Incitec Pivot Limited Pivot Incitec ® Getting ® Annual Report 2006 Report Annual things done. ® ® ® ® Incitec Pivot Limited ABN 42 004 080 264 70 Southbank Boulevard, ™ Southbank Victoria 3006, Australia Postal address Incitec Pivot Limited GPO Box 1322 Melbourne Victoria 3001, Australia T. + 61 3 8695 4400 F. + 61 3 8695 4419 www.incitecpivot.com.au Annual Report 2006 ® Incitec Pivot Limited ABN 42 004 080 264 Shareholder Information Annual General Meeting 2.00 pm Wednesday 20 December 2006 at The Arts Centre, 100 St Kilda Road, Melbourne Victoria 3000, Australia, in the ANZ Pavilion Stock Exchange Listing Incitec Pivot’s shares are listed on the Australian Stock Exchange (ASX) and are traded under the code IPL Share Registry Link Market Services Level 12, 680 George Street, Sydney New South Wales 2000, Australia Locked Bag A14 Sydney South New South Wales 1235 Telephone: 1300 554 474 (for callers within Australia) International: +61 2 8280 7111 General Facsimile: +61 2 9287 0303 Proxy Facsimile: +61 2 9287 0309 Email: [email protected] Website: www.linkmarketservices.com.au Auditor KPMG 147 Collins Street, Melbourne Victoria 3000, Australia Incitec Pivot Limited Registered address and head office: 70 Southbank Boulevard, Southbank Victoria 3006, Australia GPO Box 1322 Melbourne Victoria 3001, Australia Telephone: +61 3 8695 4400 Facsimile: +61 3 8695 4419 www.incitecpivot.com.au SuPerfect, Easy Liquids, Green Urea and FertTerms Plus are registered trade marks of Incitec Pivot Limited. Cal Gran is a trade mark of Incitec Pivot Limited. The BIG N logo, Nutrient Advantage, Granulock, GranAm and Liquifert are registered trade marks of Incitec Fertilizers Limited. Aussie Gold and the Aussie Gold logo are registered trade marks of Southern Cross Fertilisers Pty Ltd. The focus on costs continues and is now embedded in Incitec Pivot’s culture to secure its position as the lowest cost base fertiliser supplier in Australia. John C Watson, AM Chairman Contents Chairman’s Report 2 Managing Director’s Report 3 Who we are and how we do business 4 Board of Directors 6 Executive Team 7 Review of Performance 8 Safety, Health & Environment 12 Financial Report 15 For Incitec Pivot, the 2005/06 financial year was a year of transformation. Chairman’s Report For Incitec Pivot, the 2005/06 financial year was a year of which is an increase of 45 per cent on the total dividend transformation. In its third full year since the merger, the paid in 2004/05. This is in line with the Board’s continued Company completed a major cost-focused restructure, separated policy of distributing surplus funds and franking credits to from its founding majority shareholder, Orica, and expanded shareholders when available. significantly by acquiring Southern Cross Fertilisers Pty Ltd (SCF). Total shareholder returns almost doubled in 2005/06 as a Transforming events result of the increased total dividend, the $165 million buy-back and a 64 per cent increase in the share price from $15.82 to Incitec Pivot’s restructure, which started in the 2004/05 year, $25.87 between 1 October 2005 and 30 September 2006. was part of a Company-wide cost-efficiency program. This underpinned improved financial performance in 2005/06. While it has been a successful year for Incitec Pivot, we are The focus on costs continues and is now embedded in Incitec acutely aware of the impact of the continuing drought in most Pivot’s culture to secure its position as the lowest cost base regions. That this performance was delivered in poor seasonal fertiliser supplier in Australia. conditions is testimony to the soundness of the strategy to achieve a cost base that allows the business to achieve its On 9 May 2006, Orica announced its intention to sell the 70 per financial goals even in a difficult trading year. cent shareholding it obtained in Incitec Pivot at the time of the merger in 2003. Of course, our success would not have been possible without the loyalty of our distribution partners and the support of The first phase of Orica’s exit, the sale of 56.5 per cent of farmers, many of whom are also shareholders, who use Incitec Pivot’s shares to institutions, was completed on 10 May. our products. The selldown was heavily over-subscribed at $21 per share, demonstrating investors’ confidence in Incitec Pivot. Board and employees At the same time, Incitec Pivot announced its plan to buy back Regarding the composition of your Board, the only change the remaining portion of Orica’s holding and for those shares to during the year was the resignation of John Chesterfield as a be cancelled, subject to shareholder approval. non-Executive Director following the departure of Orica from our Simultaneously with these announcements, Incitec Pivot share register. On behalf of the Board and shareholders, I would announced its proposal to purchase from BHP Billiton the like to thank John for his professional and knowledgeable Queensland based manufacturer, SCF. contribution and also pass on my gratitude to my fellow Directors for their positive and considered input during the year. As you know, on 6 July, Incitec Pivot’s shareholders voted overwhelmingly to support the buy-back proposal and this The Board now comprises six Directors and, apart from the was completed on 11 July. The acquisition of SCF completed on Managing Director and the Finance Director, all Directors are 1 August. With these events, Incitec Pivot is a fully integrated considered independent as defined in the ASX Principles of fertiliser company and a truly independent listed company with Good Corporate Governance. its shares freely available for trading. Incitec Pivot’s destiny is In conclusion, I would like to elaborate on my earlier reference now in its own hands. to the role of all employees in Incitec Pivot’s outstanding success in 2005/06. This team’s determination to turn the Delivery of strategy Company around has been most impressive, especially given As a result of these developments, Incitec Pivot achieved the the unfavourable weather conditions and the competitive liquidity in its share register and scale of market capitalisation nature of the market. On behalf of the Board and shareholders, to be admitted to Standard and Poor’s ASX 200 on 15 I thank all employees for their continued contribution to September 2006. the business. This was appropriate recognition for the strategies adopted by the Board and management and the dedication of the workforce to implement them in a fast-changing environment. A measure of the success of the strategies Incitec Pivot has pursued is that in 2005/06 profitability increased 73 John C Watson, AM per cent to achieve Net Profit After Tax (NPAT), excluding Chairman individually material items, of $82.8 million. This enabled your Directors to declare a final dividend of 81 cents per share, 2 I sincerely thank my Incitec Pivot colleagues for their untiring efforts in a challenging and fast-changing environment. Together, I know we can continue to get things done. Managing Director’s Report My first full year as Managing Director and CEO of Incitec Health, safety and the environment Pivot has confirmed to me the underlying strength of the In 2005/06, Incitec Pivot continued to maintain its focus on business. The major transforming events, as outlined by the health, safety and the environment. Tragically, however, the Chairman, positioned the Company to deliver its strategy of being Company experienced its first fatality during the year at our the supplier with the lowest cost base in the fertiliser industry. primary distribution centre at Mackay. This is unacceptable and Financial performance we are taking all possible steps to prevent this ever occurring again. Following the tragedy, safety audits were conducted The financial results for 2005/06 clearly demonstrate the success at all of our sites and all employees attended workshops to of our strategy. reinforce our safety focus. In particular, the major cost-saving restructure launched in 2005 In respect of the environment, the decision was taken to cease played a crucial part in delivering significantly improved earnings single superphosphate production at Cockle Creek in New South in the 2005/06 year, despite poor prevailing seasonal conditions. Wales by September 2009. The decision to close the plant will The restructure was designed to reduce the underlying cost base enable rehabilitation and future sale of the site. Since year-end, we sufficiently to allow satisfactory returns, even in a poor year, as have closed our Wallaroo distribution centre in South Australia to a means of managing seasonal fluctuations. Our performance in allow remediation and ultimate development of the site to proceed. the past year, which was characterised by unfavourable weather I am also proud to report that our Company has achieved full conditions, vindicates this strategy. accreditation with the fertiliser industry’s national training and The magnitude and timing of the cost savings achieved to accreditation program, Fertcare®. This confirms our ongoing date deserves special mention. We promised a step change by commitment to take a responsible approach to fertiliser handling, reducing the fixed cost base by $20 million in 2005/06, yet we advice and application. were able to deliver cost savings of $30.1 million before tax, a 52 per cent improvement on our target. The cost savings were Product Development achieved through a combination of initiatives, including improving During 2005/06, the Incitec Pivot brand was further strengthened efficiencies in our manufacturing and logistics operations. in the market place and new products came on line to boost our offering to farmers. For instance, FertTerms Plus™ was introduced In the future, we expect phase one of the restructure to deliver to offer farmers more flexible deferred payment options.