.7)
(11.3)
(1.6)
-
(3.4)
29.4
18.4
(11.0)
29.0
18.8
(10.2)
21.6
14.2
(7.4)
6.4
34.7
714.3
5.5
10.9
474.1
(0.9)
(23.8)
(240.2)
(0.3)
(240.5)
13.0% of salaries
Set in accordance with local
annual funding requirements
Based on benefit payments
25.0% of pensionable earnings
Based on benefit payments
Based on benefit payments
Insurance premiums
Insurance premiums
Insurance premiums
15.8% of salaries
Set in accordance with local
annual funding requirements
Set in accordance with local
annual funding requirements
Set in accordance with local
annual funding requirements
Various
%
2.90
4.75
4.75
4.10
3.50
3.50
2.25
2.25
2.25
2.60
3.75
3.75
%
7.00
5.80
n/a
5.50
n/a
n/a
4.10
4.10
4.10
5.40
7.25
7.25
%
3.75
3.25
n/a
2.70
3.50
3.50
3.50
3.50
3.50
3.50
n/a
n/a
9.20
Various
9.62
Various
6.59
Various
30 September 2011
Plan
Accrued
Benefits
Fund
Assets
Accrued
(deficit)/
surplus
Current
contribution
recommendation
Discount
rate
Expected
return on
plan assets
Future
salary
increases
The Flexible Benefits Super Fund (2a)
Pension Plan for Employees of Orica
Canada Inc (2b)
Post Retirement
Benefits (Canada) (2c)
Orica Pension Scheme (UK) (2b)
Dyno Nobel Sweden AB (2d)
Nitro Consult AB (Sweden) (2d)
Dyno DNE (Norway) (2e)
Dyno Defence (Norway) (2e)
Dynea HK (Norway) (2e)
Orica New Zealand Ltd Retirement
Plan (2b)
Orica USA Inc. Retirement Income
Plan (2b)
Minova USA Retirement
Plans (2b)
Orica’s Benefit Plan (Brazil) (2b)
Other (1)
Restriction on assets recognised
$m
$m
302.8
239.2
$m
(63.6)
97.6
75.9
(21.7)
17.1
37.6
33.9
10.9
21.4
3.9
8.6
-
30.0
-
-
19.3
3.6
4.3
27.3
17.8
25.1
16.5
18.4
12.9
6.1
31.5
642.2
7.1
10.7
437.3
(17.1)
(7.6)
(33.9)
(10.9)
(2.1)
(0.3)
(4.3)
(9.5)
(8.6)
(5.5)
1.0
(20.8)
(204.9)
(1.1)
(206.0)
13.0% of salaries
Set in accordance with local
annual funding requirements
Based on benefit payments
25.0% of pensionable earnings
Based on benefit payments
Based on benefit payments
Insurance premiums
Insurance premiums
Insurance premiums
15.8% of salaries
Set in accordance with local
annual funding requirements
Set in accordance with local
annual funding requirements
Set in accordance with local
annual funding requirements
Various
%
4.00
5.50
5.50
5.05
3.90
3.90
3.30
3.30
3.30
3.20
5.25
5.25
%
7.25
6.70
n/a
7.05
n/a
n/a
5.60
5.60
5.60
5.90
8.00
7.50
%
3.75
3.75
n/a
3.55
3.50
3.50
3.75
3.75
3.75
3.50
n/a
n/a
10.88
Various
12.32
Various
6.59
Various
120
120
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
38. Superannuation commitments (continued)
(1) Other international plans comprise the following:
Dyno Nobel HK (Norway)
Dyno Nobel Retirement Plan (Philippines)
Dyno Nobel Retirement Plans (Mexico)
Eurodyn (Europe)
Excess Plan (Canada)
High Income Earners Arrangement (Canada)
Indian Explosives Limited Employees Management Staff Superannuation
Indian Explosives Limited Employees Superannuation Fund
Indian Explosives Limited Gratuity Fund
Indian Explosives Limited Management Staff Leave Encashment Scheme
Indian Explosives Limited Management Staff Pension (DB) Fund
Indian Explosives Limited Non-Management Staff Leave Encashment Scheme
International Pension Plan (Canada & Australia)
Jubilee (Europe)
Minova Carbotech Pension Plans (Germany)
Minova Holding Pension Plans (Germany)
Old Age Part-time Program (Incentives for Early Retirement) (Europe)
Orica Belgium
Orica Europe GmbH & Co. KG
Orica Germany
Orica USA Inc. Retiree Medical Plan
Philippine Explosives Corporation Factory Workers Retirement Plan
Philippine Explosives Corporation Monthly-Paid Employees Retirement Plan
Self-insured Long-Term Disability (LTD) plan (Canada)
(2) The major defined benefit plans of the consolidated entity are categorised as follows:
(a) Funded lump sum retirement benefits based on final average pensionable earnings;
(b) Funded pension retirement benefits based on final average pensionable earnings;
(c) Post retirement life, dental and medical coverage;
(d) Unfunded pension retirement benefits based on final average pensionable earnings; and
(e) Arrangements for each Norway entity are a combination of funded and unfunded pension benefits based on final average pensionable earnings.
Orica Limited
121
121
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
39. Investments in controlled e ntitie s
The c onsolidate d fin anc ial statements inc orpo rate th e assets, lia b ilities a nd results of th e following c on trolled entities h e ld du ring 2011 and 2012:
Name of Entity
Com pany
Orica Limited
Contr olle d Entitie s
A CF and Shirleys Pty Ltd (e)
A ctive Chemicals Chile S.A .
A laska Pacif ic Pow der Company
A ltona Properties Pty Ltd (e)
A minova International Limited
A mmonium Nitrate Development and
Production Limited
A nbao Insurance Pte Ltd
A ndean Mining & Chemicals Limited
A rboleda S.A
A SA Organizacion Industrial S.A . de C.V .
A ustralian Fertilizers Pty Ltd (e)
Bamble Mekaniske Industri A S
Barbara Limited
Beijing Ruichy Minova Synthetic
Material Company Limited
Brasex Participacoes Ltda
Bronson and Jacobs (H.K.) Limited
Bronson and Jacobs (Shanghai) International
Trading Co. Ltd
Bronson & Jacobs (GZFTZ) Ltd (c)
Bronson & Jacobs International Co. Ltd
Bronson & Jacobs (Malaysia) Sdn Bhd
Bronson & Jacobs Pty Ltd
Bronson & Jacobs (S.E. A sia) Pte Limited
Bronson & Jacobs (Shanghai) Chemical
Trading Co., Ltd
BST Manuf acturing, Inc.
Carbo Tech Polonia Sp. z o.o. (f )
Chemnet Pty Limited (e)
CJSC (ZA O) Carbo-Zakk
Controladora DNS de RL de CV (h)
Curasalus Insurance Pty Ltd
Cyantif ic Instruments Pty Ltd (e)
Dansel Business Corporation
Dyno Nobel Latin A merica S.A . (d)
Dyno Nobel Nitrogen A B (c)
Dyno Nobel Slovakia a.s. (d)
Dyno Nobel V H Company LLC
D.C. Guelich Explosive Company
Eastern Nitrogen Pty Ltd (e)
Emirates Explosives LLC
Emrick & Hill., Inc
Engineering Polymers Pty Ltd (e)
Eurodyn Sprengmittel GmbH
Explosivos de Mexico S.A . de C.V .
Explosivos Mexicanos S.A . de C.V .
Fortune Properties (A lrode) (Pty) Limited (i)
FS Resin (Pty) Limited (i)
Forbusi Importadora e Exportadora Ltda
GeoNitro Limited
Hallow ell Manuf acturing LLC
Hebben & Fischbach Chemietechnik GmbH
Hunan Orica Nanling Civil Explosives Co., Ltd
Indian Explosives Limited
Industry Project Consultants Pty Ltd
Initiating Explosives Systems Pty Ltd (a)
International Project A dvisors Pty Ltd
Plac e o f
inc orporation
if other th an
Australia
Name of En tity
Chile
USA
Hong Kong
Thailand
Singapore
Jersey
Panama
Mexico
Norw ay
UK
China
Brazil
Hong Kong
China
China
Thailand
Malaysia
Singapore
China
USA
Poland
Russia
Mexico
Panama
Peru
Sw eden
Slovakia
USA
USA
Jiangsu Orica Banqiao Mining Machinery
Company Limited
Joplin Manuf acturing Inc.
LLC Orica Logistics
Marplex A ustralia (Holdings) Pty Ltd
Marplex A ustralia Pty Ltd
Mining Quarry Services SPRL
Minova A G
Minova A rnall Sp. z o.o.
Minova A sia Pacif ic Ltd
Minova A ustralia Pty Ltd
Minova Bohemia s.r.o.
Minova (Botsw ana) (Proprietary) Limited (j)
Minova BWZ GmbH
Minova CarboTech GmbH
Minova Carbotech Tunnelling Engineering
(Shanghai) Company Limited
Minova Codiv S.L.
Minova Ekochem S.A .
Minova Holding GmbH
Minova Holding Inc
Minova International Limited
Minova Ksante Sp. z o.o.
Minova MA I GmbH
(f ormerly Minova GmbH)
Minova Mexico S.A . de C.V .
Minova MineTek Private Limited
Minova Mining Services SA
Minova Nordic A B
Minova Romania S.R.L.
Minova Ukraina OOO
Minova (Tianjin) Co., Ltd.
Minova USA Inc
Minova Weldgrip Limited
Mintun 1 Limited
Mintun 2 Limited
Mintun 3 Limited
Mintun 4 Limited
MMTT Limited
Nitedals Krudtvaerk A S
Nitro A sia Company Inc.
Germany
Mexico
Mexico
South A f rica
South A f rica
Brazil
Georgia
USA
Germany
China
India
United A rab Emirates Nitro Consult A B
Nitro Consult A S
USA
Nitroamonia de Mexico S.A de C.V .
Nobel Industrier A S
Nordenf jeldske Spraengstof A S
Northw est Energetic Services LLC
Nutnim 1 Limited
Nutnim 2 Limited
OOO Minova
OOO Minova TPS
Orica-CCM Energy Systems Sdn Bhd
Orica-GM Holdings Limited
Orica A rgentina S.A .I.C.
Orica A ustralia Pty Ltd (a)
Orica A ustralia Securities Pty Ltd (e)
Orica Belgium S.A .
Orica Blast & Quarry Surveys Limited
122
Orica Limited
Plac e of
inc orpo ration
if o ther than
Australia
China
USA
Russia
Belgium
Sw itzerland
Poland
Taiw an
Czech Republic
Botsw ana
Germany
Germany
China
Spain
Poland
Germany
USA
UK
Poland
A ustria
Mexico
India
Chile
Sw eden
Romania
Ukraine
China
USA
UK
UK
UK
UK
UK
UK
Norw ay
Philippines
Sw eden
Norw ay
Mexico
Norw ay
Norw ay
USA
UK
UK
Russia
Russia
Malaysia
UK
A rgentina
Belgium
UK
122
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
39. Investments in controlled e ntitie s (continued)
Na me of Entity
Orica Bolivia S.A .
Orica Brasil Ltda
Orica Brasil Produtos Quimicos Ltda
Orica Caledonie SA S
Orica Canada Inc
Orica Canada Investments ULC
Orica Caribe, S.A .
Orica Centroamerica S.A .
Orica Chemicals A rgentina S.A .
Orica Chemicals Chile S.A .
Orica Chemicals Colombia S.A .S.
Orica Chemicals Peru S.A .
(f ormerly Orica Peru S.A .)
Orica Chemicals Peru S.A .C. (f )
Orica Chemicals Trading A gency (Beijing)
Co., Ltd.
Orica Chile Distribution S.A .
Orica Chile S.A .
Orica CIS CJSC
Orica Clarendon NZ Limited
Orica Clarendon Pty Ltd (e)
Orica Colombia S.A .S.
Orica Czech Republic s.r.o.
Orica Denmark A /S
Orica Dominicana S.A .
Orica Eesti OU
Orica Europe FT Pty Ltd (e)
Orica Europe Investments Pty Ltd (e)
Orica Europe Management GmbH
Orica Europe Pty Ltd & Co KG
Orica Explosives Holdings Pty Ltd
Orica Explosives Holdings No 2 Pty Ltd
Orica Explosives Holdings No 3 Pty Ltd (e)
Orica Explosives Research Pty Ltd (e)
Orica Explosives Technology Pty Ltd
Orica Explosives (Thailand) Co Ltd
Orica Explosivos Industriales, S.A .
Orica Export Inc.
Orica Fiji Ltd
Orica Finance Limited
Orica Finance Trust
Orica Finland OY
Orica GEESP Pty Ltd (e)
Orica Germany GmbH
Orica Ghana Limited
Orica Grace US Holdings Inc.
Orica Holdings Pty Ltd (e)
Orica Ibéria, S.A .
Orica IC A ssets Holdings Limited Partnership
Orica IC A ssets Pty Ltd
Orica IC Investments Pty Ltd (e)
Orica International IP Holdings Inc.
Orica International Pte Ltd
Orica Investments (Indonesia) Pty Limited (e)
Orica Investments (NZ) Limited
Orica Investments (Thailand) Pty Limited (e)
Orica Investments Pty Ltd (a)
Orica Japan Co. Ltd
Orica Kazakhstan Joint Stock Company
Orica Logistics Canada Inc.
Orica Mauritania SA RL (b)
Plac e of
in c o rp o ra tio n
if o th e r th a n
Australia
Bolivia
Brazil
Brazil
New Caledonia
Canada
Canada
Panama
Costa Rica
A rgentina
Chile
Colombia
Peru
Peru
China
Chile
Chile
Russia
New Zealand
Colombia
Czech Republic
Denmark
Dominican
Republic
Estonia
Germany
Germany
Thailand
Spain
USA
Fiji
Finland
Germany
Ghana
USA
Portugal
USA
Singapore
NZ
Japan
Kazakhstan
Canada
Mauritania
Name of Entity
Orica Med Bulgaria A D
Orica Mining Services (Namibia)
(Proprietary) Limited (b)
Orica Mining Services (Hong Kong) Ltd
Orica Mining Services Peru S.A .
Orica Mining Services Pilbara Pty Ltd (b)
Orica Mining Services Portugal S.A .
(f ormerly Sociedade de Explosivos S.A .)
Orica Mining Services (Thailand) Limited
Orica Mongolia LLC
Orica Mountain West Inc.
Orica Mozambique Limitada
Orica Nelson Quarry Services Inc.
Orica Netherlands Finance B.V .
Orica New Zealand Finance Limited
Orica New Zealand Ltd
Orica New Zealand Securities Limited
Orica New Zealand Superf unds Securities Ltd
Orica Nitrates Philippines Inc
Orica Nitratos Peru S.A .
Orica Nitro Patlayici Maddeler Sanayi ve
Ticaret A nonim Sirketi
Orica Nitrogen LLC
Orica Nominees Pty Ltd (e)
Orica Norw ay A S
Orica Norw ay Holdings A S
Orica Philippines Inc
Orica Panama S.A .
(f ormerly Minería, Explosivos y Servicios, S.A .)
Orica Poland Sp. z.o.o.
Orica Portugal, S.G.P.S., S.A .
Orica Securities (UK) Limited
Orica Servicos de Mineracao Ltda
Orica Share Plan Pty Limited (e)
Orica Senegal SA RL
Orica Singapore Pte Ltd
Orica Slovakia s.r.o.
Orica Solomon Islands Pty Limited
Orica South A f rica (Proprietary) Limited
Orica St. Petersburg LLC
Orica Sw eden A B
Orica Sw eden Holdings A B
Orica Tanzania Limited
Orica UK Limited
Orica US Holdings General Partnership
Orica USA Inc.
Orica U.S. Services Inc.
Orica V enezuela C.A .
Orica Watercare Inc.
Orica (Weihai) Explosives Co Ltd
Orica Zambia Limited
OriCare Canada Inc. (b)
Oricorp Comercial S.A . de C.V .
Oricorp Mexico S.A . de C.V .
Penlon Proprietary Limited (e)
Project Grace Holdings
Project Grace Incorporated
Project Grace
PT Baktijala Kencana Citra
PT Kalimantan Mining Services
PT Kaltim Nitrate Indonesia
PT Orica Mining Services
Orica Limited
Pla c e o f
in c orp o ratio n
if o th e r th a n
Au stralia
Bulgaria
Namibia
Hong Kong
Peru
Portugal
Thailand
Mongolia
USA
Mozambique
USA
Holland
NZ
NZ
NZ
NZ
Philippines
Peru
Turkey
USA
Norw ay
Norw ay
Philippines
Panama
Poland
Portugal
UK
Brazil
Senegal
Singapore
Slovakia
Solomon Islands
South A f rica
Russia
Sw eden
Sw eden
Tanzania
UK
USA
USA
USA
V enezuela
USA
China
Zambia
Canada
Mexico
Mexico
UK
USA
UK
Indonesia
Indonesia
Indonesia
Indonesia
123
123
2012 AnnuAl RepoRt
Notes to the Financial Statements
For the year ended 30 September
39. Investments in controlled entities (continued)
Name of Entity
Retec Pty Ltd (e)
Rui Jade International Limited
Sarkem Pty Ltd (e)
Southern Blasting Services, Inc.
Sprengmittelvertrieb in Bayern GmbH
Sprengstof f -V erw ertungs GmbH
Stratabolt Products (Pty) Limited (i)
Stratabolt (Pty) Limited
Plac e of
inc orporation
if other than
Australia
Hong Kong
USA
Germany
Germany
South A f rica
South A f rica
Name of Entity
Taian Ruichy Minova Ground Control
Technology Co., Ltd
Tec Harseim Do Brazil Ltda
Teradoran Pty Ltd (g)
TOO "Minova Kasachstan"
Transmate S.A .
White Lightning Holding Co Inc
Plac e of
inc orporation
if other than
Australia
China
Brazil
Kazakhstan
Belgium
Philippines
(a) These controlled entities have each entered into a Deed of Cross Guarantee w ith Orica in respect of relief granted f rom specif ic accounting
and f inancial reporting requirements in accordance w ith the A SIC Class Order 98/1418.
(b) Incorporated in 2012.
(c) In liquidation.
(d) Liquidated in 2012.
(e) Small proprietary company - no separate statutory accounts are prepared.
(f ) Merged in 2012.
(g) Divested in 2012.
(h) Consolidated as subsidiary in 2012.
(i) Re-registered in 2012.
(j) De-registered in 2012.
124
124
Orica Limited
Orica Limited
Notes to the Financial Statements
For the year ended 30 September
40. Deed of cross guarantee
Entities w hich are party to a Deed of Cross Guarantee, entered into in accordance w ith ASIC Class Order 98/1418
dated 13 August 1998 (as amended), are disclosed in note 39. A consolidated income statement and consolidated
balance sheet for this closed group is show n below .
Summarised balance sheet
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Total current assets
Non-current assets
Trade and other receivables
Investments accounted for using the equity method
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Ordinary shares
Reserves
Retained profits
Total equity attributable to ordinary shareholders of Orica
Equity attributable to Step-Up Preference Securities holders
Total equity
Summarised income statement and retained profits
Profit before income tax expense
Income tax expense
Profit from operations
Retained profits at the beginning of the year
Actuarial losses recognised directly in equity
Dividends/distributions:
Step-Up Preference Securities distributions
Less tax credit on Step-Up Preference Securities distributions
Transfer of cost related to issue of Step-Up Preference Securities
Ordinary dividends – interim
Ordinary dividends – final
Retained profits at the end of the year
Closed Group
2012
$m
2011
$m
1,592.2
281.8
169.8
12.0
2,055.8
21.9
42.3
3,228.4
1,089.5
81.7
151.1
14.2
4,629.1
6,684.9
439.2
654.1
44.7
33.7
1,171.7
5.1
2,494.9
112.8
255.7
2,868.5
4,040.2
2,644.7
1,795.1
359.8
489.8
2,644.7
-
2,644.7
252.6
(107.7)
144.9
717.6
(23.9)
(11.1)
2.2
(10.0)
(137.9)
(192.0)
489.8
2,367.2
374.3
149.4
19.0
2,909.9
-
1.5
3,222.6
1,000.9
76.4
135.1
0.1
4,436.6
7,346.5
534.2
450.1
16.1
137.1
1,137.5
67.4
2,589.0
89.7
156.2
2,902.3
4,039.8
3,306.7
1,749.9
349.2
717.6
2,816.7
490.0
3,306.7
701.4
(88.3)
613.1
473.7
(19.7)
(32.2)
10.0
-
(133.2)
(194.1)
717.6
Orica Limited
125
125
2012 AnnuAl RepoRt
Directors’ Declaration
I, Peter John Benedict Duncan, being a director of Orica Limited, do hereby state in accordance with a resolution of the directors
that in the opinion of the directors,
(a) the consolidated financial statements and notes, set out on pages 48 to 125, and the Remuneration report in the Directors’
report, set out on pages 24 to 45, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the consolidated entity as at 30 September 2012 and of its
performance for the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and
payable.
There are reasonable grounds to believe that the Company and the controlled entities identified in note 39 will be able to meet
any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the
Company and those controlled entities pursuant to ASIC Class Order 98/1418.
The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing
Director and Executive Director Finance for the financial year ended 30 September 2012.
The directors draw attention to note 1 (ii) to the financial statements, which includes a statement of compliance with International
Financial Reporting Standards.
P J B Duncan
Chairman
Dated at Melbourne this 12th day of November 2012.
126
Orica Limited
126
Orica Limited
Independent auditor’s report to the members of Orica Limited
Report on the financial report
We have audited the accompanying financial report of Orica Limited (the company), which comprises the
consolidated balance sheet as at 30 September 2012, and consolidated income statement and consolidated statement
of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for
the year ended on that date, notes 1 to 40 comprising a summary of significant accounting policies and other
explanatory information and the directors’ declaration of the Group comprising the company and the entities it
controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair
view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal
control as the directors determine is necessary to enable the preparation of the financial report that is free from
material misstatement whether due to fraud or error. In note 1, the directors also state, in accordance with
Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of
the Group comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant
ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance
whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks
of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and
fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors,
as well as evaluating the overall presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in
accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is
consistent with our understanding of the Group’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG Internat ional Cooperative
(“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
127
127
2012 AnnuAl RepoRt
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of the Group is in accordance with the Corporations Act 2001, including:
giving a true and fair view of the Group’s financial position as
(i)
at 30 September 2012 and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations
2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1.
Report on the remuneration report
We have audited the Remuneration Report included in the directors’ report for the year ended 30 September 2012.
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 auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of Orica Limited for the year ended 30 September 2012, complies with
Section 300A of the Corporations Act 2001.
KPMG
Gordon Sangster
Partner
Melbourne
12 November 2012
128
128
Orica Limited
Orica Limited
Shareholders' Statistics
As at 9 November 2012
Distribution of ordinary shareholders and shareholdings
Size of holding
1
1,001
5,001
10,001
100,001 and over
Total
–
–
–
–
1,000
5,000
10,000
100,000
Number of holders
Number of shares
40,270
19,201
1,842
816
78
62,207
16,581,571
64.73%
39,399,590
30.87%
12,626,007
2.96%
1.31%
16,556,072
0.13% 280,479,562
100.00% 365,642,802
4.53%
10.78%
3.45%
4.53%
76.71%
100.00%
Included in the above total are 2,035 shareholders holding less than a marketable parcel of 20 shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 71.10% of that class of shares.
Twenty largest ordinary fully paid shareholders
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited
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