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Annual Report 2014

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ANNUAL REPORT 2014 Orica Annual Report 2014 AN AUSTRALIAN COMPANY WITH A GLOBAL FOOTPRINT About Orica Chairman’s Message Managing Director’s Message Review of Operations and Financial Performance Board Members Executive Committee Sustainability ORICA LIMITED ABN 24 004 145 868 02 04 05 06 14 15 16 Corporate Governance Statement Directors’ Report Directors’ Report – Remuneration Report Lead Auditor’s Independence Declaration Income Statement Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity 18 22 26 48 49 50 51 52 Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Ten Year Financial Statistics Shareholders’ Statistics Shareholder Information Shareholder Timetable 53 54 131 132 134 136 137 139 Yarwun, AustraliaSouth Point, USANowra, AustraliaGeorgetown, USABrownsburg, CanadaHONCE, ChinaGomia, IndiaWeihai, ChinaGyttorp, SwedenLorena, BrazilAntofagasta, ChileEssen, GermanyHallowell, USAKalgoorlie, AustraliaItatiaiuçu, BrazilCuatro Ciénegas, MexicoWürgendorf, GermanyBurrup, AustraliaPort Hedland, Australia Kooragang Island, AustraliaBotany, AustraliaLaverton, AustraliaCarseland, CanadaGeneva, USABontang, IndonesiaApatit, RussiaGibraltar, CanadaKurri Kurri, Australia Orica Annual Report 2014 ORICA’S MARKET FOOTPRINT Orica operations and/or customers MAJOR MANUFACTURING SITES AMMONIUM NITRATE Bontang (Indonesia) 300ktpa Gomia (India) PACKAGED EXPLOSIVES Cuatro Ciénegas (Mexico) INITIATING SYSTEMS Antofagasta (Chile) GROUND SUPPORT Essen (Germany) Brownsburg (Canada) Georgetown (USA) Burrup (Australia) under construction 330kpta Carseland (Canada) 500ktpa Geneva (USA) 50% joint venture, Orica share 50ktpa Kooragang Island (Australia) 430ktpa Yarwun (Australia) 530ktpa Hallowell (USA) Itatiaiuçu (Brazil) Gomia (India) Gyttorp (Sweden) Kalgoorlie (Australia) HONCE (China) Würgendorf (Germany) Lorena (Brazil) Weihai (China) Nowra (Australia) South Point (USA) SODIUM CYANIDE Yarwun (Australia) GENERAL CHEMICALS Botany (Australia) Laverton (Australia) AMMONIUM NITRATE EMULSION Antofagasta (Chile) Apatit (Russia) Gibraltar (Canada) Gyttorp (Sweden) Kurri Kurri (Australia) Lorena (Brazil) Port Hedland (Australia) Yarwun (Australia) 1 Yarwun, AustraliaSouth Point, USAGeorgetown, USANowra, AustraliaBrownsburg, CanadaHONCE, ChinaGomia, IndiaWeihai, ChinaGyttorp, SwedenLorena, BrazilAntofagasta, ChileEssen, GermanyHallowell, USAKalgoorlie, AustraliaItatiaiuçu, BrazilCuatro Ciénegas, MexicoWürgendorf, GermanyBurrup, AustraliaPort Hedland, Australia Kooragang Island, AustraliaBotany, AustraliaLaverton, AustraliaCarseland, CanadaGeneva, USABontang, IndonesiaApatit, RussiaGibraltar, CanadaKurri Kurri, AustraliaOrica Annual Report 2014 ABOUT ORICA An Australian company with a global footprint, Orica has a diverse workforce of over 14,000 people, operations in more than 50 countries and customers in more than 100 countries. It is the largest provider of commercial explosives and advanced blasting systems to the mining and infrastructure markets and the global leader in the provision of ground support for mining and tunnelling. Orica is also a leading supplier of sodium cyanide to the gold industry and of general chemical products to the mining, water treatment and other industrial, food and cosmetics markets. The Company’s strategy is to create sustainable shareholder value through customer focused, innovation led and capital efficient supply of differentiated blasting, mining chemicals and ground support services and products. These are delivered through low-cost manufacturing and third-party sourcing that underpin security of supply. Orica’s global vision is to provide Clever Resourceful Solutions to its customers around the world. This is supported by the Company’s value of No Accidents Today, which underpins its commitment to the safety, health and wellbeing of our people and customers, the environment, and the communities in which we operate. BLASTING Bulk explosives GROUND SUPPORT GENERAL CHEMICALS Bolts Water treatment and watercare Packaged explosives Glassfibre reinforced plastic bolts Electronic blasting systems Injection chemicals Initiating systems Seismic systems Blasting services Delivery and magazine services Surface mining, underground, quarry and construction – planning, design, loading and firing services Technical services – feasibility studies, training, auditing, blast modelling and blast improvement Blast measurement and analysis services Blasting environmental effects and risk management services Performance services – blasting to specification Mesh Powders Resin capsules Resin grouts Services Accessories MINING CHEMICALS Sodium cyanide Sparge – cyanide delivery and dissolutions systems PRO service – technical in-use mineral processing reagent support Emulsifiers for blasting applications Mining Oil and gas Food and nutrition Personal care Agriculture Building and construction Flavours and fragrances Pulp and paper Plastics 2 AT A GLANCE #1 SUPPLIER GLOBALLY of commercial explosives. Orica Annual Report 2014 4 MILLION TONNES of bulk explosives supplied annually. Chemical energy (explosives) is 25 times more efficient than mechanical energy for breaking rock. As the world’s largest explosives company, Orica is in a unique position to help sustainable growth in the global resources sector. 1,500 BLASTS PER DAY on our customers’ sites. TOP 3 GLOBAL PRODUCER and supplier of sodium cyanide used in gold production. OVER 14,000 EMPLOYEES in more than 50 countries. Explosives grade ammonium nitrate represents 5% of the global ammonium nitrate market. The remainder is agriculture grade ammonium nitrate used in fertiliser. TOP QUARTILE SAFETY PERFORMER of companies listed on the Australian Securities Exchange. 3 The Board was pleased to receive strong support for last year’s Remuneration Report. Nevertheless, we consulted with shareholders and advisors in 2014 about remuneration. From the valuable feedback received and following a further review of the Company’s remuneration practices and policies, changes have been made to better align remuneration and incentives with shareholder expectations. The changes are summarised in the Remuneration Report and will be embedded in the remuneration structure from 2015. BUILDING ORICA’S RESILIENCE The business environment in 2014 has put our people to the test. Individually and collectively, Orica’s employees, led by Ian Smith and his Executive Committee, have risen to the challenge. Through their efforts, Orica is navigating the testing times in a robust way. More than that, the Board and management are laying the foundations to make your Company more resilient and better able to capture the opportunities ahead. CHAIRMAN’S MESSAGE RUSSELL R CAPLAN Chairman “ Resilience in the face of headwinds”. Orica’s broad operating footprint, a determined self-help agenda and a focus on differentiated products and services, enabled the Company to deliver a resilient performance against considerable headwinds in 2014. Net profit after tax of $602.5M was up 2% primarily as a result of a lower interest expense and a lower effective tax rate while Orica’s Earnings Before Interest and Tax (EBIT) of $930M were 4% lower reflecting the subdued conditions confronting our key customers and markets. The Board is pleased to declare a final dividend of 56 cents per ordinary share, bringing the full year dividend to 96 cents per share. For the second year in a row, Orica has been free of fatalities in the workplace. This is a result that we strive to make the norm, as too is the continuing improvement in the All Worker Recordable Case Rate, which has fallen further in 2014. I applaud management’s tireless efforts to embed a culture of safety above all else in our employees and contractors. TRANSFORMING ORICA TO SUSTAIN PROFITABLE GROWTH It is Orica’s goal to help our mining customers derive greater value from their projects and ultimately for Orica to share in that value creation. Orica’s products and services help customers increase mine and resource productivity, reduce energy consumption and reduce environmental impacts from mining operations. Orica has invested over the years in a geographic presence, a product portfolio, a flexible supply chain and technical and operating capability that together give us competitive advantage. But that competitive advantage can never be taken for granted, especially when business conditions pose challenges for mining services companies and the businesses of our customers. Management recognised the need to do more and embarked on a comprehensive program of self-help initiatives across Orica’s global operations; to reduce structural costs, enhance operational and asset management capability and improve customer focus. This self-help program has been a driving influence in 2014 and will better equip Orica to sustain profitable growth over the business cycle. This work will continue into 2015 and beyond. Orica’s centre of gravity is shifting. Progressively, more of Orica’s revenue and profits are being earned outside Australia. Orica benefits from geographic diversity, with our significant presence in emerging markets offering opportunities for growth, particularly in the context of the Company’s ‘capital light’ strategy. Examples include pleasing growth rates in Africa, the agreement with Apatit in Russia and Orica’s capacity to leverage customer relationships across multiple markets. As well, the strategic focus on the development and commercialisation of differentiated services is making pleasing progress in Latin American markets, where some important technical innovations are being trialled and adopted. Post September 30, Orica announced the sale of its Chemicals business to funds advised by Blackstone for $750 million. This transaction completes Orica’s decade-long transition into a pure play mining services business. For the Chemicals business, the transaction brings to a conclusion the strategic review process that commenced over a year ago and provides employees with certainty as to ownership and direction going forward. CAPITAL MANAGEMENT The Board acknowledges shareholders’ legitimate expectations for effective capital management. In considering the way forward, the Board is also balancing the requirement to maintain a prudent gearing ratio and maintain the flexibility for the Company to pursue its growth agenda. Given Orica’s improved cash flows, strong balance sheet and anticipated funds from the sale of its chemicals business, the Board will have the flexibility to consider capital management initiatives. GOVERNANCE AND REMUNERATION Orica has a strong, diverse group of Directors but we are relatively new as a Board. I am almost one year into my role as Chairman and four of our nine Directors have been in place for a year or less. In 2014, we have undertaken comprehensive, independent external reviews of both our governance processes and of Board performance. I am gratified by the openness of Directors and managers to these reviews and by their shared ambition for us to achieve the highest levels of Board performance. 4 Orica Annual Report 2014MANAGING DIRECTOR’S MESSAGE IAN K SMITH Managing Director and CEO The 2014 result is a demonstration of Orica’s capacity to maintain its financial performance in markets characterised by increasing supply of ammonium nitrate and a relentless drive across the resources sector to reduce costs. These are likely to be features of the market for the near future and Orica is responding decisively to these circumstances. Volume growth in Orica’s focus markets of the Pilbara, Africa and CIS has offset weaker conditions elsewhere which resulted in overall explosives volumes being slightly down for the year. Further progress has also been made in the adoption of Orica’s advanced blasting services by customers in Australia, Europe and North and South America. These services have become a key contributor to Orica’s contract wins and extensions. However, the Company cannot stand still and more is being done to ensure Orica is in the best position to capture the benefits of any future improvement in market conditions. TRANSFORMATION The transformation program that is currently underway will further improve Orica’s resilience in the face of continuing volatility and uncertainty, providing flexibility in how the Company is positioned across its diverse markets and customer base. Progress has already been made to improve Orica’s efficiency and reset its cost base. In 2014 the Company benefited from $69M in efficiency savings. The means to reduce Orica’s cost base by $200 – 250M per year from 2016 have been identified. Savings will come from improvements to the Company’s supply chain and procurement processes, the optimisation of its manufacturing footprint and elimination of functional duplication. SUSTAINABILITY In 2014 Orica delivered improvements across many key sustainability indicators. From its 2010 baseline, Orica has reduced its annual greenhouse gas emissions by more than 900,000 tonnes. This is the equivalent of removing more than 300,000 cars from the road. Orica develops and commercialises differentiated services and products that enable its customers to progress their own sustainability objectives. The use of chemical energy to break rock in the blasting process can be up to 25 times more effective than mechanical energy to do the same task by milling and grinding, resulting in lower greenhouse gas emissions. Orica’s innovation and use of technology also assists customers with improved noise, vibration and fume control, all of which support mine owners’ ability to maintain the support of their host communities. The Company has developed and implemented more than 100 site-specific Environment Management Plans and has again been included in the Dow Jones Sustainability Australia Index and the FTSE4Good Index. Orica reports its greenhouse gas and energy related performance to the Carbon Disclosure Project. INNOVATION One of the highlights of 2014 was the international recognition received by Orica for the development of its Ultra-High Intensity Blasting technique. This blasting method can improve mill throughput by up to 40% using ultra-high explosive energy to produce greater ore fragmentation. Successful trial and production blasts have been undertaken with customers in Mexico and South America. Orica’s innovation pipeline contains a number of important projects. The Mineral Carbonation Initiative joint venture with the New South Wales and Federal Governments and University of Newcastle is scheduled to commence trials at its pilot plant in early 2015. The program is investigating the permanent carbon capture potential of serpentinite and the use of the end product in building materials. Agreements have also been reached with Singapore’s Agency for Science and Singxin Resources, a company with access to serpentinite reserves greater than nine billion tonnes. Further agreements with research, and potential commercialisation, partners are well advanced. In August, Orica renewed its five year research alliance with the CSIRO. Over the period of the new agreement the two organisations will collaborate on the commercialisation of ground- breaking technology to improve productivity and environmental performance in the mining sector. PEOPLE AND SAFETY In 2014 Orica recorded a 26% improvement in its All Worker Recordable Case Rate which measures the number of injuries and illnesses per 200,000 hours worked. This result is due to the enduring commitment of all Orica employees to workplace safety. To embed safety, risk management and sustainability processes into the Company’s daily operations Orica introduced updated Safety, Health, Environment, Community (SHEC) systems and processes. These included a standardised semi-quantitative risk assessment process for Major Hazards across the organisation. Orica also began the first phase of its new integrated SHEC information management and reporting system ENABLON, covering incident management, action management and reporting metrics. COMMUNITY Orica’s Community Partnerships Program commenced in 2014. It ensures Orica’s community investments are better co-ordinated and more reflective of its global footprint. More than 20 initiatives in Australia, South America, Africa, Asia and North America have been selected for funding in the first round of the program. Each of the successful projects reinforces Orica’s commitment to corporate social responsibility and will provide tangible results for host communities; and this contributes to Orica’s licence to operate and grow. CHEMICALS The sale of Orica’s Chemicals business to funds advised by Blackstone is expected to be completed in the first quarter of calendar 2015 subject to customary regulatory approvals and conditions including Material Adverse Change provisions. The outcome achieved is a good result for Orica shareholders. The acquisition of Orica’s Chemicals business is Blackstone’s largest investment to date in the Australian and New Zealand markets and is a strong vote of confidence in its employees, market leading positions and future growth opportunities in ANZ, Asia and Latin America. The current head of Strategy and Chemicals, Andrew Larke, has confirmed that he will remain with the business as CEO under the new ownership arrangements. GROWTH INITIATIVES The implementation of Orica’s capital light investment strategy contributed to a 35% reduction in 2014 capital expenditure and 48% increase in net operating and investing cash flows. An example of the capital light strategy at work is the Burrup Ammonium Nitrate project which at September 30 was 90% complete. When commissioned in mid to late 2015, Orica, as 45% joint venture partner, will hold the marketing rights to 100% of the production from the plant. Development of the Apatit emulsion plant in Russia is also on schedule. When complete the plant will have capacity of 40,000 tonnes per annum of emulsion. Eight mobile manufacturing units are also being provided under the contract with PhosAgro. OUTLOOK The volatility and uncertainty in global resources markets makes it difficult to provide profit guidance for the year ahead. However, the Company does not expect a significant improvement in the resources markets, reinforcing the requirement for the Company to achieve its transformation objectives. 5 Orica Annual Report 2014REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE Statutory net profit after tax (NPAT)(1) for the full year ended 30 September 2014 was $602.5M, up 2% on pcp. The restated previous corresponding period (pcp) was $592.5M(2). Earnings per share (cents)* (Before individually material items) 169.5 173.5 177.9 162.9 163.7 KEY FINANCIALS EBITDA(3) was down 2% to $1,231M (pcp: $1,253M); EBIT(4) was down 4% to $930M (pcp: $968M); EARNINGS BEFORE INTEREST AND TAX (EBIT) EBIT decreased by 4% to $930M (pcp $968M). Decreased earnings were attributed to: • Reduced demand for Mining Services products ($44M); Earnings per ordinary share up 1% to 163.7c; • Lower pricing for ground support and mining chemical products ($36M) and flat explosives pricing ($1M); • Lower demand in Australian chemicals markets and rationalisation and write-off costs recorded in the first half in the Latin American Chemicals business ($27M); • Transformation and other costs of $39M. This includes wage increases and other inflationary impacts, costs associated with scheduled plant shutdowns, restructuring and transformation program costs, partially offset by the non- recurrence of the 2013 ground support integration costs of $29M; and • Increased depreciation at Bontang and Carseland ammonium nitrate plants, and the Antofagasta initiating systems plant ($8M); Partially offset by: • Efficiency benefits of $69M including $25M associated with ground support integration and optimisation benefits and ongoing benefits associated with the implementation of the functional operating model; • A favourable foreign exchange (FX) impact largely due to the lower AUD (+$24M); and • Higher profit from asset sales (+$23M). INTEREST(8)(9) Net interest expense of $116M was lower than the pcp ($150M) due to lower average debt levels and interest rates and higher capitalised interest associated with the Burrup ammonium nitrate project. Capitalised interest was $28M (pcp $12M). Interest cover increased to 8.0 times. CORPORATE COSTS Corporate costs of $90M were lower than the pcp ($100M) due to the profit on sale of assets of $23M compared to pcp (Nil) partially offset by higher net hedging and restructuring costs. TAX EXPENSE An effective underlying tax rate of 23.1% (pcp: 25.4%) was lower mainly due to a change in geographic profit mix and non-taxable profit from asset sales due to the utilisation of capital losses. Net operating and investing cash flows at $461M, up 48% ($149M) from $311M in the pcp; Net debt of $2,237M down $98M on the pcp; Gearing(7) was 33.7%, versus 36.8% in the pcp; Interest cover of 8.0 times(8)(9) (pcp: 6.4 times); and Final ordinary dividend of 56 cents per share, up 2%. SUMMARY • Orica delivered a resilient earnings and cashflow performance against a backdrop of difficult mining markets, falling commodity prices and significant pricing pressure. In this context Orica’s geographic diversity, growth in emerging markets and its strategic focus on advanced blasting services has enabled the Company to meet its full year guidance. This outcome has been achieved notwithstanding flat volumes year on year as a result of weaker than anticipated recovery in explosives volumes in the second half of the financial year; • EBIT of $930M was 4% below the pcp and reflected continuing pressure on volume and pricing in Mining Services markets and reduced Chemicals EBIT, largely offset by $69M in efficiency benefits, $24M in foreign currency benefits and $23M from asset sales; • NPAT of $602.5M was up 2% primarily as a result of a lower interest expense and lower effective tax rate; and • A continued focus on cash generation and the benefits of a capital light strategy delivered a 48% uplift in net operating and investing cashflows. REVENUE Sales revenue of $6.8B decreased by $89M (1%), driven primarily by: • Lower volumes across all key product groups within Mining Services and lower pricing for ground support and mining chemical products; • Lower demand for products in the Chemicals business and temporary customer shutdowns; Largely offset by: • Favourable currency movements. 6 10 11 12 13 14 Sales ($M)* Earnings per share (c) (Before individually material items) 6,674 6,885 6,796 6,182 5,812 10 11 12 13 14 EBIT ($M)* Sales ($M) 1,009 1,028 1,023 968 930 10 11 12 13 14 EBIT ($M) * Excluding DuluxGroup Orica Annual Report 2014MINING SERVICES KEY POINTS • EBIT contribution from Mining Services down 2% to $953M; • Global explosives volumes were down 1% for the year. Growth in the Pilbara iron ore region, European quarry and construction sector and improved volumes in emerging mining markets of Africa and CIS was insufficient to fully offset reduced coal market demand in Eastern Australia, North America and Indonesia. This was despite a second half volume recovery, particularly in North America and Latin America and Indonesia; • The contribution from explosives products was slightly lower than the pcp due to lower volumes, changes in product mix, scheduled plant shutdowns and restructuring costs; • Pricing for explosives, in local currency, has been flat to slightly down in most markets despite downward market pressure; • Sodium cyanide volumes rebounded strongly in the second half following a weak first half result driven by a period of customer destocking. Full year volumes were down 5%, which, combined with lower pricing, resulted in a significantly reduced contribution from mining chemicals products; and • Ground support integration and optimisation benefits have been delivered although weak market conditions have reduced the net impact of these benefits. REGIONAL SUMMARIES AUSTRALIA/PACIFIC • EBIT of $555M; down 9% ($54M) on the pcp. 2014 earnings were influenced by headwinds in the sodium cyanide market, including lower pricing and volumes, and a change in explosives product mix. The result included costs associated with scheduled plant maintenance, restructuring, redundancies and initial costs associated with the transformation program partly offset by benefits from asset sales of $8M; • Explosives volumes: Up 1% due to 33% growth in the Pilbara region and 39% increase in sales to third party suppliers, partially offset by a decline in direct sales, predominantly to coal customers with North East volumes down 8% and South East volumes down 7%. AN demand from coal markets was influenced by lower stripping ratios and increased processing yields, which reduced the AN intensity of coal production; • Explosives product mix: Reflected higher AN sales to Pilbara and third party suppliers at lower margins compared to direct emulsion sales; • Explosives pricing: Average pricing generally in line with the prior period despite competitive pressure and increased market supply; • Sodium cyanide: Full year volumes were down 5%, with a strong volume rebound in the second half, up 9% pcp compared to a 17% first half decline. Average pricing declined due to increased competitive supply in a challenging market; and • Ground support: In line with pcp. Delivery of the integration synergies offset soft market conditions for products and services. NORTH AMERICA • EBIT of $180M (including Global Hub contribution of $73M) up 6% ($11M) on pcp. Improved second half volumes and increased take-up of Orica’s advanced blasting services contributed to improved operational performance. The result was also supported by favourable foreign exchange rates and the non-recurrence of higher AN sourcing costs in the pcp; • Explosives volumes: Down 3% due to a 10% decline in full year coal volumes, driven mainly by Eastern US coal markets, partially offset by growth in Canadian and Mexican metals markets in the second half. North American quarry and construction market volumes were up 1% on pcp due to growth in the US. Canadian quarry and construction markets were flat; • Explosives pricing: Explosives pricing was relatively flat across most products; • Services: Higher margins as a result of increased services uptake in Canada and Mexico including successful migration of customers to advanced blasting services; and • Ground support: Despite cost savings being achieved, lower contribution due to subdued demand from Eastern US coal customers and continued price pressure. Steel and resin volumes declined 9% and 13% respectively. LATIN AMERICA • EBIT of $112M (including Global Hub contribution of $40M) was down 3% ($3M) on pcp. The underlying result was flat after taking into account the impact of a prior year land sale and current year favourable FX impact. Lower volumes were offset by higher take up of Orica’s advanced blasting services offerings, including successful production trials using the innovative Ultra-High Intensity Blasting technique; • Explosives volumes: Down 2% pcp after a strong second half rebound. The recovery in Colombian coal market volumes and contract wins in Brazil were insufficient to offset lower volumes in Peru and Argentina; and • Explosives pricing, product and service mix: Pressure on explosives pricing was mitigated by Orica’s differentiation strategy with increasing penetration of higher margin products and advanced services. NPAT ($M)* (Before individually material items) 619 642 650 593 603 10 11 12 13 14 Dividends per share (cents) Net profit after tax before individually material items net of tax ($M) 95.0 94.0 96.0 92.0 90.0 10 11 12 13 14 Dividends per share ($) 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. 1) Equivalent to Net profit for the period attributable to shareholders of Orica Limited disclosed in Note 2 within the Orica Annual Report (Segment report). 2) 2013 numbers have been restated for new accounting standards. Refer to Note 41 within the Orica Annual Report 2014. 3) EBIT plus Depreciation and Amortisation. 4) EBIT (equivalent to Profit /(loss) before individually material items, net financing costs and income tax expense in the Segment report). 5) (Interim dividend cps x shares on issue at 31 March) + (Final dividend cps x shares on issue at 30 September) / NPAT. 6) Total interest bearing liabilities less cash and cash equivalents. 7) Net debt / (net debt + book equity). 8) EBIT / Net interest expense. 9) This includes capitalised interest. Excluding capitalised interest, interest cover is 6.5 times (pcp 6.0 times). Note: Numbers in this report are subject to rounding. * Excluding DuluxGroup. 7 Orica Annual Report 2014Review of Operations and Financial Performance Restated 2014 2013 Change 4,744.1 4,638.8 656.5 318.0 5,718.6 5,854.6 732.9 365.0 5,736.7 5,792.4 555.1 107.0 72.2 94.2 124.4 952.9 72.7 39.5 (50.7) 61.5 62.9 124.4 608.6 106.1 86.7 62.7 110.0 974.1 63.1 28.1 (46.9) 44.3 65.7 110.0 2% (10%) (13%) 0% 1% (9%) 1% (17%) 50% 13% (2%) 15% 41% (8%) 39% (4%) 13% MINING SERVICES (CONTINUED) EUROPE, MIDDLE EAST AND AFRICA (EMEA) • EBIT of $94M, up 50% ($32M) on the pcp due to higher volumes in Africa and CIS, and improved margins for explosives and ground support products; • Explosives volumes: Up 14% due to growth in Africa and CIS combined with increased quarry and construction activity in Western Europe. Volumes were up 41% in Africa driven by the start-up of new business in Mozambique and increased volumes at gold mines in Ghana, and up 12% in CIS with new business in Russia; • Explosives margins: Higher as a result of price increases in key infrastructure markets and success with higher margin products and advanced blasting service offerings, particularly contract wins at mining customers in the Nordics and CIS; and • Ground support: Increased margins due to the achievement of integration benefits and improved prices in infrastructure markets. OTHER (ASIA, GLOBAL HUB AND HEAD OFFICE) • The respective hub contributions associated with centralised activities (including purchasing, manufacturing, supply chain and research and development) in relation to the North American and Latin American operations are discussed above; MINING SERVICES – 12 Months Ended September Earnings A$M Sales by Product Group – Explosives – Ground Support – Mining Chemicals Total Mining Services Net Assets EBIT: Australia/Pacific North America Latin America EMEA Other EBIT Other comprises: Global Hub – North America Global Hub – Latin America Global Hub – Operations Global Hub Asia and Head Office • Global hub operations costs of $51M were Total Mining Services Other up $4M on pcp; • Asia and head office: EBIT declined 4% to $63M; • Explosives volumes: Declined 15% in Asia, mainly attributable to a 21% decline in Indonesian volumes due to continued weak Indonesian coal markets, selective mining and the temporary closure of mines at a key customer; • Returns from the Indonesian market benefited from ongoing higher production rates at the Bontang ammonium nitrate plant and cost reduction programs; and • Explosives pricing: Downward pressure continued in the Indonesian and Indian markets. MINING SERVICES PERSPECTIVES FOR 2015 • Demand conditions for explosives from global coal markets are expected to remain subdued; • Growth for explosives is expected to continue in mining markets in Pilbara, Africa and CIS; • Explosives pricing pressure is expected to continue, partially mitigated by Orica’s advanced blasting services strategy and transformation programs; • Sodium cyanide volumes are expected to improve although pricing pressure will remain; and • Ground support markets are expected to remain challenging. 8 Orica Annual Report 2014CHEMICALS KEY POINTS • EBIT contribution from Chemicals down 29% ($27M) to $67M as the business recognised expenses associated with restructuring and write-downs in Latin America. The business is positioned for an expected recovery in General Chemicals volumes and an improved earnings performance in Latin America; • Improved underlying profit performance from the New Zealand business; • Market conditions in Australia continued to be challenging especially in plastics and agricultural markets; and • Temporary mining customer shutdowns reduced earnings by $7M. BUSINESS SUMMARIES GENERAL CHEMICALS • Sales down 6% on the pcp reflected lower volumes to mining (due to customer shutdowns), agricultural and plastics sectors in Australia and reduced revenues in Latin America; • Improved New Zealand business performance, driven by increased demand from the dairy and pulp and paper sectors and favourable FX benefits; and • The Latin American business recorded a $14M reduction in earnings comprising $11M of rationalisation and write-downs recorded in the first half, and additional operating losses as the business was restructured. WATERCARE • Sales down 8% on the pcp reflecting reduced global caustic soda pricing which has stabilised at lower levels; and • Lower volumes due to temporary mining customer shutdowns and reduced demand from municipal water authorities. PERSPECTIVES FOR 2015 • General Chemicals volumes are expected to improve, driven by increased bulk chemical sales to the oil and gas sector and resumption of supply at mine sites that experienced 2014 shutdowns. This is expected to be partly offset by continued softness in automotive and resources demand; • Watercare contribution is expected to remain flat, with markets remaining competitive and assumed stable caustic soda pricing; • Improved earnings outcome anticipated from the Latin America business, following the repositioning of the business in the second half of 2014; and • The weaker AUD should improve prospects for the Australian manufacturing sector and hence demand for general chemicals. BALANCE SHEET Key balance sheet 12-month movements since September 2013 were: • Trade working capital (TWC) decreased by $52M primarily driven by lower debtor and inventory levels as a result of a sustained focus on improved debtor collection and inventory management across the global network; • Net property, plant and equipment increased by $212M mainly due to growth capital spend ($282M), sustaining capital spend ($192M), capitalised interest ($17M) and a positive FX translation ($21M) offset by depreciation ($262M) and disposals ($39M). Spending on growth projects in the period included the Burrup ammonium nitrate project ($151M) and Apatit emulsion plant ($16M); • Intangible assets increased by $49M due mainly to capital expenditure on the global IT systems and research and development projects ($61M), capitalised interest ($11M) and positive FX translation ($15M), partially offset by amortisation ($39M); • Net other liabilities decreased by $84M. Major movements included a reduction in tax payable due to the timing of tax payments ($69M) and a reduction in net derivative financial liabilities partially offset by an increase in receivables from asset sales; • Net debt decreased by $98M largely due to operating and investing cash flows being more than ordinary dividend payments ($267M) and FX translation; and • Orica shareholders’ equity increased $392M driven mainly by increased earnings, net of dividends declared and positive movements in reserves ($54M). FUNDING Solid operating cash flow performance and active management of the debt profile strengthened the balance sheet. Undrawn committed bank facilities were reduced by $562M to $1.6B, with total debt facilities of $4.1B. The year end gearing decreased from 36.8% to 33.7%. Total drawn debt of $2.5B primarily comprises $1.9B of US Private Placement and $0.2B of committed bank facilities. The duration of drawn debt is 5.7 years (6.6 years pcp). Orica’s Standard & Poor’s credit rating is BBB (stable outlook). CHEMICALS – 12 Months Ended September Earnings A$M Sales Revenue EBIT Net Assets Sales by Business*: General Chemicals Watercare *Includes intercompany sales ORICA GROUP – Balance Sheet A$M Inventories Trade Debtors Trade Creditors Total Trade Working Capital Net property, plant and equipment Intangible assets Net other liabilities Net debt Net Assets Orica Shareholders’ equity Non-controlling interests Equity Gearing1 1) Net debt / Net debt and Shareholders’ Equity. Restated 2014 2013 Change 1,145.0 1,219.4 67.2 609.5 934.3 218.6 94.1 621.4 991.3 237.2 (6%) (29%) (2%) (6%) (8%) Restated Sept 2014 Sept 2013 727.4 863.0 (944.3) 646.1 3,794.9 2,338.5 793.1 929.1 (1,023.8) 698.4 3,583.2 2,340.0 (193.7) (277.5) (2,236.7) (2,334.2) 4,399.1 4,263.0 136.1 4,399.1 33.7% 4,009.9 3,871.0 138.9 4,009.9 36.8% 9 Orica Annual Report 2014Review of Operations and Financial Performance CASH FLOW • Net operating and investing cashflows Partially offset by: increased by $149M to $461M (pcp: $311M). • Net operating cash inflows decreased by $145M to $917M (pcp: $1,062M), mainly due to: • $29M higher inflows from trade working capital with an increased management focus on this item across all regions; and • Higher Australian tax instalments and the transition from quarterly to monthly Australian tax payments; • $21M increase in non-trade working capital compared to pcp from the increased utilisation of leave entitlements and settlement of the Australia carbon emission liability; and • Lower volatility of the AUD against major currencies, compared to the pcp, resulted in a favourable FX outcome on translation of debt and reserves of $9M (pcp: $80M). • Lower interest payments of $10M. • Net investing cash outflows decreased by $294M to $457M (pcp: $750M), largely due to: • Decreased sustaining capital expenditure of $67M to $203M; and • $210M reduction in growth capital expenditure to $301M due to lower spending on ammonium nitrate plants – Burrup down $53M, Kooragang Island expansion project down $69M, Bontang down $18M. • Net financing cash outflows increased by $94M to $445M (pcp: $351M); major movements included: • A net decrease in borrowings of $96M; and • Lower repayments of LTEIP loans of $25M partially offset by no on-market purchase of shares to satisfy the LTEIP plan (pcp: $10M); Partially offset by: • Increased take-up of the Dividend Reinvestment Plan from 16% in the pcp to 23% resulting in lower cash dividend payments ($19M). STATEMENT OF CASH FLOWS – 12 Months Ended September A$M Operating cash flows EBIT Add: Depreciation Add: Amortisation EBITDA Net interest paid Net income tax paid Trade Working Capital mvt1 Non-Trade Working Capital mvt2 FX mvt on debt/reserves Net operating cash flows Investing cash flows Capital Spending Sustaining Capital3 Growth Capital4 Total Capital Spending5 Acquisitions Restated 2014 2013 Change Interest Cover (times)6 7.9 8.3 8.0 8.0 6.4 929.7 262.2 38.6 968.1 247.9 36.5 1,230.5 1,252.5 (143.3) (209.5) 51.0 (20.3) 8.7 917.1 (202.7) (301.0) (503.7) (4.6) (153.3) (139.9) 22.1 0.6 79.6 1,061.6 (269.2) (510.6) (779.8) (3.6) 10 11 12 13 14 Interest Cover (times) Gearing (%) 26.6 22.4 41.4 36.8 33.7 10 11 12 13 14 Gearing (4%) 6% 6% (2%) 7% (50%) 131% (89%) (14%) 25% 41% 35% (28%) 56% 39% 48% Proceeds from surplus asset sales, investments and businesses Net investing cash flow Net operating and Investing cash flow 51.7 33.1 (456.6) 460.5 (750.3) 311.3 Financing cash flows Net proceeds from share issues (inclusive of non-controlling interests) Net (payments)/proceeds from LTEIP* Movement in borrowings Dividends paid – Orica Limited Dividends paid – NCI Shareholders Net financing cash flows *LTEIP: Long Term Employee Equity Incentive Plans 10 2.1 13.9 (176.4) (267.4) (17.4) (445.2) 5.4 (60%) 28.4 (80.1) (286.0) (18.8) (351.1) (51%) (120%) 7% 7% (27%) 1) Opening trade working capital (TWC) less closing TWC (excluding TWC acquired and disposed of during the year). 2) Non-trade working capital: primarily includes other receivables, other assets, other payables and provisions. Movement: opening non-trade working capital (NTWC) less closing NTWC (excluding NTWC acquired and disposed of during the year). 3) Capital expenditure other than growth expenditure. 4) Capital expenditure that results in earnings growth through either cost savings or increased revenue. 5) Total growth and sustaining expenditure reconcile to total payments for property, plant and equipment and intangibles as disclosed in the Statement of Cash Flows within the Orica Annual Report. 6) Including capitalised interest. Orica Annual Report 2014BUSINESS DEVELOPMENT AND CORPORATE OVERVIEW OF ORICA’S BUSINESS STRATEGY Orica’s strategy is to create sustainable shareholder value through customer focused, innovation led and capital efficient supply of advanced blasting services, mining chemicals and ground support services and products. These are delivered through low-cost manufacturing and third party sourcing that underpins security of supply. Orica’s market-leading solutions maximise our customers’ capacity to: • transform mineral resources into recoverable reserves; • increase mine productivity and mill throughput; • increase mineral recovery; • reduce energy consumption; • operate safely; and • improve noise, vibration and fume control. Orica’s capacity to ensure security of supply is a key differentiator and competitive advantage. The Company’s portfolio of third party supply arrangements and its broad footprint of manufacturing and distribution assets provide supply capability across Australia Pacific, Asia, Europe, Africa, Latin America and North America. BUSINESS DEVELOPMENT Consistent with Orica’s strategy, in 2014 work continued on a number of growth projects, including: • Development of the ammonium nitrate plant at the Burrup Joint Venture in the Pilbara, Western Australia (45% owned by Orica). The project remains on budget and on schedule with commissioning to occur mid to late 2015 calendar year. Overall the project is 90% complete. All 10 pre-assembled modules are now located on site. On-site construction is 62% complete with site manning at its peak of 500. Recruitment of the operational team is progressing well with leadership roles largely filled and 50% of operator roles recruited. • A study into the potential expansion of the ammonium nitrate plant at Kooragang Island, Australia has determined the viability of installing a 10,000 tonne nitric acid tank to supplement the existing nitric acid supply to utilise 70ktpa of additional capacity within the AN plant. Permitting and licensing has been provided by the regulators and this expansion will be progressed at a rate to meet customer demand. • The Apatit bulk emulsion plant in Russia is 85% complete and on schedule for a December 2014 completion date. Six (of eight) Mobile Manufacturing Units are now in Russia to support the ramp-up of production. • Production trials of Ultra-High Intensity Blasting techniques to improve mill throughput and reduce mine site energy consumption were successfully completed in Mexico and Chile. RISK MANAGEMENT Our risk management approach is consistent with AS/NZS ISO31000:2009 Risk Management – Principles and Guidelines, and facilitates the ongoing assessment, monitoring and reporting of risks, which otherwise could impede progress in delivering our strategic priorities. Core to Orica’s risk management approach is a focus on the identification and application of effective controls to both prevent and mitigate the realisation of known risks. These controls are subject to regular verification and assessment to ensure they are functioning as required and opportunities for improvement are captured. 11 Orica Annual Report 2014Review of Operations and Financial Performance MATERIAL BUSINESS RISKS THAT COULD ADVERSELY AFFECT THE ACHIEVEMENT OF FUTURE BUSINESS PERFORMANCE There are a number of risks, both specific to Orica and of a more general nature, that may affect the future financial performance of Orica. A summary of Orica’s approach to the mitigation of these key risks is outlined below. (I) CHANGES TO INDUSTRY STRUCTURE AND COMPETITION Orica’s global reach allows the Company to establish and maintain strategic relationships with customers and suppliers across multiple markets and product groups. Orica also works to retain and grow its market share through its differentiated products and services delivered through a global technical services network of mining engineers, blasting technicians and product support specialists to improve the efficiency, productivity and safety results of customers’ operations. (II) ADAPTING TO GLOBAL ECONOMIC MOVEMENTS AND MARKET CONDITIONS Orica recognises the need to adapt its operating model to align with structural changes in the market place and become more efficient, flexible and commercially agile to meet its customers’ needs. To achieve this goal it continues to seek sustained process improvement initiatives and develop and provide differentiated products, services and solutions which enhance value for customers. The diverse spread of Orica’s global operations also provides a geographic hedge against differing market conditions and exposure to growth opportunities across a diverse range of operating environments. 12 (III) REGULATORY CHANGE Orica maintains the capacity to monitor, assess and, where necessary, react to regulatory change and to maintain regulatory compliance. Orica operates within hazardous environments, particularly in the areas of manufacturing, storage and transportation of raw materials, products and wastes. These potential hazards may cause personal injury and/or loss of life, damage to property and contamination of the environment, which may result in the suspension of operations and the imposition of civil or criminal penalties, including fines, expenses for remediation and claims brought by governmental entities or third parties that have the potential to adversely impact Orica’s financial performance. Orica is strongly focused on the safety and health of its people, visitors and communities through a safety culture that is based on visible leadership and encouraging employees and contractors that no work be undertaken if it is not safe to do so. Orica is committed to meeting its environmental obligations. Orica conducts remediation activities at its legacy sites. It does so in consultation with local communities and regulatory authorities, ensuring that responses consider the interests of all relevant parties and applicable environmental standards. In many instances the remediation work is regulated by statutory authorities and is the subject of ongoing stakeholder and community engagement. (IV) MAINTAINING SOCIAL LICENCE TO OPERATE Orica recognises its social licence to operate is fundamental to the successful operation of the Company. This is secured by earning and maintaining the respect and confidence of the communities in which it operates through constructive and respectful engagement and by making a positive contribution to the community. (V) BUSINESS DISRUPTION Orica’s ability to sustain business operations may be impeded by a significant business disruption. This could occur due to potential events such as a severe weather event, industrial action, local political instability in a foreign country in which it operates or a critical process failure. To manage these risks Orica continually monitors its business performance, executes business continuity programs and coordinates incident responses in the event incidents occur. (VI) DISTRIBUTION OR SUB-OPTIMAL SUPPLY CHAIN PERFORMANCE Orica manages these risks 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. (VII) ADVERSE FUNDING AND OTHER TREASURY MATTERS Orica manages funding and Treasury related risks by maintaining appropriate gearing and financial metrics and a sufficient level of available debt facilities. Orica Annual Report 20142015 OUTLOOK The volatility and uncertainty in global resources markets makes it difficult to provide profit guidance for the year ahead. However, the Company does not expect a significant improvement in the resources markets reinforcing the requirement for the Company to achieve its transformation objectives. In that context the Company considers the following factors to be relevant to the 2015 outlook. Key assumptions are: • Orica’s global explosives volumes to be in the range of 3.8 – 4.0 million tonnes; • Explosives pricing pressure is expected to increase particularly in Australia; • Sodium cyanide volumes are expected to improve although pricing pressure will remain; • Ground support markets are expected to remain challenging; • Orica’s operating costs are anticipated to reduce as a result of the transformation program with net pre-tax benefits of $140–170M and implementation costs of $100–120M in 2015. The transformation program will further improve Orica’s resilience in the face of continuing volatility and uncertainty, with the net benefits providing flexibility in how the Company positions itself across its diverse markets and customer base; • Net interest costs broadly in line with 2014; • Depreciation and amortisation is expected to increase by approximately 5% on 2014; • An effective tax rate of approximately 25%; • The continued implementation of the capital light strategy will see capital expenditure in the range of $500–$530M; • The strong focus on improving operating cash flow is to continue in 2015; and • The contribution to 2015 earnings from Orica’s Chemicals business will be strongly influenced by the timing of its separation from Orica. SUSTAINABILITY PEOPLE With operations in over 50 countries, Orica’s more than 14,000 employees represent 79 different nationalities. During 2014, further investment in training and development was made to engage and equip Orica’s employees to achieve the Company’s objectives. By September, over 12,000 employees had gained an understanding of vision, values and strategy through the Orica Seven Pillars program. Multi-year programs to train operational employees and supervisors to globally-consistent standards and to develop Orica’s leaders also commenced. All employees and contractors were migrated onto one global human resources information system, enabling improvements in the way Orica organises, develops and rewards its people for performance. Productivity improvements were achieved through streamlining operations and embedding flexibility in collective agreements. Overall employee numbers reduced by over 600 during the year. SAFETY, HEALTH, ENVIRONMENT AND COMMUNITY (SHEC) During 2014, Orica continued to strengthen its processes and procedures which support ongoing improvement in sustainability performance, including the revised SHEC management system. Company-wide implementation has been completed of the first phase of the new integrated SHEC information management and reporting system. Implementation of Orica’s revised Safety, Health, Environment, Community (SHEC) systems and processes continued during the year. Key achievements include: • Implementation of a standardised semi- quantitative risk assessment process for major hazards across the organisation; and • Implementation of the first phase of the new integrated SHEC information management and reporting system ENABLON, covering incident management, action management and reporting metrics. In 2014 Orica remained fatality free. Orica achieved an All Worker Recordable Case Rate (number of recordable injuries and illnesses per 200,000 hours worked) of 0.40. Additional initiatives implemented in 2014 to further embed safety into Orica’s activities included fatality prevention, injury reduction and vehicle safety programs. Improving Orica’s environmental performance and management has been a key focus in 2014. More than 100 site-specific environmental management plans have been developed and implemented. Further progress has also been made to optimise the nitrous oxide abatement technology installations at Orica’s nitric acid plants. Greenhouse gas abatement projects at sites in Australia, Canada and Indonesia have reduced nitrous oxide emissions by more than 900,000 tonnes of carbon dioxide equivalent (CO2-e) in 2014, compared to 2010 baseline performance. In 2014 Orica improved the process for determining its community investment priorities. The first round of Orica’s Community Partnerships Program established a process to ensure Orica’s community investments better reflect the Company’s global footprint, and business growth regions. Also, 40 stakeholder management plans have been developed to guide community engagement across key sites and regions. Progress also continues to be made in addressing legacy issues associated with historical operations. Remediation projects at Deer Park, Villawood, Botany and Yarraville are progressing in consultation with communities and environmental regulators. During 2014 legal proceedings regarding incidents at Orica’s Kooragang Island and Botany plants in 2010 and 2011 were concluded. The Court imposed penalties of $768,250 for a total of nine offences to which Orica had pleaded guilty. CHEMICALS SALE On 18 November 2014 Orica signed a contract to sell the Orica Chemicals business incorporating the chemicals trading businesses in Australia, New Zealand and Latin America, Bronson and Jacobs in Australia, New Zealand and Asia and the Australian Chloralkali manufacturing business to funds advised by Blackstone for a price of $750M. Closing of the transaction is subject to Australian Foreign Investment Review Board and New Zealand Overseas Investment Office approvals and other customary conditions, including material adverse change provisions, within the sale agreement, and is expected to occur in the first quarter of calendar year 2015. TRANSFORMATION PROGRAM Orica is undertaking a comprehensive program of initiatives across its global operations to improve its cost base, efficiency, asset management capabilities, customer focus and commercial agility. These initiatives are designed to ensure Orica’s capacity to sustain profitable growth across varying market conditions. These programs are expected to result in pre-tax financial benefits of approximately $140–170M in 2015 and a further $60–80M in 2016. In 2015 efficiency initiatives arising from the cost review are expected to result in a net headcount reduction of approximately 700 positions. In 2015 implementation of the transformation program could incur pre-tax costs of $100–120M comprising cash costs of $60–70M which include redundancies and implementation costs and potentially non-cash costs in the order of $40–50M. In 2016 total cash costs could be $20–40M. DIVIDEND The Directors have declared a final ordinary dividend of 56 cps. The dividend is 36% franked at 20 cps. The dividend is payable to shareholders on 19 December 2014 and shareholders registered as at the close of business on 3 December 2014 will be eligible for the final dividend. It is anticipated that dividends in the near future are unlikely to be franked at a rate of more than 40%. 13 Orica Annual Report 2014Orica Annual Report 2014 BOARD MEMBERS RUSSELL R CAPLAN LLB, FAICD, FAIM Non-Executive Director since October 2007, appointed Chairman on 30 January 2014. Chairman of the Corporate Governance and Nominations Committee. Director of Aurizon Holdings Limited. Former Chairman of the Shell Group of Companies in Australia. Former director of Woodside Petroleum Limited. IAN K SMITH BE Mining (Hons), BF in Admin, FIEAust, FAusIMM, MAICD Managing Director and Chief Executive Officer since February 2012. Member of The 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. CRAIG ELKINGTON BBus (Acc), CPA Executive Director Finance and member of the Corporate Governance and Nominations Committee. Joined ICI/Orica in 1994 and has held various senior finance, commercial and executive roles across the Orica Group in Australia, Canada and USA. Held the CFO positions of the Company’s former subsidiary Incitec Ltd, the Chemical Division and Orica Mining Services. In 2008, appointed President, Orica Mining Services, North America, based in Denver before returning to Melbourne. Appointed Executive Global Head of Mining Services in June 2012. Moved to the role of Chief Financial Officer in November 2013 and in September 2014 was appointed a director of the Company. MAXINE BRENNER BA LLB Non-Executive Director since April 2013. Member of the Human Resources and Compensation Committee, Board Audit and Risk Committee and the Corporate Governance and Nominations Committee. Director of Origin Energy Limited, Qantas Airways Limited and Growthpoint Properties Australia Limited. Former director of companies including Neverfail Australia Ltd, Treasury Corporation of NSW and Federal Airports Corporation. Former Managing Director of Investment Banking at Investec Bank (Australia) Ltd. Former member of the Takeovers Panel. ALBERTO CALDERON PhD Econ, M Phil Econ, JD Law, BA Econ Non-Executive Director since August 2013. Member of the Board Audit and Risk Committee, Safety, Health and Environment Committee and the Corporate Governance and Nominations Committee. Former Group Executive and Chief Executive of BHP Billiton, Aluminium, Nickel and Corporate Development. Former Chief Executive Officer of Cerrejón Coal Company and Colombian oil company, Ecopetrol. Member of Investment Advisory Committee for New York Mining Fund AR Capital GP II Ltd. GENE TILBROOK BSc, MBA, FAICD Non-Executive Director since August 2013. Chairman of the Board Audit and Risk Committee and member of the Corporate Governance and Nominations Committee. Director of Aurizon Holdings Limited, Fletcher Building Limited and GPT Group Limited. Former Chairman of Transpacific Industries Group Limited and director of NBN Co Limited. Former Executive Director of Wesfarmers Limited. CHRIS HANSEN LLB, BCom Chris joined Orica in June 2006 as Group General Counsel and was also appointed Company Secretary of Orica Limited in March 2014. Chris has a wide range of experience in corporate and commercial law and corporate governance in a variety of in-house legal roles, as well as experience in a major Australian law firm. IAN COCKERILL BSc (Hons) Geology, MSc (Mining), MDP, AMP LIM CHEE ONN BSc (Hons), MPA, D.Eng (Honorary) Non-Executive Director since July 2010. Chairman of the Safety, Health and Environment Committee. Member of the Human Resources and Compensation Committee and the Corporate Governance and Nominations Committee. Chairman of Petmin Limited. Director of African Minerals Limited, Endeavour Mining Corporation, Ivanhoe Mines Limited and Blackrock World Mining Trust plc. Former Chief Executive Officer of Anglo Coal and Gold Fields Limited. Former executive with AngloGold Ashanti and Anglo American Group. 14 Non-Executive Director since July 2010. Member of the Safety, Health and Environment Committee, Human Resources and Compensation Committee and the Corporate Governance and Nominations Committee. Chairman of the Singapore- Suzhou Township Development Pte Ltd and the Advisory Board of the Sim Kee Boon Institute of Financial Economics, Singapore Management University. Board Member of the Monetary Authority of Singapore and Business China. Member of the Governing Board, Lee Kuan Yew School of Public Policy (LKYSPP), and a member of the International Advisory Panel of the Institute of Water Policy at LKYSPP and a Trustee of the Nanyang Technological University. Former Chairman of Keppel Corporation Limited and Singbridge International Singapore Pte Limited. NORA SCHEINKESTEL PhD, LLB (Hons), FAICD Non-Executive Director since August 2006. Chairman of the Human Resources and Compensation Committee. Member of the Board Audit and Risk Committee and the Corporate Governance and Nominations Committee. Director of Telstra Corporation Limited, and Macquarie Atlas Roads Limited. Former director of numerous companies including Insurance Australia Group Limited, AMP Limited, Pacific Brands Limited, Newcrest Mining Limited, Mayne Group Ltd, Mayne Pharma Limited and North Limited. 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. EXECUTIVE COMMITTEE Orica Annual Report 2014 IAN K SMITH BE Mining (Hons), BF in Admin, FIEAust, FAusIMM, MAICD Managing Director and Chief Executive Officer (CEO) Ian joined Orica as Managing Director and CEO in February 2012 after five years as Managing Director and CEO of Newcrest Mining Limited. Ian has over 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 of Comalco Aluminium Smelting with Rio Tinto, Brisbane amongst other general manager positions. CRAIG ELKINGTON BBus (Acc), CPA Executive Director Finance Craig joined ICI/Orica in 1994 and has held various senior finance, commercial and executive roles across the Orica Group in Australia, Canada and USA. He has held the CFO positions of the Company’s former subsidiary Incitec Ltd, the Chemical Division and Orica Mining Services. In 2008, Craig was appointed President, Orica Mining Services, North America, based in Denver before returning to Melbourne. He was appointed Executive Global Head of Mining Services in June 2012. Craig moved to the role of Chief Financial Officer in November 2013 and in September 2014 he was appointed Executive Director Finance. NICK BOWEN BE Mining (Hons) Executive Global Head Mining Services Nick joined Orica in November 2013 bringing with him 30 years of extensive experience in contract mining, construction and quarrying in both Australia and overseas. He has spent the last 20 years as CEO of listed contracting companies. He is also a non-executive director of listed engineering and construction company Tempo Australia Ltd. EILEEN BURNETT-KANT MEng Manufacturing Sciences and Engineering, MBA Executive Global Head Human Resources Eileen joined Orica in March 2013 as Executive Global Head Human Resources. Eileen previously held the position of Executive Manager, People and Communication at Jetstar Airways. Eileen’s prior experience includes transformation, operational and HR general management roles at Wesfarmers and strategic consulting experience with McKinsey & Company. RON DOUGLAS BEng Executive Global Head Projects and Technology With over 30 years’ experience in management of operational performance and capital development throughout Australia, the United Kingdom, the United States, South East Asia and Africa across the mineral processing and petrochemical industries, Ron joined Orica in October 2012. TONY EDMONDSTONE BComm, CPA, MBA Executive Global Head Supply Tony joined Orica in 2008 and has worked across several areas with global accountability, most recently in the role of General Manager Finance for the Mining Services and Manufacturing functions. Prior to this, he worked in varying executive roles across supply chain, logistics and procurement with Alcoa Inc, Alcoa Australia and at Amcor Limited. RICHARD HOGGARD BEng (Sand) Chemical Engineering Executive Global Head of Manufacturing Richard has held the role of Executive Global Head of Manufacturing since 2012 and has more than 25 years of international manufacturing experience. He joined ICI UK in 1987 and transferred to ICI Australia in 1990. From 1990 to 2007 Richard held a variety of regional and global manufacturing, supply chain and engineering roles with ICI, Incitec and Orica. In 2011 he completed a four year assignment in a business management role in Latin America. GAVIN JACKMAN MPP (ANU) Executive Global Head Corporate Affairs and Social Responsibility Gavin Jackman 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, including senior advisor to a prime minister and chief of staff to a federal cabinet minister. ANDREW LARKE LLB, BComm, Grad Dip (Corporations and Securities Law) Executive Global Head Strategy and Chemicals 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. Since November 2013, Andrew has also been responsible for Orica’s Chemicals business. Prior to joining Orica, Andrew was Head of Mergers and Acquisitions at resources company North Limited and prior to that was a mergers and acquisitions lawyer at Blake Dawson Waldron. 15 Orica Annual Report 2014 SUSTAINABILITY Orica’s value of No Accidents Today underpins our commitment to the safety, health and wellbeing of our people, customers, the environment, and the communities in which we operate. During 2014, Orica continued to strengthen processes and procedures which support ongoing improvement in sustainability performance. Progress also continues to be made in addressing legacy issues associated with historical operations. Risk management is a fundamental pillar of Orica’s activities, including the identification and management of its safety, health, environment and community risks. Orica has robust processes in place to undertake risk management systematically across the Company’s operations, use of products and delivery of services. A key aspect of Orica’s risk management approach is a focus on preventative controls and the effectiveness of those controls. SUSTAINABILITY GOVERNANCE Orica’s has company-wide policies and procedures to define requirements and provide guidance in the areas of safety, health, environment, community and people. Performance against selected sustainability indicators is reported internally on a monthly basis to the Executive Committee and sustainability issues are considered by the Board. Sustainability performance continues to be reported publicly through the annual Orica Sustainability Report, which is available at www.orica.com. Orica has again been included in the Dow Jones Sustainability Australia Index and the FTSE4Good Index and also reports greenhouse gas and energy related performance to the Carbon Disclosure Project. PEOPLE A skilled, productive and diverse workforce is critical to Orica’s performance. Orica’s people policies, training and development programs, and supporting systems, guide how the Company attracts, develops and retains talented people aligned to business strategy. With operations in over 50 countries, Orica’s more than 14,000 employees represent 79 different nationalities. In 2014, Orica’s Board and management approved a new diversity and inclusion strategy and targets, renewing Orica’s commitment in this area as part of delivering sustainable value to all stakeholders. Significant progress on diversity and inclusion was made in Orica’s award-winning Graduate Program: the percentage of women in the 2014 intake increased by over 50% versus 2013 and the program launched in Africa with an initial intake of nine graduates. During 2014, investment increased in training and development to engage and equip Orica’s employees to achieve the Company’s objectives. By year end, over 12,000 employees had gained a greater understanding of Orica’s vision, values and strategy through the Orica Seven Pillars program, which was conducted in 160 locations worldwide. Multi-year programs to train operational employees and supervisors to globally-consistent standards and to develop Orica’s leaders also commenced. All employees and contractors were migrated during the year onto one global Human Resources information system, enabling improvements in the way Orica organises, develops and rewards its people for performance. Performance Management was enhanced with the introduction of a new performance management scale, enabling greater differentiation of performance and better performance feedback. 16 Orica Annual Report 2014 SAFETY, HEALTH, ENVIRONMENT AND COMMUNITY Implementation of Orica’s revised Safety, Health, Environment, Community (SHEC) systems and structures continued during the year. Key achievements include: • Continued implementation of the revised SHEC Management System; • Implementation of a standardised semi- quantitative risk assessment process for Major Hazards across the organisation; • Implementation of the first phase of the new integrated SHEC information management and reporting system, covering incident management, action management and reporting metrics; • Development of the subsequent phases of the SHEC information management system, including audits, health and hygiene management, compliance management and community investment; • Continued development of site specific environmental management plans and stakeholder plans at key Company operating sites; and • Piloting of the revised SHEC audit program to deliver a more streamlined and standardised process and improve integration with other SHEC assurance system elements. A significant reduction in employee injury statistics was achieved during the year, with the All Worker Recordable Case Rate (number of injuries and illnesses per 200,000 hours worked) ending the year at 0.40, a 26% improvement on the previous year. There were no fatalities. Activities to reduce the Company’s greenhouse gas emission footprint were continued during the year. Nitric acid production is Orica’s most greenhouse gas emissions intensive process. Greenhouse gas abatement projects at Orica’s nitric acid plants in Australia, Canada and Indonesia have reduced nitrous oxide emissions by more than 900,000 tonnes of carbon dioxide equivalent (CO2-e) in 2014, compared to 2010 baseline levels. This represents a nitrous oxide emissions intensity reduction of almost 50% at Orica’s nitric acid plants since 2010. Orica completed the first round of its Community Partnerships Program as part of making the corporate community investment program more reflective of the Company’s global footprint. The Program targets initiatives that build or strengthen key stakeholder relationships; demonstrate Orica’s commitment to corporate social responsibility; provide tangible results for host communities; and build Orica’s licence to operate and grow. MANAGEMENT OF LEGACY SITES The Company manages legacy issues associated with historical operations at a number of its sites around the world. During 2014, remediation activities associated with past operations were undertaken at sites in Australia, Norway, Sweden, Brazil and the USA. For example, at Botany, Australia, remediation works were completed for the Car Park Waste Encapsulation and are continuing at the former chlor-alkali site with completion expected within two years. Orica responded to community concerns about the potential for offsite mercury contamination from past operations at Botany by funding an independent review overseen by the New South Wales (NSW) Government. Testing conducted to date has indicated that there is no unacceptable risk to human health or the environment. LEGAL ACTIONS During 2014, the NSW Land and Environment Court delivered its decision relating to incidents at Orica’s Kooragang Island (KI) and Botany sites between October 2010 and December 2011. The Court imposed penalties of $768,250 for a total of nine offences to which Orica had pleaded guilty. The penalties will contribute to funding seven environmental enhancement projects in the Hunter Valley and Botany. Orica remains committed to making improvements since the incidents and has invested more than $200 million over the last three years delivering improvements at KI, including ammonia plant changes to prevent a repeat of the August 2011 event and implementation of the first stage of the ammonia management improvement program. PRODUCT STEWARDSHIP Orica aims to adopt life cycle thinking in the creation and delivery of its products and services. The Company’s approach is based on the International Chemical Council’s Responsible Care Product Stewardship Code of Practice. Orica is a signatory to the International Cyanide Management Code (ICMC), with its cyanide manufacturing facility at Yarwun, Australia and transfer stations in Ventanilla, Peru and Tarkwa, Ghana fully ICMC accredited. Orica’s global supply chain is also ICMC accredited, with route assessments conducted by accredited third party contractors for road deliveries, and due diligence programs for port and rail delivery operations. The Company is a member of the global explosives safety group SAFEX and a number of other organisations that promote the safe manufacture, transport and use of explosives and chemicals. During the year, Orica and the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in Australia entered into a second five year alliance to progress commercialisation of ground breaking technology to improve productivity and environmental performance in the mining sector. Orica continues to assess the impact of the full life cycle of our products through a Life Cycle Assessment (LCA) program. This year, a further seven LCAs were completed. Work also continued to update Orica’s approximately 8,000 product Safety Data Sheets (SDSs) to meet the Australian 1 January 2017 requirements relating to implementation of the ‘Globally Harmonised System of classification and labelling of chemicals’ (GHS). Product SDSs for other countries are being converted to the GHS format in line with local implementation timeframes and legislative requirements. 17 Orica Annual Report 2014 CORPORATE GOVERNANCE STATEMENT 2014 ORICA’S FRAMEWORK AND APPROACH TO CORPORATE GOVERNANCE Orica’s Directors and management are committed to conducting the Company’s business ethically and in accordance with the highest standards of corporate governance. During 2014 the Board and management conducted a full review of the governance framework and supporting processes and systems to ensure Orica continues to operate to the highest standards of corporate governance as outlined by the Australian Securities Exchange (ASX) Corporate Governance Guidelines and to enhance the work of management and the Board. The governance framework that exists within Orica shows that governance permeates the organisation to ensure that robust and rigorous decisions can be taken at every level. The framework adopted by the Board and management is outlined below and demonstrates the integrated approach to governance that Orica believes is necessary to optimise business outcomes. ROLE AND RESPONSIBILITIES OF THE BOARD 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 governs 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 & CEO; succession planning; approving the strategic plan; verifying the integrity and implementation 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. The Board has established four Committees to assist it to govern the Company and discharge their obligations; the Board Audit and Risk Committee (BARC), the Human Resources and Compensation Committee (HRCC), the Safety, Health and Environment Committee (SHEC) and the Corporate Governance and Nominations Committee (CGNC). The Board has seven scheduled meetings per year, of which four are two days duration and one is three days (including a strategy review). Additional meetings are held as the business of the Company may require. Directors receive comprehensive Board papers in advance of the Board meetings. Directors receive regular exposure to Orica’s businesses, undertake site visits and receive ongoing business briefings and educational sessions at a Board and Committee level. Board meetings also consist of regular time 18 THE BOARD AND BOARD CHARTER BOARD AUDIT AND RISK COMMITTEE HUMAN RESOURCES AND COMPENSATION COMMITTEE SAFETY, HEALTH AND ENVIRONMENT COMMITTEE CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE BOARD RESERVED AUTHORITIES DELEGATED AUTHORITY TO MANAGEMENT THE MANAGING DIRECTOR & CEO AND THE EXECUTIVE GOVERNANCE POLICIES, FRAMEWORKS AND COMMITTEES FINANCE CONTROLS GOVERNANCE GROUP BUSINESS CONDUCT COMMITTEE CONTINUOUS DISCLOSURE POLICY AND PROCESS RISK MANAGEMENT FRAMEWORK REMUNERATION FRAMEWORK DIVERSITY POLICY where the Non-executive Directors meet without management present to discuss Board 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. ACCESS TO 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. The Board recognises the respective roles and responsibilities of the Board and management, Chairman and Managing Director & CEO, evidenced in the Board Charter and Committee Terms of Reference. ROLE OF MANAGEMENT Responsibility for managing, directing and promoting the profitable, safe operation and development of the Company, consistent with the primary objective of enhancing long-term shareholder value, is delegated to the Managing Director & CEO, who is directly accountable to the Board. In a continuously changing internal and external environment the Managing Director & CEO and the Executive team strive to create an operating culture and discipline within Orica that will continue to deliver shareholder value in both the short and long term. PERFORMANCE OF MANAGEMENT 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, Orica Annual Report 2014 including the completion of key performance indicators and contributions to specific business and Company plans. All Orica executives have had their performance evaluated during the year in accordance with this process. The Board is responsible for the performance review of the Managing Director & CEO. 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 & CEO. BOARD COMPOSITION AND RENEWAL The Board considers that its structure, size, focus, diversity and experience enables it to work with management to optimise outcomes and value for Orica. Orica maintains a majority of Non-executive Directors on its Board and separates the role of Chairman and Managing Director & CEO. The Board currently comprises nine Directors: seven independent Non-executive Directors, including the Chairman, and two executive Directors, being the Managing Director & CEO and the Executive Director Finance. Russell Caplan was appointed to the position of Chairman in January 2014. Details of the Directors as at the date of this report, including their qualifications and experience, are set out on page 14. The composition and ongoing renewal of the Board seeks to achieve the necessary competencies required to effectively govern Orica today and for tomorrow. The Board operates with a diversity of perspectives, achieved through ensuring members have different skills, experiences, knowledge, gender diversity and nationalities. Particular competencies sought and demonstrated by the Board include: • global mining; • management and governance of safety-critical, capital-intensive operations; • international projects, corporate finance and mergers and acquisitions; • international business, with deep expertise in Latin America, Asia and Africa; • government relations; and • corporate governance. Following on from the renewal process in 2013 which resulted in the appointment of three new Non-executive Directors, the Board has appointed three new Committee Chairs into the Board Audit and Risk Committee, the Safety, Health and Environment Committee and the Human Resources and Compensation Committee. internationalisation and gender diversity over time, consistent with diversity targets set for Orica as a whole. Nominations for appointment to the Board are considered by the Corporate Governance and Nominations Committee and approved by the Board. All Directors must obtain the Chairman’s prior approval before accepting directorships or other significant appointments. INDUCTION AND TRAINING An orientation program is offered to new Directors. The program is designed to build on the existing skills and experiences of the Non-executive Director and increase their understanding of Orica’s businesses, operations and key policies, processes, systems and controls. The program is delivered through a combination of an initial induction, site visits and ongoing business briefings and education sessions at Board and Committee level. INDEPENDENCE AND TENURE 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. 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. DIRECTORS’ FEES The remuneration report on page 26 sets out details regarding the Company’s remuneration policy and fees paid to Directors for the past financial year. 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 Orica’s half- year results; –– in the period of 28 days commencing one day after the announcement of 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-year 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. Directors and employees may not create, enter into or deal in derivatives, a derivative arrangement or margin loans in relation to Orica securities at any time. 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 of Directors are shown on page 46. BOARD AND COMMITTEE EVALUATION Orica has in place a range of internal and external processes to evaluate the performance of the Board, Board Committees and executives. On an annual basis, the Board and each Committee conduct an evaluation of their performance, assessing the effectiveness of how they meet their Terms of Reference. For the Orica Limited Board, this alternates between a self-assessment process and an independent external process. This year the Board has undergone an external process to review its performance and effectiveness. Each Non-executive Director also participates in a formal performance evaluation process linked directly to their re-election. SELECTION AND APPOINTMENT OF DIRECTORS In considering membership of the Board, potential Directors are considered against a range of competencies, taking into account the current composition of the Board, to ensure that the right blend of skills and experiences are maintained. The Board is committed to increased 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 BOARD COMMITTEES Board Committees are a key element of good governance at Orica. Each Committee has Terms of Reference. An outcome of this year’s governance review was the development of updated Terms of Reference for each committee to take effect in 2015. These will continue to be subject to annual review. As a standing item of 19 Orica Annual Report 2014 Corporate Governance Statement 2014 the Orica Board agenda, each Committee Chair reports back to the Board on matters considered by that Committee. Each Committee’s Terms of Reference may be viewed on the Orica website at www.orica.com. The Chairman of the Orica Board attends all Board Committee meetings as an ‘ex-officio’ member of that Committee. BOARD AUDIT AND RISK COMMITTEE The Board Audit and Risk Committee comprises four 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. Gene Tilbrook was appointed during 2014 as the Chairman of the Board Audit and Risk Committee, replacing Nora Scheinkestel, who remains on the Committee. Other members are Maxine Brenner and Alberto Calderon. The Managing Director & CEO and Executive Director Finance attend by standing invitation. The Committee assists the Board to assess the adequacy and integrity of the Company’s financial and operating controls, oversight of risk management systems and compliance with legal requirements affecting the Company, the internal audit process and outcomes and the appointment and services of the external auditor. 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 22. HUMAN RESOURCES AND COMPENSATION COMMITTEE The Human Resources and Compensation Committee comprises four Non-executive Directors. Nora Scheinkestel was appointed during 2014 as the Chairman of the Human Resources and Compensation Committee, replacing Russell Caplan. Other members are Lim Chee Onn, Maxine Brenner and Ian Cockerill. Subject to the nature of the matters being discussed at a Committee meeting, the Managing Director & CEO and the Executive Committee member responsible for Human Resources attend by standing invitation. Details of Directors’ attendance at meetings of the Human Resources and Compensation Committee are set out in the Directors’ Report on page 22. The Committee assists the Board to oversee management’s development and implementation of the human resources strategy required to deliver the Company’s strategy effectively over the short and long term. This includes executive development and succession, Group-wide Human Resources policies and strategies and diversity. 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. Remuneration arrangements for the Managing Director & CEO and executives reporting to the Managing Director & CEO, including short-term incentive payments, performance targets and bonus payments, remain a focus for this Committee. CORPORATE GOVERNANCE AND NOMINATIONS COMMITTEE The Corporate Governance and Nominations Committee comprises all Directors. The committee operates as an extension of the Board regarding matters associated with Managing Director & CEO 20 succession, changes in corporate governance practices, Board composition, renewal and performance and Non-executive Director training and development. The Committee regularly evaluates the composition of the Board and the annual program of matters considered by the Board to determine the adequacy and effectiveness of skills and experience 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 22. SAFETY, HEALTH AND ENVIRONMENT COMMITTEE The Safety, Health and Environment Committee comprises three independent Non-executive Directors with relevant operational experience. Ian Cockerill was appointed during 2014 as the Chairman of the Safety, Health and Environment Committee, replacing Michael Tilley. Other members are Lim Chee Onn and Alberto Calderon. The Managing Director & CEO, Executive Director Finance and Executive Committee members responsible for safety health and environment have standing invitations to attend. The Committee assists the Board in the effective discharge of its responsibilities in relation to safety, health and environmental matters arising out of activities within the Company as they affect employees, contractors, customers, visitors and the communities in which Orica operates. The Committee receives briefings and reports from management to assist the Committee to verify and govern the Company’s compliance with environmental policy and legislation and reviews safety, health and environmental objectives, targets and due diligence processes adopted by the Company. The Committee Chairman reports to the Board on the matters considered by the Committee at each Board meeting. Orica aims to maintain a consistent and effective organisation-wide approach to the management of SH&E by maintaining a SH&E and Community Management Framework that provides a transparent approach to managing SH&E across Orica consistent with the principles of OSHAS 18001, ISO 14001 and ISO 21000, including regular reporting to management and the Board of SH&E risks for the Company. For more in-depth information on the Company’s SH&E and sustainability commitments, visit the Orica website: www.orica.com. The Sustainability section of this Annual Report on page 16 details the actions being undertaken by the Company to improve its sustainability performance. Details of Directors’ attendance at meetings of the SH&E Committee are set out in the Directors’ Report on page 22. BOARD EXECUTIVE AND SPECIAL COMMITTEES In addition, there is a standing Board Executive Committee comprising the Chairman, the CEO & Managing Director, 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. 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 & CEO and the 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. 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 environmental standards and management systems designed to achieve high levels of performance and compliance; and • that business transactions are properly authorised and executed. 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 oversees this process on behalf of the Board. 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 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 powers of attorney are also available to shareholders. Page 138 of this report contains details of how information provided to shareholders may be obtained. 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. DIVERSITY In 2014, Orica’s Board and management approved a new diversity and inclusion strategy and targets, renewing Orica’s commitment to diversity and inclusion as part of delivering sustainable value to all stakeholders. Orica’s commitment to diversity and inclusion Orica believes that a diverse workforce and an inclusive culture support high performance and Orica’s social licence to operate in the many communities which host the Company’s operations. As a global company, Orica seeks to attract and retain talent at all levels from the countries in which it operates and to provide workplaces in which employees from all backgrounds are treated with respect and supported to succeed. Orica benefits from bringing together people of different genders, ethnic and cultural backgrounds and ages and giving them the opportunity to apply their diverse skills, experiences and perspectives to create value for customers. What diversity and inclusion means for Orica At Orica, diversity and inclusion means: • Drawing senior leaders from the broadest pools of talent and ensuring that they have the experience, understanding and respect of the different cultures in key markets to build relationships and lead highly diverse teams effectively. • Ensuring that all employees are treated fairly and with respect and dignity, regardless of their gender or gender identity; age; race, colour, nationality or cultural origin; political beliefs; religion; sexual orientation; impairment or disability; marital or parental status or pregnancy. • Ensuring that the basis for appointment, advancement, performance appraisal and remuneration within Orica is competence and capability, performance and behaviour in line with Orica’s values. • Building and maintaining a Company culture in which difference is recognised and valued and in which the interests of diverse stakeholders are taken into account in decision making. Orica Annual Report 2014 • Ensuring that wherever the Company operates, Orica employees recognise and respect the heritage, culture, lifestyle and preferences of the local communities which host the Company’s operations. • Targets, policies, partnerships and investment in education, leadership capability and individual development are used to build awareness about diversity and inclusion and encourage the workforce participation and progression of all employees. Orica’s current focus Orica’s current diversity and inclusion focus is to improve the diversity and cultural capability of its senior leaders and to continue to build strong local national management teams and skilled local workforces. Three-year targets have been set to drive progress in these focus areas and Orica intends to report on progress in future Annual Reports. Some of this year’s activities, initiatives and achievements include: • Women represent 14% of Orica’s senior leaders today. While this percentage has fallen slightly since 2013, Orica remains committed to achieving increased representation. Women represented 25% of external senior leader appointments in the past two years and two- thirds of roles searched have shortlisted at least one female candidate. Over 35% of Orica’s global graduate program intake in 2014 was female, an increase of over 50% on the 2013 intake. • Detailed assessment of female workforce participation rates across all levels and regions was undertaken, identifying progression from Supervisor to Middle Manager roles as the most significant opportunity. Further work is currently underway to identify and remove perceived obstacles. • Orica has commenced an executive development program to provide global leadership and cultural capability development for all senior leaders. • A workforce localisation plan was established, focusing on developing local management and specialist talent in key countries in Africa and Asia. As a result of the plan, 12 people were appointed into target roles during the year. In addition, Orica’s Graduate Program was launched in Africa in 2014 with an initial intake of nine graduates. Diversity remains a key area of focus for the Company into 2015 and beyond. 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 in 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 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), which is available in a range of languages, 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, the Executive Global Heads of Human Resources and Corporate Affairs and Social Responsibility, the Group General Counsel, the General Manager Internal Audit and the General Manager, Risk. This Committee reviews compliance and, if required, reports any significant issues to the Corporate Governance and Nominations Committee. The Code of Conduct has been translated into several languages, reflecting the diversity of Orica’s workforce. It may be viewed on the Orica website at www.orica.com. DONATIONS Orica’s community investment strategy is moving progressively from a philanthropic approach based around donations to one of shared value. The concept of shared value is one in which social and economic conditions in local communities are improved whilst simultaneously enhancing the Company’s position. Building stronger relationships with local communities around Orica’s plants and other sites, including those on customers’ operations, enhances relationships with external stakeholders such as governments and our customers themselves. Orica does not make political donations. Diversity metric Representation of women in Senior Leader (Executive and General Manager) roles Target (by end FY2016) 20% (FY2014:14%) Percentage of Senior Leaders and Managers who have received global leadership and cultural capability development 100% Workforce localisation plans in place for key markets Plans developed and enacted by end FY2016 21 Directors’ Report DIRECTORS’ REPORT The 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 2014 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: R R Caplan, Chairman (appointed Chairman on 30 January 2014) P J B Duncan, Chairman (retired 30 January 2014) I K Smith, Managing Director and Chief Executive Officer C B Elkington Executive Director Finance (appointed on 12 September 2014) A Calderon I D Cockerill Lim C O N L Scheinkestel N A Meehan, Executive Director Finance (retired on 31 October 2013) G T Tilbrook M N Brenner M Tilley (retired on 30 January 2014) Particulars of directors’ qualifications, experience and special responsibilities are detailed on page 14 of the Annual Report. On 7 March 2014, C Hansen (LLB,BCom) was appointed to the position of Company Secretary of Orica Limited, in addition to his existing responsibilities of Group General Counsel. C Hansen joined Orica in June 2006. He has a wide range of experience in corporate and commercial law and corporate governance in a variety of in-house legal roles, as well as experience in a major Australian law firm. This position was previously held by A Cook. 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 R R Caplan I K Smith C B Elkington M N Brenner A Calderon I D Cockerill Lim C O N L Scheinkestel G T Tilbrook Former P J B Duncan N A Meehan M Tilley 7 7 1 7 7 7 7 7 7 1 - 1 7 7 1 7 7 7 7 7 7 1 - 1 1 - - 3 3 - - 4 4 - - 1 1 - - 3 3 - - 4 4 - - 1 1 - - 7 - 6 6 7 - - - - 1 - - 7 - 6 6 7 - - - - 4 4 1 4 4 4 4 4 4 1 - 1 4 4 1 4 4 4 4 4 4 1 - 1 - - - - 4 5 5 - - - - 1 - - - - 4 5 5 - - - - 1 (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. 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 the Director’s Report - Remuneration Report. Directors’ interests shown in this note are as at 30 September 2014, 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 commercial blasting systems including services and solutions, mining and tunnelling support systems to the mining and infrastructure markets, and various chemical products and services. 22 22 Orica Limited Orica Annual Report 2014 Directors’ 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 6 to 13 of the annual report. 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 6 to 13 of the annual report. Dividends Dividends paid or declared since the end of the previous financial year were: Final dividend at the rate of 55.0 cents per share on ordinary shares, franked to 100% at the 30% corporate tax rate, paid 13 December 2013. Interim dividend declared at the rate of 40.0 cents per share on ordinary shares, franked to 40.0% (16.0 cents) at the 30% corporate tax rate, paid 1 July 2014. Total dividends paid Since the end of the financial year, the directors have declared a final dividend to be paid at the rate of 56.0 cents per share on ordinary shares. This dividend will be franked to 35.7 % (20.0 cents) at the 30% corporate tax rate. $m 201.7 147.6 349.3 Changes in the state of affairs On 6 August 2014 Orica announced its intention to pursue the separation of the Chemicals business, either by demerger or sale. There were no significant changes in the state of affairs of the consolidated entity during the year ended 30 September 2014. Events subsequent to balance date Dividends On 19 November 2014, the directors declared a final dividend of 56.0 cents per ordinary share payable on 19 December 2014. The financial effect of this dividend is not included in the financial statements for the year ended 30 September 2014 and will be recognised in the 2015 financial statements. Chemicals business separation On 18 November 2014 Orica signed a contract to sell the Orica Chemicals business incorporating the chemicals trading businesses in Australia, New Zealand and Latin America, Bronson and Jacobs in Australia, New Zealand and Asia and the Australian Chloralkali manufacturing business to funds advised by Blackstone for a price of $750m. Closing of the transaction is subject to Australian Foreign Investment Review Board and New Zealand Overseas Investment Office approvals and other customary conditions, including material adverse change provisions, within the sale agreement and is expected to occur in the first quarter of calendar year 2015. The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2014, 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. Environmental regulations Orica aspires to be 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 relevant governmental authorities are notified in accordance with statutory requirements and internal investigations are conducted to determine the cause of the non-compliance to ensure the risk of recurrence is minimised. The Company has committed major investments, both in terms of capital and resources, to improve its environmental performance at key sites in addition to its general maintenance program. The Company is working closely and co-operatively with regulators and government agencies in relation to these initiatives, as well as enhancing community engagement and consultation. 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. Environmental prosecutions Orica was the subject of legal proceedings issued by the New South Wales Environment Protection Authority (NSW EPA) in relation to incidents at its Kooragang Island and Botany sites that occurred during 2010 and 2011. In July 2014 the NSW Land & Environment Court imposed penalties of $768,250 for a total of nine offences to which Orica had pleaded guilty. The penalties will Orica Limited 23 23 Orica Annual Report 2014Directors’ Report DIRECTORS’ REPORT contribute to funding seven environmental enhancement projects in the Hunter Valley and Botany. Orica also will meet the NSW EPA’s legal and investigation costs. The NSW EPA has also commenced legal proceedings against Orica alleging one breach of the NSW Protection of the Environment Operations Act in relation to an ammonia vapour incident in March 2013 at the Kooragang Island site. Orica has entered a not guilty plea in relation to those proceedings. The NSW EPA and the NSW Office of Heritage & Environment have issued legal proceedings against Orica alleging one breach of the NSW Protection of the Environment Operations Act and one breach of the NSW National Parks and Wildlife Act in relation to an overflow of grouting material at a mining operation near Newcastle. Orica has entered guilty pleas in relation to those proceedings. 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 the National Greenhouse and Energy Reporting Act 2007. The Energy Efficiency Opportunities Act 2006 was repealed with an effective date of 30 June 2014 and Orica has no outstanding reporting obligations relating to this legislation. 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 is in compliance with the legislation as required under this Act. 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 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. The contract of insurance prohibits disclosure of the nature of the liability insured against and the amount of the premium paid. 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:  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  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 48 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. 24 24 Orica Limited Orica Annual Report 2014 DIRECTORS’ REPORT 25 Orica Annual Report 2014Directors’ Report – Remuneration Report Remuneration Report (audited) Contents of the Remuneration Report SECTION A. Remuneration Governance WHAT IT COVERS PAGE Human Resources and Compensation Committee composition, role and responsibility Use of Remuneration Consultants Names and positions of Key Management Personnel B. Remuneration Policy Summary of Executive Remuneration Arrangements and Structure Executive KMP Remuneration policy and structure C. Financial year 2014 Remuneration Outcomes Non-Executive Director Remuneration policy and structure Key Remuneration drivers in financial year 2014 Business Performance in financial year 2014 A summary of Fixed Annual Remuneration and the financial year 2014 outcomes for the ‘at-risk’ components (Short and Long-Term Incentives) D. Remuneration Changes for FY 2015 A summary of the proposed changes to Executive KMP Remuneration for financial year 2015 E. Executive KMP - Remuneration Tables and Data F. Non-Executive Director - Remuneration Tables and Data The remuneration outcomes for Executive KMP, in accordance with the Australian Accounting Standards (accounting standards), and movements in equity holdings Details of Non-Executive Director total remuneration in accordance with accounting standards and movements in equity holdings. 26 26 26 28 29 33 34 34 34 38 39 45 Section A. Remuneration Governance A.1 Human Resources and Compensation Committee composition, role and responsibility The Human Resources and Compensation Committee (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. Activities of the Committee are governed by its Terms of Reference, which are available on the Company’s website at www.orica.com. Amongst other responsibilities, the Committee assists the Board in its oversight of:   determination of levels of reward and the remuneration structure for senior executives, including short-term and long-term incentive plans; remuneration policy for senior executives;   the company’s compliance with applicable legal and regulatory requirements in respect of remuneration matters; approval of the allocation of shares and awards under the Long Term Equity Incentive Plan, General Equity Employee Share Plan and the Long Term Incentive Rights Plan. In financial year 2014, the Committee comprised four Non-Executive Directors: Nora Scheinkestel (Chairman), Ian Cockerill, Lim Chee Onn and Maxine Brenner. Russell Caplan also attended all Committee meetings since being appointed Chairman of the Board. A.2 Use of Remuneration Consultants In providing recommendations to the Committee, management received survey data sourced from external specialists and received external advice on matters relating to remuneration and prevailing regulatory and governance standards from Ernst & Young and 3 Degrees Consulting. No remuneration recommendations were received from Remuneration Consultants as defined under the Corporations Act 2001. A.3 Names and positions of Key Management Personnel Executive Key Management Personnel The table below lists the Executives of the Company whose remuneration details are outlined in this Remuneration Report. These Executives, together with the Non-Executive Directors, are defined as Key Management Personnel (KMP) under accounting standards. 26 26 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report 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 have no direct involvement in the day-to-day management of the business. Particulars of Executives’ qualifications, experience and responsibilities are detailed on pages 14 to 15 of the Annual Report. Name Role Commencement date in role Country of Residence Executive Directors Ian Smith Craig Elkington (1) Group Executives Managing Director and Chief Executive Officer 27 February 2012 Australia Executive Director Finance 12 September 2014 Australia Nick Bowen Executive Global Head, Mining Services 11 November 2013 Australia Tony Edmondstone Executive Global Head, Supply 4 February 2013 Singapore Richard Hoggard Andrew Larke (2) Executive Global Head, Manufacturing 1 October 2012 Executive Global Head, Chemicals, Strategy & Planning 1 November 2013 Australia Australia Former Group Executives Alison Andrew (2) Noel Meehan (3) Executive Global Head, Chemicals Executive Director Finance Date ceased to hold office 1 November 2013 Country of residence New Zealand 31 October 2013 Australia (1) Craig Elkington was appointed Chief Financial Officer on 1 November 2013 and became Executive Director Finance on 12 September 2014. Prior to his appointment as Chief Financial Officer, Craig Elkington was Executive Global Head, Mining Services. (2) Alison Andrew left Orica on 1 November 2013. Andrew Larke, previously Executive Global Head Strategy Planning and Mergers and Acquisitions assumed responsibility for Chemicals in addition to his existing duties. (3) Noel Meehan retired on 31 October 2013 and Craig Elkington was appointed Chief Financial Officer on 1 November 2013. Non-Executive Directors The Non-Executive Directors who held office during financial year 2014 are set out below: Name Role Current Directors Russell Caplan Maxine Brenner Alberto Calderon Ian Cockerill Lim Chee Onn Non-Executive Director, Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Nora Scheinkestel Non-Executive Director Gene Tilbrook Non-Executive Director Former Directors Peter Duncan Michael Tilley Non-Executive Director, Chairman Non-Executive Director Commencement date in role Country of Residence 30 January 2014 8 April 2013 14 August 2013 12 July 2010 12 July 2010 1 August 2006 14 August 2013 Date ceased to hold office 30 January 2014 Australia Australia Australia South Africa Singapore Australia Australia Country of residence Australia 30 January 2014 Australia Orica Limited 27 27 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report Section B. Remuneration Policy and Structure B.1 Summary of Executive Remuneration Arrangements for financial year 2014 Orica’s remuneration framework is designed 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. A summary of arrangements, key developments and outcomes in 2014 is set out in the table below. Executive remuneration component Payment vehicle Performance measure Specific targets / performance link Key developments/ outcomes for financial year 2014 d e x i F Fixed Annual Remuneration (FAR) Cash, superannuation, other benefits FAR increases vary based on individual performance and market relativity No increase in CEO FAR. Modest increases in Executive FAR following no increase in FY2013. Annual cash payment following the release of end of year results Group and Personal performance objectives operate independently and the weighted result for each of the Group and Personal performance objectives is then multiplied together to determine the final STI amount Short Term Incentive Plan (STI Plan) n o i t a r e n u m e r k s i r - t A Long Term Equity Incentive Plan (LTEIP) Loan-based share plan, assessed over a 3 year period where up to 35% of loan is forgiven if performance hurdles are achieved Group Objective 1 Safety, Health & Environment (SHE) Group Objective 2 Earnings measures Reductions in: (cid:120) Overdue actions from risk assessments (cid:120) All Worker Recordable Case Rate (cid:120) Process Excursions Improvements in: (cid:120) Earnings Before Interest & Tax (1) (cid:120) Net Profit After Tax (1) Group Objective 3 Margin measures Improvements in: (cid:120) Gross Margin (cid:120) Cash Conversion A leading Safety, Health and Environment indicator measuring reduction in Overdue actions was introduced, further reinforcing Orica’s commitment to improving Safety performance and outcomes. In financial year 2014, safety and cash conversion performance improved on the previous year. Gross Margin was in line with financial year 2013 outcomes. EBIT and NPAT performance, while in line with financial year 2013 outcomes, was below the targets set. Group Objective 4 Board discretion Personal Objectives 3 personal objectives and Board discretion For grants made: (cid:120) Earnings per Share (EPS) growth (cid:120) Relative Total Shareholder Return (TSR) For grants tested: EPS only A range of outcomes was achieved against personal objectives. On average, the outcome on the personal performance component was between target and maximum for Executive KMP and reflected progress on key corporate initiatives. During financial year 2014, the 2010 LTEIP grant was tested. The performance condition of EPS growth relating to the 2010 plan was not met, hence there was no loan forgiveness. Participants achieved modest capital gains on their shares. Functional and financial objectives specific to KMP area of influence Compound annual EPS growth of between 5% (threshold) and 15% (maximum) TSR percentile ranking above median (threshold) to 75th percentile and above (maximum) (1) Before individually material items 28 28 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report B.2 Executive KMP Remuneration policy and structure This section outlines the elements of Executive KMP remuneration in financial year 2014, how it is linked to performance and how remuneration outcomes are delivered. Changes proposed in financial year 2015 are outlined in Section D. Total Remuneration Mix The Board considers that a significant portion of Executive remuneration should be ‘at-risk’ to provide alignment with the interests of shareholders. The graph below shows the target remuneration mix for financial year 2014, based on the earning opportunity for Executives, using STI at target and a fair value calculation (as per Australian Accounting Standards Board, AASB 2) of the long term incentive (LTI) award at grant using an external valuation from PricewaterhouseCoopers. The fair value approach is used as it provides consistency year-on- year in the valuation and weighting of the LTI opportunity in an Executive's Total Annual Remuneration package and will enable comparison with remuneration arrangements in financial year 2015. The STI and LTI plans only provide material rewards to a Senior Executive if the performance measures of the relevant plans are met. For financial year 2014, the target remuneration mix for Executive KMP is shown in the following graph. The changes to remuneration in financial year 2015 will provide a change to the pay mix for other Executive KMP with a greater weighting of reward ‘at risk’, as outlined in Section D. Managing Director and Chief Executive Officer 38% 23% 39% Other Executive KMP 51% 25% 24% FAR STI LTI Fixed Annual Remuneration (FAR) Fixed Annual Remuneration (FAR) is generally set with reference to the market median for listed companies of a comparable market capitalisation to Orica, having regard to an individual’s responsibilities, performance, qualifications, skills and experience. Consideration is given to business and individual performance as well as the need to retain key talent. Where appropriate, additional sector or industry-specific data is taken into consideration in benchmarking fixed remuneration. Short-Term Incentives (STI) All Executive KMP have the opportunity to receive an STI award paid in cash, based on meeting annual performance targets linked to both Group and Personal objectives. The table below outlines key attributes of Orica’s STI Plan. Short-Term Incentive Plan - Structure and purpose of the plan What is the STI Plan? An at-risk annual cash incentive plan linked to specific annual Group and Personal performance objectives, which is based on a percentage range of each participant’s Fixed Annual Remuneration. What is the value of the STI opportunity? The STI opportunity is intended to pay at the top quartile on achievement of maximum targets. It is expressed as a percentage of FAR and varies depending on role. (cid:120) The Target Incentive for the CEO is 60% of FAR, with the Maximum being 120% of FAR. (cid:120) The Target Incentive for Executive KMP (1) is 40% of FAR; Maximum is 80% of FAR. (1) The Executive Global Head, Chemicals Strategy & Planning’s Target Incentive is 80% of FAR with a Maximum of 160% for historical reasons. What are the STI performance objectives and why were they chosen? Each Executive KMP has a set of Group and Personal performance objectives. Group objectives common to all Executive KMP are selected to reflect Orica's focus on people and operational safety and on financial performance arising from execution of business strategy and delivery against measures that impact long-term sustainability. Orica Limited 29 29 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report For financial year 2014, the Group objectives were as follows: Group objectives Component Weighting Overdue actions arising from major risk assessments, audits and ICAMs below target percentage (1) Safety, Health and Environment Improvement in All Worker Recordable Case Rate (AWRCR) Improvement in Process Safety Earnings measures Improvement on previous year’s Earnings Before Interest and Taxation (EBIT) (2) Improvement in Net Profit After Tax (NPAT) (3) Margin measures Improvement in Gross Margin Improvement in Cash Conversion Board discretion Amount which may be payable, determined at the Board’s discretion 8.33% 8.33% 8.33% 12.50% 12.50% 12.50% 12.50% 25.00% Incident Cause Analysis Method (ICAM) is Orica’s global incident investigation method. (1) (2) For STI purposes EBIT is defined as earnings before interest, tax and individually material items. (3) NPAT is defined as Net Profit After Tax before individually material items attributable to shareholders of Orica Limited. In addition, each Executive is set three equally-weighted Personal objectives specific to their area of influence. A fourth discretionary component may be payable, determined at the Board’s discretion. Objectives are approved by the Board at the start of each financial year and are set out in a formal Performance Agreement. Target performance for each Group objective typically represents improvement relative to the previous year. Under the Plan, Group and Personal objectives operate independently and the weighted result for each is then multiplied together to determine the final STI amount. Each objective has a minimum threshold, below which no incentive is paid for that measure, and a maximum limit that caps the performance objective (with a straight line scale applied between threshold and maximum). In total, the Plan design allows for up to 120% of FAR to be earned by the CEO and 80% of FAR for other Executive KMP (1) where maximum performance is achieved for all measures. Performance is measured over the financial year preceding the payment date. (1) The Executive Global Head, Chemicals Strategy & Planning can earn a maximum of 160% of FAR for historical reasons. The Board approves the metrics and targets for the Managing Director and other Executive KMP at the beginning of each year and assesses performance against those targets at the end of the financial year. The Board retains an overriding discretion in relation to payments (if any) under the STI Plan (regardless of whether any of the STI performance objectives have been satisfied). A participant will not be eligible for a payment if terminated due to misconduct or poor performance nor, in general, if they resign before the end of the STI performance period. In limited circumstances approved by the Board (such as bona fide redundancy) and where a participant has more than 6 months service in the financial year, the participant may be awarded a pro-rata STI payment. Any STI payment made will be payable following the end of the relevant financial year in line with all other STI participants. 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. How does performance against STI objectives determine STI outcome? Who sets the targets and assesses performance? What happens in the event of cessation of employment? How would a change of control impact on STI entitlements? Long-Term Incentives (LTEIP) The Orica Long-Term Equity Incentive Plan (LTEIP) has been the long-term incentive component of the remuneration arrangements for Executive KMP since 2004. While a performance rights plan will be implemented from financial year 2015, awards already granted under the LTEIP plan will run through to scheduled testing. Executive KMP participated in LTEIP in financial year 2014. The LTEIP is an equity plan where shares are acquired up front through the provision of a non-recourse loan from the Company, provided for the sole purpose of acquiring shares in Orica. It operates 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. Maximum rewards under LTEIP arise where there is strong share price performance, strong earnings per share growth and strong relative total shareholder return performance. 30 30 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report The table below outlines key attributes of the Orica LTEIP Plan under which awards were granted in financial year 2014. Long-Term Incentive Plan - Structure and purpose of the plan How is the amount of the loan determined? The target loan amount takes into account a range of factors, including the key performance measures and dividends payable over the performance period, a notional interest charge on the loan and the fringe benefits tax cost of partial loan forgiveness. The target loan amount, together with the performance measures, is intended to deliver an opportunity in fair value terms of approximately 100% of FAR for the Managing Director and 48% of FAR for other Executive KMP. How does the LTEIP plan deliver benefits to participants? What are the targets applicable to the financial year 2014 LTEIP grants? LTEIP delivers benefits to Executives by (a) partial loan forgiveness dependent on meeting the performance hurdles of Relative Total Shareholder Return (TSR) and Earnings Per Share (EPS) growth (1) and (b) capital appreciation in the shares held under the plan. The primary benefit under LTEIP is achieved through loan forgiveness and there is no loan forgiveness if EPS and/or TSR targets are not met. Partial loan forgiveness - a benefit is provided in the form of forgiving part of the outstanding loan balance in return for performance against performance hurdles. While the performance hurdles have changed from time to time to reflect appropriate business priorities, from 2012, the two measures have been Relative TSR and EPS growth. Loan forgiveness for the 2010 grant tested in financial year 2014 was based on EPS growth only. Capital appreciation - a benefit is provided through share price increases above the grant price (if achieved), directly reflecting shareholder value created. Dividends - any dividends paid on the shares during the vesting period are applied (on an after-tax basis) towards repaying the loan. (1) The 2010 award, which vested in November 2013, one performance hurdle applied, namely EPS growth The maximum total loan forgiveness is 35% (1). Up to 15% of the loan may be forgiven for satisfaction of the EPS performance condition and up to 20% for satisfaction of the relative TSR performance condition. The targets applicable for the financial year 2014 LTEIP grants are: Compound EPS growth per annum Less than 5% 5% 10% (Target Loan Forgiveness) 15% and above (Maximum Loan forgiveness) Percentage of the loan that is forgiven if the EPS hurdle is met (1) 0% 5% 10% 15% Orica TSR percentile ranking against ASX 100 Below 50th percentile 50th percentile (Target Loan Forgiveness) 75th percentile and above (Maximum Loan Forgiveness) Percentage of loan that is forgiven if the TSR hurdle is met (1) 0% 10%(2) 20% (1) For an Executive located in Australia. Participants based outside Australia must pay withholding tax to participate in LTEIP. To compensate for this, target loan forgiveness starts at approximately 37% of the loan increasing to a maximum loan forgiveness of 65%. (2) Straight line loan forgiveness applies for performance between 50th and 75th percentile ranking. What is the term of the loan? The loan period runs from the grant date until shortly after the performance condition of 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 executives. There is no interest charge to the Executive on the loan itself. How are shares acquired for allocation to Executives under LTEIP? The Company has the flexibility under LTEIP rules to acquire shares on-market, issue new shares, or reallocate forfeited shares to participants in the Plan. Orica sought and received shareholder approval for the LTEIP grant made to the Managing Director in February 2014. Are Executives entitled to deal with shares during the loan period? How is the balance of the loan reduced over time? No. The shares are held as security for the loan. During the loan period, part of the dividends paid on the shares are applied in part repayment of the loan. Of dividends received, a portion is paid to the Executive KMP (after withholding tax, where applicable) to fund their tax liability on these dividends received. The remainder is applied towards reducing the balance of their loan. Any performance-based partial loan forgiveness will reduce the balance at the end of the period. Executives are not entitled to make additional voluntary repayments during the loan. The outstanding loan balance must be repaid at the end of the loan period. Orica Limited 31 31 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report If the loan is non- recourse, do Executives have to repay the loan? Does the Company buy back or cancel shares surrendered under the non-recourse feature of LTEIP? Partial loan forgiveness may be granted subject to EPS performance. What is EPS and how is it calculated? Partial loan forgiveness may be granted subject to relative TSR performance. What is relative TSR and how is it calculated? Why did the Board select these measures as the performance conditions? How is the EPS performance condition tested? 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’. No. Surrendered shares are held in the Orica Share Plan Trust and reallocated under future LTEIP grants. 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. Calculations under LTEIP will normally use reported basic EPS before any adjustment for individually material items. However, the Board has retained discretion to adjust EPS, either positively or negatively, in exceptional circumstances for individually material items (disclosed in note 6 of Orica’s financial statements). EPS growth will be rounded to 1 decimal place and straight line loan forgiveness will be granted between 5% and 15% Compound Annual Growth Rate (CAGR). For example, EPS growth of 12.1% will result in 12.1% loan forgiveness. No loan forgiveness on the EPS component will be granted should CAGR in EPS not equal or exceed 5% compound over the 3 year performance period. TSR stands for Total Shareholder Return and is calculated by measuring a combination of share price appreciation and dividends re-invested to show the total return to shareholders over the three year performance period. Orica’s TSR is then ranked on a relative basis with the TSR performance of the constituent companies of the ASX 100 (with no exclusions). No loan forgiveness for the TSR component will be granted should Orica’s TSR ranking be below the 50th percentile over the performance period. Maximum loan forgiveness for the TSR component will be achieved where Orica’s TSR ranking is at or above the 75th percentile. Straight line loan forgiveness will be granted for performance between 50th and 75th percentile ranking (rounded to one decimal place). For example, Orica’s TSR performance at the 59th percentile will result in 13.6% loan forgiveness. Growth in EPS was selected as it 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. When selecting this target, the Board had reference to both the general performance of the market (where an EPS growth of 10% per annum generally reflects high end performance within the ASX 100) and Orica’s historical EPS growth. Relative TSR was introduced to align Executive reward under LTEIP with returns delivered to shareholders. The ASX 100 was selected as the relative TSR comparator group because, in the absence of a sufficient number of direct competitor companies, the ASX 100 represents a meaningful group of companies that Orica competes with for shareholder capital and Executive talent. Earnings per share growth is measured from the reported EPS for the financial year immediately preceding the grant, against the EPS for the three financial years after the grant date. How is the relative TSR performance condition tested? Relative TSR is measured from the date of the LTEIP grant until the end of the performance period. Orica receives an independent report from Ernst & Young that sets out Orica’s TSR growth and that of each company in the TSR comparator group (companies of the ASX 100 with no exclusions). Can recipients benefit even when performance has fallen below target? The primary benefit from LTEIP is achieved through loan forgiveness which is dependent on meeting the EPS and/or Relative TSR hurdles. If these are not achieved, there is no loan forgiveness and the Executive has to repay the full loan amount, less any after-tax dividend payments applied against the loan. There may however still be a benefit received from share price appreciation but this is by definition likely to be small if the EPS and/or relative TSR targets have not been achieved. Is the performance condition re-tested? What happens if a LTEIP participant ceases employment prior to repayment of the loan? No, the performance condition is only tested once at the end of the performance period. If an Executive 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 an Executive 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. 32 32 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report Service Agreements Remuneration and other terms of employment for Executive KMP are formalised in service agreements. All Executive KMP have contracts of no fixed term except for the Managing Director and Chief Executive Officer whose agreement is for a defined period which ends on 27 February 2017 (with an option to extend the contract by mutual agreement for a further term). Should the Company wish to terminate any of the other Executive KMP 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 the Managing Director and Chief Executive Officer, it must provide him with six months’ notice together with a severance payment equal to six months’ fixed annual remuneration. All 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. All KMP are required to comply with Orica’s ‘Guidelines in dealing with Securities’ at all times and in respect of all Orica shares held, including, for Executive KMP, shares held under LTEIP or any other employee share plan. In addition, Executive KMP are prohibited from using any Orica shares as collateral in any margin loan or derivative arrangement. B.3 Non-Executive Director Remuneration policy and structure The key principles relating to Non-Executive Directors’ remuneration are set out below: (cid:120) 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 over a reasonable time in a manner of the Director’s choosing (subject to Orica’s Guidelines for dealing in securities); using personal funds and includes shares held in superannuation accounts or other entities controlled by the Non-Executive Director. (cid:120) 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. (cid:120) Non-Executive Directors can elect how they wish to receive their total fees i.e. as a contribution of cash, superannuation contributions or charitable donations. 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. (cid:120) Generally, no additional benefits are paid to the Non-Executive Directors upon their retirement from office. The former Chairman, P J B Duncan, however, had a grandfathered retirement entitlement of $154,800 (preserved as at July 2004 with no indexation) which was paid on his retirement. There are no other grandfathered arrangements. The table below sets out the elements of Non-Executive Director fees and other benefits. Board Fees Board Committee fees Audit and Risk Committee Other Benefits Superannuation Other fees/benefits Human Resources and Compensation Committee $45,000 Safety, Health and Environment Committee $45,000 Chair of Board (1) Non-Executive Director Included in the shareholder approved cap? $510,000 $170,000 Yes Chair of Committee $45,000 Committee member Included in the shareholder approved cap? $22,500 $22,500 $22,500 Yes Yes Yes Included in the shareholder approved cap? Superannuation contributions are made on behalf of the Non-Executive Directors at a rate of 9.5% being the current superannuation guarantee contribution rate (9.25% up to 30 June 2014). Directors do not receive the 9.5% 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. 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 $5,000 per meeting. Non- Executive Directors are also permitted to be paid additional fees for extra services or special exertions. Yes No (1) Committee fees are not paid to the Chairman of the Board. Orica Limited 33 33 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report Section C. Financial year 2014 Executive Remuneration Outcomes C.1 Key remuneration drivers in financial year 2014 In financial year 2014, the Board continued to set challenging financial and non-financial performance targets. Aligned to business performance and shareholder outcomes, financial year 2014 Executive remuneration outcomes reflected little or no movement on fixed pay and STI outcomes that were around half of maximum. The 2010 LTEIP Plan which was tested in financial year 2014 delivered no loan forgiveness and modest capital appreciation. Further detail on outcomes is provided below. C.2 Business Performance in financial year 2014 In financial year 2014, Orica demonstrated resilient earnings and strong cashflow performance against a backdrop of difficult mining markets, falling commodity prices and significant pricing pressure. Over the past five years: (cid:120) cumulative growth in total shareholder return (movement in the Company’s share price plus dividends received) was 25.41 percent. (cid:120) an average of 93.4 cents per ordinary share per annum has been paid to shareholders in dividends. (cid:120) compound earnings per share (EPS) growth was approximately 2.43 percent. The table below summarises key indicators of the performance of the Group and relevant shareholder returns over the past five financial years. Financial year ended 30 September 2010 2011 2012 EBIT ($m) (1) Dividends per ordinary share (cents) (3) Closing share price ($ as at 30 September) (2) EPS growth (%) (1) NPAT ($m) (1) (3) External Sales ($m) Cumulative TSR (%) 1,009.0 1,028.3 1,022.6 95.0 25.71 6.30% 675.8 5,812.1 30.20 90.0 23.48 (6.52%) 642.3 6,182.3 32.83 92.0 24.87 2.54% 650.2 6,674.1 39.21 (1) Before individually material items. (2) The opening share price for financial year 2010 was $23.50. (3) Including Dulux Group which was demerged from Orica on 9 July 2010. C.3 Fixed Annual Remuneration Outcomes Restated 2013 968.1 94.0 20.06 (8.43%) 592.5 6,885.2 14.39 2014 929.7 96.0 18.90 0.49% 602.5 6,796.3 25.41 Salaries for most Executive KMP other than the Managing Director and CEO were increased by 3.5% based on a market review in November 2013 to the levels set out below. This was in line with the average remuneration review outcome for Orica’s Australian employees and followed no increases in FY2013. Ian Smith did not receive an increase in his fixed remuneration in either FY2013 or FY2014. Name Current Executive Directors I K Smith C B Elkington (2) Current Executive KMP N R Bowen (3) T J Edmondstone (4) R Hoggard A J P Larke FAR (1) 2,500,000 950,000 950,000 746,940 838,350 919,290 (1) Fixed Annual Remuneration (FAR) includes Base pay, and superannuation. FAR is reviewed annually by the Board following the end of each financial year and adjustments are, in general, effective from 1 January of the following year. Accordingly, the amounts set out in the table above are the Executives’ fixed annual remuneration as at 30 September 2014. (2) Craig Elkington was appointed Chief Financial Officer on 1 November 2013 and his salary was increased to $950,000 to reflect his change in position. C Elkington was appointed Executive Director Finance on 12 September 2014 and his remuneration did not change. (3) Nick Bowen was appointed on 11 November 2013. N Bowen did not participate in the 2014 Annual Remuneration Review. (4) Salary based on Singapore dollar amount translated at average foreign exchange rate for the year. 34 34 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report C.4 Short-Term Incentive Outcomes Awards to Executive KMP under the STI Plan STI performance targets were set for financial year 2014, generally as an improvement to financial year FY2013 outcomes. (cid:120) Safety targets were set to reflect Orica’s commitment to continuously improving safety performance. All Worker Recordable Case Rate and Process Safety targets were set to reflect an improvement on financial year 2013 outcomes. In financial year 2014, a third leading safety measure, ‘Overdue Actions’, was introduced to drive timely closure of actions arising from major risk assessments, audits and incident investigations. Pleasing progress was made over the year with over 20 percent improvement versus financial year 2013 outcomes on all three metrics reflecting focus on risk management and on taking timely action to address safety matters. (cid:120) NPAT and EBIT targets were set to represent an improvement on financial year 2013 performance. While earnings were resilient in a difficult market, performance was in line with financial year 2013 outcomes and therefore was at the lower end of the range set for incentive purposes. (cid:120) Gross Margin and Cash Conversion targets were set in line with financial year 2013 outcomes, which exceeded financial year 2013 targets significantly. Gross margin performance was in line with financial year 2013 outcomes and strong cash conversion, up 9 percent on the previous corresponding period, was achieved. (cid:120) Taking into account shareholder outcomes, the Board determined that the discretionary element of business performance would not be awarded. (cid:120) Individual measures for Executives were determined at the commencement of the financial year. The Board approved the measures for Executive KMP. These measures comprised each individual’s contribution to delivery against projects and initiatives within the scope of their role. Personal performance of Executive KMP was reviewed against these measures by the Board. On average, the outcome on the personal performance component was between target and maximum for Executive KMP. Performance against the STI objectives for the FY2014 performance year is illustrated in the table below. Performance for financial year 2014 Group Business Performance Objective Threshold Target Maximum Percentage of overdue actions vs target (1) All Worker Recordable Case Rate (AWRCR) Process Safety (2) EBIT NPAT Gross Margin (3) Cash Conversion (4) Safety Earnings Margin Discretion Individual Performance Objective Individual measures based on initiatives and key project deliverables linked to sustainable improvement in company performance, including discretion Not awarded (1) Overdue actions = % of actions arising from major risk assessments, audits and ICAMS. Incident Cause Analysis Method (ICAM) is Orica’s global incident investigation method. (2) Process Safety measure defined as Process Excursions = On and Off Site loss of Containment (Category 2, 3 and 4 incidents). (3) Cash Conversion = (EBITDA – (Sustaining Capital) +/- (Movement in Trade Working Capital))/EBITDA x 100. (4) Gross Margin % = (Sales – Total Variable Cost of Sales (includes manufacturing employee costs and depreciation)) / Sales x 100. Financial year 2014 STI Outcomes Considering performance on all objectives, the STI payment was at 51.8% of maximum STI for the Managing Director and an average of 48.3% of maximum STI for other Executive KMP. Across all Executive KMP, approximately half of the maximum available opportunity was foregone. Details of the 2014 STI percentages for Executive KMP are set out in the table below: Maximum STI opportunity $000 Actual STI Payment $000 Actual STI payment as % of maximum STI % of maximum STI payment forfeited/forgone For the year ended 30 September 2014 Current Executive KMP (1) I K Smith C B Elkington N R Bowen T J Edmondstone R Hoggard A J P Larke 3,000.0 760.0 760.0 597.6 670.7 1,470.9 1,554.0 372.6 365.6 281.9 316.4 734.4 51.8 49.0 48.1 47.2 47.2 50.0 48.2 51.0 51.9 52.8 52.8 50.0 35 35 (1) Former Executive KMP A M Andrew and N A Meehan were not eligible to receive a pro-rata STI payment in financial year 2014 as they did not complete 6 months in role in the financial year. Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report C.5 Long-Term Incentive Outcomes Historic awards to Executive KMP under the Long Term Equity Incentive Plan (LTEIP) Over the past five years, the Long Term Equity Incentive Plan (LTEIP) has provided a loan forgiveness benefit in only one instance and has provided modest capital appreciation benefit to Plan participants in four of the past five years. The 2008 plan, which vested in 2011, vested with a performance outcome around target which provided both loan forgiveness and a capital appreciation benefit. Details of the five year historical analysis of benefits under the LTEIP are tabled below. Plan Hurdles (Target) Allocation price Perfor- mance period Status LTEIP Performance Outcomes Was a capital benefit derived (i.e. did the participating Executives keep their shares?) Was loan forgiveness / waiver granted? Was the maximum loan forgiveness granted? 2006 Offer 2007 Offer 2008 Offer 2009 Offer 2010 Offer TSR growth: average 15% pa or greater (compound) TSR growth: average 15% pa or greater (compound) TSR growth: average 10% pa or greater (compound) TSR growth: average 10% pa or greater (compound) EPS growth: average 10% pa or greater (compound) $23.77 3 years Complete Yes $31.76 3 years Complete No No No $16.13 3 years Complete Yes Yes $24.79 3 years Complete Yes $25.23 3 years Complete Yes No No No No No No No Awards vesting in 2014 under the Long Term Equity Incentive Plan (LTEIP) The 2010 Long-Term Equity Incentive Plan (LTEIP) award was tested in November 2013. The 2010 LTEIP award had one performance hurdle, namely Earnings per Share (EPS) growth. As the compound EPS growth over the plan period was below the threshold performance level, no loan forgiveness was applied. Executives achieved modest capital gains on their shares. 36 36 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report New awards offered to Executive KMP in February 2014 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. The 2014 offer, which was granted as part of the Executive KMP total remuneration for financial year 2014, was allocated in February 2014 following approval of the Managing Director and CEO’s award by shareholders at the Annual General Meeting. The following table shows the current balances of the non-recourse loans from Group, for the Executive KMP, following the February 2014 grant. For the year ended 30 September 2014 Current Executive Directors I K Smith C B Elkington Current Executive KMP N R Bowen T J Edmondstone R Hoggard A J P Larke Former Executive Directors N A Meehan (4) Former Executive KMP A M Andrew (4) Total Executive Key Management Personnel Advances during FY14 (1) $ Other repayments during FY14 (2) $ Cash repayments during FY14 (3) $ Opening balance $ Closing balance $ Interest free value $ Highest indebtedness $ 15,452,094 7,687,493 3,120,519 1,363,238 - 1,363,238 1,502,332 1,399,817 918,396 1,162,327 3,593,581 1,274,556 4,746,002 1,020,447 - - 30,834,792 13,769,248 - - - - - - - - - 358,062 22,781,525 1,043,559 22,970,095 876,036 3,607,721 183,642 4,448,373 11,581 1,351,657 36,893 1,363,238 615,905 277,941 1,804,823 2,284,203 1,194,559 3,673,578 90,266 100,553 198,352 2,403,862 2,546,695 3,704,440 1,503,517 3,242,485 218,040 4,746,002 1,020,447 - 6,505 1,020,447 5,858,048 38,745,992 1,877,810 43,203,152 (1) Under 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 LTEIP. No loan forgiveness was granted during the year. (3) Constitutes repayments including after tax dividends paid on the shares applied against the loan, repayment of loan on vesting of LTEIP and forfeiture of LTEIP options. (4) N A Meehan, under a Deed of Release dated September 2013, ceased employment on 31 October 2013 and A M Andrew ceased employment on 1 November 2013. As a participant in LTEIP, the Board determined in November 2013 that, notwithstanding his cessation of employment, N A Meehan 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 with the relevant share based payments expense under accounting standards being included 50% in his 2013 remuneration with the balance to be included in 2014. The Board determined that A M Andrew’s December 2010 LTEIP grant would tested as normal in November 2013. These options subsequently lapsed as the value of shares was less than the loan balance. Other LTEIP options held by A M Andrew lapsed on her cessation of employment. Orica Limited 37 37 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report Section D. Remuneration Changes for financial year 2015 As indicated last year, the Human Resources and Compensation Committee undertook a detailed review of the Executive Remuneration Framework during 2014, which included meetings with a range of stakeholders, research into prevailing market practice and trends, and consideration of current governance requirements. The Committee also took account of the fact that the organisation is currently undergoing significant transformation and has a renewed focus on disciplined capital management. The objectives of the Orica Framework were endorsed i.e. to ensure that remuneration is aligned to shareholder interests, linked to strategy and globally competitive in attracting, retaining and providing incentives to management. In this context, the Board has determined to make a number of changes to remuneration arrangements for senior Executives. Key features of Executive Remuneration in 2015 will be: (cid:120) The Total Remuneration opportunity for the Managing Director and Chief Executive Officer, comprising fixed remuneration, short and long-term incentives, will remain at financial year 2014 levels. In addition, a greater proportion of his remuneration will be delivered in shares and performance rights, strengthening alignment to shareholders. (cid:120) Fixed pay for other Executive KMP will remain at financial year 2014 levels. However, their performance-based pay opportunity will be increased to provide improved competitiveness to market. The effect is to re-balance remuneration mix to reflect greater pay ‘at- risk’. (cid:120) One-third of any future STI award for all Executive KMP will be deferred for 1 year into Orica shares. (cid:120) No further grants will be made under LTEIP, the loan-based LTI plan. As from 2015, all Senior Leaders will participate in a performance rights plan. Under the rights plan, rights will vest based on Relative Total Shareholder Return and Return on Capital performance. Targets have been set for the 2015 grant to ensure full vesting occurs only in the event of sustained superior performance. (cid:120) The new long-term incentive plan has been set to deliver an equivalent earnings opportunity as LTEIP in fair value terms for the Managing Director and Chief Executive Officer and the Executive Director Finance, and to deliver an increased earnings opportunity for other Executive KMP, aligned to market levels. Shareholder approval will be sought at the next Annual General Meeting for the grant of performance rights under the new LTI plan to the Managing Director and Chief Executive Officer and the Executive Director Finance. The number of rights will be set, in conjunction with performance targets, to deliver the earnings opportunity in the event of sustained superior performance. (cid:120) A malus policy will be introduced to formalise the Board’s discretion to deny payment of unvested entitlements to Executives, should circumstances require. (cid:120) Executives will be required to hold a minimum percentage of their fixed remuneration in Orica shares. These must be acquired over a reasonable time. With these changes the pay mix for financial year 2015 will change as illustrated in the following graph. Managing Director and Chief Executive Officer FY2014 FY2015 FY2014 FY2015 Executive Director Finance and Other Executive KMP 38% 38% 23% 15% 8% 39% 39% 51% 25% 24% 44% 17% 9% 30% FAR STI (Cash) STI (Deferred) LTI Further detail on these changes will be provided in the financial year 2015 Remuneration Report. 38 38 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report Section E. Executive KMP – Remuneration Tables and Data E.1 Nature and Amount of each Element of Remuneration of Executive KMP 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 Base (Fixed) Pay $000 Current Executive Directors STI Payment (1) $000 Other Benefits (2) $000 Post employ- ment benefits 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 2,481.9 2,483.2 I K Smith 2014 2013 C B Elkington 926.1 2014 2013 863.2 Total Current Executive Directors 3,408.0 2014 2013 3,346.4 Former Executive Director N A Meehan (5) 2014 2013 Total Executive Directors 2014 2013 3,509.2 4,579.6 101.2 1,233.2 Current Executive KMP N R Bowen 2014 2013 T J Edmondstone (6) (7) 2014 2013 R Hoggard (7) 2014 2013 A J P Larke 2014 2013 Total Current Executive KMP 2014 2013 829.9 - 740.6 448.4 813.2 793.2 893.5 871.4 3,277.2 2,113.0 Former Executive KMP A M Andrew (5) (7) 2014 2013 J R Beevers (6) (8) 2014 2013 P McEwan (9) 2014 2013 G J Witcombe 2014 2013 Total Former Executive KMP 2014 2013 62.5 482.4 - 4.2 - 319.2 - 192.3 62.5 998.1 1,554.0 1,023.8 (26.0) 27.9 372.6 160.2 1,926.6 1,184.0 - 328.1 1,926.6 1,512.1 365.6 - 281.9 134.4 316.4 187.1 734.4 385.5 25.0 88.8 (1.0) 116.7 9.2 52.4 8.2 169.1 323.8 - 570.4 380.2 18.8 19.0 49.5 34.2 1,698.3 707.0 962.5 433.4 - 129.7 - - - 34.2 - - - 163.9 15.6 47.3 - 0.3 - (0.5) - 610.9 15.6 658.0 18.0 16.8 18.0 16.8 36.0 33.6 2.9 16.8 38.9 50.4 16.5 - - 4.3 18.0 16.8 18.0 16.8 52.5 37.9 - - - - - 8.6 - 8.2 - - - - - - 593.3 593.3 593.3 593.3 - - - - - - - - - - - - - 976.7 - - - 846.8 - 16.8 - 1,823.5 Orica Limited - - 4,027.9 3,551.7 2,159.4 6,187.3 1,618.3 5,170.0 39.1 46.2 39.1 46.2 0.2 20.8 39.3 67.0 1,380.8 1,175.2 347.5 1,728.3 493.1 1,668.3 5,408.7 4,726.9 2,506.9 7,915.6 2,111.4 6,838.3 706.8 2,244.6 313.6 1,020.4 1,136.9 3,381.5 6,115.5 6,971.5 2,820.5 8,936.0 3,248.3 10,219.8 - - 1,535.8 - 107.1 1,642.9 - - 10.7 6.9 23.3 97.4 21.3 14.8 1,603.6 974.2 1,189.7 1,113.5 1,716.7 1,322.7 194.8 1,798.4 265.3 1,239.5 236.1 1,425.8 192.7 1,306.2 358.6 2,075.3 581.6 1,904.3 55.3 119.1 6,045.8 3,410.4 896.6 6,942.4 1,039.6 4,450.0 - - - - - - - 3.4 - 3.4 78.1 659.4 - 981.2 - 361.5 - 1,661.6 78.1 3,663.7 2.9 6.0 81.0 665.4 - - 668.0 1,649.2 - 182.2 - 543.7 - - 308.7 1,970.3 2.9 81.0 1,164.9 4,828.6 39 39 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report Directors’ Report – Remuneration Report Total Executive KMP 2014 2013 Total 2014 2013 3,339.7 3,111.1 1,698.3 870.9 978.1 1,091.4 52.5 54.7 - 1,823.5 55.3 122.5 6,123.9 7,074.1 899.5 7,023.4 2,204.5 9,278.6 6,848.9 7,690.7 3,624.9 2,383.0 986.3 1,260.5 91.4 105.1 593.3 2,416.8 94.6 189.5 12,239.4 14,045.6 3,720.0 15,959.4 5,452.8 19,498.4 * Share Based Payments (SBP). (1) STI Payment includes payments relating to 2014 performance accrued but not paid until financial year 2015. (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) and for G J Witcombe include a retention bonus of $592,552 (refer to Section E.4 (b)). (3) This benefit includes the movement in long service leave accrual. (4) Includes the value calculated under AASB 2 Share Based Payments to Executives which vest over three years. Value only accrues to the Executive when performance conditions have been met. Each year, the Board may decide to allocate long term incentives to Executives. The Share Based Payments expense represents the expense required under Accounting Standards to be expensed during the year in respect of current and past long term incentive allocations to Executives. These amounts are therefore not amounts actually received by Executives during the year. The mechanism which determines whether or not long term incentives vest in the future is described in section B.2 and note 36 (a). (5) N A Meehan, under a Deed of Release dated September 2013, ceased employment on 31 October 2013 and A M Andrew ceased employment on 1 November 2013. As a participant in LTEIP, the Board determined in November 2013 that, notwithstanding his cessation of employment, N A Meehan 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 with the relevant share based payments expense under accounting standards being included 50% in his 2013 remuneration with the balance included in 2014. In addition to his statutory entitlements to accrued leave, under the terms of N A Meehan’s service agreement, he was entitled to a severance payment of $1,186,598 upon cessation of his employment (equivalent to 1.0 times his fixed remuneration), 50% of which, under accounting standards, was included in his 2013 remuneration with the balance included in 2014. The Board has determined that A M Andrew’s December 2010 LTEIP grant was tested as normal in November 2013. These options subsequently lapsed as the value of shares was less than the loan balance. Other LTEIP options held by A M Andrew lapsed on her cessation of employment and the market value of the forfeited options, based on the Orica share price at the lapse date was $60,832. (6) For overseas based Executives, 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. In financial year 2013 the amounts disclosed relate to remuneration paid from the date of the Executive’s designation as KMP. (7) (8) J R Beevers ceased employment on 1 October 2012. The Board determined that his Dec 2009 LTEIP grant would be tested as normal in November 2012 and he remained entitled to the capital appreciation on the 2009 LTEIP grant. He was also entitled to retain his Dec 2010 and Dec 2011 LTEIP grants on cessation of employment with the loans to be repaid by 31 December 2012 and these subsequently lapsed because the value of the shares was less than the outstanding loan balance at 31 December 2012. The market value of the forfeited options, based on the Orica share price at the lapse date was $2,698,811. (9) P McEwan ceased employment on 2 April 2013. The Board determined that she was entitled to retain her Dec 2010 LTEIP grant with the loan to be settled by 3 June 2013 and these subsequently lapsed because the value of the shares was less than the outstanding loan balance at 3 June 2013. The Dec 2011 LTEIP grant was forfeited on cessation of employment. The market value of the forfeited options, based on the Orica share price at the lapse date was $1,584,829. E.2 Equity instruments granted to and exercised by Executive KMP As outlined above, although shares allocated to Executive KMP under 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 2014 Current Executive Directors I K Smith C B Elkington Former Executive Directors N A Meehan Current Executive KMP N R Bowen T J Edmondstone R Hoggard A J P Larke Former Executive KMP A M Andrew Total Executive Key Management Personnel Options Granted Number 317,010 56,216 - 56,216 37,872 47,931 52,559 - Options Granted (1) (2) (3) $ % of Total Remuneration received as Options Options Exercised (4) Number Options Exercised (4) $ 2,567,781 455,350 - 455,350 306,763 388,241 425,728 - 34.9 20.1 30.7 6.5 10.8 16.6 17.3 3.6 - 34,036 59,754 - 24,530 10,227 47,159 - - 16,725 25,599 - 12,366 4,511 26,003 - 567,804 4,599,213 175,706 85,204 (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. (2) The LTEIP options have been valued by PwC at $8.10 per option. The benefit of the options granted under the December 2010 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) The value of each LTEIP option exercised is the market value of Orica shares on the date of exercise, less the exercise price paid (i.e. effectively the outstanding loan balance at that date for all Executives). 40 40 Orica Limited E.3 Number of equity instruments that comprise LTEIP and share rights held by Executive KMP Granted Exercised during FY14 during FY14 (1) (2) Outstanding Exercise at year end price $ Lapsed Value of options at grant date (3) $ Value of options included in compensation for the year (3) $ For the year ended 30 September 2014 Grant date Current Executive Directors I K Smith C B Elkington Former Executive Directors N A Meehan Current Executive KMP N R Bowen T J Edmondstone 21-Feb 14 56,216 - 455,350 107,141 305,302 293,080 317,010 2,842,362 2,614,274 2,567,781 24 Feb 12 7 Feb 13 21-Feb 14 17 Dec 10 (4) 19 Dec 11 9 Jan 12 (5) 7 Feb 13 21 Feb 14 17 Dec 10 (4) 19 Dec 11 9 Jan 12 (5) 7 Feb 13 17 Dec 10 (4) 19 Dec 11(6) 7 Feb 13 21 Feb 14 17 Dec 10 (4) 19 Dec 11(6) 7 Feb 13 21 Feb 14 17 Dec 10 (4) 19 Dec 11 9 Jan 12 (5) 7 Feb 13 21 Feb 14 17 Dec 10 (4) 19 Dec 11(6) 7 Feb 13 317,010 56,216 37,872 47,931 52,559 - - - - - - - - - - - - - - - - - - - - - - - 34,036 59,754 24,530 10,227 47,159 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,710 2,912 33,919 42,742 48,143 56,216 62,289 68,385 56,216 13,387 35,013 37,872 8,302 44,313 47,931 48,669 48,591 52,559 - - - - - - - - - - - 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 314,833 342,363 372,557 429,436 455,350 552,725 498,935 597,057 609,994 226,903 293,710 312,316 306,763 94,600 182,146 395,272 388,241 436,221 389,839 424,233 433,432 425,728 - - - 632,514 922,685 604,184 17,302 71,522 151,565 107,141 15,187 65,144 233,233 12,378 110,229 72,180 5,199 139,508 91,351 23,972 81,439 152,976 100,171 2,904 - - - - - - - R Hoggard A J P Larke Former Executive KMP A M Andrew (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 LTEIP, the loan must be repaid before the Executives 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 February 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 2014. (4) The share based payments expense of $9.25 per option for the December 2010 scheme had been based on achieving an EPS growth of 10% per annum. When these options vested this year the 10% growth had not been achieved, therefore the expense per option was re-valued to $6.10, the fair value for EPS growth of less than 5%. This resulted in a reduction of the share based payment expense for the current year in relation to this scheme. (5) Share rights under the Executive Retention Scheme vested in FY2013 (refer to Section E.4.(b)). (6) Share rights issued under LTIRP (refer to note 36). Orica Limited 41 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report E.3 Number of equity instruments that comprise LTEIP and share rights held by Executive KMP For the year ended 30 September 2014 Grant date Current Executive Directors I K Smith Granted during FY14 Exercised during FY14 (1) (2) Outstanding at year end Exercise price $ Lapsed Value of options at grant date (3) $ Value of options included in compensation for the year (3) $ C B Elkington 24 Feb 12 7 Feb 13 21-Feb 14 - - 317,010 17 Dec 10 (4) 19 Dec 11 9 Jan 12 (5) 7 Feb 13 21 Feb 14 - - - - 56,216 Former Executive Directors N A Meehan 17 Dec 10 (4) 19 Dec 11 9 Jan 12 (5) 7 Feb 13 - - - - - - - 34,036 - - - - 59,754 - - - Current Executive KMP N R Bowen T J Edmondstone 21-Feb 14 17 Dec 10 (4) 19 Dec 11(6) 7 Feb 13 21 Feb 14 R Hoggard A J P Larke 17 Dec 10 (4) 19 Dec 11(6) 7 Feb 13 21 Feb 14 17 Dec 10 (4) 19 Dec 11 9 Jan 12 (5) 7 Feb 13 21 Feb 14 56,216 - - - - 37,872 - - - 47,931 - - - - 52,559 24,530 - - - 10,227 - - - 47,159 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Former Executive KMP A M Andrew 17 Dec 10 (4) 19 Dec 11(6) 7 Feb 13 - - - - - - 5,710 2,912 33,919 305,302 293,080 317,010 - 42,742 - 48,143 56,216 - 62,289 - 68,385 56,216 - 13,387 35,013 37,872 - 8,302 44,313 47,931 - 48,669 - 48,591 52,559 - - - 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 2,614,274 2,567,781 314,833 342,363 372,557 429,436 455,350 552,725 498,935 597,057 609,994 632,514 922,685 604,184 17,302 71,522 - 151,565 107,141 15,187 65,144 - 233,233 - 455,350 107,141 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 226,903 293,710 312,316 306,763 94,600 182,146 395,272 388,241 436,221 389,839 424,233 433,432 425,728 - - - 12,378 - 110,229 72,180 5,199 - 139,508 91,351 23,972 81,439 - 152,976 100,171 2,904 - - (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 LTEIP, the loan must be repaid before the Executives 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 February 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 2014. (4) The share based payments expense of $9.25 per option for the December 2010 scheme had been based on achieving an EPS growth of 10% per annum. When these options vested this year the 10% growth had not been achieved, therefore the expense per option was re-valued to $6.10, the fair value for EPS growth of less than 5%. This resulted in a reduction of the share based payment expense for the current year in relation to this scheme. (5) Share rights under the Executive Retention Scheme vested in FY2013 (refer to Section E.4.(b)). (6) Share rights issued under LTIRP (refer to note 36). Orica Limited 41 41 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report E.4 Equity instruments held by Executive KMP (a) LTEIP The number of option (LTEIP) issues, values and related Executive loan information in relation to Orica Executive KMP is shown in the following table (details of the Long Term Incentive Rights Plan (LTIRP) are in note 36): Grant date Number of options issued Number of options held at 30 Sep Number of participants at 30 Sep Total loan at grant date $ Total loan at 30 Sep $ Target loan waiver opportunity over full loan period $ Loan repayments through dividends during year $ Value of options at grant date (1) $ As at 30 September 2014 21 Feb 14 11 Mar 13 7 Feb 13 24 Feb 12 19 Dec 11 839,544 33,919 704,355 305,302 592,713 2,475,833 839,544 33,919 670,436 305,302 451,683 2,300,884 (1) The assumptions underlying the options valuations are: 14 1 10 1 4 20,358,942 889,695 18,475,232 8,029,443 14,924,513 62,677,825 20,185,996 866,288 17,122,868 7,674,102 10,847,664 56,696,918 4,071,788 177,939 3,695,046 1,794,786 3,616,963 13,356,522 172,946 16,595 328,011 149,369 220,986 887,907 6,800,306 282,545 6,282,847 2,842,362 4,747,631 20,955,691 Price of Orica Shares at grant date $ 24.30 25.90 26.73 26.62 24.68 25.20 Grant date 21 Feb 14 11 Mar 13 7 Feb 13 24 Feb 12 19 Dec 11 17 Dec 10 Expected volatility in share price % 25 25 25 25 25 25 Dividends expected on shares (2) % Nil Nil Nil Nil Nil Nil Risk free interest rate % 3.05 2.97 2.78 3.71 2.99 5.19 Fair value per option (3) $ 8.10 8.33 8.92 9.31 8.01 9.25 (2) A net dividend yield of nil has been adopted as participants will fully benefit from dividend receipts as loan repayment during the life of the LTEIP instruments. (3) 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 21 Feb 14 11 Mar 13 7 Feb 13 24 Feb 12 19 Dec 11 17 Dec 10 (4) Less than 5% EPS growth per annum $ 6.77 6.90 7.53 5.87 5.02 6.10 EPS growth of 5% per annum $ 7.42 7.47 8.20 7.44 6.37 7.50 EPS growth of 10% per annum $ 8.10 8.33 8.92 9.31 8.01 9.25 EPS growth of 15% or higher per annum $ 8.83 9.09 9.78 11.32 9.89 11.10 (4) The share based payments expense of $9.25 per option for the December 2010 scheme had been based on achieving an EPS growth of 10% per annum. When these options vested this year the 10% growth had not been achieved, therefore the expense per option was re-valued to $6.10, the fair value for EPS growth of less than 5%. This resulted in a reduction of the share based payment expense for the current year in relation to this scheme. 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 resulted 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. No current LTEIP participants retain any DuluxGroup shares under LTEIP. 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. 42 42 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report The assumptions underlying the options valuations are: Grant date Number of options held at 9 July 2010 Expected volatility in share price Dividends expected on shares (2) Risk free interest rate Incremental value per option $ Continuing Orica Employees 15 Dec 09 0.65 (2) A net dividend yield of nil has been adopted as participants will fully benefit from dividend receipts as loan repayment during the life of the LTEIP 1,785,616 4.50% 30% Nil instruments. The terms of LTEIP 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 2014. 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 2014 was $9.9 million (2013 $16.0 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 share 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. (b) Retention Rights Retention Rights were granted to selected Executive KMP and former Executive KMP in financial year 2012. No Retention Rights remained outstanding as at 30 September 2014 or 30 September 2013. Retention Rights allocations in financial year 2012 and their values in relation to Orica Executive KMP is shown in the following table: As at 30 September 2012 Grant date Vesting date Number of rights issued Number of rights held Number of participants Value of rights at grant date (1) $ 09 Jan 12 31 March 13 108,246 108,246 5 2,498,318 (1) The assumptions underlying the rights valuations are: Price of Orica Shares at grant date $ Grant date 09 Jan 12 24.24 Expected volatility in share price % 25 Dividends expected on shares % 4 Risk free interest rate % 3.48 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. Orica Limited 43 43 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report E.5 Relevant interests of Executive KMP in the share capital of the consolidated entity As at 30 September Executive KMP I K Smith 2014 2013 C B Elkington 2014 2013 N R Bowen 2014 2013 T J Edmondstone 2014 2013 R Hoggard 2014 2013 A J P Larke 2014 2013 Former A M Andrew * 2014 2013 J Beevers * 2014 2013 P McEwan * 2014 2013 N A Meehan * 2014 2013 G J Witcombe * 2014 2013 Total Executive KMP 2014 2013 Fully paid ordinary shares held at 1 October Acquired (1) Net change other (2) Fully paid ordinary shares held at September (3) Options for fully paid ordinary shares held at September (4) (5) - - - - - - - - 1,064 23 - - - - - 4,750 - - 97,277 70,355 - 183,535 98,341 258,663 - - - - 34,036 49,773 (34,036) (49,773) - - 24,530 24,590 10,227 10,103 47,159 64,979 - 5,889 - 88,367 - 46,941 59,754 84,912 - - (24,530) (24,590) (10,065) (9,062) (47,159) (64,979) - (5,889) - (93,117) - (33,574) (59,754) (57,990) - 141,970 - (325,505) 175,706 517,524 (175,544) (664,479) - - - - - - - - 1,226 1,064 - - - - - - - 13,367 97,277 97,277 - - 98,503 111,708 915,392 598,382 147,101 124,921 56,216 - 86,272 72,930 100,546 62,842 149,819 144,419 - 42,541 - - - - 130,674 190,428 - - 1,586,020 1,236,463 * Closing balance is at cessation of employment with Orica and post exercising LTEIP during financial year 2014 and LTEIP/Retention Rights during financial year 2013. (1) Includes purchase and exercise of options by Executives and shares acquired, including through the Dividend Reinvestment Plan (DRP). (2) Net change other includes changes resulting from sales during the year by Executives (of which a significant portion was used to repay LTEIP loans). (3) Includes trust shares for Executives under the LTEIP scheme. (4) These interests include shares acquired under a loan agreement. A general description of these agreements (LTEIP) is provided earlier in this 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 recognized. The LTEIP vests after three years. (5) Including rights held under Rights schemes. 44 44 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report F. Non-Executive Director – Remuneration Tables and Data 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 Non-Executive Director qualifications, experience and special responsibilities are detailed on page 14 of the Annual Report. The names and positions of the Non-Executive Directors whose remuneration is disclosed in this report are provided in section A.3. F.1 Non-Executive Director Remuneration Details of Non-Executive Directors’ remuneration are set out in the following table: For the year to 30 September 2014 Directors Fees (1) $000 Committee Fees (1) SH&E HR&C Audit and Risk $000 $000 $000 Super- annuation (2) $000 Other Benefits (3) $000 Total $000 Current Directors R R Caplan, Chairman (4) 2014 2013 M N Brenner (5) 2014 2013 A Calderon 2014 2013 I D Cockerill (6) 2014 2013 Lim Chee Onn 2014 2013 N L Scheinkestel (5) 2014 2013 G T Tilbrook 2014 2013 Former Director P J B Duncan, Chairman (7) (8) 2014 2013 G A Hounsell (9) 2014 2013 M Tilley (5) 2014 2013 399.1 170.0 170.0 85.0 170.0 22.5 170.0 170.0 170.0 170.0 170.0 170.0 170.0 22.5 170.0 510.0 - 70.8 56.6 170.0 7.4 13.1 15.1 - 15.1 - - - - - 29.8 45.0 37.6 3.0 - - - 9.4 7.5 22.5 Total Non-Executive Directors 2014 2013 1,645.7 1,560.8 112.5 93.0 - - - - 23.3 - 37.6 22.5 22.5 22.5 - - - - - - - - 15.0 45.0 98.4 90.0 14.8 45.0 33.7 11.3 - - 15.1 - 15.1 - 37.6 22.5 - - - - - 9.4 - - 18.0 16.8 18.0 8.6 18.0 2.4 18.0 16.8 18.0 16.8 18.0 16.8 18.0 2.4 5.9 16.8 - 6.9 5.9 16.8 - 2.5 - 17.5 - - 49.5 49.6 12.5 15.0 - 17.5 15.0 2.5 - 2.5 - - 439.3 247.4 236.8 122.4 226.4 24.9 290.2 258.9 238.1 224.3 255.4 271.8 240.6 30.4 175.9 529.3 - 96.5 - 17.5 85.0 271.8 116.3 88.2 137.8 121.1 77.0 124.6 2,187.7 2,077.7 (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 and any additional Committee fees paid to directors for extra services or special exertions. (4) Appointed on 30 January 2014. (5) An additional fee of $15,000 was paid to M N Brenner, N L Scheinkestel and M Tilley for extra services and special exertions related to a services or special exertions related to Working Group Committee that met during financial year 2013. (6) Other benefits for I D Cockerill include spousal travel (inclusive of any fringe benefits tax). (7) Orica has discontinued retirement allowances for all Non-Executive Directors. P J B Duncan was appointed prior to 1 July 2002 and had his retirement allowance preserved (as at 1 July 2004) with no indexation and the allowance of $154,800 was 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. (8) Retired on 30 January 2014. (9) Retired on 18 February 2013. Orica Limited 45 45 Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT Directors’ Report – Remuneration Report F.2 Relevant interests of Non-Executive Director transactions in the share capital of the consolidated entity: As at 30 September Non-Executive Directors R R Caplan 2014 2013 M N Brenner * 2014 2013 A Calderon * 2014 2013 I Cockerill 2014 2013 Lim Chee Onn 2014 2013 N L Scheinkestel 2014 2013 G T Tilbrook * 2014 2013 Former P J Duncan ** 2014 2013 G A Hounsell ** 2014 2013 M Tilley ** 2014 2013 Total Non-Executives 2014 2013 Balance 1 October Acquired (1) Net change other (2) Fully paid ordinary shares held at 30 September 18,280 11,291 - - - - 6,231 6,094 11,000 11,000 24,391 21,126 4,000 - 15,936 15,936 - 12,359 6,329 6,329 86,167 84,135 9,803 6,989 - - 2,300 - 4,366 137 - - 2,387 3,265 - 4,000 - - - 273 - - 18,856 14,664 - - - - - - - - - - - - - - - - - - - - - - 28,083 18,280 - - 2,300 - 10,597 6,231 11,000 11,000 26,778 24,391 4,000 4,000 15,936 15,936 - 12,632 6,329 6,329 105,023 98,799 * M N Brenner was appointed as a director on 8 April 2013. A Calderon and G T Tilbrook were appointed as directors on 14 August 2013. ** Closing balance is at cessation of directorship. (1) Shares acquired by Non-Executives, including through the Dividend Reinvestment Plan (DRP). (2) Net change other includes changes resulting from sales during the year by Non-Executives. 46 46 Orica Limited Orica Annual Report 2014DIRECTORS’ REPORT – REMUNERATION REPORT DIRECTORS’ REPORT 47 Orica Annual Report 201448 Income Statement INCOME STATEMENT For the year ended 30 September 2014 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 Total 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 Orica Annual Report 2014 Consolidated Notes 2014 $m Restated 2013 $m (3) (3) 6,796.3 57.0 6,885.2 43.0 (4c) (4c) (29) (11) (4a) (4b) (5) (42.8) (3,233.7) (9.9) (1,256.7) (262.2) (38.6) (335.3) (178.9) - (323.4) (68.2) (207.0) 33.1 (5,923.6) 929.7 35.3 (151.1) (115.8) 813.9 (187.9) 626.0 602.5 23.5 626.0 35.9 (3,343.7) (16.0) (1,243.3) (247.9) (36.5) (317.8) (196.1) (5.7) (326.2) (66.9) (232.3) 36.4 (5,960.1) 968.1 34.2 (184.4) (150.2) 817.9 (208.0) 609.9 592.5 17.4 609.9 cents cents (6) (6) 163.7 163.4 162.9 162.7 The Income Statement is to be read in conjunction with the notes to the financial statements set out on pages 54 to 130. Orica Limited 49 49 Statement of Comprehensive Income STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 September 2014 For the year ended 30 September Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Cash flow hedges Effective portion of changes in fair value Transferred loss to Income Statement Tax expense on cash flow hedges Net Cash flow hedges Exchange differences on translation of foreign operations Exchange (loss)/gain on translation of foreign operations Net gain on hedge of net investments in foreign subsidiaries Tax benefit on hedge of net investments in foreign subsidiaries Net exchange differences on translation of foreign operations Items that will not be reclassified subsequently to profit or loss: Retained earnings Actuarial (losses)/benefits on defined benefit plans Tax benefit/(expense) on actuarial benefits/(losses) on defined benefit plans Net retained earnings Other comprehensive income for the year Total comprehensive income for the year Attributable to: Shareholders of Orica Limited Non-controlling interests Total comprehensive income for the year Notes (5c) (5c) (5c) (5c) (5c) (5c) (5c)(38) (5c)(38) Consolidated Restated 2013 $m 2014 $m 626.0 609.9 26.3 (0.2) (7.8) 18.3 (13.2) 1.8 29.3 17.9 (12.6) 1.7 (10.9) 25.3 651.3 15.0 (4.1) (3.3) 7.6 177.4 178.9 23.5 379.8 35.3 (10.9) 24.4 411.8 1,021.7 635.7 15.6 651.3 991.3 30.4 1,021.7 The Statement of Comprehensive Income is to be read in conjunction with the notes to the financial statements set out on pages 54 to 130. 50 50 Orica Limited Orica Annual Report 2014 BALANCE SHEET Balance Sheet As at 30 September 2014 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 Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Ordinary shares Reserves Retained earnings Total equity attributable to ordinary shareholders of Orica Limited Non-controlling interests in controlled entities Total equity Consolidated Restated 2013 $m 2014 $m Notes (7) (8) (9) (10) (12) (8) (11) (12) (12) (13) (14) (15) (10) (16) (16) (17) (18) (19) (16) (16) (17) (19) (20) (21) (22) (22) (23) 263.2 1,043.8 727.4 72.7 30.2 2,137.3 76.0 204.8 26.3 3.2 3,794.9 2,388.5 202.5 5.7 6,701.9 8,839.2 1,211.0 22.1 542.7 9.3 172.2 1,957.3 6.9 32.9 1,957.2 417.5 68.3 2,482.8 4,440.1 4,399.1 222.4 1,049.3 793.1 73.6 11.4 2,149.8 97.3 197.7 1.4 0.7 3,583.2 2,340.0 216.7 26.7 6,463.7 8,613.5 1,240.0 19.5 443.9 78.3 173.3 1,955.0 12.3 55.7 2,112.7 415.5 52.4 2,648.6 4,603.6 4,009.9 1,975.0 (607.0) 2,895.0 4,263.0 136.1 4,399.1 1,877.9 (661.1) 2,654.2 3,871.0 138.9 4,009.9 The Balance Sheet is to be read in conjunction with the notes to the financial statements set out on pages 54 to 130. Orica Limited 51 51 Orica Annual Report 2014 y t i u q e l a t o T - n o N l a t o T e v r e s e r y t i u q E i n g e r o F w o l f h s a C g n i l l o r t n o c s t s e r e t n i s t s e r e t n i g n i l l o r t n o c e v r e s e r - n o n f o e s a h c r u p l n o i t a s n a r t m o r f g n s i r a i y c n e r r u c i g n g d e h e v r e s e r s t n e m y a p e v r e s e r e r a h S d e s a b i d e n a t e R i s g n n r a e y r a n i d r O s e r a h s m $ m $ m $ m $ m $ m $ m $ m $ m $ ) 4 . 7 8 1 ( ) 0 . 0 3 9 ( ) 7 . 5 1 ( 3 . 3 8 3 . 6 7 3 , 2 1 . 5 9 7 , 1 6 . 6 4 2 , 3 0 . 5 2 1 ) 3 . 1 1 ( 2 . 1 2 6 9 . 9 0 6 8 . 4 8 3 0 . 7 2 8 . 1 1 4 7 . 1 2 0 , 1 8 . 6 8 0 . 6 1 ) 3 . 3 ( ) 4 . 0 ( ) 5 . 8 1 ( ) 0 . 9 3 3 ( 9 . 9 0 0 , 4 ) 2 . 2 ( 6 . 9 1 4 . 7 1 0 . 3 1 - 0 . 3 1 4 . 0 3 - 0 . 4 ) 6 . 1 ( ) 4 . 0 ( - ) 5 . 8 1 ( 9 . 8 3 1 3 . 5 2 0 . 6 2 6 3 . 1 5 6 9 . 9 0 . 8 9 ) 6 . 3 ( ) 1 . 7 1 ( ) 3 . 9 4 3 ( 1 . 9 9 3 , 4 ) 9 . 7 ( 5 . 3 2 6 . 5 1 - 9 . 0 ) 2 . 2 ( - ) 1 . 7 1 ( 1 . 6 3 1 ) 1 . 9 ( 6 . 1 0 6 6 . 1 2 1 , 3 5 . 2 9 5 8 . 1 7 3 0 . 7 2 8 . 8 9 3 3 . 1 9 9 8 . 2 8 0 . 6 1 ) 7 . 1 ( - - ) 0 . 9 3 3 ( - - - - - - - - - - - - ) 7 . 1 ( - - - 8 . 9 1 0 . 7 4 3 8 . 6 6 3 8 . 6 6 3 - - - - - - - - - - 6 . 7 6 . 7 6 . 7 - - - - - - 0 . 1 7 8 , 3 ) 1 . 9 8 1 ( ) 2 . 3 6 5 ( ) 1 . 8 ( 2 . 3 3 5 . 2 0 6 7 . 5 3 6 9 . 9 1 . 7 9 ) 4 . 1 ( - ) 3 . 9 4 3 ( - - - - - - - 1 . 0 - 8 . 5 2 8 . 5 2 - - - - - - 3 . 8 1 3 . 8 1 - - - - - 9 . 9 0 0 , 4 9 . 8 3 1 0 . 1 7 8 , 3 ) 1 . 9 8 1 ( ) 2 . 3 6 5 ( ) 1 . 8 ( - - - - - - - - - - - - 0 . 6 1 3 . 9 9 3 . 9 9 - - - - - - - 9 . 9 ) 1 . 9 ( 6 . 1 0 6 5 . 2 9 5 2 . 7 2 . 7 1 4 . 4 2 9 . 6 1 6 - - - - - ) 0 . 9 3 3 ( - - - - - - - - - - - - 8 . 2 8 5 . 2 0 6 ) 9 . 0 1 ( 6 . 1 9 5 - - - ) 5 . 1 ( ) 3 . 9 4 3 ( - - - - - - - 1 . 7 9 2 . 4 5 6 , 2 9 . 7 7 8 , 1 2 . 4 5 6 , 2 9 . 7 7 8 , 1 y t i u q e n i y l t c e r i d d e d r o c e r , s r e n w o h t i w s n o i t c a s n a r T d e t a t s e r - r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T d e t a t s e r - e m o c n i i e v s n e h e r p m o c r e h t O s t s e r e t n i g n i l l o r t n o c - n o n f o n o i t i i s u q c A s t s e r e t n i g n i l l o r t n o c - n o n f o t n e m t s e v D i y t i u q e d e t u b i r t n o c n i s e g n a h c l a t o T e s n e p x e s t n e m y a p d e s a b - e r a h S d e t r o p e r s a - r a e y e h t r o f t i f o r P 2 1 0 2 r e b o t c O 1 t a e c n a l a B d e t a t s e R - 3 1 0 2 e m o c n i i e v s n e h e r p m o c r e h t O d e t a t s e r - r a e y e h t r o f t i f o r P s t n e m t s u j d A s t n e m t s u j d A r e b m e t p e S 0 3 d e d n e r a e y e h t r o F s n o i t u b i r t s i d / s d n e d v D i i y t i u q e n i y l t c e r i d d e d r o c e r , s r e n w o h t i w s n o i t c a s n a r T r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T s t s e r e t n i g n i l l o r t n o c - n o n f o t n e m t s e v D i y t i u q e d e t u b i r t n o c n i s e g n a h c l a t o T e s n e p x e s t n e m y a p d e s a b - e r a h S d e t a t s e r - r a e y e h t f o d n e e h t t a e c n a l a B d e t a t s e R - 3 1 0 2 r e b o t c O 1 t a e c n a l a B e m o c n i i e v s n e h e r p m o c r e h t O r a e y e h t r o f t i f o r P 4 1 0 2 s n o i t u b i r t s i d / s d n e d v D i i s t s e r e t n i g n i l l o r t n o c - n o n o t l i d a p / d e r a c e d s d n e d v D i i s t s e r e t n i g n i l l o r t n o c - n o n o t l i d a p / d e r a c e d s d n e d v D i i 0 . 3 6 2 , 4 ) 0 . 9 8 1 ( ) 4 . 7 3 5 ( 2 . 0 1 2 . 9 0 1 0 . 5 9 8 , 2 0 . 5 7 9 , 1 r a e y e h t f o d n e e h t t a e c n a l a B . 0 3 1 o t 4 5 s e g a p n i t u o t e s s t n e m e t a t s l i a c n a n i f e h t o t s e t o n e h t h t i w n o i t c n u n o c j n i d a e r e b o t s i y t i u q E n i s e g n a h C f o t n e m e t a t S e h T d e t i m i L a c i r O 2 5 I Y T U Q E N I S E G N A H C F O T N E M E T A T S y t i u q E n i s e 4 g 1 0 n 2 a r e b h m C e t p e f S o 0 3 t d e n d n e e m r a e y e e t h a t r t o F S 52 Orica Annual Report 2014 Statement of Cash Flows STATEMENT OF CASH FLOWS For the year ended 30 September 2014 For the year ended 30 September Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Borrowing costs Dividends received Other operating revenue received Net income taxes paid Net cash flows from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Payments for purchase of investments 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 flows used in investing activities Cash flows from financing activities Proceeds from long term borrowings Repayment of long term borrowings 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 Dividends paid - non-controlling interests Net cash used in financing activities Net increase/(decrease) in cash held Cash at the beginning of the year Effects of exchange rate changes on cash Cash at the end of the year Consolidated Restated 2013 $m Inflows/ (Outflows) 2014 $m Inflows/ (Outflows) Notes 7,552.5 (6,339.8) 33.7 (177.0) 35.5 21.7 (209.5) 917.1 7,603.8 (6,295.1) 34.0 (187.3) 25.2 20.9 (139.9) 1,061.6 (442.8) (60.9) (4.0) - (0.6) 50.1 1.2 0.4 (456.6) 4,254.6 (4,217.4) (212.0) (1.6) 15.2 0.8 - (267.4) (17.4) (445.2) 15.3 203.2 (4.8) 213.7 (627.4) (152.4) (0.9) (2.7) - 31.3 1.3 0.5 (750.3) 6,585.1 (6,776.2) 112.1 (1.1) 39.4 4.0 (9.6) (286.0) (18.8) (351.1) (39.8) 229.1 13.9 203.2 (26) (27) (28) (26) The Statement of Cash Flows is to be read in conjunction with the notes to the financial statements set out on pages 54 to 130. Orica Limited 53 53 Orica Annual Report 2014 Notes to the Financial Statements For the year ended 30 September 2014 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 and joint operations 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 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 41 Prior period restatement due to changes in accounting standards 54 54 Orica Limited 55 62 66 66 67 70 71 71 74 74 75 77 77 79 79 80 81 82 82 84 85 88 89 90 91 92 93 94 95 96 97 97 99 102 112 113 116 118 121 124 125 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 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, joint operations 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 and the Corporations Act 2001 and complies with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board. The financial statements were approved by the Board of Directors on 19 November 2014. 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 on issue that are effective or early adopted by Orica as at 30 September 2014. 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 2013. The standards relevant to Orica that has been adopted during the year are: Consolidated Financial Statements and Joint Arrangements (cid:120) AASB 10 Consolidated Financial Statements. (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) AASB 11 Joint Arrangements. AASB 12 Disclosure of Interests in Other Entities. AASB 127 Separate Financial Statements. AASB 128 Investments in Associates and Joint Ventures. AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards. AASB 2012-10 Amendments to Australian Accounting Standards – Transition Guidance and Other Amendments. These standards revise the definition of control and the types of joint arrangements. Following an assessment of these standards, Yara Pilbara Nitrates Pty Ltd is accounted for as a jointly controlled operation instead of an investment accounted for using the equity method and Orica Mining Services Pilbara Pty Ltd is accounted for as an investment accounted for using the equity method instead of consolidated. The effect on the financial statements of adopting these standards is shown in note 41. Employee benefits (cid:120) (cid:120) AASB 119 Employee Benefits. AASB 2012-6 Amendments to Australian Accounting Standards – Mandatory Effective Date of AASB 9 and Transition Disclosures. Following an assessment of these standards the provision balance as at 30 September 2012 was reduced by $10 million and profit after income tax for the 2013 financial year was $8.8million lower. The major ongoing effect of the employee benefits standard is that the expected return on assets in defined benefit funds are the discount rates applied to the net defined benefit asset or liability. The effect on the financial statements of adopting these standards is shown in note 41. Fair Value measurement (cid:120) (cid:120) AASB 13 Fair Value Measurement. AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13. (cid:120) AASB 2011-10 Amendments to Australian Accounting Standards arising from AASB 119 (September 2011). These standards do not have a material effect on the financial statements and impact mainly on disclosures in the financial statements. Other standards (cid:120) AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements. (cid:120) (cid:120) AASB 2012-2 Amendments to Australian Accounting Standards – Disclosures – Offsetting Financial Assets and Financial Liabilities. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009–2011 Cycle. These standards impact mainly on disclosures in the financial statements. Standards taking effect from 1 October 2014 and later (cid:120) (cid:120) (cid:120) (cid:120) (cid:120) 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 9 Financial Instruments - applicable for annual reporting periods beginning on or after 1 January 2018. 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] - available for annual reporting periods beginning on or after 1 January 2018. AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) – available for annual reporting periods on or after 1 January 2018. AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets - applicable for annual reporting periods beginning on or after 1 January 2014. Orica Limited 55 55 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 1. Accounting policies (continued) (cid:120) (cid:120) (cid:120) (cid:120) AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting – applicable for annual reporting periods beginning on or after 1 January 2014. AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments [Operative dates: Part A Conceptual Framework – 20 Dec 2013; Part B Materiality – 1 Jan 2014; Part C Financial Instruments – 1 Jan 2015]. AASB 2014-1 Amendments to Australian Accounting Standards arising from AASB 119 Defined Benefit Plans: Employee Contributions [Operative dates: Part A-C – 1 Jul 2014; Part D – 1 Jan 2016; Part E – 1 Jan 2018]. AASB 2014-3 Amendments to Australian Accounting Standards arising from AASB 1 & AASB 11 Accounting for Acquisitions of Interests in Joint Operations. The consolidated entity expects to adopt these standards in the 2015 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 parent entity) and its subsidiaries as defined in Accounting Standard AASB 10 Consolidated 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. Notes to the Financial Statements For the year ended 30 September 2014 1. Accounting policies (continued) For the December 2010 and subsequent years issues under the Long Term Equity Incentive Plan, 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 recognised at 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 together with any net gain resulting from the sale of permits is recognised in other expenses. Liabilities are 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. (ix) Taxation Income tax on the profit or loss for the year comprises current and deferred tax and is recognised in the Income Statement. Current tax is the expected tax payable on the taxable income 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 for the year, using tax rates enacted or substantively enacted Trade and other receivables are recognised at their cost less at reporting date, and any adjustments to tax payable in any impairment losses. respect of previous years. Collectability of trade and other receivables is reviewed on an Under AASB 112 Income Taxes, deferred tax balances are ongoing basis. Debts that are known to be uncollectible are determined using the balance sheet method which calculates written off. An impairment loss is recognised when there is temporary differences based on the carrying amounts of an objective evidence that the Group will not be able to collect entity's assets and liabilities in the balance sheet and their amounts due according to the original terms of the receivables. 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- (xiii) Investments accounted for using the equity method and joint operations Associate entities Where Orica holds an interest in the equity of an entity, generally of between 20 per cent and 50 per cent, and are able to significantly influence the decisions of the entity, that entity is an associated entity. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligation for the liabilities relating to the arrangement. Orica recognises its share of any jointly held or incurred assets, liabilities, revenue and expenses in the consolidated financial statements under appropriate headings. (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. 56 56 Orica Limited Orica Limited 57 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 1. Accounting policies (continued) For the December 2010 and subsequent years issues under the Long Term Equity Incentive Plan, 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 recognised at 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 together with any net gain resulting from the sale of permits is recognised in other expenses. Liabilities are 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. (ix) Taxation Income tax on the profit or loss for the year comprises current and deferred tax and is recognised in the Income Statement. 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 and joint operations Associate entities Where Orica holds an interest in the equity of an entity, generally of between 20 per cent and 50 per cent, and are able to significantly influence the decisions of the entity, that entity is an associated entity. Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting. Joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligation for the liabilities relating to the arrangement. Orica recognises its share of any jointly held or incurred assets, liabilities, revenue and expenses in the consolidated financial statements under appropriate headings. (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. Orica Limited 57 57 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 1. Accounting policies (continued) (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 each financial year. Estimated useful lives of each class of asset are as follows: Buildings and improvements Machinery, plant and equipment 25 to 40 years 3 to 40 years Profits and losses on disposal of property, plant and equipment are taken to the Income Statement. (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, capitalised development costs, 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 - Goodwill 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 and a reliable estimate of the liability is able to be assessed. 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. 58 58 Orica Limited 1. Accounting policies (continued) Decommissioning obligations. The calculation is performed annually by a qualified actuary using the projected unit credit method. The present value of the estimated costs of dismantling and Restructuring and employee termination benefits removing an asset and restoring the site on which it is located Provisions for restructuring or termination benefits are only are recognised as an asset within property, plant and recognised when a detailed plan has been approved and the equipment which is depreciated on a straight line basis over its restructuring or termination has either commenced or been estimated useful life and a corresponding provision is raised publicly announced, or firm contracts related to the where a legal or constructive obligation exists. At each restructuring or termination benefits have been entered into. reporting date, the liability is remeasured in line with changes Costs related to ongoing activities are not provided for. 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 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. the entity expects to incur in settling the claims. (xxi) Trade and other payables Employee entitlements Dividends Provisions are made for liabilities to employees for annual A liability for dividends payable is recognised in the reporting leave, sick leave and other current employee entitlements that period in which the dividends are declared, for the entire represent the amount for which the consolidated entity has a undistributed amount, regardless of the extent to which they present obligation. These have been calculated at nominal will be paid in cash. amounts based on the wage and salary rates that the consolidated entity expects to pay as at each reporting date (xxii) Foreign currency and include related on-costs. Liabilities for employee Functional currency entitlements which are not expected to be settled within twelve months of balance date, are accrued at the present value of Items included in the financial statements of each of the Group’s entities are measured using the currency of the future amounts expected to be paid. primary economic environment in which the entity operates The present value is determined using interest rates applicable to government guaranteed securities with maturities approximating the terms of the consolidated entity’s (the functional currency). Foreign currency transactions 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. 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 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 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. Orica Limited 59 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 1. Accounting policies (continued) 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, 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. 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 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 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. Orica Limited 59 59 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 1. Accounting policies (continued) 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. 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, 1. Accounting policies (continued) 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 been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes, subject to being at no greater than the segments reported in note 2. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. 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. Income Statement until the hedged transaction matures. The Cash flows are estimated for the asset in its present condition net receivables or payables are then revalued using the foreign and therefore do not include cash inflows or outflows that currency, interest or commodity rates current at balance date. improve or enhance the asset’s performance or that may arise When the anticipated transaction is no longer expected to from future restructuring. occur as designated, the deferred gains and losses relating to An impairment loss is recognised whenever the carrying the hedged transaction are recognised immediately in the amount of an asset or its CGU exceeds its recoverable Income Statement. amount. Gains and losses that arise prior to and upon the maturity of Impairment losses are recognised in the Income Statement. transactions entered into under hedge strategies are deferred Impairment losses recognised in respect of cash generating and included in the measurement of the hedged anticipated units are allocated first to reduce the carrying amount of any transaction if the transaction is still expected to occur as goodwill allocated to cash generating units and then to reduce designated. If the anticipated transaction is no longer the carrying amount of the other assets in the unit. expected to occur as designated, the gains and losses are recognised immediately in the Income Statement. Reversals of impairment (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 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. When share capital recognised as equity is repurchased, the (xxvii) Goods and services tax amount of the consideration paid, including directly attributable Revenues, expenses, assets and liabilities other than costs, is recognised as a deduction from total equity. Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit. (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 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. there are any indicators of impairment. If such indicators exist, Cash flows are included in the Statement of Cash Flows on a 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 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 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 (CGU) 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 CGU being no larger than a segment. CGUs to which goodwill has 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. 60 60 Orica Limited Orica Limited 61 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 1. Accounting policies (continued) 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. Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit. (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 (CGU) 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 CGU being no larger than a segment. CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes, subject to being at no greater than the segments reported in note 2. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. 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 CGU 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. Orica Limited 61 61 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 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 and Chief Executive Officer. The consolidated entity’s operations have been divided into seven reportable segments comprising: Mining Services: Australia/Pacific, North America, Latin America, EMEA (Europe, Middle East & Africa) and Other; 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 and controlled entities and foreign currency gains/(losses). The major products and services from which the above segments derive revenue are: Defined reportable segments Mining Services - Australia/Pacific - North America - Latin America - EMEA - Other* Chemicals Other Products/services Manufacture and supply of commercial explosives and blasting systems including services and solutions to the mining and infrastructure markets, the provision of ground support services in mining and tunnelling and supply of sodium cyanide for gold extraction. 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, global hub activities (including research and development, global purchasing and supply chain), other support costs and Asia. Prior period comparative segment information has been restated following changes in accounting standards. 62 62 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Orica Annual Report 2014 7 . 9 2 9 3 . 5 3 ) 1 . 1 5 1 ( 9 . 3 1 8 ) 9 . 7 8 1 ( ) 5 . 3 2 ( 0 . 6 2 6 5 . 2 0 6 2 . 9 3 8 , 8 1 . 0 4 4 , 4 1 . 9 9 3 , 4 8 . 4 0 2 5 . 3 6 5 7 . 0 1 3 . 9 4 . 0 6 . 8 3 2 . 2 6 2 9 . 9 1 . 3 3 3 6 - - - - - - - - - - - - - Consolidated Eliminations 3 . 6 9 7 , 6 - - 0 . 7 5 3 . 6 9 7 , 6 - ) 2 . 0 7 ( ) 2 . 0 7 ( 3 . 3 5 8 , 6 ) 2 . 0 7 ( Other 6 . 2 3 . 0 9 . 2 9 . 4 1 8 . 7 1 Chemicals Services Total Mining Eliminations Other Mining Services EMEA Mining Services Latin America Mining Services North America Mining Services Australia/Pacific Mining Services 8 . 0 3 . 1 4 ) 9 . 0 ( 2 . 6 5 . 2 4 . 8 8 0 , 1 3 . 5 0 7 , 5 - 6 . 6 5 3 . 3 1 ) 8 . 7 4 2 , 1 ( 6 . 7 5 4 0 . 5 9 8 6 . 7 1 6 . 8 0 0 , 1 0 . 5 4 1 , 1 6 . 8 1 7 , 5 ) 8 . 7 4 2 , 1 ( 6 . 2 5 3 , 1 2 . 6 2 0 , 1 8 . 5 4 1 , 1 9 . 9 5 7 , 5 ) 7 . 8 4 2 , 1 ( 8 . 8 5 3 , 1 7 . 8 2 0 , 1 2 . 8 2 9 5 . 3 5 7 . 1 8 9 3 . 5 1 0 . 7 9 9 6 . 9 8 . 3 3 4 , 1 1 . 5 7 1 9 . 8 0 6 , 1 6 . 8 1 . 7 7 8 , 1 9 . 9 1 1 0 . 7 9 9 , 1 5 . 8 1 6 , 1 6 . 5 0 0 , 2 ) 4 . 0 9 ( 2 . 7 6 9 . 2 5 9 - 4 . 4 2 1 2 . 4 9 2 . 2 7 0 . 7 0 1 1 . 5 5 5 6 . 3 1 8 6 . 8 7 8 , 2 ) 0 . 5 6 0 , 2 ( 3 . 1 9 7 8 . 1 8 1 5 . 9 0 6 7 . 0 0 . 0 5 0 . 3 1 . 2 4 . 0 3 . 3 8 . 4 ) 7 . 0 ( - 1 . 0 8 . 9 2 5 . 1 9 . 2 - 3 . 0 6 . 0 3 8 . 0 ) 1 . 0 ( 3 . 4 3 2 , 7 7 . 9 7 3 , 1 6 . 4 5 8 , 5 0 . 4 0 2 7 . 3 8 4 2 . 6 3 . 4 - 5 . 3 3 3 . 8 2 2 8 . 9 2 . 3 3 - - - - - - - - - - - - 8 . 7 2 3 9 . 1 9 8 6 . 3 3 1 . 3 5 8 . 1 7 . 0 - 4 . 7 4 . 8 2 - 7 . 3 8 . 5 6 2 1 . 9 6 7 6 . 4 6 . 7 4 6 . 0 9 . 0 - 6 . 7 4 . 2 3 2 . 1 1 . 0 7 . 9 1 2 , 1 9 . 4 3 0 , 1 5 . 5 0 7 1 . 7 2 2 4 . 8 7 4 9 . 3 2 . 5 2 1 . 1 3 . 0 - 0 . 1 9 . 2 2 6 . 0 4 . 1 5 . 2 8 1 1 . 7 3 9 6 . 8 5 1 3 . 1 4 6 . 9 1 1 , 1 7 . 1 4 . 1 - 6 . 9 3 7 . 3 1 3 . 2 7 . 8 2 5 . 6 7 3 6 . 4 5 1 , 3 1 . 8 7 7 , 2 3 . 3 5 . 6 1 3 0 . 1 0 . 1 - 0 . 5 0 1 8 . 3 0 . 2 0 . 3 I S T N E M E T A T S L A C N A N F E H T O T S E T O N I s t n e m e t a t S l a i c n a n i F e h t o t s e t o N 4 1 0 2 r e b m e t p e S 0 3 d e d n e r a e y e h t r o F r e b m e t p e S 0 3 d e d n e r a e y e h t r o F ) d e u n i t n o c ( t r o p e r t n e m g e S . 2 x a t e m o c n i d n a s t s o c i g n c n a n i f t e n e r o f e b ) s s o l ( / t i f o r P e s n e p x e e m o c n i r e h t o d n a e u n e v e r l a t o T s t l u s e R s t n e m g e s e l b a t r o p e R s e a s l t n e m g e s - r e t n I e u n e v e r l s e a s l a t o T ) 1 ( e m o c n i r e h t O l s e a s l a n r e t x E e u n e v e R 4 1 0 2 m $ d e t i m L i a c i r O l f o s r e d o h e r a h s o t e l b a t u b i r t t a d o i r e p e h t r o f t i f o r p t e N s t s e r e t n i g n i l l o r t n o c - n o n o t l e b a t u b i r t t a t i f o r P e s n e p x e x a t e m o c n i r e t f a t i f o r P e s n e p x e x a t e m o c n i e r o f e b t i f o r P e s n e p x e x a t e m o c n I d o h t e m y t i u q e e h t g n s u i r o f d e t n u o c c a s t n e m t s e v n I s e i t i l i b a i l t n e m g e S s t e s s a t n e m g e S s t e s s A t e N l i s e b g n a t n i d n a E P P f o s n o i t i i s u q c A i d n a n o i t a c e r p e d n a h t r e h t o s e s n e p x e h s a c - n o N s t n e m y a p d e s a b e r a h s - : n o i t a s i t r o m a l s e b a v e c e r i e d a r t s t n e m t s e v n i s e i r o t n e v n i f o f o f o t n e m r i a p m I t n e m r i a p m I t n e m r i a p m I i n o i t a c e r p e D n o i t a s i t r o m A e s n e p x e e m o c n i l i a c n a n F i l i a c n a n F i d e t i m i L a c i r O . s t n e m g e s e b a t r o p e r l s u o i r a v n i i s e s s o l / s n a g y c n e r r u c i n g e r o f s e d u c n I l ) 1 ( d e t n u o c c a y t i u q e t i f o r p t e n s e i t a c o s s a f o e r a h S 63 Orica Annual Report 2014 Consolidated Eliminations 2 . 5 8 8 , 6 - - 0 . 3 4 2 . 5 8 8 , 6 - ) 7 . 3 7 ( ) 7 . 3 7 ( 2 . 8 2 9 , 6 ) 7 . 3 7 ( Other 5 . 2 3 . 0 8 . 2 ) 2 . 0 ( 6 . 2 2 . 4 3 1 . 8 6 9 ) 4 . 4 8 1 ( 9 . 7 1 8 ) 0 . 8 0 2 ( ) 4 . 7 1 ( 9 . 9 0 6 5 . 2 9 5 5 . 3 1 6 , 8 6 . 3 0 6 , 4 9 . 9 0 0 , 4 7 . 7 9 1 8 . 6 8 7 8 . 2 1 5 . 1 1 3 . 0 5 . 6 3 9 . 7 4 2 0 . 6 1 4 . 6 3 - - - - - - - - - - - - - Chemicals Services Total Mining Eliminations Other Mining Services EMEA Mining Services Latin America Mining Services North America Mining Services Australia/Pacific Mining Services 1 . 7 6 1 , 1 6 . 5 1 7 , 5 - 5 . 2 7 . 0 4 - 3 . 2 5 1 . 1 2 4 . 9 1 2 , 1 7 . 6 3 7 , 5 ) 9 . 4 4 1 , 1 ( ) 9 . 4 4 1 , 1 ( 6 . 5 0 5 3 . 2 1 8 7 . 1 1 9 . 7 1 3 , 1 . 7 2 2 9 . 7 5 1 . 4 8 3 9 ) 9 0 ( . . 7 6 5 9 . 6 0 4 . 3 7 9 9 . 0 3 1 9 . 1 2 2 , 1 4 . 7 7 7 , 5 ) 9 . 4 4 1 , 1 ( 6 . 9 2 3 , 1 . 5 7 3 9 . 3 0 1 0 , 1 . 1 0 9 3 , . 9 1 8 1 . 0 2 7 5 , . 7 7 1 . 7 9 8 5 , 1 1 1 . 5 0 4 9 , ) 8 0 ( . . 5 5 1 1 . 0 6 5 0 , . 2 5 5 0 , ) 1 . 0 0 1 ( 1 . 4 9 1 . 4 7 9 - 0 . 0 1 1 . 7 2 6 . 7 6 8 . 1 6 0 1 . 6 8 0 6 7 . 5 0 6 6 . 9 0 0 , 3 ) 9 . 3 0 4 , 2 ( 4 . 3 4 8 0 . 2 2 2 4 . 1 2 6 4 . 4 6 1 , 7 0 . 2 7 3 , 1 4 . 2 9 7 , 5 1 . 0 0 . 8 3 - - - 5 . 3 1 . 3 4 . 4 - 0 . 1 6 . 2 2 2 . 1 8 . 1 - 6 . 0 2 . 0 3 1 . 1 ) 1 . 0 ( 6 . 6 9 1 2 . 6 2 7 6 . 1 1 7 . 9 3 . 0 8 . 2 3 2 . 4 1 2 5 . 0 1 5 . 6 3 - - - - - - - - - - - - 7 . 3 9 2 7 . 1 9 8 6 . 9 2 9 . 8 7 8 . 1 6 . 3 - 8 . 8 6 . 5 2 - 4 . 2 . 0 1 4 2 . 7 0 5 8 9 8 . . 6 7 4 9 2 . 4 3 . 3 0 . 0 7 . . 8 0 3 9 0 . 2 0 . 4 . 5 8 1 , 1 . 7 1 9 0 , 1 . 3 4 7 7 . 9 5 2 2 . 4 8 4 5 4 3 . . 9 0 4 3 0 . 1 0 . - 3 0 . . 4 1 2 8 0 . 1 1 . . 6 9 9 1 . 6 8 2 9 . 9 2 5 1 . 1 9 6 5 2 . 6 1 . - . 4 5 3 . 9 2 1 1 4 . . 4 3 3 . 2 8 2 1 , 1 d e t i m i L a c i r O I S T N E M E T A T S L A C N A N F E H T O T S E T O N I 64 1 2 2 2 2 s t n e m e t a t S l a i c n a n i F e h t o t s e t o N 4 1 0 2 r e b m e t p e S 0 3 d e d n e r a e y e h t r o F r e b m e t p e S 0 3 d e d n e r a e y e h t r o F ) d e u n i t n o c ( t r o p e r t n e m g e S . 2 x a t e m o c n i d n a s t s o c i g n c n a n i f t e n e r o f e b ) s s o l ( / t i f o r P e m o c n i r e h t o d n a e u n e v e r l a t o T s t l u s e R e s n e p x e s t n e m g e s e b a t r o p e R l d e t a t s e R 3 1 0 2 m $ s e a s l t n e m g e s - r e t n I e u n e v e r l s e a s l a t o T ) 1 ( e m o c n i r e h t O l s e a s l a n r e t x E e u n e v e R . 8 4 8 9 , . 8 1 1 4 . 0 3 7 5 , 1 4 . 0 1 . - 8 1 . . 7 9 8 4 8 3 . . 0 1 0 1 3 2 . 8 1 . . s t n e m g e s d e t i m L i a c i r O l f o s r e d o h e r a h s o t e l b a t u b i r t t a d o i r e p e h t r o f t i f o r p t e N s t s e r e t n i g n i l l o r t n o c - n o n o t l e b a t u b i r t t a t i f o r P e s n e p x e x a t e m o c n i e r o f e b t i f o r P e s n e p x e x a t e m o c n I e s n e p x e x a t e m o c n i r e t f a t i f o r P d o h t e m y t i u q e e h t g n s u i r o f d e t n u o c c a s t n e m t s e v n I s e i t i l i b a i l t n e m g e S s t e s s a t n e m g e S s t e s s A t e N l i s e b g n a t n i d n a E P P f o s n o i t i i s u q c A i d n a n o i t a c e r p e d n a h t r e h t o s e s n e p x e h s a c - n o N d e t n u o c c a y t i u q e t i f o r p t e n s e t a c o s s a i f o e r a h S s t n e m y a p d e s a b e r a h s - : n o i t a s i t r o m a l s e b a v e c e r i e d a r t s t n e m t s e v n i s e i r o t n e v n i f o f o f o t n e m r i a p m I t n e m r i a p m I t n e m r i a p m I i n o i t a c e r p e D n o i t a s i t r o m A e s n e p x e e m o c n i l i a c n a n F i l i a c n a n F i l e b a t r o p e r s u o i r a v n i i s e s s o l / s n a g y c n e r r u c n g e r o f i s e d u c n I l ) 1 ( 4 6 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 loc ation of customers . Segment ass ets are based on the geographical location of the assets. 2014 $m Revenue from external customers External s ales from continuing operations Location of non-current assets Non-current assets ** Restated 2013 $m Revenue from external customers External s ales from continuing operations Location of non-current assets Non-current assets ** f o s e t t a S d e t i n U a c i r e m A a i l a r t s u A t d e a d i l o s n o C * r e h O t 2,290.3 897.3 3,608.7 6,796.3 2,802.9 750.4 2,914.9 6,468.2 f o s e t t a S d e t i n U a c i r e m A a i l a r t s u A t d e a d i l o s n o C * r e h O t 2,385.2 840.6 3,659.4 6,885.2 2,533.9 728.6 2,982.4 6,244.9 * Other than Australia and United States of America, s ales to other countries are individually les s than 10% of the consolidated entity's total revenues. ** Excluding: other financial ass ets, deferred tax assets and post-employment benefit assets. Orica Limited 65 65 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 3. Sales revenue and other income Sales revenue Other 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 unwinding of discount on receivables Total financial income b) Financial expenses: Borrowing cos ts paid/payable to: external parties capitalised interes t unwinding of discount on provisions finance charges – finance leases Total financial expenses Net financing costs c) Profit before income tax expense is arrived at after char ging/(crediting): Deprec iation 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 decommissioning other provisions Bad debts writ ten off to impairment allowance Bad debts writ ten off in respect of other receivables Lease payments – operating leases Loss on dis pos al of businesses/controlled entities Research and development 66 66 Orica Limited Consolidated Restated 2013 $m 2014 $m 6,796. 3 6,885.2 21.8 1.9 0.1 33.2 57.0 20.9 12.1 - 10.0 43.0 33.7 1.6 35.3 176. 5 (27.6) 1.9 0.3 151. 1 115. 8 34.2 - 34.2 188.3 (11.9) 7.7 0.3 184.4 150.2 26.4 235. 8 262. 2 38.6 25.2 222.7 247.9 36.5 9.3 0.1 45.1 13.0 10.7 0.4 0.7 0.8 33.7 4.3 - 68.2 - 36.6 11.5 - 53.4 22.5 12.8 0.3 2.0 1.6 7.3 5.0 0.1 66.9 0.4 47.1 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 5. Income tax expense a) Income tax expense recognised in the incom e statement Current tax expense Current year Deferred tax Over provided in prior years Total income tax expense in income statement b) Reconciliation of incom e tax expense to prima facie tax payable Income tax expense attributable to profit Prima facie income tax expens e calculated at 30% on profit Tax effect of items which (dec rease)/increase tax expense: variation in tax rates of foreign controlled entities tax over provided in prior years non allowable share based payments non allowable goodwill written off non taxable profit on sale of property due to utilisation of capital los ses other foreign deductions sundry items Income tax expense reported in the income statement Consolidated Restated 2013 $m 2014 $m 143.3 48.6 (4.0) 187.9 208.2 0.1 (0.3) 208.0 244.2 245.4 (20.7) (4.0) 3.0 - (10.2) (32.4) 8.0 187.9 (16.1) (0.3) 4.8 1.7 - (34.4) 6.9 208.0 Orica Limited 67 67 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September Notes to the Financial Statements For the year ended 30 September 5. Income tax expense (continued) 5. Income tax expense (continued) c) Income tax recognised in comprehensive income: c) Income tax recognised in comprehensive income: Consolidated Consolidated 2014 2014 $m $m $m $m Restated 2013 Restated 2013 $m $m $m $m $m $m $m $m Before Before tax tax Tax Tax (expense) (expense) benefit benefit Net of tax Net of tax Before Before tax tax Tax (expense) benefit Tax (expense) benefit Net of tax Net of tax Net gain on hedge of net investments in foreign subsidiaries Net gain on hedge of net investments in foreign subsidiaries Cash flow hedges Cash flow hedges - Effective portion of changes in fair value - Effective portion of changes in fair value - Transferred to carrying value of non current assets - Transferred to carrying value of non current assets - Transferred to Income Statement - Transferred to Income Statement Exchange (los ses)/gains on trans lation of foreign operations Exchange (los ses)/gains on trans lation of foreign operations Actuarial benefits /(losses) on defined benefit plans Actuarial benefits /(losses) on defined benefit plans 1.8 1.8 29.3 29.3 31.1 31.1 178.9 178.9 23.5 23.5 202.4 202.4 26.3 - (0.2) (13.2) (12.6) 2.1 26.3 - (0.2) (13.2) (12.6) 2.1 (7.9) - 0.1 - 1.7 23.2 (7.9) - 0.1 - 1.7 23.2 18.4 - (0.1) (13.2) (10.9) 25.3 18.4 - (0.1) (13.2) (10.9) 25.3 15.0 - (4.1) 177.4 35.3 402.5 15.0 - (4.1) 177.4 35.3 402.5 (4.5) - 1.2 - (10.9) 9.3 (4.5) - 1.2 - (10.9) 9.3 10.5 - (2.9) 177.4 24.4 411.8 10.5 - (2.9) 177.4 24.4 411.8 d) Recognised deferred tax assets and liabilities d) Recognised deferred tax assets and liabilities Consolidated Consolidated Deferr ed tax assets Deferr ed tax assets Trade and other receivables Trade and other receivables Inventories Inventories Property, plant and equipment Property, plant and equipment Intangible assets Intangible assets Trade and other payables Trade and other payables Interest bearing liabilities Interest bearing liabilities Provision for employee entitlements Provision for employee entitlements Provision for retirement benefit obligations Provision for retirement benefit obligations Provisions for restructuring and rationalisation Provisions for restructuring and rationalisation Provisions for environmental Provisions for environmental Provisions for decommissioning Provisions for decommissioning Provisions for other Provisions for other Tax los ses Tax los ses Other items Other items Deferred tax assets Deferred tax assets Less set-off against deferred tax liabilities Net deferr ed tax assets Less set-off against deferred tax liabilities Net deferr ed tax assets Deferr ed tax liabilities Deferr ed tax liabilities Inventories Inventories Property, plant and equipment Property, plant and equipment Intangible assets Intangible assets Interest bearing liabilities Interest bearing liabilities Undistributed profits of foreign subsidiaries Undistributed profits of foreign subsidiaries Other items Other items Deferred tax liabilities Deferred tax liabilities Less set-off against deferred tax assets Less set-off against deferred tax assets Net deferr ed tax liabilities Net deferr ed tax liabilities Deferred tax expense Deferred tax expense 68 68 68 Balance Sheet Balance Sheet Income Statement Income Statement Restated Restated 2013 2013 $m $m 2014 $m 2014 $m Restated Restated 2013 2013 $m $m 2014 $m 2014 $m Notes Notes 2.8 13.8 30.8 42.5 50.6 23.8 35.2 40.8 0.3 44.1 3.4 1.4 114.5 2.6 406.6 2.8 13.8 30.8 42.5 50.6 23.8 35.2 40.8 0.3 44.1 3.4 1.4 114.5 2.6 406.6 3.9 14.7 27.2 51.7 42.4 57.2 34.4 42.4 0.8 49.5 3.1 0.2 109.5 1.4 438.4 3.9 14.7 27.2 51.7 42.4 57.2 34.4 42.4 0.8 49.5 3.1 0.2 109.5 1.4 438.4 1.1 0.9 (3.6) 9.2 (8.2) 51.1 (0.8) 3.3 0.5 5.4 (0.3) (1.2) (5.9) (1.2) 1.1 0.9 (3.6) 9.2 (8.2) 51.1 (0.8) 3.3 0.5 5.4 (0.3) (1.2) (5.9) (1.2) (1.8) (1.8) (2.3) (2.3) (11.9) (11.9) 10.8 10.8 (7.8) (7.8) 16.3 16.3 (4.4) (4.4) (0.1) (0.1) 0.3 0.3 3.6 3.6 0.1 0.1 - - (54.2) (54.2) 2.4 2.4 (15) (15) (204.1) 202.5 (204.1) 202.5 (221.7) 216.7 (221.7) 216.7 7.2 193.0 21.9 23.3 16.0 11.0 272.4 7.2 193.0 21.9 23.3 16.0 11.0 272.4 6.9 189.1 27.7 24.5 14.0 11.9 274.1 6.9 189.1 27.7 24.5 14.0 11.9 274.1 0.3 3.9 (5.8) (1.2) 2.0 (0.9) 0.3 3.9 (5.8) (1.2) 2.0 (0.9) 1.7 41.1 (2.1) 4.1 2.9 1.4 1.7 41.1 (2.1) 4.1 2.9 1.4 (20) (20) (204.1) 68.3 (204.1) 68.3 (221.7) 52.4 (221.7) 52.4 48.6 48.6 0.1 0.1 Orica Limited Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 5. Income tax expense (continued) e) Unrecognised deferred tax assets Tax losses not book ed Capital losses not booked Temporary differences not book ed Geographical analysis of tax losses not booked at 30 September 2014: Australia Other f) Unrecognised deferred tax liabilities Unrecognised deferred tax liabilities relating to temporary differences of investments in subsidiaries Consolidated 2013 $m 6.5 35.4 0.9 2014 $m 4.0 26.2 0.9 Capital losses Expiry date $m 25.3 0.9 26.2 Indefinite Between 2015 and 2030 Tax losses $m 0.7 3.3 4.0 Consolidated 2013 $m 2014 $m 85.1 83.0 g) Taxes paid: Income taxes: Orica operates in a number of countries around the world and is subject to local tax rules in each of those countries. The tax expense for the year 2014 was $187.9 million (2013 $208.0 million) on a profit before income tax of $813.9 million (2013 $817.9 million) giving an effective tax rate of 23.1% (2013 25.4%). This varies from the standard Australian tax rate of 30% due primarily to different tax rates in countries that Orica operates in as well as non taxable income and non allowable deductions in various countries. The amount of income tax paid is shown below and differs from the tax expense due to the timing of tax payments to tax authorities and differences between the timing of deductions for accounting and tax purposes. Other taxes: In various jurisdictions around the world, Orica pays taxes based on the amount of wage and salary payments to its employees. The amounts paid are shown below. In addition, in various jurisdictions, Orica is required to charge its customers goods and services tax, value added tax and similar taxes and obtains a deduction for similar taxes paid to its suppliers. The net amount paid in relation to the taxes is shown below. Taxes paid by the Gr oup wer e as follows: Income taxes: Income taxes paid including withholding taxes Other taxes: Taxes on wages and salaries paid by the employer Net Goods and Services Tax/Value Added Taxes paid Total taxes paid Consolidated Restated 2013 $m 2014 $m 209.5 139.9 52.6 188.5 450.6 52.3 186.3 378.5 Orica Limited 69 69 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September Consolidated 2014 $m Restated 2013 $m 6. Earnings per share (EPS) (i) As repor ted in the income statement Reconciliation of earnings used in the calculation of EPS attributable to ordinary shareholders of Orica Limited Net profit for the period Net profit for the period attributable to non-c ontrolling interests Net profit for the period attributable to ordinary shareholders Weighted average number of shares used as the denominator: Number for basic earnings per share Effect of executive share options and rights Number for diluted earnings per share 626.0 (23.5) 602.5 Number 609.9 (17.4) 592.5 Number 368,149,688 558,509 368,708,197 363,687,959 577,759 364,265,718 The following Orica Long Term Equity Incentive Plans (LTEIP) and Long Term Incentive Rights Plans (LTIRP) have not been included in the calculation for diluted earnings per share as they are not dilutive: Issue date: Exercisable on/between: - 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 - 19 Dec 2011 - 19 Dec 14 - 24 Feb 2012 - 18 Nov 14 to 23 J an 15 - 7 Feb 2013 - 18 Nov 15 to 23 Jan 16 - 11 Mar 2013 - 18 Nov 15 to 23 Jan 16 - 21 Feb 2014 - 18 Nov 17 to 23 J an 18 - 10 Jun 2014 - 2 Jun 16 Total attri butable to ordinary shareholders of Orica Limited Basic earnings per share Diluted earnings per share - 604,967 451,683 491,907 305,302 673,409 33,919 508,326 798 416,002 1,536,003 495,724 - 305,302 453,489 18,274 - - Cents per share Cents per share 163.7 163.4 162.9 162.7 70 70 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 Restated 2013 $m 2014 $m 242.9 200.0 20.3 263.2 22.4 222.4 Fair values The directors consider the net c arrying amount of cash and cash equivalents to approximate their fair value due to their short term to maturity. 8. Trade and other receivables Cur rent Trade receivables (i) external associated companies Less allowance for impairment (i) (ii) external Other receivables (iii) external Less allowance for impairment (iii) (iv) external Non-curr ent Other receivables external (1) (2) retirement benefit surplus (see note 38) Consolidated Restated 2013 $m 2014 $m 861.5 19.8 (18.3) 863.0 931.0 17.0 (19.2) 928.8 181.0 120.6 (0.2) 180.8 1,043.8 (0.1) 120.5 1,049.3 74.3 1.7 76.0 97.3 - 97.3 (1) Includes $18.6 million (2013 $18.6 million) that was paid to the Australian Tax Office (ATO) during the year ended 30 September 2012 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 AT O 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 (see also note 33 c iii). (2) Includes $6.8 million (2013 $6.8 million) paid to the Central T ax Office of Norway (CTO) and a deferred tax asset in relation to prior years' tax losses of $23.9 million (2013 $23.3 million) that has been utilised to offset the tax liability in respect of a tax audit relating to the transfer of the D yno Nobel house brand in conjunction with Orica's acquisition of the Dyno Nobel's explosives business in the 2005 income year. Orica has objected against the reassessment. While the matter is in dispute tax, Orica is required to settle the remaining liability of approximately $3.5 million (2013 $4.6 million) as they fall due between 2015 and 2054. Orica Limited 71 71 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 8. Trade and other receivables (continued) (i) Tr ade receivables and allowance for impairment The ageing of trade receivables and allowance for impairment is detailed below: Cons olidated 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 2014 2014 Gross Allowance $m - (0.1) - (0.1) (0.2) (17.9) (18.3) $m 751.7 45.4 16.5 9.7 9.1 48.9 881.3 Restated 2013 2013 Gros s Allowance $m - (0.7) (0.4) (0.4) (0.2) (17.5) (19.2) $m 763.7 69.6 29.6 15.5 8.0 61.6 948.0 Trade receivables are carried at amounts due. Receivables that are not pas t due and not impaired are considered recoverable. Payment terms are generally 30 days from end of month of invoic e date. A risk assessment process is used for all acc ounts, with a s top credit proc ess in place for most long overdue accounts. Credit insuranc e cover is obtained where appropriate. The collectability of trade receivables is as sessed continuously and at balanc e date specific allowances are made for any doubtful trade receivables based on a review of all outstanding amounts at year end. Bad debts are written off during the year in which they are identified. The following basis has been used to assess the allowance for doubtful trade receivables: - an individual account by account assessment based on past c redit history; and - prior knowledge 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 rec eivables that have had renegotiated terms that would otherwise, without that renegotiation, have been past due or impaired. (ii) Movement in allow ance for im pairm ent of tr ade receivables The movement in the allowance for impairment in respect of trade receivables is detailed below: Opening balance Allowances made during the year Reductions t hrough disposal of entities Allowances utilised during t he year Allowances written back during the year Foreign currency exchange differences Closing balance Consolidated 2013 $m 2014 $m (19.2) (9.3) - 4.3 5.9 - (18.3) (12.7) (11.5) 0.1 5.0 1.0 (1.1) (19.2) 72 72 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 8. Trade and other receivables (continued) (iii) Current other receivables and allowance for impairment 2014 Cons olidated Consolidated Restated 2013 2013 Gros s Allowance $m - - - - - (0.1) (0.1) Other receivables are carried at amounts due. Payment terms vary. A risk assessment process is used for all accounts, with a stop credit and follow up process in place for most long overdue accounts. Interest may be charged where the terms of repayment exceed agreed terms. Other receivables have been aged according to their due date in the above ageing analys is. 2014 Gross Allowance $m - - - - - (0.2) (0.2) 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 $m 169.2 4.1 0.5 3.0 0.3 3.9 181.0 $m 116.5 0.1 - - - 4.0 120.6 The collectability of other receivables is as sessed at balance date and specific allowanc es are made for any doubtful receivables based on a review of all outstanding amounts at year end. Bad debts are written off during the year in which they are identified. There are no individually significant rec eivables that have had renegotiated terms that would otherwise, without that renegotiation, have been past due or impaired. (iv) Movement in allowance for impair ment of curr ent other receivables The movement in the allowance for impairment in respect of current ot her receivables is detailed below: Opening balance Allowances made during the year Allowances utilised during t he year Allowances written back during the year Closing balance Consolidated 2013 $m 2014 $m (0.1) (0.1) - - (0.2) (0.5) - 0.1 0.3 (0.1) (v) Fair values The net carrying amount of trade and other receivables approximates their fair values. For receivables with a remaining life of less than one year, carrying value reflects fair value. All other s ignificant receivables are dis counted to determine c arrying value and fair value. The maximum exposure to credit risk is the carrying value of receivables. No material c ollateral is held as security over any of the receivables. Orica Limited 73 73 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 following concentrations of credit risk in regards to its current trade and other receivables: Reportable segments: Mining Services: - Australia/Pacific - North America - Latin Americ a - EMEA - Mining O ther Chemicals Other Geographical segments: Australia New Zealand Asia North America Latin America Europe Other Consolidated Restated 2013 2014 % % 18.1 12.6 11.7 23.6 13.6 14.1 6.3 100.0 16.9 12.5 14.0 21.1 16.8 17.0 1.7 100.0 2014 2013 % % 24.8 2.8 19.0 10.1 21.9 17.0 4.4 100.0 31.2 2.6 15.1 10.3 16.9 18.8 5.1 100.0 (vii) Non current receivables All non current receivables are c arried at amounts that approximate their fair value. As at 30 September none are past due. None are considered impaired. 9. Inventories Raw materials and s tores Work in progress Finished goods * Inventories have been shown net of provision for impairment of $18.3 million (2013 $19.7 million). 10. Other assets Cur rent Prepayments and other assets Non-curr ent Prepayments and other assets 74 74 Orica Limited Consolidated 2013 $m 2014 $m 319.3 21.1 387.0 727.4 342.2 28.1 422.8 793.1 Consolidated Restated 2013 $m 2014 $m 72.7 72.7 5.7 5.7 73.6 73.6 26.7 26.7 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 2014 % Investments accounted for using the equity method and joint operations. 11. (a) Investments accounted for using the equity method Consolidated Restated 2013 % 2014 $m Restated 2013 $m O wner ship Carrying amount Name Beijing Sino-Australia O rica Watercare Technology and Equipment Co. Ltd (1) Botany Industrial Park Pty Limited Exor Explosives Limited (2) FiReP Holding AG (3) Geneva Nitrogen LLC (4 ) Iris h Mining Emulsion Systems Ltd (5) Kitikmeot Blasting Services Inc. MicroCoal Inc. (4 ) (b) (6) (a) Mineral Carbonation International Pty Limited MSW-Chemie G mbH (7) (4) Nelson Brothers, LLC Nelson Brothers Mining Services LLC (4 ) Oric a Graneles S.A. (8) (a) (c ) Oric a Mining Services Pilbara Pty Ltd Oric a-UMMC LLC (9) Pigment Manufacturers of Australia Limited PIIK Limited Partnership (6) Sahtu Explosives Limited (6) Southwest Energy LLC (4) Sprewa Sprengmit tel GmbH (7) SVG&FNS Philippines Holdings Inc (10 ) Thai Nitrate Company Ltd (1 1) (d) (6) Tlicho Blasting Services Inc. Troisdorf GmbH (7) Ulaex SA (12) Wurgendorf GmbH (7) Pr incipal activity Sale of water treatment equipment and resin Facility management service Manufacture and sale of explosives Manufacture and sale of s trata support and ventilation products Manufacture and sale of explosives Manufacture and sale of explosives Explosives servic e provider Development and commercialisation of coal dewatering process Develop carbon capture technology Manufacture and sale of explosives Manufacture and sale of explosives Supply of explosives Import and distribution of amino acids for animal feed Manufacture and sale of explosives Manufacture and sale of explosives Non-operating company Sale of explosives Explosives servic e provider Sale of explosives Sale of explosives Investment company Manufacture and sale of explosives Explosives servic e provider Holder of operating permits Manufacture and sale of explosives Holder of operating permits Balance date 30 Sep 30 Sep 31 Dec 31 Dec 30 Sep 30 Sep 31 O ct 45.0 33.4 50.0 25.0 50.0 50.0 49.0 45.0 33.4 50.0 25.0 50.0 50.0 49.0 31 Dec - - 30 Sep 31 Dec 30 Sep 30 Sep 39.9 31.5 50.0 50.0 31 Dec - 30 Sep 31 Dec 31 Dec 30 Sep 31 O ct 30 Sep 31 Dec 31 Dec 31 Dec 31 O ct 30 Sep 31 Dec 31-Dec 45.0 50.0 50.0 49.0 49.0 50.0 24.0 40.0 50.0 49.0 50.0 50.0 50.0 39.9 31.5 50.0 50.0 50.0 45.0 50.0 50.0 49.0 49.0 50.0 24.0 40.0 50.0 49.0 50.0 50.0 50.0 0.1 - 0.3 2.6 9.7 0.3 0.5 - 0.7 0.5 27.5 32.8 - 3.3 3.5 - - - 88.0 0.8 - 30.1 0.1 - 3.9 0.1 204.8 0.2 - 0.3 2.7 9.0 0.4 0.5 - 0.1 0.5 29.2 24.0 0.8 1.8 4.1 - - - 90.1 0.8 - 29.6 0.1 - 3.4 0.1 197.7 Entities are incorporated in Aus tralia except: (10) Philippines, (11) Thailand, (12) Cuba. (1) China, (2) (3) UK, Switzerland, (4) (5) USA, Ireland, (6) Canada, Germany, Chile, Russ ia, (7) (8) (9) (a) Acquired in 2013. (b) Disposed of in 2013. (c ) Disposed of in 2014. (d) O rica holds its 50% equity interest in Thai Nitrate Company Ltd (TNC) through two subsidiary companies, Orica Norway 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 lis ted on the Thailand Stock Exchange, and four individuals associated with TPIP. The South Bangkok Civil Court issued a judgement on 5 October 2011 that Orica Norway AS transf er its 39% shareholding in TNC to TPIP for a consideration equal to the relevant portion of TNC's net ass et value at June 2006, less dividends paid since that date. In July 2013, the Thai Court of Appeals overturned the earlier decision of the South Bangkok Civil Court and upheld Orica Norway AS's right to retain its 39% shareholding in TNC. The matter has been further appealed to the Supreme Court of Thailand, but no decision has yet been handed down. Orica Limited 75 75 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 11. Investments accounted for using the equity method and joint operations (continued) (a) Investments accounted for using the equity method (continued) Movem ents in carrying amounts of investments Carrying amount of investments in associates at the beginning of the year Investments in associates during the year Investments in associates disposed of during the year Impairment of investments Share of assoc iates ’ net profit equit y 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 aft er tax Assets Liabilities (b) Joint operations Consolidated Restated 2013 $m 165.8 1.0 - (0.3) 36.4 (25.2) 20.0 197.7 2014 $m 197.7 1.5 (1.2) (0.4) 33.1 (35.5) 9.6 204.8 787.2 70.2 411.1 177.6 773.3 76.6 382.3 132.9 The Group owns a 45% interest of the Yara Pilbara Nitrates Pty Ltd in conjunction with Yara Australia Pty Ltd (34.6%) and Yara Pilbara Holdings Pty Ltd (20.4%). The entity will build and operate a 330,000 tonnes per annum industrial grade ammonium nitrate plant on t he Burrup Peninsula (Western Australia, Aus tralia). Construction of the plant is expected to have a capital cos t of approximately US$800 million and be completed by the end of 2015 with Yara managing construction and the ongoing operation of the plant. The parties have committed t o require substantially all of the output to be sold to them and they have rights to s ubs tantially all of the economic benefits of the assets. The dependence of the manufac turing entity upon Orica and Yara for the generation of cash flows indicates that the parties have an obligation for the liabilities of the manufacturing arrangement which is settled through the purchase. 76 76 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 12. Other financial assets Cur rent - other financial assets - der ivative assets (i) c ross currency interest rate swaps - net investment forward foreign exchange contracts /options Non-curr ent - other financial assets - der ivative assets (i) c ross currency interest rate swaps - debt principal interes t rate swaps c ommodity swaps Non-curr ent - other financial assets Interest in listed entities Interest in unlisted entities (i) Derivative assets Refer to note 34 for details on the financial risk management and us e of derivative financial instruments. 13. Property, plant and equipment Land, buildings and im provements at cost accumulated depreciation Total carrying value Machinery, plant and equipment Gr oss book value at cost under finance lease Accum ul ated depreciation at cost under finance lease Net carrying value at cost under finance lease Total carrying value Total net carr ying value of property, pl ant and equipment Consolidated 2014 $m 2013 $m 0.6 29.6 30.2 13.7 5.8 6.8 26.3 2.5 0.7 3.2 0.3 11.1 11.4 0.5 0.9 - 1.4 - 0.7 0.7 Consolidated Restated 2013 $m 2014 $m 773.2 (242.5) 530.7 738.6 (210.3) 528.3 5,275.7 35.6 5,311.3 4,874.9 35.7 4,910.6 (2,031.6) (15.5) (2,047.1) (1,842.7) (13.0) (1,855.7) 3,244.1 20.1 3,264.2 3,032.2 22.7 3,054.9 3,794.9 3,583.2 (i) Capitalised borrowing costs Interest amounting to $17.0 million (2013 $9.4 million) was capitalised to property, plant and equipment, calculated at the average rate of 5.6% (2013 5.7%). (ii) Significant assets under constructi on (1) Inc luded in Property, Plant and Equipment are assets under construction relating to: Burrup ammonium nitrate plant Kooragang Is land plant uprate Nanling detonator plant Consolidated 2014 $m 320.8 200.3 140.3 Restated 2013 $m 127.8 189.1 116.7 (1) Assets under construction balances are translated at year end foreign exchange rat es and include capitalised interest on the projects. Orica Limited 77 77 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 2013 Carrying amount at the beginning of the year 01-Oct-2012 Additions Disposals Deprec iation expense Foreign currency exchange differences Carrying amount at the end of the year 30-Sep-2013 2014 Additions Disposals Disposals through disposal of entities (see note 28) Deprec iation expense Foreign currency exchange differences Carrying amount at the end of the year 30-Sep-2014 Land, buildings and improvements $m Machinery, plant and equipment $m 458.3 90.3 (9.2) (25.2) 14.1 528.3 50.2 (3.7) - (26.4) (17.7) 530.7 2,613.0 541.5 (6.5) (222.7) 129.6 3,054.9 441.2 (35.0) (0.1) (235.8) 39.0 3,264.2 Total $m 3,071.3 631.8 (15.7) (247.9) 143.7 3,583.2 491.4 (38.7) (0.1) (262.2) 21.3 3,794.9 78 78 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 14. Intangible assets Goodwill Less accumulated impairment losses Total net book value of goodwill Patents, trademarks and rights Less accumulated amortis ation Total net book value of patents, trademark s and rights Software Less accumulated amortis ation Total net book value of software Customer contracts and relationships Less accumulated amortis ation Total net book value of customer contracts and relationships Other Less accumulated amortis ation Total net book value of other Cons olidated Restated 2013 $m 2014 $m 2,378.5 (477.3) 1,901.2 2,354.9 (451.6) 1,903.3 273.9 (66.2) 207.7 223.8 (66.8) 157.0 279.2 (175.7) 103.5 35.9 (16.8) 19.1 256.3 (60.5) 195.8 172.9 (57.7) 115.2 269.4 (148.5) 120.9 20.0 (15.2) 4.8 Total net book value of intangibles 2,388.5 2,340.0 Reconciliations of the carrying values of intangible assets at the beginning and end of the years are set out below: Consolidated 2013 - restated Carrying amount at the beginning of the year Additions Disposals through disposal of entities (see note 28) Amortisation expens e Impairment expense (s ee note 29) Foreign currency exchange differences Carrying amount at the end of the year 2014 Additions Amortisation expens e Foreign currency exchange differences Carrying amount at the end of the year Patents trademarks Customer contracts and and rights relationships $m $m 66.5 122.1 - (4.7) - 11.9 195.8 6.5 (4.7) 10.1 207.7 129.5 - - (22.2) - 13.6 120.9 - (22.9) 5.5 103.5 Goodwill $m 1,757.2 - (0.2) - (5.7) 152.0 1,903.3 - - (2.1) 1,901.2 Software $m 87.2 32.9 - (7.4) - 2.5 115.2 50.2 (9.2) 0.8 157.0 Other $m 6.4 - - (2.2) - 0.6 4.8 15.4 (1.8) 0.7 19.1 Total $m 2,046.8 155.0 (0.2) (36.5) (5.7) 180.6 2,340.0 72.1 (38.6) 15.0 2,388.5 Capitalised borrowing costs Interest amounting to $10.6 million (2013 $2.5 million) was capitalised t o intangibles as sets, calculated at the average rate of 5.6% (2013 5.7%). 15. Deferred tax assets Net deferred tax assets (see note 5) Cons olidated Restated 2013 $m 2014 $m 202.5 216.7 Orica Limited 79 79 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 16. Trade and other payables Cur rent Trade payables external associated companies Other payables external Cur rent - other financial liabilities - derivative liabilities Derivative financial instr uments cros s currency interest rate swaps - net investment forward foreign exchange contracts interest rate swaps Non-curr ent Other payables external Non-curr ent - other financial liabilities - derivative liabilities Derivative financial instr uments cros s currency interest rate swaps - debt principal cros s currency interest rate swaps - net investment interest rate swaps Cons olidated Restated 2013 $m 2014 $m 940.0 4.3 266.7 1,211.0 1,019.1 4.7 216.2 1,240.0 4.7 16.3 1.1 22.1 6.9 6.9 28. 3 4.6 - 32.9 6.0 13.5 - 19.5 12.3 12.3 32.7 10.0 13.0 55.7 Significant term s and conditions Trade and other payables, including expenditures not yet billed, are recognised when the consolidated entity becomes obliged to make future payments as a result of a purchas e of goods or services. Trade payables are normally settled within 60 days from invoice date or within the agreed payment terms with the supplier. Trade and other payables are non-interest bearing and include liabilities in respect of trade financing within the normal operating cycle of the business. Fair values The carrying amount of trade and other payables approximate their fair values due to their short term nature. Derivative financial instr uments Refer to note 34 for details on the financial risk management of derivative financial instruments. 80 80 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 17. Interest bearing liabilities Cur rent Unsecured bank overdrafts commercial paper other short term borrowings other loans private placement (1) export finance fac ility (2) Leas e liabilities (see note 30) Non-curr ent Unsecured bank loans other loans private placement export finance fac ility other Leas e liabilities (see note 30) (1) (2) Cons olidated 2014 $m 2013 $m 49.5 135.9 75.5 267.1 13.4 1.3 542.7 19.2 377.2 33.4 - 12.7 1.4 443.9 192.9 159.1 1,680.6 67.2 12.5 4.0 1,957.2 1,870.0 75.9 2.6 5.1 2,112.7 (1) Private placem ent Oric a Limited guaranteed senior notes issued in the US private placement market in 2003, 2005, 2010 and 2013. The notes have maturities between 2015 and 2030 (2013: between 2015 and 2030). (2) Expor t finance facility Loans provided to Orica Limited in financ ial year 2010 by Australia’s export credit agency (Export Finance and Ins urance 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 flows at prevailing market interest rates as at 30 September 2014 varying from 0.1% to 4.5% (2013 0.1% to 5.0%) depending on the type of borrowing. Assets pledged as security The carrying amounts of assets pledged as sec urity 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 les sor. Defaults and breaches During the current and prior year, there were no defaults or breaches of covenants on any loans. Cons olidated 2014 $m 20.1 20.1 2013 $m 22.7 22.7 Orica Limited 81 81 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 18. Current tax liabilities Provision for income tax 19. Provisions Cur rent Employee entitlements Restructuring and rationalis ation Environmental Decommissioning Other Non-curr ent 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: Cur rent provision - restructuring and rationalisation Carrying amount at the beginning of the year Provisions made during the year Provisions written back during the year Payments made during the year Foreign currency exchange differences Carrying amount at the end of the year Consolidated Restated 2013 $m 2014 $m 9.3 78.3 79.3 1.4 52.5 0.5 38.5 172.2 55.4 207.8 115.6 13.2 13.5 12.0 417. 5 79.3 263.2 342.5 80.6 4.7 69.5 2.0 16.5 173.3 53.8 206.2 118.5 10.2 15.9 10.9 415.5 80.6 260.0 340.6 Consolidated $m 4.7 0.7 (2.6) (1.5) 0.1 1.4 82 82 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 19. Provisions (continued) Cur rent provision - envir onm ental Carrying amount at the beginning of the year Provisions made during the year Provisions written back during the year Payments made during the year Provision transferred from non-c urrent Foreign currency exchange differences Carrying amount at the end of the year Cur rent 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 Cur rent provision - other Carrying amount at the beginning of the year Provisions made during the year Provisions written back during the year Payments made during the year Provision transferred from non-c urrent Foreign currency exchange differences Carrying amount at the end of the year Non-curr ent provision - environm ental Carrying amount at the beginning of the year Provisions written back during the year Unwinding of dis count on provisions (see note 4) Provision transferred to current Foreign currency exchange differences Carrying amount at the end of the year Consolidated $m 69.5 13.0 (1.0) (32.5) 4.0 (0.5) 52.5 2.0 (0.1) (1.4) 0.5 16.5 32.5 (0.2) (10.0) 0.1 (0.4) 38.5 118.5 (1.1) 1.9 (4.0) 0.3 115.6 Orica Limited 83 83 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 19. Provisions (continued) Non-curr ent provision - decommissioning Carrying amount at the beginning of the year Provisions made during the year Provision transferred from current Foreign currency exchange differences Carrying amount at the end of the year Non-curr ent provision - contingent liabilities on acqui sition of controll ed entities Carrying amount at the beginning of the year Payments made during the period Foreign currency exchange differences Carrying amount at the end of the year Non-curr ent provision - other Carrying amount at the beginning of the year Provisions made during the year Provisions written 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 10.2 0.8 1.4 0.8 13.2 15.9 (1.9) (0.5) 13.5 10.9 1.2 (0.1) (0.1) (0.1) 0.2 12.0 Environmental provision Estimated costs for the remediation of soil, groundwater and untreated waste that have arisen as a result of pas t events have been provided where a legal or construct ive obligation exists and a reliable estimate of the liability is able to be assessed (refer to notes 32 and 33). Total environmental provision comprises: Botany Groundwater remediation Hexachlorobenzene (HCB) was te remediation Botany Mercury remediation Nordics sites remediation Senec a remediation Yarraville remediation Villawood remediation Other environmental provisions Total environmental provisions Consolidated Restated 2013 $m 59.2 35.7 18.2 16.0 8.6 18.0 15.5 16.8 188.0 2014 $m 59.3 35.0 9.1 14. 7 8.1 17.2 9.4 15.3 168.1 Decom missioning provision A provision is recognised for the present value of the estimated costs of dismantling and removing an ass et and restoring the site on which it is located where a legal or constructive obligation exists and a reliable estimate of the liability is able to be assessed (refer to note 32). Contingent liabilities on acquisition of controlled entities A provision is recognised on acquisition of a bus iness for contingent liabilities of that business. Other provision The Group self-insures for certain insurance risks . O utstanding claims are recognised when an incident occ urs that may give rise to a claim and are measured at the cost that the entity expects to incur in sett ling the claims. 20. Deferred tax liabilities Net deferred tax liabilities (see note 5) 84 84 Orica Limited Consolidated 2014 $m 2013 $m 68.3 52.4 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 21. Contributed equity Issued and fully paid: Ordinary shares - 372,743,291 (2013 - 368,203,632) Balance at end of year Consolidated 2014 $m 2013 $m 1,975.0 1,975.0 1,877.9 1,877.9 Movements in issued and fully paid shares of Orica since 1 October 2012 were as follows: Date Num ber of shares Issue price $ Details 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) Shares issued under the Orica GEESP plan (note 36) Balance at end of year (2) (1) (3) 14-Dec-12 1-Jul-13 1-Oct-12 365,642,802 1,043,714 1,335,231 181,885 30-Sep-13 368,203,632 - 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) (1) (3) 13-Dec-13 1-Jul-14 Shares issued under the Orica GEESP plan (note 36) Balance at end of year (2) (1) Share movements under the O rica LTEIP plans. (2) Shares issued under the Orica G eneral Employee Exempt Share Plan. 2,051,377 1,818,929 669,353 - 30-Sep-14 372,743,291 23.92 20.96 23.11 19.03 $m 1,795.1 25.0 28.0 28.4 1.4 1,877.9 47.4 34.5 13.9 1.3 1,975.0 Orica Limited 85 85 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 movements under the Orica LTEIP plans (Remuner ation Report Section B) 2012/2013 Shares issued Shares issued Shares bought back Shares issued - loan repayment Movement for the year 14-Feb-13 2-Apr-13 Various Various 30-Sep-13 26.23 23.81 81,811 100,074 - - 181,885 2013/2014 Shares issued Shares issued - loan repayment Movement for the year 21-Feb-14 Various 30-Sep-14 669,353 24.25 - 669,353 $m - - (9.6) 38.0 28.4 - 13.9 13.9 Under the LTEIP, eligible executives are provided with a three year, interest free, non-recourse loan from Orica for the sole purpose of acquiring shares in O rica. Executives may not deal with the shares while the loan remains outs tanding and any dividends paid on the shares are applied (on an after-tax basis) towards repaying the loan. The s hares issued to the executives are either purchas ed on market, issued as new shares by Orica or reissued unvested shares by Orica. Shares issued under this plan in conjunction with non-recourse loans are accounted for as options. As a result, the amounts rec eivable from employees in relation to these loans are not recognis ed in the financial s tatements. Shares iss ued under this plan are recognised as shares iss ued at nil value, with a share based payments expense recognised in the income statement based on the value of the options. The options iss ued on 21 February 2014 were valued by PwC using methodology c ons istent with the Black Sc holes method. The key assumptions at grant date were: Oric a Share price $24.30; Expected volatility 25%; Expected dividends NIL%; Risk free interest rate 3.05%; Resulting in a fair value at $8.10 per option. 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. The amounts recognised in the financial statements of Orica in relation to exec utive share options during the financial year were: Bought back ordinary share capital Consolidated 2014 $m - 2013 $m (9.6) LTEIP options over unissued shares (refer to Remunerati on Report Section B): Exercisable between 18 Nov 16 - 23 Jan 17 18 Nov 15 - 23 Jan 16 18 Nov 15 - 23 Jan 16 18 Nov 14 - 23 Jan 15 18 Nov 14 - 23 Jan 15 19 Nov 13 - 23 Jan 14 19 Nov 12 - 23 Jan 13 Total Balance 30 Sep 12 - - - 305,302 592,713 1,685,589 1,531,590 4,115,194 Issued during the period - 33,919 704,355 - - - - Exercised during the period - - - - (48,213) (47,159) (1,527,773) 738,274 (1,623,145) Laps ed Balance during 30 Sep 13 the period - - - - (92,817) (218,515) (3,817) (315,149) - 33,919 704,355 305,302 451,683 1,419,915 - 2,915,174 Issued during the period 839,544 - - - - - - 839,544 Exercised during the period - - - - - (589,192) - (589,192) Lapsed during the period - - (33,919) - - (830,723) - (864,642) Balance 30 Sep 14 839,544 33,919 670,436 305,302 451,683 - - 2,300,884 86 86 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 21. Contributed equity (continued) Rights over unissued shares (refer to note 36): Vesting date Balance 30 Sep 12 19 Dec 16 1 Dec 16 1 Feb 16 2 Jan 16 19 Dec 15 19 Dec 15 1 Dec 15 1 Dec 15 20 Nov 15 23 Sep 15 4 Mar 15 1 Feb 15 2 Jan 15 31 Dec 14 19 Dec 14 1 Dec 14 1 Dec 14 20 Nov 14 23 Sep 14 4 Mar 14 30 Nov 13 15 Oct 13 1 Sep 13 31 Mar 13 Total - - - - - - - - - - - - - - 649,165 - - - - - 7,942 - 6,148 108,246 771,501 Issued during the period - - - - 24,293 717,397 - - - - 3,836 - - - - - - - - 3,835 - 4,885 - - 754,246 Exercised during the period - - - - - - - - - - - - - - - - - - - - - (4,885) (6,148) (108,246) (119,279) Laps ed Balance during 30 Sep 13 the period - - - - - (74,081) - - - - - - - - (89,522) - - - - - - - - - (163,603) - - - - 24,293 643,316 - - - - 3,836 - - - 559,643 - - - - 3,835 7,942 - - - 1,242,865 Issued during the period 743,218 2,603 5,367 2,601 - - 2,147 2,601 953 3,865 - 5,366 2,601 3,404 - 2,146 3,469 952 3,864 - - - - - 785,157 Exercised during the period - - - - - - - - - - - - - - - - - - (3,864) (3,835) (7,942) - - - (15,641) Lapsed during the period (92,160) - - - - (148,786) - - - - - - - - (108,477) - - - - - - - - - (349,423) Balance 30 Sep 14 651,058 2,603 5,367 2,601 24,293 494,530 2,147 2,601 953 3,865 3,836 5,366 2,601 3,404 451,166 2,146 3,469 952 - - - - - - 1,662,958 Orica Limited 87 87 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 Movem ent 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/disposal of non-controlling interests Balance at beginning of year Dis posal/(purchase) of non-c ontrolling interests Balance at end of the year (b) Retained earnings Retained earnings at the beginning of the year Profit after inc ome tax attributable to shareholders of O rica Defined benefit fund superannuation movement (net of tax) Disposal of non-controlling interests Dividends: Ordinary dividends – interim Ordinary dividends – final Retained earnings at end of the year Notes Consolidated Restated 2013 $m 2014 $m 109.2 10.2 (537.4) (189.0) (607.0) 99.3 9.9 109.2 (8.1) 26.1 (7.8) 10.2 (563.2) (3.5) 29.3 (537.4) (189.1) 0.1 (189.0) 99.3 (8.1) (563.2) (189.1) (661.1) 83.3 16.0 99.3 (15.7) 10.9 (3.3) (8.1) (930.0) 343.3 23.5 (563.2) (187.4) (1.7) (189.1) (38) (25) 2,654.2 2,376.3 602.5 (10.9) (1.5) 592.5 24.4 - (147.6) (201.7) 2,895.0 (142.5) (196.5) 2,654.2 Share based payments reserve The amount charged to the share based payments reserve each year represents the share based payments expens e. Cash flow hedging reserve The amount in the cas h flow hedging res erve represents the cumulative net change in the fair value of c ash 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 f oreign operation or the translation of foreign currency monetary items forming part of the net investment in a foreign operation. Equity reserve ar ising from purchase of non-controlling interests The equity reserve represents the excess of the cost of inves tment in purchasing non-controlling interests in subsidiaries over the net assets acquired and non-controlling interests share of goodwill at the date of original acquisition of the subsidiary. The movement for the year ended 30 September 2014 relates to disposal of 1.5% Orica's share in Jiangsu Orica Banqiao Mining Machinery Company Limited. The movement for the year ended 30 September 2013 relates to purchase of 20% non-controlling interests in JV Minova Kazakhs tan Limited Liability Partnership. 88 88 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 23. Non-controlling interests in controlled entities Ordinary share capital of c ontrolled entities held by non-controlling interests in: Altona Properties Pty Ltd Ammonium Nitrate Development and Production Limited Bamble Mekaniske Industri AS (4) 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 (3) JV Minova Kazakhstan Limited Liability Partners hip Minova MineTek Private Limited (1) Minova Mining Services SA Minova Ukraina OOO Nitro As ia Company Inc. Northwest Energetic Services L.L.C. OOO Minova TPS Orica Blast & Q uarry Surveys Limited Orica-CCM Energy Systems Sdn Bhd Orica-GM Holdings Ltd Orica Eest i OU Orica Med Bulgaria AD Orica Mining Services Peru S.A. (3) Orica Mining Services South Africa (Pty) Ltd Orica Mongolia LLC (3) Orica Nitrates Philippines Inc Orica Nitro Patlayici Maddeler Sanayi ve Tic aret Anonim Sirketi Orica Panama S.A. Orica Philippines Inc (2) Orica Q atar LLC Orica (Weihai) Explosives Co Ltd PT Kaltim Nitrate Indonesia Transmate S.A. Non-controlling interests in shareholders' equity at balance date is as follows: Contributed equity Reserves Retained earnings Consolidated Consolidated Restated 2013 % 2014 % Restated 2013 $m 2014 $m 37.4 0.1 - 51.0 6.3 49.0 35.0 1.3 35.0 49.0 50.5 20.0 24.0 49.0 10.0 41.6 48.7 6.3 25.0 45.0 49.0 35.0 40.0 0.9 25.0 51.0 4.0 49.0 40.0 5.5 40.0 20.0 10.0 29.8 37.4 0.1 - 51.0 6.3 49.0 35.0 1.3 35.0 49.0 49.0 20.0 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 40.0 20.0 10.0 29.8 - - - - 0.1 1.0 2.1 - 0.5 18.4 1.7 0.2 0.2 1.4 0.3 0.1 1.8 - 0.6 0.6 12.6 2.6 2.6 - 0.1 - 0.2 1.7 0.5 0.1 0.1 6.1 11.0 - 66. 6 - - - - 0.1 1.0 2.1 - 0.5 18.4 0.9 0.2 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 0.1 6.1 11.0 - 65.7 66.6 (16.9) 86.4 136.1 65.7 (9.0) 82.2 138.9 (1) (2) Non-controlling interes ts purchased by Orica during the 2013 year. Non-controlling interes ts through new incorporations during the 2013 year. Non-controlling interes ts disposed of by O rica during the 2014 year. (4) Non-controlling interes ts disposed of by O rica during the 2013 year. (3) Orica Limited 89 89 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 23. Non-controlling interests in controlled entities (continued) The following table summarised the information relating to non-controlling interests . The amounts disclosed are before inter-company eliminations. Current assets Current liabilities Cur rent net assets Non-current assets Non-current liabilities Non-curr ent net assets Net assets Carrying amount of non-controlling interests Sales Revenue Net profit for the year Other comprehensive income Total com prehensive i ncome Profit/(loss) allocated to non-controlling interests Other comprehensive income related to non-controlling interests Total Dividends paid - non-c ontrolling interests Cash flows f rom operating activitities Cash flows f rom investments activit ies Cash fows from financing activities Net increase in cash and cash equivalents 24. Parent Company disclosure - Orica Limited Total current assets Total ass ets Total current liabilities Total liabilities Equity Ordinary shares Retained earnings Total equity attr ibutable to ordinary shareholders of Ori ca Limited Net profit for the year Consolidated Restated 2013 $m 2014 $m 500.4 269.4 231.0 840.3 549. 3 291.0 522.0 136.1 795. 4 69.1 7. 0 76.1 23.5 (7.9) 15.6 (17.4) 2.7 (5.8) 11.6 8.5 483.5 263.0 220.5 805.7 534.3 271.4 491.9 138.9 787.9 52.7 47.1 99.8 17.4 13.0 30.4 (18.8) 2.1 (21.3) 21.0 1.8 Company 2014 $m 2013 $m 1,036.1 3,003.4 502.1 504.9 632.4 2,595.7 273.8 275.3 1,975.0 523.5 2,498.5 1,877.9 442.5 2,320.4 430.3 403.3 The Company did not have any c ontractual commitments for the acquisition of property, plant or equipment in t he current or previous years. Contingent liabilities and contingent assets Under the terms of a Deed of Cross Guarantee entered into in accordance with the ASIC Class Order 98/1418 dated 13 August 1998 (as amended), each company which is a party to the Deed has covenanted with the Trustee of the Deed to guarantee the payment of any debts of the other companies which are party to the Deed which might arise on the winding up of those companies. The closed group of entities which are party to the Deed are disclosed in not e 40. A consolidated balance sheet and income statement for this closed group is s hown in note 40. Oric a Limited has provided guarantees to Export Finance and Ins urance Corporation and banks for loans relating to the Bontang Ammonium Nitrate plant (s ee note 17). Oric a Limited guaranteed senior notes issued in the US private placement market in 2003, 2005, 2010 and 2013. The notes have maturities between 2015 and 2030 (2013: between 2015 and 2030) (see note 17). 90 90 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 24. Parent Company disclosure - Orica Limited (continued) Orica Limited Statement of Changes in Equity 2013 Balance at 1 O ct 2012 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions w ith owner s, recorded dir ectly in equi ty Total c hanges in contributed equity Dividends/distributions paid Balance at the end of the year 30-Sep-2013 2014 Profit for the year Other comprehensive income Total comprehensive income for the year Transactions w ith owner s, recorded dir ectly in equi ty Total c hanges in contributed equity Dividends/distributions Balance at the end of the year 30-Sep-2014 Ordinary shares Retained earnings Total equity $m $m $m 1,795.1 - - - 82.8 - 1,877.9 - - - 97.1 - 1,975.0 378.2 403.3 - 403.3 - (339.0) 442.5 430.3 - 430.3 - (349.3) 523.5 2,173.3 403.3 - 403.3 82.8 (339.0) 2,320.4 430.3 - 430.3 97.1 (349.3) 2,498.5 25. Dividends and distributions Dividends paid or declared in respec t of the year ended 30 September were: Ordinary shares interim dividend of 39 cents per share, 38.5% frank ed at 30%, paid 1 July 2013 interim dividend of 40 cents per share, 40% franked at 30%, paid 1 July 2014 final dividend of 54 cents per s hare, 44.4% franked at 30%, paid 14 December 2012 final dividend of 55 cents per s hare, 100% franked at 30%, paid 13 December 2013 Dividends paid in cash or satisfied by the issue of shares under the dividend reinves tment plan during the year were as f ollows: paid in cash satis fied by issue of shares Consolidated 2014 $m 2013 $m 142.5 196.5 147.6 201.7 267.4 81.9 286.0 53.0 Subsequent events Since the end of the financial year, the directors declared the following dividend: Final dividend on ordinary shares of 56.0 cents per share, 35.7% franked at 30%, payable 19 December 2014. Total franking credits related to this dividend are $31.9 million. The financial effect of the final dividend on ordinary s hares has not been brought to acc ount in the financial statments for the year ended 30 September 2014 - however will be recognised in the 2015 annual financial report. Franking cr edits Franking credits available at the 30% corporate tax rate after allowing for tax payable in respect of the current year's profit and the payment of the final dividend for 2014 are Nil (2013 $39.3 million). Orica Limited 91 91 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 shown in the statements of cash flows is reconciled to the related items in the balance sheet as follows: Cash Bank overdraft Reconciliation of profit from ordinary activities after income tax to net cash flows from operating activities Profit from ordinary activities after income tax expense Deprec iation and amortisation Share based payments expense Share of assoc iates ' net loss/(profit) after adding bac k dividends received Finance charges - finance leases Unwinding of dis count on provisions Decrease in net interest payable Inc rease in net interest receivable Impairment of intangibles Impairment of inventories Impairment of investments Net (profit)/loss on sale of busines ses and controlled entities/investments Net profit on sale of property, plant and equipment Changes in working capital and provisions excluding the effects of acquisitions and disposals of bus inesses/controlled entities decrease/(increas e) in trade and other receivables decrease/(increas e) in inventories increase/(decreas e) in net deferred taxes (decrease)/increase in payables and provisions (decrease)/increase in income taxes payable Net cash flow s from operating activities Consolidated Restated 2013 $m 2014 $m Notes (7) (17) 263.2 (49.5) 213.7 222.4 (19.2) 203.2 626.0 300.8 9.9 2.4 0.3 1.9 (0.5) (0.1) - 10.7 0.4 (0.1) (33.2) 609.9 284.4 16.0 (11.2) 0.3 7.7 (0.4) (0.2) 5.7 12.8 0.3 0.4 (10.0) 69.5 53.7 53.4 (103.1) (74.9) 917.1 (85.1) (113.8) (14.1) 286.7 72.2 1,061.6 92 92 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 which acquisition accounting can be finalised following the acquisition date. The measurement period shall not exceed one year from the acquisition date. Consolidated - 2014 Acquisition of businesses and controlled entities During financial year 2014 the consolidated entity has not acquired any businesses s or entities. Consolidated - 2013 Acquisition of businesses and controlled entities During financial year 2013 the consolidated entity has not acquired any businesses s or entities. Acquisition of non-controlling interest: JV Minova Kazakhstan Limited Liability Partnership, on 12 April 2013 Orica acquired additional 20% . 2013 Decrease in non-controlling interests Equity reserve Deferred consideration Total consideration Total $m (1.6) (1.7) 0.6 (2.7) Orica Limited 93 93 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 28. Businesses disposed Disposal of businesses and controlled entities The following businesses and controlled entities were disposed of: 2014: Orica Nelson Quarry Services Inc. on 31 January 2014. Business assets of Emrick & Hill., Inc on 30 September 2014. 2013: Bamble Mekaniske Industri AS on 1 October 2012 (60% holding). Consideration cash received cash disposed debt disposed Inflow of cas h Cash received deferred settlement Net cons ideration Carrying value of net ass ets of bus inesses/controlled entities disposed trade and other receivables inventories property, plant and equipment intangibles other assets investment payables and interest bearing liabilities provision for employee entitlements provision for income tax Less non-controlling interests at date of disposal Profit/(loss) on sale of business/controlled entities Consolidated 2014 $m 1.6 (1.2) - 0.4 1.6 2.0 1.8 1.3 0.1 - 0.1 - (1.3) - (0.1) 1.9 - 1.9 0.1 2013 $m 0.2 - 0.3 0.5 - 0.5 1.4 1.5 - 0.2 - 0.2 (1.8) (0.2) - 1.3 (0.4) 0.9 (0.4) Disposal of non-controlling interest: 2014: Oric a Mongolia LLC, in December 2013 Orica divested 36% of its interes t. Jiangsu Oric a Banqiao Mining Machinery Company Limited, in December 2013 Orica divested 1.5% of its interest. Oric a Mining Services South Africa (Pty) Ltd, in April 2014 Orica divested 25% of its interest. Notes to the Financial Statements For the year ended 30 September 29. Impairment testing of goodwill For the purposes of impairment testing, goodwill is allocated to cas h generating units (CGU), or groups of cash generating units expect ed to benefit from the synergies. Each unit or group of units to which goodwill has been allocated shall: - represent the lowest level at which it is internally monitored; and - not be larger than a segment. Goodwill is internally monitored at the segment level and accordingly, impairment testing of goodwill is undertaken at the segment level. The carrying amounts of goodwill in each segment are as follows: Consolidated 2014 $m 2013 $m 890.2 271.5 208.2 326.2 66.4 138.7 891.4 269.8 207.5 328.3 60.4 145.9 1,901.2 1,903.3 Mining Services: - Australia/Pacific - North America - Latin Americ a - EMEA - Other Chemicals Total Mining Services: - Australia/Pacific - North America - Latin Americ a - EMEA - Other Chemicals Goodwill Total The recoverable amount of goodwill with indefinite lives is assessed based on value in use. The value in use calculations use cash flow projec tions based on actual operating results and the operating budgets approved by the Board of Directors . Cash flow projections are calc ulated using the 2015 budgeted cash flows and industry growth rates going forward. The discount rates for each CG U were calculated using rates based on an external assessment of the Group's pre-tax weighted average cost of capital in conjunction with risk specific factors to the countries in which the CGUs operate. The pre-t ax discount rates applied in the dis counted cash flow model range between 9% and 34% (2013 10% - 21% ). Foreign c urrency c ash flows are discounted using the functional currency of the CGUs and then translated to Australian Dollars using the closing exchange rate. The key assumptions regarding the range of discount and growth rates used in the calc ulation of value in use are as follows: Discount Growth Rates Rates 2014 % Terminal Rates 2014 % Discount Rates 2013 % Terminal Growth Rates Rates 2013 % 14.9% - 15.6% 0.0% - 6.0% 15.0% - 15.6% 0.0% - 6.0% 12.7% - 12.7% 0.0% - 3.0% 13.2% - 13.2% 0.0% - 2.0% 15.9% - 16.6% 0.0% - 6.9% 17.8% - 17.8% 0.0% - 10.1% 8.8% - 33.7% 9.5% - 21.8% 0.0% - 8.5% 0.0% - 7.1% 10.0% - 20.7% 0.0% - 10.2% 12.6% - 19.0% 0.0% - 10.2% 13.1% - 18.8% 2.7% - 4.0% 13.6% - 13.6% 0.0% - 2.9% 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 was undertaken to examine the effect of a change in a variable on each CGU. The impairment charge for intangibles with indefinite lives during the 2013 year relates to a specific asset in the Mining Services - Other Segment. Consolidated 2014 $m - - 2013 $m 5.7 5.7 94 94 Orica Limited Orica Limited 95 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 29. Impairment testing of goodwill For the purposes of impairment testing, goodwill is allocated to cas h generating units (CGU), or groups of cash generating units expect ed to benefit from the synergies. Each unit or group of units to which goodwill has been allocated shall: - represent the lowest level at which it is internally monitored; and - not be larger than a segment. Goodwill is internally monitored at the segment level and accordingly, impairment testing of goodwill is undertaken at the segment level. The carrying amounts of goodwill in each segment are as follows: Mining Services: - Australia/Pacific - North America - Latin Americ a - EMEA - Other Chemicals Total Consolidated 2014 $m 2013 $m 890.2 271.5 208.2 326.2 66.4 138.7 1,901.2 891.4 269.8 207.5 328.3 60.4 145.9 1,903.3 The recoverable amount of goodwill with indefinite lives is assessed based on value in use. The value in use calculations use cash flow projec tions based on actual operating results and the operating budgets approved by the Board of Directors . Cash flow projections are calc ulated using the 2015 budgeted cash flows and industry growth rates going forward. The discount rates for each CG U were calculated using rates based on an external assessment of the Group's pre-tax weighted average cost of capital in conjunction with risk specific factors to the countries in which the CGUs operate. The pre-t ax discount rates applied in the dis counted cash flow model range between 9% and 34% (2013 10% - 21% ). Foreign c urrency c ash flows are discounted using the functional currency of the CGUs and then translated to Australian Dollars using the closing exchange rate. The key assumptions regarding the range of discount and growth rates used in the calc ulation of value in use are as follows: Discount Rates 2014 % Terminal Growth Rates Rates 2014 % Discount Rates 2013 % Terminal Growth Rates Rates 2013 % Mining Services: - Australia/Pacific - North America - Latin Americ a - EMEA - Other Chemicals 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 was undertaken to examine the effect of a change in a variable on each CGU. 15.0% - 15.6% 0.0% - 6.0% 13.2% - 13.2% 0.0% - 2.0% 17.8% - 17.8% 0.0% - 10.1% 10.0% - 20.7% 0.0% - 10.2% 12.6% - 19.0% 0.0% - 10.2% 13.6% - 13.6% 0.0% - 2.9% 14.9% - 15.6% 0.0% - 6.0% 12.7% - 12.7% 0.0% - 3.0% 15.9% - 16.6% 0.0% - 6.9% 0.0% - 8.5% 8.8% - 33.7% 9.5% - 21.8% 0.0% - 7.1% 13.1% - 18.8% 2.7% - 4.0% The impairment charge for intangibles with indefinite lives during the 2013 year relates to a specific asset in the Mining Services - Other Segment. Goodwill Total Consolidated 2014 $m - - 2013 $m 5.7 5.7 Orica Limited 95 95 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 later than five years Lease commitm ents 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 Repres enting: 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 Repres enting lease liabilities: (see note 17) current non-current Cons olidated Restated 2013 $m 2014 $m 106.9 3.1 0.1 110.1 184.2 96.5 - 280.7 Cons olidated 2014 $m 2013 $m 72.9 110.7 36.9 220.5 131. 6 88.9 220.5 24.7 43.8 20.4 88.9 1.3 4.7 - 6.0 (0.7) 5.3 1.3 4.0 5.3 71.8 147.8 41.7 261.3 155.2 106.1 261.3 26.4 58.3 21.4 106.1 1.4 5.0 1.0 7.4 (0.9) 6.5 1.4 5.1 6.5 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 servic es Auditors of the Company – KPMG Australia – Audit and review of financial reports – O ther regulatory audit services Auditors of the Company – overseas KPMG firms – Audit and review of financial reports (1) Other s ervices (2) Auditors of the Company – KPMG Australia – other assurance services Consolidated 2014 $000 2013 $000 4,463 226 2,185 6,874 4,914 592 1,994 7,500 - - - - 6,874 7,500 From time to time, KPMG, the auditors of Orica, provide other services to the Group, which are subject to strict corporate governance procedures adopted by the Company which encompass the selection of service providers and the setting of their remuneration. (1) F ees paid or payable for overseas subsidiaries' local lodgement purposes. (2) T he Board Audit and Risk Committee must approve any other services provided by KPMG above a value of $100,000 per assignment and it also reviews and approves at year end other services provided by KPMG below a value of $100,000. In addition, the guidelines adopted by KPMG for the provision of other services ensure their statutory independence is not compromised. 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, they are disclosed 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. 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 various countries and at 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. 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 96 96 Orica Limited Orica Limited 97 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 servic es Auditors of the Company – KPMG Australia – Audit and review of financial reports – O ther regulatory audit services Auditors of the Company – overseas KPMG firms – Audit and review of financial reports (1) Other s ervices Auditors of the Company – KPMG Australia (2) – other assurance services Consolidated 2013 $000 2014 $000 4,463 226 2,185 6,874 4,914 592 1,994 7,500 - - 6,874 - - 7,500 From time to time, KPMG, the auditors of Orica, provide other services to the Group, which are subject to strict corporate governance procedures adopted by the Company which encompass the selection of service providers and the setting of their remuneration. (1) F ees paid or payable for overseas subsidiaries' local lodgement purposes. (2) T he Board Audit and Risk Committee must approve any other services provided by KPMG above a value of $100,000 per assignment and it also reviews and approves at year end other services provided by KPMG below a value of $100,000. In addition, the guidelines adopted by KPMG for the provision of other services ensure their statutory independence is not compromised. 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, they are disclosed 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. 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 various countries and at 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. 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 Orica Limited 97 97 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September Notes to the Financial Statements For the year ended 30 September 32. Critical accounting judgements and estimates (continued) contaminated with pollutants from historical operations. A provision exists (refer to note 19) to cover the estimated costs associated with remediation until 2019. Costs are expected to be incurred after this date, but it is not possible to predict the 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 the five year period. The provision will continue to be re-evaluated based on future regulatory assessments and advancements in appropriate technologies. Orica is committed to finding a solution for destruction of its hexachlorobenzene (HCB) waste. There are no facilities to treat the HCB waste in Australia and Orica's export applications have been unsuccessful. 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 submitted a remediation action plan which satisfied the NSW Environment Protection Authority requirements, and Orica restarted works in August 2013. A provision has been established for remediation activities in respect of this matter. Legal proceedings Current asset provisions 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 can 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 that 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. 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 judgement in relation to assumptions for future salary and superannuation increases, long term price inflation and bond rates. 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. level. Taxation 32. Critical accounting judgements and estimates (continued) 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. For the purposes of impairment testing, goodwill is allocated to cash generating units, or groups of cash generating units expected to benefit from the synergies. Each unit or group of units to which goodwill has been allocated shall represent the lowest level at which is internally monitored and not be larger than a segment. Goodwill is monitored at the segment level. Accordingly, impairment testing of goodwill is undertaken at the segment The determination of value in use requires the estimation and discounting of future cashflows. The estimation of the cashflows is based on information available at balance date which may differ from cashflows which eventuate. 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. 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. 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 outcomes which may impact the amount of deferred tax assets and deferred tax liabilities recorded on the Balance Sheet and the amount of tax losses 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. 33. Contingent liabilities (a) Environmental (a) (i) General 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 giving rise to the groundwater contamination which is being treated 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. 98 98 Orica Limited Orica Limited 99 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 32. Critical accounting judgements and estimates (continued) 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. For the purposes of impairment testing, goodwill is allocated to cash generating units, or groups of cash generating units expected to benefit from the synergies. Each unit or group of units to which goodwill has been allocated shall represent the lowest level at which is internally monitored and not be larger than a segment. Goodwill is monitored at the segment level. Accordingly, impairment testing of goodwill is undertaken at the segment level. The determination of value in use requires the estimation and discounting of future cashflows. The estimation of the cashflows is based on information available at balance date which may differ from cashflows which eventuate. 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 outcomes which may impact the amount of deferred tax assets and deferred tax liabilities recorded on the Balance Sheet and the amount of tax losses 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. 33. Contingent liabilities (a) Environmental (a) (i) General 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 giving rise to the groundwater contamination which is being treated 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. Orica Limited 99 99 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 33. Contingent liabilities (continued)  Orica Limited guaranteed senior notes issued by Orica Finance Limited in the US private placement market in 2003, 2005, 2010 and 2013. The notes have maturities between 2015 and 2030. Orica Limited has also provided guarantees for senior committed bank facilities. (e) Other Since 30 September 2013, the Polish Competition Authority has brought down an adverse finding against 3 firms, including Minova Poland, in relation to the supply of ground support products to Polish coal mines during 2005 to 2010, fining Minova Poland $4.7million. Orica is appealing the adverse finding and fine. Notes to the Financial Statements For the year ended 30 September Notes to the Financial Statements For the year ended 30 September 33. Contingent liabilities (continued) (a)(ii) Environmental Prosecutions Orica is the subject of legal proceedings issued by the NSW Environmental Protection Authority and the NSW Office of Heritage and Environment in relation to environmental incidents that occurred in 2013 at Orica’s Kooragang Island site and in the Hunter Valley. Orica has entered guilty pleas in relation to the Hunter Valley incident. The NSW Land & Environment Court is expected to convene a mitigation and sentencing hearing for this matter in 2015. Orica has entered a not guilty plea in relation to the Kooragang Island incident. A trial date has not yet been set by the NSW Land & Environment Court for these proceedings. (b) WorkCover Prosecutions The New South Wales WorkCover Authority has issued legal proceedings against Orica Australia in relation to an incident at the Kooragang Island site on 9 November 2011. Orica Australia has entered a not guilty plea in these proceedings with the matter to go to trial later this year. It is possible that Orica will incur penalties as a consequence of these environmental and WorkCover 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. (c) Taxation (c) (i) 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. (c) (ii) German Tax Action As the result of an income tax audit covering the 2005 to 2008 years, the German Central Tax Office ("the Tax Office") is proposing to challenge Orica's tax returns under laws which were announced in 2012 and introduced in 2013 in relation to a financing arrangement by Orica of its German group from 2005 onwards. The amount of the possible reassessment is approximately $16m. Orica has received external advice that the laws should not apply to these arrangements and in addition should not be applied retrospectively. The Tax Office has advised that it will extend the audit beyond 2008 and may challenge the financing arrangement in the later years. (c) (iii) Australian Tax Action The Australian Taxation Office (“ATO”) has issued amended assessments in relation to the 2004, 2005 and 2006 years totalling $50.6m in relation to a financing arrangement by Orica of its US group between 2004 and 2006. Orica has received external legal advice and 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. (c) (iv) Norway Tax Action The Tax Office in Norway has issued a final assessment for tax and interest amounting to approximately $32.5 million, resulting from a reassessment of Orica Norway’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. Orica has received external legal advice and is pursuing this matter through an administrative complaints process. Orica has paid a portion of the primary tax and interest arising from the assessment, which has been recognised as a non-current receivable. (c) (v) 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. (d) Guarantees, indemnities and warranties     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. 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.  Contracts of sale covering companies and assets which were divested during the current and prior years include commercial warranties and indemnities to the purchasers. 100 100 Orica Limited Orica Limited 101 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 33. Contingent liabilities (continued)  Orica Limited guaranteed senior notes issued by Orica Finance Limited in the US private placement market in 2003, 2005, 2010 and 2013. The notes have maturities between 2015 and 2030. Orica Limited has also provided guarantees for senior committed bank facilities. (e) Other Since 30 September 2013, the Polish Competition Authority has brought down an adverse finding against 3 firms, including Minova Poland, in relation to the supply of ground support products to Polish coal mines during 2005 to 2010, fining Minova Poland $4.7million. Orica is appealing the adverse finding and fine. Orica Limited 101 101 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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). 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 a total debt measure. The Group’s current target level for 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: Interest bearing borrowings Less cash and cash equivalents Net debt Total Equity Net debt and total equity Gearing ratio (%) The interest cover ratio is calculated as follows: EBIT Net financing costs Capitalised borrowing costs Interest cover ratio (times) Consolidated Restated 2013 $m 2014 $m 2,499.9 (263.2) 2,236.7 4,399.1 6,635.8 33.7% 2,556.6 (222.4) 2,334.2 4,009.9 6,344.1 36.8% Restated 2013 $m 2014 $m 929.7 968.1 115.8 27.6 143.4 6.5 150.2 11.9 162.1 6.0 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 2014, Anbao Insurance Pte Ltd maintained capital in excess of the minimum requirements prescribed under this Act. 102 102 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 the 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 transactions 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 liabilities 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. Beyond this, a maximum 25% of the debt with a maturity of between ten and twenty years can be fixed. The Group operated within this range during both the current year and the prior year and as at September, the fixed rate borrowings after the impact of interest rate swaps and cross currency swaps were $1,144 million (2013 $1,098 million). Orica Limited 103 103 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 34. Financial and capital management (continued) Interest Rate Sensitivity The table below shows 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 or derivatives 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 these events occurred. A sensitivity of 10% has been selected as this is considered reasonable given the current level of both short-term and long-term interest rates. Directors cannot 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 Restated 2013 $m (1.0) 1.0 (0.7) 0.7 1.0 (1.0) 2014 $m (1.3) 1.3 (1.0) 1.0 (0.4) 0.4 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 (USD), Euro (EUR), Canadian Dollar (CAD), Norwegian Kroner (NOK), Swedish Kronor (SEK), Chilean Peso (CLP), Colombian Peso (COP) and Mexican Peso (MXN). 104 104 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 34. Financial and capital management (continued) Exchange rate sensitivity The Group's exposure to foreign currency risk including both external balances and internal balances (eliminated on consolidation) at the reporting date was as follows (Australian dollar equivalents): USD $m CAD $m NZD $m 2014 NOK $m SEK $m EUR $m GBP $m Cash (1) Trade and other receivables Trade and other payables Interest bearing liabilities (1) Net derivatives Net exposure 2,428.9 1,064.6 67.3 (31.2) (573.2) (51.2) 476.3 205.2 (362.4) (2,468.3) 452.3 255.7 248.8 1.5 (1.3) (369.2) (41.7) (161.9) 66.6 0.9 (0.4) (38.6) (88.4) (59.9) 228.8 2.6 (8.3) (98.4) 0.1 124.8 1,302.0 39.7 (35.4) (1,228.6) (93.4) (15.7) 381.2 6.4 (1.4) (117.3) 0.4 269.3 USD $m CAD $m 2013 - restated NOK $m SEK $m NZD $m EUR $m GBP $m Cash (1) 97.0 Trade and other receivables 49.6 Trade and other payables (27.1) Interest bearing liabilities (1) (34.9) (52.3) Net derivatives Net exposure 32.3 (1) Includes internal deposits and interest bearing liabilities used for Group cash management purposes. 65.2 1,252.7 16.0 0.3 (11.3) (0.4) (518.4) (18.8) (0.4) (90.3) 738.6 (44.0) 3,041.6 296.5 (347.3) (2,904.6) 415.9 502.1 1,358.7 62.2 (54.7) (1,208.6) (95.3) 62.3 3.4 0.1 (0.3) (84.2) (41.3) (122.3) 351.9 2.4 (0.6) (92.7) (0.1) 260.9 The following tables show 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, New Zealand Dollar (NZD), NOK, SEK, EUR and Great Britain Pound (GBP). A 10% sensitivity would move year end rates as follows (against the Australian Dollar): 10% lower 2014 As reported 10% higher 2013 - restated As reported 10% higher 10% lower 0.7876 0.8780 1.0103 5.0720 5.6953 0.6206 0.4845 0.8751 0.9756 1.1226 5.6356 6.3281 0.6895 0.5383 0.9626 1.0732 1.2349 6.1992 6.9609 0.7585 0.5921 0.8363 0.8616 1.0094 5.0044 5.3721 0.6193 0.5172 0.9292 0.9573 1.1215 5.5604 5.9690 0.6881 0.5747 1.0221 1.0530 1.2337 6.1164 6.5659 0.7569 0.6322 U.S. Dollar Canadian Dollar New Zealand Dollar Norwegian Kroner Swedish Kronor Euro Great Britain Pound Orica Limited 105 105 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 34. Financial and capital management (continued) The effect on profit from operations, net profit after tax and shareholders' equity of a movement in individual exchange rates on both external balances and internal balances (eliminated on consolidation) of Cash, Trade and other receivables, Trade and other payables, Interest bearing liabilities and net derivatives at the end of the reporting date would be as follows: (10%) $m Effect on profit/(loss) from operations from a movement in: 10% $m 2014 U.S. Dollar Canadian Dollar New Zealand Dollar Norwegian Kroner Swedish Kronor Euro Great Britain Pound Effect on net profit/(loss) after tax from a movement in: U.S. Dollar Canadian Dollar New Zealand Dollar Norwegian Kroner Swedish Kronor Euro Great Britain Pound (14.4) 4.2 (0.4) 0.1 (0.6) (0.7) 0.5 (10.1) 3.0 (0.3) 0.0 (0.4) (0.5) 0.4 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 36.4 38.3 (7.9) (3.3) 10.7 2.4 21.7 11.7 (3.5) 0.3 (0.0) 0.5 0.6 (0.4) 8.2 (2.4) 0.2 (0.0) 0.4 0.4 (0.3) (29.8) (31.4) 6.4 2.7 (8.8) (1.9) (17.7) Restated 2013 (10%) $m 10% $m (0.8) 3.7 (0.6) 0.0 0.5 1.4 (0.1) (0.6) 2.6 (0.4) 0.0 0.3 1.0 - 63.8 1.5 (4.9) (1.9) 59.3 13.8 23.0 (1.8) (3.0) 0.4 (0.0) (0.4) (1.4) 0.1 (1.3) (2.1) 0.3 (0.0) (0.2) (1.0) - (49.6) (1.2) 4.0 1.6 (48.5) (11.3) (18.8) 106 106 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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, CLP, COP, 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 2014, the fair value of these derivatives was $nil (2013 $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 or cross currency swaps. 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. Thirty one percent of the Group’s investment in foreign operations was hedged in this manner as at 30 September 2014 (2013 32.0%). As at reporting date, derivative instruments designated as hedging net investment exposures had a fair value of $101.9 million loss (2013 $108.6 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 2014, the sum of all contracts with a positive fair value was $56.5 million (2013 $12.8 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. Orica Limited 107 107 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 currencies that can be drawn upon at short notice; - using instruments that are readily tradeable in the financial markets; - monitoring duration of long term debt; - spreading, to the extent practicable, the maturity dates of long-term debt facilities; and - comprehensively analysing 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 Committed standby and loan facilities Committed standby and loan facilities available Amount of facilities unused 2014 $m Restated 2013 $m 116.1 66.6 113.7 94.5 3,774.0 1,552.8 4,232.4 2,114.7 The bank overdrafts are payable on demand and are subject to an annual review. The repayment dates of the committed standby and loan facilities range from 28 April 2015 to 25 October 2030 (2013 6 May 2014 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 2014 Restated As at 30 September 2013 Non-derivative financial assets Cash Trade and other receivables (1) Derivative financial assets 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 263.2 1,043.8 1,997.0 3,304.0 1,211.0 49.5 7.0 14.7 211.4 353.3 3.6 1.2 1,985.8 3,837.5 1 to 2 years $m - 74.3 119.7 194.0 6.9 - 135.1 14.7 - 172.4 6.2 1.1 137.2 473.6 2 to 5 years $m Over 5 years $m Less than 1 year $m - - 337.4 337.4 222.4 - - 1,049.3 1,271.1 2,542.8 259.9 259.9 - - 66.7 44.2 - 600.1 3.6 3.2 329.4 1,047.2 - 1,240.0 19.2 - 5.6 - 14.0 14.3 33.4 - 82.1 1,403.6 - - 1.3 - 1,286.8 259.1 2,682.4 1,677.0 1 to 2 years $m - 97.3 52.4 149.7 12.3 - 5.6 13.8 - 346.6 1.7 1.5 58.0 439.5 2 to 5 years $m Over 5 years $m - - 153.5 153.5 - - 427.6 427.6 - - 167.4 40.2 - 606.4 1.0 3.3 197.0 1,015.3 - - - 25.7 - 1,462.4 - 2.1 484.0 1,974.2 Net outflow (533.5) (279.6) (709.8) (1,417.1) (139.6) (289.8) (861.8) (1,546.6) (1) Excludes derivative financial instruments. 108 108 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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 2014 was a net $13.3 million gain (2013 $2.4 million loss), comprising assets of $29.7 million (2013 $11.1 million) and liabilities of $16.4 million (2013 $13.5 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 Not later than one year Later than one, no later than five years Later than five years Total Net deferred (gains)/losses Restated 2013 $m (0.2) - - (0.2) 2014 $m (2.1) (2.5) (0.4) (5.0) 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. 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). 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 $1.1 million as at 30 September 2014 (2013 $13.0 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 Commodity hedging transactions 2014 $m 350.0 Restated 2013 $m 350.0 The group is exposed to price risk from a number of commodities, which can ordinarily be passed on to customers. Hedging is undertaken in specific circumstances, following Board approval. In these cases, movements in the commodity hedges are initially recognised within equity and recognised in the P&L when the forecast transaction is realised. The fair value of swap contracts used to hedge commodity risk at 30 September 2014 was a net gain of $6.9 million (2013 $nil), comprising of assets of $6.9 million (2013 $nil) and liabilities of $nil (2013 $nil). Orica Limited 109 109 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 34. Financial and capital management (continued) Fair value hedges Cross currency interest rate and interest rate swap contracts 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. For the Group, re-measurement of the hedged items resulted in a loss before tax of $20.3 million (2013 $25.5 million loss) and the changes in the fair value of the hedging instruments resulted in a gain before tax of $22.2 million (2013 $25.5 million gain) resulting in a net gain before tax of $1.9 million (2013 nil million gain) recorded in finance costs. The fair value of these swaps at 30 September 2014 was $88.9 million (2013 $66.7 million), comprising assets of $106.9 million (2013 $86.8 million) and liabilities of $18.0 million (2013 $20.1 million). 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 instruments 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). As at 30 September 2014 Derivative financial assets Derivative financial liabilities As at 30 September 2013 - restated Derivative financial assets Derivative financial liabilities Level 1 Level 2 $m $m Level 3 $m Total $m - - - - - - 56.5 (55.0) 1.5 12.8 (75.2) (62.4) - - - - - - 56.5 (55.0) 1.5 12.8 (75.2) (62.4) During the current and previous year there were no transfers between the fair value hierarchy levels. Offsetting financial assets and liabilities Financial assets and liabilities are offset and the net amount reported in the balance sheet where Orica currently has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Orica also entered into master netting arrangements that do not meet the criteria for offsetting but allow for the related amounts to be set-off in certain circumstances, such as the event of default. The following table presents the recognised financial instruments that are offset, or subject to enforceable master netting arrangements but not offset, as at 30 September 2014 and 30 September 2013. The column ‘Net amount’ shows the impact on the Group’s balance sheet if all set-off rights were exercised. 110 110 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 34. Financial and capital management (continued) 2014 Derivative financial assets Interest rate swaps Commodity swaps Forward exchange contracts Options Total Derivative financial liabilities Interest rate swaps Commodity swaps Forward exchange contracts Options Total 2013 Restated Derivative financial assets Interest rate swaps Commodity swaps Forward exchange contracts Options Total Derivative financial liabilities Interest rate swaps Commodity swaps Forward exchange contracts Options Total Effects of offsetting on the balance sheet Related amounts not offset Gross amounts $m 20.0 6.9 29.5 0.1 56.5 38.7 - 16.3 - 55.0 1.7 - 9.5 1.6 12.8 61.6 - 13.6 - 75.2 Gross amounts set off in the balance sheet $m - - - - - - - - - - - - - - - - - - - - Net amounts presented in the balance sheet Amounts subject to master netting agreements Net amount $m 20.0 6.9 29.5 0.1 56.5 38.7 - 16.3 - 55.0 1.7 - 9.5 1.6 12.8 61.6 - 13.6 - 75.2 $m (6.6) (2.9) (21.1) (0.1) (30.7) (14.4) - (16.3) - (30.7) (1.6) - (9.0) (1.6) (12.2) (4.2) - (8.0) - (12.2) $m 13.4 4.0 8.4 - 25.8 24.3 - - - 24.3 0.1 - 0.5 - 0.6 57.4 - 5.6 - 63.0 Orica Limited 111 111 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 35. Events subsequent to balance date Dividends On 19 November 2014, the directors declared a final dividend of 56.0 cents per ordinary share payable on 19 December 2014. The financial effect of this dividend is not included in the financial statements for the year ended 30 September 2014 and will be recognised in the 2015 financial statements. Chemicals business separation On 18 November 2014 Orica signed a contract to sell the Orica Chemicals business incorporating the chemicals trading businesses in Australia, New Zealand and Latin America, Bronson and Jacobs in Australia, New Zealand and Asia and the Australian Chloralkali manufacturing business to funds advised by Blackstone for a price of $750m. Closing of the transaction is subject to Australian Foreign Investment Review Board and New Zealand Overseas Investment Office approvals and other customary conditions, including material adverse change provisions, within the sale agreement and is expected to occur in the first quarter of calendar year 2015. The directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2014, 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. Notes to the Financial Statements For the year ended 30 September 36. Employee share plans Employees’ options entitlement 2014. (a) (i) Long Term Incentive Rights Plan (LTIRP) Other than the LTEIP shares which are treated as options for accounting purposes, the Long Term Incentive Rights Plan (LTIRP) and the Sign-on Rights Plans, there are no other options over Orica shares outstanding at 30 September 2013 or 30 September In financial year 2012 LTIRP was adopted 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: 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. 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). Rights are unlisted and do not carry any dividend or voting rights. Shares allocated upon vesting of rights may be either newly issued shares or existing shares acquired on market. LTIRP is offered to senior executives below the Executive Committee level. A single hurdle of Orica achieving 2% EPS compound growth per annum over three years was set for this scheme to represent the minimum level of acceptable performance before vesting can occur. 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, disability or other Board approved reasons. The fair value of these long term incentives are expensed over the three year vesting period. The number of LTIRP issued, values and related information is shown in the following table:        Number of rights Number of Number of participants at held at rights held at 30 September 30 September participants at 30 September September Number of Grant date 19 Dec 11 19 Dec 12 1 April 13 19 Dec 13 Vesting date 19 Dec 14 19 Dec 15 19 Dec 15 19 Dec 16 Number of rights issued 664,845 717,397 24,293 744,827 2014 451,166 494,530 24,293 651,058 2013 559,643 643,316 24,293 - 2,151,362 1,621,047 1,227,252 2014 229 237 5 251 722 30 2013 279 291 5 - 575 (1) The assumptions underlying the rights valuations are: Price of Orica Shares at grant date Expected volatility in share price Dividends expected on shares Grant date 19 Dec 11 19 Dec 12 1 April 13 19 Dec 13 $ 24.68 24.70 24.45 22.98 % 25 25 25 25 % 4.0 4.0 4.0 4.5 Risk free interest rate % 2.99 2.77 2.88 2.92 Fair value of rights at grant date (1) $ 14,586,699 15,754,038 533,960 14,993,368 45,868,065 Fair value per right (2) $ 21.94 21.96 21.98 20.13 (2) The option valuations prepared by PwC use methodologies consistent with assumptions that apply under the Black Scholes option pricing model and reflect the value (as at grant date) of options held at 30 September. 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. 112 112 Orica Limited Orica Limited 113 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 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, the Long Term Incentive Rights Plan (LTIRP) and the Sign-on Rights Plans, there are no other options over Orica shares outstanding at 30 September 2013 or 30 September 2014. (a) (i) Long Term Incentive Rights Plan (LTIRP) In financial year 2012 LTIRP was adopted 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:  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.       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). Rights are unlisted and do not carry any dividend or voting rights. Shares allocated upon vesting of rights may be either newly issued shares or existing shares acquired on market. LTIRP is offered to senior executives below the Executive Committee level. A single hurdle of Orica achieving 2% EPS compound growth per annum over three years was set for this scheme to represent the minimum level of acceptable performance before vesting can occur. 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, disability or other Board approved reasons. The fair value of these long term incentives are expensed over the three year vesting period. The number of LTIRP issued, values and related information is shown in the following table: Grant date 19 Dec 11 19 Dec 12 1 April 13 19 Dec 13 Vesting date 19 Dec 14 19 Dec 15 19 Dec 15 19 Dec 16 Number of rights issued 664,845 717,397 24,293 744,827 2,151,362 Number of rights held at 30 September 2014 451,166 494,530 24,293 651,058 1,621,047 Number of rights held at 30 September 2013 559,643 643,316 24,293 - 1,227,252 Number of participants at 30 September 2014 229 237 5 251 722 Number of participants at 30 September 2013 279 291 5 - 575 Fair value of rights at grant date (1) $ 14,586,699 15,754,038 533,960 14,993,368 45,868,065 (1) The assumptions underlying the rights valuations are: Price of Orica Shares at grant date $ 24.68 24.70 24.45 22.98 Expected volatility in share price % 25 25 25 25 Grant date 19 Dec 11 19 Dec 12 1 April 13 19 Dec 13 Dividends expected on shares % 4.0 4.0 4.0 4.5 Risk free interest rate % 2.99 2.77 2.88 2.92 Fair value per right (2) $ 21.94 21.96 21.98 20.13 (2) The option valuations prepared by PwC use methodologies consistent with assumptions that apply under the Black Scholes option pricing model and reflect the value (as at grant date) of options held at 30 September. 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. Orica Limited 113 113 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 36. Employee share plans (continued) (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:  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.      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. Rights are unlisted and do not carry any dividend or voting rights. Shares allocated upon vesting of rights may be either newly issued shares or existing shares acquired on market. 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, disability or other Board approved reason. Sign-on Rights allocations, values and related information is shown in the following table: Grant date 19 Dec 11 1 Sep 12 15 Oct 12 11 Mar 13 11 Mar 13 5 Dec 13 5 Dec 13 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 10 Jun 14 10 Jun 14 10 Jun 14 Vesting date 30 Nov 13 1 Sep 13 30 Jun 13 4 Mar 14 4 Mar 15 20 Nov 14 20 Nov 15 1 Dec 14 1 Dec 15 23 Sep 14 23 Sep 15 1 Dec 14 1 Dec 15 1 Dec 16 1 Feb 15 1 Feb 16 31 Dec 14 2 Jan 15 2 Jan 16 Number of rights issued 7,942 6,148 4,885 3,835 3,836 952 953 2,146 2,147 3,864 3,865 3,469 2,601 2,603 5,366 5,367 3,404 2,601 2,601 Number of rights held at 30 September 2014 - - - - 3,836 952 953 2,146 2,147 - 3,865 3,469 2,601 2,603 5,366 5,367 3,404 2,601 2,601 41,911 Number of rights held at 30 September 2013 7,942 - - 3,835 3,836 - - - - - - - - - - - - - - 15,613 Number of participants at 30 September 2014 - - - - 1 1 1 1 1 - 1 1 1 1 2 2 1 1 1 16 Number of participants at 30 September 2013 1 - - 1 1 - - - - - - - - - - - - - - 3 Value of rights at grant date (1) $ 181,554 143,064 121,197 95,492 91,872 20,868 19,994 44,916 43,004 81,569 78,073 72,606 52,098 49,900 111,505 106,696 64,233 49,081 46,948 1,474,670 Notes to the Financial Statements For the year ended 30 September 36. Employee share plans (continued) (1) The assumptions underlying the rights valuations are: Price of Orica Shares at grant date $ 24.68 24.20 25.51 25.90 25.90 22.91 22.91 21.56 21.56 21.56 21.56 21.56 21.56 21.56 21.56 21.56 19.34 19.34 19.34 Grant date 19 Dec 11 1 Sep 12 15 Oct 12 11 Mar 13 11 Mar 13 5 Dec 13 5 Dec 13 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 10 Jun 14 10 Jun 14 10 Jun 14 Expected volatility in share price Dividends expected on shares Risk free interest % 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 % 4.0 4.0 4.0 4.0 4.0 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 rate % 3.13 2.86 2.58 2.88 2.90 2.50 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 Fair value per right(2) $ 22.86 23.27 24.81 24.90 23.95 21.92 20.98 20.93 20.03 21.11 20.20 20.93 20.03 19.17 20.78 19.88 18.87 18.87 18.05 (2) The option valuations prepared by PwC use methodologies consistent with assumptions that apply under the Black Scholes option pricing model and reflect the value (as at grant date) of options held at 30 September. 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. (b) (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: shares acquired are either newly issued shares or existing shares acquired on market; employees are each entitled to acquire shares with a market value of approximately $1,000 per year; 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. Grant date 9 Jan 12 8 Jan 13 8 Jan 14 Date shares become unrestricted 9 Jan 15 8 Jan 16 8 Jan 17 Number of participants at 30 September Number of participants at 30 September 2014 1,130 1,242 1,243 3,615 Shares held at 30 September 2014 Shares held at 30 September 2013 46,330 47,196 52,206 145,732 51,127 52,250 - 103,377 2013 1,247 1,375 - 2,622 (b) (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: shares acquired are either newly issued shares or existing shares acquired on market; employees are each entitled to acquire shares with a market value of approximately NZ$780 per year; employees salary sacrifice the value of the shares by equal deductions between the date of acquisition and 30 September the following year; 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           114 114 Orica Limited Orica Limited 115 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 36. Employee share plans (continued) (1) The assumptions underlying the rights valuations are: Price of Orica Shares at grant date $ 24.68 24.20 25.51 25.90 25.90 22.91 22.91 21.56 21.56 21.56 21.56 21.56 21.56 21.56 21.56 21.56 19.34 19.34 19.34 Grant date 19 Dec 11 1 Sep 12 15 Oct 12 11 Mar 13 11 Mar 13 5 Dec 13 5 Dec 13 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 1 Apr 14 10 Jun 14 10 Jun 14 10 Jun 14 Expected volatility in share price % 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 25 Dividends expected on shares % 4.0 4.0 4.0 4.0 4.0 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 Risk free interest rate % 3.13 2.86 2.58 2.88 2.90 2.50 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 2.79 Fair value per right(2) $ 22.86 23.27 24.81 24.90 23.95 21.92 20.98 20.93 20.03 21.11 20.20 20.93 20.03 19.17 20.78 19.88 18.87 18.87 18.05 (2) The option valuations prepared by PwC use methodologies consistent with assumptions that apply under the Black Scholes option pricing model and reflect the value (as at grant date) of options held at 30 September. 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. shares acquired are either newly issued shares or existing shares acquired on market; (b) (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:      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; Grant date 9 Jan 12 8 Jan 13 8 Jan 14 Date shares become unrestricted 9 Jan 15 8 Jan 16 8 Jan 17 Number of participants at 30 September 2014 Number of participants at 30 September 2013 Shares held at 30 September 2014 Shares held at 30 September 2013 1,130 1,242 1,243 3,615 1,247 1,375 - 2,622 46,330 47,196 52,206 145,732 51,127 52,250 - 103,377 (b) (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:    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;   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 Orica Limited 115 115 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 All transactions with other related parties are made on normal commercial terms and conditions and in the ordinary course of Notes to the Financial Statements For the year ended 30 September 37. Related party disclosures (continued) (d) Transactions with other related parties business. Transactions during the year with associates were: Sales of goods to associates Purchases of goods from associates Dividend income received from associates Income received from leasing Interest income received from associates Additional related party disclosures Financial income and expenses Trade and other receivables Investments Trade and other payables Interest bearing liabilities Options and shares note 4 note 8 note 11, 39 note 16 note 17 note 21, 36 2014 $000 333,572 91,113 35,545 2,081 10 Restated 2013 $000 357,977 88,010 25,173 166 6 Additional relevant related party disclosures are shown throughout the notes to the financial statements as follows: Notes to the Financial Statements For the year ended 30 September 36. Employee share plans (continued)  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. After the period of three years, employees may submit a Notice of Withdrawal to release some or all of their shares. Grant date 1 Oct 10 1 Oct 11 1 Oct 12 1 Oct 13 Date shares become unrestricted 30 Sep 13 30 Sep 14 30 Sep 15 30 Sep 16 Number of participants at 30 September 2014 50 56 72 69 247 Number of participants at 30 September 2013 63 63 80 - 206 Shares held at 30 September 2014 1,150 1,512 1,728 2,346 6,736 Shares held at 30 September 2013 1,449 1,701 1,920 - 5,070 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 2013 2014 $000 $000 13,510.0 94.6 229.2 3,720.0 593.3 18,147.1 13,290.8 189.5 226.2 5,452.8 2,416.8 21,576.1 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) Controlled entities Interests in subsidiaries are set out in note 39. (c) Transactions with controlled entities Transactions between Orica Limited and entities in the Group during the year included:  Interest revenue received and paid by Orica Limited for money deposited and borrowed;  Dividend income received by Orica Limited; All the above transactions with controlled entities are made on normal commercial terms and conditions and in the ordinary course of business. Net interest received by Orica Limited Dividend income received by Orica Limited 2014 $000 17,456 400,000 2013 $000 8,460 400,000 116 116 Orica Limited Orica Limited 117 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 37. Related party disclosures (continued) (d) 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 associates were: Sales of goods to associates Purchases of goods from associates Dividend income received from associates Income received from leasing Interest income received from associates 2014 $000 333,572 91,113 35,545 2,081 10 Restated 2013 $000 357,977 88,010 25,173 166 6 Additional related party disclosures Additional relevant related party disclosures are shown throughout the notes to the financial statements as follows: Financial income and expenses Trade and other receivables Investments Trade and other payables Interest bearing liabilities Options and shares note 4 note 8 note 11, 39 note 16 note 17 note 21, 36 Orica Limited 117 117 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Industry plans   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. Notes to the Financial Statements For the year ended 30 September 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  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 or defined contribution basis.   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  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. Notes to the Financial Statements For the year ended 30 September 38. Superannuation commitments (continued) (c) (ii) Amounts recognised in the income statement The amounts recognised in the income statement are as follows: Current service cost Interest cost on defined benefit obligation Total included in employee benefits expense (c) (iii) Amounts included in the statement of comprehensive income Actuarial gains/(losses) on defined benefit obligations: Due to changes in demographic assumptions Due to changes in financial assumptions Due to experience adjustments Total Change in irrecoverable surplus other than interest Return on plan assets greater than discount rate Total (losses)/ gains recognised via the Statement of Comprehensive Income Tax benefit/(expense) on total (losses)/ gains recognised via the Statement of Total (losses)/ gains after tax recognised via the Statement of Comprehensive Comprehensive Income Income (c) (iv) Reconciliations Reconciliation of present value of the defined benefit obligations: Balance at the beginning of the year Current service cost Interest cost Actuarial (gains)/losses Contributions by plan participants Benefits paid Settlements/curtailments Exchange differences on foreign funds Balance at the end of the year Weighted average duration of defined benefit obligation at end of period - Years Reconciliation of the fair value of the plan assets: Balance at the beginning of the year Interest income on plan assets Actuarial gains Contributions by plan participants Contributions by employer Benefits paid Settlements/curtailments Exchange differences on foreign funds Balance at the end of the year 2014 $m 17.7 7.2 24.9 2014 $m (6.6) (42.6) (0.4) (49.6) (1.3) 38.3 (12.6) 1.7 (10.9) 2014 $m 748.7 17.7 30.4 49.6 2.7 (50.9) - 0.3 798.5 13.1 2014 $m 542.8 23.2 38.3 2.7 35.4 (50.9) - 2.6 594.1 2013 Restated $m 19.0 7.7 26.7 2013 Restated $m (21.3) 39.4 (12.5) 5.6 0.3 29.4 35.3 (10.9) 24.4 2013 Restated $m 704.8 19.0 25.8 (5.6) 2.9 (32.4) (0.9) 35.1 748.7 13.3 474.1 18.1 29.4 2.9 33.0 (32.4) (1.0) 18.7 542.8 2013 Restated $m   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 2014 was $47.3 million (2013 $47.1 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 $35.4 million (2013 $33.0 million) to defined benefit plans. The Group’s external actuaries have forecast total employer contributions and benefit payments to defined benefit plans of $26.8 million for 2015. (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 2014 $m 690.2 108.3 (594.1) 204.4 1.7 206.1 207.8 (1.7) 206.1 2013 Restated $m 657.7 91.0 (542.8) 205.9 0.3 206.2 206.2 - 206.2 118 118 Orica Limited Orica Limited 119 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 38. Superannuation commitments (continued) (c) (ii) Amounts recognised in the income statement The amounts recognised in the income statement are as follows: Current service cost Interest cost on defined benefit obligation Total included in employee benefits expense (c) (iii) Amounts included in the statement of comprehensive income Actuarial gains/(losses) on defined benefit obligations: Due to changes in demographic assumptions Due to changes in financial assumptions Due to experience adjustments Total Change in irrecoverable surplus other than interest Return on plan assets greater than discount rate Total (losses)/ gains recognised via the Statement of Comprehensive Income Tax benefit/(expense) on total (losses)/ gains recognised via the Statement of Comprehensive Income Total (losses)/ gains after tax recognised via the Statement of Comprehensive Income (c) (iv) Reconciliations Reconciliation of present value of the defined benefit obligations: Balance at the beginning of the year Current service cost Interest cost Actuarial (gains)/losses Contributions by plan participants Benefits paid Settlements/curtailments Exchange differences on foreign funds Balance at the end of the year Weighted average duration of defined benefit obligation at end of period - Years Reconciliation of the fair value of the plan assets: Balance at the beginning of the year Interest income on plan assets Actuarial gains Contributions by plan participants Contributions by employer Benefits paid Settlements/curtailments Exchange differences on foreign funds Balance at the end of the year 2014 $m 17.7 7.2 24.9 2014 $m (6.6) (42.6) (0.4) (49.6) (1.3) 38.3 (12.6) 1.7 (10.9) 2014 $m 748.7 17.7 30.4 49.6 2.7 (50.9) - 0.3 798.5 13.1 2014 $m 542.8 23.2 38.3 2.7 35.4 (50.9) - 2.6 594.1 2013 Restated $m 19.0 7.7 26.7 2013 Restated $m (21.3) 39.4 (12.5) 5.6 0.3 29.4 35.3 (10.9) 24.4 2013 Restated $m 704.8 19.0 25.8 (5.6) 2.9 (32.4) (0.9) 35.1 748.7 13.3 2013 Restated $m 474.1 18.1 29.4 2.9 33.0 (32.4) (1.0) 18.7 542.8 Orica Limited 119 119 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September Notes to the Financial Statements For the year ended 30 September 38. Superannuation commitments (continued) 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. 39. Investments in controlled entities The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities held during 2013 and 2014: Name of Entity Comprising: Quoted in active markets: Equities Debt securities Property Other quoted securities Other: Equities Debt securities Property Insurance contracts Cash and cash equivalents 2014 $m 228.6 185.0 1.4 53.8 - - 45.2 23.8 56.3 594.1 2013 Restated $m 226.1 142.2 1.1 51.3 - - 41.6 27.5 53.0 542.8 The principal assumptions applied in determining the present value of defined benefit obligations and their bases were as follows  Rates of increase in pensionable remuneration, pensions in payment and healthcare costs: historical experience and management ‘s long-term future expectations;   Discount rates: prevailing long-term high quality bond yields, chosen to match the currency and duration of the relevant obligation; and Mortality rates: the local actuaries’ designated mortality rates for the individual plans concerned. The weighted averages for those assumptions and related sensitivity information are presented below. Sensitivity information indicates by how much the defined benefit obligations would increase or decrease if a given assumption were to increase or decrease with no change in other assumptions. Rate of increase in pensionable remuneration Rate of increase in pensions in payment Rate of increase in medical trend (ultimate) Discount rate for pension plans Assumptions used 2014 3.08% 2.28% 4.40% 3.90% 2013 Restated Change of assumptions 3.31% 2.10% 4.41% 4.33% +1% +1% +1% +1% Effect of using alternative assumptions 2014 Increase/(Decrease) $m 25 22 5 (83) The expected age at death for persons aged 65 is 86 years for men and 89 years for women at 30 September 2014. If members are one year older the defined benefit obligation at 30 September 2014 would decrease by $17 million. 120 120 Orica Limited Orica Limited Name of Entity Com pany Orica Limited Controlled Entities ACF and Shirleys Pty Ltd (f) Active Chemicals Chile S.A. Alaska Pacific Powder Company Altona Properties Pty Ltd (f) Aminova International Limited Ammonium Nitrate Development and Production Limited Anbao Insurance Pte Ltd Andean Mining & Chemicals Limited Arboleda S.A ASA Organizacion Industrial S.A. de C.V. Australian Fertilizers Pty Ltd (f) Barbara Limited Beijing Ruichy Minova Synthetic Material Company Limited Bronson and J acobs (H.K.) Limited Bronson and J acobs (Shanghai) International Trading Co. Ltd (c ) Bronson & Jacobs (GZFTZ) Ltd (d) Bronson & Jacobs International Co. Ltd Bronson & Jacobs (Malaysia) Sdn Bhd Bronson & Jacobs Pty Ltd Bronson & Jacobs (S.E. Asia) Pte Limited Bronson & Jacobs (Shanghai) Chemical Trading Co., Ltd (c) BST Manufacturing, Inc. Chemnet Pty Limited (f) CJ SC (ZAO) Carbo-Zakk Controladora DNS de RL de CV Curasalus Insurance Pty Ltd (f) Cyantific Instruments Pty Ltd (f) Dansel Business Corporation Dyno Nobel Nitrogen AB (c) Dyno Nobel VH Company LLC D.C. Guelich Explos ive Company Eastern Nitrogen Pty Ltd (f) Emirates Explosives LLC Emrick & Hill., Inc Engineering Polymers Pty Ltd (f) Eurodyn Sprengmittel GmbH Explosivos de Mexico S.A. de C.V. Explosivos Mexicanos S.A. de C.V. Fortune Properties (Alrode) (Pty) Limited Forbusi Importadora e Exportadora Ltda GeoNitro Limited Hallowell Manufacturing LLC Hebben & Fischbach Chemietechnik GmbH Hunan Orica Nanling Civil Explosives Co., Ltd Indian Explosives Limited Industry Project Cons ultants Pty Ltd (e) Initiating Explosives Systems Pty Ltd (a) International Project Advisors Pty Ltd (e) Jiangsu Orica Banqiao Mining Machinery Place of incorporation if other than Australia Chile USA Hong Kong Thailand Singapore Jersey Panama Mexico UK China Hong Kong China China Thailand Malays ia Singapore China USA Rus sia Mexico Panama Sweden USA USA USA Germany Mexico Mexico Brazil Georgia USA Germany China India South Africa Marplex Australia (Holdings) Pty Ltd (f) Marplex Australia Pty Ltd (f) MIEX UK Limited (b) Mining Quarry Services SPRL Minova AG Minova Arnall Sp. z o.o. Minova Asia Pac ific Ltd Minova Aus tralia Pty Ltd (f) Minova Bohemia s.r.o. 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 MAI GmbH Minova Mexico S.A. de C.V. Minova MineTek Private Limited Minova Mining Services SA Minova Nordic AB Minova Romania S.R.L. Minova Ukraina OOO Minova (Tianjin) Co., Ltd. Minova Weldgrip Limited Mintun 1 Limited Mintun 2 Limited Mintun 3 Limited Mintun 4 Limited MMTT Limited Nitedals Krudtvaerk AS Nitro Asia Company Inc. Nitro Consult AB Nitroamonia de Mexico S.A de C.V. Nobel Indus trier AS Nordenfjeldske Spraengstof AS Northwest Energetic Servic es LLC Nutnim 1 Limited Nutnim 2 Limited OOO Minova OOO Minova TPS Orica-CCM Energy Systems Sdn Bhd Orica-GM Holdings Limited Orica Africa (Pty) Ltd (formerly Orica South Africa (Proprietary) Limited) Orica Argentina S.A.I.C. Orica Australia Pty Ltd (a) Company Limited Joplin Manufacturing Inc. LLC Orica Logistics JV Minova Kazakhstan Limited Liability Partnership USA Kazak hstan Rus sia Orica Belgium S.A. Orica Blast & Quarry Surveys Limited Orica Bolivia S.A. Orica Brasil Ltda China Orica Australia Securities Pty Ltd (f) United Arab Emirates Nitro Consult AS Place of incorporation if other than Australia UK Belgium Switzerland Poland Taiwan Czech Republic Germany Germany China Spain Poland Germany USA UK Poland Austria Mexico India Chile Sweden Romania Ukraine China UK UK UK UK UK UK Norway Philippines Sweden Norway Mexico Norway Norway USA UK UK Russia Russia Malaysia UK South Africa Argentina Belgium UK Bolivia Brazil 121 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 39. Investments in controlled entities The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities held during 2013 and 2014: Name of Entity Com pany Orica Limited Controlled Entities ACF and Shirleys Pty Ltd (f) Active Chemicals Chile S.A. Alaska Pacific Powder Company Altona Properties Pty Ltd (f) Aminova International Limited Ammonium Nitrate Development and Production Limited Anbao Insurance Pte Ltd Andean Mining & Chemicals Limited Arboleda S.A ASA Organizacion Industrial S.A. de C.V. Australian Fertilizers Pty Ltd (f) Barbara Limited Beijing Ruichy Minova Synthetic Material Company Limited Bronson and J acobs (H.K.) Limited Bronson and J acobs (Shanghai) International Trading Co. Ltd (c ) Bronson & Jacobs (GZFTZ) Ltd (d) Bronson & Jacobs International Co. Ltd Bronson & Jacobs (Malaysia) Sdn Bhd Bronson & Jacobs Pty Ltd Bronson & Jacobs (S.E. Asia) Pte Limited Bronson & Jacobs (Shanghai) Chemical Trading Co., Ltd (c) BST Manufacturing, Inc. Chemnet Pty Limited (f) CJ SC (ZAO) Carbo-Zakk Controladora DNS de RL de CV Curasalus Insurance Pty Ltd (f) Cyantific Instruments Pty Ltd (f) Dansel Business Corporation Dyno Nobel Nitrogen AB (c) Dyno Nobel VH Company LLC D.C. Guelich Explos ive Company Eastern Nitrogen Pty Ltd (f) Emirates Explosives LLC Emrick & Hill., Inc Engineering Polymers Pty Ltd (f) Eurodyn Sprengmittel GmbH Explosivos de Mexico S.A. de C.V. Explosivos Mexicanos S.A. de C.V. Fortune Properties (Alrode) (Pty) Limited Forbusi Importadora e Exportadora Ltda GeoNitro Limited Hallowell Manufacturing LLC Hebben & Fischbach Chemietechnik GmbH Hunan Orica Nanling Civil Explosives Co., Ltd Indian Explosives Limited Industry Project Cons ultants Pty Ltd (e) Initiating Explosives Systems Pty Ltd (a) International Project Advisors Pty Ltd (e) Jiangsu Orica Banqiao Mining Machinery Company Limited Joplin Manufacturing Inc. JV Minova Kazakhstan Limited Liability Partnership LLC Orica Logistics Place of incorporation if other than Australia Chile USA Hong Kong Thailand Singapore Jersey Panama Mexico UK China Hong Kong China China Thailand Malays ia Singapore China USA Rus sia Mexico Name of Entity Marplex Australia (Holdings) Pty Ltd (f) Marplex Australia Pty Ltd (f) MIEX UK Limited (b) Mining Quarry Services SPRL Minova AG Minova Arnall Sp. z o.o. Minova Asia Pac ific Ltd Minova Aus tralia Pty Ltd (f) Minova Bohemia s.r.o. 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 MAI GmbH Minova Mexico S.A. de C.V. Minova MineTek Private Limited Minova Mining Services SA Minova Nordic AB Minova Romania S.R.L. Minova Ukraina OOO Minova (Tianjin) Co., Ltd. Minova Weldgrip Limited Mintun 1 Limited Mintun 2 Limited Panama Sweden USA USA Mintun 3 Limited Mintun 4 Limited MMTT Limited Nitedals Krudtvaerk AS Nitro Asia Company Inc. Nitro Consult AB United Arab Emirates Nitro Consult AS USA Germany Mexico Mexico South Africa Brazil Georgia USA Germany China India China USA Kazak hstan Rus sia Nitroamonia de Mexico S.A de C.V. Nobel Indus trier AS Nordenfjeldske Spraengstof AS Northwest Energetic Servic es LLC Nutnim 1 Limited Nutnim 2 Limited OOO Minova OOO Minova TPS Orica-CCM Energy Systems Sdn Bhd Orica-GM Holdings Limited Orica Africa (Pty) Ltd (formerly Orica South Africa (Proprietary) Limited) Orica Argentina S.A.I.C. Orica Australia Pty Ltd (a) Orica Australia Securities Pty Ltd (f) Orica Belgium S.A. Orica Blast & Quarry Surveys Limited Orica Bolivia S.A. Orica Brasil Ltda Place of incorporation if other than Australia UK Belgium Switzerland Poland Taiwan Czech Republic Germany Germany China Spain Poland Germany USA UK Poland Austria Mexico India Chile Sweden Romania Ukraine China UK UK UK UK UK UK Norway Philippines Sweden Norway Mexico Norway Norway USA UK UK Russia Russia Malaysia UK South Africa Argentina Belgium UK Bolivia Brazil Orica Limited 121 121 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 39. Investments in controlled entities (continued) Name of Entity Orica Brasil Produtos Quimicos Ltda Orica Caledonie SAS Orica Canada Inc Orica Canada Investments ULC Orica Caribe, S.A. Orica Centroamerica S.A. Orica Chemic als Argentina S.A. Orica Chemic als Australia Operations Pty Ltd (b) Orica Chemic als Chile S.A. Orica Chemic als Colombia S.A.S. Orica Chemic als Holdings Pty Ltd (formerly Orica Clarendon Pty Ltd) (f) Orica Chemic als New Zealand Limited (formerly Orica Clarendon NZ Limited) Orica Chemic als Peru S.A. Orica Chemic als Trading Agency (Beijing) Co., Ltd. Orica Chile Distribution S.A. Orica Chile S.A. Orica CIS CJSC Orica Colombia S.A.S. Orica Czech Republic s.r.o. Orica Denmark A/S Orica Dominicana S.A. Orica DRC SARL (b) Orica Eesti O U Orica Europe FT Pty Ltd (f) Orica Europe Investments Pty Ltd (f) Orica Europe Management G mbH 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 (f) Orica Explosives Researc h Pty Ltd (f) Orica Explosives Technology Pty Ltd Orica Explosives (Thailand) Co Ltd (d) Orica Explosivos Industriales, S.A. Orica Export Inc. Orica Fiji Ltd Orica Finance Limited Orica Finance Trust Orica Finland OY Orica GEESP Pty Ltd (f) Orica Germany G mbH Orica Ghana Limited Orica Grac e US Holdings Inc. Orica Ground Support Inc (formerly Minova USA Inc) Orica Holdings Pty Ltd (f) Orica Ibéria, S.A. Orica IC Assets Holdings Limited Partnership Orica IC Assets Pty Ltd Orica IC Investments Pty Ltd (f) Orica International IP Holdings Inc. Orica International Pte Ltd Orica Investments (Indonesia) Pty Limited (f) Orica Investments (NZ) Limited Orica Investments (Thailand) Pty Limited (f) Orica Investments Pty Ltd (a) Orica Japan Co. Ltd Place of incorporation if other than Australia Brazil New Caledonia Canada Canada Panama Cos ta Rica Argentina Chile Colombia New Zealand Peru China Chile Chile Rus sia Colombia Czech Republic Denmark Dominican Republic Democratic Republic of Congo Estonia Germany Germany Thailand Spain USA Fiji Finland Germany Ghana USA USA Portugal USA Singapore NZ Japan Name of Entity Orica Kazakhstan J oint Stock Company Orica Logistic s Canada Inc. Orica Mauritania SARL Orica Med Bulgaria AD Orica Mining Services (Namibia) (Proprietary) Limited Orica Mining Services (Hong Kong) Ltd Orica Mining Services Peru S.A. Orica Mining Services Portugal S.A. Orica Mining Services South Afric a (Pty) Ltd (formerly Stratabolt (Pty) Limited Orica Mining Services (Thailand) Limited Orica Mongolia LLC Orica Mountain West Inc. Orica Mozambique Limitada Orica Nelson Q uarry Services Inc. (g) Orica Netherlands Finance B.V. Orica New Zealand Finance Limited Orica New Zealand Limited Orica New Zealand Securities Limited Orica New Zealand Superfunds Securities Limited Orica Nitrates Philippines Inc Orica Nitratos Peru S.A. Orica Nitro Patlayic i Maddeler Sanayi ve Ticaret Anonim Sirketi Orica Nitrogen LLC Orica Nominees Pty Ltd (f) Orica Norway AS Orica Norway Holdings AS Orica Panama S.A. Orica Philippines Inc Orica Poland Sp. z.o.o. Orica Portugal, S.G .P.S., S.A. Orica Qatar LLC Orica Securities (UK) Limited Orica Servicos de Mineracao Ltda Orica Share Plan Pty Limited (f) Orica Senegal SARL Orica Singapore Pte Ltd Orica Slovakia s.r.o. Orica Solomon Islands Pty Limited Orica South Africa Holdings (Pty) Limited (formerly FS Resin (Pty) Limited) Orica St. Petersburg LLC Orica Sweden AB Orica Sweden Holdings AB Orica Tanzania Limited Orica UK Limited Orica US Finance LLC (b) Orica US Holdings General Partnership Orica USA Inc. Orica U.S. Services Inc. Orica Venezuela C.A. Orica Watercare Inc . Orica (Weihai) Explos ives Co Ltd Orica Zambia Limited OriCare Canada Inc. Oricorp Comercial S.A. de C.V. Oricorp Mexico S.A. de C.V. Penlon Proprietary Limited (f) Project Grace Project Grace Holdings Place of incorporation if other than Australia Kazakhstan Canada Mauritania Bulgaria Namibia Hong Kong Peru Portugal South Africa Thailand Mongolia USA Mozambique USA Holland NZ NZ NZ NZ Philippines Peru Turkey USA Norway Norway Panama Philippines Poland Portugal Qatar UK Brazil Senegal Singapore Slovakia Solomon Islands South Africa Russia Sweden Sweden Tanzania UK USA USA USA USA Venezuela USA China Zambia Canada Mexico Mexico UK UK 122 122 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 39. Investments in controlled entities (continued) Name of Entity Project Grace Incorporated PT Bronson & Jacobs Indonesia (formerly PT Baktijala Kencana Citra) PT Kalimantan Mining Services PT Kaltim Nitrate Indonesia PT Orica Mining Services Retec Pty Ltd (f) Rui Jade International Limited Sarkem Pty Ltd (f) Southern Blasting Services, Inc. Sprengmittelvertrieb in Bayern GmbH Sprengstoff-Verwertungs GmbH Stratabolt Products (Pty) Limited Taian Ruichy Minova Ground Control Tec hnology Co., Ltd Tec Harseim Do Brazil Ltda Transmate S.A. Watercare Investments Pty Ltd (b) (f) White Lightning Holding Co Inc Yara Pilbara Nitrates Pty Ltd Place of incorporation if other than Australia USA Indonesia Indonesia Indonesia Indonesia Hong Kong USA G ermany G ermany South Africa China Brazil Belgium Philippines (a) These c ontrolled entities have each entered into a Deed of Cross Guarantee with Orica in respect of relief granted from specific accounting and financial reporting requirements in accordance with the ASIC Class Order 98/1418. (b) Incorporated in 2014. (c ) In liquidation. (d) Liquidated in 2014. (e) Deregistered in 2014. (f) Small proprietary company - no separate statutory accounts are prepared. (g) Divested in 2014. Orica Limited 123 123 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 41. Prior period restatement due to changes in accounting standards The following illustrates the impact upon the comparative period as a result of the application of revised accounting standards (refer note 1 (ii)). Consolidated Financial Statements and Joint Arrangements These standards revise the definition of control and the types of joint arrangements. Following an assessment of these standards, Yara Pilbara Nitrates Pty Ltd is now accounted for as a jointly controlled operation instead of an investment accounted for using the equity method and Orica Mining Services Pilbara Pty Ltd is accounted for as an investment using the equity method instead of consolidated. The significant effects of the new standards are to reduce the investment in associates at 30 September 2012 $40.6 million and 30 September 2013 $237.8 million; increase property, plant and equipment at 30 September 2012 by $36.9 million and 30 September 2013 by $127.8 million; increase intangibles at 30 September 2012 $nil, 30 September 2013 $122.1million. Employee benefits The effect of the employee benefits standard is that the expected return on assets in defined benefit funds are the discount rates applied to the net defined benefit asset or liability. The provision balance as at 30 September 2012 was reduced by $9.5 million and profit after income tax for the year to 30 September 2013 was reduced by $8.8 million. Notes to the Financial Statements For the year ended 30 September 40. Deed of cross guarantee Entities whic h are party to a Deed of Cross Guarantee, entered into in accordance with 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 shown below. Closed Group 2014 $m 2013 Restated $m Summarised balance sheet Cur rent assets Cash and cash equivalents Trade and other receivables Invent ories Other assets Total cur rent assets Non-curr ent assets Trade and other receivables Investments accounted for using the equity method Other financ ial assets Property, plant and equipment Intangible assets Deferred tax ass ets Other assets Total non-current assets Total assets Cur rent liabilities Trade and other payables Interest bearing liabilities (1) Current tax liabilities Provisions Total cur rent liabilities Non-curr ent 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 902.4 351.2 181.0 23.6 1,458.2 23.9 2.9 3,731.6 1,124.9 326.5 172.3 - 5,382.1 6,840.3 486.9 3,176.2 16.7 87.3 3,767.1 1.2 34.3 159.8 208.7 404.0 4,171.1 2,669.2 1,975.0 385.1 309.1 2,669.2 Summarised income statement and retained profits Profit before income tax expense 288.1 Inc ome tax expense (65.7) 222.4 Profit from oper ations Retained profits at the beginning of the year 428.0 Actuarial gains recognised directly in equity 8.0 Ordinary dividends – interim (147.9) Ordinary dividends – final (201.4) Retained profits at the end of the year 309.1 (1) The se i nte res t b e ari ng li ab i li ti e s are pr ed om in an tly w i th Oric a Fi na nce Li mi ted . A t the da te o f th is re p ort the re i s n o i nten tio n to re -ca l l the se bo rro wi ng s. 1,701.9 327.1 222.1 12.1 2,263.2 23.2 1.9 3,482.6 1,163.3 236.0 174.9 19.6 5,101.5 7,364.7 511.5 3,606.9 57.7 108.2 4,284.3 5.2 35.1 142.6 219.3 402.2 4,686.5 2,678.2 1,877.9 372.3 428.0 2,678.2 360.0 (100.9) 259.1 492.6 15.3 (142.5) (196.5) 428.0 124 124 Orica Limited Orica Limited 125 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 41. Prior period restatement due to changes in accounting standards The following illustrates the impact upon the comparative period as a result of the application of revised accounting standards (refer note 1 (ii)). Consolidated Financial Statements and Joint Arrangements These standards revise the definition of control and the types of joint arrangements. Following an assessment of these standards, Yara Pilbara Nitrates Pty Ltd is now accounted for as a jointly controlled operation instead of an investment accounted for using the equity method and Orica Mining Services Pilbara Pty Ltd is accounted for as an investment using the equity method instead of consolidated. The significant effects of the new standards are to reduce the investment in associates at 30 September 2012 $40.6 million and 30 September 2013 $237.8 million; increase property, plant and equipment at 30 September 2012 by $36.9 million and 30 September 2013 by $127.8 million; increase intangibles at 30 September 2012 $nil, 30 September 2013 $122.1million. Employee benefits The effect of the employee benefits standard is that the expected return on assets in defined benefit funds are the discount rates applied to the net defined benefit asset or liability. The provision balance as at 30 September 2012 was reduced by $9.5 million and profit after income tax for the year to 30 September 2013 was reduced by $8.8 million. Orica Limited 125 125 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 41. Prior period restatement due to changes in accounting standards (continued) Income Statement For the year ended 30 September 2013: 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 Total 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 As reported 2013 $m 6,898.1 43.0 Adjustments 2013 $m (12.9) - 35.9 (3,343.7) (16.0) (1,230.6) (247.9) (36.5) (322.7) (196.1) (5.7) (326.2) (66.9) (233.3) 33.4 (5,956.3) 984.8 34.2 (184.4) (150.2) 834.6 (213.4) 621.2 601.6 19.6 621.2 - - - (12.7) - - 4.9 - - - - 1.0 3.0 (3.8) (16.7) - - - (16.7) 5.4 (11.3) (9.1) (2.2) (11.3) Restated 2013 $m 6,885.2 43.0 35.9 (3,343.7) (16.0) (1,243.3) (247.9) (36.5) (317.8) (196.1) (5.7) (326.2) (66.9) (232.3) 36.4 (5,960.1) 968.1 34.2 (184.4) (150.2) 817.9 (208.0) 609.9 592.5 17.4 609.9 Earnings per share Earnings per share attributable to ordinary shareholders of Orica Limited: Total attributable to ordinary shareholders of Orica Limited: Basic Diluted cents cents cents 165.4 165.2 (2.5) (2.5) 162.9 162.7 126 126 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September Notes to the Financial Statements For the year ended 30 September 41. Prior period restatement due to changes in accounting standards (continued) 41. Prior period restatement due to changes in accounting standards (continued) Changes in inventories of finished goods and work in progress Raw materials and consumables used and finished goods purchased for resale Share of net profit of associates accounted for using the equity method Income Statement For the year ended 30 September 2013: Sales revenue Other income Expenses 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 Total 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 2013 $m 6,898.1 43.0 35.9 (3,343.7) (16.0) (1,230.6) (247.9) (36.5) (322.7) (196.1) (5.7) (326.2) (66.9) (233.3) 33.4 (5,956.3) 984.8 34.2 (184.4) (150.2) 834.6 (213.4) 621.2 601.6 19.6 621.2 2013 $m (12.9) - (12.7) - - - - - - - - - 4.9 1.0 3.0 (3.8) (16.7) - - - (16.7) 5.4 (11.3) (9.1) (2.2) (11.3) 2013 $m 6,885.2 43.0 35.9 (3,343.7) (16.0) (1,243.3) (247.9) (36.5) (317.8) (196.1) (5.7) (326.2) (66.9) (232.3) 36.4 (5,960.1) 968.1 34.2 (184.4) (150.2) 817.9 (208.0) 609.9 592.5 17.4 609.9 Earnings per share Earnings per share attributable to ordinary shareholders of Orica Limited: Total attributable to ordinary shareholders of Orica Limited: Basic Diluted cents cents cents 165.4 165.2 (2.5) (2.5) 162.9 162.7 As reported Adjustments Restated Statement of Comprehensive Income For the year ended 30 September 2013: Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Cash flow hedges Effective portion of changes in fair value Transferred loss to Income Statement Tax on cash flow hedges Net Cash flow hedges Exchange differences on translation of foreign operations Exchange gain/(loss) on translation of foreign operations Net gain/(loss) on hedge of net investments in foreign subsidiaries Tax on exchange differences on translating foreign operations Net exchange differences on translation of foreign operations Items that will not be reclassified subsequently to profit or loss: Retained earnings Actuarial benefits/(losses) on defined benefit plans Tax (expense)/benefit on actuarial benefits/(losses) on defined benefit plans Net retained earnings Other comprehensive income for the year Total comprehensive income for the year Attributable to: Shareholders of Orica Limited Non-controlling interests Total comprehensive income for the year As reported 2013 $m Adjustments 2013 $m Restated 2013 $m 621.2 (11.3) 609.9 15.0 (4.1) (3.3) 7.6 157.6 178.9 23.5 360.0 24.9 (7.7) 17.2 384.8 1,006.0 973.4 32.6 1,006.0 - - - - 19.8 - - 19.8 10.4 (3.2) 7.2 27.0 15.7 17.9 (2.2) 15.7 15.0 (4.1) (3.3) 7.6 177.4 178.9 23.5 379.8 35.3 (10.9) 24.4 411.8 1,021.7 991.3 30.4 1,021.7 126 Orica Limited Orica Limited 127 127 Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 Notes to the Financial Statements For the year ended 30 September 41. Prior period restatement due to changes in accounting standards (continued) Balance Sheet As at 30 Septembe r 2013: 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 Non-controlling interests in controlled entities Total equity As reported 2013 $m Adjustments 2013 $m Restated 2013 $m 225.3 1,050.6 793.1 69.5 11.4 2,149.9 97.3 435.5 1.4 0.7 3,455.4 2,217.9 218.5 26.7 6,453.4 8,603.3 1,235.8 19.5 443.9 80.0 173.3 1,952.5 12.3 55.7 2,112.7 52.4 423.6 2,656.7 4,609.2 3,994.1 1,877.9 (680.9) 2,656.0 3,853.0 141.1 3,994.1 (2.9) (1.3) - 4.1 - (0.1) - (237.8) - - 127.8 122.1 (1.8) - 10.3 10.2 4.2 - - (1.7) - 2.5 - - - - (8.1) (8.1) (5.6) 15.8 - 19.8 (1.8) 18.0 (2.2) 15.8 222.4 1,049.3 793.1 73.6 11.4 2,149.8 97.3 197.7 1.4 0.7 3,583.2 2,340.0 216.7 26.7 6,463.7 8,613.5 1,240.0 19.5 443.9 78.3 173.3 1,955.0 12.3 55.7 2,112.7 52.4 415.5 2,648.6 4,603.6 4,009.9 1,877.9 (661.1) 2,654.2 3,871.0 138.9 4,009.9 128 128 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 y t i u q e l a t o T - n o N p U - p e t S l a t o T g n i l l o r t n o c e c n e r e f e r P s t s e r e t n i s e i t i r u c e S s t s e r e t n i g n i l l o r t n o c e v r e s e r - n o n f o e s a h c r u p n o i t l a s n a r t e v r e s e r y t i u q E m o r f g n s i i r a y c n e r r u c i n g e r o F w o l f h s a C d e s a b e r a h S i g n g d e h e v r e s e r s t n e m y a p e v r e s e r d e n a i t e R i s g n n r a e y r a n d r O i s e r a h s m $ m $ m $ m $ m $ m $ m $ m $ m $ m $ ) d e u n i t n o c ( s d r a d n a t s g n i t n u o c c a n i s e g n a h c o t e u d t n e m e t a t s e r d o i r e p r o i r P . 1 4 r e b m e t p e S 0 3 d e d n e r a e y e h t r o F y t i u q E n i s e g n a h C f o t n e m e t a t S 3 1 0 2 r e b m e t p e S 0 3 d e d n e r a e y e h t r o F I S T N E M E T A s T t n S e L m A e C t a N t S A N F E H T O T S E T O N 4 l a 1 0 i 2 c r e n b m a e n t p i e F S 0 3 e d h e d t n e o r a t e y s e h e t t r o o F N I 6 . 5 7 8 , 3 3 . 1 2 1 8 . 3 2 4 ) 5 . 7 6 2 ( 3 . 6 5 1 1 . 0 7 . 5 7 8 , 3 4 . 6 4 9 . 7 1 ) 9 . 0 ( ) 0 . 0 0 5 ( ) 0 . 0 1 ( ) 8 . 8 3 3 ( 6 . 6 4 2 , 3 - 0 . 1 2 3 . 1 2 1 ) 3 . 7 ( 7 . 3 1 2 . 1 - - - ) 2 . 1 ( ) 0 . 0 1 ( 0 . 5 2 1 6 . 6 4 2 , 3 0 . 5 2 1 ) 3 . 1 1 ( 2 . 1 2 6 9 . 9 0 6 8 . 4 8 3 0 . 7 2 8 . 1 1 4 7 . 1 2 0 , 1 8 . 6 8 0 . 6 1 ) 3 . 3 ( ) 4 . 0 ( ) 5 . 8 1 ( ) 0 . 9 3 3 ( 9 . 9 0 0 , 4 ) 2 . 2 ( 6 . 9 1 4 . 7 1 0 . 3 1 - 0 . 3 1 4 . 0 3 0 . 4 - ) 6 . 1 ( ) 4 . 0 ( - ) 5 . 8 1 ( 9 . 8 3 1 9 2 1 - - - - - - 0 . 0 9 4 0 . 0 9 4 ) 0 . 0 9 4 ( - - - - - - - - - - - - - - - - - - - 3 . 4 6 2 , 3 ) 4 . 7 8 1 ( ) 5 . 5 1 7 ( . ) 5 1 1 ( 1 . 0 8 . 2 0 4 4 . 4 6 2 , 3 ) 2 . 0 6 2 ( 6 . 2 4 1 2 . 5 4 9 . 7 1 - 3 . 0 ) 0 . 0 1 ( ) 8 . 8 3 3 ( - - - - - - - - - - ) 4 . 7 8 1 ( - - ) 5 . 5 1 7 ( ) 5 . 4 1 2 ( ) 5 . 4 1 2 ( - - ) 2 4 ( . ) 2 4 ( . . ) 5 1 1 ( - - - - - - - - - - - - 6 . 1 2 1 , 3 ) 4 . 7 8 1 ( ) 0 . 0 3 9 ( . ) 7 5 1 ( 6 . 1 2 1 , 3 ) 4 . 7 8 1 ( ) 0 . 0 3 9 ( . ) 7 5 1 ( ) 1 . 9 ( 6 . 1 0 6 5 . 2 9 5 8 . 1 7 3 0 . 7 2 8 . 8 9 3 3 . 1 9 9 8 . 2 8 0 . 6 1 ) 7 . 1 ( - - ) 0 . 9 3 3 ( - - - - - - - - - - - - ) 7 . 1 ( - - - 8 . 9 1 0 . 7 4 3 8 . 6 6 3 8 . 6 6 3 - - - - - - - - - - 6 7 . 6 7 . 6 7 . - - - - - - 4 . 5 6 - 4 . 5 6 - - - - 9 . 7 1 - - - - 3 . 3 8 3 . 3 8 - - - - - - - - - - - - 0 . 6 1 0 . 1 7 8 , 3 ) 1 . 9 8 1 ( ) 2 . 3 6 5 ( ) 1 8 ( . 3 . 9 9 1 . 0 4 . 3 6 3 2 , 5 . 3 6 3 2 , ) 5 . 1 4 ( 8 . 2 0 4 3 . 1 6 3 - - 3 . 0 ) 0 . 0 1 ( ) 8 . 8 3 3 ( - 3 . 6 7 3 2 , 6 . 1 0 6 3 . 6 7 3 2 , ) 1 . 9 ( 5 . 2 9 5 2 . 7 1 2 . 7 4 . 4 2 9 . 6 1 6 - - - - - ) 0 . 9 3 3 ( 2 . 4 5 6 2 , d e t i m i L a c i r O 9 - 9 - - - . 9 4 7 , . 9 4 7 , 2 . 5 4 - - - - - 1 1 - - - - - - - . 5 9 7 , . 5 9 7 , 8 . 2 8 - - - - - 9 . 7 7 8 , 1 1 1 1 1 y t i u q e n i y l t c e r i d d e d r o c e r , s r e n w o h t i w s n o i t c a s n a r T d e t a t s e r - r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T y t i u q e d e t u b i r t n o c n i s e g n a h c l a t o T e s n e p x e s t n e m y a p d e s a b - e r a h S d e t r o p e r s a - 1 1 0 2 r e b o t c O 1 t a e c n a a B l d e t a t s e r - 1 1 0 2 r e b o t c O 1 t a e c n a a B l e m o c n i e v i s n e h e r p m o c r e h O t r a e y e h t r o f t i f o r P s t n e m t s u d A j 2 1 0 2 s e i t i l i b a i l g n i r a e b t s e r e t n i o t n o i t a c i f i l s s a c e R y t i u q e n i y l t c e r i d d e d r o c e r , s r e n w o h t i w s n o i t c a s n a r T d e t a t s e r - r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T d e t a t s e r - e m o c n i e v i s n e h e r p m o c r e h O t y t i u q e d e t u b i r t n o c n i s e g n a h c l a t o T e s n e p x e s t n e m y a p d e s a b - e r a h S d e t a t s e r - r a e y e h t f o d n e e h t t a e c n a l a B d e t r o p e r s a - r a e y e h t r o f t i f o r P 2 1 0 2 r e b o t c O 1 t a e c n a a B l e m o c n i e v i s n e h e r p m o c r e h O t d e t a t s e r - r a e y e h t r o f t i f o r P s t n e m t s u d A j s t n e m t s u d A j 3 1 0 2 s t s e r e t n i g n i l l o r t n o c - n o n o t d i l a p / d e r a c e d s d n e d v D i i i s n o i t u b i r t s d / s d n e d v D i i s t s e r e t n i g n i l l o r t n o c - n o n f o t n e m t s e v D i s t s e r e t n i g n i l l o r t n o c - n o n o t d i l a p / d e r a c e d s d n e d v D i i s t s e r e t n i g n i l l o r t n o c - n o n f o t n e m t s e v D i i s n o i t u b i r t s d / s d n e d v D i i d e t a t s e r - r a e y e h t f o d n e e h t t a e c n a l a B 129 s t s e r e t n i g n i l l o r t n o c - n o n f o n o i t i s i u q c A Orica Annual Report 2014 Notes to the Financial Statements For the year ended 30 September 41. Prior period restatement due to changes in accounting standards (continued) Statement of Cash Flows For the year ended 30 September 2013 Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Borrowing costs Dividends received Other operating revenue received Net income taxes paid Net cash flows from operating activities Cash flows from investing activities Payments for property, plant and equipment Payments for intangibles Payments for purchase of investments Payments for purchase of businesses/controlled entities Proceeds from sale of property, plant and equipment Proceeds from sale of investments Proceeds from sale of businesses/controlled entities Net cash flows used in investing activities Cash flows from financing activities Proceeds from long term borrowings Repayment of long term borrowings 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 Dividends paid - non-controlling interests Net cash (used in)/from financing activities Net decrease in cash held Cash at the beginning of the year Effects of exchange rate changes on cash Cash at the end of the year As reported 2013 $m Inflows/ (Outflows) Adjustments 2013 $m 7,615.4 (6,307.7) 34.0 (187.3) 25.2 20.9 (141.8) 1,058.7 (542.3) (30.3) (201.1) (2.7) 31.3 1.3 0.5 (743.3) 6,585.1 (6,776.2) 112.1 (1.1) 39.4 4.0 (9.6) (286.0) (18.8) (351.1) (35.7) 227.9 13.9 206.1 (11.6) 12.6 - - - - 1.9 2.9 (85.1) (122.1) 200.2 - - - - (7.0) - - - - - - - - - - (4.1) 1.2 - (2.9) Restated 2013 $m Inflows/ (Outflows) 7,603.8 (6,295.1) 34.0 (187.3) 25.2 20.9 (139.9) 1,061.6 (627.4) (152.4) (0.9) (2.7) 31.3 1.3 0.5 (750.3) 6,585.1 (6,776.2) 112.1 (1.1) 39.4 4.0 (9.6) (286.0) (18.8) (351.1) (39.8) 229.1 13.9 203.2 130 130 Orica Limited Orica Annual Report 2014NOTES TO THE FINANCIAL STATEMENTSFor the year ended 30 September 2014 DIRECTORS’ DECLARATION 131 Orica Annual Report 2014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 2014, 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 41 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. 132 . 132 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation. 133 TEN YEAR FINANCIAL STATISTICS Ten Year Financial Statistics Orica consolidated Sales Earnings before depreciation, amortisation, net borrowing costs and tax Depreciation and amortisation (excluding goodwill) Goodwill amortisation Earnings before net borrowing costs and tax (EBIT) Net borrowing costs Individually material items before tax Taxation expense Non-controlling interests Profit/(loss) after tax and individually material items Individually material items after tax attributable to members of Orica Limited Profit after tax before individually material items net of tax Dividends/distributions Current assets Property, plant and equipment Investments Intangibles Other non-current assets Total assets Current borrowings and payables Current provisions Non current borrowings and payables Non current provisions Total liabilities Net assets Equity attributable to ordinary shareholders of Orica Limited Equity attributable to Step-Up Preference Securities holders Equity attributable to non-controlling interests Total shareholders’ equity Number of ordinary shares on issue at year end Weighted average number of ordinary shares on issue Basic earnings per ordinary share before individually material items including individually material items Dividends per ordinary share Dividend franking Dividend yield (based on year end share price) Closing share price range – High Low Year end Stockmarket capitalisation at year end Net tangible assets per share Profit margin (earnings before net borrowing costs and tax/sales) Net debt Gearing (net debt/net debt plus equity) Interest cover (EBIT/net borrowing costs excluding capitalised interest) Net capital expenditure on plant and equipment (Cash Flow) Net capital proceeds/(expenditure) on acquisitions (Cash Flow) Return on average shareholders' funds before individually material items including individually material items millions millions cents cents cents % % $m $ % % times % % Restated (1 ) 2013 $m 6,885.2 1,252.5 (284.4) - 968.1 (150.2) - (208.0) (17.4) 592.5 - 592.5 339.0 2,149.8 3,583.2 197.7 2,340.0 342.8 8,613.5 1,703.4 251.6 2,180.7 467.9 4,603.6 4,009.9 3,871.0 - 138.9 4,009.9 368.2 363.7 162.9 162.9 94.0 74.5 4.7 $27.31 $17.61 $20.06 7,386.1 4.16 14.1 2,334.2 36.8 6.0 (596.1) (2.2) 16.9 16.9 2014 $m 6,796.3 1,230.5 (300.8) - 929.7 (115.8) - (187.9) (23.5) 602.5 - 602.5 349.3 2,137.3 3,794.9 208.0 2,388.5 310.5 8,839.2 1,775.8 181.5 1,997.0 485.8 4,440.1 4,399.1 4,263.0 - 136.1 4,399.1 372.7 368.1 163.7 163.7 96.0 37.5 5.1 $24.78 $18.51 $18.90 7,044.0 5.03 13.7 2,236.7 33.7 6.5 (392.7) 0.4 14.8 14.8 (1) Income statement for 2013 and balance sheets for 2013 and 2012 are stated under revised accounting standards (refer to note 1 (ii)). 134 Orica Limited 135 Orica Annual Report 2014 TEN YEAR FINANCIAL STATISTICS Ten Year Financial Statistics Restated (1) 2012 $m 6,674.1 1,274.0 (251.4) - 1,022.6 (128.2) (367.2) (103.4) (21.0) 402.8 (247.4) 650.2 341.0 2,033.2 3,071.3 165.8 2,046.9 295.2 7,612.4 1,412.9 165.3 2,275.1 512.5 4,365.8 3,246.6 3,121.6 - 125.0 3,246.6 365.6 360.6 177.9 109.2 92.0 41.3 3.7 $27.97 $22.40 $24.87 9,092.5 2.94 15.3 2,298.1 41.4 6.1 (558.0) (11.3) 18.9 11.7 2011 $m 6,182.3 1,252.5 (224.2) - 1,028.3 (123.5) - (241.4) (21.1) 642.3 - 642.3 359.5 1,985.2 2,709.7 172.1 2,505.4 255.8 7,628.2 1,229.0 228.4 1,769.3 525.9 3,752.6 3,875.6 3,264.3 490.0 121.3 3,875.6 364.0 357.5 173.5 173.5 90.0 78.9 3.8 $27.75 $21.44 $23.48 8,546.7 2.08 16.6 1,408.1 26.6 6.4 (646.6) (60.9) 17.7 17.7 2010 $m 6,539.3 1,340.9 (239.5) - 1,101.4 (127.6) 715.6 (334.7) (36.0) 1,318.7 642.9 675.8 1,098.3 1,831.9 2,235.2 162.6 2,510.9 248.8 6,989.4 1,215.5 343.4 1,305.1 492.8 3,356.8 3,632.6 3,032.7 490.0 109.9 3,632.6 362.1 355.5 185.6 366.4 95.0 73.7 3.7 $27.75 $21.95 $25.71 9,310.0 1.44 16.8 1,051.6 22.4 7.5 (517.3) (162.1) 18.3 35.7 2009 $m 7,411.0 1,330.2 (247.7) - 1,082.5 (133.5) (139.6) (228.0) (39.6) 541.8 (104.3) 646.1 378.0 1,994.4 2,075.0 168.3 2,756.5 360.0 7,354.2 1,316.9 298.8 1,279.8 485.9 3,381.4 3,972.8 3,370.7 490.0 112.1 3,972.8 360.0 353.9 174.6 145.2 97.0 35.1 4.1 $24.15 $11.30 $23.50 8,459.0 1.71 14.6 1,094.5 21.6 7.8 (345.6) (107.3) 16.0 13.4 2008 $m 6,544.1 1,188.8 (218.7) - 970.1 (157.7) (41.6) (203.5) (27.7) 539.6 (32.7) 572.3 326.0 2,458.2 2,052.3 209.3 3,012.6 275.4 8,007.8 1,777.8 301.8 1,107.2 502.6 3,689.4 4,318.4 3,731.5 490.0 96.9 4,318.4 359.2 320.0 170.0 159.8 94.0 36.2 4.5 $32.18 $20.95 $20.95 7,525.2 2.00 14.8 1,020.5 19.1 6.1 (394.8) (866.2) 16.9 15.9 2007 $m 5,527.2 995.9 (183.2) - 812.7 (122.6) (22.3) (154.4) (25.7) 487.7 (10.1) 497.8 303.7 1,955.2 1,742.9 125.6 2,055.5 335.2 6,214.4 1,625.4 332.3 1,098.6 530.5 3,586.8 2,627.6 2,076.7 490.0 60.9 2,627.6 307.9 306.3 149.5 146.3 89.0 34.8 3.0 $33.90 $21.78 $30.10 9,268.2 0.07 14.7 1,305.7 33.2 6.6 (280.9) (917.7) 19.2 18.8 2006 $m 5,359.2 814.6 (156.9) - 657.7 (92.2) 70.8 (74.9) (22.3) 539.1 158.8 380.3 207.1 2,479.7 1,603.1 125.9 1,141.3 362.8 5,712.8 981.0 319.1 1,272.5 472.0 3,044.6 2,668.2 2,126.6 490.0 51.6 2,668.2 309.2 300.8 126.4 179.2 74.0 40.5 3.3 $26.45 $17.78 $22.47 6,948.1 3.19 12.3 302.1 10.2 7.1 (329.2) (875.6) 19.3 27.3 2005 $m 5,126.7 741.3 (140.4) - 600.9 (102.5) (187.7) (88.8) (13.6) 208.3 (131.6) 339.9 190.6 1,781.6 1,593.7 49.1 634.3 252.5 4,311.2 958.9 218.7 1,287.2 326.9 2,791.7 1,519.5 1,327.9 - 191.6 1,519.5 273.1 272.8 124.6 76.3 71.0 32.4 3.4 $21.55 $14.32 $21.00 5,735.2 2.53 11.7 1,112.1 42.3 5.9 (234.9) (59.2) 25.5 15.6 136 Orica Limited 135 Orica Annual Report 2014 Shareholders' Statistics SHAREHOLDERS’ STATISTICS As at 6 November 2014 As at 6 November 2014 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 40,318 18,705 1,840 791 62 61,716 65.33% 16,215,606 38,670,991 30.31% 12,628,369 2.98% 14,917,439 1.28% 0.10% 290,310,886 100.00% 372,743,291 4.35% 10.37% 3.39% 4.00% 77.88% 100.00% Included in the above total are 2,395 shareholders holding less than a marketable parcel of 25 shares. The holdings of the 20 largest holders of fully paid ordinary shares represent 74.33% of that class of shares. Twenty largest ordinary fully paid shareholders HSBC Custody Nominees (Australia) Limited JP Morgan Nominees Australia Limited National Nominees Limited Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited BNP Paribas Nominees Pty Ltd RBC Investor Services Australia Nominees Pty Limited Australian Foundation Investment Company Limited Argo Investments Limited RBC Investor Services Australia Nominees Pty Limited AMP Life Limited The Senior Master of the Supreme Court COMMON FUND NO 3 BNP Paribas Nominees Pty Ltd HSBC Custody Nominees (Australia) Limited Australian United Investment Company Limited Gwynvill Investments Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Custodial Services Limited UBS Nominees Pty Ltd Avanteos Investments Limited Total Shares 147,209,448 54,767,278 30,368,198 11,794,094 7,005,903 5,422,273 3,594,662 2,711,626 2,557,983 2,405,520 1,670,127 1,144,592 1,111,163 1,078,761 1,000,000 711,574 653,482 645,631 617,091 609,524 277,078,930 % of total 39.49% 14.69% 8.15% 3.16% 1.88% 1.45% 0.96% 0.73% 0.69% 0.65% 0.45% 0.31% 0.30% 0.29% 0.27% 0.19% 0.18% 0.17% 0.17% 0.16% 74.33% Register of substantial shareholders The names of substantial shareholders in the company, and the number of fully paid ordinary shares in which each has an interest, as disclosed in substantial shareholder notices to the Company on the respective dates, are as follows: 2 July 2014 11 July 2014 19 September 2014 Harris Associates Schroder Investment Management M&G Investment Management 47,453,544 23,250,167 21,885,573 12.79% 6.24% 5.87% 134 136 Orica Limited Orica Annual Report 2014 SHAREHOLDER INFORMATION ANNUAL GENERAL MEETING 10.30am Thursday, 29 January 2015 Touring Hall, Melbourne Museum 11 Nicholson Street, Carlton, VIC 3053 STOCK EXCHANGE LISTING Orica’s shares are listed on the Australian Securities Exchange (ASX) and are traded under the code ORI. ORICA SHARE REGISTRY Link Market Services Limited Level 12, 680 George Street, Sydney NSW 2000 Locked Bag A14 Sydney South, NSW, 1235 Telephone: 1300 301 253 (for callers within Australia) International: +61 2 8280 7111 Facsimile: +61 2 9287 0303 Email: registrars@linkmarketservices.com.au Website: www.linkmarketservices.com.au/orica TAX AND DIVIDEND PAYMENTS For Australian registered shareholders who have not quoted their Tax File Number (TFN) or Australian Business Number (ABN), the Company is obliged to deduct tax at the top marginal rate plus Medicare levy from unfranked and/or partially franked dividends. If you have not already quoted your TFN/ ABN, you may do so by contacting the Share Registrar or by registering your TFN/ABN at their website at: www.linkmarketservices.com.au/orica. DIVIDEND PAYMENTS Your dividends will be paid in Australian dollars by cheque, mailed to the address recorded on the share register. Why not have us bank your dividend payments for you? How would you like to have immediate access to your dividend payment? Your dividend payments can be credited directly into any nominated bank, building society or credit union account in Australia. Dividends paid by direct credit appear in your account as cleared funds, thus allowing you to access them on payment date. You may elect to receive your dividends by way of direct credit by completing an application form available by contacting the Share Registrar or enter the details at their website at www.linkmarketservices.com.au/orica. Shareholders should be aware that any cheques that remain uncashed for more than twelve months from a dividend payment are required to be handed over to the State Revenue Office Victoria under the Unclaimed Money Act. Shareholders are encouraged to cash cheques promptly or to have their dividends directly deposited into their bank accounts. DIVIDEND REINVESTMENT PLAN The Dividend Reinvestment Plan (DRP) enables Orica’s fully paid ordinary shareholders having a registered address or being resident in Australia or New Zealand to reinvest all or part of their dividends in additional Orica fully paid ordinary shares. Applications are available from the Share Registrar. CONSOLIDATION OF MULTIPLE HOLDINGS If you have multiple issuer sponsored holdings that you wish to consolidate into a single account, please notify the Share Registrar in writing, quoting your full registered names and Securityholder Reference Number (SRN) for these accounts and nominating the account to which the holdings are to be consolidated. CHANGE OF NAME AND/OR ADDRESS For issuer-sponsored holdings: please notify the Share Registrar in writing if you change your name and/or address (please supply details of your new/previous name, your new/previous address and your SRN), or change the details online at their website at www.linkmarketservices.com.au/orica. For CHESS/broker sponsored holdings: please notify your broker in writing if you change your name and/or address. SHARE ENQUIRIES Shareholders seeking information about their shareholding or dividends should contact Orica’s Share Registrar, Link Market Services Limited. Contact details are above. Callers within Australia can obtain information on their investments with Orica by calling the Investor Line on 1300 301 253. This is a 24 hour, seven days a week service. Before you call, make sure you have your SRN or Holder Identification Number (HIN) handy. You can do so much more online via the internet, visit their website: www.linkmarketservices.com.au/orica. Orica Annual Report 2014 137 Orica Annual Report 2014 Shareholder Information Access a wide variety of holding information, make some changes online or download forms. You can: • Check your current and previous holding If you wish to change your Annual Report election, please contact the Share Registrar or visit their website: www.linkmarketservices.com.au/orica. balances. Copies of reports are available on request. Telephone: +61 3 9665 7111 Facsimile: +61 3 9665 7937 Email: companyinfo@orica.com The Sustainability Report is now available online on the Orica website: www.orica.com. It provides a review of the Company’s performance in the twelve months to 30 September. AUDITORS KPMG ORICA LIMITED ABN 24 004 145 868 Registered address and head office: Level 3, 1 Nicholson Street East Melbourne, Victoria 3002 Australia Postal address: GPO Box 4311 Melbourne, Victoria 3001 Telephone: +61 3 9665 7111 Facsimile: +61 3 9665 7937 Email: companyinfo@orica.com Website: www.orica.com INVESTOR RELATIONS Telephone: +61 3 9665 7111 Email: companyinfo@orica.com • Choose your preferred annual report options. • Update your address details. • Update your bank details. • Confirm whether you have lodged your TFN or ABN exemption. • Register your TFN/ABN. • Check transaction and dividend history. • Enter your email address. • Check the share prices and graphs. • Download a variety of instruction forms. • Subscribe to email announcements. You can access this information via a security login using your SRN or HIN as well as your surname (or company name) and postcode (must be the postcode recorded on your holding record). ORICA COMMUNICATIONS Orica’s website www.orica.com offers shareholders details of the latest share price, announcements to the ASX, investor and analyst presentations, webcasts and the Chairman’s and Managing Director’s AGM addresses. The website also provides further information about the Company and offers insights into Orica’s business. Orica’s printed communications include the Annual Report and Sustainability Report. We can now provide electronic dividend statements, notices of meeting and proxy forms. Electronic transmission enhances shareholder communication, results in significant cost savings for the Company and is more environmentally friendly. Shareholders wishing to receive all communications electronically should visit the Share Registrar’s website: www.linkmarketservices.com.au/orica to register their preference. Shareholders may elect to receive a copy of the Annual Report or notification by email when the Annual Report is available online at www.orica.com. If you do not make an Annual Report election you will not receive a copy of the Annual Report. 138 SHAREHOLDER TIMETABLE* Orica Annual Report 2014 31 MARCH 2015 ORICA HALF YEAR END 12 May 2015 Half Year Profit and Interim Dividend Announced 1 June 2015 Books Close for 2015 Interim Ordinary Dividend 2 June 2015 1 July 2015 Last date to participate in Dividend Reinvestment Plan Interim Ordinary Dividend Paid 30 SEPTEMBER 2015 ORICA YEAR END 18 November 2015 Full Year Profit and Final Dividend Announced 27 November 2015 Books Close for 2015 Final Ordinary Dividend 30 November 2015 Last date to participate in Dividend Reinvestment Plan 18 December 2015 Final Ordinary Dividend Paid 29 JANUARY 2016 ANNUAL GENERAL MEETING 2015 * Timing of events is subject to change. 139 This page was left blank intentionally. Cover: Revive Pure Silk 100% Recycled is certified carbon neutral and FSC 100% Recycled certified. It is manufactured process chlorine free (PCF) by an ISO 14001 certified mill. Text: Pacesetter Coated is an FSC Mix Certified paper, which ensures that all virgin pulp is derived from well-managed forests and controlled sources. It contains elemental chlorine free bleached pulp and is manufactured by an ISO 14001 certified mill. Orica Limited ABN 24 004 145 868 Telephone: +61 3 9665 7111 Head Office: 1 Nicholson Street East Melbourne Victoria 3002 Australia Postal Address: GPO Box 4311 Melbourne Victoria 3001 Facsimile: +61 3 9665 7937 Email: companyinfo@orica.com Web: www.orica.com 

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