ANNUAL REPORT
2019
Simsbury
Graham
Dinamita
Waggaman, Louisiana
Salt Lake City
Ormstown
North Bay
Duffield
Carthage
St Helens
Donora
Louisiana, Missouri
Barry
Cheyenne
Van Wyck
Brooksville
Wolf Lake
Ishpeming
Boisbriand
Maitland
Ekati
Meadowbank
Mary River
Gomez Palacios
Calgary
Tumbler Ridge
Diavik
Guadalajara
Biwabik
Flin Flon
Kalgoorlie
Perth
Lihir
Moranbah
Helidon
Moura
(Queensland Nitrates)
Melbourne
Geelong
Townsville
Mt Isa
Phosphate Hill
Portland
Gibson Island
Ankara
Soma
Tanjung Tabalong
Jakarta
Hong Kong
Sibolga
Port Adelaide
Port Hedland
Warkworth
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
New Delhi
Batu Kajang
Kooragang Island
Devonport
Port Lincoln
Berau
Tenggarong
Muara Tuhup
Santiago
La Serena
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INDIA
PAKISTAN
LATIN
AMERICA
MEXICO
USA
AUSTRALIA
TURKEY
CANADA
CHINA
SOUTH
AFRICA
INDONESIA
PAPUA NEW GUINEA
Our Operations
AT A GLANCE
2003
Listed on ASX
3 million
tonnes of ammonium
nitrate produced
5,000
Employees
2 million
tonnes of fertiliser
produced
66
Manufacturing facilities
World class
technology program
4 About us
8 Chairman’s Report
9 Managing Director & CEO’s Report
10 Board of Directors
11 Executive Team
12 Sustainability Report
17 Operating and Financial Review
34 Directors’ Report
39 Remuneration Report
61 Financial Report
Incitec Pivot Limited
Company Headquarters
Incitec Pivot Fertilisers
Quantum Fertilisers
Corporate Office
Manufacturing/Distribution
Dyno Nobel
Manufacturing legend
Corporate Office
Manufacturing/Distribution
Initiation
i
Emulsion
e
AN
a
a
Long term AN supplier
Joint Ventures/Investments
CONTENTS
Simsbury
Graham
Dinamita
Waggaman, Louisiana
Salt Lake City
Ormstown
North Bay
Duffield
Carthage
St Helens
Donora
Louisiana, Missouri
Barry
Cheyenne
Van Wyck
Brooksville
Wolf Lake
Ishpeming
Boisbriand
Maitland
Ekati
Meadowbank
Mary River
Gomez Palacios
Calgary
Tumbler Ridge
Diavik
Guadalajara
Biwabik
Flin Flon
Kalgoorlie
Perth
Lihir
Moranbah
Helidon
Moura
(Queensland Nitrates)
Melbourne
Geelong
Townsville
Mt Isa
Phosphate Hill
Portland
Gibson Island
Ankara
Soma
Tanjung Tabalong
Jakarta
Hong Kong
Sibolga
Port Adelaide
Port Hedland
Warkworth
Johannesburg (SASOL Dyno Nobel)
Johannesburg (DetNet)
New Delhi
Batu Kajang
Kooragang Island
Devonport
Port Lincoln
Berau
Tenggarong
Muara Tuhup
Santiago
La Serena
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INDIA
PAKISTAN
LATIN
AMERICA
MEXICO
USA
AUSTRALIA
TURKEY
CANADA
CHINA
SOUTH
AFRICA
INDONESIA
PAPUA NEW GUINEA
IPL Overview
IPL is a recognised world leader in the resources and
agricultural sectors. With 66 manufacturing facilities and
joint ventures across five continents, including Australia,
North America, Europe, Asia, Latin America and Africa, we
manufacture ammonium nitrate-based explosives, nitrogen
and phosphorus fertilisers, and nitrogen related industrial
and speciality chemicals.
Our purpose is to make
people’s lives better by
unlocking the world’s
natural resources
through innovation
on the ground.
4
Incitec Pivot Limited Annual Report 2019
OUR VALUES
Our Company values are at the core of the way we work,
and our people are fundamental to the way we work.
With a One Team mindset and behaviours, coupled with
cross functional and geographical collaboration across our
functions and businesses, we are able to capture diversity
of thought in an inclusive environment where the
contribution of everyone is valued.
Through our two customer facing
businesses, Dyno Nobel in the Americas
(DNA) and across Asia Pacific (DNAP)
and our fertiliser business – the largest
in Australia, Incitec Pivot Fertilisers (IPF),
we make people’s lives better by
unlocking the world’s natural resources
through innovation on the ground.
With its 150-year history of advancing
technological developments, Dyno Nobel
plays a critical role in releasing the
resources necessary to build infrastructure
and to generate the energy we need in
today’s modern world.
Through its 100-year heritage in
Australian agriculture, Incitec Pivot
Fertilisers maintains an important
enabling role in meeting the rapidly
rising demand for high quality and
sustainable food production.
Our advanced technology,
manufacturing excellence and world
class services are focussed on the
diverse needs and aspirations of our
customers, ensuring IPL’s continuing
key role in developing the efficiency
and sustainability of the world’s
resource and agricultural sectors.
5
Incitec Pivot Limited Annual Report 2019
OUR STRATEGIC DRIVERS
Zero Harm
Zero Harm is good business.
Our ambition is to achieve industry
leading performance in occupational
health, safety, process safety and
the environment.
Talented & Engaged People
Our aim is to make sure we have the
right people with the right skills, in
the right roles working collaboratively.
This enables us to gather and capture
the diverse ideas of everyone in
our organisation.
Customer Focus
Our focus on deepening our customer
relationships and strategic partnerships
across all our businesses ensures we
can innovate and share technologies
and solutions that improve our
customers’ businesses.
Leading Technology Solutions
Our technology strategy is focused
on improving safety, reducing
environmental impacts, creating a
positive social impact and increasing
productivity and efficiency in our
customers’ operations.
Manufacturing Excellence
Our Global Manufacturing vision is to
be a world class manufacturing
organisation, delivering personal and
business growth. We will achieve this
through Zero Harm, reliable operations
and being cost competitive.
Profitable Growth
We will focus on growth
opportunities that are distinctive to
our differentiated technology, core
markets, core capabilities and
advantaged market segments.
ZERO HARM
Zero Harm is ‘good business.’ It is our core Company value and is fundamental to everything
we do. In 2019, we refreshed the three-year Zero Harm strategy and plan by collaborating
across our organisation.
It sets out our ambition to integrate our approach in achieving an industry leading performance in
personal safety, process safety, occupational health and reducing our impact on the environment.
SIMPLIFY
STRATEGIC THEMES
GET THE
FUNDAMENTALS RIGHT
LEAD AND ENGAGE STRENGTHEN OUR
LEARNING CULTURE
We support people with
easy to understand and
easy to use systems.
We define our minimum
expectations: we will
be excellent at the
fundamentals.
We empower, develop and
expect everyone to be
leaders in Zero Harm.
We learn, we share,
and we fix for good.
YEAR IN REVIEW
KEY METRICS
DIVERSITYZERO HARM
Gas secured for Gibson
Island Manufacturing
Operations through
to 2022
Awarded
membership of 2019
Bloomberg Gender
Equality Index
Signed 5 year
Technology
Alliance Agreement
with BHP
1% Global increase of
female workforce to 17%
Remain committed to
increasing gender diversity
by 10% year on year to
reach 25% by 2022
Increased indigenous
employment across IPL’s
Australian businesses
to 3%
Commenced a
strategic review
of the Australian
Fertilisers business
Managing Director & CEO Jeanne Johns said securing the gas supply agreement
and other commercial arrangements with Australia Pacific LNG provides certainty for
workers at Gibson Island, as well as for IPL’s customers, suppliers and shareholders.
The Hon Dr Anthony Lynham, Minister for Natural Resources Mines and Energy, Jeanne Johns, IPL MD & CEO, The Hon Premier of
Queensland, Annastacia Palaszczuk and The Hon Dianne Farmer, Member for Bulimba, announcing the continued operations of
Gibson Island after confirming a new gas supply agreement with Australian Pacific LNG (APLNG) through to December 2022.
TRIFR
FY21 Target: 0.70
Potential High Severity Incidents
FY21 Target: Sustainable Improvement
Significant Environmental Incidents
FY21 Target: Nil
Process Safety Incidents
FY21 Target: Sustainable Improvement
FY17A
0.95
0.70
0.94
0.80
FY18A FY19A
FY17A
1
1
3
FY18A FY19A
FY17A
41
42
34
FY18A FY19A
FY17A
28
27
33
FY18A FY19A
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Incitec Pivot Limited Annual Report 2019
Our innovative and ground-breaking technology program is
providing our customers with safe, environmentally sensitive,
and productive solutions to their mining and agricultural
challenges. For our customers and their industries to be
successful, they need to bring new innovations that make
their operations more efficient.
Our technology strategy is focused on working in partnership
with our customers and innovating in ways that help them
achieve their productivity and efficiency goals.
To do this, we focus on:
•
Improving the safety of both mining and
agricultural operations
•
Reducing the environmental impact from
those operations
•
Creating a positive social impact
•
Increasing the productivity and efficiency
in our customers operations.
Dyno Nobel and BHP
collaborating on a five-year
Technology Alliance
Agreement to develop
technology improvements
that will directly benefit
BHP’s mining operations.
Pictured: Sundeep Singh, BHP Group
Procurement Officer and Jeanne Johns,
IPL MD & CEO
Technology innovation for our customers
8
Incitec Pivot Limited Annual Report 2019
I was privileged to work closely with our former Chairman, Mr Paul Brasher
during my two years as an Incitec Pivot Limited Board member and I would like
to acknowledge his service to the Company. Mr Brasher made an enormous
contribution over ten years and I wish him well for the future.
During my years as a Board member, I worked with Mr Brasher and the Board to
help guide the Company through a period of significant change. This included the
appointment of Managing Director & CEO Jeanne Johns, under whose effective
leadership we are seeing significant progress being made on our strategic agenda,
as we head into FY20. Our Company has a strong underlying business and continues
to make progress on our purpose of making people’s lives better by unlocking the
world’s natural resources through innovation on the ground.
The past 12 months have been challenging, with performance impacted by a number
of events, some of which were beyond our control. The Company has reported Net
Profit After Tax for FY19 of $152.4m, after $140m of non-recurring items, compared
to $347.4m in FY18. Our Balance Sheet has a Net Debt/EBITDA ratio of 2.8x (pcp
1.6x), following completion of the previously announced $300 million share buy-
back. The Board declared a final dividend of 3.4 cents per share, 30% franked.
Total dividends for FY19 are 4.7 cents per share, down from 10.7 cents per share
in FY18. This represents a payout ratio of 50% of NPAT.
Our financial results have been impacted by several significant one-off weather
events in Australia and the US during FY19. Our Company has felt the impact of a
one in a hundred-year flood in north Queensland, an extended drought on the east
coast of Australia and flooding in the mid-west USA.
The strategic direction of the Company has been evolving over the last two years as
we develop premium technologies and deliver for our customers in the resources and
agricultural industries. Earlier this year the Board and I visited a number of customer
sites in the US to see first-hand how our people are developing and implementing
our innovative products and solutions to deliver outstanding services to our customers
in the mining, and quarry and construction sectors.
The Board has also endorsed the development and implementation of the Company’s
new manufacturing excellence strategy. The strategy is expected to see significant
earnings uplift by FY22, due to reliability improvements in our manufacturing plants.
In September, we announced a strategic review of our Fertilisers business which, as
planned, will continue into FY20. The review will assess how the Fertilisers business
can reach its full potential, with three options identified – the sale of the business, a
demerger of the business, or retain the business as part of the IPL Group and invest
in its future. It will include a formal process to explore market interest which will help
us properly assess the best outcome for shareholders.
When it comes to sustainability, we are progressing with our Taskforce on Climate
Related Financial Disclosure commitments and, together with our customers and
suppliers, looking at how we can contribute to more effectively managing the
challenges of climate change.
An important focus of the Board is the safety of our people and the communities
we work in. I am pleased to see a year-on-year improvement in safety targets and
Zero Harm continues to be the number one value and priority across the Company.
Turning to my fellow Board members, I note that Kathryn Fagg AO will be leaving her
position on December 20. Kathryn has been an extremely valuable Board member
over the past five years, and we wish her the very best for the future. I’m delighted
that Xiaoling Liu and Gregory Robinson have agreed to join the Board as new non-
executive Directors. Both Xiaoling and Greg bring to our Company extensive
operational expertise, global perspectives and senior executive experience.
The work of our Company is undertaken by many dedicated people across our global
operations and I want to say thank you for staying safe and focusing on delivering for
our customers. In particular, I would like to thank Managing Director & CEO Jeanne
Johns and the Executive Team for their leadership in 2019.
Whilst this year has seen its challenges, the Board is optimistic for the future and
confident your Company is in a good position going into FY20.
Chairman’s Report
Brian Kruger
Chairman
I am honoured to report
to our shareholders for
the first time as
Chairman of the Board
Directors, following my
appointment in June.
Whilst this year has
seen its challenges,
the Board is
optimistic for the
future and confident
your Company is in
a good position
going into FY20.
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Incitec Pivot Limited Annual Report 2019
Managing Director & CEO’s Report
Jeanne Johns
Managing Director & CEO
We will continue our
relentless efforts to
embed Zero Harm as
the number one value
and priority right across
our global business.
The growth in our
premium technology
offering is underpinned
by the accelerating
adoption of electronics
and delivery systems
by the mining industry
which is improving
safety, environmental
impact and
productivity at their
mine sites.
FY19 has been a challenging year for our business, due to non-recurring events,
a number of which were beyond our control. The main adverse impact was the
one in one-hundred-year flood in North Queensland, preventing the third-party
rail operator from servicing our Phosphate Hill facility, resulting in a three-month
shutdown. We also experienced unusual outages in our Waggaman and
Phosphate Hill plants. This resulted in our FY19 EBIT result, excluding IMIs,
of $303.7m, after $197m of non-recurring items, compared to $556.7m in FY18.
The safety of our people and communities we work in is our number one value. While
we have seen improvements in our safety measures, a tragic accident late last year has
provided a stark reminder of the importance of embedding Zero Harm in everything we
do. The accident in the US involved one of our Dyno Nobel vehicles on a public road and
tragically, two passengers in another vehicle died. We were all deeply saddened by the
event and the impact on the family and local community.
It continues to emphasise the importance of Zero Harm being our number one value
and priority right across our global business. In FY18 we set a goal for a step change
in our workforce Total Recordable Injury Frequency Rate (TRIFR) to achieve a 30%
reduction by FY21. That focus drove a 15% reduction in this important safety metric
during FY19, putting us well on track to reach our goal.
Zero Harm, of course, includes our impact on the environment, where societal expectations
continue to grow, as do ours. We know we can do better and moving into FY20, we will
further increase our focus on minimising the impact of our operations on the environment.
The fundamentals of our business remain strong and we have made progress on our
strategic agenda during the past year. Our manufacturing excellence strategy has been
designed to deliver top quartile reliability performance and we are well underway in
implementing it, with an anticipated $40 to $50 million earnings uplift by FY22. Securing
a new gas supply contract through to 2022 for Gibson Island was a key achievement
during the year, providing certainty to our operations and valued employees.
The growth in our premium technology offering is underpinned by the accelerating
adoption of electronics and delivery systems by the mining industry which is improving
safety, environmental impact and productivity at their mine sites. Our world-class
technology platform has been deliberately designed to be adaptable across a range
of mining sectors and environments and easy for our mining customers to adopt in
their operations.
We have also progressed our sustainability agenda which is now formally integrated into
our strategic drivers, in line with Taskforce on Climate Related Financial Disclosure (TCFD)
standards. Reducing the impact on the environment is clearly hugely important to our
mining customers and our technology is playing a critical role to assist, along with helping
achieve safety and productivity improvements.
Going forward into FY20, we will continue to identify opportunities to reduce our
environmental footprint across the business.
We have initiated a strategic review of our Fertilisers business which will be a key focus
through FY20. With a clear business strategy, we will look at the best way for this business
to reach its potential, with three potential outcomes – a sale, demerger or retain and
invest in the business.
I would be remiss if I did not thank our former Chairman Mr Paul Brasher, whose support
since I took on the role has been invaluable, along with his wise counsel and generosity.
Paul served the Company for almost a decade as a Director and then Chairman, and
I know I speak for the whole organisation when we thank him for his dedication and
service to the Company and wish him all the best for his future.
I would like to officially welcome our new Chairman Brian Kruger, who comes to the
role following two years as a Board member. He brings stability and invaluable expertise,
with his significant background in the industrial and mining sectors and I look forward to
working with him to deliver for our shareholders.
Most importantly, I would like to thank our team around the world for their hard work
throughout the year. Their dedication and focus on delivering for our customers has been
key in retaining a strong underlying business. They have also put in place the strategies,
actions, and plans for a much improved FY20.
I would also like to thank our customers, shareholders and other stakeholders who have
supported our business during the year and look forward to your continued support in FY20.
10
Incitec Pivot Limited Annual Report 2019
Brian Kruger
BEc
Non-executive Chairman
Brian Kruger was appointed as a director
on 5 June 2017 and was appointed
Chairman on 1 July 2019. Brian is Chairman
of the Nominations Committee and a
member of the Remuneration Committee
and the Audit and Risk Management
Committee.
Kathryn Fagg AO
FTSE, BE(Hons), MCom(Hons), Hon.
DBus(UNSW), Hon.DChemEng(UQ)
Non-executive director
Kathryn Fagg was appointed as a director
on 15 April 2014. Kathryn is Chairman of
the Remuneration Committee and a
member of the Health, Safety, Environment
and Community Committee.
Jeanne Johns
B.S. Chemical Engineering,
magna cum laude
Managing Director & CEO
Jeanne Johns commenced as Managing
Director & CEO on 15 November 2017.
Jeanne is a member of Health, Safety,
Environment and Community Committee.
Joseph Breunig
BS(Chemical Engineering), MBA
Non-executive director
Joseph Breunig was appointed as a director
on 5 June 2017. Joseph is a member of the
Health, Safety, Environment and
Community Committee.
Rebecca McGrath
BTP(Hons), MASc, FAICD
Non-executive director
Rebecca McGrath was appointed as a
director on 15 September 2011. Rebecca
is Chairman of the Health, Safety,
Environment and Community Committee
and a member of the Audit and Risk
Management Committee and the
Nominations Committee.
Bruce Brook
BCom, BAcc, FCA, MAICD
Non-executive director
Bruce Brook was appointed as a director on
3 December 2018. Bruce is Chairman of the
Audit and Risk Management Committee
and a member of the Remuneration
Committee and Nominations Committee.
Board of Directors
Jeanne Johns B.S. Chemical
Engineering, magna cum laude
Managing Director & CEO
See Board of Directors page.
Frank Micallef BBus, MAcc, FCPA,
FFA, FAICD
Chief Financial Officer
Frank was appointed as Chief Financial Officer
on 23 October 2009. Frank joined IPL in May
2008 as General Manager, Treasury and Chief
Financial Officer, Trading. Prior to joining IPL,
Frank had significant experience in the
explosives and mining industries as Global
Treasurer and Investor Relations Manager at
Orica Limited and General Manager Accounting
at North Limited. Frank is currently Chair of
Queensland Nitrates Pty Ltd.
Greg Hayne BComm, MBA
President, Dyno Nobel Asia Pacific
Greg was appointed as President, Dyno Nobel
Asia Pacific in January 2018. With over 20
years’ experience in international business
development, operations and P&L management,
Greg has held a number of senior leadership
positions across Dyno Nobel US and Asia
Pacific operations, including Vice President
International Operations, Vice President South
East Asia, President of Dyno Nobel Indonesia
and Vice President of Marketing.
Nick Stratford B.Ec, CA
President, Dyno Nobel Americas
Nick was appointed as President of the
North American business in August 2016.
Having joined IPL in September 2008,
Nick has held the roles of Group Financial
Controller, General Manager Investor Relations
and, after moving to the US in 2013, Chief
Operating Officer and Chief Financial Officer
for Dyno Nobel Americas. Nick brings over
20 years of experience in international
finance and business management.
Stephan Titze B.S. Rural Management,
Agriculture Marketing
President, Incitec Pivot Fertilisers
Stephan was appointed as President, Incitec
Pivot Fertilisers on 16 January 2019. Stephan
is an Agribusiness professional with more
than 25 years of experience in crop protection,
seeds and irrigation. Stephan has held senior
management positions in Syngenta, Zeneca
and ICI Australia in Asia, including China,
Japan, Korea and Indonesia and also in
Europe, East Europe and Australia. Stephan
served 5 years as Chairman of Crop Life China
and Vice President for the Swiss Chamber of
Commerce in China and in 2011 was named
China’s Swiss CEO/Entrepreneur of the Year.
Tim Wall BE(Hons) Electrical Engineering,
CPEng, GAICD
President Global Manufacturing
& Corporate HSE
Tim was appointed in November 2018.
Tim’s previous role was General Manager,
Manufacturing at Caltex Australia, and prior
to this he worked across Australia and the UK
for BP. Tim is currently a board member of
National Association of Women in Operations.
Seth Hobby LL.B (Hons), Juris Doctorate
Executive Commercial Officer
Seth was appointed as IPL’s Executive
Commercial Officer on 30 January 2018. Seth
has fifteen years of international legal and
business experience, including working across
the IPL Group, both in Asia Pacific and the U.S.
Seth has led and been involved with major
commercial and strategic projects for IPL and
Dyno Nobel in both corporate, commercial
and legal capacities. Seth has served as the
Chairman of the Institute of Makers of
Explosives in the U.S., and for many years
as a director on the boards of each of IPL’s
North American JV businesses.
Elizabeth Hunter BBus, MBA
Chief Human Resources Officer
Elizabeth joined IPL as Chief HR Officer in
October 2013. Elizabeth has over 20 years’
HR experience across healthcare, banking
& financial services, industrials contracting
& infrastructure industries.
Robert Rounsley MSc (Chem),
BSc Hons (Chem), MBA
Chief Technology Development Officer
Rob was appointed as Chief Technology
Development Officer in January 2018 and
leads IPL’s Global Technology Group, bringing
an increased focus on value creation for IPL’s
global explosives and fertiliser customers
through technology and innovation. With over
20 years’ experience, Rob was previously Senior
Vice President Technology across the Asia Pacific
and US regions.
Margot Sharapova BA
Executive Chief Information Officer
Appointed in April 2019, Margot’s role is to
ensure the IPL Group’s enterprise technology is
scalable globally whilst providing the platform
for our customer product technologies now
and in the future. A member of the Society
of Information Management, Margot brings
experience in large and complex, multi-site
IT transformations, leveraging technology to
engage clients and consumers, and will be
pivotal in supporting IPL’s Strategic Value Drivers
for the Group’s performance and growth. With
a career spanning over 20 years, Margot has
held senior executive positions as CIO in large
global and regional matrix organisations.
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Incitec Pivot Limited Annual Report 2019
Executive Team
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Incitec Pivot Limited Annual Report 2019
Sustainability
Workplace health and safety
IPL’s Zero Harm strategy drives the success of the Company. The
Company’s ambition to achieve industry leading performance in
occupational health, safety, process safety and the environment,
is supported by IPL’s integrated Health, Safety, Environment and
Community Management System (HSECMS) which provides the
foundation for effective identification and management of
Health, Safety and Environmental (HSE) risks.
In the 2019 financial year, IPL achieved a Total Recordable Injury
Frequency Rate (TRIFR)
(1)
of 0.80, representing a 14% year-on-
year improvement, showing strong progress toward our 2021
target of 0.70. However, a tragic double fatality on a public
road in the US which involved a Dyno Nobel vehicle is a stark
reminder of the vital importance of our relentless drive towards
Zero Harm.
Approach
Sustainability Strategy
Our Company Purpose and Strategic Drivers (pages 4 and 5)
guide our approach to sustainability.
IPL is committed to operating in a manner which
acknowledges and proactively manages those issues which
are most material to the long-term sustainability of its
businesses, the environment and the communities in which
it operates. This commitment is driven by IPL’s Company
Values (page 4). IPL defines sustainability as ‘the creation of
long-term economic value whilst caring for our people, our
communities and our environment’. Since its initial approval
by the Board, IPL’s Sustainability Strategy has undergone
review, and now includes the sustainable development of
the Company’s supply chain.
We challenge and improve the status quo through a culture
that fosters productivity and efficiency improvements and
sustainability initiatives, while prioritising IPL’s Company Value
of Zero Harm for Everyone, Everywhere.
1. TRIFR is calculated as the number of recordable injuries per 200,000 hours worked and includes contractors. TRIFR results are subject to finalisation of the classification of any
pending incidents. Prior year numbers were restated due to finalisation of classification of incidents pending at the time or previous publication date.
2. Potential High Severity Incidents (excluding near misses and hazards) with potential consequences of 5 or higher on a 6-level scale.
3. Tier 1 and Tier 2 Process Safety Incidents as defined by the Centre for Chemical Process Safety.
4. Significant Environmental Incidents as assessed against IPL’s internal risk matrix with potential consequences of 5 or higher on a 6-level scale.
5. Prior year numbers were restated due to finalisation of classification of incidents pending at the time of previous publication date.
Dow Jones Sustainability Index (DJSI) is widely recognised as the
leading reference point in the growing field of sustainability investing
due to the robustness of its assessment process. Since 2010 IPL
has been included in the DJSI where performance is benchmarked
against peers in the global Chemicals sector. The results since 2015
are represented below.
Dimension 2015 2016 2017 2018 2019
Economic 67 74 73 71 72
Environmental 51 60 61 64 73
Social 63 65 68 57 60
Total for IPL 60 67 68 65 69
Chemicals sector average 58 56 53 44 47
In 2019, the FTSE Group also confirmed for the sixth year that IPL
has satisfied the requirements to remain a constituent of the
FTSE4Good Index Series.
About this report
Since 2014, sustainability performance data has been included
in IPL’s Annual Report, providing a summary account of IPL’s
economic and environmental, social and governance (ESG)
performance in one document. Further information on IPL’s
ESG considerations that are material to the sustainability of
the Company can be found in the detailed 2019 IPL
Sustainability Report, which will be published on IPL’s
website (www.incitecpivot.com.au) in March 2020.
In order to determine the most important topics for
sustainability reporting, a materiality review is conducted in
accordance with Global Reporting Initiative (GRI) guidelines.
Further information on stakeholder engagement and the
materiality process will be contained in the online
Sustainability Report.
Total GHG emissions
0.0
0.2
0.4
0.6
0.8
1.0
1.2
FY16
TRIFR FY21 Target
0.70
0.82
FY17
0.95
FY18
0.94
FY19
0.80
Consistent with our commitment to continuous improvement
in HSE performance across the Group, the following Zero Harm
targets remain a focus:
• 30% improvement in TRIFR by 2021 (against the mid-2018
TRIFR of 1.02);
• Sustainable year-on-year reduction in Potential High
Severity Incidents
(2)
;
• Year-on-year reduction in Tier 1 and Tier 2 Process Safety
Incidents
(3)
; and
• Zero Significant Environmental Incidents
(4)
.
The Group’s 2019 performance against key HSE metrics are
included in the table below
(5)
:
ZERO HARM – Key Metrics FY19 FY18
TRIFR 0.80 0.94
Potential High Severity Incidents 34 42
Process Safety Incidents 33 27
Significant Environmental Incidents 3 1
Other key highlights during 2019:
• A refresh of the Zero Harm Strategy.
• Establishment of a global Process Safety Community to
strengthen and share our learnings across our businesses.
• Implementation of the global standardised Management of
Change process and completion of core and refresher
behavioural based safety training in line with the IPL Safety
Partners Standard.
• Appointment of Mental Health Ambassadors across the
Company engaging in global initiatives such as RUOK Day, Men’s
Health Week and the annual IPL 8 Week Health Challenge.
13
Incitec Pivot Limited Annual Report 2019
Our 2020 Zero Harm strategic themes will be to simplify our
systems and make sure we always get the fundamentals right,
empower and develop our people to lead and engage in Zero
Harm, whilst strengthening our Zero Harm learning culture.
Managing environmental impacts
As a global manufacturer of industrial explosives, industrial
chemicals and fertilisers, IPL’s operations have the potential to
impact the environment through emissions to air and the
contamination of soil and water. IPL is committed to continuously
improving the management processes and systems in place to
make its operations and products more sustainable.
Performance highlights during 2019 include:
• Increased operational control of product and a reduction in
environmental risks associated with product tracking and
spills across our fertiliser distribution centres. In recognition
of this work, our Fertilisers (IPF) business was awarded the
2019 Fertiliser Australia Platypus Award for improved
environmental performance.
• In Australia, completion of the Pinkenba site environmental
remediation program, along with the Moranbah Water
Management Project, including the installation of an
evaporator system to more comprehensively manage
evaporation pond levels and avoid overflows.
• Rollout of online Environmental Licence Compliance and
Environmental Awareness training modules for the businesses.
During 2020, our focus is to improve environmental compliance
through comprehensive training, effective use of automation, and
improved assessment and mitigation of environmental risks, with
particular focus on storm water management and air releases.
Further detail on environmental compliance, including fines,
can be found in the Directors’ Report.
Energy, emissions and water
The manufacture of nitrogen-based products is energy
intensive because it requires natural gas as both an energy
source and a raw material. Because carbon dioxide is liberated
from natural gas during the manufacturing process, in
Australia, IPL is a large emitter of greenhouse gases (GHG) as
defined by the Australian National Greenhouse and Energy
Reporting System. Nitrogen oxide (NOx) and nitrous oxide
(N
2
O), a potent GHG, are also released during the making of
nitric acid. IPL has a strong focus on both abatement
technologies and progressively increasing resource efficiencies
to reduce its impacts on the environment, including GHG
emissions which contribute to climate change.
Cooling water is also a key necessity for manufacturing. In
addition to IPL’s comprehensive annual risk management
process, the World Resources Institute Aqueduct Water Tool is
completed each year for long term projections and reviewed
by the Chief Risk Officer. While the majority of IPL’s major
manufacturing plants are located in regions with plentiful
natural supplies of water, several smaller sites in Australia
have been identified by the Water Tool as being located in
areas which may experience water stress by 2025.
In North America, water resources are of particular concern
at Cheyenne, Wyoming. IPL engages with key stakeholders,
including the Wyoming State Engineer’s Office, which manages
stakeholder access to the local groundwater aquifer. In other
regions, where there is higher rainfall, IPL recognises that
water management is also important.
Performance
Energy and emissions
IPL used 60,553,895 gigajoules (GJ) of energy over the past
year (2018: 68,500,621), of which 2,034,762 was electricity
(2018: 2,113,300). The decrease in energy use was mostly
due to decreased production, and therefore gas use, at our
Phosphate Hill and Waggaman, Louisiana ammonia plants.
The absolute Scope 1 and 2 GHG emissions from IPL’s global
operations decreased to 3.5 million tonnes (2018: 3.8 million
tonnes). While a portion of this decrease was due to decreased
production, an unexpected maintenance issue at IPL’s nitric
acid plant at Moranbah in Australia late in the 2018 financial
year resulted in an unexpected increase in emissions of N
2
O
(a GHG) at the site. To address this, IPL invested $4 million in
the fabrication and installation of new equipment and $1.8
million in GHG abatement catalyst replacement during the
2019 financial year. This will contribute to a target of 0.4
tonnes of carbon dioxide equivalent (CO
2
e) per tonne of nitric
acid produced by 2020, which is a 4% reduction in GHG
emissions intensity against 2018 emissions and a 7%
reduction against our 2015 baseline.
Natural gas
94.5%
Natural gas: 94.5%
Electricity: 3.6%
Diesel, raw material: 1.0%
Diesel: 0.6%
– Electricity from chemical heat: 0.3%
– Petroleum: 0.02%
– Propane: 0.006%
– Fuel Oil: 0.0002%
Energy Sources in 2019
In line with the sustainability strategy to use less and care for
the environment, which is integrated into the Manufacturing
Excellence Strategy, our manufacturing plants continued to
reduce both energy intensity and CO
2
e through energy
efficiency initiatives. Collectively, a range of projects
contributed to the maintenance of targeted global reductions
in GHG emissions per tonne of ammonia produced in 2019
against a 2015 baseline. These include the following:
• A boiler replacement at the Donora, Pennsylvania site is
expected to reduce gas consumption by 91,683 GJ per year
and save $410,000 annually. This project will also reduce
water and electricity consumption.
• Process optimisation at our Cheyenne, Wyoming ammonia and
nitric acid plants allowed purge gas from the ammonia plant
to be reused in the nitric acid plant, reducing natural gas use
by 26,825 GJ and GHG emissions by 1,377 tCO
2
e annually.
• At Moranbah, Queensland a project to preheat deaerator
feedwater with process heat currently lost to the atmosphere
saved 196,000 GJ of natural gas, reduced GHG emissions by
10,000 tCO
2
e and saved over $1,000,000 in 2019.
• Air compressor replacements at Carthage in Missouri, Simsbury
in Connecticut, and Geelong, Phosphate Hill and Moranbah in
Australia will reduce energy use by 1,313,375 kWh and GHG
emissions by 7,000 tCO
2
e each year.
• During 2019, IPL’s Waggaman, Louisiana ammonia plant
captured 78,306 tCO
2
e for use by a neighbouring melamine
manufacturing plant, avoiding the release of these GHG
emissions to air.
14
Incitec Pivot Limited Annual Report 2019
Sustainability
Managing impacts of climate change
IPL’s main manufacturing process currently relies on sustainable
access to natural gas and water and is GHG emissions intensive.
In addition, farming and mining customers (and therefore IPL’s
markets) can be impacted by extreme weather events such as
droughts, floods, hurricanes and tropical cyclones, as can its own
manufacturing facilities. For these reasons, the risks associated
with emissions, access to natural gas and water, and the physical
impacts of extreme weather events have been integrated into
IPL’s existing risk management processes and corporate strategy
for many years, with geographical and market diversification
remaining a key management strategy. In 2018, a
comprehensive assessment of IPL’s physical and transitional
(market-based) risks and opportunities associated with climate
change was conducted using two future climate-related
scenarios: a 2-degree scenario and a 4-degree scenario.
During 2019, the Company continued its alignment with the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD) through several key actions relating to
governance, strategy and risk management, including:
• IPL’s Climate Change Policy was developed by the Executive
Team and approved by the Board. The policy states IPL’s
commitment to managing climate related issues and
describes how the Group’s Strategic Drivers are being
leveraged to meet the challenges of climate change.
• IPL’s Board Charter and its Audit and Risk Committee Charter
were updated to formally and specifically assign oversight of
the Climate Change Policy and climate change-related risks
and opportunities to IPL’s Directors.
• Commencement of a $2.7 million feasibility study,
supported by the Australian Renewable Energy Agency, to
assess the potential to use renewable hydrogen to increase
ammonia production at our manufacturing facility at
Moranbah, Queensland.
• Work has progressed during 2019 on the integration of
identified climate change related financial risks into IPL’s risk
management processes. This has been progressed using
‘bowtie analysis’ to identify risk controls and risk control
owners for the material risks identified in 2018 using
2-degree and 4-degree future climate related scenarios.
Climate related financial risks which are considered to be
material are reported in the Principal Risks section of the
Operating and Financial Review. For more detailed reporting
on climate change related risks and opportunities, and the
governance of these at IPL, see the online 2019 IPL
Sustainability Report.
NOx and SOx
IPL also continued to invest in the ongoing maintenance of
abatement technology which captures, treats and so reduces
process emissions to air. During 2019, the Selective Catalytic
Reduction unit at the Louisiana, Missouri nitric acid plant reduced
potential emissions of NOx by 90%. In Australia, the more
efficient $1,480,000 sulphur oxide (SOx) reduction catalyst
used in recent years at Mt Isa, Queensland reduced 2019 SOx
emissions by 24% against a 2016 baseline.
Water use and discharge
IPL’s gross water use during the year was 45,501 mega litres,
a 10% decrease from 2018. This decrease is mostly related to
decreased production, and therefore cooling water, at our
Phosphate Hill, Queensland and Waggaman, Louisiana ammonia
plants. Opportunities for reducing water use in manufacturing
are continuously being sought. At Cheyenne, Wyoming,
continued use of reverse osmosis units recycled a total of
74,188 kL of water for reuse during 2019. At Phosphate Hill,
Queensland, 88,810 kL of water was recovered from waste
gypsum stockpiles, also recovering valuable phosphates for
fertiliser production. During 2019, water balance projects were
completed at three major Australian manufacturing sites in
Geelong, Gibson Island and Moranbah and the installation of a
new feedwater system has begun at Carthage, Missouri, with
completion planned for early 2020. This project will result in an
estimated water usage reduction of 40,000 kL per year,
approximately 5% of the site’s total usage.
During 2019, IPL discharged 30,447,587 m
3
of water to the
environment. The majority of this water (98.7%) was clean
cooling water that was discharged to the rivers from which it
was taken, reducing IPL’s net water use to 15,449 mega litres.
45,501
ML
Surface water: 75%
Ground water: 15.6%
Municipal water: 8.1%
Recycled water: 1.5%
Storm water: 0.2%
Desal water: 0.005%
Rain water: 0.00003%
Clean water to
surface waters
98.7% clean water
to surface waters
Surface waters: 98.7%
Groundwater: 1.3%
Sewers: 0.001%
45,501
ML
Surface water: 75%
Ground water: 15.6%
Municipal water: 8.1%
Recycled water: 1.5%
Storm water: 0.2%
Desal water: 0.005%
Rain water: 0.00003%
Clean water to
surface waters
98.7% clean water
to surface waters
Surface waters: 98.7%
Groundwater: 1.3%
Sewers: 0.001%
Water Use by Source Water Discharge by Destination
GHG intensity (tCO
2
e) per tonne of ammonia produced
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1.5
2.0
2.5
3.0
4.0
3.0
2.0
1.0
0
Million tonnes of CO
2
e
Total GHG emissions
2009 2010 2011 2012 2013 2014 20162015 2017 2018
Scope 1 Scope 2
3.0
2.5
2.0
1.5
tCO
2
e
2010 2011 2012 2013 2014 20162015 2017 2018
2019
2019
Trend
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1.5
2.0
2.5
3.0
4.0
3.0
2.0
1.0
0
Million tonnes of CO
2
e
Total GHG emissions
2009 2010 2011 2012 2013 2014 20162015 2017 2018
Scope 1 Scope 2
3.0
2.5
2.0
1.5
tCO
2
e
2010 2011 2012 2013 2014 20162015 2017 2018
2019
2019
Trend
Total direct and indirect GHG emissions
15
Incitec Pivot Limited Annual Report 2019
Managing, engaging and ensuring a
diverse workforce
Our People Strategy is focused on developing a diverse and
inclusive business with the right people in the right roles,
who are inspired and engaged.
IPL remains committed to expanding the diversity of its
workforce and has a stretch target to increase gender diversity
by 10% year-on-year to reach 25% by 2022.
2019 key highlights include:
• IPL’s ‘One IPL’ Leadership Framework was launched, giving
our global leadership the tools to develop and inspire our
employees to create value.
• The inaugural One IPL Leadership Forum was held in
Melbourne. Bringing the company’s global leaders together
as a collective leadership group to build a sense of
community, the forum was designed to align our global
leaders to our Company Strategy and the drivers that
underpin it.
• Using last year’s ‘Your Voice’ employee survey results as a
benchmark, the 2019 global survey was undertaken and
showed a meaningful improvement in employee
engagement.
• Selection for inclusion in the Bloomberg Gender-Equality
Index for the second year in a row.
• Achievement of a 3% target of Indigenous employees across
IPL’s Australian businesses, and an increase in female
participation in the global IPL workforce, including a 4%
increase in women in Senior Management.
Further details on IPL’s diversity strategy can be found in
IPL’s 2019 Corporate Governance Statement.
Product quality
IPL is committed to providing quality products and services
to the explosives, industrial chemicals and fertilisers sectors.
IPL is a global provider of innovative explosives products,
services and solutions under the market leading Dyno Nobel
brand. Product quality is being continuously improved by the
detection, analysis and correction of trends during processing
to enhance quality and performance. This is supported by a
working partnership between IPL’s explosives research and
development laboratories and its manufacturing plants,
further improving operating procedures across both explosives
and fertiliser products, particularly where product analysis
is required.
IPL’s Fertiliser Quality Policy, through its Incitec Pivot Fertiliser
business, outlines its commitment to providing products and
services that meet customers’ needs. Fertiliser manufacturing
is monitored by IPL’s own Quality Control Laboratories and all
product imports are sourced in compliance with the Fertiliser
Australia National Code of Practice for Fertiliser Description and
Labelling. Certificates of Analysis are sought from suppliers to
ensure they are within set product specifications that meet
statutory limits and market needs.
During 2019, the IPF Quality Assurance Council continued
to drive improvement through the extension of IPL’s
manufacturing quality standards to the fertiliser distribution
business, resulting in a 15% reduction in customer complaints,
a 12% reduction in product handling losses and a 7%
reduction in costs associated with treating dusty products.
Sustainable products and services
IPL aims to assess and, where feasible, improve the
environmental and social impacts of all products across their
life cycle and to work with customers to encourage them to
use these products to achieve the best sustainability outcomes.
Phosphate rock sourcing
Phosphate rock, a naturally occurring mineral rock, is used in
the production of both Single Super Phosphate (SSP) and
Ammonium Phosphate (AP) fertilisers. APs are produced at
Phosphate Hill, Queensland, using phosphate rock from the
mine adjacent to that plant. At the Geelong and Portland
(through to its closure during 2019) plants in Victoria, SSP
was manufactured using a blend of imported phosphate rock.
The composition of phosphate rock varies according to the
place of origin and has varying levels of phosphorus, cadmium,
odour and reactivity which must be balanced to produce a
product that meets with Australian regulations. IPL purchases
phosphate rock from several countries, after undertaking a
detailed review of each supply source having regard to social,
environmental and economic factors. During 2019, rock was
purchased from Togo, Vietnam and China. Further information
on phosphate sourcing is available on the IPL website.
Supplier engagement
IPL has procedures to assess potential and current suppliers to
ensure sustainability risks are well understood and addressed.
Potential suppliers are assessed using a questionnaire that
covers environment, social and governance aspects and our
regional Procurement Teams have processes in place to work
with suppliers on gap-closing action plans where required.
Contracts between IPL and major materials suppliers also
contain requirements that are consistent with IPL’s
expectations of suppliers’ workplace health, safety and
environmental performance. During 2019, the IPL Supplier
Code of Conduct was developed, and work has continued to
identify areas for improvement which align with current
progress. Several partnerships with suppliers were continued
to reduce impacts within our supply chain. These included
using the RightShip Greenhouse Gas (GHG) Emissions Rating
tool to minimise the emissions associated with our global
shipping contractors and working with suppliers, customers
and industry bodies to collect and recycle our fertiliser
packaging through the Farm Waste Recovery initiative.
Customer engagement
Two of the company’s Strategic Drivers are focussed on
strengthening customer partnerships and developing
innovative technology solutions to help customers improve
their operations. Through its businesses, IPL engages directly
with both fertiliser and explosives customers to provide
innovative products and services that can be used to improve
their profitability, safety and environmental performance.
Engagement with fertiliser customers includes collaborative
tailoring of product use via our Nutrient Advantage laboratory,
which conducts soil and plant testing, as well as through
Nutrient Advantage Pro interactive software and our online
Agronomy Community. IPL’s explosives business continues
to work closely with our mining, quarry and construction
customers at their sites to deliver high-performance solutions
tailored to their needs. The business participates in specialist
customer sustainability questionnaires, holds customer
focused technical workshops and has dedicated Customer
Relationship Managers.
16
Incitec Pivot Limited Annual Report 2019
Sustainability
During 2019, the IPL Modern Slavery Project Team was formed
to manage the requirements associated with the Australian
Modern Slavery Act 2018 (Cth) which came into effect in
January 2019. In addition to inclusions in the IPL Supplier Code
of Conduct, the IPL Modern Slavery Policy is being developed
along with a set of tools and procedures to enable the
identification and mitigation of any risks associated with
human rights in the IPL supply chain, and to ensure due
diligence in IPL’s own operations. In addition, as reported
under Managing Impacts of Climate Change, the IPL Climate
Change Policy was adopted by the Board, and the IPL Board
Charter and Charter of the Audit and Risk Management
Committee were updated to formally enshrine Directors’ roles
in relation to the strategic management and oversight of
climate change-related issues.
Further information on corporate governance, including risk
oversight and management, can be found in the 2019
Corporate Governance Statement.
Caring for the community
The Sustainable Communities policy defines IPL’s approach to
community relations and community investment, and ensures
that engagement decisions are made locally, at the site level,
where community needs are best understood. During 2019,
$885,541 of community investment was made globally
through IPL’s Dollar-for-Dollar program, the Australian
Workplace Giving program and various site-based initiatives.
This is an increase of more than 80% on last year’s community
contribution, and included $100,000 in emergency aid for those
affected by the Queensland floods and $142,000 of fertiliser
donated for auction to assist drought affected farmers.
Due to the nature of the business, some IPL sites are located
in areas where the materials handled have the potential to
impact on the communities in which they operate. IPL has
measures in place to monitor, manage and prevent potential
negative impacts on local communities which could arise. In
addition, many sites are required by law to communicate
regularly with the community regarding community safety
plans and emergency procedures which should be followed
to keep them safe in the unlikely event of a potential incident.
In North America, 53% of IPL’s sites fall into this category.
These sites engage with communities and emergency first
responders, with many actively participating in Local
Emergency Planning Committees (LEPCs) as part of the
Community Right to Know Act. In the Asia Pacific region,
21% of sites have been identified, and these follow Safe Work
Australia guidelines in communicating with their communities.
In addition, the IPL Issues Response Manual assists crisis
management teams to effectively manage communication
and engagement in the event of an incident.
During 2019, a popular methodology for summarising customer
satisfaction was extended from our Australian fertiliser and
industrial chemicals customers to our Australian explosives’
customers, allowing increased tracking of customer sentiment
and the strategic targeting of areas for improvement.
Research and development
Collaborative research and product development is a key
part of IPL’s Technology and Innovation Strategy and aims
to advance our ability to partner with customers to improve
their productivity, safety and environmental performance.
Highlights during the year included:
• The completion of a joint research project with the
University of Melbourne into new fertiliser technologies
for sustainable food security, which has resulted in the
development and testing of prototype products;
• Development of a new patented ammonium phosphate
enhanced efficiency fertiliser, eNpower, and continued
promotion of IPL’s enhanced efficiency fertilisers, Entec
and Green Urea. These products minimise nitrogen losses
to waterways and to the atmosphere as GHG;
• Continued development and marketing of explosive
products and delivery systems that reduce blast fume
emissions and minimise groundwater nitrate leaching,
including a joint research project with Murdoch University;
• Continued testing of recycled, reclaimed and treated oils,
hydrocarbons and waxes to supplement the use of virgin
fuel sources in emulsion-based explosives, as well as
oxidiser (an ingredient of explosives) sourced from
internal and customer waste streams;
• Continued collaboration with customers and research
institutions to further develop inhibited emulsion
explosives for safer blasting in extreme (hot and reactive)
geothermal environments;
• The continued successful rollout of Differential Energy
technology to the Australian explosives market. This
product continues to result in reduced NOx emissions,
reduced energy use and GHG, less noise and ground
vibration and increased productivity for customers.
Governance and ethical conduct
IPL’s Board of Directors is responsible for charting IPL’s
direction, policies, strategies and financial objectives. The
Board serves the interests of IPL and its shareholders, having
regard to other stakeholders, including employees, customers,
creditors and the community, in a manner designed to create
and continue to build sustainable value. The Board Charter,
Code of Conduct and key policies and systems which define
IPL business practices are available on IPL’s website.
17
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
Group Financial Performance
IPL reported Net Profit After Tax (NPAT) of $152.4m compared
to $207.9m in 2018 (or compared to $347.4m in 2018
excluding Individually Material Items (ex IMIs)). IPL’s 2019
NPAT was impacted by $140.0m of non-recurring items.
Financial Performance
The Group reported 2019 Earnings Before Interest and Tax
(EBIT) of $303.7m, after $197.0m of non-recurring items.
Year ended 30 September
IPL GROUP FY19 FY18 Change
A$m A$m A$m
Reported Revenue and Earnings
Revenue 3,918.2 3,856.3 61.9
EBITDA 605.3 615.0 (9.7)
EBIT 303.7 320.7 (17.0)
NPAT 152.4 207.9 (55.5)
Business EBIT ex IMIs
Dyno Nobel Americas (DNA) 234.0 278.6 (44.6)
Dyno Nobel Asia Pacific (DNAP) 179.2 205.4 (26.2)
Fertilisers (79.7) 104.6 (184.3)
Eliminations (1.7) (0.6) (1.1)
Corporate (28.1) (31.3) 3.2
Group EBIT ex IMIs
(1)
303.7 556.7 (253.0)
NPAT ex IMIs 152.4 347.4 (195.0)
(1) EBIT ex IMIs = Earnings Before Interest and Tax, excluding IMIs.
EBIT from the DNA business of $234.0m (US$163.5m)
decreased by $44.6m, or 16 percent compared to 2018. The
result was mainly due to the adverse impact from Waggaman
plant outages in 2019; higher gas cost due to a third-party
supply interruption; and the impact of lower ammonia prices
on Waggaman operations earnings. This was partially offset by
earnings growth in the Explosives business in 2019; the sale
of excess land in the US; and translation benefits from the
lower A$:US$ foreign exchange rate.
DNAP earnings of $179.2m decreased by $26.2m, or 13
percent as compared to 2018, mainly driven by the impact of
customer contract re-basing in 2019; and lower International
business earnings. This was partially offset by higher sales
volumes in the Australian business, in particular to Iron Ore
customers in Western Australia.
Fertilisers earnings loss of $79.7m represents a decrease in
EBIT of $184.3m as compared to 2018. This result was mainly
due to the adverse impact from the Queensland rail outage;
the Phosphate Hill plant outage in relation to the reactor
failure; costs in relation to the Portland Single Super
Phosphates (SSP) plant closure; the impact of severe drought
in key planting areas; and higher natural gas prices on the
Australian East Coast. This was partially offset by the impact
from the lower A$:US$ foreign exchange rate; and value chain
optimisation benefits.
A detailed analysis of the performance of each business and
respective outlook is provided on the following pages.
Cash Flow
Operating cash inflows decreased $247.9m as compared to
2018. This decrease is largely attributable to a $245.7m, or 29
percent decrease in EBITDA ex IMIs, mainly due to the adverse
impact from non-recurring items in 2019; and the combined
impact from drought conditions and higher gas prices in
Australia.
Investing cash outflows increased $17.6m mainly driven by
lease buy-outs at term expiry in 2019; offset in part by lower
sustenance spending as a result of lower major turnaround
activity in 2019.
Financing cash outflows decreased $288.5m to $93.9m mainly
due to reduced spend on the repurchase of IPL shares under
the $300m share buyback program completed in 2019; and
lower dividend payments in 2019 as a result of lower profits.
Financial Position
IPL’s Balance Sheet remains sound, reflecting the Group’s
ongoing commitment to financial discipline and effective cash
management. As at 30 September 2019, IPL had Net Debt
(2)
of
$1,691.4m and Net debt/EBITDA
(4)
of 2.8x.
Year ended 30 September
BALANCE SHEET FY19 FY18 Change
A$m A$m A$m
Assets
TWC – Fertilisers (137.8) (164.8) 27.0
TWC – Explosives 141.9 113.0 28.9
Group TWC
(5)
4.1 (51.8) 55.9
Net PP&E 4,190.0 4,004.3 185.7
Intangible assets 3,179.5 3,046.6 132.9
Total Assets 7,373.6 6,999.1 374.5
Liabilities
Environmental & restructure provisions (134.8) (121.2) (13.6)
Tax Liabilities (495.9) (521.5) 25.6
Net other liabilities (363.7) (240.6) (123.1)
Net Debt (1,691.4) (1,371.6) (319.8)
Total Liabilities (2,685.8) (2,254.9) (430.9)
Net Assets 4,687.8 4,744.2 (56.4)
Equity
4,687.8 4,744.2 (56.4)
Key Performance Indicators
Net Tangible Assets/Share 0.94 1.04
Fertilisers – Ave TWC % Rev (0.3%) (0.3%)
Explosives – Ave TWC % Rev 9.2% 8.4%
Group – Average TWC % Rev
(1)
5.8% 5.1%
Credit Metrics
Net Debt
(2)
(1,691.4) (1,371.6)
Interest Cover
(3)
4.6x 7.3x
Net Debt/EBITDA (ex IMIs)
(4)
2.8x 1.6x
(1) Average TWC as % of revenue = 13-month average trade working
capital/12 months rolling revenue.
(2) Net Debt comprises the net of interest bearing liabilities, cash and cash
equivalents, and the fair value of derivative instruments economically
hedging the Group’s interest bearing liabilities.
(3) Interest cover = 12 month rolling EBITDA ex IMIs/net interest expense
before accounting adjustments.
(4) Net debt/EBITDA ratio is calculated using 12 month rolling EBITDA ex IMIs.
(5) Net of TWC facilities.
18
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
1200
1000
800
600
400
200
0
A$m
Facilities limit
Drawn funds
144A/
Reg S
US$800m
Bank
facility
A$260m
Bank
facility
US$220m
Bank
facility
US$500m
EMTN/
Reg S
US$400m
USPP
US$250m
USPP
US$250m
Bridge
facility
US$350m
Maturity
Date
Dec 19 Oct 20 Aug 21 Aug 21 Oct 21 Aug 27 Oct 28 Oct 30
AMTN
A$450m
Mar 26
EMTN/
Reg S
HK$560m
Feb 26
• US$500m Notes in the US Private Placement capital market,
with US$250m maturing in October 2028 and US$250m
maturing in October 2030. The Notes were funded in
October 2019.
The Group’s current refinancing program was completed
during the year, delivering increased average debt tenor;
better diversity of funding sources; and lower credit margins.
The Group’s average tenor of its drawn interest-bearing
facilities at 30 September 2019 was 3.4 years. On a pro-forma
basis, the Group’s average tenor of its debt facilities was 5.7
years at 30 September 2019, after taking into account the
funding of the US$500m Notes in the US Private Placement
market along with the cancellation of the 1.5-year US$350m
bridge facility that occurred in October 2019; and the
anticipated maturity of the US$800m bond in December 2019.
The tenor and diversity of IPL’s debt is set out in the
following exhibit:
Significant movements in the Group’s Balance Sheet during
the year include:
• Trade Working Capital (TWC) increased by $55.9m mainly due
to higher stock balances as a result of lower demand for
fertilisers due to drought conditions in some areas; and the
timing of shipments at year end.
• Net Property, Plant & Equipment (PP&E) increased by
$185.7m mainly due to sustenance capital expenditure of
$262.0m; the impact of foreign currency translation of non-
A$ denominated assets of $125.7m; additions to minor
growth projects of $49.5m; and lease buy-outs of $46.6m.
This was partly offset by the depreciation charge for the year
of $277.9m and asset disposals with a carrying value of
$13.1m.
• Intangible Assets increased by $132.9m mainly as a result of
the impact of foreign currency translation of non-A$
denominated assets of $125.4m; and $22.7m in relation to
the capitalisation of completed digital technology and
product delivery solutions and investment in new
technologies. This was partially offset by the amortisation
charge of $23.7m for the year.
• Tax Liabilities decreased by $25.6m mainly due to tax
payments of $20.8m; and the tax effect on movements in
the market value of derivative hedging balances of $14.4m
and Retirement Benefit Obligations of $10.2m. This was
offset in part by tax on earnings of $7.5m; and the impact of
foreign currency translation of $14.0m.
• Net Other Liabilities increased by $123.1m mainly due to
market value movements and maturities of derivative
hedging instruments (excluding debt hedges) of $53.0m; an
increase in the Group’s Retirement Benefit Obligation of
$34.6m, as a result of lower discount rates and the impact of
the lower A$:US$ exchange rate on translation of US$
obligations; and movements in capital and other accruals.
• Net Debt increased by $319.8m to $1,691.4m mainly due to
lower operating cash flows of $247.9m; and the impact of
the lower A$:US$ exchange rate on foreign currency debt
balances and maturing debt hedges during the year.
Debt Funding
Maturing Facilities
The Company’s A$200m Medium Term Notes, issued in the
Australian debt capital market, matured in February 2019. The
US$800m (A$1,183.2m) 10-year bond on issue in the US144A
debt capital market will mature in December 2019.
Refinancing
As part of the Company’s refinancing program for maturing
borrowings, the following refinancing was completed during
the year:
• HK$560m (A$105.6m) 7-year bond under the Company’s
Euro Medium Term Note program, maturing in February
2026.
• A$450m 7-year bond in the Australian debt capital market,
maturing in March 2026.
Net Debt Hedging
The fair value of net debt hedges at 30 September 2019 was an
asset of $388.6m (2018: $414.7m). Most of these hedges will
mature in December 2022.
Trade Working Capital Facilities
IPL use TWC facilities to effectively manage the Group’s cash
flows, which are impacted by seasonality and demand and
supply variability.
The Group has a non-recourse receivable purchasing agreement
to sell certain domestic and international receivables to an
unrelated entity in exchange for cash. As at 30 September 2019,
receivables totalling $216.3m (2018: $188.0m) had been sold
under the receivable purchasing agreement.
IPL also offers suppliers the opportunity to use supply chain
financing. The Group evaluates supplier arrangements against
several indicators to assess whether to classify outstanding
amounts as payables or borrowings. The balance of the supply
chain finance program, classified as payables, at 30 September
2019 was $306.5m (2018: $316.4m).
Debt Maturities
(1)
– 30 September 2019
(1) Bridge facility was cancelled in October 2019 following the funding of the US$500m USPP Notes.
19
Incitec Pivot Limited Annual Report 2019
Capital Allocation
IPL’s capital allocation process is centralised and overseen by
the Group’s Corporate Finance function. Capital is invested on
a prioritised basis and all submissions are assessed against
IPL’s risk, HSE, financial, strategic and corporate governance
criteria. Capital is broadly categorised into major growth
capital, minor growth capital and sustenance capital. The table
below includes a summary of cash spend on growth,
sustenance and lease buy-out of Property, Plant & Equipment
and Intangible assets:
Year Ended 30 September
IPL GROUP FY19 FY18 Change
A$m A$m A$m
Capital Expenditure
DNA 30.7 17.0 13.7
DNAP 21.9 10.6 11.3
Fertilisers 2.6 37.0 (34.4)
Minor growth capital 55.2 64.6 (9.4)
DNA 73.0 74.5 (1.5)
DNAP 27.5 14.4 13.1
Fertilisers 145.8 164.9 (19.1)
Sustenance 246.3 253.8 (7.5)
Fertilisers 46.6 6.9 39.7
Lease buy-out 46.6 6.9 39.7
Total 348.1 325.3 22.8
There was no major growth capital spend in 2019.
Minor growth spend of $55.2m in 2019 included plant
efficiency projects; the construction of a mobile emulsion
plant in Chile; and other projects supporting Explosives volume
growth and technology investment.
Sustenance capital spend in 2019 was $246.3m. Significant
spend items included: construction of the gypsum cell at
Phosphate Hill, Gibson Island 2019 turnaround spend, and
planning spend on the Waggaman turnaround scheduled for
October 2020.
Shareholder Returns and Dividends
Earnings per share (EPS) ex IMIs of 9.5 cents per share
decreased by 11.4 cents per share compared to 2018 ex IMIs
of 20.9 cents.
The Company completed the outstanding $89.7m of the
$300m share buy-back program in December 2018. Under the
program, the Company bought back and cancelled 81.4 million
ordinary shares at an average price of $3.69 per share.
In November 2019, the Directors of IPL determined to pay a
30 percent franked final dividend of 3.4 cents per share on 8
January 2020. This brings total dividends paid with respect to
the 2019 financial year to 4.7 cents per share. This represents
a payout ratio of approximately 50 percent for the 2019
financial year. IPL will recommence its Dividend Reinvestment
Plan (DRP). A discount of two percent will be applied in
determining the offer price under the DRP.
Operational Performance
Dyno Nobel Americas
The Dyno Nobel Americas business comprises three
businesses:
• Explosives;
• Waggaman operations; and
• Agriculture & Industrial Chemicals (Ag & IC).
Year ended 30 September
DYNO NOBEL AMERICAS FY19 FY18 Change
US$m US$m %
Explosives 824.5 804.6 2.5
Waggaman 147.4 187.0 (21.2)
Ag & IC 130.9 118.5 10.5
Total Revenue 1,102.8 1,110.1 (0.7)
Explosives 136.1 130.2 4.5
Waggaman 19.2 76.2 (74.8)
Ag & IC 0.2 5.2 (96.2)
Other 8.0 – na
EBIT 163.5 211.6 (22.7)
EBIT margin
Explosives 16.5% 16.2%
Waggaman 13.0% 40.7%
Ag & IC 0.2% 4.4%
A$m
Revenue 1,569.0 1,462.3 7.3
EBIT 234.0 278.6 (16.0)
The 2019 earnings for Dyno Nobel Americas of US$163.5m
decreased by US$48.1m compared to 2018. Current year
earnings include non-recurring items amounting to
US$36.0m which was a major driver of the lower earnings
compared to 2018. Non-recurring items included the
US$32.0m impact from the unplanned outage at Waggaman;
and the US$12.0m impact in Ag & IC from significantly
higher gas cost at St Helens. This was partially offset by the
US$8.0m of one-off profit from sale of excess land in the US,
which is shown separately, as Other EBIT.
DNA
39%
DNAP
25%
Fertilisers
36%
2019 Revenue Contribution
(1)
(1) Excludes elimination
20
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
Waggaman Operations
The Dyno Nobel Americas business manufactures and
distributes ammonia at its Waggaman, Louisiana plant in the
United States. Ammonia produced at Waggaman is used in the
manufacturing process at Dyno Nobel’s Louisiana, Missouri and
Cheyenne, Wyoming plants, and sold to third parties under
long term contractual arrangements.
WAGGAMAN Year Ended 30 September
FY19
US$m
FY18
US$m
Change
%
Revenue 147.4 187.0 (21.2)
EBIT 19.2 76.2 (74.8)
EBIT margin 13.0% 40.7%
Waggaman earnings for 2019 of US$19.2m decreased from
US$76.2m in 2018. The decrease in earnings was mainly due
to the impact of manufacturing outages, as detailed below,
and lower ammonia prices compared to 2018.
Manufacturing – non-recurring item
The impact from the unplanned manufacturing outage at
Waggaman amounted to US$32.0m in 2019. The outage was
initiated by an external power supply failure and resulted
in substantial repairs to be completed on the plant’s CO
2
recovery system.
Manufacturing – reliability
The plant also experienced reliability issues in 2019, with an
adverse impact of US$15.0m from plant restart issues and
controls systems and instrumentation related outages.
Agriculture & Industrial Chemicals
The Dyno Nobel Americas business manufactures and
distributes nitrogen-based fertilisers in the United States
primarily from its St Helens, Oregon plant. Nitrogen based
fertilisers and other industrial chemical products are also
produced as a by-product at the Louisiana, Missouri and
Cheyenne, Wyoming plants.
Year Ended 30 September
Ag & IC FY19
US$m
FY18
US$m
Change
%
Revenue 130.9 118.5 10.5
EBIT 0.2 5.2 (96.2)
EBIT margin 0.2% 4.4%
Ag & IC earnings of US$0.2m decreased from US$5.2m in
2018. The decrease was largely due to the adverse
US$12.0m impact from a gas market disruption in 2019. This
external non-recurring event was the result of a third-party
gas supply interruption, resulting in significantly higher gas
cost at Dyno Nobel’s St Helens plant. The impact from higher
gas cost was however partially offset by the absence of the
2018 St Helens plant turnaround; and the benefits from
higher fertilisers prices and increased sales volumes
compared to 2018.
Explosives
Dyno Nobel is the second largest industrial explosives
distributor in North America by volume. It provides ammonium
nitrate, initiating systems and services to the Quarry &
Construction sector primarily in the Southern US, Northeast US
and Canada; the Coal sector in the Powder River Basin, Illinois
Basin and Appalachia, and to the Base & Precious Metals sector
in the US mid-West, US West and Canada.
Year Ended 30 September
EXPLOSIVES FY19
US$m
FY18
US$m
Change
%
Revenue 824.5 804.6 2.5
EBIT 136.1 130.2 4.5
EBIT margin 16.5% 16.2%
Explosives business performance remained strong in 2019,
growing earnings, volumes and margins for a 3rd
consecutive year and delivering cumulative annual growth of
12.5 percent between 2016 and 2019.
Despite the impact from Coal industry declines; prolonged
wet weather conditions; and flooding in the US mid-west,
2019 earnings from the Explosives business increased
US$5.9m, or 5 percent as compared to 2018. Increased
earnings were primarily due to higher sales volumes,
underpinned by growth in customer demand (in particular
Quarry & Construction sector); and delivery of operational
costs savings and supply chain efficiency gains during the
year.
Quarry & Construction
40 percent of Explosives revenue was generated from the
Quarry & Construction sector in 2019. Volumes were up 5
percent as compared to 2018 despite flooding and wet
weather impacting Quarry & Construction activity (and
demand) in key regions.
Base & Precious Metals
33 percent of Explosives revenue was generated from the Base
& Precious Metals sector in 2019. Volumes were up 3 percent
as compared to 2018, in line with industry growth rates. As
anticipated, demand timing was skewed to the second half,
following the slow start (due to wet weather) to the year.
Coal
27 percent of Explosives revenue was generated by the
sector in 2019. Volumes were down 4 percent compared to
2018, impacted by significant flooding in the US mid-West
and the underlying structural decline of the US Coal Industry.
Market share gains from the first half of 2019 somewhat
offset the impact from industry headwinds during the year,
with industry volumes down approximately 8 percent as
compared to 2018.
21
Incitec Pivot Limited Annual Report 2019
Manufacturing – Dyno Nobel Americas
In North America, Dyno Nobel manufactures ammonium
nitrate at its Cheyenne, Wyoming and Louisiana, Missouri
plants. The Cheyenne, Wyoming plant is adjacent to the
Powder River Basin, North America’s most competitive
thermal coal mining region. The Louisiana, Missouri plant
has a competitive logistic footprint from which to support
mining in both the Illinois Basin and Appalachia.
Initiating systems are manufactured at Dyno Nobel’s
facilities in Connecticut, Kentucky, Illinois, Missouri, Chile and
Mexico, and are also sourced from DetNet South Africa (Pty)
Ltd (DetNet), an IPL electronics joint venture.
As noted above, the business also produces nitrogen-based
fertilisers and industrial chemicals across four locations, that
are delivered to its end markets via an integrated supply
chain.
Manufacturing performance in the Dyno Nobel Americas
business in 2019 was as follows:
Waggaman, Louisiana – the plant operated at 87 percent of
nameplate capacity during the second half of 2019 (72
percent in the first half) and produced 634.4k metric tonnes
of ammonia in 2019. The plant experienced controls systems
and instrumentation reliability issues in the second half that
resulted in additional unplanned downtime. All known
controls systems and instrumentation issues have now been
resolved, with the Group’s new manufacturing strategy
focussed on eliminating these single point of failure
vulnerabilities.
Following the last unplanned outage in July, the Waggaman
plant has recorded its second longest production run (since
commissioning in 2016).
Planning for the plant’s major turnaround in October 2020 is
progressing to plan.
Cheyenne, Wyoming – the plant complex operated reliably
and consistently during 2019. Ammonia production
increased 8 percent compared to 2018, absent the
2017/2018 turnaround.
Louisiana, Missouri – Nitric Acid production from the Louisiana,
Missouri plant decreased 3 percent compared to 2018, largely
due to the impact of flooding, and associated rail outages, in
the US mid-West during 2019.
St Helens, Oregon – 2019 Urea production at the plant was
largely in line with 2018. The impact from third-party gas
supply interruptions on plant operations in the first half of
2019 was largely offset by the absence of the 2018
turnaround and outages. Gas cost lowered during the second
half of 2019 as Enbridge’s pipeline issues were resolved.
Dyno Nobel Asia Pacific
DNA
39%
DNAP
25%
Fertilisers
36%
2019 Revenue Contribution
(1)
(1) Excludes elimination
Through Dyno Nobel Asia Pacific, IPL provides ammonium
nitrate based industrial explosives, initiating systems and
services to the Coal and Base & Precious Metals sectors in
Australia, and internationally to a number of countries
including Indonesia, Papua New Guinea and Turkey through its
subsidiaries and joint ventures. Ammonium nitrate is often sold
in conjunction with proprietary initiating systems and services.
Dyno Nobel is the second largest industrial explosives
distributor in Australia by volume, which in turn is the world’s
third largest industrial explosives market. In Australia, Dyno
Nobel primarily supplies its products to metallurgical coal
mines in the east and to iron ore mines in the west.
Year Ended 30 September
DYNO NOBEL ASIA PACIFIC FY19 FY18 Change
A$m A$m %
Metallurgical Coal 477.7 491.1 (2.7)
Base & Precious Metals 381.9 351.3 8.7
International 131.1 136.2 (3.7)
Revenue 990.7 978.6 1.2
EBIT 179.2 205.4 (12.8)
EBIT margin 18.1% 21.0%
Dyno Nobel Asia Pacific earnings for 2019 of $179.2m
decreased by $26.2m, or 12.8 percent as compared to 2018.
The lower earnings were mainly the result of contract
re-basing, decreased joint venture earnings, and equipment
repair costs incurred at the Moranbah plant. This was partially
offset by increased earnings from higher ammonium nitrate
sales volumes and increased electronic initiating systems sales,
primarily to Iron Ore customers in Western Australia.
Australian Metallurgical Coal
48 percent of Dyno Nobel Asia Pacific revenue for the year
was generated from the Australian Metallurgical Coal sector,
most of which was in the Bowen Basin.
Volumes from the Australian Metallurgical Coal sector
decreased 7 percent compared to 2018, mainly driven by
customer operational issues and weather events in
Queensland during the first half of 2019; and lower second
half contracted volumes, in line with business strategy to
optimise sales of manufactured ammonium nitrate at
Moranbah.
22
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
Base & Precious Metals
39 percent of Dyno Nobel Asia Pacific revenue was
generated from the Base & Precious Metals sector, which
comprises iron ore mines in Western Australia and hard rock
and underground mines throughout Australia.
Volumes from the sector increased 15 percent compared to
2018, driven by strong demand from iron ore customers in
Western Australia in the second half of 2019.
International
13 percent of Dyno Nobel Asia Pacific revenue was
generated internationally in Indonesia, Turkey and Papua
New Guinea.
Volumes decreased 4 percent as compared to 2018, mainly
driven by the significant slowdown in the Turkish business as
a result of lower infrastructure spending; partially offset by
strong volumes in Indonesia.
Manufacturing – Dyno Nobel Asia Pacific
In Australia, Dyno Nobel manufactures ammonium nitrate at
its Moranbah ammonium nitrate plant, which is located in the
Bowen Basin, the world’s premier metallurgical coal region. It
also sources third party ammonium nitrate from time to time.
Moranbah delivered record production in the second half of
2019, with improved efficiency at the plant reducing the
impact from equipment repairs and related costs in the first
half of 2019. The plant produced 365.0k metric tonnes of
ammonium nitrate in 2019, a slight decrease of 1.5 percent
on 2018.
Fertilisers Asia Pacific
IPL’s Fertilisers business in Australia, that consists of Incitec
Pivot Fertilisers (IPF) and Southern Cross International (SCI),
is the largest domestic manufacturer and supplier of
fertilisers by volume.
Internationally, the Fertilisers business sells to major offshore
agricultural markets in Asia Pacific, the Indian subcontinent,
Brazil and the United States. It also procures fertilisers from
overseas manufacturers to meet domestic seasonal peaks.
Much of this activity is conducted through Quantum
Fertilisers Limited, a Hong Kong based subsidiary.
The Fertilisers business manufactures the following fertilisers
at three locations:
• Phosphate Hill: Di/mono-ammonium phosphate (DAP/MAP);
• Gibson Island: Ammonia (Big N), Granulated ammonium
sulphate (GranAm) and Urea; and
• Geelong: Single Super Phosphate (SSP).
Year Ended 30 September
FERTILISERS ASIA PACIFIC FY19 FY18 Change
A$m A$m %
Phosphate Hill 366.6 480.0 (23.6)
Industrial & Trading 125.1 111.2 12.5
Quantum Fertilisers 4.3 13.8 (68.8)
SCI Revenue 496.0 605.0 (18.0)
IPF Revenue 1,066.7 1,088.4 (2.0)
Fertilisers Elimination (143.3) (221.7) na
Fertilisers Revenue 1,419.4 1,471.7 (3.6)
SCI EBIT (29.8) 69.1 (143.1)
IPF EBIT (51.9) 37.7 (237.7)
Profit-in-stock elimination 2.0 (2.2) na
Fertilisers EBIT
(79.7) 104.6 (176.2)
EBIT margin (5.6%) 7.1%
Fertilisers reported an EBIT loss of $79.7m, compared to a
profit of $104.6m in 2018, with the result significantly
impacted by extreme weather events across Eastern Australia
in 2019. Overall, Fertilisers sales volumes were 9 percent
down in 2019 at 2.75 million metric tonnes (2018: 3.01
million metric tonnes), mainly as a result of lower customer
demand due to drought conditions in key planting areas.
The major movements in the 2019 earnings of Fertilisers
were due to the following:
Non-recurring items
• $115.0m adverse impact from the Queensland rail outage due
to the one in a 100-year flooding event that resulted in lost
opportunity for sales of manufactured ammonium phosphates,
and to a lesser extent damaged stocks and plant inefficiencies.
0
100
200
300
400
2015
311
345
321
371
365
2016 2017 2018 2019
1H 2H
162
176
182
182
198
149
169
139
167
189
Moranbah Ammonium Nitrate Production
Thousand metric tonnes
DNA
39%
DNAP
25%
Fertilisers
36%
2019 Revenue Contribution
(1)
(1) Excludes elimination
Initiating systems are manufactured in Australia at Dyno
Nobel’s Helidon, Queensland facility and are also sourced from
IPL facilities in the Americas and from DetNet (South African
joint venture).
23
Incitec Pivot Limited Annual Report 2019
• $20.0m adverse impact from the Phosphate Hill
manufacturing outage as a result of the phosphoric acid
reactor integrity failure in the first half of 2019.
• $13.0m of cost relating to the permanent closure and
decommissioning of the Portland SSP plant and consolidation
of the SSP manufacturing into Geelong.
Other
• Prevailing drought conditions in Northern Victoria, New South
Wales and Southern Queensland adversely impacted
fertilisers sales volumes and mix, decreasing earnings by
$33.6m compared to 2018.
• Net increase in gas cost of $42.5m was mainly driven by
higher contract prices in Gibson Island; partially offset by the
lower gas cost to Phosphate Hill.
• $9.5m decrease in Quantum Fertilisers performance was
driven by lower trading activity during the year.
• Net increase in earnings of $22.4m from major plant
turnarounds as a result of the absence of the 2018 Phosphate
Hill turnaround, partially offset by the Gibson Island
turnaround in 2019.
• $11.4m of benefits driven by value chain optimisation and
improved stock position management.
• Net benefit of $10.5m from the lower A$:US$ exchange rate
and higher urea prices; partially offset by lower global
ammonium phosphates prices compared to 2018.
Manufacturing – Fertilisers
Gibson Island – the plant produced 369.7k metric tonnes of
urea equivalent product, down 24.4 percent on 2018. The
lower production was a result of the planned outage at the
start of 2019 to complete maintenance activities required to
operate the plant to December 2019, when its current short-
term gas supply agreement expires.
A decision was made during the year to continue
manufacturing operations at Gibson Island through to
December 2022 following the successful negotiation of
multiple arrangements affecting operations. One of these
arrangements was the gas supply agreement with Australia
Pacific LNG that will fulfil the plant’s gas needs from 1 April
2020 through to 31 December 2022.
The financial benefit from the continued operation of the
plant is expected to be approximately $5m in 2020, as
announced on the ASX in June 2019.
A major turnaround is required to be undertaken to enable
the operation of the plant to December 2022. The two-
month turnaround is scheduled to commence in February
2020 and cost approximately $60m. The cost of the
turnaround will be depreciated over three years.
Phosphate Hill – ammonium phosphates production
decreased 21 percent to 674.7k metric tonnes (2018: 850.4k
metric tonnes) mainly due to the impact of plant downtime
as a result of the Queensland rail outage and the phosphoric
acid reactor failure, as detailed in the half year disclosures.
The Phosphate Hill plant is expected to benefit from a full
year of lower cost Northern Territory gas supply in 2020,
reducing the plant’s gas cost further by approximately $8m
compared to 2019.
Group Outlook and Sensitivities
IPL generally does not provide profit guidance primarily due to
the variability of commodity prices and foreign exchange
movements. Instead, IPL provides an outlook for business
performance expectations and sensitivities to key earnings
drivers based on management’s view at the time of this
Report.
The outlook for 2020 is based on the underlying assumption
that 2019 non-recurring items of $197.0m do not repeat
in 2020.
Dyno Nobel Americas
• The Explosives business is expected to continue delivering
earnings growth in 2020, underpinned by stronger volumes
and efficiencies as detailed below:
– 5 to 7 percent volumes growth in the Quarry &
Construction sector, slightly above industry growth
expectations;
– Base & Precious Metals volumes expected to grow
3 to 5 percent, underpinned by the Chile expansion and
increased customer demand in existing markets; and
– Coal sector volumes are expected to remain flat to
negative in 2020.
• The Waggaman plant is expected to deliver improved
production compared to 2019 at slightly below nameplate
capacity, with no planned outages scheduled for 2020. The
operational earnings of Waggaman remain subject to
movements in ammonia and natural gas prices.
• Agriculture & Industrial Chemicals operational earnings are
expected to improve, absent the 2019 third-party gas supply
interruptions and pricing impacts. Earnings remain subject to
movements in global fertilisers prices, particularly urea and
urea ammonium nitrate. Production at St Helens is expected
to be in line with 2019 as a result of the planned plant
turnaround in the second half of 2020.
Dyno Nobel Asia Pacific
• Demand for ammonium nitrate in Australia is expected to
remain strong in 2020. In line with business strategy, sales
volumes relating to Moranbah in Australia are expected to be
lower in 2020 following contract renewals.
• The accelerating rate of adopting technology is beginning to
drive medium to long term growth, as miners look to
technology to access the next level of productivity uplift.
• Earnings from joint venture partner QNP are expected to
remain relatively flat in 2020.
• As previously announced, the 2020 impacts from contract
losses in Western Australia is $10m; and $12m in relation to
contract renewals.
• Moranbah production is expected to be largely in line with
2019, however expecting improved plant efficiencies in 2020.
24
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
Fertilisers Asia Pacific
• Fertilisers earnings will continue to be dependent on global
fertilisers prices, the A$:US$ exchange rate and weather
conditions.
• Drought conditions in Queensland and New South Wales
could continue to impact irrigation water availability in the
key summer crop markets in 2020.
• Distribution margins are expected to be materially consistent
with 2019, subject to global fertilisers prices and the potential
impact of ongoing drought conditions.
• The Phosphate Hill plant is expected to deliver improved
production of approximately 975k metric tonnes of
ammonium phosphates in 2020, with no planned
turnarounds in the year and all known material production
issues now resolved.
• Expecting additional benefits of approximately $8m in 2020,
representing the full year impact of lower gas supply cost to
Phosphate Hill under the Power and Water Corporation
contract that commenced in January 2019.
• Gibson Island production expected to improve, with less
planned downtime in 2020 (two-month turnaround)
compared to 2019 (three months).
• As announced on the ASX on 4 June 2019, Gibson Island
earnings are expected to increase by approximately $5m in
2020 following the commencement of gas supply from
Australia Pacific LNG in April 2020.
Group
• Corporate – Corporate costs are expected to be
approximately $30m in 2020. This excludes any costs in
relation to the Fertilisers strategic review.
• Borrowing Costs – Net borrowing costs are expected to be
lower at approximately $140m due to lower average cost of
funding following the completion of the Group’s debt
refinancing in 2019; and lower anticipated debt levels
through 2020.
• Taxation – Considering the expected improvement in the
Group’s 2020 earnings, the effective tax rate is expected to
increase to between 25 and 28 percent.
• Hedging Program – 50 percent of estimated first half 2020
US$ linked fertilisers sales are hedged at a rate of $0.70
with full participation in downward rate movements. IPL’s
foreign currency exposure relating to fertilisers sales will
continue to be actively managed.
Other Likely Developments
On 2 September 2019, the Company announced that it had
commenced a strategic review of its Fertilisers business, which
will continue into the 2020 financial year. The strategic review
will assess various options including a potential sale of the
business, a demerger or retaining the business and continuing
to invest for growth.
Sensitivities
The table provides sensitivities to key earnings drivers and
should be read in conjunction with the footnotes. As
demonstrated, IPL’s earnings are influenced by movements in
global commodity prices and foreign exchange rates. Investors
should be cognisant of these factors.
Commodity Proxy Index EBIT Sensitivies
Americas
Ammonia
(1)
CFR Tampa +/- US$10/mt = +/- US$6.5m
Natural Gas
(2)
Henry Hub +/- US$0.10/mmbtu = -/+ US$2.7m
Urea
(3)
FOB NOLA +/- US$10/mt = +/- US$1.9m
FX EBIT Translation
(4)
+/- A$/US$0.01 = -/+ A$4.0m
Asia Pacific
DAP
(5)
FOB Tampa +/- US$10/mt = +/- A$13.9m
Urea
(6)
FOB Middle East +/- US$10/mt = +/- A$3.5m
FX EBIT Transactional
(5,6)
+/- A$/US$0.01 = -/+ A$8.6m
(1) Based on Waggaman plant capacity of 800k metric tonnes, less internal sales
volumes of approximately 150k metric tonnes.
(2) Based on Waggaman plant capacity of 800k metric tonnes and estimated
average gas efficiency of 34 mmbtu per metric tonnes of ammonia.
(3) Based on actual 2019 St Helens and Cheyenne manufactured urea equivalent
product of 192k metric tonnes.
(4) Based on actual 2019 Dyno Nobel Americas EBIT (excluding Non-Recurring
Items) of US$200m and an average realised 2019 foreign exchange rate of
A$/U$ 0.70.
(5) Based on 2020 estimated Phosphate Hill manufactured ammonium
phosphates of 975k metric tonnes; average realised 2019 DAP price of
US$367; and an average realised 2019 foreign exchange rate of A$/U$ 0.70.
(6) Based on actual 2019 Gibson Island manufactured urea equivalent sales via
IPF of 248k metric tonnes; average realised 2019 urea price of US$271; and
an average realised 2019 foreign exchange rate of A$/U$ 0.70.
Note: Proxy Index prices are available on Bloomberg.
Summary of FY19 non-recurring items
Set out in the table below is a summary of the financial impact of non-recurring items in FY19 that, when added back, should
increase the earnings outlook for FY20 by $197m.
Non-recurring Items Business EBIT Tax NPAT
A$m
1H19 2H19 FY19
External Events (Associated Impacts)
Queensland rail outage Fertilisers 60 55 115 (34) 81
Gas market disruption – St Helens (US$12m) DNA 16 – 16 (4) 12
Sub-total 76 55 131 (38) 93
Manufacturing Outages
Waggaman outages (US$32m) DNA 45 – 45 (12) 33
Phosphate Hill outage (reactor failure) Fertilisers 20 – 20 (6) 14
Sub-total 65
–
65 (18) 47
Other
Profit on US land sale (US$8m) DNA – (12) (12) 3 (9)
SSP plant closure Fertilisers – 13 13 (4) 9
Sub-total
–
1 1 (1) –
Total Impact 141 56 197 (57) 140
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Incitec Pivot Limited Annual Report 2019
Principal Risks
Set out below are the principal risks and uncertainties associated with IPL’s business and operations. These risks, which may occur
individually or concurrently, could significantly affect the Group’s business and operations. There may be additional risks unknown
to IPL and other risks, currently believed to be immaterial, which could become material. In addition, any loss from such risks may
not be recoverable in whole or in part under IPL’s insurance policies. The treatment strategies do not remove the risks; while in
some cases they may either partially or fully mitigate the exposure, residual risk remains.
The Group’s process for managing risk is set out in the Corporate Governance Statement (Principle 7: Recognise and manage risk).
Risk Description and potential consequences Treatment strategies employed by IPL
General economic and business conditions
Changing
global
economic and
business
climate
The current global economic and business climate and
any sustained downturn in the North American, South
American, Asian, European or Australian economies may
adversely impact IPL’s overall performance. This may
affect demand for industrial explosives, industrial
chemicals and fertilisers and related products and
services, and profitability in respect of them.
• Diversification across explosives and fertilisers markets in
numerous geographical locations helps diversify exposures.
• Long term sustainable competitiveness and business fluidity
is managed through continuous improvement in productivity
and efficiency.
• Continuous review of country specific risks helps proactive
management of potential exposures.
Commodity
price risks
Pricing for fertilisers, ammonia, ammonium nitrate and
certain other industrial chemicals is linked to
internationally traded commodities (for example,
ammonia, ammonium phosphates and urea); price
fluctuations in these products could adversely affect
IPL’s business. The pricing of internationally traded
commodities is based on international benchmarks and
is affected by global supply and demand forces.
Weaker hard and soft commodity prices (particularly
coal, iron ore, gold, corn, wheat, cotton and sugar) could
have an adverse impact on the Group’s customers and
has the potential to impact the customers’ demand,
impacting volume and market prices.
• The Group seeks to maintain or achieve low cost positions in
its chosen markets, which helps its businesses to compete
in changing and competitive environments.
• Integrated Business Planning (IBP) processes assist in
optimising inventory to reduce price risk of stock on hand.
• IPL employs a “value at risk” framework with respect to its
Australian fertiliser operations. This allows the business to
better manage its short and medium-term exposures to
commodity price fluctuations, while taking into account its
commercial obligations and the associated price risks.
• To ensure volume and price commitments are upheld, the
Group has firm and enforceable customer supply contracts.
• Where commodity price exposures cannot be eliminated
through contracted and/or other commercial arrangements,
the Group may enter into derivative contracts, where
available on a needs basis, to mitigate this risk. However, in
some instances price risk exposure cannot be economically
mitigated by either contractual arrangements or derivative
contracts. In relation to ammonium nitrate for DNAP, IPL also
maintains multiple supply sources to help with both supply
and commodity price risk.
External
financial risk
The appreciation or depreciation of the A$ against the
US$ may materially affect IPL’s financial performance.
A large proportion of IPL’s sales are denominated
either directly or indirectly in foreign currencies,
primarily the US$.
In addition, IPL also borrows funds in US$, and the A$
equivalent of these borrowings and the interest payable
on them will fluctuate with the exchange rate.
Other financial risks that can impact IPL’s earnings
include the cost and availability of funds to meet its
business needs, compliance with terms of financing
arrangements, movements in interest rates and the
imposition or removal of tariffs.
• IPL’s capital management strategy is aimed at maintaining
an investment grade credit profile to allow it to optimise
the weighted average cost of capital over the long term
while maintaining an appropriate mix of US$/A$ debt,
provide funding flexibility by accessing different debt
markets and reduce refinancing risk by ensuring a spread of
debt maturities. A detailed discussion of financial risks is
included in Note 16 (Financial Risk Management).
• Group Treasury undertakes financial risk management in
accordance with policies approved by the Board. Hedging
strategies are adopted to manage, to the extent possible
and appropriate, currency and interest rate risks.
26
Incitec Pivot Limited Annual Report 2019
Risk Description and potential consequences Treatment strategies employed by IPL
Industry
structure and
competition
risks
IPL operates in highly competitive markets with varying
competitor dynamics and industry structures.
The actions of established or potential competitors could
have a negative impact on sales and market share and
hence the Group’s financial performance.
The balance between supply and demand of the
products that IPL manufactures and sells can greatly
influence prices and plant utilisation. The structural shift
in the North American power sector, which has seen a
movement away from coal-fired energy production and
towards natural gas, has placed increased pressure on
existing customers (therefore giving rise to increased
cost pressure on inputs to their supply) and has also
resulted in reduced demand for their outputs.
Reduced demand for steel inputs (in particular iron ore
and metallurgical coal) can lead to a decrease in
demand for explosives in these industries.
IPL’s fertiliser operations compete against global
manufacturers with lower input costs and potentially
having regulatory and economic advantages. A
competitive market may also lead to the loss of
customers which may negatively impact earnings.
Refer to ‘Climate Change Risks’ for potential risks and
consequences related to industry structure and
competition as a result of climate change.
• IPL seeks to maintain or develop competitive cost positions
in its chosen markets, whilst maintaining quality product
and service offerings. This focus on cost and quality
positions its business units to compete over the medium to
longer term in changing and competitive environments.
• Where practical, IPL prefers to engage in long term
customer and supply contractual relationships.
• Pricing and risk management processes exist in all
businesses.
• IPL continues to invest in new technologies and premium
product offerings in order to meet the needs of our
customers while limiting IPL’s carbon footprint and the
impact IPL, and its customers, make on the environment
through a reduction in the carbon footprint from lower
emissions when blasting.
Customer risks
IPL has strong relationships with key customers for the
supply of products and services. These relationships are
fundamental to the Group’s financial performance, on
which the loss of key customer(s) may have a negative
impact. This is particularly relevant to the Explosives
sectors, where supply contracts tend to be longer term
and significant high value customers are represented.
Customer(s)’ inability to pay their accounts when they
fall due, or inability to continue purchasing from the
Group due to financial distress, may expose the Group
to customer credit risks.
• Where practical, for customers in the Explosives sector, IPL
prefers to engage in long term customer contractual
relationships.
• The Group attempts to diversify its customer base to reduce
the potential impact of the loss of any single customer.
• Sales and customer plans are developed in line with
IPL’s strategy.
• The Group manages customer credit risks by establishing
credit limits by customer, as well as monitoring and actively
managing overdue amounts within policy guidelines.
Additionally, the Group endeavours to negotiate contractual
terms that provide protection to address customer non-
payment or financial distress.
• From time to time, the Group purchases trade credit
insurance to minimise credit risk.
• IPL utilises Net Promoter Scores and “Voice of Customer”
programs to enhance its customer relationships and to help
identify customer related issues early.
Product
quality and/or
specification
risk
IPL manufactures or produces product to specific
customer and industry specifications and statutory
parameters. The Group is exposed to financial and
reputational risk if these standards, requirements and
limits are not met.
• IPL operates and manufactures products using detailed
quality management systems. Quality assurance plans are in
place for manufactured products intermediaries, procured
products and raw materials.
• Certificates of Analysis are provided for bulk shipments of
fertiliser into export markets.
Operating and Financial Review
27
Incitec Pivot Limited Annual Report 2019
Risk Description and potential consequences Treatment strategies employed by IPL
Oversupply of
ammonium
nitrate in Asia
Pacific and
Americas
Recent additions of ammonium nitrate capacity in the
Asia Pacific region, including the reliable operations of
new plants, may give rise to oversupply in the short
term. In the Americas market, the supply of ammonium
nitrate is currently higher than demand and this position
is expected to continue for a number of years.
• Where practical, for customers in the Explosives sector,
IPL prefers to engage in long term customer contractual
relationships to manage both manufactured and supply
positions.
• IPL seeks to maintain or develop competitive cost positions in
its chosen markets, whilst maintaining quality product and
service offerings.
Operational risks
Production,
transportation,
storage and
supply risks
IPL’s operations are inherently dangerous. IPL operates
15 key manufacturing and assembly sites and is
exposed to operational risks associated with the
manufacture, transportation and storage of fertilisers,
ammonium nitrate, initiating systems, industrial
chemicals and industrial explosives products.
These operational risks include an unintended
detonation of explosives, or unintended toxic release
during manufacture, transportation or storage.
IPL’s manufacturing systems are vulnerable to
equipment breakdowns, energy or water disruptions,
natural disasters and acts of God, unforeseen human
error, sabotage, terrorist attacks and other unforeseen
events which may disrupt IPL’s operations and
materially affect its financial performance.
Timely and economic supply of key raw materials, such
as natural gas, ammonia, steam, water and electricity,
represents a potential risk to the Group’s ability to
manufacture and supply products. In some markets in
which IPL operates, economic supply of key raw
materials to the Group is reliant on only a few external
parties and in some cases, only one.
In some markets, the availability of transportation
routes for moving raw materials and finished product,
such as rail, barge, truck and ship, as well as the
methods for transporting key raw materials directly to
sites, such as pipelines, underground aquifers and
electricity networks, are reliant on only a few external
parties. There is a risk that if these transportation routes
or methods are disrupted, IPL’s manufacturing and
distribution capacities may be reduced.
There is a risk that if production is not sold and
effectively moved from site, plant uptime and earnings
could be negatively impacted should storage at site
become full.
• A Health, Safety and Environment (HSE) management
system is in place with clear principles and policies
communicated to employees.
• HSE risk identification, mitigation and management
strategies are employed at all times and across all sites.
Incidents are reported and investigated, and learnings are
shared throughout the Group.
• Systems and procedures, including Standard Operating
Procedures and Work Instructions, are established,
documented, implemented and maintained to reduce HSEC
risk in all work activities.
• Appropriate workers’ compensation programs are in place
globally to assist employees who have been injured while
at work, including external insurance coverage.
• IPL undertakes business continuity planning and disaster
preparedness across all sites.
• Global industrial special risk insurance is obtained from a
variety of highly rated insurance companies to ensure the
appropriate coverage is in place. The policies insure the
business, subject to policy and retention limits, from
damage to its plants and property and the associated costs
arising from business interruptions.
• Significant insurable events that occur across the Group are
reviewed and coverage and policy limits may be revised,
where appropriate and economical. Insurable Risk Profiling
is undertaken to review the Group’s exposures.
• Where possible, flexible supply chain and alternative
sourcing solutions are maintained as a contingency.
• Reviews of single-point sensitivity exposures within IPL’s
supply chain are undertaken. Where material risks are
identified, contingency plans are developed, including
identification of alternative sources of supply, additional
storage capacity and increased safety stock.
• The IBP process and inventory management practices
provide flexibility to mitigate the impacts of short term
disruptions.
• The Group has strict processes around the stewardship,
movement and safe handling of dangerous goods and other
chemicals.
• Plants have storage capacity, as well as logistics capability
that allows for offtake to be distributed. For example, at the
Waggaman Louisiana plant offtake may be distributed via
rail, truck, barge and pipeline.
• The Group endeavours to include liability provisions and
force majeure clauses in agreements where relevant.
28
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
Risk Description and potential consequences Treatment strategies employed by IPL
Natural gas
supply and
price risk
Natural gas is the major input required for the
production of ammonia and therefore is a critical
feedstock for IPL’s nitrogen manufacturing operations.
Competitive and economic availability of natural gas is
key when sourcing supply. Potential disruption of supply
also poses a risk.
The Group has various natural gas contracts and supply
arrangements for its plants. In respect of the Australian
manufacturing operations, there is a risk that a reliable,
committed source of natural gas at economically viable
prices may not be available following the expiry of
current contractual arrangements.
The cost of natural gas impacts the variable cost of
production of ammonia and significantly influences the
plants’ overall competitive position.
• The Group has medium term gas contracts in place for its
Australian manufacturing sites. The contracts have various
tenures and pricing mechanisms. IPL explores new gas
supply arrangements as an ongoing part of its operations.
• In June 2019, IPL entered into gas supply arrangements
for the Gibson Island plant through to 31 December 2022.
Phosphate Hill and Moranbah have gas supply arrangements
in place until 2028 and 2026 respectively.
• IPL is exploring, as one part of its ongoing gas supply
strategies, the extraction of natural gas from the tenement
awarded to Central Petroleum Limited by the Queensland
government in March 2018, in respect of which IPL has
entered into a 50:50 joint venture with Central.
• The US natural gas market is a liquid market, with offtake
facilitated by an extensive pipeline infrastructure and
pricing commonly referenced to a quoted market price.
The Americas business has short term gas supply
arrangements in place for its gas needs with market
referenced pricing mechanisms.
• Gas supply has been substantially contracted for the
Waggaman, Louisiana ammonia plant through to 2021,
with pricing determined by reference to the price for gas
traded through the Henry Hub.
• In respect of the Americas business (including the
Waggaman, Louisiana ammonia plant), there is an ability
to hedge gas prices and the Group reviews its approach to
gas hedging in the US on a regular basis.
Sulphuric acid
cost and supply
into Phosphate
Hill
Sulphuric acid is a major raw material required for the
production of ammonium phosphates. Approximately
50-60 percent of Phosphate Hill’s sulphuric acid needs
come from processing metallurgical gas sourced from
Glencore’s Mt Isa Mines copper smelting facility. Glencore
has confirmed that Mt Isa Mines has the necessary
environmental authority to operate to 2022. Alternative
sources of sulphuric acid are likely to negatively impact
the cost of producing ammonium phosphates at the
Phosphate Hill facility.
The quantum of the impact will depend on the future
availability and price of sulphur and/or sulphuric acid
and the prevailing A$/US$ rate.
Sulphuric acid supply into Phosphate Hill may be
negatively impacted from a volume and/or price
perspective, should the Mt Isa Mines copper smelter
close.
• The Group has several sources of sulphuric acid for supply
for Phosphate Hill. Along with sulphuric acid produced from
metallurgical gas capture, Mt Isa produces sulphuric acid
from burning imported elemental sulphur. Phosphate Hill’s
operations are also supplemented with sulphuric acid
purchased directly from a domestic smelter to meet total
sulphuric acid requirements for the production of
ammonium phosphates. In addition, Phosphate Hill uses
phosphoric acid reclaimed from its gypsum stacks in place
of sulphuric acid. Should Glencore cease operations, it is
likely that the majority of the lost sulphuric acid sourced
from Glencore could be replaced, albeit with an overall
negative impact to the Group compared with the use of
Glencore’s metallurgical gas.
• The Mt Isa site is a leased site, with a lease contract in place
with Mt Isa Mines to 2028. Accordingly, IPL would be able to
continue to produce sulphuric acid at Mt Isa (albeit at a
higher cost) by burning elemental sulphur until 2028, should
the copper smelter operation cease before that time.
• Alternative sourcing solutions, such as emerging sources
of sulphuric acid from regional Queensland miners, are
explored as part of ongoing contingency planning.
29
Incitec Pivot Limited Annual Report 2019
Risk Description and potential consequences Treatment strategies employed by IPL
Phosphate rock
Phosphate rock, used in the manufacture of both
ammonium phosphates and single superphosphate
fertilisers, is a naturally occurring mineral rock.
Phosphate rock is an internationally traded commodity,
with pricing based on international benchmarks, and is
affected by global supply and demand forces. Its cost for
single superphosphate manufacturing purposes is also
impacted by fluctuations in foreign currency exchange
rates, particularly the A$/US$ rate. Fluctuations in either
of these variables can impact the cost of IPL’s single
superphosphate manufacturing operations, as these
operations rely on rock imported from limited foreign
supply sources.
• At its own facility in Phosphate Hill, IPL mines phosphate
rock which is used for the production of ammonium
phosphates at that facility.
• Phosphate rock is used in the production of single
superphosphate at IPL’s Geelong operations. IPL seeks to
diversify the sources of supply of rock (subject to certain
requirements regarding the composition of the rock,
including cadmium and odour considerations) required for
these operations by sourcing it from a number of
international suppliers (albeit that the sources of supply
are limited).
Labour
A shortage of skilled labour or loss of key personnel
could disrupt IPL’s business operations or adversely
affect IPL’s business and financial performance. IPL’s
manufacturing plants require skilled operators drawn
from a range of disciplines, trades and vocations.
IPL has operations in regional and remote locations
where it can be difficult to attract and retain critical
and diverse talent.
• IPL’s scale provides some ability to relocate staff to cover
shortages or losses of critical staff.
• The Group has policies and procedures, including flexible
working arrangements and competitive compensation
structures, designed to help attract and retain workforce.
• Management identifies critical roles and attempts to
implement policies to help ensure that appropriate
succession and retention plans are in place for those roles.
Weather
Seasonal conditions (particularly rainfall), are a key factor
for determining demand and sales of explosives and
fertilisers. Any prolonged change in weather patterns &
severity of adverse weather conditions could impact the
future profitability and prospects of IPL.
Further disclosure on climate related risks can be found
in the Climate Change Risks sub-sections of this report.
• The IBP process incorporates forecasting on a rolling
24-month basis which enables scenario planning and some
supply flexibility. Forecasts are based on typical weather
conditions and are reviewed on an ongoing basis as the
seasons progress to help align supply to changing demand.
• IPL’s Australian fertilisers business operates in all Australian
States other than Western Australia. In addition to
geographical diversity, there is also diversity across market
segments – IPL supplies fertilisers for a wide range of
agricultural applications – and customers serviced.
• IPL’s international explosives businesses operate across
geographically diverse locations, principally Australia and
North America with exposures to diverse sectors including
coal, iron ore, quarry & construction and metals mining.
30
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
Risk Description and potential consequences Treatment strategies employed by IPL
Climate change risks associated with a 2 Degree Scenario risk analysis
The ‘2 Degree Scenario’: A scenario in which climate change is limited to 2 degrees by 2100 requires rapid decarbonisation of the global economy
and is in keeping with the global agreement to reduce carbon dioxide equivalent (carbon) emissions which was reached through the United
Nations Framework Convention on Climate Change agreement in Paris in 2015. It represents a future in which stringent climate policies are put in
place in the short to medium term, leading to a decline in carbon emissions after 2040. This scenario projects an average global temperature
increase of between 0.9°C and 2°C by 2050 and between 1.1°C and 2.6°C degrees by 2090. Because this scenario assumes rapid global action is
taken to reduce emissions, acute and chronic physical risks associated with a greater degree of warming are not as severe. While extreme
weather events, droughts and floods are expected to continue to increase in this scenario, the risks associated with these impacts were not
identified as individually material by the IPL Risk Matrix. The material financial risks identified for IPL during a risk analysis against the 2-degree
scenario are associated with the rapid transitioning of the economy towards decarbonisation.
Policy and
legal risks
IPL has manufacturing facilities across various
geographical locations that may be impacted by
regulatory changes aimed at reducing the impact of,
or otherwise addressing, climate change. Any changed
regulation could result in an increase to the cost base
or operating cost of these plants, and it may not be
possible to alter sales prices to offset these cost
increases. This includes, but is not restricted to, any
regulations relating to reducing carbon emissions.
Alternatively, any such regulatory changes may
potentially impact the ability of these plants to continue
functioning as currently operated. This risk would be
heightened if regulatory changes are implemented
inconsistently across regions or countries so that IPL’s
facilities (principally located in Australia and North
America) are impacted by regulatory changes while
manufacturing facilities of competitors operating in other
jurisdictions are less impacted.
Carbon pricing currently applies in Australia, and under a
2-degree scenario, rapid action to limit climate change
would include a global carbon price by 2020 (short-term
risk: 1-3 years). Carbon pricing would increase
operational costs as well as costs to transport products,
which could impact until 2025, when most shipping
options would be retrofitted with zero or low carbon
mobility options (e.g. hydrogen). The transition to a
global carbon price may give rise to a period of volatility
where IPL would not be able to pass through the
immediate carbon costs to customers, who may choose
to source products more locally where available to avoid
these carbon costs.
• IPL has a large, diverse supplier group, which would assist in
avoiding carbon pricing pass through in the short-term.
• IPL customer agreements provide for the pass through of
carbon pricing where possible.
• Domestic co-location of critical products will reduce carbon
costs associated with transport. Diversification away from
single source suppliers, already being managed, will also
assist in managing the potentially volatile/variable costs
associated with increased regulation, including carbon
pricing, in the period between 2030 and 2040.
Market risks
(1)
Under a 2-degree scenario, unless carbon capture and
storage is rapidly developed, transitioning away from
fossil fuels is likely to significantly decrease demand for
thermal coal, with impacts beginning in the short term
(1-3 years). However, the technologies associated with
renewable energy such as electric vehicles and large-
scale batteries are likely to expand dramatically, with
World Bank estimates indicating that demand for the
metals required for these technologies could grow by
1000% under a 2-degree scenario. While these mining
operations (which use explosives) mitigate the potential
loss of revenue from the thermal coal market, “new
world commodities” do not require the same quantity of
explosives as bulk commodities, which may result in
lower overall demand and potentially leading to a
supply/demand imbalance. This potential loss of
revenue may be partially offset by premium explosives
technologies replacing bulk explosives products,
attracting a higher margin.
• IPL seeks to maintain competitive cost positions in its
chosen markets, whilst maintaining quality product and
service offerings. This focus on cost and quality positions its
business units to compete over the medium to longer term
in changing and competitive environments.
• In the 2-degree scenario the reduction in demand for
explosives supplying the thermal coal markets will be partly
offset by the mining of new world commodities required for
renewable technologies which could be higher margin
activity.
• IPL currently buys in a portion of its ammonium nitrate to
fulfil current demand and could manage the rapid market
change away from thermal coal through reduced purchasing
of third-party ammonium nitrate.
• Where practical, IPL prefers to engage in long term
customer and supply contractual relationships.
• Pricing and risk management processes exist in all
businesses.
(1) While the ways in which markets could be affected by climate change are varied and complex, one of the major ways is through shifts in supply and demand
for certain commodities, products, and services as climate-related risks and opportunities are increasingly taken into account. (Financial Stability Board,
Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p 6).
31
Incitec Pivot Limited Annual Report 2019
(2) Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods.
(Financial Stability Board, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p 6).
(3) Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.
(Financial Stability Board, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p 6).
Risk Description and potential consequences Treatment strategies employed by IPL
Climate change risks associated with a 4 Degree Scenario risk analysis
The ‘4 Degree Scenario’ assumes negligible and/or ineffective policy and action to limit carbon emissions, which results in an average increase in
temperature of between 2.6°C and 4.8°C by 2100. The lack of effective progress to reduce emissions in this scenario results in ‘business as usual’
in regard to carbon regulation. While market transition risks (such as risks from changed consumption patterns) occur in this 4-degree scenario,
the material risks are associated with ‘chronic’ physical risks (e.g. creeping changes in climate which cause drought and sea level rise) and ‘acute’
physical risks (e.g. more severe and more frequent extreme weather events such as hurricanes, drought and flooding from intense rain events
and storm surges). The resulting social consequences are expected to be severe, with food and water scarcity and resulting conflict impacting on
some economies.
Risks
associated
with Acute
(2)
and Chronic
(3)
physical events
Impacts on Product Demand:
IPL provides products and services to end markets,
individual customers and suppliers that may be impacted
by changes to weather patterns resulting from climate
change. Changes to the number and/or intensity of
storms, hurricanes and other extreme weather events
may impact IPL’s end markets, primarily mining and
agriculture.
A 4-degree climate change scenario indicates fertiliser
demand increasing in the short term, as emerging
markets demand more meat, before a significant
downturn associated with the economic impacts of acute
extreme weather events and chronic changes in climatic
conditions which may impact the ability to grow crops.
IPL’s Asia-Pacific fertiliser revenue from exports may be
impacted in the long-term (6+ years) by a decline in
offshore market demand with most South-east Asian
countries, which currently are IPL’s predominant fertiliser
export market, and small island developing states being
ranked among the most vulnerable in the world by the
Climate Risk Index (CRI).
IPL currently sells up to 15% of its Asia Pacific explosives
into international markets, with most of these countries
considered emerging or developing. Under a 4-degree
climate change scenario, explosives demand in the Asia
Pacific region may be impacted in the long term (6+
years) by reduced demand in climate vulnerable nations,
as indicated by the CRI.
• Fertiliser demand is likely to grow in the short term due to
restoration of degraded land to meet growing population
needs for food and increased meat and dairy consumption.
• IPL currently exports fertilisers from Australia and may be
able to ship to other locations where demand is retained as
markets are impacted by chronic changes in climate.
• IPL currently sells fertilisers on the spot market to a
geographically diverse group of customers and has no long-
term reliance on a particular customer segment. IPL also has
the competitive advantage of having manufacturing sites
located primarily in Australia and the US. These are wealthy
countries which can afford to rebuild their port infrastructure
in the event of rising sea-levels and damage from storm
surges and other acute physical impacts. For this reason, it is
anticipated that IPL will be able to ship to other offshore
markets which retain demand in the event that current
export regions are impacted.
• Under a 4-degree climate scenario, the physical impacts of
climate change mean that the Quarry & Construction sector
is likely to assume a portion of the demand that was
previously taken by climate vulnerable nations in the Asia
Pacific region. Many new mines are expected to be
developed to supply “new world commodities” for batteries,
renewables and mobility options, however, “new world
commodities” are not expected to require the same
quantity of explosives as bulk commodities. Therefore,
overall explosive volumes would be expected to decrease in
this scenario.
32
Incitec Pivot Limited Annual Report 2019
Operating and Financial Review
Risk Description and potential consequences Treatment strategies employed by IPL
Risks
associated
with Acute
and Chronic
physical events
(continued)
Impacts on Operations:
Some of IPL’s manufacturing plants are located in areas
that are susceptible to extreme weather events, such as
hurricanes, tropical storms and tornadoes. An increase in
the severity and/or frequency of these extreme weather
events as a result of climate change may cause more
frequent disruption to IPL’s operations directly or as a
result of supply chain disruption, which includes
transportation of raw materials and finished product via
road, rail and water. Impacts such as these may increase
in the short term (1–3 years). Under this scenario,
insurance premiums would be expected to increase
along with a possibility that some events may be
excluded from cover.
Interruptions to logistics from extreme weather events
could result in financial loss if product cannot be stored
effectively and degrades.
Water is a key raw material for manufacturing, with the
majority used for cooling purposes. Under a 4-degree
climate change scenario, it is predicted that average
annual rainfall will be reduced and longer periods of
prolonged drought will be created, especially in Eastern
Australia. While this may be offset somewhat by
increased 1 in 20-year flooding events at some locations,
and up to 15% more rainfall than historical averages in
each single rain event, water restrictions may become
more frequent in some areas. In addition, the possibility
of less frequent, higher intensity rainfall events may lead
to the risk of storm water pond overflows. These impacts
could occur in the short-term (1-3 years), with very
low dam levels being recorded near some sites in the
recent past.
Several manufacturing sites are located on coasts and
are very close to sea level. A significant rise in sea level
combined with a king tide may cause flooding events at
these sites from 2030 onwards (considered a long-term
risk) particularly with increased storm activity causing
storm surges to become more intense.
• IPL’s own manufacturing facilities are considered resilient to
the anticipated acute physical impacts of climate change,
with measures currently in place to manage exposure
where sites are located in tornado or hurricane zones.
• Due to its location in a hurricane zone, the Waggaman
Louisiana plant was built to comply with wind codes set out
by the International Building Code Design Standard IBC 20
and Minimum Design Loads for Buildings and Other
Structures ASCE 7-05. The design was signed off by a
Louisiana based certified Professional Engineer with
experience in design standards for the region, where the
impacts of future hurricanes must be considered.
• Safety and evacuation plans are in place for all personnel
and sites.
• IPL is developing technology solutions to increase the shelf
life of products. Were IPL required to build additional
storage to stockpile raw materials and product for
temporary interruptions to logistics, and to protect product
quality from humidity, flooding, heat extremes and other
physical impacts, the total aggregate cost would be
immaterial. Additional storage, both onsite and at strategic
locations along transport routes may be necessary, along
with contingency plans to use alternative forms of transport
to access these. This would allow IPL to create resilience in
the event of volatility created by more extreme weather.
• The Group endeavours to include force majeure clauses in
agreements where relevant.
• Insurance policies are in place across the Group.
• The location of the Moranbah facility close to high quality
metallurgical coal producers would provide IPL with a
strategic advantage over its competitors in the event of
supply chain disruption due to extreme weather events.
• Domestic co-location of critical products and diversification
away from single source suppliers, already being managed,
will assist in managing supply chain interruption.
• Water scarcity concerns could prompt the need for
additional storage. The cost of creating additional storage
(dams) in these locations is considered immaterial. Water
restrictions as a result of longer periods of drought and
therefore increased regulation, may also prompt IPL to seek
alternative water sources. At present, no operations have
been identified where sourcing of new water is considered
to be too costly or unavailable.
• Ongoing and long-term water management strategies are
in place to ensure overflows of storm water ponds due to
higher intensity rainfall events are avoided.
• The construction of sea-level management infrastructure
(levies, etc.) will be considered in the long-term where
required for the identified manufacturing sites to manage
the risk of flooding due to storm surges and sea level rise.
33
Incitec Pivot Limited Annual Report 2019
Risk Description and potential consequences Treatment strategies employed by IPL
Compliance, regulatory and legal risk
Compliance,
regulatory
and legal risk
Changes in federal or state government legislation,
regulations or policies in any of the countries in which
IPL operates or in which it has dealings may adversely
impact its business, financial condition and operations,
or the business, financial condition and operations of
IPL’s customers and suppliers. This includes changes in
domestic or international laws relating to sanctions,
import and export quotas, tariffs and geopolitical risks
relating to countries with which IPL, or its customers
and suppliers, engages to buy or sell products and
materials. In addition, changes in tax legislation or
compliance requirements in the jurisdictions in which
IPL, or its customers and suppliers, operates, or changes
in the policy or practices of the relevant tax authorities
in such jurisdictions, may result in additional compliance
costs and/or increased risk of regulatory action,
including potential impact on licenses to operate.
IPL’s business, and that of its customers and suppliers,
is subject to environmental laws and regulations that
require specific operating licences and impose various
requirements and standards. Changes in these laws
and regulations, failure to abide by the laws and/or
licensing conditions, or changes to licence conditions,
may have a detrimental effect on IPL’s operations and
financial performance, including the need to undertake
environmental remediation, financial penalties or
ceasing to operate. During FY19 a Consent Decree was
issued against IPL’s St Helens ammonia plant.
Compliance with this Consent Decree is subject to an
independent external audit, the results of which are
required to be submitted to the Environmental
Protection Agency.
IPL’s business, and that of its customers and suppliers,
is also subject to various other laws and regulatory
provisions across the jurisdictions in which it operates,
including anti-bribery and corruption laws, sanctions
and anti-trust laws. Failure to abide by these laws and
regulatory provisions could result in reputational
damage to IPL as well as legal action, and could
impact on the willingness of parties, including
financiers, to transact with IPL.
IPL is exposed to potential legal and other claims or
disputes in the course of its business, including
contractual and other commercial disputes, and
property damage and personal injury claims in
connection with its operations.
• Management, through the Managing Director & CEO and
the Chief Financial Officer, is responsible for the overall
design, implementation, management and coordination of
the Group’s risk management and internal control system.
• Each business unit has responsibility for identification and
management of risks specific to the business. This is
managed through an annual risk workshop, risk register
and internal audits aligned to the material business risks.
• Corporate functions are in place to provide sufficient
support and guidance to ensure regulatory risks are
identified and addressed within the business well in
advance.
• Country regulatory risk is regularly reviewed through the
Group’s risk management framework.
• Where possible, IPL appoints local business leaders and
management teams who bring a strong understanding of
the local operating environment and strong customer
relationships.
• A comprehensive HSE management system is in place with
clear principles and policies communicated to employees.
• HSE risk management strategies are employed at all times
and across all sites. Incidents are reported and investigated,
and learnings are shared throughout the Group.
• The Group has strict processes regarding the stewardship,
movement and safe handling of dangerous goods and
other chemicals.
• IPL engages with governments and other key stakeholders
to ensure potential adverse impacts of proposed fiscal, tax,
infrastructure access and regulatory changes are
understood and, where possible, mitigated.
• Regular training is provided to relevant staff on their
obligations and reporting requirements under appropriate
anti-bribery and corruption laws.
• The Group conducts comprehensive checks of its customers
and suppliers to ensure it complies with all relevant
sanctions laws.
• Due diligence processes are undertaken as required under
the Group’s risk management and risk and compliance
frameworks.
• IPL provides a whistleblower hotline where employees and
third parties can anonymously notify the Group’s General
Counsel and Chief Risk Officer of any suspected fraudulent
or illegal activity.
Loss or
exposure of
sensitive data
and cyber
security
Sensitive data, pertaining to IPL, its employees,
associates, customers or suppliers, may be lost or
exposed, resulting in negative impact to reputation or
competitive advantage, and potential breach of
regulatory compliance obligations.
IPL may be the target of cyber-attacks which could
result in commercial, financial, health and safety,
environmental or reputational impacts. The potential
consequences include loss of business or customer,
financial loss, harm to personnel or environment,
interference with compliance with regulations,
interruption to operational business processes, or
interruption to the ability to make, sell and ship
product.
• Policies, procedures and practices are in place regarding
the use of company information, personal storage devices,
IT systems and IT security.
• A data breach response plan has been established to
respond to, and mitigate the effects of, any instances of
sensitive data breaches that may occur.
• External testing is performed to assess the security controls
of the Group’s IT systems.
• Security Operations Centre, threat intelligence, advanced
threat analytics, system/network controls and industry
standard cyber frameworks are collectively leveraged for
the prevention and detection of, and response against,
cyber threats.
• Incident Response Plans, including Disaster Recovery and IT
Business Continuity Planning arrangements, are in place to
help IPL effectively respond to and recover from a cyber
security incident.
34
Incitec Pivot Limited Annual Report 2019
The directors of Incitec Pivot Limited (the Company or IPL) present their report together with the financial report of the Company
and its controlled entities (the Group) for the year ended 30 September 2019 and the auditor’s report.
The following sections form part of, and are to be read in conjunction with, this Directors’ Report:
• Operating and Financial Review (OFR)
• Remuneration Report
Directors
The directors of the Company during the financial year and up to the date of this report are:
Name, qualifications and
special responsibilities
Experience
Brian Kruger BEc
Non-executive Chairman
Chairman of the Nominations
Committee
Member of the Audit and Risk
Management Committee
Member of the Remuneration
Committee
Mr Kruger was appointed as a director on 5 June 2017 and became Chairman on 1 July
2019. Mr Kruger is the former Managing Director & CEO of Toll Holdings Limited, having
joined Toll in 2009 as Chief Financial Officer, before being appointed Managing Director in
2012. Prior to joining Toll, Mr Kruger had a career spanning 25 years in the resources and
industrial sectors in Australia and the U.S., initially with BHP and subsequently with
BlueScope Steel which he joined on its demerger from BHP. During his time at BlueScope,
he held a number of senior corporate finance and management roles, including President,
North America & Corporate Strategy & Innovation, President, Australian Manufacturing
Markets and was the company’s inaugural Chief Financial Officer. Mr Kruger is also Chairman
of Racing Victoria Limited.
Mr Kruger brings to the Board significant experience in the industrial sector and a deep
knowledge of manufacturing operations including in North America, as well as executive
leadership experience in the Australian listed company environment.
Directorships of listed entities within the past three years:
• Managing Director, Toll Holdings Limited (January 2012 to December 2016)
Jeanne Johns
B.S. Chemical Engineering,
magna cum laude
Managing Director & CEO
Member of the Health, Safety,
Environment and Community
Committee
Ms Johns was appointed Managing Director & CEO on 9 August 2017 and commenced in the
role on 15 November 2017. Ms Johns is a global executive and chemical engineer with over
30 years’ experience in the international refining, petrochemicals, oil and gas industries.
Ms Johns held various executive roles in BP including President, Asian Olefins and Derivatives
(China), President, BP North America Natural Gas Liquids (United States), Head of Operating
Management System Excellence for BP Group (United Kingdom, Global) and Head of Safety &
Operational Risk, BP Downstream (United Kingdom, Global).
Ms Johns brings to the Board her broad experience in the chemicals and energy sectors,
having worked and led teams in multiple jurisdictions and executive roles during her
extensive career. Her global experience includes a deep understanding of the strategic and
operational issues facing companies in cyclical and commodity-based businesses.
Ms Johns is currently serving on the International Fertilizers Association Board of Directors and
was recently awarded honoree status to the American Australian Association, recognising her
commitment to enhancing relations and the economic partnership between the two countries.
Directorships of listed entities within the past three years:
• Director, Tate & Lyle plc (October 2016 – October 2017)
• Non-executive Director, Parsons Corporation (July 2014 – October 2017)
Rebecca McGrath BTP(Hons),
MASc, FAICD
Non-executive director
Chairman of the Health, Safety,
Environment and Community
Committee
Member of the Audit and Risk
Management Committee
Member of the Nominations
Committee
Ms McGrath was appointed as a director on 15 September 2011. Ms McGrath is currently
Chairman of Oz Minerals Ltd. She is a non-executive director of Goodman Group, a non-
executive director of ICPF Holdings Limited, independent Chairman of Scania Australia Pty Ltd,
Chairman of Kilfinan Australia and a Member of the Director Advisory Panel of the Australian
Securities and Investments Commission (ASIC).
During her 23 year career with BP plc, Ms McGrath held a number of senior roles including as
Chief Financial Officer and Executive Board member for BP Australia and New Zealand.
Ms McGrath brings to the Board over 20 years’ experience in the international oil industry, senior
executive experience in operations and finance, an operational and strategic understanding of
occupational health and safety both as an executive and as a director and experience gained
through significant exposure to manufacturing and supply chain management.
Directorships of listed entities within the past three years:
• Director, Goodman Group (since April 2012)
• Director, Oz Minerals Limited (since November 2010) and Chairman (since May 2017)
• Director, CSR Limited (February 2012 to October 2016)
Directors’ Report
35
Incitec Pivot Limited Annual Report 2019
Name, qualifications and
special responsibilities
Experience
Kathryn Fagg AO FTSE,
BE(Hons), MCom(Hons),
Hon.DBus(UNSW), Hon.
DChemEng(UQ)
Non-executive director
Chairman of the Remuneration
Committee
Member of the Health, Safety,
Environment and Community
Committee
Ms Fagg was appointed as a director on 15 April 2014. Ms Fagg is Chairman of Boral Limited,
a non-executive director of Djerriwarrh Investments Limited and a board member of the
Commonwealth Scientific and Industrial Research Organisation (CSIRO). Ms Fagg is the
Chairman of the Breast Cancer Network Australia (BCNA), as well as being a board member
of the Grattan Institute, The Myer Foundation and the Male Champions of Change. Ms Fagg
was previously a non-executive member of the Reserve Bank of Australia, Chair of the
Melbourne Recital Centre, President of Chief Executive Women and President of Corporate
Development at Linfox Logistics Group. Prior to that, Ms Fagg held executive roles with
BlueScope Steel and Australia and New Zealand Banking Group. Ms Fagg was also a
consultant with McKinsey and Co. after commencing her career as a chemical engineer.
Ms Fagg was made an Officer of the Order of Australia (AO) in the Queen’s Birthday Honours
in 2019 for distinguished service to business and finance, to the central banking, logistics
and manufacturing sectors, and to women.
Ms Fagg brings to the Board extensive executive experience across a range of industries in
Australia and Asia, including logistics, manufacturing, resources, banking, professional
services and strategy consulting, as well as her experience in managing international
subsidiaries for global businesses.
Directorships of listed entities within the past three years:
• Director, Boral Limited (since September 2014) and Chairman (since July 2018)
• Director, Djerriwarrh Investments Limited (since May 2014)
Joseph Breunig BS(Chemical
Engineering), MBA
Non-executive director
Member of the Health, Safety,
Environment and Community
Committee
Mr Breunig was appointed as a director on 5 June 2017. Mr Breunig is a U.S. resident and is
currently a non-executive director of Mineral Technologies Inc and the Chief Operating Officer
of OrthoLite, LLC. Mr Breunig was previously Executive Vice President, Chemicals at Axiall
Corporation (formerly Georgia Gulf Corporation) and, prior to that, spent 24 years at BASF
Corporation where he held a number of senior executive positions including Executive Vice
President and Chief Operating Officer, BASF Corporation, and President, Market and Business
Development, North America, BASF SE.
Mr Breunig brings considerable North American experience to the Board, as well as
extensive leadership experience across industrial chemical manufacturing and process
safety management.
Directorships of listed entities within the past three years:
• Director, Mineral Technologies Inc. (since November 2014)
Bruce Brook BCom, BAcc, FCA,
MAICD
Non-executive director
Chairman of the Audit & Risk
Management Committee
Member of the Remuneration
Committee
Member of the Nominations
Committee
Mr Brook is a non-executive director of CSL Limited and Newmont Goldcorp Corporation.
During his executive career, Mr Brook was the Chief Financial Officer of Western Mining
Corporation Resources Limited and Deputy Chief Financial Officer of the Australia & New
Zealand Banking Group. Mr Brook is also a Board member of Guide Dogs Victoria.
Mr Brook brings to the Board extensive executive experience in Australia, America, the UK
and Africa, across a range of industries including mining, finance, manufacturing and
chemicals.
Directorships of listed entities within the past three years:
• Director, CSL Limited (since August 2011)
• Director, Newmont Goldcorp Corporation (since October 2011)
During the year:
• Mr Brook was appointed a director on 3 December 2018;
• Mr Smorgon AM retired as a director on 20 December 2018 (at the conclusion of the Company’s 2018 Annual General Meeting);
and
• Mr Brasher retired as a director and Chairman of the Board on 30 June 2019.
On 15 October 2019 the Company announced:
• the appointment of Dr Liu and Mr Robinson to take effect on 25 November 2019; and
• that Ms Fagg AO will retire as a director on 20 December 2019 (at the conclusion of the Company’s 2019 Annual General Meeting).
36
Incitec Pivot Limited Annual Report 2019
Directors’ Report
Directors’ meetings
The number of Board and Board Committee meetings attended by each of the directors of the Company during the financial year
are listed below:
Board
Audit and
Risk Management Remuneration Nominations
Health, Safety,
Environment and
Community
Additional
Meetings
(3)
Director – Current
(1,2)
Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended
B Kruger
(4)
8
8
5
5
5
5
4
4
8
7
J Breunig
(5)
8
8
4
4
4
2
B Brook
(6)
7
7
4
4
4
4
1
1
4
3
K Fagg AO
8
8
5
5
4
4
4
4
R J McGrath
8
8
5
5
4
4
4
4
4
4
J M Johns
8
8
4
4
8
8
Director – Former
P V Brasher
(7)
6
6
1
1
3
3
7
7
G Smorgon AM
(8)
2
1
1
1
–
–
Chairman Member
(1) ‘Held’ indicates the number of meetings held during the period that the director was a member of the Board or Committee. Directors who are not members of the
Board Committees do attend Committee meetings from time to time. The above table reflects the meeting attendance of directors who are members of the
relevant Committee(s).
(2) ‘Attended’ indicates the number of meetings attended during the period that the director was a member of the Board or Committee.
(3) Reflects the number of additional formal meetings attended during the financial year by each director, including Committee meetings (other than the standing
Board Committees) where any two directors are required to form a quorum.
(4) Mr Kruger was appointed as Chairman of the Board effective 1 July 2019. Mr Kruger was also appointed Chairman of the Nominations Committee effective
1 July 2019. Mr Kruger was an apology for an additional Board meeting which was convened at short notice.
(5) Mr Breunig was an apology for two additional Board meetings which were convened at short notice.
(6) Mr Brook was appointed as a director on 3 December 2018 and as a member of the Audit & Risk Management Committee and Remuneration Committee with
effect from 20 December 2018. Mr Brook was subsequently appointed Chairman of the Audit & Risk Management Committee and a member of the Nominations
Committee with effect from 1 July 2019. Mr Brook was in transit and an apology for an additional Board meeting which was convened at short notice.
(7) Mr Brasher retired as a member of the Audit & Risk Management Committee on 20 December 2018. Mr Brasher subsequently retired as Chairman and as a director
on 30 June 2019.
(8) Mr Smorgon AM retired as a director on 20 December 2018.
Company Secretary
During the year, Ms Jennifer Neoh resigned as Acting Company
Secretary on 8 March 2019. The Board appointed Ms Tamara
Kayser as the interim Company Secretary from 8 March 2019
to 7 August 2019, and Ms Richa Puri was appointed to the role
of Company Secretary from 8 August 2019. Ms Puri (LLB
(Hons), B. Com (Accounting), FGIA) is a corporate lawyer and
governance adviser with over 15 years relevant professional
experience. She has practiced as a lawyer for legal firms in
Australia and has significant experience in providing in-house
legal, governance and company secretarial advice to ASX listed
companies.
Directors’ interests in share capital
The relevant interests of each director in the share capital of
the Company as at the date of this report is disclosed in the
Remuneration Report.
Dividends
Dividends since the last annual report:
Type
Cents
per
share
Total
amount
$mill
Franked/
Unfranked
Date of
payment
Paid during the year
2018 final dividend 6.2 101.1 20% franked
17 December 2018
2019 interim dividend 1.3 21 unfranked
1 July 2019
To be paid after
end of year
2019 final dividend 3.4 54.6 30% franked 8
January 2020
Dealt with in the
financial report as: Note $mill
Dividends 6 121.7
Subsequent event 23 54.6
37
Incitec Pivot Limited Annual Report 2019
Principal activities
The principal activities of the Group during the course of the
financial year were the manufacture and distribution of
industrial explosives, industrial chemicals and fertilisers,
and the provision of related services. No significant changes
have occurred in the nature of these activities during the
financial year.
Significant changes in the state of affairs
There have been no significant changes to the Group’s state
of affairs during the financial year.
Events subsequent to reporting date
In October 2019, US$500m Notes in the Private Placement
Market were funded with US$250m maturing 30 October 2028
and US$250m maturing 30 October 2030.
In November 2019, the directors determined to pay a final
dividend for the Company of 3.4 cents per share, 30 percent
franked, to be paid on 8 January 2020. The record date for
entitlement to this dividend is 2 December 2019. The total
dividend payment of $54.6m will be paid in cash or as part
of the Dividend Reinvestment Plan which has been
reinstated at a discount of 2 percent (refer to note 6).
Other than the matters reported on above, the directors have
not become aware of any other significant matter or
circumstance that has arisen since the end of the financial year,
that has affected or may affect the operations of the Group, the
results of those operations, or the state of affairs of the Group
in subsequent years, which has not been covered in this report.
Likely developments
The Operating and Financial Review contains information on
the Company’s 2019 financial performance and prospects for
future financial years, and refers to likely developments in the
Company’s operations and the expected results of these
operations in future financial years. Information on likely
developments in the Company’s operations for future financial
years and the expected results of those operations together
with details that could give rise to material detriment to the
Company (for example, information that is commercially
sensitive, confidential or could give a third party a commercial
advantage) have not been included in this report where the
directors believe it would likely result in unreasonable
prejudice to the Company.
Environmental regulation and performance
The operations of the Group are subject to environmental
regulation under the jurisdiction of the countries in which
those operations are conducted including Australia, United
States of America, Mexico, Chile, Canada, Indonesia, Papua
New Guinea and Turkey. The Group is committed to complying
with environmental legislation, regulations, standards and
licences relevant to its operations.
The environmental laws and regulations generally address
certain aspects and potential impacts of the Group’s activities
in relation to, among other things, air and noise quality, soil,
water, biodiversity and wildlife.
The Group operates under a Global Health, Safety and
Environment Management System which sets out guidelines
on the Group’s approach to environmental management,
including a requirement for sites to undertake an
Environmental Site Assessment.
In certain jurisdictions, the Group holds licences for some of its
operations and activities from the relevant environmental
regulator. The Group measures its compliance with such
licences and reports statutory non-compliances as required.
Measurement of the Group’s environmental performance,
including determination of areas of focus and assessment of
projects to be undertaken, is based not only on the actual
impact of incidents, but also upon the potential consequence,
consistent with IPL’s risk based focus.
During the year, the Group has continued to focus on licence
compliance and identification and mitigation of environmental
risks. Remediation works have progressed at a number of sites
in the U.S. as dictated by regulatory approvals.
For the 2019 financial year, three significant environmental
matters arose, which were related to events from prior
financial years. In the first matter, the Group received a
civil penalty of US$492,000 and was ordered to provide
US$939,852 worth of emergency equipment to the local
community, relating to unplanned ammonia released in 2010
and 2015 and the alleged failure to accurately estimate and
report ammonia releases to the EPA’s Toxic Release Inventory.
In the second matter, the Group was convicted of four
environmental charges with regard to offsite releases at
Geelong in 2017, receiving a fine of $120,000. In the third
matter, the Group was prosecuted for a breach of licence
conditions in Townsville relating to the release of stormwater
with elevated levels of ammonia. This resulted in a fine
of $21,500.
During the 2019 financial year, the Group also received a
number of fines from the Queensland environmental regulator.
Three fines totalling $38,725 were incurred in connection with
stormwater releases at Phosphate Hill, one fine of $13,055
in connection with a sulphuric acid spill at Gibson Island and
one fine of $13,055 in connection with a sulphuric acid spill
at Mt Isa.
Indemnification and insurance of officers
The Company’s Constitution provides that, to the extent
permitted by law, the Company must indemnify any person who
is, or has been, a director or secretary of the Company against
any liability incurred by that person including any liability incurred
as an officer of the Company or a subsidiary of the Company and
legal costs incurred by that person in defending an action.
The Constitution further provides that the Company may enter
into an agreement with any current or former director or
secretary or a person who is, or has been, an officer of the
Company or a subsidiary of the Company to indemnify the
person against such liabilities.
In accordance with the Company’s Constitution, the Company has
entered into Deeds of Access, Indemnity and Insurance with each
director of the Company and certain members of senior
management. Pursuant to those deeds, the Company has paid a
premium in respect of a contract insuring directors and officers of
the Group against any liability for costs and expenses incurred by
them in defending civil or criminal proceedings involving them as
such officers, with some exceptions. The contract of insurance
prohibits disclosure of the nature of the liability insured against
and the amount of the premium paid.
38
Incitec Pivot Limited Annual Report 2019
Auditor
Deloitte Touche Tohmatsu was appointed as the Company’s
external auditor at the 2011 Annual General Meeting and
continues in office in accordance with section 327B(2) of the
Act. Mr Tim Richards is the Company’s lead audit partner for
the 2019 financial year.
Non-audit services
Deloitte Touche Tohmatsu has provided non-audit services to
the amount of $422,480 during the year ended 30 September
2019 (refer to note 22 to the financial statements).
As set out in note 22 to the financial statements, the Audit and
Risk Management Committee must approve individual non-
audit engagements provided by Deloitte Touche Tohmatsu
above a value of $100,000, as well as the aggregate amount
exceeding $250,000 per annum. Further, in accordance with its
Charter, during the year the Committee has continued to
monitor and review the independence and objectivity of the
auditor, having regard to the provision of non-audit services.
Based on the advice of the Audit and Risk Management
Committee, the directors are satisfied that the provision of
non-audit services, during the year, by the auditor (or by
another person or firm on the auditor’s behalf) is compatible
with the general standard of independence for auditors
imposed by the Act and does not compromise the external
auditor’s independence.
Lead Auditor’s Independence Declaration
The lead auditor has provided a written declaration that no
professional engagement for the Group has been carried out
during the year that would impair Deloitte Touche Tohmatsu’s
independence as auditor.
The lead auditor’s independence declaration is set out on page
60 and forms part of this report.
Rounding
The Company is of a kind referred to in ASIC Legislative
Instrument, ASIC Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191 issued by the Australian
Securities and Investments Commission dated 24 March 2016
and, in accordance with that Legislative Instrument, the
amounts shown in this report and in the financial statements
have been rounded off, except where otherwise stated, to the
nearest one hundred thousand dollars.
Corporate Governance Statement
The key features of the Company’s corporate governance
framework are set out in the Corporate Governance Statement,
which is available at www.incitecpivot.com.au/Corporate_
Governance.
The Directors’ Report, which includes the Operating and
Financial Review and the Remuneration Report, is signed in
accordance with a resolution of the directors of Incitec Pivot
Limited.
Brian Kruger
Chairman
Melbourne, 12 November 2019
Directors’ Report
Introduction from the Chairman of the Remuneration Committee
Dear Shareholders,
On behalf of Incitec Pivot Limited’s (IPL or the Company) Remuneration Committee and the Board, I am pleased to present the
Remuneration Report for 2019 which sets out the remuneration information for the Managing Director & Chief Executive Officer,
Executive Key Management Personnel (KMP) and the Non-Executive Directors.
Our approach
The Remuneration Committee aims to ensure our remuneration framework delivers aligned outcomes between company and
individual performance as well as IPL’s long-term strategy and values. The 2019 financial year has been a challenging one for IPL,
with company results reflected in the remuneration outcomes for Executives.
Executive changes in the 2019 financial year
Two new Executive KMP joined IPL during 2019. Tim Wall was appointed to the role of President, Global Manufacturing on
1 November 2018, and Stephan Titze commenced in the role of President, Incitec Pivot Fertilisers on 16 January 2019. Accordingly,
the 2019 Remuneration Report reflects only part year remuneration for our two new appointees.
Fixed remuneration
The Managing Director & Chief Executive Officer received a 2.5% increase to her fixed annual remuneration during the year, her
first increase since joining IPL in October 2017. No other Executive received an uplift in fixed remuneration in 2019.
More information on fixed remuneration for the 2019 financial year is provided in section 4.2 of this report.
Short-term incentive
As highlighted in last year’s Remuneration Report, the Remuneration Committee undertook a comprehensive review of market
remuneration practices in 2018. This resulted in significant change to the structure of IPL’s short term incentive (STI) program and
the way in which it interacts with a newly created Minimum Shareholding Requirement (MSR) for Executives.
The STI framework has been updated to incorporate both headline and adjusted financial performance measures, which sees a
portion of STI opportunity adjusted for foreign exchange and commodity price movements. Mandatory deferral of STI has been
introduced that remains in place until an individual’s MSR has been achieved. Shares that satisfy an individual’s MSR through the
STI deferral mechanism are unable to be sold for up to 15 years, no matter the value they may increase to.
An important aspect underpinning the Executive STI program is that no payments are made for the financial and strategic/
customer component if a designated Group financial STI Gate is not achieved. In addition, the Board retains a discretion to forfeit all
or part of the STI award payable for the Zero Harm performance condition in the event of a fatality or major safety incident.
In the 2019 financial year, the Group financial STI Gate was not achieved. This resulted in STI outcomes of 0% across the Executive
KMPs, compared to 81% of maximum opportunity last year. This variability in outcome demonstrates the strong alignment between
IPL’s financial performance and Executive remuneration outcomes.
More information on the Company’s 2019 performance and resulting STI outcomes is provided in section 4.3 of this report.
Long-term incentive
For the long term incentive (LTI) plan with the performance period ending on 30 September 2019 (i.e. the 2016–2019 LTI grant), the
performance conditions were relative Total Shareholder Returns (TSR) (weighted at 40%); Growth in Return on Equity (ROE) (weighted
at 30%); and the delivery of Strategic Initiatives (weighted at 30%). No performance rights will vest for the TSR component, as the
Company delivered relative Total Shareholder Returns slightly below the median of the S&P/ASX 100 for the performance period. No
performance rights relating to the ROE objective will vest, as the minimum level of ROE performance was not achieved. There will be
partial vesting of 20% of performance rights emanating from achievements pertaining to the Strategic Initiatives measures.
More information on the LTI program, including the 2016 – 2019 performance, is provided in section 4.4 of this report.
Special Discretionary Bonus
A special discretionary bonus equal to 10% of fixed remuneration has been awarded to Mr Greg Hayne in recognition of an
exceptional customer-driven outcome for the Australian business.
More information on this Special Discretionary Bonus is provided in section 4.5 of this report.
2020 Remuneration framework
A change has been made to the LTI Plan, effective for the 2019 – 2022 LTI grant. The ROE measure has been replaced by a Return
on Invested Capital (ROIC) measure. ROIC has been selected as it is a key determinant of efficient use of the capital entrusted to
management by shareholders. It also reflects factors that improve shareholder value, including operational efficiency, capital
efficiency, asset utilisation and profitability.
As highlighted in last year’s report, a separate minimum shareholding requirement will be operating for Non-Executive Directors in 2020.
These changes have no impact on the remuneration outcomes for the 2019 financial year, as presented within this document.
More information on the changes to the 2020 Remuneration framework can be found in section 5 of this report.
The Board invites you to consider the 2019 Remuneration Report. We welcome feedback on any aspect of the included content.
Kathryn Fagg AO
Chairman, Remuneration Committee
Remuneration Report
39
Incitec Pivot Limited Annual Report 2019
40
Incitec Pivot Limited Annual Report 2019
Remuneration Report
Contents
Section Page
1. Introduction 41
2. Executive Remuneration & Governance 42
2.1 Executive remuneration overview 42
2.2 Executive remuneration strategy 43
2.3 Executive remuneration governance 43
3. 2019 Executive Remuneration Framework 43
3.1 Overview 43
3.2 Fixed annual remuneration 43
3.3 Short term incentive 44
3.4 Long term incentive 46
3.5 LTI performance conditions 47
3.6 Executives Service Agreement Terms 49
4. Remuneration outcomes in 2019 financial year and link to
2019 financial year performance
50
4.1 Analysis of relationship between the Company’s performance, shareholder wealth and remuneration 50
4.2 2019 Fixed annual remuneration outcomes 51
4.3 2019 STI Outcomes 51
4.4 LTI 2016/19 Outcomes 52
4.5 Special Discretionary Bonus 52
4.6 Performance related remuneration 53
4.7 Further details of Executive remuneration 55
5. Overview of remuneration changes for the 2020 financial year 57
6. Non-Executive Director Remuneration 58
7. Shareholdings in IPL 59
8. Other KMP Disclosures 59
41
Incitec Pivot Limited Annual Report 2019
1. Introduction
The directors of Incitec Pivot Limited (IPL or the Company) present the Remuneration Report prepared in accordance with the
Corporations Act 2001 (Cth) for the Company for the year ended 30 September 2019. This Remuneration Report is audited.
This Remuneration Report sets out remuneration information for Key Management Personnel (KMP) who had authority and
responsibility for planning, directing and controlling the activities of the Company during the 2019 financial year, being each of the
Non-Executive Directors and designated Executives. The use of the term “Executives” in this report is a reference to the Managing
Director & Chief Executive Officer (MD&CEO) and certain direct reports during the 2019 financial year. Refer to Table 1 below for all
individuals comprising IPL’s KMP for the 2019 financial year. All KMP held their positions for the entirety of the 2019 financial year,
unless noted otherwise.
Table 1: Individuals forming IPL’s KMP for the reporting period
Non-Executive Directors
Current
Mr Brian Kruger
(1)
Chairman and Independent, Non-Executive Director
Mr Joseph Breunig Independent, Non-Executive Director
Mr Bruce Brook
(2)
Independent, Non-Executive Director
Ms Kathryn Fagg AO Independent, Non-Executive Director
Ms Rebecca McGrath Independent, Non-Executive Director
Former
Mr Paul Brasher
(3)
Chairman and Independent, Non-Executive Director
Mr Graham Smorgon AM
(4)
Independent, Non-Executive Director
Executives
Current
Ms Jeanne Johns Managing Director & Chief Executive Officer
Mr Frank Micallef Chief Financial Officer
Mr Tim Wall
(5)
President, Global Manufacturing
Mr Greg Hayne President, Dyno Nobel Asia Pacific
Mr Nicholas Stratford President, Dyno Nobel Americas
Mr Stephen Titze
(6)
President, Incitec Pivot Fertilisers
Former
Mr Alan Grace
(7)
President, Global Manufacturing
(1) Mr Kruger was appointed to the role of Chairman commencing from 1 July 2019.
(2) Mr Brook commenced as an Independent, Non-Executive Director on 3 December 2018.
(3) Mr Brasher retired and ceased being Chairman and Independent, Non-Executive Director on 30 June 2019.
(4) Mr Smorgon retired as an Independent, Non-Executive Director on 20 December 2018.
(5) Mr Wall was appointed in the role of President, Global Manufacturing commencing on 1 November 2018.
(6) Mr Titze commenced in the role of President, Incitec Pivot Fertilisers on 16 January 2019.
(7) Mr Grace resigned and ceased being President, Global Manufacturing on 31 October 2018.
42
Incitec Pivot Limited Annual Report 2019
Remuneration Report
2. Executive Remuneration & Governance
2.1 Executive remuneration overview
In alignment with its remuneration strategy, the Board’s policy on Executive remuneration is that it comprises both a fixed
remuneration component (FAR) and an “at risk” or performance-related component (short term incentive (STI) and long term
incentive (LTI)) where:
(i) the majority of Executive remuneration is “at risk”; and
(ii) the level of FAR for Executives is benchmarked against that paid for similar positions at the median of companies in a
comparator group with a range of market capitalisations (50% – 200% of that of the Company).
A summary of the Company’s approach to Executive remuneration for the 2019 financial year, including performance conditions
and their link to the overall remuneration strategy is set out below:
Performance Conditions Remuneration Strategy/Performance Link
Fixed Annual
Remuneration
Salary and
other benefits
(including statutory
superannuation).
Refer section 3.2 for
more details
Considerations
•
Scope of individual’s role
•
Individual’s level of knowledge, skills and expertise
•
Company and individual performance
•
Market benchmarking
Set to attract, retain and motivate the right talent
to deliver on IPL’s strategy and contribute to the
Company’s financial and operational performance.
For the Company’s Executives, the aim is to set
fixed remuneration at market relevant levels and
link any future increases to individual performance
and effectiveness whilst continuing to have regard
to market relevance.
Short Term Incentive
Annual incentive
opportunity delivered
50 – 100% in cash/
restricted shares for the
MD&CEO (dependent
on the level of
Minimum Shareholding
Requirement achieved)
and 75 – 100% in
cash/restricted shares
(dependent on the
level of Minimum
Shareholding
Requirement achieved)
for all other Executives.
Refer section 3.3 for
more details
Zero Harm
The award payable for the Zero Harm performance
condition may be forfeited in the event of a fatality
or major incident having regard to its circumstances.
To align with the Company’s commitment to
“Zero Harm for Everyone, Everywhere”.
Safety measures
(generally 10% of STI award)
•
Safety performance balanced scorecard across
the dimensions of behavioural safety and
process safety management comprising input
and output measures
In assessing the safety balanced scorecard, the
Board may, in its discretion, have regard to the
results achieved against the measures comprising
the scorecard without applying a specific
weighting to any particular measure.
Net Profit After Tax (NPAT) ‘gate’
Minimum NPAT performance level that must be
achieved before any non-safety component of the
STI is payable.
•
Requires achievement of a designated Group
NPAT as determined by the Board
To align with the Company’s strategic intent of
achieving top quartile performance as measured
against S&P/ASX 100 companies.
Financial measures
(generally a maximum of 80% of STI award,
incorporating metrics relevant to an Executive’s
area of influence)
•
Group NPAT
•
Group Adjusted NPAT
•
Business Unit Adjusted EBIT (earnings before
interest and tax)
To ensure robust alignment of performance in
a particular Business Unit with reward for the
Executive managing that business unit.
Performance conditions are designed to support
the financial direction of the Company (the
achievement of which is intended to translate
through to shareholder return) and are clearly
defined and measurable.
Strategic objectives
(for most of the Executives, a maximum of 10% of
STI award) aligned to personal strategic objectives.
Key strategic and growth objectives targeted at
delivering ongoing benefit to the Company.
Long Term Incentive
Three-year incentive
opportunity delivered
through performance
rights.
Refer section 3.4 and
3.5 for more details
Performance conditions
Distinct categories of performance that are weighted
to align with the Group’s focus over the three-year
period that each tranche of the plan spans.
•
Relative total shareholder returns
•
Strategic initiatives
•
Return on equity
Performance conditions designed to encourage
Executives to focus on the key performance
drivers which underpin sustainable growth in
shareholder value. The mix of performance
conditions is designed to ensure the share price
growth is supported by the Company’s ROE growth
performance as well as strategic initiatives, and
not market factors alone.
Total Remuneration
The combination of these elements is designed to attract, retain and motivate appropriately qualified and experienced individuals, encourage
a strong focus on performance, support the delivery of outstanding returns to shareholders and align Executive and stakeholder interests
through share ownership.
3. 2019 Executive Remuneration Framework
3.1 Overview
The charts below set out the theoretical breakdown of the Executives’ total remuneration package for the 2019 financial year. The
FAR component is inclusive of cash and superannuation only, whilst “at risk” compensation is based on maximum entitlement that
could potentially be awarded under the STI and LTI plans.
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Incitec Pivot Limited Annual Report 2019
3.2 Fixed annual remuneration
Executives receive their fixed remuneration in a variety of forms, including cash, superannuation, and any applicable fringe
benefits. The Executives’ FAR is set by reference to appropriate benchmark information for each Executive’s role, level of
knowledge, skill, responsibilities and experience. The level of remuneration is reviewed annually in alignment with the financial
year and with reference to, among other things, Company and individual performance and market data provided by an
appropriately qualified and independent external data specialist.
At Risk
75%
Fixed
25%
STI – cash/
restricted shares
38%
LTI
37%
FAR
25%
At Risk
67%
Fixed
33%
STI – cash/
restricted shares
40%
LTI
27%
FAR
33%
At Risk
75%
Fixed
25%
STI – cash/
restricted shares
38%
LTI
37%
FAR
25%
At Risk
67%
Fixed
33%
STI – cash/
restricted shares
40%
LTI
27%
FAR
33%
MD & CEO Other Executives
2.2 Executive remuneration strategy
IPL’s purpose is to make people’s lives better by unlocking the world’s natural resources through innovation on the ground. IPL’s
Strategic Value Drivers underpin the Company’s business and form the platform for the Company’s future earnings growth and
shareholder returns. One of IPL’s Strategic Value Drivers is Talented and Engaged People. IPL recognises that to generate
competitive returns for its shareholders, it requires talented people who are capable, committed and motivated. IPL’s remuneration
strategy is designed to support the objectives of the business and to enable the Company to attract, retain and reward Executives
of the necessary skill and calibre.
The key principles of the Company’s remuneration strategy are to:
• reward strategic outcomes at both the Group and business unit level that create top quartile long term shareholder value;
• encourage integrity and disciplined risk management in business practice;
• drive strong alignment with shareholder interests through delivering part of the reward in the form of equity;
• structure the majority of executive remuneration to be “at risk” and linked to demanding financial and non-financial
performance objectives;
• attract and retain the best available talent;
• reward Executives for high performance within their role and responsibilities, and ensure rewards are competitive within the
industry and market for their role in respect of pay level and structure; and
• ensure the remuneration framework is simple, transparent and easily implemented.
2.3 Executive remuneration governance
The remuneration of the Executives is set by the Board, having regard to recommendations from the Remuneration Committee.
Where appropriate, the Remuneration Committee of the Board engages external advisors to provide input to the process of
reviewing Executive and Non-Executive Director remuneration. For the 2019 financial year, the Remuneration Committee received
market and benchmarking data from various sources, but this information did not constitute a remuneration recommendation for
the purposes of the Corporations Act 2001 (Cth).
Further information in relation to the Board and the Remuneration Committee can be found in IPL’s Corporate Governance
Statement available on IPL’s website.
44
Incitec Pivot Limited Annual Report 2019
Remuneration Report
3.3 Short term incentive
The STI is an annual “at risk” incentive which is dependent on the achievement of particular performance measures.
The following table summarises the STI plan that applied in the 2019 financial year (2019 STI):
What was the
performance
period?
The performance period for the 2019 STI was the financial year from 1 October 2018 to
30 September 2019.
Who was eligible
for the STI?
Participation was at the Board’s discretion. The MD&CEO and all other Executives participated in the
2019 STI.
What was the
target and
maximum STI
opportunity?
Target STI opportunity was 100% of FAR for the MD&CEO, and 60% of FAR for all other Executives.
Maximum STI opportunity (for stretch outcomes) was 150% for the MD&CEO, and 120% of FAR for all
other Executives.
What were the
Performance
Conditions and
Measures?
Performance conditions under the STI are determined by the Board for each financial year. The
performance conditions for the 2019 STI are set out below:
Performance
Conditions
Measures to assess satisfaction
of Performance Condition
Rationale for the
Performance Conditions
Group Financial
Performance
Group NPAT (Net Profit After Tax).
Group Adjusted NPAT
(1)
(Net Profit After Tax).
To align with the Company’s strategic intent of
achieving top quartile performance as measured
against S&P/ASX 100 companies
Business Unit
Financial
Performance
Business Unit Adjusted EBIT
(1)
(Earnings
Before Interest and Tax).
Manufacturing reliability
To ensure robust alignment of performance in a
particular business unit with reward for the
Executive managing that business unit.
Zero Harm
Safety performance balanced scorecard across
the dimensions of behavioural safety and
process safety management comprising input
and output measures.
(2)
To align with the Company’s commitment to “Zero
Harm for Everyone, Everywhere”. In 2017, the
Company adopted its second five-year Global HSE
Strategy to continue to drive improvement in the
Group’s health, safety and environmental
performance.
Strategic
Outcomes
Measures based on performance criteria for
the execution and implementation of strategic
objectives and business priorities. These
include measures related to manufacturing
turnaround performance, product innovation,
customers and organic growth.
Tailored to individual Executive’s role, to drive
performance and behaviours consistent with
achieving critical aspects of the Group’s strategy.
(1) Adjusted for foreign exchange and commodity price movements.
(2) In assessing the safety balanced scorecard, the Board may, in its discretion, have regard to the results achieved against the measures
comprising the scorecard without applying a specific weighting to any particular measure.
Where any Individually Material Item (IMI) is separately recognised in the financial report, the Board will
have discretion to include or exclude the IMI for the purpose of determining any STI award, taking into
account the nature of the IMI and having regard to whether, in the circumstances, it would be appropriate for
the IMI to be attributable to Management.
Satisfaction of the above measures was based on a review by the Board of the audited financial report and
performance of the Group for the financial year, following the annual performance review process for the
Executives.
Are there
minimum
performance
levels which
must be
achieved
before awards
can be made
under the STI?
To ensure STI awards are aligned with business performance outcomes, the Board has determined that
a minimum level of financial performance, known as the “STI Financial Gate”, must be met before any
awards can be made. If financial performance does not meet the STI Financial Gate, no awards are made
under the STI, save that the STI Financial Gate does not apply to any awards payable in relation to the Zero
Harm performance condition, reflecting the primacy of safety.
For the 2019 financial year, the STI Financial Gate reflected a requirement to exceed a designated level of
the Group’s NPAT performance. In relation to the Zero Harm performance condition, the Board retains a
discretion to forfeit all or part of the award payable for this performance condition in the event of a fatality
or major incident having regard to the circumstances of the incident.
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Incitec Pivot Limited Annual Report 2019
What were the
weightings for
the STI
performance
measures?
The weighting of Executives’ STI performance measures (as a percentage of 100%) for 2019 were:
Table 2
Financial
Non-financial/
Business/Strategic
As a
percentage
of Maximum
opportunity
Group
NPAT
Group
Adjusted
NPAT
Business
Unit
Adjusted
EBIT
Safety Strategic
Outcomes
Executives – Current
J Johns*
Managing Director & CEO
50% 30% 10% 10% 100%
F Micallef*
Chief Financial Officer
50% 30% 10% 10% 100%
T Wall**
President, Global Manufacturing
40% 40% 10% 10% 100%
G Hayne**
President, Dyno Nobel Asia Pacific
40% 40% 10% 10% 100%
N Stratford**
President, Dyno Nobel Americas
40% 40% 10% 10% 100%
S Titze**
President, Incitec Pivot Fertilisers
40% 40% 10% 10% 100%
Executives – Former
A Grace**
(1)
President, Global Manufacturing
40% 40% 10% 10% 100%
*Group role **Business Unit role
(1) Mr Grace ceased as a KMP on 31 October 2018 and was not a participant in the 2019 STI.
Is there an
STI deferral
component?
The 2019 financial year saw the introduction of a mandatory 25% STI deferral (50% for the MD&CEO) that
continues until an Executive’s Minimum Shareholding Requirement (MSR) is achieved. The MSR is 50% of
FAR for Executives (100% for the MD&CEO).
How is the STI
delivered?
The STI is delivered partly in cash and partly in the form of restricted shares. The split between cash and
restricted shares is determined based on each participant’s shareholding under the MSR.
Was there a
mechanism for
clawback?
The 2019 STI included a clawback provision, which requires the repayment of all or part of any STI awarded
within three years after a payment is made, in the event of a material misstatement or omissions in IPL’s
financial statement which results in a restatement of the audited financial report.
46
Incitec Pivot Limited Annual Report 2019
Remuneration Report
3.4 Long term incentive
The LTI is the long term incentive component of remuneration for Executives. The LTI is provided in the form of performance rights.
What LTI plans
were applicable
for the 2019
financial year?
The LTI Plans applicable to the 2019 financial year were the:
• Long Term Incentive Performance Rights Plan for 2016/19 (LTI 2016/19);
• Long Term Incentive Performance Rights Plan for 2017/20 (LTI 2017/20), and
• Long Term Incentive Performance Rights Plan for 2018/21 (LTI 2018/21);
(together, the LTI Plans).
Under the LTI Plans, participants are entitled to acquire ordinary shares in the Company, on a one right to
one share basis, for no consideration at a later date. The performance rights are issued by Incitec Pivot
Limited and the entitlement of the participants to acquire ordinary shares is subject to the satisfaction of
certain conditions. As no shares are provided to participants until vesting, performance rights have no
dividend entitlement. Performance rights expire on vesting or lapsing of the rights.
What is the
purpose of the
LTIs?
The LTI is designed to link reward with the key performance drivers which underpin sustainable growth
in shareholder value. As rights under the LTI Plans result in share ownership on the achievement of
demanding targets, the LTI ties remuneration to Company performance, as experienced by shareholders.
The arrangements also support the Company’s strategy for retention and motivation of the Executives.
What is the
process for
determining
eligibility?
The decision to grant performance rights under the LTI Plans and to whom they will be granted is made
annually by the Board, noting that the grant of performance rights to the MD&CEO is subject to shareholder
approval. Grants of performance rights to participants are based on a percentage of the relevant
Executive’s FAR.
What is the
maximum LTI
opportunity under
the LTI Plans?
The maximum LTI opportunities under each LTI Plan are:
• for the MD&CEO, 150% of FAR; and
• for all other Executives, 80% of FAR.
How was the
number of
performance
rights calculated
under the LTI
Plans?
For the LTI 2016/19, LTI 2017/20, and LTI 2018/21, the number of performance rights issued to a
participant was based on the market value of the Company’s shares and was determined by dividing the
dollar value of the relevant participant’s LTI opportunity by the Company’s volume weighted average share
price over the 20 business days up to but not including the first day of the relevant performance period.
What are the
performance
conditions,
performance
period and
status of the
LTI Plans?
LTI Plan Performance
Conditions
Weighting of
Performance
Condition
Performance
Period
Status
LTI 2016/19
• TSR Condition
• Strategic Initiatives
Condition
• ROE Growth Condition
40%
30%
30%
1 October 2016 to
30 September 2019
Performance period completed.
Following testing in October
2019, the Board determined that
20% of the performance rights
in total will vest. Refer to section
4.4 for further details.
LTI 2017/20
• TSR Condition
• Strategic Initiatives
Condition
• ROE Growth Condition
50%
15%
35%
1 October 2017 to
30 September 2020
Testing to occur after
completion of performance
period.
LTI 2018/21
• TSR Condition
• Strategic Initiatives
Condition
• ROE Growth Condition
40%
30%
30%
1 October 2018 to
30 September 2021
Testing to occur after
completion of performance
period.
The performance conditions are determined by the Board annually. Refer to section 3.5 for a discussion of
the performance conditions.
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Incitec Pivot Limited Annual Report 2019
3.5 LTI performance conditions
For the LTI 2016/19, LTI 2017/20 and LTI 2018/21, the performance conditions are measured by reference to the TSR Condition, a
Strategic Initiatives Condition and growth in Return on Equity (ROE Growth Condition). Details of the performance conditions for
each of the LTI 2016/19, LTI 2017/20 and LTI 2018/21 are set out below.
TSR Condition
The TSR Condition (applicable to each of LTI 2016/19, LTI 2017/20 and LTI 2018/21) requires growth in the Company’s TSR to be at
or above the median of the companies in the comparator group, being the S&P/ASX 100. This condition provides shareholder
alignment as it takes into account the Company’s share price movement as well as dividends paid, relative to other organisations
comparable to the Company. The S&P/ASX 100 has been chosen as the comparator group because, having regard to the business
segments in which the Company operates and, specifically, the absence of a sufficient number of direct comparator companies, the
Board considers the S&P/ASX 100 to represent the most appropriate, and objective, comparator group. It also represents the group
of companies against which the Company competes for shareholder capital. The Board has the discretion to vary the Comparator
Group at any time, including to remove companies from, or include companies in, the Comparator Group.
The table below sets out the TSR Condition, and the percentage of the performance rights that will vest based on satisfaction of
this condition.
Relative TSR ranking of IPL % of performance rights subject to the TSR Condition that will vest
Less than 50th percentile Nil
At or greater than 50th percentile but less than 75th percentile Pro rata from 50% on a straight-line basis
At 75th percentile or greater 100%
Strategic Initiatives Condition
The Strategic Initiatives Condition relates to the delivery of significant aspects of the Board approved strategy. For the LTI 2016/19
and LTI 2017/20, the Strategic Initiatives Condition relates solely to the Business Excellence System. For the LTI 2018/21, the
Strategic Initiatives Condition comprises components aligned with three of the Company’s strategic drivers: Manufacturing
Excellence, Technology Solutions and Customer Focus.
When are the
performance
conditions
measured?
After the expiry of the relevant performance period, the Board determines whether the performance
conditions of the relevant LTI Plans are satisfied. The performance conditions are tested once, at the end of the
relevant performance period. If the performance conditions are satisfied and the rights vest, the participant is
entitled to receive ordinary shares in the Company. The participant does not pay for those shares.
To the extent the performance conditions are not satisfied during the performance period, the performance
rights will lapse.
What happens
if a participant
leaves the
Company?
Generally, the performance rights granted under the LTI Plans will lapse on a cessation of employment
except where the participant has died, becomes totally and permanently disabled, is retrenched, retires or,
for the LTI 2017/20 and LTI 2018/21, is terminated without cause. In those circumstances (subject to Board
discretion), the performance rights will be reduced pro rata to the proportion of days worked during the
relevant performance period and will be tested in the ordinary course.
In what other
circumstances
may the
performance
rights vest
(which may be
before or after
the expiry of
the performance
period) under
the LTI Plans?
The Board may provide a notice to the participants specifying that the performance rights will vest at a
time stipulated in the notice on the occurrence of one of the following events in relation to the Company:
• a takeover bid;
• a change of control;
• the Court ordering a meeting be held in connection with a scheme for the reconstruction of the Company
or its amalgamation with any other companies; or
• a voluntary or compulsory winding-up.
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Incitec Pivot Limited Annual Report 2019
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The table below summarises the Strategic Initiatives Condition components for the LTI 2016/19, the LTI 2017/20 and the LTI 2018/21:
Strategic
Initiatives Condition
component
Rationale Scorecard
Measurement criteria Performance goals
Business Excellence
(BEx) System
(1)
BEx is the Company’s
business and continuous
improvement system,
through which the Company
seeks to enhance
productivity on a
sustainable basis utilising
“lean” business methods.
The LTI performance goals in
relation to BEx are focussed
on incentivising the delivery
of sustainable productivity
improvements, rather than
one-off benefits.
Performance in relation to this
component of the Strategic
Initiatives Condition will be
assessed against a Scorecard
comprising performance goals
related to:
• Business system maturity
(practices)
• Cumulative productivity
benefits (performance)
• Manufacturing volume
(performance)
Business system maturity:
For LTI 2016/19 and LTI 2017/20 – An absolute
improvement in Business Excellence system maturity
over the performance period, or satisfaction of an exit
score requirement at the end of the performance
period. This measure does not apply for LTI 2018/21.
Cumulative productivity benefits:
For LTI 2016/19, LTI 2017/20 and LTI 2018/21 –
Delivery of cumulative savings over the performance
period against targets approved by the Board.
Manufacturing plant uptime:
• For LTI 2016/19 – Plant uptime (adjusted for plant
age and scheduled outages) measured across
specified manufacturing plants, with target 75th
percentile performance.
• For LTI 2017/20 and LTI 2018/21 – Achievement
of target volumes of particular products at
specified manufacturing plants as approved by the
Board.
Customer, Practical
Technology &
Innovation
(CPT&I)
(1)
IPL’s growth strategy
includes providing value
added differentiated
products & services, and
innovations to meet the
challenges of customers, to
assure sustainable earnings
and maximise shareholder
return.
Performance in relation to this
component will be assessed
against a Scorecard comprising
performance goals related to:
• Revenues from technologies
• Company customer retention
and growth in footprint
Revenues from technologies:
For LTI 2018/21 – Annual growth in technology sales
from 2018 baseline.
Net Promoter Score (NPS):
For LTI 2018/21 – Improvement in NPS over 2019
baseline.
Key customer retention:
For LTI 2018/21 – Quantitative targets against 2018
baseline assessed by the Board.
(1) BEx applies to 30% of the performance rights in the LTI 2016/19 grant and 15% in the LTI 2017/20 grant. The applicable BEx components and CPT&I combined
apply to 30% of the performance rights in the grant for LTI 2018/21.
Details of the Scorecards and specific performance goals for each component of the Strategic Initiatives Condition were notified to
Executives on commencement of each applicable LTI plan. These performance goals involve commercial-in-confidence quantitative
targets and, as such, details of the performance goals are disclosed only at the end of the performance period. For the LTI
2016/19, these details are set out in section 4.4. For the LTI 2017/20 and LTI 2018/21, the relevant details will be set out in the
2020 Remuneration Report and the 2021 Remuneration Report respectively.
The Board will determine the outcome for the relevant component of the Strategic Initiatives Condition under each LTI plan having
regard to the results achieved against the performance goals across the entirety of the Scorecard for that component. If the Board
determines that all of the performance goals in respect of a component of the Strategic Initiatives Condition have been achieved,
all of the performance rights subject to that component will vest.
If not all performance goals in respect of a component of the Strategic Initiatives Condition are met over the performance period,
the extent to which that component of the Strategic Initiatives Condition has been satisfied (if at all) will be determined by the
Board. In doing so, the Board will have regard to the results achieved against the performance goals across all of the components
of the relevant Scorecard, without applying a specific weighting to any particular performance goal.
49
Incitec Pivot Limited Annual Report 2019
ROE Growth Condition
The ROE Growth Condition was introduced for the first time in 2016 and applies to the LTI 2016/19, LTI 2017/20 and LTI 2018/21.
The ROE Growth Condition measures the compound annual growth in ROE over the performance period. ROE was chosen as it is a
widely recognised and reported metric, is a key determinant of efficient use of the capital entrusted to management by
shareholders, reflects all of the levers to create shareholder value and is a transparent metric which can be calculated directly from
the Company’s financial report.
The table below sets out the ROE Growth Condition, and the percentage of performance rights that will vest based on satisfaction
of this condition:
ROE Compound Annual Growth Rate % of performance rights subject to the ROE Growth Condition that will vest
Less than 7% Nil
At or above 7% but less than 11% Pro rata from 50% on a straight-line basis
11% or greater 100%
3.6. Executives Service Agreement Terms
Remuneration and other terms of employment for the Executives are formalised in service agreements. Most Executives are
engaged on similar contractual terms, with minor variations to address differing circumstances. Each agreement is unlimited in
term; however, each agreement provides that the Company may terminate an Executive’s employment immediately for cause
without any separation payment, save for accrued amounts such as leave, or otherwise without cause, with or without notice, in
which case the Company must pay a separation payment plus accrued amounts such as leave.
The notice period to be provided by the Executives is set out in the table below:
Notice period to be provided by the Executive
Current Executives
J Johns
F Micallef
T Wall
G Hayne
N Stratford
S Titze
52 weeks
13 weeks
26 weeks
26 weeks
13 weeks
26 weeks
The separation payment included in each Executive’s contract is capped at an amount equivalent to a specified number of weeks
of FAR for the Executive. Ms Johns’ separation payment is equal to 52 weeks of FAR as at the date of termination (subject to the
provisions relating to termination benefits in Part 2D.2 of the Corporations Act 2001). All other Executives’ contracts provide for a
separation payment of 26 weeks of FAR, save for Mr Stratford’s and Mr Hayne’s contracts which provided for a separation payment
equal to 52 weeks of FAR (subject to the terminations provisions in the Corporations Act). Additionally, Mr Micallef’s contract further
provides that the Company may terminate the agreement on notice in the case of incapacity, in which case the Company must pay
the separation payment, outstanding fixed annual remuneration plus accrued annual leave and accrued long service leave. For Mr
Titze, if the Company terminates his employment within the first twelve months after the date on which his employment
commenced, it will provide twelve months’ notice (or payment in lieu for some or all of this period), and thereafter it must
provide six months’ notice (or payment in lieu).
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Incitec Pivot Limited Annual Report 2019
Remuneration Report
60
50
40
30
20
10
0
% %
50
40
30
20
10
0
IPL Percentile Ranking in ASX 100
IPL Absolute TSR
2015 2016 2017 2018 2019
IPL PERCENTILE RANKING IN ASX 100
IPL ABSOLUTE TSR
600
500
400
300
200
100
0
NPAT BEFORE IMIS AND EXCLUDING
NON-CONTROLLING INTERESTS
$mill $mill
7
6
2
3
1
5
4
0
Total STI awarded
NPAT before IMIs and excluding non-controlling interests
2015 2016 2017 2018 2019
TOTAL STI AWARDED
Group performance and STI outcomes IPL Absolute TSR % and ASX 100 Percentile Ranking
4. Remuneration outcomes in 2019 financial year and link to 2019 financial year performance
4.1 Analysis of relationship between the Company’s performance, shareholder wealth and remuneration
In considering the Company’s performance, the benefit to shareholders and appropriate remuneration for the Executives, the Board,
through its Remuneration Committee, has regard to financial and non-financial indices, including the indices shown in the below
table in respect of the current financial year and the preceding four financial years.
Table 3 – Indices relevant to the Board’s assessment of the Company’s performance and the benefit to shareholders
2015 2016 2017 2018 2019
NPAT before IMIs and excluding non-controlling interests ($m) 398.6 295.2 318.7 347.4 152.4
EPS before IMIs (cents) 23.8 17.5 18.9 20.9 9.5
Dividends per share (DPS) paid in the financial year (cents) 11.7 11.5 9.1 9.4 7.5
DPS declared in respect of the financial year (cents) 11.8 8.7 9.4 10.7 4.7
Share price ($) (Financial Year End)
(1)
3.90 2.82 3.60 3.98 3.39
TSR (%)
(2)
43 14 36 14 30
On-market share buyback ($m) – – – (210.3) (89.7)
(1) Share Price as at the end of the 2014 financial year was 2.71.
(2) TSR is calculated in accordance with the rules of the LTI 2012/15, LTI 2013/16, LTI 2014/17 LTI 2015/18 and LTI 2016/19 as applicable over the three-year
performance period, having regard to the volume weighted average price of the shares over the 20 business days up to but not including the first and last day of
the performance period.
Relationship between the Company’s performance and
STI outcomes
The graph below shows the relationship between the
Company’s performance and STI awards in respect of the
current and preceding four years. In the 2015 financial year,
NPAT (before IMIs and excluding non-controlling interest)
increased by 11.9% to $398.6m compared to the 2014
financial year and, as a result, certain Executives earned
awards in full in respect of this measure. For the 2016 financial
year, with NPAT (before IMIs and excluding non-controlling
interest) declining by 25.5% to $295.2m, no awards were
made under the 2016 STI, save in relation to the successful
completion of the Louisiana Ammonia Project as well as the
Company’s safety performance. For the 2017 financial year,
NPAT (before IMIs and excluding non-controlling interest)
increased 8% to $318.7m resulting in certain Executives
earning partial STI awards in respect of this measure. For the
2018 financial year, Group NPAT (before IMIs and excluding
non-controlling interest) increased 9.0% to $347.4m resulting
in Executives earning full STI awards in respect of this measure.
For the 2019 financial year, Group NPAT (before IMIs and
excluding non-controlling interest) has decreased 56.1% to
$152.4m resulting in Executives earning 0% STI awards in
respect of this measure.
Relationship between the Company’s performance and
LTI outcomes
The graph below shows the relationship between IPL’s
Absolute TSR and its percentile ranking relative to its S&P/
ASX 100 peer group. IPL outranked the 50th percentile TSR for
the ASX 100 peer group for the 2012-2015 performance
period with a 53rd percentile ranking (Absolute TSR: achieved
43%) and for the 2014-17 performance period with a 53rd
percentile ranking (Absolute TSR: achieved 36%). The 2015-
18 performance period achieved an Absolute TSR increase of
14%, delivering fourth quartile performance, and the 2016-19
performance period achieved an Absolute TSR increase of
30%, delivering 44th percentile performance. As a
consequence, the LTI 2012/15 and LTI 2014/17 partially
vested, the LTI 2015/18 did not vest and the LTI 2016/19 TSR
will not vest as outlined in section 4.4 of this report. The
performance rights in LTI 2013/16 plan did not meet the
performance conditions set out in the plans (including a TSR
condition) and lapsed. Positive TSR has been achieved in 5
out of the 5 periods reported.
Note: The absolute TSR for IPL and for the ASX100 has been calculated using the
methodology noted in footnote (2) Table 3.
51
Incitec Pivot Limited Annual Report 2019
Table 4 – Short term incentives awarded for the year ended 30 September 2019
Details of the vesting profile of the STI payments awarded for the year ended 30 September 2019 as remuneration to each
Executive are set out below:
Short term incentive for the year ended 30 September 2019
Cash STI
$000
Minimum share
holding allocation
(A)
$000
Included in
remuneration
$000
% earned of
maximum
opportunity
% forfeited of
maximum
opportunity
Executives – Current
J Johns – – – – 100
F Micallef – – – – 100
T Wall – – – – 100
G Hayne – – – – 100
N Stratford – – – – 100
S Titze – – – – 100
Deferred Short term incentive for the year ended 30 September 2019
Executives – Current
J Johns
(1)
– – 331 – –
T Wall
(2)
– – 172 – –
(A) Under the terms of the 2019 STI, to the extent that Executives have not achieved their Minimum Shareholding Requirement the following applies: 50% of the
MD&CEO’s award is delivered in cash and the remainder is delivered in restricted shares. For all other Executives, 75% of their award is delivered in cash and the
remainder is delivered in restricted shares. Cash is generally paid and shares generally allocated around December.
(1) Under the terms of the 2018 STI in which Ms Johns participated, the total STI award was $2.09m, of this 50% was paid in cash, and the remaining 50% awarded in
the form of performance rights. Subject to Ms Johns meeting a service condition, 25% of the award will vest on 30 November 2019 and 25% of the award will vest
on 30 November 2020. On each relevant vesting date and subject to satisfying the service condition, Ms Johns will receive the award amount in cash or fully paid
ordinary shares in the Company, as determined by the Board. The value of the rights is calculated at grant date using a Black Scholes option pricing model as
disclosed in the footnotes under Table 7. The expense accrual recorded in the 2019 financial year includes a write back of $19,827 to the 2018 STI accrual based on
the grant date valuation of performance rights issued on 5 February 2019.
(2) Mr Wall received special performance rights related to his employment, of which 50% will vest following testing in November 2019, with the remaining 50% to vest
in November 2020, subject to Mr Wall satisfying individual performance criteria. On each relevant vesting date and subject to satisfying the performance condition,
Mr Wall will receive the award amount in cash or fully paid ordinary shares in the Company, as determined by the Board. The value of rights is calculated at grant
date using a Black Scholes pricing model as disclosed in the footnotes under Table 7. Following testing in November 2019, the Board determined that 100% of the
performance rights relating to performance period 1 November 2018 to 30 September 2019 will vest. This will be reported in the 2020 Remuneration Report.
4.2 2019 Fixed annual remuneration outcomes
The FAR of the MD&CEO was reviewed and increased by 2.5% effective for 2019. All other Executives did not receive an increase to
FAR for the period, however, received an uplift to STI opportunity of 20% per person to align with market practice.
4.3 2019 STI Outcomes
Performance Condition Outcome
Group Financial Performance (NPAT) Group NPAT serves as the “gate” for all Financial and Strategic Outcomes within the STI Plan.
As performance was below the level necessary for the gate to open, no payment was made for
this, or any other Financial or the Strategic Outcomes component.
Group Financial Performance (Adjusted NPAT) As the Group NPAT Financial gate was not met, no payment was made for this component.
Business Unit Financial Performance As the Group NPAT Financial gate was not met, no payment was made for this component.
Zero Harm The balanced scorecard which applies to all Executive KMPs was partially met.
Consideration of the gate for this measure was applied by the Board and no payment was
made for this component.
Strategic Outcomes As the Group NPAT Financial gate was not met, no payment was made for this component.
The Board approved the STI outcomes in November 2019 with the outcomes reflected in the following table:
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Incitec Pivot Limited Annual Report 2019
Remuneration Report
Strategic Initiatives
Condition component
Commentary on Performance Against Scorecard Actual
Vesting (%)
Business Excellence
(BEx) System
The performance goals for the BEx scorecard comprised of non-financial input and financial and non-financial
output measures.
In relation to the input measures, the Business System Maturity outcomes were verified by independent
third parties and saw significant improvements in maturity, particularly in Integrated Business Planning (IBP).
Stretch performance was assessed to have resulted.
Cumulative productivity benefits of $226.3m were delivered, which exceeded the stretch objective
established against this measure.
Manufacturing Uptime targets were only partially met which resulted in an assessment of below threshold
performance.
Overall assessment: having regard to the outcomes in relation to the input and output measures, the Board
determined that the performance goals were partially delivered against the balanced scorecard.
66%
of Rights
for this
component
ROE Growth Condition
In relation to the ROE Growth Condition, the Company’s performance over the period did not achieve a 7% Compound Annual
Growth Rate. Accordingly, 0% of the performance rights granted subject to the ROE Growth Condition will vest (out of a maximum
30% of performance rights granted under the plan).
Overall, 20% of the Performance Rights allocated under the LTI 2016/19 will vest (with the remaining 80% to lapse).
The number of rights vested and lapsed will be reported in the 2020 Remuneration Report.
4.5 Special Discretionary Bonus
A special discretionary bonus equal to $62,000 (10% of fixed remuneration) has been awarded to Mr Greg Hayne. This bonus was
in recognition of an exceptional outcome for the Australian business, which saw value-added outcomes for IPL and its customers,
and building strategic partnerships through IPL’s technology offer. This payment is reflected in Table 7 of this report, under the
“Short Term Incentive & other bonuses” column.
4.4 LTI 2016/19 Outcomes
The performance period for the LTI 2016/19 ended on 30 September 2019. Following testing against the performance conditions,
in November the Board determined that 20% of the performance rights granted under the plan will vest. Details in relation to each
of the performance conditions are set out below.
TSR Condition
In relation to the TSR Condition, the Company’s relative TSR performance over the period did not achieve median performance of
the comparator group of S&P/ASX100 companies. Accordingly, 0% of the performance rights granted subject to the TSR Condition
will vest (out of a maximum of 40% of performance rights granted under the plan).
Strategic Initiatives Condition
In relation to the Strategic Initiatives Condition – the Board assessed this component against a balanced scorecard and determined
the outcome having regard to the results achieved for the performance goals across the entirety of the scorecard. The Board has
determined that 20% of the performance rights granted subject to this condition will vest (out of a maximum of 30% of
performance rights granted under the plan). Commentary on the performance against the scorecard is set out in the following table.
53
Incitec Pivot Limited Annual Report 2019
Modification of terms of equity-settled share-based payment transactions
No terms of equity-settled share-based payment transactions (including rights) granted to a KMP have been altered or modified by
the issuing entity during the reporting period.
Key Management Personnel Grant date
Granted
during 2019 as
remuneration
(A)
$000
Exercised
in year
$000
Vested
in year
%
Forfeited
in year
%
Financial
year in
which
grant
may vest
Maximum
value of
outstanding
rights
(B)
$000
Executives – Current
J Johns
Long term incentive rewards
LTI 2017/20 30 January 2018 – – – – 2020 1,820
LTI 2018/21 5 February 2019 1,605 – – – 2021 1,605
Short term incentive rewards
Performance period: 23 October 2017 to 30 November 2019 5 February 2019 445 – – – 2020 445
Performance period: 23 October 2017 to 30 November 2020 5 February 2019 432 – – – 2021 432
F Micallef
Long term incentive rewards
LTI 2015/18 21 January 2016 – 85 15 85 2018 –
LTI 2016/19 25 January 2017 – – – – 2019 855
LTI 2017/20 30 January 2018 – – – – 2020 567
LTI 2018/21 5 February 2019 501 – – – 2021 501
T Wall
Long term incentive rewards
LTI 2018/21 5 February 2019 399 – – – 2021 399
Short term incentive rewards
Performance period: 1 November 2018 to 30 September 2019 5 February 2019 116 – – – 2019 116
Performance period: 1 November 2018 to 30 September 2020 5 February 2019 112 – – – 2020 112
G Hayne
Long term incentive rewards
LTI 2017/20 1 March 2018 – – – – 2020 316
LTI 2018/21 5 February 2019 332 – – – 2021 332
N Stratford
Long term incentive rewards
LTI 2016/19 19 April 2017 – – – – 2019 736
LTI 2017/20 30 January 2018 – – – – 2020 476
LTI 2018/21 5 February 2019 443 – – – 2021 443
S Titze
Long term incentive rewards
LTI 2018/21 5 February 2019 314 – – – 2021 314
Executives – Former
A Grace
Long term incentive rewards
LTI 2015/18 21 January 2016 – 71 15 85 2018 –
LTI 2016/19 25 January 2017 – – – 26 2019 529
LTI 2017/20 30 January 2018 – – – 59 2020 193
(A) The value of rights granted in the year is the fair value of those rights calculated at grant date using a Black-Scholes option-pricing model. The value of these rights
is included in the footnotes under Table 7. This amount is allocated to the remuneration of each Executive over the vesting period (that is, in the 2019, 2020 and
2021 financial years).
(B) The maximum value of outstanding rights is based on the fair value of the performance rights at the grant date. This may be different to the value of the rights in
the event that they vest. The minimum value of rights yet to vest is zero, as the performance criteria may not be met.
Table 5 – Details of performance rights granted and vested in the year ended 30 September 2019 and the vesting profile of
performance rights granted as remuneration
LTI
Details of performance rights vested and forfeited set out in the table below relate to the performance rights granted under the LTI
2015/18 (performance period: 1 October 2015 to 30 September 2018) which, following testing in November 2018 resulted in the
Board determining that 15% vested. In relation to the LTI 2016/19 (performance period: 1 October 2016 to 30 September 2019),
following testing in November 2019, the Board determined that 20% of the performance rights will vest. This will be reported in
the 2020 Remuneration Report.
STI
Details of performance rights granted during 2019 as a result of short term incentive plans are set out in the table below.
4.6 Performance related remuneration
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Incitec Pivot Limited Annual Report 2019
Remuneration Report
Table 6 – Movements in rights over equity instruments in the Company
The movement during the reporting period in the number of rights over shares in the Company, held directly, indirectly or
beneficially, by each KMP, including their related parties, is as follows:
Number of Rights
Key Management Personnel Opening balance Granted as compensation
(A)
Vested
(B)
Forfeited
(C)
Closing balance
Executives – Current
J Johns
Long term incentive rewards 674,157 616,032 – – 1,290,189
Short term incentive rewards – 268,230 – – 268,230
F Micallef
Long term incentive rewards 661,218 192,060 (27,787) (157,460) 668,031
T Wall
Long term incentive rewards – 152,981 – – 152,981
Short term incentive rewards – 69,302 – – 69,302
G Hayne
Long term incentive rewards 116,907 127,313 – – 244,220
N Stratford
Long term incentive rewards 405,129 169,825 – – 574,954
S Titze
Long term incentive rewards – 120,443 – – 120,443
Executives – Former
A Grace
Long term incentive rewards 551,015 – (23,156) (292,177) 235,682
(A) For the 2019 financial year, this represents the rights granted to Executives during the reporting period under the LTI 2018/21. The grant date of rights under the LTI
2018/21 to Ms Johns was approved by shareholders at the Company’s 2018 Annual General Meeting. Ms Johns’ rights granted under the 2018 STI plan are for the
performance period 23 October 2017 to 30 November 2019 and for the performance period 23 October 2017 to 30 November 2020. Mr Wall’s special performance
rights related to his employment are for the performance period 1 November 2018 to 30 September 2019 and for the performance period 1 November 2018 to
30 September 2020.
(B) For the 2019 financial year, this represents the number of rights vested during the reporting period under the LTI 2015/18. Each right entitled the participating
Executive to acquire a fully paid ordinary share in IPL for zero consideration.
(C) For the 2019 financial year, this represents rights that were forfeited by Executives during the reporting period under the LTI 2015/18.
55
Incitec Pivot Limited Annual Report 2019
Table 7 – Executive remuneration
Details of the remuneration for each Executive for the year ended 30 September 2019 are set out below (noting that for individuals
who ceased to be KMP in the 2018 financial year, including those who continued to be employed by the Company), only
comparative information is shown in the table).
Year
Short-term benefits
Post-
employment
benefits
Other
long term
benefits
(C)
Termination
benefits Share-based payments
Short term
incentive
& other
bonuses as a
proportion of
remuneration
(E)
Accounting values
Salary
& Fees
Short term
incentive
& other
bonuses
(A)
Other
short
term
benefits
(B)
Super-
annuation
benefits
Current
period
expense
(D)
Prior periods
expense
write-back
(D)
Total
share-based
payments Total
$000 $000 $000 $000 $000 $000 $000 $000 $000 $000 %
Executive KMP – Current
J Johns
(1)
Managing Director & CEO
2019 1,630 331 90 – 15 – 1,142 – 1,142 3,208 10
2018 1,407 1,393 257 – 6 – 607 – 607 3,670 38
F Micallef
Chief Financial Officer
2019 915 – – 21 35 – 504 (360) 144 1,115 –
2018 915 879 – 20 24 – 587 – 587 2,425 36
T Wall
(2)
President, Global Manufacturing
2019 664 172 – 19 3 – 125 – 125 983 17
G Hayne
(3)
President, Dyno Nobel Asia Pacific
2019 599 62 2 21 12 – 216 – 216 912 7
2018 404 243 75 14 78 – 105 – 105 919 26
N Stratford
President, Dyno Nobel Americas
2019 825 – 154 21 46 – 433 (237) 196 1,242 –
2018 792 781 94 20 19 – 404 – 404 2,110 37
S Titze
(4)
President, Incitec Pivot Fertilisers
2019 446 – 158 16 2 82 – 82 704 –
Executive KMP – Former
A Grace
(5)
President, Global Manufacturing
2019 63 – – 2 1 – 20 (347) (327) (261) –
2018 759 626 – 20 18 – 489 – 489 1,912 33
E Hunter
(6)
Chief Human Resources Officer
& Shared Services
2018 186 176 6 7 7 – 124 – 124 506 35
J Fazzino
(7)
Managing Director & CEO
2018 264 – 12 6 4 632 71 (741) (670) 248 –
S Atkinson
(8)
President, Dyno Nobel Asia Pacific
and Incitec Pivot Fertilisers
2018 244 – – 10 7 766 6 (425) (419) 608 –
L Balter
(9)
President, Strategy &
Business Development
2018 248 150 – 7 5 – 162 – 162 572 26
Total Executives 2019 5,142 565 404 100 114 – 2,522 (944) 1,578 7,903 6
2018 5,219 4,248 444 104 168 1,398 2,555 (1,166) 1,389 12,970 30
(A) For Mr Hayne, this amount reflects a Special Discretionary Bonus relating to the 2019 financial year as outlined under section 4.5 of this report. For Ms Johns this
includes STI rights granted on 5 February 2019 under the 2018 STI and for Mr Wall this includes special performance rights granted on 5 February 2019 related to
his employment.
Grant date
Fair value per share treated
as rights at grant date
J Johns
Performance period: 23 October 2017 to 30 November 2019 05/02/2019 $3.32
Performance period: 23 October 2017 to 30 November 2020 05/02/2019 $3.22
T Wall
Performance period: 1 November 2018 to 30 September 2019 05/02/2019 $3.34
Performance period: 1 November 2018 to 30 September 2020 05/02/2019 $3.23
(B) Other short term benefits include the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2019: 1 April 2018 to 31 March 2019) (2018:
1 April 2017 to 31 March 2018), rent and mortgage interest subsidies, relocation allowances and other allowances, where applicable.
(C) Other long term benefits represent long service leave accrued during the reporting period.
(D) In accordance with accounting standards, remuneration includes the amortisation of the fair value at grant date of performance rights issued under the LTI Plans
that are expected to vest, less any write-back on performance rights lapsed or expected to lapse as a result of actual or expected performance against non-market
hurdles (“Option Accounting Value”). The value disclosed in the above Table 7 represents the portion of fair value allocated to this reporting period and is not
indicative of the benefit, if any, that may be received by the Executive should the performance conditions with respect to the relevant long term incentive plan be
satisfied.
4.7 Further details of Executive remuneration
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Incitec Pivot Limited Annual Report 2019
Remuneration Report
Table 8 – Actual Pay
The table below provides a summary of actual remuneration paid to the Executives in the 2019 financial year (noting that for
individuals who became KMP in the 2019 financial year, only recent year information is shown in the table). The accounting values of
the Executives’ remuneration reported in accordance with the Accounting Standards may not always reflect what the Executives have
actually received, particularly due to the valuation of share based payments. The table below seeks to clarify this by setting out the
actual remuneration that the Executives have been paid over the last twelve months. Executive remuneration details prepared in
accordance with statutory requirements and the Accounting Standards are presented in Table 7 of this report.
Salary
& Fees
Short term
incentive
& other
bonuses
(A)
Other
short term
benefits
(B)
Superannuation
benefits
Other
long term
benefits
(C)
Termination
benefits Total
Year $000 $000 $000 $000 $000 $000 $000
Executive KMP – Current
J Johns
Managing Director & CEO
2019 1,630 1,045
90
– – – 2,765
2018 1,407 – 236 – – – 1,643
F Micallef
Chief Financial Officer
2019 915 879
–
21 – – 1,815
2018 915 726 – 20 – – 1,661
T Wall
President, Global Manufacturing
2019 664 –
–
19 – – 683
G Hayne
President, Dyno Nobel Asia Pacific
2019 599 332 2 21 143 – 1,097
2018 404 – 75 14 – – 493
N Stratford
President, Dyno Nobel Americas
2019 825 781 154 21 – – 1,781
2018 792 494 94 20 – – 1,400
S Titze
President, Incitec Pivot Fertilisers
2019 446 – 158 16 – – 620
Executive KMP – Former
A Grace
President, Global Manufacturing
2019 63 626
–
2 277 – 968
2018 759 579 – 20 – – 1,358
E Hunter
Chief Human Resources Officer
& Shared Services
2018 186 459
6
7 – – 658
J Fazzino
Managing Director & CEO
2018 264 1,763
234
6 1,022 632 3,921
S Atkinson
President, Dyno Nobel Asia Pacific
and Incitec Pivot Fertilisers
2018 244 394
53
10 134 766 1,601
L Balter
President, Strategy &
Business Development
2018 248 605
–
7 – – 860
Total Executives 2019 5,142 3,663 404 100 420 – 9,729
2018 5,219 5,020 698 104 1,156 1,398 13,595
(A) Represents short term incentives paid during the 2019 financial year in relation to incentives awarded in respect of the 2018 financial year under the 2018 STI. For
Mr Hayne, this included a short term incentive payment prior to him becoming a KMP.
(B) Other short term benefits include annual leave paid, the taxable value of fringe benefits paid attributable to the fringe benefits tax year (2019: 1 April 2018 to
31 March 2019) (2018: 1 April 2017 to 31 March 2018), rent and mortgage interest subsidies, relocation allowances and other allowances.
(C) Other long term benefits include long service leave paid on cessation of employment. For Mr Hayne this includes a cash payment relating to a long term incentive
plan for the periods prior to him becoming a KMP.
Grant date
Fair value per share treated
as rights at grant date
LTI 2015/18 – TSR
21/01/2016 $1.29
LTI 2015/18 – Strategic Initiative
21/01/2016 $3.06
LTI 2016/19 – TSR
25/01/2017 $2.87
LTI 2016/19 – Strategic Initiative
25/01/2017 $3.45
LTI 2016/19 – ROE Growth
25/01/2017 $3.45
LTI 2017/20 – TSR
30/01/2018 $1.98
LTI 2017/20 – Strategic Initiative
30/01/2018 $3.42
LTI 2017/20 – ROE Growth
30/01/2018 $3.42
LTI 2018/21 – TSR
05/02/2019 $1.82
LTI 2018/21 – Strategic Initiative
05/02/2019 $3.13
LTI 2018/21 – ROE Growth
05/02/2019 $3.13
(E) The short term incentive and other bonuses as a proportion of remuneration is calculated based on the short term incentive expense as a proportion of the total
remuneration (excluding the prior period share-based payment expense write-back).
(1) Ms Johns became a KMP on 15 November 2017. Disclosure for the 2018 financial year are from that date and do not represent a full financial year.
(2) Mr Wall became a KMP on 1 November 2018 and the disclosures for the 2019 financial year are from that date and do not represent a full financial year.
(3) Mr Hayne became a KMP on 30 January 2018. Disclosure for the 2018 financial year are from that date and do not represent a full financial year.
(4) Mr Titze became a KMP on 16 January 2019 and the disclosures for the 2019 financial year are from that date and do not represent a full financial year.
(5) Mr Grace ceased being a KMP from 31 October 2018. Disclosure for the 2019 year is from 1 October 2018 to 31 October 2018.
(6) Ms Hunter continued in her role as Chief Human Resource Officer & Shared Services however ceased being a KMP from 30 January 2018 onwards. Disclosure for the
2018 financial year is from 1 October 2017 to 29 January 2018.
(7) Mr Fazzino ceased being a KMP on 14 November 2017. Termination benefits received by Mr Fazzino in the 2018 financial year included a separation payment of
$631,818 in accordance with his contract of employment.
(8) Mr Atkinson ceased being a KMP on 29 January 2018. Termination benefits received by Mr Atkinson in the 2018 financial year included a separation payment of
$765,834 in accordance with his contract of employment.
(9) Ms Balter ceased being a KMP from 30 January 2018. Disclosures for the 2018 financial year is from 1 October 2017 to 29 January 2018.
57
Incitec Pivot Limited Annual Report 2019
5. Overview of remuneration changes for the 2020 Financial Year
This year’s structural changes to remuneration, that resulted from the Board’s review of remuneration in 2018, means only minor
changes to the framework are planned for financial year 2020.
• STI – An additional ‘gate’ will be introduced into the STI design for financial year 2020, whereby the Group’s overall credit rating
must be maintained for participants to be eligible to receive payments attached to the financial components of the plan.
• MSR – Minimum Shareholding Requirements for Directors, highlighted to be introduced in last year’s Report, will be fully
operational in the 2020 financial year. Directors who have nominated to utilise the fee sacrifice option to accumulate shares
have already begun this process, with first rights to be issued under this arrangement in November 2019.
• LTI – The Return on Equity (ROE) measure has been replaced by a Return on Invested Capital (ROIC) measure. ROIC has been
selected as it is a key determinant of efficient use of the capital entrusted to management by shareholders. It also reflects
factors that improve shareholder value, including operational efficiency, capital efficiency, asset utilisation and profitability.
Three-year ROIC targets will be established, based on the current IPL company-wide footprint. However, Board discretion may be
exercised to adjust these targets, pending any action resulting from the strategic review of Incitec Pivot Fertilisers.
There will also be a change to the dates and methodology as to how performance rights are issued. Previously this was based on
the volume weighted average share price over the 20 business days up to but not including the first day of the relevant
performance period. This will now take place over the 5 business days immediately after the release of the Company’s full year
results in the first year of the performance period, being November 2019.
The Board will continue to monitor and consider any trends that may become apparent with respect to remuneration (both
domestically and internationally) and look to incorporate changes that may contribute to the efficacy of the Company’s overall
remuneration structure.
58
Incitec Pivot Limited Annual Report 2019
Remuneration Report
Table 9 – Non-Executive Directors’ remuneration
Details of the Non-Executive Directors’ remuneration for the financial year ended 30 September 2019 are set out in the
following table:
Board and
Committee Fees
Cash allowances
and other short
term benefits
(A)
Post-employment
benefits
Other long
term benefits
Fees
Superannuation
benefits Total
Year $000 $000 $000 $000 $000
Non-Executive Directors – Current
B Kruger, Chairman
(1)
2019 299 – 21 – 320
2018 217 – 20 – 237
J Breunig
(2)
2019 195 30 – – 225
2018 195 30 – – 225
B Brook
(3)
2019 173 – 16 – 189
K Fagg AO
2019 210 – 21 – 231
2018 211 – 20 – 231
R McGrath
2019 224 – 21 – 245
2018 225 – 20 – 245
Non-Executive Directors – Former
P Brasher, Chairman
(4)
2019 383 – 15 – 398
2018 513 – 20 – 533
G Smorgon AM
(5)
2019 40 – 5 – 45
2018 186 – 18 – 204
G Hayes
(6)
2018 46 – 5 – 51
Total Non-Executive Directors 2019 1,524 30 99 – 1,653
2018 1,593 30 103 – 1,726
(A) Cash allowances and other short term benefits include travel allowances and the taxable value of fringe benefits paid attributable to the fringe benefits tax year.
(1) Mr Kruger was appointed Chairman effective 1 July 2019.
(2) Mr Breunig resides in the United States and receives a travel allowance of $5,000 per trip to Australia to attend Board and/or Committee meetings.
(3) Mr Brook was appointed a director on 3 December 2018.
(4) Mr Brasher retired as a director and Chairman on 30 June 2019.
(5) Mr Smorgon retired from the Board as a Non-Executive Director on 20 December 2018.
(6) Mr Hayes retired from the Board as a Non-Executive Director on 21 December 2017.
6. Non-Executive Director Remuneration
IPL’s policy is to:
• remunerate Non-Executive Directors by way of fees and payments which may be in the form of cash and superannuation
benefits; and
• set the level of Non-Executive Directors’ fees and payments to be consistent with the market and to enable the IPL Group to
attract and retain directors of an appropriate calibre.
Non-Executive Directors are not remunerated by way of options, shares, performance rights, bonuses nor by incentive-based payments.
Non-Executive Directors receive a fee for being a director of the Board and Non-Executive Directors, other than the Chairman of the Board,
receive additional fees for either chairing or being a member of a Board Committee. The level of fees paid to a Non-Executive Director is
determined by the Board after an annual review and reflects a Non-Executive Director’s time commitments and responsibilities.
For the 2019 financial year, there were no increases to Non-Executive Directors’ fees. Fees paid to Non-Executive Directors amounted to
$1,653,000 which was within the $2,000,000 maximum aggregate fee pool approved by shareholders at the 2008 Annual General
Meeting.
For the 2020 financial year, the Board has determined that there will be no increase in Non-Executive Director fees.
The table below sets out the Board and Committee fees as at 30 September 2019:
Board Fees
Chairperson
Members
$532,500
$177,500
Committee Fees
Audit & Risk Management Committee
Chairperson
Members
$47,200
$23,600
Remuneration Committee
Chairperson
Members
$35,400
$17,700
HSEC Committee
Chairperson
Members
$35,400
$17,700
Nominations Committee
Chairperson
Members
N/A
$8,250
59
Incitec Pivot Limited Annual Report 2019
8. Other KMP Disclosures
Loans to KMP
In the year ended 30 September 2019, there were no loans to key management personnel and their related parties (2018: nil).
Other KMP transactions
In the year ended 30 September 2019, there were no transactions entered into during the year with key management personnel
(including their related parties).
7. Shareholdings in IPL
Table 10 – Movements in shares in the Company
The movement during the reporting period in the number of shares in the Company held directly, indirectly or beneficially, by each
KMP, including their related parties, is set out in the table below:
Number of Shares
(A)
Opening balance Shares acquired Shares disposed Closing balance
(B)
Non-Executive Directors – Current
B Kruger 14,620 – – 14,620
J Breunig – – – –
B Brook – 12,000 – 12,000
K Fagg AO 10,000 – – 10,000
R McGrath 25,008 – – 25,008
Non-Executive Director – Former
P Brasher 60,600 31,236 – 91,836
G Smorgon AM – – – –
Executive Director – Current
J Johns – 158,090 – 158,090
Executives – Current
F Micallef 41,691 57,787 – 99,478
T Wall – – – –
G Hayne 8,633 – – 8,633
N Stratford 19,620 – – 19,620
S Titze – – – –
Executives – Former
A Grace 146,744 – – 146,744
(A) Includes fully paid ordinary shares and shares acquired under IPL’s incentive plans. Details of these plans are set out in note 17, Share-based payments.
(B) Where a director or an Executive has ceased to be a KMP during the reporting year, the balance stated in this column represents the number of shares held as at the
date the director or Executive ceased to be a KMP.
60
Incitec Pivot Limited Annual Report 2019
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Asia Pacific Limited and the Deloitte Network
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke Street
Melbourne, VIC,
3000
GPO Box 78
Melbourne VIC 3001 Australia
Phone: +61 3 9671 7000
www.deloitte.com.au
12 November 2019
Dear Board Members
Incitec Pivot Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of Incitec Pivot Limited.
As lead audit partner for the audit of the financial statements of Incitec Pivot Limited for the
financial year ended 30 September 2019, I declare that to the best of my knowledge and belief,
there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to the
audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
A T Richards
Partner
Chartered Accountants
The Board of Directors
Incitec Pivot Limited
Level 8, 28 Freshwater Place
Southbank Victoria 3006
61
Incitec Pivot Limited Annual Report 2019
Financial Report
Consolidated Statement of Profit or Loss and
Other Comprehensive Income 63
Consolidated Statement of Financial Position 64
Consolidated Statement of Cash Flows 65
Consolidated Statement of Changes in Equity 66
Notes to the Consolidated Financial Statements 67
Directors’ Declaration on the Consolidated
Financial Statements set out on pages 62 to 98 99
Audit Report 100
Shareholder Information 105
Five Year Financial Statistics 106
Financial report
62
Incitec Pivot Limited Annual Report 2019
Introduction
This is the consolidated financial report of Incitec Pivot Limited (the Company, IPL, or Incitec Pivot) a company domiciled in
Australia, and its subsidiaries including its interests in joint ventures and associates (collectively referred to as the Group) for
the financial year ended 30 September 2019.
Content and structure of the financial report
The notes to the financial statements and the related accounting policies are grouped into the following distinct sections in the
2019 financial report. The accounting policies have been consistently applied to all years presented, unless otherwise stated.
Section Description
Financial performance
Provides detail on the Group’s Consolidated Statement of Profit or Loss and Other
Comprehensive Income and Consolidated Statement of Financial Position that are most
relevant in forming an understanding of the Group’s financial performance for the year.
Shareholder returns
Provides information on the performance of the Group in generating shareholder returns.
Capital structure
Provides information about the Group’s capital and funding structures.
Capital investment
Provides information on the Group’s investment in tangible and intangible assets, and the
Group’s future capital commitments.
Risk management
Provides information about the Group’s risk exposures, risk management practices, provisions
and contingent liabilities.
Other
Provides information on items that require disclosure to comply with Australian Accounting
Standards and the requirements under the Corporations Act.
Information is included in the notes to the financial report only to the extent it is considered material and relevant to the
understanding of the financial report. A disclosure is considered material and relevant if, for example:
l
the dollar amount is significant in size (quantitative factor)
l
the item is significant by nature (qualitative factor)
l
the Group’s result cannot be understood without the specific disclosure (qualitative factor)
l
it relates to an aspect of the Group’s operations that is important to its future performance.
63
Incitec Pivot Limited Annual Report 2019
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
For the year ended 30 September 2019
Notes
2019
$mill
2018
$mill
Revenue (2)
3,918.2
3,856.3
Financial and other income (2)
58.7
44.0
Share of profit of equity accounted investments (13)
44.9
44.7
Operating expenses
Changes in inventories of finished goods and work in progress
70.7
93.0
Raw materials and consumables used and finished goods purchased for resale
(2,028.0)
(1,809.7)
Employee expenses
(686.8)
(652.5)
Depreciation and amortisation (2)
(301.6)
(294.3)
Financial expenses (2)
(149.1)
(133.5)
Purchased services
(185.5)
(175.3)
Repairs and maintenance
(172.3)
(149.4)
Outgoing freight
(283.9)
(271.7)
Lease payments – operating leases
(60.6)
(67.5)
Asset impairment write-downs (2)
(11.5)
(240.6)
Other expenses
(53.6)
(50.8)
Profit before income tax 159.6
192.7
Income tax (expense)/benefit (3)
(7.5)
18.1
Profit for the year 152.1
210.8
Other comprehensive income, net of income tax
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit plans (19)
(36.6)
4.9
Gross fair value losses on assets at fair value through other comprehensive income
(0.1)
(0.2)
Income tax relating to items that will not be reclassified subsequently to profit or loss
10.2
(3.0)
(26.5)
1.7
Items that may be reclassified subsequently to profit or loss
Fair value (losses)/gains on cash flow hedges (16)
(72.5)
86.6
Cash flow hedge gains transferred to profit or loss (16)
(18.0)
(35.4)
Exchange differences on translating foreign operations
226.1
254.1
Net losses on hedge of net investment (16)
(107.8)
(127.2)
Income tax relating to items that may be reclassified subsequently to profit or loss
14.4
(33.5)
42.2
144.6
Other comprehensive income for the year, net of income tax 15.7
146.3
Total comprehensive income for the year 167.8
357.1
Profit attributable to:
Members of Incitec Pivot Limited
152.4
207.9
Non-controlling interest
(0.3)
2.9
Profit for the year 152.1
210.8
Total comprehensive income attributable to:
Members of Incitec Pivot Limited
168.1
354.2
Non-controlling interest
(0.3)
2.9
Total comprehensive income for the year 167.8
357.1
Earnings per share
Basic (cents per share) (5)
9.5
12.5
Diluted (cents per share) (5)
9.4
12.5
64
Incitec Pivot Limited Annual Report 2019
Consolidated Statement of Financial Position
As at 30 September 2019
Notes
2019
$mill
2018
$mill
Current assets
Cash and cash equivalents (8)
576.4
588.5
Trade and other receivables (4)
316.7
311.5
Inventories (4)
600.9
494.9
Other assets
50.6
63.3
Other financial assets (16)
6.2
13.3
Total current assets 1,550.8
1,471.5
Non-current assets
Trade and other receivables (4)
47.4
12.6
Other assets
21.6
36.3
Other financial assets (16)
16.6
29.6
Equity accounted investments (13)
357.7
336.1
Property, plant and equipment (9)
4,190.0
4,004.3
Intangible assets (10)
3,179.5
3,046.6
Deferred tax assets (3)
15.9
17.0
Total non-current assets 7,828.7
7,482.5
Total assets 9,379.5
8,954.0
Current liabilities
Trade and other payables (4)
1,152.0
1,045.0
Interest bearing liabilities (8)
1,213.4
212.9
Other financial liabilities (16)
39.2
18.3
Provisions (15)
86.1
75.6
Current tax liabilities
13.4
55.6
Total current liabilities 2,504.1
1,407.4
Non-current liabilities
Trade and other payables (4)
17.4
13.6
Interest bearing liabilities (8)
1,443.0
2,161.9
Other financial liabilities (16)
45.1
7.4
Provisions (15)
116.5
104.0
Deferred tax liabilities (3)
498.4
482.9
Retirement benefit obligation (19)
67.2
32.6
Total non-current liabilities 2,187.6
2,802.4
Total liabilities 4,691.7
4,209.8
Net assets 4,687.8
4,744.2
Equity
Issued capital (7)
3,136.8
3,226.5
Reserves
(19.9)
(55.4)
Retained earnings
1,570.9
1,566.6
Non-controlling interest
–
6.5
Total equity 4,687.8
4,744.2
65
Incitec Pivot Limited Annual Report 2019
Consolidated Statement of Cash Flows
For the year ended 30 September 2019
Notes
2019
$mill
2018
$mill
Inflows/
(Outflows)
Inflows/
(Outflows)
Cash flows from operating activities
Profit after tax for the year
152.1
210.8
Adjusted for non-cash items
Net finance cost
144.1
128.0
Depreciation and amortisation (2)
301.6
294.3
Impairment of property, plant and equipment (9)
11.5
4.0
Impairment of goodwill and other intangibles (10)
-
236.6
Share of profit of equity accounted investments (13)
(44.9)
(44.7)
Net gain on sale of property, plant and equipment (2)
(12.0)
(2.4)
Non-cash share-based payment transactions (17)
1.6
3.2
Income tax expense/(benefit) (3)
7.5
(18.1)
Changes in assets and liabilities
Decrease in receivables and other operating assets
35.5
40.1
Increase in inventories
(81.7)
(101.2)
Increase in payables, provisions and other operating liabilities
23.9
10.1
539.2
760.7
Adjusted for cash items
Dividends received (13)
27.5
29.9
Interest received
5.0
5.5
Interest paid
(136.1)
(121.9)
Income tax paid
(20.8)
(11.5)
Net cash flows from operating activities 414.8
662.7
Cash flows from investing activities
Payments for property, plant and equipment and intangibles
(348.1)
(325.3)
Proceeds from sale of property, plant and equipment
10.8
6.2
Proceeds from sale of equity securities
2.3
–
Payments for acquisition of subsidiaries and non-controlling interests
(5.3)
(5.8)
(Loans to)/repayments of loans to equity accounted investees
(6.8)
2.2
Proceeds/(Payments) from settlement of net investment hedge derivatives
5.5
(1.3)
Net cash flows from investing activities (341.6)
(324.0)
Cash flows from financing activities
Repayments of borrowings (8)
(429.7)
(504.3)
Proceeds from borrowings (8)
553.7
501.4
Realised market value loss on derivatives
–
(4.3)
Dividends paid to members of Incitec Pivot Limited (6)
(121.7)
(157.4)
Dividends paid to non-controlling interest holder
(5.9)
(2.4)
Purchased shares for IPL employees
(0.6)
(5.1)
Payment for buy-back of shares
(89.7)
(210.3)
Net cash flows from financing activities (93.9)
(382.4)
Net decrease in cash and cash equivalents held
(20.7)
(43.7)
Cash and cash equivalents at the beginning of the year
588.5
627.9
Effect of exchange rate fluctuations on cash and cash equivalents held
8.6
4.3
Cash and cash equivalents at the end of the year
(8)
576.4
588.5
66
Incitec Pivot Limited Annual Report 2019
Consolidated Statement of Changes in Equity
For the year ended 30 September 2019
Notes
Issued
capital
$mill
Cash
flow
hedging
reserve
$mill
Share
-based
payments
reserve
$mill
Foreign
currency
translation
reserve
$mill
Fair
value
reserve
$mill
Retained
earnings
$mill
Total
$mill
Non-
controlling
interest
$mill
Total
equity
$mill
Balance at 1 October 2017
3,436.8 (20.1) 26.9 (192.9) (11.8) 1,514.2 4,753.1 6.0 4,759.1
Profit for the year – – – – – 207.9 207.9 2.9 210.8
Total other comprehensive
income for the year
– 35.7 – 108.9 (0.2) 1.9 146.3 – 146.3
Dividends paid (6) – – – – – (157.4) (157.4) (2.4) (159.8)
Share buy-back (7) (210.3) – – – – – (210.3) – (210.3)
Purchased shares for IPL employees – – (5.1) – – – (5.1) – (5.1)
Share-based payment transactions (17) – – 3.2 – – – 3.2 – 3.2
Balance at 30 September 2018
3,226.5 15.6 25.0 (84.0) (12.0) 1,566.6 4,737.7 6.5 4,744.2
Balance at 1 October 2018 3,226.5 15.6 25.0 (84.0) (12.0) 1,566.6 4,737.7 6.5 4,744.2
Profit for the year
– – – – – 152.4 152.4 (0.3) 152.1
Total other comprehensive
income for the year
– (63.9) – 106.1 (0.1) (26.4) 15.7 – 15.7
Dividends paid (6)
– – – – – (121.7) (121.7) (5.9) (127.6)
Share buy-back (7)
(89.7) – – – – – (89.7) – (89.7)
Change in non-controlling interest
– – – – (7.6) – (7.6) (0.3) (7.9)
Purchased shares for IPL employees
– – (0.6) – – – (0.6) – (0.6)
Share-based payment transactions (17)
– – 1.6 – – – 1.6 – 1.6
Balance at 30 September 2019 3,136.8 (48.3) 26.0 22.1 (19.7) 1,570.9 4,687.8 – 4,687.8
Cash flow hedging reserve
This reserve comprises the cumulative net change in the fair value of the effective portion of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
Share-based payments reserve
This reserve comprises the fair value of rights recognised as an employee expense under the terms of the 2016/19, 2017/20
and 2018/21 Long Term Incentive Plans.
Foreign currency translation reserve
Exchange differences arising on translation of foreign controlled operations are taken to the foreign currency translation
reserve. The relevant portion of the reserve is recognised in the profit or loss when the foreign operation is disposed of.
The foreign currency translation reserve is also used to record gains and losses on hedges of net investments in foreign
operations.
Fair value reserve
This reserve represents:
l
The cumulative net change in the fair value of equity instruments. The annual net change in the fair value of investments
in equity securities (including both realised and unrealised gains and losses) is recognised in other comprehensive income.
l
The purchase consideration for the residual 35% ownership interest in Quantum Fertilisers Limited, net of the carrying value
of the non-controlling interest.
Non-controlling interest
On 29 March 2019, IPL’s ownership interest in Quantum Fertilisers Limited, a Hong Kong based fertiliser marketing company,
increased from 65% to 100%, reducing the non-controlling interest to nil.
67
Incitec Pivot Limited Annual Report 2019
Basis of preparation 68
Financial performance
1 Segment report 69
2 Revenue and expenses 71
3 Taxation 72
4 Trade and other assets and liabilities 73
Shareholder returns
5 Earnings per share 75
6 Dividends 75
Capital structure
7 Capital management 76
8 Net debt 77
Capital investment
9 Property, plant and equipment 79
10 Intangibles 80
11 Impairment of goodwill and non-current assets 81
12 Commitments 82
13 Equity accounted investments 83
14 Investments in subsidiaries, joint arrangements and associates 84
Risk management
15 Provisions and contingencies 86
16 Financial risk management 87
Other
17 Share-based payments 95
18 Key management personnel disclosures 95
19 Retirement benefit obligation 96
20 Deed of cross guarantee 97
21 Parent entity disclosure 97
22 Auditor’s remuneration 98
23 Events subsequent to reporting date 98
Notes to the Consolidated Financial Statements
For the year ended 30 September 2019
Notes to the Consolidated Financial Statements: Basis of preparation
For the year ended 30 September 2019
68
Incitec Pivot Limited Annual Report 2019
Basis of preparation and consolidation
The consolidated financial statements of the Group have been
prepared under the historical cost convention, except for
certain financial instruments that have been measured at fair
value.
The financial results and financial position of the Group are
expressed in Australian dollars, which is the functional
currency of the Company and the presentation currency for
the consolidated financial statements.
The consolidated financial statements were authorised for
issue by the directors on 12 November 2019.
Deficiency in net current assets
As at 30 September 2019, the Group’s current liabilities
exceeded its current assets by $953.3m. This is primarily due
to the Group’s USD800m fixed interest rate bond, maturing in
December 2019. At 30 September 2019, the Group has cash
balances of $576.4m and the following undrawn financing
facilities:
l
3 year bank facility of $289.6m that matures in August
2021; and
l
5 year bank facility of $739.5m that matures in October
2021.
In addition, USD500m of Notes in the US Private Placement
market were funded in October 2019, with USD250m
maturing on 30 October 2028 and USD250m maturing on
30 October 2030.
The Group’s forecast cash flow for the next twelve months
indicates that it will be able to meet current liabilities as and
when they fall due. Accordingly, the Consolidated Financial
Report has been prepared on a going concern basis. The
Group constantly assesses the adequacy of its financing
arrangements and will establish new funding facilities as and
when required, to ensure they appropriately support its
investment grade credit profile and liquidity requirements.
Subsidiaries
Subsidiaries are entities that are controlled by the Group. The
financial results and financial position of the subsidiaries are
included in the consolidated financial statements from the
date control commences until the date control ceases.
A list of the Group’s subsidiaries is included in note 14.
Joint arrangements and associates
A joint venture is an arrangement where the parties have
rights to the net assets of the venture.
A joint operation is an arrangement where the parties each
have rights to the assets and liabilities relating to the
arrangement.
Associates are those entities in respect of which the Group has
significant influence, but not control, over the financial and
operating policies of the entities.
Investments in joint ventures and associates are accounted for
using the equity method. They are initially recognised at cost,
and subsequent to initial recognition, the consolidated financial
statements include the Group’s share of the profit or loss and
other comprehensive income of the investees.
The interests in joint operations are brought to account
recognising the Group’s share of jointly controlled assets;
liabilities; expenses; and income from the joint operation.
A list of the Group’s joint arrangements and associates is
included in note 14.
Statement of compliance
The consolidated financial statements are general purpose
financial statements which have been prepared in accordance
with Australian Accounting Standards (including Australian
Interpretations) and the Corporations Act 2001. The
consolidated financial statements of the Group comply with
International Financial Reporting Standards (IFRS) and
interpretations. The Company is a for-profit entity.
Key estimates and judgments
Key accounting estimates and judgments are continually
evaluated and are based on historical experience and other
factors, including expectation of future events that may have
a financial impact on the Group and that are believed to be
reasonable under the circumstances.
The resulting accounting estimates will, by definition, seldom
equal the subsequent related actual result. The estimates and
judgments that have a significant risk of causing a material
adjustment to the carrying amounts of the assets and
liabilities within the next financial year are set out in the
notes.
Rounding of amounts
The Company is of a kind referred to in ASIC Legislative
Instrument, ASIC Corporations (Rounding in Financial/
Directors’ Reports) Instrument 2016/191, issued by the
Australian Securities and Investments Commission dated
24 March 2016 and, in accordance with that Legislative
Instrument, the amounts shown in this report and in the
financial statements have been rounded, except where
otherwise stated, to the nearest one hundred thousand
dollars.
Accounting standards issued
The Group adopted all amendments to Standards and
Interpretations issued by the Australian Accounting Standards
Board (AASB) that are relevant to its operations and
effective for the current year. The adoption of these revised
Standards and Interpretations did not have a material impact
on the Group’s results.
l
AASB 15: Revenue from Contracts with Customers
Details of the impact of AASB 15 on the Group are
included in note 2.
l
AASB 9: Financial Instruments is mandatory for annual
periods starting on or after 1 January 2018. The Group
early adopted this standard in the 2015 financial year.
The following relevant standard was available for early
adoption but has not been applied by the Group:
l
AASB 16: Leases
Details of the expected impact of AASB 16 on the Group,
when it is adopted, are included in note 12.
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2019
69
Incitec Pivot Limited Annual Report 2019
1. Segment report
The Group operates a number of strategic divisions that offer different products and services and operate in different markets.
For reporting purposes, these divisions are known as reportable segments. The results of each segment are reviewed monthly
by the executive management team (the chief operating decision makers) to assess performance and make decisions about
the allocation of resources.
Description of reportable segments
Asia Pacific
Fertilisers is made up of the following reportable segments:
l
Incitec Pivot Fertilisers (IPF): manufactures and distributes fertilisers in Eastern Australia. The products that IPF
manufactures include urea, ammonia and single super phosphate. IPF also imports products from overseas suppliers and
purchases ammonium phosphates from Southern Cross International for resale.
l
Southern Cross International (SCI): manufactures ammonium phosphates and is a distributor of its manufactured fertiliser
product to wholesalers in Australia (including IPF) and the export market. SCI operates the Industrial Chemicals business
and also includes the Group’s share of the Hong Kong marketing company, Quantum Fertilisers Limited.
Fertilisers Eliminations (Fertilisers Elim): represent the elimination of sales and profit in stock arising from the sale of SCI
manufactured products to IPF at an import parity price.
Dyno Nobel Asia Pacific (DNAP): manufactures and sells industrial explosives and related products and services to the mining
industry in the Asia Pacific region and Turkey.
Asia Pacific Eliminations (APAC Elim): represent elimination of sales and profit in stock arising from IPF and SCI sales to DNAP
at an arm’s length transfer price.
Americas
Dyno Nobel Americas (DNA): manufactures and sells industrial explosives and related products and services to the mining,
quarrying and construction industries in the Americas (USA, Canada, Mexico and Chile). It also manufactures and sells industrial
chemicals to the agriculture and specialist industries.
Corporate
Corporate costs include all head office expenses that cannot be directly or reasonably attributed to the operation of any of the
Group’s businesses.
Group Eliminations (Group Elim): represent elimination of sales and profit in stock arising from intersegment sales at an arm’s
length transfer price.
Reportable segments – financial information
Asia Pacific Americas
30 September 2019
Notes
IPF
$mill
SCI
$mill
Fertilisers
Elim
$mill
Total
Fertilisers
$mill
DNAP
$mill
APAC
Elim
$mill
Total
$mill
DNA
$mill
Group
Elim
$mill
Corporate
(i)
$mill
Consolidated
Group
$mill
Revenue from external customers
(2)
1,066.7 496.0 (143.3) 1,419.4 990.7 (13.4) 2,396.7 1,569.0 (47.5) – 3,918.2
Share of profits of equity
accounted investments
(13) – – – – 13.1 – 13.1 31.8 – – 44.9
EBITDA
(ii)
(27.4) 25.8 2.0 0.4 255.4 – 255.8 376.6 (1.7) (25.4) 605.3
Depreciation and amortisation
(2)
(24.5) (55.6) – (80.1) (76.2) – (156.3) (142.6) – (2.7) (301.6)
EBIT
(iii)
(51.9) (29.8) 2.0 (79.7) 179.2 – 99.5 234.0 (1.7) (28.1) 303.7
Net interest expense
(144.1)
Income tax expense
(3)
(7.5)
Profit after tax
152.1
Non-controlling interest
0.3
Profit attributable to members of IPL
152.4
Segment assets
750.3 704.4 – 1,454.7 2,564.9 – 4,019.6 4,647.8 – 696.2 9,363.6
Segment liabilities
(528.0) (127.5) – (655.5) (290.5) – (946.0) (562.0) – (2,685.3) (4,193.3)
Net segment assets
(iv)
222.3 576.9 – 799.2 2,274.4 – 3,073.6 4,085.8 – (1,989.1) 5,170.3
Deferred tax balances
(3)
(482.5)
Net assets 4,687.8
(i) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(ii) Earnings Before Interest, related income tax expense, Depreciation and Amortisation.
(iii) Earnings Before Interest and related income tax expense.
(iv) Net segment assets exclude deferred tax balances.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2019
70
Incitec Pivot Limited Annual Report 2019
1. Segment report (continued)
Reportable segments – financial information (continued)
Asia Pacific Americas
30 September 2018
Notes
IPF
$mill
SCI
$mill
Fertilisers
Elim
$mill
Total
Fertilisers
$mill
DNAP
$mill
APAC
Elim
$mill
Total
$mill
DNA
$mill
Group
Elim
$mill
Corporate
(i)
$mill
Consolidated
Group
$mill
Revenue from external customers
(2)
1,088.4 605.0 (221.7) 1,471.7 978.6 (12.1) 2,438.2 1,462.3 (44.2) – 3,856.3
Share of profits of equity
accounted investments
(13) – – – – 17.4 – 17.4 27.3 – – 44.7
EBITDA
(ii)
67.7 116.7 (2.2) 182.2 288.8 – 471.0 410.3 (0.6) (29.7) 851.0
Depreciation and amortisation
(2)
(30.0) (47.6) – (77.6) (83.4) – (161.0) (131.7) – (1.6) (294.3)
EBIT
(iii)
37.7 69.1 (2.2) 104.6 205.4 – 310.0 278.6 (0.6) (31.3) 556.7
Net interest expense
(128.0)
Income tax expense (excluding IMIs)
(iv)
(3)
(78.4)
Profit after tax
(v)
350.3
Non-controlling interest
(2.9)
Individually material items (net of tax)
(139.5)
Profit attributable to members of IPL
207.9
Segment assets
700.8 613.4 – 1,314.2 2,585.2 – 3,899.4 4,332.2 – 705.4 8,937.0
Segment liabilities
(503.1) (160.4) – (663.5) (284.0) – (947.5) (484.2) – (2,295.2) (3,726.9)
Net segment assets
(vi)
197.7 453.0 – 650.7 2,301.2 – 2,951.9 3,848.0 – (1,589.8) 5,210.1
Deferred tax balances
(3) (465.9)
Net assets 4,744.2
(i) Corporate assets and liabilities include the Group’s interest bearing liabilities and derivative assets and liabilities.
(ii) Earnings Before Interest, related income tax expense, Depreciation, Amortisation and individually material items.
(iii) Earnings Before Interest and related income tax expense and individually material items.
(iv) Income tax (excluding individually material items).
(v) Profit after tax (excluding individually material items).
(vi) Net segment assets exclude deferred tax balances.
Geographical information – secondary reporting segments
The Group operates in four principal countries being Australia (country of domicile), USA, Canada and Turkey.
In presenting information on the basis of geographical information, revenue is based on the geographical location of the entity
making the sale. Assets are based on the geographical location of the assets.
Australia USA Canada Turkey Other/Elim Consolidated
30 September 2019
$mill $mill $mill $mill $mill $mill
Revenue from external customers
2,304.8 1,320.2 218.0 50.3 24.9 3,918.2
Non-current assets other than financial
assets and deferred tax assets 3,412.8 4,187.8 66.6 1.6 127.4 7,796.2
Trade and other receivables 143.3 89.8 43.4 18.1 69.5 364.1
Australia USA Canada Turkey Other/Elim Consolidated
30 September 2018
$mill $mill $mill $mill $mill $mill
Revenue from external customers
2,322.0 1,249.6 189.1 66.5 29.1 3,856.3
Non-current assets other than financial
assets and deferred tax assets 3,310.6 3,902.6 57.0 1.3 164.4 7,435.9
Trade and other receivables 157.3 75.8 30.3 15.9 44.8 324.1
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2019
71
Incitec Pivot Limited Annual Report 2019
2. Revenue and expenses
Notes
2019
$mill
2018
$mill
Revenue
External sales
3,918.2
3,856.3
Total revenue
3,918.2
3,856.3
Financial income
Interest income
.
5.5
5.0
Other income
Royalty income and management fees (13)
33.0
29.4
Net gain on sale of property, plant
and equipment
12.0
2.4
Other income from operations
8.7
6.7
Total financial and other income
58.7
44.0
Expenses
Profit before income tax includes the following specific expenses:
Notes
2019
$mill
2018
$mill
Depreciation and amortisation
depreciation (9)
277.9
271.5
amortisation (10)
23.7
22.8
Total depreciation and amortisation
301.6
294.3
Recoverable amount write-down
property, plant and equipment (9)
11.5
4.0
intangible assets (10)
–
236.6
Total recoverable amount write-down
11.5
240.6
Amounts set aside to provide for:
impairment losses on trade and
other receivables (4) 3.1 4.9
inventory losses and obsolescence (4)
3.6
3.2
employee entitlements (15)
8.3
6.4
environmental liabilities (15)
4.6
3.5
legal and other provisions (15)
6.4
1.8
restructuring and rationalisation costs (15)
11.7
0.4
Research and development expense
18.2
12.6
Defined contribution superannuation
expense 31.7 31.0
Defined benefit superannuation
expense (19) 4.6 3.1
Financial expenses
Unwinding of discount on provisions (15) 4.4 4.4
Net interest expense on defined
benefit obligation (19) 1.4 1.2
Interest expenses on financial liabilities
143.3
127.9
Total financial expenses
149.1
133.5
Individually material items
30 September 2019
There have been no individually material items for the year
ended 30 September 2019.
30 September 2018
The prior year profit includes the following benefits/
(expenses) whose disclosure is relevant in explaining the
prior year financial performance of the Group:
Gross
$mill
Tax
$mill
Net
$mill
Tax restatement
(1)
– 96.5 96.5
Impairment of goodwill
(2)
(236.0) – (236.0)
(236.0) 96.5 (139.5)
(1) On 22 December 2017, the US government enacted tax reform legislation
which reduced the US federal tax rate from 35% to 21%, effective 1 January
2018. As a result, the Group recognised a one-off benefit of $96.5m arising
from the restatement of its US net deferred tax liabilities.
(2) Impairment of goodwill relating to the DNAP CGU.
Significant external event
30 September 2019
In February 2019, IPL announced a temporary production
interruption at its Phosphate Hill plant as a result of the
closure of the rail line between Townsville and Phosphate
Hill as a consequence of the once in a 100-year rain event
and the resultant flooding in northern Queensland. The
financial impact of the outage on the Group’s EBIT was
$115m for the 2019 financial year. In accordance with
Australian Accounting Standards, the impact is not presented
as an individually material item, as it largely represents lost
sales margin on product that was not manufactured as a
result of the rail outage.
Key accounting policies
AASB 15 Revenue from Contracts with Customers
The Group has adopted AASB 15 from 1 October 2018, which
replaces AASB 118 Revenue.
AASB 15 establishes principles for reporting the nature,
amount, timing and uncertainty of revenue and cash flows
arising from an entity’s contracts with customers. The
standard requires the identification of distinct performance
obligations in a contract and an allocation of the transaction
price to these performance obligations. Per the standard,
revenue should only be recognised when the performance
obligation is satisfied and the control of the goods or
services is transferred to the customer. Under AASB 15, the
Group recognises revenue from the sale of goods at the time
that control is transferred to the customer. Services revenue
is recognised separately from the sale of goods, as the
performance obligation is satisfied.
The Group performed a detailed assessment of the impact of
AASB 15 on the Group’s revenue streams, contracts with
customers and existing revenue recognition policies. The
adoption of AASB 15 has not impacted the timing or amount
of revenue recognised. Accordingly, there has been no
restatement of comparative amounts or retained earnings.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2019
72
Incitec Pivot Limited Annual Report 2019
3. Taxation
Income tax expense for the year
2019
$mill
2018
$mill
Current tax expense
Current year
(17.1)
59.6
Adjustments in respect of prior years
(3.0)
(2.8)
(20.1)
56.8
Deferred tax expense
Current year
27.6
21.6
Income tax expense (excluding IMIs)
7.5
78.4
Tax rate change
–
(96.5)
Total income tax expense/(benefit) 7.5
(18.1)
Net deferred tax assets/(liabilities)
Deferred tax balances comprise temporary differences
attributable to the following:
2019
$mill
2018
$mill
Employee entitlements provision
17.7
16.1
Retirement benefit obligations
18.0
8.9
Provisions and accruals
47.6
43.2
Tax losses
136.5
90.3
Property, plant and equipment
(527.4)
(442.1)
Intangible assets
(99.0)
(99.4)
Joint venture income
(10.2)
(9.0)
Derivatives
(57.1)
(69.2)
Other
(8.6)
(4.7)
Net deferred tax liabilities
(482.5)
(465.9)
Presented in the Statement of
Financial Position as follows:
Deferred tax assets
15.9
17.0
Deferred tax liabilities
(498.4)
(482.9)
Net deferred tax liabilities
(482.5)
(465.9)
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Tax amounts recognised directly in equity
The aggregate current and deferred tax arising in the financial
year and not recognised in net profit or loss but directly charged
to equity is $24.6m for the year ended 30 September 2019
(2018: debit of $36.5m).
Income tax reconciliation to prima facie tax payable
2019
$mill
2018
$mill
Profit before income tax
159.6
192.7
Tax at the Australian tax rate
of 30% (2018: 30%)
47.9
57.8
Tax effect of amounts which are not deductible/
(taxable) in calculating taxable income:
Other foreign deductions
(15.9)
(32.2)
Joint venture income
(11.6)
(13.0)
Sundry items
2.9
9.5
Tax rate change
–
(96.5)
Goodwill impairment
–
70.8
Difference in overseas tax rates
(12.8)
(11.7)
Adjustments in respect of prior years (3.0) (2.8)
Income tax expense/(benefit)
attributable to profit 7.5 (18.1)
2. Revenue and expenses (continued)
Key accounting policies (continued)
As a result of adopting AASB 15, the Group’s revised revenue
recognition policy is as follows:
Revenue is measured at the fair value of the consideration
received or receivable by the Group. Amounts disclosed as
revenue are net of returns, trade allowances and amounts
collected on behalf of third parties. Revenue is recognised
for the major business activities on the following basis:
l
Sale of goods and services: revenue from the sale of
goods and services is recognised at the point in time
when the performance obligations under the customer
contract are satisfied. This is typically when control of
goods or services is transferred to the customer. The fee
for the service component is recognised separately from
the sale of goods.
l
Take-or-pay revenue: revenue is recognised in line with
the sale of goods policy. In circumstances where goods
are not taken by the customer, revenue is recognised
when the likelihood of the customer meeting its
obligation to ‘take goods’ becomes remote.
l
Interest income is recognised as it accrues using the
effective interest method.
The Group disaggregates its revenue per reportable segment
as presented in Note 1, as the revenue within each business
unit is affected by economic factors in a similar manner.
Goods and services tax
Revenues, expenses, assets and liabilities (other than receivables
and payables) are recognised net of the amount of goods and
services tax (GST). The only exception is where the amount of
GST incurred is not recoverable from the relevant taxation
authorities. In these circumstances, the GST is recognised as part
of the cost of the asset or as part of the item of expenditure.
Other income
Other income from operations represents gains that are not
revenue. This includes royalty income and management fees
from the Group’s joint ventures and associates, and income from
contractual arrangements that are not considered external sales.
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2019
2019
$mill
2018
$mill
Opening balance at 1 October
(465.9)
(487.5)
Debited to the profit or loss
(27.6)
(21.6)
Charged to equity
24.6
(36.5)
Foreign exchange movements
(13.6)
(16.8)
Tax rate change
–
96.5
Closing balance at 30 September
(482.5)
(465.9)
Key accounting policies
Income tax expense
Income tax expense comprises current tax (amounts payable or
receivable within 12 months) and deferred tax (amounts payable
or receivable after 12 months). Tax expense is recognised in the
profit or loss, unless it relates to items that have been recognised
in equity (as part of other comprehensive income). In this
instance, the related tax expense is also recognised in equity.
Current tax
Current tax is the expected tax payable on the taxable
income for the year. It is calculated using tax rates applicable
at the reporting date, and any adjustments to tax payable in
respect of previous years.
Deferred tax
Deferred tax is recognised for all taxable temporary differences
and is calculated based on the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for taxation purposes. Deferred tax is measured at the tax rates
that are expected to be applied when the asset is realised or the
liability is settled, based on the laws that have been enacted or
substantively enacted at the reporting date.
Deferred tax assets are recognised only to the extent that it
is probable that future taxable profits will be available
against which the assets can be utilised. Deferred tax assets
are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the related tax
benefits will be realised.
Offsetting tax balances
Tax assets and liabilities are offset when the Group has a legal
right to offset and intends either to settle on a net basis or to
realise the asset and settle the liability simultaneously.
Tax consolidation
For details on the Company’s tax consolidated group refer to
note 21.
73
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
3. Taxation (continued)
Movements in net deferred tax liabilities
The table below sets out movements in net deferred tax
balances for the period ended 30 September:
Key estimates and judgments
Uncertain tax matters
The Group is subject to income taxes in Australia and
foreign jurisdictions and as a result the calculation of the
Group’s tax charge involves a degree of estimation and
judgment in respect of certain items. In addition, there are
transactions and calculations relating to the ordinary
course of business for which the ultimate tax
determination is uncertain. The Group recognises liabilities
for potential tax audit issues based on management’s
assessment of whether additional taxes may be payable.
Where the final tax outcome of these matters is different
from the amounts that were initially recorded, these
differences impact the current and deferred tax provisions
in the period in which such determination is made.
4. Trade and other assets and liabilities
The Group’s total trade and other assets and liabilities
consists of inventory, receivables and payables balances, net
of provisions for any impairment losses.
30 September 2019
Trade
$mill
Other
$mill
Total
$mill
Inventories
600.9 – 600.9
Receivables
286.2 77.9 364.1
Payables
(883.0) (286.4) (1,169.4)
4.1 (208.5) (204.4)
30 September 2018
Trade
$mill
Other
$mill
Total
$mill
Inventories 494.9 – 494.9
Receivables 289.2 34.9 324.1
Payables (835.9) (222.7) (1,058.6)
(51.8) (187.8) (239.6)
Inventory by category:
2019
$mill
2018
$mill
Raw materials and stores
137.1
101.8
Work-in-progress
61.3
55.2
Finished goods
416.2
348.5
Provisions
(13.7)
(10.6)
Total inventory balance
600.9
494.9
Provision movement:
30 September 2019
Trade
receivables
$mill
Inventories
$mill
Carrying amount at 1 October 2018
(28.7) (10.6)
Provisions made during the year
(3.1) (3.6)
Provisions written back during the year
4.9 –
Amounts written off against provisions
0.9 0.9
Foreign exchange rate movements
(2.1) (0.4)
Carrying amount at 30 September 2019
(28.1) (13.7)
Receivables ageing and provision for impairment
Included in the following table is an age analysis of the
Group’s trade receivables, along with impairment provisions
against these balances at 30 September:
30 September 2019
Gross
$mill
Impairment
$mill
Net
$mill
Current
278.7 (2.0) 276.7
30–90 days
8.9 (2.2) 6.7
Over 90 days
26.7 (23.9) 2.8
Total
314.3 (28.1) 286.2
30 September 2018
Gross
$mill
Impairment
$mill
Net
$mill
Current 283.6 (1.6) 282.0
30–90 days 5.2 (0.9) 4.3
Over 90 days 29.1 (26.2) 2.9
Total 317.9 (28.7) 289.2
74
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Financial performance
For the year ended 30 September 2019
Key accounting policies
Inventories
Inventories are valued at the lower of cost and net realisable
value. The cost of manufactured goods is based on a
weighted average costing method. For third party sourced
goods, cost is net cost into store.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value plus any directly attributable transaction costs.
Subsequent to initial measurement they are measured at
amortised cost less any provisions for expected impairment
losses or actual impairment losses. Credit losses and
recoveries of items previously written off are recognised in
the profit or loss.
Where substantially all risks and rewards relating to a
receivable are transferred to a third party, the receivable is
derecognised.
To manage cash inflows which are impacted by seasonality
and demand and supply variability, the Group has a non-
recourse receivable purchasing agreement to sell certain
receivables to an unrelated entity in exchange for cash. As at
30 September 2019, receivables totaling $216.3m (2018:
$188.0m) had been sold under this arrangement. The
receivables were derecognised upon sale as substantially all
risks and rewards associated with the receivables passed to
the purchaser.
12.5
10.0
7.5
5.0
2.5
0
(2.5)
%
Explosives (DNA, DNAP)
Fertilisers
25
20
15
10
5
0
Cents
Earnings per share (including individually material items)
Earnings per share (before individually material items)
Dividend declared in respect of the financial year
Group
FY15 FY16 FY17 FY18 FY19
1200
1000
800
600
400
200
0
AUDm
Available limits
Drawn funds
144A/reg S
USD800m
Bank facility
AUD260m
Bank facility
USD220m
Bank facility
USD500m
Reg S
USD400m
Maturity
Date
Dec 19 Aug 21 Aug 21 Oct 21 Aug 27
Bond
AUD450m
Mar 26
Reg S
HKD560m
Feb 26
2015 2016 2017 2018 2019
13 month rolling average trade working capital*/
Annual net revenue
4. Trade and other assets and liabilities
(continued)
The graph below shows the Group’s trade working capital
(trade assets and liabilities) performance over a five year
period.
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Trade and other payables
Trade and other payables are stated at cost and represent
liabilities for goods and services provided to the Group prior
to the end of financial year, which are unpaid at the
reporting date.
To manage the cash flow conversion cycle on some products
procured by the Group, and to ensure that suppliers receive
payment in a time period that suits their business model,
the Group offers some suppliers the opportunity to use
supply chain financing. At 30 September 2019, the balance
of the supply chain finance program was $306.5m (2018:
$316.4m). The Group evaluates supplier arrangements
against a number of indicators to assess if the payable
continues to have the characteristics of a trade payable or
should be classified as borrowings. These indicators include
whether the payment terms exceed customary payment
terms in the industry. At 30 September 2019, none of the
payables subject to supplier financing arrangements met the
characteristics to be classified as borrowings and the
balances remained in trade payables.
Key estimates and judgments
The expected impairment loss calculation for trade
receivables considers the impact of past events, and
exercises judgment over the impact of current and future
economic conditions when considering the recoverability
of outstanding trade receivable balances at the reporting
date. Subsequent changes in economic and market
conditions may result in the provision for impairment
losses increasing or decreasing in future periods.
* Trade working capital is reported net of debtor factoring and supply chain
financing arrangements.
75
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Shareholder returns
For the year ended 30 September 2019
5. Earnings per share
2019
Cents per share
2018
Cents per share
Basic earnings per share
including individually
material items 9.5 12.5
excluding individually
material items 9.5 20.9
Diluted earnings per share
including individually
material items 9.4 12.5
excluding individually
material items 9.4 20.8
Number
Number
Weighted average number of
ordinary shares used in the
calculation of basic earnings
per share
1,610,122,059 1,664,616,914
Weighted average number of
ordinary shares used in the
calculation of diluted earnings
per share
1,613,569,524 1,667,794,091
Reconciliation of earnings used in the calculation
of basic and diluted earnings per share
2019
$mill
2018
$mill
Profit attributable to ordinary shareholders
152.4
207.9
Individually material items after income tax
–
139.5
Profit attributable to ordinary shareholders
excluding individually material items 152.4 347.4
The graph below shows the Group’s earnings per share and
dividend payout over the last five years.
6. Dividends
Dividends paid or declared by the Company in the year
ended 30 September were:
2019
$000
2018
$000
Ordinary shares
Final dividend of 4.9 cents per share,
unfranked, paid 19 December 2017
–
82,671
Interim dividend of 4.5 cents per share,
unfranked, paid 2 July 2018
–
74,749
Final dividend of 6.2 cents per share,
20 percent franked, paid 17 December 2018
100,848
–
Interim dividend of 1.3 cents per share,
unfranked, paid 1 July 2019
20,875
–
Total ordinary share dividends
121,723
157,420
Since the end of the financial year, the directors have
determined to pay a final dividend of 3.4 cents per share,
30 percent franked, to be paid on 8 January 2020. The record
date for entitlement to this dividend is 2 December 2019.
The total dividend payment of $54.6m will be paid in cash
or as part of the Dividend Reinvestment Plan which has
been reinstated at a discount of 2 percent.
The financial effect of this dividend has not been recognised
in the 2019 Consolidated Financial Statements and will be
recognised in subsequent Financial Reports.
Consistent with recent years, the dividend reflects a payout
ratio of approximately 50 percent of net profit after tax
(before individually material items).
Franking credits
Franking credits available to shareholders of the Company
were $7.6m (2018: $9.5m). The final dividend for 2019
is 30 percent franked.
Key accounting policies
A provision for dividends payable is recognised in the
reporting period in which the dividends are paid. The
provision is for the total undistributed dividend amount,
regardless of the extent to which the dividend will be paid
in cash.
12.5
10.0
7.5
5.0
2.5
0
(2.5)
%
Explosives (DNA, DNAP)
Fertilisers
25
20
15
10
5
0
Cents
Earnings per share (including individually material items)
Earnings per share (before individually material items)
Dividend declared in respect of the financial year
Group
FY15 FY16 FY17 FY18 FY19
1200
1000
800
600
400
200
0
AUDm
Available limits
Drawn funds
144A/reg S
USD800m
Bank facility
AUD260m
Bank facility
USD220m
Bank facility
USD500m
Reg S
USD400m
Maturity
Date
Dec 19 Aug 21 Aug 21 Oct 21 Aug 27
Bond
AUD450m
Mar 26
Reg S
HKD560m
Feb 26
2015 2016 2017 2018 2019
Company performance and dividends declared
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2019
76
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
7. Capital management
Capital is defined as the amount subscribed by shareholders
to the Company’s ordinary shares and amounts advanced by
debt providers to any Group entity. The Group’s objectives
when managing capital are to safeguard its ability to
continue as a going concern while providing returns to
shareholders and benefits to other stakeholders.
The Group’s key strategies for maintenance of an optimal
capital structure include:
l
Aiming to maintain an investment grade credit profile
and the requisite financial metrics.
l
Securing access to diversified sources of debt funding
with a spread of maturity dates and sufficient undrawn
committed facility capacity.
l
Optimising over the long term, to the extent practicable,
the Group’s Weighted Average Cost of Capital (WACC),
while maintaining financial flexibility.
In order to optimise its capital structure, the Group may
undertake one or a combination of the following actions:
l
change the amount of dividends paid to shareholders
and/or offer a dividend reinvestment plan with or without
a discount and/or with or without an underwriting facility
when appropriate;
l
return capital or issue new shares to shareholders;
l
vary discretionary capital expenditure;
l
raise new debt funding or repay existing debt balances;
and
l
draw down additional debt or sell non-core assets to
reduce debt.
Key financial metrics
The Group uses a range of financial metrics to monitor the
efficiency of its capital structure, including EBITDA interest
cover and Net debt/EBITDA before individually material
items. Financial metric targets are maintained inside debt
covenant restrictions. At 30 September the Group’s position
in relation to these metrics was:
Target range 2019 2018
Net debt/EBITDA (times)
equal or less than 2.5 2.8
1.6
Interest cover (times)
equal or more than 6.0 4.6
7.3
These ratios are impacted by a number of factors, including
the level of cash retained from operating cash flows
generated by the Group after paying all of its commitments
(including dividends or other returns of capital), movements
in foreign exchange rates, changes to market interest rates
and the fair value of hedges economically hedging the
Group’s net debt.
The significant one-off event which occured during the year
(refer note 2) resulted in an increase in the Net debt/EBITDA
ratio to 2.8 times at 30 September 2019 and an Interest
cover ratio of 4.6 times. Although these ratios fall within
loan covenant requirements, the Group is targeting a ratio of
below 2.5 times for Net debt/EBITDA and above 6 times for
the Interest cover ratio. It is expected these measures will
return within their target range over the next 12 months as
the impact of one-off events recedes.
Self-insurance
The Group also self-insures for certain insurance risks under
the Singapore Insurance Act. Under this Act, authorised
general insurer, Coltivi Insurance Pte Limited (the Group’s
self-insurance company), is required to maintain a minimum
amount of capital. For the financial year ended 30
September 2019, Coltivi Insurance Pte Limited maintained
capital in excess of the minimum requirements prescribed
under this Act.
Issued capital
Ordinary shares
Ordinary shares issued are classified as equity and are fully
paid, have no par value and carry one vote per share and
the right to dividends. Incremental costs directly attributable
to the issue of new shares are recognised as a deduction
from equity, net of any related income tax benefit.
Issued capital as at 30 September 2019 amounted to
$3,136.8m (1,605,783,967 ordinary shares). During the
financial year ended 30 September 2019, the Company
bought back and cancelled 24,429,606 shares (2018:
56,956,948) at an average price per share of 3.672 (2018:
3.693), thereby completing its $300m share buy-back
program on 18 December 2018.
77
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2019
8. Net debt
The Group’s net debt comprises the net of interest bearing
liabilities, cash and cash equivalents, and the fair value of
derivative instruments economically hedging the foreign
exchange rate and interest rate exposures of the Group’s
interest bearing liabilities at the reporting date. The Group’s
net debt at 30 September is analysed as follows:
Notes
2019
$mill
2018
$mill
Interest bearing liabilities
2,656.4
2,374.8
Cash and cash equivalents
(576.4)
(588.5)
Fair value of derivatives (16)
(388.6)
(414.7)
Net debt 1,691.4
1,371.6
At 30 September 2019, the Group’s Net debt/EBITDA before
individually material items was 2.8 times (2018: 1.6 times).
Refer note 7 for detail on the key financial metrics related to
the Group’s capital structure.
Interest bearing liabilities
The Group’s interest bearing liabilities are unsecured and
expose it to various market and liquidity risks. Details of
these risks and their mitigation are included in note 16.
The following table details the interest bearing liabilities of
the Group at 30 September:
2019
$mill
2018
$mill
Current
Other loans
12.6
1.3
Loans from joint ventures
17.0
11.8
Fixed interest rate bonds
1,183.8
199.8
1,213.4
212.9
Non-current
Other loans
7.4
4.5
Bank facilities
293.0
499.6
Fixed interest rate bonds
1,142.6
1,657.8
1,443.0
2,161.9
Total interest bearing liabilities 2,656.4
2,374.8
Fixed Interest Rate Bonds
The Group has on issue the following fixed interest rate bonds:
l
USD800m 10 year bond on issue in the US 144A/
Regulation S debt capital market. The bond has a fixed rate
semi-annual coupon of 6 percent and matures in December
2019. As part of the Group’s refinancing program, USD500m
of Notes in the US Private Placement market were funded
in October 2019. USD250m has a fixed rate semi-annual
coupon of 4.03 percent and matures in October 2028 and
USD250m has a fixed rate semi-annual coupon of 4.13
percent and matures in October 2030.
l
HKD560m 7 year bond as a private placement in the
Regulation S debt capital market. The bond has a fixed
rate annual coupon of 4.13 percent and matures in
February 2026.
l
AUD450m 7 year bond on issue in the Australian debt
capital market. The bond has a fixed rate semi-annual
coupon of 4.30 percent and matures in March 2026.
l
USD400m 10 year bond on issue in the Regulation S debt
capital market. The bond has a fixed rate semi-annual
coupon of 3.95 percent and matures in August 2027.
Bank Facilities
The Group holds the following committed bank facilities:
l
3 year facility domiciled in Australia, entered into in
August 2018, consisting of two tranches: Tranche A has a
limit of AUD260m and Tranche B has a limit of USD220m.
The facility matures in August 2021.
l
5 year facility of USD500m domiciled in the US, entered into
in August 2015, with an initial maturity of August 2020. In
2017 the maturity was extended to October 2021.
l
1.5 year bridge facility of USD350m entered into in March
2019 domiciled in the US. This facility was cancelled
following the funding of the USD500m Notes in the US
Private Placement market.
Tenor of interest bearing liabilities
The Group’s average tenor of its drawn interest bearing
liabilities at 30 September 2019 is 3.4 years (2018: 3.3
years). After taking into account the funding of the USD500m
Notes in the US Private Placement market and the maturity
of the USD800m bond along with the cancellation of the
USD350m bridge facility, the Group’s average tenor of its
debt facilities is expected to be 5.7 years.
The table below includes detail on the movements in the Group’s interest bearing liabilities.
Cash flow Non-cash changes
30 September 2019
1 October
2018
$mill
Proceeds
from
borrowings
$mill
Repayments
of borrowings
$mill
Acquisition of
Subsidiaries
$mill
Foreign
exchange
movement
$mill
Funding costs
& fair value
adjustments
$mill
30
September
2019
$mill
Reclassification
$mill
Current
Other loans
1.3 2.5 (2.9) 8.3 2.9 0.5 – 12.6
Loans from joint ventures
11.8 4.3 – – – 0.9 – 17.0
Fixed interest rate bonds 199.8
– (200.0) – 1,109.3 73.1 1.6 1,183.8
Non-current
Other loans
4.5 – – 5.5 (2.9) 0.3 – 7.4
Bank facilities
499.6 – (210.0) – – 1.7 1.7 293.0
Fixed interest rate bonds
1,657.8 546.9 – – (1,109.3) 40.7 6.5 1,142.6
Total liabilities from financing activities
2,374.8 553.7 (412.9) 13.8 – 117.2 9.8 2,656.4
Derivatives held to hedge interest
bearing liabilities
(414.7) – (16.8) – – 57.9 (15.0) (388.6)
Debt after hedging
1,960.1 553.7 (429.7) 13.8 – 175.1 (5.2) 2,267.8
78
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Capital structure
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
8. Net debt (continued)
Interest bearing liabilities (continued)
Cash and cash equivalents
Cash and cash equivalents at 30 September 2019 were
$576.4m (2018: $588.5m) and consisted of cash at bank of
$101.4m (2018: $126.8m) and short term investments of
$475.0m (2018: $461.7m).
Key accounting policies
Interest bearing liabilities
Interest bearing liabilities are initially recognised at fair value
less any directly attributable borrowing costs. Subsequent to
initial recognition, interest bearing liabilities are measured at
amortised cost using the effective interest method, with any
difference between cost and redemption value recognised in
the profit or loss over the period of the borrowings.
The Group derecognises interest bearing liabilities when its
obligation is discharged, cancelled or expires. Any gains and
losses arising on derecognition are recognised in the profit or
loss.
Interest bearing liabilities are classified as current
liabilities, except for those liabilities where the Group
has an unconditional right to defer settlement for at
least 12 months after the year end, which are classified
as non-current.
Cash and cash equivalents
Cash includes cash at bank, cash on hand and short term
investments, net of bank overdrafts.
Borrowing costs
Borrowing costs include interest on borrowings and the
amortisation of premiums relating to borrowings.
Borrowing costs are expensed as incurred, unless they relate
to qualifying assets (refer note 9). In this instance, the
borrowing costs are capitalised and depreciated over the
asset’s expected useful life.
12.5
10.0
7.5
5.0
2.5
0
(2.5)
%
Explosives (DNA, DNAP)
Fertilisers
25
20
15
10
5
0
Cents
Earnings per share (including individually material items)
Earnings per share (before individually material items)
Dividend declared in respect of the financial year
Group
FY15 FY16 FY17 FY18 FY19
1200
1000
800
600
400
200
0
AUDm
Available limits
Drawn funds
144A/reg S
USD800m
Bank facility
AUD260m
Bank facility
USD220m
Bank facility
USD500m
Reg S
USD400m
Maturity
Date
Dec 19 Aug 21 Aug 21 Oct 21 Aug 27
Bond
AUD450m
Mar 26
Reg S
HKD560m
Feb 26
2015 2016 2017 2018 2019
Interest rate profile
The table below summarises the Group’s interest rate
profile of its interest bearing liabilities, net of hedging,
at 30 September:
2019
$mill
2018
$mill
Fixed interest rate financial instruments
2,266.8
1,931.8
Variable interest rate financial instruments
389.6
443.0
2,656.4
2,374.8
Detail on the Group’s interest hedging profile and duration is
included in note 16.
Funding profile
The graph below details the Group’s available funding limits,
its maturity dates and drawn funds at 30 September 2019:
Cash flow Non-cash changes
30 September 2018
1 October
2017
$mill
Proceeds
from
borrowings
$mill
Repayments
of borrowings
$mill
Foreign
exchange
movement
$mill
Funding costs
& fair value
adjustments
$mill
30
September
2018
$mill
Reclassification
$mill
Current
Other loans
1.3 – (1.3) 1.3 – – 1.3
Loans from joint ventures
10.8 – – – 1.0 – 11.8
Bank facilities
– – (503.0) 474.9 27.6 0.5 –
Fixed interest rate bonds
– – – 200.0 – (0.2) 199.8
Non-current
Other loans
5.4 – – (1.3) 0.4 – 4.5
Bank facilities
472.4 501.4 – (474.9) – 0.7 499.6
Fixed interest rate bonds
1,734.2 – – (200.0) 134.8 (11.2) 1,657.8
Total liabilities from financing activities
2,224.1 501.4 (504.3) – 163.8 (10.2) 2,374.8
Derivatives held to hedge interest bearing liabilities
(304.3) – – – (118.0) 7.6 (414.7)
Debt after hedging
1,919.8 501.4 (504.3) – 45.8 (2.6) 1,960.1
The Group has undrawn financing facilities of $1,029.1m
(2018: $756.0m) at 30 September 2019.
79
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2019
9. Property, plant and equipment
Notes
Freehold land
and buildings
$mill
Machinery,
plant and
equipment
$mill
Work in
progress
$mill
Total
$mill
At 1 October 2017
Cost 910.5 4,608.4 112.7 5,631.6
Accumulated depreciation (270.6) (1,506.2) – (1,776.8)
Net book amount 639.9 3,102.2 112.7 3,854.8
Year ended 30 September 2018
Opening net book amount 639.9 3,102.2 112.7 3,854.8
Additions 6.0 13.7 245.2 264.9
Subsidiaries acquired 1.9 3.1 – 5.0
Disposals – (3.8) – (3.8)
Depreciation (2) (27.4) (244.1) – (271.5)
Impairment of assets (2) – (4.0) – (4.0)
Reclassification from work in progress 28.1 224.9 (253.0) –
Foreign exchange movement 20.6 134.4 3.9 158.9
Closing net book amount 669.1 3,226.4 108.8 4,004.3
At 30 September 2018
Cost 969.2 4,934.2 108.8 6,012.2
Accumulated depreciation (300.1) (1,707.8) – (2,007.9)
Net book amount 669.1 3,226.4 108.8 4,004.3
Year ended 30 September 2019
Opening net book amount
669.1 3,226.4 108.8 4,004.3
Additions
9.5 3.9 344.7 358.1
Subsidiaries acquired
2.0 2.4 – 4.4
Disposals
(7.0) (6.1) – (13.1)
Depreciation (2)
(29.7) (248.2) – (277.9)
Impairment of assets (2)
(0.4) (11.1) – (11.5)
Reclassification from work in progress
56.4 205.0 (261.4) –
Foreign exchange movement
18.1 102.9 4.7 125.7
Closing net book amount
718.0 3,275.2 196.8 4,190.0
At 30 September 2019
Cost
1,047.2 5,248.7 196.8 6,492.7
Accumulated depreciation
(329.2) (1,973.5) – (2,302.7)
Net book amount
718.0 3,275.2 196.8 4,190.0
Key accounting policies
Property, plant and equipment is measured at cost, less
accumulated depreciation and any impairment losses.
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, only when it is probable that
future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably.
Borrowing costs in relation to the funding of qualifying assets
are capitalised and included in the cost of the asset. Qualifying
assets are assets that take more than 12 months to get ready
for their intended use or sale. Where funds are borrowed
generally, a weighted average interest rate is used for the
capitalisation of interest.
Property, plant and equipment is subject to impairment
testing. For details of impairment of assets, refer note 11.
Depreciation
Property, plant and equipment, other than freehold land, is
depreciated on a straight-line basis. Freehold land is not
depreciated. Depreciation rates are calculated to spread the
cost of the asset (less any residual value), over its estimated
useful life. Residual value is the estimated value of the asset
at the end of its useful life.
Estimated useful lives for each class of asset are as follows:
• Buildings and improvements 20 – 50 years
• Machinery, plant and equipment 3 – 50 years
Residual values and useful lives are reviewed and adjusted
where relevant when changes in circumstances impact the
use of the asset.
80
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
10. Intangibles
Notes
Software
$mill
Goodwill
$mill
Patents, trademarks
& customer contracts
$mill
Brand names
$mill
Total
$mill
At 1 October 2017
Cost 102.7 2,731.7 271.9 280.0 3,386.3
Accumulated amortisation (84.3) – (181.0) – (265.3)
Net book amount 18.4 2,731.7 90.9 280.0 3,121.0
Year ended 30 September 2018
Opening net book amount 18.4 2,731.7 90.9 280.0 3,121.0
Additions 32.0 – – – 32.0
Subsidiaries acquired – 0.1 2.2 – 2.3
Impairment of assets (2) (0.6) (236.0) – – (236.6)
Amortisation (2) (4.2) – (18.6) – (22.8)
Foreign exchange movement 0.9 122.6 5.9 21.3 150.7
Closing net book amount 46.5 2,618.4 80.4 301.3 3,046.6
At 30 September 2018
Cost 136.5 2,618.4 292.3 301.3 3,348.5
Accumulated amortisation (90.0) – (211.9) – (301.9)
Net book amount 46.5 2,618.4 80.4 301.3 3,046.6
Year ended 30 September 2019
Opening net book amount
46.5 2,618.4 80.4 301.3 3,046.6
Additions
22.7 – – – 22.7
Subsidiaries acquired
– 5.6 2.9 – 8.5
Amortisation (2)
(5.5) – (18.2) – (23.7)
Foreign exchange movement
3.9 100.5 3.8 17.2 125.4
Closing net book amount
67.6 2,724.5 68.9 318.5 3,179.5
At 30 September 2019
Cost
166.2 2,724.5 309.9 318.5 3,519.1
Accumulated amortisation
(98.6) – (241.0) – (339.6)
Net book amount
67.6 2,724.5 68.9 318.5 3,179.5
Brand names
Brand names acquired by the Group have indefinite useful
lives and are measured at cost less accumulated impairment.
They are tested annually for impairment, or more frequently if
events or circumstances indicate that they might be impaired.
Other intangible assets
Other intangible assets acquired by the Group have finite lives.
They are stated at cost less accumulated amortisation and
impairment losses.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised
only when it increases the future economic benefits of the
asset to which it relates. All other such expenditure is
expensed as incurred.
Amortisation
Goodwill and brand names are not amortised.
For intangible assets with finite lives, amortisation is
recognised in the profit or loss on a straight-line basis over
their estimated useful life. The estimated useful lives of
intangible assets in this category are as follows:
• Software 3 – 7 years
• Product trademarks 4 – 10 years
• Patents 13 – 15 years
• Customer contracts 10 – 17 years
Useful lives are reviewed at each reporting date and
adjusted where relevant.
Allocation of indefinite life intangible assets
The Group’s indefinite life intangible assets are allocated to
groups of cash generating units (CGUs) as follows:
30 September 2019
Goodwill
$mill
Brand names
$mill
Total
$mill
Incitec Pivot Fertilisers (IPF) 183.8 – 183.8
Southern Cross International (SCI)
2.7 – 2.7
Dyno Nobel Asia Pacific (DNAP)
908.5 40.3 948.8
Dyno Nobel Americas (DNA)
1,629.5 278.2 1,907.7
2,724.5 318.5 3,043.0
30 September 2018
Goodwill
$mill
Brand names
$mill
Total
$mill
Incitec Pivot Fertilisers (IPF) 183.8 – 183.8
Southern Cross International (SCI) 2.5 – 2.5
Dyno Nobel Asia Pacific (DNAP) 908.5 40.3 948.8
Dyno Nobel Americas (DNA) 1,523.6 261.0 1,784.6
2,618.4 301.3 2,919.7
Key accounting policies
Goodwill
Goodwill on acquisition of subsidiaries is measured at cost
less any accumulated impairment losses. Goodwill is tested
for impairment annually, or more frequently if events or
circumstances indicate that it might be impaired.
81
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2019
11. Impairment of goodwill and
non-current assets
Impairment testing of goodwill
The Group’s impairment testing at 30 September 2019
resulted in no impairment of any CGU as the recoverable
amounts of IPL’s CGUs, being IPF, SCI, DNAP and DNA
exceeded their carrying amounts. The events announced by
the Group in 2019 included the rail outage caused by extreme
weather events in northern Queensland that impacted the
2019 financial results of the SCI CGU and gas supply
restrictions as a result of a gas pipeline rupture that impacted
the financial results of the DNA CGU. The financial impacts of
these events were not considered structural long-term
changes that impact future cash flows of the CGUs. As a result,
the recoverable amounts of IPL’s CGUs continued to exceed
their carrying amounts at 30 September 2019.
Key assumptions
Details of the key assumptions used in the recoverable
amount calculations at 30 September are set out below:
Key
assumptions 1 – 5 years
Terminal value
(after 5 years)
2019
2018
2019
2018
US$
US$
US$
US$
DAP
(1)
340 to 455
380 to 463
518
523
Urea
(2)
275 to 332
260 to 343
379
366
Gas (DNA CGU)
(3)
2.65 to 3.29
3.00 to 3.45
3.11
3.43
Ammonia
(4)
310 to 389
300 to 389
444
406
AUD:USD
(5)
0.68 to 0.73
0.75 to 0.76
0.73
0.75
(1) Di-Ammonium Phosphate price (FOB Tampa – USD per tonne).
(2) Granular Urea price (FOB Middle East – USD per tonne).
(3) Henry Hub natural gas price (USD per mmbtu).
(4) Ammonia price (CFR Tampa – USD per tonne).
(5) AUD:USD exchange rate.
For both DNAP and IPF, the gas price assumption for the
period after the current gas contracts expire, is based on a
long term gas production cost forecast of between $6.70 and
$7.00 per gigajoule.
Fertiliser prices, foreign exchange rates and natural gas
prices are estimated by reference to external market
publications and market analyst estimates, and are updated
at each reporting date.
Discount and growth rates
The post-tax discount rate used in the calculations is 9%
(2018: 9%) for the IPF and SCI CGUs and 8.5% for the DNA
and DNAP CGUs (2018: 8.5%). The rate reflects the underlying
cost of capital adjusted for market and asset specific risks.
The terminal value growth rate represents the forecast
consumer price index (CPI) of 2.5% (2018: 2.5%) for all CGUs.
Sensitivity analyses
Included in the table below is a sensitivity analysis of the
recoverable amounts and, where applicable, the impairment
charge considering reasonable change scenarios relating to
key assumptions at 30 September 2019:
Post-tax
discount
rate
Terminal
value
growth
rate
Natural gas
price
+0.5% -1.0%
+AU$1 per
gigajoule
DNAP AU$mill AU$mill AU$mill
– Value-in-use (191.1) (290.5) (53.5)
– Impairment charge – (69.6) –
Post-tax
discount
rate
Ammonia
price
Terminal
value
growth rate
Natural gas
price
+0.5%
-US$50
per tonne -1.0%
+US$1 per
mmbtu
DNA US$mill US$mill US$mill US$mill
– Value-in-use (323.6) (373.0) (466.5) (307.8)
– Impairment charge – – – –
Post-tax
discount
rate
AUD:USD
exchange
rate
Terminal
value
growth rate
DAP
Price
+0.5%
+5c
-1.0%
-US$50
per tonne
SCI AU$mill AU$mill AU$mill AU$mill
– Value-in-use (67.7) (355.7) (132.5) (605.0)
– Impairment charge – – – (244.2)
Post-tax
discount
rate Urea price
Terminal
value
growth rate
Natural gas
price
+0.5%
-US$50
per tonne
-1.0%
+AUD1 per
gigajoule
IPF AU$mill AU$mill AU$mill AU$mill
– Value-in-use
(66.2) (223.3) (95.1) (114.1)
– Impairment charge
– – – –
Each of the sensitivities above assumes that a specific
assumption moves in isolation, while all other assumptions
are held constant. A change in one of the aforementioned
assumptions could be accompanied by a change in another
assumption, which may increase or decrease the net impact.
Impairment of other property, plant and equipment
During the year ended 30 September 2019 property, plant and
equipment was impaired by $11.5m (2018: $4.0m) as a result
of the Group’s fixed asset verification procedures and the
abandonment of certain assets.
As at 31 March 2016, the Group recognised a non-cash
impairment charge of $150.8m against the Gibson Island assets
largely due to the impact of lower forecast fertiliser prices and
higher cost of natural gas delivered to the Australian East Coast.
In 2018, the Group announced that it had entered into a joint
operation with Central Petroleum Limited for the development
of acreage in Queensland that could deliver economic gas to
the Gibson Island manufacturing facility in future. If feasibility
of the acreage development is proven, gas could be available
from 2022.
In June 2019, the Group announced that it had entered into
multiple arrangements for the supply of gas to allow
continuation of manufacturing operations at its Gibson Island
plant through to 31 December 2022.
As the long term gas supply of Gibson Island facility remains
dependent on the outcome of the gas acreage development,
there was no reversal of the previously recognised impairment
or any further impairment charge. Any potential reversal of
the previous impairment will be dependent on the results of
the drilling activities and other economic factors at that time.
82
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
11. Impairment of goodwill and
non-current assets (continued)
Key accounting policies
Impairment testing
The Group performs annual impairment testing as at 30
September for intangible assets with indefinite useful lives.
More frequent reviews are performed for indicators of
impairment of all the Group’s assets, including operating
assets. The identification of impairment indicators involves
management judgement. Where an indicator of impairment is
identified, a formal impairment assessment is performed.
The Group’s annual impairment testing determines whether
the recoverable amount of a CGU or group of CGUs, to which
goodwill and/or indefinite life intangible assets are allocated,
exceeds its carrying amount.
A CGU is the smallest identifiable group of assets that
generate cash flows largely independent of cashflows of other
groups of assets. Goodwill and other indefinite life intangible
assets are allocated to CGUs or groups of CGUs which are no
larger than one of the Group’s reportable segments.
Determining the recoverable amount
The recoverable amount of an asset is determined as the
higher of its fair value less cost of disposal and its value-in-
use. Value-in-use is a term that means an asset’s value based
on the expected future cash flows arising from its continued
use in its current condition, discounted to present value. For
discounting purposes, a post-tax rate is used that reflects
current market assessments of the risks specific to the asset.
The Group has prepared value-in-use models for the purpose
of impairment testing as at 30 September 2019, using five
year discounted cash flow models based on Board approved
forecasts. Cash flows beyond the five year period are
extrapolated using a terminal value growth rate.
Impairment losses
An impairment loss is recognised whenever the carrying
amount of an asset (or its CGU) exceeds its recoverable
amount. Impairment losses are recognised in the profit or loss.
Impairment losses recognised in respect of CGUs are allocated
against assets in the following order:
• Firstly, against the carrying amount of any goodwill
allocated to the CGU.
• Secondly, against the carrying amount of any remaining
assets in the CGU.
An impairment loss recognised in a prior period for an asset
other than goodwill (or its CGU) may be reversed only if
there has been a change in the estimates used to determine
the recoverable amount of the asset (or its CGU) since the
last impairment loss was recognised. When this is the case,
the carrying amount of the asset is increased to its
recoverable amount.
Key estimates and judgments
The Group is required to make significant estimates and
judgments in determining whether the carrying amount of
its assets and/or CGUs has any indication of impairment,
in particular in relation to:
• key assumptions used in forecasting future cash flows;
• discount rates applied to those cash flows; and
• the expected long term growth in cash flows.
Such estimates and judgments are subject to change as a
result of changing economic, operational, environmental
and weather conditions. Actual cash flows may therefore
differ from forecasts and could result in changes in the
recognition of impairment charges in future periods.
12. Commitments
Capital expenditure commitments
Capital expenditure contracted but not provided for or
payable at 30 September:
2019
$mill
2018
$mill
no later than one year
72.5
84.2
later than one, no later than five years
–
–
72.5
84.2
Lease commitments
Non-cancellable operating lease commitments comprise a
number of operating lease arrangements for the provision of
certain property and equipment. These leases have varying
durations and expiry dates. The future minimum rental
commitments are as follows at 30 September:
2019
$mill
2018
$mill
no later than one year
43.8
40.9
later than one, no later than five years
98.4
99.6
later than five years
91.1
101.0
233.3
241.5
Key accounting policies
Leases are accounted for as either finance leases or
operating leases.
Finance leases
Under the terms of a finance lease, the Group assumes most
of the risks and benefits associated with ownership of the
leased asset.
Assets subject to finance leases are measured at the present
value of the minimum lease payments. The leased asset is
amortised on a straight-line basis over the period that
benefits are expected to flow from its use. A corresponding
liability is established for the lease payments. Each lease
payment is allocated between finance charges and reduction
of the liability.
Operating leases
Under the terms of an operating lease, the Group does not
assume the risks and benefits associated with ownership of
the leased asset. Payments made under operating leases are
shown as lease payments in the Consolidated Statement of
Profit or Loss and Other Comprehensive Income.
Issued standards not early adopted
AASB 16 specifies how to recognise, measure and disclose
leases. Under AASB 16, the present value of these commitments
would be shown as a liability on the balance sheet together
with an asset representing the right-of-use. The Group does not
intend to bring short term leases (12 months or less) or low
value leases on balance sheet.
The Group will apply AASB 16 with effect from 1 October 2019,
using the modified retrospective approach. In accordance with
this approach, the lease liability will be calculated using the
incremental borrowing rate at date of transition. The difference
between the asset and liability (net of tax), will be recognised
as an adjustment to opening retained earnings on 1 October
2019 with no restatement to comparative information.
83
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2019
13. Equity accounted investments
The Group has performed an analysis of the statements of
financial position and the results of each of its joint ventures
and associates (as listed in note 14) at 30 September 2019
and considers them to be individually immaterial to the
Group. As a result, no individual disclosures are included for
the Group’s investments in joint ventures and associates.
Included in the table below is the summarised financial
information of the Group’s joint ventures and associates at
30 September:
Carrying amount of joint ventures and associates
Notes
2019
$mill
2018
$mill
Carrying amount at 1 October 336.1 316.9
Share of net profit
44.9
44.7
Share in joint venture transferred to
controlled entities
(5.7)
(5.7)
Dividends received/receivable
(27.5)
(29.9)
Foreign exchange movement
9.9
10.1
Carrying amount at 30 September 357.7 336.1
Carrying amount of investments in:
Joint ventures
287.8
274.2
Associates
69.9
61.9
Carrying amount of investments in
joint ventures and associates 357.7 336.1
Transactions between subsidiaries of the Group
and joint ventures and associates
2019
$mill
2018
$mill
Sales of goods/services 418.8 374.6
Purchase of goods/services
(43.8)
(34.6)
Management fees/royalties
33.0
29.4
Interest income
0.5
0.5
Interest expense
(0.4)
(0.4)
Dividend income
27.5
29.9
Joint ventures and associates transactions represent amounts
that do not eliminate on consolidation.
Outstanding balances arising from transactions with joint
ventures and associates
2019
$mill
2018
$mill
Amounts owing to related parties 6.3 3.1
Amounts owing from related parties
53.6
50.0
Loans with joint ventures and associates
Loans to joint ventures and associates
19.9
13.1
Loans from joint ventures and associates
17.0
11.8
Outstanding balances arising from transactions with joint
ventures and associates are on standard market terms.
12. Commitments (continued)
Key accounting policies (continued)
The Group has implemented new lease accounting software to
calculate the AASB 16 adjustments and has substantially
completed its implementation assessment of the new standard.
However, certain judgmental aspects of the implementation of
the standard, including the determination of lease terms of
leases with options remains under review. Preliminary estimates
of the impacts as a result of adopting the new standard are as
follows:
• At 1 October 2019, total assets are estimated to increase by
a range of $200 million to $220 million due to the
recognition of a right-of-use asset; and total liabilities are
estimated to increase by a range of $220 million to $240
million due to the recognition of a lease liability. The net
impact will be recognised as an adjustment to retained
earnings in equity.
• For the year ending 30 September 2020, operating lease
expenses will be replaced by a depreciation charge for the
right-of-use asset and interest expense on the lease
liabilities. Depreciation expense is expected to increase by a
range of $35 million to $40 million and interest expense is
expected to increase by a range of $4 million to $7 million.
• Earnings before interest and tax (EBIT) is estimated to
increase by a range of $3 million to $5 million and Net
profit after tax (NPAT) is expected to decrease by a range of
$1 million to $3 million.
• For the year ending 30 September 2020 cashflows from
operating activities are expected to increase and cashflows
from financing activities are expected to decrease by a range
of $35 million to $45 million.
These numbers are based on the work completed to date. The
actual financial impact on the results for the 30 September 2020
financial year will be dependent on any new leases that are
entered into during the financial year, certain judgmental
aspects including finalisation of lease option extension periods
and the impact of foreign currency translation of international
lease arrangements.
84
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
14. Investments in subsidiaries, joint arrangements and associates
The following list includes the Group’s principal operating subsidiaries and subsidiaries that are party to the Deed of Cross
Guarantee dated 30 September 2008. Other than as noted below, there were no changes in the Group’s existing shareholdings in
its subsidiaries, joint ventures and associates in the financial year.
Name of entity
Ownership
interest
Controlled Entities – operating (continued)
Incorporated in Canada
Dyno Nobel Canada Inc. 100%
Dyno Nobel Transportation Canada Inc. 100%
Dyno Nobel Nunavut Inc. 100%
Incitec Pivot Finance Canada Inc. 100%
Polar Explosives 2000 Inc. 100%
Dene Dyno Nobel (Polar) Inc.
(2)
100%
Dyno Nobel Waggaman Inc. 100%
Newfoundland Hard-Rok Inc.
(3)
100%
Dyno Nobel Labrador Inc.
(3)
100%
Dyno Nobel Baffin Island Inc.
(3)
100%
Incorporated in Hong Kong
Incitec Pivot Holdings (Hong Kong) Limited 100%
Quantum Fertilisers Limited
(4)
100%
Incorporated in Singapore
Coltivi Insurance Pte Limited 100%
Incorporated in Chile
Dyno Nobel Explosivos Chile Limitada 100%
Incorporated in Peru
Dyno Nobel Peru S.A. 100%
Incorporated in Mexico
Dyno Nobel Mexico, S.A. de C.V.
(5)
99%
Incorporated in Papua New Guinea
DNX Papua New Guinea Ltd
(5)
100%
Incorporated in Indonesia
PT DNX Indonesia 100%
Incorporated in Turkey
Nitromak DNX Kimya Sanayii A.S. 100%
Incorporated in Romania
SC Romnitro Explosives Srl. 100%
Incorporated in Albania
DNX Nitro Industrial Kimike Sh.p.k 100%
(1) A party to Deed of Cross Guarantee dated 30 September 2008.
(2) The remaining 16 percent interest in Dene Dyno Nobel (Polar) Inc. was acquired in the 2019 financial year.
(3) The remaining 50 percent interest in Newfoundland Hard-Rok Inc., Dyno Nobel Labrador Inc. and Dyno Nobel Baffin Island Inc. were acquired in the 2019 financial year.
(4) The remaining 35 percent interest in Quantum Fertilisers Limited was acquired in the 2019 financial year.
(5) This entity has a 31 December financial year end.
Subsidiaries
Name of entity
Ownership
interest
Company
Incitec Pivot Limited
(1)
Controlled Entities – operating
Incorporated in Australia
Incitec Fertilizers Pty Limited
(1)
100%
TOP Australia Pty Limited
(1)
100%
Southern Cross Fertilisers Pty Ltd
(1)
100%
Southern Cross International Pty Ltd
(1)
100%
Incitec Pivot LTI Plan Company Pty Limited 100%
Incitec Pivot Explosives Holdings Pty Limited
(1)
100%
Queensland Operations Pty Limited 100%
Incitec Pivot Investments 1 Pty Ltd
(1)
100%
Incitec Pivot Investments 2 Pty Ltd 100%
Incitec Pivot US Holdings Pty Ltd 100%
Incitec Pivot Finance Australia Pty Ltd
(1)
100%
Dyno Nobel Pty Limited 100%
Dyno Nobel Europe Pty Ltd 100%
Dyno Nobel Management Pty Limited 100%
Industrial Investments Australia Finance Pty Limited 100%
Dyno Nobel Asia Pacific Pty Limited
(1)
100%
Dampier Nitrogen Pty Ltd 100%
DNX Australia Pty Ltd
(1)
100%
Dyno Nobel Moranbah Pty Ltd
(1)
100%
Dyno Nobel Moura Pty Limited
(1)
100%
Incitec Pivot Queensland Gas Pty Ltd 100%
Incorporated in USA
Incitec Pivot US Investments 100%
Incitec Pivot Management LLC 100%
Incitec Pivot Finance LLC 100%
Dyno Nobel Australia LLC 100%
The Dyno Nobel SPS LLC 100%
Dyno Nobel Holdings IV LLC 100%
Dyno Nobel Holdings USA III, Inc. 100%
Dyno Nobel Holdings USA II 100%
Dyno Nobel Holdings USA II, Inc. 100%
Dyno Nobel Holdings USA, Inc. 100%
Dyno Nobel Inc. 100%
Dyno Nobel Transportation Inc. 100%
Simsbury Hopmeadow Street LLC 100%
Dyno Nobel Holdings V LLC 100%
Tradestar Corporation 100%
CMMPM, LLC 100%
CMMPM Holdings L.P. 100%
Dyno Nobel Louisiana Ammonia, LLC 100%
Nobel Labs, LLC 100%
Midland Powder LLC 100%
Mine Equipment & Mill Supply Company 100%
Controlled Explosives Inc. 100%
Drisk Insurance Inc. 100%
Boren Explosives Co., Inc. 100%
85
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Capital investment
For the year ended 30 September 2019
14. Investments in subsidiaries, joint arrangements and associates (continued)
Name of entity
Ownership
interest
Associates
Incorporated in USA
Maine Drilling and Blasting Group 49%
Independent Explosives 49%
Incorporated in Canada
Labrador Maskuau Ashini Ltd 49%
Innu Namesu Ltd 49%
Joint operation
IPL has a 50% interest in an unincorporated joint operation with
Central Petroleum Limited for the development of gas acreage in
Queensland, Australia, which commenced in the 2018 financial year.
(1) Due to the contractual and decision making arrangement between the shareholders of the entities, despite the legal ownership exceeding 50 percent, this
entity is not considered to be a subsidiary.
(2) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of shares in Qaaqtuq Dyno Nobel Inc. However,
under the joint venture agreement, the Group is entitled to 75 percent of the profit of Qaaqtuq Dyno Nobel Inc.
(3) Due to legal requirements in the Canadian Northwest Territories, the Group cannot own more than 49 percent of shares in Dene Dyno Nobel (DWEI) Inc.
However, under the joint venture agreement, the Group is entitled to 95 percent of the profit of Dene Dyno Nobel (DWEI) Inc.
Joint arrangements and associates
Name of entity
Ownership
interest
Joint ventures
Incorporated in USA
Alpha Dyno Nobel Inc. 50%
Buckley Powder Group
(1)
51%
IRECO Midwest Inc. 50%
Wampum Hardware Co. 50%
Western Explosives Systems Company 50%
Warex Corporation 50%
Warex LLC 50%
Warex Transportation LLC 50%
Vedco Holdings, Inc. 50%
Virginia Explosives & Drilling Company Inc. 50%
Austin Sales LLC
50%
Virginia Drilling Company, LLC 50%
Incorporated in Canada
Quantum Explosives Inc. 50%
Dene Dyno Nobel Inc. 49%
Qaaqtuq Dyno Nobel Inc.
(2)
49%
Dene Dyno Nobel (DWEI) Inc.
(3)
49%
Incorporated in Australia
Queensland Nitrates Pty Ltd 50%
Queensland Nitrates Management Pty Ltd 50%
Incorporated in South Africa
DetNet South Africa (Pty) Ltd 50%
Sasol Dyno Nobel (Pty) Ltd 50%
Incorporated in Mexico
DNEX Mexico, S. De R.L. de C.V. 49%
Explosivos De La Region Lagunera, S.A. de C.V. 49%
Explosivos De La Region, Central, S.A. de C.V. 49%
Nitro Explosivos de Ciudad Guzman, S.A. de C.V. 49%
Explosivos Y Servicios Para La Construccion, S.A. de C.V. 49%
86
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
15. Provisions and contingencies
Provisions at 30 September 2019 are analysed as follows:
30 September 2019
Employee
entitlements
$mill
Restructuring and
rationalisation
$mill
Environmental
$mill
Asset retirement
obligations
$mill
Legal
and other
$mill
Total
provisions
$mill
Carrying amount at 1 October 2018 54.1 2.1 48.2 70.9 4.3 179.6
Provisions made during the year 8.3 11.7 4.6 9.6 6.4 40.6
Provisions written back during the year (0.6) (0.3) (0.2) (3.7) (0.3) (5.1)
Payments made during the year (3.6) (6.7) (8.8) – (1.7) (20.8)
Interest unwind 0.6 – 0.3 3.5 – 4.4
Foreign exchange movement 0.1 0.1 1.8 1.7 0.2 3.9
Carrying amount at 30 September 2019 58.9 6.9 45.9 82.0 8.9 202.6
Current 53.5 5.2 16.7 2.4 8.3 86.1
Non-current 5.4 1.7 29.2 79.6 0.6 116.5
Key accounting policies
Provisions are measured at management’s estimate of the
expenditure required to settle the obligation. This estimate is
based on a “present value” calculation, which involves the
application of a discount rate to the expected future cash
flows associated with settlement. The discount rate takes
into account factors such as risks specific to the liability and
the time value of money.
Employee entitlements
Provisions are made for liabilities to employees for annual
leave, long service leave and other employee entitlements.
Where the payment to employees is expected to take place
in 12 months time or later, a present value calculation is
performed. In this instance, the corporate bond rate is used
to discount the liability to its present value.
Restructuring and rationalisation
Provisions for restructuring or rationalisation are only
recognised when a detailed plan has been approved and the
restructuring or rationalisation has either commenced or
been publicly announced.
Environmental
Provisions relating to the remediation of soil, groundwater,
untreated waste and other environmental contamination are
made when the Group has an obligation to carry out the
clean-up operation as a result of a past event. In addition, a
provision will only be made where it is possible to reliably
estimate the costs involved.
Asset retirement
In certain circumstances, the Group has an obligation to
dismantle and remove an asset and to restore the site on
which it is located. The present value of the estimated costs
of this process is recognised as part of the asset that is
depreciated and also as a provision.
At each reporting date, the provision is remeasured in line
with changes in discount rates and the timing and amount of
future estimated cash flows. Any changes in the provision
are added to or deducted from the related asset, other than
changes associated with the passage of time. This is
recognised as a borrowing cost in the profit or loss.
Legal and other
There are a number of legal claims and other exposures,
including claims for damages arising from products and
services supplied by the Group, that arise from the ordinary
course of business. A provision is only made where it is
probable that a payment or restitution will be required and
the costs involved can be reliably estimated.
Key estimates and judgments
Provisions are based on the Group’s estimate of the
timing and value of outflows of resources required to
settle or satisfy commitments and liabilities known to
the Group at the reporting date.
Contingencies
The following contingent liabilities are considered unlikely.
However the directors consider they should be disclosed:
• Under the terms of the ASIC Legislative Instrument, ASIC
Corporations (Wholly-owned Companies) Instrument
2016/785, issued by the Australian Securities and
Investments Commission dated 17 December 2016, which
relieved certain wholly-owned subsidiaries from the
requirement to prepare audited financial statements, IPL and
certain wholly-owned subsidiaries (identified in note 14)
have entered into an approved deed for the cross guarantee
of liabilities. No additional liabilities subject to the Deed of
Cross Guarantee at 30 September 2019 are expected to arise
to IPL or the relevant subsidiaries.
• The Group is regularly subject to investigations and audit
activities by the revenue authorities of jurisdictions in which
the Group operates. The outcome of these investigations
and audits depends upon several factors which may result
in further tax payments or refunds of tax payments already
made by the Group over and above existing provisions.
• Contingent liabilities arise in the normal course of business
and include a number of legal claims, environmental clean-
up requirements and bank guarantees.
The Directors are of the opinion that no additional provisions are
required in respect of these matters, as it is either not probable
that a future sacrifice of economic benefits will be required or
the amount is not capable of reliable measurement.
87
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
30 September 2019
Contractual
cash flows
(1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
Non-derivative
financial liabilities
Interest bearing liabilities
2,656.4 1,213.4 300.4 1,142.6
Interest payments
357.5 57.9 191.7 107.9
Trade and other payables
1,169.4 1,152.0 17.4 –
Bank guarantees
146.4 44.3 21.4 80.7
Total non-derivative
cash outflows 4,329.7 2,467.6 530.9 1,331.2
Derivative financial
(assets)/liabilities
Forward exchange contracts
(5.6) (5.6) – –
Cross currency interest
rate swaps
37.1 46.7 (9.5) (0.1)
Interest rate swaps
6.0 8.0 7.6 (9.6)
Interest rate options
23.0 – 23.0 –
Commodity swaps
0.7 0.7 – –
Net derivative cash
outflows 61.2 49.8 21.1 (9.7)
30 September 2018
Contractual
cash flows
(1)
$mill
0 – 12
months
$mill
1 – 5
years
$mill
more than
5 years
$mill
Non-derivative
financial liabilities
Interest bearing liabilities
2,374.8 212.9 1,613.4 548.5
Interest payments
288.0 72.3 128.0 87.7
Trade and other payables
1,058.6 1,045.0 13.6 –
Bank guarantees
126.8 49.2 2.9 74.7
Total non-derivative
cash outflows 3,848.2 1,379.4 1,757.9 710.9
Derivative financial
(assets)/liabilities
Forward exchange contracts
1.0 1.0 – –
Cross currency interest
rate swaps
14.5 14.5 – –
Interest rate swaps
(13.6) (0.9) (12.7) –
Interest rate options
(10.5) – (7.9) (2.6)
Commodity swaps
(12.2) (12.2) – –
Net derivative cash
outflows (20.8) 2.4 (20.6) (2.6)
16. Financial risk management
The Group is exposed to financial risks including liquidity risk, market risk and credit risk. This note explains the Group’s
financial risk exposures and its objectives, policies and processes for measuring and managing these risks.
The Board of Directors (the Board) has overall responsibility for the establishment and oversight of the Group’s risk
management framework. The Board established the Audit and Risk Management Committee (ARMC) which is responsible for,
amongst other things, the monitoring of the Group’s risk management plans. The ARMC is assisted in its oversight role by the
Group’s Risk Management function. The Risk Management function performs reviews of the Group’s risk management controls
and procedures, the results of which are reported to the ARMC. The ARMC reports regularly to the Board on its activities.
The Group’s financial risk management framework includes policies to identify, analyse and manage the Group’s financial risks.
These policies set appropriate financial risk limits and controls, identify permitted derivative instruments and provide guidance on
how to monitor and report financial risks and adherence to set limits. Financial risk management policies, procedures and systems
are reviewed regularly to ensure they remain appropriate given changes in market conditions and/or the Group’s activities.
Financial risks
Liquidity risk:
The risk that the Group is not able to refinance its debt obligations or meet other cash outflow obligations
when required.
Source of risk
Exposure to liquidity risk derives from the Group’s operations
and from the external interest bearing liabilities that it holds.
Risk mitigation
Liquidity risk is managed by ensuring there are sufficient
committed funding facilities available to meet the Group’s
financial commitments in a timely manner.
The Group’s forecast liquidity requirements are continually
reassessed based on regular forecasting of earnings and
capital requirements.
This includes stress testing of critical assumptions such as
input costs, sales prices, production volumes, exchange rates
and capital expenditure.
The Group aims to hold a minimum liquidity buffer of at
least $500m in undrawn non-current committed funding to
meet any unforeseen cash flow requirements. Details on the
Group’s committed finance facilities, including the maturity
dates of these facilities, are included in note 8.
(1) Contractual cash flows are not discounted, include interest amounts payable, and are based on foreign exchange rates at year end. Any subsequent movements
in foreign exchange rates could impact the actual cash flows on settlement of these assets and liabilities.
Outstanding financial instruments
The Group’s exposures to liquidity risk are set out in the tables below:
88
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
16. Financial risk management (continued)
Financial risks (continued)
Market risk:
The risk that changes in foreign exchange rates, interest rates and commodity prices will affect the Group’s
earnings, cash flows and the carrying values of its financial instruments.
Foreign exchange risk
Source of risk
The Group is exposed to changes in foreign exchange rates
(primarily in USD) on the following transactions and balances:
l
Sales and purchases
l
Trade receivables and trade payables
l
Interest bearing liabilities
The Group is also exposed to foreign exchange movements
(primarily in USD) on the translation of the earnings, assets
and liabilities of its foreign operations.
2019
AUD:USD
USD mill
2018
AUD:USD
USD mill
Transactional exposures
Trade and other receivables
41.9
327.1
Trade and other payables
(253.9)
(237.8)
Interest bearing liabilities
(1,400.0)
(1,573.0)
Gross exposure (before hedging) (1,612.0) (1,483.7)
Hedge of transactional exposures
Trade and other receivables
Forward exchange contracts
(18.5)
(269.0)
Trade and other payables
Forward exchange contracts
242.9
220.5
Interest bearing liabilities
Cross currency interest rate swaps 800.0 1,173.0
Total hedge contract values 1,024.4
1,124.5
Net exposure (after hedging) (587.6) (359.2)
2019
AUD:USD
USD mill
2018
AUD:USD
USD mill
Hedge of forecast sales and purchases
Forward exchange contracts
70.4
28.7
Total hedge contract values 70.4
28.7
2019
AUD:USD
USD mill
2018
AUD:USD
USD mill
Translational exposures
Net investment in foreign operations 2,006.4 2,532.7
Gross exposure (before hedging) 2,006.4
2,532.7
Hedge of translational exposures
Cross currency interest rate swaps
(1,244.4)
(1,173.0)
Forward exchange contracts
271.4
–
Total hedge contract values (973.0)
(1,173.0)
Net exposure (after hedging) 1,033.4 1,359.7
Foreign exchange rates
The AUD:USD foreign exchange rates used by the Group to
translate its foreign denominated earnings, assets and
liabilities are set out below:
2019
AUD:USD
2018
AUD:USD
30 September foreign exchange rate
0.6762
0.7207
Average foreign exchange rate for the year 0.7037 0.7606
Foreign exchange rate sensitivity on outstanding financial
instruments
The table below shows the impact of a 1 cent movement
(net of hedging) in the AUD:USD exchange rate on the
Group’s profit and equity before tax in relation to foreign
denominated assets and liabilities at 30 September:
+ 1c
AUD:USD
AUD mill
2019
- 1c
AUD:USD
AUD mill
2019
+ 1c
AUD:USD
AUD mill
2018
- 1c
AUD:USD
AUD mill
2018
Foreign exchange
sensitivity – (net of
hedging)
Trade and other
receivables and payables
– (profit or loss) (0.3) 0.3 (0.8) 0.8
Hedge of forecast
transactions – (equity) (1.5) 1.6 (0.5) 0.6
Interest bearing liabilities
(equity) 12.9 (13.3) 7.6 (7.8)
Investments in foreign
operations – (equity) (22.3) 22.9 (25.8) 26.5
Outstanding financial instruments and sensitivity analysis
The table below summarises the Group’s exposure to movements in the AUD:USD exchange rate and the derivative financial
instruments that are in place to hedge these exposures at 30 September:
Risk mitigation
Foreign exchange exposure to sales and purchases is
managed by entering into formal hedging arrangements.
The Group hedges both specific transactions and net exposures
by entering into foreign exchange rate derivative contracts.
The translation risk of USD denominated interest bearing
liabilities and net investments in foreign operations and their
earnings is also managed by entering into foreign exchange
rate derivative financial instruments.
89
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
16. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Foreign exchange risk (continued)
Sensitivity to foreign exchange rate movements during
the year (unhedged)
The table below shows the impact of a 1 cent movement in
the AUD:USD foreign exchange rates on the Group’s profit
before tax, in relation to sales and earnings during the year
that were denominated in USD.
+ 1c
AUD:USD
AUD mill
2019
- 1c
AUD:USD
AUD mill
2019
+ 1c
AUD:USD
AUD mill
2018
- 1c
AUD:USD
AUD mill
2018
USD Fertiliser sales from
Australian plants (6.3) 6.4 (7.4) 7.6
North American USD
earnings (3.3) 3.3 (3.6) 3.7
The fertiliser sales sensitivity calculation is based on actual
tonnes manufactured by the Australian fertiliser plants and
sold during the year, the average AUD:USD exchange rate for
the year, and the average USD fertiliser price.
The North American earnings translation sensitivity
calculation is based on the earnings before interest and tax
from the North American business for the year and the
average AUD:USD exchange rate for the year.
Source of risk
Exposure to interest rate risk is a result of the effect of
changes in interest rates on the Group’s outstanding interest
bearing liabilities and derivative instruments.
Risk mitigation
The exposure to interest rate risk is mitigated by maintaining a
mix of fixed and variable interest rate borrowings and by
entering into interest rate derivative instruments.
Interest rate risk
Interest rate
swaps
Average
pay/(rec)
fixed rate
LIBOR
Average
pay/(rec)
fixed rate
BBSW
Average
pay/(rec)
fixed rate
HIBOR
Duration
(years)
Net contract
amounts
mill
2019
Less than 1 year
3.54% – – 0.2 USD 400
Less than 1 year
(3.11%) – – 0.2 USD 300
Less than 1 year
– (4.30%) – 1.0 AUD 250
1 to 5 years
2.51% – – 1.8 USD 900
1 to 5 years
(1.77%) – – 2.8 USD 500
Later than 5 years
(2.02%) – – 6.2 USD 200
Later than 5 years
– – (4.13%) 6.4 HKD 560
2018
Less than 1 year 3.09% – – 0.2 USD 400
Less than 1 year –
(1.81%)
– 0.4 AUD 200
1 to 5 years 2.70% – – 2.4 USD 900
1 to 5 years (3.11%) – – 1.2 USD 300
Interest rate
options
Net
contract
amounts
USD mill
2019
Strike
(1)
2019
Duration
(years)
Net
contract
amounts
USD mill
2018
Strike
(1)
2018
Duration
(years)
Contracts maturing
between 1 and
5 years
Sold cap
USD 350 3.75% 3.8
350 3.75% 2.8
Bought cap
USD 350 2.58% 3.8
350 2.58% 2.8
Sold floor
USD 350 2.58% 3.8
350 1.50% 2.8
Bought floor
USD 350 0.01% 3.8
350 0.01% 2.8
(1) LIBOR
Outstanding financial instruments and sensitivity analysis
The tables below include the Group’s derivative contracts that are exposed to changes in interest rates at 30 September:
Interest rate
options
Net
contract
amounts
USD mill
2019
Strike
(1)
2019
Duration
(years)
Net
contract
amounts
USD mill
2018
Strike
(1)
2018
Duration
(years)
Contracts maturing
later than 5 years
Sold cap
USD 350 3.75% 0.2
350 3.75% 1.2
Bought cap
USD 350 2.58% 0.2
350 2.58% 1.2
Sold floor
USD 350 2.58% 0.2
350 1.50% 1.2
Bought floor
USD 350 0.01% 0.2
350 0.01% 1.2
(1) LIBOR
Interest rate sensitivity on outstanding financial instruments
The following table shows the sensitivity of the Group’s
profit before tax to a 1 per cent change in interest rates. The
sensitivity is calculated based on the Group’s interest bearing
liabilities and derivative financial instruments that are
exposed to interest rate movements and the AUD:USD
exchange rate at 30 September:
Interest rate sensitivity
+ 1%
AUD mill
2019
- 1%
AUD mill
2019
+ 1%
AUD mill
2018
- 1%
AUD mill
2018
LIBOR
(2.6) 2.6
(2.4) 2.4
BBSW
(1.3) 1.3
(2.0) 2.0
The sensitivity above is also representative of the Group’s
interest rate exposures during the year.
Outstanding financial instruments and sensitivity analysis (continued)
90
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Source of risk
Exposure to changes in commodity prices is by virtue
of the products that the Group sells and its manufacturing
operations, and can be categorised into six main
commodities, namely: Ammonia, Ammonium Nitrate,
Ammonium Phosphate, Urea, Oil and Natural Gas.
16. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Commodity price risk
Risk mitigation
Price risk exposure is managed by entering into long term
contracts with suppliers and customers where possible. Where
commodity price exposures cannot be eliminated through
contracted and/or other commercial arrangements, the Group
may enter into derivative contracts where available on a
needs basis, to mitigate this risk. However, in some instances
price risk exposure cannot be economically mitigated by either
contractual arrangements or derivative contracts.
Outstanding financial instruments and sensitivity analysis
The table below includes the Group’s derivative contracts
that are exposed to changes in natural gas and oil prices at
30 September:
Natural gas
Total volume
(MMBTU)
(1)
2019
Price/Strike
USD
(2)
2019
Total volume
(MMBTU)
(1)
2018
Price/Strike
USD
(2)
2018
Contracts maturing
within 1 year
Natural gas swaps
fixed payer
1,307,800 2.58 396,000 2.68
Contracts maturing
between 1 and 5 years
Natural gas swaps
fixed payer
1,421,200 2.53 554,400 2.68
(1) Million Metric British Thermal Units
(2) Nymex Henry Hub gas price
Oil
(2)
Total volume
(barrels)
2019
Price
USD
(1)
2019
Total volume
(barrels)
2018
Price
USD
(1)
2018
Contracts maturing
within 1 year
Oil swaps fixed payer
100,035 58.48 267,186 48.84
(1) Oil-Brent (DTD)-Platts Marketwire
(2) The Group has a gas supply agreement in Australia with pricing referenced
to the USD Brent oil price. As a result, the Group holds Brent oil fixed price
swaps to eliminate the exposure to changes in the Brent oil price.
Natural gas price sensitivity on outstanding financial
instruments
The table below shows the sensitivity of the Group’s
equity before tax to a change of US$1 per MMBTU in the
US Henry Hub natural gas price. The sensitivity is based
on natural gas derivative contracts held by the Group at
30 September. Gains or losses recognised in equity will be
reclassified to the profit or loss as the underlying forecast
transaction occurs:
Natural gas price
sensitivity
+ US$1 per
1 MMBTU
AUD mill
2019
- US$1 per
1 MMBTU
AUD mill
2019
+ US$1 per
1 MMBTU
AUD mill
2018
- US$1 per
1 MMBTU
AUD mill
2018
Henry Hub USD
4.0 (4.0)
1.3 (1.3)
Sensitivity to natural gas price movements during the year
The table below shows the sensitivity of the Group’s profit
before tax to a change of US$1 per MMBTU in the US Henry
Hub natural gas price. The sensitivity is based on the average
natural gas price, the average AUD:USD exchange rate
(excluding the impact of hedging) and the current annual
natural gas consumption of the Group’s manufacturing
operations in the Americas that are exposed to changes in
natural gas prices:
Natural gas price
sensitivity
+ US$1 per
1 MMBTU
AUD mill
2019
- US$1 per
1 MMBTU
AUD mill
2019
+ US$1 per
1 MMBTU
AUD mill
2018
- US$1 per
1 MMBTU
AUD mill
2018
Henry Hub USD
(32.2) 32.2 (34.9) 34.9
Sensitivity to fertiliser price and ammonia movements
during the year
The table below shows the sensitivity of the Group’s profit
before tax to a US$10 per tonne change in Ammonium
Phosphates, Urea and Ammonia prices. The sensitivity is
based on actual tonnes manufactured and sold by the Group
that is sensitive to commodity price changes and the average
AUD:USD exchange rate (excluding the impact of hedging) for
the year:
Price sensitivity
+ US$10
per tonne
AUD mill
- US$10
per tonne
AUD mill
2019
Granular Urea (FOB Middle East)
3.5 (3.5)
DAP/MAP (FOB Tampa)
9.6 (9.6)
Urea (FOB NOLA)
2.7 (2.7)
Ammonia (FOB Tampa)
7.0 (7.0)
2018
Granular Urea (FOB Middle East)
4.4 (4.4)
DAP/MAP (FOB Tampa)
11.3 (11.3)
Urea (FOB NOLA)
2.3 (2.3)
Ammonia (FOB Tampa)
8.6 (8.6)
91
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
16. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Included in the table below are details of the Group’s derivative instruments at 30 September 2019, classified by hedge
accounting type and market risk category:
Balance at 30 September 2019 During the period
30 September 2019 Note
Carrying
amount of
hedging
instrument
asset
(1)
Carrying
amount of
hedging
instrument
liability
(1)
Fair value
hedge
adjustment
of hedged
item
Balance of
gains/
(losses) in
reserves
before tax
Gains/
(losses)
recognised in
reserves
(2)
Reclassification
of (gains)/
losses from
reserves to
profit or loss
(2,7)
Cash flow hedges
Foreign exchange risk on forecast sales & purchases
Forward exchange contracts
0.2 (0.1) – 0.2 (0.8) –
Discontinued hedge
(3)
– – – 1.7 8.8 (10.0)
Commodity price risk on forecast purchases
Commodity swaps
0.2 (0.9) – (0.7) (12.2) –
Discontinued hedge
(3)
– – – (3.6) 11.8 (9.8)
Interest rate risk on highly probable debt
Interest rate swaps
– (22.4) – (22.2) (34.0) –
Interest rate options
– (24.1) – (19.2) (25.9) –
Cross currency interest rate swaps
0.5 – – 0.5 0.5 –
Discontinued hedge
(3)
– – – (22.2) (20.7) 1.8
Total cash flow hedges 0.9 (47.5) – (65.5) (72.5) (18.0)
Net investment hedges
Foreign exchange risk on foreign operation
Cross currency interest rate swaps
– (408.2) – (405.5) (114.2) –
Forward exchange contracts
4.4 (0.2) – 4.1 4.1 –
Discontinued hedge
(3)
– – – (332.1) 2.3 –
Total net investment hedges 4.4 (408.4) – (733.5) (107.8) –
Fair value hedges
Foreign exchange risk on USD and HKD borrowings
(4)
Cross currency interest rate swaps
371.2 – (369.2) – – –
Interest rate risk on fixed USD, HKD and AUD bonds
(5)
Interest rate swaps
15.6 – (8.9) – – –
Cross currency interest rate swaps
1.8 – (1.9) – – –
Discontinued hedge
– – 2.8 – – –
Total fair value hedges
(8)
388.6 – (377.2) – – –
Held for trading
(6)
Forward exchange contracts
0.5 (0.1) – – – –
Cross currency interest rate swaps
0.1 – – – – –
Total held for trading 0.6 (0.1) – – – –
Offsetting contracts
(1)
(371.7) 371.7 – – – –
Equity instruments – – – (17.0) (0.1) –
Total net 22.8 (84.3) (377.2) (816.0) (180.4) (18.0)
(1) Balances are included in other financial assets/liabilities in the Statement of Financial Position. Financial assets and financial liabilities that are
subject to enforceable master netting arrangements are offset in the Statement of Financial Position.
(2) Gains or losses recognised in the reserves will be reclassified to the same line item in the profit or loss as the underlying hedged item when
the underlying forecast transaction occurs.
(3) Gains or losses on discontinued hedges that were in cash flow hedge or net investment hedge relationships remain in the reserves until the
underlying transactions occur or upon disposal of the underlying net investment. Any changes in the market value of the discontinued hedges
are recognised in the profit or loss from discontinuation.
(4) The total fair value of derivatives hedging the Group’s interest bearing liabilities is $388.6m. The cross currency interest rate swaps hedging the
foreign currency exposure of the Group’s USD and HKD borrowings have a contract value of USD800m and HKD560m, and are economic hedges
of an equivalent amount of the Group’s USD and HKD borrowings.
(5) Interest rate swap contracts effectively convert USD800m, HKD560m and AUD250m of the Group’s fixed interest rate borrowings to floating
interest rates. The fair value hedge adjustment of a hedged item where the hedging instrument is discontinued remains in the carrying
amount of the hedged item and is amortised to the profit or loss over the life of the hedged item.
(6) Derivatives which are classified as held for trading are in economic hedge relationships that do not qualify for hedge accounting. These hedges
are effective economic hedges or offsetting hedges based on contractual amounts and cash flows over the life of the underlying item.
(7) At 30 September 2019, there were no gains/losses that were transferred from reserves to profit or loss in relation to ineffective hedges.
92
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
16. Financial risk management (continued)
Financial risks (continued)
Market risk (continued)
Included in the table below are details of the Group’s derivative instruments at 30 September 2018, classified by hedge
accounting type and market risk category:
Balance at 30 September 2018 During the period
30 September 2018 Note
Carrying
amount of
hedging
instrument
asset
(1)
Carrying
amount of
hedging
instrument
liability
(1)
Fair value
hedge
adjustment
of hedged
item
Balance of
gains/
(losses) in
reserves
before tax
Gains/
(losses)
recognised in
reserves
(2)
Reclassification
of (gains)/
losses from
reserves to
profit or loss
(2,7)
Cash flow hedges
Foreign exchange risk on forecast sales & purchases
Forward exchange contracts 1.1 (0.1) – 1.0 4.6 –
Discontinued hedge
(3)
– – – 2.9 15.1 (11.4)
Commodity price risk on forecast purchases
Commodity swaps 11.7 (0.3) – 11.5 (1.4) –
Commodity options – – – – 1.4 –
Discontinued hedge
(3)
– – – (5.6) 23.3 (25.9)
Interest rate risk on highly probable debt
Interest rate swaps 18.4 (7.1) – 11.8 35.4 –
Interest rate options 7.5 (1.0) – 6.7 7.0 –
Discontinued hedge
(3)
– – – (3.3) 1.2 1.9
Total cash flow hedges
38.7 (8.5) – 25.0 86.6 (35.4)
Net investment hedges
Foreign exchange risk on foreign operation
Cross currency interest rate swaps – (427.7) – (427.6) (132.6) –
Discontinued hedge
(3)
– – – (198.1) 5.4 –
Total net investment hedges
– (427.7) – (625.7) (127.2) –
Fair value hedges
Foreign exchange risk on USD borrowings
(4)
Cross currency interest rate swaps 427.7 (14.2) (291.6) – – –
Interest rate risk on fixed USD and AUD bonds
(5)
Interest rate swaps 1.4 (0.2) (2.9) – – –
Discontinued hedge – – 3.8 – – –
Total fair value hedges
(8) 429.1 (14.4) (290.7) – – –
Held for trading
(6)
Forward exchange contracts 0.3 (2.6) – – – –
Total held for trading
0.3 (2.6) – – – –
Offsetting contracts
(1)
(427.5) 427.5 – – – –
Equity instruments
2.3 – – (16.9) – –
Total net
42.9 (25.7) (290.7) (617.6) (40.6) (35.4)
(1) Balances are included in other financial assets/liabilities in the Statement of Financial Position. Financial assets and financial liabilities that are
subject to enforceable master netting arrangements are offset in the Statement of Financial Position.
(2) Gains or losses recognised in the reserves will be reclassified to the same line item in the profit or loss as the underlying hedged item when
the underlying forecast transaction occurs.
(3) Gains or losses on discontinued hedges that were in cash flow hedge or net investment hedge relationships remain in the reserves until the
underlying transactions occur or upon disposal of the underlying net investment. Any changes in the market value of the discontinued hedges
are recognised in the profit or loss from discontinuation.
(4) The total fair value of derivatives hedging the Group’s interest bearing liabilities is $414.7m. The cross currency interest rate swaps hedging the
foreign currency exposure of the Group’s USD borrowings have a contract value of USD 1,173m, and are economic hedges of an equivalent
amount of the Group’s USD borrowings (including USD exposures as a result of hedging).
(5) Interest rate swap contracts effectively convert USD300m and AUD200m of the Group’s fixed interest rate borrowings to floating interest rates.
The fair value hedge adjustment of a hedged item where the hedging instrument is discontinued remains in the carrying amount of the
hedged item and is amortised to the profit or loss over the life of the hedged item.
(6) Derivatives which are classified as held for trading are in economic hedge relationships that do not qualify for hedge accounting. These hedges
are effective economic hedges or offsetting hedges based on contractual amounts and cash flows over the life of the underlying item.
(7) At 30 September 2018, a gain of $2.4m was transferred from reserves to profit or loss in relation to ineffective hedges.
93
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
16. Financial risk management (continued)
Financial risks (continued)
Credit risk:
The risk of financial loss to the Group as a result of customers or counterparties to financial assets failing to
meet their contractual obligations.
Fair value
Source of risk
The Group is exposed to counterparty credit risk from trade
and other receivables and financial instrument contracts that
are outstanding at the reporting date.
Risk mitigation
The Group minimises the credit risk associated with trade
and other receivables balances by undertaking transactions
with a large number of customers in various countries.
The creditworthiness of customers is reviewed prior to
granting credit, using trade references and credit reference
agencies. Credit limits are established and monitored for
each customer, and these limits represent the highest level
of exposure that a customer can reach. Trade credit insurance
is purchased when required.
The Group mitigates credit risk from financial instrument
contracts by only entering into transactions with
counterparties that have sound credit ratings and, where
applicable, with whom the Group has a signed netting
agreement. Given their high credit ratings, the Group does
not expect any counterparty to fail to meet its obligations.
Credit risk exposure
The Group’s maximum exposure to credit risk at 30
September is the carrying amount, net of any provision for
impairment, of the financial assets as detailed in the table
below:
2019
$mill
2018
$mill
Trade and other receivables
364.1
324.1
Cash and cash equivalents
576.4
588.5
Derivative assets
22.8
40.6
963.3
953.2
Financial assets and financial liabilities that are subject to
enforceable master netting arrangements and are intended
to be settled on a net basis are offset in the Statement of
Financial Position. At 30 September 2019, the amount netted
in other financial assets and other financial liabilities is
$371.7m (2018: $427.5m).
Fair value of the Group’s financial assets and liabilities is
calculated using a variety of techniques depending on the
type of financial instrument as follows:
• The fair value of financial assets and financial liabilities traded
in active markets (such as equity securities and fixed interest
rate bonds) is the quoted market price at the reporting date.
• The fair value of financial assets and financial liabilities not
traded in active markets is calculated using discounted cash
flows. Future cash flows are calculated based on observable
forward interest rates and foreign exchange rates.
• The fair value of forward exchange contracts, interest rate
swaps, cross currency interest rate swaps, commodity swaps
and forward contracts is calculated using discounted cash
flows, reflecting the credit risk of various counterparties. Future
cash flows are calculated based on the contract rate,
observable forward interest rates and foreign exchange rates.
• The fair value of option contracts is calculated using the contract
rates and observable market rates at the end of the reporting
period, reflecting the credit risk of various counterparties. The
valuation technique is consistent with the Black-Scholes
methodology and utilises Monte Carlo simulations.
• The fair value of commodity swaps and commodity forward
contracts is calculated using their quoted market price, where
available. If a quoted market price is not available, then fair
value is calculated using discounted cash flows. Future cash
flows are estimated based on the difference between the
contractual price and the current observable market price,
reflecting the credit risk of various counterparties. These
future cash flows are then discounted to present value.
• The nominal value less expected credit losses of trade
receivables and payables are assumed to approximate their
fair values due to their short term maturity.
Fair value hierarchy
The table below analyses financial instruments carried at fair
value by valuation method. The different levels have been
defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
• Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived
from prices).
• Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
2019
Level 1
$mill
Level 2
$mill
Level 3
$mill
Listed equity securities
– – –
Derivative financial assets
– 22.8 –
Derivative financial liabilities
– (84.3) –
2018
Level 1
$mill
Level 2
$mill
Level 3
$mill
Listed equity securities 2.3 – –
Derivative financial assets – 40.6 –
Derivative financial liabilities – (25.7) –
Fair value of financial assets and liabilities carried at
amortised cost
Cash and cash equivalents, trade and other receivables, and
trade and other payables are carried at amortised cost which
equals their fair value.
Interest bearing liabilities are carried at amortised cost and have
a carrying value of $2,652.8m (2018: $2,374.8m) – refer to
note 8. The fair value of the interest bearing financial liabilities
at 30 September 2019 was $2,709.9m (2018: $2,374.5m) and
was based on the level 2 valuation methodology.
94
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Risk management
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
16. Financial risk management (continued)
Key accounting policies
Foreign currency transactions and balances
The Group presents its accounts in Australian dollars. Foreign
currency transactions are translated into Australian dollars
using the exchange rates at the date the transaction occurs.
Monetary assets (such as trade receivables) and liabilities
(such as trade creditors) denominated in foreign currencies
are translated into Australian dollars using the exchange rate
at 30 September. Non-monetary items (for example, plant
and machinery) that are measured at historical cost in a
foreign currency are not re-translated.
Foreign exchange gains and losses relating to transactions
are recognised in the profit or loss with the exception of
gains and losses arising from cash flow hedges and net
investment hedges that are recognised in other
comprehensive income.
Foreign operations
The assets and liabilities of the Group’s foreign operations
are translated at applicable exchange rates at 30 September.
Income and expense items are translated at the average
exchange rates for the period.
Foreign exchange gains and losses arising on translation are
recognised in the foreign currency translation reserve (FCTR).
If and when the Group disposes of the foreign operation,
these gains and losses are transferred from the FCTR to the
profit or loss.
Derivatives and hedging
The Group uses contracts known as derivative financial
instruments to hedge its financial risk exposures.
On entering into a hedging relationship, the Group formally
designates and documents details of the hedge, risk
management objective and strategy for entering into the
arrangement. The Group applies hedge accounting to
hedging relationships that are expected to be highly
effective in offsetting changes in fair value, i.e. where the
cash flows arising from the hedge instrument closely match
the cash flows arising from the hedged item.
Hedge accounting is discontinued when:
• The hedging relationship no longer meets the risk
management objective.
• The hedging instrument expires or is sold, terminated or
exercised.
• The hedge no longer qualifies for hedge accounting.
Derivatives are measured at fair value. The accounting
treatment applied to specific types of hedges is set out
below.
Cash flow hedges
Changes in the fair value of effective cash flow hedges are
recognised in equity, in the cash flow hedge reserve. To the
extent that the hedge is ineffective, changes in fair value are
recognised in the profit or loss.
Fair value gains or losses accumulated in the reserve are
taken to profit or loss when the hedged item affects profit or
loss. When the hedged item is a non-financial asset, the
amount recognised in the reserve is transferred to the
carrying amount of the asset when the asset is purchased.
Net investment hedges
Hedges of a net investment in a foreign operation are
accounted for in a similar way as cash flow hedges. Gains or
losses on the effective portion of the hedge are recognised
directly in equity (in the FCTR) while any gains or losses
relating to the ineffective portion are recognised in the profit
or loss.
On disposal of the foreign operation, the cumulative value of
gains or losses recognised in the FCTR are transferred to
profit or loss.
Fair value hedges
The change in the fair value of the hedging instrument and
the change in the hedged item are recognised in the profit
or loss.
Hedge ineffectiveness
The Group aims to transact only highly effective hedge
relationships, and in most cases the hedging instruments
have a 1:1 hedge ratio with the hedged items. However, at
times, some hedge ineffectiveness can arise and is
recognised in profit or loss in the period in which it occurs.
Key sources of hedge ineffectiveness for the Group are as
follows:
• Maturity dates of hedging instruments not matching the
maturity dates of the hedged items.
• Credit risk inherent within the hedging instrument not
matching the movement in the hedged item.
• Interest rates of the Group’s financing facilities not
matching the interest rates of the hedging instrument.
• Forecast transactions not occurring.
Classification of financial instruments
Financial instruments are classified into the following
categories:
• Amortised cost (cash and cash equivalents, interest
bearing liabilities and trade and other receivables and
payables).
• Fair value through other comprehensive income (listed
equity securities).
• Fair value through profit or loss (derivative financial
instruments except those that are in a designated hedge
relationship).
95
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2019
17. Share-based payments
Incentive Plans
The Long Term Incentive Plans (LTIs) are designed to link
reward with the key performance drivers that underpin
sustainable growth in shareholder value. With regard to the
2016/19, 2017/20 and 2018/21 Long Term Incentive Plans,
the performance conditions comprise relative total
shareholder return, the delivery of certain strategic initiatives
and growth in return on equity.
Certain Executives have been awarded performance rights
under Short Term Incentive Plans (STIs) based on financial,
safety and strategic outcomes.
These arrangements support the Company’s strategy for
retention and motivation of its executives.
Expenses arising from share-based payment
transactions
Total expenses arising from share-based payment
transactions recognised during the period as part of
employee benefit expense were as follows:
2019
$mill
2018
$mill
Accounting value of performance
rights issued under the LTI and STI
performance plans 1.6 3.2
2019
Number
2018
Number
Number of performance rights outstanding
under the LTI and STI performance plans 4,881,245 4,431,879
Details of the movements in LTI and STI performance rights
are disclosed in the Remuneration Report.
Key accounting policies
The rights to shares granted to employees under the terms
of the plans are measured at fair value. The fair value is
recognised as an employee expense over the period that
employees become unconditionally entitled to the rights.
There is a corresponding increase in equity, which is
reflected in the share based payments reserve.
The amount recognised as an expense is adjusted to reflect
the actual number of rights taken up, once related service
and other non-market conditions are met.
18. Key management personnel disclosures
Key management personnel remuneration
2019
$000
2018
$000
Short-term employee benefits 7,665 11,534
Post-employment benefits
199
207
Other long-term benefits
114
168
Termination benefits
–
1,398
Share-based payments
1,578
1,389
9,556
14,696
Determination of key management personnel which was
redefined during the 2018 financial year, and detailed
remuneration disclosures are provided in the Remuneration
Report.
Loans to key management personnel
In the year ended 30 September 2019, there were no loans
to key management personnel and their related parties
(2018: nil).
Other key management personnel transactions
In the year ended 30 September 2019, there were no
transactions entered into during the year with key
management personnel (including their related parties).
96
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
19. Retirement benefit obligation
The Group operates a number of defined benefit plans in the
Americas and Asia Pacific to provide benefits for employees
and their dependants on retirement, disability or death.
The Group also makes contributions to defined contribution
schemes.
Financial position and performance
Net defined benefit obligation at 30 September
2019
$mill
2018
$mill
Present value of obligations
356.6
302.2
Fair value of plan assets
(289.4)
(269.6)
Net defined benefit obligation 67.2 32.6
Maturity profile of the net defined benefit obligation
The expected maturity analysis of the undiscounted defined benefit
obligation is as follows:
2019
$mill
2018
$mill
Within next 10 years
221.3
203.1
Within 10 to 20 years
142.6
132.3
In excess of 20 years
43.6
44.5
Return on plan assets for the year ended 30 September
2019
$mill
2018
$mill
Actual return on plan assets
17.7
14.9
Composition of plan assets at 30 September
2019 2018
The percentage invested in each asset class:
Equities
39%
47%
Fixed interest securities
47%
39%
Property
6%
6%
Other
8%
8%
Movements in plan assets/liabilities
Amounts recognised in Other Comprehensive Income
Notes
2019
$mill
2018
$mill
Losses arising from changes
in actuarial assumptions (43.8) (0.7)
Return on plan assets greater
than discount rate
7.2 5.6
Total (losses)/gains recognised in other
comprehensive income
(36.6) 4.9
Amounts recognised in Profit or Loss
Net interest expense (2)
(1.4)
(1.2)
Defined benefit superannuation expense (2) (4.6) (3.1)
Key assumptions and sensitivities
Principal actuarial assumptions
2019
2018
Discount rate (gross of tax)
2.7% – 7.6%
3.5% – 8.1%
Future salary increases
2.5% – 5.0%
2.5% – 5.0%
Sensitivity analysis
The sensitivity analysis is based on a change in a significant
actuarial assumption while holding all other assumptions
constant. The following table summarises how the defined
benefit obligation as at 30 September 2019 would have
increased/(decreased) as a result of a change in the respective
assumption by 1 percentage point:
1 percent
increase
1 percent
decrease
Discount rate
(32.7) 39.8
Rate of salary increase
1.6 (1.3)
Key accounting policies
All employees of the group are entitled to benefits from the
Group’s superannuation plan on retirement, disability or death
or can direct the group to make contributions to a defined
contribution plan of their choice. The Group’s superannuation
plan has a defined benefit section and a defined contribution
section. The defined benefit section provides defined lump
sum benefits based on years of service and final average
salary. The defined contribution section receives fixed
contributions from group companies and the Group’s legal or
constructive obligation is limited to these contributions.
The liability or asset recognised in the Consolidated Statement
of Financial Position in respect of defined benefit
superannuation plans is the present value of the defined
benefit obligation at the end of the reporting period less the
fair value of plan assets.
Remeasurement gains and losses arising from experience
adjustments and changes in actuarial assumptions are
recognised in the period in which they occur, directly in other
comprehensive income. They are included in retained earnings
in the Consolidated Statement of Changes in Equity and in the
Consolidated Statement of Financial Position.
Changes in the present value of the defined benefit obligation
resulting from plan amendments or curtailments are
recognised immediately in profit or loss as past service costs.
Contributions to the defined contribution section of the
Group’s superannuation fund and other independent defined
contribution superannuation funds are recognised as an
expense as they become payable.
Key estimates and judgments
The present value of the defined benefit obligation at
the reporting date is based on expected future payments
arising from membership of the fund. This is calculated
annually by independent actuaries considering the
expected future wage and salary levels of employees,
experience of employee departures and employee
periods of service.
Expected future payments are discounted using market
yields on corporate bonds at the reporting date, which
have terms to maturity and currency that match, as
closely as possible, the estimated future cash outflows.
97
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2019
20. Deed of cross guarantee
Entities that are party to a Deed of Cross Guarantee are
included in note 14. The Statement of Profit or Loss and Other
Comprehensive Income and the Statement of Financial Position
for this closed group are shown below:
Statement of Profit or Loss and Other
Comprehensive Income
2019
$mill
2018
$mill
Profit before income tax
95.3
367.8
Income tax benefit/(expense)
1.7
(70.0)
Profit for the year 97.0
297.8
Retained profits at 1 October 1,470.0 1,332.6
Profit for the year
97.0
297.8
Other movements in retained earnings
(8.2)
(3.0)
Dividend paid
(121.7)
(157.4)
Retained profits at 30 September 1,437.1 1,470.0
Statement of Financial Position
2019
$mill
2018
$mill
Current assets
Cash and cash equivalents
478.5
57.9
Trade and other receivables
285.4
742.4
Inventories
404.9
344.0
Other assets
18.0
22.1
Other financial assets
5.4
13.2
Total current assets 1,192.2
1,179.6
Non-current assets
Trade and other receivables
–
246.1
Other financial assets
3,535.6
3,542.1
Property, plant and equipment
2,132.2
2,044.6
Intangible assets
246.4
247.4
Deferred tax assets
181.8
161.1
Total non-current assets 6,096.0
6,241.3
Total assets 7,288.2
7,420.9
Current liabilities
Trade and other payables
1,213.4
1,008.3
Interest bearing liabilities
–
199.8
Other financial liabilities
38.8
18.3
Provisions
60.2
54.6
Current tax liabilities
10.8
52.0
Total current liabilities 1,323.2
1,333.0
Non-current liabilities
Trade and other payables
227.9
211.6
Interest bearing liabilities
556.4
501.2
Other financial liabilities
45.1
7.4
Provisions
72.6
61.3
Deferred tax liabilities
438.1
421.3
Retirement benefit obligation
23.3
11.6
Total non-current liabilities 1,363.4
1,214.4
Total liabilities 2,686.6
2,547.4
Net assets 4,601.6
4,873.5
Equity
Issued capital
3,136.8
3,226.5
Reserves
27.7
177.0
Retained earnings
1,437.1
1,470.0
Total equity 4,601.6
4,873.5
21. Parent entity disclosure
Throughout the financial year ended 30 September 2019 the
parent company of the Group was Incitec Pivot Limited.
Parent entity guarantees in respect of debts
of its subsidiaries
The parent entity is part of a Deed of Cross Guarantee, under
which each entity guarantees the debt of the others.
Statement of Profit or Loss and Other
Comprehensive Income
Results of the parent entity
2019
$mill
2018
$mill
Profit for the year
452.6
78.3
Other comprehensive (loss)/income
(72.9)
31.8
Total comprehensive income for the year 379.7 110.1
Statement of Financial Position
2019
$mill
2018
$mill
Current assets
866.7
877.8
Total assets
7,255.2
7,396.3
Current liabilities
856.5
901.5
Total liabilities
3,650.7
3,960.0
Net assets 3,604.5
3,436.3
Share capital
3,136.8
3,226.5
Reserves
(57.0)
7.8
Retained earnings
524.7
202.0
Total equity 3,604.5
3,436.3
Parent entity contingencies and commitments
Contingent liabilities of Incitec Pivot Limited are disclosed in
note 15.
Capital expenditure – commitments
2019
$mill
2018
$mill
Contracted but not yet provided
for and payable:
Within one year
5.4 20.3
Tax consolidation
The Company and its wholly-owned Australian resident
entities have formed a tax consolidated group. As a result it
is taxed as a single entity. The head entity of the tax
consolidated group is Incitec Pivot Limited.
98
Incitec Pivot Limited Annual Report 2019
Notes to the Consolidated Financial Statements: Other
For the year ended 30 September 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
23. Events subsequent to reporting date
In October 2019, US$500m Notes in the Private Placement
Market were funded with US$250m maturing 30 October 2028
and US$250m maturing 30 October 2030.
In November 2019, the directors determined to pay a final
dividend for the Company of 3.4 cents per share, 30 percent
franked, to be paid on 8 January 2020. The record date for
entitlement to this dividend is 2 December 2019. The total
dividend payment of $54.6m will be paid in cash or as part
of the Dividend Reinvestment Plan which has been
reinstated at a discount of 2 percent (refer to note 6).
Other than the matters reported on above, the directors have
not become aware of any other significant matter or
circumstance that has arisen since the end of the financial year,
that has affected or may affect the operations of the Group,
the results of those operations, or the state of affairs of the
Group in subsequent years, which has not been covered in
this report.
22. Auditor’s remuneration
2019
$000
2018
$000
Assurance services
Audit of the Group's annual report
(1)
1,024.6
992.3
Audit of subsidiaries
(2)
639.0
604.0
Audit-related assurance services
(3)
244.4
174.9
Total current year assurance services
1,908.0
1,771.2
Other services
Other services relating to taxation
(4)
231.1
401.1
All other services
(5)
191.4
–
Total other services
422.5
401.1
Total remuneration for audit and other services
2,330.5
2,172.3
– Paid/payable to Australian Group
auditor firm
1,649.0
1,402.2
– Paid/payable to International Group
auditor associates 681.5 770.1
(1) Comprises the fee payable to the Group’s auditors for the audit of the
Group’s financial statements.
(2) Comprises the audits of the Group’s subsidiaries.
(3) Mainly comprises review of half-year reports and other assurance services.
(4) Comprises taxation compliance procedures for the Group’s subsidiaries.
(5) Comprises other non-statutory based services.
From time to time, the auditors provide other services to the
Group. These services are subject to strict corporate
governance procedures which encompass the selection of
service providers and the setting of their remuneration. The
Audit and Risk Management Committee must approve
individual non audit engagements provided by the Group’s
auditor above a value of $100,000, as well as where the
aggregate amount exceeds $250,000 per annum.
99
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Directors’ Declaration
on the Consolidated Financial Statements set out on pages 62 to 98
I, Brian Kruger, being a director of Incitec Pivot Limited (the Company), do hereby state in accordance with a resolution of the
directors that in the opinion of the directors,
1. (a) the consolidated financial statements and notes, set out on pages 62 to 98, and the remuneration disclosures that are
contained in the Remuneration Report on pages 39 to 59 of the Directors’ Report, are in accordance with the Corporations
Act 2001, including:
(i) giving a true and fair view of the financial position of the Company and the Group as at 30 September 2019 and of
their performance for the year ended on that date; and
(ii) complying with Accounting Standards in Australia (including the Australian Accounting Interpretations) and the
Corporations Regulations 2001;
(b) the financial report also complies with International Financial Reporting Standards as disclosed on page 68; and
(c) there are reasonable grounds to believe the Company will be able to pay its debts as and when they become due
and payable.
2. There are reasonable grounds to believe that the Company and the controlled entities identified in Note 14 will be able to
meet any obligations or liabilities to which they are or may become subject by virtue of the Deed of Cross Guarantee between
the Company and those subsidiaries pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
3. The directors have been given the declaration by the Chief Executive Officer and the Chief Financial Officer as required by
section 295A of the Corporations Act 2001 for the financial year ended 30 September 2019.
Brian Kruger
Chairman
Melbourne, 12 November 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Deloitte Touche Tohmatsu
ABN 74 490 121 060
550 Bourke
Street
Melbourne, VIC, 3000
GPO Box 78
Melbourne VIC 3001 Australia
Phone: +61 3 9671 7000
www.deloitte.com.au
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Asia Pacific
Limited and the Deloitte Network
Independent Auditor’s Report to the members of
Incitec Pivot Limited
Report on the Audit of the Financial Report
Opinion
We have audited the financial report of Incitec Pivot Limited (the “Company”) and its subsidiaries (the
“Group”), which comprises the consolidated statement of financial position as at 30 September 2019,
the consolidated statement of profit or loss and other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows for the year then ended,
and notes to the financial statements, including a summary of significant accounting policies and other
explanatory information, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations
Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 September 2019 and of its
financial performance for the year then ended; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has been
given to the directors of the Company, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. These matters were addressed in the context of
our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide
a separate opinion on these matters.
100
Incitec Pivot Limited Annual Report 2019
Note
1
Note
2
Note
3
Note
4
Note
5
Note
6
Note
7
Note
8
Note
9
Note
10
Note
11
Note
12
Note
13
Note
14
Note
15
Note
16
Note
17
Note
18
Note
19
Note
20
Note
21
Note
22
Note
23
Key Audit Matter How the scope of our audit responded to the
Key Audit Matter
Carrying value of goodwill and non-
current assets
Refer to Note 9 Property, plant and
equipment, Note 10 Intangibles and Note 11
Impairment of goodwill and non-current
assets
As at 30 September 2019, the Group held
goodwill of $2,724.5
million, intangible
assets of $455.0 million and property, plant
and equipment of $4,190.0 million, allocated
to its group of cash generating units (CGUs).
The assessment of the recoverable amount
is subject to a high level of judgement and is
based on management’s view of key
variables and market conditions such as
future commodity prices, foreign exchange
rates and operating performance including
the timing and approval of future capital and
operating expenditure,
and the most
appropriate discount rates.
As disclosed in note 11, the Group has
prepared a value-in-use model to determine
the recoverable amount of each CGU. The
Group’s models are sensitive to changes in
discount rates, natural gas prices, fertiliser
prices (primarily Di-
Ammonium Phosphate
(DAP)) and terminal value period
assumptions including growth rates,
commodity prices, foreign exchange rates
and production volumes.
Our procedures included, but were not limited to:
• Understanding the controls and
process that
management has
undertaken to assess the
recoverable amount
• In conjunction with our valuation specialists:
o Evaluating the appropriateness of the models
used by management to calculate the value-
in-use of the individual CGUs
o Assessing key inputs to the models including
revenue based on forecast commodity prices
and production rates, costs including natural
gas and sulphuric acid prices, capital
expenditure, foreign exchange rates, discount
rates and growth rates. We challenged these
inputs by:
▪ C
orroborating the key market based
assumptions to external analysts’ reports,
published industry growth rates and
industry reports
▪ Corroborating the key non-
market based
assumptions by comparing forecasts to
historical performance to test the accuracy
of management’s projections, and
▪ Comparing the discount rate
s applied to
each CGU with an independently developed
rate
• Agreeing relevant amounts in the models to the
Board approved forecasts
• P
erforming a range of sensitivity analysis
including
discount rates, natural gas prices,
fertiliser prices and terminal value period
assumptions including growth rates, commodity
prices, foreign exchange rates and production
volumes.
• Assessing the appropriateness of the disclosures
included in the Notes to the financial statements.
101
Incitec Pivot Limited Annual Report 2019
Provisions for uncertain tax positions
Refer to Note 3 Taxation
and Note 15
Provisions and contingencies
The Group operates across a large number
of jurisdictions and is subject to
investigations and audit activities by
revenue
authorities on a range of tax
matters during the normal course of
business, including transfer pricing,
indirect taxes and transactio
n related tax
matters.
The outcomes of these investigations and
audit activities depend upon several factors
and as a result management exercise
judgement in the determination of the tax
position and the estimates and
assumptions in relation to the provision for
taxes.
Our procedures included, but were not limited to:
• Understanding the controls and
process that
management has undertaken to identify and assess
uncertain tax positions
, including the monitoring
and consideration of guidance issued by regulatory
authorities
• In conjunction with our tax specialists:
o U
nderstanding the current status of tax
assessments and investigations
and the
process to monitor developments in ongoing
investigations and audit activities
o Reviewing external tax advice where
available, and
o Reviewing recent rulings and correspondence
with local tax authorities, to assess that the
tax provisions have
been appropriately
recorded or adjusted to reflect the latest
external developments
• Assessing the appropriateness of the disclosures
included in the Notes to the financial statements
Other Information
The directors are responsible for the other information. The other information comprises the
information included in the Group’s annual report for the year ended 30 September 2019, but does not
include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If,
based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Financial Report
The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
and for such internal control as the directors determine is necessary to enable the preparation of the
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
102
Incitec Pivot Limited Annual Report 2019
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the directors.
• Conclude on the appropriateness of the director’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial report or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and events
in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain
solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
103
Incitec Pivot Limited Annual Report 2019
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included in pages 39 to 59 of the Director’s Report for the
year ended 30 September 2019.
In our opinion, the Remuneration Report of the Incitec Pivot Limited, for the year ended 30 September
2019, complies with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the Remuneration
Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express
an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
DELOITTE TOUCHE TOHMATSU
A T Richards Genevra Cavallo
Partner Partner
Chartered Accountants Chartered Accountants
Melbourne, 12 November 2019 Melbourne, 12 November 2019
104
Incitec Pivot Limited Annual Report 2019
105
Incitec Pivot Limited Annual Report 2019
Shareholder Information
As at 12 November 2019
Distribution of ordinary shareholder and shareholdings
Size of holding Number of holders Percentage Number of shares Percentage
1 – 1,000 9,594 23.74% 4,321,499 0.27%
1,001 – 5,000 19,722 48.80% 57,880,319 3.61%
5,001 – 10,000 6,053 14.98% 44,143,374 2.75%
10,001 – 100,000 4,937 12.22% 103,479,556 6.44%
100,001 and over 108 0.26% 1,395,959,219 86.93%
Total 40,414 100.00% 1,605,783,967 100.00%
Included in the above total are 1,893 shareholders holding less than a marketable parcel of shares.
The holdings of the 20 largest holders of fully paid ordinary shares represent 85.73% of that class of shares.
Twenty largest ordinary fully paid shareholders
Number of shares Percentage
HSBC Custody Nominees (Australia) Limited 654,653,589 40.77%
J P Morgan Nominees Australia Pty Limited 367,320,485 22.87%
Citicorp Nominees Pty Limited 146,629,456 9.13%
National Nominees Limited 105,279,164 6.56%
BNP Paribas Nominees Pty Ltd <AGENCY LENDING DRP A/C> 33,988,244 2.12%
BNP Paribas Noms Pty Ltd <DRP> 22,998,390 1.43%
Citicorp Nominees Pty Limited <COLONIAL FIRST STATE INV A/C> 10,678,257 0.66%
UBS Nominees Pty Ltd 6,753,407 0.42%
HSBC Custody Nominees (Australia) Limited <NT-COMNWLTH SUPER CORP A/C> 6,426,205 0.40%
AMP Life Limited 4,779,603 0.30%
HSBC Custody Nominees (Australia) Limited 2,989,425 0.19%
HSBC Custody Nominees (Australia) Limited-GSCO ECA 2,642,463 0.16%
BNP Paribas Noms (NZ) Ltd <DRP> 2,387,652 0.15%
UBS Nominees Pty Ltd 2,190,886 0.14%
UBS Nominees Pty Ltd 2,010,477 0.13%
Milton Corporation Limited 1,663,689 0.10%
Mutual Trust Pty Ltd 1,026,812 0.06%
National Nominees Limited <DB A/C> 833,522 0.05%
Navigator Australia Limited <ANTARES EX-20 SMA A/C> 724,809 0.05%
Sandhurst Trustees Ltd <SISF A/C> 650,000 0.04%
Total 1,376,626,535 85.73%
Substantial shareholders
The following table shows holdings of Units of five per cent or more as notified in accordance with section 671B of the
Corporations Act 2001 (Cth):
Notice Date Votes/Number of shares % of Issued Capital
Schroder Investment Management Australia Limited 1 November 2019 157,163,328 9.79
Harris Associates L.P. 14 May 2019 136,038,005 8.47
Perpetual Limited 28 October 2019 92,338,562 5.75
The Vanguard Group, Inc. 3 July 2018 83,268,074 5.013
BlackRock Group 20 September 2019 80,387,555 5.00
Voting Rights for Ordinary Shares
Votes of shareholders are governed by the Company’s Constitution. In broad summary, but without prejudice to the provisions of
these rules, the Constitution provides for votes to be cast:
(a) on a show of hands, one vote for each shareholder; and
(b) on a poll, one vote for each fully paid share.
Unquoted Equity Securities
As at 12 November 2019 4,881,245 performance rights with 13 holders were on issue pursuant to Incitec Pivot Employee
Incentive Plans.
On-market buy-back
On 14 November 2017, IPL announced an on-market share buyback of up to $300.0m to be conducted over the next twelve
months. On 22 October 2018, IPL announced the extension of its on-market share buyback for a further 12 months from 29
November 2018 to 28 November 2019. The on-market share buyback was completed on 19 December 2018, with 81,386,554
ordinary shares purchased on-market at an average price of $3.69 per share.
On-market share purchases
During the 2019 financial year, 170,561 ordinary shares were purchased on-market at an average price of $3.80 per share for the
purposes of awards under IPL employee incentive plans.
106
Incitec Pivot Limited Annual Report 2019
Five Year Financial Statistics
Incitec Pivot Limited and its controlled entities 2019
$mill
2018
$mill
2017
$mill
2016
$mill
2015
$mill
Sales 3,918.2 3,856.3 3,473.4 3,353.7 3,643.3
Earnings before depreciation, amortisation, net borrowing costs,
individually material items (IMIs) and tax
605.3 851.0 774.5 672.6 825.6
Depreciation and amortisation (excluding IMIs) (301.6) (294.3) (273.3) (244.5) (249.1)
Earnings before net borrowing costs, IMIs and tax (EBIT) 303.7 556.7 501.2 428.1 576.5
Net borrowing costs (excluding IMIs) (144.1) (128.0) (108.7) (50.2) (68.8)
IMIs before tax – (236.0) – (241.3) –
Taxation (expense)/revenue (7.5) 18.1 (70.9) (7.2) (108.8)
Operating profit after tax and IMIs 152.1 210.8 321.6 129.4 398.9
Operating profit after tax and IMIs attributable to non-controlling interest (0.3) 2.9 2.9 1.3 0.3
Operating profit after tax and IMIs attributable
to shareholders of Incitec Pivot Limited
152.4 207.9 318.7 128.1 398.6
IMIs after tax – (139.5) – (167.1) –
Operating profit after tax before IMIs (net of tax) 152.4 347.4 318.7 295.2 398.6
Dividends paid 121.7 157.4 153.5 194.0 194.5
Current assets 1,550.8 1,471.5 1,453.0 1,141.9 1,343.9
Property, plant and equipment 4,190.0 4,004.3 3,854.8 3,892.7 4,003.6
Investments 357.7 336.1 316.9 318.0 323.6
Intangibles 3,179.5 3,046.6 3,121.0 3,182.5 3,346.3
Other non-current assets 101.5 95.5 76.0 143.9 178.9
Total assets 9,379.5 8,954.0 8,821.7 8,679.0 9,196.3
Current borrowings, payables and other liabilities 2,418.0 1,331.8 1,087.0 955.8 1,809.3
Current provisions 86.1 75.6 78.0 114.4 86.9
Non-current borrowings, payables and other liabilities 2,071.1 2,698.4 2,802.5 2,944.4 2,518.6
Non-current provisions 116.5 104.0 95.1 88.1 93.3
Total liabilities 4,691.7 4,209.8 4,062.6 4,102.7 4,508.1
Net assets 4,687.8 4,744.2 4,759.1 4,576.3 4,688.2
Shareholders’ equity 4,687.8 4,737.7 4,753.1 4,572.0 4,685.2
Equity attributable to non-controlling interest – 6.5 6.0 4.3 3.0
Total shareholders’ equity 4,687.8 4,744.2 4,759.1 4,576.3 4,688.2
Ordinary shares thousands 1,605,784 1,630,214 1,687,171 1,687,171 1,685,657
Number of shares on issue at year end thousands
1,605,784 1,630,214 1,687,171 1,687,171 1,685,657
Weighted average number of shares on issue (investor and ordinary) thousands 1,610,122 1,664,617 1,687,171 1,686,971 1,673,824
Earnings per share
before IMIs cents
9.5 20.9 18.9 17.5 23.8
including IMIs cents
9.5 12.5 18.9 7.6 23.8
Dividends (declared) cents
4.7 10.7 9.4 8.7 11.8
Dividends (paid) cents
7.5 9.4 9.1 11.5 11.7
Dividend franking %
22 12 – 47 38
Share price range High $4.24 $4.03 $3.89 $4.07 $4.36
Low $3.05 $3.34 $2.78 $2.67 $2.70
Year end $3.39 $3.98 $3.60 $2.82 $3.90
Stockmarket capitalisation at year end $mill 5,443.6 6,488.3 6,073.8 4,757.8 6,574.1
Net tangible assets per share $
0.94 1.04 0.97 0.83 0.80
Profit margin (earnings before net borrowing costs, IMIs and tax/sales) %
7.8 14.4 14.4 12.8 15.8
Net borrowings (interest bearing liabilities net of cash) $mill
2,080.0 1,786.3 1,596.2 1,862.3 1,947.4
Gearing (net borrowings/net borrowings plus equity) %
30.7 27.4 25.1 28.9 29.3
Interest cover (earnings before net borrowing costs, IMIs and
tax/net borrowing costs) times
2.1 4.3 4.6 8.5 8.4
Net capital expenditure on plant and equipment (cash flow) $mill 337.3 319.1 279.9 434.3 365.8
Net capital expenditure on acquisitions (cash flow) $mill 5.3 5.8 2.5 – –
Return on average shareholders funds
before IMIs %
3.2 7.3 6.8 6.4 8.8
including IMIs %
3.2 4.4 6.8 2.8 8.8
107
Incitec Pivot Limited Annual Report 2019
Investor Information
Annual General Meeting
10.30am (AEDT – Melbourne time)
Friday, 20 December 2019
The Clarendon Auditorium
Level 2, Melbourne Exhibition Centre
2 Clarendon Street,
South Wharf, Victoria
Australia
Securities Exchange Listing
Incitec Pivot Limited shares are listed on the
Australian Securities Exchange (ASX) and
are traded under the ASX code IPL
Notes issued under Incitec Pivot’s US$1,500,000,000
Euro Medium Term Note Programme are listed on the
Singapore Stock Exchange
Share Registry
If you have any questions in relation to your
shareholding, share transfers or dividends,
please contact our share registry:
Link Market Services Limited
Level 12, 680 George Street,
Sydney New South Wales 2000,
Australia
Locked Bag A14,
Sydney South,
New South Wales 1235,
Australia
Telephone: +61 1300 303 780
General Facsimile: +61 2 9287 0303
Proxy Facsimile: +61 2 9287 0309
Email: registrars@linkmarketservices.com.au
Website: www.linkmarketservices.com.au
American Depositary Receipts Registry for BNY Mellon
Computershare Investor Services
150 Royall Street
Canton, MA 02021
United States of America
Telephone: 1-888-269-2377
(available from within the United States)
+1-201-680-6825
(available from outside the United States)
Email: shrrelations@cpushareownerservices.com
Website: https://www-us.computershare.com/investor
Auditor
Deloitte Touche Tohmatsu
550 Bourke Street,
Melbourne Victoria 3000,
Australia
Incitec Pivot Limited
Registered address and head office:
Level 8, 28 Freshwater Place,
Southbank Victoria 3006,
Australia
GPO Box 1322,
Melbourne Victoria 3001,
Australia
Telephone: +61 3 8695 4400
Facsimile: +61 3 8695 4419
Website: www.incitecpivot.com.au
Company Secretary: Richa Puri
This publication has been printed in Australia on Monza Recycled which contains 99% recycled fibre, and elemental chlorine free pulp.
All virgin pulp is derived from well-managed forests and recycled wood fibre. Monza Recycled is manufactured by an ISO 14001 certified mill.
Level 8, 28 Freshwater Place,
Southbank Victoria 3006,
Australia
Incitec Pivot Limited
ABN 42 004 080 264
Postal Address
Incitec Pivot Limited
GPO Box 1322,
Melbourne Victoria 3001,
Australia
Telephone: +61 3 8695 4400
Facsimile: +61 3 8695 4419
www.incitecpivot.com.au
