Dyno Nobel Limited

Good morning and welcome to Incitec Pivot Limited's 2024 Fully Results Briefing. This is Tom Dixon speaking and I'm joined this morning by our CEO and MD, Mauro Neves, and our CFO, Paul Victor. The materials we'll be covering today have been lodged with the Australian Securities Exchange and can be found on the ASX and Incitec Pivot Limited's websites. At the end of the presentation, we'll have time for questions and an audio recording of this presentation will be available on the company's website. I'd like to draw your attention to the disclaimers found on slide two and slide three of the presentation. And before we move into the main presentation, I'd like to start with an acknowledgement of country. I'd like to acknowledge the traditional custodians of the land we are coming to you from today, the Wurundjeri peoples of the Eastern Kulin Nation. I pay my respects to the elders past and present. Thank you, and now I'd like to hand over to Mauro.

Thanks, Dom. Good morning and welcome, everyone. Before we start, I would like to acknowledge that today is Remembrance Day, a day when we pay respects to armed force members who lost their lives in battle. Our call may run past 11 a.m., so I would like to acknowledge this important day now and encourage you to take the time to observe a minute's silence later today. At our investor showcase in September, we outlined our ambition to become the leading global explosives player. As we go through our results today, we're making great progress to realize that ambition. Our explosives business has performed particularly well. We operate in attractive markets that are expected to remain resilient and grow as mining responds to the energy transition. Our leading technology, unique supply chains, well-positioned manufacturing, high-quality customer base give us an advantage in the market, driving reliable earnings streams with exciting growth potential. We're working hard to drive productivity further so we can deliver on our ambition to double our explosives earning and achieve returns on invested capital above work. So let's take a look in how we're going. Firstly, safety remains our number one priority. This is an area where we set high standards. Unfortunately, our performance has been below our expectations, and I'll touch more on that later. Our underlying financial performance has been very pleasing. Record earnings achieved by both DNAP Explosives business and our third distribution business. As we outlined at our investor showcase, our advanced technology is helping us win in the marketplace and is driving real customer and market growth, particularly in the metals markets. Our headline earnings have been impacted by some IMIs, the vast majority of which are non-cash and relate to an impairment charge against our fertilizers business. The impairment is mainly driven by uncertainty over gas prices in Australia, the same issue that resulted in the closure of Gibson Island Manufacturing in January 2023. We're pleased to note our transformation project has exceeded our expectations with $64 million of EBIT improvement realized in fiscal year 24. This means that we already delivered more than 21% of the expected transformation earnings improvements. Later in the presentation, I will outline the significant progress we made on our plans to separate the third business and our commitment to a separation timetable of six to 12 months. I will now touch on a few key highlights of our strategic ambition. As I stated earlier, our ambition is to become the leading global explosives player. by doubling our earnings, delivering returns above our cost of capital, and achieving top quartile TSR. We will achieve this by leveraging our unique competitive position, customer-centric technology, deep customer partnerships, superior products, and privileged assets and distribution networks. We expect to capture both new and existing demand through our strong customer connections and advanced technology. Our transformation program is about expanding margins, allowing us to transform and increase profitability, eliminating waste and fostering innovation. Capital prudence is paramount in ensuring attractive returns with a focus on returning working capital, I should say reducing working capital and funding only high returning projects. As you see in a moment, this strategy is delivering great results. But firstly, I would like to spend some time on our number one priority, safety. Zero harm is an important part of all of our lives. And I can tell you, it's a deep passion of mine. Before I talk about our performance, it's important that I once again acknowledge that in February this year, we lost a much loved colleague in a public road fatal incident. This tragic incident reminds us that we must stay vigilant, and on that point, we are emphasizing our focus on our global fatality prevention program. Looking more broadly at our zero harm metrics, we are disappointed with our rate of recordable injuries, which is unacceptable for our people. Our trifle of 1.08, which includes the fatal road incident, is above our 0.8 fiscal year 24 ambition. Although yet to materialize in the main KPIs, there are some leading indicators that are showing improvement, and it gives us some confidence that our actions are effective and will drive improvements across the business. For instance, 80% of our sites were recordable injury-free, which proves that zero harm is an achievable ambition. Pleasingly, for the third year running, we have not had any significant environmental incidents, and our process safety statistics have been trending down, despite a slight increase in Tier 2 events in fiscal year 24. We did not record any Tier 1 events during this year, I would also like to give recognition for our team at Gibson Island, who were awarded Chemistry Australia's HSC Award for 2024 in recognition of the safe closure of the Gibson Island manufacturing facility with zero recordable injuries. Moving now to our fiscal year 24 results. Our statutory result after tax, including IMIs, was a loss of $311 million, primarily related to non-cash impairments across our fertilizers business. The main driver of this impairment was a run down of phosphate yield, which is a consequence of gas price uncertainty on the east coast of Australia. Our underlying performance was very strong. as we see the benefits from our transformation program coming through in the results. Of particular note was the record earnings achieved in DNAP and in the third distribution business. It was also good to see the second half performance from Fawcett Hill, with production running at an annualized rate of around 950,000 tons per annum. Our headline results reflects change in our asset portfolio. The EBIT of $518 million is an 18% improvement on fiscal year 23, after adjusting for the Wallace sale, Gibson Island closure, and the impacts from commodities and foreign exchange. We have also announced today a final dividend of 6.3 cents per share, unfranked, which represents a 50% payout ratio consistent with our capital allocation framework. This takes our total ordinary dividends in fiscal year 24 to 10.6 cents per share, or 20.8 cents per share when included dividend component of the $500 million capital return we completed in February. We have also made solid progress on our $1.4 billion capital return program, having returned $649 million so far, leaving a further $751 million to come. The balance sheet remains strong, with net debt to EBIT sitting at 0.8 times. Now to the transformation program. As I highlighted on the earlier slide, I'm very pleased to report a $64 million uplift in fiscal year 24 EBIT following the successful early execution of the program. This is ahead of our expectations, driven by strong recontracting DNAP business, further business benefits from repricing, technology uptake, organic growth, and improved manufacturing performance. We are on track to deliver the target fiscal year 25 initiatives that will support the achievement of a run rate equivalent to 40 to 50% of the earnings uplift as we exit the year. Financial year 2023 EBIT serves as the baseline for our earnings growth ambition. And on this slide, we have included a waterfall to help you reconcile the $300 million starting position. So where would the fiscal year 25 benefits come from? At our investor showcase in Salt Lake, we outline in some detail where we would be deriving these benefits from. We talked about three levers, operational, commercial, and growth. This slide shows roughly how much of the overall benefits we expect to come from each of these levers, and how much each bucket will contribute in the fiscal year 25 year. Now, let's talk about technology. Over the last four years, we had some really impressive growth in our premium motions and electronic detonators. A truly global customer base is recognizing the value of our technology. And as we continue working together to innovate, we'll continue winning new business. Since 2020, we have deployed 135 new Delta E trucks, which demonstrates the growth that this market-leading product has achieved. This year, we designed and built the first electric mobile processing unit with its own solar charging station. We are also working towards customer trials of explosives containing renewable diesel in 2025, with several customers interested in partnering with us. Now, I'll touch briefly on some of the great work that has been going on across the business to improve reliability in our operations. Stable and safe operations releases our management time to grow and improve the business. Improving manufacturing reliability is a focus of our capital investments as we look to optimize returns. We've seen a 7% improvement at our Moromba plant compared to the equivalent period in the last campaign. I mentioned the good second half at Fossett Hill with an annualized second half production rate of around 950,000 tons and a run of 136 days of continuous ammonia production, which was a record in our last 10 years. We also opened the state-of-the-art Helidon automated electronic detonator plant, increasing capacity and driving safety and efficiency improvements. Now, talking about our business unit performance. Dynamo Asia Pacific had a fantastic year, delivering record earnings of $257 million, up $69 million on the prior year, with an impressive EBIT margin of just over 17%. This material earnings uplift was mainly driven by positive reconstructing outcomes throughout the year. And I'm very pleased to say we've continued to see further recontracting wins secured for fiscal year 25. The NAP's investment technology also continues to contribute to earnings growth through electronics, cyber debt, and delta E. Titanobel continues its growth trajectory as the business ramps up in line with the business case. I would also like to share exciting news of the appointment of Tania Rybaczek as President, DinoNobel Asia Pacific. She'll be commencing with us in February. Tania is an excellent fit for IPL with extensive experience across a range of industry and I'm delighted to welcome her to the team. DinoNobel America's explosives delivered 132 million US dollars of EBIT, which is 13% up on the prior year. EBIT and margins were up year on year, with strong growth in metals demand for technology products in Canadian, US, and Chilean markets, offsetting coal volume declines. Coal volume decline was largely due to low natural gas prices. Some slowness in our quarrying construction was primarily seen in the eastern US, following slow industrial and non-residential building 2024. Let's talk now about our fertilizer's business. Distribution had a record year, driven by both volume and margin improvements. This is particularly impressive, given average commodity prices were the lowest they have been since 2021, which really highlights the resilience of this business. This record performance through a period of lower commodity price highlights that distribution is not subject to volatile earnings swings. Soil testing samples through Nutrient Advantage also achieved a record last year, which highlights how our customers are thinking about their soil nutrition and provides a solid platform to leverage our market-leading technology offering. As you know, IPF has an exclusive supply agreement for REIA from Perdaman's Kiratha facility, which remains on track to deliver from fiscal year 27. with construction now 35% complete. An experienced team has been stood up, including a full-time project manager, to ensure readiness and smooth transition on commencement of supply. I have already talked about phosphate yield performance in the second half, averaging 80,000 tons per month and bringing total fiscal year 24 production to 740,000 tons. We have made considerable progress on the separation of our fertilizers business. We have decided to move our primary distribution center from Gibson Island to a new third party facility. This decision will enable us to monetize the Gibson Island real estate and we expect to begin a sale process in the first quarter of calendar year 2025. For manufacturing, we have assessed our options for Geelong and have made the decision to cease our manufacturing operations there. Geelong will transition to an import facility with distribution staying operational. The strategic review of Phosphate Hill is progressing well. We expect to finalize this review by no later than September 2025. We continue to deliver on our strategy for distribution, which is demonstrated by the record EBIT achieved this year. We intend to begin a sale process early next calendar year for distribution. We have appointed advisors to help us with the strategic review of manufacturing and with the sale process for distribution. Whilst there is still plenty of work on separation, we stay focused on delivering a dino-nobles transformation strategy, as outlined at our investor showcase. I want to highlight now some of the key competitive strengths that underpin our distribution business, as well as the key sources of future growth. Our distribution business has unique capability across soil testing, marketing, exporting, and R&D. Our distribution network relies on well-established infrastructure across key agricultural markets on the East Coast. We have the largest market share on the East Coast and continue to drive value-creative market share gains. Our operations are supported by significant trading, supply chain and logistics capability that enable us to deliver exceptional service for our customers. Earlier this month, IPF won the established B2B category in the AFR Customer Champions Award. We are focused on optimizing the network where possible, as highlighted by our decision to close the PDC at Gibson Island and entering an agreement with a third party to operate a new distribution center in Brisbane. The construction of the per-demand facility is around one-third complete, and is on track to deliver a step-changing earnings for this business in fiscal year 28. Importantly, the business can be separated from manufacturing, and separation work is underway as we speak. We have previously discussed some of our achievements in decarbonization. Having successfully completed the Moromba project, we will deliver a similar project at our Lomo facility and have committed to complete this installation in 2025. These are long lead time projects which require planned shutdowns and significant investment to install. Having said that, the benefits are great. Together, these two projects are expected to reduce DinoNobo's global greenhouse gas by 41% against our 2020 baseline. As part of our commitment to transparency, IPL has again been included in SNMP Global CSA Index, which is widely recognized as a leading reference point in sustainable investment. Our efforts to ensure sustainable operations throughout our business were also recognized in July when IPF was recognized as sustainability leader by the AFR in the agricultural and environmental category. I'll now hand over to Paul to take you through our financial results.

Thank you, Mauro, and good morning to everyone on the call today. Starting on slide 21, I want to begin to putting our financial results into context. As you've just heard, our underlying financial performance is very strong. In most parts of our business, we've strengthened our commercial positions, grown margins, contained cost, improved asset performance, and managed our cash and working capital levels very efficiently. However, our statutory results have been impacted by the strategy-led changes we have in our portfolio and the execution of our DinoNobel transformation strategy. The non-cash impairments we have announced today are primarily related to the uncertain gas environment we continue to operate in, and this is a challenge we face for some time. This has not stopped our focus on maintaining our financial and capital prudence through improving our working capital levels and our ongoing focus on delivering competitive, sustainable returns to our shareholders. So as we begin financial year 25, we are expecting a strong year for our operating businesses, but note that this will be impacted by our heightened program of plant turnarounds during the year. I'll come back to the outlook later in my section. Turning to slide 22, which provides a detailed overview of our financial performance for the year on a statutory basis. The net loss after-tax of $311 million reflects the $712 million of after-tax IMIs we booked during the year. These mainly relate to non-cash impairments in the fertilizer business and includes the DinoNobel business transformation cash costs. This was partly offset by the gain on the sale of Wallah. Our capital expenditure of $379 million is 23% lower than the previous year and is still very much in line with our expectations. The prior year included capex at Wallah and turnarounds in the DNA business, which were not repeated in the current year. We remain laser focused on improving our ROIC. Our ROIC, including Goodwill for continuing operations, increased from 6.1% to 6.3% due to the strong result in the DinoNobel business. While our ROIC increase, we recognize it's not where we want it to be, and we do have plans in place to address this, which we'll speak to later on in this presentation. Ambition is to increase our ROIC, including Goodwill, to about the 8.5% WAC over the following three years. And as I've said before, everything we do is focused on maximizing returns to shareholders. Our delivery of strong underlying earnings growth has enabled us to announce a 6.3 cents per share final dividend, which represents a 50% payout ratio. This takes our total dividend per share for the year to 20.8 cents per share when you include the dividend component of the capital return we completed in February. I will talk more about our overall capital management program later in this presentation. Turning to slide 23, I'm really proud to say that the group delivered a solid 18% underlying earnings growth in all of our customer-facing businesses. This included a record EBIT in the Diana Nobel Asian Pacific business and a record EBIT in the fertilizer distribution business. Congratulations to those teams involved in this performance. It really was a fantastic job that really highlighted the strength of the businesses we have. In total, our global explosive business increased earnings by 30% to $460 million, benefiting from the strong customer growth, improved pricing, and continued technology uptake. DNAP had a record year with earnings growth driven by favorable recontracting. DNA also delivered a good growth with strong earnings growth in the metals market and a continued focus on cost management and price discipline. Our fertilizer distribution business had an excellent year and really got on top of the complex challenge of managing fertilizer supply chains in a complex and a very dynamic environment. The overall fertilizer result was impacted by manufacturing interruptions at Phosphate Hill in the first half, and as Mero mentioned, the team really delivered an excellent second half to close out this financial year. We have been diligently managing our overheads during the year, but our results also reflect the settlement of a legacy U.S. litigation matter. The underlying group costs did decrease year on year and will further benefit from improvements made as a result of the transformation program. Overall, at group level, we delivered an EBIT result of $580 million and an EBITDA of $925 million on a continuing operations basis. On slide 24, it really outlines in more detail the impairments we've booked in our Australian and US fertilizer businesses. Let me start by saying that there were no impairments in our distribution business and that this business continues to perform exceptionally well. At Phosphate Hill, the impairment has been triggered by the ongoing uncertainty about gas prices on the east coast of Australia. As mentioned earlier, we have made the strategic decision to close the Geelong operations and have booked the associated impairments to those assets. Meanwhile, at Gibson Island, the $50 million impairment mainly relates to the infrastructure which cannot be relocated and has been written off. Over in the U.S., we have undertaken a competitive sales process for the St. Helens asset, and this has indicated a fair value below the carrying value. As a result, we have booked a $100 million in payment of that asset. Let's now turn our focus to working capital and on slide 25, you can see the year-on-year movement in working capital. Over the past year, we have introduced several business improvement actions that delivered many benefits in optimizing our working capital investment. We have to accept that in the growth areas of our business, such as explosives or the exposure to strategic stock issues, we have made the decision to increase our working capital levels on a temporary basis. We acknowledge that we still have much more to do to address the relative levels of working capital in the business. In addition, our DinoNobel transformation project will be instrumental in delivering better working capital outcomes and improving returns for the business. An important call-out was our decreased usage of trade working capital facilities. Utilizing cash on the balance sheet is much more beneficial as we buy back shares over time. The decision to rather use cash saved us between $3 to $4 million in additional facility charges and made it worthwhile to rather use cash on the balance sheet as opposed to the facility. Turning to side 26. Our capital expenditure is continuously being reviewed to deliver the most optimal levels of spend to ensure long-term asset reliability and delivering the best ROIC for all of our assets. Our expected level of sustenance expenditure in financial year 25 of $180 million to $220 million is in line with the prior year. As we have highlighted earlier, we have a number of planned turnarounds this year and we expect turnaround capital to be in the range of $120 to $140 million. This includes the planned 56-day turnaround at Maramba. Our total sustainability CAPEX is expected to be approximately $10 million in financial year 2025, and this is supporting our pathway to deliver our 2030 emissions reductions. Sustainable capital is aligned to our asset maintenance plans, which aims to balance returns as well as ensure sustainable throughput at our manufacturing facilities. Turning to slide 27, this really provides us with a great snapshot of how we are prioritizing the delivery of sustainable returns to our shareholders under our capital allocation framework. As you would know, in February we delivered the $500 million prorata capital return, which was the equivalent of 26 cents per share. As I've mentioned earlier, we announced today the 6.3 cents per share unfranked dividend. This takes Financier24's total ordering dividend to 10.6 cents per share, which excludes the special dividend of almost 10.2 cents per share as part of the $500 million capital return paid to shareholders in February. We have made excellent progress on our on-market share buyback program, and we expect to continue that program following the release of these results. Let's now turn into our outlook. At a high level, we expect the earnings benefit of the Diana Nobel Transformation Program to be impacting the earnings for financial year 25 quite significantly, but it will also be negatively impacted as a result of the planned turnarounds in financial year 25. We expect Diana Nobel earnings will be skewed to approximately 40% in the first half and 60% in the second half of this year. Adana Nobel America's business is performing really well, and we are also expecting the business to have a more pronounced first half, second half skew of around 30% to 70%. In Adana Nobel, Asian Pacific business earnings will continue to be supported by the favorable recontracting and margin improvements from our technology offerings. A big feature of the year will be the turnaround at Marimba to deliver safe and sustainable earnings into the future. We'll also be reporting a new business unit called DNEL, which stands for Donna Nobel, EMEA and LATAM. This is what we believe to think it being our growth business unit as we expand into new markets with our customers. Across the Diana Nobel business, the benefits of our transformation program will continue and we expect to deliver a 40% to 50% exit run rate at the end of financial year 25. Financial year 25 will also see turnarounds at Marimba, Shahan and Lomo, which we forecast will have a $45 to $55 million earnings impact for this financial year. For our fertilizer distribution business, we expect the earnings to be in the usual $40 to $60 million range, subject to market conditions. In fertilizer, our production expectation at phosphate yield are 790 to 860,000 tons for the year. It is important to note that due to some scheduled maintenance work, the expected production skew this year is around 40 to 45% in the first half. We also expect a fertilizer earnings skew of around 20% in the first half and 80% in the second half, depending on the gas and DAP price outcomes. For phosphate yield gas costs, we are currently assessing gas cost scenarios with an expected incremental cost of shortfall gas in financial year 25 to be in the range of 30 million to 90 million, depending on the timing of the recommencement of supply under the contract. It is also important to note that we expect to see the earnings benefit of the transformation program really coming through in financial year 26, as we exit the year on a 70% to 80% EBIT run rate with significantly less impacts as a result of turnarounds. Finally, on slide 29, we have provided an overview of our planned turnaround activities. As we have discussed, the turnarounds in Finance Year 25 will be at Maramba and Shahan, and also at our Ammonium Nitrate Facility at Lomo. The turnarounds planned at St. Helens in Finance Year 25 and Phosphate Hill in Finance Year 26 are subject to the outcome of the strategic review of those assets. We look forward to updating you on the progress of these critical activities as we progress the year. So that's all from me. Thank you very much, ladies and gentlemen, for listening to me. And on that note, I will now hand back tomorrow.