Dyno Nobel Limited

Good morning and welcome to Dino Nobel Limited's 2025 full year results briefing. This is Tom Dixon speaking and I'm joined this morning by our CEO and MD, Mauro Neves, and our Group CFO, Nitesh Naidoo. 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 websites. As usual, at the end of the presentation we'll have time for questions and an audio recording of this presentation will also be available on our website. I'll draw your attention to the disclaimers found on slide one and slide two of the presentation. And before we do 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 Mauro.

Thanks, Tom. Good morning and welcome, everyone. It's my great pleasure to be here to present our 2025 full year results. You see, as we work through the presentation, the Dino Nobel team delivered excellent financial results and also made great progress towards separating from our fertilizers business and achieving our ambition of doubling our fiscal year 23 explosives EBIT. I'll say more on that later. As Tom mentioned, you'll also be hearing today from our new group CFO, Nitesh Naidoo. Nitesh joined us in July, and I'll quickly take this opportunity to welcome Nitesh to his first DinoNobel results presentation, and thank him for his enormous contribution since joining the team. I would also like to thank Damian Butler, who did an excellent job in the entering CFO seat, allowing a seamless transition to the CFO role as Nitesh joined us earlier this year. We also have Stuart Sneed joining us as our new DNAP president. Stuart brings a wealth of leadership experience in the international manufacturing, technology, and resources sectors to our team. I would like to welcome Stuart and also thank Anthony Ursa for so capably leading the NAP in recent months. I'll now move to our agenda. I'll spend the first part of the presentation taking you through the highlights of our financial year 25 performance, how we're thinking about the year ahead, and providing an update on our business strategy. At that point, I'll hand over to Nitesh, who will take you through our financial year 25 financial performance, and then close the presentation with a discussion of Dino Nobel's compelling investment proposition before opening up for Q&A. As these highlights show, we have an excellent year. We made great progress in our transformation agenda. At our half-year results, we talked about the agreements we negotiated with various parties for the sale of fertilizer distribution business, the per-demand offtake agreement, and the sale of Gibson Island. I'm pleased to say we have now reached financial closure on both the fertilizer distribution and Gibson Island, receiving upfront cash proceeds of $579 million. I would like to thank Scott Bauman and the team for their considerable efforts as we completed the distribution sale this year, and wish them every success moving forward with Ridley. The strategic review of our manufacturing operations has been completed, with the sale of St. Helens, closure of Geelong, and a clear pathway identified for a sale or orderly closure of Fawcett Hill. I'm very pleased with the progress we made on our transformation program. We set ourselves an ambition of doubling our financial year 23 exporters EBIT, and we are continuing to deliver to our plan. Despite various challenges, the market is placed in front of us. The DinoNobel in the Latin business, which we introduced early this year, grew earnings by 33%. and we continue to establish our capital light footprint in these key regions targeting future growth. As well as delivering our transformation agenda, we've also been able to deliver strong improvements in safety and manufacturing. We achieved that 19% reduction in TRIFA and successfully completed turnarounds at three of our major manufacturing plants in line with our expectations. Stable manufacturing in phosphate fuel has also allowed us to capitalize on strong debt prices in the second half. Finally, we see significant growth with the domestic production of energetics for broad industry use across the resources and defense sectors. I'll have more to say about that in a minute. I will now move on to an area that is of critical importance to me and every person in DinoNobel. Safety. Safety is always our number one priority. As I mentioned last year, we were seeing progress on some leading indicators, supported by extensive effort taken by the teams to improve our safety performance. I am pleased to say our injury severity is down 40% and our key performance indicators are now showing the efforts are having an impact. Significant improvement achieved in our recordable injury frequency rate and in the number of process safety incidents occurring. Safety is an area where we set high standards and although we have more work to do, I'm pleased our metrics are moving in the right direction. The turnaround at Murumba this year was one of the biggest we ever undertaken, and we completed this work without any recordable injuries. A key driver of our improved safety performance has been the continued priority we put on safety leadership, which focuses on creating and supporting a healthy risk management culture. We're extending this culture into our wider operations, ensuring we have clear risk ownership and responsibility, and that our people feel empowered to manage risk by having the right tools and training. Now, moving to our financial results. The statutory results after tax, including IMIs, was a loss of $53 million. These statutory results included IMIs of $477 million, which primarily related to the IPF distribution sale, non-cash impairments at Fossard Hill and St. Helens, and closure costs at Geelong. The decision to fully impair the Fossard Hill operations was a result of the sale process and ongoing uncertainty regarding the cost of gas. The gas supply interruption under our contract with Northern Territories Power and Water Corporation forced us to source gas in the east coast of Australia. At group level, excluding the IMIs, we grew EBIT by 23% during the year, with our ongoing transformation program contributing an additional $60 million in 2025, bringing the total earnings improvement delivered over the last two years to $134 million. The group EBIT results also benefited from stable production, particularly at Phosphate Hill, which allowed us to capture favorable movements in commodity prices and foreign exchange. DinoNobel's explosives business also performed very strongly. Underlying EBIT in the explosives business, excluding IMIs, grew 16%. with all three BUs achieving solid underlying earnings growth. And you can see by the chart on the slide, we're expecting further strong growth in fiscal year 26, which I'll cover later. The focus on quality earnings and capital discipline has contributed to improvements in our key performance indicator, return on invested capital. ROIC, including Goodwill, grew to 8.2%, up from 6.3% a year ago. Excluding Goodwill, ROC is now sitting at 11.5%. We have also announced today a final dividend of $0.095 per share, unframed, which represents a 51% payout ratio, consistent with our capital allocation framework. This takes out total ordinary dividends for 25 to 11.9 cents per share. We continue to make solid progress on our $1.4 billion capital return program. Having returned $930 million so far, it leaves us with a further $470 million to come. We remain committed to completing this program and expect to recommend buying shares tomorrow, once we've cleared our blackout period. Despite the large capital return program, our balance sheet remains in great shape, with net debt to EBITDA sitting at a comfortable 1.4 times ratio. Moving now to the progress we made on becoming a leading peer player global explosives business. This slide reconciles our statutory earnings to our underlying DinoNobel explosives earnings to clearly show that our program has delivered $134 million of benefits over the last two years. We have exited the fiscal year 25 year at a run rate equivalent to 47% of the total ambition of $300 million of benefits. Importantly, transformation is not purely driven by cost cutting. In line with the fundamental change we're making to our business structure, we're making important and enduring change to how we operate the business. This slide outlines the size of the benefits coming from pricing discipline, premium technology sales, and customer wins. It also shows the benefits we've been able to embed into our cost base through renegotiating key supply contracts and optimizing our manufacturing processes. We fully expect this momentum to continue in the next year. For fiscal year 26, we're forecasting additional benefits of between $30 and $70 million. Included in this forecast is an allowance for some items, such as additional depreciation and implementation costs that may offset the gross benefits accruing from initiatives implemented under the program. Once again, we'll be working across all parts of our business to achieve these benefits. The operating model changes, procurement savings, pricing discipline, and increased sales of technology products are expected to deliver the most benefit. The majority of the projects that will deliver these benefits have progressed well past the development phase and have either been approved for implementation or are already underway, leading to our confidence in the fiscal year 26 outlook, which I'll now move on to. For the DinoNobel business, we are forecasting further strong earnings growth in fiscal year 26. EBIT in the explosives business is expected to be in the range of full 60 to $500 million after corporate costs. We're finishing fiscal year 25 with a strong 47% exit run rate, which gives us confidence and momentum going into financial year 26. As is normal, we expect earnings to be positively skewed to the second half. We are expecting the de-bottlenecking activity at Moore & Barr in FY25 will lift capacity at the facility, helping offset the capacity decrease created by the loss of excess ammonia from Gibson Island. Although we are not conducting any major turnarounds at our core facilities, our ammonia supplies at DNA will be affected by the turnaround at Vola performed by CF Industries in March next year. Let me now touch on our strategy. Our strategy has been designed to help us achieve our ambition of becoming the world's leading global explosives player. Such ambition is supported by our people, our values, and will be achieved by building on our five strategic pillars. The five pillars outline how we differentiate ourselves in the market and what makes us a compelling partner for our customers, driving superior outcomes and improving overall performance across safety, reliability, efficiency, and bottom line financial returns. Our innovative technology allows us to offer a full suite of products that, when coupled with our experienced and talented dyno consult people, can be bundled in superior offerings, providing solutions tailored to each customer's specific needs. We are a trusted brand that has developed deep customer relationships over many decades across multiple geographies. This allows us to hold conversation as partners, not suppliers. Our long history in the industry has allowed us to build a network of privileged assets strategically located near high-quality customs and mining deposits. The last of our five pillars relates to smart capital deployment. We will be disciplined in how we deploy capital, prioritizing low capital growth that has superior risk-adjusted return. By focusing on these strategic pillars, we will leverage our differentiated product offering and privileged assets into continued growth to achieve our ambition. I would like to now talk to you about some of the growth we've seen in the sales of these high-margin products. Our proprietary technology suite has seen continued growth in adoption as customers realize the efficiency and safety benefits these products deliver. Electronic detonator sales were up 15% year-on-year, and our Delta E-enabled MPU fleet expanded by 24%. the DinoConsole team took on almost 60% more engagements in fiscal year 25 than they did in fiscal year 24, as we continue to optimize solutions and deliver value to our customers. AI is also increasingly being used across our business, adding greater efficiency and effectiveness. A prime example is the use of AI at our Sinsbury Initiation Systems facility, where it helped us increase capacity and reduce defects. We've added a slide in the appendix for the presentation, highlighting the AI-driven manufacturing improvements we've seen at this site. Another of our strategic pillars is our privileged assets and networks. Our strong partnerships and privileged assets are an important drive at our growth strategy. In North America, our team secured a deal with a U.S.-based industrial manufacturer, Replicon USA, supporting onshoring of TNT production in the U.S. for the first time in decades. The new TNT facility will be built by Replicon USA at Dino Nobel's Grohe Contact Facility, funded by a $435 million investment from the U.S. federal government and will be operated by Dyna Nobel. With limited capital outlay from Dyna Nobel, the offtake will secure a reliable domestic supply of TNT for commercial explosives production, materially reducing our overall exposure to U.S. tariffs. ensuring continuity and resilience for our customers across the mining, quarrying, and construction sectors. In October, we formed a 50-50 joint venture with Repcon USA called Nitrodyne, which will operate independently from DynoNobel Business. Building on the successful tender for the TNT project in the US, Nitrodyne will focus on developing, supplying energetics for broad industry use across the resources and defense sectors. As you can see, energetics have a broad range of applications and include chemical products such as TNT, PETN, RDX, and IMX. We have the sites, requisite infrastructure, and a highly capable team experience in manufacturing high explosives, which positions Nitrodyne JV very well for future success. This is just another clear example of how we can leverage our privileged assets, production technology, and operational expertise to expand our operations into a major new market segment and efficient capital deployment. I look forward to updating you on progress made by Nitrodyne as we move forward. This year has seen us take several transformational steps towards our ambition to become the leading global explosives player. As previously announced, we achieved a clean sale of our St. Helens Fertilizer Facility in the U.S., importantly, with no ongoing environmental liabilities or future remediation requirements to be incurred by Dino Nobel. We reached financial settlement on the sale of our fertilizer distribution business and completed the sale of land at Gibson Island. We finalized production at our Geelong SSP plant and reached an agreement with Macquarie CGM to sell our Perdaman offtake contract. We now have just one ongoing sale process, Phosphate Hill. As we announced in early October, we have a very clear pathway with respect to Phosphate Hill. Our priority remains to sell the asset as a going concern to a qualified buyer. However, if an agreement is not reached by 31st March, we will progress towards an orderly closure by 30 September 2026. Resolving issues relating to obtaining an economic gas supply is fundamental to the site's future viability, and we continue to engage with government stakeholders on this matter. Importantly, as we have reported today, the facility is self-funded at the current favorable debt prices. Subject to debt prices, it should remain cash positive while we continue to operate the plant in fiscal year 26. I would also note that if a sale does not eventuate, the cost of remediation and closure are expected to be offset by tax loss benefits and the release of working capital. During financial year 25, we also made great progress in our net zero pathway. meeting short-term absolute reduction target of 5% by 2025 against our 2020 baseline. We also completed the installation of tertiary abatement of nitrous oxide at our LOMO facility. Having now completed tertiary abatement at both Moromba and LOMO, we have been able to review and update our greenhouse gas reduction targets. Our previous medium-term target of 25% by 2030 has now been adopted as our new short-term target, and we have introduced a new medium-term target of 50% reduction by 2036. This new medium-term target is underpinned by a pipeline of identified projects. The net zero by 2050 ambition remains unchanged. I'll now hand over to Nitash, who will take you through our financial performance.

Thank you, Mauro. And good morning to everyone on the call today. We have some fantastic opportunities ahead of us as we pursue our strategy to deliver on our ambition. But firstly, let's look at what we've achieved from a financial perspective in FY25, which demonstrates solid progress. As Mauro mentioned earlier, We've achieved 16% underlying earnings growth across our explosives business units. Our transformation program has delivered benefits that, on an annualized basis, are halfway to Dino Nobel's earnings ambition. And I'm happy to say that things are well on track for FY26. Scaling with smart capital deployment is a key part of the strategy, of which ROIC is a key measure. We finished the year with ROIC at 8.2%, which is up from 6.3% a year ago. Finally, we delivered on the important milestone to exit the fertilizer assets with sales proceeds of 579 million received and a further 270 million in deferred settlement. If we now move to the next slide, which shows our P&L. As you can see, revenues on a statutory basis were flat, impacted by the December 2023 completion of the Wallace sale, and therefore FY24 comparators included two months earnings. Underlying revenue for the group grew 6% and explosives by 2% year on year, impacted by the Queensland market weather event in half one. Pleasingly, we saw these impacts recover in half too, and our JV partner income grew strongly at 29% year on year. The transformation program continues to deliver operating leverage for the group, with operating margin percentage increasing two percentage points at a group headline and underlying explosives level. Overhead's growth was restricted to 3%, demonstrating cost discipline to our growth. The reduction in other income reflects one-off benefits in the prior year related to a land sale in explosives and a legal settlement in fertilizers. Our headline EBIT grew 23%, driven by favorable commodity prices in our fertilizers business. Headline explosives earnings declined 10%, reflecting the aforementioned Wallah impact, and a significant turnaround year at manufacturing sites of Murumba, Lomo, and Cheyenne. This resulted in lower sales and higher third-party input costs while plants were being renewed, but sets us up for improved reliability and throughput going forward. The restructuring of Dynanobel to a pure-play explosives business has resulted in significant IMI's recorded in FY25 from the sale and full write down of fertilizer assets. A full breakdown is included in the OFR materials. We also acknowledge that the restructuring of the group has made visibility of the true business performance challenging. So we've increased disclosure and reconciliation from our headline results to the underlying performance to assist. These additional disclosures are included in the compendium and will be provided going forward. I'll take you to the next page on slide 20. Underlying earnings in Dyna Nobel explosives grew 16% to $434 million in FY25, reflecting the $134 million cumulative net transformation growth from the 2023 $300 million baseline. We've broken out the adjustments on this slide which relate to sale of fertilizer assets and one-off impacts from turnarounds. With the completion of the St. Helens sale in FY25, Ag and IC is not material going forward and will not be disclosed separately. Pleasingly, underlying earnings grew across all geographies with DNAL showing a 33% improvement although it's of a smaller base. JVs are a core part of the privileged assets in the DynaNobel strategy. They are cornerstone to the market leadership position of the US business and an important consideration in our growth markets. We've also called out the growing JV income line that reflects the after-tax income included in our EBIT, which is unique to DynaNobel. We will continue to disclose this additional information as we feel it's material to the valuation of the business in the future. If we could now move to the CAPEX slide 21. You can see we've maintained good discipline on our capital expenditure in FY25, meeting all CAPEX outlook ranges provided at the start of the year. Please note that we have adjusted the categories that we disclosed to provide more color on the nature of capital investment. Despite the significant FY25 turnaround schedule, we have been able to complete these successfully and on budget. Our capital deployment moves away from turnarounds in FY26 towards projects that are aligned with our growth ambition. We intend to increase spend in areas of digital and technology to ensure we maintain our technology advantage in market and enhance productivity for ourselves and customers. We also see increased capital spend in support of customer growth, particularly in EMEA and LATAM. This spend relates to investments in additional MPUs and emulsion plants, and is expected to provide returns well in excess of our cost of capital and in line with the capital allocation framework. The range on the capital outlook is influenced by this category of CapEx, given the binary nature of tenders, which can impact on timing of spend. Moving on to the balance sheet on slide 22. Our balance sheet strength, is demonstrated by marked improvement across the key metrics shown on the left-hand side of the page, noting the increase in the net debt was expected, driven by the tax commitments following the sale of WALA, and remains, as Mairo said, at the low end of our policy setting. This gives us an opportunity to pay dividends at the higher end of the capital allocation framework of 30% to 60%, a fully franked A full year unfranked dividend of 11.9 cents represents a 50% payout ratio. The 1.4 billion capital returns continues to progress well with on-market buybacks at an average price of 293. The buyback will recommence on the 11th of November. With that, I will conclude by saying that I'm delighted to join the incredible team of Diana Nobel, enjoying learning the business, and excited by the prospects I'm seeing. I'll now pass back to Mauro for some closing remarks before we move to Q&A.