ANNUAL REPORT 2016 GLOBAL DIVERSIFIED INDUSTRIAL CHEMICALS OUR OPERATIONS Ekati e Diavik e e Meadowbank CANADA Flin Flon e e Ishpeming Tumbler Ridge e North Bay Calgary a Maitland Biwabik e Boisbriand Tirana St Helens a e Ormstown Bucharest Barry i Simsbury Ankara Salt Lake City USA Cheyenne e a a Soma i e Donora TURKEY Carthage i e e Duffield CHINA Louisiana, Missouri a e Van Wyck i Linyi (Fabchem) PAKISTAN Waggaman, Louisiana e Brooksville New Delhi Dinamita i i Graham Hong Kong Gomez Palacios i Wolf Lake INDIA Guadalajara e MEXICO e Muara Tuhup e Tenggarong Batu Arang (TKEB) i e Berau PAPUA NEW GUINEA SOUTH Sibolga Tanjung Tabalong e e Papua New Guinea AFRICA Jakarta Batu Kajang e INDONESIA e a Moranbah Townsville Port Hedland e LATIN Mt Isa e Moura AMERICA Phosphate Hill (Queensland Nitrates) AUSTRALIA Gibson Island Kalgoorlie e i Helidon La Serena i Kooragang Island i Johannesburg (SASOL Dyno Nobel) Perth a Santiago Port Adelaide e Warkworth i Johannesburg (DetNet) Melbourne Portland Geelong Devonport Cover photograph: New IPL World Class Ammonia Plant, Louisiana USA VISION STATEMENT To be the best in our markets, delivering Zero Harm and outstanding business performance through our people, our culture and our customer focus. Ekati e Diavik e e Meadowbank CANADA Flin Flon e e Ishpeming Tumbler Ridge e North Bay Calgary a Maitland Biwabik e Boisbriand Tirana St Helens a e Ormstown Bucharest Barry i Simsbury Ankara Salt Lake City USA Cheyenne e a a Soma i e Donora TURKEY Carthage i e e Duffield CHINA Louisiana, Missouri a e Van Wyck i Linyi (Fabchem) PAKISTAN Waggaman, Louisiana e Brooksville New Delhi Dinamita i i Graham Hong Kong Gomez Palacios i Wolf Lake INDIA Guadalajara e MEXICO e Muara Tuhup e Tenggarong Batu Arang (TKEB) i e Berau Incitec Pivot Limited Sibolga PAPUA NEW GUINEA SOUTH Company Headquarters Tanjung Tabalong e e AFRICA Papua New Guinea Jakarta Incitec Pivot Fertilisers Batu Kajang e Corporate Office INDONESIA e a Moranbah Townsville Manufacturing/Distribution Port Hedland e LATIN Quantum Fertilisers Mt Isa e Moura AMERICA Dyno Nobel Phosphate Hill (Queensland Nitrates) AUSTRALIA Gibson Island Corporate Office Manufacturing/Distribution Kalgoorlie e i Helidon La Serena i Kooragang Island Joint Ventures/Investments i Johannesburg (SASOL Dyno Nobel) Perth a Santiago e Warkworth i Johannesburg (DetNet) Port Adelaide Manufacturing legend Portland Melbourne Geelong i Initiation Devonport e Emulsion a AN a Long term AN supplier CONTENTS Chairman’s Report ii Managing Director’s Report iv Board of Directors vi Executive Team vii Sustainability Report viii Directors’ Report 1 – Remuneration Report 24 Financial Report 44 Chairman’s Report Manufacturing performance in 2016 has been outstanding across the Group. I am pleased to report to shareholders Turning to the Company’s financials, Manufacturing performance in 2016 as Chairman of Incitec Pivot Limited, there is no denying the fact that 2016 has been outstanding across the following a year of market challenges was a very difficult year for us and for a Group, with particularly noteworthy and change. number of our customers. In the performances at Moranbah, where As always I will start with our number fertilisers business we suffered from the we achieved record production, and one priority, that being Safety. Back in impact of lower global commodity Phosphate Hill, where we achieved 2012, when we introduced our five year prices, particularly Diammonium near record production, despite the safety strategy to drive Zero Harm Phosphate (DAP) and Urea which were December 2015 train derailment. globally across IPL, we set a target respectively 23.2% and 29.5% lower on At the same time we have reviewed to achieve a Total Recordable Injury average than in 2015. In explosives, our structure and cost base to ensure Frequency Rate (TRIFR) of less than structural changes in US coal markets that these are the most appropriate to 1.0 by 2016. We achieved this target and a cyclical oversupply of ammonium the world in which we now operate. a year early in 2015 and have had a nitrate in Asia Pacific and the Americas Applying our Business Excellence (BEx) comparable performance in 2016, with put pressure on volumes and margins. philosophy, we have commenced an our TRIFR for 2016 standing at 0.76, Despite some compensation from a Organisation Focussed Improvement compared to 1.38 in 2012. number of positive factors, the Group Program with the target of achieving result was a reduction in underlying $100 million of annual cash savings. Other safety indicators in 2016 have Earnings Before Interest and Tax (EBIT) been even better. Two particularly to $428.1 million compared with $576.5 As shareholders would expect, we important ones, the Lost Time Injury million in 2015. Net Profit After Tax have carefully reviewed our Company Frequency Rate and the Employee Lost (NPAT), excluding Individually Material strategy and we believe it continues to Day Severity Rate, have decreased by Items (IMIs) and minority interests was be the correct one, notwithstanding 61% and 70% respectively during the $295.2 million, compared to $398.6 some of the structural and cyclical past twelve months. million in the prior year. changes facing our industries and our These are excellent performances customers. As a global diversified The Group balance sheet remains strong, chemicals company, we will continue to and reflect the fact that safety is a with leverage as at 30 September 2016 fundamental part of our culture and is leverage our manufacturing excellence inside the target range of less than 2.5x to capitalise on opportunities, being embraced as such at all locations Net Debt/EBITDA notwithstanding the and all levels within IPL. Notwithstanding particularly those driven by the Louisiana ammonia project spend. industrialisation and urbanisation of that, safety is one area in which we can Importantly, we have maintained our never feel complacent or even satisfied China, which will continue to be a investment grade credit rating through long term growth story, and those and it will remain the first agenda item the period of construction of the at all board meetings and site visits. opportunities driven by longer term Louisiana plant. The Company has a economic sources of gas in the Our safety focus was also clearly range of debt facilities in place to fund United States. demonstrated throughout construction its operations and strong liquidity with in of our new world scale ammonia plant excess of $800 million of undrawn The most significant of the United in Waggaman, Louisiana. While the committed debt facilities. States opportunities has been our US$850 million investment in project is notable for a number of In the current environment, it is milestones, it is the safety outcome that construction of an ammonia plant at pointless to bemoan the factors Waggaman, Louisiana. This was a major was most pleasing. Five million work beyond our control. Instead, we need to hours were completed on this project investment decision in 2013, which devote all of our energies to controlling made it tremendously gratifying for the without a single Lost Time Injury. This is the factors we can control. Two items a commendable result and is testament Board to be able to visit Louisiana in which fit into this category are the September this year to celebrate to our close partnership with construction efficiency of our manufacturing partner KBR Inc. and our onsite completion of construction on time operations and the structure and and under budget. neighbour, Cornerstone Chemical cost base of our businesses. Company Inc. ii Incitec Pivot Limited Annual Report 2016 Governor John Bel Edwards and representatives from the State of Louisiana, Louisiana Economic Development and the IPL Board marking the completion of construction of the ammonia plant at Waggaman, Louisiana. The Louisiana plant is anchored around We were able to hear and see first-hand The Board, through the Nominations taking first mover advantage of the from our business partners, a range of Committee, is conducting a search for a shale gas revolution in the US and solutions that make it possible for the new non-executive director and will be positions our Company to significantly mining industry to meet the challenges prioritising candidates with appropriate increase earnings and cash flows from and capitalise on the opportunities in a experience in the United States. This our Dyno Nobel business in the US rapidly changing world in need of will complement our mix of diversity, from 2017. metals, minerals and energy. These skills and attributes in line with the Successful completion of the solutions include imaginative new Company strategy of driving a greater Louisiana plant is a tribute to many products and services and innovative proportion of the Company’s earnings people and organisations with whom technologies. What I drew from this was from the US. we have worked over the past three that our innovation in new products in I would also like to thank James years. Within IPL, I would particularly industrial blasting is world class and, Fazzino, his Executive Team and the like to recognise James Fazzino and his more importantly, is aligned with 4,500 employees in our Company Executive Team for their foresight in customer needs and expectations. globally. In a difficult environment, identifying the strategic opportunity I would like to take this opportunity to their efforts have been outstanding. and for their drive and commitment thank my fellow Board members for Going forward into 2017, we will in seeing the project through to their contributions in 2016. Sadly, we continue to face structural and cyclical completion. will be farewelling John Marlay, who challenges. The test for our Board and A priority of the Board is to ensure we will retire as a director of the Company Executive Team will be our ability to engage with our customers, understand at the conclusion of the 2016 Annual anticipate and respond to these new innovations and continue our General Meeting.