Dyno Nobel Limited

Good morning and welcome to Dino Nobel Limited's 2025 Half Year Results Briefing. This is Tom Dixon speaking and I'm joined this morning by our CEO and MD Mauro Neves and our interim CFO Damian Butler. The materials we'll be covering today have been lodged with the Australian Securities Exchange and can be found on the ASX and Dino Nobel Limited's websites. At the end of the presentation we'll have time for questions and an audio recording of this presentation will also 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 elders past and present. Thank you, and I'd now like to hand over to Maro. Thanks, Tom.

Good morning and welcome everyone. It's great to present to you today under the Dino Nobel name and provide an update of the considerable progress we made against our strategy and as well as our financial performance for the half. Our first touch on our financial results and then the progress we made on the fertilizer separation. Our statutory results after tax was a profit of $7 million, which included individual material items, totaling a loss of $18 million, mainly related to the closure of the Geelong manufacturing plant and the non-cash full impairment of the St. Helens fertilizers plant in the U.S., Our EBIT of $174 million shows a strong underlying earnings growth across our explosives business after adjusting for the wallet sale, the impacts from commodities and foreign exchange, and the scheduled turnarounds completed during the first half. This performance continues to reflect the benefits of the transformation program, which is driving improved results. We have announced today an entering dividend of 2.4 cents per share, unfranked, which represents a 51% payout ratio, consistent with our capital allocation framework. Our net debt to EBITDA ratio at 1.6 times is slightly above our target of equal or less than 1.5 times, but we expect this to be within target by end of year, which Damien will cover last in his presentation. As we outlined last year, our strategic ambition to become the leading global explosives business is structured in three distinct phases. The first phase is separation of the fertilizers business, and I'm very pleased to say we're presenting today a very important milestone against the commitment. We have delivered on the distribution business separation, with sales agreements in place. We also have a conditional contract of sale for Gibson Island, and these combined transactions will generate gross proceeds of up to $835 million, which is a great result for the company and our shareholders. The Fossford Hill Strategic Review is on track to conclude no later than September 25. Our transformation program is the second phase of our strategy, which drives our ambition to double earnings and deliver returns above our cost of capital. The program continues to deliver, and we remain on track to reach the 40 to 50% exit run rate for the 2025 financial year, with $25 million of net earnings uplift generated in the first half. Each strategic phase builds on the success of the previous one. The final phase of consolidation we expect to talk about further down the track. I'll run through the other highlights on this slide later in the presentation. This next slide will be familiar to many of you. We are striving to be the leading global player in explosives by doubling our earnings and delivering returns above our cost of capital. We are focused on leveraging our unique competitive position and executing in our transformation program while remaining committed to capital prudence to ensure attractive returns. As you see from our updates today, we are successfully delivering on this ambition. Safety remains the prime responsibility of everyone in the organization, and I am pleased to report that our performance is improving. Our Operations Excellence Program, which we call the Noble Way, is enhancing the efficiency and reliability of our operations. In addition, it has contributed to an improvement in our process safety statistics, which are 25% lower than the same time last year. At our full year results in November, I expressed disappointment in our TRIFA, but we saw some leading indicators that gave us the confidence we were on the right track with our safety programs. Our stats are reflecting a positive turnaround in performance. We're still not where we need to be, but we're heading in the right direction. We had a reduction in recordable injuries and in the severity of those injuries with less work days lost as a result. Our environmental performance also continues to be first class with now over three years since we last recorded a significant environment incident. Last year, we outlined our plan to separate fertilizers, with a focus on divesting in parts to maximize value and certainty for shareholders. We made substantial progress against this objective. We have signed transactional agreements for both the distribution business and the peddler and off-take agreement. The distribution business will be sold to the ASX-listed Gridley Corporation, and the Perdomen Off-Take Agreement will be sold to Macquarie's Group's Commodities and Global Markets business. Completion for these transactions is expected to be in the third quarter of calendar year 25. A conditional contract of sale has also been executed for the Gibson Island land, for which we are targeting completion in September, and the relocation of the Gibson Island PDC is on track to be completed by December this year. The Phosphate Hill Strategic Review continues to make progress, and we are on track for this to be completed no later than September. The cessation of manufacturing at Geelong by September this year is also progressing to Plain. These key milestones mark substantial progress of DinoNobel on the path to achieve full separation from the fertilizers business and transform into the leading peer-play explosives company. Over the past six months, we have undertaken a competitive sale process to divest the distribution business, engaging with a range of global and domestic strategic players, as well as financial sponsors. The transaction with Ridley for the distribution business is a great outcome for Dino Nobel, for Ridley, our employees, and the wider stakeholders of IPF. Ridley is an ASX-listed agribusiness with a long history in serving Australian farmers, and the acquisition of distribution is complementary to their strategy. The Perdoman Off-Take Agreement has been acquired by Macquarie Commodities and Global Markets , a business division of Macquarie Group, which has a strong track record of managing long-term supply and off-take agreements. This is a highly strategic acquisition for Macquarie CGM and expand its global commodity trading and risk management business. Following a competitive process that engage a wide universe of bidders, these transactions provide significant value realization for Dino Nobel shareholders with combined gross proceeds of up to $641 million, including working capital benefits. Ridley and Macquarie collectively offered the strongest value and execution certainty. These transactions are not condition of any regulatory approvals. This is a great outcome, and I want to thank the teams involved in these transactions, including our advisors, Jordan and Macquarie. We have also entered in a conditional contract of sale for the Gibson Island land with a subsidiary of an ASX-listed property developer. The headline transaction value is $194 million with net proceeds before tax expect to be around $100 million after accounting for remediation of the site and other transaction costs. The transaction represents a compelling sale price with a high quality counterparty that has deep industrial redevelopment experience and an ability to fund the acquisition from existing liquidity. This also represents monetization of a non-core industrial asset, which reflects our commitment to disciplined capital management. The contract of sale is conditionally executed, with settlement expected by 30 September this year. Progress has also been made on the strategic review of our manufacturing operations, and we remain committed to announcing a decision on Fawcett Hill no later than September this year. Following extensive engagement with prospective buyers, we are continuing to engage with the party who is conducting due diligence. A comprehensive request for proposal to source alternative or complementary solutions to the PwC contract for long-term economic gas is being assessed. Supply of the PwC contract recommends on April the 10th. And while supply remains variable, we expect it to continue for the majority of the second half. Our team is continuing discussions with PWC and the Northern Territory Government to work towards a reliable gas supply for Fossard Hill beyond 25. As part of our forward planning, we have also been actively addressing asset remediation obligations, ensuring capital requirements and timing for any turnaround in fiscal year 26 align with gas supply timelines and requirements. At Geelong, closure planning is well underway for the cessation of manufacturing operations and the transition to an import-based supply model. We expect manufacturing will cease by September 25, with estimated closure costs of $54 million reflected as a provision for the first half financial report. We have provided this procedure slide to give you a clear picture of the gross proceeds from the various transactions, the additional costs and activities involved following the sales agreement, and reconciling the net proceeds from all transactions of up to $606 million, which is exclusive of the working capital tied up in Fossett Hill. We have also provided an additional slide in the appendix which outlines the timing of the net proceeds to further assist in your modeling. Now moving to our transformation program. We have delivered a $25 million uplift to our first half EBIT following the continued success delivery of the program. This brings the total transformation earnings to $89 million as we pursue our ambition to double fiscal year 23 EBIT. The benefits in first half were driven by strong re-contracting outcomes, new customer wins, and a range of procurement, supply chain, and manufacturing initiatives delivered across the business to reduce costs and improve efficiency. We are on track to deliver the target initiatives that will support a run rate equivalent to 40 to 50 percent of the earnings uplift as we exit the year. We have previously outlined that we would be delivering these transformation benefits across the three levels of operational, commercial, and growth. This slide shows roughly how much of the overall benefit we expect to come from each of the levels, highlighting those activities that have been delivered and those that are yet to progress. You can see we have had numerous wins from the program so far, and we expect continued uplift through 25 and beyond. Moving now to technology. Delivering customer-centric technology remains a major focus from the team. Providing high-value customer solutions will be key to our success. The value proposition of these leading technology solutions is demonstrated by the growth we are seeing in the sales of such products. The conversion of our Australian and U.S. customers to electronics is particularly pleasing, with DynoNobel as a leading supplier of these advanced initiation systems in the Pilbara, in the Bowen Basin, and across the U.S. The growth in cyber debt has exceeded our expectations and has already been deployed across nine mine sites supporting advanced blasting strategies. The benefits of our advanced blast design and optimization tools embedded in NobleFire are also being recognized by an increasing number of customers, with year-on-year growth of 10% in the number of blasts being analyzed. This generates flow-on-on benefits with the number of electronic detonators used in these blasts increasing by 16% over the prior year. As I previously told you, we are working towards converting our explosive trucks, also known as MPUs, to renewable energy, and that we are investigating the use of biofuel-based explosives. I'm proud to advise that we delivered on both fronts. Earlier this year, we launched what we believe to be the industry-first electric MPU. Our electric MPU reduces noise, pollution, and fumes, positively impacting workplace health and safety, as well as supporting our customers to reduce their GHG emissions and helping drive the industry towards a more sustainable future. During the period, we also successfully trialed a Titan Emulsion product formulated with renewable diesel. These trials demonstrated a commercially viable low-carbon alternative to regular emulsion. Now, I would like to spend a moment talking about how we're using AI at Dino Nobel. We see artificial intelligence as an important enabler of internal productivity and efficiency gains, and we also believe there are some incredible benefits to be gaining by using AI to enhance our product offerings, particularly in optimizing blast designs. The correct blast design is a critical factor in generating downstream benefits for our customers. Our advanced detonators, combined with our monitoring and control systems, generate significant amounts of data from every blast we undertake. The optimization and calibration capabilities of AI are being applied to these large datasets to provide greater insights into how we can improve our blast design models. Such insights are being used by our team to update advanced blasting models within NobleFire, which is resulting in ever more efficient and effective blasts for our customers. We're also looking at how AI can more deeply analyze safety and operational data, which will allow us to improve our decision making and risk management. Our manufacturing facilities are another key focus area where we're seeing great rewards to our efforts. We are also embedding a new operating model that we call the Nobber Way, which is a systemic approach to continuous improvement. These changes typically take time to show results, but we are seeing key reliability numbers that give us confidence our approach is working. We have had very good reliability across all our major sites, with the highlight of the period being the major turnaround completed in Morumbá. This was the largest turnaround we've ever done at this facility, and I'm very proud of the performance of our dedicated Modern Bar team for safely completing this complex eight-week progress on time and on budget. The headline of this slide calls out for the $42 million impact of turnarounds completed in the half, which really highlights the strong underlying performance of the Dino Nobel explosives business. DinoNobel Asia Pacific has performed well, delivering earnings of $81 million with an 8-bit margin just under 16%. On an underlying basis, DNAP earnings increased by 19 million, which is a 20% increase compared to first half 24, which in itself was a record first half. This was largely driven by the ongoing benefits from the transformation program, including positive re-contracting outcomes in Australia and several new customer wins during the half, partly offset by the impact of very heavy rainfall in Queensland, which impacted demand. Dynamo Nobel Americas also performed well, with underlying earnings increasing by $8 million. reflecting the Net Transformation Program benefits delivered during the half. Following the strategic review of St. Helens, we will be closing the fertilizers manufacturing facility in the first half of calendar year 26, in line with our strategy to exit non-core assets. Finally, we formally introduced the new DNEL business, which reflects our strategy to expand in Latin America, Europe, and Africa through a capital-light approach, which will leverage the Dino Nobel brand, unique technology, and strong customer relationships. On fertilizers now. Phosphate hue production increased by 15% compared to the prior corresponding period. despite interruptions in the supply of sulfuric acid to the plant and the rail line closures following flooding in northern Queensland. For distribution, the unfavorable timing impact was driven by persistent dry conditions in the south and cyclonic conditions in the north, causing farmers to delay contracted fertilizer dispatch into the second half of fiscal year 25. Full gas supply to Fossett Hill from the contracted third-party Power and Water Corporation was restored for a portion of April. While remaining variable, our current forecast expects supply will continue for the majority of the second half of this year, with incremental gas over-the-contract pricing for fiscal year 25 now expected to be in range from $40 to $80 million. Obviously, that depends on the gas supply mix from PWC and the alternate supply sources from the East Coast. It's always worth noting that there is no physical gas supply risk to support fossil fuels operation. Finally, on sustainability and decarbonization. A number of years ago, we outlined a pathway to 42% reduction in greenhouse emissions by 2030. We are continuing to deliver on that plan. and we are increasingly turning our attention to mitigating our Scope 3 emissions. Our electronic MPUs and our low-carbon Titan Emulsion are prime examples of this. We have recently onboarded a new management platform that allows us to better monitor and manage our greenhouse gas emissions, including Scope 3. And although we are yet to identify any viable green hydrogen or green ammonia projects, we will continue to actively pursue opportunities as they arise. I will now hand over to Damon to take you through our financial results.

Thank you Mauro, and good morning to everyone on the call today. As Mauro outlined, our underlying financial performance for the half reflects the continued delivery of our transformation program. The benefits of $25 million are wide reaching across each business unit and further upside from the program is expected in the second half of the year. It is important to note that when presenting transformation benefits, this is inclusive of any financial impacts which are part and parcel of the business we operate in. In the first half, we have seen some extreme weather conditions impact demand across our business, particularly across Australia. The $25 million benefit is net of these headwinds. This is also the first period where we are reporting DNEL as a standalone reporting segment. This segment includes the results of our EMEA and LATAM businesses and has been established to facilitate growth in these regions. With the fantastic news of the signing of the sale of the IPF distribution business in Gibson Island land, these assets have been classified as held for sale and their results disclosed as discontinued operations for statutory purposes. Slide 24 provides an overview of our financial performance on a statutory basis. Overall, at a group level, we delivered EBIT of $174 million and EBITDA of $323 million, excluding individually material items. The headline result for the group and variance to prior year is largely a reflection of significant portfolio changes as a business transitions to a pure play exposes business, and also the impact of turnarounds during the half. The first half of FY24 included two months of non-recurring earnings from WALA prior to sale completion, while the first half of FY25 includes two months of downtime from the Maroomba turnaround. The individually material items for the first half largely reflect the full impairment of the St. Helens Fertiliser Plant following the decision to cease manufacturing and the recognition of a provision for the cost to close the Geelong Manufacturing Facility. Cash generated from operating activities increased, primarily through the increased usage of trade working capital facilities, but also a significant improvement in our underlying working capital position, which I will talk to shortly. Consistent with previous years and our focus on shareholder returns, we have announced an interim dividend of 2.4 cents per share, reflective of a 51% payout ratio. As I mentioned, our headline results are somewhat clouded by the impact of the sale of Wyala last year. This view of earnings on slide 25 provides a much clearer view of our underlying results for the period. After adjusting for the impact of Wyala earnings and FX, the DinoNobel business, excluding fertilisers, decreased by $20 million, or 11%. However, this includes a $42 million impact of the turnarounds. Fertilisers EBIT was down $18 million versus the first half of FY24. This reflects the timing impact of sales of phosphate hill manufactured product falling into the second half. This product has been manufactured and contracted for pickup by customers. However, the difficult farming conditions has seen this deferred into the second half. Importantly, Foss State Hill produced an additional 40,000 tonnes of product when compared to first half 24, and the distribution business delivered $18 million of earnings despite the tough agronomic conditions. On slide 26, you can see the year-on-year improvement in working capital levels. I'm extremely pleased with our results over this first half, which is a reflection of the management focus to optimise working capital levels and improve our cash conversion. Trade working capital is a key work stream in our business transformation project as we aim to sustainably optimise our levels. And while the underlying reduction of $76 million versus March 24 is pleasing, the improvement across our key rolling metrics better reflects the fact that these improvements are embedded. Specifically, we have seen an improvement in our group trade working capital as a percentage of sales from 21.3% at March 24 to 20.6% at March 25. So well on our way to delivering our ambition of a two percentage point reduction versus FY23. This improvement has been delivered across both the explosives and fertilisers business units and largely reflects strong data compliance and improved payment terms with suppliers. An important call out is our usage of trade working capital facilities. We do utilise these facilities to manage the seasonal nature of the fertiliser's trade working capital profile. Upon completion of the fertiliser separation, we would look to pay down these facilities utilising the proceeds from sale. Moving on to capital investment. As part of our capital allocation framework and our strategic planning, we are constantly reviewing capital expenditure to ensure a suitable level of spend to deliver long-term asset reliability and maximise ROIC. As highlighted earlier, we completed the Maroomba and Lomo turnarounds in the first half on budget, with only the minor Cheyenne turnaround to come in the second half. As a result, we expect overall turnaround spend to be within the previously guided range of $120 million to $140 million, albeit closer to the top end given the translational impact of a weaker Australian dollar. We also expect sustenance spend to be at the top end of the guided range of $180 million to $220 million due to the same reason. Our total sustainability capex is expected to be approximately $10 million in FY25, and this is supporting our pathway to deliver our 2030 emissions reductions. Looking forward, we maintain a strict criteria for growth capital spend of 1.3 times WAC, and our expansion strategy will be a capital-light approach as we walk towards our ambition of increasing ROIC above WAC. Slide 28 highlights our progression against our planned and committed capital return program in accordance with our capital allocation framework. This program entails returning $1.4 billion of value to shareholders over and above our ordinary dividends. In the first half of FY25, we purchased shares valued at $88 million before suspending the program. This means we have $663 million of the buyback program remaining, and we remain committed to recommencing and completing this program now that we have a signed sales agreement for the distribution business. As I mentioned earlier, we also announced today the 2.4 cent per share unfranked interim dividend, which will be paid on the 3rd of July. This dividend represents 51% of our first half MPAT of $88 million, which is in accordance with our dividend policy and reflective of our consistent approach to paying dividends at circa 50% of MPAT. Our net debt to EBITDA position has increased to 1.6 times at March, noting that the comparative period of 0.5 times was abnormally low given the receipt of proceeds from the sale of Wagaman in the first half of 24. This ratio is always higher at March, given the seasonal build of trade working capital in the fertiliser business, and we expect this to be below 1.5 times per our policy by year end. Turning now to our outlook. At a high level, we expect a continued transformation uplift in earnings in the second half, with an exit run rate of 40% to 50% at the end of the financial year. Consistent with previous guidance, the full year impact of turnarounds remains at $45 million to $55 million. Our DinoNobel Americas business is expected to have an earning skew of around 60% in the second half, and pleasingly, the mitigated impact of tariffs is expected to be minor. In the DNAP business, the phasing will be more pronounced, given the turnaround in the first half, and we expect a split of closer to 35% first half, 65% second half. Fertilisers' earnings are always dependent on market conditions, which were difficult in the first half. Having said that, a very strong contracted sales position at the end of March supports full year delivery of earnings within the normal $40 million to $60 million range. The production expectation for Phosphate Hill remains at 740,000 tonnes to 800,000 tonnes as previously guided. We also expect a fertiliser earnings skew of around 10% in the first half and 90% in the second half, noting that this will be dependent on gas and DAP price outcomes. This is in line with previous guidance. I would also like to reiterate that we expect to see the earnings benefits of the transformation program really shine through the results in FY26 as we aim to exit that year on a 70% to 80% EBIT uplift run rate without the significant turnaround impacts we have this year. Finally, on slide 30, we have our overview of planned turnaround activities. In the second half, we will be completing the minor turnaround at the nitric acid plant at Cheyenne. The turnaround plan at St. Helens in FY25 has now been cancelled, given the decision to cease manufacturing at this plant. The turnaround plan for Phosphate Hill in FY26 is subject to the outcome of the strategic review, which is a key driver for the completion of this review this financial year. So that's it from me. Thank you, everyone. And with that, I will hand back to Mauro.

Thanks, Damien. Before we move to Q&A, I would like to thank you for stepping into the entering CFO role and the excellent work during this transition period. I know you'll be a great support for Nitesh when he starts the CFO role in 1st of July. In closing, I continue to be excited with the outlook of the business. We are delivering on our strategy. We have made significant progress on the sales of distribution business and Gibson Island, delivering a great result with these combined transactions, generating gross proceeds of up to $835 million. We are looking forward to a stronger second half with the bulk of the turnaround impacts behind us. Thank you for listening. And with that, I'll hand over to the operator for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Daniel Kang with CLSA. Please go ahead.

Good morning, everyone. Just two parts. Two points regarding your FY25 guidance, if possible. Your 1090 split implies a strong second half for particularly Foss Hill. Can you just talk through your assumptions there? And then secondly, on DNEL, I realise that you've chosen not to provide a first half, second half split there. But looking at the historicals, it's actually quite all over the shop. Last year was lower in the second half. Previous year was basically flat in the first half, and the second half in the prior year was higher. So any theory on how we should think about the second half variables would be great.

Thanks, Daniel. Good morning. Look, on fossil fuel, probably the most critical planning assumption is the gas. And in the footnote, you find that that 10%, 90% is predicated on continuous supply from PwC, which would steer the gas outcome to the lower part of the band, which is the 40%. Obviously, subject to what happens with gas price, this could change. And we are considering now with the drier period the continuation of what has been a quite smooth ammonia plant production in phosphatio. As you know, we have had some disruptions on the sulfuric acid supply chain, which we don't expect to be repeated on the second half. As for the NEL, it's really about the critical mass of that operation. As you appreciate, we've been very active in trying to win new business, and we have active attenders in many parts of the world. So the swings and roundabouts of potentially winning contracts and growing are really difficult to predict. So we prefer not to provide a specific forecast a specific guidance for the second half, given the nature of the business and the critical mass. I don't think it will critically change the direction of travel for the broader explosives business, but as you appreciate, this is a growing business with lots of moving parts, but we remain confident that we are in a trajectory of growth.

If I can just add a follow-up question just on the sale of fertilisers assets, great news there. Just wondering if you can provide some colour on the estimated remediation cost liability, the duration of this liability, just whether it is a capped estimate?

So we provided on the appendix a slide to hopefully facilitate any modeling you do, which gives us a sense of timing and quantum, not only of the proceeds, but also the liabilities. This is our best estimate now, and we're doing We're doing further work both in Geelong and GI to fully account for those. Fair to say we've done lots of work in GI. It's been closed now for a few years, and as we have progressed the sale, we have higher levels of confidence. In Geelong, we have done some work, and we understand very well the demolition costs, but we had to do further work to determine the full cost. But it's page 34 in our presentation, gives you the timing and the quantum of what we understand to be the liability.

Thank you. Your next question comes from Ramon Lazar with Jefferies. Please go ahead.

Good morning, Mauro. Good morning, everyone. Just a couple of questions from me. One, just on the decision to use the upfront proceeds from the fertiliser separation to repay working capital and debt facilities. I guess just the thinking there against further capital returns and any potential net benefits of repaying those facilities, if you can maybe quantify those.

Look, I will pass on to Damien, who will more broadly talk about the proceeds. But I think the message here, Ramon, is the same capital allocation framework discipline you would have heard us talking before. So our first priority will be to get us back to the 1.5 times. and keeping our credit rating. So this is our first priority, and that's how we're going to use the proceeds to accept, to accommodate the company to what will be, in our view, a higher quality but smaller EBIT compared to the pre-transaction world. But I'll leave Damian to give you more details and insight on how he's thinking about that.

Yeah, thanks Ramon for the question. It's certainly something we've been thinking about quite a bit. To answer your question directly, the facilities have typically been used to manage the seasonality of the fertiliser's working capital profile. They've been a relatively low cost and flexible means to do so. But without that seasonality, there's less of a requirement for those facilities. facilities, so we look to pay them down. Just use of proceeds more broadly. As we mentioned, we'll obviously be able to recommence the buyback immediately, which we expect to take probably between 12 to 18 months. And more broadly, as Mauro mentioned, we don't have the cash in the bank yet, so once we get to separation point or completion point, we will use our capital allocation framework to be more definitive about the use of proceeds at that point.

Okay, great. Now that's very clear. And then just on the guidance, Damien O'Mara, if you could help us out here on DNA, the contribution from Ag and IC in the first half was ahead of expectations, I think. Just, I guess, how does that 40-60 split account for any contribution from Ag and IC for the full year? I mean, can you give us some sort of indication of what you're expecting? And then also just, I guess, tied in with that, with the closure of St Helens, are you going to continue supplying fertilisers into that market on a go-forward basis?

Look, let me start with the former, and I'll leave Damian to comment on the first half, second half, splitting in the ag and IC contribution. But the continuation of our exposure to fertilizers in the U.S. will be limited to some byproducts we have at Cheyenne. But with the closure of the business in St. Helens, that means that we'll no longer have an ag and IC business as such. So all of our manufacturing capability in the U.S., we will primarily... focus on explosives, and we'll have some byproducts that will still go into the agriculture market in seasonal times. But it's fair to say that all our capacity and all our footprint in the US will be dedicated to explosives.

And with regards to the phasing of DNA, on page 29, we have included a footnote that references ag and IC. Within the 40-60 split for DNA, we expect roughly 60-40 for the ag and IC business.

Okay, great. Thank you. That's helpful. I'll leave it there.

Thank you. Your next question comes from Owen Birrell with RBC. Please go ahead.

Yeah, good morning, guys. Just, I guess, another question on the DNEL business. Just noting the earnings essentially went backwards during the period. And I know that there was a cost of establishing, I guess, the growth engine for that business during the period. I'm wondering if you could split out, I guess, what that upfront cost was and can we expect anything into the second half?

Look, yeah, it was about $2 million to set up the cost structure for that business. It's predominantly made of the boots on the ground in places like Africa, Europe, and LATAM. We believe that that's absolutely commensurate with the opportunity ahead of us, and we don't anticipate that to grow any further unless we start, obviously, winning contracts, which will come with the OANN, cost to sustain those opportunities. Now, we have, this business is comprised by your typical mining customers, similar stories to what we have in other parts of the world, but that's where we also report the business of our JVs in places like South Africa. which sometimes make the, especially given the size of the business still being relatively small, makes the comparative half and half a bit different from other places where predominantly to do with the trading levels of our customers. Maybe they may want to add more colour to that.

No, I think you covered it, Maira. I suppose, in addition, setting up the new segment does come with more senior management looking after that business as well. So the $2 million is also inclusive of those costs.

And can I just ask, can we assume a similar $2 million cost of the second half and similar, I guess, compression of the earnings? Or is that cycling, I guess, what we saw in the second half, $24 million?

Yeah, no, we'll be cycling what you see in the second half, 24.

Okay. And just in terms of those boots on the ground, in terms of what you're seeing in those markets, we'd heard from some of your peers around rising levels of competition, particularly in that LATAM market, just wanting to get a sense of what you guys are seeing in the broader market space in Africa and LATAM, and whether this has, I guess, changed internally the opportunity that presents itself to you.

Look, I have been there in LATAM only a few months ago, and I can't help but be excited. You know, you would have heard overnight, Filo de Oro now being the biggest discovery in copper in decades, squarely in the jurisdictions we went to the business. I remain excited with that opportunity, and different from some of our competitors, our approach there remains capital light, so we're relying on things like Delta E and imported traded tons to win. We're trialing product in now five or six different operations across Peru and Chile, and I remain very confident that based on technology and based on our value proposition, in improving fragmentation and improving outcomes in the SAG meals, that will eventually break into that market. It's a comparatively very small investment. We're talking about literally half a dozen MPUs and obviously boots in the ground, as I described. And I remain very confident that we'll break into that market very shortly.

Okay, thank you.

Thank you. The next question comes from Andrew Scott with Morgan Stanley. Please go ahead.

Thank you. Good morning. Mauro, just on the fertiliser divestments, Pertman was put to us as basically a $45 million EBIT, essentially close to risk-free. With that in mind, $145 million or three times EBIT seems relatively light. Can you talk to us about why that's the right number and the opportunity decision to sell is the right one rather than retaining a pretty valuable earning stream, I would have thought.

Thanks, Andrew. Look, I have to start by saying we're excited with the outcome because it's based on having scoured the market. We have left no stone unturned. And the outcome, the price that we ended up transacting with Macquarie is a reflection of people's view on opportunity and cost and risk. So we're pleased that this is the option from all the options that we explored that gave us the best certainty and the best value. And I still think that the combined outcome for the way we transact Perdeman and the land properties with distribution gave us a good outcome overall. I can give assurance to shareholders that there has been a highly, highly competitive process and we have tested the market thoroughly. As for retaining the contract, our view is with distribution goals, our ability to trade fertilizers, and it would be inappropriate for us as an explosives company to essentially retain what's a long-term urea contract once we no longer will have the trading capability to deal with that. So we were always thinking about that as a whole of perimeter sales. We had to... make the design of the process such that would maximise competitive tension and maximise the ability to transact, which I think we've done, but we never had the intent to hold on to the per-demand contract.

Okay, thank you.

Thank you. Your next question comes from Brooke Campbell Crawford with Baron Joey. Please go ahead.

Yeah, good morning. Thanks for taking my questions. First one, please, just on the transformation program, are you able to provide a sense of where the run rate benefits were, I guess, as you exited the first half, please?

Hey, Brooke. Hi. I'll let Damon speak about the building blocks in a minute, but I just wanted to reinforce that this $25 million are the net benefits. We report, and that's a decision we made since the get-go. We don't want to overcomplicate, so when we report our IGNITE benefits, they are the net benefits with all the headwinds and tailwinds that we've seen in the period. We have had some contract wins, especially related to technology, where we gained some substantial market share in our electronic detonators in Australia. And we have also seen some of the benefits of recontracting Washington through 26. That was partially offset, obviously, by the turnaround impacts and also the impacts of what was a very slow first half for Queensland in general. As you would see in each of our customers reporting, Stanmore, BMA, Anglo, they all uniformly reported what was one of the wettest ever first halves they've seen. But this is temporary and I don't think that fundamentally changed the supply and demand for that region. I'll let Damien talk about the building blocks of our transformation in the first half with a bit more detail.

Yeah, thanks, Mara. Hi, Brooke. It's really broken up into three major categories. So our commercial category delivered roughly 35% of the benefit, and that really reflects the ongoing benefit from the DNAP recontracting cycle, but also repricing in the DNA business. A further 20% in what we're calling our growth segment, or our growth bucket, which includes technology benefits. A key customer win in Australia in the DNAP business is included in that category. And then the remainder, roughly 45%, is operational. So this includes benefits from an operational redesign and procurement and supply chain initiatives. For example, a renegotiation of a freight contract also here in Australia. So they're really the three categories, Brooke.

Great, thanks for that. And just two quick follow-ups. Firstly, on remediation costs or expected costs for Fossett Hill, I might have missed it, but was there a range there that you can point us to or if, I guess, the absence of that comment in the release, does that suggest it's pretty minimal? And then the last question, just with respect to the outlook for coal in the U.S., there's obviously been some sort of support and policy announcements made relatively recently. Does that change at all your outlook for the coal and market in the U.S.? Thanks.

I might handle the first one, Brooke, and then hand to Mauro for the second part of the question. We currently have a provision on our books for the remediation obligation at Phosphate Hill of circa $80 million. In the unfortunate event of a closure, there would be additional closure costs such as redundancies which are not yet provided for. At a higher level though, what we would expect to happen in that scenario is that the tax benefit we would get from a closure would largely offset the total closure costs.

Now, on the coal story, it's all unfolding, Brooke, it's all very recent, and I have to say that we've seen more positive vibes coming out of the peabodies in the Power River Basin that we've seen in many years. That's yet to materialize a physical demand, but if anything, there is some positivity in that market. I have to say that overall, despite the tariffs and all the moving parts, mining in the US seems to be in a good space. You would have heard the announcement on resolution getting approved, which obviously is something that we watch very carefully given that both, Rio and BHP are very important customers of ours. So if anything, the recent winds of change have been, seem to be positive for mining in the US and we're watching that very closely.

Thank you.

Thank you. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from John Patel with Macquarie. Please go ahead.

Good morning, Mauro and Damien. Hope you both well. Just a few quick ones if I could. Just firstly on DNAP there, Mauro, you sort of mentioned that there's a sort of long AM position in the second half in the Bowen Basin. I mean, is that all weather related? If you could provide some more colour there, please.

It is, it is. You would have seen that most companies reported what was somewhat stable coal productions, notwithstanding what was a very wet period. Our best market intel suggests that mines in general had done some high grading in the first half, essentially prioritizing coal exports, and we'll need to now play catch up on second half on pre-stripping, which is the main driver for us. Our driver is more pre-stripping than it is coal production itself. So we expect that throughout the second half that thing will normalise and we'll see a normalisation of supply and demand in the region. So there hasn't been any fundamental change of import parity or any movements in where ammonia nitrate is being sourced from. It's really weakness coming from the fundamental material movement in the mines.

Thank you. And just the second one, obviously there's no, just related to tariffs, there's no material direct impacts there, but any sort of indirect impacts to call out? It sort of looks like you're sort of expecting flat Q&C volumes for the full year, so probably only a modest pickup in the second half.

Yeah, look, we made some disclosures on our outlook, and they were very heavily caveated by a scenario, because the scenarios have been changing quite dynamically in recent weeks, as I'm sure you'll be following. But with the 10% global and the 145% Chinese tariffs, our modeling suggests that we won't have any material impact to our earnings post the mitigations that you would expect in terms of some inflation pass through and some repricing. So the competitive position that we have in the U.S. being predominantly a manufacturer, there's no product that we sell in the U.S. that we don't manufacture in countries. So we believe that when it's all said and done, if anything, having a strong manufacturing capability in the country should give us some benefit. But to your point, with the 10145, we don't believe that there will be any major impact to our earnings.

Thank you. And just the last one on Foss Hill Gas. Obviously, Northern Territory Gas has restarted. You've given up sort of gas cost range there. Is there increased confidence in the bottom end of that range? But, you know, the range is still fairly broad. So that sort of reflects uncertainty on what the actual gas flow will be.

Yes, certainty and falsity of contract are two words that sometimes in the same sentence. We tried our best to give you a range that gives us some comfort. We are comfortable with the 40 to 80. Since we had supply resumed in 10 of April, we already had a few days of interruption. So the $40 million, which is what speaks to the 10% to 9% split, first half, second half, is essentially relying on having full supply of PwC from now to the balance of financial year. As we speak, flow has resumed and the pipeline is on, and we hope that that remains the case until the end of financial year. We've been very actively involved with the Northern Territory government, with the PwC team, to try and constructively keep that outcome going. But it's difficult for me to say how confident I am, and hence why we provided, which is still such a wide range.

Thank you.

Thank you. Your next question comes from Nicole Penny with Remore Equity Research. Please go ahead. Good morning.

Could we revisit America again, please, where Across the three main segments for explosives, volumes were down. Do you believe this is in line with market, and could you please provide more color on what you're doing to position Dyno to win market share in the U.S.? And lastly, in the appendix of the presentation, why does DN Asia Pacific have recontracting benefits in the waterfall, but there's no such disclosure in the Americas, please?

So let me start with the latter. The $25 million, and Damian will add to that, the $25 million does include the re-contracting benefits that flow on from what we've seen in the $64 million that we disclosed last year. into 25.

Maybe Damon can help me giving more color to that. In regards to the U.S., look, we've seen some weakness in coal, and that's not new. We have, as a team, over the last four or five years seen that decline, and my recent comments about the change of sentiment is yet to be translated into better volumes. But in terms of the general markets on quarry and construction, pretty stable, and the metals and mining in general outside coal with some consistent numbers over the first half and second half. So we don't expect any deterioration of quarry and construction and metals, and we are yet to see what will happen to coal. The model in the U.S. is quite unique and one model that I particularly like because it gives us exposure to the bulk customers, as we call the customers like Rio Tinto and Kennecott. It gives us access to providing bulk materials and initiation systems directly to the operations, but it also gives us access to literally thousands of customers that would be the equivalent of retail in our business. We have, through our JV partners, a capillarity of serving acquiring construction companies all over the U.S. that is pretty unique and difficult to replicate. And we hope that as the market picks up and more of that infrastructure investment starts in the U.S., there will be benefit from that.

And Nicole, maybe just to add to Mauro's point on your question on presentation, it was really just a question of materiality. Given the recontracting benefit in DNAP is significant, we look to strip that out. Within the Americas bridge, the repricing benefit is within the $5 million transformation benefit.

Thank you very much.

Thank you. Your next question comes from Nathan Riley with UBS. Please go ahead.

Thanks, Morning. Would you mind just talking through your shared buyback policy for me? So specifically, I'm just trying to understand how the ongoing birds manufacturing divestment and also that due diligence process will impact your believed buyback stock, just noting you haven't really been active on that since January, just given what you've been undertaking with the distribution process.

Thanks, Nathan. Our advice is that now with the announcements we made today, we cleansed ourselves of any material, price-sensitive information that we might have. And with that, we are confident we can resume our buyback tomorrow. Now, I won't make comments about the future. We do, as a disclosure committee, that consideration every day. And obviously, depending on how the conversation with that party that is doing the diligence unfolds, we may or may not be in a position that we would have to change our position. Now, naturally, you would expect that we would do everything we can to minimize the period of time of any interruption we need to make. But as we speak now, we understand that we cleansed ourselves of any price-sensitive information. We are in a position to resume the buyback.

Got it. Thank you.

Thank you. Your next question comes from Romain Lazar with Jefferies. Please go ahead.

Hi, Mauro. Just another follow-up on DNA, if I can. Just with those splits, I think your guidance for the second half for the core explosives business sort of implying year-on-year the second half will be down. slightly on the PCPs. Just if you could maybe drill down a bit more on sort of what you're seeing. in that market specifically from a pricing point of view? You made some comments about the volume backdrop. Are you seeing pricing pressure coming through in recontracting or anything like that? If you can maybe give us a bit more color on that market and anything specific in your second half that may be impacting your operating performance, that'd be helpful.

Hey, Ramon. I'm happy for Tom to give you the breakdown and help you work through. I think what's happening in your numbers may well be the fact that we extracted some of the DNA earnings and now are reported on the DNEL. So why don't we take that away and send you the workings of that? I think like for like, when you strip the DNEL, we would see some growth on DNA. But why don't we send you a separate slide to give you the detail on that? Okay, no problem.

Thank you.

Thank you. There are no further questions at this time. I'll now hand back to Mauro for closing remarks.

Look, I just wanted to thank you again for your time. This has been a very interesting day for us as, you know, mixed emotions with the decision on IPF. I wanted to thank shareholders and the IPF team for your support and for you know, bearing with us. I'm very proud that we were able to deliver on that very important milestone for the future of what will be the greatest explosive company in the world. So thanks for bearing with us and looking forward to meeting many of you in the next few weeks in the roadshow.