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AnnuAl RepORt
WHERE WE
OPERATE
Orica Global Presence
Head Office
Major Office
Technical/Monitoring Centre
MAJOR MANUFACTURING SITES
Ammonium Nitrate
Ammonium Nitrate Emulsion
Initiating Systems/Packaged Explosives
Sodium Cyanide
CONTENTS
About Us
2019: Our Year
Chairman’s Message
Managing Director’s Message
Sustainability
Board Members
Executive Committee
Review of Operations
Directors’ Report
Directors’ Report – Remuneration Report 2019 (Audited)
Lead Auditor’s Independence Declaration
Income Statement
Statement of Comprehensive Income
Balance Sheet
Statement of Changes in Equity
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Auditor’s Report
Five Year Financial Statistics
Shareholders’ Statistics
Corporate Directory
02
04
06
07
08
10
11
12
29
33
52
53
54
55
56
57
58
101
102
108
110
112
NO.1 GLOBAL
SUPPLIER OF
COMMERCIAL
EXPLOSIVES
MORE THAN
12,000
EMPLOYEES
CUSTOMERS
IN MORE
THAN 100
COUNTRIES
Orica Annual Report 2019
ANNuAl REpORT 2019
01
ABOUT US
At Orica, we’re transforming drill and blast through
technology to make mining safer and more efficient.
Since our early beginnings in 1874, we’ve grown to become
the global leader in mining and civil blasting, with operations
spanning more than 100 countries. We’re here to create, develop
and deliver blasting solutions that help miners extract resources
more productively, while helping manage their critical risks.
With more than 145 years of experience and innovation, we do
this safely and responsibly while continually finding ways to reduce
our impact on the environment and make a lasting contribution
to the communities around our operations.
We are committed to leading the industry’s transformation
through digital technologies and automation, realising growth
opportunities and delivering long‑term value for our shareholders.
Our more than 12,000 employees and contractors drive our
performance and ensure our success now and into the future.
As a truly global company, we know that our inclusive and diverse
workforce – that is representative of the countries where we
operate – is our greatest strength. We work together as one
team and are guided by the values of Our Charter.
Our world‑leading products and services range from blasting to
geotechnical monitoring, mineral processing and ground support
across the mining, quarrying, construction, agriculture and oil
and gas markets. Backed by our flexible global supply chain
of manufacturing plants, joint ventures and supply alliances,
we’re able to deliver on time, every time, no matter where our
customers are around the world.
OUR VALUES
Safety is our
priority. Always
We respect and
value all
Together we
succeed
We act with
integrity
The most important thing
is that we all return home,
safely, every day.
• We care and take
accountability for
everyone’s safety and
wellbeing, including
our own.
• We recognise the risks
we face in our work and
follow all safety controls.
Our care for each other,
our customers, communities
and the environment builds
trusted relationships.
• We treat everyone
fairly, with dignity and
we value diversity.
• We work with our
local communities to
contribute positively.
Collaboration makes
us better, individually
and collectively.
• We freely share
information and ideas
with our colleagues.
• We are a team.
We take accountability
and responsibility for our
team’s performance.
• We find ways to
• We partner with our
• We speak up when we
see hazards or causes
of potential harm.
minimise our impact
on the environment
in all our actions.
customers for a better
understanding and result.
We are open and honest,
and we do what is right.
• We are transparent in
all our communications.
• We always demonstrate
ethical conduct and
sustainable practices.
• We are trusted
because we do what
we say we will.
We are committed
to excellence
We take accountability for
our business and for delivering
outstanding results.
• We bring our best
effort every day and
trust our colleagues
to do the same.
• We understand our tasks
and how we contribute
to Orica’s overall success.
• We look for ways
to deliver higher
performance and adapt
swiftly to changing needs.
02
ORICA
Orica Annual Report 2019
ANNuAl REpORT 2019
03
2019: OUR YEAR
Continued momentum in profitable growth.
AN VOLUMES1
REVENUE (A$)
EBIT (A$)2
UNDERLYING NPAT3
DIVIDEND
RONA5
3.97mt
4%
PCP: 3.82mt
$5,878m
$665m
9%
PCP: $5,374m
8%
PCP: $618m
$372m
15%
PCP: $324m
55cps
13.5%
56% PAYOUT RATIO4
1.0pt
04
ORICA
Orica Annual Report 2019
1. Includes Ammonium Nitrate prill and solution as well as Emulsion products
including bulk emulsion and packaged emulsion.
2. Equivalent to profit/(loss) before financing costs and income tax, as disclosed
in Note 1(b) to the financial statements, before individually significant items.
3. Equivalent to profit after income tax expense before individually significant items
attributable to shareholders of Orica Limited disclosed in Note 1(b) to the
financial statements.
4. Dividend amount/Underlying NPAT.
5. 12 month EBIT/Rolling 12 month Average Operating Net Assets where Operating
Net Assets = Property, Plant & Equipment, Intangibles, Equity Accounted Investees
and working capital excluding environmental provisions.
ANNuAl REpORT 2019
05
Orica Annual Report 2019
UPLIFT IN PERFORMANCE AND PROGRESS ON LONG-TERM POSITIONINGThis progress has been accompanied by a pleasing turnaround in Orica’s financial performance with the restoration of profitable growth.Statutory net profit after tax was $245 million, compared to a loss of $48 million in 2018 and earnings before interest and tax (before individually significant items) was $665 million, an increase of 8 per cent from the prior year.Orica is well placed to simultaneously improve the fundamentals of its core operations, drive market understanding and adoption of our technology innovations and pursue growth opportunities in a disciplined manner within our capital management framework.CAPITAL MANAGEMENTOrica’s balance sheet remains strong and gearing at 34.9 per cent remains within the company’s target range of 30‑40 per cent.The Board has declared a final ordinary dividend of 33 cents per share (5.0 cents franked), bringing the total dividend to 55.0 cents per share, up 3.5 cents per share. This reflects a payout ratio of 56 per cent of underlying earnings.GOVERNANCE AND CULTUREThis year we have witnessed significant discussion in the Australian business community on the importance of corporate culture and accountability, and how these factors shape behaviour and risk management. The Orica Board has followed this debate closely and shares the view that governance and strong internal cultures are indicative of well‑run businesses.At Orica, the centrepiece driving acceptable standards remains accountable leadership, a compliance culture based around the Orica Code of Business Conduct and an organisational design underpinned by clear, consistent responsibilities contained in Group Policies, Standards and Procedures.While unethical, illegal or improper behaviour can be confidentially and anonymously reported through Orica’s Speak‑Up service, an updated Whistleblower Policy was endorsed by the Board this year, responding to new requirements enacted in Australia.The Board Reporting Framework has also been updated ensuring that the information received by the Board reflects evolving community standards and governance best practice.During the year we have established a new Innovation and Technology Board Committee in support of Orica’s investment in technology‑led growth and commercialisation of products.BOARD RENEWALIan Cockerill and Lim Chee Onn retired from the Board in 2019 after making a significant contribution over their nine years of service. In May 2019, Boon Swan Foo joined the Board, bringing a deep understanding of a variety of industries and markets across Asia, including China. The Board will continue to progress succession planning processes to ensure that it has the skills and experience that will be required in the future.SUSTAINABILITYOrica takes its corporate social responsibility seriously. We have identified sustainability issues including safety, environmental protection, product security, climate risk, diversity and ethical conduct as being most material for our business.You can review our performance against our sustainability commitments in our 2019 Sustainability Report. I am confident that our approach is creating a more resilient business aligned to our values, our commercial strategy and the expectations of our people and stakeholders.OUTLOOKOrica’s future success will demand consistent improvements across our core business and the on‑going commercialisation of the innovation pipeline. Underpinning this will be a continued focus on safety, with the application of rigorous controls and compliance measures. We believe we have a good platform to deliver long‑term, sustainable value for our shareholders.On behalf of the Orica Board, I thank our shareholders for their continued support. We would also like to thank the entire Orica team around the world for their dedication and effort during the year.Malcolm Broomhead ChairmanCONTINUED MOMENTUM OF PROFITABLE GROWTHNothing is more important to Orica than keeping our people safe and I am pleased to report that, once again, there have been no fatalities across the Group.Our continued focus on identifying and managing major hazards, with standardised controls for our people and customers, is delivering results. During the year over 9,300 key control verifications were conducted with results consistently indicating that the major hazard key controls were 100 per cent effective, 100 per cent of the time.At the same time, we have complemented our traditional Total Recordable Injury Frequency Rate measure with a new metric called Serious Injury Case Rate (SICR), that includes personal injury and illness incidents that result in an actual serious impact. Making Orica an even safer place to work remains our number one priority.Financially, this is a pleasing set of results. Our growth drivers are starting to deliver, and we are seeing continuing momentum in profitable growth. Earnings before interest and tax (before individually significant items) increased by 8 per cent to $665 million with explosives volumes increasing by 4 per cent to 3.97 million tonnes.Each of the regions delivered a strong result, particularly Europe, Middle East and Africa with an increased EBIT of 24 per cent and increased market share driving growth in Australia Pacific and Asia. Growth in the Canadian market in North America and the earlier than expected business recovery in Latin America contributed to the result. We are particularly pleased with the ongoing strong performance of our GroundProbe™ business which continues to track ahead of expectations. After several years of management focus the Minova business has also delivered an improved result in this period.We continue to make good progress in making Orica a more efficient and effective business. Reliability and utilisation of our manufacturing plants globally have improved and our focus on cost management is delivering results.Our long‑term strategic investment in research and development is seeing increasing customer adoption of our expanding best‑in class technology solutions. Our wireless detonator, WebGen™, and digital blast management platform, BlastIQ™, passed several important commercial milestones over the past year.Progress on rectification at the Burrup plant continues within plan and the plant is expected to be fully operational in the second half of the 2020 financial year. The strategic value of having production close to our customers in the Pilbara region remains very strong.PEOPLE AND CAPABILITYDuring the year we conducted an Organisational Health Survey and were encouraged that the majority of our people around the world took the opportunity to give us their feedback.Key findings included that our workforce is positive and engaged, and our safety culture is strong. While these are very pleasing results, we always strive to do better and will use the data to identify areas where we can further improve engagement and productivity.OUTLOOKWe expect the momentum in profitable growth this year to continue into 2020, with higher EBIT underpinned by further penetration of our technology‑based solutions, increased demand across all regions and a fully operational Burrup plant in the second half.A key initiative will be the final phase of the SAP project which will, alongside our embedded operating model, improve the way we work and create value for customers and shareholders.This positive result and outlook are the result of long‑term investments of time and resources by the leadership team and our people, building a safer and more resilient business. I thank them for their dedication and commitment and look forward to continuing our work. Alberto Calderon Managing Director and CEOIn 2019, we have built momentum across Orica, improving our core business capability and advancing our strategic agenda to further commercialise Orica’s technology‑led innovations. 2019 has been a year of important progress for Orica. After 12 months of diligent and focused effort, our company is a safer place to work, the momentum in profitable growth has continued and we are organisationally stronger. CHAIRMAN’S MESSAGEMANAGING DIRECTOR’S MESSAGEORICA0706ANNuAl REpORT 2019 SUSTAINABILITY
Maintaining our licence to operate is based on the
expectation that we operate safely and responsibly.
2019: HIGHLIGHTS
Zero
sustained fatality free
Over 9,300
verifications of key
safety controls
22%
female employment in
senior management roles
Adopted TCFD1
to guide our phased approach
to disclosure of climate-related
information from FY20
6%
reduction in operational
scope 1 & 2 greenhouse
gas emissions
$1.9 million
invested in local
communities
OUR APPROACH
As the relationship between business and sustainability continues
to evolve, our ability to maintain stakeholder trust is increasingly
tied to how we manage, improve and disclose our environmental,
social and governance performance.
Our approach to sustainability is based on understanding the
issues of concern and responding openly and transparently to
embed sustainable practices in our products, services and the
way we run our business. This is allowing us to create a more
resilient company that is aligned to our values, commercial
strategy and the expectations of our people and stakeholders.
Our sustainability report provides stakeholders with more
detailed disclosure on our non‑financial performance. This includes
performance against our sustainability targets, our approach to
material sustainability topics and how we are managing social
and environmental risk while capitalising on new opportunities.
PROTECTING AND DEVELOPING OUR PEOPLE
Nothing is more important than keeping our people, customers
and communities safe. We maintain a relentless focus on preventing
injury and illness and improving how we manage health and safety
risks across our business.
No fatalities were recorded in FY19 and this remains our priority
in the future. We continued to build the capacity of our frontline
leaders resulting in over 45,000 safety interactions performed
during the year, a two‑fold increase from FY18.
To better understand the severity of injuries and illness in our
business and to drive improvement and learnings in these areas,
we increased our focus on serious incidents. While there was
a reduction in injury severity, our Serious Injury Case Rate
performance did not meet our FY19 target. Our All Worker
Recordable Case Rate also increased with growth in injury
reporting, although most events were at the lower end of the
severity spectrum. As a consequence, our rate of lost work days
reduced from FY18.
The convergence of new technologies is enabling us to think
differently, operate more precisely and, most importantly, remove
people from harm’s way. In FY19 we continued to commercialise
WebGen™ which uses wireless technology to initiate blasts through
rock, water or air from surface control rooms. With the manual
task of connecting down‑lines and surface wires removed, we
are improving productivity and keeping people safer.
Engaged, diverse and highly capable people are integral to
delivering on our business strategy. We’ve made significant
progress and since 2016 have achieved a six‑point increase in
our organisational health score. This year female representation
in senior management increased to 22 per cent, up from
21 per cent in FY18.
During FY19, we continued to build critical capabilities to help
deliver our business strategy with a focus on creating pipelines of
high calibre, diverse talent for senior management, commercial
and technical positions. Our flagship Enterprise Leaders Programme
(ELP) has continued while our graduate programme grew to over
70 participants globally. This programme is building a diverse
pipeline of talent, with graduates originating from around
19 different countries and 41 per cent female.
08
ORICA
Orica Annual Report 2019
OPERATING RESPONSIBLY
Conducting our business with integrity is central to who we are.
In FY19 we established a monitoring and assurance program in
10 priority countries selected using a risk‑based approach, to assess
the effectiveness of our ethics and compliance controls. The results
of our assurance program have resulted in several corrective and
preventative actions which will be implemented to continually
improve our performance.
Following our enterprise‑wide review of product security last year,
we continued to strengthen our governance and management
of material supply chain risks. Our Product Security Group
Standard was reviewed and updated, and a global security event
monitoring and management system was established to address
security‑related events.
We also updated our Whistleblower Policy this year in response
to new requirements enacted in Australia.
MINIMISING OUR ENVIRONMENTAL FOOTPRINT
We aim to comply with relevant environmental legislation,
licences and environmental consents across our global operations.
In FY19, there were no significant (severity 3 or greater)
environmental incidents.
Our manufacturing and business activities generate greenhouse
gas (GHG) emissions. As the global economy decarbonises and
adopts new technologies and sources of energy, we are exposed
to long‑term physical and transitional risks including shifts in
commodity demand and customer mix.
This year our operational Scope 1 and Scope 2 greenhouse gas
emissions reduced six per cent from FY18 levels, contributing to
meeting our FY19 emissions intensity target. This is a result of
replacing ageing abatement catalyst and ongoing emissions
abatement trials at our nitric acid plants. Trials will continue into
FY20 as we seek to define a viable emissions abatement pathway
over the next decade in which we can confidently invest.
Climate change is a material business risk and we are taking a
phased approach to understanding and managing climate‑related
risks and opportunities. In FY19 we updated our Climate Change
Policy. New enhancements include a renewed commitment to
reducing our operational emissions and adopting the Taskforce
on Climate‑related Financial Disclosures (TCFD) recommendations
to progressively guide our future climate‑related disclosures.
SUPPORTING LOCAL COMMUNITIES
Across our global operations, we continued to make a significant
direct socio‑economic contribution to surrounding communities.
In FY19 our community investment totalled $1.9 million with
46 per cent directed to projects supporting education and young
people. We implemented a process for measuring community
sentiment at seven of our major global manufacturing sites.
These insights will help shape our stakeholder engagement
and community investment priorities in FY20 and beyond.
Our 2019 Sustainability Report complements this 2019
Annual Report and Corporate Governance Statement and
is available on our website.
1. Recommendations of the Taskforce on Climate‑related Financial Disclosures (TCFD).
ANNuAl REpORT 2019
09
Orica Annual Report 2019
BOARD MEMBERSEXECUTIVE COMMITTEEMALCOLM BROOMHEAD AO BE, MBANon‑Executive Director of Orica Limited since December 2015 and Chairman as of 1 January 2016. Chairman of the Nominations Committee and member of the Innovation and Technology Committee.Director of BHP Group Limited & Plc. Former Chairman of Asciano Limited.Director of the Walter & Eliza Hall Institute, and Council Member of Opportunity International Australia.ALBERTO CALDERON PhD Econ, M Phil Econ, JD Law, BA EconNon‑Executive Director since August 2013. Appointed Managing Director and Chief Executive Officer on 19 May 2015.Former Group Executive and Chief Executive of BHP Aluminium, Nickel and Corporate Development. Former Chief Executive Officer of Cerrejón Coal Company and Colombian oil company, Ecopetrol.MAXINE BRENNER BA LLBNon‑Executive Director since April 2013. Chairman of the Human Resources and Compensation Committee and member of the Board Audit and Risk Committee and the 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 EconManaging Director and Chief Executive OfficerAlberto was appointed Chief Executive Officer in May 2015, having been a Non‑Executive Director since August 2013. Alberto is a former Group Executive and Chief Executive of BHP Aluminium, Nickel and Corporate Development. He is also a former Chief Executive Officer of Cerrejón Coal Company and Colombian oil company, Ecopetrol. Prior to this, Alberto was Executive Director of the International Monetary Fund, held senior roles in the Colombian government, and has been a Board member of a range of private, public and non‑government organisations.JAMES BONNOR BCom, (Econ, Mark)President – North AmericaJames was appointed Group Executive and President, North America in October 2015. He has more than 20 years of commercial and operational experience with Orica where he has held a range of management, sales, marketing, and customer relationship roles across international market segments including Australia, New Zealand and Latin America.JAMES CROUGH GAID, MBA, FCPA, BcommPresident – Australia Pacific and Asia (interim)James was appointed Group Executive and President, Australia Pacific and Asia in October 2019 after first joining Orica as Vice President Finance, Australia Pacific and Asia in 2019. James has held senior leadership positions at Incitec Pivot Ltd and has more than 25 years’ experience across international commodity trading, global manufacturing, integrated supply chain, procurement, product management and pricing, marketing and sales.DARRYL CUZZUBBO BEng (1st class Hons) Mechanical Engineering, Masters (Hons) Total Quality Management, MBAChief Manufacturing OfficerDarryl was appointed to his current role in October 2019 after having held the role of Group Executive and President, Australia Pacific and Asia since 2016. He joined Orica in 2015 after a 24 year career with BHP where he held senior positions in group‑wide functions as well as the Australian and South African coal and copper businesses with responsibility for operations, expansion projects and transformational change programs.CHRISTOPHER DAVIS BCom, Acc; Chartered AccountantChief Financial OfficerChristopher was appointed Chief Financial Officer in October 2018 and has responsibility for the group‑wide finance function as well as investor relations and group risk and assurance. Before joining Orica, Christopher held senior financial and executive roles within Anglo American Plc, including as CEO of its subsidiary Scaw Metals Group from 2009 to 2013 and CFO from 2008.CARLOS DUARTE BSc Aeronautical Engineering, MBAGroup ExecutiveCarlos is focused on the delivery of the contractual arbitration of Burrup ahead of his retirement in 2020. Carlos joined Orica in October 2017 following more than 30 years at global oil and gas technology and services company, Schlumberger. During his time at Schlumberger, Carlos held several senior leadership positions including Vice President, Supply Chain, Vice President, Manufacturing, and Vice President, New Businesses.KIRSTEN GRAY BA/LLB (Hons), PDMCompany Secretary & Chief Corporate Services OfficerKirsten joined Orica in October 2015 and has responsibility for the legal function, company secretariat, sustainability and corporate affairs. She joined Orica after a 20 year career with BHP, where she held senior global legal positions. Kirsten has deep experience in corporate governance, global mergers and acquisitions and general commercial law.ADAM L. HALL BCom, LLB (Hons), MBA (HD)Chief Development OfficerAdam was appointed Chief Development Officer in June 2019, with responsibility for corporate strategy, mergers and acquisitions, and Orica’s Agriculture and Monitor divisions. Prior to joining Orica, Adam led Corporate Development and Industrial Gases for CF Industries in the USA. Adam brings 20 years’ global experience in strategy and business development, having led transformational deals in his corporate roles with CF Industries and global agribusiness leader, Bunge.RYAN KERR BCom, Industrial Psychology BCom (Hons), Business Economics, MBAChief People Officer (interim)Ryan joined Orica in January 2018 as Vice President HR EMEA & CIS after having worked across the professional services, pulp and paper and resources sectors in various HR roles in South Africa, Australia and the United Kingdom over a 24 year period.ANGUS MELBOURNE BEng (Hons) Mechanical Engineering, BSc Applied MathematicsChief Commercial OfficerAngus joined Orica in 2016 and has responsibility for strategic marketing and technology and Orica’s China business. He joined Orica following a 25 year career at Schlumberger where he held a number of senior roles responsible for research and development, engineering, manufacturing, operations and sales. Angus’s experience at Schlumberger included responsibility for explosives and perforating products research, development and manufacturing.GERMÁN MORALES MSc, Civil Engineering, Executive MBAPresident – Latin AmericaGermán joined Orica in September 2018 following 18 years at commercial explosives manufacturer and distributor Maxam. At Maxam, Germán held business leadership roles in Europe, Middle East and Africa, the Americas and Australasia, served as a Board member for several Maxam companies around the world, and most recently was the Senior Executive Director and General Manager Civil Explosives.THOMAS SCHUTTE BCom (Hons) Acc; Chartered Accountant (SA)President – Europe, Middle East and AfricaThomas was appointed to his role in October 2017 after having held the role of Chief Financial Officer since September 2015. Before joining Orica Thomas spent 20 years with BHP where he held a number of leadership positions, including President and CEO Samancor Manganese Ltd, President Global Marketing and CFO of the Global Commercial Group.DENISE GIBSON BA (Business Administration), MBA (Management)Non‑executive Director since January 2018. Chairman of the Innovation and Technology Committee and member of the Human Resources & Compensation Committee and the Nominations Committee.Co‑founder and Chairman of Ice Mobility. Director of Aerial Technologies Inc., NASDAQ‑listed VOXX International Corporation and ORBCOMM Inc., and a director of the Consumer Technology Association and the Consumer Technology Association Foundation, both not‑for‑profit organisations. Founder and former CEO of Brightstar US.KAREN MOSES BEc, DipEd, FAICDNon‑Executive Director since July 2016. Chairman of the Safety, Health, Environment, Community & Security Committee, and member of the Human Resources & Compensation Committee and the Nominations Committee.Director of Boral Limited, Charter Hall Group, Snowy Hydro Limited and Sydney Symphony Limited, and a Fellow of the Senate of Sydney University. Former director of companies including Sydney Dance Company, SAS Trustee Corporation, Australia Pacific LNG Pty Limited, Origin Energy Limited, Contact Energy Limited, Energia Andina S.A., Australian Energy Market Operator Ltd ,VENCorp and Energy and Water Ombudsman (Victoria) Limited.GENE TILBROOK BSc, MBA, FAICDNon‑Executive Director since August 2013. Chairman of the Board Audit and Risk Committee and member of the Safety, Health, Environment, Community & Security Committee and the Nominations Committee.Non‑Executive Director of GPT Group and Woodside Petroleum. Director of the Bell Shakespeare Company. Former director of Aurizon Holdings and Fletcher Building. Former Executive Director of Wesfarmers Limited.BOON SWAN FOO BA, MBANon‑executive Director since May 2019. Member of the Innovation and Technology Committee, Board Audit and Risk Committee and the Nominations Committee.Chairman and Non‑executive Director of SGX‑ST‑listed Global Investments Limited, Chairman of Allgrace Investment Management Private Limited, and Chairman of Singapore Consortium Investment Management Limited. External Director of China Huadian Corporation Ltd and External Director of China Baowu Steel Group Corporation Ltd. Former Senior Advisor to Temasek International Advisors Pte Ltd, and a former Non‑executive Director of Singbridge Holdings Pte Ltd, Singbridge International Singapore Pte Ltd and Sino‑Singapore Guangzhou Knowledge City Investment and Development Company.ORICA1110ANNuAl REpORT 2019 REVIEW OF OPERATIONS
BUSINESS SUMMARY
A summary of the performance of the segments for the 2019 and 2018 financial years is presented below:
REVIEW OF OPERATIONS
GROUP RESULTS
Year ended 30 September
2019
A$m
2018
A$m
Change
%
Sales revenue
5,878.0
5,373.8
EBITDA(8)
EBIT(2)
Net interest expense
Tax expense
Non‑controlling interests
NPAT before individually
significant items(1)
Individually significant
items after tax
NPAT after individually
significant items
(statutory)
941.1
664.7
(109.7)
(177.7)
(5.4)
885.0
618.1
(121.3)
(158.0)
(14.6)
9%
6%
8%
10%
(12%)
63%
371.9
324.2
15%
(126.8)
(372.3)
66%
245.1
(48.1)
Note: numbers in this report are subject to rounding and stated in Australian dollars
unless otherwise noted.
CONTINUING MOMENTUM IN PROFITABLE GROWTH
Statutory net profit after tax (NPAT) attributable to the shareholders
of Orica for the year ended 30 September 2019 was $245 million;
NPAT before individually significant items(1) was $372 million, up
15% on the prior corresponding period (pcp).
SUMMARY
• EBIT(2) of $665 million, up 8% on the pcp with strong
business performance across all regions and improvement
in manufacturing operations
• Underlying earnings per share(3) up 14% to 97.9 cents per share
• Ammonium nitrate (AN) volumes up 4% on the pcp at
3.97 million tonnes
• Sales revenue of $5.9 billion increased by 9% from higher
volumes and services, increased penetration of advanced
products and favourable foreign exchange movements
• Strong performance from technology, GroundProbe™
and Minova
• Individually significant items of $127 million after tax,
largely arising in the first half of this year
• Net operating and investing cash inflows(4) of $378 million
• Capital expenditure of $424 million(5) includes $37 million
on rectification works at Burrup
• Net debt(6) of $1.6 billion and gearing(7) at 34.9%
• Final dividend of 33.0 cents per share (5.0 cents franked),
bringing the full year dividend to 55.0 cents per share
12
ORICA
Orica Annual Report 2019
Year ended 30 September 2019
A$m
Australia Pacific & Asia (APA)
North America
Europe, Middle East & Africa (EMEA)
Latin America
Minova
Orica Monitor
Global Support
Eliminations
Orica Group
Year ended 30 September 2018
A$m
Australia Pacific & Asia (APA)
North America
Europe, Middle East & Africa (EMEA)
Latin America
Minova
Orica Monitor
Global Support
Eliminations
Orica Group
AN Tonnes(i)
(’000)
Sales
Revenue(ii)
EBITDA(8)
1,682
1,128
444
718
–
–
–
–
2,106.0
1,590.5
911.2
969.9
595.1
97.2
1,210.4
(1,602.3)
508.9
236.9
93.9
66.5
24.3
30.9
(20.3)
–
EBIT(2)
382.7
192.1
67.9
43.8
15.2
22.3
(59.3)
–
Capital
Expenditure
159.1
39.5
43.6
29.4
7.6
12.7
132.1
–
3,972
5,878.0
941.1
664.7
424.0
AN Tonnes(i)
(’000)
Sales
Revenue(ii)
EBITDA(8)
1,626
1,112
462
618
–
–
–
–
1,944.2
1,430.3
807.2
899.8
519.0
66.7
1,041.6
(1,335.0)
505.5
226.8
78.8
67.1
6.2
10.5
(9.9)
–
EBIT(2)
381.9
185.6
54.8
43.2
(2.3)
4.8
(49.9)
–
Capital
Expenditure
109.7
38.6
35.5
21.7
8.5
5.7
102.4
–
3,818
5,373.8
885.0
618.1
322.1
(i)
Includes ammonium nitrate prill and solution as well as bulk and packaged emulsion.
(ii)
Includes external and inter‑segment sales.
REVENUE BY COMMODITY 2019
EBIT BY REGION 2019
24%
17%
3%
2%
6%
Thermal Coal
Coking Coal
Iron Ore
Q&C(9)
Copper
Gold
Other
5%
8%
12%
9%
27%
53%
Australia Pacific
& Asia
North America
Europe, Middle
East & Africa
Latin America
Orica Monitor
Minova
20%
14%
Note: The above charts exclude Global Support and Eliminations.
Nothing is more important to Orica than keeping our people safe.
Making sure that every Orica site remains fatality free is our primary
goal. Once again, there have been no fatalities across the Group.
During the year, a global pilot for the Major Hazards Management
process was launched which seeks to take the day‑to‑day
management of Major Hazards to the next level. In the 2019
financial year over 9,300 key control verifications were conducted.
Results consistently confirmed that the major hazard key controls
were 100% effective, 100% of the time.
The traditional total recordable injury frequency rate (TRIFR)
measure has been complemented with a new metric called
Serious Injury Case Rate (SICR). This measure includes personal
injury and illness incidents that result in an actual serious impact.
It enables a better understanding of the severity of injuries
and illness in the business and drives a focus on investigations,
improvement opportunities and learning in these areas.
During this financial year the SICR performance has been
stable on previous years.
ANNuAl REpORT 2019
13
REVIEW OF OPERATIONS
REVIEW OF OPERATIONS
TRIFR increased slightly during the year due to an increase
in low severity injuries, with the vast majority of these events
being at the lower end of the severity spectrum.
on the pcp to $5.9 billion from higher volumes and services,
increased penetration of advanced products and favourable
foreign exchange movements.
Environmental programs continue to be embedded across the
business. There were no breaches of environmental permits and
licences. During the year, there was a 6% reduction in Scope 1
and Scope 2 greenhouse gas (GHG) emissions and intensity
continues to improve against 2018 levels.
AN volumes were up by 4% on the pcp, supported by strong
demand led by Latin America. Sales revenue increased by 9%
EBIT of $665 million was up 8% on the pcp. This was driven
by higher volumes and services, the non‑repeat of unplanned
maintenance shutdowns that occurred in the pcp, the impact
of strong returns from GroundProbe™ and the turn‑around in
Minova’s performance. Cyanide also continues to be a strong
contributor. These benefits were partly offset by the impact
of prices on previously reported contract renewals and the
continued impact of sourcing costs in the Pilbara.
A$m
618
(16)
(29)
27
2
15
(3)
18
18
15
665
AUSTRALIA
PACIFIC & ASIA
EBIT
2018
Net Profit on
Asset & Business
Sales
Inflation on
Overheads
Volume
Mix &
Margin
Manufacturing
Burrup
Orica
Monitor
Minova
Reduced
Overheads
EBIT
2019
Other 9%
Thermal Coal 37%
REVENUE BY COMMODITY 2019
Key items in the above chart:
Net profit on asset & business sales were down on the pcp
due to larger one‑off transactions in the second half of 2018.
Inflation on fixed overhead costs had an adverse effect of
$29 million.
Volume
Total AN volumes improved by 4% through new business
and higher demand from existing customers in Latin America,
Australia Pacific & Asia, Canada and the CIS, partly offset by
lower volumes in Mexico and Turkey.
Sales volumes of higher margin advanced Electronic Blasting
Systems (EBS) were up 7% with improvement across most
regions. Total detonator sales volumes were down as a result
of a reduction in conventional detonator volumes.
Mix & Margin
Improved service margins were realised in most regions particularly
in Australia, Indonesia, Middle East and the CIS driven by growth
in new and existing customers.
This was offset by the impact of prices on previously reported
contract renewals.
Manufacturing
Manufacturing performance improved overall as unplanned
maintenance shutdowns impacting Australia in the pcp did not
recur, and overall efficiency improved at initiating system plants
in the EMEA region. This was partly offset by a planned turnaround
at the Yarwun cyanide plant, disruption of utilities supply at
Bontang in the first half, lower EBS production at Brownsburg
following a strategic decision to reduce inventory, and a temporary
outage at Carseland in the second half.
Burrup
Orica is continuing to work closely with its joint venture partner,
Yara, to resolve technical issues with the plant, and rectification
work is on track within plan. The plant produced 40 thousand
tonnes of AN prill in the second half of 2019 during a testing phase.
The plant is now shut down for installation of critical components
and is scheduled to commence operations in the second half of
2020 financial year.
The Pilbara region continued to incur significant sourcing and
freight costs as rectification works at the Burrup plant are being
completed. Furthermore, ongoing administrative overheads as
well as costs associated with the arbitration proceedings continue
to be incurred.
Orica Monitor
GroundProbe™ representing the majority of Orica Monitor’s
earnings, outperformed its investment case expectation and
achieved over 10% RONA in the first full year of ownership.
Minova
Minova derived revenue from new sectors and across an
expanded product and services range, predominantly in the
Americas and Australia Pacific. The benefits of the restructuring
activities have seen a reduction in overhead costs. The focus will
remain on increasing product penetration and growth in new
geographies and sectors.
Reduced Overheads
Benefits from recent restructuring activity reduced overheads
compared to the pcp. This was partly offset by increased costs
associated with technology roll‑out and temporary costs to
support the SAP project.
14
ORICA
Orica Annual Report 2019
Gold 16%
Copper 9%
Q&C 6%
Iron Ore 12%
Coking Coal 11%
Year ended 30 September
2019
2018
Change
Total AN & emulsion
volumes (‘000 tonnes)
1,682
1,626
3%
Total sales revenue (A$m)
2,106.0
1,944.2
8%
EBITDA(8) (A$m)
508.9
505.5
1%
EBIT (2) (A$m)
382.7
381.9
Nil
COMMODITY EXPOSURE
Thermal coal remains the most significant commodity for the
region. Activity in the coal and iron ore markets remains strong
as demand for high quality products continues, while the gold
market has been supported by stable prices.
PERFORMANCE DRIVERS
Volume
Explosives volumes were up on the pcp, underpinned by
growth and higher activity in the Pilbara and metals segments,
strong demand from existing customers (particularly coal in
Australia), and increased sales to competitors.
EBS volumes were higher from increased demand and customer
conversion, particularly in Indonesia. Sales of conventional
detonators were lower than the pcp, notably in the Philippines
due to temporary permitting issues in the first half.
There has been further introduction of technology based
products. A key milestone for our WebGen™ wireless detonators
was the world’s largest open‑cut stratablast using ~2,000 units
in a single blast.
Cyanide volumes were ahead of the pcp, as a result of higher
sales to existing customers as well as incremental spot sales.
EBIT
EBIT is marginally ahead of the pcp as the impact of previously
reported pricing on contract renewals was offset by favourable
volumes and conversion to EBS, higher uptake of services and
an initial adoption of new technology products. Investment in
manufacturing plants and the non‑repeat of unplanned maintenance
shutdowns enabled improved manufacturing reliability.
Burrup continues to be impacted by the ongoing costs associated
with sourcing volumes for the Pilbara customers and increased
costs associated with arbitration proceedings.
OUTLOOK
Volumes are expected to strengthen in the next financial year
due to higher demand in Australia and new contracts in the
Pilbara. Positive EBIT contribution is expected from the Burrup
plant in the second half of the 2020 financial year and EBIT margins
are anticipated to improve once Burrup reaches full production.
ANNuAl REpORT 2019
15
REVIEW OF OPERATIONS
REVIEW OF OPERATIONS
NORTH
AMERICA
REVENUE BY COMMODITY 2019
Other 18%
Thermal Coal 10%
Coking Coal 5%
Iron Ore 9%
Gold 29%
COMMODITY EXPOSURE
Demand in the gold market in North America improved on the
pcp from growth in Canada and continued strong demand in
the USA. The Q&C market remained steady despite unfavourable
weather conditions and a tightening in the skilled labour market,
while demand from copper was lower due to production issues at
a number of mines. Demand for thermal coal remains stable, while
iron ore improved in the USA and Canada, aided by firmer prices.
PERFORMANCE DRIVERS
Volume
Explosives volumes were slightly ahead of the pcp, with higher sales
in Canada offset by lower volumes in Mexico due to community
issues at a key customer site.
EBS volumes were up 7%, largely driven by an increase in demand
in Canada and Mexico due to a shift into more advanced products,
while conventional detonator sales were down on the pcp.
The introduction of our WebGen™ wireless detonators in the
Canadian underground segment continued with a number of
service based contracts signed.
EBIT
EBIT across the region benefitted from improved emulsion and
EBS mix, notably in Canada, higher services activity in the USA,
spot sales of cyanide in Mexico and foreign exchange gains.
The temporary outage at the Carseland plant and a strategic
decision to temporarily lower EBS production at the Brownsburg
plant to reduce inventory levels offset some of the gains in the
second half.
Joint venture operations in North America performed well.
OUTLOOK
Volumes are expected to grow driven by the gold, copper and Q&C
sectors despite the ongoing competitive pressure. Services growth,
continued focus on technology offerings as well as further overhead
efficiencies are expected to continue to improve EBIT.
EUROPE,
MIDDLE EAST
& AFRICA
REVENUE BY COMMODITY 2019
Thermal Coal 1%
Other 23%
Coking Coal 2%
Iron Ore 2%
Q&C 38%
COMMODITY EXPOSURE
Sales into the Q&C markets were strong and ahead of the
pcp, underpinned by growth in the Middle East, while activity
in the gold and copper sector increased from higher demand in
Africa and Russia. Other revenue includes diversified sales across
numerous geographies and markets including phosphate, natural
gas, nickel and zinc.
PERFORMANCE DRIVERS
Volume
Explosives volumes were below the pcp due to lower activity
in Turkey which was adversely impacted by continued political
and economic uncertainty. This was partly offset by higher and
profitable demand in the CIS, particularly new contract wins in
Kazakhstan and Russia, growth in Africa and higher sales in the
Middle East.
EBS volumes were 20% ahead of the pcp as conversion
continues to progress with higher market penetration in Africa
and the Nordics. This was partially offset by lower demand of
conventional detonators across Europe.
EBIT
EBIT improved on the pcp, underpinned by strong growth in
the CIS from new and existing rock‑on‑ground customers, higher
EBS detonator sales across most of the region, services growth
from increased customer activity in Africa and new projects in
the Middle East.
Manufacturing also favourably supported results due to improved
operational efficiency at initiating system plants.
OUTLOOK
Momentum from the second half of 2019 is expected to continue
into 2020. Geographically, growth will be underpinned by targeted
expansion in new CIS territories and increased market share in
Africa. Overall, strategic focus remains on expanding the placement
of higher energy products and new technologies as well as
improved overhead efficiencies.
Copper 11%
Q&C 18%
Gold 25%
Copper 9%
Year ended 30 September
2019
2018
Change
Year ended 30 September
2019
2018
Change
Total AN & emulsion
volumes (’000 tonnes)
1,128
1,112
1%
Total AN & emulsion
volumes (’000 tonnes)
444
462
(4%)
Total sales revenue (A$m)
1,590.5
1,430.3
11%
Total sales revenue (A$m)
911.2
807.2
13%
EBITDA(8) (A$m)
236.9
226.8
4%
EBITDA(8) (A$m)
93.9
78.8
19%
EBIT (2) (A$m)
192.1
185.6
3%
EBIT (2) (A$m)
67.9
54.8
24%
16
ORICA
Orica Annual Report 2019
ANNuAl REpORT 2019
17
REVIEW OF OPERATIONS
REVIEW OF OPERATIONS
COMMODITY EXPOSURE
Copper remains the most significant commodity for the region
with demand steady from the pcp. The thermal coal market was
higher from increased demand in Colombia. In contrast, the gold
sector was down due to lower demand in Peru.
PERFORMANCE DRIVERS
Volume
Explosives volumes were up on the pcp, underpinned by
strong growth in Colombia and Peru. Volumes in Colombia
were supported by higher demand and the non‑recurrence
of unfavourable weather conditions in the pcp. Demand was
higher in Peru from increased customer activity and a major new
copper customer contract. This was partly offset by the volume
decline in Chile from a partial contract loss in the second half
of the 2018 financial year.
EBS sales were strong and in line with the pcp. Conventional
detonator volumes were down on the pcp, with lower demand
in Chile partly offset by higher sales in Colombia.
Cyanide volumes were down on the pcp due to mine plan changes
at a customer site in Peru.
EBIT
EBIT was slightly ahead of the pcp despite the partial contract loss
in Chile and continued competitive pricing pressure on explosives.
The improved business performance was achieved through stronger
contribution in Colombia and Peru. This was driven by AN volume
growth, albeit at lower margins, higher service revenue and new
technology. Overhead efficiencies from strategic initiatives also
contributed positively to the result.
OUTLOOK
The higher gold price is expected to support volume growth
for explosives and cyanide. Renewed customer focus and
engagement will drive increased product and technology
penetration. Effective cost control will continue to deliver
overhead efficiencies in the region.
LATIN
AMERICA
REVENUE BY COMMODITY 2019
Other 7%
Thermal Coal 17%
Gold 25%
Iron Ore 6%
Q&C 3%
Copper 42%
Year ended 30 September
2019
2018
Change
Total AN & emulsion
volumes (’000 tonnes)
718
618
16%
Total sales revenue (A$m)
969.9
899.8
8%
EBITDA(8) (A$m)
66.5
67.1
(1%)
EBIT (2) (A$m)
43.8
43.2
1%
18
ORICA
Orica Annual Report 2019
ORICA MONITOR
Year ended 30 September
EBIT(2)
2019
A$m
22.3
2018
A$m
Change
%
4.8
>100%
Performance drivers
The Orica Monitor segment comprises GroundProbe™ and Nitro Consult businesses.
GroundProbe’s™ earnings were ahead of the investment case expectations and delivered over 10% RONA in the 2019 financial year.
EBIT performance was supported by higher demand for services and radars, entry into the tunnels market as well as the non‑repeat of
acquisition costs in the pcp.
Going forward, EBIT is expected to grow benefitting from further expansion of laser products into the mining and civil industries,
deployment of the new premium ‘SSR‑Omni’ radar and continued growth through Geotechnical Support Services.
MINOVA
Year ended 30 September
Steel products (‘000 tonnes)
Resins & Powders (‘000 tonnes)
Total sales revenue (A$m)
EBITDA(8) (A$m)
EBIT(2) (A$m)
2019
156
123
2018
Change %
142
109
10%
13%
15%
595.1
519.0
24.3
15.2
6.2
(2.3)
>100%
>100%
Performance drivers
Significant progress has been made on the turnaround with initiatives undertaken to increase revenues, improve margins and production
efficiency, and reduce overheads.
EBIT is ahead of the pcp due to higher revenues, lower fixed manufacturing costs from plant rationalisation and sustainable overhead
reduction. Revenues have materially increased in the USA, Canada and Australia due to a combination of increased market share, higher
demand from existing customers and increased steel and injection chemical sales.
Looking forward, Minova will continue to drive revenue growth from new sectors (hard rock, oil & gas, tunnelling and infrastructure) and
across expanded service offerings.
GLOBAL SUPPORT
Year ended 30 September
EBIT(2)
2019
A$m
(59.3)
2018
A$m
(49.9)
Change
%
(19%)
Benefits from recent restructuring activity delivered reduced costs compared to the pcp. This was offset by the non‑repeat of higher asset
sales in the second half of 2018.
NET INTEREST EXPENSE
The adjusted net interest expense of $108 million is down on the pcp as a result of lower average net debt levels and lower financing costs.
Year ended 30 September
Statutory net interest expense
Adjusted for:
Capitalised interest
Unwinding of discount on provisions
Adjusted net interest expense
2019
A$m
109.7
7.5
(9.3)
2018
A$m
121.3
4.8
(7.9)
107.9
118.2
Change
%
10%
56%
(18%)
9%
ANNuAl REpORT 2019
19
REVIEW OF OPERATIONS
REVIEW OF OPERATIONS
TAX EXPENSE
The effective rate of 32.0% is in line with pcp.
GROUP CASH FLOW
Year ended 30 September
Net Operating cash flows
Net Investing cash flows
Net Operating and Investing cash flows(4)
Dividends – Orica Limited
Dividends – non‑controlling interest shareholders
Adjusted net cash flows
Movement in borrowings and other net financing cash flows(10)
Net cash flows(11)
The chart below illustrates the movement in net debt from September 2018.
Movement in Net Debt (A$m)
1,648
(746)
2019
A$m
746.4
(368.4)
378.0
(177.2)
(18.0)
182.8
(301.5)
(118.7)
2018
A$m
614.7
(552.0)
62.7
(143.2)
(13.5)
(94.0)
75.9
(18.1)
Variance
A$m
131.7
183.6
315.3
(34.0)
(4.5)
276.8
(377.4)
(100.6)
195
1,465
368
156
1,621
Performance highlights
The Group delivered net operating and investing cash inflows of $378 million.
Net Operating cash flows
Net cash generated from operating activities was underpinned by stronger earnings for the year and an improvement in working capital
across the group. A refund following the successful resolution of the thin‑capitalisation matter with the Australian Taxation Office was
received during the year.
Net Investing cash flows
Net investing cash outflows comprised capital expenditure of $424 million including continued spend on the new SAP system as the
project approaches completion, spend on manufacturing plants to improve reliability, rectification works at Burrup and investment in
technology products.
Net investing cash flows in the pcp included the purchase of GroundProbe™.
Movement in borrowings
During the year, $302 million was repaid on borrowings, in particular the current portion of the US Private Placement and non‑current
bank loans.
DEBT MANAGEMENT AND LIQUIDITY
As at 30 September
Interest bearing liabilities
Less: Cash and cash equivalents
Net debt(6)
Gearing (%)(7)
2019
A$m
2018
A$m
Variance
A$m
(2,033.2)
(2,162.9)
412.6
514.6
(1,620.6)
(1,648.3)
129.7
(102.0)
27.7
34.9%
35.7%
Interest bearing liabilities of $2,033 million comprise $1,971 million of US Private Placements and $62 million of committed and other bank
facilities. The average tenor of drawn debt is 4.7 years (2018 5.0 years).
Undrawn committed bank facilities of $1,534 million, with total committed debt facilities of $3,563 million provides for a strong liquidity position.
Gearing at 34.9% is at the mid‑point of the Group’s targeted range of 30‑40%.
20
ORICA
Orica Annual Report 2019
Net Debt
2018
Net Operating
Cashflows
Net Investing
Cashflows
Dividends
Paid
Sub-total
Non Cash
Movements on
Net Debt(i)
Net Debt
2019
(i) Non cash movements on Net Debt include foreign exchange translation.
GROUP BALANCE SHEET
Movement in Net Assets (A$m)
2,968
(13)
(165)
119
27
3,152
216
3,025
(127)
Net Assets
30 September
2018
Trade
Working
Capital
Non Trade
Working
Capital
Fixed &
Intangible
Assets
Other
Net Assets
Net
Debt
Sub-total
Individually
Significant
Items
Net Assets
30 September
2019
Performance highlights
Trade Working Capital(12) decreased by $13 million due to optimisation of inventory across the network and timing of shipments,
partly offset by higher debtors as a result of increased sales activity.
Non Trade Working Capital(13) was impacted by the actuarial revaluation of the Group’s defined benefit liabilities as a result of
reduced discount rates driven by lower global interest rates, as well as an increase in non trade creditors related to accelerated spend
on the SAP program.
Fixed & Intangible Assets increased by $216 million from the pcp excluding the impact of individually significant items, in particular the
write‑down of Burrup assets of $155 million in the first half. Capital additions of $434 million were partly offset by depreciation and
amortisation expense of $276 million.
Other Net Assets increased by $119 million from the pcp as a result of the revaluation of financial instruments, and a weaker Australian Dollar.
ANNuAl REpORT 2019
21
REVIEW OF OPERATIONS
REVIEW OF OPERATIONS
DIVIDEND
The Board has declared a final ordinary dividend of 33.0 cents per share (5.0 cents franked). The dividend represents a payout ratio(14)
of 61% and brings the full year payout ratio to 56%.
The dividend is payable to shareholders on 13 December 2019 and shareholders registered as at the close of business on 13 November 2019
will be eligible for the final dividend. It is anticipated that dividends in the near future will be franked at a rate of no more than 20%.
INDIVIDUALLY SIGNIFICANT ITEMS
Financial year ended 30 September 2019
Impairment of IT assets
Write down of property, plant and equipment
Half year ended 31 March 2019
Gain on formation of China joint venture
Restructuring
Environmental provisions for legacy sites
Half year ended 30 September 2019
Total individually significant items
Gross
A$m
(36.1)
(155.0)
(191.1)
50.2
(21.5)
(33.5)
(4.8)
(195.9)
Tax
A$m
10.8
46.5
57.3
(4.5)
6.2
10.1
11.8
69.1
Net
A$m
(25.3)
(108.5)
(133.8)
45.7
(15.3)
(23.4)
7.0
(126.8)
Impairment of IT assets
As part of the transition to a new SAP operating system, $36 million of IT assets were identified as no longer being utilised by the business.
Write down of property, plant and equipment
Rectification works at the Technical Ammonium Nitrate (TAN) plant on the Burrup Peninsula are progressing in line with the announced
plan. As these rectification and capital works have progressed over the last year, the Group identified a number of assets that are
considered to be defective, requiring replacement which resulted in a write down of $155 million during the first half.
Gain on formation of China joint venture
A gain was recognised in connection with the formation of a new joint venture with Guizhou Jiulian Industrial Explosives. The gain arose
from the difference between the value of the shares received in the newly formed joint venture and the carrying amount of the assets
contributed by Orica and has been treated as an individually significant item. Whilst the results from the China subsidiaries were previously
consolidated, the joint venture’s results are now equity accounted. This is expected to result in less than $10 million negative impact to
EBIT in the 2020 financial year.
Restructuring
As a result of the global restructuring program, the Group incurred redundancy costs in the second half, with benefits to be realised
in the 2020 financial year. These have been treated as significant items consistent with the pcp.
Environmental provisions for legacy sites
During the financial year, cost estimates for remediation of legacy sites continued to be updated with the most recent information.
This resulted in a $34 million increase in the provision from increases in labour costs, materials used in the remediation process,
scope of work and time value of money.
22
ORICA
Orica Annual Report 2019
RISK MANAGEMENT
Orica’s risk management framework is consistent with
ISO31000:2018 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. Our risk management framework supports us
in achieving risk management integrated into our operations and
culture so that we continue on our path to sustainable change.
Understanding and managing our risks is everyone’s responsibility.
Group Risk is responsible for designing the risk management
framework, supporting its implementation in the business, and
coordinating and aligning risk management activities across the
Group. The effectiveness of Orica’s risk management framework
is evaluated externally by independent parties and is overseen by
the Board Audit and Risk Committee.
During 2019 we continued to review and improve the design and
implementation of our risk management framework. The process
was further embedded with a specific focus on manufacturing
and supply chain, strategic growth projects and a Group‑wide
transformational program. Material strategic risks are reported
to the Board and Board Audit and Risk Committee and material
operational risks are reported to the Board Audit and Risk
Committee. These risks are monitored for changes in their exposure
and are reported during the course of the year, along with their
controls and plans to manage them. Periodic deep dives are
undertaken throughout the year and presented to the respective
committee. A summary of material risks that can adversely impact
the achievement of Orica’s future business performance is provided
in the following pages.
During 2019 a review of our risk management framework was
completed, and the results reported to the Board Audit and Risk
Committee. Priorities for 2020 include: continue to increase risk
management capability in regions, central functions and in ‘front
line’ business; improving coordination of governance and reporting
across risk, audit, safety, health and environment and compliance;
increasing the use of data to inform the status of operational
risks; and increasing leaders’ visibility of control effectiveness
and enhancements. The Board Audit and Risk Committee has
conducted its annual review of our risk management framework
and satisfied itself that it continues to be sound.
Continuous Improvement
Commitment
Process
C
o
n
ti
n
u
o
u
s
I
m
5.
Monitoring
and Reporting
1.
Establish
the context
p
r
o
v
e
m
e
n
t
People & Culture
4.
Control
Assignment
2.
Risk
Identification
3.
Risk
Assessment
Continuous Improvement
Tools & Technology
Material Business risks that could adversely affect
the achievement of future business performance
Through our risk assessment process, we have identified the
following material business risks that may affect the future financial
performance of Orica. They are not listed in any order of significance.
i. Macro‑economic
Global economic growth outlook is uncertain and may result
in volatility in demand for commodities and subsequently sales.
Our key inputs, particularly gas, are also linked to international
traded commodities and are subject to the movements of the
market that have the potential to increase our cost of production.
Oversupply of ammonium nitrate through increased capacity may
also create a supply/demand imbalance which will result in margin
erosion, lost customers and downward price pressure. Adverse
foreign exchange rates can impact the cost of inputs and products and
impact sales denominated directly or indirectly in foreign currencies.
Orica operates in many countries, which provides diversified
exposure across commodities and industries. The global nature
of Orica’s operations also allows supply contracts to be
coordinated and optimised.
ii. Markets
A number of external factors may impact and change the
markets in which we operate or in which we are seeking growth
opportunities. Changing customer and competitive behaviours
which can result in margin pressures, loss in customers and
downward price pressures however may also result in demand for
new products and applications. We are also exposed to changes
in regulation and policy which can negatively impact our license
to operate, impose additional regulatory requirements and cause
significant business interruption e.g. increased trade protection
measures. National and global efforts to transition towards a low
carbon future may increase operational and compliance costs in
the short term but result in a more fundamental change in the
energy mix and drive innovation and technology adoption.
We monitor and analyse external factors including global growth
and industrialisation, political changes and industry and technology
trends to assist with the management of existing operations and
pursuit of new opportunities.
iii. Manufacturing and Supply
Having a supply chain which enables us to source and deliver
quality products and services in a safe and timely manner is key
to delivering on our customer promise. Material risks which are
inherent in our supply chain include a supply chain interruption
and the production of poor‑quality products.
An interruption to our supply chain may be driven by external
events such as adverse weather conditions or natural disasters;
if we are unavailable to supply for a sustained period (e.g. trade
restrictions), or we experience a major disruption in a key
manufacturing site (e.g. accident leading to immediate shutdown,
industrial action). To manage this risk, we focus on our
manufacturing reliability and the resilience within our network.
Supply dependencies are considered in product design and
customer demand, and a sourcing strategy supports reliable
internal and external supply.
ANNuAl REpORT 2019
23
REVIEW OF OPERATIONS
REVIEW OF OPERATIONS
To manage the risk of poor product quality, we conduct trials
and testing of new products, processes and suppliers, define
contractual quality requirements, monitor ongoing performance
of our suppliers, conduct quality assurance audits, and have quality
control procedures in place for raw materials and finished goods.
We continue to focus on our customer feedback mechanism as
a way of measuring product quality; and are further developing
and implementing key quality requirements and processes at our
manufacturing sites to support continuous improvement.
iv. Workplace Safety
Orica operates within hazardous environments, particularly in
the areas of manufacturing, storage and transportation of raw
materials, products and wastes. Material safety, health, environment
and security (‘SHES’) risks include: an explosion during the
storage and transportation of explosives, a fire or explosion at a
manufacturing site or storage location, loss of containment of
hazardous materials, and risk of raw materials or finished goods
being used for illegal purposes. These risks can cause personal
injury and/or loss of life, damage to property and harm to the
environment. They may also 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.
Controls to mitigate and prevent our SHES material risks strongly
align with our Major Hazard Management program. This work
reflects our relentless and targeted approach to fatality prevention.
In FY2019, 9,370 KCVs were conducted and consistently verified
that the major hazard key controls were 100% effective,
100% of the time.
Core to managing our material SHES risks is our SHES Management
System which is underpinned by the Orica Charter and the SHES
Policy. These are supported by the Group SHES Standards and
Procedures which mandate the required controls, systems and
processes that must be in place to prevent and mitigate these risks.
SHES leadership is foundational to embedding and reinforcing SHES
behaviours that drive risk reduction. Our leaders ensure that effective
systems are in place and monitor and review control measures.
v. Cyber Security
Another aspect of security is our ability to protect our network,
systems and data from cyber‑attacks which can result in critical
services outages, loss of production and business services, damage
to reputation, regulatory action and financial loss. To manage this
risk, we have a cyber security strategy supported by a multi‑year
security program aimed at delivering improved controls and
improving our service continuity and disaster recovery capabilities.
A cyber security control framework is supported by a governance
structure that spans the corporate, manufacturing site and field
operation environments.
vi. Climate Change
Orica’s manufacturing processes include the release of greenhouse
gases. The business also faces a period of long‑term change as the
global economy decarbonises and adopts new technologies and
sources of energy. In both regards, the business is taking steps
to identify and minimise our risks. Our planning and actions are
guided by our Climate Change Policy.
The Orica Board formally considers climate‑related risk in the
annual risk management and planning processes. This work
identifies: material risk; causes and impacts; signposts for
monitoring; and, our long‑term strategic response. It also analyses
the challenges presented by climate change and related regulation
under various scenarios over the longer term and informs our
planning in anticipation of emerging commodity markets including
carbon markets.
Our efforts to reduce emissions will prioritise abatement at
major production facilities where we can make the most difference
by lowering direct nitrous oxide (N2O) emissions. We will also
continue to assess opportunities to reduce direct and indirect
carbon dioxide (CO2) emissions across all our sites and value chain.
The global transition to a lower carbon future will also impact
our customers and commodities, however we believe demand
for our core products and services will remain strong while
emerging areas of the business continue to grow.
The impact of climate change may also change the physical
environment impacting local, national and global socio‑economics.
We will continue to monitor the leading indicators of change
to assess the impacts that may ensue including any risk to our
physical assets.
vii. Ethical Business Practices and Good Governance
As a global company with diverse operations, it is essential that
we understand and comply with our regulatory requirements so
that we maintain our license to operate. Core to this is our ability to
comply with regulatory requirements in the areas of occupational
health and safety, product security; competition; anti‑bribery;
corruption; sanctions; and taxation.
We have a program designed to manage the risk of
non‑compliance with competition, anti‑bribery and corruption
requirements including: screening, monitoring and reporting of
customers, business partners, suppliers, and countries against
related obligations and sanctions; delivery of anti‑corruption
training, and processes to monitor and report requests for bribery
or duress payments; and the requirement for legal review of
agreements with competitors, suppliers and customers.
Mis‑alignment with tax regulators on the treatment of transactions
can also have a material financial impact. To manage this risk,
we proactively engage with taxation authorities and legal
representatives in various jurisdictions to enhance our understanding
of our obligations. We have a tax strategy, policy and requirements
in place which guide and govern our compliance with our
regulatory requirements.
For additional detail on a safe workplace, product stewardship
and security, environment and community, climate change,
ethical business practices and human capability please refer
to our sustainability report.
More detailed information on our environment, social and governance
performance is available in our 2019 Sustainability Report.
24
ORICA
Orica Annual Report 2019
TAX TRANSPARENCY REPORTING
Orica believes that enhanced tax transparency is a critical element
of ethical business behaviour.
Tax Policy – Orica’s approach to tax
Orica’s tax policy and approach to tax is published on our website.
Some important aspects of that policy are set out in this report.
As an Australian mining services company with global operations,
Orica incurs a substantial amount and variety of taxes across its
jurisdictions including income taxes, stamp duties, employment
taxes and other taxes. Orica also collects and remits a number
of taxes on trust including employment taxes and indirect taxes
such as GST/VAT.
The taxes Orica pays and collects form a significant part of the
economic contribution to the countries of operation.
Tax strategy and governance
Orica’s tax strategy is reviewed by the Board of Directors annually.
The tax strategy is aligned with the overall corporate strategy and
supplements the Risk Management Policy.
The Chief Financial Officer has oversight responsibility over the
tax risk management framework. Operational and governance
responsibility for the execution of the Group’s tax strategy rests
with the Vice President Taxation, supported by a team of tax
professionals. External tax expertise is used where required.
The Vice President Taxation reports on tax matters bi‑annually
to the Board Audit and Risk Committee.
$57m
Orica’s approach to tax is applicable across the Orica Group
and is reviewed and updated annually.
Transparency
Orica supports the ongoing global development of improved tax
transparency to increase understanding of tax systems and build
public trust.
Orica has signed the Corporate Tax Transparency Code Register
developed by the Board of Taxation in Australia and is committed
to applying the principles and the details of the Code.
Tax contribution summary
In the 2019 financial year, Orica paid $107 million (2018 $69 million)
globally in corporate income taxes and $60 million (2018 $56 million)
globally in payroll taxes. Orica collected and remitted $109 million
(2018 $124 million) globally in GST/VAT.
The charts show 2019 corporate income tax paid/(refunded)
in each region (including withholding tax and trade taxes),
and an analysis of total tax paid by type.
2019 Global corporate tax and WHT on income by region
($107m)
Australia
Pacific & Asia
Europe, Middle
East & Africa
Latin America
North America
$16m
$21m
$13m
Compliance
Orica is committed to complying with all relevant revenue laws in a
responsible manner, with all taxes properly due, accounted for and
paid. A tax standard and relevant procedures are in place to ensure
tax compliance obligations are managed.
There is an in house global tax team that manages Orica’s tax
affairs which is supplemented with external compliance support
where required.
Structure
Orica does not support the use of artificial structures that are
established just to avoid paying tax and have no commercial
purpose. Orica will not enter into any tax avoidance activities.
Relationships with tax authorities
Orica aims for open, transparent and respectful relationships
with the Australian Taxation Office and other tax authorities
globally. Orica seeks advance rulings from taxation authorities
on transactions where appropriate.
Use of tax havens
Tax havens are not used for tax planning purposes. Orica has
operations in countries that are ‘low tax’ jurisdictions. There is
genuine operational substance in these locations, or the entities
are dormant.
Orica’s overseas companies are subject to Australia’s international
tax rules (Controlled Foreign Corporation rules).
2019 Global tax paid by type ($276m)
$60m
$107m
Corporate tax
GST/VAT
Employer payroll
taxes
$109m
In Australia, Orica received net corporate income tax refunds
of $10 million (2018 $42 million) comprising a tax refund on
the resolution of a thin capitalisation dispute with the Australian
Taxation Office of $23 million and tax payments of $13 million.
Orica also paid $19 million (2018 $19 million) in payroll tax and
$2 million (2018 $2 million) in fringe benefits tax. Orica collected
and remitted $47 million (2018 $43 million) in GST and $106 million
(2018 $105 million) in ‘pay as you go’ withholding taxes.
ANNuAl REpORT 2019
25
REVIEW OF OPERATIONS
REVIEW OF OPERATIONS
A RECONCILIATION OF ACCOUNTING PROFIT TO INCOME TAX PAYABLE
EFFECTIVE TAX RATE FOR AUSTRALIAN AND GLOBAL OPERATIONS
Before individually significant items:
Accounting profit/(loss) before tax
Prima facie income tax expense/(benefit) calculated at 30% on accounting profit
Material non‑temporary differences
variation in tax rates of foreign controlled entities
tax under provided in prior years
de‑recognition of booked tax losses
non taxable gains on disposal of assets
other foreign deductions
non creditable withholding taxes
non allowable interest deductions
non allowable share based payments
utilisation of unbooked prior year tax losses
sundry items
Income tax expense/(benefit) before individually significant items
Individually significant items:
Individually significant items before tax
Prima facie income tax expense/(benefit) calculated at 30% on individually significant items
Material non‑temporary differences
variation in tax rates of foreign controlled entities
non taxable gain on formation China joint venture
impairment of Minova business
write down of US deferred tax assets
Income tax expense/(benefit) on individually significant items
Income tax expense/(benefit)
Material temporary differences
deferred tax
write down of US deferred tax assets
Tax payments more/(less) than tax charges
Tax refunds on matters in dispute with tax authorities
Income tax paid per the statement of cash flows
Consolidated
2019
A$m
Consolidated
2018
A$m
555.0
166.5
(23.4)
9.7
–
–
–
10.2
14.6
3.7
(10.5)
6.9
177.7
(195.9)
(58.8)
0.3
(10.6)
–
–
(69.1)
108.6
(0.5)
–
22.5
(23.1)
107.5
496.8
149.0
(16.3)
2.0
3.5
(3.2)
(3.7)
11.2
11.3
4.4
(8.0)
7.8
158.0
(375.3)
(112.6)
2.1
–
60.6
47.9
(2.0)
156.0
(6.3)
(47.9)
(18.6)
(13.9)
69.3
Before individually significant items:
Australia
Global operations (including Australia)
Notes
Consolidated
2019
Consolidated
2018
1
36.9%
32.0%
39.9%
31.8%
1. The tax rate is the percentage of income tax expense to accounting profit/loss before tax (before individually significant items) adjusted to exclude exempt dividend income.
International related party dealings
Orica prices its international related party dealings to reflect the substance in its operations in accordance with the ‘arm’s length principle’
as defined in the Organisation for Economic Co‑operation and Development (OECD) guidelines and in accordance with the laws in both
Australia and the countries in which it operates.
Orica has transfer pricing procedures which govern the pricing of all international related party dealings. These procedures require all
international related party dealings to be priced in accordance with the arm’s length standard. Orica maintains contemporaneous records
to support the pricing of its international related party dealings and benchmarks and documents the outcome of its material dealings on
an annual basis.
The material international related party dealings impacting Orica’s Australian taxable income may be summarised as follows:
• The purchase of raw materials and finished products from related parties in Singapore, Indonesia and China. The products purchased
are ammonia, caustic soda, gas, bulk explosives and initiating systems;
• The sale of raw materials and finished products to related parties in Peru, Singapore, Russia, Panama and New Zealand. The products
sold include bulk explosives, packaged explosives, and initiating systems;
• The provision and receipt of services from entities resident in Singapore, Chile, the United Kingdom, Germany, the United States, Canada
and South Africa. The nature of the services include general management, information technology, sales and marketing and logistics;
• The use of intellectual property held by a related party in Singapore. The nature of the intellectual property includes technical knowhow
related to the manufacture of Orica’s products and the Orica name and trademarks; and
• The provision of contract research and development activities for a related party in Singapore.
Orica has a treasury function based in Melbourne which provides loans and accepts deposits from in excess of 80 group companies
(resident in more than 40 countries) at market interest rates. The material transactions are with related parties in Germany, Indonesia,
Russia, Singapore, the United Kingdom and Mexico. It also has a subsidiary in Singapore which acts as the Group’s captive insurer.
AUSTRALIAN TAX RETURN DATA
Total income
Taxable income
@ Tax Rate
Tax liability
Offset reductions
Tax payable
Notes
1
2
3
4
2018
A$m
2,534
61
30%
18
(18)
–
2017
A$m
1,999
108
30%
32
(26)
6
1. Total Australian income (includes sales, dividends, interest income, etc.) before all expenses (for example, interest, employee costs, depreciation, etc.).
2. Taxable income after allowing for all deductible expenses and tax exempt income.
3. Australian Statutory tax rate.
4. Offset reductions of $18 million (2017 $26 million) relating to franking credits, foreign income tax and research and development.
26
ORICA
Orica Annual Report 2019
ANNuAl REpORT 2019
27
REVIEW OF OPERATIONS
DIRECTORS’ REPORT
2020 FINANCIAL YEAR OUTLOOK
Continued delivery of better business performance
will support further growth
Higher EBIT underpinned by technology, increased demand
and mix across all regions, with earnings skewed to the second
half of the year.
Key assumptions for the 2020 financial year include(i):
Operations
• AN product volumes expected to be ~5% higher than the
2019 financial year from already secured contracts and growth
in EMEA and Canada
• Contribution from new advanced product and service contracts, and
services margin growth led by targeted initiatives
• Further improvements in GroundProbe™ and Minova
•
Increased operating expenditure relating to the implementation of the
SAP project
• Further overhead reduction
Burrup TAN plant
• ~150 thousand tonnes, produced in second half
• Positive EBIT contribution in the second half and
subsequent years
Other
• Capital expenditure expected to be between $370 – $390 million in the
2020 financial year (excluding Burrup) with a continued focus on growth
capital and plant reliability
• Depreciation and amortisation expense to be ~15% higher
than the 2019 financial year from Burrup and the SAP project (excluding
impact of reclassifications from AASB 16 Leases(ii))
•
Increase in trade working capital driven by higher activity, temporary
inventory increases and standardised payment terms
(i) Subject to no material changes to market, economic or regulatory environments.
(ii) Additional depreciation expense will offset a reduction in operating lease expenses.
Forward-looking statements
The Review of Operations has been prepared by Orica Limited.
The information contained is for informational purposes only.
The information contained in this presentation is not investment
or financial product advice and is not intended to be used as
the basis for making an investment decision. The Review of Operations has
been prepared without taking into account the investment objectives,
financial situation or particular needs
of any particular person.
No representation or warranty, express or implied, is made as to the
fairness, accuracy, completeness or correctness of the information, opinions
and conclusions contained in this presentation. To the maximum extent
permitted by law, none of Orica Limited, its directors, employees or agents,
nor any other person accepts any liability, including, without limitation, any
liability arising out of fault or negligence, for any loss arising from the use of
the information contained in this presentation. In particular, no
representation or warranty, express or implied, is given as to the accuracy,
completeness or correctness, likelihood of achievement or reasonableness of
any forecasts, prospects or returns contained in this announcement. Such
forecasts, prospects or returns are by their nature subject
to significant uncertainties and contingencies.
Before making an investment decision, you should consider, with or without
the assistance of a financial adviser, whether an investment is appropriate in
light of your particular investment needs, objectives and financial
circumstances.
Past performance is no guarantee of future performance.
Non-International Financial Reporting Standards (Non-IFRS)
information
The Review of Operations makes reference to certain non-IFRS financial
information. This information is used by management to measure the
operating performance of the business and has been presented as this may
be useful for investors. This information has not been reviewed by the
Group’s auditor. The 2019 Full Year Results presentation includes non-IFRS
reconciliations. Forecast information has been estimated on the same
measurement basis
as actual results.
Footnotes
The following footnotes apply to the Review of Operations:
(8) EBIT before individually significant items plus depreciation and
(1) Equivalent to profit after income tax expense before individually significant
items attributable to shareholders of Orica Limited, as disclosed in Note 1(b)
to the financial statements.
(2) Equivalent to profit/(loss) before financing costs and income tax as disclosed
in Note 1(b) to the financial statements, before individually significant items.
amortisation expense.
(9) Quarry and construction.
(10) Equivalent to net cash used in financing activities (as disclosed in
the Statement of Cash Flows) excluding dividends paid to Orica ordinary
shareholders and non-controlling interests.
(3) Earnings per share before individually significant items.
(11) Equivalent to net decrease in cash held, as disclosed in the Statement
(4) Equivalent to net cash flows from operating activities and net cash flows
of Cash Flows.
used in investing activities, as disclosed in the Statement of Cash Flows.
(12) Comprises inventories, trade receivables and trade payables, as disclosed
(5) Comprises total payments for property, plant and equipment and
in the Balance Sheet.
payments for intangibles, as disclosed in the Statement of Cash Flows.
(13) Comprises other receivables, other assets, other payables and provisions.
(6) Total interest-bearing liabilities less cash and cash equivalents, as disclosed
(14) Dividend amount/NPAT before individually significant items.
in Note 3 to the financial statements.
(7) Net debt/(net debt + total equity), as disclosed in Note 3 to the
financial statements.
28
ORICA
Orica Annual Report 2019
The Directors of Orica Limited (‘the Company’ or ‘Orica’) present the Annual Report of the Company and its controlled entities (collectively ‘the Group’)
for the year ended 30 September 2019 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:
M W Broomhead, Chairman
M N Brenner
I D Cockerill (retired 30 August 2019)
D W Gibson
G T Tilbrook
K Gray is the Company Secretary of Orica.
A Calderon, Managing Director and Chief Executive Officer (‘CEO’)
Boon S F (appointed 6 May 2019)
Lim C O (retired 31 October 2019)
K A Moses
Particulars of Directors’ and Company Secretary qualifications, experience and special responsibilities are detailed in the Annual Report.
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:
Scheduled Board
Meetings(1)
Audit and Risk
Committee(1)
Human Resources
and Compensation
Committee(1)
Nominations
Committee(1)
Safety, Health,
Environment
and Community
Committee(1)
Innovation
and Technology
Committee(1)
Director
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
M W Broomhead(2)
M N Brenner
A Calderon(3)
Lim C O
D W Gibson
K A Moses(4)
G T Tilbrook
Boon S F
Former
I D Cockerill
10
10
10
10
10
10
10
3
10
9
10
10
10
10
10
10
3
10
–
5
–
–
–
4
5
1
–
–
5
–
–
–
4
5
1
–
–
6
–
6
6
1
–
–
6
–
6
–
6
6
1
–
–
6
6
6
–
6
6
6
6
3
6
6
6
–
6
6
6
6
3
6
–
–
–
5
–
5
5
–
5
–
–
–
5
–
5
5
–
5
1
–
–
–
1
–
–
1
–
1
–
–
–
1
–
–
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.
(2) The Chairman of the Orica Board attends all Board Committee meetings as an ‘ex officio’ member of that Committee.
(3) The Managing Director and CEO attends Committee meetings on an ‘as needs’ basis.
(4) K A Moses left the Audit and Risk Committee on 1 July 2019 and joined the Human Resources and Compensation Committee.
DIRECTORS’ INTERESTS IN SHARE CAPITAL
The relevant interest of each Director in the share capital of the Company is disclosed in the Remuneration Report.
PRINCIPAL ACTIVITIES
The principal activities of the Group in the course of the financial year were the manufacture and distribution of commercial blasting systems including technical
services and solutions, mining and tunnelling support systems to the mining and infrastructure markets, and various chemical products and services.
LIKELY DEVELOPMENTS
Likely developments in the operations of the Group and the expected results of those operations are covered generally in the review of operations and
financial performance of the Group in the Annual Report.
REVIEW AND RESULTS OF OPERATIONS
A review of the operations of the Group during the financial year and of the results of those operations is contained in the Annual Report.
AnnuAl RepORt 2019
29
DIRECTORS’ REPORT
DIRECTORS’ REPORT
CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the Group during the year ended 30 September 2019.
DIVIDENDS
Dividends paid or declared since the end of the previous financial year were:
Final dividend at the rate of 31.5 cents per share on ordinary shares, unfranked, paid 7 December 2018
Interim dividend declared at the rate of 22.0 cents per share on ordinary shares, unfranked, paid 1 July 2019
Total dividends paid
$m
119.5
83.5
203.0
Since the end of the financial year, the Directors have declared a final dividend to be paid at the rate of 33.0 cents per share on ordinary shares.
This dividend will be franked to 15.2% (5.0 cents) at the 30% corporate tax rate.
EVENTS SUBSEQUENT TO BALANCE DATE
Dividends
On 31 October 2019, the Directors declared a final dividend of 33.0 cents per ordinary share payable on 13 December 2019. The financial effect of this
dividend is not included in the Annual Report for the year ended 30 September 2019 and will be recognised in the FY2020 Annual Report.
The Directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2019, that has affected or may affect
the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent years, which has not been covered in this report.
ENVIRONMENTAL REGULATIONS
Orica seeks to be compliant with applicable environmental laws and regulatory permissions relevant to its operations. Where instances of non-compliance
occur, Orica’s 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.
Environmental prosecutions
The Queensland Department of Environment and Science (DES) commenced a prosecution against Orica Australia Pty Ltd (OAPL) in the Gladstone
Magistrate’s Court in relation to an environmental incident at Yarwun on 23 September 2016 at OAPL’s Fishermens’ Landing Ammonia Terminal, which
involved the release of approximately 330kg of ammonia. In 2019, OAPL was fined $50,000 and ordered to pay the DES’s legal and investigation costs
of $4,000. No conviction was recorded against OAPL by the Magistrate for this offence. OAPL has made a number of changes to relevant plant and
procedures since 2016 to enhance its processes.
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.
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 in good faith 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 certain instances, 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 its 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 insurance contract
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’s
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’s 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.
A copy of the lead auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is contained on page 52 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 22 to the Annual Report.
30
ORICA
Orica Annual Report 2019
COVER LETTER (UNAUDITED) TO THE REMUNERATION REPORT
Dear Shareholders,
On behalf of the Board, I am pleased to present Orica’s 2019 Remuneration Report, for which we seek your support at our Annual General Meeting.
CHANGES FOR 2019
The Executive Remuneration Framework introduced in 2018 increased its emphasis on alignment with the shareholder experience by (a) introducing
significantly longer holding periods for equity allocated under both short and long-term incentives (STI and LTI respectively) and (b) increasing the emphasis
on financial metrics linked to Return on Net Assets. For the FY2019 Plan, the Board has sought to simplify the financial STI metrics used and provide metrics
that are directly aligned to value creation for shareholders. These metrics are EBIT and 1-year RONA, each of which is used and well understood by each
business within the Group. The inclusion of RONA as a standalone metric in both the STI and LTI plans for the CEO emphasises the focus on sustainable
productivity improvement and efficient capital allocation throughout Orica’s transformation and across multiple time horizons.
In addition to the changes to financial metrics above, the All Worker Recordable Case Rate (AWRCR) safety metric was replaced with the Serious Injury
Case Rate (SICR) to focus attention on the prevention of higher severity events and fatalities. The change helps to ensure that management is allocating
appropriate resources and attention where it matters most – to prevent serious injuries and fatalities. Importantly, AWRCR is still measured, monitored and
subject to periodic management review within our Safety, Health, Environment and Security (SHES) management system. Safety is a core value at Orica,
and we are continuously reviewing our approach to ensure all of our employees return home safely every day.
In FY2019, members of the Executive Key Management Personnel (KMP) did not receive increases in Fixed Annual Remuneration (FAR) other than
Darryl Cuzzubbo (Chief Manufacturing Officer) based on the increased responsibility of rolling out our new SAP operating system – and Germán Morales
(President – Latin America), who received an inflationary increase as required under Chilean Law.
PERFORMANCE ALIGNMENT
A key priority for the Board is to ensure a high degree of alignment in outcomes between shareholders and management.
The Board was pleased with performance outcomes in FY2019 and the value that was generated for shareholders. There were substantial improvements
made with respect to safety which is one of Orica’s core values and a key component of the remuneration framework, and financial performance was
broadly in line with targets set by the Board and an improvement from the prior year.
In determining performance outcomes under the incentive plans the Board exercised discretion to ensure that management were neither unfairly
advantaged nor disadvantaged as a result of significant items impacting performance outcomes. These are explained in detail under sections 3.2
and 3.3 (i.e. STI and LTI outcomes).
The main remuneration outcomes for the year are summarised below. The Board believes that these outcomes appropriately align Orica’s performance
with outcomes for shareholders.
SHORT-TERM INCENTIVE (STI)
AWARD AT TARGET
Average KMP outcomes of 53.3% of maximum up from 23.0% in FY2018 reflecting improved safety
and financial performance, underpinned by strong EBIT growth.
PARTIAL LONG-TERM
INCENTIVE (LTI) VESTING
Partial vesting of the LTI awards granted to Executives in FY2016 occurred, as Average Return on Capital (ROC)
performance conditions were met between threshold and target.
CONTINUED RESTRAINT
IN FIXED REMUNERATION
Fixed pay for the Managing Director and CEO was maintained at the same level for the fourth successive year.
There were also no pay rises awarded to Executive KMP in FY2019 except where there had been a change in
responsibilities or where required by local law.
DIRECTOR FEES MAINTAINED
AT EXISTING LEVELS
Non-Executive Directors’ fees were maintained at the same level in FY2019. As noted in the Directors’ Report,
the Innovation & Technology Committee was established in 2019 and fees were set commensurate with
existing Committees.
AnnuAl RepORt 2019
31
DIRECTORS’ REPORT
CULTURE AND ORGANISATIONAL HEALTH
Orica’s commitment to creating a performance driven and safety conscious culture remains unchanged. During FY2019 the Board commissioned a
review into risk and culture matters (specifically in relation to safety and compliance) and how they are reflected through Orica’s reward and performance
management frameworks. This external review recognised Orica as having sound practices in this area relative to leading companies, while also identifying
opportunities to further embed risk culture and the link to performance and reward outcomes. A risk culture survey conducted in late FY2019 indicated
a strong risk culture at Orica which offers assurance that the sustained focus to embed Our Charter values and Code of Business Conduct is having
a meaningful impact on our people. Further consideration will be given to how Orica can evolve our risk management practices while continuing to
reinforce and sustain a resilient culture.
EXECUTIVE REMUNERATION FOR 2020
The Board intends to maintain consistency in the Executive Framework across FY2020 with respect to STI and LTI metrics. The holding locks introduced into
equity plans from FY2018 will come into effect in November 2019 as allocations under the FY2018 Deferred Share Plans vest. These will remain in a holding
lock for a further three years further reinforcing the Board’s commitment to ensuring Executive pay is aligned with shareholders over a longer-term horizon.
NON‑EXECUTIVE DIRECTOR FEES FOR 2020
As a result of the establishment of the Innovation and Technology Committee, and to provide flexibility in accommodating any future changes to the Board,
an increase in the total Non-Executive Director (Director) fee pool from $2,500,000 to $2,750,000 will be proposed for approval at the Annual General
Meeting in December 2019. Other changes to Director remuneration are outlined in section 4.
It remains our intention to encourage open dialogue with shareholders and other stakeholders, particularly around our remuneration practices and
disclosures, and accordingly I welcome any feedback you may have.
Yours faithfully,
Maxine Brenner
Chairman, Human Resources and Compensation Committee
31 October 2019
DIRECTORS’ REPORT –
REMUNERATION REPORT 2019 (AUDITED)
EXECUTIVE SUMMARY
How are Remuneration Strategy and outcomes linked to business strategy and performance?
At Orica, remuneration is linked to the drivers of our business strategy, helping to create long-term success for shareholders. The at-risk components of
remuneration are tied to measures that reflect operating and capital efficiencies in both the short and long-term. Strategic drivers are reflected in STI and LTI
performance measures – so that Executive incentives are linked to actual performance. The diagram below provides an overview of the Framework and
the specific performance linkages. Key terms of the STI and LTI Plans are outlined in Section 3.1.
Our strategic
drivers…
are reflected in STI and LTI
performance measures…
so Orica’s actual
performance in FY2019…
links to what
Executives are paid.
Safety
Reduce risk from major
hazards and reduce lost
time due to injury
EBIT
Sustainably increase productivity
and devolve responsibility to regional
businesses.
Strong focus on major hazards
prevention resulted in Key
Control Verifications at stretch
performance. There was good
operational discipline to close out
critical actions, however SICR was
below target and remains a critical
area of focus in FY2020.
EBIT exceeded target and was
underpinned by a turnaround
in the Latin America business,
strong EMEA results, and
contributions from the Minova
and Orica Monitor businesses.
Business
Transformation
RONA
Drive sustainable productivity
improvement and efficient
capital allocation.
Growth in RONA was delivered
however there are further
opportunities for improvement
across working capital initiatives.
CEO STI outcome
in FY2019 = 111.2% of target
(55.6% of maximum)
Average STI in FY2019 for
Executive KMP, including
the CEO = 106.6% of target
(53.3% of maximum)
Personal objectives for each
Executive (other than the CEO)
reflect strategic priorities
including growth, enhancing
Orica’s development and use
of technology, and culture.(1)
Long-term
shareholder value
creation
RONA, together with holding locks
Drive sustainable productivity
improvement and efficient capital
allocation.
Progress on the development
and commercialisation of new
technologies, standardisation of
business process and operating
model and other business growth
objectives. Achievement against
these objectives was generally
around target performance levels.
During FY2019, the FY2016 award
was eligible for testing. This award
was subject to testing against
Relative Total Shareholder Return
(RTSR) and ROC measures. Threshold
performance was not achieved against
RTSR; while performance between
threshold and target was achieved
against the ROC measure.
Partial LTI vesting (~25% of
LTI awarded) in FY2019 for the
CEO and eligible Executive KMP.
(1) While not specifically included as an STI metric for the CEO, the Board continues to measure progress against rigorous, externally validated employee engagement and
organisational health baselines and against plans to improve engagement and strengthen business conduct, ethics and compliance. Building and strengthening conduct
and diversity is a specific focus area for the Human Resources and Compensation Committee and is included in the assessment of any exercise of discretion by the Board
in relation to remuneration outcomes.
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DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
COntentS
Section 1: Key Management Personnel
1.1 Executive Key Management Personnel
1.2 Non-Executive Directors Key Management Personnel
Section 2: Key stakeholder questions
2.1 What is Orica’s Executive remuneration strategy?
2.2 How is Executive remuneration structured?
2.3 When is remuneration earned and received?
2.4 What is the remuneration mix for Executive KMP?
2.5 How much did Executives get paid in FY2019?
2.6 What changes are proposed for the Executive Remuneration Framework in FY2020?
Section 3: Executive remuneration
3.1 Executive Remuneration Framework
3.2 Short-term incentive outcomes – link to performance
3.3 Long-term incentive outcome
3.4 Equity granted in FY2019
3.5 Overview of business performance – five-year comparison
3.6 Service agreements
Section 4: Non-Executive Director arrangements
4.1 Overview
4.2 Fees and other benefits
Section 5: Remuneration governance
5.1 Responsibility for setting remuneration
5.2 Use of remuneration advisors during the year
5.3 Securities dealing policy and Malus
5.4 Executive and Director share ownership
Section 6: KMP statutory disclosures
6.1 Executive KMP remuneration
6.2 Summary of awards held under Orica’s LTI and STI deferred share arrangements
6.3 Non-Executive Director remuneration
SECTION 1. KEY MANAGEMENT PERSONNEL
1.1 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 Directors, are defined as Key Management Personnel (KMP) under Australian Accounting Standards. 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 Company but have no direct involvement
in the day-to-day management of the business.
Name
Role in FY2019
Commencement date in role
Country of Residence
Executive Director
Alberto Calderon
Managing Director and CEO
19 May 2015
Australia
Executive KMP
Christopher Davis
Chief Financial Officer
James Bonnor
President – North America
Darryl Cuzzubbo(1)
Chief Manufacturing Officer
Carlos Duarte(2)
Group Executive
Angus Melbourne
Chief Commercial Officer
Germán Morales(3)
President – Latin America
1 October 2018
1 October 2015
1 October 2016
1 October 2017
1 October 2016
1 September 2018
Australia
United States
Australia
Australia
Singapore
Chile
Thomas Schutte
President – Europe, Middle East & Africa
1 October 2017
United Kingdom
(1) Effective 7 October 2019, Darryl Cuzzubbo was appointed Chief Manufacturing Officer and assumed responsibility for Global Manufacturing and Safety, Health,
Environment and Security (SHES) in addition to his responsibilities for the new SAP operating system. James Crough has been appointed interim President – Australia
Pacific & Asia.
(2) Carlos Duarte, Group Executive, ceased to be a KMP on 7 October 2019. Carlos has advised of his intention to retire and will continue his focus
on the delivery of the contractual arbitration of Burrup through his notice period. Other than the applicable notice period and his statutory entitlements to accrued leave at
the separation date, no payment of severance will be made. Carlos remains eligible for payment under the FY2019 STI in the same manner as other continuing Executives.
The Board determined that as a good leaver, a pro-rata proportion of incentives awarded under the Orica LTI plan that are unvested at the time of cessation or vested but
under restriction will continue up and beyond the cessation date and remain subject to the terms of the grant. Carlos will also retain a pro-rata portion of the sign-on rights
which were granted on the commencement of his employment and vest on 30 September 2020. Carlos will not be eligible to participate in the FY2020 STI or FY2020 LTI.
(3) Effective 7 October 2019, Germán Morales, President – Latin America, assumed the responsibility for the Global Supply Chain function across Orica in addition to his
Regional responsibility.
Particulars of Executives’ qualifications, experience and responsibilities are detailed in the Annual Report.
1.2 Non-Executive Directors Key Management Personnel
The Non-Executive Directors who held office during FY2019 are set out below:
Name
Role in FY2019
Commencement date in role
Country of Residence
Current Directors
Malcolm Broomhead
Non-Executive Director, Chairman
1 December 2015
Maxine Brenner
Non-Executive Director
Boon Swan Foo
Non-Executive Director
8 April 2013
6 May 2019
Australia
Australia
Singapore
Denise Gibson
Non-Executive Director
1 January 2018
United States
Karen Moses
Non-Executive Director
Lim Chee Onn(1)
Non-Executive Director
Gene Tilbrook
Non-Executive Director
Former Directors
1 July 2016
12 July 2010
14 August 2013
Australia
Singapore
Australia
Ian Cockerill(2)
Non-Executive Director
12 July 2010
South Africa
(1) Ceased to be a director on 31 October 2019.
(2) Ceased to be a director on 30 August 2019.
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Orica Annual Report 2019
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED) DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED) SECTION 2: KEY STAKEHOLDER QUESTIONS (continued)2.3 When is remuneration earned and received?Remuneration is structured to reward Executives progressively across different timeframes with an emphasis on alignment with shareholders through extended holding locks and a five-year effective holding period. The diagram below illustrates the period over which FY2019 remuneration is earned and delivered, and when holding locks are lifted.Date paidDate earnedDate grantedVesting dateFARSTILTIFY2019FY2020FY2021FY2022FY2023Cash STISTI Deferred SharesPerformance rights2 year holding lock post vesting1 year deferral 3 year holding lock post vesting2.4 What is the remuneration mix for Executive KMP?The remuneration mix for Executive KMP is weighted towards variable (at-risk) remuneration to provide alignment with the interests of shareholders and to drive performance against Orica’s short-term and long-term business objectives.Assuming target STI and the face value of LTI granted to Executives the remuneration mix is as follows:• CEO: 76% of his remuneration is performance-based pay and 64% is delivered as deferred shares or performance rights.• Other Executive KMP: 64% of their remuneration (on average) is performance-based pay and 50% is delivered as deferred shares or performance rights.LTI is granted at face value (based on the volume weighted average price (VWAP) of Orica shares during the five trading days following the full year results announcement, rounded down to the nearest whole number of rights). Executive KMP are subject to minimum shareholding requirements (refer to Section 5.4).CEOFAR (24%)Target STI (24%)Cash (12%)Def. Shares(12%)Face value of LTI grant (Performance Rights) (52%)FAR (36%)Target STI (21%)Cash (14%)Def. Shares(7%)Face value of LTI grant (Performance Rights) (43%)Performance-dependentOther Executives (average)Performance-dependentSECTION 2: KEY STAKEHOLDER QUESTIONS2.1 What is Orica’s Executive remuneration strategy?Orica’s Executive Remuneration Strategy is illustrated below:Strong alignment with shareholder returnsFit for purpose aligned to business strategy and driving desired business behavioursSimple and transparentGlobally competitive, enabling Orica to attract and retain the best talentOBJECTIVE: COMPETITVE REMUNERATION THAT ALIGNS EXECUTIVES WITH THE LONG-TERM SUCCESS OF ORICA AND ITS SHAREHOLDERSBOARD PRIORITIES2.2 How is Executive remuneration structured?Orica’s FY2019 Executive Remuneration Framework focuses on delivery of the ongoing turnaround of the Company through operating safely, enhancing operating and capital efficiency and embedding those efficiencies for long-term improvement in capital returns. The diagram below provides an overview of the different components within the Framework.Overall Board discretion is retained to adjust incentive outcomes as appropriate.Significant proportion at risk Extended equity ‘lock in’ for STI and LTI (five-year plan periods)REMUNERATION COMPONENTFIXED ANNUAL REMUNERATION (FAR)SHORT-TERM INCENTIVE (STI)LONG-TERM INCENTIVE (LTI)PURPOSEProvide competitive base pay to attract and retain the skills needed to manage a global business in a complex operating environmentDrive performance aligned to near term strategy and underpinning long–term value creationDrive long-term value creation for shareholdersEncourage an owner’s mindset and long-term decision-makingDELIVERYBase salary, superannuation and allowances (per local market practice)Annual cash paymentDeferred into shares for one year with a further three-year holding lockPerformance rights (vesting after three years, subject to performance hurdles) with a further two-year holding lockFY2019 APPROACHTarget FAR positioning is the median of a comparator groupComparators: custom group that reflects Orica’s operations, size and has substantial global operations plus additional reference to ASX-listed companies with similar market capitalisation and geographic/ role–specific benchmarksSTI Performance Measures (CEO)EBIT37.5%RONA37.5%Safety25%LTI Performance MeasureReturn on Net Assets (RONA) – averaged over three years For each year RONA is calculated as annual Earnings Before Interest and Tax (EBIT) divided by: Rolling 12 month Net Operating Assets (NOA)ORICA3736AnnuAl RepORt 2019 DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
SECTION 2: KEY STAKEHOLDER QUESTIONS (continued)
2.5 How much did Executives get paid in FY2019?
The table below presents the remuneration paid to, or vested for, Executive KMP in FY2019.
Executives (KMP)
Alberto Calderon
Christopher Davis(5)
James Bonnor
Darryl Cuzzubbo
Carlos Duarte
Angus Melbourne
Germán Morales
Thomas Schutte
Total
Fixed Annual
Remuneration(1)
$000
STI to be paid
in cash(2)
$000
Total
cash payment
$000
1,800.0
1,000.5
800.0
933.1
851.0
900.0
983.7
714.0
1,000.6
7,982.4
380.8
292.0
331.2
234.0
432.8
389.0
485.8
Prior year equity
awards vested
during year(3)
$000
1,867.9
133.0
476.6
345.2
218.8
834.1
157.5
603.4
2,800.5
1,180.8
1,225.1
1,182.2
1,134.0
1,416.5
1,103.0
1,486.4
Total
remuneration
received
$000
Other(4)
$000
3.1
225.8
123.6
1.8
4.1
200.8
89.1
30.2
678.5
4,671.5
1,539.6
1,825.3
1,529.2
1,356.9
2,451.4
1,349.6
2,120.0
16,843.5
3,546.1
11,528.5
4,636.5
(1) Annual remuneration paid includes actual base pay received and superannuation (or equivalent pension) contributions.
(2) FY2019 STI will be delivered in two components: cash and deferred shares that will vest 12 months post the grant date and then be subject to a three-year holding lock.
(3) This contains deferred STI from FY2017 that has vested and partial vesting of the FY2016-18 LTI Plan in FY2019.
(4)
Includes cash value of relocation assistance and other benefits provided (where applicable). Movements in annual leave and long-service leave balances have not been shown.
(5) Christopher Davis received a cash payment in August 2019 as part of a retention arrangement entered into in FY2017.
Refer to section 6.1 – Executive KMP remuneration table prepared in accordance with the accounting standards.
2.6 What changes are proposed for the Executive Remuneration Framework in FY2020?
The Board has fundamentally maintained consistency in the Executive Framework for FY2020, retaining the core STI and LTI plan metrics which apply to
all Executive KMP. Some weighting changes have been made within the scorecards of the Executive KMP (other than the CEO) to drive a greater focus on
regional and functional priorities, including the introduction of an environmental metric for the Chief Manufacturing Officer.
SECTION 3. EXECUTIVE REMUNERATION
3.1 Executive Remuneration Framework
The following table outlines the FY2019 Executive Remuneration Framework.
REMUNERATION POSITIONING
Market position
Median for FAR and between Median and 75th percentile for total remuneration where outstanding performance is delivered.
Comparators
Primary comparator group – 17 listed–companies from within the ASX100 in similar industries with at least 50%
of revenue generated overseas and with market capitalisation of at least $2bn.
Based on data available as at 30 June 2019, the custom comparator group (excluding Orica) comprised the following companies:
Amcor Limited, Ansell Limited, BHP Billiton Limited, BlueScope Steel Limited, Brambles Limited, Caltex Australia Limited,
CSL Limited, Fortescue Metals Group Limited, James Hardie Industries Plc, Newcrest Mining Limited, Oil Search Limited,
Orora Limited, Rio Tinto Limited, ResMed Inc, South 32 Limited, Woodside Petroleum Limited and Worley Parsons Limited.
Secondary comparator group (reference) – ASX listed companies with market capitalisation between 50% and 200%
of Orica’s 12–month average market capitalisation, all as at 30 June 2019.
FAR
Payment vehicle
FAR includes cash, superannuation and other benefits.
STI
Changes in FY2019
SICR replaced the AWRCR metric to focus attention on higher severity events, while the financial metrics were simplified
to link to improvement in EBIT and RONA.
Payment vehicle
Cash and deferred shares.
Opportunity
CEO: 0% to 200% of FAR; 100% at target.
Other Executives: 0% to 120% of FAR; 60% at target.
Performance
Measures
CEO: Safety (25%); EBIT(1) (37.5%); RONA(1) (37.5%).
Other Executives (in general): Safety (17.5%); EBIT(1) (26.25%); RONA(1) (26.25%); Strategic Priorities (30%).
For each measure, levels for threshold, target and maximum are set. Below threshold, no incentive is paid.
Above threshold, straight–line vesting applies between threshold and target, and between target and maximum.
For Regional Presidents, safety and financial metrics are rewarded equally on Group and Regional performance.
The Board continues to measure progress against rigorous externally validated employee engagement, organisational
health baselines, and against plans to improve engagement, strengthen business conduct and compliance frameworks.
Deferred STI
CEO: 50% of STI into deferred shares which vest after one–year and are subject to risk of forfeiture.
Other Executives: one third of STI into deferred shares which vest after one–year and are subject to risk of forfeiture.
The number of deferred shares granted is calculated using the five–day VWAP at the grant date immediately after the
annual results are announced.
Holding lock
CEO and other Executives: following the one–year deferral period, vested shares are subject to a further three–year
holding lock during which time Executives are restricted from trading in shares. Disposal restrictions may be lifted where
an Executive is required to fund personal tax obligations arising from the vesting of shares.
Access to dividends
During both the deferral and holding lock periods, Executives are entitled to accumulate dividends.
(1) Defined as per section 3.2.
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DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
SECTION 3. EXECUTIVE REMUNERATION (continued)
LTI
Payment vehicle
Performance rights.
Opportunity
(face value)
CEO: 215% of FAR grant at face value.
Other Executives: 120% of FAR grant at face value.
The actual number of performance rights issued to each Executive was determined by dividing their respective grant
values by the five-day VWAP of Orica shares following the announcement of Orica’s FY2018 annual results ($18.15).
Performance period
Performance is measured over three financial years (FY2019, FY2020 and FY2021).
Performance
measure
Targets and
vesting schedule
RONA – calculated as annual EBIT/rolling 12–month Net Operating Assets (calculated on an average basis over three
financial years).
The FY2019 vesting schedule for the RONA performance measure is as follows:
Average RONA over 3 years
Below 13.7%
At 13.7%
% of Rights vesting
No vesting
30% of rights vest
Between 13.7% and 14.0%
Straight line vesting between 30% and 60% of rights vest
At 14.0%
Between 14.0% and 14.7%
At or above 14.7%
60% of rights vest
Straight line vesting between 60% and 100% of rights vest
100% of rights vest
RONA targets reflect the Board’s expectations for returns through the current industry/market cycle, Orica’s Corporate Plan
and Transformation Program.
Following a disappointing EBIT performance in FY2018, the Board has determined that to achieve minimum (threshold)
vesting, management must deliver average RONA in line with the expectations established at the start of FY2018. To achieve
this, management must deliver EBIT growth rates over the plan period that are at least in line with second quartile of EBIT
growth rates achieved by ASX 100 Industrials and Minerals companies over the preceding three to five years.
To achieve target or above-target vesting for this grant, management must deliver EBIT growth that is significantly above
the Board’s view of underlying market growth.
The RONA required for maximum (stretch) vesting has again been set to reflect the achievement of RONA levels that
generate long-term value for shareholders.
Following the three-year performance period, vested performance rights are converted into shares and are subject to a
further two-year holding lock during which time Executives are restricted from dealing in those shares. The holding lock
was designed to support an owner’s mindset and provide alignment with shareholders. Disposal restrictions may be lifted
where an Executive is required to fund personal tax obligations arising from the vesting of performance share rights
(typically applies to non-Australian based Executives).
Holding locks
Access to dividends
Executives are not entitled to receive dividends on unvested performance rights during the three-year performance period.
Once vested Executives are entitled to receive dividends during the two-year holding lock.
The Board has the overriding discretion to adjust final outcomes under the terms of both the STI and LTI plans to ensure executive reward outcomes are
reflective of Orica’s overall performance and aligned to shareholder expectations.
SECTION 3. EXECUTIVE REMUNERATION (continued)
3.2 Short-term incentive outcomes – link to performance
(a) Summary of FY2019 STI performance conditions and performance level achieved
For FY2019, business and personal performance, target weighting of each component of the CEO’s scorecard and performance level achieved are
summarised below:
Measure
Safety
SICR(1)
Key control
verifications (KCV)(2)
Close out of
critical actions(3)
Operating Efficiency
EBIT(4)
Capital Efficiency
RONA(5)
Performance and
reward alignment
Weighting
(at target)
Threshold
Target
Maximum
Outcome
commentary
2019 outcome
Rewards a continuous
focus on safe and reliable
operations measured
through a combination
of lagging and leading
indicators.
Measures improvements
to operational efficiency
and sustainable increases
in productivity and
profitability.
Rewards enhanced returns
from invested capital,
developing enabling
technology and adjacency
growth, optimising capital
allocation and reallocation.
8.33%
8.33%
8.33%
37.5%
37.5%
SICR was below target and
remains a critical area of focus
in FY2020. KCVs exceeded the
stretch target set as a result
of a focus on major hazards
prevention. There was good
operational discipline to close
out critical actions.
EBIT exceeded budget
and was underpinned by
turnaround in Latin America,
strong EMEA results, and
contributions from the Minova
and Orica Monitor businesses.
Growth in RONA was
delivered however further
opportunities for improvement
exist across trade working
capital initiatives.
Board Discretion
The Board did not apply discretion to the overall outcome.
Overall STI
outcome
% Target
111.2%
% Maximum 55.6%
(1) SICR measures the total number of Severity 3 and Severity 4 injuries and illnesses per 200,000 hours worked by employee/contractor.
(2) Completion of scheduled Safety, Health & Environment (SHE) inspections of type Major Hazard Key Control Verification. SHE inspections measure number of completed
Key Control Verifications.
(3) Close out of critical and high priority actions on or before the initial due date excluding action plans from Internal Audit and Group Standards Assurance assessments.
(4) For STI purposes, EBIT is defined as earnings from Continuing Operations before interest, tax and individually significant items.
(5) For STI purposes, RONA is defined as EBIT/Net operating assets. Net operating assets is defined as rolling 12-month average assets including net property, plant and
equipment; intangibles at NBV; equity accounted investees; trade working capital; non-trade working capital excluding environmental provisions.
In considering performance outcomes against the FY2019 targets, the Board reviewed the progress made against the mix of safety, financial and
strategic objectives.
FY2019 was the first year of measuring SICR to focus management attention on the prevention of higher severity events and fatalities. Outcomes of this
measure were between threshold and target and importantly there were no fatalities in FY2019. Management will continue to focus on reducing the SICR
in FY2020 as it remains a key measure of our safety outcomes within the incentive plans. Performance against Key Control Verifications was at maximum
reflecting the emphasis on undertaking and documenting control inspections and performance on the close out of critical actions improved compared to
the prior year.
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DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
SECTION 3. EXECUTIVE REMUNERATION (continued)
From a financial perspective, EBIT at a Group level was above prior year and marginally above the target level set at the commencement of the financial
year. This reflects a turnaround in the Latin America business, strong EMEA results, contributions from the Minova and Orica Monitor business and
continued focus on operating efficiency and cost reduction. RONA was achieved between threshold and target level. In determining the RONA outcome,
the Board considered and adjusted the final RONA outcome to add back the amount of impairment of IT assets and the write down of Burrup defective
assets, to ensure management was not advantaged from these events.
Personal objectives for each Executive (other than the CEO) were determined and approved by the Board at the commencement of the financial year.
In FY2019 these related to the strategic priorities of each Executive, including the development and commercialisation of new technologies, standardisation
of business processes and operating model together with other business growth objectives. Achievement against these objectives was generally between
target and maximum.
Outcomes for Executive KMP variously reflected Group and Regional Safety outcomes, Group and Regional Financial outcome and achievement of strategic
initiatives specific to Executives’ roles. There was a wide range of outcomes from 65% to 145% of target overall for Executive KMP.
(b) Short-term incentive outcome – FY2019
Details of the FY2019 outcomes for eligible Executive KMP are set out in the table below:
For the year ended 30 September 2019
Current Executive KMP
Alberto Calderon
Christopher Davis
James Bonnor
Darryl Cuzzubbo
Carlos Duarte
Angus Melbourne
Germán Morales
Thomas Schutte
Maximum
STI
opportunity(1)
$000
Actual STI
paid in cash
$000
Actual STI
paid in
deferred
equity(2)
$000
Actual STI
payment as %
of maximum
% of
maximum
STI forfeited
3,600.0
960.0
1,095.0
1,021.5
1,080.0
1,180.4
804.8
1,165.8
1,000.5
1,000.5
380.8
292.0
331.2
234.0
432.8
389.0
485.8
190.4
146.0
165.6
117.0
216.4
194.5
242.9
55.6%
59.5%
40.0%
48.6%
32.5%
55.0%
72.5%
62.5%
44.4%
40.5%
60.0%
51.4%
67.5%
45.0%
27.5%
37.5%
(1) For Australian based Executive KMP, maximum STI opportunity is calculated on FAR inclusive of superannuation. For overseas based Executives KMP, maximum STI
opportunity does not include the equivalent pension contributions.
(2) Under AASB 2 Share‑based Payments, STI paid to Executives as deferred shares is accounted for as a share-based payment and expensed over two years. Accordingly,
50% of the value of the deferred equity arising from the FY2019 STI outcome has been included in each Executive KMP’s share based payments expense in FY2019 and
the remainder will be included in FY2020.
3.3 Long-term incentive outcome
The table below summarises the LTI Plan awards tested in the current financial year together with awards that remain unvested.
Plan
LTIP
LTIP
LTIP
LTIP
Grant
Performance period
Performance measures applicable to award
FY2016
FY2016 – FY2018
Vesting of performance rights is subject to:
• Average Return on Capital (ROC) (50%); and
• Relative TSR ranking against ASX 100 (50%).
FY2017
FY2018
FY2019
FY2017 – FY2019
As above
FY2018 – FY2020
RONA (100%)
FY2019 – FY2021
RONA (100%)
Outcome
Partial vesting
(24.88% of
total grant)
Not yet tested
Not yet tested
Not yet tested
The FY2016-18 LTIP was tested in November 2018. In relation to the performance rights subject to the Relative TSR ranking (50% of total rights granted),
the minimum performance threshold (50th percentile) was not met and there was no vesting for this component. In relation to the rights subject to the
ROC measure (50% of total rights granted), the three-year average ROC for FY2016, FY2017 and FY2018 was 19.95% which resulted in a vesting outcome
of 49.75% of the ROC component.
In determining the ROC measure result, the Board applied discretion to adjust the outcomes to ensure management were not advantaged from the
impairments to Minova, IT and other assets, and changes in environmental and restructuring provisions. The Board also applied discretion to remove
the impact of GroundProbe to ensure management were neither advantaged nor disadvantaged by the acquisition.
Based on the performance against the two metrics above 24.88% of the total FY2016 LTIP performance rights granted vested.
SECTION 3. EXECUTIVE REMUNERATION (continued)
3.4 Equity granted in FY2019
The table below presents the equity granted at face value to Executive KMP for FY2019.
Executives
Alberto Calderon
Christopher Davis
James Bonnor
Darryl Cuzzubbo
Carlos Duarte
Angus Melbourne
Germán Morales
Thomas Schutte
Total
FY2019
LTI(1)
$000
3,870.0
960.0
959.5
981.1
1,080.0
1,075.1
782.5
1,191.1
10,899.3
FY2018
Deferred
shares(2)
$000
330.0
–
74.1
121.7
85.5
119.9
–
118.8
850.0
Total
$000
4,200.0
960.0
1,033.6
1,102.8
1,165.5
1,195.0
782.5
1,309.9
11,749.3
(1) Subject to performance conditions and due to vest in November 2021 and then subject to a two-year holding lock.
(2) Not subject to any further performance conditions except continued employment for duration of deferral period and then subject to a three-year holding lock.
3.5 Overview of business performance – five-year comparison
The table below summarises key indicators of the performance of the Company, relevant shareholder returns over the past five financial years and
the impact this has had on STI and LTI vesting outcomes. This demonstrates the alignment of Orica’s incentive awards with its performance.
Financial year ended 30 September
Profit/(loss) from operations ($m)
Individually significant items ($m)(1)
EBIT ($m)(2)
Dividends per ordinary share (cents)
Closing share price ($ as at 30 September)(3)
3-month average share price (1 July to 30 September) each year
EPS growth (%)(2)
NPAT ($m)(2)
External Sales ($m)
Cumulative TSR (%)(4)
Average STI received as % of maximum opportunity for Executives
(1) This figure is before interest, tax and non-controlling interest.
(2) Before individually significant items.
(3) The opening share price for financial year 2015 was $18.69.
2015
(1,195.0)
1,884.4
689.4
96.0
15.04
17.29
(30.0)
424.2
2016
637.6
4.6
642.2
49.5
15.20
14.12
(8.8)
389.1
2017
635.1
–
635.1
51.5
19.77
20.12
(1.7)
386.2
2018
242.8
375.3
618.1
51.5
17.03
17.31
(16.6)
324.2
2019
468.8
195.9
664.7
55.0
22.54
21.36
14.2
371.9
6,123.2
5,091.9
5,039.2
5,373.8
5,878.0
(11.54)
32.0
(23.99)
39.0
(11.37)
60.0
(1.61)
23.0
24.87
53.3
(4) Cumulative TSR has been calculated using the same start date for each period measured (1 October 2014). In calculating the cumulative TSR, three-month average
share prices (1 July to 30 September for each year) have been used.
42
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Orica Annual Report 2019
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43
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
SECTION 3. EXECUTIVE REMUNERATION (continued)
3.6 Service agreements
Remuneration and other terms of employment for Executives are formalised in service agreements. The terms and conditions of employment of each
Executive reflects market conditions at the time of their contract negotiation on appointment or subsequently. The material terms of the employment
contracts for the current Executives are summarised in the table below and subject to applicable law.
Contractual Term
Duration of contract
Notice period to be provided
by Executive
Notice period to be provided
by Orica
Executives
affected
Conditions
All Executives
Permanent full-time employment contract until notice given by either party.
All Executives
6 months.
MD & CEO
Other Executives
6 months. Orica may elect to make payment in lieu of notice. In the event of
Orica terminating the service agreement, the MD & CEO will be entitled to
receive a termination payment of 6 months’ salary in addition to the notice period.
Should the MD & CEO’s service agreement be terminated by mutual agreement,
6 months’ salary is payable (in which case no notice is required to be given).
Executives have either 13 weeks or 26 weeks notice period with the exception
of Germán Morales. In accordance with Chilean employment law, Mr. Morales’
notice period is one month.
Executives are entitled to be paid an amount equal to 26 weeks FAR on termination
(52 weeks in the case of James Bonnor and Thomas Schutte).
In accordance with Chilean employment law, Germán Morales is entitled to one
month’s annual gross base salary for each year of service. A minimum payment
equivalent to 6 months base salary will apply with a maximum payment of
11 months base salary.
Each Executive 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.
Post-employment restraints
All Executives
SECTION 4. NON‑EXECUTIVE DIRECTOR ARRANGEMENTS
4.1 Overview
Fees for Non-Executive Directors (Directors) are set by reference to the following:
• The individual’s responsibilities and time commitment attaching to the role of Director and Committee membership;
• The Company’s existing remuneration policies and 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; and
• To preserve their independence Directors do not receive any form of performance-based pay.
The current aggregate fee pool for Directors of $2,500,000 was approved by shareholders at the Company’s 2010 Annual General Meeting. The Company
pays both superannuation and Committee fees to the Directors from this pool. Committee fees are not paid to the Chairman of the Board.
A comprehensive market benchmarking analysis was undertaken in FY2019 to support the determination of fees for the newly established Innovation
and Technology Committee. Based on the outcomes of this review the Board determined to set the fees for this Committee at a level commensurate to the
existing fee structure for other Committees. In addition, in consideration of market relativities, the Board determined to adjust both the travel allowance
policy and the base fee for Directors as follows:
• Effective 1 October 2019 the travel allowance policy has been broadened to include Board site visits, with revised allowance fees of $3,000 for travel
between 3-10 hours and $6,000 for travel in excess of 10 hours; and
• Effective 1 January 2020 the base fee for Directors will be increased by 4.1% to $177,000.
This will be the first change to Director fees since 2010.
As a result of the establishment of the Innovation and Technology Committee, and to provide flexibility in accommodating any future changes to the Board,
an increase in the total Director fee pool from $2,500,000 to $2,750,000 will be proposed for approval at the Annual General Meeting in December 2019.
4.2 Fees and other benefits
The table below sets out the elements of Directors’ fees and other benefits applicable in FY2019:
Fees/benefits
Description
Board fees
Main Board
Chairman – Malcolm Broomhead
Members – all Non-Executive Directors
Committee fees
Board Audit and Risk Committee (BARC)
Chairman – Gene Tilbrook
Members – Maxine Brenner, Boon Swan Foo
Human Resources and Compensation Committee (HR&C)
Chairman – Maxine Brenner
Members – Denise Gibson, Lim Chee Onn, Karen Moses
Innovation and Technology Committee (I&TC)
Chairman – Denise Gibson
Members – Malcolm Broomhead(1), Boon Swan Foo
Safety, Health, Environment, Community and Security Committee (SHECS)
Chairman – Karen Moses
Members – Lim Chee Onn, Gene Tilbrook
Superannuation
Superannuation contributions are made on behalf of the Directors at a rate of 9.5%
being the current superannuation guarantee contribution rate subject to a cap at the
Maximum Contributions Base.
Other fees/benefits
Directors receive a travel allowance based on the hours travelled to a Board meeting.
The allowance paid is $2,500 per meeting for travel between 3 and 12 hours or $5,000
if travel time exceeds 12 hours. Directors are also entitled to be paid additional fees for
extra services or special exertions.
(1) Committee fees are not paid to the Chairman of the Board.
Included in
shareholder
approved cap
2019
$
510,000
170,000
Yes
45,000
22,500
45,000
22,500
45,000
22,500
45,000
22,500
Yes
Yes
No
44
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AnnuAl RepORt 2019
45
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
SECTION 5. REMUNERATION GOVERNANCE
5.1 Responsibility for setting remuneration
SECTION 5. REMUNERATION GOVERNANCE (continued)
The table below sets out the number of shares held directly and indirectly by Directors and Executive KMP employed at 30 September 2019:
The HR&C (the Committee) is delegated responsibility by the Board for reviewing and making recommendations on remuneration policies for the Company,
including 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:
(a)
remuneration policy for Executives;
(b)
level and structure of remuneration for Senior Executives, including STI and LTI plans;
(c)
the Company’s compliance with applicable legal and regulatory requirements in respect of remuneration matters; and
(d) approval of the allocation of shares and awards under Orica’s LTIP and General Employee Exempt Share Plan.
5.2 Use of remuneration advisors during the year
No remuneration recommendations were received from remuneration advisors as defined under the Corporations Act 2001.
5.3 Securities dealing policy and Malus
Securities dealing
All Executives are required to comply with Orica’s Securities’ Dealing Policy at all times and in respect of all Orica shares held, including any defined
employee share plans. Trading is subject to pre-clearance and is not permitted during designated blackout periods unless there are exceptional
circumstances. Executives are prohibited from using any Orica shares as collateral in any margin loan or derivative arrangement.
Malus
Orica’s Malus Standard allows the Board to require any Executive to forfeit in full or in part any unvested LTIP or deferred STI award as a result of:
• a material misstatement in financial results;
• behaviour that brings Orica into disrepute or has the potential to do so;
• serious misconduct; or
• any other circumstance, which the Board has determined in good faith.
In considering whether any adjustment is necessary in respect of any or all participants, the Board may take into account the individual’s level of responsibility,
accountability or influence over the action or inaction, the quantum of the actual loss or damage, any impact on Orica’s financial soundness or reputational
standing, the extent to which any internal policies, external regulations and/or risk management requirements were breached and any other relevant matters.
5.4 Executive and Director share ownership
The Board considers that an important foundation of Orica’s Executive Remuneration Framework is that each Executive and Director accumulate and hold
a significant number of Orica shares to align their interests as long-term investors.
Executives
The Executive Minimum Shareholding Guideline requires each Executive to accumulate a minimum vested shareholding in Orica equivalent to 50% of FAR
(and 100% of FAR for the Managing Director and CEO) over six years from commencement of employment (by 31 December 2022 for Executives employed prior
to 1 January 2015; the effective date of the guideline). Under the Framework, at target performance and vesting, Executives would exceed these guidelines.
Non-Executive Directors
To create alignment between Directors and shareholders, Directors are required 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 using personal funds.
Executive KMP
Alberto Calderon
Christopher Davis
James Bonnor
Darryl Cuzzubbo
Carlos Duarte
Angus Melbourne
Germán Morales
Thomas Schutte
Directors
Malcolm Broomhead
Maxine Brenner
Boon Swan Foo
Denise Gibson
Karen Moses
Lim Chee Onn
Gene Tilbrook
Former Directors
Ian Cockerill(4)
Date Minimum
Shareholding
Required
to be met(3)
31 December 2022
30 September 2024
31 December 2022
30 September 2022
30 September 2023
30 September 2022
31 August 2024
31 December 2022
Balance at
1 October
2018
Acquired(1)
Disposed
Balance at
30 September
2019
Minimum
Shareholding
Required(2)
105,736
50,000
124,325
68,589
6,440
13,045
–
–
42,370
–
13,106
36,100
9,539
–
–
11,000
11,000
12,500
7,464
26,940
19,595
12,500
47,029
7,500
34,149
–
–
–
–
–
–
–
13,904
22,101
19,595
12,500
47,399
7,500
37,289
36,100
9,539
–
–
11,000
11,000
12,500
79,858
17,746
20,242
18,883
19,964
21,821
14,877
21,550
22,626
7,542
7,542
7,542
7,542
7,542
7,542
–
17,884
–
–
42,000
–
9,966
–
–
–
–
–
–
–
–
16,787
484
17,271
7,542
(1) Shares acquired, including through the Dividend Reinvestment Plan (DRP).
(2) Calculated using the Orica closing share price on 30 September 2019.
(3) Directors are required to acquire a shareholding of at least one year’s base fees over a reasonable time period.
(4) Closing balance on cessation of directorship.
46
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Orica Annual Report 2019
AnnuAl RepORt 2019
47
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
SECTION 6. KMP STATUTORY DISCLOSURES
6.1 Executive KMP remuneration
SECTION 6. KMP STATUTORY DISCLOSURES (continued)
6.2 Summary of awards held under Orica’s LTI and STI deferred share arrangements
Details of the nature and amount of each element of remuneration of Executive KMP are set out in the table below:
Details of LTIP performance rights, sign-on rights and deferred shares awarded under the STI plan are set out in the table below:
Remuneration outcomes presented in these tables are calculated with reference to the Corporations Act 2001 and relevant Australian Accounting Standards
rather than the basis of take-home pay.
Short-term employee benefits
Post-
employment
benefits
For the year ended
30 September 2019
Grant date
Granted
during
FY2019
Vested
Lapsed
Fair value of
instruments at
grant date
$
Balance at
year end
Value of equity
instruments
included in
compensation
for the year
$
Base
(Fixed) Pay
$000
Cash STI
Payment(1)
$000
Other
Benefits(2)
$000
Other
Long-Term
Benefits(3)
$000
Super-
annuation
Benefits
$000
Termination
Benefits
$000
Total
excluding
SBP* Expense
$000
SBP
Expense
(4)(6)
$000
Total
$000
Current Executive KMP
Alberto Calderon
2019
2018
Christopher Davis
2019
James Bonnor(5)
2019
2018
Darryl Cuzzubbo
2019
2018
Carlos Duarte
2019
2018
Angus Melbourne (5)
2019
2018
Germán Morales(5)
2019
2018
Thomas Schutte(5)
2019
2018
Total Current Executive KMP
2019
2018
Former Executive KMP
Vince Nicoletti
2018
Sebastian Pinto
2018
Total
2019
2018
1,779.4
1,779.8
1,000.5
330.0
139.9
55.8
779.4
380.8
280.5
912.5
873.1
830.4
793.0
900.0
900.0
983.7
962.9
674.0
52.2
292.0
148.3
331.2
243.4
234.0
171.0
432.8
239.7
389.0
–
971.5
998.4
485.8
237.6
178.0
81.6
33.4
7.4
56.0
293.3
248.1
175.1
99.5
252.9
17.1
584.8
133.4
–
76.4
10.7
15.9
–
–
–
–
–
–
–
–
–
–
7,830.9
6,359.4
3,546.1
1,370.0
1,052.5
1,450.9
220.5
15.9
899.8
174.2
239.8
334.6
–
24.8
–
–
7,830.9
7,593.8
3,546.1
1,544.2
1,052.5
1,715.5
220.5
15.9
20.6
20.2
20.6
20.6
20.2
20.6
20.2
–
–
–
–
40.0
3.3
29.1
27.1
151.5
91.0
20.2
29.1
151.5
140.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,073.8
2,185.8
1,910.9
1,930.1
4,984.7
4,115.9
1,537.7
301.1
1,838.8
1,413.8
1,139.1
1,215.6
1,064.0
1,190.0
1,364.3
1,664.6
1,377.7
1,202.5
308.4
415.8
473.6
451.6
459.9
547.0
406.9
574.3
633.5
393.2
10.7
1,829.6
1,612.7
1,667.2
1,523.9
1,737.0
1,771.2
2,238.9
2,011.2
1,595.7
319.1
1,503.5
1,847.9
554.2
606.2
2,057.7
2,454.1
12,801.5
9,287.2
5,148.1
4,520.9
17,949.6
13,808.1
1,334.0
160.3
1,494.3
552.6
941.1
212.1
1,153.2
–
552.6
12,801.5
11,562.3
5,148.1
4,893.3
17,949.6
16,455.6
* Share-based payment (SBP).
(1) Cash STI Payment includes payments relating to FY2019 performance accrued but not paid until FY2020.
(2) These benefits include relocation costs, car parking, medical and insurance costs and movements in annual leave accrual (inclusive of any applicable fringe benefits tax).
For overseas based Executives other benefits include reimbursement of accommodation and health insurance.
(3) This benefit includes the movement in long service leave accrual.
(4) This includes the value calculated under AASB 2 Share‑based Payment to Executives which vests over three years. Value only accrues to the Executive when performance
conditions have been met. The share-based payment expense represents the amount 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 received by Executives during the year nor may they be payable
to the Executive at any other time if performance hurdles are not met. The mechanism which determines whether or not long-term incentives vest in the future is described
in Section 3.1.
(5) For overseas based Executives, salary reported is based on the salary figure in overseas currency converted at the average foreign exchange rate for the year.
(6) Under AASB 2 Share‑based Payment, STI paid to Executives as deferred equity is accounted for as a share-based payment and expensed over two years. Accordingly,
50% of the value of the deferred equity has been included in the Executives share-based payment expense in FY2019 and the remainder will be included in FY2020.
48
ORICA
Orica Annual Report 2019
Current Executive Directors
Alberto Calderon
FY2019 LTIP Performance rights
11 Jan 19
213,223
FY2018 LTIP Performance rights
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2016 LTIP Performance rights
22 Feb 16
–
–
–
–
–
–
–
–
–
213,223
207,841
192,742
3,136,510
830,253
3,273,496
(204,593)
2,639,602
600,801
54,725
165,275
–
1,977,800
19,379
FY2018 STI Deferred shares
FY2017 STI Deferred shares
Current Executive KMP
Christopher Davis
3 Dec 18
1 Dec 17
18,183
–
–
51,011
FY2019 LTIP Performance rights
11 Jan 19
52,892
James Bonnor
FY2019 LTIP Performance rights
11 Jan 19
52,863
FY2018 LTIP Performance rights
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2016 LTIP Performance rights
22 Feb 16
FY2018 STI Deferred shares
FY2017 STI Deferred shares
Darryl Cuzzubbo
3 Dec 18
1 Dec 17
–
–
–
4,086
–
FY2019 LTIP Performance rights
11 Jan 19
54,056
FY2018 LTIP Performance rights
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2016 LTIP Performance rights
22 Feb 16
FY2018 STI Deferred shares
FY2017 STI Deferred shares
Carlos Duarte
3 Dec 18
1 Dec 17
FY2019 LTIP Performance rights
11 Jan 19
FY2018 LTIP Performance rights
5 Jan 18
FY2018 STI Deferred shares
Sign-on rights
Angus Melbourne
3 Dec 18
27 Oct 17
–
–
–
6,704
–
59,504
–
4,710
–
FY2019 LTIP Performance rights
11 Jan 19
59,237
FY2018 LTIP Performance rights
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2016 LTIP Performance rights
22 Feb 16
FY2018 STI Deferred shares
FY2017 STI Deferred shares
Sign-on rights
Germán Morales
3 Dec 18
1 Dec 17
12 Jan 16
FY2019 LTIP Performance rights
11 Jan 19
Sign-on rights
3 Sep 18
–
–
–
6,604
–
–
43,110
–
–
–
–
–
–
–
–
–
–
–
16,203
48,934
–
10,737
–
–
–
7,104
–
12,491
–
–
–
12,500
–
–
–
–
–
–
–
–
21,456
–
–
–
–
–
–
–
–
–
17,050
51,495
–
12,222
17,757
–
7,500
–
–
–
–
–
18,183
330,021
165,011
–
949,825
–
52,892
778,041
205,952
52,863
51,529
47,864
–
4,086
–
54,056
52,691
47,590
–
6,704
–
59,504
58,002
4,710
12,500
59,237
57,742
52,760
–
6,604
–
–
43,100
7,500
777,615
811,582
655,497
585,582
74,161
199,923
795,164
829,883
651,745
256,754
121,678
235,582
875,304
913,532
85,487
205,839
(52,173)
149,198
2,883
37,080
–
210,485
(53,350)
148,344
2,516
60,839
–
231,698
(58,727)
42,743
522,750
272,739
871,376
909,437
722,548
616,220
119,863
227,574
230,658
(58,464)
164,459
6,038
59,931
–
670,352
63,524
634,148
256,200
167,863
128,100
AnnuAl RepORt 2019
49
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
DIRECTORS’ REPORT – REMUNERATION REPORT 2019 (AUDITED)
SECTION 6. KMP STATUTORY DISCLOSURES (continued)
For the year ended
30 September 2019
Thomas Schutte
FY2019 LTIP Performance rights
FY2018 LTIP Performance rights
FY2017 LTIP Performance rights
FY2016 LTIP Performance rights
FY2018 STI Deferred shares
FY2017 STI Deferred shares
Former Executive KMP
Vincent Nicoletti
Grant date
11 Jan 19
5 Jan 18
30 Dec 16
22 Feb 16
3 Dec 18
1 Dec 17
FY2018 LTIP Performance rights
FY2018 STI Deferred shares
5 Jan 18
3 Dec 18
Granted
during
FY2019
65,624
–
–
–
6,546
–
–
4,799
Vested
Lapsed
–
–
–
17,998
–
16,151
–
–
–
–
–
54,355
–
–
–
–
Fair value of
instruments at
grant date
$
Balance at
year end
Value of equity
instruments
included in
compensation
for the year
$
65,624
63,967
56,513
–
6,546
965,329
1,007,480
773,946
650,453
118,810
–
300,723
255,528
(64,767)
176,158
6,371
59,405
–
59,291
4,799
933,833
87,102
(60,032)
43,551
The number of rights issued under the LTIP issued to Executive KMP and senior management and accounting values is detailed below:
Grant date
08 Aug 19(1)
11 Jan 19
11 Jan 19(4)
20 July 18 (1)
5 Jan 18
10 July 17(1)
30 Dec 16
4 July 16(1)
22 Feb 16
Vesting
date
30 Nov 21
30 Nov 21
30 Nov 21
30 Nov 20
30 Nov 20
30 Nov 19
30 Nov 19
30 Nov 18
30 Nov 18
Number
of rights
issued
Number of
rights held at
30 September
2019
Number of
rights held at
30 September
2018
Number of
participants at
30 September
2019
Number of
participants at
30 September
2018
Fair value
of rights
at grant
$
122,489
122,489
1,139,030
1,131,808
730,711
117,150
670,937
113,434
–
–
–
117,150
1,751,427
1,493,535
1,623,852
98,410
76,920
93,028
1,712,055
1,459,541
1,510,610
150,793
2,163,913
–
–
140,014
1,815,125
19
320
11
20
285
36
244
–
–
–
–
–
21
308
46
263
12
172
1,947,575
18,110,577
10,748,759
1,995,065
28,911,209
1,742,349
23,446,593
1,090,987
19,453,578
The assumptions underlying the rights valuations are:
Grant date
08 Aug 19(1)
11 Jan 19
11 Jan 19(4)
20 July 18 (1)
5 Jan 18
5 Jan 18 (4)
10 July 17(1)
30 Dec 16
4 July 16 (1)
22 Feb 16
Price of Orica
Shares at
grant date
$
Expected
volatility in
share price
%
Dividends
expected
on shares
%
Risk free
interest rate
%
Fair value
per right
RONA(2)
$
Fair value
per right
ROC(3)
$
Fair value
per right
RTS (3)
$
22.51
17.30
17.30
17.93
18.53
18.53
20.68
17.68
12.39
13.84
15.90
15.90
14.71
17.03
17.03
15.75
25
25
25
25
25
25
25
30
30
30
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.75
4.50
5.50
1.81
1.81
1.81
2.07
2.07
2.07
1.73
1.96
1.62
1.80
19.35
15.87
11.23
12.04
16.06
11.52
3.24
5.94
SECTION 6. KMP STATUTORY DISCLOSURES (continued)
6.3 Non-Executive Director remuneration
Details of Non-Executive Directors’ remuneration are set out in the following table:
Short-term employee benefits
Post-
employment
benefits
Directors fees
$000
Committee
fees
$000
Other
benefits(1)
$000
Super-
annuation
$000
Current Directors
Malcolm Broomhead, Chairman
2019
2018
Maxine Brenner
2019
2018
Denise Gibson
2019
2018
Boon Swan Foo(2)
2019
Karen Moses
2019
2018
Lim Chee Onn
2019
2018
Gene Tilbrook
2019
2018
Former Directors
Ian Cockerill
2019
2018
Total Directors
2019
2018
510.0
510.0
170.0
170.0
170.0
127.5
69.0
170.0
170.0
170.0
170.0
170.0
170.0
155.8
170.0
1,584.8
1,487.5
–
–
67.5
67.5
41.3
13.1
14.8
48.8
45.0
45.0
45.0
67.5
67.5
60.0
67.5
344.9
305.6
18.0
0.2
15.0
–
25.8
20.0
9.9
17.4
–
22.5
12.5
30.0
15.0
37.0
30.0
175.6
77.7
Total
$000
548.6
530.4
273.1
257.7
257.7
174.0
20.6
20.2
20.6
20.2
20.6
13.4
8.0
101.7
20.6
20.1
20.4
20.2
20.6
20.2
19.0
20.2
150.4
134.5
256.8
235.1
257.9
247.7
288.1
272.7
271.8
287.7
2,255.7
2,005.3
(1) These benefits include travel allowances and car parking benefits.
(2) Boon Swan Foo was appointed as a Non-Executive Director on 6 May 2019.
Rounding
The amounts shown in this report and in the financial statements have been rounded off, except where otherwise stated, to the nearest tenth of a million
dollars, the Company being in a class specified in the ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016.
The Directors’ Report is signed on behalf of the Board in accordance with a resolution of the Directors of Orica Limited.
(1) A supplementary LTI offer was made in July 2016, July 2017, July 2018 and August 2019 to selected senior management other than Executives who joined Orica after the
grant date of the main offer in February 2016, December 2016 and January 2018. The terms and conditions of this supplementary offer are the same as the main offer.
(2) For the FY2018 and FY2019 LTI plan performance rights granted are subject to a single performance condition, RONA.
(3) For Executives 50% of performance rights granted are subject to a ROC performance condition and 50% are subject to RTSR performance.
(4) For Executives, grants made include a two-year holding lock on shares acquired following vesting. A discount to the fair value has been made to reflect lack of marketability
M W Broomhead
Chairman
Dated at Melbourne 31 October 2019.
A Calderon
Managing Director and Chief Executive Officer
during this period.
50
ORICA
Orica Annual Report 2019
AnnuAl RepORt 2019
51
Orica Annual Report 2019
INCOME STATEMENTFor the year ended 30 September 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.Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Orica Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Orica Limited for the financial year ended 30 September 2019 there have been: i.no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii.no contraventions of any applicable code of professional conduct in relation to the audit. KPMG _INI_01 Penny StragalinosPartner Melbourne 31 October 2019 LEAD AUDITOR’S INDEPENDENCE DECLARATION Under Section 307C of the Corporations Act 2001ConsolidatedNotes2019 $m 2018 $m Sales revenue (1b)5,878.0 5,373.8 Other income(1d)23.137.5 Raw materials and inventories (2,744.3)(2,453.9)Employee benefits expense(1e)(1,271.7)(1,184.7)Depreciation and amortisation expense(1b)(276.4)(266.9)Purchased services(327.0)(323.6)Repairs and maintenance(169.8)(155.9)Write down of property, plant & equipment(1e)(155.0) – Impairment expense(1e)(36.1)(225.4)Environmental provisions for legacy sites(1e)(33.5)(114.7)Gain on formation of China joint venture(1e)50.2 – Outgoing freight(283.1)(280.9)Lease payments – operating leases(78.4)(69.6)Other expenses (139.1)(117.6)Share of net profit of equity accounted investees(13)31.9 24.7 Total(5,432.3)(5,168.5)Profit from operations468.8 242.8 Net financing costsFinancial income49.6 56.0 Financial expenses(159.3)(177.3)Net financing costs(109.7)(121.3)Profit before income tax expense359.1 121.5 Income tax expense (11) (108.6)(156.0)Net profit/(loss) for the year250.5 (34.5)Net profit/(loss) for the year attributable to:Shareholders of Orica Limited245.1 (48.1)Non-controlling interests5.4 13.6 Net profit/(loss) for the year250.5 (34.5)centscentsEarnings per share attributable to ordinary shareholders of Orica Limited:Basic earnings per share(2)64.5 (12.7)Diluted earnings per share(2)64.2 (12.7)The Income Statement is to be read in conjunction with the accompanying notes to the financial statements.ORICA5352AnnuAl RepORt 2019 STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September
BALANCE SHEET
As at 30 September
Profit/(loss) for the year
Other comprehensive income
Items that may be reclassified subsequently to Income Statement:
Exchange differences on translation of foreign operations
Exchange gain on translation of foreign operations
Net loss on hedge of net investments in foreign subsidiaries, net of tax
Net exchange differences on translation of foreign operations
Sundry items:
Net cash flow hedges
Items that will not be reclassified subsequently to Income Statement:
Net actuarial (loss)/gain, net of tax
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
(11c)
(11c)
(11c)
(11c)
The Statement of Comprehensive Income is to be read in conjunction with the accompanying notes to the financial statements.
54
ORICA
Orica Annual Report 2019
Consolidated
2019
$m
250.5
111.9
(39.1)
72.8
2018
$m
(34.5)
208.2
(57.1)
151.1
Current assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Other assets
Total current assets
Non-current assets
Other receivables
8.8
24.3
Investments accounted for using the equity method
(69.7)
11.9
262.4
239.8
22.6
262.4
2.0
177.4
142.9
139.9
3.0
142.9
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities
Trade payables
Other payables
Interest bearing liabilities
Provisions
Other liabilities
Total current liabilities
Non-current liabilities
Other payables
Interest bearing liabilities
Provisions
Deferred tax liabilities
Other 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
Total equity
The Balance Sheet is to be read in conjunction with the accompanying notes to the financial statements.
Notes
(3b)
(5)
(5)
(13)
(7)
(8)
(11d)
(5)
(3a)
(6)
(3a)
(6)
(11d)
(4a)
Consolidated
2019
$m
412.6
681.6
84.2
587.5
69.9
2018
$m
514.6
654.7
93.4
626.5
71.1
1,835.8
1,960.3
63.0
301.3
2,899.6
1,689.6
317.2
187.5
5,458.2
7,294.0
863.2
412.6
60.9
193.1
104.8
82.7
213.3
2,866.2
1,697.9
268.7
75.3
5,204.1
7,164.4
862.2
336.7
158.3
193.2
61.0
1,634.6
1,611.4
7.1
6.1
1,972.3
2,004.6
586.2
68.4
–
2,634.0
4,268.6
3,025.4
2,138.0
(363.5)
1,193.7
2,968.2
57.2
485.8
74.7
13.8
2,585.0
4,196.4
2,968.0
2,110.1
(439.2)
1,232.3
2,903.2
64.8
3,025.4
2,968.0
AnnuAl RepORt 2019
55
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September
STATEMENT OF CASH FLOWS
For the year ended 30 September
Ordinary
shares
$m
Retained
earnings
$m
Foreign
currency
translation
reserve
$m
Cash flow
hedge
reserve
$m
Other
reserves
$m
Non-
controlling
interests
$m
Total
$m
Total
equity
$m
2018
Balance at 1 October 2017
2,068.5
1,459.6
(442.6)
Profit/(loss) for the year
Other comprehensive income/(loss)
Total comprehensive income
for the year
Transactions with owners,
recorded directly in equity
–
–
–
(48.1)
2.0
–
161.7
(49.1)
–
24.3
(46.1)
161.7
24.3
(74.1)
2,962.3
1.2
2,963.5
(48.1)
188.0
13.6
(10.6)
(34.5)
177.4
139.9
3.0
142.9
Total changes in contributed equity
41.6
Share-based payments expense
Acquisition of non-controlling interests
Dividends/distributions
Dividends declared/paid to
non-controlling interests
–
–
–
–
–
–
–
(181.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14.8
(74.2)
–
–
Balance at the end of the year
2,110.1
1,232.3
(280.9)
(24.8)
(133.5)
2,903.2
2019
Balance at 1 October 2018
2,110.1
1,232.3
(280.9)
(24.8)
(133.5)
2,903.2
64.8
2,968.0
AASB 9 transitional adjustment
–
(11.0)
–
–
–
(11.0)
Adjusted balance at 1 October 2018
2,110.1
1,221.3
(280.9)
(24.8)
(133.5)
2,892.2
Profit for the year
Other comprehensive income/(loss)
Total comprehensive income
for the year
Transactions with owners,
recorded directly in equity
–
–
–
245.1
(69.7)
–
55.6
175.4
55.6
Total changes in contributed equity
27.9
Share-based payments expense
Divestment of non-controlling
interests (Note 15)
Dividends/distributions
Dividends declared/paid to
non-controlling interests
–
–
–
–
–
–
–
(203.0)
–
–
–
–
–
–
–
8.8
8.8
–
–
–
–
–
–
–
–
–
11.3
–
–
–
Balance at the end of the year
2,138.0
1,193.7
(225.3)
(16.0)
(122.2)
2,968.2
41.6
14.8
(74.2)
(181.2)
–
245.1
(5.3)
–
–
74.2
–
(13.6)
64.8
41.6
14.8
–
(181.2)
(13.6)
2,968.0
–
64.8
5.4
17.2
(11.0)
2,957.0
250.5
11.9
239.8
22.6
262.4
27.9
11.3
–
–
–
(13.1)
(203.0)
–
27.9
11.3
(13.1)
(203.0)
–
(17.1)
57.2
(17.1)
3,025.4
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Borrowing costs
Dividends received
Other operating income 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
Proceeds from sale of, and other advances in relation to, property, plant and equipment
Payments for purchase of businesses/controlled entities
Net proceeds/(cash disposed) from sale of businesses
Disposal costs from sale of businesses/controlled entities
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid – Orica ordinary shares
Dividends paid – non-controlling interests
Payments for finance leases
Proceeds from issue of ordinary shares
Net cash flows used in financing activities
Net decrease in cash held
Cash at the beginning of the period
Effects of exchange rate changes on cash
Cash at the end of the period
Consolidated
2019
$m
Inflows/
(Outflows)
2018
$m
Inflows/
(Outflows)
Notes
6,434.9
5,914.2
(5,513.8)
(5,168.1)
49.8
(161.9)
27.2
17.7
(107.5)
746.4
(300.4)
(123.6)
(4.8)
74.4
(0.9)
(12.6)
(0.5)
56.9
(171.9)
24.9
28.0
(69.3)
614.7
(189.2)
(132.9)
(13.3)
36.2
(250.2)
–
(2.6)
(368.4)
(552.0)
2,169.1
1,981.2
(2,470.5)
(1,904.6)
(177.2)
(18.0)
(0.8)
0.7
(496.7)
(118.7)
511.4
11.5
404.2
(143.2)
(13.5)
(1.3)
0.6
(80.8)
(18.1)
516.9
12.6
511.4
(3b)
(14)
(15)
(4c)
(3b)
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the financial statements.
The Statement of Cash Flows is to be read in conjunction with the accompanying notes to the financial statements.
56
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Orica Annual Report 2019
AnnuAl RepORt 2019
57
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION A. FINANCIAL PERFORMANCE
For the year ended 30 September
Section A. Financial performance
1. Segment report
2. Earnings per share (EPS)
Section B. Capital management
3. Net debt
4. Contributed equity and reserves
Section C. Operating assets and liabilities
5. Working capital
6. Provisions
7. Property, plant and equipment
8.
9.
Intangible assets
Impairment testing of assets
Section D. Managing Financial Risks
10. Financial risk management
Section E. Taxation
11. Taxation
Section F. Group structure
12. Investments in controlled entities
13. Investments accounted for using the equity
method and joint operations
14. Businesses and non-controlling interests acquired
15. Businesses disposed
16. Parent Company disclosure – Orica Limited
17. Deed of Cross Guarantee
Section G. Reward and recognition
18. Employee share plans and remuneration
19. Superannuation commitments
Section H. Other
20. Commitments
21. Contingent liabilities
22. Auditor’s remuneration
23. Events subsequent to balance date
24. Investments in controlled entities
25. New accounting policies and accounting standards
59
59
64
65
65
68
69
69
70
72
73
74
75
75
81
81
84
84
84
85
87
88
88
90
90
90
94
94
94
95
95
96
99
ABOUT THIS REPORT
This is the Annual Report of Orica Limited (‘the Company’
or ‘Orica’) and of its controlled entities (collectively ‘the Group’)
for the year ended 30 September 2019.
It 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.
It has been prepared on a historical cost basis, except for
derivative financial instruments, superannuation commitments
and investments in financial assets which have been measured
at fair value. It is presented in Australian dollars which is Orica’s
functional and presentation currency.
The amounts shown have been rounded off, except where
otherwise stated, to the nearest tenth of a million dollars, in
accordance with ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191 dated 24 March 2016.
Orica’s Directors have included information in this report that
they deem to be material and relevant to the understanding
of the consolidated financial statements.
Disclosure may be considered material and relevant if the dollar
amount is significant due to size or nature, or the information
is important to understand the:
• Group’s current year results;
•
impact of significant changes in Orica’s business; or
• aspects of the Group’s operations that are important to
future performance.
In order to develop this Financial Report, management is
required to make a number of judgements and apply estimates
of the future as part of the application process of the Group’s
accounting policies. Judgements and estimates, which are
material to this report, are highlighted in the following notes:
Note 5 Working capital
Note 6
Provisions
Note 7
Property, plant and equipment
Note 8
Intangible assets
Note 9
Impairment testing of assets
Note 11 Taxation
Note 19 Superannuation commitments
Note 21 Contingent liabilities
SECTION A. FINANCIAL PERFORMANCE
A key element of the Group’s current strategy is to create sustainable shareholder value. This section highlights the results and performance
of the Group for the year ended 30 September 2019.
1. SEGMENT REPORT
(a) Identification and description of segments
Orica’s reportable segments are based on the internal management structure as reported to the Group’s Chief Operating Decision Maker (the Group’s
Managing Director and CEO). During the year, Auxiliaries was renamed Orica Monitor.
Orica Group
Provider of chemical and
mechanical earth control
products, adhesives and
ground support solutions
Manufacture and supply
of commercial explosives
and blasting systems
Manufacture and supply of
advanced hardware and
software solutions to the
mining industry
Corporate and
support costs
Minova
Australia
Pacific &
Asia
North
America
Latin
America
Europe,
Middle East,
& Africa
Orica Monitor
Global Support
58
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Orica Annual Report 2019
AnnuAl RepORt 2019
59
NOTES TO THE FINANCIAL STATEMENTS – SECTION A. FINANCIAL PERFORMANCE
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION A. FINANCIAL PERFORMANCE
For the year ended 30 September
1. SEGMENT REPORT (continued)
(b) Reportable segments
1. SEGMENT REPORT (continued)
(b) Reportable segments
2019
$m
Revenue
External sales
Inter-segment sales
Total sales revenue
Australia
Pacific
& Asia
North
America
Latin
America
Europe,
Middle
East &
Africa Minova
Orica
Monitor
Global
Support
Elimin-
ations
Consol-
idated
2,013.5
1,391.3
910.2
875.4
591.1
96.5
–
–
5,878.0
92.5
199.2
59.7
35.8
4.0
0.7
1,210.4
(1,602.3)
–
2,106.0
1,590.5
969.9
911.2
595.1
97.2
1,210.4
(1,602.3)
5,878.0
2018
$m
Revenue
External sales
Inter-segment sales
Total sales revenue
Australia
Pacific
& Asia
North
America
Latin
America
Europe,
Middle
East &
Africa Minova
Orica
Monitor
Global
Support
Elimin-
ations
Consol-
idated
1,908.5
1,255.8
834.1
788.7
514.3
66.3
6.1
–
5,373.8
35.7
174.5
65.7
18.5
4.7
0.4
1,035.5
(1,335.0)
–
1,944.2
1,430.3
899.8
807.2
519.0
66.7
1,041.6
(1,335.0)
5,373.8
Other income (refer to note 1d)(1)
5.8
5.5
(1.9)
4.1
0.4
0.5
8.7
–
23.1
Other income (refer to note 1d)(1)
0.6
3.7
1.0
6.9
2.2
(0.5)
23.6
–
37.5
Total revenue and other income
2,111.8
1,596.0
968.0
915.3
595.5
97.7
1,219.1
(1,602.3)
5,901.1
Total revenue and other income
1,944.8
1,434.0
900.8
814.1
521.2
66.2
1,065.2
(1,335.0)
5,411.3
381.9
185.6
43.2
54.8
(2.3)
4.8
(49.9)
–
618.1
382.7
192.1
43.8
67.9
15.2
22.3
(59.3)
–
664.7
49.6
(159.3)
555.0
(177.7)
377.3
(5.4)
371.9
Results before individually
significant items
Profit/(loss) before financing costs
and income tax
Financial income
Financial expenses
Profit before income tax expense
Income tax expense
Profit after income tax expense
Less: Profit attributable to
non-controlling interests
Profit after income tax expense before
individually significant items attributable
to shareholders of Orica Limited
Individually significant items
(refer to note 1e)
(112.2)
44.2
(1.4)
0.3
(5.4)
1.4
(3.9)
1.4
(0.8)
0.2
–
–
(72.2)
21.6
–
–
(195.9)
69.1
Gross individually significant items
(118.0)
(3.6)
(14.6)
Tax on individually significant items
35.3
(46.9)
3.9
(1.8)
(0.7)
(213.0)
3.1
–
–
(24.3)
7.3
–
–
3,065.6
971.2
559.3
720.1
196.6
234.2
1,547.0
583.2
203.4
199.1
246.3
84.7
35.8
2,916.1
73.5
198.9
162.2
155.0
–
1.6
3.2
126.2
2.6
39.6
–
–
0.6
–
44.8
1.8
11.6
29.8
–
–
5.6
2.0
22.7
1.6
1.9
48.0
–
–
0.7
–
26.0
1.7
–
7.3
–
–
4.7
0.7
9.1
0.3
–
15.4
12.7
133.9
–
–
–
0.2
8.6
–
–
36.1
6.6
0.4
39.0
4.4
1.7
26.4
2.9
0.9
–
–
–
–
(126.8)
245.1
7,294.0
4,268.6
301.3
433.5
155.0
36.1
19.8
6.5
276.4
12.4
31.9
–
–
–
–
–
–
–
–
–
–
–
Net individually significant items attributable
to non-controlling interests
Individually significant items
attributable to shareholders
of Orica Limited
Loss for the year attributable
to shareholders of Orica Limited
Segment assets
Segment liabilities
3,081.6
973.9
524.6
914.6
216.0
230.8
1,222.9
495.1
225.4
173.5
217.5
55.5
32.7
2,996.7
Investments accounted for using
the equity method
6.4
187.3
Acquisitions of PPE and intangibles
101.9
38.3
Impairment of PPE
Impairment of intangibles
Impairment of inventories
Impairment of trade receivables
Depreciation and amortisation
Non-cash expenses: share based payments
Share of net profit/(loss) of equity
accounted investees
–
–
0.1
0.3
123.6
2.8
–
–
0.5
–
41.2
2.4
8.0
21.7
–
–
2.9
0.2
23.9
1.8
1.0
35.1
–
–
0.3
5.2
24.0
2.7
–
8.6
–
197.0
3.6
0.7
8.5
1.9
–
5.7
–
–
–
0.1
5.7
–
10.6
135.5
6.7
14.5
5.4
–
40.0
3.2
(0.7)
23.2
2.7
(0.4)
–
–
–
Results before individually
significant items
Profit/(loss) before financing costs
and income tax
Financial income
Financial expenses
Profit before income tax expense
Income tax expense
Profit after income tax expense
Less: Profit attributable to
non-controlling interests
Profit after income tax expense before
individually significant items attributable
to shareholders of Orica Limited
Individually significant items
(refer to note 1e)
Gross individually significant items
Tax on individually significant items
Net individually significant items attributable
to non-controlling interests
Individually significant items
attributable to shareholders
of Orica Limited
Profit for the year attributable
to shareholders of Orica Limited
Segment assets
Segment liabilities
Investments accounted for using
the equity method
Acquisitions of PPE and intangibles
Write down of PPE
Impairment of intangibles
Impairment of inventories
Impairment of trade receivables
Depreciation and amortisation
Non-cash expenses: share based payments
Share of net profit of equity
accounted investees
56.0
(177.3)
496.8
(158.0)
338.8
(14.6)
324.2
(375.3)
2.0
1.0
(372.3)
(48.1)
7,164.4
4,196.4
213.3
346.8
6.7
211.5
12.8
6.5
266.9
14.8
24.8
–
–
–
–
–
–
–
–
–
–
–
(1) Includes foreign currency gains/(losses) in various reportable segments.
(1) Includes foreign currency gains/(losses) in various reportable segments.
60
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Orica Annual Report 2019
AnnuAl RepORt 2019
61
NOTES TO THE FINANCIAL STATEMENTS – SECTION A. FINANCIAL PERFORMANCE
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION A. FINANCIAL PERFORMANCE
For the year ended 30 September
1. SEGMENT REPORT (continued)
(c) Disaggregation of revenue (by commodity/industry)
Gold
Thermal Coal
Copper
Quarry and Construction
Iron Ore
Coking Coal
Minova
Orica Monitor
Other
Total disaggregated revenue
(d) Other income
Other income
Net foreign currency gains/(losses)
Net profit from sale of businesses
Net (loss)/profit on sale of property, plant and equipment
Total other income
Consolidated
2019
$m
2018
$m
1,172.3
1,025.2
798.5
725.4
437.9
305.9
591.1
96.6
725.1
1,023.6
974.7
723.7
698.6
371.2
283.3
514.3
66.3
718.1
5,878.0
5,373.8
Consolidated
2019
$m
17.7
4.4
3.3
(2.3)
23.1
2018
$m
28.0
(7.7)
–
17.2
37.5
(e) Individually significant items
Profit after income tax includes the following
individually significant items of expense:
Gain on formation of China joint venture(1)
Restructuring(2)
Environmental provisions for legacy sites(3)
Impairment expense(4)
Write down of property, plant & equipment(5)
Write down of US deferred tax assets
Individually significant items
Non-controlling interests in individually
significant items
Individually significant items attributable
to shareholders of Orica
(1) Refer to note 13 and note 15.
2019
2018
Gross
$m
Tax
$m
Net
$m
Gross
$m
Tax
$m
Net
$m
50.2
(21.5)
(33.5)
(36.1)
(155.0)
–
(195.9)
(4.5)
6.2
10.1
10.8
46.5
–
69.1
45.7
(15.3)
(23.4)
(25.3)
(108.5)
–
–
(35.2)
(114.7)
(225.4)
–
–
(126.8)
(375.3)
–
8.5
34.4
7.0
–
(47.9)
2.0
–
(26.7)
(80.3)
(218.4)
–
(47.9)
(373.3)
–
–
–
1.0
–
1.0
(195.9)
69.1
(126.8)
(374.3)
2.0
(372.3)
(2) As part of a global restructuring program redundancy costs were recognised across the Group and disclosed within employee benefits expense on the face of the Income Statement.
(3) Refer to note 6.
(4) Refer to note 9.
(5) Refer to note 7.
62
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Orica Annual Report 2019
1. SEGMENT REPORT (continued)
(f) Geographical segments
The presentation of geographical revenue is based on the geographical location of customers. Segment assets are based on the geographical location
of the assets.
Australia
United States of America
Other(2)
Consolidated
Revenue
Non-current assets(1)
2019
$m
2018
$m
2019
$m
2018
$m
1,587.1
1,486.3
2,673.7
2,690.0
931.4
3,359.5
5,878.0
768.0
3,119.5
5,373.8
354.1
1,942.0
4,969.8
321.3
1,862.2
4,873.5
(1) Excluding: financial derivatives (included within other assets and other liabilities), deferred tax assets and post-employment benefit assets.
(2) Other than Australia and United States of America, sales to other countries are individually less than 10% of the Group’s total revenues.
Recognition and measurement
Revenue is recognised when, or as the Group transfers control of goods or services to a customer at the amount to which the Group expects to be entitled.
If the consideration includes a variable amount (net of trade discounts and volume rebates), the Group estimates the amount of consideration to which it
will be entitled. The majority of the Group’s operations are conducted under Master Service Agreements which require customers to place orders for goods
or services on a periodic basis. The performance obligations are identified at the point that the customer places the order.
Supply of products and provision of services
Revenue is derived from contractual agreements for either:
• the supply of products; or
• the supply of products and the provision of services.
Contracts for the supply of products are one performance obligation; and contracts for the supply of products and services include one or two separate
performance obligations depending on whether the customer can benefit from the products independently of the services.
Product revenue is recognised when the goods are delivered to the contracted point of delivery as this is the point at which the customer gains control
of the product and the performance obligation is satisfied by the Group.
Service revenue is recognised over time as the customer simultaneously receives and consumes the benefits of the Group’s performance. Where products
and services are combined into one single performance obligation, revenue is recognised over time as the customer simultaneously receives and consumes
the benefits provided by the Group’s performance.
Contracts to provide a designated output
The provision of goods and services in contracts that provide a designated quantity of output results in the identification of a single performance obligation
to deliver an integrated service to the customer. Revenue from this performance obligation is recognised over time as the customer simultaneously receives
and consumes the benefits of the Group’s performance.
AnnuAl RepORt 2019
63
NOTES TO THE FINANCIAL STATEMENTS – SECTION A. FINANCIAL PERFORMANCE
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION B. CAPITAL MANAGEMENT
For the year ended 30 September
2. EARNINGS PER SHARE (EPS)
(i) As reported in the Income Statement
Earnings used in the calculation of basic EPS attributable to ordinary shareholders of Orica Limited
Net profit/(loss) for the year from continuing operations
Less: Net profit for the year attributable to non-controlling interests
Total
Weighted average number of shares used in the calculation:
Number for basic earnings per share
Effect of dilutive share options and rights
Number for diluted earnings per share
The weighted average number of non-dilutive options and rights that have not been included
in the calculation of diluted earnings per share
Total attributable to ordinary shareholders of Orica Limited
Basic earnings per share
Diluted earnings per share
(ii) Adjusted for individually significant items
Earnings used in the calculation of basic EPS adjusted for individually significant
items attributable to ordinary shareholders of Orica Limited
Net profit/(loss) for the year
Less: Net profit for the year attributable to non-controlling interests
Adjusted for individually significant items (refer to note 1(e))
Total adjusted
Total attributable to ordinary shareholders of Orica Limited before individually significant items
Basic earnings per share(1)
Diluted earnings per share(1)
Consolidated
2019
$m
2018
$m
250.5
5.4
245.1
(34.5)
13.6
(48.1)
Number of shares
379,967,950
378,215,134
1,656,530
2,672,778
381,624,480
380,887,912
3,027,776
2,402,554
Cents
per share
Cents
per share
64.5
64.2
(12.7)
(12.7)
Consolidated
2019
$m
2018
$m
250.5
5.4
126.8
371.9
(34.5)
13.6
372.3
324.2
Cents
per share
Cents
per share
97.9
97.5
85.7
85.1
(1) Earnings per share before individually significant items is a non-IFRS measure. Management excludes individually significant items from the calculation in order to enhance
the comparability from year-to-year and provide our investors with further clarity in order to assess the underlying performance of our operations.
64
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Orica Annual Report 2019
SECTION B. 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. This section outlines the principal
capital management initiatives that have been undertaken, current year drivers of the Group’s cash flows, as well as the key operating assets used
and liabilities incurred to support financial performance.
3. NET DEBT
In order to maintain an appropriate capital structure, the Group may adjust the amount of dividends paid to shareholders, utilise a dividend reinvestment
plan, return capital to shareholders such as a share buy-back or issue new equity, in addition to incurring an appropriate level of borrowings. Currently, Orica
maintains a dividend payout ratio policy and expects the total payout ratio to be in the range of 40%-70% of underlying earnings. It is also expected that
the total dividend paid each year will be weighted towards the final dividend.
Orica monitors debt capacity against a number of key credit metrics, principally the gearing ratio (net debt divided by debt plus equity) and the interest cover
ratio (EBIT excluding individually significant items, divided by net financing costs adjusted for capitalised borrowing costs). These ratios, together with
performance measure criteria determined by Standard & Poor’s, are targeted in support of the maintenance of an investment grade credit rating, which
enables access to borrowings from a range of sources.
The Group’s current target for gearing is 30%-40% and interest cover is 5 times or greater. Ratios may move outside of these target ranges for relatively
short periods of time after major acquisitions or other significant transactions.
In addition, the gearing and interest cover ratios are monitored to ensure an adequate buffer against covenant levels applicable to the various financing facilities.
The gearing ratio is calculated as follows:
Interest bearing liabilities (refer to note 3a)
less cash and cash equivalents (refer to note 3b)
Net debt
Total equity
Net debt and total equity
Gearing ratio (%)
The interest ratio is calculated as follows:
EBIT (excluding individually significant items) (refer to note 1b)
Net financing costs excluding unwinding of discount on provisions
Unwinding of discount on provisions
Capitalised borrowing costs
Gross financing costs
Interest cover ratio (times)
Consolidated
2019
$m
2018
$m
2,033.2
2,162.9
(412.6)
1,620.6
3,025.4
4,646.0
34.9%
(514.6)
1,648.3
2,968.0
4,616.3
35.7%
664.7
618.1
100.4
113.4
9.3
7.5
7.9
4.8
117.2
126.1
5.7
4.9
AnnuAl RepORt 2019
65
NOTES TO THE FINANCIAL STATEMENTS – SECTION B. CAPITAL MANAGEMENT
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION B. CAPITAL MANAGEMENT
For the year ended 30 September
3. NET DEBT (continued)
(a) Interest bearing liabilities
Current
Unsecured
Private Placement(1)
Export finance facility(1)
Bank loans
Bank overdraft
Other loans
Lease liabilities(2)
Total
Non-current
Unsecured
Private Placement(1)
Export finance facility(1)
Bank loans(1)
Other loans
Lease liabilities(2)
Total
Total
Opening
Balance
$m
Non-cash
movements
$m
Net cash
movements
$m
Closing
Balance
$m
138.2
14.9
–
3.2
0.9
1.1
2.4
18.7
34.2
–
–
–
(140.6)
(16.5)
(0.2)
5.2
0.2
(0.8)
158.3
55.3
(152.7)
–
17.1
34.0
8.4
1.1
0.3
60.9
1,808.5
16.2
176.2
3.6
0.1
162.8
(16.2)
(31.7)
(2.9)
–
–
–
(144.5)
0.2
–
1,971.3
–
–
0.9
0.1
3. NET DEBT (continued)
(b) Notes to the statement of cash flows
Reconciliation of cash
Cash at the end of the year comprises:
Cash and cash equivalents
Bank overdraft
Reconciliation of profit/(loss) after income tax to net cash flows from operating activities
Profit/(loss) after income tax expense
Adjusted for the following items:
Depreciation and amortisation
Net loss/(profit) on sale of property, plant and equipment
Impairment of intangibles
Write down/impairment of property, plant and equipment
Impairment of inventories
Net (profit) on sale of businesses
Share based payments expense
(1b)
(1d)
(8)
(7)
2,004.6
112.0
(144.3)
1,972.3
Share of equity accounted investees net (profit)/loss after adding back dividends received
2,162.9
167.3
(297.0)
2,033.2
Other
Unwinding of discount on provisions
(1) Orica Limited provides guarantees on these facilities refer to note 16 for further details.
(2) $6.8million (2018 $2.2million) of property, plant and equipment is pledged as security for finance leases. In the event of default by Orica, the rights to the leased assets
transfer to the lessor.
During the current and prior year, there were no defaults or breaches of covenants on any loans.
Changes in working capital and provisions excluding the effects of
acquisitions and disposals of businesses/controlled entities
(increase) in trade and other receivables
decrease/(increase) in inventories
(increase)/decrease in net deferred taxes
increase in payables and provisions
(decrease)/increase in income taxes payable
Net cash flows from operating activities
Recognition and Measurement
Cash and cash equivalents
Cash includes cash at bank, cash on hand and deposits at call.
Interest bearing liabilities
Consolidated
2019
$m
2018
$m
412.6
(8.4)
404.2
514.6
(3.2)
511.4
250.5
(34.5)
276.4
2.3
36.1
155.0
19.8
(53.5)
12.4
(4.8)
9.3
2.4
(41.7)
39.0
(10.6)
71.4
(17.6)
746.4
266.9
(17.2)
211.5
6.7
7.5
–
14.8
0.2
7.9
(4.4)
(29.3)
(88.1)
48.3
202.2
22.2
614.7
Interest bearing liabilities are initially recognised net of 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, unless they are liabilities designated in a fair value relationship in which case they continue to be measured at fair value (refer to note 10a).
Borrowing costs
Borrowing costs are expensed as incurred unless they relate to qualifying assets where interest on funds are capitalised.
66
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Orica Annual Report 2019
AnnuAl RepORt 2019
67
NOTES TO THE FINANCIAL STATEMENTS – SECTION B. CAPITAL MANAGEMENT
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION C. OPERATING ASSETS AND LIABILITIES
For the year ended 30 September
4. CONTRIBUTED EQUITY AND RESERVES
(a) Contributed equity
Movements in issued and fully paid shares of Orica since 1 October 2017 were as follows:
Details
Ordinary shares
Opening balance of shares issued
Shares issued under the Orica dividend reinvestment plan
Shares issued under the Orica dividend reinvestment plan
Deferred shares issued to settle Short-Term Incentive
Shares issued under the Orica GEESP plan(1)
Balance at the end of year
Shares issued under the Orica dividend reinvestment plan
Shares issued under the Orica dividend reinvestment plan
Deferred shares issued to settle Short-Term Incentive
Shares issued under the Orica GEESP plan(1)
Balance at the end of the year
(1) General Employee Exempt Share Plan (GEESP).
(b) Reserves
Recognition and Measurement
Date
1-Oct-17
7-Dec-17
2-Jul-18
Number
of shares
Issue
price $
377,039,027
1,117,317
1,058,445
17.42
17.52
30-Sep-18
379,214,789
7-Dec-18
1-Jul-19
726,287
635,545
17.48
20.67
30-Sep-19
380,576,621
$m
2,068.5
19.5
18.5
3.0
0.6
2,110.1
12.7
13.1
1.4
0.7
2,138.0
SECTION C. OPERATING ASSETS AND LIABILITIES
This section highlights current year drivers of the Group’s operating and investing cash flows, as well as the key operating assets used and liabilities
incurred to support delivering financial performance.
5. WORKING CAPITAL
(a) Trade working capital
Trade working capital includes inventories, receivables and payables that arise from normal trading conditions. The Group continuously looks to improve
working capital efficiency in order to maximise operating cash flow.
Inventories(i)
Trade receivables(ii)
Trade payables(iii)
Trade working capital
(i) Inventories
The classification of inventories is detailed below:
Consolidated
2019
$m
587.5
681.6
(863.2)
405.9
Consolidated
2019
$m
257.8
47.5
282.2
587.5
2018
$m
626.5
654.7
(862.2)
419.0
2018
$m
260.5
48.3
317.7
626.5
Foreign currency translation reserve: Records the foreign currency differences arising from the translation of foreign operations. The relevant portion
of the reserve is recognised in the Income Statement when the foreign operation is disposed of.
Cash flow hedge reserve: Represents the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that
have not yet occurred.
Other reserves: Other reserves represents share based payments reserves and equity reserves arising from the purchase of non-controlling interests.
(c) Dividends
Raw materials
Work in progress
Finished goods
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary shares
interim dividend of 20.0 cents per share, unfranked, paid 2 July 2018
interim dividend of 22.0 cents per share, unfranked, paid 1 July 2019
final dividend of 28.0 cents per share, unfranked, paid 8 December 2017
final dividend of 31.5 cents per share, unfranked, paid 7 December 2018
Dividends paid in cash or satisfied by the issue of shares under the dividend
reinvestment plan (DRP) during the year were as follows:
paid in cash
DRP – satisfied by issue of shares
Consolidated
2019
$m
2018
$m
75.6
105.6
83.5
119.5
177.2
25.8
143.2
38.0
Recognition and Measurement
Inventories are measured at the lower of cost and net realisable value. Cost is based on a first-in first-out or weighted average basis. For manufactured
goods cost includes direct material and fixed overheads based on normal operating capacity. Inventories have been shown net of provision for impairment
of $36.4 million (2018 $25.0 million).
(ii) Trade receivables
The ageing of trade receivables and allowance for impairment is detailed below:
Not past due
Past due 0 – 120 days
Past 120 days
Consolidated
Consolidated
2019
Gross
$m
642.4
56.3
46.0
744.7
2019
Allowance
$m
–
(17.1)
(46.0)
(63.1)
2018
Gross
$m
595.7
55.7
50.4
701.8
2018
Allowance
$m
(0.1)
(0.6)
(46.4)
(47.1)
Since the end of the financial year, the Directors declared the following dividend:
Recognition and Measurement
Final dividend on ordinary shares of 33.0 cents per share, 15.2% franked at 30%, payable 13 December 2019. Total franking credits related to this dividend
are $8.2 million (2018 $nil).
The financial effect of the final dividend on ordinary shares has not been brought to account in the financial statements for the year ended
30 September 2019 – however will be recognised in the 2020 financial statements.
Franking credits
The collectability of trade and other receivables is assessed continuously, specific allowances are made for any doubtful trade and other receivables based
on a review of all outstanding amounts at year end. The expected impairment loss calculation for trade receivables considers both quantitative information
from historic credit losses as well as qualitative information on different customer/debtor profiles and segments. The net carrying amount of trade and other
receivables approximates their fair values. A risk assessment process is used for all accounts, with a stop credit process in place for most long overdue accounts.
(iii) Trade payables
Recognition and Measurement
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 2019 are nil (2018 $16.9 million).
Trade and other payables are recognised when the Group is required to make future payments as a result of the purchase of goods or as services provided
prior to the end of the reporting period. The carrying amount of trade payables approximates their fair values due to their short term nature.
68
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Orica Annual Report 2019
AnnuAl RepORt 2019
69
NOTES TO THE FINANCIAL STATEMENTS – SECTION C. OPERATING ASSETS AND LIABILITIES
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION C. OPERATING ASSETS AND LIABILITIES
For the year ended 30 September
5. WORKING CAPITAL (continued)
(b) Non-trade working capital
Non-trade working capital includes all other receivables and payables not related to the purchase of goods and is recognised net of provisions for
impairment of $21.1 million (2018 $17.6 million).
Critical accounting judgements and estimates
In the course of normal trading activities, management uses its judgement in establishing the carrying value of various elements of working capital
– principally inventory and accounts receivable. Provisions are established for obsolete or slow moving inventories. Actual expenses in future periods
may be different from the provisions established and any such differences would impact future earnings of the Group.
6. PROVISIONS
Current
Employee entitlements(1)
Environmental and decommissioning(2)
Other
Non-current
Employee entitlements(1)
Retirement benefit obligations (see note 19b)
Environmental and decommissioning(2)
Other
(1) $58.6 million (2018 $41.3 million) was expensed to the Income Statement in relation to employee entitlements during the year.
(2) Payments of $51.6 million (2018 $35.7 million) were made during the year in relation to environmental and decommissioning provisions.
The total environmental and decommissioning provision comprises:
Botany Groundwater remediation
Botany (HCB) waste
Burrup decommissioning
Deer Park remediation
Yarraville remediation
Other provisions
Total
Recognition and Measurement
Employee Entitlements
Consolidated
2019
$m
93.2
70.8
29.1
2018
$m
88.3
78.7
26.2
193.1
193.2
23.0
307.5
246.3
9.4
586.2
Consolidated
2019
$m
171.3
41.1
21.7
22.0
24.6
36.4
18.2
214.9
240.6
12.1
485.8
2018
$m
175.8
35.4
22.5
26.6
29.1
29.9
A liability for employee entitlements is recognised for the amount expected to be paid where the Group has a present legal or constructive obligation
to pay this amount as a result of past service provided by the employee and that obligation can be reliably measured.
6. PROVISIONS (continued)
Decommissioning
In certain circumstances, the Group has an obligation to dismantle and remove an asset and to restore the site on which it is located. The present value
of the estimated costs of dismantling and removing the asset and restoring the site on which it is located are recognised as a depreciable asset with a
corresponding provision being 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 a finance cost.
Environmental
Estimated costs for the remediation of soil, groundwater and untreated waste are recognised when there is a legal or constructive obligation to remediate
and the associated costs can be reliably estimated.
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 carrying value of that land, otherwise it is expensed.
The amount of provision reflects the best estimate of the expenditure required to settle the obligation having regard to a range of potential scenarios,
input from subject matter experts on appropriate remediation techniques and relevant technological advances.
Individually significant items
During the financial year new information has been made available which has resulted in a $33.5 million increase in the provision for environmental
remediation across four legacy sites: Botany (HCB) waste, Yarraville, Moranbah and Marleston. As these costs cannot be recovered, the impact has been
expensed to the Income Statement.
Critical accounting judgements and estimates
Botany groundwater remediation
Orica’s historical operations at the Botany Industrial Park resulted in contamination of the soil and groundwater. Due to the complex nature of the
chemicals involved and its distribution (e.g. Dense Non-Aqueous Phase Liquid (DNAPL), the lack of known practical remediation approaches and the
unknown scale of the contamination, a practical solution to completely remediate the contamination has not been found. Orica continues to work
in close cooperation with the New South Wales (NSW) Environmental Protection Authority (EPA) to address the contamination.
Orica has a current obligation to contain and mitigate the effects of the contamination on the groundwater at the site. Orica and the NSW EPA
entered into a Voluntary Management Proposal to contain groundwater contamination while an effective remediation approach to the DNAPL
source contamination is identified.
The findings from Orica’s FY2018 review indicated that the cessation of groundwater extraction using the GTP is possible within a 18-year timeframe.
After this period, Orica anticipates that the contamination levels will be materially below current levels and will be able to be managed through
natural attenuation or less intensive technologies.
The technical review considered existing remediation technologies which would augment the existing ‘pump and treat’ methodology. One of these
alternatives will be piloted and implemented, with the expectation that the duration and operating costs of the GTP facility may reduce.
Provisions for other sites
For other sites where Orica has recognised a provision for environmental remediation, judgement is required in determining the future expenditure
required to settle the obligation due to uncertainties in the assumptions regarding the nature or extent of the contamination, the application of
relevant laws or regulations and the information available at certain locations where Orica no longer controls the site. Changes in these assumptions
may impact future reported results. Subject to those factors, but taking into consideration experience gained to date regarding environmental
matters of a similar nature, Orica believes the provision balances are appropriate based on currently available information. However, considering
the uncertainties noted above the costs incurred in future periods may be greater than or less than the amounts provided.
Contingent environmental liabilities
Environmental contingent liabilities
In respect of historical and current operations, certain sites owned or used by the Group may require future remediation actions.
Sites with significant uncertainties relating to the following are disclosed as contingent liabilities:
• Sites where contamination is known or likely to exist, however the impact cannot be reliably measured due to uncertainties related to the extent
317.1
319.3
of Orica’s remediation obligations or the remediation techniques that may be utilised; or
• Sites where known contamination exists but does not pose a current threat to human health or the environment, therefore no regulatory
or formal remediation action is probable.
Any costs associated with these matters are expensed as incurred.
Botany – remediation of source contamination
Specifically related to the remediation of DNAPL source contamination a reliable estimate of the costs to complete remediation is not possible given
the lack of proven remediation techniques that can be effectively deployed at the site and uncertainty of the scale of the DNAPL contamination.
70
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Orica Annual Report 2019
AnnuAl RepORt 2019
71
NOTES TO THE FINANCIAL STATEMENTS – SECTION C. OPERATING ASSETS AND LIABILITIES
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION C. OPERATING ASSETS AND LIABILITIES
For the year ended 30 September
7. PROPERTY, PLANT AND EQUIPMENT
7. PROPERTY, PLANT AND EQUIPMENT (continued)
Consolidated
2018
Cost
Accumulated impairment losses
Accumulated depreciation
Total carrying value
Movement
Carrying amount at the beginning of the year
Additions
Additions through acquisitions of entities (see note 14)
Disposals
Depreciation expense
Impairment expense
Foreign currency exchange differences
Carrying amount at the end of the year
2019
Cost
Accumulated impairment losses
Accumulated depreciation
Total carrying value
Movement
Carrying amount at the beginning of the year
Additions
Disposals through disposal of entities (see note 15)
Disposals
Depreciation expense
Write down of property, plant & equipment
Transfer from intangible assets (see note 8)
Foreign currency exchange differences
Carrying amount at the end of the year
Land,
buildings and
improvements
$m
Machinery,
plant and
equipment
$m
Total
$m
781.0
4,752.7
5,533.7
–
(305.8)
475.2
464.7
20.0
–
(4.7)
(23.2)
–
18.4
475.2
760.7
–
(288.0)
472.7
(6.7)
(2,355.0)
2,391.0
2,276.8
189.0
54.6
(7.2)
(198.8)
(6.7)
83.3
(6.7)
(2,660.8)
2,866.2
2,741.5
209.0
54.6
(11.9)
(222.0)
(6.7)
101.7
2,391.0
2,866.2
5,072.6
(161.7)
(2,484.0)
2,426.9
5,833.3
(161.7)
(2,772.0)
2,899.6
475.2
2,391.0
2,866.2
10.6
(10.1)
(1.4)
(17.5)
–
–
15.9
472.7
291.7
(14.9)
(9.7)
(213.7)
(155.0)
35.6
101.9
302.3
(25.0)
(11.1)
(231.2)
(155.0)
35.6
117.8
2,426.9
2,899.6
Individually significant items
Write down of property, plant and equipment
The Group owns a 50% interest of Yara Pilbara Nitrates Pty Ltd (YPN), with the remaining shares being held by subsidiaries in the Yara International ASA
group. YPN owns and will operate a 330,000 tonnes per annum industrial grade technical ammonium nitrate plant (TAN plant) on the Burrup Peninsula
(Western Australia, Australia). For accounting purposes YPN is a joint operation and Orica recognises its share of any jointly held or incurred assets, liabilities,
revenues and expenses in the consolidated financial statements.
Rectification works at the TAN plant are progressing in line with expectations. As these rectification and capital works have progressed, the Group has
identified a number of assets that are considered to be defective and require replacement. In connection with this, the Group has recognised a write down
charge of $155 million.
YPN has previously received a Performance Bond payment from Tecnicas Reunidas (TR) who were engaged to construct the plant. Part of the Performance
Bond was called to cover the rectification costs. Given the ongoing arbitration with respect to liability for the rectification works, the amount received in
respect of the Performance Bond has not been recognised as Income and is included in Other Liabilities (current) pending resolution of the dispute.
Recognition and Measurement
Property, plant and equipment is stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the
acquisition of the item and includes capitalised interest (refer to note 3). Subsequent costs are capitalised only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.
72
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Orica Annual Report 2019
Critical accounting judgements and estimates
Management reviews the appropriateness of useful lives of assets at least annually, any changes to useful lives may affect prospective depreciation
rates and asset carrying values.
Depreciation is recorded on a straight line basis using the following useful lives:
Land
Buildings and improvements
Machinery, plant and equipment
Indefinite
25 to 40 years
3 to 40 years
8. INTANGIBLE ASSETS
Consolidated
2018
Cost
Accumulated impairment losses of goodwill
Accumulated amortisation
Net carrying amount
Movement
Goodwill
$m
2,526.2
(1,475.9)
–
1,050.3
Patents,
trademarks
and rights
$m
Software
$m
365.4
–
(96.1)
269.3
Carrying amount at the beginning of the year
1,093.3
220.3
Additions
Disposals
Additions through acquisitions of entities
Amortisation expense
Impairment expense
Foreign currency exchange differences
Carrying amount at the end of the year
2019
Cost
Accumulated impairment losses
Accumulated amortisation
Net carrying amount
Movement
–
–
116.4
–
(197.0)
37.6
1,050.3
2,665.1
(1,475.9)
–
1,189.2
–
–
37.0
(4.9)
–
16.9
269.3
162.7
–
(98.8)
63.9
Additions
Adjustment on acquisition of entities
Disposals through disposal of entities
Transfer between intangible assets(1)
Transfer to property, plant & equipment(1) (see note 7)
Amortisation expense
Impairment expense
Foreign currency exchange differences
Carrying amount at the end of the year
–
(6.3)
–
167.8
–
–
–
(22.6)
1,189.2
–
–
(2.1)
(167.8)
(35.6)
(5.1)
–
5.2
63.9
Other
$m
145.3
–
(88.0)
57.3
39.2
23.0
(0.2)
–
(10.8)
–
6.1
57.3
165.2
–
(100.5)
64.7
57.3
14.5
–
–
–
–
(11.6)
–
4.5
64.7
Total
$m
3,539.2
(1,490.4)
(350.9)
1,697.9
1,577.1
137.8
(0.2)
182.8
(45.0)
(211.5)
56.9
1,697.9
3,549.4
(1,526.9)
(332.9)
1,689.6
1,697.9
131.2
(6.3)
(2.1)
–
(35.6)
(45.2)
(36.1)
(14.2)
1,689.6
502.3
(14.5)
(166.8)
321.0
224.3
114.8
–
29.4
(29.3)
(14.5)
(3.7)
321.0
556.4
(51.0)
(133.6)
371.8
321.0
116.7
–
–
–
–
(28.5)
(36.1)
(1.3)
371.8
(1) The classification of the Entry Fee paid in FY2013 relating to the original investment into the Burrup project and the associated capitalised borrowing costs have been
reassessed. In substance the Entry Fee payment ($167.8 million) represents Goodwill as it related to the cost of investment in the joint operation. The capitalised borrowing
costs ($35.6 million) is related to the construction of the qualifying asset (the Burrup plant) which is recognised as Property, Plant and Equipment (see note 7). There is no
impact to the Income Statement in the current or prior year.
Recognition and Measurement
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.
AnnuAl RepORt 2019
73
Included in the above are significant assets under construction (Burrup plant) of $608.3 million (2018 $639.5 million).
Carrying amount at the beginning of the year
1,050.3
269.3
NOTES TO THE FINANCIAL STATEMENTS – SECTION C. OPERATING ASSETS AND LIABILITIES
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION D. MANAGING FINANCIAL RISKS
For the year ended 30 September
8. INTANGIBLE ASSETS (continued)
Identifiable intangibles
Identifiable intangible assets with a finite life are amortised on a straight line basis over their expected useful life to the Group, being up to thirty years.
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits of the specific asset to which
it relates. All other expenditure is expensed as incurred.
SECTION D. MANAGING FINANCIAL RISKS
Orica’s Review of Operations and Financial Performance highlights funding and other treasury matters as material business risks that could adversely
affect the achievement of future business performance.
This section discusses the principal market and financial risks the Group is exposed to and the risk management program, which seeks to mitigate
these risks and reduce the volatility of Orica’s financial performance.
Critical accounting judgements and estimates
Management reviews the appropriateness of useful lives of assets at least annually, any changes to useful lives may affect prospective amortisation
rates and asset carrying values.
10. FINANCIAL RISK MANAGEMENT
Financial risk factors
9. IMPAIRMENT TESTING OF ASSETS
Recognition and Measurement
Methodology
Formal impairment tests are carried out annually for goodwill. In addition, formal impairment tests for all assets are performed when there is an indication
of impairment. The Group conducts an internal review of asset values at each reporting period, which is used as a source of information to assess for any
indications of impairment. External factors, such as changes in expected future prices, costs and other market factors, are also monitored to assess for
indications of impairment. If any such indication exists, an estimate of the asset’s recoverable amount is calculated.
If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired and an impairment loss is charged to the Income Statement to
reduce the carrying amount in the Balance Sheet to its recoverable amount. The recoverable amount is determined using the higher of value in use or fair
value less costs to dispose. Value in use is the present value of the estimated future cash flows. Value in use is determined by applying assumptions specific
to the Group’s continued use and does not consider future development. The value in use calculations use cash flow projections which do not exceed five
years based on actual operating results and the operating budgets approved by the Board of Directors. Fair value less costs to dispose is the value that
would be received in exchange for an asset in an orderly transaction.
In testing for indications of impairment and performing impairment calculations, assets are considered as collective groups and referred to as cash-generating
units (CGU). CGUs are the smallest identifiable group of assets, liabilities and associated goodwill that generate cash inflows that are largely independent
of the cash inflows from other assets or groups 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. The test of goodwill and its impairment is undertaken at the segment level.
Key assumptions
Australia Pacific & Asia
North America
Latin America
Europe, Middle East & Africa
Minova
Orica Monitor
Global Support
Total
Post tax
discount
rates
2019
%
Terminal
growth rates
2019
%
7.9–12.3
0.5–7.7
8.4
9.4–12.4
7.5–21.5
8.8–10.5
8.0–9.8
9.8
1.6
1.5–5.5
1.2–11.7
1.2–7.7
2.0–2.6
2.6
Goodwill
2019
$m
574.8
149.7
142.1
212.5
Post tax
discount
rates
2018
%
8.0–12.6
8.5–9.3
8.0–12.5
7.8–15.5
–
7.8–14.4
110.1
–
1,189.2
n/a
10.0
Terminal
growth rates
2018
%
Goodwill
2018
$m
0.5–8.2
1.4
0.0–5.5
1.2–9.9
1.1–8.2
n/a
2.7
408.4
148.2
142.9
234.4
–
116.4
–
1,050.3
Critical accounting judgements and estimates
IT Assets
As part of the impairment review and the transition to the new SAP operating system, Orica identified $36.1 million of IT assets that were no longer
being utilised by the business.
The Group’s overall risk management program seeks to mitigate 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.
The Group’s principal financial risks are associated with:
•
interest rate risk (note 10a)
• foreign exchange risk (note 10b)
• credit risk (note 10c)
•
liquidity risk (note 10d) and
• commodity risk (note 10e)
(a) 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 a fair value interest rate risk while borrowings issued at a
variable rate give rise to a 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 Board 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. As at September 2019, the fixed rate borrowings after the impact of interest rate swaps and cross
currency swaps were $1,169 million (2018 $1,204 million) and the borrowings designated in a fair value relationship were $802 million (2018 $743 million).
Interest rate sensitivity
Orica has exposure to interest rate movements in the underlying currencies it deals in. A 10% movement in interest rates without management intervention
would have a $5.3 million (2018 $5.1 million) impact on profit before tax and a $3.7 million (2018 $3.6 million) impact on shareholders’ equity.
(b) Foreign exchange risk management
i) Foreign exchange risk – transactional
Foreign exchange risk refers to the risk that the value of a financial commitment, recognised asset, 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.
As at reporting date, the carrying value of cross currency swaps entered into to hedge debt principal was $149.2 million (2018 $56.2 million), representing
a fair value gain of $93 million against prior year. Where the fair value of a derivative is positive it is reported in Other Assets, and where negative in Other
Liabilities. Refer to the recognition and measurement section within this note for further information on how the Group applies hedge accounting to
minimise income statement volatility.
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.
74
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Orica Annual Report 2019
AnnuAl RepORt 2019
75
NOTES TO THE FINANCIAL STATEMENTS – SECTION D. MANAGING FINANCIAL RISKS
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION D. MANAGING FINANCIAL RISKS
For the year ended 30 September
10. FINANCIAL RISK MANAGEMENT (continued)
In regard to foreign currency risk relating to sales and purchases, the Group hedges up to 100% of committed exposures. The Group hedges 100%
of committed exposures utilising a declining percentage overtime methodology. 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.
Exchange rate sensitivity
The table below shows the Group’s exposure to foreign currency risk (Australian dollar equivalent) and the effect on profit and equity had exchange
rates been 10% higher or lower than the year end rate with all other variables held constant. The 10% higher sensitivity represents the Australian dollar
strengthening against the other currencies.
The analysis takes into account all underlying exposures and related hedges but not the impact of any management actions that might take place if these
events occurred. The net exposure includes both external and internal balances (eliminated on consolidation).
2019
Cash and internal deposits(1)
Trade and other receivables
Trade and other payables
Interest bearing liabilities(1)
Net derivatives
Net exposure
Effect on profit/(loss) before tax
If exchange rates were 10% lower
If exchange rates were 10% higher
Increase/(decrease) in equity
If exchange rates were 10% lower
If exchange rates were 10% higher
2018
Cash and internal deposits(1)
Trade and other receivables
Trade and other payables
Interest bearing liabilities(1)
Net derivatives
Net exposure
Effect on profit/(loss) before tax
USD
$m
1,468.8
103.5
(105.1)
(2,658.4)
1,565.0
373.8
11.0
(9.0)
23.3
(19.0)
USD
$m
2,010.4
154.4
(184.9)
(2,602.3)
1,386.3
763.9
CAD
$m
1.1
34.9
(30.6)
(209.6)
93.4
(110.8)
0.4
(0.3)
(8.7)
7.1
CAD
$m
38.7
19.0
(41.4)
(244.2)
68.7
(159.2)
If exchange rates were 10% lower
8.1
(3.0)
If exchange rates were 10% higher
Increase/(decrease) in equity
If exchange rates were 10% lower
If exchange rates were 10% higher
(6.7)
54.1
(44.2)
2.4
(12.4)
10.1
NZD
$m
–
0.2
(1.5)
(25.0)
10.4
(15.9)
(0.2)
0.2
(1.3)
1.0
NZD
$m
–
0.2
–
(23.1)
7.5
(15.4)
(0.1)
0.0
(1.3)
1.0
NOK
$m
–
0.7
(0.4)
(28.2)
(56.8)
(84.7)
(0.4)
0.3
(6.6)
5.4
NOK
$m
–
0.7
(0.2)
(31.9)
(54.1)
(85.5)
(0.1)
0.0
(6.7)
5.4
(1) Includes internal deposits and interest bearing liabilities which comprise part of the Group’s capital structure.
SEK
$m
135.1
0.8
(8.7)
EUR
$m
965.7
20.8
(56.9)
GBP
$m
366.5
–
(3.8)
(43.8)
(1,199.6)
(157.7)
67.6
(202.4)
40.4
245.4
(3.7)
0.3
138.8
1,015.6
3.0
(16.2)
13.2
EUR
$m
29.2
(49.0)
(1,232.6)
47.6
(189.2)
(0.3)
19.5
(16.0)
GBP
$m
361.5
41.0
(3.6)
(155.2)
44.8
288.5
(1.7)
4.2
1.4
(14.7)
12.0
(3.4)
22.5
(18.4)
12.0
95.4
(0.9)
0.8
7.4
(6.1)
SEK
$m
1.5
(22.0)
(29.1)
4.6
93.8
(2.3)
1.8
7.3
(6.0)
10. FINANCIAL RISK MANAGEMENT (continued)
ii) Foreign currency risk – translational
Foreign currency earnings translation risk arises primarily as a result of earnings generated by foreign operations with functional currencies of USD, CAD,
MXN, PHP, COP and AED being translated into AUD. Derivative contracts to hedge earnings exposures do not qualify for hedge accounting under Australian
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.
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 applying 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 applying at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised
directly in a separate component of equity.
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.
Hedging of foreign investment exposures is undertaken primarily through originating debt in the functional currency of the foreign operation, or by raising
debt in a different currency and swapping the debt to the currency of the foreign operation using derivative financial instruments. The remaining translation
exposure is managed, where considered appropriate, using forward foreign exchange contracts, or cross currency interest rate swaps.
Net investment hedging is designated as hedging the exposure to movements in spot translation rates only; spot related gains or losses resulting from
hedging activities are recorded in the foreign currency translation reserve within the equity section of the Balance Sheet to offset gains or losses resulting
from the translation of the net assets of foreign operations.
To assess hedge effectiveness, the Group determines the economic relationship between the hedging instrument and the hedged item by comparing
changes in the carrying amount of the debt that is attributable to a change in the spot rate with changes in the investment in the foreign operation due
to movements in the spot rate.
As at reporting date, 33.8% of the Group’s net investment in foreign operations was hedged (2018 34.7%).
The table below shows the effect of net investment hedge accounting on financial position and year to date performance as at 30 September 2019.
Hedging instrument carrying value
Hedged item change in value used to calculate ineffectiveness
Hedge instrument change in value used to calculate ineffectiveness
Hedge ineffectiveness
(c) Credit risk management
2019
$m
(939.9)
55.8
(55.8)
–
Credit risk represents the loss that would be recognised if counterparties failed to meet their obligations under a contract or arrangement. The Group is
exposed to credit risk from trade and other receivables and financial instrument contracts that are outstanding at year end.
The creditworthiness of customers is reviewed prior to granting credit, using trade references and credit reference agencies. Credit limits are established
and monitored for each customer, and these limits represent the highest level of exposure that a customer can reach. Trade credit insurance is purchased
when required.
Orica’s maximum exposure to trade and other receivables at 30 September 2019 is $828.8 million (2018 $830.8 million).
In regard 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 2019, the sum of all derivative contracts with a positive fair value was $171.4 million (2018 $76.8 million). The Group does not hold
any credit derivatives to offset its credit exposures.
76
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Orica Annual Report 2019
AnnuAl RepORt 2019
77
NOTES TO THE FINANCIAL STATEMENTS – SECTION D. MANAGING FINANCIAL RISKS
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION D. MANAGING FINANCIAL RISKS
For the year ended 30 September
10. FINANCIAL RISK MANAGEMENT (continued)
(d) 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 all forecast 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
2019
$m
99.9
91.5
2018
$m
99.1
95.9
3,562.9
1,534.4
3,544.9
1,382.6
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 27 May 2020 to 25 October 2030 (2018 7 October 2018 to 25 October 2030).
The contractual maturity of the Group’s 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:
10. FINANCIAL RISK MANAGEMENT (continued)
(e) Commodity risk management
Commodity risk refers to the risk that Orica’s profit/loss or equity will fluctuate due to changes in commodity prices. At reporting date Orica has derivative
contracts which are exposed to fluctuations in the price of Brent Crude Oil entered into to fix the price of future gas supply contracts.
The table below includes Orica’s derivative contracts that are exposed to changes in Brent Crude Oil at 30 September and the impact of a 10 per cent
change in observable prices (holding all other things constant) on profit/loss or equity based solely on Orica’s price exposures existing at the reporting
date but does not take into account any mitigating actions that management might undertake if the price change occurred.
10% decrease in observable prices
10% increase in observable prices
Recognition and Measurement
2019
2018
Effect on
profit/(loss)
before tax
Increase/
(decrease)
in equity
Effect on
profit/(loss)
before tax
Increase/
(decrease)
in equity
–
–
(0.3)
0.3
–
–
(5.2)
5.2
Valuation of financial assets and liabilities (included within other on Balance Sheet)
Derivatives are carried at fair value and categorised as Level 2 under AASB 7 Financial Instruments: Disclosures. The inputs are observable for the assets
or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices). There has been no movement between levels since prior year.
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. Changes in default probabilities
are included in the valuation of derivatives using credit and debit valuation adjustments.
The fair values 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.
2019
2018
Offsetting financial assets and liabilities
Consolidated
Non-derivative financial assets
Cash
Trade and other receivables
Derivative financial assets
Financial assets
Non-derivative financial liabilities
1 year
or less
$m
412.6
765.8
1,892.9
3,071.3
Trade and other payables
1,275.8
Bank overdrafts
Bank loans
Export finance facility
Private Placement
Other loans
Lease liabilities
8.4
37.2
17.6
90.9
1.1
0.3
1 to 2
years
$m
–
63.0
535.5
598.5
7.1
–
–
–
2 to 5
years
$m
–
–
189.7
189.7
–
–
–
–
0.9
0.1
–
–
161.7
971.2
575.3
809.5
939.7
Over 5
years
$m
1 year
or less
$m
–
–
408.5
408.5
–
–
–
–
–
–
514.6
748.1
1,775.0
3,037.7
1,198.9
3.2
6.3
17.5
228.7
3.6
1.1
1 to 2
years
$m
–
82.7
57.7
140.4
6.1
–
139.4
16.6
85.6
2.9
0.1
2 to 5
years
$m
–
–
659.0
659.0
–
–
45.0
–
Over 5
years
$m
–
–
397.3
397.3
–
–
–
–
1,263.4
925.0
–
–
–
–
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.
Hedge accounting
The Group uses derivatives and other financial instruments to hedge its exposure to currency, interest rate and commodity price risk exposures arising from
operational, financing and investing activities. Where applicable, these instruments are formally designated in hedge relationships as defined by AASB 9.
Hedge accounting allows the profit or loss impact from hedging instruments to be recognised in the same reporting period as the impact from the
underlying hedged exposure, which minimises income statement volatility.
The Group adopted AASB 9 with effect from 1 October 2018. All hedge relationships existing at transition continued to qualify as hedge relationships
under AASB 9.
Critical terms of hedging instruments and hedged items are transacted to match on a 1:1 ratio by notional values. Matching critical terms enables economic
offset thereafter to be determined qualitatively.
Hedge ineffectiveness arises primarily from differences in repricing dates and change in the timing of the hedge transaction. During the current and prior
financial years, there was no material impact on profit or loss resulting from hedge ineffectiveness.
AASB 9 also allows certain costs of hedging to be deferred in equity. Gains or losses associated with ‘currency basis’ cost of hedging are deferred in the
cashflow hedge reserve as they are not material for separate disclosure. The amounts are systematically released to the income statement to align with the
hedged exposure.
Derivative financial liabilities
1,889.1
430.9
3,320.4
1,014.3
354.6
1,787.6
61.6
595.3
383.7
1,294.3
3,246.9
312.3
1,903.7
1,308.7
(249.1)
(415.8)
(781.5)
(885.8)
(209.2)
(171.9)
(1,244.7)
(911.4)
Financial liabilities
Net outflow
78
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Orica Annual Report 2019
AnnuAl RepORt 2019
79
NOTES TO THE FINANCIAL STATEMENTS – SECTION D. MANAGING FINANCIAL RISKS
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION E. TAXATION
For the year ended 30 September
10. FINANCIAL RISK MANAGEMENT (continued)
Hedge accounting relationships are categorised according to the nature of the risks being hedged:
Fair value hedges
Cash flow hedges
Net investment hedges
What the financial instrument
is designated to hedge?
To mitigate the risk of changes in
the fair value of its foreign currency
borrowings from foreign currency
and interest rate fluctuations.
As a hedge of the variability in
cash flows of a recognised asset
or liability, or a highly probable
forecasted transaction.
As a hedge of risk of changes
in foreign currency when net
assets of a foreign operation are
translated from their functional
currency to Australian dollars.
Where are gains or losses on
fair value movements of the
financial instrument recorded?
Recognised in the Income
Statement, together with
gains or losses in relation
to the hedged item.
The effective portion is
recognised in other comprehensive
income. The ineffective portion
is recognised immediately in the
Income Statement.
The effective portion is recognised
in the foreign currency translation
reserve in equity. The ineffective
portion is recognised immediately
in the Income Statement.
Discontinuation of hedge
accounting
The cumulative gain or loss
that has been recorded to the
carrying value of the hedged
item is amortised to the Income
Statement using the effective
interest method.
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.
Amounts remain deferred in the
currency translation reserve and
are subsequently recognised in the
income statement in the event of
disposal of the foreign operation.
For a cash flow hedge arrangement that has a forecasted transaction that is being hedged, when the transaction occurs, the 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 when the forecasted transaction subsequently results in the
recognition of a non-financial asset or non-financial liability;
• reclassified into the Income Statement in the same period or periods during which the asset acquired or liability assumed affects the Income Statement,
where a hedge of a forecasted transaction subsequently results in the recognition of a financial asset or a financial liability; and
• recognised in the Income Statement in the same period or periods during which the hedged forecast transaction affects the Income Statement,
when the transaction is not covered by the above two statements.
Derivatives not in a designated hedge arrangement
Financial instruments that do not qualify for hedge accounting but remain economically effective, are accounted for as trading instruments. These instruments
are classified as current and are stated at fair value, with any resultant gain or loss recognised in the Income Statement. The Group policy is to not hold or
issue financial instruments for trading purposes.
80
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Orica Annual Report 2019
SECTION E. TAXATION
This section outlines the taxes paid by Orica and the impact tax has on the financial statements.
Orica has operations in more than 50 countries, with customers in more than 100 countries. In 2019, Orica paid $167.4 million (2018 $125.6 million)
globally in corporate taxes and payroll taxes. Orica collected and remitted $109.1 million (2018 $124.4 million) globally in GST/VAT.
As Orica operates in a number of countries around the world, it is subject to local tax rules in each of those countries. Orica’s tax rate is sensitive to the
geographic mix of profits earned in different countries with different tax rates, as tax will be due in the country where the profits are earned. Many of
the jurisdictions Orica has operations in have headline tax rates lower than 30%.
11. TAXATION
(a) Income tax expense recognised in the Income Statement
Current tax expense
Current year
Deferred tax
Write down of US deferred tax assets
Under provided in prior years
Consolidated
2019
$m
98.4
0.5
–
9.7
2018
$m
99.8
6.3
47.9
2.0
Total income tax expense in Income Statement
108.6
156.0
(b) Reconciliation of income tax expense to prima facie tax payable
Income tax expense attributable to profit before individually significant items
Profit from operations before individually significant items
Prima facie income tax expense calculated at 30% on profit
Tax effect of items which (decrease)/increase tax expense:
variation in tax rates of foreign controlled entities
tax under provided in prior years
de-recognition of booked tax losses
non taxable gains on disposal of assets
other foreign deductions
non creditable withholding taxes
non allowable interest deductions
non allowable share based payments
utilisation of unbooked prior year tax losses
other
555.0
166.5
(23.4)
9.7
–
–
–
10.2
14.6
3.7
(10.5)
6.9
496.8
149.0
(16.3)
2.0
3.5
(3.2)
(3.7)
11.2
11.3
4.4
(8.0)
7.8
Income tax expense attributable to profit before individually significant items
177.7
158.0
Income tax expense attributable to individually significant items
Loss from individually significant items
Prima facie income tax expense calculated at 30% on individually significant items
Tax effect of items which (decrease)/increase tax expense:
variation in tax rates of foreign controlled entities
non taxable gain on formation of China joint venture
impairment of Minova business
write down of US deferred tax assets
Income tax expense attributable to loss on individually significant items
Income tax expense reported in the Income Statement
(195.9)
(58.8)
0.3
(10.6)
–
–
(69.1)
108.6
(375.3)
(112.6)
2.1
–
60.6
47.9
(2.0)
156.0
AnnuAl RepORt 2019
81
NOTES TO THE FINANCIAL STATEMENTS – SECTION E. TAXATION
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION E. TAXATION
For the year ended 30 September
11. TAXATION (continued)
(c) Income tax recognised in Comprehensive Income
Net gain/(loss) on hedge of net investments
in foreign subsidiaries
Cash flow hedges
– Effective portion of changes in fair value
– Transferred to Income Statement
Exchange gains on translation of foreign operations
Actuarial benefits on defined benefit plans
(d) Recognised deferred tax assets and liabilities
Consolidated
Deferred tax assets
Trade and other receivables
Inventories
Property, plant and equipment
Intangible assets
Trade and other payables
Interest bearing liabilities
Provision for employee entitlements
Provision for retirement benefit obligations
Provisions for environmental and decommissioning
Provisions for other
Tax losses
Other items
Deferred tax assets
Less set-off against deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities
Inventories
Property, plant and equipment
Intangible assets
Undistributed profits of foreign subsidiaries
Other items
Deferred tax liabilities
Less set-off against deferred tax assets
Net deferred tax liabilities
Deferred tax expense
82
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Orica Annual Report 2019
Consolidated
2019
$m
2019
$m
2019
$m
2018
$m
2018
$m
2018
$m
Before
tax
Tax (expense)
benefit
Net of tax
Before
tax
Tax (expense)
benefit
Net of tax
11. TAXATION (continued)
Tax losses not booked
Capital losses not booked
Temporary differences not booked
(55.8)
16.7
(39.1)
(81.6)
24.5
(57.1)
Tax losses not booked do not expire.
Consolidated
2019
$m
34.9
84.8
2018
$m
35.4
87.8
168.8
220.2
(14.6)
27.2
107.0
(96.7)
(32.9)
4.4
(8.2)
4.9
27.0
44.8
(10.2)
19.0
111.9
(69.7)
11.9
12.0
22.7
209.3
2.3
164.7
(3.6)
(6.8)
(1.1)
(0.3)
12.7
Balance Sheet
Income Statement
2019
$m
4.1
(3.6)
(19.5)
0.4
(0.2)
26.2
(3.1)
1.1
(0.3)
(22.9)
26.0
(0.7)
(2.0)
(8.1)
11.4
–
(8.3)
2019
$m
16.5
18.8
60.5
1.5
41.4
39.1
28.4
65.1
88.9
23.7
92.8
5.0
481.7
(164.5)
317.2
6.3
198.7
18.3
–
9.6
232.9
(164.5)
68.4
2018
$m
17.2
15.2
40.4
1.9
41.2
47.6
25.3
39.1
88.6
0.8
118.8
4.3
440.4
(171.7)
268.7
8.3
206.8
13.4
–
17.9
246.4
(171.7)
74.7
8.4
15.9
208.2
2.0
177.4
2018
$m
(1.8)
(1.4)
16.6
(0.6)
1.1
47.5
0.2
1.8
(33.3)
–
11.1
(3.5)
1.0
(12.3)
(2.7)
(18.6)
1.2
0.5
6.3
Recognition and Measurement
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 applicable at the reporting date, and any adjustments to tax
payable in respect of previous years.
Deferred tax balances are determined by calculating temporary differences based on the carrying amounts of assets and liabilities for financial reporting purposes
and their amounts for taxation purposes. 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.
Critical accounting judgements and estimates
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations and is subject to periodic challenges by local tax
authorities on a range of tax matters during the normal course of business. These include transfer pricing, indirect taxes and transaction-related
issues. 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.
Contingent tax liabilities
In the normal course of business, contingent liabilities may arise from tax investigations or legal proceedings. 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 not provided for and are disclosed
as contingent liabilities.
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.
(i) Brazilian Tax Action
The Brazilian Taxation Authority (BTA) is claiming unpaid taxes, interest and penalties of approximately $38 million for the 1997 financial year
relating to an alleged understatement of income based on an audit of production records. Orica believes the auditor has misread those production
records. 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 BTA has been granted a bank guarantee of up to approximately
$38 million.
(ii) Ghana Tax Audit
As a result of a tax audit, Ghana tax authorities have issued an assessment of approximately $14 million. The Ghana assessment covers the period
from 2010 to 2016. This assessment was unexpected and arrived with very limited supporting documentation and credible argument. Based on
advice, Orica believes that the assessment is not in accordance with the tax law and intends to strongly defend the matter.
AnnuAl RepORt 2019
83
NOTES TO THE FINANCIAL STATEMENTS – SECTION F. GROUP STRUCTURE
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION F. GROUP STRUCTURE
For the year ended 30 September
SECTION F. GROUP STRUCTURE
Orica has a diverse spread of global operations, which includes controlled entities incorporated in over 50 countries, as well as entering strategic
partnering arrangements with certain third parties. This section highlights the Group structure including Orica’s controlled entities, as well as those
where Orica holds less than 100% interest.
13. INVESTMENTS ACCOUNTED USING THE EQUITY METHOD AND JOINT OPERATIONS (continued)
(b) Joint operations
The Group owns a 50% interest of Yara Pilbara Nitrates Pty Ltd, with the remaining shares held by subsidiaries in the Yara International ASA group.
(c) Transactions with equity accounted investees
Transactions during the year with equity accounted investees were:
12. INVESTMENTS IN CONTROLLED ENTITIES
Recognition and Measurement
The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the Group, being the Company
(the parent entity) and its subsidiaries as defined in AASB 10 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.
Sales of goods to equity accounted investees
Purchases of goods from equity accounted investees
Dividend income received from equity accounted investees
When the Group loses control over a subsidiary, it derecognises its share of net assets. Any resulting gain or loss is recognised in profit or loss. Any interest
retained in the former subsidiary is measured at fair value when control is lost.
(d) Transactions with related parties
2019
$000
439,467
109,950
27,185
2018
$000
320,572
87,468
24,875
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 Group are eliminated in full.
Refer to note 24 for the list of investments in controlled entities.
13. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD AND JOINT OPERATIONS
(a) Investments accounted for using the equity method
The table below shows material investments (based on carrying values). All other investments are included in “Other”.
All transactions with other related parties are made on normal commercial terms and conditions and in the ordinary course of business.
Recognition and Measurement
Investments accounted for using the equity method
The Group’s interests in investments accounted for using the equity method comprise interests in associates and joint ventures.
An associate exists where Orica holds an interest in the equity of an entity, generally of between 20% and 50%, and is able to significantly influence the
decisions of the entity. A joint venture is an arrangement in which the Group has joint control.
Joint operations
Ownership
Consolidated
Carrying amount
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations 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 applicable headings.
Name
Principal activity
Balance
date
DataCloud International Inc.(1)
Software development and technology
31-Dec
Nelson Brothers, LLC(1)
Manufacture and sale of explosives
Nelson Brothers Mining Services LLC(1)
Sale of explosives
Orica Mining Services Pilbara Pty Ltd(2)
Sale of explosives
Poly Orica Management Co., Ltd(3)
Manufacture and sale of explosives
Southwest Energy LLC(1)
Sale of explosives
Other
Various
30-Sep
30-Sep
30-Sep
31-Dec
30-Sep
2019
%
12.6
50.0
50.0
50.0
49.0
50.0
2018
%
11.4
50.0
50.0
50.0
–
50.0
2019
$m
14.0
40.8
37.1
6.9
66.6
120.5
15.4
301.3
2018
$m
9.2
39.8
34.2
6.4
–
112.8
10.9
213.3
(1) Entities are incorporated in USA.
(2) Entity is incorporated in Australia.
(3) Entity is incorporated in China. On 25 June 2019 Orica contributed its share of its China subsidiaries in return for a 49% stake of the newly formed Joint Venture,
Poly Orica Management Co., Ltd (Poly Orica) with Guizhou Jiulian Industrial Explosives (Jiulian). As a result of the transaction, Orica relinquished control of the businesses
contributed to the joint venture; this represented a disposal which triggered a gain to the Income Statement of $45.7 million as disclosed in note 1(e). As Orica have joint
control of Poly Orica, the newly formed joint venture is accounted for as an equity accounted investee with a carrying value of $65.4 million at the date of establishment.
Summary of profit and loss of equity accounted investees:
The aggregate net profit after tax of equity accounted investees on a 100% basis is:
Orica’s share of net profit after tax of equity accounted investees is:
2019
$m
63.8
31.9
2018
$m
49.6
24.7
14. BUSINESSES AND NON‑CONTROLLING INTERESTS ACQUIRED
Consolidated – 2019
The Group has not acquired any businesses or entities in the year to 30 September 2019.
Accounting standards permit a measurement period of up to one year during which acquisition accounting can be finalised following the acquisition date.
The Group have finalised acquisition accounting on the GroundProbe acquisition which occurred on 15 January 2018, resulting in an adjustment to the
deferred tax liability and a corresponding reduction in goodwill.
Goodwill as at 1 October 2018
Adjusted deferred tax liability
Goodwill as at 30 September 2019
The deferred settlement for the additional 5% shareholding of Yara Pilbara Nitrates Pty Ltd (acquired in FY2018) was settled during the year.
2019
$m
116.4
(6.3)
110.1
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85
NOTES TO THE FINANCIAL STATEMENTS – SECTION F. GROUP STRUCTURE
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION F. GROUP STRUCTURE
For the year ended 30 September
14. BUSINESSES AND NON‑CONTROLLING INTERESTS ACQUIRED (continued)
Consolidated – 2018
The Group acquired the following businesses and entities (100% unless stated otherwise):
15. BUSINESSES DISPOSED
Disposal of businesses/controlled entities
The following businesses and controlled entities were disposed of:
• Yara Pilbara Nitrates Pty Ltd, on 18 December 2017, Orica acquired an additional 5% shareholding; and
2019
• GP Holdco Pty Ltd and its Companies (GroundProbe Group) on 15 January 2018.
2018
Consideration
cash paid
net cash acquired
Outflow of cash
deferred settlement
Total consideration
Fair value of net assets of businesses/controlled entities acquired
trade and other receivables
inventories
property, plant and equipment
intangibles
other assets
payables and interest bearing liabilities
provision for employee entitlements
provision for decommissioning
other provisions
Goodwill on acquisition
Yara Pilbara
Nitrates
Pty Ltd
$m
GroundProbe
Group
$m
42.6
(1.9)
40.7
0.8
41.5
1.5
0.3
46.0
0.1
0.6
(1.5)
–
(2.1)
(3.4)
–
210.6
(2.7)
207.9
–
207.9
19.7
7.5
8.6
66.3
3.8
(4.5)
(2.3)
–
(7.6)
116.4
Total
$m
253.2
(4.6)
248.6
0.8
249.4
21.2
7.8
54.6
66.4
4.4
(6.0)
(2.3)
(2.1)
(11.0)
116.4
The unaudited information at the time of acquisition was compiled by Orica management based on financial information available to Orica during due
diligence and assuming no material transactions between Orica and the acquired businesses.
Goodwill on the purchase of the GroundProbe Group is attributable mainly to the skills and technical talent of the acquired business’ work forces and the
synergies expected to be achieved from integrating this business. None of the goodwill recognised is expected to be deductible for income tax purposes.
During FY2018, the Group increased its interest in individually immaterial subsidiaries, paying $1.6 million.
On 25 June 2019 Orica (Weijai) Explosives Co Ltd, Jiangsu Orica Banqiao Mining Machinery Company Limited and Hunan Orica Nanling Civil Explosives Co.,
Ltd (China Businesses) were disposed by the Group in exchange for a 49% stake of the newly formed Joint Venture, as disclosed in note 13.
During September 2019 OOO Minova Ukraina and NorthWest Energetic Services LLC were disposed by the Group.
Consideration
fair value of net assets acquired/sale price
Cash disposed
Net consideration
Less further disposal costs
Net consideration
Carrying value of net assets of businesses/controlled entities disposed
trade and other receivables
inventories
property, plant and equipment
intangibles
other assets
trade and other payables
foreign currency translation reserve
Less: Non-controlling interests at date of disposal
Profit on sale of business/controlled entities
China
Businesses
$m
Other
$m
65.4
(17.9)
47.5
(6.0)
41.5
11.3
7.7
17.4
1.9
2.3
(7.8)
(31.3)
1.5
(10.2)
50.2
5.5
(0.1)
5.4
(0.1)
5.3
2.2
3.3
7.6
0.2
0.3
(7.3)
(1.6)
4.7
(2.9)
3.5
Total
$m
70.9
(18.0)
52.9
(6.1)
46.8
13.5
11.0
25.0
2.1
2.6
(15.1)
(32.9)
6.2
(13.1)
53.7
The disposals resulted in a net cash outflow of $12.6 million being the cash disposed in the China businesses offset by the net consideration received for
OOO Minova Ukraina and Northwest Energetic Services LLC.
2018
No businesses or entities were disposed by the Group in the period.
86
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87
NOTES TO THE FINANCIAL STATEMENTS – SECTION F. GROUP STRUCTURE
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION F. GROUP STRUCTURE
For the year ended 30 September
16. PARENT COMPANY DISCLOSURE – ORICA LIMITED
Total current assets
Total assets
Total current liabilities
Total liabilities
Equity
Ordinary shares
Retained earnings
Total equity attributable to ordinary shareholders of Orica Limited
Net profit and total comprehensive income for the year
Company
2019
$m
1,088.6
2,653.3
170.3
522.2
2018
$m
999.8
2,564.6
129.1
284.8
2,138.0
2,110.1
(6.9)
169.7
2,131.1
2,279.8
26.2
30.4
The Company did not have any contractual commitments for the acquisition of property, plant or equipment in the current or previous years.
Subsequent to year end, Orica Limited received $250 million in dividends from its subsidiaries.
Contingent liabilities and contingent assets
Under the terms of a Deed of Cross Guarantee entered into under ASIC Corporations (Wholly‑owned Companies) Instrument 2016/785, each wholly owned
subsidiary 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. A consolidated Balance Sheet and Income Statement for this closed group
is shown in note 17.
Orica Limited has provided guarantees to Export Finance and Insurance Corporation and banks for loans relating to the Bontang Ammonium Nitrate plant.
17. DEED OF CROSS GUARANTEE
The parent entity, Orica Limited, and certain subsidiaries are subject to a Deed of Cross Guarantee (Deed) under which each company guarantees the debts
of the others.
The parties to the Deed are:
•
Initiating Explosives Systems Pty Ltd
• Orica Explosives Holdings No 2 Pty Ltd
• Orica Australia Pty Ltd
• Orica Investments Pty Ltd
• Orica Explosives Holdings Pty Ltd
• Orica Explosives Technology Pty Ltd
• Orica IC Assets Pty Ltd
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Orica Annual Report 2019
17. DEED OF CROSS GUARANTEE (continued)
By entering into the Deed, the wholly owned subsidiaries have been relieved from the requirement to prepare a financial report and Directors’ report under
ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
A consolidated Income Statement and consolidated Balance Sheet is shown below:
Summarised Balance Sheet
Current assets
Trade and other receivables
Inventories
Other assets(1)
Total current assets
Non-current assets
Trade and other receivables
Investments accounted for using the equity method
Other financial assets
Property, plant and equipment
Intangible assets
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Ordinary shares
Reserves
Retained profits
Total equity
Summarised Income Statement and retained profits
Profit before income tax expense
Income tax expense
Profit from operations
Retained profits at the beginning of the year
Retained losses of companies entering the Deed
Actuarial losses recognised directly in equity
Ordinary dividends – interim
Ordinary dividends – final
Retained profits at the end of the year
(1) Other assets include net tax receivables with Group entities outside the Deed of Cross Guarantee.
2019
$m
2018
$m
260.4
142.2
11.9
414.5
2.6
20.9
11,212.7
1,251.2
442.3
263.4
13,193.1
13,607.6
548.7
–
11.4
139.8
699.9
0.2
5,698.6
259.3
322.7
6,280.8
6,980.7
6,626.9
2,138.0
4,277.1
211.8
6,626.9
104.8
(39.6)
65.2
383.9
–
(34.3)
(83.5)
(119.5)
211.8
228.5
189.8
60.6
478.9
5.1
16.0
10,703.2
1,224.8
400.0
243.0
12,592.1
13,071.0
544.2
0.9
–
139.9
685.0
0.3
5,198.9
238.6
266.0
5,703.8
6,388.8
6,682.2
2,110.1
4,188.2
383.9
6,682.2
249.5
(27.7)
221.8
451.2
(103.2)
(4.7)
(75.6)
(105.6)
383.9
AnnuAl RepORt 2019
89
NOTES TO THE FINANCIAL STATEMENTS – SECTION G. REWARD AND RECOGNITION
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION G. REWARD AND RECOGNITION
For the year ended 30 September
SECTION G. REWARD AND RECOGNITION
Orica operates in more than 50 countries and has more than 11,500 employees. This section provides insights into the reward and recognition
of employees, in addition to the employee benefits expense and employee provisions disclosed in the Income Statement and note 6 respectively.
This section should be read in conjunction with the Remuneration Report, contained within the Directors’ Report, which provides specific details
on the setting of remuneration for Key Management Personnel.
18. EMPLOYEE SHARE PLANS AND REMUNERATION
The following plans have options or rights (“instruments”) over Orica shares outstanding at 30 September 2018 and 30 September 2019:
The Long‑Term Incentive Plan (LTIP)
Refer to Remuneration Report.
Sign‑on Rights
For a select group of senior managers who join Orica post allocation of an LTIP grant (and who generally have forgone at-risk remuneration from their
previous employer) rights may be allocated at the discretion of the Orica Board.
Recognition and Measurement
The issued instruments are measured at fair value based on valuations prepared by PwC. The fair value is recognised in the Income Statement over the
period that employees become entitled to the instruments.
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.
A summary of the KMP 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
2019
$000
2018
$000
14,532.8
12,724.3
220.5
301.8
5,148.1
–
15.9
274.6
4,893.3
552.6
19. SUPERANNUATION COMMITMENTS (continued)
(b) (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 the Balance Sheet:
Liabilities
Assets
Net liability recognised in Balance Sheet at end of year
(b) (ii) Amounts recognised in the Income Statement
The amounts recognised in the Income Statement are as follows:
Current service cost
Interest cost on net defined benefit liabilities
Curtailment or settlement (gains)
Total included in employee benefits expense
(b) (iii) Amounts included in the Statement of Comprehensive Income
20,203.2
18,460.7
Actuarial gains/(losses) on defined benefit obligations:
Due to changes in demographic assumptions
Due to changes in financial assumptions
Due to experience adjustments
Total
Return on plan assets greater than discount rate
Total (losses)/gains recognised via the Statement of Comprehensive Income
Tax expense on total gains recognised via the Statement of Comprehensive Income
Total (losses)/gains after tax recognised via the Statement of Comprehensive Income
Information regarding individual Directors and Executives compensation and some equity instrument disclosures as permitted by Corporation Regulations
2M.3.03 are provided in the Remuneration Report.
19. SUPERANNUATION COMMITMENTS
Recognition and Measurement
Contributions to defined contribution superannuation funds are recognised in the Income Statement in the year in which the expense is incurred.
For each defined benefit scheme, the cost of providing retirement benefits is expensed in the Income Statement so as to recognise current and past service
costs, interest cost on net liabilities, and the effect of any curtailments or settlements. Actuarial gains and losses are recognised in other comprehensive
income. The Group’s net liabilities in respect of defined benefit pension plans is the present value of the future benefit employees have earned, less the
fair value of any plan assets.
(a) Defined contribution pension plans
The Group 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 2019 was $29.4 million (2018 $32.6 million).
(b) Defined benefit pension plans
The Group participates in several Australian 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. Information within these financial statements
has been prepared by the local plan external actuaries. Orica were assisted by Willis Towers Watson to consolidate those results globally. During the year,
the Group made employer contributions of $26.3 million (2018 $27.5 million) to defined benefit plans. The Group’s external actuaries have forecast total
employer contributions and benefit payments to defined benefit plans of $29.3 million for 2020.
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2019
$m
754.0
140.6
(587.2)
307.4
0.1
307.5
307.9
(0.4)
307.5
2019
$m
14.8
6.2
–
21.0
2019
$m
8.3
(129.0)
(9.2)
(129.9)
33.2
(96.7)
27.0
(69.7)
2018
$m
621.2
121.8
(528.2)
214.8
0.1
214.9
215.3
(0.4)
214.9
2018
$m
13.8
6.1
(0.2)
19.7
2018
$m
(6.0)
2.0
(5.3)
(9.3)
11.6
2.3
(0.3)
2.0
AnnuAl RepORt 2019
91
NOTES TO THE FINANCIAL STATEMENTS – SECTION G. REWARD AND RECOGNITION
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION G. REWARD AND RECOGNITION
For the year ended 30 September
19. SUPERANNUATION COMMITMENTS (continued)
(b) (iv) Reconciliations
Reconciliation of present value of the defined benefit obligations:
Balance at the beginning of the year
Current service cost
Interest cost
Actuarial losses
Contributions by plan participants
Benefits paid
Settlements/curtailments
Exchange differences on foreign funds
Balance at the end of the year
Reconciliation of the fair value of the plan assets:
Balance at the beginning of the year
Interest income on plan assets
Return on plan assets greater than discount rate
Contributions by plan participants
Contributions by employer
Benefits paid
Settlements/curtailments
Other
Exchange differences on foreign funds
Balance at the end of the year
2019
$m
743.0
14.8
26.4
129.9
1.1
(34.2)
–
13.6
894.6
2019
$m
2018
$m
719.9
13.8
25.1
9.3
1.3
(47.1)
(0.2)
20.9
743.0
2018
$m
19. SUPERANNUATION COMMITMENTS (continued)
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, pension payments 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.
Rate of increase in pensionable remuneration
Rate of increase in pension payments
Discount rate for pension plans
Weighted average of
assumptions used p.a.
Change in
assumptions
2019
3.22%
2.51%
2.53%
2018
3.23%
2.40%
3.70%
+1% p.a.
$m
-1% p.a.
$m
25.3
28.5
(109.2)
(21.5)
(23.6)
135.4
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.
The expected age at death for persons aged 65 is 87 years for men and 89.5 years for women at 30 September 2019. A change of one year in the
expected age of death would result in an $22.6 million movement in the defined benefit obligation at 30 September 2019.
528.2
501.9
Critical accounting judgements and estimates
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.
20.2
33.2
1.1
26.3
(34.1)
–
(0.2)
12.5
19.0
11.6
1.3
27.5
(47.1)
–
(0.1)
14.1
587.2
528.2
The fair value of plan assets does not include any amounts relating to the Group’s own financial instruments, property occupied by, or other assets used by,
the Group.
2019
$m
2018
$m
212.2
236.3
15.2
71.1
22.4
4.9
25.1
192.2
211.7
8.3
63.3
25.2
5.2
22.3
587.2
528.2
Comprising:
Quoted in active markets:
Equities
Debt securities
Property
Other quoted securities
Other:
Property
Insurance contracts
Cash and cash equivalents
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93
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
SECTION H. OTHER
This section includes additional financial information that is required by Australian Accounting Standards and management considers to be relevant
information for shareholders.
20. 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
was $92.3 million (2018 $78.4 million) and later than one but less than five years was nil (2018 nil).
Lease commitments
Lease expenditure contracted for at balance date but not recognised in the financial statements and payable:
no later than one year
later than one, no later than five years
later than five years
Representing:
cancellable operating leases
non-cancellable operating leases
Non-cancellable operating lease commitments payable:
no later than one year
later than one, no later than five years
later than five years
Consolidated
2019
$m
2018
$m
76.2
116.1
57.6
249.9
52.9
197.0
249.9
53.8
97.6
45.6
79.1
112.5
40.3
231.9
38.0
193.9
231.9
62.6
92.8
38.5
197.0
193.9
21. CONTINGENT LIABILITIES
Contingent liabilities relating to environmental uncertainties are disclosed in note 6 and those relating to taxation in note 11. All others are disclosed below.
(a) Guarantees, indemnities and warranties
• The Group 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 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.
(b) Legal, claims and other
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.
21. CONTINGENT LIABILITIES (continued)
Critical accounting judgements and estimates
Where management are of the view that potential liabilities that arise in the normal course of business have a low probability of crystallising
or it is not possible to quantify them reliably, they are not provided for and are disclosed as contingent liabilities.
Legal proceedings
The outcome of currently pending and future legal, judicial, regulatory, administrative and other proceedings of a litigious nature (“Proceedings”)
cannot be predicted with certainty. 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. 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. Therefore, 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.
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.
22. AUDITOR’S REMUNERATION
Total remuneration received, or due and receivable, by the auditors for:
Audit services
Auditor of the Company – KPMG Australia
– Audit and review of financial reports
Auditor of the Company – overseas KPMG firms
– Audit and review of financial reports(1)
Other services
Auditor of the Company – KPMG Australia
– other services
Consolidated
2019
$000
2018
$000
3,557
4,080
1,816
5,373
1,791
5,871
162
162
80
80
5,535
5,951
(1) Fees paid or payable for overseas subsidiaries’ local statutory requirements.
From time to time, KPMG, the auditor 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.
23. EVENTS SUBSEQUENT TO BALANCE DATE
Dividends
On 31 October 2019, the Directors declared a final dividend of 33.0 cents per ordinary share payable on 13 December 2019. The financial effect of this
dividend is not included in the financial statements for the year ended 30 September 2019 and will be recognised in the FY2020 financial statements.
The Directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2019, that has affected or may
affect the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent years, which has not been covered
in these financial statements.
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95
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
24. INVESTMENTS IN CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities held during 2018 and 2019
(non controlling direct interests shareholding disclosed if not 100% owned):
24. INVESTMENTS IN CONTROLLED ENTITIES (continued)
Name of Entity
Company
Orica Limited
Controlled Entities
ACF and Shirleys Pty Ltd(b)(h)
Place of
incorporation
if other than
Australia
Name of Entity
GroundProbe Pty Ltd
GroundProbe South Africa Pty Ltd
GroundProbe South America SA
GroundProbe Technologies Pty Ltd(b)
Place of
incorporation
if other than
Australia
South Africa
Chile
Alaska Pacific Powder Company
USA
GroundProbe (Nanjing) Mining Technology Co. Ltd
China
Altona Properties Pty Ltd(b) – 37.4%
Aminova International Limited
Ammonium Nitrate Development and
Production Limited – 9.3%
Anbao Insurance Pte Ltd
Anjie Co Ltd(a)
Arboleda S.A
ASA Organizacion Industrial S.A. de C.V.
Australian Fertilizers Pty Ltd(b)(h)
Barbara Limited
Beijing Ruichy Minova Synthetic Material
Company Limited
BST Manufacturing, Inc.
CJSC (ZAO) Carbo–Zakk – 6.25%
Controladora DNS de RL de CV
Dansel Business Corporation
Dyno Nobel VH Company LLC – 49%
Eastern Nitrogen Pty Ltd(b)(h)
Emirates Explosives LLC – 35%
Explosivos de Mexico S.A. de C.V.
Explosivos Mexicanos S.A. de C.V.
Hong Kong
Thailand
Singapore
China
Panama
Mexico
UK
China
USA
Russia
Mexico
Panama
USA
United Arab
Emirates
Mexico
Mexico
Fortune Properties (Alrode) (Pty) Limited
South Africa
GeoNitro Limited – 69.4%
Georgia
GP FinCo Pty Limited(b)
GP HoldCo Pty Limited
GroundProbe Australasia Pty Ltd
GroundProbe Colombia S.A.S.
GroundProbe do Brasil
GroundProbe International Pty Ltd(b)
GroundProbe North America LLC
GroundProbe Peru S.A.C.
Colombia
Brazil
USA
Peru
Hallowell Manufacturing LLC
Hunan Orica Nanling Civil Explosives Co., Ltd(e)
Indian Explosives Private Limited
Initiating Explosives Systems Pty Ltd
Jiangsu Orica Banqiao Mining Machinery
Company Limited(e)
JSC “Orica CIS”
USA
China
India
China
Russia
Minova Kazakhstan Limited Liability Partnership
Kazakhstan
LLC Orica Logistics
Minova Africa (Pty) Ltd – 25%
Minova Africa Holdings (Pty) Limited
Minova AG
Minova Arnall Sp. z o.o.
Minova Asia Pacific Ltd
Minova Australia Pty Ltd(b)
Minova Bohemia s.r.o.
Minova CarboTech GmbH
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 Runaya Private Limited (49%)
Minova Weldgrip Limited
Minova USA Inc
Russia
South Africa
South Africa
Switzerland
Poland
Taiwan
Czech Republic
Germany
Spain
Poland
Germany
USA
UK
Poland
Austria
Mexico
India
Chile
Sweden
India
UK
USA
Name of Entity
Mintun 1 Limited
Mintun 2 Limited
Mintun 3 Limited
Mintun 4 Limited
Orica Africa Holdings Limited
(formerly MMTT Limited)
Place of
incorporation
if other than
Australia
UK
UK
UK
UK
UK
Nitro Asia Company Inc. – 41.6%
Philippines
Nitro Consult AB
Nitro Consult AS
Nitroamonia de Mexico S.A de C.V.
Nobel Industrier AS
Northwest Energetic Services LLC – 48.67%(g)
Nutnim 1 Limited
Nutnim 2 Limited
OOO Minova
OOO Minova Ukraina – 10%(g)
Sweden
Norway
Mexico
Norway
USA
UK
UK
Russia
Ukraine
Orica–CCM Energy Systems Sdn Bhd – 45%
Malaysia
Orica–GM Holdings Limited – 49%
UK
Orica Africa (Pty) Ltd
Orica Argentina S.A.I.C.
Orica Australia Pty Ltd
Orica BKM SASU
Orica Belgium S.A.
Orica Blast & Quarry Surveys Limited – 25%
Orica Bolivia S.A.
Orica Brasil Ltda
Orica Burkina Faso SARL(f)
Orica Caledonie SAS
Orica Canada Inc
Orica Canada Investments ULC
Orica Caribe, S.A.
Orica Centroamerica S.A.
Orica Chile Distribution S.A.
Orica Chile S.A.
Orica Colombia S.A.S.
Orica Denmark A/S
South Africa
Argentina
Democratic
Republic of Congo
Belgium
UK
Bolivia
Brazil
Burkina Faso
New Caledonia
Canada
Canada
Panama
Costa Rica
Chile
Chile
Colombia
Denmark
Place of
incorporation
if other than
Australia
Dominican
Republic
Democratic
Republic of Congo
Estonia
Germany
Germany
Name of Entity
Orica Dominicana S.A.
Orica DRC SARL
Orica Eesti OU – 35%
Orica Europe FT Pty Ltd(b)
Orica Europe Investments Pty Ltd(b)(h)
Orica Europe Management GmbH (d)
Orica Europe GmbH & Co KG
(formerly 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(b)
Orica Explosives Research Pty Ltd(b)
Orica Explosives Technology Pty Ltd
Orica Explosivos Industriales, S.A.
Spain
Orica Finance Limited
Orica Finance Trust(b)
Orica Finland OY
Orica GEESP Pty Ltd(b)
Orica Ghana Limited
Orica Grace US Holdings Inc.
Orica Holdings Pty Ltd(b)
Orica Ibéria, S.A.
Orica IC Assets Holdings Limited Partnership(b)
Orica IC Assets Pty Ltd
Orica IC Investments Pty Ltd(b)(h)
Orica International IP Holdings Inc.
Orica International Pte Ltd
Finland
Ghana
USA
Portugal
USA
Singapore
Orica Investments (Indonesia) Pty Limited(b)
Orica Investments (NZ) Limited
NZ
Orica Investments (Thailand) Pty Limited(b)
Orica Investments Pty Ltd
Orica Japan Co. Ltd
Japan
Orica Kazakhstan Joint Stock Company
Kazakhstan
Orica Logistics Canada Inc.
Canada
Orica Long Term Equity Incentive Plan Trust(b)
96
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Orica Annual Report 2019
AnnuAl RepORt 2019
97
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
24. INVESTMENTS IN CONTROLLED ENTITIES (continued)
25. NEW ACCOUNTING POLICIES AND ACCOUNTING STANDARDS
Name of Entity
Orica Mali SARL(f)
Place of
incorporation
if other than
Australia
Name of Entity
Republic of Mali
Orica US Finance LLC
Orica Mauritania SARL
Mauritania
Orica US Holdings General Partnership
Orica Med Bulgaria AD – 40%
Orica Mining Services (Namibia)
(Proprietary) Limited
Bulgaria
Namibia
Orica USA Inc.
Orica U.S. Services Inc.
Place of
incorporation
if other than
Australia
USA
USA
USA
USA
Orica Venezuela C.A. – 49%
Venezuela
Orica (Weihai) Explosives Co Ltd(e)
Orica Zambia Limited
OriCare Canada Inc.
Oricorp Comercial S.A. de C.V.
Oricorp Mexico S.A. de C.V.
Penlon Proprietary Limited(b)
Project Grace
Project Grace Holdings
Project Grace Incorporated
PT GroundProbe Indonesia
PT Kalimantan Mining Services
PT Kaltim Nitrate Indonesia – 10%
PT Orica Mining Services
Retec Pty Ltd(b)(h)
Rui Jade International Limited
Sprengstoff–Verwertungs GmbH (d)
Transmate S.A.(d)
White Lightning Holdings, Inc
China
Zambia
Canada
Mexico
Mexico
UK
UK
USA
Indonesia
Indonesia
Indonesia
Indonesia
Hong Kong
Germany
Belgium
Philippines
(a) Liquidated in 2019.
(b) No separate statutory accounts are required to be prepared.
(c) Non-controlling interest acquired in 2019.
(d) Merged during 2019.
(e) Entities disposed of in 2019 as part of the China joint venture. Refer to Note 13.
(f)
Incorporated in 2019.
(g) Divested in 2019.
(h)
In liquidation.
Orica Mining Services (Hong Kong) Ltd
Hong Kong
Orica Mining Services Peru S.A.(c)
Orica Mining Services Portugal S.A.
Orica Mining Services (Thailand) Limited
Orica Mongolia LLC – 51%
Orica Mountain West Inc.
Peru
Portugal
Thailand
Mongolia
USA
Orica Mozambique Limitada
Mozambique
Orica New Zealand Limited
Orica New Zealand Superfunds Securities Limited
NZ
NZ
Orica Nitrates Philippines Inc – 4%
Philippines
Orica Nitratos Peru S.A.
Orica Nitro Patlayici Maddeler Sanayive
Ticaret Anonim Sirketi – 49%
Orica Nitrogen LLC
Orica Nominees Pty Ltd(b)
Orica Norway AS
Orica Panama S.A.(c)
Orica Philippines Inc – 5.48%
Orica Portugal, S.G.P.S., S.A.
Orica Qatar LLC(a)
Orica Securities (UK) Limited
Orica South Africa (Pty) Ltd
Orica Share Plan Pty Limited(b)
Orica Senegal SARL
Orica Singapore Pte Ltd
Orica St. Petersburg LLC
Orica Sweden AB
Orica Sweden Holdings AB
Orica Tanzania Limited
Orica UK Limited
Peru
Turkey
USA
Norway
Panama
Philippines
Portugal
Qatar
UK
South Africa
Senegal
Singapore
Russia
Sweden
Sweden
Tanzania
UK
98
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Orica Annual Report 2019
Changes in accounting policies
Except as described below, the accounting policies applied by the Group in its financial statements are the same as those applied by the Group in its
consolidated financial report for the year ended 30 September 2018.
The Group assessed and applied a number of new and revised accounting standards issued by the Australian Accounting Standards Board (AASB) which
were required to be applied from 1 October 2018. The adoption of these standards has not resulted in any material changes to the Group’s financial
statements and primarily impact disclosures.
(i) New and amended accounting standards and interpretations adopted
Effective from 1 October 2018 the Group adopted the following new accounting standards.
AASB 15 Revenue from Contracts with Customers
The Group adopted AASB 15 as of 1 October 2018 using the full retrospective approach. AASB 15 provides a single, principles-based five-step model
to be applied to all contracts with customers. The adoption of AASB 15 did not have a material impact on the amount or timing of revenue recognised.
The Group’s new revenue accounting policy is detailed in note 1.
AASB 9 Financial Instruments
The Group adopted AASB 9 as of 1 October 2018. AASB 9 addresses the classification, measurement and de-recognition of financial assets and financial
liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets.
Impairment – Financial assets and contract assets
AASB 9 introduces an expected credit loss model for impairment of financial assets whereby losses are recognised as they are expected and not only
when they are incurred. As reported in the 2018 Annual Report the Group conducted an assessment of AASB 9’s impairment recognition requirements
to financial assets, including both quantitative information from historic credit losses as well as qualitative information on different customer/debtor
profiles and segments. The revised methodology for the calculation of impairment of trade and other receivables resulted in allowances for doubtful debts
increasing by $14.6 million, resulting in an increase in deferred tax assets of $3.6 million and a decrease in opening retained earnings of $11.0 million as at
1 October 2018.
Hedge accounting
As a result of the implementation of AASB 9 the Group has ensured that hedge accounting relationships are aligned with the Group’s risk management
objectives and strategy and have applied a qualitative and forward-looking approach to assessing hedge effectiveness. The Group currently applies hedge
accounting for all three hedge types: cash flow hedges, fair value hedges and hedges of net investments in foreign operations. Existing hedge relationships
have continued to qualify as continuing hedge relationships following adoption of the new standard. There was no material impact to the Group’s financial
statements arising from the changes to hedge accounting.
A number of other new standards are effective from 1 October 2018, but they do not have a material impact on the Group’s Annual Report.
(ii) Amended accounting standards and interpretations issued but not yet effective
The following new accounting standards and interpretations have been issued or amended but are not yet effective.
AASB 16 Leases
AASB 16 is applicable for annual reporting periods commencing on or after 1 January 2019. It will be effective for the Group from 1 October 2019.
The Group has chosen not to adopt AASB 16 early. AASB 16 introduces a single, on balance sheet lessee accounting model and requires a lessee to
recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee will be required to
recognise a right of use asset representing the right to use the underlying leased asset and a lease liability presenting its obligation to make lease payments.
In addition, the nature of expenses related to those leases will change as AASB 16 replaces the straight-line operating lease expense with a depreciation
charge for right of use assets and interest expense on lease liabilities. Lessor accounting remains similar to the current standard i.e. lessors continue to
classify leases as finance or operating leases.
The Group will apply the modified retrospective approach on transition, whereby prior period comparative financial statements are not restated. Instead,
the cumulative effect of initially applying AASB 16 will be adjusted to retained earnings on the initial date of application. AASB 16 will have a material
impact on the Group’s financial statements. The impact on the balance sheet upon transition to AASB 16 is an estimated increase in lease liabilities of
$254.4 million and right of use assets of $250.5 million, recognising the difference in retained earnings.
AnnuAl RepORt 2019
99
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
DIRECTORS’ DECLARATION
25. NEW ACCOUNTING POLICIES AND ACCOUNTING STANDARDS (continued)
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
IFRIC 23 changes the method of calculating provisions for uncertain tax positions. The Group previously recognised provisions based on the most likely
amount of the liability, if any, for each separate uncertain tax position. This interpretation requires a probability weighted average approach to be taken
in situations where there is a wide range of possible outcomes. For tax issues with a binary outcome, the most likely amount method remains in use.
The Group will adopt the interpretation from 1 October 2019. Management has determined that there will be an opening retained earnings adjustment
of $10.2 million required on transition for the increase to the provision for uncertain tax positions.
We, Malcolm William Broomhead and Alberto Calderon, being Directors of Orica Limited, do hereby state in accordance with a resolution of the
Directors that in the opinion of the Directors,
(a) the consolidated financial statements and notes, set out on pages 53 to 100, and the Remuneration Report in the Directors’ Report, set out on
pages 31 to 51, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the financial position of the Group as at 30 September 2019 and of its performance for the financial year ended
on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due and payable.
There are reasonable grounds to believe that the Company and the controlled entities identified in note 17 will be able to meet any obligations or liabilities
to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those controlled entities pursuant to
ASIC Corporations (Wholly‑owned Companies) Instrument 2016/785.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial
Officer for the financial year ended 30 September 2019.
The Directors draw attention to “About this report” on page 58 to the financial statements, which includes a statement of compliance with International
Financial Reporting Standards.
M W Broomhead
Chairman
Dated at Melbourne 31 October 2019
A Calderon
Managing Director and Chief Executive Officer
100
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Orica Annual Report 2019
AnnuAl RepORt 2019
101
Orica Annual Report 2019
Carrying value of property, plant and equipment (“PPE”) associated with the Technical Ammonium Nitrate plant on the Burrup Peninsula (“Burrup plant”) ($608.3M) Refer to Note 7 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter was the Group’s carrying value assessment of PPE associated with the Burrup plant. As described in Note 7 to the financial statements, the Group identified a number of Burrup plant assets considered to be defective and which required replacement (“defective equipment”). Accordingly, the Group has recognised a write down charge of $155.0 million during the financial year based on the estimated cost to replace the defective equipment. The Group’s carrying value assessment of PPE associated with the Burrup plant is a key audit matter due to: (cid:120)The size of the carrying value of the plant. (cid:120)The significant judgement we applied in assessing the Group’s quantification of the $155.0 million write down of defective equipment and therefore the carrying value of the Burrup plant at year end. We focused on the significant assumptions the Group applied in their assessment including: (cid:120)The appropriateness of the approach used by the Group to determine the write down required to the defective equipment. (cid:120)Costs to replace the defective equipment such as labour, contractors and materials. These are complex for the Group to estimate given the scale and nature of the project. The Group engaged external engineering experts to supplement its internal experts in assessing the cost estimate. (cid:120)The timing and extent of the rectification works needed in line with the Group’s strategy. Our procedures included: (cid:120)We considered the appropriateness of the approach applied by the Group to determine the write down required to the defective equipment, with reference to the requirements of the accounting standards. (cid:120)We tested key controls in the Group’s process for estimating the cost to replace the defective equipment, including Steering Committee and Board review and approval of management’s estimates. (cid:120)We assessed the scope, competence and objectivity of the Group’s internal and external engineering experts to assist in quantifying the cost to replace the defective equipment. (cid:120)We tested the accuracy of the cost to replace the defective equipment determined by the Group on a sample basis by checking costs to underlying quotations from suppliers and for consistency to the reports issued by the Group’s external engineering experts. (cid:120)We checked consistency of the Group’s internal and external engineering expert’s cost estimates to replace the defective equipment to the Group’s model used to calculate the write down of the defective equipment. (cid:120)We challenged the Group’s significant assumptions in estimating the cost to replace the defective equipment, including the timing and extent of rectification works needed, by considering the Group’s strategy and plans for the Burrup plant and performing inquiries of the members of management with responsibility for the project to replace the defective equipment. (cid:120)We tested the mathematical accuracy of the Group’s model to calculate the write down of the defective equipment. (cid:120)We assessed the disclosures in the financial report using our understanding of the matter obtained from our testing against the requirements of the accounting standards. 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.Independent Auditor’s Report To the shareholders of Orica Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Orica Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: (cid:120)giving a true and fair view of the Group's financial position as at 30 September 2019 and of its financial performance for the year ended on that date; and (cid:120)complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: (cid:120)Consolidated balance sheet as at 30 September 2019 (cid:120)Consolidated income statement, Consolidated statement of comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended (cid:120)Notes including a summary of significant accounting policies (cid:120)Directors' Declaration. The Group consists of Orica Limited (the Company) and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. Key Audit Matters The Key Audit Matters we identified are: (cid:120)Carrying value of property, plant and equipment (“PPE”) associated with the Technical Ammonium Nitrate plant on the Burrup Peninsula (“Burrup plant”) (cid:120)Environmental and decommissioning provisions and contingent liability disclosures (cid:120)Uncertain tax positions and contingent liability disclosure Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT ORICA103102AnnuAl RepORt 2019 Orica Annual Report 2019
Uncertain tax positions and contingent liability disclosure Refer to Note 11 to the Financial Report The key audit matter How the matter was addressed in our audit The Group’s corporate structure reflects the nature of its global operations, which operate across multiple tax jurisdictions. This includes external sales to customers in over one hundred countries. A number of the Group’s tax positions are presently subject to challenge by tax authorities. The ultimate outcome of these matters is inherently uncertain. Accounting for uncertain tax positions is a key audit matter due to: (cid:120)The Group undertaking transactions in a number of tax jurisdictions which require the Group to make significant judgements about the interpretation of tax legislation and the application of accounting standard requirements. (cid:120)The changing tax environment where there have been significant developments to enhance transparency of tax arrangements. (cid:120)We used significant judgment, including involvement of our tax specialists, to assess the Group’s position with reference to tax legislation, including the likely outcome of the Group’s defence of its positions through legal appeal processes.Working with our tax specialists our procedures included: (cid:120)We compared the Group’s accounting policy for recognition of tax provisions and disclosures of taxation contingent liabilities against the requirements of the accounting standards. (cid:120)We tested the Group’s key controls for identification and assessment of uncertain tax positions. Our testing included challenging senior management and the Group’s taxation department, and inspecting correspondence with tax authorities and the Group’s external tax advisors for evidence of significant uncertain tax positions not identified by the controls. (cid:120)We considered the Group’s methodologies, assumptions and estimates for significant tax positions and the likelihood of future tax outflows. Our evaluation was based on application of our knowledge of the industry, tax legislation and current regulatory focus areas, and recent rulings relevant to the uncertain tax positions. (cid:120)We read correspondence with relevant tax authorities and considered both external tax and legal advice provided to the Group to check for any information which was contradictory to the Group’s conclusions. (cid:120)We checked the settlement of tax positions previously challenged by local tax authorities to external underlying documentation, such as correspondence with tax authorities. (cid:120)We compared the positions adopted by the Group to our knowledge of latest interpretations by tax authorities and court rulings to test the positions adopted for compliance with accounting standards. (cid:120)We made independent enquiries of the Group’s external legal advisors to identify litigation and claims related to the Group’s legal appeals and uncertain tax position. We compared their responses to the assessment made by the Group. (cid:120)We assessed the Group’s disclosures in respect of uncertain tax positions against the requirements of the accounting standards and our understanding of the matters. Environmental and decommissioning provisions and contingent liability disclosures ($317.1M) Refer to Note 6 to the Financial Report The key audit matter How the matter was addressed in our audit The estimation of environmental remediation and decommissioning provisions is considered a key audit matter. This is due to the inherent complexity associated with the Group’s estimation of remediation costs, particularly for potential contamination of ground beneath established structures and long term legacy matters, and in gathering persuasive audit evidence thereon. The complexity in estimating the Group’s environmental and decommissioning provisions is influenced by: (cid:120)The inherent challenges experienced by the Group in precisely determining the size and location of potential contamination beneath established structures. (cid:120)Current and potential future environmental and regulatory requirements and the impact on completeness of remediation activities within the provision estimate, including the activities which will be acceptable to the regulator. (cid:120)The expected environmental remediation strategy and availability of any known techniques to remediate source contamination, in particular for treatment of Dense Non-Aqueous Phase Liquid source areas at Botany, New South Wales. (cid:120)Historical experience, and its use as a reasonable predictor when evaluating forecast costs. (cid:120)The expected timing of the expenditure given the long term nature of these exposures. Our procedures included: (cid:120)Testing key controls relating to the completeness, size and location of the Group’s identification of areas which contain contamination and the related recognition and measurement of provisions, including the Group’s review and authorisation of cost estimates. (cid:120)Testing the accuracy of historical remediation provisions by comparing to actual expenditure. We used this knowledge to challenge the Group’s current cost estimates and to inform our further procedures. (cid:120)We conducted a sample of site visits and made enquiries of various personnel regarding the Group’s strategy for remediating certain source contamination. (cid:120)We read correspondence with regulatory authorities to understand their views about acceptable remediation techniques and compared this with the assumptions made in the Group’s provision models. (cid:120)We obtained the Group’s quotations for remediation activities, as well as internal and external underlying documentation for the Group’s determination of required future activities, their timing and associated cost estimates. We compared them to the nature and quantum of cost contained in the provision balance. (cid:120)We assessed the scope, competence and objectivity of the Group’s internal and external experts engaged to assist the determination of strategies to remediate contamination and the costing of remediation activities. (cid:120)We checked consistency of the Group’s internal and external expert’s assumptions to other underlying internal documentation considered and tested by us. (cid:120)We challenged the Group where provisions were unable to be made for source contamination, in particular for treatment of Dense Non-Aqueous Phase Liquid source areas at Botany, New South Wales, in relation to the existence of information which would enable a reliable estimate of the provision to be made. We compared this to our understanding of the matter and the criteria in the accounting standards for recording a provision. (cid:120)We tested the mathematical accuracy of the Group’s provision models. (cid:120)We assessed the Group’s disclosures using our knowledge of the business and the requirements of the accounting standards. In particular, we focused on the disclosure of uncertainties associated with the provision or exposure. INDEPENDENT AUDITOR’S REPORTINDEPENDENT AUDITOR’S REPORT ORICA105104AnnuAl RepORt 2019 Orica Annual Report 2019
Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Orica Limited for the year ended 30 September 2019, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in the Directors’ report for the year ended 30 September 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG _INI_01 Penny Stragalinos Partner Melbourne 31 October 2019 Other Information Other Information is financial and non-financial information in Orica Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: (cid:120)preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 (cid:120)implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error (cid:120)assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: (cid:120)to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and (cid:120)to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT ORICA107106AnnuAl RepORt 2019 FIVE YEAR FINANCIAL STATISTICS
For the year ended 30 September
FIVE YEAR FINANCIAL STATISTICS
For the year ended 30 September
Orica consolidated ($m)
2019
2018
2017
2016
2015
Orica consolidated
5,878.0
5,373.8
5,039.2
5,091.9
6,123.2
Weighted average number of ordinary shares on issue (millions)
Number of ordinary shares on issue at year end (millions)
Profit & Loss
Sales
Earnings before depreciation, amortisation,
net borrowing costs and tax
Depreciation and amortisation (excluding goodwill)
Earnings before net borrowing costs and tax (EBIT)
before individually significant items
Net borrowing costs
Individually significant items before tax
Taxation expense
Non-controlling interests
Profit/(loss) after tax and individually significant items
Individually significant items after tax attributable to
members of Orica Limited
Profit after tax before individually significant items net of tax
Dividends/distributions
Financial Position
Current assets
Property, plant and equipment
Equity accounted investees
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 non-controlling interests
941.1
(276.4)
664.7
(109.7)
(195.9)
(108.6)
(5.4)
245.1
(126.8)
371.9
203.0
1,835.8
2,899.6
301.3
1,689.6
567.7
7,294.0
1,336.7
297.9
1,979.4
654.6
4,268.6
3,025.4
2,968.2
57.2
885.0
(266.9)
618.1
(121.3)
(375.3)
(156.0)
(13.6)
(48.1)
(372.3)
324.2
181.2
896.3
(261.2)
635.1
(71.7)
–
(164.0)
(13.2)
386.2
–
386.2
197.1
908.1
(265.9)
642.2
(84.3)
(4.6)
(198.4)
(12.1)
342.8
(46.3)
389.1
283.5
1,960.3
2,866.2
213.3
1,784.8
2,741.5
184.6
1,577.9
2,725.3
188.1
995.1
(305.7)
689.4
(82.1)
(1,884.4)
(119.3)
(129.0)
(1,525.4)
(1,691.6)
424.2
356.1
1,895.1
2,917.9
203.5
1,697.9
1,577.1
1,558.8
1,633.2
426.7
7,164.4
1,357.2
254.2
497.2
6,785.2
1,084.1
213.2
545.7
6,595.8
1,382.9
207.9
671.6
7,321.3
1,285.2
244.1
Basic earnings per ordinary share
– before individually significant items (cents)
– including individually significant items (cents)
Dividends per ordinary share (cents)
Dividend franking (percent)
Dividend yield – based on year end share price (percent)
Closing share price range – High
Low
Year end
2019
380.6
380.0
97.9
64.5
55.0
9.1
2.4
$22.97
$16.31
$22.54
2018
379.2
378.2
86.0
(12.7)
51.5
–
3.0
$21.37
$16.34
$17.03
2017
377.0
376.2
102.7
102.7
51.5
5.8
2.6
$21.03
$15.57
$19.77
2016
374.9
372.4
104.5
92.0
49.5
36.4
3.3
$16.92
$12.26
$15.20
2015
370.1
370.3
114.6
(342.3)
96.0
35.4
6.4
$22.56
$14.86
$15.04
Stockmarket capitalisation at year end ($m)
8,578.2
6,548.0
7,454.1
5,698.9
5,566.3
Net tangible assets per share ($)
3.36
3.18
3.67
3.26
3.65
Ratios
Profit margin – earnings before net borrowing costs
and tax/sales (percent)
11.3
11.5
12.6
12.6
11.3
Net debt (millions)
1,620.6
1,648.3
1,440.9
1,549.4
2,026.1
Gearing (net debt/net debt plus equity) (percent)
34.9
35.7
32.7
35.8
40.4
Interest cover (EBIT/net borrowing costs excluding capitalised
interest) (times)
Net capital expenditure on plant and equipment (Cash Flow) ($m)
Net cash flow from (acquisition)/sale of businesses/controlled
entities ($m)
Return on average shareholders’ funds
5.7
(226.0)
4.9
(153.0)
6.2
(210.7)
5.4
(123.9)
5.8
(292.5)
(14.0)
(252.8)
9.5
(13.3)
658.7
12.7
8.3
11.1
(1.6)
13.4
13.4
13.5
11.9
11.7
(42.1)
2,010.7
1,937.4
1,562.9
2,150.7
– before individually significant items (percent)
574.3
4,196.4
2,968.0
2,903.2
64.8
587.0
3,821.7
2,963.5
2,962.3
1.2
658.9
3,812.6
2,783.2
2,782.5
0.7
654.1
4,334.1
2,987.2
2,984.6
2.6
– including individually significant items (percent)
Total shareholders’ equity
3,025.4
2,968.0
2,963.5
2,783.2
2,987.2
108
ORICA
Orica Annual Report 2019
AnnuAl RepORt 2019
109
SHAREHOLDERS’ STATISTICS
As at 17 October 2019
SHAREHOLDERS’ STATISTICS
As at 17 October 2019
DISTRIBUTION OF ORDINARY SHAREHOLDERS AND SHAREHOLDINGS
Size of holding
1–1,000
1,001–5,000
5,001–10,000
10,001–100,000
100,001 and over
Total
Number of holders
Number of shares
25,330
11,607
1,207
543
53
65.38
29.96
3.12
1.40
0.14
9,252,487
24,220,205
8,248,697
10,148,440
328,706,792
38,740
100.00
380,576,621
2.43
6.36
2.17
2.67
86.37
100.00
Included in the above total are 2,120 shareholders holding less than a marketable parcel of 21 shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 84.11% of that class of shares.
TWENTY LARGEST ORDINARY FULLY PAID SHAREHOLDERS
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:
26 September 2019
26 September 2019
27 June 2019
14 March 2019
20 August 2018
Harris Associates Investment Trust
Harris Associates LLP
Australian Super Pty Ltd
BlackRock Group
The Vanguard Group, Inc.
21,790,236
28,208,563
18,997,296
22,871,889
19,006,916
5.73%
7.41%
5.00%
6.01%
5.012%
VOTING RIGHTS
Voting rights as governed by the Constitution of the Company provide that each ordinary shareholder present in person or by proxy at a meeting shall have:
(a) on a show of hands, one vote only; and
(b) on a poll, one vote for every fully paid ordinary share held.
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
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