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teCHnoloGY
DRIVInG
GRoWtH
AnnuAl RepoRt 2020
At a Glance FY2020
Chairman’s Message
Managing Director’s Message
Our Operations
Who We Are
Our Strategy
Our Stakeholders
COVID-19 Response
Risk Management
Sustainability
Governance
Board of Directors
Executive Team
Review of Operations
Directors’ Report
Directors’ Report – Remuneration Report 2020
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
IFC
02
04
06
08
10
12
14
16
20
26
30
31
32
46
50
71
72
73
74
75
76
77
125
126
134
136
138
Global community investment and COVID-19 support package to support the most vulnerablein the communityDistributed to communities globally$3.2MWE ARE DRIVING SOCIAL IMPACT FOR COMMUNITIESSAFETY AND SECURITY REMAIN OUR PRIORITY, ALWAYSKey safety controls verified through the Major Hazard Management program11,500+WE ARE BUILDING A DIVERSE, INCLUSIVE AND INSPIRED TEAMImprovement in employee health score since 2018EIGHTPOINTSIGNIFICANT ENVIRONMENTAL INCIDENTS ENVIRONMENTWE HAVE DELIVERED A STRONG FINANCIAL PERFORMANCE IN A CHALLENGING GLOBAL ENVIRONMENT(down 4% on the pcp³)36.4%AN VOLUMES2 GEARING4 3.83Mt 33.0cpsDIVIDEND(up 1.5 points on the pcp)Reduction in Serious Injury Case Rate to 0.16 per 200,000 hours worked29%Increase in Net Promoter ScoreWebGen™ blasts with first adopter customers1,000+21%WE ARE DELIVERING INNOVATIVE SOLUTIONS FOR OUR CUSTOMERSFor design and improvementsto industry for our FRAGTrack™ automated rock-sizing measurement technology FOURAWARDS WE ARE WORKING TOWARDS A DECARBONISED FUTUREReduction in Scope 1 and Scope 2 greenhouse gas emissionsNew target to reduce operational Scope 1 and Scope 2 emissions by at least 40% by FY2030, from FY2019 levels7PROGRESSED IMPLEMENTATIONOF OUR TCFD8 ROADMAPFor three consecutive yearsZEROFATALITIESWomen in senior leadership1, achieving our 2020 target 25%Ethnic and cultural diversity in senior leadership aligned to our revenue profile48%40%9%ZERO Demonstrating resilience in a challenging yearWithin debt covenant and target range45% payout ratio⁶$605MUNDERLYING EBIT5 (down 9% on the pcp)A strong first half result followed by a focus on controllable factors to mitigate COVID-19 impacts in the second halfAt A GlAnCe FY2020Global community investment and COVID-19 support package to support the most vulnerablein the communityDistributed to communities globally$3.2MWE ARE DRIVING SOCIAL IMPACT FOR COMMUNITIESSAFETY AND SECURITY REMAIN OUR PRIORITY, ALWAYSKey safety controls verified through the Major Hazard Management program11,500+WE ARE BUILDING A DIVERSE, INCLUSIVE AND INSPIRED TEAMImprovement in employee health score since 2018EIGHTPOINTSIGNIFICANT ENVIRONMENTAL INCIDENTS ENVIRONMENTWE HAVE DELIVERED A STRONG FINANCIAL PERFORMANCE IN A CHALLENGING GLOBAL ENVIRONMENT(down 4% on the pcp³)36.4%AN VOLUMES2 GEARING4 3.83Mt 33.0cpsDIVIDEND(up 1.5 points on the pcp)Reduction in Serious Injury Case Rate to 0.16 per 200,000 hours worked29%Increase in Net Promoter ScoreWebGen™ blasts with first adopter customers1,000+21%WE ARE DELIVERING INNOVATIVE SOLUTIONS FOR OUR CUSTOMERSFor design and improvementsto industry for our FRAGTrack™ automated rock-sizing measurement technology FOURAWARDS WE ARE WORKING TOWARDS A DECARBONISED FUTUREReduction in Scope 1 and Scope 2 greenhouse gas emissionsNew target to reduce operational Scope 1 and Scope 2 emissions by at least 40% by FY2030, from FY2019 levels7PROGRESSED IMPLEMENTATIONOF OUR TCFD8 ROADMAPFor three consecutive yearsZEROFATALITIESWomen in senior leadership1, achieving our 2020 target 25%Ethnic and cultural diversity in senior leadership aligned to our revenue profile48%40%9%ZERO Demonstrating resilience in a challenging yearWithin debt covenant and target range45% payout ratio⁶$605MUNDERLYING EBIT5 (down 9% on the pcp)A strong first half result followed by a focus on controllable factors to mitigate COVID-19 impacts in the second halfAt a Glance FY2020 IFCChairman’s Message 02Managing Director’s Message 04Our Operations 06Who We Are 08Our Strategy 10Our Stakeholders 12COVID-19 Response 14Risk Management 16Sustainability 20Governance 26Board of Directors 30Executive Team 31Review of Operations 32Directors’ Report 46Directors’ Report – Remuneration Report 2020 50Lead Auditor’s Independence Declaration 71Income Statement 72Statement of Comprehensive Income 73Balance Sheet 74Statement of Changes in Equity 75Statement of Cash Flows 76Notes to the Financial Statements 77Directors’ Declaration 125Independent Auditor’s Report 126Five Year Financial Statistics 134Shareholders’ Statistics 136Corporate Directory 138This report is part of our Annual Reporting Suite for the 2020 financial year (FY2020). You can find more information about how we performed in our Full Year Results Investor Presentation and Sustainability Report.1 Includes those acting in positions (less than 3 per cent).2 Includes ammonium nitrate (AN) prill and solution as well as emulsion products including bulk emulsion and packaged emulsion, excluding Exsa volumes of 98 thousand tonnes.3 Prior corresponding period.4 Net debt/(net debt + equity), where net debt excludes lease liabilities, as disclosed within Note 3 to the financial statements.5 Equivalent to profit/(loss) before financing costs and income tax, as disclosed in Note 1(b) to the financial statements, before individually significant items.6 Dividend amount/net profit after tax, before individually significant items.7 Applies to existing operations. Base year emissions will be recalculated consistent with emissions accounting protocols if structural changes occur such as acquisitions or divestments.8 Taskforce on Climate-related Financial Disclosures.ContentS01Annual Report 202001 CHAIRMAn’S MeSSAGe2020 has been a uniquely challenging year, with the COVID-19 pandemic disrupting our operations and those of our customers all over the world. We are extremely proud of how our people around the globe responded by keeping health and safety their highest priority, while upholding their steadfast commitment to ensuring our operations run safely and deliver reliably for our customers. Safety is our priority, always, and nothing is more important than keeping our people, customers and communities safe. We are proud to report that, once again, we had no fatalities and that our Serious Injury Case Rate declined by 29 per cent over the year, our lowest level in the past four years. In addition, we remained vigilant of the strain on physical and mental wellbeing on our people caused by the pandemic and provided support to teams right around the world.StRonG peRFoRMAnCe unDeR DIFFICult CIRCuMStAnCeSBefore COVID-19 struck, we set ourselves an ambitious agenda, and I am pleased to report that we have delivered all the key initiatives that were in our control, including the strategic acquisition of Exsa in Peru, commencement of operations at the Burrup plant in Western Australia which has been producing good quality product, and the completion of the final phase of the SAP project. Statutory net profit after tax was $168 million, compared to $245 million in FY2019 and underlying earnings before interest and tax were $605 million, a decrease of nine per cent from the prior year. Given the circumstances, this is a strong performance, and our underlying business and growth trajectory remains positive. CApItAl MAnAGeMent This year, we completed both an equity capital raising and a long-term US Private Placement bond issue which have further strengthened our capital structure and increased the average maturity of our debt facilities. The fact that both were oversubscribed reflects the resilience of the business and the market’s strong confidence in our capital structure and strategy for growth. It was gratifying to receive such support from both our investor base and bond holders.As a result, our strong balance sheet provides significant headroom against our debt covenants and is complemented by total liquidity of $2.4 billion including both cash and undrawn committed bank facilities. Our strong earnings result has enabled us to maintain a dividend, prudently reduced to reflect continuing operating environment uncertainty. The final ordinary dividend of 16.5 cents per share unfranked, bringing the total dividend to 33.0 cents per share, down 22.0 cents per share, reflects a payout ratio of 45 per cent of underlying earnings.Gearing at 36.4 per cent remains within the company’s target range of 30 to 40 per cent meaning we are well set to support our business goals and maximise financial performance.BoARD ReneWAlIn October 2019, Lim Chee Onn retired after nine years of service to the Orica Board. We thank Chee Onn for his valuable contribution to the Board and to Orica’s shareholders during his tenure. In February this year we welcomed the addition of John Beevers to the Board. Having worked for the company for 27 years, and then as CEO of GroundProbe for five and a half years prior to its acquisition by Orica, John knows our business intimately. His deep insights and operational expertise will be of tremendous value to the company as we enter our next phase of growth. SuStAInABIlItYThis year we have worked hard to address the sustainability issues we have identified as being most material to our business, namely safety, environmental protection, product security, climate risk, diversity and ethical conduct. Malcolm Broomhead Chairman02ORICA We have been pleased with the progress we are making to reduce our impact on the environment, having met or exceeded several key targets. Our operational Scope 1 and Scope 2 greenhouse gas (GHG) emissions are nine per cent lower than last year. We have now also set an ambitious target of reducing operational (Scope 1 and Scope 2) GHG emissions by at least 40 per cent from FY2019 levels by FY20301, based on an achievable and credible pathway towards decarbonisation.We see great opportunity in the world’s move to a low carbon economy, not just in playing our part to help achieve global goals, but also in transforming our own company’s operations and driving long-term sustainability.We are also making good progress in our aim to make Orica an even more diverse and inclusive place to work, recognising that this will fuel innovation and creativity. This year we achieved our target of 25 per cent female representation in senior leadership roles, while also increasing the representation of women in roles reporting directly to the Executive Committee to 30 per cent and maintaining 38 per cent female representation on our Board of Directors. We are also focused on ensuring future generations of female leaders, with women making up half of the intake of this year’s Enterprise Leadership Program.Ethnic and cultural diversity remains strong, with 48 per cent of roles in senior leadership held by people who identify their nationality as other than Australian or New Zealander, which is aligned to Orica’s revenue profile.You can read full details of our progress in creating a more resilient business in line with our values, our commercial strategy and the expectations of our people and stakeholders in our 2020 Sustainability Report.The Board has been particularly proud to see how our people have supported their local communities through the pandemic. In addition to providing funds and supplies for the most vulnerable in the community, we also adapted our manufacturing sites to produce hand sanitiser for local community organisations, repurposed the technologies on our trucks and hoses to provide sanitisation in outdoor communal areas, and worked with education partners to digitise learning programs to connect remote students.StRAteGIC pRIoRItIeSThe Board has great confidence in Orica’s strategy to become simpler and more efficient through standardisation and rationalisation, while at the same time driving adoption and monetisation of our cutting edge technology solutions and pursuing growth opportunities where we see opportunity to deliver enduring value for our shareholders. Our priorities will be to build upon the key successes of this year and, along with our high growth technology portfolio, capitalise on the opportunities that will come our way as the world returns to a more normal operating environment. The Board and I would like to thank the executive team and our colleagues right across the world for their remarkable efforts this year. Their hard work and commitment are deeply appreciated. We also thank our shareholders for their continued support and look forward to delivering even more long-term, sustainable value in the year ahead.29%reduction in Serious Injury Case Rate33.0cpsfull year dividend 45 per cent payout ratio1. Applies to existing operations. Base year emissions will be recalculated consistent with emissions accounting protocols if structural changes occur such as acquisitions or divestments03Annual Report 2020 MAnAGInG DIReCtoR’S MeSSAGeAlberto Calderon Managing Director and CEOThis has been a year unlike any before. After a strong first half, the COVID-19 pandemic hit, and challenged us in ways we could never have foreseen. I have been so proud to see how our people reacted and adapted with resilience and unwavering commitment. Not only did we find new ways of working so we could continue to serve our customers, but our teams showed their compassion by going above and beyond the call of duty to help those in need in their local communities. The spirit of Orica has shone brightly this year.As always, the safety of our people has been our number one priority and I am pleased to report that, once again, there have been no fatalities across the group. A year ago we introduced a new metric called Serious Injury Case Rate (SICR), which includes personal injury and illness incidents that result in an actual serious impact. I am delighted to say that our FY2020 SICR, at 0.16, was comfortably below our target of 0.18. There is always more work to be done in this area and we will be addressing our All Worker Recordable Case Rate which did fall short of the high standard we set ourselves. While ensuring our people return home safely every day remains our top priority, this year we stepped up our focus on the overall health and wellbeing of our people. throughout the pandemic, we increased communication at all levels to teams working remotely, ensuring they felt connected, and provided online support seminars and programs.Financially, the Group delivered underlying earnings before interest and tax (EBIT) of $605 million, in line with market expectations. This is a strong result given the impact of COVID-19 in the second half, which resulted in a decrease in ammonium nitrate volumes and increased supply chain costs. The fundamentals of our business remain very strong and our growth drivers remain in place, ready to deliver as the market returns to normal. ACHIeVInG ouR GoAlS DeSpIte tHe pAnDeMICOperationally, while this has been a year of two very different operating periods, we have been able to minimise the impact of severe natural disasters and COVID-19, while successfully delivering all the planned strategic projects and continuing to build a strong platform for growth.Our manufacturing and operations teams have had a very positive year under difficult circumstances. Controls were put in place and shift patterns changed to keep manufacturing plants running reliably through the pandemic. Overall Equipment Effectiveness has been consistently over 80 per cent across all our ammonium nitrate plants, and Yarwun achieved record annual production of cyanide.This year we completed the major rebuild of our Burrup facility with production commencing in May. Since then, plant utilisation has remained high and customer feedback has been positive. The plant remains on track to achieve planned production levels.The acquisition and integration of Peru’s leading manufacturer and distributor of industrial explosives, Exsa, has gone extremely well. We have met important operational milestones and we are already realising benefits in line with the business case. This is a huge achievement by our teams in Latin America, especially as all the work had to be done remotely due to COVID-19.We also completed the implementation of our new SAP enterprise management platform. Our teams worked hard to overcome some teething issues, but overall, the transition has run smoothly and without major disruption. This will be a game changer for Orica, giving us truly transformational operational insights and efficiencies.04ORICA 9%reduction in Scope 1 and Scope 2 GHG emissions~20% annualised cash return on our SAp investment by FY2023Although customer demand for our world-leading technology solutions remains strong, WebGen™ volume growth was hindered this year by COVID-19. However, despite the pandemic, we met our digital targets thanks to the innovative solutions our people created that enabled remote implementation. It has been very gratifying to receive industry recognition for our ground-breaking technological advances, in particular for FRAGTrack™ which took home multiple industry awards this year including winning the Engineering category at the Good Design Awards.Sustainability is a key focus for all our people and I am proud of the way we are finding solutions for positive impact. I am pleased to report that we met or exceeded a number of our targets including reducing our Scope 1 and Scope 2 GHG emissions by nine per cent. We renewed our climate change commitments and while we reduced our total waste disposal by 12 per cent, potable water use increased slightly this year due to disruptions to recycled water at Kooragang Island. However, we are committed to increasing our use of recycled water, as reflected in our FY2021 targets.Supporting us throughout this challenging period has been our robust balance sheet which was further strengthened by the successful capital raising and increased average maturity following the recent US Private Placement debt issue. This placed us in a strong position to navigate these difficult times and sets us up to resume our growth trajectory as the global mining market emerges from the pandemic.outlooKIn the 2021 financial year we will progress our strategic agenda to be simpler, standardised and more efficient, while at the same time advancing our growth drivers. We have three key efficiency programs – optimisation of our initiating systems network, which we expect to result in a substantial increase in utilisation from around 48 per cent currently to over 75 per cent by FY2023; realising the end-to-end benefits from embedding our single SAP system; and maintaining high manufacturing reliability, while leveraging the benefits of Burrup ramping up to full production, which we expect by FY2021.In addition, we will continue our product rationalisation program, which is on track to decrease our stock keeping units (SKUs) by a further 40 per cent over the next three years. This will reduce complexity in manufacturing and supply, deliver reductions in raw materials and conversion costs, and lower levels of carried inventory. All this will enable us to improve utilisation rates and drive longer-term footprint decisions.Our two key growth drivers will be realising $50 million EBIT plus depreciation and amortisation expense (EBITDA) from our Exsa acquisition by the third full year of ownership, and driving continuous innovation and increased customer adoption of our technology offering, which we expect will deliver $15 million incremental EBIT in the 2021 financial year. Together, these initiatives will help us lift overall performance and build on our position as market leaders.Our efforts so far have made us more responsive to our customers, quicker to adapt, safer than ever before, and we have realised significant value for our shareholders. We look forward to the coming year with a renewed commitment to safety and a determination to realise our goal to be simpler, smarter and more efficient. I would like to thank our Board, my Executive Committee and all the great people of Orica for their support and commitment throughout a remarkable and uniquely challenging period. In particular, I commend our workers on the front line in our plants and operations around the world who kept going to work every day in the midst of the most challenging of times, keeping Orica running and helping keep the economies of the world open.I look forward to our environment normalising so we can continue on our mission to make Orica an even greater company and deliver more value to our customers, shareholders and other stakeholders.05Annual Report 2020 06
06 ORICA
ouR opeRAtIonS
Our global network comprises manufacturing operations,
technical and monitoring centres and support offices.
Annual Report 2020
07
07
noRtH AMeRICA
ENGLAND
euRope, MIDDle eASt & AFRICA
UNITED STATES
UNITED STATES
CANADA
x1
x1
MEXICO
x1
lAtIn AMeRICA
CHILE
x1
COLOMBIA
x1
BRAZIL
x2
PERU
x1
CHILE
Major Operations
Head Office
Regional Head Office
Customer Presence
Technical/Monitoring Centre
Ammonium Nitrate
Initiating Systems/Packaged Explosives
Sodium Cyanide
We also have a network of joint ventures,
ammonium nitrate emulsion plants and
bulk depots strategically located to serve
our customers around the world.
BULGARIA
x1
KAZAKHSTAN
x1
PORTUGAL
x1
RUSSIA
x1
SOUTH AFRICA
x1
SWEDEN
x1
UNITED ARAB EMIRATES
x1
ZAMBIA
x1
SINGAPORE
AuStRAlIA pACIFIC & ASIA
AUSTRALIA
AUSTRALIA
x1
x2
x3
CHINA
x2
INDIA
x1
INDONESIA
x1
THE PHILIPPINES
x1
ouR VAlueSSafety is our priority. AlwaysThe most important thing is that we all return home, safely, every day.We respect and value allOur care for each other, our customers, communities and the environment builds trusted relationships. Together we succeedCollaboration makes us better, individually and collectively.We act with integrityWe are open and honest, and we do what is right.We are committed to excellenceWe take accountability for our business and for delivering outstanding results.WHo We AReEvery day, all around the world, our people help mobilise the vital resources that are essential to progress. Our story began in 1874, when we first supplied explosives to the Victorian goldfields in Australia. Since then, we have grown to become the world’s leader in blasting and productivity solutions. We are a community of engineers, scientists, technologists, operators, business specialists and on-site crew all working together to support our customers in open cut mines, underground operations, quarrying, construction, and oil and gas projects. From the production and supply of explosives and initiation systems, to our suite of cutting-edge digital solutions and comprehensive range of blasting services, we help extract and monitor resources safely, efficiently and responsibly. Every employee plays a role in our success. By working together, we ignite new opportunities for each other, our customers, the communities where we work and our shareholders, while minimising our impact on the environment. To meet the expectations of our stakeholders, we are reimagining the way we work. We continue to invest in our core solutions, while advancing the innovation of our new digital and automation technologies. This is helping us solve industry challenges and operate with precision in everything we do. Our people are fundamental to our success and it’s their diversity and expertise that makes the difference. Above all, we work as one team and are always guided by our values. 08ORICA CUSTOMERSIN MORE THAN 100 COUNTRIES 13,000+ EMPLOYEES LEADINGASX INDUSTRIAL COMPANY#1 GLOBAL SUPPLIEROF COMMERCIAL EXPLOSIVES146 YEARS OF EXPERIENCE AND INNOVATION09Annual Report 2020 Annual Report 2020
11
GRoWInG FRoM ADVAntAGe
With a truly global footprint, we leverage the scale and efficiency that comes from being the world’s leading supplier of commercial
explosives and blasting systems to deliver sustained momentum in profitable growth.
oRGAnIC GRoWtH
We drive value by investing in our core capabilities, optimising our existing products and expanding our offering into new applications
and commodities.
ouR StRAteGY In ACtIon
FRAGtRACK™
Uptake of our automated rock-sizing measurement technology, FRAGTrack™
continues to grow and deliver significant value to early adopter customers.
The technology forms part of our digital optimisation platform and expands
our role across the mining value chain. FRAGTrack™ was developed to enable
blasting for optimal fragmentation to meet the needs of mines by contributing
to and using data from the connected mine ecosystem.
Highlights in FY2020 include:
• securing installation at over 20 sites across six continents within 18 months
of launch
• awards for innovative design and improvements to the industry:
– Hunter Manufacturing Awards, Excellence in Innovation and Excellence
in Product Design
– Manufacturers’ Monthly 2020 Endeavour Awards, Australia’s Most
Innovative Manufacturing Company
– Manufacturers’ Monthly 2020 Endeavour Awards, Best Industrial Internet
of Things Application
– Good Design Award Winner in the category of Engineering Design.
InoRGAnIC GRoWtH
We continue to pursue mergers and acquisitions that support existing core markets, explore acquisitions in new or underserved regions,
and acquire new technology to improve the capability of our integrated software solutions.
ouR StRAteGY In ACtIon
eXSA S.A.
In February 2020, we announced the acquisition of Peru’s leading
manufacturer and distributor of industrial explosives, Exsa. This was a
highly strategic acquisition which:
• established Orica as the number one player in Peru, Latin America’s highest
growth market
• will transform our entire initiating systems footprint by utilising latent capacity
at Exsa’s new, state-of-the-art initiating systems manufacturing facility, to
significantly increase production with the potential to serve demand across
the Americas
• increases our exposure to copper and gold
• presents significant cross-selling opportunities to introduce our technology,
products and services to Exsa’s broad customer base.
GRoWInG SuStAInABlYWe are in a unique position to leverage our expertise in technology to create safer and more responsible solutions for our customers and deliver positive economic, social and environmental contributions through our business activities.SAFe AnD ReSponSIBle BuSIneSSFrom how we work with our suppliers and manufacture our products to how we deliver for our customers, we pride ourselves on ensuring we conduct business safely and responsibly to minimise environmental and social impacts.eMpoWeRInG SoCIAl pRoGReSSWe create opportunities for progress by building capability and leadership within our workforce and driving social and economic impact in the regions in which we operate.ClIMAte ReSIlIent eConoMIC GRoWtHWe have a responsibility to protect the environment and recognise the potential for our solutions in transitioning towards a more resilient low-carbon economy.Additional detail on our sustainability approach, performance and priorities can be found in our 2020 Sustainability Report.ouR StRAteGYBy supporting the responsible production of resources that lift standards of living and drive economic growth around the world, we are helping ignite opportunities for our customers, our people and the communities where we work.We principally do this by delivering explosives and initiating systems, together with a comprehensive portfolio of specialised solutions to customers in four distinct market segments.WITH THESE PRODUCTSBulk explosives and cyanidee.g. ammonium nitratePackaged explosives and initiating systems e.g. WebGen™Digital, sensors, support and services e.g. BlastIQ™, GroundProbe monitoring systemsWE SERVICE THESE DISTINCT MARKET SEGMENTSStandard open cut, mainly for coal and iron oreComplex open cut, mainly for precious and base metals+ sales through indirect channels (such as joint venture partners and wholesalers) Underground mining, mainly for hard metals – gold, copper and base metalsQuarry, construction,oil and gas SECURITY OF SUPPLY Our global supply chain of manufacturing plants, supply alliances and joint ventures around the world ensures security of supply to our customers, no matter where they are. With safety as our number one priority, we comply with stringent regulatory regimes across the globe, ensuring our product is stored and transported securely and always used as intended. BASED ON TWO PILLARS OF COMPETITIVE ADVANTAGESUPERIOR CUSTOMER OUTCOMESOur extensive experience and the expertise of our people around the world makes us the partner of choice to deliver superior outcomes. Our commitment to deep customer relationships, in combination with our innovative product portfolio and specialised solutions, ensures we provide advanced, high quality outcomes.We put our customers at the centre of everything we do. Around the world, our leaders are empowered to make decisions that will best support the success of their local customers, and in doing so, create enduring value for our shareholders.10ORICA 12
ORICA
ouR StAKeHolDeRS
We work to build positive relationships with all stakeholders through regular and meaningful
engagement and open and transparent communication.
The needs, interests and concerns of our stakeholders are considered in our sustainability materiality assessment. This assessment
ensures we understand our material risks and opportunities and continue to focus our efforts on meeting stakeholder expectations
for our economic, environmental, social and governance performance.
Many of our major operations use formal stakeholder planning approaches that guide effective engagement. Stakeholder plans
document the status of key stakeholder relationships, past and current issues, opportunities, and decisions around future engagement
and community investment activities.
Stakeholder
What issues are important
to them
How we address these issues and
create value for stakeholders
Employees and
contractors
• career and development opportunities
• safety, health and wellbeing
• performance management
•
leadership
• diversity and inclusion
Customers
• superior outcomes, particularly product
performance and safety
• security of supply
• added value through product innovation
and new technologies
• cost
• environmental, social and ethical sustainability
of products and services throughout their lifecycle
• building distinctive leadership focused on
developing trust and empowering their teams
• providing safe systems of work
• enabling continuous learning opportunities
• providing performance-driven rewards and
advancement opportunities
• continuing to build an inclusive, diverse culture
with a focus on growing our commercial and
operational female talent pipeline
•
leveraging investments in technology to deliver
safer solutions to customers that enable them to
improve productivity and efficiency
• working in partnership with customers to identify
opportunities to improve sustainability outcomes
•
improving environmental, social and governance
(ESG) performance across our operations and
supply chains to become a preferred supplier for
sustainability and safety performance
Supplier and
business partners
Shareholders,
equity and debt
investors and analysts
• business resilience and continuity
• providing ongoing opportunities for suppliers where
• sustainable supply chain
• security of supply
possible to ensure stability and continuity
• supporting suppliers on an individual basis where
COVID-19 has impacted their business
• providing clear guidance for suppliers on our
requirements relating to safety and sustainability
• company performance and delivery of
• maximising return on investment and creating
strategic objectives
• corporate governance
• transparency and disclosure on non-financial
performance
• action on climate change and diversifying from
thermal coal commodity exposure
• human rights including modern slavery and
rights of Indigenous Peoples
long-term value
•
increasing disclosure and transparency of financial
and non-financial performance
• delivering responses to manage impacts relating to
our most material sustainability issues, particularly
climate change
Annual Report 2020
13
Stakeholder
What issues are important
to them
How we address these issues and
create value for stakeholders
Local communities
• product safety and security
•
local operational impacts including water, air
and noise
• economic opportunities including employment
and procurement
•
investment in communities
• ethical business conduct
• continuing to foster innovation, research and
development of technology to increase product
safety and security
• engaging stakeholders on our robust safety
approach to the management of ammonium nitrate
(AN) storage, inventory and transportation
• supporting our communities impacted by crises
including COVID-19 and extreme weather events
•
increasing our financial contribution and developing
a more targeted community investment approach
Government and
regulators
• regulatory compliance, good governance and
• complying with all relevant legislation and regulation
business conduct
across our operations globally
• socio-economic contribution
• exhibiting strong corporate governance processes
• community contribution and impacts
•
innovation, research and development
• rights of Indigenous Peoples and cultural
heritage management
Industry associations
•
industry-specific issues and strategy
Non-government
organisations (NGOs)
• ethical business conduct
• ESG performance, particularly on climate change,
broader environment and human rights
and discipline
• actively engaging and participating with government
and industry on policy matters
• providing insight to support evolving energy and
climate policy frameworks, particularly in Australia
• fostering innovation, research and development that
increases product safety and efficiency
• engaging openly and transparently to identify
opportunities for collaboration
• advocating responsibly and consistently in line
with our policy commitments
• providing input into industry responses to
government consultations
•
•
increasing ESG disclosures and transparency
improving our approach and performance on
material sustainability issues including climate change
• establishing emissions reduction targets aligned
with the Paris Agreement
Research, university and
technical institutions
•
innovation, research and development
• partnerships
• continuing to collaborate with strategic partners
toward shared commercial and sustainability goals
Media
• company performance and delivery
• timely reporting of company performance and
of strategic objectives
•
industry-specific issues
progress of strategic goals
• taking a proactive approach to addressing issues
facing the industry
Annual Report 2020
15
These ranged from separating shift teams
from each other and external visitors, to
increasing inventory levels of feedstock
and finished products.
During FY2020, we recorded a 21 per cent
improvement in our Net Promoter Score
year-on-year. A key driver throughout
COVID-19 has been customer recognition
of our sustained and reliable service and
supply, and that technology was applied for
their benefit. This included complimentary
software licences, learning webinars and
remote installation support of equipment.
MAIntAInInG BuSIneSS
ContInuItY
Maintaining business continuity by operating
the business as normally as possible and
ensuring security of supply for our customers
has been one of our primary focus areas.
Our people have shown tremendous
resilience and ingenuity, finding new
ways of working to keep productivity high,
while keeping safety front of mind at all
times. Using our secure technology
platform, teams were enabled to connect
and collaborate, while augmented reality
technology was used to provide virtual
support to inaccessible remote sites.
To ensure supply continuity in the event of
sourcing issues or a plant shutdown, our
manufacturing teams quickly identified the
key risks to production and introduced
control measures to address each risk.
SuppoRtInG CoMMunItIeS
WHeRe We WoRK
As the devastating impact of COVID-19
continues to be felt around the world,
our people have come together to
support their local communities.
Our community initiatives are targeted to
provide much needed protective equipment
and food supplies, support and funds to
first response teams and those who are
most vulnerable within the communities
where we operate.
Thanks to the lateral thinking of our people,
we also leveraged our manufacturing and
digital expertise to produce hand sanitiser
for community organisations and to digitise
school programs for remote learning.
BuSIneSS IMpACt oF CoVID-19The global mining industry has been deemed an essential service in most jurisdictions, including our largest markets of Australia and North America. However, with COVID-19 having a significant impact in developing countries, including Peru, Colombia, Mexico and Indonesia, customer activity was impacted and has been slower to recover. This resulted in ammonium nitrate (AN) volumes being around 15 per cent lower in the second half than we expected at the start of the financial year.The global footprint of our business and supply chain has enabled us to maintain security of supply to our customers – reinforcing one of Orica’s key competitive advantages. We implemented improvements to strengthen our Business Continuity Plans where necessary, and we were able to build on our relative competitive advantage by responding proactively to the challenges posed by the pandemic. Our own AN manufacturing plants continued to produce, however, additional supply chain costs were incurred to maintain security of supply.On the ground, we are controlling what we can. This includes regular supply and demand planning reviews, active inventory and receivables management as well as reducing discretionary expenditure to the extent practicable and applying a vigilant lens to all proposed capital expenditure.The strength of our balance sheet, which provides material headroom against our debt covenants, and total available liquidity of over $2.4 billion means we are well positioned to withstand the ongoing financial impacts of the crisis across the business. CoVID-19 ReSponSeAs the first impacts of the COVID-19 pandemic were felt around the world, we moved quickly to ensure the safety and wellbeing of our people, provide business continuity for our customers, and support the communities in which we operate. To co-ordinate our global response to the evolving business impact of COVID-19, we established a Corporate Crisis Response Team to manage country and region-specific responses in accordance with risk-based measures, local conditions and government regulations. SAFetY AnD WellBeInG oF ouR peopleAs always, the safety and wellbeing of our people has been our number one priority throughout the pandemic. We moved quickly to bring our remote workers home wherever possible, enabled those who could work from home to do so, and introduced new working arrangements and hygiene protocols for teams in critical frontline and manufacturing roles. As more teams began working from home, we increased our communication at every level, including all staff messages, virtual town hall gatherings, webcasts and online team meetings. Recognising the strain on physical and mental wellbeing, we provided online support seminars and programs. We created bespoke communication campaigns focused on wellbeing and encouraged colleagues to check in with each other to ensure everyone felt supported and connected. Before teams returned to their workplace, we reassured them of the work we have done to ensure their safety, with COVID-safe plans that went beyond the minimum health requirements.“We thank all our people for their continued commitment despite the COVID-19 related challenges. Our manufacturing and operational employees around the globe worked tirelessly to keep our operations running safely to continue to meet our customers’ needs, while for many, homes became workplaces as teams adapted to new ways of working.”Alberto Calderon, CEO14ORICA 16
ORICA
RISK MANAGEMENT
The nature of our business exposes us to risks that could impact our ability to deliver
value to our stakeholders. We take a proactive, prudent approach to managing our material
risks to ensure we continue to operate a safe, responsible and sustainable business.
Recognising that the impacts can be positive, we also prioritise identifying and capitalising
on opportunities to enhance stakeholder outcomes.
GOVERNANCE
Our risk governance structure defines relationships and clarifies the role of different teams across our business, where
ultimate responsibility resides with our Board. Our risk governance structure is underpinned by our values which promote
a culture of integrity across the business.
Orica Board
Oversees our risk management systems, processes, monitoring and management of material risks,
approves our risk policy and standards, sets risk appetite and drives changes as necessary.
Board Audit
and Risk
Committee
Board Safety, Health,
Environment,
Community and
Security (SHECS)
Committee
Board Innovation
and Technology
Committee
Board Human
Resources and
Compensation
Committee
Oversight of material
financial and compliance
risks, risk policy,
standards and risk
appetite monitoring.
Oversight of material
SHECS risks.
Oversight of material
technology, cyber and
innovation risks.
Oversight of people
risks and alignment
of remuneration to
risk frameworks.
Executive Committee
Ownership of material risks, interrogates the effectiveness of risk mitigations, monitors the risk appetite,
and provides objective oversight and review of the information presented by management.
1st line of defence
2nd line of defence
3rd line of defence
Identifies, assesses,
controls, and mitigates risk
on a day-to-day basis.
Establishes a holistic
risk management framework
and oversees implementation
by the 1st line.
Independently monitors
and assesses the effectiveness
of risk management
and governance.
HoW We MAnAGe ouR RISKSEffective risk management is essential for ensuring the safety of our people and the communities in which we operate, maintaining our licence to operate, and continuing to promote our stakeholders’ interests. We acknowledge that achieving our strategic objectives requires us to operate with a certain level of risk. Our overall risk management process aims to provide reasonable assurance that we have identified, and are effectively monitoring and managing our material risks. Our risk management framework is aligned to the International Organization for Standardization’s Risk Management Guideline, ISO 31000:2018 and facilitates the ongoing identification, assessment and communication of risks across the business. eVolVInG RISK MAnAGeMent As our business evolves, so do the risks and opportunities we face. We are committed to embedding best practice risk management processes and systems which allow us to continue to effectively anticipate and manage our risks, as well as enable us to realise opportunities to generate sustainable growth.Risk Appetite framework Our Risk Appetite framework continued to develop during FY2020. The framework links our strategy to our management of risk by defining the risk appetite tolerance levels we are prepared to accept in pursuing our strategic objectives. It defines our approach for setting, monitoring, embedding and reviewing risk appetite across our business.Our Risk Appetite serves to:• set clear expectations and boundaries for business activities • foster greater alignment between the Board and management to make more informed decisions• promote a risk-intelligent culture which focuses on risk management rather than aversion • instil strong risk monitoring and reporting capabilities.Governance, Risk and Compliance systemOur extensive global footprint and complex business operations motivated the need to implement a risk technology solution which aids in facilitating, recording and reporting risk and control information. In FY2020 we made progress in implementing our SAP Governance, Risk and Compliance technology system which, once fully operational, will drive the relevance, consistency and standardisation of risk information across the business. The system is planned to go-live in the first half of FY2021.AMMonIuM nItRAteThe risks associated with explosions at our ammonium nitrate (AN) storage facilities are managed as part of our material operational risk portfolio. Our Major Hazard Management control verification process provides us with assurance over the safe storage of AN.Following the tragic explosion at Lebanon’s Beirut Port on 4 August 2020, key control verifications were performed across all Orica sites that store AN. In performing these verifications no material or significant gaps were identified.17Annual Report 2020 18
ORICA
MAteRIAl RISKS AnD oppoRtunItIeS
The material risks we face have the potential to impact our business, brand and reputation, customer base, our people, assets, profitability,
liquidity and the environment. In the table below, we explain how we are responding and realising the opportunities presented to deliver
long-term stakeholder value. Risks are categorised into four high-level groups to support effective governance, oversight and management.
Strategic
How we are responding
Developments in FY2020
Macro-economic factors:
commodity demand
Uncertain economic growth
outlook and material fluctuations
in commodity demand, including
reduced thermal coal demand.
Political and regulatory
Uncertain geopolitical dynamics
and regulatory reform settings.
Competitor and
technology disruption
Dynamic competitor environment
and accelerated technology
adoption by our customers.
OPPORTUNITY: Our strategy
is underpinned by our ability
to generate superior customer
outcomes. Advancing technology
presents a significant opportunity
for us to strengthen our
competitive point of difference.
Climate change
Managing the risks presented
by changes in the climate as
well as risks arising from policy,
regulatory, legal, technological
or market responses to
climate change.
OPPORTUNITY: We have
a fundamental role to play in
protecting the environment
and recognise the customer
and commercial opportunities
our solutions create towards
a resilient and sustainable
low-carbon economy.
We maintain a globally diverse portfolio of
customers, serve different markets and monitor
and analyse leading macro-economic indicators
to inform business planning.
We monitor geopolitical trends to identify and respond
to known and potential unfavourable impacts to
business operations such that demand is reduced,
costs are increased or operations and the ability to
trade are comprised. We regularly engage with key
stakeholders to understand and mitigate potential
impacts from regulatory reform as well as increased
stakeholder scrutiny of our operational performance.
We continue to invest in our core and existing
products as well as new applications to enhance
safety and productivity outcomes.
>> We invest in research and development and
have five technology centres of innovation around
the world that focus on leveraging opportunities.
We also partner with world-leading research,
education and technical institutes to continue
to deliver world-leading customer solutions.
• translated a commodity outlook into various
macro-economic scenarios which were analysed
and used to develop ‘signposts’ to monitor and
predict the future state
• continued to focus on diversifying our thermal
coal commodity exposure
• maintained a globally diversified supply chain with
increased focus on second sources of supply for
critical materials
• Board consideration of a strategic risk update
on global political and regulatory developments
including climate regulation and evolving
stakeholder expectations regarding our licence
to operate. Response planning is presented as part
of the Board’s strategy and planning considerations
• the investment in core products has been
demonstrated through strategic growth
opportunities including our Exsa acquisition.
Refer to page 11
• our focus on technology development has resulted
in our organisation receiving multiple recognitions
for our fragmentation measurement technology
FRAGTrack™. Refer to page 11
We are taking action to support the transition
to a low-carbon economy by:
• reduced global GHG emissions (Scope 1, 2 and 3)
by 9.8 per cent from FY2019 levels
• embedding climate matters in our strategic
• Board consideration of an update on climate
decision-making
• accelerating decarbonisation
• catalysing climate action.
>> Climate change considerations are being integrated
into our governance, risk management, strategic and
financial planning processes. We continue to reduce
greenhouse gas (GHG) emissions and renewed our
commitments to reduce operational Scope 1 and
Scope 2 GHG emissions by at least 40 per cent,
from FY2019 levels by FY20301.
We are mobilising our people and fostering
innovation and technology to help customers
respond to climate change. For example, by
enabling more precise blasting FRAGTrack™ can
greatly reduce downstream customer processing
requirements leading to potential productivity,
operational and environmental efficiencies.
change, our long-term manufacturing strategy
and decarbonisation opportunities
• established new climate change targets and
updated our Climate Change Policy
• renewed our set of macroeconomic scenarios
incorporating a range of global warming futures
•
leveraged our scenarios to inform an
assessment of climate risks and opportunities
across the enterprise
• assigned decarbonisation measures to the relevant
executive remuneration incentive scorecard
• disclosed climate information with reference to
the recommendations of the Financial Stability
Board Taskforce on Climate-related Financial
Disclosures (TCFD)
•
inclusion of sustainability into our investment
committee process for capital allocation
1 Applies to Existing Operations. Base year emissions will be recalculated consistent with emissions accounting protocols if structural changes occur such as acquisitions or divestments.
ComplianceHow we are respondingDevelopments in FY2020Ethical business practices and good governanceWith operations spanning the world, there are numerous laws and regulations we must comply with including competition, modern slavery, anti-bribery and corruption requirements.We have extensive compliance controls in place including country entry procedures, and customer and vendor sanction screening.We train our people to do the right thing and they are supported by our ethics and compliance team and systems. We have an independent Speak-Up service and encourage employees and external stakeholders to speak-up when they see things that do not reflect our values, or comply with our Code of Business Conduct or the laws in which we operate. • assessed the screening and due diligence of our existing sales and business partner relationships and reviewed an additional 10 high-risk countries• implemented improvements to our trade sanctions screening of our customers and vendorsOperationalHow we are respondingDevelopments in FY2020Safety, health, environment and security Material safety, health, environment and security (SHES) risks that impact our people, communities and the environment. The safety, health and wellbeing of our people underpins everything that we do. Our integrated SHES and risk management system, standards and procedures provide the framework through which we safely manage our operations. Our Major Hazard Management program provides a means to verify that our key controls are well designed, understood, and operating effectively.The prevention of harm is our number one priority. Our controls include compliance protocols with regional legislative requirements, audit and inspection programs, plant and equipment design standards and asset maintenance programs. If harm were to occur, we have stringent first response and emergency response management plans in place across all our operations.• enhanced our critical asset maintenance strategies• deployed the IS Basis of Safety audit program• developed safe operating windows for key manufacturing technology processes • conducted major hazard management key control verifications • trialled vehicle monitoring systems• audited the contents of all stores on initiating systems and packaged explosives manufacturing sites• control verifications performed at all Orica AN storage locationsSupply chain disruptionDisruption to the integrity and continuity of our supply chain. Through our global supply chain of manufacturing plants, supply alliances and joint ventures around the world, we are committed to ensuring a security of supply for our customers. Our supply partners undergo risk assessments and our assets have management and preventative maintenance programs in place. We have detailed sales and operations planning processes and ongoing supply and demand forecasting.We maintain the highest product quality and assurance via our quality improvement framework which is aligned to the International Organization for Standardization’s Quality Management Standard, ISO9001 accreditation, new product testing and trials and global procurement standards and procedures.• implemented the Product Part Approval Process supplier quality management program to assess third party and internal suppliers• implemented quality control plans • continued to diversify our supplier base• successfully managed continuity of supply through COVID-19Cyber securityA cyber-attack or information security breach may compromise the confidentiality, availability and/or integrity of our critical technology services and data.Our security controls are continuously reviewed and strengthened as part of our cyber security strategy. We provide training to all our teams to raise their awareness of security threats and invest in systems and technologies to protect our data and network access.• completed cyber control assessments of our vendors • conducted further training and testing of our people’s awareness of our security threats• performed penetration testingFinancial Financial risk management aims to reduce the volatility of our financial performance and maximise investment returns based on a prescribed level of risk, and is carried out centrally by our treasury function. Detail on how we manage our main financial risks, including market (commodity price, interest rate, foreign exchange), credit and liquidity risk is provided in Note 10 to the annual financial statements.19Annual Report 2020 Annual Report 2020
21
This year has highlighted, more than ever, the critical role business will play in addressing
the social and environmental challenges we face over the coming decades.
ouR AppRoACH
How we manage and improve our
environmental, social and governance
performance is core to our business
strategy, fundamental to growing a resilient
organisation, and essential to creating
enduring value for our stakeholders.
Our approach to sustainability is based on
understanding the issues of concern and
opportunities for positive impact, responding
openly and disclosing transparently, and
embedding sustainable practices throughout
our value chain. 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 disclosures
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.
SAFe AnD
ReSponSIBle
BuSIneSS
29% ReDuCtIon
in Serious Injury Case Rate
compared to FY2019
SAFetY, HeAltH AnD SeCuRItY
AS A pRIoRItY, AlWAYS
The safety and health of our people and
communities and security of our product
is our priority.
We maintain a relentless focus on preventing
injuries and illness with no fatalities recorded
in FY2020 for the third consecutive year.
Targeted serious injury prevention programs
resulted in a 29 per cent reduction in our
Serious Injury Case Rate from FY2019,
meeting our FY2020 target, and achieving
our lowest rate in four years. Our All Worker
Recordable Case Rate remains above target,
as our primary focus has remained on
serious injury and preventing fatalities.
We continue to promote and enhance
safety leadership behaviour within our
workforce. Our leaders completed over
50,000 safety interactions, an increase of
over 10 per cent over the previous year.
Following a successful pilot in FY2019,
we continued to embed our Major Hazard
Management program within our
operations in FY2020 with over 11,500
key controls verified through the program.
Through the program, we were able to
rapidly assess controls in place at our facilities
following the explosion at Lebanon’s Beirut
Port in August 2020. This provided internal
and external stakeholders with assurance
that product security risks continue to be
well managed within our business.
opeRAtInG WItH InteGRItY
AnD ReSpeCt FoR All
Acting with integrity, conducting business
ethically and operating with respect are
integral to our values. To ensure the ongoing
effectiveness of our Ethics and Compliance
program, we undertook an internal review
and benchmarking process against global
best practice and regulator guidance.
With a view to continuous improvement
and an enhanced focus on key risks, the
program has been refreshed and a new
framework developed. This three-year
strategy will commence in FY2021.
We continued our country-based monitoring
and assurance program, assessing 10
high-risk countries in FY2020. Countries
were selected based on independent global
risk indices, magnitude of Orica’s exposure
(based on number of employees in country
and revenue) and past performance
(previous ethics and compliance issues
raised). Corrective and preventative actions
identified from our assurance activity will
be implemented in FY2021.
We are committed to protecting,
upholding, and advancing human rights
across our business activities. As part of our
evolving approach to managing modern
slavery risks within our operations and
supply chain, we undertook a preliminary
modern slavery risk assessment in FY2020
covering a selection of high-risk business
activities. A more extensive human rights
risk assessment, incorporating Rights of
Indigenous Peoples, will be undertaken
in FY2021.
eMpoWeRInG
SoCIAl pRoGReSS
25% WoMen
in senior leadership,
up 3% from FY2019
DIVeRSe, InCluSIVe CultuRe
AnD InSpIReD WoRKFoRCe
Our people are our biggest asset and the
foundation of our success. To enable them to
thrive, our People and Culture strategy fosters
a diverse, inclusive and engaged workplace.
In FY2020 we made further progress on
improving the health of our organisation with
our fourth enterprise-wide survey showing
an eight-point improvement over FY2019
survey results. Female representation in our
senior leadership increased to 25 per cent
while our Enterprise Leaders Program
(ELP), our flagship development program
cultivating talent for future senior leadership
roles, featured 50-50 gender-balanced
participation. We refreshed our strategies
for people, culture, diversity and inclusion,
setting out new targets for the period
FY2021-FY2024. These can be found
in our FY2020 Sustainability Report.
Developing our talent pipeline by attracting,
investing in and developing our people was
a key focus in FY2020. Alongside our ELP
and graduate program, we further invested
in building our commercial and technical
capability through an expanded technology
career ladder. With technology and
innovation a growth engine of our business
strategy, we remain focused on developing
talent with critical technical skills who can
ensure we maintain our position as a
market leader in technology.
SAFe, ReSIlIent AnD
tHRIVInG CoMMunItIeS
The challenges faced this year around the
world, including natural disasters and
COVID-19, have impacted the communities
in which we operate to varying degrees.
Throughout the year, our focus was on
engaging our communities to understand
their specific challenges ensuring we
delivered tailored financial and in-kind
support to address their specific needs.
SuStAInABIlItYOur approach to sustainability is based on understanding the issues of concern and opportunities for positive impact, responding openly and disclosing transparently, and embedding sustainable practices throughout our value chain.20ORICA 22 ORICA
Annual Report 2020
23
tCFD InDeX
The following index provides references to Orica’s disclosures on climate-related risks and opportunities as recommended by the TCFD.
TCFD recommendation
2020 Sustainability Report reference
Additional information
Governance – Disclose the organisation’s governance around climate change-related risks and opportunities.
a) Describe the board’s oversight of
• Climate change governance
• 2020 Annual Report/Governance summary
climate-related risks and opportunities.
• 2020 Corporate Governance Statement
• Climate Change Policy
b) Describe management’s role in
• Climate change governance
assessing and managing climate-related
risks and opportunities.
Strategy – Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses,
strategy, and financial planning where such information is material.
a) Describe the climate-related risks and
• Climate risks and opportunities
• 2020 Annual Report/Material Risks
opportunities the organisation has identified
over the short, medium, and long-term.
b) Describe the impact of climate-related risks
and opportunities on the organisation’s
businesses, strategy, and financial planning.
c) Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C
or lower scenario.
• Embedding climate change in decision-making
• CDP climate change response
and Opportunities
• Accelerating decarbonisation
• Catalysing climate action
•
Integrated scenario planning
• Orica plans to mature our internal scenario
analysis exercises to test the resilience of our
business model
Risk management – Disclose how the organisation identifies, assesses, and manages climate-related risks.
a) Describe the organisation’s processes
• Climate risks and opportunities
• 2020 Annual Report/Material Risks
for identifying and assessing
climate-related risks.
and Opportunities
b) Describe the organisation’s processes
for managing climate-related risks.
• Climate risks and opportunities
• 2020 Annual Report/Material Risks
• Embedding climate change in decision-making
and Opportunities
• Accelerating decarbonisation
• Catalysing climate action
c) Describe how processes for identifying,
• Embedding climate change in decision-making
• 2020 Annual Report/Material Risks
assessing, and managing climate-related
risks are integrated into the organisation’s
overall risk management.
and Opportunities
Metrics and targets – disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities
where such information is material.
a) Disclose the metrics used by the
• GHG emissions performance
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management process.
• Stewarding natural resources
b) Disclose Scope 1, Scope 2, and, if
• GHG emissions performance
• ESG Data Centre
appropriate, Scope 3 GHG emissions,
and the related risks.
• CDP climate change response
c) Describe the targets used by the organisation
• Sustainability Scorecard
to manage climate-related risks and
opportunities and performance against targets.
• Decarbonisation strategy and
emissions targets
In FY2020 our community investment
totalled $3.2 million, with almost half of
this directed to emergency services/disaster
relief efforts, including COVID-19 related
support, aid toward bushfire affected
communities in Australia and donations
to assist the Taal Volcano relief effort
in the Philippines.
We also refreshed our Group Community
Impact and Investment framework.
Our revised approach ensures our
community contributions are strategic and
targeted to create meaningful positive
economic, social and environmental impact
with enduring value. Roll-out of the new
framework will commence in FY2021.
ClIMAte ReSIlIent
eConoMIC GRoWtH
New target of at least
40% ReDuCtIon
in Scope 1 and Scope 2 GHG
emissions by FY20302
tRAnSItIonInG to A
loW-CARBon eConoMY
In FY2020, we continued to mature our
understanding of the potential impacts
of climate change on our business,
reduce greenhouse gas (GHG) emissions,
and define a credible decarbonisation
pathway to increase our business
resilience and capture new opportunities
in a low-carbon economy.
Our climate disclosures have increased
and are with reference to the
recommendations outlined in the G20’s
Financial Stability Board Task Force on
Climate-related Financial Disclosures
(TCFD). An updated climate change risk
and opportunity assessment across our
global value chain was completed with
the identified physical and transitional
risks and opportunities further integrated
into our strategic scenario planning and
risk management processes. We also
updated our Climate Change Policy to
better reflect our long-term commitment
to climate action.
Global Scope 1, 2 and 3 emissions were
6.3 MtCO2-e, a reduction of 9.8 per cent
from FY2019. Emission reductions this year
facilitated the achievement of our short-term
FY2020 GHG emissions intensity target.
In FY2020, we achieved a GHG emissions
intensity of 1.64 tCO2-e per tonne AN
sold, 6.5 per cent below our FY2019
intensity (1.75 tCO2-e per tonne AN sold).
In FY2020, our total operational Scope 1
and Scope 2 emissions were 2.1 MtCO2-e.
This represents a 9.5 per cent reduction
from FY2019, achieved by replacement
and improved performance of selective
catalyst abatement in our nitric acid plants.
We are committed to decarbonising our
operations consistent with the primary
objectives of the Paris Agreement1.
Accordingly, we established new targets
towards achieving that goal:
1. Reduce operational Scope 1 and Scope 2
GHG emissions by at least 40 per cent,
from FY2019 levels by FY20302
2. Maintain Scope 1, 2 and 3 emissions
intensity at or below 1.7 tCO2-e/tonne
ammonium nitrate sold by FY20223
Our targets are underpinned by a credible
and achievable pathway to decarbonisation
focused on a range of practical, technology-
driven solutions to unlock further emissions
reductions across our global operations.
1 On 12 December 2015, parties to the UNFCCC reached
a landmark agreement to combat climate change and to
accelerate and intensify the actions and investments needed
for a sustainable low carbon future. This is known as the
Paris Agreement.
2 Applies to Existing Operations. Base year emissions will be
recalculated consistent with emissions accounting protocols
if structural changes occur such as acquisitions or divestments.
3 Scope 3 emissions relate to third-party purchases of ammonia
and ammonium nitrate.
In FY2020, we continued to develop, commercialise and apply technologies to improve safety and reduce environmental impact at our customers’ operations.24ORICA SteWARDInG nAtuRAl ReSouRCeS With our business dependent on access to natural resources, we are committed to strong environmental stewardship across all our operations. In FY2020, we strengthened our environmental performance and achieved zero Severity 3+ or Severity 2 events. COVID-19 contributed to lower absolute volumes of waste generation, water and energy consumption. The effects of ongoing efficiency measures were evident in our energy intensity metric which fell six per cent to 5.6 GJ per tonne of AN sold. We did not meet our potable water intensity target due to interrupted supply of recycled water to Kooragang Island. Potable water intensity increased to 0.77 kL per tonne of AN sold, however, we remain committed to increasing our use of recycled water, with our FY2021 target for potable water intensity set at 0.67 kL per tonne of AN sold.Total waste disposed fell by 12 per cent (achieving our target of two per cent) while waste diverted from landfill increased by nine per cent to 65 per cent. An overhaul of the global waste data collection platform strengthened our site-by-site visibility of waste types and will strengthen the ongoing analysis of further waste diversion and management opportunities. Our ongoing remediation of legacy sites continues with several projects progressing in FY2020. At Deer Park, Australia, the remediation of contaminated soil was carried out without disruption to the neighbouring community. At Botany Bay, Australia, and Brownsburg, Canada, innovative biofilm and phytoremediation pilot programs are underway supporting our goal of always finding and using the most effective and appropriate remediation solutions. We continue to progress with removal of hexachlorobenzene (HCB) waste from our Botany facility, with destruction of HCB waste from the third shipment to Finland and Sweden completed, and the fourth shipment shipped in July 2020. Planning for the fifth shipment is in progress, as we progressively eliminate this long-term legacy from chlorinated solvents manufactured at Botany.SuStAInABle CoMMeRCIAl SolutIonS We are committed to increasing the sustainability performance of our own operations however it is through our commercial solutions where we believe we can have the greatest impact. As the world’s leading provider of commercial explosives and blasting systems we recognise the unique opportunity we have to improve the sustainability performance of our customers. In FY2020, we continued to develop, commercialise and apply technologies to improve safety and reduce environmental impact at our customers’ operations. Our automated fragmentation measuring system FRAGTrack™ continued to facilitate a data-driven approach to blast optimisation. By enabling more precise, surgical blasts, FRAGTrack™ can reduce downstream processing requirements leading to improved productivity and operational efficiencies, as well as the potential for a reduction in emissions intensity of operations.In FY2020, the deployment of WebGen™ progressed with the world’s largest wireless blast conducted using our wireless detonators. WebGen™ removes people from harm’s way by allowing blasts to be initiated from remote control rooms. As COVID-19 forced unplanned site shutdowns, our GroundProbe monitoring services supported customers to work remotely. GroundProbe uses radar and Light Detection and Ranging (LiDAR) to monitor slope stability in mines and tailings dams, providing early detection and warning of risks and hazards, and enabling people to be moved out of harm’s way.25Annual Report 2020 26
ORICA
GoVeRnAnCe
Protecting and enhancing long-term shareholder value is underpinned by effective
corporate governance. We recognise this is critical not only for our shareholders, but all our
stakeholders to promote their interests and to deliver our strategy in a sustainable way.
Our leaders are committed to ensuring
we conduct our business ethically and
to the highest standards of corporate
governance. To align our approach with
best practice corporate governance and
regulatory developments, we periodically
review and update our corporate
governance documents and practices.
Throughout FY2020, our governance
arrangements complied with the
ASX Corporate Governance Council’s
Corporate Governance Principles and
Recommendations (3rd Edition)
(‘ASX Principles and Recommendations’).
As required by the ASX, we will report
against the 4th Edition of the ASX Principles
and Recommendations for the year
ending 30 September 2021.
Further details of our corporate
governance practices can be found in our
2020 Corporate Governance Statement.
CoRpoRAte GoVeRnAnCe FRAMeWoRK
Shareholders
Accountable to Shareholders
Access to
independent
assurance
and advice
Board of Directors
Non-executive Directors and CEO
Delegated authority
Accountable to Board
CEO
Group
Delegation of
Authority
Executive Committee
Company
Secretary
Operating
culture
Group
Delegation of
Authority
Our people
Strategy, Performance, Risk Management, Culture
Delegated authority
(Terms of Reference)
Accountable
to Board
Board Committees
Board Audit
and Risk
Nominations
Human Resources
and Compensation
Safety, Health, Environment,
Community and Security
Innovation and
Technology
Group Policies, Standards and Procedures
Annual Report 2020
27
Role oF ouR BoARD
The business and affairs of the Orica Group
are managed by or under the direction of
our Board who set our strategic direction,
approve our business plan and dividend
policy, and oversee performance, material
strategic and operational risks and the
Group’s risk management framework.
They play a key role in shaping our
organisational culture, ensuring we
achieve our wider sustainability objectives
and considering the interests of our
key stakeholders in their decisions.
Refer to page 12 to read more about
our key stakeholders.
Five standing committees assist our Board
to effectively discharge their responsibilities.
From time to time, other special purpose
committees are convened to assist with
particular matters or to exercise a delegated
authority of the Board.
Day-to-day responsibility for managing the
Orica Group is delegated to our Managing
Director and Chief Executive Officer, who
operates within the authority limits as
determined by our Board.
CoMpoSItIon oF ouR BoARD
The skills, experiences and diversity of
our Board are reviewed regularly to ensure
they are aligned to achieving our strategic
objectives in the short, medium and
long-term, against a backdrop of evolving
stakeholder expectations. This includes
identifying any professional development
required by Directors to deepen their
understanding of our business and enable
them to make fully informed decisions.
A skills matrix is used as part of the
succession planning process to inform
discussion and identify the competencies
needed to enhance our Board’s
performance and effectiveness.
A summary of the collective key
competencies, diversity profile and
average tenure of our Board can be
found to the right.
Further information on the skills and
experience of each Director can be found
on page 30 of this Annual Report.
SKIllS MAtRIX SuMMARY
Leadership
Board, CEO or senior executive experience in major organisations,
enterprises or listed companies in Australia or overseas.
Mining
Experience, knowledge and expertise in the Australian or the international
resources sector and/or related operations.
Global perspective
Experience in international markets with exposure to a range of political,
cultural, regulatory and business environments.
Technology trends and innovation
Experience, knowledge and expertise in the development and commercial
application of new and emerging technology and cyber security.
Financial acumen
Financial knowledge or related financial management or accounting
qualifications and experience, including understanding the financial
statements.
Mergers and acquisitions
Experience in merger and acquisition transactions involving complex issues.
Governance and legal
Experience and knowledge in governance issues (including the legal,
compliance, environmental and regulatory environment applicable to
the Australian or international resources sector).
AVeRAGe tenuRe oF non-eXeCutIVe DIReCtoRS
Under 3 years
3-6 years
6-9 years
Over 9 years
3
2
2
0
DIVeRSItY pRoFIle
Women
38%
International
25%
28
ORICA
BoARD AnD CoMMIttee FoCuS In FY2020
Throughout the year, our Board provided strategic guidance and direction to our management team to deliver on our business
performance objectives.
Key activities undertaken in collaboration with management
FoCuS
STRATEGY AND BUSINESS PERFORMANCE
CAPITAL MANAGEMENT
Activity
• Approved the FY2020 strategic plan and three-year business
plans for Group finance and each region.
Activity
• Approved financing activity including the extension of $715 million
of undrawn committed bank debt facilities in March 2020.
• Approved the acquisition of Peru’s leading manufacturer
• Approved Orica’s seventh issuance in the US Private Placement
and distributor of industrial explosives, Exsa and monitored
its successful integration into our business.
(USPP) market totalling A$725 million (equivalent) and
representing an oversubscription of more than five times.
• Oversaw implementation of a single enterprise resource
planning SAP project across Orica which presents a new
way of working. Once fully embedded, the system will:
– facilitate faster and better decision-making across
our operations
–
improve agility, product security and customer outcomes
over time
– enhance our competitiveness across the global market.
OUR PEOPLE
Activity
• Monitored progress and the continued strengthening
of our organisational culture including internal safety
conscious norms.
• Advanced our strategy and approach to retain and engage
a diverse and inclusive workforce.
• Approved the remuneration framework and performance
outcomes for executive management.
• Oversaw the succession planning process for the Board,
Managing Director and Chief Executive Officer and key
executive roles.
• Oversaw and approved a capital raising comprising a fully
underwritten A$500 million institutional share placement
and a non-underwritten share purchase plan which raised
a further A$17.3 million.
SUSTAINABILITY
Activity
The Board Audit and Risk Committee:
• aligned sustainability disclosures against the recommendations
of the Task Force on Climate-related Financial Disclosures
(TCFD), through oversight and monitoring progress.
The Safety, Health, Environment, Community and Security
Committee (SHECS):
• provided oversight of our safety, health, environment, security
and sustainability performance, and SHECS material risks
• contributed to the development of the safety, health,
environment and security (SHES) five-year strategy
• noted a review of our refreshed Community Investment
and Impact framework
• approved our FY2021 SHES and sustainability targets for
inclusion in the FY2020 Sustainability Report.
RISK MANAGEMENT
COVID-19 PANDEMIC RESPONSE
Activity
Supported initiatives to mature our risk management
processes including:
• ongoing development and implementation of our
Risk Appetite framework
• broader transformation programs to enhance how
we identify and respond to material business risks.
Activity
With the COVID-19 pandemic requiring a global response,
out-of-cycle updates were received on five key areas of risk:
• safety of our employees, customers and communities
in which we operate
• continuity of manufacturing and supply
• essential business services
•
•
liquidity management
information technology.
FoCuS on ClIMAte CHAnGeClimate change is a material governance and strategic issue that is routinely overseen by our Board. Climate-related topics are considered during Board strategy discussions, strategic risk oversight and monitoring, policy implementation and performance updates. Our Board approves our Climate Change Policy, monitors its implementation to support the execution of our business strategy and conducts strategic risk deep dives every two years. During FY2020, our Board:• endorsed a revised Climate Change Policy (November 2019), following the consideration of a strategic climate risk update in FY2019• considered a set of macroeconomic scenarios incorporating a range of global warming futures which will underpin quantitative scenario analysis to be performed in FY2021• considered an update on climate change and long-term manufacturing and decarbonisation opportunities.Following the conclusion of the financial year, in November 2020 the Board subsequently:• endorsed a recommendation from the Safety, Health, Environment, Community and Security (SHECS) Committee to establish new climate change targets• approved a recommendation from the SHECS Committee to strengthen links between climate change and executive remuneration. Decarbonisation measures are now within our relevant executive remuneration incentive plan, with effect from FY2021.Throughout FY2020, our executive leadership team continued to oversee climate-related issues. A steering committee on climate and corporate disclosure was formed to strengthen governance and drive continual performance improvement. The committee is co-chaired by our Chief Financial Officer and Chief Communications Officer.29Annual Report 2020 30 ORICA
Annual Report 2020
31
BoARD oF DIReCtoRS
eXeCutIVe teAM
MAlColM BRooMHeAD Ao
BE, MBA
JoHn BeeVeRS
BEng (Mining), MBus, MAICD
Boon SWAn Foo
BA, MBA
AlBeRto CAlDeRon
PhD Econ, M Phil Econ, JD Law, BA Econ
JAMeS BonnoR
B.Com, (Econ, Mark)
DelpHIne CASSIDY
B.Bus (Accounting), MBA, FAICD
Malcolm was appointed Chairman of Orica Limited
as of 1 January 2016 and has been a Non-executive
Director since December 2015. He is Chair of the
Nominations Committee. Malcolm is a Director of
BHP Group Limited and Plc and a former Chairman
of Asciano Limited. He is a Director of the Walter
and Eliza Hall Institute and Council Member of
Opportunity International Australia.
John has been a Non-executive Director since
February 2020. He is a member of the Safety, Health,
Environment, Community and Security Committee,
the Innovation and Technology Committee and the
Nominations Committee. John is also a Director
of Syrah Resources Limited and former Director
of QUT Bluebox, the commercialisation arm of
the Queensland University of Technology.
Boon joined as a Non-executive Director in May 2019
and is a member of the Innovation and Technology
Committee, Board Audit and Risk Committee and
the Nominations Committee. He is 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. Boon is an external
Director of China Huadian Corporation Ltd and China
Baowu Steel Group Corporation Ltd. Previously, he
was a Senior Advisor to Temasek International Advisors
Pte Ltd, and Non-executive Director of Singbridge Holdings
Pte Ltd, Singbridge International Singapore Pte Ltd and
SinoSingapore Guangzhou Knowledge City Investment
and Development Company.
Managing Director and
Chief Executive Officer
Alberto 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. Previously, 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.
President – North America
Chief Communications Officer
James was appointed Group Executive and
President, North America in October 2015.
He has more than 20 years of commercial
and operational experience with Orica,
including most recently Zone Executive
Head, Americas, Orica Mining Services.
James has held a range of general
management, sales, marketing and
customer relationship roles and worked
with customers across several international
market segments in Australia, New Zealand
and Latin America.
Delphine was appointed Chief
Communications Officer in February
2020 with responsibility for external and
internal communications and brand
strategy, in addition to investor relations
which she has led since joining Orica in
2016. Previously, Delphine held senior
investor relations and corporate affairs
roles at AWB, St Barbara Limited,
Orient Capital and SKILLED Group.
DARRYl CuZZuBBo
BEng (1st class Hons) Mechanical
Engineering, Masters (Hons)
Total Quality Management, MBA
Chief Manufacturing Officer
Darryl was appointed Chief Manufacturing
Officer 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 and
the Australian and South African coal
and copper businesses with responsibility
for operations, expansion projects and
transformational change programs.
MAXIne BRenneR
BA LLB
AlBeRto CAlDeRon
PhD Econ, M Phil Econ, JD Law, BA Econ
DenISe GIBSon
BA (Business Administration), MBA (Management)
Maxine has been a Non-executive Director since April 2013.
She is Chair of the Human Resources and Compensation
Committee and member of the Board Audit and Risk
Committee and the Nominations Committee. Maxine is
a Director of Origin Energy Limited, Qantas Airways Limited
and Woolworths Group Limited and former Director of
Neverfail Australia Ltd, Treasury Corporation of NSW
Federal Airports Corporation and Growthpoint Properties
Australia Limited. She is also the former Managing Director
of Investment Banking at Investec Bank (Australia) Ltd and
a former member of the Takeovers Panel.
Alberto was appointed Managing Director and
Chief Executive Officer on 19 May 2015 following his
appointment as a Non-executive Director in August 2013.
He is a former Group Executive and Chief Executive
of BHP, Aluminium, Nickel and Corporate Development.
Alberto is also a former Chief Executive Officer of Cerrejón
Coal Company and Colombian oil company, Ecopetrol.
Denise has been a Non-executive Director since January
2018 and is Chair of the Innovation and Technology
Committee and member of the Human Resources and
Compensation Committee and the Nominations
Committee. Denise is co-founder and Chairman of
Ice Mobility, Director of Aerial Technologies Inc.,
NASDAQ-listed VOXX International Corporation and
ORBCOMM Inc., a board member of Consumer Technology
Association, and Chairman of the Consumer Technology
Association Foundation, both not-for-profit organisations.
She is the founder and former CEO of Brightstar US.
CHRIStopHeR DAVIS
B. Com (Hons), Acc;
Chartered Accountant SA, GAICD
Chief Financial Officer
Christopher was appointed Chief Financial
Officer in October 2018 and has responsibility
for the group-wide finance function,
taxation, treasury, sustainability, property,
remediation, government relations,
company secretariat, and group risk and
assurance. Prior to 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.
SAnJeeV GAnDHI
BEng Chemical Engineering, MBA
ADAM l. HAll
BCom, LLB (Hons), MBA (HD)
President – Australia Pacific and Asia
Chief Development Officer
Sanjeev was appointed Group Executive
and President, Australia Pacific and Asia
in July 2020. Sanjeev is a former member
of the Board of Executive Directors of
BASF SE. During his 26-year career
with BASF, Sanjeev held several senior
marketing, commercial and business
leadership roles including Head of
Asia Pacific and Head of Global
Chemicals Segment (Intermediates
and Petrochemicals).
Adam was appointed Chief Development
Officer in June 2019 with responsibility
for corporate strategy, mergers and
acquisitions and Orica Monitor, including
GroundProbe. Prior to joining Orica,
Adam led corporate development and
industrial gases for CF Industries in the US.
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
B.Comm, Industrial Psychology B.Comm
(Hons), Business Economics, MBA
Chief People Officer (Interim)
Ryan joined Orica in January 2018 as
Vice President Human Resources Europe
Middle East and Africa after having worked
across the professional services, pulp and
paper and resources sectors in various
human resources roles in South Africa,
Australia and the United Kingdom over
a 24-year period.
KARen MoSeS
BEc, DipEd, FAICD
Gene tIlBRooK
BSc, MBA, FAICD
Karen has been a Non-executive Director since July 2016.
She is Chair of the Safety, Health, Environment, Community
and Security Committee, and member of the Human
Resources and Compensation Committee and the
Nominations Committee. Karen is a Director of Boral
Limited, Charter Hall Group, Snowy Hydro Limited,
and Sydney Symphony Limited, a Fellow of the Senate
of Sydney University, and Chair of the NSW Artform Board
for Dance and Physical Theatre. She is a former Director of
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 has been a Non-executive Director since
August 2013. He is Chair of the Board Audit and
Risk Committee and member of the Safety, Health,
Environment, Community and Security Committee
and the Nominations Committee. He is also a
Director of GPT Group and Woodside Petroleum,
Director of the Bell Shakespeare Company, former
Director of Aurizon Holdings and Fletcher Building
and former Executive Director of Wesfarmers Limited.
CoMpAnY SeCRetARIeS
KIRSten AnDeRSon lleWellYn
LLB, BA, LLM, FGIA
eRIn o’ConnoR
LLB (Hons), BCom
AnGuS MelBouRne
BEng (Hons) Mechanical Engineering,
BSc Applied Mathematics
Chief Commercial Officer
Angus was appointed Chief Commercial
Officer in October 2016 and has
responsibility for strategic marketing,
technology and Orica’s China business.
Angus joined Orica in January 2016
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. His experience at Schlumberger
included responsibility for explosives and
perforating products research,
development and manufacturing.
GeRMÁn MoRAleS
MSc, Civil Engineering, Executive MBA
President – Latin America
Germán was appointed Group Executive
and President, Latin America in September
2018 following 18 years at commercial
explosives manufacturer and distributor,
Maxam. While at Maxam, Germán
held business leadership roles in Europe,
Middle East and Africa, the Americas
and Australasia and served as a Board
member for several Maxam companies
around the world. Most recently,
he was the Senior Executive Director
and General Manager Civil Explosives.
tHoMAS SCHutte
B. Com (Hons); Acc;
Chartered Accountant (SA)
President – Europe, Middle East
and Africa
Thomas was appointed Group Executive
and President, EMEA 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.
32
ORICA
ReVIeW oF opeRAtIonS
StRonG peRFoRMAnCe In A CoVID-19 enVIRonMent
BuSIneSS SuMMARY
Annual Report 2020
33
Statutory net profit after tax (NPAT) attributable to the shareholders of Orica for the year ended 30 September 2020 was
$168 million, down 31 per cent on the prior corresponding period (pcp) with underlying EBIT(1) of $605 million down nine per cent
on the pcp.
SuMMARY
• Underlying EBIT(1) of $605 million, down nine per cent on the pcp, before individually significant items.
• Underlying NPAT(2) down 20 per cent on the pcp, before $131 million of individually significant items after tax.
• Ammonium nitrate (AN) volumes down one per cent on the pcp at 3.93 million tonnes, and down four per cent
on the pcp excluding Exsa volumes.
• Prolonged COVID-19 impacts, with more severe impacts in developing markets.
• Underlying earnings per share(3) down 23 per cent to 75.7 cents per share.
• Net Operating cash flows(4) of $277 million and cash conversion of 74.4 per cent.
• Capital expenditure of $472 million(5) includes $78 million of rectification works at Burrup.
• Net debt(6) of $1.8 billion and gearing(7) at 36.4 per cent.
• Unfranked final dividend of 16.5 cents per share.
GRoup ReSultS
Year ended 30 September
Sales revenue
EBITDA(8)
EBIT(1)
Net interest expense
Tax expense
Non-controlling interests
NPAT before individually significant items(2)
Individually significant items after tax
NPAT after individually significant items (statutory)
2020
A$M
2019
A$M
Change
%
5,611.3
5,878.0
955.8
604.5
(149.6)
(146.4)
(9.2)
299.3
(131.0)
168.3
941.1
664.7
(109.7)
(177.7)
(5.4)
371.9
(126.8)
245.1
(5%)
2%
(9%)
(36%)
18%
(70%)
(20%)
(3%)
(31%)
A summary of the performance of the segments for the 2020 and 2019 financial years is presented below:
Year ended 30 September 2020
A$M
Australia Pacific & Asia (APA)
North America
Latin America
Europe, Middle East & Africa (EMEA)
Minova
Orica Monitor
Global Support
Eliminations
Orica Group
Year ended 30 September 2019
A$M
Australia Pacific & Asia (APA)
North America
Latin America
Europe, Middle East & Africa (EMEA)
Minova
Orica Monitor
Global Support
Eliminations
Orica Group
AN Tonnes (i), (ii)
(‘000)
Sales
Revenue(iii)
EBITDA(8)
1,763
1,023
694
450
–
–
–
–
2,193.9
1,476.4
895.6
912.4
470.7
98.4
635.8
(1,071.9)
3,930
5,611.3
518.1
234.1
70.6
94.5
32.2
33.1
(26.8)
–
955.8
AN Tonnes(i)
(‘000)
Sales
Revenue(iii)
EBITDA(8)
1,682
1,128
718
444
–
–
–
–
2,106.0
1,590.5
969.9
911.2
595.1
97.2
1,210.4
(1,602.3)
508.9
236.9
66.5
93.9
24.3
30.9
(20.3)
–
EBIT(1)
369.5
163.7
36.6
62.4
20.8
20.3
(68.8)
–
604.5
EBIT(1)
382.7
192.1
43.8
67.9
15.2
22.3
(59.3)
–
Capital
Expenditure(5)
169.3
52.5
16.9
32.7
12.1
14.3
174.1
–
471.9
Capital
Expenditure(5)
159.1
39.5
29.4
43.6
7.6
12.7
132.1
–
3,972
5,878.0
941.1
664.7
424.0
(i)
Includes ammonium nitrate prill and solution as well as bulk and packaged emulsion. (ii) Includes 98 thousand tonnes sold from Exsa S.A. (Exsa). (iii) Includes external and inter-segment sales.
Revenue by commodity 2020
EBIT by region(v) 2020
16% Thermal Coal
6% Coking Coal
7%
Iron Ore
13% Q&C(9)
16% Copper
20% Gold
22% Other(iv)
55% Australia Pacific & Asia
24% North America
6%
Latin America
9%
Europe, Middle East
& Africa
3% Orica Monitor
3% Minova
Note: numbers in this report are subject to rounding and stated in Australian dollars unless otherwise noted.
(iv) Includes Minova and Orica Monitor. (v) Excludes Global Support.
34 ORICA
Annual Report 2020
35
FY2019 to FY2020 EBIT (A$M)
665
657
(8)
(32)
36
605
(38)
(9)
4
(13)
EBIT
FY2019
China
Sub-total
Inflation on
Overheads
Volume
Mix & Margin
Manufacturing
Adjacent
businesses
Reduced
Overheads
EBIT
FY2020
Reduced overheads, +$36 million
Overheads were reduced compared
to the pcp, including from management
initiatives implemented to mitigate
COVID-19 impacts in the second half
reduced non-billable labour overheads
and a reduction in discretionary spend.
ReVIeW oF opeRAtIonS
Nothing is more important at Orica than
keeping our people safe, as we continue
to have a relentless focus on major hazards
and fatality prevention. During this year of
unprecedented change and disruption from
bushfires, extreme weather events and the
COVID-19 pandemic, our commitment to
the health and wellbeing of our team and
wider communities has been highlighted
more than ever before.
In the early stages of the COVID-19
pandemic, crisis management teams were
activated at a country, regional and global
level, allowing us to respond to the rapidly
changing situation in a consistent and quick
manner. We continue to adapt our working
practices as the situation evolves to provide
for the health and safety of our people,
customers and communities. Globally we have
implemented controls to prevent infection
in our workplaces, including temperature
testing, physical distancing and sanitisation.
Managing our people’s psychological health
has also been an important focus. Where our
plants are operating, our enhanced safety
and health controls are in place to protect
the health and wellbeing of our people.
In some areas where our leaders were
unable to travel, we introduced augmented
reality technology to allow remote safety
verifications and technical support.
Over the past five years there has been a
clear reduction in the number of serious
injuries. The full year Serious Injury Case
Rate reduced 29 per cent on the pcp,
underpinned by a relentless focus on Major
Hazard Management. The Total Recordable
Injury Frequency rate was in line with the
pcp, with the vast majority of cases being
minor injuries such as cuts and sprains.
Environmental programs continue to be
embedded across the business, and there
were no major environmental incidents
during the period. Orica is on track to
align corporate governance and climate
risk disclosure to the recommendations
of the Task Force on Climate-related
Financial Disclosures.
In pursuing our strategic objectives, three
milestones were successfully completed
in the second half:
1. The Burrup plant commenced
production in May 2020 and produced
approximately 100 thousand tonnes
of high quality product in the second
half. The plant achieved an Overall
Equipment Effectiveness (OEE) of
85 per cent since operations commenced,
with very positive feedback from
customers. The plant remains a key
strategic asset in a key growth market.
2. Since 30 April 2020, 96.8 per cent
of total Exsa S.A. (Exsa) shares have
been acquired, and the integration
of the Exsa business has progressed
in line with plan. Synergies from the
acquisition are expected to materialise
from the 2021 financial year.
3. The largest and final phase of the SAP
project was implemented in July 2020.
The achievement of these strategic
objectives through a challenging period
has further solidified Orica’s platform
for future growth.
Following a strong first half, momentum
into the second half was disrupted by the
COVID-19 pandemic which led to lockdowns
and lower levels of mining activity in many
countries across our markets. As a result,
full year AN volumes were down four per cent
on the pcp, excluding 98 thousand tonnes
sold by the recently acquired Exsa business
since acquisition in May 2020. Including Exsa,
AN volumes were down one per cent on
the pcp. While volume growth in Australia
remained strong through the pandemic and
mining activity in the United States of America
(USA) was resilient, other geographical
regions were impacted to varying degrees,
and most severely in developing countries.
Other structural impacts affecting the business
include weakening and uncertain coal markets –
particularly in the USA and Indonesia.
Sales revenue decreased by five per cent on
the pcp to $5.6 billion. This was largely the
result of lower second half volumes, further
impacted by decreased revenue from Minova,
negative pricing in competitive markets
and the impact of an ownership structure
change of the China business which is no
longer consolidated in Orica’s results.
EBIT of $605 million was down nine per cent
on the pcp after solid first half growth.
In addition to reduced volumes, EBIT was
impacted by the change in ownership structure
of the China business. Higher gas costs on the
east coast of Australia and the associated
pricing impact reduced EBIT by $12 million.
Reductions in some sales prices in the
current price sensitive environment along with
lower recoveries of plant fixed costs due to
reduced sales volumes further impacted EBIT.
These factors were partly offset by growth
in adjacent businesses and benefits from
reduced overheads and management initiatives
implemented to mitigate COVID-19 impacts.
Mix & Margin, ($9 million)
Pricing has been under pressure following
the consolidation of gold customers
affecting margins most significantly in the
USA and Africa. Latin America was also
affected by contract extension negotiations
occurring in a price sensitive environment.
Australian east coast margins were reduced
by higher gas costs.
This was partly offset by improved product
mix from an ongoing shift towards
electronic blasting system (EBS) and
emulsion products, and favourable
foreign exchange (FX).
Manufacturing, ($13 million)
Manufacturing reliability and performance
continued to be strong with OEE at our
continuous AN plants above 80 per cent,
however lower demand in the second half
and heightened safety protocols due to
COVID-19 at plants impacted fixed costs
and associated recoveries.
Adjacent businesses, +$4 million
The Minova result increased from the pcp,
from improved pricing and demand for
higher value products, together with a
continued focus on manufacturing cost
efficiencies and overhead cost reduction.
Following a strong first half, the Orica
Monitor result was reduced by a shift
from radar sales to leases due to customer
capital constraints.
Key items in the chart above:
China, ($8 million)
As previously reported, a new joint venture
with Guizhou Jiulian Industrial Explosives
was formed in the second half of the 2019
financial year. While the results from China
subsidiaries were consolidated until June
2019, the joint venture’s net profit after
tax is no longer consolidated and is now
treated as an after tax 49 per cent equity
accounted investment.
Inflation on Overheads, ($32 million)
Inflation on fixed overhead costs had an
adverse impact of $32 million.
Volume, ($38 million)
Excluding Exsa, total AN volumes decreased
by four per cent on the pcp. Although
volumes in most developed countries
remained strong with mining activities
continuing as essential services, many
developing markets suffered severely from
government mandated lockdowns and
reduced mining activity.
Cyanide volumes were strong in a tighter
global market, particularly with growth
from new customers in Peru and Asia.
Offsetting this was the non-repeat of
spot sales in Mexico in the pcp.
Initiating systems volumes were down
on the pcp, with conventional detonator
volumes impacted across the year by
customer site disruptions, mine plan
changes or closures. Conventional
detonator sales in China in the pcp which
are no longer consolidated in Orica’s
volumes due to the ownership structure
change were offset by the inclusion of
Exsa volumes in the second half.
36 ORICA
AuStRAlIA
pACIFIC & ASIA
ReVenue BY
CoMMoDItY
2020
33% Thermal Coal
13% Coking Coal
12% Iron Ore
5% Q&C(9)
11% Copper
17% Gold
9% Other
Year ended 30 September
2020
2019
Change
Total AN & Emulsion Volumes
(‘000 tonnes)
1,763
1,682
Total sales revenue (A$M)
2,193.9
2,106.0
EBITDA(8) (A$M)
518.1
508.9
5%
4%
2%
EBIT (1) (A$M)
369.5
382.7
(3%)
CoMMoDItY eXpoSuRe
peRFoRMAnCe DRIVeRS
A significant reduction in thermal coal
demand in Indonesia and lower sales in
India led the decreased thermal coal
exposure compared to the pcp. Coking coal
exposure increased from new business and
expansion from existing customers on the
east coast of Australia. Contribution from
gold increased on the pcp from both higher
cyanide sales and strengthened explosives
demand in gold markets, while copper
exposure increased from the ramp up
of new business in Mongolia.
COVID-19
Mining was been deemed an essential
service in Australia, and together with
effective contingency planning, this allowed
supply to customers to continue, largely
uninterrupted. Negative impacts were
broadly limited to increased supply chain
and manufacturing costs together with
deferred supply at a small number of
customer sites in the last quarter. In contrast,
the situation in Asia was more severe,
particularly in Indonesia where customer
activities were either reduced or temporarily
shut down as a result of COVID-19.
Volume
Explosives volumes were strong in Australia
despite COVID-19 effects in the second half
and impacts from bushfires and extreme
weather in the first half. The growth in an
increasingly challenging coal market was
underpinned by contract wins and sales to
competitors. Volumes were up in the
Pilbara region due to a strong iron ore
market. Softening in the Indonesian thermal
coal market led to a reduction in explosives
volumes in Asia, partly offset by the ramp
up of new customer activity in Mongolia.
EBS volume growth momentum continued
from further customer conversion in
Australia. New business in Mongolia and
the Philippines partly offset the effect of
reduced conventional detonator sales in
China in the pcp which are no longer
consolidated in Orica’s volumes due to
the ownership structure change.
Cyanide volumes increased on the pcp
from new business in Asia and higher
demand in Australia.
Technology-based product sales grew on
the pcp, albeit constrained by new trial
delays as specialists required to manage
implementations could not be mobilised
to sites due to COVID-19 limitations.
EBIT
Excluding the $8 million impact from the
ownership structure change of the China
business, EBIT decreased one per cent on
the pcp. The region continued to drive
increased uptake of advanced products
which, in combination with management
cost initiatives, partially mitigated several
challenges faced during the period. Beside
COVID-19, these included extreme weather
events in the first half and a new gas supply
contract effective from January 2020.
The Burrup plant commenced production
in May 2020, manufacturing high quality
product in line with expectations, driving an
improvement in sourcing costs on the pcp.
Adjusting for the depreciation expense
recognised in accordance with AASB 16
Leases from 1 October 2019, EBITDA
decreased three per cent on the pcp.
Annual Report 2020
37
deemed non-essential and many mines
were shut in April and May. Although
mines have since begun reopening, overall
activity continues to be constrained as
the pandemic remains widespread across
the country.
Volume
Explosives volumes reduced by nine per cent
on the pcp due to negative COVID-19
impacts in Canada and Mexico and
continued geopolitical issues in Mexico.
This was partly offset by slight explosives
volume growth in the USA, following
a strong first half in the Q&C sector.
Second half Q&C volumes reflected a
decline in larger infrastructure projects,
offset by increased demand in small to
medium sized projects. Abundant supplies
of natural gas and resulting lower gas
prices in the USA have shifted demand
away from thermal coal, thus impacting
explosives demand.
Both EBS and conventional detonators were
down on the pcp as a result of COVID-19
shutdowns and the negative thermal coal
impact in the USA while conventional
detonator volumes across the region were
impacted by temporary mine closures and
production slowdowns.
Uptake of WebGen™ wireless detonators
and BlastIQ™ technology further improved
on the pcp, however further trials have
been temporarily delayed due to COVID-19.
EBIT
In addition to COVID-19 related volume
reductions, results decreased on the pcp
due to lower recoveries of fixed costs in the
manufacturing plants, and the previously
reported pricing impact from gold customer
consolidation in the USA. Lower explosives
volumes in Mexico and the non-repeat of
cyanide sales in the pcp further contributed
to the lower EBIT result.
These were partially offset by ongoing
cost efficiency improvements across the
region, positive FX movements and
initial benefits from the closure of the
Hallowell plant.
Adjusting for the depreciation expense
recognised in accordance with AASB 16
Leases from 1 October 2019, EBITDA
decreased 10 per cent on the pcp.
noRtH AMeRICA
ReVenue BY
CoMMoDItY
2020
11% Thermal Coal
5% Coking Coal
8%
Iron Ore
23% Q&C(9)
11% Copper
25% Gold
17% Other
Year ended 30 September
2020
2019
Change
Total AN & Emulsion Volumes
(‘000 tonnes)
1,023
1,128
(9%)
Total sales revenue (A$M)
1,476.4
1,590.5
EBITDA(8) (A$M)
EBIT (1) (A$M)
234.1
163.7
236.9
192.1
(15%)
(7%)
(1%)
CoMMoDItY eXpoSuRe
peRFoRMAnCe DRIVeRS
The varying performance across the region
resulted in a significant shift in commodity
exposure compared to the pcp. Revenue
contribution from Quarry & Construction
(Q&C) markets in the USA increased,
supported by strong government funding
for small to medium sized infrastructure
projects. This was offset by lower gold
exposure due to prolonged customer mine
closures and a slowdown in activity due
to COVID-19 in Mexico.
COVID-19
Mining in the USA was deemed as an
essential service early in the COVID-19
pandemic, allowing ongoing operations.
In contrast, mining was deemed non-
essential in Quebec, Canada leading to
mandated shutdowns in March and April.
The ramp up since April has been slow,
with limitations from strict safety protocols
on sites. Mexico was the worst impacted
market in the region as mining was also
38 ORICA
lAtIn AMeRICA
ReVenue BY
CoMMoDItY
2020
7% Thermal Coal
6%
Iron Ore
3% Q&C(9)
51% Copper
26% Gold
7% Other
Year ended 30 September
2020
2019
Change
Total AN & Emulsion Volumes
(‘000 tonnes)
694
718
(3%)
Total sales revenue (A$M)
895.6
969.9
EBITDA(8) (A$M)
EBIT (1) (A$M)
70.6
36.6
66.5
43.8
(8%)
6%
(16%)
CoMMoDItY eXpoSuRe
peRFoRMAnCe DRIVeRS
A significant shift in the region’s commodity
exposure reflects the inclusion of Exsa
revenue from May 2020, resulting in
greater exposure to copper and gold and
a corresponding relative reduction in revenue
contribution from thermal coal. This shift
towards gold and copper was further
increased by new contracts and strong
cyanide demand. Lower explosives volumes
to a customer in Colombia, following a
change to their business model, also reduced
the region’s exposure to thermal coal.
COVID-19
The Peruvian market was among the worst
affected by COVID-19 with widespread
partial or complete suspension of
operations on customer mine sites driving
a significant impact to the region’s result.
Colombia was also heavily impacted by
government quarantine measures, which
together with lower commodity prices, and
significantly reduced coal demand led to
temporary mine and quarry closures. In
Chile, mining was deemed as an essential
service which partially mitigated the
COVID-19 impact in the mining sector.
Volume
Although first half results in the region
were strong, the prolonged and severe
government mandated restrictions to
mining activity heavily impacted second
half volumes. Explosives volumes were
also impacted by the change in a major
Colombian customer’s business model,
shifting their requirements from explosives
products towards the provision of services.
This was partly offset by new emulsion sales
to a customer in the copper sector in Peru,
and the inclusion of Exsa sales volumes of
98 thousand tonnes.
EBS sales excluding Exsa were in line
with the pcp, following positive customer
conversion in the first half. Conventional
detonator volumes decreased due to
customer site disruptions and fewer
competitor sales.
Cyanide volumes were higher than in the
pcp from new customer wins in Brazil and
Argentina, together with higher demand
from existing customers in Peru.
EBIT
Following a strong first half, the significant
COVID-19 impact to the region in the second
half was partly mitigated by management
initiatives such as business rightsizing,
improved procurement costs, reduced fixed
costs, leveraging augmented reality
technology to ensure ongoing service delivery
and a reduction in discretionary spend.
Improved cyanide pricing partly offset
negative explosives pricing impacts which
occurred as a result of contract negotiations
in the current price sensitive market.
The integration of the newly acquired
Exsa business is progressing in line with
plan despite challenges from COVID-19
and significant disruptions to mining
activity in Peru. This has enabled the
achievement of major milestones such as
the production of Orica branded products
and the commencement of bulk AN imports.
The Exsa business delivered a neutral
underlying EBIT result in the 2020
financial year.
Adjusting for the depreciation expense
recognised in accordance with AASB 16
Leases from 1 October 2019, EBITDA
decreased five per cent on the pcp.
euRope, MIDDle eASt
& AFRICA
ReVenue BY
CoMMoDItY
2020
2% Thermal Coal
3% Coking Coal
2%
Iron Ore
36% Q&C(9)
8% Copper
25% Gold
24% Other
Year ended 30 September
2020
2019
Change
Total AN & Emulsion Volumes
(‘000 tonnes)
450
444
Total sales revenue (A$M)
912.4
911.2
EBITDA(8) (A$M)
EBIT (1) (A$M)
94.5
62.4
93.9
67.9
1%
–
1%
(8%)
CoMMoDItY eXpoSuRe
peRFoRMAnCe DRIVeRS
Despite a slowdown in infrastructure
projects in the Nordics, Q&C remained
the most significant commodity for the
region during the year. Gold exposure
decreased on the pcp, having been
particularly impacted by COVID-19 in
Africa, partly offset by pricing benefits
from a tightening in global cyanide
markets. Exposure to the phosphate
market remained strong as a result of
continued demand in the Commonwealth
of Independent States (CIS).
COVID-19
Early impacts from COVID-19 commenced
in April 2020, with lockdowns enforced at
customer mine and quarry sites in Belgium,
Spain, Portugal and parts of the Nordics in
the second half.
Mining activity impacts were varied across
Africa, delaying growth in the key strategic
market. Total lockdowns were mandated in
South Africa and Namibia, and restrictions
were imposed in many other countries
Annual Report 2020
39
across the continent. Two customer mines
were closed for care and maintenance
in the Democratic Republic of Congo.
Volume
Explosives volumes in the first half were
led by key growth markets in the CIS and
across Africa, driven both by new contract
wins and higher demand from existing
customers. Although COVID-19 disrupted
growth momentum, full year explosives
volumes increased on the pcp in both the
CIS and Africa. Explosives volumes in
Europe were impacted by a decline in
the Estonian oil shale market which led
to customer plant closures. Postponed
government spending on new projects
in Norway resulted in lower tunnelling
and construction activity.
EBS volumes increased on the pcp, from
positive customer conversion in Norway,
partly offset by negative product mix
in Africa. Conventional detonator volumes
were significantly impacted in the second
half due to COVID-19 business disruptions
across the region.
Cyanide volumes were lower than the pcp
due to customer cost pressures in Africa.
EBIT
After a strong first half, EBIT in the
second half was lower than the pcp, with
mining activity significantly slowed by the
COVID-19 pandemic. A continued shift
from conventional detonators to EBS
in Norway was offset by a negative mix
shift towards conventional detonators
in Africa, driven by a customer’s price-led
procurement strategy. Unfavourable FX
movements on trade working capital
further impacted EBIT.
Overall, a tightening in global cyanide
demand led to a pricing benefit.
This, together with management initiatives
and a continued focus on cost efficiency
partly offset the negative COVID-19 impact.
Adjusting for the depreciation expense
recognised in accordance with AASB 16
Leases from 1 October 2019, EBITDA
decreased six per cent on the pcp.
40 ORICA
MInoVA
Year ended 30 September
Steel products (‘000 tonnes)
Resins & Powders (‘000 tonnes)
Total sales revenue (A$M)
EBITDA(8) (A$M)
EBIT(1) (A$M)
Performance drivers
2020
115
111
470.7
32.2
20.8
2019
Change
156
123
595.1
24.3
15.2
(26%)
(10%)
(21%)
33%
37%
Revenue was significantly impacted in the second half by COVID-19 related lockdowns in South Africa and India. Revenue was also driven
lower by a reduction in steel surcharges and softer coal sector activity in the USA due to low natural gas prices.
In contrast, EBIT increased on the pcp due to pricing and supply chain improvements, manufacturing cost efficiencies together with the
successful turnaround of the business which has continued a focus on overhead cost reduction.
oRICA MonItoR
Year ended 30 September
EBIT(1)
Performance drivers
2020
A$M
20.3
2019
A$M
22.3
Change
(9%)
The Orica Monitor segment comprises GroundProbe and Nitro Consult businesses.
GroundProbe sales were impacted in the second half by an increase in customers opting to lease radars over purchasing radars in
a capital constrained environment. Remote geotechnical modelling revenue continues to rise, growing 28 per cent on the pcp.
Despite a favourable EBITDA result on the pcp, EBIT was lower due to a greater depreciation expense on the larger GroundProbe radar
lease fleet. Following restructuring activity in underperforming areas of the business in the first half, Nitro Consult delivered a positive
full year EBIT result.
GloBAl SuppoRt
Year ended 30 September
EBIT(1)
2020
A$M
(68.8)
2019
A$M
(59.3)
Change
(16%)
Global Support costs increased on the pcp, notably from arbitration costs associated with the Burrup plant.
net InteReSt eXpenSe
The net interest expense of $150 million increased on the pcp as a result of a higher unwinding of discount on provisions (non-cash),
primarily as a result of a material decline in the discount rate applied to remeasure provisions as at 30 September 2020, combined with
the recognition of interest expense on leases in accordance with AASB 16 Leases, effective from 1 October 2019.
Year ended 30 September
Net interest expense excluding unwinding of discount on provisions and lease interest
Unwinding of discount on provisions
Lease interest
Net interest
2020
A$M
(88.8)
(48.2)
(12.6)
2019
A$M
(100.4)
(9.3)
n/a
(149.6)
(109.7)
Variance
A$M
11.6
(38.9)
(12.6)
(39.9)
tAX eXpenSeThe effective rate of 32 per cent is in line with pcp.GRoup CASH FloWYear ended 30 September2020 A$M2019 A$MVariance A$MNet Operating cash flows(4) 277.4 746.4(469.0)Net Investing cash flows(10)(660.4)(368.4)(292.0)Net Operating and Investing cash flows(383.0)378.0(761.0)Dividends – Orica Limited(179.4)(177.2)(2.2)Dividends – non-controlling interest shareholders(11.3)(18.0) 6.7 Adjusted net cash flows(573.7)182.8(756.5)Movement in borrowings and other net financing cash flows(11) 1,126.6 (296.3) 1,422.9 Net cash flow inflow/(outflow)(12) 552.9 (113.5) 666.4 Performance highlightsNet Operating cash flowsNet cash generated from operating activities was impacted by an increase in working capital and lower earnings.Net Investing cash flowsThe increase in investing cash flows relates largely to the acquisition of Exsa capital expenditure.Movement in borrowings and other net financing cash flowsThe cash inflow comprises $505 million in new equity through the equity raising in February 2020 to fund the Exsa acquisition and net borrowings of $682 million from debt facilities which includes the recent US Private Placement in June of $725 million. 41Annual Report 2020 42
ORICA
GRoup BAlAnCe SHeet
Movement in net assets (A$M)
302
176
3,025
(57)
(200)
(8)
(52)
3,194
3,186
DeBt MAnAGeMent AnD lIQuIDItY
As at 30 September
Interest bearing liabilities – excluding lease liabilities
Less: Cash and cash equivalents
Net debt(6)
Lease liabilities
Net debt – including lease liabilities
Gearing % – excluding Lease liabilities
Annual Report 2020
43
2020
A$M
2019
A$M
Variance
A$M
(2,741.0)
(2,032.8)
920.5
412.6
(1,820.5)
(1,620.2)
(298.7)
(0.4)
(2,119.2)
(1,620.6)
36.4%
34.9%
(708.2)
507.9
(200.3)
(298.3)
(498.6)
1.5pts
Net assets
30 September
2019
Trade
working
capital
Non-trade
working
capital
Fixed &
Intangible
assets
Other
net assets
Net debt
Sub-total
Net
AASB 16
Leases
Net assets
30 September
2020
Movement in net debt (A$M)
Interest bearing liabilities of $2,741 million comprise $2,588 million of US Private Placements and $153 million of committed and other
bank facilities. The average tenor of drawn debt is 5.0 years (2019 4.7 years).
Gearing excluding lease liabilities at 36.4 per cent is within the Group’s target range of 30-40 per cent.
The chart below illustrates the movement in net debt from 30 September 2020.
Performance highlights
Trade working capital(13) increased by $302 million on the pcp, including acquired Exsa trade working capital and significant items.
Debtors increased by $156 million. The impact of initial billing delays following the implementation of the SAP system has materially
contributed to the increase. Creditors decreased by $124 million as a consequence of softer trading conditions caused by COVID-19
and a planned alignment of payment terms following the SAP system implementation. Inventory increased by $22 million on the pcp
due to Exsa; excluding Exsa underlying inventory was down $34 million in response to lower demand due to COVID-19.
Non-trade working capital(14) was impacted by increased environmental and decommissioning provisions including significant items,
partly offset by higher non-trade debtors.
Fixed & Intangible assets increased by $176 million from the pcp due to additions of $511 million and acquired Exsa assets of
$254 million which were partly offset by disposals of $6 million, depreciation and amortisation expense and impairment charges totalling
$377 million, as well as a foreign exchange translation impact of $206 million.
Other net assets decreased by $52 million from the pcp, driven by the revaluation of financial instruments resulting from strengthening
of the Australian Dollar.
AASB 16 Leases which became effective from 1 October 2019 resulted in a net $8 million decrease in net assets from
30 September 2019.
BAlAnCe SHeet StRenGtH
Orica’s balance sheet remains healthy, with significant headroom against both the gearing and interest cover debt covenants.
Undrawn committed bank facilities of $1,510 million, complemented by cash of $921 million provides for a strong liquidity position.
Proactive pre-financing and refinancing of committed bank facilities, complemented by the recent US Private Placement bond issue
results in limited near term refinancing requirements. Cash proceeds resulting from the bond issue are reflected in cash on hand at
30 September 2020. The bond issue was undertaken to refinance an existing October 2020 maturity ($469 million).
As we continue to face a period of uncertainty in the COVID-19 environment, Orica has remained focused on cash preservation.
This includes placing a hold on discretionary spend and reviewing capital expenditure for opportunities for deferment.
Our strong financial position provides flexibility to invest for the future and positions Orica well for when normalised mining
growth returns.
660
1,904
1,621
(100)
1,821
(83)
298
2,119
(277)
Net debt
30 September
2019
Net
operating
cashflows
Net
investing
cashflows
Net
financing
cashflows(i)
Sub-total
Non cash(ii)
movements
on Net debt
Net debt
30 September
2020
Lease(iii)
liability
Net debt
30 September
2020
(incl. Lease liability)
(i) Includes debt of $155 million assumed on acquisition of Exsa and subsequently paid down by Orica.
(ii) Non-cash movements on Net debt comprise foreign exchange translation.
(iii) Commenced 1 October 2019 under AASB 16 Leases.
44 ORICA
InDIVIDuAllY SIGnIFICAnt IteMS
Financial year ended 30 September 2020
Initiating systems network optimisation
Impairment expense
Operating model restructuring
Individually significant items attributable to shareholders of Orica
Initiating systems network optimisation
Gross
A$M
(80.1)
(63.4)
(26.9)
(170.4)
Tax
A$M
13.0
18.7
7.7
39.4
Net
A$M
(67.1)
(44.7)
(19.2)
(131.0)
As part of the network optimisation program within our strategic priorities, the Minden, Hallowell (USA) and Tappen (Canada) plants will
cease production. The resulting expense includes an impairment to Property, Plant and Equipment ($33 million), increase in environmental
and decommissioning provision ($28 million), redundancies ($8 million) and inventory write offs ($11 million).
Impairment expense
The impairment review and the transition to the new SAP operating system led to the identification of $63 million of legacy IT assets that
would no longer be utilised by the business.
Operating model restructuring
Headcount reductions as part of the ongoing review of the organisational structure resulted in redundancy costs of $27 million.
DIVIDenD
Our strong result, healthy balance sheet
and confidence in the future have enabled
us to maintain a dividend, reduced to
reflect continuing uncertainty in our
operating environment.
The Board has declared a final ordinary
dividend of 16.5 cents per share, unfranked.
The dividend represents a payout ratio(15)
of 50 per cent. This brings the full year
dividend to 33.0 cents per share, and
a full year payout ratio of 45 per cent.
The dividend is payable to shareholders
on 15 January 2021 and shareholders
registered as at the close of business on
1 December 2020 will be eligible for
the final dividend. It is anticipated that
dividends in the near future will be
franked at no more than 20 per cent.
StRAteGIC pRIoRItIeS
Supporting our strategic objectives, we
have a clear roadmap which focuses on
moving towards leaner, more efficient
operations and profitable growth, both
of which are Orica’s key value drivers
over the medium to long-term.
Exsa acquisition
The acquisition of Exsa represented a
major milestone in a key strategic region
with synergies to be unlocked in particular
from the state-of-the-art, underutilised
manufacturing facility at Lurin. Since the
acquisition, Exsa plants have begun producing
Orica branded product, and synergistic
benefits have materialised from October
2020. The acquisition is on track to achieve
over $50 million EBITDA contribution in
2023 financial year, including approximately
$25 million in synergies.
Initiating systems network and
portfolio product optimisation
The Group is undertaking a global project
to rationalise its product portfolio, simplify and
reduce its different technologies, and enable
the optimisation of the initiating system (IS)
plant network. This is expected to result in
an increase in average IS plant utilisation
from 48 per cent to around 75 per cent
by 2023 and 80 per cent by 2024.
During the 2020 financial year, the program
has progressed with plant closures in North
America having been announced. However,
SKU rationalisation was slowed during the
SAP system transition with prior momentum
to be re-gained during the 2021 financial year.
Manufacturing reliability
During the year, the average OEE of all
continuous AN plants exceeded the targeted
80 per cent. The network was further
strengthened by the commencement of
production at the Burrup plant which will
deliver an annualised EBIT of approximately
$25 million going forward. An expected
increase in cyanide production and an
ongoing focus on maintaining our plants’
strong manufacturing reliability will continue
to support our strategic objectives.
Operating model execution
With the completion of the final phase of
the SAP project, benefits will begin being
embedded across the business. A major
component of this is an ongoing review
of the organisational structure which
will be streamlined and aligned with the
standardised end-to-end processes and
increased automation of the SAP system.
A 20 per cent annualised cash return on
investment on the SAP project of approximately
$60 million is expected by the 2023 financial
year, with the improvements spread evenly
over the next three years.
Technology rollout
Our penetration of new technology offerings
continues, with particularly strong uptake
of our digital solutions in the 2020 financial
year. Although new WebGen™ trials have
largely been paused due to challenges from
COVID-19 in accessing mines and mobilising
the relevant personnel, strong market
demand remains and will continue to grow
when normalised mining activity returns.
The introduction of WebGen™ 200 together
with achieving critical mass will drive
profitable growth.
The EBIT uplift from new technology in
the 2021 financial year is expected to be
approximately $15 million, subject to global
recovery from COVID-19 in the second half.
outlooKCOVID-19 recoveryTiming of recovery in markets across the globe is difficult to predict. Mining continues to be considered an essential service in key markets however challenges are anticipated to be significant through at least the first half of the 2021 financial year with some potential improvement in the second half.A pre COVID-19 run rate is expected to be realised in developed countries, while developing countries continue to battle prolonged and more severe impacts than previously anticipated.2021 financial yearEBIT for the first half of 2021 is expected to be lower than the pcp, followed by substantial improvement in the second half, with overall EBIT growth for the full year. This is based on current expectations that COVID-19 will continue to impact our business in the first half, but conditions will improve in the second half. Our focus will remain on controllable factors, realising initial benefits from our strategic priorities and our solid platform for growth. Based on the current view of mining activity, AN volume, excluding Exsa, is expected to grow by approximately one per cent on the 2020 financial year.We expect the initiatives from our strategic priorities to deliver between $40 million and $50 million EBIT benefit in the 2021 financial year, weighted more to the second half from:• Initiating systems network & product portfolio optimisation• Operating model execution• Technology rolloutExsa AN volumes for the 2021 financial year are expected to be approximately three times that of the pcp, given a full year of contribution. Realisation of synergies is expected to start ramping up in the second half of the 2021 financial year.Positive EBIT contribution is expected from Burrup in its first full year of production.Capital expenditure is expected to be $380 million to $400 million, excluding Burrup but including capital required for the newly acquired Exsa business. We will maintain our focus on our balance sheet strength and liquidity position.Depreciation and amortisation expense is expected to increase by around 30 per cent, largely attributable to depreciation from Burrup, the SAP system and Exsa.Integrated within our strategic priorities is our objective of moving towards a decarbonised environment and achieving climate-resilient economic growth.FoRWARD-looKInG StAteMentSThe Review of Operations has been prepared by Orica Limited. The information contained is for informational purposes only. The information contained in the Review of Operations 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 the Review of Operations. 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) InFoRMAtIonThe 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 2020 Full Year Results presentation includes non-IFRS reconciliations. Forecast information has been estimated on the same measurement basis as actual results. FootnotesThe following footnotes apply to the Review of Operations:(1) Equivalent to profit/(loss) before financing costs and income tax as disclosed in Note 1(b) to the financial statements before individually significant items.(2) 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.(3) Basic earnings per share before individually significant items as disclosed in Note 2 to the financial statements.(4) Equivalent to net cash flows from operating activities, as disclosed in the Statement of Cash Flows.(5) Comprises spend on property, plant and equipment and intangible assets, on an accruals basis for the 2020 financial year to align with SAP reporting, and on a cash basis in prior years.(6) Total interest bearing liabilities – excluding lease liabilities less cash and cash equivalents, as disclosed in Note 3 to the financial statements.(7) Net debt/(net debt + total equity) where net debt excludes lease liabilities as disclosed in Note 3 to the financial statements.(8) EBIT before individually significant items plus depreciation and amortisation expense.(9) Quarry and construction.(10) Equivalent to net cash flows used in investing activities, as disclosed in the Statement of Cash Flows.(11) 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.(12) Equivalent to net increase/(decrease) in cash held, as disclosed in the Statement of Cash Flows.(13) Comprises inventories, trade receivables and trade payables, as disclosed in the Balance Sheet.(14) Comprises other receivables, other payables and provisions, as disclosed in the Balance Sheet.(15) Dividend amount/NPAT before individually significant items.45Annual Report 2020 PFO Checking Procedures
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46 ORICA
46 ORICA
Annual Report 2020
Annual Report 2020
47
47
DIReCtoRS’ RepoRt
DIReCtoRS’ RepoRt
DIReCtoRS’ RepoRt (Continued)
DIReCtoRS’ RepoRt (Continued)
The Directors of Orica Limited (‘the Company’ or ‘Orica’) present the Annual Report of the Company and its controlled entities (collectively ‘the Group’)
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 2020 and the Auditor’s Report thereon.
for the year ended 30 September 2020 and the Auditor’s Report thereon.
CHAnGeS In tHe StAte oF AFFAIRS
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 2020.
There were no significant changes in the state of affairs of the Group during the year ended 30 September 2020.
Replace hyphens with en-dashes (where necessary).
Replace hyphens with en-dashes (where necessary).
On 1 March 2020, E O’Connor and K Anderson Llewellyn were each appointed as Company Secretary of Orica Limited. This position was previously held
On 1 March 2020, E O’Connor and K Anderson Llewellyn were each appointed as Company Secretary of Orica Limited. This position was previously held
by K Gray.
by K Gray.
DIReCtoRS
DIReCtoRS
The Directors of the Company during the financial year and up to the date of this report are:
The Directors of the Company during the financial year and up to the date of this report are:
M W Broomhead, Chairman
M W Broomhead, Chairman
M N Brenner
M N Brenner
Lim C O (retired 31 October 2019)
Lim C O (retired 31 October 2019)
K A Moses
K A Moses
J R Beevers (appointed 1 February 2020)
J R Beevers (appointed 1 February 2020)
A Calderon, Managing Director and Chief Executive Officer (‘CEO’)
A Calderon, Managing Director and Chief Executive Officer (‘CEO’)
Boon S F
Boon S F
D W Gibson
D W Gibson
G T Tilbrook
G T Tilbrook
Particulars of Directors’ and Company Secretary qualifications, experience and special responsibilities are detailed in the Annual Report.
Particulars of Directors’ and Company Secretary qualifications, experience and special responsibilities are detailed in the Annual Report.
DIReCtoRS’ MeetInGS
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
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:
Company during the financial year are listed below:
Scheduled Board
Scheduled Board
Meetings(1)
Meetings(1)
Audit and Risk
Audit and Risk
Committee(1)
Committee(1)
Human Resources
Human Resources
and Compensation
and Compensation
Committee(1)
Committee(1)
Nominations
Nominations
Committee(1)
Committee(1)
Safety, Health,
Safety, Health,
Environment,
Environment,
Community &
Community &
Security Committee(1)
Security Committee(1)
Innovation
Innovation
and Technology
and Technology
Committee(1)
Committee(1)
Director
Director
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
Held Attended
M W Broomhead(2)
M W Broomhead(2)
M N Brenner
M N Brenner
A Calderon(3)
A Calderon(3)
D W Gibson
D W Gibson
K A Moses
K A Moses
Boon S F
Boon S F
G T Tilbrook
G T Tilbrook
J R Beevers (4)
J R Beevers (4)
Former
Former
Lim C O (5)
Lim C O (5)
11
11
11
11
11
11
11
11
11
11
11
11
11
11
6
6
3
3
11
11
11
11
11
11
11
11
11
11
11
11
11
11
6
6
2
2
–
–
5
5
–
–
–
–
–
–
5
5
5
5
–
–
–
–
–
–
5
5
–
–
–
–
–
–
5
5
5
5
–
–
–
–
–
–
6
6
–
–
6
6
6
6
–
–
–
–
–
–
2
2
–
–
6
6
–
–
6
6
6
6
–
–
–
–
–
–
2
2
6
6
6
6
–
–
6
6
6
6
6
6
6
6
4
4
1
1
6
6
6
6
–
–
6
6
6
6
6
6
6
6
4
4
1
1
–
–
–
–
–
–
–
–
5
5
–
–
5
5
4
4
1
1
–
–
–
–
–
–
–
–
5
5
–
–
5
5
4
4
1
1
1
1
–
–
–
–
4
4
–
–
4
4
–
–
3
3
–
–
1
1
–
–
–
–
4
4
–
–
4
4
–
–
3
3
–
–
(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.
(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.
(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.
(3) The Managing Director and CEO attends Committee meetings on an ‘as needs’ basis.
(4) Mr J R Beevers was appointed to the Orica Board on 1 February 2020 and joined the Safety, Health, Environment, Community & Security Committee and the
(4) Mr J R Beevers was appointed to the Orica Board on 1 February 2020 and joined the Safety, Health, Environment, Community & Security Committee and the
Innovation & Technology Committee on the 1 February 2020.
Innovation & Technology Committee on the 1 February 2020.
(5) Mr Lim Chee Onn retired from the Orica Board & Committees effective 31 October 2019.
(5) Mr Lim Chee Onn retired from the Orica Board & Committees effective 31 October 2019.
DIReCtoRS’ InteReStS In SHARe CApItAl
DIReCtoRS’ InteReStS In SHARe CApItAl
The relevant interest of each Director in the share capital of the Company is disclosed in the Remuneration Report.
The relevant interest of each Director in the share capital of the Company is disclosed in the Remuneration Report.
pRInCIpAl ACtIVItIeS
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
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.
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
Likely developments in the operations of the Group and the expected results of those operations are covered generally in the review of operations
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.
and financial performance of the Group in the Annual Report.
ReVIeW AnD ReSultS oF opeRAtIonS
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.
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.
DIVIDenDS
DIVIDenDS
Dividends paid or declared since the end of the previous financial year were:
Dividends paid or declared since the end of the previous financial year were:
Final dividend at the rate of 33.0 cents per share on ordinary shares, 15.2% franked at 30%, paid 13 December 2019
Final dividend at the rate of 33.0 cents per share on ordinary shares, 15.2% franked at 30%, paid 13 December 2019
Interim dividend declared at the rate of 16.5 cents per share on ordinary shares, unfranked, paid 8 July 2020
Interim dividend declared at the rate of 16.5 cents per share on ordinary shares, unfranked, paid 8 July 2020
Total dividends paid
Total dividends paid
$m
$m
125.6
125.6
67.0
67.0
192.6
192.6
Since the end of the financial year, the Directors have declared a final dividend to be paid at the rate of 16.5 cents per share on ordinary shares.
Since the end of the financial year, the Directors have declared a final dividend to be paid at the rate of 16.5 cents per share on ordinary shares.
This dividend will be unfranked.
This dividend will be unfranked.
eVentS SuBSeQuent to BAlAnCe DAte
eVentS SuBSeQuent to BAlAnCe DAte
Dividends
Dividends
On 19 November 2020, the Directors declared a final dividend of 16.5 cents per ordinary share payable on 15 January 2021. The financial effect of this
On 19 November 2020, the Directors declared a final dividend of 16.5 cents per ordinary share payable on 15 January 2021. The financial effect of this
dividend is not included in the Annual Report for the year ended 30 September 2020 and will be recognised in the FY2021 Annual Report.
dividend is not included in the Annual Report for the year ended 30 September 2020 and will be recognised in the FY2021 Annual Report.
The Directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2020, that has affected or may
The Directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2020, 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
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.
in this report.
enVIRonMentAl ReGulAtIonS
enVIRonMentAl ReGulAtIonS
Orica seeks to be compliant with applicable environmental laws and regulatory permissions relevant to its operations. Where instances of non-compliance
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
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.
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
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
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.
initiatives, as well as enhancing community engagement and consultation.
More specific details about Orica’s sustainability initiatives and performance, including safety, health and environment, can be found on the Orica website –
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.
www.orica.com/sustainability.
InDeMnIFICAtIon oF oFFICeRS
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 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.
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
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
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.
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
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
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.
prohibits disclosure of the nature of the liability insured against and the amount of the premium paid.
non-AuDIt SeRVICeS
non-AuDIt SeRVICeS
During the year, KPMG, the Company’s auditor, performed certain other services in addition to its audit responsibilities.
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
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:
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
• 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
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
• 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 (Including Independence Standards), as they did not involve reviewing or auditing the auditor’s own work, acting in
for Professional Accountants (Including Independence Standards), 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 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 71 of the
A copy of the lead auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is contained on page 71 of the
Annual Report and forms part of this Directors’ Report.
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
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 21 to the Annual Report.
are disclosed in note 21 to the Annual Report.
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48 ORICA
Annual Report 2020
49
DIRECTORS’ REPORT (Continued)
DIRECTORS’ REPORT (Continued)
COVER LETTER (UNAUDITED) TO THE REMUNERATION REPORT
Dear Shareholders,
On behalf of the Board, I am pleased to present Orica’s 2020 Remuneration Report, for which we seek your support at our Annual General Meeting.
PERFORMANCE ALIGNMENT AND IMPACT OF COVID‑19
The 2020 financial year for Orica has been a year like no other with severe natural disasters in the first half, followed by the COVID‑19 global pandemic
in the second half. All employees across Orica have responded extremely well, and in relation to the pandemic have implemented measures to keep our
people safe and well, maintaining reliable and safe operations, and supporting our local communities. Against this backdrop we have also managed to
successfully deliver on all planned strategic initiatives and continue to build a strong platform for growth. On behalf of the Board, I would like to thank
all of our employees for their significant effort and commitment throughout this unprecedented period.
While site closures in certain countries and travel restrictions initially disrupted portions of the workforce, a large majority of our employees have been
able to continue working through the pandemic, including many flexibly at home. For our many manufacturing and operational employees who needed
to work on‑site, we took steps to adapt our workplaces to new regulations on social distancing and established new processes to ensure safe and
productive work environments. We have maintained a strong relationship with the local communities in which we operate. There are many examples
of our employees providing support to those communities including the provision of sanitising and personal protective equipment to those impacted
by the pandemic.
With mining activities deemed as an essential service in most countries around the world, business impact due to COVID‑19 was mixed based on
geography. We have seen limited business impact in Australia, the United States of America and CIS countries, with Canada slowly recovering. However,
demand in Peru, Colombia, Mexico, India, South Africa and parts of Europe and Asia has been adversely affected in the second half as the COVID‑19
impact has been harsher and more sustained.
The business delivered a solid result in the first half which was in line with the Board’s expectations, despite COVID‑19 starting to gain momentum in
March. Based on our knowledge at the time of our first half results in May as COVID‑19 was beginning to peak, we expected Ammonium Nitrate volume
demand to drop between 10‑15% against expectations in the second half. Our year‑end Earnings Before Interest and Tax (EBIT) result is broadly in line
with these expectations.
We are pleased that despite a reduced EBIT compared to last year, we have been able to maintain distributions to shareholders which is reflective of
strong balance sheet management and commitment to shareholder returns.
SHORT‑TERM INCENTIVE
The impact of COVID‑19 on the Group’s performance was carefully considered in determining the award of this year’s short‑term incentive outcomes.
Group financial EBIT and Return on Net Assets (RONA) targets were based on the budget set prior to COVID‑19. Outcomes for these metrics were
significantly impacted by reduced demand in the second half of the year, which resulted in a below threshold outcome being achieved against both EBIT
and RONA measures.
Excellent safety performance was achieved in FY2020 with a significant improvement in Serious Injury Case Rate (SICR) performance from the prior year.
Measures relating to Key Control Verifications (KCV) and close out of critical actions were achieved at maximum performance at a Group level, both
improving on prior year performance, reflecting the relentless focus within Orica to pro‑actively manage and mitigate major hazards across the
organisation. Importantly there were no fatalities in FY2020.
The final outcome for the CEO was 45.2% of his target opportunity (22.6% of maximum) and for other Executive Key Management Personnel (KMP)
outcomes ranged between 37.6% and 82.6% of target. The performance of management was commendable throughout the second half of FY2020
with no interruption of supply to any customer, and the completion of both our SAP implementation and integration of Exsa remotely given workplace
restrictions. However, given the impact of COVID‑19 on the activity of our customers’ mining operations and the resulting decline in EBIT, the Board
considers the outcomes fairly reflect the shareholder experience during this period. STI outcomes and commentary are provided in Section 3.2 of this report.
LONG‑TERM INCENTIVE
There was partial vesting (77.15% of the total award) of the LTI awards granted in FY2017, with the performance period ending on 30 September 2019
and tested in November 2019. The Relative Total Shareholder Return (RTSR) metric was achieved at upper quartile vesting and the average Return on
Capital (ROC) performance was achieved between target and maximum. In determining the outcome, the Board exercised its discretion to adjust for
significant items to ensure they neither benefited nor disadvantaged management. This is noted in Section 3.3 of this report.
It is not anticipated that LTI awards granted in FY2018 (performance period ending on 30 September 2020 and tested in November 2020) will vest due to
the average RONA performance being below the required threshold. It is expected that the decline in earnings in FY2020 due to the impact of COVID‑19
will also have a detrimental impact on the two other LTIP grants currently on foot (FY2019 and FY2020) which are solely based on RONA performance.
The Board will continue to review the appropriateness of the LTI targets within these plans in the context of COVID‑19.
CHANGES IN FY2020
During the year, no material changes were made to our remuneration framework, however two Safety, Health and Environment (SHE) metrics were
refined to improve the measures as indicators of SHE performance. This is discussed in more detail in section 3.1 of this report. Further, based on feedback
from investors, to enable shareholders to better understand how Short‑Term Incentive (STI) outcomes are derived we have enhanced our STI disclosure to
include the FY2020 target and the weighted outcome for each scorecard measure.
The Board did spend time strengthening the assessment of Executive performance when determining individual incentive outcomes. Leveraging our SAP
investment, we have incorporated a process that aims to provide greater insight. This involves formalised feedback to the Board from functional leaders,
the CEO and Chairs of each Board Committee. These insights are key inputs into the final determination of performance outcomes, including the overall
exercise of discretion, which remains a key element of our framework.
Two members of the Executive KMP received increases in Fixed Annual Remuneration (FAR) – Christopher Davis (Chief Financial Officer) in recognition
of his performance in the role since his appointment in October 2018 and to better align to market benchmarks, and Germán Morales (President Latin
America & Supply) to reflect the additional scope of responsibilities in his role leading our Global Supply Chain function as well as integration of the newly
acquired Exsa business in Peru. These increases were effective 1 January and 1 March 2020, respectively.
With respect to KMP changes, Sanjeev Gandhi joined the organisation in July 2020 as President, Australia Pacific and Asia and further strengthens Orica’s
world class leadership team. The Board also welcomed John Beevers as a Non‑Executive Director in February 2020 while Lim Chee Onn retired from the
Board having served since 2010.
EXECUTIVE REMUNERATION FOR FY2021
Each year the Board tests the measures used to reward short and long‑term performance so that they reflect the most relevant drivers of value in our
business and remain aligned to Orica’s strategic direction. While there will be no changes to the incentive structure or opportunity levels in FY2021, we will
be making certain changes to our STI metrics. We will update two of our SHE metrics to replace existing lead indicators with outcome‑based measures,
including tracking high potential incidents. We recognise the importance of monitoring the environmental impact of our operations and in FY2021 we will
include a metric which measures the Loss of Containment as one of our key potential impacts to the environment. Finally, a ‘Cash Generation Efficiency’
metric will be introduced to reflect the importance of cash flow in driving our on‑going financial strength. More information on these new changes is
outlined in Section 2 of this report.
The last major change to our remuneration framework was implemented at the start of FY2018 and was developed to support a transformation program
aimed at optimising Orica’s operating and capital efficiency. With large parts of this transformation now delivered, the Board intends to commence a
formal review of the Executive Remuneration Framework in the coming year. The review will focus on ensuring the framework remains aligned to Orica’s
strategy, enables us to attract, engage and retain talent, motivates our people to deliver their best performance and aligns the interests of executives with
our shareholders. Similar to the consultative engagement program we undertook before the last change in FY2018, we look forward to engaging with
shareholders as we undergo this review process.
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.
Yours faithfully,
Maxine Brenner
Chairman, Human Resources and Compensation Committee
19 November 2020
50 ORICA
Annual Report 2020
51
DIRECTORS’ REPORT – REMUNERATION
REPORT 2020 (AUDITED)
EXECUTIVE SUMMARY
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 FY2020…
links to what
Executives are paid.
Safety, Health &
Environment
Reduce the number of
serious injuries and mitigate
and manage risk from
major hazards
EBIT
Sustainably increase productivity
and devolve responsibility to
regional businesses.
SICR rates fell to the lowest level
since FY2016 as a result of a strong
focus on preventing serious injuries.
Maximum performance achieved
for KCVs and close out of critical
actions reflecting strong
operational discipline.
Solid result in first half however
final EBIT outcome was below
threshold, predominantly due to
reduced demand and increased
freight costs in the second half
of the year as a result of the
COVID‑19 pandemic
Business
Transformation
RONA
Drive sustainable productivity
improvement and efficient
capital allocation.
RONA outcome was below threshold,
being significantly impacted by
COVID‑19 pandemic in second
half of the year.
CEO STI outcome
in FY2020 = 45.2% of target
(22.6% of maximum)
Average STI in FY2020 for
Executive KMP, including
the CEO = 58.3% of target
(29.2% of maximum)
Personal objectives for each
Executive (other than the CEO)
reflect strategic priorities
including enhancing Orica’s
development and use of
technology, operating efficiency
and adjacency growth.(1)
Long‑term
shareholder value
creation
RONA, together with holding locks
Drive sustainable productivity
improvement and efficient capital
allocation.
Progress on commercialisation of
new technology despite COVID‑19
impact limiting customer site access,
implementation of global SAP
platform and successful completion
of the Exsa transaction. Achievement
against personal objectives was on
average above target.
During FY2020, the FY2017 award
was eligible for testing against two
performance measures – Relative
Total Shareholder Return (RTSR)
and ROC. Maximum performance
was achieved against RTSR; while
performance between target and
maximum was achieved against
the ROC measure.
Partial LTI vesting of FY2017‑19
LTI (77.15% of LTI awarded) in
FY2020 for the CEO and eligible
Executive KMP.
FY2018‑20 LTI (to be tested in
November 2020) is not
anticipated to vest.
(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. The overall assessment of Executive performance was also strengthened when determining individual STI outcomes. Leveraging
the SAP investment, a process has been implemented that aims to provide greater insight through formalised feedback from functional leads, the CEO and Chairs of
each Board Committee.
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
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 FY2020?
2.6 What have been the historical incentive outcomes for the CEO?
2.7 How is the CEO’s salary determined?
2.8 What changes are proposed for the Executive Remuneration Framework in FY2021?
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 FY2020
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
52
ORICA
Annual Report 2020
53
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
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 FY2020
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
Chief Manufacturing Officer
Sanjeev Gandhi(1)
President – Australia Pacific & Asia
Angus Melbourne(2)
Chief Commercial Officer
1 October 2018
1 October 2015
7 October 2019
20 July 2020
1 October 2016
Germán Morales
President – Latin America & Supply
1 September 2018
Australia
United States
Australia
Australia
Australia
Chile
Thomas Schutte
President – Europe, Middle East and Africa
1 October 2017
United Kingdom
Former Executive KMP
Carlos Duarte(3)
Group Executive, Manufacturing & Supply
1 October 2017
Australia
(1) Effective 20 July 2020, Sanjeev Gandhi joined Orica as President – Australia Pacific & Asia. James Crough acted as interim President – Australia Pacific & Asia from
7 October 2019 until 20 July 2020. James Crough is not disclosed as an Executive KMP in this report on the basis that an executive acting in an interim capacity is not
considered to have the same level of authority for planning, directing and controlling the entity as a permanent appointment to the role.
(2) Effective 1 December 2019, Angus Melbourne relocated from Singapore to Australia.
(3) Carlos Duarte, Group Executive Manufacturing & Supply, ceased to be a KMP on 7 October 2019. Carlos was not eligible to participate in the FY2020 STI plan
or FY2020 LTI offer.
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 FY2020 are set out below:
Name
Role in FY2020
Commencement date in role
Country of Residence
Current Directors
Malcolm Broomhead
Non‑Executive Director, Chairman
John Beevers
Maxine Brenner
Boon Swan Foo
Denise Gibson
Karen Moses
Gene Tilbrook
Former Directors
Non‑Executive Director
Non‑Executive Director
Non‑Executive Director
Non‑Executive Director
Non‑Executive Director
Non‑Executive Director
1 December 2015
1 February 2020
8 April 2013
6 May 2019
1 January 2018
1 July 2016
14 August 2013
Australia
Australia
Australia
Singapore
United States
Australia
Australia
Lim Chee Onn(1)
Non‑Executive Director
12 July 2010
Singapore
(1) Ceased to be a director on 31 October 2019.
SECTION 2: KEY STAKEHOLDER QUESTIONS
2.1 What is Orica’s Executive remuneration strategy?
Orica’s Executive Remuneration Strategy is illustrated below:
OBJECTIVE: COMPETITVE REMUNERATION THAT ALIGNS EXECUTIVES
WITH THE LONG‑TERM SUCCESS OF ORICA AND ITS SHAREHOLDERS
D
R
A
O
B
S
E
I
T
I
R
O
R
P
I
Strong alignment with
shareholder returns
Fit for purpose,
aligned to business
strategy and driving desired
business behaviours
Simple and transparent
Globally competitive,
enabling Orica to attract
and retain the best talent
2.2 How is Executive remuneration structured?
Orica’s FY2020 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 inclusion of RONA as a standalone metric
in both the STI and LTI plans reinforces the focus on sustainable productivity improvement and efficient capital allocation throughout Orica’s transformation
and across multiple time horizons. The diagram below provides an overview of the different remuneration components within the Framework.
Significant proportion at risk
Extended equity ‘lock in’ for STI and LTI
(five‑year plan periods)
Overriding Board discretion to adjust as appropriate
REMUNERATION
COMPONENT
FIXED ANNUAL
REMUNERATION (FAR)
SHORT‑TERM
INCENTIVE (STI)
LONG‑TERM
INCENTIVE (LTI)
PURPOSE
Provide competitive base pay to
attract and retain the skills needed
to manage a global business in a
complex operating environment
Drive performance aligned to near
term strategy and underpinning
long‑term value creation
Drive long‑term value creation
for shareholders
Encourage an owner’s mindset
and long‑term decision‑making
DELIVERY
Base salary, superannuation
(or pension equivalent) and
allowances (per local market practice)
Portion as
cash payment
Portion
deferred into
shares for one
year with
a further
three‑year
holding lock
Performance rights (vesting after
three years, subject to performance
hurdles) with a further two‑year
holding lock
FY2020 APPROACH
Target FAR positioning is the median
of a comparator group
Comparators: 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 benchmarks
STI Performance Measures (CEO)
RONA
37.5%
LTI Performance Measure
RONA – averaged over three years
For each year RONA is calculated as
annual EBIT divided by: Rolling 12
month Net Operating Assets (NOA)
= RONA
Safety
25%
EBIT
37.5%
Annual Report 2020
55
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
SECTION 2: KEY STAKEHOLDER QUESTIONS (continued)
2.5 How much did Executives get paid in FY2020?
The table below presents the remuneration paid to, or vested for, Executive KMP in FY2020. Included in the value of prior year equity awards vested
during the year is the face value of:
• deferred shares awarded as part of the FY2018 STI vesting in December 2019 but which remain subject to a holding lock until December 2022
(for selected overseas executives, where a tax liability arose at vesting, a portion of the deferred shares were released from restriction to settle the
taxes due); and
• performance rights awarded as part of the FY2017‑19 LTI Plan vesting in November 2019 (there were no holding locks applicable to shares acquired
as a result of this vesting).
Fixed Pay(1)
$000
STI to be paid
in cash(2)
$000
Total cash
payment
$000
Prior year equity
awards vested
during year(3)
$000
Total
remuneration
received
$000
Other(4)
$000
Executives (KMP)
Alberto Calderon
Christopher Davis
James Bonnor
Darryl Cuzzubbo
Sanjeev Gandhi(5)
Angus Melbourne
Germán Morales
Thomas Schutte
Former Executive KMP
Carlos Duarte
Total
1,800.0
856.3
940.5
875.0
205.1
938.3
708.1
1,111.7
17.3
7,452.3
406.7
233.6
200.6
289.1
–
204.9
179.3
165.3
–
1,679.5
2,206.7
1,089.9
1,141.1
1,164.1
205.1
1,143.2
887.4
1,277.0
17.3
9,131.8
3,929.8
403.1
966.1
1,021.0
–
1,112.9
131.8
1,180.1
300.7
9,045.5
2.3
0.8
342.0
1.2
191.4
117.3
51.9
24.8
–
731.7
6,138.8
1,493.8
2,449.2
2,186.3
396.5
2,373.4
1,071.1
2,481.9
318.0
18,909.0
(1) Fixed Pay includes actual base pay received and superannuation (or equivalent pension) contributions.
(2) FY2020 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 amount relates to the face value (using the share price at the vesting date) of deferred STI from FY2018 that vested in December 2019 but remains subject to holding
locks and partial vesting of the FY2017‑19 LTI Plan in November 2019.
(4)
Includes cash value of relocation assistance, the cost of meeting tax filing obligations associated with international assignments, other benefits and allowances provided
(where applicable). Movements in annual leave and long‑service leave balances have not been shown.
(5) Represents remuneration and other benefits paid since appointment. Mr. Gandhi’s Fixed Annual Remuneration has been set at $1,000,000 AUD and he was not eligible
to receive a short‑term incentive in respect of FY2020.
Refer to section 6.1 – Executive KMP for remuneration table prepared in accordance with the accounting standards.
54ORICA DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)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 FY2020 remuneration is earned and delivered, and when holding locks are lifted.Date paidDate earnedDate granted5‑year planperiods forSTI and LTIVesting dateFARSTILTIFY2020FY2021FY2022FY2023FY2024Cash 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 of which 64% is delivered as deferred shares or performance rights.• Other Executive KMP: 64% of their remuneration (on average) is performance‑based pay of which 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).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‑dependent 56 ORICA
Annual Report 2020
57
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
SECTION 2: KEY STAKEHOLDER QUESTIONS (continued)
2.6 What have been the historical incentive outcomes for the CEO?
The table below shows the incentive plan outcomes for the CEO since his appointment to the role in May 2015 (note that the first LTI Plan the CEO
participated in was the FY2016‑18 Plan).
Financial Year (FY)
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
EBIT
$689.4m
$642.2m
$635.1m
$618.1m
$664.7m
$604.5m
Share price at start of LTI
performance period ($)(1)
FY end share price ($)
STI (% of maximum)
24.86
15.04
34%
19.80
15.20
39%
18.95
19.77
53%
15.39
17.03
18%
Discretion exercised (STI)
Yes (reduced)
Yes (reduced)
Yes (reduced)
Yes (reduced)
15.57
22.54
56%
No
LTI (% of rights vested)(2)
0%
0%
0%
24.88%
77.15%
19.72
15.43
23%
No
0%(3)
(1) References LTI plan with final performance year aligned to respective financial year (e.g. FY2019 shows share price at beginning of FY2017).
(2) Represents outcome of LTI plan with final performance year aligned to respective financial year (e.g. FY2019 shows outcome of FY2017‑19 LTIP).
(3) Represents anticipated vesting for the FY2018‑20 LTI Plan.
FAR
In assessing performance against incentive targets the Board has 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. The Board has exercised
discretion to reduce CEO outcomes in four of the last six financial years. Factors that the Board has considered in exercising discretion include safety
performance and the impact of fatalities together with the overall alignment of executive outcomes to financial performance and shareholder returns.
STI
Changes in FY2020
2.7 How is the CEO’s salary determined?
As outlined in Section 3.1, when reviewing the CEO’s salary the Board considers market benchmarking information from a Primary Comparator Group
(made up of similar companies with respect to size, industry and complexity) and a Secondary Comparator Group (made up of similar companies with
respect to size only). The fixed annual remuneration of the current CEO was set in May 2015 on appointment to the role and has not been adjusted since
this time. The total package has changed once since 2015 (in 2018) when a two‑year year holding lock on vested LTI shares was introduced. To maintain
the value of total remuneration, taking into account these incremental holding locks but discounting for dividends and other benefits of deferral, the LTI
opportunity was increased from 180% to 215% from FY2018 onwards.
2.8 What changes are proposed for the Executive Remuneration Framework in FY2021?
The Safety metrics of KCVs and close out of critical actions have been in the STI plan for several years and have resulted in significant and positive
behavioural changes and performance improvements across the company. The leading indicators, in particular, were important in focusing behaviour
on the effective roll out of the Major Hazard Management program. Given the initiative is largely implemented, it is considered that an outcome‑based
measure is now a more relevant metric. Accordingly, KCVs and close out of critical actions measures will be replaced with a High Potential Incident Injury
Ratio metric. A new environmental metric will also be introduced, reflecting our focus on minimising the impact of our operations on our environment.
This metric will be linked to Loss of Containment. Serious Injury Case Rate (SICR), introduced in FY2019, will continue in FY2021. All three SHE metrics will
be equally weighted in the CEO scorecard. The FY2021 SHE metrics are designed to drive and maintain performance improvements in fatality prevention,
eliminate serious injury, proactive reporting and management of high potential incidents and reduce the environmental impact of our operations.
We will also introduce a cash‑flow measure (Cash Generation Efficiency) alongside existing financial metrics in the STI scorecard. This metric effectively
compares our net cash from operating activities (adjusted to exclude items such as cash outlays related to growth capital) against our Earnings Before
Interest Tax Depreciation and Amortisation (EBITDA). This will reduce the weighting of the RONA metric in the STI plan as equal weighting (25%) will
apply to each financial metric (EBIT, RONA and Cash Generation Efficiency) in the CEO’s FY2021 STI scorecard, with the remaining 25% reflecting the
new group of SHE metrics outlined above.
FY2021 CEO Scorecard
Measure
Metric
Weighting (at target)
Safety, Health & Environment
Serious Injury Case Rate
Financial
High Potential Incident Injury Ratio
Loss of Containment
EBIT
RONA
Cash Generation Efficiency
8.33%
8.33%
8.33%
25.0%
25.0%
25.0%
SECTION 3. EXECUTIVE REMUNERATION
3.1 Executive Remuneration Framework
The following table outlines the FY2020 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.
The primary comparator group was last reviewed as at 30 June 2019, and (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 of the relevant financial year. In addition, and particularly
for roles located outside of Australia, where appropriate, additional sector or local industry specific data is taken into
consideration in benchmarking Executive’s remuneration.
Payment vehicle
FAR includes base salary, superannuation (or pension equivalent) and allowances (per local market practice).
STI metrics remain unchanged from those used in FY2019 except for minor changes to the calculation methodology for
SICR (to exclude occupational disease or illness that are attributable to chronic exposure to harmful agents over an extended
period of time, usually years) and close out of critical actions (to expand the number of actions captured by this metric).
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.
For Executive KMP based outside of Australia opportunities are typically referenced to base salary only.
Performance
Measures
CEO: Safety (25%); EBIT(1) (37.5%); RONA(2) (37.5%).
Other Executives (in general): Safety (18.0%); EBIT(1) (23.50%); RONA(2) (23.50%); other strategic priorities (35%).
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 measures are solely based on Regional performance and financial metrics are more heavily
weighted towards Regional outcomes reflecting the metrics and outcomes that are within the direct control of these KMP.
While not specifically included as an STI metric for the CEO, 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. The determination of final performance outcomes for all
Executives includes input from Board Committee Chairs and senior functional leaders (e.g., finance and safety).
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) For STI purposes, EBIT is defined as earnings from Continuing Operations before interest, tax and individually significant items
(2) 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; current and non‑current investments in associates at current carrying value; trade working capital; non‑trade working capital excluding
environmental provisions.
58 ORICA
Annual Report 2020
59
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
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.
For Executive KMP based outside of Australia opportunities are referenced to base salary only.
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 FY2019 annual results ($23.80).
Performance period
Performance is measured over three financial years (FY2020, FY2021 and FY2022).
SECTION 3. EXECUTIVE REMUNERATION (continued)
3.2 Short‑term incentive outcomes – link to performance
(a) Summary of FY2020 STI performance conditions and performance level achieved
For FY2020, business and personal performance, target and target weighting of each component of the CEO’s scorecard and performance level achieved
are summarised below:
Measure
Target
Weighting
(at target)
Threshold
Target
Maximum
2020 outcome
Weighted
Outcome
(%)
Outcome
commentary
Safety, Health &
Environment
Rewards a continuous focus on safe and reliable operations measured through a combination
of lagging and leading indicators
RONA(1) – calculated as annual EBIT(2)/rolling 12‑month Net Operating Assets (calculated on an average basis over three
financial years).
SICR(1)
0.181
8.33%
Performance
measure
Targets and
vesting schedule
Holding locks
The FY2020 vesting schedule for the RONA performance measure is as follows:
Average RONA over 3 years
Below 13.4%
At 13.4%
% of Rights vesting
No vesting
30% of rights vest
Between 13.4% and 14.5%
Straight line vesting between 30% and 60% of rights vest
At 14.5%
Between 14.5% and 15.5%
At or above 15.5%
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. For the FY2020‑22 LTI grant, 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.
To achieve this, management must deliver EBIT growth rates over the plan period that are at least in line with 2nd quartile of
EBIT growth rates achieved by ASX100 Industrials and Materials 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 explosives market growth.
The impact of IFRS‑16 has been considered when setting the vesting schedule for the FY2020‑22 LTI plan. The requirement
to recognise leases on the balance sheet results in higher Net Operating Assets leading to a lower RONA on a comparative
basis. On a like for like basis if the impact of IFRS‑16 is excluded, the RONA target range for the FY2020‑22 LTI is set at a
performance level higher than the previous grant.
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 is
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).
142.2%
200.0%
200.0%
Safety performance across the
Group was strong in FY2020,
with improvements across all
measures compared to FY2019.
SICR rates fell to the lowest
level since FY2016 as a result
of a strong focus on preventing
serious injuries and fatalities.
KCVs and close out of critical
actions were above maximum
reflecting extraordinary efforts
in conducting key control
verifications and strong
operational discipline to
close out critical actions
by the due date.
Key control
verifications (KCV)(2)
5,457
8.33%
Close out of
critical actions(3)
90%
8.33%
Earnings
Measures improvements to earnings
EBIT(4)
$703.2m
37.5%
0.0%
EBIT outcome was below
threshold, predominantly
due to reduced demand
and increased freight costs
in the second half of the
year as a result of the
COVID‑19 pandemic
Capital efficiency
Rewards enhanced returns from invested capital, developing enabling technology and adjacency growth,
optimising capital allocation and reallocation
RONA(5)
13.4%
37.5%
Board discretion
The Board did not apply discretion to the overall outcome
0.0%
RONA outcome was similarly
below threshold and impacted
by the COVID‑19 pandemic
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.
Overall STI outcome
% of Target
% of Maximum
45.2%
22.6%
(1) For LTI 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; current and non‑current investments in associates at current carrying value; trade working capital; non‑trade working capital excluding
environmental provisions.
(1) SICR measures the total number of Severity 3 and Severity 4 injuries and illnesses per 200,000 hours worked by employee/contractor. Excludes non‑work‑related
injury/illness and occupational disease or illness that are attributable to chronic exposure to harmful agents over an extended period.
(2) Completion of scheduled Safety, Health & Environment (SHE) inspections categorised as Major Hazard Key Control Verification. SHE inspections measure number
(2) For LTI purposes, EBIT is defined as earnings from Continuing Operations before interest, tax and individually significant items
of completed Key Control Verifications.
The Board has an 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.
(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; current and non‑current investments in associates at current carrying value; trade working capital; non‑trade working capital excluding
environmental provisions.
In considering performance outcomes against the FY2020 targets, the Board reviewed the progress made against the mix of safety, financial and
strategic objectives. The impact of COVID‑19 on the Group’s performance was also carefully considered in determining the award of this year’s
short‑term incentive outcomes.
Group financial EBIT and RONA targets were based on the budget set prior to COVID‑19. Prior to the impact of COVID‑19, in the first half of the financial
year, EBIT and RONA were tracking well against targets set. At the half‑year it was estimated that COVID‑19 would have a detrimental impact on
Ammonium Nitrate volumes of between 10‑15% compared to expected pre‑COVID volumes. The actual impact was at the upper end of this estimate
with the pandemic affecting developing markets more significantly and for longer than initially anticipated. The reduced demand and higher freight costs
significantly impacted year‑end RONA and EBIT performance resulting in a below threshold outcome against both targets.
60 ORICA
Annual Report 2020
61
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
SECTION 3. EXECUTIVE REMUNERATION (continued)
Excellent safety performance was achieved in FY2020 with a significant improvement in Serious Injury Case Rate performance from the prior year.
Measures relating to Key Control Verifications and close out of critical actions were also achieved at maximum performance at a Group level reflecting a
strong behavioural change within Orica to pro‑actively mitigate and manage risk across the organisation. Importantly there were no fatalities in FY2020.
Personal objectives for each Executive (other than the CEO) were determined and approved by the Board at the commencement of the financial year. In
FY2020 these related to the strategic priorities of each Executive, including enhancing Orica’s development and use of technology, operating efficiency
and adjacency growth. Achievement against these objectives was on average above target.
The CEO achieved an outcome of 45.2% of his target opportunity (22.6% of maximum) while other Executive KMP achieved outcomes ranging between
37.6% and 82.6% of target. The Board considers the overall outcomes are a fair reflection of FY2020 shareholder performance but recognises the
considerable effort by management to minimise the impact of the downturn caused by the pandemic.
(b) Short‑term incentive outcome – FY2020
Details of the FY2020 outcomes for eligible Executive KMP are set out in the table below:
For the year ended 30 September 2020
Current Executive KMP
Alberto Calderon
Christopher Davis
James Bonnor
Darryl Cuzzubbo
Angus Melbourne
Germán Morales
Thomas Schutte
Maximum
STI
opportunity
$000
Actual STI
paid in cash
$000
3,600.0
1,027.4
1,137.2
1,050.0
1,121.8
801.8
1,319.8
406.7
233.6
200.6
289.1
204.9
179.3
165.3
Actual STI
paid in
deferred
equity(1)
$000
406.7
116.8
100.3
144.5
102.4
89.7
82.6
Actual STI
payment as %
of maximum
% of
maximum
STI forfeited
22.6%
34.1%
26.5%
41.3%
27.4%
33.5%
18.8%
77.4%
65.9%
73.5%
58.7%
72.6%
66.5%
81.2%
(1) 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 FY2020 STI outcome has been included in each Executive KMP’s share based payments expense in FY2020
and the remainder will be included in FY2021.
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.
Grant
FY2017
FY2018
FY2019
FY2020
Plan
LTIP
LTIP
LTIP
LTIP
FY2017 grant
Performance period
Performance measures applicable to award
FY2017 – FY2019
Vesting of performance rights subject to:
• Average Return on Capital (ROC) (50%); and
• Relative TSR ranking against ASX 100 (50%).
FY2018 – FY2020
RONA (100%)
FY2019 – FY2021
RONA (100%)
FY2020 – FY2022
RONA (100%)
Outcome
Partial vesting
(77.15% of
total grant)
Not yet tested
Not yet tested
Not yet tested
The FY2017 grant was tested in November 2019 with 77.15% of the performance rights granted vesting as outlined below. In determining the Average
ROC measure result, the Board applied discretion to adjust the Enterprise Value used in determining ROC to ensure management were not advantaged
from the impairments to Minova, IT and other assets, the write down of defective assets at Burrup, and changes in environmental and restructuring
provisions (which were all added back). The Board also applied discretion to remove the impact of GroundProbe in respect of the ROC calculation
for FY2018 to ensure management were neither advantaged nor disadvantaged by the acquisition.
Final outcome
Vesting position
Relative TSR
63.28% (78th percentile)
Above maximum (75th percentile)
ROC (3‑year average)
19.06%
Between threshold (18.25%) and target (19.25%)
% rights
vesting
by measure
100.00%
54.30%
TOTAL
% total
rights
vesting
50.00%
27.15%
77.15%
FY2018 grant
The FY2018‑20 LTIP will tested in November 2020. It is not anticipated that the minimum RONA performance threshold will be met.
SECTION 3. EXECUTIVE REMUNERATION (continued)
3.4 Equity granted in FY2020
The table below presents the equity granted at face value to Executive KMP for FY2020.
Executives
Alberto Calderon
Christopher Davis
James Bonnor
Darryl Cuzzubbo
Sanjeev Gandhi(3)
Angus Melbourne
Germán Morales
Thomas Schutte
Total
FY2020
LTI (1)
$000
3,870.0
1,050.0
1,098.7
1,050.0
–
1,103.7
779.8
1,300.1
FY2019
Deferred
shares (2)
$000
1,000.5
190.4
146.0
165.6
–
216.4
194.5
265.0
Sign‑on
rights
$000
–
–
–
–
750.0
–
–
–
Total
$000
4,870.5
1,240.4
1,244.7
1,215.6
750.0
1,320.1
974.3
1,565.1
10,252.3
2,178.4
750.0
13,180.7
(1) Due to vest in November 2022 subject to satisfaction of performance conditions and then subject to a two‑year holding lock.
(2) Not subject to any further performance conditions except continued employment for duration of deferral period and then subject to a three‑year holding lock.
(3) A grant of rights was made to Sanjeev Gandhi. The rights will vest in two tranches (66.67% of the rights vest on 31 March 2021 and 33.33% of the rights vest on
31 December 2021) subject to Mr Gandhi remaining employed with Orica on the vesting dates.
3.5 Overview of business performance – five‑year comparison
The table below summarises key indicators of the performance of the Company, relevant shareholder returns over the past five financial years and the
impact this has had on STI and LTI vesting outcomes. This demonstrates the alignment of Orica’s incentive awards with its performance.
Financial year ended 30 September
Profit/(loss) from operations ($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 2016 was $15.39.
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
2020
434.1
170.4
604.5
33.0
15.43
17.05
(22.7)
299.3
5,091.9
5,039.2
5,373.8
5,878.0
5,611.3
(14.08)
39.0
25.90
60.0
11.22
23.0
41.16
53.3
15.26
29.2
(4) Cumulative TSR has been calculated using the same start date for each period measured (1 October 2015). In calculating the cumulative TSR, three‑month average share
prices (1 July to 30 September for each year) have been used.
62 ORICA
Annual Report 2020
63
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
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
Executives
affected
Conditions
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
Duration of contract
All Executives
Permanent full‑time employment contract until notice given by either party.
• To preserve their independence, Directors do not receive any form of performance‑based pay.
Notice period to be provided by
Executive
All Executives
6 months.
Notice period to be provided by Orica
MD & CEO
Other Executives
Post‑employment restraints
All 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.
The current aggregate fee pool for Directors of $2,750,000 was approved by shareholders at the Company’s 2019 Annual General Meeting. This
increase in the fee pool was made as a result of the establishment of the Innovation and Technology Committee in FY2019, and to provide flexibility
in accommodating any future changes to the Board.
As disclosed in the 2019 Remuneration Report, following a market benchmarking exercise changes were made to Board member base fees and the
travel allowance. Details of Director fees and other benefits are shown in the table below.
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.
4.2 Fees and other benefits
The table below sets out the elements of Directors’ fees and other benefits applicable in FY2020:
Fees/benefits
Description
Board fees
Main Board
Chairman – Malcolm Broomhead
Members – all Non‑Executive Directors
Committee fees
Board Audit and Risk Committee
Chairman – Gene Tilbrook
Members – Maxine Brenner, Boon Swan Foo
Human Resources and Compensation Committee
Chairman – Maxine Brenner
Members – Denise Gibson, Karen Moses
Innovation and Technology Committee
Chairman – Denise Gibson
Members – John Beevers, Boon Swan Foo
Safety, Health, Environment, Community and Security Committee
Chairman – Karen Moses
Members – John Beevers, 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 $3,000 per meeting for travel between 3 and 10 hours or $6,000
if travel time exceeds 10 hours. Directors are also entitled to be paid additional fees for
extra services or special exertions.
Included in
shareholder
approved cap
2020
$
510,000
177,000
45,000
22,500
45,000
22,500
45,000
22,500
45,000
22,500
Yes
Yes
Yes
No
64 ORICA
Annual Report 2020
65
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
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 2020:
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 100% of
FAR for the Managing Director and CEO and 50% of FAR for other Executives 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(4)
Sanjeev Gandhi
Angus Melbourne(4)
Germán Morales
Thomas Schutte
Former Executive KMP
Carlos Duarte(5)
Directors
Malcolm Broomhead
John Beevers(6)
Maxine Brenner
Boon Swan Foo
Denise Gibson
Karen Moses
Gene Tilbrook
Former Directors
Lim Chee Onn(5)
Balance at
1 October
2019
Acquired(1)
Disposed
Balance at
30 September
2020
Minimum
Shareholding
Required(2)
Date Minimum
Shareholding
Required to
be met(3)
124,325
174,004
13,904
22,101
19,595
–
47,399
7,500
37,289
17,276
41,013
43,420
–
47,308
7,500
50,146
12,500
–
36,100
7,727
9,539
–
–
11,000
12,500
1,884
–
–
–
3,000
–
1,570
11,000
–
70,000
8,000
31,924
–
–
48,000
–
26,776
228,329
116,656
31 December 2022
23,180
31,190
63,015
–
46,707
15,000
60,659
28,354
29,791
28,354
29,806
32,404
22,981
35,639
30 September 2024
31 December 2022
31 December 2022
19 July 2026
31 December 2022
31 August 2024
31 December 2022
–
–
–
–
–
–
–
–
–
12,500
–
–
37,984
7,727
9,539
–
3,000
11,000
14,070
33,052
11,471
11,471
11,471
11,471
11,471
11,471
11,000
–
(1) Shares acquired, including deferred STI shares from FY2018 that have vested but remain subject to holding locks and shares acquired through the Dividend Reinvestment
Plan (DRP).
(2) Calculated using the Orica closing share price on 30 September 2020.
(3) Directors are required to acquire a shareholding of at least one year’s base fees over a reasonable time.
(4) Previously disclosed as 30 September 2022. Corrected to reflect the guideline which provides Executives employed prior to 1 January 2015 until 31 December 2022 to
accumulate the minimum vested shareholding required.
(5) Closing balance on cessation of employment/directorship.
(6) Opening balance on commencement of directorship.
66 ORICA
Annual Report 2020
67
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
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:
FY2019 STI Deferred shares
FY2018 STI Deferred shares(1)
Christopher Davis
FY2020 LTIP Performance rights
FY2019 LTIP Performance rights
FY2019 STI Deferred shares
James Bonnor
3 Dec 19
3 Dec 18
10 Jan 20
11 Jan 19
3 Dec 19
42,033
–
–
18,183
44,112
–
7,998
411.8
154.4
566.2
FY2020 LTIP Performance rights
10 Jan 20
46,160
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
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)(5)
$000
Total
$000
Current Executive KMP
Alberto Calderon
2020
2019
Christopher Davis
2020
2019
James Bonnor(6)
2020
2019
Darryl Cuzzubbo
2020
2019
Sanjeev Gandhi
2020
Angus Melbourne(6)
2020
2019
Germán Morales(6)
2020
2019
Thomas Schutte(6)
2020
2019 (7)
Total Current Executive KMP
2020
2019
Former Executive KMP
Carlos Duarte
2020
2019
Total
2020
2019
1,778.8
1,779.4
835.1
779.4
919.3
912.5
853.8
830.4
205.1
917.1
983.7
668.0
674.0
1,078.7
1,059.8
7,255.9
7,019.2
17.3
900.0
7,273.2
7,919.2
406.7
1,000.5
233.6
380.8
200.6
292.0
289.1
331.2
(86.6)
139.9
(38.0)
280.5
305.2
178.0
(2.1)
33.4
–
206.7
204.9
432.8
179.3
389.0
165.3
529.9
1,679.5
3,356.2
–
234.0
1,679.5
3,590.2
100.3
248.1
56.6
99.5
24.8
17.1
566.9
996.5
–
56.0
566.9
1,052.5
29.6
133.4
21.5
76.4
22.4
10.7
–
–
–
–
–
–
–
–
–
73.5
220.5
–
–
73.5
220.5
21.2
20.6
21.2
20.6
21.2
20.6
21.2
20.6
–
21.2
–
40.1
40.0
33.0
31.8
179.1
154.2
–
–
179.1
154.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,149.7
3,073.8
1,073.4
1,537.7
1,468.7
1,413.8
1,162.0
1,215.6
(111.3)
1,910.9
(52.4)
301.1
(77.3)
415.8
(51.5)
451.6
2,038.4
4,984.7
1,021.0
1,838.8
1,391.4
1,829.6
1,110.5
1,667.2
1,243.5
1,664.6
944.0
1,202.5
1,301.8
1,638.6
(66.2)
574.3
102.3
393.2
(78.4)
554.2
1,177.3
2,238.9
1,046.3
1,595.7
1,223.4
2,192.8
9,754.9
11,746.6
(180.4)
4,601.1
9,574.5
16,347.7
17.3
1,190.0
9,772.2
12,936.6
(228.7)
547.0
(211.4)
1,737.0
(409.1)
5,148.1
9,363.1
18,084.7
*
Share‑based payment (SBP).
(1) Cash STI Payment includes payments relating to FY2020 performance accrued but not paid until FY2021.
(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, relocation expenses, health insurance and taxation services. A negative balance
may appear where the leave accrual has decreased from the prior year.
(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 long‑term incentives vest in the future is described in
Section 3.1. Where a negative SBP Expense is shown, this represents a write‑back of a previous share‑based payment accrual based on a revised estimate of performance
conditions being met.
(5) 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 FY2020 and the remainder will be included in FY2021.
(6) 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.
(7) The Base (Fixed) Pay disclosed for Tom Schutte in FY2019 was only 11 months of his annual salary. This under‑statement of fixed remuneration also impacted disclosed
cash‑STI and superannuation amounts together with the corresponding remuneration totals. This under‑statement has been corrected for FY2019 comparative purposes
in the above table.
Grant date
Granted
during
FY2020
Vested
Lapsed
Fair value of
instruments at
grant date
$
Balance at
year end
Value of equity
instruments
included in
compensation
for the year
$
For the year ended
30 September 2020
Current Executive KMP
Alberto Calderon
FY2020 LTIP Performance rights
10 Jan 20
162,584
FY2019 LTIP Performance rights
FY2018 LTIP Performance rights
11 Jan 19
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
–
–
–
–
–
–
–
–
–
162,584
213,223
207,841
3,139,497
3,136,510
3,273,496
148,700
44,042
–
2,639,602
–
(830,253)
(204,594)
219,939
500,259
–
–
(205,952)
95,200
–
(205,839)
(49,275)
54,618
73,002
–
–
(210,485)
(50,385)
54,313
82,795
–
42,033
1,000,518
–
330,021
44,112
52,892
7,998
46,160
52,863
51,529
–
6,133
–
44,112
54,056
52,691
–
6,956
–
851,803
778,041
190,400
891,350
777,615
811,582
655,497
146,005
74,161
851,803
795,164
829,883
651,745
165,591
121,678
45,180
749,988
154,442
46,370
59,237
57,742
–
9,091
–
32,759
43,110
8,170
–
895,405
871,376
909,437
722,548
216,414
119,863
632,576
634,148
194,491
256,200
–
(230,658)
(55,216)
60,201
108,207
–
–
(167,863)
97,245
128,100
–
–
–
–
–
–
–
–
10,937
–
–
–
–
–
10,874
–
–
–
–
–
–
12,056
–
–
–
–
–
–
–
–
–
–
–
–
36,927
–
4,086
–
–
–
36,716
–
6,704
–
–
–
–
40,704
–
6,604
–
–
–
7,500
FY2019 LTIP Performance rights
FY2018 LTIP Performance rights
11 Jan 19
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2019 STI Deferred shares
FY2018 STI Deferred shares(1)
Darryl Cuzzubbo
FY2020 LTIP Performance rights
FY2019 LTIP Performance rights
FY2018 LTIP Performance rights
3 Dec 19
3 Dec 18
10 Jan 20
11 Jan 19
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2019 STI Deferred shares
FY2018 STI Deferred shares(1)
3 Dec 19
3 Dec 18
–
–
–
6,133
–
44,112
–
–
–
6,956
–
Sanjeev Gandhi
Sign‑on rights(2)
Angus Melbourne
20 July 20
45,180
FY2020 LTIP Performance rights
FY2019 LTIP Performance rights
FY2018 LTIP Performance rights
10 Jan 20
11 Jan 19
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2019 STI Deferred shares
FY2018 STI Deferred shares(1)
Germán Morales
FY2020 LTIP Performance rights
FY2019 LTIP Performance rights
FY2019 STI Deferred shares
Sign‑on rights
3 Dec 19
3 Dec 18
10 Jan 20
11 Jan 19
3 Dec 19
3 Sep 18
46,370
–
–
–
9,091
–
32,759
–
8,170
–
68 ORICA
Annual Report 2020
69
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
SECTION 6. KMP STATUTORY DISCLOSURES (continued)
For the year ended
30 September 2020
Thomas Schutte
FY2020 LTIP Performance rights
FY2019 LTIP Performance rights
FY2018 LTIP Performance rights
Grant date
10 Jan 20
11 Jan 19
5 Jan 18
FY2017 LTIP Performance rights
30 Dec 16
FY2019 STI Deferred shares
FY2018 STI Deferred shares(1)
3 Dec 19
3 Dec 18
Former Executive KMP
Carlos Duarte
FY2019 LTIP Performance rights
FY2018 LTIP Performance rights
FY2019 STI Deferred shares
FY2018 STI Deferred shares(1)
Sign‑on rights
11 Jan 19
5 Jan 18
3 Dec 19
3 Dec 18
27 Oct 17
Fair value of
instruments at
grant date
$
Balance at
year end
Value of equity
instruments
included in
compensation
for the year
$
Vested
Lapsed
–
–
–
43,600
–
6,546
–
–
–
4,710
12,500
–
–
–
12,913
–
–
–
–
–
–
–
54,618
65,624
63,967
–
11,131
–
59,504
58,002
4,915
–
–
1,054,674
–
965,329
(255,528)
1,007,480
773,946
264,960
118,810
875,304
913,532
116,992
85,487
522,750
(61,168)
64,493
132,480
–
(231,698)
(55,456)
58,496
–
–
Granted
during
FY2020
54,618
–
–
–
11,131
–
–
–
4,915
–
–
(1) The FY2018 Deferred Shares vested on 2 December 2019. Per the terms and conditions of grant, the vested shares remain subject to disposal restrictions via a holding lock
for a further three years following vesting which prevents Executives from selling the vested shares during this period. In the US, UK and Singapore where a tax charge to
participants arose at vesting, Executives were permitted to sell sufficient shares to cover the tax liability at vesting with the remaining shares subject to a holding lock.
(2) A grant of rights was made to Sanjeev Gandhi. The rights will vest in two tranches (66.67% of the rights vest on 31 March 2021 and 33.33% of the rights vest on
31 December 2021) subject to Mr Gandhi remaining employed with Orica on the vesting dates.
The number of rights issued and the fair value of rights issued are:
SECTION 6. KMP STATUTORY DISCLOSURES (continued)
The assumptions underlying the rights valuations are:
Grant date
10 Jan 20
10 Jan 20 (1)
08 Aug 19(2)
11 Jan 19
11 Jan 19(1)
20 July 18 (2)
5 Jan 18
5 Jan 18(1)
10 July 17(2)
30 Dec 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 (3)
$
Fair value
per right
ROC (4)
$
Fair value
per right
RTSR (4)
$
22.71
22.71
22.51
17.30
17.30
17.93
18.53
18.53
20.68
17.68
20
20
25
25
25
25
25
25
25
30
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.75
0.79
0.79
1.81
1.81
1.81
2.07
2.07
2.07
1.73
1.96
20.88
19.31
15.90
15.90
14.71
17.03
17.03
15.75
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19.35
15.87
16.06
11.52
(1) 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 during this period.
(2) A supplementary LTI offer was made in 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 December 2016, January 2018 and January 2019. The terms and conditions of this supplementary offer are the same as the main offer.
(3) For Executives the FY2018, FY2019 and FY2020 LTI plan performance rights granted are subject to a single performance condition, RONA.
(4) For Executives 50% of performance rights granted are subject to a ROC performance condition and 50% are subject to RTSR performance.
Number of
rights held at
30 September
2020
Number of
rights held at
30 September
2019
Number of
participants at
30 September
2020
Number of
participants at
30 September
2019
Fair value
of rights
at grant
date $
Grant date
10 Jan 20
10 Jan 20 (1)
08 Aug 19(2)
11 Jan 19
11 Jan 19(1)
20 July 18 (2)
5 Jan 18
10 July 17(2)
30 Dec 16
Vesting
date
30 Nov 22
30 Nov 22
30 Nov 21
30 Nov 21
30 Nov 21
30 Nov 20
30 Nov 20
30 Nov 19
30 Nov 19
Number
of rights
issued
939,811
507,595
122,489
886,806
474,827
106,241
–
–
122,489
1,139,030
1,001,594
1,131,808
730,711
117,150
630,395
86,906
670,937
113,434
1,751,427
1,331,560
1,493,535
98,410
1,712,055
–
–
76,920
1,459,541
317
8
16
300
10
17
268
–
–
–
–
19
320
11
20
285
36
244
19,623,254
9,801,689
1,947,575
18,110,577
10,748,759
1,995,065
28,911,209
1,742,349
23,446,593
70
ORICA
DIRECTORS’ REPORT – REMUNERATION REPORT 2020 (AUDITED) (Continued)
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
Total
$000
Current Directors
Malcolm Broomhead, Chairman
2020
2019
John Beevers(2)
2020
Maxine Brenner
2020
2019
Denise Gibson
2020
2019
Boon Swan Foo
2020
2019
Karen Moses(3)
2020
2019
Gene Tilbrook
2020
2019
Former Directors
Lim Chee Onn
2020
2019
Ian Cockerill(4)
2019
Total Directors
2020
2019
510.0
510.0
118.0
175.3
170.0
175.3
170.0
175.3
69.0
191.0
170.0
175.3
170.0
14.2
170.0
155.8
–
–
30.0
67.5
67.5
67.5
41.3
45.0
14.8
67.5
48.8
67.5
67.5
3.8
45.0
60.0
6.3
18.0
6.0
6.0
15.0
6.0
25.8
6.0
9.9
15.0
17.4
15.0
30.0
–
22.5
37.0
21.2
20.6
14.2
21.2
20.6
21.2
20.6
21.2
8.0
5.2
20.6
21.2
20.6
1.7
20.4
19.0
537.5
548.6
168.2
270.0
273.1
270.0
257.7
247.5
101.7
278.7
256.8
279.0
288.1
19.7
257.9
271.8
1,534.4
1,584.8
348.8
344.9
60.3
175.6
127.1
150.4
2,070.6
2,255.7
(1) These benefits include travel allowances and car parking benefits.
(2) John Beevers was appointed as a Non‑Executive Director on 1 February 2020.
(3) Karen Moses elected not to receive superannuation contributions from Orica from 1 January 2020.
(4)
Ian Cockerill ceased to be a Director on 30 August 2019. Remuneration data has been included for comparative purposes only.
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.
M W Broomhead
Chairman
Dated at Melbourne 19 November 2020
A Calderon
Managing Director and Chief Executive Officer
71Annual Report 2020© 2020 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All right reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 2020 there have been: i.no contraventions of the auditor independence requirements as set out in the Corporations Act 2001in relation to the audit; andii.no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Penny Stragalinos Partner Melbourne 19 November 2020 LEAD AUDITOR’S INDEPENDENCE DECLARATIONUnder Section 307C of the Corporations Act 2001
72 ORICA
INCOME STATEMENT
For the year ended 30 September
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September
Annual Report 2020
73
Net profit for the year
Other comprehensive income
Items that may be reclassified subsequently to income statement:
Exchange differences on translation of foreign operations
Exchange (loss)/gain on translation of foreign operations, net of tax
Net gain/(loss) on hedge of net investments in foreign subsidiaries, net of tax
Net exchange differences on translation of foreign operations
Sundry items:
Net (loss)/gain on cash flow hedges, net of tax
Items that will not be reclassified subsequently to income statement:
Net actuarial loss on defined benefit obligations, net of tax
Other comprehensive (loss)/income for the year
Total comprehensive (loss)/income for the year
Attributable to:
Shareholders of Orica Limited
Non‑controlling interests
Total comprehensive (loss)/income for the year
Notes
(11c)
(11c)
(11c)
(11c)
Consolidated
2020
$m
177.5
(357.8)
43.8
(314.0)
2019
$m
250.5
111.9
(39.1)
72.8
(6.0)
8.8
(8.2)
(328.2)
(150.7)
(148.3)
(2.4)
(150.7)
(69.7)
11.9
262.4
239.8
22.6
262.4
The Statement of Comprehensive Income is to be read in conjunction with the accompanying notes to the financial statements.
Sales revenue
Other income
Raw materials and inventories
Employee benefits expense
Depreciation and amortisation expense
Purchased services
Repairs and maintenance
Initiating systems network optimisation
Impairment of intangibles
Operating model restructuring
Write down of property, plant & equipment
Environmental provisions for legacy sites
Gain on formation of China joint venture
Outgoing freight
Other expenses
Share of net profit of equity accounted investees
Total
Profit from operations
Net financing costs
Financial income
Financial expenses
Net financing costs
Profit before income tax expense
Income tax expense
Net profit for the year
Net profit for the year attributable to:
Shareholders of Orica Limited
Non‑controlling interests
Net profit for the year
Notes
(1b)
(1d)
(1b)
(1e)
(1e)
(1e)
(1e)
(1e)
(1e)
(13)
(11)
Consolidated
2020
$m
2019
$m
5,611.3
5,878.0
16.8
23.1
(2,578.1)
(1,241.8)
(2,744.3)
(1,250.2)
(351.3)
(335.5)
(178.5)
(80.1)
(63.4)
(26.9)
–
–
–
(290.6)
(83.5)
35.7
(276.4)
(373.1)
(169.8)
–
(36.1)
(21.5)
(155.0)
(33.5)
50.2
(283.1)
(171.4)
31.9
(5,194.0)
(5,432.3)
434.1
468.8
51.1
(200.7)
(149.6)
284.5
(107.0)
177.5
168.3
9.2
177.5
49.6
(159.3)
(109.7)
359.1
(108.6)
250.5
245.1
5.4
250.5
Earnings per share attributable to ordinary shareholders of Orica Limited:
Basic earnings per share
Diluted earnings per share
The Income Statement is to be read in conjunction with the accompanying notes to the financial statements.
cents
cents
(2)
(2)
42.5
42.4
64.5
64.2
74
ORICA
BALANCE SHEET
As at 30 September
Current assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Other assets
Total current assets
Non‑current assets
Other receivables
Equity accounted investees
Property, plant and equipment
Intangible assets(1)
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(1)
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
Notes
(5)
(5)
(13)
(7)
(8)
(11d)
(5)
(3a)
(6)
(3a)
(6)
(11d)
(4a)
Consolidated
2020
$m
920.5
837.7
139.1
610.0
156.7
Restated
2019(1)(2)
$m
412.6
681.6
84.2
587.5
69.9
2,664.0
1,835.8
46.3
301.6
3,316.4
1,744.1
309.0
74.9
5,792.3
8,456.3
739.7
426.3
682.4
225.2
95.8
63.0
301.3
2,899.6
1,694.6
317.2
187.5
5,463.2
7,299.0
863.2
412.6
60.9
193.1
104.8
2,169.4
1,634.6
11.6
2,357.3
639.4
49.2
43.4
3,100.9
5,270.3
3,186.0
2,659.1
(670.3)
1,148.4
3,137.2
48.8
3,186.0
7.1
1,972.3
586.2
73.4
–
2,639.0
4,273.6
3,025.4
2,138.0
(363.5)
1,193.7
2,968.2
57.2
3,025.4
(1) Restated for the retrospective application of IAS 12 Income taxes, following IFRIC agenda decision, due to change in Orica accounting policy, refer to note 24 for further details.
(2) The Group initially applied AASB 16 Leases on 1 October 2020, using the modified retrospective approach. Under this approach, comparative information is not restated.
Refer to note 24.
The Balance Sheet is to be read in conjunction with the accompanying notes to the financial statements.
Annual Report 2020
75
STATEMENT OF CHANGES IN EQUITY
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
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)
–
(11.0)
2,110.1
1,221.3
(280.9)
(24.8)
(133.5)
2,892.2
Adjusted balance at
1 October 2018
Net profit for the year
Other comprehensive
income/(loss)
Total comprehensive income
for the year
Transactions with owners,
recorded directly in equity
Total changes in contributed
equity (note 4)
Share‑based payments expense
Divestment of non‑controlling
interests (note 15)
Dividends/distributions
Dividends declared/paid to
non‑controlling interests
AASB 16 transitional adjustment
(note 24)
IFRIC 23 transitional adjustment
(note 24)
Adjusted balance at
1 October 2019
Net profit for the year
Other comprehensive
income/(loss)
Total comprehensive
income/(loss) for the year
Transactions with owners,
recorded directly in equity
Total changes in contributed
equity (note 4)
Share‑based payments expense
Acquisition of subsidiaries with
non‑controlling interests
Dividends/distributions
Dividends declared/paid to
non‑controlling interests
Balance at the end of the year
2,138.0
1,193.7
(225.3)
(16.0)
(122.2)
2,968.2
2020
Balance at 1 October 2019
2,138.0
1,193.7
(225.3)
(16.0)
(122.2)
2,968.2
57.2
3,025.4
–
–
(2.6)
(10.2)
–
–
–
–
–
–
(2.6)
(10.2)
–
–
(2.6)
(10.2)
2,138.0
1,180.9
(225.3)
(16.0)
(122.2)
2,955.4
–
–
–
27.9
–
–
–
–
245.1
(69.7)
175.4
–
–
–
(203.0)
–
–
55.6
55.6
–
–
–
–
–
–
8.8
8.8
–
–
–
–
–
–
–
–
–
11.3
–
–
–
–
–
–
168.3
–
(8.2)
(302.4)
160.1
(302.4)
521.1
–
–
–
–
–
–
–
(192.6)
–
–
–
–
–
–
–
(6.0)
(6.0)
–
–
–
–
–
–
–
–
–
1.6
–
–
–
245.1
64.8
5.4
2,957.0
250.5
(5.3)
17.2
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
168.3
57.2
9.2
3,012.6
177.5
(316.6)
(11.6)
(328.2)
(148.3)
(2.4)
(150.7)
521.1
1.6
–
(192.6)
–
–
–
4.9
–
521.1
1.6
4.9
(192.6)
(10.9)
48.8
(10.9)
3,186.0
Balance at the end of the year
2,659.1
1,148.4
(527.7)
(22.0)
(120.6)
3,137.2
The Statement of Changes in Equity is to be read in conjunction with the accompanying notes to the financial statements.
76
ORICA
Annual Report 2020
77
STATEMENT OF CASH FLOWS
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September
Consolidated
Section A. Financial performance
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 cash disposed from sale of businesses
Proceeds from sale of investments
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
Principal portion of lease payments
Proceeds from issue of ordinary shares, net of costs
Net cash flows from/(used in)financing activities
Net increase/(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
2020
$m
Inflows/
(Outflows)
2019
$m
Inflows/
(Outflows)
Notes
6,057.9
6,434.9
(5,600.6)
(5,513.8)
(3b)
(14)
(15)
(4c)
51.1
(157.8)
23.0
18.2
(114.4)
277.4
(321.3)
(202.8)
–
8.4
(153.9)
–
9.2
–
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)
(660.4)
(368.4)
2,948.3
2,169.1
(2,266.1)
(2,465.3)
(179.4)
(11.3)
(61.0)
505.4
935.9
552.9
412.6
(45.0)
920.5
(177.2)
(18.0)
(0.8)
0.7
(491.5)
(113.5)
514.6
11.5
412.6
The Statement of Cash Flows is to be read in conjunction with the accompanying notes to the financial statements.
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. Intangible assets
9. 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. Equity accounted investees 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. Defined benefit obligations
Section H. Other
20. Contingent liabilities
21. Auditor’s remuneration
22. Events subsequent to balance date
23. Investments in controlled entities
79
79
84
85
85
88
90
90
91
94
95
96
98
98
104
104
108
108
108
110
112
113
113
115
115
115
119
119
120
120
121
24. New accounting policies and accounting standards 123
78
ORICA
Annual Report 2020
79
NOTES TO THE FINANCIAL STATEMENTS (Continued)
NOTES TO THE FINANCIAL STATEMENTS – SECTION A. FINANCIAL PERFORMANCE
For the year ended 30 September
ABOUT THIS REPORT
Basis of preparation
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 2020.
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.
The financial statements are presented in Australian dollars with all
amounts 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
Significant accounting policies that apply to the overall
financial statements
Foreign currencies
Functional and Presentation Currency
The Company’s functional and presentation currency is Australian
dollars. Each entity in the Group determines its own functional
currency and items included in the financial statements of each
entity are measured using that functional currency.
Transactions and Balances
Transactions in currencies other than the functional currency of the
Company or entity concerned are recorded using the exchange rate
on the date of the transaction. Monetary assets and liabilities that are
denominated in foreign currencies at the balance date are retranslated
at closing exchange rates. Non‑monetary assets are not retranslated
unless they are carried at fair value. Gains and losses arising on the
retranslation of monetary assets and liabilities are included in the
income statement, except where the application of hedge accounting
requires inclusion in other comprehensive income (refer to note 10).
Consolidation of Group Entities
On consolidation, assets and liabilities of foreign operations are
translated into Australian dollars at the closing rate at balance date.
The results of foreign operations are translated into Australian dollars
at average exchange rates for the period where these do not materially
differ from rates applicable on the date of the transaction. Foreign
exchange differences arising on the retranslation of foreign operations
are recognised directly in a separate component of equity.
• aspects of the Group’s operations that are important to
Critical accounting judgements and estimates
future performance.
Except as described in note 24, the financial statements have been
prepared using consistent accounting policies in line with those of the
previous financial year and corresponding interim reporting period.
Application of the Group accounting policies requires management
to make judgements, and to apply estimates and assumptions to
future events. The areas involving a higher degree of judgement or
complexity, and which are material to the report, are highlighted in
the following notes:
Note 3 Net debt
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 14 Businesses and non‑controlling interests acquired
Note 19 Defined benefit obligations
Note 20 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 2020.
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).
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
80 ORICA
Annual Report 2020
81
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
2020
$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
Elimina‑
tions
Consoli‑
dated
Other income (refer to note 1d)(1)
5.1
7.1
3.3
(2.0)
1.3
2,050.6
1,260.0
855.6
882.8
468.3
143.3
216.4
40.0
29.6
2.4
2,193.9
1,476.4
895.6
912.4
470.7
94.0
4.4
98.4
1.9
–
–
5,611.3
635.8
(1,071.9)
–
635.8
(1,071.9)
5,611.3
0.1
–
16.8
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
Elimina‑
tions
Consoli‑
dated
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
Other income (refer to note 1d)(1)
5.8
5.5
(1.9)
4.1
0.4
0.5
8.7
–
23.1
Total revenue and other income
2,199.0
1,483.5
898.9
910.4
472.0
100.3
635.9
(1,071.9)
5,628.1
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
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
Equity accounted investees
Acquisitions of PPE and intangibles
(excluding right of use assets)
Impairment of PPE
Impairment of intangibles
Depreciation and amortisation
Non‑cash expenses: share based payments
Share of net profit/(loss) of equity
accounted investees
369.5
163.7
36.6
62.4
20.8
20.3
(68.8)
–
604.5
51.1
(200.7)
454.9
(146.4)
308.5
(9.2)
299.3
(170.4)
39.4
–
(131.0)
168.3
8,456.3
5,270.3
301.6
511.1
33.1
63.4
351.3
5.3
35.7
–
–
–
–
–
–
–
–
–
–
–
(9.1)
2.6
(25.6)
(29.8)
(35.3)
6.7
8.4
1.3
(3.9)
1.1
(0.6)
0.1
(66.1)
19.2
3,436.5
1,250.8
856.6
446.7
13.6
16.9
4.7
–
34.0
0.4
780.1
281.0
2.4
32.7
16.8
2.1
32.1
1.0
380.4
193.8
52.5
10.6
–
70.4
1.0
29.3
2.9
1.1
142.3
257.5
1,732.5
83.5
–
62.0
3,158.8
–
14.9
12.0
14.3
183.6
–
–
11.4
–
–
–
–
12.8
0.3
–
61.3
42.0
1.2
–
(1.2)
857.9
76.9
199.1
1.0
–
148.6
1.4
3.6
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
Equity accounted investees
Acquisitions of PPE and intangibles
Write down of PPE
Impairment of intangibles
Depreciation and amortisation
Non‑cash expenses: share based payments
Share of net profit/(loss) of equity
accounted investees
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
(195.9)
69.1
–
(126.8)
245.1
7,299.0
4,273.6
301.3
433.5
155.0
36.1
276.4
12.4
31.9
–
–
–
–
–
–
–
–
–
–
–
(112.2)
44.2
(1.4)
0.3
(5.4)
1.4
(3.9)
1.4
(0.8)
0.2
–
–
(72.2)
21.6
3,065.6
583.2
73.5
162.2
155.0
–
126.2
2.6
1.7
971.2
203.4
198.9
39.6
–
–
44.8
1.8
559.3
199.1
11.6
29.8
–
–
22.7
1.6
720.1
246.3
1.9
48.0
–
–
26.0
1.7
26.4
2.9
0.9
196.6
239.2
1,547.0
84.7
40.8
2,916.1
–
7.3
–
–
9.1
0.3
–
–
15.4
12.7
133.9
–
–
8.6
–
–
–
36.1
39.0
4.4
–
(1) Includes foreign currency gains/(losses) in various reportable segments.
(1)
Includes foreign currency gains/(losses) in various reportable segments.
82 ORICA
Annual Report 2020
83
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 (losses)/gains
Net profit from sale of businesses
Net gain/(loss) on sale of property, plant and equipment
Profit from sale of investments
Total other income
2020
2019
Gross
$m
Tax
$m
Net
$m
Gross
$m
(e) Individually significant items
Profit after income tax includes the
following individually significant items
of expense:
Initiating systems network optimisation(1)
Impairment expense(2)
Operating model restructuring(3)
Gain on formation of China joint venture(4)
Environmental provisions for legacy sites
Write down of property, plant & equipment
Individually significant items
Individually significant items attributable
to shareholders of Orica
(80.1)
(63.4)
(26.9)
–
–
–
(170.4)
(170.4)
13.0
18.7
7.7
–
–
–
39.4
39.4
(67.1)
(44.7)
(19.2)
–
–
–
(131.0)
–
(36.1)
(21.5)
50.2
(33.5)
(155.0)
(195.9)
(1) The Group is undertaking a global project to rationalise its product portfolio, simplify and reduce its different technologies, and enable the optimisation of the initiating
system (IS) plant network. This project is expected to result in a substantial increase in the IS plant utilisation by 2024. The expense includes an impairment to PPE
($33.1 million), increase in environmental and decommissioning provision ($27.9 million), redundancies ($8.2 million) and inventory write offs ($10.9 million).
Refer to note 6, note 7 and note 9.
(2) Refer to note 8 and note 9.
(3) As part of the global restructuring project, redundancy costs were recognised across the Group.
(4) Refer to note 15.
(131.0)
(195.9)
69.1
(126.8)
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
Canada
Other(2)
Consolidated
Revenue
Non‑current assets(1)
2020
$m
2019
$m
2020
$m
2019
$m
1,608.3
1,587.1
3,037.7
2,673.7
888.6
545.7
2,568.7
5,611.3
931.4
576.5
2,783.0
5,878.0
390.7
282.2
1,694.8
5,405.4
354.1
356.5
1,585.5
4,969.8
(1) Excluding: financial derivatives (included within other assets and other liabilities), deferred tax assets and post‑employment benefit assets.
(2) Other than Australia, United States of America and Canada, 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.
Consolidated
2020
$m
2019
$m
1,099.8
900.0
893.8
731.0
410.1
350.0
468.3
94.0
664.3
1,172.3
1,025.2
798.5
725.4
437.9
305.9
591.1
96.6
725.1
5,611.3
5,878.0
Consolidated
2020
$m
18.2
(6.5)
–
0.9
4.2
16.8
Tax
$m
–
10.8
6.2
(4.5)
10.1
46.5
69.1
2019
$m
17.7
4.4
3.3
(2.3)
–
23.1
Net
$m
–
(25.3)
(15.3)
45.7
(23.4)
(108.5)
(126.8)
84 ORICA
Annual Report 2020
85
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 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 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 for the year
Less: Net profit for the year attributable to non‑controlling interests
Adjusted for individually significant items (refer to note 1e)
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
2020
$m
2019
$m
177.5
9.2
168.3
250.5
5.4
245.1
Number of shares
395,620,418
379,967,950
1,489,532
1,656,530
397,109,950
381,624,480
3,044,873
3,027,776
Cents per
share
Cents per
share
42.5
42.4
Consolidated
2020
$m
177.5
9.2
131.0
299.3
64.5
64.2
2019
$m
250.5
5.4
126.8
371.9
Cents per
share
Cents per
share
75.7
75.4
97.9
97.5
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 excluding lease liabilities divided by net debt
excluding lease liabilities plus equity) and the interest cover ratio (EBIT excluding individually significant items, divided by net financing costs excluding
lease interest). 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. Of note, Orica’s debt covenants are calculated
exclusive of leases while Standard & Poor’s adjusted ratios are inclusive of leases.
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 – excluding lease liabilities (refer to note 3a)
less cash and cash equivalents
Net debt
Total equity
Net debt and total equity
Gearing ratio (%)
The interest ratio is calculated as follows:
Consolidated
2020
$m
2,741.0
(920.5)
1,820.5
3,186.0
5,006.5
36.4%
2019
$m
2,033.2
(412.6)
1,620.6
3,025.4
4,646.0
34.9%
EBIT (excluding individually significant items) (refer to note 1b)
604.5
664.7
Net financing costs excluding unwinding of discount on provisions(1)
Unwinding of discount on provisions(2)
Net financing costs
Less lease interest
Net financing costs excluding lease interest
Interest cover ratio (times)
101.4
48.2
149.6
(12.6)
137.0
100.4
9.3
109.7
–
109.7
4.4
6.1
(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 investors with further clarity in order to assess the underlying performance of operations.
(1) Net of capitalised borrowing costs of $9.5 million (2019 $7.5 million).
(2) The unwinding of discount on provisions increased by $38.9 million primarily as a result of a material decline in the discount rate applied to measure the Botany
groundwater provision. Refer to note 6 for further details.
86 ORICA
Annual Report 2020
87
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 debt(1)
Export finance facility
Bank loans(1)(2)
Bank overdraft
Other loans
Lease liabilities(3)
Total
Non‑current
Unsecured
Private Placement debt (1)
Bank loans(1)
Other loans
Lease liabilities (3)
Total
Total
Opening
Balance
$m
Adoption of
AASB 16
$m
Non‑cash
movements
$m
Net cash
movements
$m
Closing
Balance
$m
–
17.1
34.0
8.4
1.1
0.3
60.9
1,971.3
–
0.9
0.1
1,972.3
–
–
–
–
–
67.3
67.3
–
–
–
186.4
186.4
469.5
0.2
131.6
–
–
71.0
672.3
–
(17.3)
(20.1)
(6.0)
(1.1)
(73.6)
(118.1)
469.5
–
145.5
2.4
–
65.0
682.4
(575.0)
722.2
2,118.5
–
(0.3)
47.2
4.6
(0.1)
–
(528.1)
726.7
4.6
0.5
233.7
2,357.3
2,033.2
253.7
144.2
608.6
3,039.7
(1) Orica Limited provides guarantees on certain facilities, refer to note 16 for further details.
(2)
Included in the non‑cash movements are bank loans acquired of $154.6 million.
(3)
In 2019, $6.8 million of property, plant and equipment were pledged as security for finance leases.
During the current and prior year, there were no defaults or breaches of covenants on any loans.
3. NET DEBT (continued)
(b) Notes to the statement of cash flows
Reconciliation of profit after income tax to net cash flows from operating activities
Profit after income tax expense
Adjusted for the following items:
Depreciation and amortisation
Net (profit)/loss on sale of property, plant and equipment
Impairment of intangibles
Impairment/write down of property, plant and equipment
Impairment of inventories
Net profit on sale of businesses
Net profit on sale of investments
Share based payments expense
Share of equity accounted investees net profit after adding back dividends received
Unwinding of discount on provisions
Other
Changes in working capital and provisions excluding the effects of acquisitions and
disposals of businesses/controlled entities
(increase) in trade and other receivables
decrease in inventories
(increase) in net deferred taxes
(decrease)/increase in payables and provisions
increase/(decrease) 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, excluding lease liabilities
Consolidated
Notes
2020
$m
2019
$m
177.5
250.5
(1b)
(1d)
(8)
(7)
351.3
(0.9)
63.4
33.1
(3.3)
–
(4.2)
5.3
(12.7)
48.2
4.2
(147.4)
33.1
(18.5)
(254.9)
3.2
277.4
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
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 10).
Borrowing costs
Borrowing costs are expensed as incurred unless they relate to qualifying assets where interest on funds are capitalised.
Lease liabilities
The Group recognises all lease liabilities and corresponding right of use assets, with the exception of short‑term (12 months or less) and low‑value leases,
on the balance sheet. Lease liabilities are recorded at the present value of fixed payments, variable lease payments that depend on an index or rate,
amounts payable under residual value guarantees and extension options expected to be exercised. Where a lease contains an extension option which the
Group can exercise without negotiation, lease payments for the extension period are included in the liability if the Group is reasonably certain that it will
exercise the option. Variable lease payments not dependent on an index or rate are excluded from the liability. Lease payments are discounted at the
incremental borrowing rate of the lessee unless the rate implicit in the lease can be readily determined.
Lease liabilities are remeasured when there is a change in future lease payments resulting from a change in an index or rate, or a change in the assessed
lease term. A corresponding adjustment is made to the carrying amount of the right of use asset, or is recorded in profit or loss if the carrying amount has
been reduced to zero.
The Group applied judgement to determine the incremental borrowing rates as well as the lease term for some lease contracts that include extension or
termination options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects
the amount of lease liabilities and right of use assets recognised.
88 ORICA
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)
The Group recognises depreciation of the right of use assets and interest on the lease liabilities in the income statement over the lease term. Repayments
of lease liabilities are separated into a principal portion (presented within financing activities) and interest portion (presented within operating activities) in
the cash flow statement.
Expenses relating to short‑term and low‑value leases of $31.7 million and variable lease payments not included in lease liabilities of
$115.9 million have been recognised in the income statement. Total cash outflow for leases was $221.2 million.
4. CONTRIBUTED EQUITY AND RESERVES (continued)
(c) Dividends
Critical accounting judgements and estimates
• Determination of the discount rate to use
• Determination of whether it is reasonably certain that an extension or termination option will be exercised
4. CONTRIBUTED EQUITY AND RESERVES
(a) Contributed equity
Movements in issued and fully paid shares of Orica since 1 October 2018 were as follows:
Dividends paid or declared in respect of the year ended 30 September were:
Ordinary shares
interim dividend of 22.0 cents per share, unfranked, paid 1 July 2019
interim dividend of 16.5 cents per share, unfranked, paid 8 July 2020
final dividend of 31.5 cents per share, unfranked, paid 7 December 2018
final dividend of 33 cents per share, 15.2% franked at 30%, paid 13 December 2019
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan (DRP)
during the year were as follows:
Date
Number
of shares
Issue price
$
$m
paid in cash
DRP – satisfied by issue of shares
Annual Report 2020
89
Consolidated
2020
$m
2019
$m
67.0
125.6
179.4
13.2
83.5
119.5
177.2
25.8
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 the year
Shares issued under the Orica dividend reinvestment plan
Shares issued under Share Purchase 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)
Shares issued under the Institutional Share Placement, net of costs
25‑Feb‑20
23,596,036
1‑Oct‑18
7‑Dec‑18
1‑Jul‑19
379,214,789
726,287
635,545
30‑Sep‑19
380,576,621
13‑Dec‑19
376,806
24‑Mar‑20
1,085,837
8‑Jul‑20
243,515
Since the end of the financial year, the Directors declared the following dividend:
Final dividend on ordinary shares of 16.5 cents per share, unfranked, payable 15 January 2021. Total franking credits related to this dividend are nil
(2019 $8.2 million).
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 2020 – however will be recognised in the 2021 financial statements.
Franking credits
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 2020 are nil (2019 nil).
17.48
20.67
23.62
21.19
15.93
17.51
2,110.1
12.7
13.1
1.4
0.7
2,138.0
8.9
487.4
17.3
4.3
2.5
0.7
30‑Sep‑20
405,878,815
2,659.1
During the year, the Group completed an institutional share placement and a share purchase plan raising $504.7 million net of transaction costs.
These proceeds were used to fund the Group’s acquisition of Exsa S.A (refer to note 14) with the remaining funds to provide greater balance sheet
flexibility to support investment in Orica’s core capital initiatives and growth engines.
(b) Reserves
Recognition and Measurement
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.
90 ORICA
Annual Report 2020
91
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
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:
Raw materials
Work in progress
Finished goods
Consolidated
2020
$m
610.0
837.7
(739.7)
708.0
Consolidated
2020
$m
219.8
2.3
387.9
610.0
2019
$m
587.5
681.6
(863.2)
405.9
2019
$m
257.8
47.5
282.2
587.5
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 $45.7 million (2019 $36.4 million).
(ii) Trade receivables
The ageing of trade receivables and allowance for impairment is detailed below:
Not past due
Past due 0 – 30 days
Past due 31 – 120 days
Past 120 days
Recognition and Measurement
Consolidated
Consolidated
2020
Gross
$m
750.7
78.5
37.3
47.1
913.6
2020
Allowance
$m
–
–
(28.8)
(47.1)
(75.9)
2019
Gross
$m
642.4
39.0
17.3
46.0
744.7
2019
Allowance
$m
–
–
(17.1)
(46.0)
(63.1)
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.
5. WORKING CAPITAL (continued)
(iii) Trade payables
Recognition and Measurement
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.
(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 $20.9 million (2019 $21.1 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.
COVID‑19
Whilst the impact of COVID‑19 has been considered, it did not have a material impact on the expected impairment loss on the closing receivables
balance for the Group.
6. PROVISIONS
Current
Employee entitlements(1)
Environmental and decommissioning(2)(3)
Restructuring
Other
Non‑current
Employee entitlements(1)
Retirement benefit obligations (see note 19b)
Environmental and decommissioning(2)(3)
Restructuring
Other
Consolidated
2020
$m
2019
$m
103.3
92.8
13.6
15.5
225.2
19.4
313.6
296.1
0.2
10.1
639.4
93.2
70.8
7.4
21.7
193.1
23.0
307.5
246.3
0.3
9.1
586.2
(1) $63.0 million (2019 $58.6 million) was expensed to the income statement in relation to employee entitlements during the year.
(2) Payments of $48.2 million (2019 $51.6 million) were made during the year in relation to environmental and decommissioning provisions.
(3) Provisions of $43.5 million (2019 $55.3 million) have been capitalised as part of the carrying value of land.
92
ORICA
Annual Report 2020
93
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
6. PROVISIONS (continued)
The total environmental and decommissioning provision comprises:
Botany Groundwater remediation
Botany (HCB) waste
Burrup decommissioning
Initiating systems network optimisation
Deer Park remediation
Yarraville remediation
Other provisions
Total
Recognition and Measurement
Employee Entitlements
Consolidated
2020
$m
201.3
31.3
56.5
27.9
17.0
19.3
35.6
2019
$m
171.3
41.1
21.7
–
22.0
24.6
36.4
6. PROVISIONS (continued)
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 Groundwater Treatment Plant (GTP) is
possible within an 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.
388.9
317.1
The technical review considered existing remediation technologies which would augment the existing ‘pump and treat’ methodology. One of these
alternatives is being piloted, with the expectation that the operating costs of the GTP facility may reduce.
Orica regularly reviews the discount rate and inflation rate used in the provision calculation. A decrease in the 15‑year Australian Government Bond
rate, together with the discount unwind, partly offset by a reduction in the inflation rate has resulted in an increase to the provision of $43.5 million.
Orica has reflected this increase in the provision in the financial report with the expense included within interest.
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.
Burrup decommissioning
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 to 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.
Similar to Botany groundwater remediation the decrease in the Australian Government Bond rate resulted in a $29.6 million increase to the provision.
The increase has been included within additions to machinery, plant and equipment in note 7.
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
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. This
position was confirmed during the year when management held a strategy workshop with both remediation experts and the NSW EPA to review
developments in applicable technology, the level of assessed contamination and whether alternate remediation approaches could be implemented.
Individually significant items
Other sites
As part of the Initiating Systems Network Optimisation (ISNO) project sites were identified for closure which has resulted in a $27.9 million increase in
the provision for environmental and decommissioning. As these costs are not expected to be recovered, the impact has been expensed to the income
statement (see note 1e).
The redundancy costs associated with the operating model restructure and the ISNO project which have yet to be paid are included in the
restructuring provision.
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
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.
94 ORICA
Annual Report 2020
95
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
Consolidated
2019
Cost
Accumulated impairment losses
Accumulated depreciation
Total carrying value
Movement
Owned assets
Leased assets
Land,
buildings and
improvements
$m
Machinery,
plant and
equipment
$m
Land,
buildings and
improvements
$m
Machinery,
plant and
equipment
$m
760.7
–
(288.0)
472.7
5,072.6
(161.7)
(2,484.0)
2,426.9
Carrying amount at the beginning of the year
475.2
2,391.0
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
2020
Cost
Accumulated impairment losses
Accumulated depreciation
Total carrying value
Movement
10.6
(10.1)
(1.4)
(17.5)
–
–
15.9
472.7
761.1
–
(333.7)
427.4
291.7
(14.9)
(9.7)
(213.7)
(155.0)
35.6
101.9
2,426.9
5,335.1
(194.8)
(2,542.0)
2,598.3
Carrying amount at the beginning of the year
472.7
2,426.9
Transition adjustment to AASB 16
Additions
Additions through acquisitions of entities (see note 14)
Disposals
Transfers between property, plant & equipment assets
Depreciation expense
Impairment expense (see note 9)
Foreign currency exchange differences
Carrying amount at the end of the year
–
16.1
38.9
–
(64.4)
(28.7)
–
(7.2)
427.4
–
311.5
165.8
(6.0)
64.4
(213.4)
(33.1)
(117.8)
2,598.3
Individually significant items
As part of the ISNO project the Group recognised an impairment of $33.1 million (refer to note 9).
Total
$m
5,833.3
(161.7)
(2,772.0)
2,899.6
2,866.2
302.3
(25.0)
(11.1)
(231.2)
(155.0)
35.6
117.8
2,899.6
6,457.5
(194.8)
(2,946.3)
3,316.4
2,899.6
250.1
410.4
239.4
(6.0)
–
(312.7)
(33.1)
(131.3)
3,316.4
–
–
–
–
–
–
–
–
–
–
–
–
–
193.8
–
(25.9)
167.9
–
140.1
25.4
32.4
–
–
(25.9)
–
(4.1)
167.9
–
–
–
–
–
–
–
–
–
–
–
–
–
167.5
–
(44.7)
122.8
–
110.0
57.4
2.3
–
–
(44.7)
–
(2.2)
122.8
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
$77.1 million (2019 $92.3 million) and later than one but less than five years was $3.1 million (2019 nil).
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.
The right of use asset at initial recognition reflects the lease liability adjusted for any lease payments made before the commencement date plus any make
good obligations and initial direct costs incurred (refer to note 3). The leases recognised by the Group under AASB 16 predominantly relate to property
leases including offices and storage as well as plant & equipment leases including vehicles and rail cars (refer to note 24).
7. PROPERTY, PLANT AND EQUIPMENT (continued)
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:
Owned assets
Indefinite
25 to 40 years
3 to 40 years
Right of use assets – leased
1 to 70 years
1 to 20 years
1 to 15 years
Land
Buildings and improvements
Machinery, plant and equipment
8. INTANGIBLE ASSETS
Consolidated
2019 (restated)
Cost(1)
Accumulated impairment losses
Accumulated amortisation
Net carrying amount
Movement
Patents,
trademarks
and rights
$m
162.7
–
(98.8)
63.9
Goodwill
$m
2,670.1
(1,475.9)
–
1,194.2
Carrying amount at the beginning of the year(1)
1,055.3
269.3
Additions
Adjustment on acquisition of entities
Disposals through disposal of entities
Transfer between intangible assets
Transfer to property, plant & equipment (see note 7)
Amortisation expense
Impairment expense
Foreign currency exchange differences
Carrying amount at the end of the year
2020
Cost
Accumulated impairment losses
Accumulated amortisation
Net carrying amount
Movement
Carrying amount at the beginning of the year
Additions
Additions through acquisitions of entities (see note 14)
Transfer between intangible assets
Amortisation expense
Impairment expense
Foreign currency exchange differences
Carrying amount at the end of the year
–
(6.3)
–
167.8
–
–
–
(22.6)
1,194.2
2,630.3
(1,475.9)
–
1,154.4
1,194.2
–
6.3
–
–
–
(46.1)
1,154.4
–
–
(2.1)
(167.8)
(35.6)
(5.1)
–
5.2
63.9
210.7
–
(127.4)
83.3
63.9
–
28.6
–
(6.0)
–
(3.2)
83.3
Software
$m
Other
$m
Total
$m
556.4
(51.0)
(133.6)
371.8
321.0
116.7
–
–
–
–
(28.5)
(36.1)
(1.3)
371.8
621.3
(114.4)
(77.4)
429.5
371.8
165.3
–
–
(19.0)
(63.4)
(25.2)
429.5
165.2
3,554.4
–
(1,526.9)
(100.5)
64.7
(332.9)
1,694.6
57.3
14.5
–
–
–
–
(11.6)
–
4.5
64.7
1,702.9
131.2
(6.3)
(2.1)
–
(35.6)
(45.2)
(36.1)
(14.2)
1,694.6
182.0
3,644.3
–
(1,590.3)
(105.1)
76.9
64.7
18.2
13.9
–
(13.6)
–
(6.3)
76.9
(309.9)
1,744.1
1,694.6
183.5
48.8
–
(38.6)
(63.4)
(80.8)
1,744.1
(1) Restated for the retrospective application of IAS 12 Income taxes, following IFRIC agenda decision, due to change in Orica accounting policy, refer to note 24 for further details.
96 ORICA
Annual Report 2020
97
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
8. INTANGIBLE ASSETS (continued)
Individually significant items
As part of the impairment review and the transition to the new SAP operating system the Group recognised an impairment charge of $63.4 million
(refer to note 9).
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.
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.
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.
In calculating the Goodwill associated with the acquisition of Exsa, management has applied a number of valuation techniques to determine the fair
value of assets acquired. Refer to note 14 for further details.
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
Weighted
average
post‑tax
discount rates
Post‑tax
discount rates
Terminal
growth rates
2020
%
7.1‑13.4
7.5
8.1‑13.8
6.8‑18.0
8.1‑9.5
7.4‑9.0
9.0
2020
%
10.3
7.5
8.9
9.6
9.1
8.9
9.0
2020
%
0.5‑7.3
1.6
2.3‑5.5
1.2‑11.5
1.2‑7.3
2.0‑2.6
2.6
Weighted
average
terminal
growth rate
2020
%
3.9
1.6
3.6
3.6
2.6
2.6
2.6
Goodwill
2020
$m
552.9
155.8
126.8
203.8
–
115.1
–
1,154.4
9. IMPAIRMENT TESTING OF ASSETS (continued)
Australia Pacific & Asia
North America
Latin America
Europe, Middle East & Africa
Minova
Orica Monitor(1)
Global Support
Total
Weighted
average
post‑tax
discount rates
Post‑tax
discount rates
Terminal
growth rates
Weighted
average
terminal
growth rate
2019
%
7.9‑12.3
8.4
9.4‑12.4
7.5‑21.5
8.8‑10.5
8.0‑9.8
9.8
2019
%
10.2
8.4
10.4
9.6
9.8
9.5
9.8
2019
%
0.5‑7.7
1.6
1.5‑5.5
1.2‑11.7
1.2‑7.7
2.0‑2.6
2.6
2019
%
3.6
1.6
3.7
4.5
2.2
2.5
2.6
Goodwill
2019
$m
574.8
149.7
142.1
212.5
–
115.1
–
1,194.2
(1) Restated for the retrospective application of IAS 12 Income taxes, following IFRIC agenda decision, due to change in Orica accounting policy, refer to note 24 for further details.
Critical accounting judgements and estimates
2020
Intangible Assets
As part of the impairment review and the transition to the new SAP operating system, Orica identified $63.4 million of historic IT assets that would
no longer be utilised by the business.
Property, plant and equipment
The Group is undertaking a global project to rationalise its product portfolio, simplify and reduce its different technologies, and enable the optimisation
of the initiating system (IS) plant network. This project is expected to result in a substantial increase in the IS plant network’s utilisation by 2024.
As part of these plans, the Minden, Hallowell and Tappen plants will cease production, with further rationalisation of other manufacturing
facilities planned.
This has resulted in an impairment charge of $33.1 million. In calculating the impairment charge management has used a value in use model to
forecast the remaining cashflows to be generated by these plants before they cease production.
COVID‑19
The Group continues to actively monitor the impact of the COVID‑19 pandemic, including the impact on economic activity and financial reporting.
During FY2020, the Group experienced lower volumes at certain operated assets and temporary shutdowns at some customer sites. Whilst COVID‑19
has caused disruption and uncertainty to the Group’s operating and economic assumptions (such as commodity prices, demand and supply volumes,
operating costs and discount rates), given the long lived nature of the majority of the Group’s assets, COVID‑19 in isolation was not considered an
indicator of impairment for the Group’s asset values at 30 September 2020.
Significant judgement is required in determining the following key assumptions used to calculate the value in use, which has been updated to reflect
the increase in uncertainty and the current risk environment:
• Revenue growth
• Foreign exchange rates
• Discount rates
• Future cash flows
The potential impact of COVID‑19 has been considered in formulating these assumptions.
Ultimately due to the ongoing uncertainty as to the extent and duration of COVID‑19 restrictions and the overall impact on economic activity, actual
results may materially differ from the Group’s internal assumptions. This may result in reassessment of indicators of impairment for the Group’s assets
in future reporting periods.
2019
Intangible 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 would no longer
be utilised by the business.
98 ORICA
Annual Report 2020
99
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
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 other financial risks that 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.
10. FINANCIAL RISK MANAGEMENT
Financial risk factors
Financial risk management is carried out centrally by the Group’s treasury function 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);
• commodity price risk (note 10c);
• credit risk (note 10d); and
•
liquidity risk (note 10e).
(a) Interest rate risk
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. As at September 2020, fixed rate
borrowings after the impact of interest rate swaps and cross currency swaps were $1,462.7 million (2019 $1,169 million), representing a fixed/floating
split of 53% and 47% respectively (2019 58% and 42%).
10. FINANCIAL RISK MANAGEMENT (continued)
2020
2019
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Interest bearing liabilities
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
USD
$m
123.4
186.2
(173.0)
(1,765.5)
1,858.3
229.4
8.8
(7.2)
17.8
(14.6)
EUR
$m
18.5
18.2
(11.3)
(62.2)
51.7
14.9
1.3
(1.0)
1.2
(0.9)
USD
$m
125.4
103.5
(105.1)
(1,566.6)
1,548.4
105.6
7.1
(5.8)
8.2
(6.7)
EUR
$m
12.2
20.8
(56.9)
(62.4)
67.6
(18.7)
(3.0)
2.6
(1.5)
1.3
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, PEN, RUB and KZT being translated into AUD. Derivative contracts to hedge earnings exposures do not qualify for hedge accounting under
Australian Accounting Standards. Board approved policy allows hedging of this exposure in order to reduce the volatility of full year earnings resulting
from changes in exchange rates. At reporting date, Orica held no derivative contracts to hedge earnings exposures (2019 nil).
Net investment in foreign operations
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. As at
reporting date, 33.4.% of the Group’s net investment in foreign operations was hedged (2019 33.8%).
Interest rate sensitivity
A 10% movement in interest rates without management intervention would have a $5.0 million (2019 $5.3 million) impact on profit before tax and
a $3.5 million (2019 $3.7 million) impact on shareholders’ equity.
(c) Commodity price risk
Commodity price risk refers to the risk that Orica’s profit or loss or equity will fluctuate due to changes in commodity prices.
(b) Foreign exchange risk
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.
Natural gas or ammonia are the primary feedstocks in Orica’s production process. Orica manages its contract portfolio so that on a mass balance basis it
seeks to maintain a low risk position across the contract cycle such that material input cost variations are passed through to customers in price variations
through rise and fall adjustments contained in all significant contracts.
The Group may enter into derivative contracts to hedge commodity price risk that is not eliminated via contractual or other commercial arrangements.
At reporting date, Orica held no commodity derivative contracts (2019 net liability of $8.7 million).
The Group is exposed to foreign exchange risk due to foreign currency borrowings and sales and/or purchases denominated, either directly or indirectly,
in currencies other than the functional currencies of the Group’s subsidiaries.
(d) Credit risk
Foreign exchange risk on foreign currency borrowings is managed using cross currency swaps and forward foreign exchange contracts. As at September,
the notional balance of derivative contracts hedging foreign currency debt was $1,477.1 million (2019 $968.8 million).
In regard to foreign currency risk relating to sales and purchases, the Group may hedge up to 100% of committed exposures utilising a declining percentage
over time 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. At reporting date,
Orica held foreign exchange contacts with a net asset value of $6.8 million (2019 net asset of $1.6 million).
Foreign exchange sensitivity
The table below shows the Group’s main exposure to foreign currency transactional risk (Australian dollar equivalent) and the effect on profit or loss and
equity had exchange rates been 10% higher or lower than the year end rate with all other variables held constant.
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.
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.
The creditworthiness of customers is reviewed prior to granting credit, using trade references and credit reference agencies. Credit limits are established
and monitored for each customer, and these limits represent the highest level of exposure that a customer can reach. Trade credit insurance is purchased
when required.
The Group manages bank counterparty risk by ensuring that actual and potential exposure is monitored daily against counterparty credit limits, which
have been assigned based on counterparty credit ratings. The Group does not hold any credit derivatives to offset its credit exposures.
Orica’s maximum exposure to credit risk as at 30 September is the carrying amount, net of impairment, of the financial assets as detailed in the table below:
Financial assets
Cash and cash equivalents
Derivative assets
Trade and other receivables
Total
2020
$m
920.5
152.2
1,023.1
2,095.8
2019
$m
412.6
171.4
828.8
1,412.8
100 ORICA
Annual Report 2020
101
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)
(e) Liquidity risk
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:
10. FINANCIAL RISK MANAGEMENT (continued)
Fair value measurement
The balance sheet includes financial assets and financial liabilities that are measured at fair value. These fair values are categorised into hierarchy levels that
are representative of the inputs used in measuring the fair value.
• maintaining an adequate level of undrawn committed facilities in various currencies that can be drawn upon at short notice;
Valuation method
Level 1 – uses quoted prices for identical instruments in active markets.
• 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
2020
$m
67.7
65.3
2019
$m
99.9
91.5
4,256.0
1,510.0
3,562.9
1,534.4
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 25 October 2020 to 25 October 2030 (2019 27 May 2020 to 25 October 2030).
The contractual maturity of the Group’s financial liabilities including estimated interest payments as at 30 September are shown in the table below. The
amounts shown represent the future undiscounted principal and interest cash flows and therefore differ from the carrying amount on the balance sheet:
2020
Non derivative financial liabilities
Interest bearing liabilities,
excluding lease liabilities
Lease liabilities
Trade and other payables
Derivative financial liabilities
Inflows
Outflows
Total
2019
Non derivative financial liabilities
Interest bearing liabilities,
excluding lease liabilities
Lease liabilities
Trade and other payables
Derivative financial liabilities
Inflows
Outflows
Total
1 year or less
$m
1 to 2 years
$m
2 to 5 years
$m
Over 5 years
$m
Contractual
cash flows
$m
Carrying
amount
$m
718.7
71.1
1,166.0
(335.0)
340.0
1,960.8
93.7
59.4
11.6
(19.0)
20.9
166.6
900.8
109.0
–
(55.4)
64.3
1,574.9
138.2
–
(643.7)
688.0
1,018.7
1,757.4
3,288.1
377.7
1,177.6
(1,053.1)
1,113.2
4,903.5
2,741.0
298.7
1,177.6
–
47.1
4,264.4
1 year or less
$m
1 to 2 years
$m
2 to 5 years
$m
Over 5 years
$m
Contractual
cash flows
$m
Carrying
amount
$m
155.2
0.3
1,275.8
(811.3)
824.1
576.2
809.5
939.7
2,480.6
2,032.8
0.1
7.1
(0.1)
0.1
–
–
–
–
–
–
–
–
0.4
0.4
1,282.9
1,282.9
(811.4)
824.2
–
12.5
1,444.1
583.4
809.5
939.7
3,776.7
3,328.6
Level 2 – uses inputs for the asset or liability other than quoted prices that are observable either directly or indirectly.
Level 3 – uses valuation techniques where one or more significant inputs are based on unobservable market data.
At reporting date, other assets and other liabilities on the balance sheet included derivatives carried at fair value and categorised as Level 2 as the inputs
are observable. 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 with 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.
Derivative financial instruments
Derivative assets
Designated as a hedge of interest bearing liabilities
Other
Total
Derivative liabilities
Designated as a hedge of interest bearing liabilities
Other
Total
Financial assets and liabilities carried at amortised cost
2020
2019
Current
$m
Non‑Current
$m
Current
$m
Non‑Current
$m
67.0
14.8
81.8
–
(3.7)
(3.7)
70.4
–
70.4
(43.4)
–
(43.4)
–
5.7
5.7
–
(12.5)
(12.5)
165.7
–
165.7
–
–
–
The fair value of cash and cash equivalents, trade and other receivables (note 5), and trade and other payables (note 5) approximates their carrying
amount due to their short maturity.
Interest bearing liabilities excluding lease liabilities have a carrying amount of $2,741.0 million (2019 $2,032.8 million). The carrying amount of bank and
other loans which are primarily short‑term in nature approximates fair value. Private Placement debt which is primarily long‑term in nature has a carrying
amount of $2,587.9 million (2019 $1,971.3 million) and a fair value of $2,696.3 million (2019 $2,042.4 million). Fair value of Private Placement debt is
determined as the present value of future contracted cash flows discounted using standard valuation techniques at applicable market yields having regard
to timing of cash flows.
Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount reported in the balance sheet where Orica currently has a legally enforceable right to offset
the recognised amounts, and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. No financial assets or
liabilities are currently held under netting arrangements.
Orica has entered into derivative transactions under International Swaps and Derivatives Association (‘ISDA’) master agreements 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. As Orica does not presently
have a legally enforceable right of set‑off, derivatives are presented on a gross basis on the balance sheet.
Derivatives and 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.
To qualify for hedge accounting the Group formally designates and documents details of the hedge, risk management objective and strategy for entering
into the arrangement and methodology used for measuring effectiveness.
102 ORICA
Annual Report 2020
103
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)
Derivatives and hedge accounting – significant accounting policies
Valuation: Derivatives are measured at fair value at inception, and subsequently remeasured to fair value at each reporting date.
Gains or losses on fair
value movements of the
financial instrument
Discontinuation of
hedge accounting
Fair value hedges
Cash flow hedges
Net investment hedges
Recognised in the income
statement, together with gains or
losses in relation to the hedged
item attributable to the risk
being hedged.
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.
The cumulative gain or loss that
has been recorded to the carrying
amount of the hedged item is
amortised to the income statement
using the effective interest method.
Amounts remain deferred in the
foreign currency translation reserve
and are subsequently recognised in
the income statement in the event
of disposal of the foreign operation.
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. If the forecast transaction
is no longer forecast to occur,
the cumulative gain or loss is
transferred immediately to the
income statement.
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 speculative purposes.
10. FINANCIAL RISK MANAGEMENT (continued)
Hedge accounting relationships are categorised according to the nature of the risks being hedged:
Hedge type
Fair value hedge
Cash flow hedge
Description
Hedges the change in fair value of recognised assets and liabilities.
Hedges the exposure to variability in cash flows attributable to a particular risk associated with an asset,
liability or highly probable forecast transaction.
Net investment hedge
Hedges the foreign currency translation exposure of the net assets of foreign operations.
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 the counterparties’ and the Group’s own credit risk which is included in the fair value of the derivative
hedge instrument but not the hedge item. 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
cash flow 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.
Effects of hedge accounting on financial position and performance
Fair value and cash flow hedges
The table below shows the carrying amounts of the Group’s Private Placement debt and the derivatives which are designated in fair value and/or cash flow
hedge relationships (1) to hedge them:
• The carrying amount of the Private Placement debt includes foreign exchange remeasurements to year end rates and fair value adjustments when
included in a fair value hedge;
• The breakdown of the hedging derivatives includes remeasurement of foreign currency notional values at year end rates, fair value movements due
to interest rate risk, foreign currency cash flows designated into cash flow hedges, costs of hedging recognised in other comprehensive income and
ineffectiveness recognised in the income statement; and
• Hedged value represents the carrying amount of the Private Placement debt adjusted for the carrying amount of the designated derivatives.
Fair value of derivatives
Foreign
exchange
notional
@ spot
$m
Fair value
interest
rate risk
$m
Balance in
cash flow
hedge
reserve(3)
$m
Carrying
amount
$m
Recognised
in income
statement(2)
$m
Total carrying
amount
(asset)/liability
$m
Hedged
value
$m
2020
Private Placement debt
2,587.9
(75.2)
(51.2)
31.7
2019
Private Placement debt
1,971.3
(148.6)
(33.8)
14.5
0.7
2.2
(94.0)
2,493.9
(165.7)
1,805.6
(1)
Individual derivative transactions may be included in more than one hedge type designation.
(2) Amounts recognised in the income statement are presented within financing costs.
(3)
Includes cost of hedging as defined by AASB 9 of $8.1 million (2019 $2.4 million).
Net investment hedges
As at 30 September, hedging instruments designated in a net investment hedge consisted primarily of foreign currency debt and had a carrying amount
of $906.5 million (2019 $939.9 million). During the period movements in the hedging instruments of $62.6 million gain (2019 $55.8 million loss) were
recognised in the foreign currency translation reserve, with no ineffectiveness (2019 nil) recognised in the income statement.
104 ORICA
Annual Report 2020
105
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
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 2020, Orica paid $175.6 million (2019 $167.4 million)
globally in corporate taxes and payroll taxes. Orica collected and remitted $122.1 million (2019 $109.1 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
Under provided in prior years
Total income tax expense in income statement
(b) Reconciliation of income tax expense to prima facie tax payable
Income tax expense attributable to profit before individually 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
recognition of previously unbooked temporary differences
non creditable withholding taxes
non allowable interest deductions
non allowable share based payments
recognition of tax losses
sundry items
Income tax expense attributable to profit before individually significant items
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 allowable initiating systems network optimisation expense
non allowable operating model restructuring expense
non taxable gain on formation of China joint venture
Income tax expense attributable to loss on individually significant items
Income tax expense reported in the income statement
Consolidated
2020
$m
112.5
(7.0)
1.5
107.0
Consolidated
2020
$m
454.9
136.5
(12.6)
1.5
(16.6)
12.3
21.9
1.6
(3.5)
5.3
146.4
(170.4)
(51.1)
2.6
8.1
1.0
–
(39.4)
107.0
2019
$m
98.4
0.5
9.7
108.6
2019
$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
11. TAXATION (continued)
(c) Income tax recognised in Equity
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 (loss)/gain on translation
of foreign operations
Net actuarial loss on defined benefit obligations
Recognised in comprehensive income
Deductible share issue costs
Total recognised in equity
Consolidated
2020
$m
2020
$m
2020
$m
2019
$m
2019
$m
2019
$m
Before
tax
Tax (expense)
benefit
Net of tax
Before
tax
Tax (expense)
benefit
Net of tax
62.6
(18.8)
43.8
(55.8)
16.7
(39.1)
(16.5)
7.9
(397.8)
(12.1)
(355.9)
(6.0)
(361.9)
4.9
(2.3)
40.0
3.9
27.7
1.8
29.5
(11.6)
5.6
(357.8)
(8.2)
(328.2)
(4.2)
(332.4)
(14.6)
27.2
107.0
(96.7)
(32.9)
–
(32.9)
4.4
(8.2)
4.9
27.0
44.8
–
44.8
(d) Recognised deferred tax assets and liabilities
Balance Sheet
Income Statement
(10.2)
19.0
111.9
(69.7)
11.9
–
11.9
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)
2020
$m
Restated(1)
2019
$m
16.2
25.2
55.2
1.5
50.7
39.8
30.8
64.9
87.6
19.3
118.8
6.6
516.6
(207.6)
309.0
10.8
200.3
27.2
18.5
256.8
(207.6)
49.2
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
23.3
9.6
237.9
(164.5)
73.4
2020
$m
(6.8)
(3.6)
6.3
–
(9.4)
20.3
(2.2)
2.7
3.8
13.2
(17.7)
0.8
4.5
(19.7)
(8.6)
9.4
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(1)
Other items
Deferred tax liabilities
Less set‑off against deferred tax assets
Net deferred tax liabilities
Deferred tax expense
(1) Restated for the retrospective application of IAS 12 Income taxes, following IFRIC agenda decision, due to change in Orica accounting policy, refer to note 24 for further details.
(7.0)
0.5
106 ORICA
Annual Report 2020
107
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)
Tax losses not booked
Capital losses not booked
Temporary differences not booked
Tax losses not booked expire between 2021 and 2031.
Recognition and Measurement
Consolidated
2020
$m
66.6
79.5
122.9
2019
$m
34.9
84.8
168.8
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.
11. TAXATION (continued)
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 $25 million for the 1997 financial year relating
to an alleged understatement of income based on an audit of production records. Orica believes BTA has misinterpreted those production records
and recently received a favourable decision from the Brazilian Civil Court in relation to an excise dispute based on the same factual matter. This
decision should support the income tax dispute.
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 $25 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. Orica believes
that the assessment is not in accordance with the tax law and is continuing to strongly defend the matter.
108 ORICA
Annual Report 2020
109
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
13. EQUITY ACCOUNTED INVESTEES AND JOINT OPERATIONS (continued)
The following table summarises the financial information of significant equity accounted investees as included in their own financial statements.
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.
Equity Accounted Investees
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.
When the Group relinquishes 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.
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 23 for the list of investments in controlled entities.
13. EQUITY ACCOUNTED INVESTEES 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 “Individually immaterial”.
Name
Principle activity
Nelson Brothers, LLC(1)
Manufacture and sale
of explosives
Balance
date
30‑Sep
Ownership
2020
%
50.0
2019
%
50.0
Nelson Brothers Mining
Services LLC(1)
Sale of explosives
30‑Sep
50.0
50.0
Poly Orica Management
Co., Ltd(2)
Manufacture and sale
of explosives
31‑Dec
49.0
49.0
Southwest Energy LLC(1)
Sale of explosives
30‑Sep
50.0
50.0
Individually immaterial
Various
(1) Entities are incorporated in USA
(2) Entity is incorporated in China
All equity accounted investees disclosed in the table above are classified as joint ventures.
Profit/(loss)
for the year
Consolidated
Carrying value
2020
$m
2019
$m
6.0
8.6
3.7
14.8
2.6
35.7
8.0
7.6
1.2
10.8
4.3
31.9
2020
$m
38.7
2019
$m
40.8
32.8
37.1
70.2
66.6
121.6
38.3
301.6
120.5
36.3
301.3
2020
Name
Balance Sheet
Current assets
Non‑current assets
Current liabilities
Non‑current liabilities
Net assets (100%)
Group’s share of net assets
Income Statement
Revenue
Net profit
Total profit and comprehensive income (100%)
Group’s share of total comprehensive income
Translation and other adjustments
Included in the Group’s Income Statement
Dividends received by the Group
2019
Name
Balance Sheet
Current assets
Non‑current assets
Current liabilities
Non‑current liabilities
Net assets (100%)
Group’s share of net assets
Income Statement
Revenue
Net profit
Total profit and comprehensive income (100%)
Group’s share of total comprehensive income
Translation and other adjustments
Included in the Group’s income statement
Dividends received by the Group
(b) Joint operations
Nelson
Brothers, LLC
Nelson
Brothers
Mining
Services LLC
Poly Orica
Management
Co., Ltd
Southwest
Energy LLC
$m
$m
$m
$m
59.1
72.6
(50.2)
(29.0)
52.5
26.3
246.9
10.5
10.5
5.3
0.7
6.0
6.3
29.5
17.3
(32.2)
(1.7)
12.9
6.5
156.5
15.9
15.9
8.0
0.6
8.6
8.9
82.7
79.0
(16.7)
(2.0)
143.0
70.1
82.6
76.1
(21.2)
(6.9)
130.6
65.3
103.3
261.5
8.8
8.8
4.3
(0.6)
3.7
–
25.5
25.5
12.8
2.0
14.8
7.8
Nelson
Brothers, LLC
Nelson
Brothers
Mining
Services LLC
Poly Orica
Management
Co., Ltd
Southwest
Energy LLC
$m
$m
$m
$m
62.0
74.9
(52.8)
(31.1)
53.0
26.5
295.8
16.0
16.0
8.0
–
8.0
9.3
34.7
19.1
(36.1)
(2.8)
14.9
7.5
178.8
17.0
17.0
8.4
(0.8)
7.6
7.4
71.5
79.2
(14.8)
–
135.9
66.6
84.5
74.6
(33.4)
(3.2)
122.5
61.3
34.7
137.8
4.3
4.3
2.1
(0.9)
1.2
–
24.4
24.4
12.1
(1.3)
10.8
10.5
The Group owns 50% interest of Yara Pilbara Nitrates Pty Ltd, with the remaining shares held by subsidiaries in the Yara International ASA Group.
110 ORICA
Annual Report 2020
111
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
13. EQUITY ACCOUNTED INVESTEES AND JOINT OPERATIONS (continued)
(c) Transactions with equity accounted investees
Transactions during the year with equity accounted investees were:
14. BUSINESSES AND NON‑CONTROLLING INTERESTS ACQUIRED (continued)
The fair value of the identifiable assets and liabilities of Exsa as at the date of acquisition, based on the provisional fair value assessment, were:
Sales of goods to equity accounted investees
Purchase of goods from equity accounted investees
Dividend income received from equity accounted investees
(d) Transactions with related parties
2020
$m
447.8
105.9
23.0
2019
$m
439.5
110.0
27.2
Consideration
cash paid
net cash acquired
Total consideration
Fair value of net assets of businesses/controlled entities acquired
All transactions with other related parties are made on normal commercial terms and conditions and in the ordinary course of business.
trade and other receivables
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
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.
14. BUSINESSES AND NON‑CONTROLLING INTERESTS ACQUIRED
Consolidated – 2020
Acquisitions of business and controlled entities
Business combinations are accounted for under the acquisition method when control is transferred to the Group, in accordance with AASB 3 Business
Combinations. 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. The transaction costs are
expensed in the income statement.
Since 30 April 2020, the Group has acquired 96.8% of Exsa S.A. (“Exsa”). Exsa is a listed company based in Peru which specialises in the manufacture
and distribution of industrial explosives and has a world class initiating systems facility. This acquisition is expected to further Orica’s strategic initiatives
and growth targets in the Latin America region.
These financial statements include the provisional purchase price allocation to the acquired net assets. In accordance with AASB 3, a measurement period
of up to one year following the acquisition date is permitted during which acquisition accounting can be finalised.
The valuation techniques used for measuring the fair value of material intangibles were the relief‑from‑royalty method and income approach. The
relief‑from‑royalty method was used to value Exsa’s brand and associated trademarks and patents and Intellectual Property. This method measures the
after‑tax royalties or licence fees saved by owning the intangible asset.
Exsa’s customer contracts have been valued using the income approach (specifically the multi‑period excess earnings method). This method considers the
earnings that are reasonably attributable to the existing customers based on analysis of the customer churn, relevant sales, margins and contributory assets.
Material plant, property, and equipment assets were valued using primarily the replacement cost approach.
The Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right‑of‑use
assets were measured at an amount equal to the lease liabilities and adjusted to reflect the favourable terms of the lease relative to market terms.
For other material assets acquired and liabilities assumed, book value approximates to fair value.
The Group elected to measure the non‑controlling interest in the acquiree at the proportionate share of its interest in the acquiree’s identifiable net assets.
Changes in the Group’s interest that do not result in a loss of control are accounted for as equity transactions.
Exsa S.A.
$m
169.6
(15.7)
153.9
46.9
55.6
1.2
204.7
34.7
42.5
9.4
3.0
(224.7)
(3.6)
(1.4)
(5.3)
(10.5)
152.5
4.9
6.3
inventories
investments
property, plant and equipment
right of use assets
intangibles
other assets
deferred tax asset
payables and interest bearing liabilities
provision for employee entitlements
deferred income
other provisions
provision for deferred tax
Total fair value of net assets of businesses/controlled entities acquired
Non‑controlling interest
Goodwill on acquisition
The Group incurred acquisition‑related costs of $6.3 million. These amounts have been included in other expenses in the income statement for the
year ended 30 September 2020. In addition the Group incurred a total of $12.6 million associated with the issuance of equity securities related to the
transaction. These amounts have been accounted for in accordance with AASB 9 as an offset to equity.
The deferred tax liability mainly comprises the tax effect of the accelerated depreciation for tax purposes of tangible and intangible assets.
Results contributed by acquired entities since acquisition date:
Revenue for the period
Loss before tax for the period(1)
$m
100.4
7.1
(1) Loss before tax includes individually significant items relating to Initiating Systems Network Optimisation of $4.2 million and net finance costs of $2.3 million.
If the acquisition had occurred on 1 October 2019, the unaudited operating revenue and profit before tax for the Group for the year to 30 September 2020
would have been:
Revenue for the year
Loss before tax for the year(2)
$m
255.5
18.2
(2) Loss before tax includes individually significant items relating to Initiating Systems Network Optimisation of $4.2 million and net finance costs of $7.2 million.
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.
The goodwill of $6.3 million comprises the value of the skills and technical talent of the acquired business’ work force and the synergies expected to be
achieved through integrating the business. Goodwill is allocated entirely to the Latin America segment. None of the goodwill recognised is expected to
be deductible for income tax purposes.
112 ORICA
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
Annual Report 2020
113
Company
2020
$m
1,479.6
3,045.8
170.1
171.6
2,659.1
215.1
2,874.2
414.7
2019
$m
1,088.6
2,653.3
170.3
522.2
2,138.0
(6.9)
2,131.1
26.2
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
The Company did not have any contractual commitments for the acquisition of property, plant or equipment in the current or previous years.
Contingent liabilities and contingent assets
Under the terms of a Deed of Cross Guarantee entered into 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 guaranteed senior notes issued in the US Private Placement market in 2010, 2013, 2017 and 2020. The notes have maturities between
calendar years 2020 and 2030 (2019: 2020 and 2030). Orica Limited has also provided guarantees for committed bank facilities.
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 Australia Pty Ltd
• Orica Investments Pty Ltd
• Orica Explosives Holdings Pty Ltd
• Orica Explosives Holdings No 2 Pty Ltd
• Orica Explosives Technology Pty Ltd
• Orica IC Assets Pty Ltd
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.
14. BUSINESSES AND NON‑CONTROLLING INTERESTS ACQUIRED (continued)
Consolidated – 2019
The Group did not acquire 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 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
2019
$m
116.4
(6.3)
110.1
The deferred settlement for the additional 5% shareholding of Yara Pilbara Nitrates Pty Ltd (acquired in FY2018) was settled in the 2019 financial year.
15. BUSINESSES DISPOSED
Disposal of businesses/controlled entities
The following businesses and controlled entities were disposed of:
2020
The Group has not disposed of any businesses or entities in the year to 30 September 2020.
2019
On the 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.
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.
114 ORICA
Annual Report 2020
115
NOTES TO THE FINANCIAL STATEMENTS – SECTION F. GROUP STRUCTURE
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION G. REWARD AND RECOGNITION
For the year ended 30 September
17. DEED OF CROSS GUARANTEE (continued)
A consolidated income statement and consolidated balance sheet are 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
Equity accounted investees
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
Provisions
Total non‑current liabilities
Total liabilities
Net assets
Equity
Ordinary shares
Reserves
Retained earnings
Total equity
Summarised Income Statement and retained profits
Profit before income tax expense
Income tax expense
Profit from operations
Retained profits at the beginning of the year
Actuarial losses recognised directly in equity
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.
2020
$m
2019
$m
SECTION G. REWARD AND RECOGNITION
Orica operates in more than 50 countries and has more than 13,000 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.
429.4
141.5
20.5
591.4
2.3
21.8
6,977.6
1,334.3
501.1
75.7
8,912.8
9,504.2
356.9
15.5
62.3
138.2
572.9
1.7
4,336.5
339.8
4,678.0
5,250.9
4,253.3
260.4
142.2
11.9
414.5
2.6
20.9
7,573.4
1,251.2
442.3
4.1
9,294.5
9,709.0
548.7
–
11.4
139.8
699.9
0.2
5,698.6
322.7
6,021.5
6,721.4
2,987.6
2,659.1
2,138.0
678.0
916.2
637.8
211.8
4,253.3
2,987.6
1,041.0
(133.1)
907.9
211.8
(10.9)
(67.0)
(125.6)
916.2
104.8
(39.6)
65.2
383.9
(34.3)
(83.5)
(119.5)
211.8
18. EMPLOYEE SHARE PLANS AND REMUNERATION
The following plans have options or rights (“instruments”) over Orica shares outstanding at 30 September 2019 and 30 September 2020:
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
2020
$000
2019
$000
11,463.1
14,532.8
73.5
306.2
220.5
301.8
(409.1)
5,148.1
–
–
11,433.7
20,203.2
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. DEFINED BENEFIT OBLIGATIONS
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 2020 was $32.4 million (2019 $29.4 million).
116 ORICA
Annual Report 2020
117
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. DEFINED BENEFIT OBLIGATIONS (continued)
(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 $27.3 million (2019 $26.3 million) to defined benefit plans. The Group’s external actuaries have forecast total
employer contributions and benefit payments to defined benefit plans of $30.1 million for 2021.
19. DEFINED BENEFIT OBLIGATIONS (continued)
(c) (iv) Reconciliations
Reconciliation of present value of the defined benefit obligations:
Balance at the beginning of the year
Current service cost
Interest cost
Actuarial 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 asset
Return on plan assets greater than discount rate
Contributions by plan participants
Contributions by employer
Benefits paid
Other
Exchange differences on foreign funds
Balance at the end of the year
(c) (i) Balance Sheet amounts
The amounts recognised in the balance sheet are determined as follows:
Present value of the funded defined benefit obligations
Present value of unfunded defined benefit obligations
Fair value of defined benefit plan assets
Deficit
Restrictions 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 the year
(c) (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
Losses from immediate recognition
Past service cost
Total included in employee benefits expense
(c) (iii) Amounts included in the Statement of Comprehensive Income
Actuarial gains/(losses) on defined benefit obligations:
Due to changes in demographic assumptions
Due to changes in financial assumptions
Due to experience adjustments
Total
Return on plan assets greater than discount rate
Total losses recognised via the Statement of Comprehensive Income
Tax benefit on total losses recognised via the Statement of Comprehensive Income
Total losses after tax recognised via the Statement of Comprehensive Income
2020
$m
750.8
131.9
(569.2)
313.5
0.1
313.6
314.0
(0.4)
313.6
2020
$m
17.2
6.3
0.4
0.2
24.1
2020
$m
(12.9)
(8.2)
11.5
(9.6)
(2.5)
(12.1)
3.9
(8.2)
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)
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.
Comprising:
Quoted in active markets:
Equities
Debt securities
Property
Other quoted securities
Other:
Property
Insurance contracts
Cash and cash equivalents
2020
$m
2019
$m
197.9
214.9
11.1
87.9
25.5
4.6
27.3
569.2
212.2
236.3
15.2
71.1
22.4
4.9
25.1
587.2
2020
$m
894.6
17.2
21.9
9.6
1.0
(42.8)
0.1
(18.9)
882.7
2020
$m
2019
$m
743.0
14.8
26.4
129.9
1.1
(34.2)
‑
13.6
894.6
2019
$m
587.2
528.2
15.6
(2.5)
1.0
27.3
(42.8)
–
(16.6)
569.2
20.2
33.2
1.1
26.3
(34.1)
(0.2)
12.5
587.2
118 ORICA
Annual Report 2020
119
NOTES TO THE FINANCIAL STATEMENTS – SECTION G. REWARD AND RECOGNITION
For the year ended 30 September
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
19. DEFINED BENEFIT OBLIGATIONS (continued)
The principal assumptions applied in determining the present value of defined benefit obligations and their bases were as follows:
SECTION H. OTHER
• Rates of increase in pensionable remuneration, pensions in payment and healthcare costs: historical experience and management’s long‑term
future expectations;
This section includes additional financial information that is required by Australian Accounting Standards and which management considers to be
relevant information for shareholders.
• Discount rates: prevailing long‑term high quality bond yields, chosen to match the currency and duration of the relevant obligation; and
• Mortality rates: the local actuaries’ designated mortality rates for the individual plans concerned.
The weighted averages for those assumptions and related sensitivity information are presented below. Sensitivity information indicates by how much
the defined benefit obligations would increase or decrease if a given assumption were to increase or decrease with no change in other assumptions.
Rate of increase in pensionable remuneration
Rate of increase in pension payments
Discount rate for pension plans
Weighted average of
assumptions used p.a.
2020
2.75%
2.22%
2.37%
2019
3.22%
2.51%
2.53%
Change in assumptions
+1% p.a.
$m
–1% p.a.
$m
25.2
25.0
(108.3)
(21.5)
(24.9)
135.5
The expected age at death for persons aged 65 is 87 years for men and 89.5 years for women at 30 September 2020. A change of one year in the
expected age of death would result in an $23.4 million movement in the defined benefit obligation at 30 September 2020.
Critical accounting judgements and estimates
The defined benefit obligation 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. 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.
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 complex legal issues and are subject to many uncertainties 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.
120 ORICA
Annual Report 2020
121
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
21. 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
2020
$000
2019
$000
4,781
3,557
1,839
6,620
58
58
6,678
1,816
5,373
162
162
5,535
(1) Fees paid or payable for overseas subsidiaries’ local statutory requirements.
From time to time, KPMG, the auditor of Orica, provides 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.
22. EVENTS SUBSEQUENT TO BALANCE DATE
Dividends
On 19 November 2020, the Directors declared a final dividend of 16.5 cents per ordinary share payable on 15 January 2021. The financial effect of this
dividend is not included in the financial statements for the year ended 30 September 2020 and will be recognised in the FY2021 financial statements.
The Directors have not become aware of any other significant matter or circumstance that has arisen since 30 September 2020, 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.
23. INVESTMENTS IN CONTROLLED ENTITIES
The consolidated financial statements incorporate the assets, liabilities and results of the following controlled entities held during 2019 and 2020
(non‑controlling interests shareholding disclosed if not 100% owned):
Place of
incorporation
if other than
Australia
Name of Entity
GroundProbe Pty Ltd(b)
Place of
incorporation
if other than
Australia
Name of Entity
Company
Orica Limited
Controlled Entities
ACF and Shirleys Pty Ltd(a)
Alaska Pacific Powder Company
USA
Altona Properties Pty Ltd(b) – 37.4%
Aminova International Limited
Ammonium Nitrate Development and
Production Limited – 9.3%
Anbao Insurance Pte Ltd
Arboleda S.A
ASA Organizacion Industrial S.A. de C.V.
Australian Fertilizers Pty Ltd(a)
Barbara Limited
Beijing Ruichy Minova Synthetic Material
Company Limited
Breca Soluciones de Voladuras S.A.C.(c)
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(a)
Emirates Explosives LLC – 35%
Explosivos de Mexico S.A. de C.V.
Explosivos Mexicanos S.A. de C.V.
Exsa Chile SpA – 3.2%(c)
Exsa Colombia S.A.S. – 3.2%(c)
Exsa S.A. – 3.2%(c)
Hong Kong
Thailand
Singapore
Panama
Mexico
UK
China
Peru
USA
Russia
Mexico
Panama
USA
United Arab
Emirates
Mexico
Mexico
Chile
Colombia
Peru
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(b)
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
GroundProbe South Africa (Proprietary) Ltd
South Africa
GroundProbe South America SA
GroundProbe Technologies Pty Ltd(b)
GroundProbe (Nanjing) Mining
Technology Co. Ltd
Hallowell Manufacturing LLC
Holding EXSA S.A.C. – 3.2%(c)
Indian Explosives Private Limited
Initiating Explosives Systems Pty Ltd
Chile
China
USA
Peru
India
International Blasting Services Inc – 3.2%(c)
Panama
JSC “Orica CIS”
Minova Kazakhstan Limited Liability
Partnership
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(a)
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
Mintun 1 Limited
Mintun 2 Limited
Mintun 3 Limited
Russia
Kazakhstan
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
UK
UK
UK
122 ORICA
Annual Report 2020
123
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
23. INVESTMENTS IN CONTROLLED ENTITIES (continued)
23. INVESTMENTS IN CONTROLLED ENTITIES (continued)
Finland
Ghana
USA
Portugal
USA
Singapore
Name of Entity
Mintun 4 Limited
Orica Africa Holdings Limited
Place of
incorporation
if other than
Australia
UK
UK
Name of Entity
Orica Explosives Holdings Pty Ltd
Orica Explosives Holdings No 2 Pty Ltd
Place of
incorporation
if other than
Australia
Nitro Asia Company Inc. – 41.6%
Philippines
Orica Explosives Holdings No 3 Pty Ltd(b)
Nitro Consult AB
Nitro Consult AS
Nitroamonia de Mexico S.A de C.V.
Nobel Industrier AS
Nutnim 1 Limited
Nutnim 2 Limited
OOO Minova
Sweden
Norway
Mexico
Norway
UK
UK
Russia
Orica‑CCM Energy Systems Sdn Bhd – 45%
Malaysia
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(a)
Orica Ghana Limited
Orica‑GM Holdings Limited – 49%
UK
Orica Grace US Holdings Inc.
Orica Africa (Pty) Ltd
Orica Argentina S.A.I.C.
Orica Australia Pty Ltd
Orica BKM SASU
Orica Belgium S.A.
South Africa
Argentina
Orica Holdings Pty Ltd(b)
Orica Ibéria, S.A.
Democratic
Republic of Congo
Belgium
Orica IC Assets Holdings Limited Partnership(b)
Orica IC Assets Pty Ltd
Orica IC Investments Pty Ltd(a)
Orica International IP Holdings Inc.
Orica International Pte Ltd
Orica Blast & Quarry Surveys Limited – 25%
UK
Orica Bolivia S.A.
Orica Brasil Ltda
Orica Burkina Faso SARL
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 Cote D’Ivoire(d)
Orica Denmark A/S
Orica Dominicana S.A.
Orica DRC SARL
Orica Eesti OU – 35%
Orica Europe FT Pty Ltd(b)
Orica Europe Investments Pty Ltd(a)
Orica Europe GmbH & Co KG
Orica Europe Verwaltungs GmbH
Bolivia
Brazil
Burkina Faso
New Caledonia
Canada
Canada
Panama
Costa Rica
Chile
Chile
Colombia
Ivory Coast
Denmark
Dominican
Republic
Democratic
Republic of Congo
Estonia
Germany
Germany
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)
Orica Malaysia Sdn Bhd(d)
Orica Mali SARL
Orica Mauritania SARL
Orica Med Bulgaria AD – 40%
Orica Mining Services (Namibia)
(Proprietary) Limited
Malaysia
Republic of Mali
Mauritania
Bulgaria
Namibia
Orica Mining Services (Hong Kong) Ltd
Hong Kong
Orica Mining Services Peru S.A.
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
Name of Entity
Orica New Zealand Limited
Orica New Zealand Superfunds
Securities Limited
Orica Nitrates Philippines Inc – 4%
Orica Nitro Patlayici Maddeler Sanayi ve Ticaret
Anonim Sirketi – 49%
Orica Nitrogen LLC
Orica Nominees Pty Ltd(b)
Orica Norway AS
Orica Panama S.A.
Orica Philippines Inc – 5.48%
Orica Portugal, S.G.P.S., S.A.
Orica Securities (UK) Limited
Place of
incorporation
if other than
Australia
NZ
NZ
Philippines
Turkey
USA
Norway
Panama
Philippines
Portugal
UK
Orica South Africa (Pty) Ltd – 26.47%
South Africa
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
Orica US Finance LLC
Orica US Holdings General Partnership
Senegal
Singapore
Russia
Sweden
Sweden
Tanzania
UK
USA
USA
Name of Entity
Orica USA Inc.
Orica U.S. Services Inc.
Place of
incorporation
if other than
Australia
USA
USA
Orica Venezuela C.A. – 49%
Venezuela
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(a)
Zambia
Canada
Mexico
Mexico
UK
UK
USA
Indonesia
Indonesia
Indonesia
Indonesia
Rui Jade International Limited
Hong Kong
Sarkem Pty Ltd(a)
White Lightning Holdings, Inc
Philippines
(a) Liquidated in 2020.
(b) No separate statutory accounts are required to be prepared in Australia.
(c) Acquired in 2020.
(d) Incorporated in 2020.
24. NEW ACCOUNTING POLICIES AND ACCOUNTING STANDARDS
Changes in accounting policies
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 2019. 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 2019 the Group adopted the following new accounting standards.
AASB 16 Leases
The Group adopted AASB 16 as of 1 October 2019.
The Group applied the modified retrospective approach under which the right of use asset on transition equalled the lease liability adjusted by the amount
of any prepaid or accrued lease payments. For existing finance leases, the carrying amounts before transition represented the 30 September 2019 values
assigned to the right of use asset and lease liability.
The Group used the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:
• Applied the exemption not to recognise right of use assets and liabilities for low‑value leases and leases with less than 12 months of lease term
as at 1 October 2019. Costs for these leases were expensed to the income statement.
• Relied on its onerous lease assessment under IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before initial application
as an alternative to an impairment review.
• Excluded initial direct costs from measuring the right of use assets at the date of initial application.
• Used hindsight when determining the lease term of the contract where it contains options to extend or terminate the lease.
124 ORICA
Annual Report 2020
125
NOTES TO THE FINANCIAL STATEMENTS – SECTION H. OTHER
For the year ended 30 September
DIRECTORS’ DECLARATION
24. NEW ACCOUNTING POLICIES AND ACCOUNTING STANDARDS (continued)
The impact on transition to AASB 16 on the Group’s 1 October 2019 balance sheet was an increase in lease liabilities (included in interest bearing liabilities)
of $253.7 million, an increase in right of use assets (included in property, plant and equipment) of $250.1 million, net adjustments to deferred tax assets of
$1.0 million, and a charge of $2.6 million to retained earnings.
The carrying value of the Group’s right of use assets at 30 September 2020 is $290.7 million. During the period, depreciation of right of use assets of
$70.6 million was expensed, and $12.6 million interest was recorded in net financing costs.
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 72 to 124, and the Remuneration Report in the Directors’ Report, set out on
pages 50 to 70, 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 2020 and of its performance for the financial year ended
on that date; and
The weighted average incremental borrowing rate applied to the Group’s lease liabilities recognised on the balance sheet at 1 October 2019 was 4.5%.
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
The below table shows the movement between the estimated liability as at 30 September 2019 and the liability recognised on 1 October 2019:
(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 2020.
The Directors draw attention to “About this report” on page 78 to the financial statements, which includes a statement of compliance with
International Financial Reporting Standards.
M W Broomhead
Chairman
Dated at Melbourne 19 November 2020
A Calderon
Managing Director and Chief Executive Officer
Operating lease commitments at 30 September 2019 as disclosed in the Group’s financial statements under AASB 117
Adjusted for:
Present value discounting of lease liabilities
Short‑term leases
Extension and termination options reasonably certain to be exercised
Contracts reassessed as lease agreements under AASB 16
Present value of existing finance leases at 30 September 2019
Lease liabilities recognised at 1 October 2019 under AASB 16
Consolidated
1 October
2019
$m
249.9
(52.1)
(20.0)
49.0
26.9
0.4
254.1
The Group’s activities as a lessor are not material and hence there was no significant impact on the financial statements on adoption of AASB 16.
The Group’s new leases accounting policy applied from 1 October 2019 is detailed in note 3 and note 7.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments
The Group adopted IFRIC 23 as of 1 October 2019. 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 new
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 concluded that there is an opening retained earnings adjustment of $10.2 million required on transition for the increase to the provision
for uncertain tax positions.
IFRIC Agenda Decision – Multiple Tax Consequences of Recovering an Asset
The IFRS Interpretations Committee received a request about deferred tax when the recovery of the carrying amount of an asset gives rise to multiple tax
consequences, specifically, where an entity acquires intangible assets as part of a business combination. The agenda decision in relation to this request
confirmed how the tax base of an asset should be determined and how deferred tax should be measured and recognised.
In applying this decision from the IFRS Interpretations Committee, the Group has retrospectively recognised a deferred tax liability of $5.0 million, with
a corresponding increase to goodwill, in relation to intangible assets previously acquired as part of the GroundProbe acquisition in 2018. The opening
balance of goodwill and deferred tax liability have been restated at 1 October 2019.
There is no impact to the consolidated statement of cash flows or the consolidated statement of profit or loss and other comprehensive income
as a consequence of this changed interpretation.
A number of other new standards are effective from 1 October 2019, but they do not have a material impact on the Group’s Annual Report.
(ii) New and amended accounting standards and interpretations issued but not yet effective
There are no new standards or interpretations that are not yet effective and that would be expected to have a material impact on the Group in the
current or future reporting periods and on foreseeable future transactions.
126ORICA INDEPENDENT AUDITOR’S REPORT © 2020 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All right reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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: • giving a true and fair view of the Group's financial position as at 30 September 2020 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: • Consolidated balance sheet as at 30 September 2020 • 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 • Notes including a summary of significant accounting policies • 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 (including Independence Standards) (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: • Implementation of global Enterprise Resource Planning system (“4S”) • Impairment of property, plant and equipment and intangible assets • Environmental and decommissioning provisions and contingent liability disclosures • 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. 127Annual Report 2020INDEPENDENT AUDITOR’S REPORT (Continued) Implementation of global Enterprise Resource Planning system (“4S”) The key audit matter How the matter was addressed in our audit During the year the Group implemented a global Enterprise Resource Planning system. The implementation of this system, referred to as “4S”, resulted in significant changes to the Group’s financial reporting environment, including a change of the core general ledger used for financial reporting. The implementation of 4S introduced heightened audit risk as controls and processes established and embedded over a number of years required either changing or updating and migration into the new IT environment. This is a key audit matter due to the increased audit effort arising from the: • Significant impact the changes in the financial reporting systems and automated controls have had on the Group’s control environment during the year. This required us to understand the nature and extent of the changes, including the nature of the revised automated controls and system based calculations, and the associated impacts on financial reporting and our audit. There is an increased risk of ineffective controls and gaps in automated processes associated with the new system immediately following the implementation of 4S and prior to stabilisation of the system. • Financial reporting risks associated with migration of historical and current year financial data from the existing systems to 4S, including the specific risks associated with the system cut-over period. • The Group’s use of temporary processes to supplement the system generated data to mitigate risks associated with the implementation of 4S. These supplemental processes included manual elements to record certain transactions related to revenue recognition and cost accruals. Manual processes are generally associated with a higher risk of error. We involved Information Technology specialists to supplement our senior audit team members in assessing this key audit matter. Working with our IT specialists, our procedures included: • Throughout the 4S implementation project, we assessed the scope, competence and objectivity of the Group’s Internal Auditors, and considered the findings from their work in relation to each phase of the project to further inform our audit approach. During the 4S pre-implementation phase • We obtained an understanding of the Group’s project governance and data migration plan specific to the implementation of 4S, through reading underlying documentation such as business process mapping documents and inquiries of key operational and IT management. • We obtained an understanding of the nature and extent of planned changes to the Group’s processes, automated controls and system based calculations as they relate to financial reporting, to further inform our related audit approach. During the 4S data migration phase and system cut-over period • We tested key controls as they relate to the completeness and accuracy of the migration of historical and current year financial data to 4S. • We assessed the results of the Group’s data conversion testing, data quality testing and reconciliations of financial data. During the 4S post-implementation phase • We tested the relevant general IT controls and IT application controls over financial reporting risks. Of particular focus were controls relating to system access, segregation of duties and change management. • We obtained an understanding of the Group’s temporary processes to supplement the system generated data. We tested key controls as they relate to the manual elements of the supplemental processes to record certain transactions including revenue recognition and cost accruals. • On a sample basis, we assessed the transactions subject to temporary processes by (i) checking the integrity of manual calculations and (ii) comparing amounts from the Group’s manual calculations to the amounts recorded in the financial statements. 128ORICA INDEPENDENT AUDITOR’S REPORT (Continued) Impairment of property, plant and equipment ($3,316.4M) and intangible assets ($1,744.1M) Refer to Note 7 and Note 8 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the recoverability of the Group’s property, plant and equipment and intangible assets. This is a key audit matter due to the: • Size of the carrying value of property, plant and equipment and intangible assets (being 60% of total assets). • Higher estimation uncertainty continuing from the business disruption impact of the COVID-19 global pandemic. • Internal restructuring activities undertaken by the Group, including the scheduled closure of certain manufacturing sites which has resulted in impairment. • Significant judgement we applied in evaluating the evidence available. We focused on the following areas: • The approved plan for the Group’s restructuring activities, and the forecast cash flows to be generated through to the proposed date of closure of identified manufacturing sites. • The significant forward-looking assumptions the Group applied in the value in use model, including: - Forecast operating cash flows: the Group has experienced business disruption in the current year as a result of COVID-19, which reduced business activity during the second half of FY20. These conditions, and the uncertainty of their continuation, increase the possibility of assets being impaired and the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. We focused on the expected rate of recovery for the Group and the Group’s future business plans when assessing the feasibility of the Group’s forecast cashflows. Our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual impairment test against the requirements of the accounting standards. • We tested key controls in the Group’s valuation process, such as Board approval of budgets and review and approval of the impairment assessment, including cash flow forecasts, by examining the review and approval of information by the Board. • We compared the forecast cash flows contained in the value in use model to the future business plans approved by the Board, reflecting the expected rate of recovery for the Group from the impacts of COVID-19. • We assessed the integrity of the value in use model used, including the accuracy of the underlying calculation formulas. • We assessed the accuracy of previous Group cash flow forecasts for the respective CGUs to inform our evaluation of current forecasts incorporated in the models. • We considered the sensitivity of the models by varying key assumptions such as forecast operating cash flows, terminal growth rates and discount rates, within a reasonably possible range, to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. • We challenged the Group’s significant forecast cash flow and terminal growth rate assumptions in light of the impacts of COVID-19 and the expected rate of recovery in specific regions. We used our knowledge of the Group’s operations, their past performance and our industry experience to evaluate the feasibility of these plans. We also compared forecast growth rates to authoritative published studies of industry trends and expectations, considering differences for the Group’s operations. • We assessed the scope, competence and objectivity of the Group’s external expert engaged to assist with the determination of the discount rate for the respective CGUs. 129Annual Report 2020INDEPENDENT AUDITOR’S REPORT (Continued) Impairment of property, plant and equipment ($3,316.4M) and intangible assets ($1,744.1M) (continued) Refer to Note 7 and Note 8 to the Financial Report The key audit matter How the matter was addressed in our audit - Terminal growth rates: in addition to the uncertainties described above, the Group’s models are highly sensitive to changes in terminal growth rates. This drives additional audit effort specific to their feasibility and consistency of application to the Group’s strategy. - Discount rates: these are complicated in nature and vary according to the conditions and environment the specific Cash Generating Units (CGUs) are subject to from time to time, and the approach to incorporating risks into the cash flows or discount rates. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. • Working with our valuation specialists, we independently developed a discount rate range for each CGU, using publicly available market data for comparable entities, adjusted for risk factors specific to the Group and the industry it operates in. We compared the discount rates applied by the Group for each CGU to our acceptable range. • Working with our valuation specialists, we assessed the reasonableness of forecast cash flows by comparing the implicit earnings and asset multiples from the models to corresponding multiples of comparable entities. • We considered the appropriateness of the approach applied by the Group to determine the write down required to the specific manufacturing assets, against the requirements of the accounting standards. • We tested key controls in the Group’s process for identifying assets impacted by the Group’s restructuring program, including Steering Committee and Board review and approval of key decisions such as the specific sites considered for closure, timeframes and associated closure costs. • We recalculated the impairment charge in respect of certain manufacturing sites identified for closure against the recorded amount disclosed. • We assessed the disclosures in the financial report using our understanding of the matter obtained from our testing and against the requirements of the accounting standards. Impairment of property, plant and equipment ($3,316.4M) and intangible assets ($1,744.1M) Refer to Note 7 and Note 8 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the recoverability of the Group’s property, plant and equipment and intangible assets. This is a key audit matter due to the: • Size of the carrying value of property, plant and equipment and intangible assets (being 60% of total assets). • Higher estimation uncertainty continuing from the business disruption impact of the COVID-19 global pandemic. • Internal restructuring activities undertaken by the Group, including the scheduled closure of certain manufacturing sites which has resulted in impairment. • Significant judgement we applied in evaluating the evidence available. We focused on the following areas: • The approved plan for the Group’s restructuring activities, and the forecast cash flows to be generated through to the proposed date of closure of identified manufacturing sites. • The significant forward-looking assumptions the Group applied in the value in use model, including: - Forecast operating cash flows: the Group has experienced business disruption in the current year as a result of COVID-19, which reduced business activity during the second half of FY20. These conditions, and the uncertainty of their continuation, increase the possibility of assets being impaired and the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. We focused on the expected rate of recovery for the Group and the Group’s future business plans when assessing the feasibility of the Group’s forecast cashflows. Our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual impairment test against the requirements of the accounting standards. • We tested key controls in the Group’s valuation process, such as Board approval of budgets and review and approval of the impairment assessment, including cash flow forecasts, by examining the review and approval of information by the Board. • We compared the forecast cash flows contained in the value in use model to the future business plans approved by the Board, reflecting the expected rate of recovery for the Group from the impacts of COVID-19. • We assessed the integrity of the value in use model used, including the accuracy of the underlying calculation formulas. • We assessed the accuracy of previous Group cash flow forecasts for the respective CGUs to inform our evaluation of current forecasts incorporated in the models. • We considered the sensitivity of the models by varying key assumptions such as forecast operating cash flows, terminal growth rates and discount rates, within a reasonably possible range, to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. • We challenged the Group’s significant forecast cash flow and terminal growth rate assumptions in light of the impacts of COVID-19 and the expected rate of recovery in specific regions. We used our knowledge of the Group’s operations, their past performance and our industry experience to evaluate the feasibility of these plans. We also compared forecast growth rates to authoritative published studies of industry trends and expectations, considering differences for the Group’s operations. • We assessed the scope, competence and objectivity of the Group’s external expert engaged to assist with the determination of the discount rate for the respective CGUs. 130ORICA INDEPENDENT AUDITOR’S REPORT (Continued) Environmental and decommissioning provisions ($388.9M) and contingent liability disclosures 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 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. • Internal restructuring activities undertaken by the Group, including the scheduled closure of certain manufacturing sites which give rise to heightened focus on the nature, timing and amount of decommissioning costs that are expected to be incurred. The complexity in estimating the Group’s environmental and decommissioning provisions is influenced by: • The inherent challenges experienced by the Group in precisely determining the size and location of potential contamination beneath established structures. • 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 regulators. • 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. • Historical experience, and its use as a reasonable predictor when evaluating forecast costs. • The expected timing of the expenditure given the long term nature of these exposures. Our procedures included: • We tested 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. • We tested 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. • We made enquiries of various personnel regarding the Group’s strategy for remediating certain source contamination. • 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. • We obtained the Group’s quotations for remediation activities, as well as other 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. • We assessed the scope, competence and objectivity of the Group’s internal and external experts engaged to assist in the determination of strategies to remediate contamination and the costing of remediation activities. • We checked consistency of the Group’s internal and external experts’ assumptions to other underlying internal documentation considered and tested by us. • 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. • We tested the mathematical accuracy of the Group’s provision models. • 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. 131Annual Report 2020INDEPENDENT AUDITOR’S REPORT (Continued) 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. 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: • 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. • The changing tax environment where there have been significant developments to enhance transparency of tax arrangements. We, with the involvement of our tax specialists, used significant judgment 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: • 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. • 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 by inspecting correspondence with tax authorities and the Group’s external tax advisors for evidence of significant uncertain tax positions not identified by the controls. • 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. • 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. • We checked the settlement of tax positions previously challenged by local tax authorities to external underlying documentation, such as correspondence with tax authorities. • 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 and their impact on amounts recorded or reported in the financial statements against the requirements of the accounting standards. • 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. • 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. 132ORICA INDEPENDENT AUDITOR’S REPORT (Continued) 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: • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; • 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; and • 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: • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and • to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Impairment of property, plant and equipment ($3,316.4M) and intangible assets ($1,744.1M) Refer to Note 7 and Note 8 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the recoverability of the Group’s property, plant and equipment and intangible assets. This is a key audit matter due to the: • Size of the carrying value of property, plant and equipment and intangible assets (being 60% of total assets). • Higher estimation uncertainty continuing from the business disruption impact of the COVID-19 global pandemic. • Internal restructuring activities undertaken by the Group, including the scheduled closure of certain manufacturing sites which has resulted in impairment. • Significant judgement we applied in evaluating the evidence available. We focused on the following areas: • The approved plan for the Group’s restructuring activities, and the forecast cash flows to be generated through to the proposed date of closure of identified manufacturing sites. • The significant forward-looking assumptions the Group applied in the value in use model, including: - Forecast operating cash flows: the Group has experienced business disruption in the current year as a result of COVID-19, which reduced business activity during the second half of FY20. These conditions, and the uncertainty of their continuation, increase the possibility of assets being impaired and the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. We focused on the expected rate of recovery for the Group and the Group’s future business plans when assessing the feasibility of the Group’s forecast cashflows. Our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual impairment test against the requirements of the accounting standards. • We tested key controls in the Group’s valuation process, such as Board approval of budgets and review and approval of the impairment assessment, including cash flow forecasts, by examining the review and approval of information by the Board. • We compared the forecast cash flows contained in the value in use model to the future business plans approved by the Board, reflecting the expected rate of recovery for the Group from the impacts of COVID-19. • We assessed the integrity of the value in use model used, including the accuracy of the underlying calculation formulas. • We assessed the accuracy of previous Group cash flow forecasts for the respective CGUs to inform our evaluation of current forecasts incorporated in the models. • We considered the sensitivity of the models by varying key assumptions such as forecast operating cash flows, terminal growth rates and discount rates, within a reasonably possible range, to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. • We challenged the Group’s significant forecast cash flow and terminal growth rate assumptions in light of the impacts of COVID-19 and the expected rate of recovery in specific regions. We used our knowledge of the Group’s operations, their past performance and our industry experience to evaluate the feasibility of these plans. We also compared forecast growth rates to authoritative published studies of industry trends and expectations, considering differences for the Group’s operations. • We assessed the scope, competence and objectivity of the Group’s external expert engaged to assist with the determination of the discount rate for the respective CGUs. 133Annual Report 2020INDEPENDENT AUDITOR’S REPORT (Continued)Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Orica Limited for the year ended 30 September 2020 complies with Section 300A of the Corporations Act 2001. KPMG 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 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Penny Stragalinos Partner Melbourne 19 November 2020 Impairment of property, plant and equipment ($3,316.4M) and intangible assets ($1,744.1M) Refer to Note 7 and Note 8 to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the recoverability of the Group’s property, plant and equipment and intangible assets. This is a key audit matter due to the: • Size of the carrying value of property, plant and equipment and intangible assets (being 60% of total assets). • Higher estimation uncertainty continuing from the business disruption impact of the COVID-19 global pandemic. • Internal restructuring activities undertaken by the Group, including the scheduled closure of certain manufacturing sites which has resulted in impairment. • Significant judgement we applied in evaluating the evidence available. We focused on the following areas: • The approved plan for the Group’s restructuring activities, and the forecast cash flows to be generated through to the proposed date of closure of identified manufacturing sites. • The significant forward-looking assumptions the Group applied in the value in use model, including: - Forecast operating cash flows: the Group has experienced business disruption in the current year as a result of COVID-19, which reduced business activity during the second half of FY20. These conditions, and the uncertainty of their continuation, increase the possibility of assets being impaired and the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. We focused on the expected rate of recovery for the Group and the Group’s future business plans when assessing the feasibility of the Group’s forecast cashflows. Our procedures included: • We considered the appropriateness of the value in use method applied by the Group to perform the annual impairment test against the requirements of the accounting standards. • We tested key controls in the Group’s valuation process, such as Board approval of budgets and review and approval of the impairment assessment, including cash flow forecasts, by examining the review and approval of information by the Board. • We compared the forecast cash flows contained in the value in use model to the future business plans approved by the Board, reflecting the expected rate of recovery for the Group from the impacts of COVID-19. • We assessed the integrity of the value in use model used, including the accuracy of the underlying calculation formulas. • We assessed the accuracy of previous Group cash flow forecasts for the respective CGUs to inform our evaluation of current forecasts incorporated in the models. • We considered the sensitivity of the models by varying key assumptions such as forecast operating cash flows, terminal growth rates and discount rates, within a reasonably possible range, to identify those assumptions at higher risk of bias or inconsistency in application and to focus our further procedures. • We challenged the Group’s significant forecast cash flow and terminal growth rate assumptions in light of the impacts of COVID-19 and the expected rate of recovery in specific regions. We used our knowledge of the Group’s operations, their past performance and our industry experience to evaluate the feasibility of these plans. We also compared forecast growth rates to authoritative published studies of industry trends and expectations, considering differences for the Group’s operations. • We assessed the scope, competence and objectivity of the Group’s external expert engaged to assist with the determination of the discount rate for the respective CGUs. 134 ORICA
Annual Report 2020
135
FIVE YEAR FINANCIAL STATISTICS
For the year ended 30 September
FIVE YEAR FINANCIAL STATISTICS (Continued)
FIVE YEAR FINANCIAL STATISTICS (Continued)
For the year ended 30 September
Orica consolidated ($m)
2020
2019
2018
2017
2016
Orica consolidated
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 and other liabilities
Non‑current borrowings and payables
Non‑current provisions and other liabilities
Total liabilities
Net assets
Equity attributable to ordinary shareholders of Orica Limited
Equity attributable to non‑controlling interests
Total shareholders’ equity
5,611.3
5,878.0
5,373.8
5,039.2
5,091.9
Weighted average number of ordinary shares on issue (millions)
Number of ordinary shares on issue at year end (millions)
955.8
(351.3)
604.5
(149.6)
(170.4)
(107.0)
(9.2)
168.3
(131.0)
299.3
192.6
2,664.0
3,316.4
301.6
1,744.1
430.2
8,456.3
1,944.2
225.2
2,368.9
732.0
5,270.3
3,186.0
3,137.2
48.8
3,186.0
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
1,694.6
567.7
7,299.0
1,336.7
297.9
1,979.4
659.6
4,273.6
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
1,960.3
2,866.2
213.3
1,697.9
426.7
7,164.4
1,357.2
254.2
2,010.7
574.3
4,196.4
2,968.0
2,903.2
64.8
896.3
(261.2)
635.1
(71.7)
–
(164.0)
(13.2)
386.2
–
386.2
197.1
1,784.8
2,741.5
184.6
1,577.1
497.2
6,785.2
1,084.1
213.2
1,937.4
587.0
3,821.7
2,963.5
2,962.3
1.2
908.1
(265.9)
642.2
(84.3)
(4.6)
(198.4)
(12.1)
342.8
(46.3)
389.1
283.5
1,577.9
2,725.3
188.1
1,558.8
545.7
6,595.8
1,382.9
207.9
1,562.9
658.9
3,812.6
2,783.2
2,782.5
0.7
3,025.4
2,968.0
2,963.5
2,783.2
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
Stockmarket capitalisation at year end ($m)
Net tangible assets per share ($)
Ratios
Profit margin – earnings before net borrowing costs
and tax/sales (percent)
Net debt (excluding lease liabilities) (millions)
Gearing (net debt/net debt plus equity excluding lease
liabilities) (percent)
Interest cover (EBIT/net borrowing costs excluding lease
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
– before individually significant items (percent)
– including individually significant items (percent)
2020
405.9
395.6
75.7
42.5
33.0
–
2.1
$24.27
$13.25
$15.43
6,262.7
3.43
10.8
1,820.5
36.4
4.4
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
8,578.2
6,548.0
7,454.1
5,698.9
3.36
3.18
3.67
3.26
11.3
11.5
12.6
12.6
1,620.6
1,648.3
1,440.9
1,549.4
34.9
6.1
35.7
5.1
32.7
8.9
35.8
7.6
(312.9)
(226.0)
(153.0)
(210.7)
(123.9)
(153.9)
(14.0)
(252.8)
9.5
(13.3)
9.5
5.4
12.7
8.3
11.1
(1.6)
13.4
13.4
13.5
11.9
136 ORICA
SHAREHOLDERS’ STATISTICS
As at 11 November 2020
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
23,105
11,665
1,228
561
43
63.12
31.87
3.36
1.53
0.12
9,222,856
24,602,136
8,407,736
10,856,483
352,789,604
36,602
100.00
405,878,815
2.27
6.06
2.07
2.67
86.92
100.00
Included in the above total are 297 shareholders holding less than a marketable parcel of 29 shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 85.55% of that class of shares.
TWENTY LARGEST ORDINARY FULLY PAID SHAREHOLDERS
Annual Report 2020
137
SHAREHOLDERS’ STATISTICS (Continued)
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:
16 October 2020
AustralianSuper Pty Ltd
29 July 2020
20 May 2020
5 May 2020
13 March 2020
BlackRock Group
Cooper Investors Pty Limited
Harris Associates L.P.
Vanguard Group
40,193,255
25,052,218
20,346,783
34,138,160
24,400,327
9.90%
6.17%
5.02%
8.42%
6.03%
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
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
ARGO INVESTMENTS LIMITED
THE SENIOR MASTER OF THE SUPREME COURT
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
GWYNVILL INVESTMENTS PTY LTD
CARLTON HOTEL LIMITED
AUSTRALIAN UNITED INVESTMENT COMPANY LIMITED
AMP LIFE LIMITED
BNP PARIBAS NOMS (NZ) LTD
SECURITY PORTMAN PTY LTD
CS FOURTH NOMINEES PTY LIMITED
MR KWOK CHING CHOW & MS PIK YUN PEGGY CHAN
Shares % of total
166,549,478
104,966,491
24,072,592
15,754,637
11,234,444
6,110,186
5,962,249
2,634,116
2,225,773
1,955,364
1,406,117
1,060,879
711,574
541,764
500,000
333,654
333,244
312,750
301,376
299,247
41.03
25.86
5.93
3.88
2.77
1.51
1.47
0.65
0.55
0.48
0.35
0.26
0.18
0.13
0.12
0.08
0.08
0.08
0.07
0.07
Total
347,265,935
85.55
Annual Report 2020
139
THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
138 ORICA
CORPORATE DIRECTORY
INVESTOR INFORMATION
Registered and Head Office
Orica Limited
Level 3, 1 Nicholson Street,
East Melbourne, Victoria
Australia 3002
Postal Address
PO Box 4311, Melbourne
Victoria, Australia 3001
P +61 3 9665 7111
INVESTOR RELATIONS
P +61 3 9665 7774
E
investorrelations@orica.com
STOCK EXCHANGE LISTINGS
Orica’s shares are listed on the Australian Securities
Exchange (ASX) and are traded under the listing
code ORI.
SHARE REGISTRY
Link Market Services Limited
Level 12, 680 George Street
Sydney, NSW, Australia, 2000
Locked Bag A14
Sydney South
NSW, Australia 1235
Toll Free 1300 301 253 (Australia only)
International +61 1300 301 253
E orica@linkmarketservices.com.au
W www.linkmarketservices.com.au
2021 FINANCIAL CALENDAR
Half Year Profit and Interim
Dividend Announced
Books Close for 2021 Interim
Ordinary Dividend
Last date to participate in
Dividend Reinvestment Plan
13 May 2021
1 June 2021
2 June 2021
Interim Ordinary Dividend Paid
9 July 2021
Full Year Profit and Final
Dividend Announced
Books Close for 2021 Final
Ordinary Dividend
Last date to participate in
Dividend Reinvestment Plan
11 November 2021
22 November 2021
23 November 2021
Full Year Ordinary Dividend Paid
22 December 2021
The above dates are subject to change. Any changes will be notified
through an announcement to the ASX.
ANNUAL GENERAL MEETING
The 2020 Annual General Meeting of Orica Limited will be held
virtually (online) at agmlive.link/ORI20 on Tuesday,
22 December 2020 at 10.30am (AEDST).
WEBSITE
To view the 2020 annual report, corporate governance statement,
shareholder and company information, news announcements, financial
reports, sustainability report, historical information, background
information on Orica visit the company website at www.orica.com.
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Enquiries can be directed to companyinfo@orica.com