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Edited Transcript of IPL.AX earnings conference call or presentation 20-May-19 12:00am GMT

Half Year 2019 Incitec Pivot Ltd Earnings Call

Melbourne, VIC Jun 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Incitec Pivot Ltd earnings conference call or presentation Monday, May 20, 2019 at 12:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chris Opperman

Incitec Pivot Limited - General Manager of Group Finance & IR

* Frank Micallef

Incitec Pivot Limited - CFO

* Jeanne M. Johns

Incitec Pivot Limited - MD, CEO & Director

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Conference Call Participants

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* Belinda Moore

Morgans Financial Limited, Research Division - Senior Analyst

* Daniel Kang

Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research

* Grant Saligari

Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director

* John Purtell

Macquarie Research - Analyst

* Mark Wilson

Deutsche Bank AG, Research Division - MD, Co-Head of Company Research Australia & NZ and Analyst

* Michael Bors

* Niraj-Samip Shah

Morgan Stanley, Research Division - Equity Analyst

* Richard Johnson

CLSA Limited, Research Division - Research Analyst

* Scott Ryall

Rimor Equity Research Pty Ltd - Principal

* Sophie Spartalis

BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst

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Presentation

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Chris Opperman, Incitec Pivot Limited - General Manager of Group Finance & IR [1]

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Good morning, ladies and gentlemen, and welcome to Incitec Pivot Limited's Results Presentation for the Half Year Ended 31 March 2019.

The materials we will be discussing today have been lodged with the Australian Stock Exchange and can also be found on the ASX and Incitec Pivot's websites. An audio recording of this meeting will also be available on the company's website after we conclude today. And at the end of the presentation, we will have time for questions from the audience. Finally, I'd like to draw your attention to the disclaimer found on Page 2 of this presentation.

Thank you, and I would now like to hand over to Jeanne Johns, Managing Director and Chief Executive Officer, to take you through the results presentation.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [2]

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Thank you, Chris, and welcome to all of those that are joining us by the webcast. I'm here with Frank Micallef, our Chief Financial Officer, and we'll be running through the presentation and then taking questions.

I'd like to start with a run-through of the agenda, which I start as usual on our Zero Harm, our most important value. We will then cover the first half results at a group level. And given the number of significant nonrecurring impacts, I will talk to those in a bit more detail. I will then go through each of our 3 businesses in turn, and then Frank will go through our profit statement and our balance sheet impacts. I will then provide an update on 2 of our key strategic drivers, manufacturing excellence and technology, concluding with the FY '19 outlook.

Now starting with Zero Harm. You'll remember that last year, we reset our strategy on Zero Harm to include a broader set of metrics. This was to improve our focus on things such as the environment and process safety. But we also retained our key focus on the TRIFR rate, which represents our basic safety performance. As you'll remember, our previous target was at less than 1. And quite honestly, last year, at this time, we were struggling to keep it below that level. I'm very pleased that our TRIFR rate in the first half was 0.78, significantly below what it was last year as well as near historic lows. The key is to make this sustainable year-on-year to hit our FY '21 target.

There were 2 key inputs that we put in place this year to underpin this result, one on the behavioral side and one on our management system. On the behavioral side, we're going through a refresh of our Safety Partners program, and this is to have each of our employees recommit to their why, of why they want to stay safe and keep their mate safe as well. We've also introduced our management of change process, a more rigorous and standard process throughout the company to underpin a thorough investigation of any change that happens and how it could inadvertently impact safety. Both our first half performance as well as these underpinning actions give me good confidence that we are on track to deliver our targets that we set out at the Strategy Day last year.

Moving on to our first half group overview. It was clearly a disappointing headline result and a tough 6 months for us. Our first half EBIT was $119 million after $141 million of nonrecurring impacts that have been previously announced. The most significant of these was the once-in-a-100-year flooding event in Queensland that I'll talk to a bit later. We also had a third-party gas interruption in the Northwest United States as well as 2 large and unusual plant outages. I'll talk to all of these a bit later. But importantly, the performance of our base business was good, and we are well positioned in the market.

In North America, our volumes were impacted by adverse weather impact, but we grew our margin per tonne and our market share in this environment. Our rebasing of our Asia Pacific Dyno Nobel business is well progressed, and we have good momentum of our technology uptake. And in the Fertiliser business, the benefits of the value chain optimization are beginning to come through.

I am pleased with the progress we've made on the strategic agenda. Our premium technology is growing strongly across both of our Explosives business, and we're deepening our technology pipeline to underpin future growth. Our new manufacturing strategy is being rolled out, and I'll talk later about the upside from our new reliability target. Our balance sheet remains strong, and we completed our $300 million buyback in December of last year. And we remain very focused and disciplined on our capital allocation.

I'd now like to run through some of the key movements in our group EBIT result. As I previously said, our reported EBIT was $119 million, up from $4 million on a statutory level and down from the $240 million after IMIs in the first half of '18. The result was heavily impacted by nonrecurring impacts totaling $141 million, which I'll talk to in more detail lately (sic) [later]. We separate out these nonrecurring impacts to give you good line of sight to the base business. And our base business delivered an EBIT of $260 million, up 8%. Our business saw a $32 million benefit from a lower Aussie dollar during the period and slightly higher commodity pricing. We had a $13 million benefit from the value chain optimization in Fertiliser, although that business was impacted negatively by the drought on the East Coast Australia. The higher gas prices associated with Gibson Island had been well flagged, and we had a positive of $17 million in net other pertaining to our Fertiliser business that I'll explain later. The net negative impact of $3 million associated with manufacturing is outlined in the appendix, but the delta is mostly the half-on-half differences in the turnaround schedules. The important message here is that the fundamentals underpinning our businesses remain in place, and we have an improved outlook as we move into the second half.

I'd now like to talk about some of the nonrecurring issues that we had, starting with the manufacturing, which totaled $165 million of EBIT. We've separated these out from the base business due to their unusual nature and the size of the impact. And the natures associated, they were beyond a single point fix. The extent of the downstream impact was unusual and resulted in a large section of both plants needing to be taken down and doing almost a mini turnaround. I'll talk to each separately starting with Waggaman whose performance has been strong since our commissioning. But it's important to remember that it's not unusual to have operational interruptions at new plants.

The first half outage was triggered by an extended third-party power failure, and this revealed 2 unexpected issues in the plant's backup systems, its on-site power system and then its instrument air system. This resulted in the downstream needing to be taken off for the entire CO2 recovery system. It was off-line for 50 days with a significant impact on EBIT of $45 million. Once we recognized the extent of the work that was required, we brought some planned turnaround work forward, some inspection, testing and other critical repairs. This has allowed us to move the next planned turnaround back to FY '21 from FY '20. As the next step is part of our manufacturing strategy, we will focus on each plant and each unit of each plant to provide a robust reliability management plan. This will include a comprehensive analysis of the vulnerabilities and the actions to mitigate those for each unit. I am pleased to say that WALA's been operating above nameplate since mid-April.

I'd now like to move on to Phos Hill, a very different plant whose outage was related to a reactor integrity failure. A number of you will remember that we have had rubber lining issues in the past at Phos Hill, but this was unusual in the fact that it was a different failure mechanism. And it resulted in unexpected internal damage in the downstream reactors that required all 4 reactors to be taken off-line. The EBIT impact was $20 million. A comprehensive review of all of these linings have been done, and we will sequentially reline 2 reactors. The first of which is well progressed and will be done shortly, and the second will be done in the second half of the calendar year. It should be noted that these can be worked on while running at full rates. The plant has now restarted and is focused on the implementation of the new manufacturing strategy. It's focused on increasing the on-site accountability and the access to resources in order to deliver that reliability.

This incident also highlighted an opportunity to improve the turnaround process and scoping through a reliability lens. I'll talk more later about our manufacturing strategy when we get to our value drivers.

I'd now like to move to the nonrecurring business interruptions that occurred due to external parties. They totaled $76 million in the first half. And the first and most significant was the Queensland flooding, and the dependence on Phos Hill for the rail line is a well-known risk. The worst case scenario planning had been based on 2 to 3 weeks, which seemed conservative given its history. However, this year's event was a once-in-a-100-year event that caused an unprecedented 3-month closure of the rail line. We were unable to move product and had to shut the plant. We are now back up and running with a half year impact of $60 million and now expect an estimated full year impact of $115 million.

The St. Helens impact was due to a significant disruption in the gas market in the northwest of the United States. Its root cause was the rupture of the Enbridge pipeline late in 2018. As a result, the Canadian regulator restricted volumes. And coupled with the increased demand of a bitter cold winter, it significantly elevated the price of natural gas. At one point, it peaked above $100 versus the usual $3 to $5 range. We actively managed for optimal production volume at St. Helens given this gas price and limited the impact to $16 million. The issue is now largely resolved, and gas price is back within its historic band. And given the seasonality impact, we expect it to stay there.

I'd now like to go through each business and its performance, starting with the Americas. It's important to note that we report the U.S. business in U.S. dollars so that you can see the underlying performance. And our EBIT of USD 63 million is down from $102 million in the first half of '18. Putting aside the nonrecurring impacts that I've already spoken about, the EBIT would be $107 million, up 5%.

For comparison purposes only, I've also noted that the result would be in Aussie dollars, up 14% due to the currency's weakness during this period.

Moving to the Explosives earnings. They're up 3% in constant currency and 13% in Aussie dollars despite the volumes being down with the adverse weather impacts. The U.S. experienced a very early and bitter cold winter and then an extended spring wet period, both of which impacted our volumes. But we continue to gain market share, and our margin per tonne continues to grow due to the positive mix of the business. We had notable market share gains in Q&C underpinned by our premium technology.

In the coal market, the industry was down about 5% due to ongoing power plant retirement, but our volumes were only down 2% given our market share gains. It's important to note that our strategy assumes that coal market will continue to decline over time, and we're well prepared for it. We continue to differentiate and grow in other sectors, and we remain short on AN supply in order manage its impact.

You will see that Waggaman had a $10 million profit for the half, and I've already spoken to that. The key takeaway from here is that our business is well positioned to benefit from the higher demand expected in the second half.

I'd now like to talk about the strategic momentum that we have in our Americas business. It's important to note that the strategy in the U.S. hasn't changed. We're leveraging our strategic nitrogen footprint and our premium technology to gain market share and margin. Our customers are seeing real value in the solutions that we have on the ground today, and that's most clearly seen in the Q&C sector, where technology is underpinning our market share gains. Our gas emulsions, including Delta E, have sales volumes of up 24%. And our electronic initiating systems are also up almost 50%. We've recently added a seventh production line at Simsbury in the United States in order to meet this increased demand.

Our channels to market we continue to optimize. And we believe we have the best channels to market that there are. And some of our joint venture partners are second to none. But there are times when we think it will be worthwhile to us to buy out a joint venture partner like we recently did in the southeast of the United States, a key market due to its growth profile. This allows us to better solution-sell our premium offer into this growing Q&C market.

I'd now like to move on to our Asia Pacific Explosives business whose EBIT decreased to $77 million impacted by a number of things but mostly related to contract rebasing and the transitory impacts of adverse weather and more Moranbah's relative performance. You can see the WA contract impact of $7 million that's from last year that was well flagged, and you can see the $4 million in the first half from the Australian recontracting. As you'll remember, we're in the midst of recontracting our foundation customers at Moranbah, and we'll talk to this brick a bit more in the next chart. The transitory impacts include a $5 million negative from lower sales volume which includes $3 million from our QNP joint venture. This is due to the East Coast adverse weather impacts as well as some customer operational issues that we do not expect in the second half. At Moranbah, we had a $7 million impact on malfunctioning abatement equipment. And the $7 million includes both the fixed as well as the cost of credits that needed to be purchased in order to cover this. Moranbah is well set up for the second half and is running well in a period of traditionally stronger demand. Importantly, our Asia Pacific business has underlying good market fundamentals, and we're expecting an improved second half.

I'd now like to move on to our strategic agenda and most importantly our contract renewals. We often call the contract renewals a once-in-a-decade event because of the foundation nature of the contracts that underpin Moranbah's construction almost 10 years ago. As I said last year, the renewal process was going to be impacted by both strong domestic competition and supply additions. And this is clearly a very different market than when the contracts were struck 10 years ago.

Our strategy was set to secure the manufactured margin with the best customers and leveraging our premium technology. And our technology on the ground today has been pivotal in achieving the outcome in these negotiations. It's worth noting that we had a deliberate strategy to tighten up the volume range to match our manufactured volumes. This is different from the past where we oversold our plant and purchased spot to cover it. This extra volume would be unprofitable, and so we consciously chose not to contract. It's all about value over volume. We now have clear line of sight to the total financial impact of all of the renegotiations going on in Australia. And we estimate the full year FY '19 impact to be $13 million with an additional impact in FY '20 of $12 million.

As I reminder, we've included here our previous guidance we gave in FY '18 on the impacts of the WA supply contracts. These are noted here in EBIT for consistency purposes but are the same that we released at that time. I'd like to point out the strong momentum we have in technology. You can see the strong growth in gas emulsions with our Delta E up 19% and our electronics almost doubling. The electronic sales have underpinned our fourth line of production at our Helidon plant here in Australia. We also introduced a new product in the first half of EZshot, a hybrid detonator that I'll cover later in the technology section. The key takeaway here is our rebasing is well progressed, and we have very good growth options from our technology in a market with strong fundamentals.

I'd like now to move on to Fertilisers. Our headline result was a loss of $33 million. Splitting out the 2 large nonrecurring impacts that I talked about previously, EBIT of $47 million was up from previous year $23 million. Our base business performed well despite the drought conditions and the previously flagged high impact of higher gas prices at Gibson Island. The business also benefited from favorable ForEx movements and slightly firmer commodity prices as well as successful value chain management that I'll talk about in the next slide. The positive $23 million impact was due to a reversal of the first half '18 profit-in-stock number due to the lower inventory levels and less commodity price movement this year.

I'd like to now move on to the progress on the strategic agenda in our Fertiliser business. We see good upside in our Fertiliser business from the actions we've taken on value chain optimization and manufacturing consolidation. In the first half, we realized a $13 million benefit from value chain optimization through better integrating our supply decisions with our trading knowledge and a more rigorous value chain optimization process. This is supported by the acquisition of the remaining interest of the Quantum marketing and trading business. We are also making good progress on our differentiation agenda, developing and promoting specialty products and digital tools in the market to address the needs of different customer segments. And you can see some of the examples on the slide. We've consolidated our SSP manufacturing into Geelong, consistent with our focus on capital discipline and cost control. And we expect to deliver annual cash savings of $4 million.

We remain committed to supplying high-quality SSP to customers out of our Portland distribution center, and we remain committed to supporting that community through the years.

I'd now like to provide an update on our Gibson Island, which you know we've been looking for affordable gas in order to retain its operation. The negotiations with multiple parties are ongoing, and we are very close to an outcome. You will remember that last year we made the commitment to leave no stone unturned, to find an option to keep the gas -- the GI plant open, but we cannot make a decision that destroys value. I do want to point out one difference in our closure case which has now been refined and assumes the ammonia storage tank on-site remains open to support our BIG N and our industrial customers. This is a positive NPV option, but it does reduce the estimated proceeds from the excess land.

In summary, we have an actionable plan for GI closure if it's required, and we have clear thresholds required in order to keep GI open, and we expect a decision in the near term, and we'll update the market on that outcome.

I'd now like to turn it over to Frank to talk about some of the profit and loss and balance sheet movements.

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Frank Micallef, Incitec Pivot Limited - CFO [3]

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Thanks, Jeanne, and good morning to everyone. What I'd like to do first is to run through a few group and corporate items to round off the analysis that Jeanne has taken you through on the group profit and loss outcomes before we turn our attention to the balance sheet.

So let's start at Slide 20. Jeanne has already talked you through the EBIT performance of the group and the businesses. If we go to the group items, interest was up $8 million to $68 million, reflecting the impact of the lower exchange rate on the U.S. portion of our debt, higher interest rates on the floating portion of our U.S. dollar debt and higher debt levels resulting from the lower cash flows that came through in the first half.

At $12 million, corporate costs were slightly lower than in the first half last year, but we expect those costs to be roughly flat on a full year basis with last year at around $30 million. On a pre-IMI basis, tax expense was $9 million, down $21 million because of the lower pre-IMI earnings. Now effective tax rate was up just over 1% to 18.6% in this half just gone, and we expect the tax rate to be between 18% and 20% for the full year.

Consistent with our normal dividend policy, our dividend for the half of $0.013 per share represents 50% of NPAT. In terms of currency and our hedging program, our realized exchange rate of $0.71 was pretty much in line with the average market rate for the period. In terms of the second half, we had 50% of our forecast fertilizer sales hedged at a worst case rate of $0.74 but fully participating in lower rates. And I'll remind you that the sensitivities outlined on Slide 32 include the exchange rate sensitivities, and we are leveraged to a significantly lower Australia dollar.

Turning to Slide 21. Our balance sheet remains strong, and its resilience was demonstrating -- demonstrated during this challenging half. Half-on-half, our net debt-to-EBITDA increased to 2.6x, up from 2.2x, and interest cover decreased from 7.5 to 5.8x. Of course, this was impacted by both the operational issues we faced and the normal seasonal build of working capital up to March. For these reasons, our debt metrics should start to improve significantly in the second half as improving last 12 months' earnings and cash flows will restore the denominators in those debt metrics.

The strength of the balance sheet was also highlighted by the 2 reaffirmed stable credit ratings. The refinancing of our maturing long-term debt is well underway. We issued about $550 million of 7-year bonds during the half year, both in the European and Australian medium-term note markets. And actually, it's slightly better credit margins than the replaced debt. There remains approximately AUD 800 million to be refinanced, and we intend to transact this in the next few months in a long-term U.S. dollar market, probably with 10-year maturities. This will help extend our average tenure and lead to a more balanced maturity profile of our debt book. Work on this last portion of the refinancing is very well progressed. However, as we're normally very conservative when it comes to these matters, we've also put in place a committed bridge facility until October 2020. That means we're not time constrained in the refinancing activity. Finally, in terms of our sustenance capital, for the half year, that came in at $104 million, with a further $42 million of one-off lease buyouts that we flagged previously. The full year forecasted sustenance spend remains at around $250 million excluding the lease buyouts.

At this point, I'll hand back to Jeanne for the strategic initiatives and outlook updates. Thank you.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [4]

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Thanks, Frank.

And I now like to reflect a little bit on our priorities set for FY '19 at our full year results last year. All of these points you will see on this slide has been covered somewhere in the presentation. And I think the key takeaway for me is that halfway through the year, I'm very happy with the progress and expect to conclude many of these items in the year.

I'd now like to turn to our strategic agenda and 2 of the strategic value drivers that I intend to talk to today on manufacturing and technology. At last year's Strategy Day, I pointed out the opportunity we had in manufacturing, and I'd like to go into more detail now. From my personal experience, I find that manufacturing excellence is about having the right people in the right roles, having a strategy that's squarely focused on the right things and driving that accountability for delivery down to the site level. I am confident that we have the right team in place to deliver this.

Tim Wall, our President of Manufacturing, started in November of last year and has global experience in world-class manufacturing. You will have an opportunity to meet him at this year's Investor Day, and he will explain in more detail how he is going to go around about delivering the agenda.

We also have David Pierpoline a very Senior Vice President on the ground in the U.S. to help Tim in the delivery. Tim and the team reset the global manufacturing strategy with a heightened focus on safe and reliable operations. And the key to this is a fix-for-good mindset by adopting world-class integrity operating and maintenance practices. It's about finding vulnerabilities early, determining their root cause and fixing it completely. They're driving accountability down to a site-by-site level, and each of our 7 major manufacturing plants have prioritized plans to deliver higher reliability outcomes, including access to the resources required in order to deliver it. Getting these basics right will result in less surprises and less outages due to equipment failures as well as a lower impact when they do.

I'd now like to go, move on to the new target we've set for ourselves that will provide us significant uplift by FY '22. This bar chart shows the historic reliability of our ammonia plants at 4 of our key assets. And while our manufacturing excellence strategy clearly extends to all of our plants, these are the ones by which we'll benchmark our performance on. We're focused on the ammonia plants because that's where we have the biggest opportunity. They're the trickiest to run and the least reliable. And given that they're upstream from most of the rest of the plant, they're especially important for overall profitability.

Our historic performance has been reasonable, but we have had an issue with variability and consistency. We have been operating at a historic average of about 85%, which on a comparable OEE basis is probably around 80%, with the major difference being the scheduled turnarounds. We're using a standard industry definition defined by Phillip Townsend because that allows us to have a comparable benchmark for reliability across the world. We've set ourselves a target portfolio benchmark rate of 95%, a 10% improvement. I note the top quartile is 96.5% or above, and so a 95% target across the portfolio is very good performance but is definitely achievable. And it provides a significant earnings price of $40 million to $50 million EBIT by FY '22. We'd like to see progressive improvement on this -- against this target, but it will be subject to turnaround cycles and the inherent variability of our facilities.

I'd now like to move on to our technology and our premium technology solutions. I continue to be excited about the opportunity our technologies have in providing our customers real value and us with growth opportunities. Our mining customers consistently tell us that they want to improve safety, lower impact on the environment and reducing their total cost of ownership by better blasting outcomes. Our premium products that we have on the ground deliver against all of those objectives, and they're second to none. We have now seen Delta E and 4G continue to spread across the globe and sectors. What started in the quarry and construction business, I've now seen in action in the iron ore range, copper and gold mines. Everywhere I go, when I talk to customers, especially their blasting experts, they love these solutions we're providing. It provides them the flexibility to design blasts, to meet the specific needs that they have in the mine, and it's genuinely adding value to their operations.

Our gas emulsions, including Delta E, and our electronic detonators continue to deliver strong growth, and we are well on track to achieve our target we set at Investor Day.

I'd also like to talk about our investments to meet this customer demand. Delta E has been in our U.S. market for a number of years, and we've now introduced it to Asia Pacific in the last 12 months, one of the first actions I took when I came. And with this growth, we've become equipment constrained. The good news is we have control of our supply chain of delivery, and our MPUs are ramping up manufacturing capacity to meet this extra demand. We stopped supplying third-party -- others as contracts allowed, and we brought on a new production shift. We're now doing the next step of outsourcing nonspecialized components so that we can focus on those differentiated aspects and our IP. We currently have about 60 purpose-built trucks on the ground with customers, and we expect to have over 80 by the end of financial year.

We're also ramping up our production to meet the demand in our electronics products. We have 2 new production cells that we've started up here in Australia at Helidon and in the U.S. at Simsbury. And given our customer backlog of our new EZshot product, we are now ramping up from the trials to mass production of it at our Wolf Lake facility in the U.S. that I recently visited. It's on the last stages of commissioning of that new line.

Which brings me to the technology pipeline, and I'll talk first about our new product that we launched, EZshot, this half. EZshot is a hybrid detonator, and it reduces overbreakage that can result in a jagged edge. Our customers love it because it delivers a clean circular hole for the equipment that can move quickly through it, and its strong applicability is in underground mines where it's differentiated. It's -- I particularly like it because the Dyno Nobel has traditionally been underrepresented in the underground market, and this provides us a real product that will help serve this market well.

I also spoke at Strategy Day about our technology pipeline, which included more automation and digitization. In pursuit of a digital agenda, we've appointed a new executive CIO, Margot Sharapova, who's responsible for delivering our customer-facing products through the center of expertise that we established last year in Salt Lake City. Our Nobel Fire, which is our digital blasting optimization tool, has now been trialed in Australia, and that is the first product that we will be perfecting in order to meet our customer needs. This rounds out a powerful technology team of specialists that we now have assembled across all the major areas of our technology pipeline. The key takeaway is both our performance in the first half and this robust pipeline gives me great confidence of meeting the targets that we set in Investor Day and winning in the marketplace.

I'd now like to move on to the FY '19 outlook. Those of you that have followed us for a while know that we typically do not provide earnings guidance given the volatility of our business and its many sensitivities. However, given the unusual significant nonrecurring events that we've had this year, we decided to provide an earnings guidance for FY '19 as an exception. There is no plan to provide guidance as a matter of course. The full year FY '19 EBIT is now expected to be between $370 million and $415 million after the $209 million impact from the nonrecurring events. This guidance is based on a number of assumptions and sensitivity that we've set out on this and the following 2 slides. It assumes normal weather and no further major manufacturing outages, and it excludes any one-off costs that would be incurred in the case of a GI closure. Our markets are healthy, both in the Australian met coal and iron ore markets. Our U.S. Q&C volumes have started kicking in, albeit after a late wet spring. We expect Q&C to be up around 5% to 10%, partially offset by the weakness in the thermal coal markets previously commented on. And our Australian fertilizers has strong local demand in the south, and we're hopeful for a normal season, dependent upon follow-up rain for the winter topdressing season.

In closing, our first half performance was impacted by a number of significant nonrecurring events. Our base business remained strong, and I'm very happy with the strategic progress made. We see significant uplift available through both manufacturing excellence and our customer technology solutions. We have an underlying strong and improving market fundamentals as we move into the second half.

And with that, I'd like to open it for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first questioner is from Mark Wilson from Deutsche Bank.

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Mark Wilson, Deutsche Bank AG, Research Division - MD, Co-Head of Company Research Australia & NZ and Analyst [2]

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Jeanne, I was just wondering if you could elaborate on the recontracting of the Moranbah foundation customers, just with the impact that you've allowed for fiscal '19 and fiscal '20. How many of those contracts have you been able to finalize? How many are outstanding? And what does that earnings impact cover?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [3]

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Yes. I mean we're well progressed on the recontracting of all of our long-term Australian customers. The impact that we announced covers all of those, and we feel as though we have enough clearer line of sight to give a good estimate. And so we expect the first half of '19, where we showed the first half of '19 being $4 million, we've indicated the second half would be $9 million for a total of $13 million in '19. And then FY '20 with the additional $12 million would be $25 million total on an annual basis. And that covers all the recontracting we have on long-term significant contracts in Australia in these significant sort of one-in-10-year event.

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Mark Wilson, Deutsche Bank AG, Research Division - MD, Co-Head of Company Research Australia & NZ and Analyst [4]

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And in relation to volumes, are the volumes that you've recontracted lower but they match the Moranbah production output? Is that what I'm led to believe?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [5]

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Yes. I think the takeaway really is that we got exactly the volumes we wanted. For us, it's all about value, not volume. And quite honestly, recently and at the prices these were set, there was not value to be had by selling additional volumes. Historically, we've oversold and then purchased spots to cover. And so we did lower our contracted volumes to more closely match our Moranbah production.

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Operator [6]

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(Operator Instructions) Our next questioner is from Daniel Kang from Citigroup.

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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [7]

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Just a follow-up question on Moranbah, do you expect the negative contract headwinds or impact to EBIT to stabilize in FY '21? Yes. That's my first question.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [8]

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Okay. Thanks for that Daniel. Yes, I mean that's why we're calling it a rebasing because these are unusual recontracting. I mean we have contracts that come up every 3 to 5 years on a normal basis. And what we're trying to indicate here is that these are long-term contracts. These are ones that were designed to fund the Moranbah's construction at the time, which was almost 10 years ago, and they were done in a very different marketplace. So really, this recontracting season is unusual, and it really rebases the business from which we expect to have good growth through our technology coming off that.

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Frank Micallef, Incitec Pivot Limited - CFO [9]

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Daniel, it's Frank here. I think the other issue is, as Jeanne mentioned, clearly the foundation contracts were done at a time when the market was significantly short, in the middle of the biggest mining boom of the century. Supply-demand balance is different now, and particularly on the East Coast, we see that now, that will tighten over the coming years, and we should be in a different position as we go forward towards 2022.

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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [10]

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All right. And can you remind me of the gas contract, the current gas contract at Moranbah?

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Frank Micallef, Incitec Pivot Limited - CFO [11]

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Yes. That's basically remains on foot to effectively the start of 2027.

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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [12]

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Got it. Great. And you sort of mentioned about the market supply-demand dynamics on the East Coast. Can you -- what's your current outlook for West Coast and East Coast supply-demand outlook?

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Frank Micallef, Incitec Pivot Limited - CFO [13]

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Daniel, I think there's various people who are in the business of forecasting these things, and we obviously look at them very closely. Certainly, on the East Coast, there's different assumptions around growth, but met coal continues to do very well, and we see the customer base in the Bowen Basin continuing to push volumes as hard as they can, sometimes with some hiccups. But the underlying markets are very strong. And obviously, more recently, there's been capacity that was put in on the East Coast, and that appears to be largely soaked up now. And obviously, on the West Coast, we have a different dynamic. We've got a plant that's yet to come online on the West Coast, and that's being -- the volumes that, that would supply are being supplied from other places at the moment. When that comes online, it's likely that WA will remain long for a couple of years more than the East Coast. So that's probably 2025 and beyond before that market comes into balance, even though the iron ore and gold markets are very strong on an underlying basis.

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Daniel Kang, Citigroup Inc, Research Division - VP & Head of Chemicals and Packaging Equity Research [14]

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I appreciate the color, Frank. Just finally, on Moranbah, you did mention a $4 million impact from volume and mix. Just interested in your comment on mix.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [15]

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Yes. I think that the $5 million impact on volume and mix, that's the one that -- $3 million of that is due to our 50% joint venture in QNP, but the East Coast had some unusual interruptions of demand in the first half due to weather events as well as some customer-specific operational issues. Those are not expected to occur in the second half. So that was just an unusual aberration in the first half.

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Operator [16]

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Our next questioner is from Grant Saligari from Crédit Suisse.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [17]

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Just a couple if I could. So I just really want to clarify the Moranbah volumes because previously you've been operating that plant above nameplate at around 360,000 tonnes of volume equivalent. And I think you've been actually transporting some ammonia across from Gibson Island because the ammonia plant there has been constrained. So is your comment around bringing the volume back, is it about the 360,000 tonnes that you'll sell at? Or is it closer to the nameplate of 330,000 tonnes in that plant, please?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [18]

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Yes. Thanks for the question, Grant. I mean it really is to maintain the 360,000. We have no intention to reduce the volumes at Moranbah.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [19]

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Okay. So I guess, just a follow-up from that. What is sort of the alternative or the fallback with ammonia capacity? You haven't made -- obviously, you haven't made a decision on Gibson Island yet, but I'm not trying to preempt that. But obviously, there must be some thinking in terms of extra ammonia supply into that, into Moranbah.

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Frank Micallef, Incitec Pivot Limited - CFO [20]

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Grant, it's Frank here. Grant, Jeanne discussed the basis for our GI closure case, now includes keeping the ammonia tank open. So what that means is whether GI is open or shut, we actually have ammonia to supply. And so that means, as Jeanne said, there's no change to our targeted production at Moranbah. It's actually about the oversell from that 360,000 that we were doing and bringing that back to -- and actually, some of that comes back through reducing optionality for the customers in the sense of being able to nominate tonnes that are not required or take or pay. So we're trying to make sure that the tonnes we sell, our contract, are actually sold with certainty, and then we can level out our plant through the year.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [21]

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Yes, it makes sense. Just one quick follow-up if I could or additional question if I could just on the manufacturing performance improvement target, 40 to 50. I mean, my guess, just looking at the graph that you've got there on current plant performance, obviously, WALA getting that up to your target would presumably be a large contributor to that. So can you talk -- given it is a relatively new plant and you have had some early-stage issues as you acknowledged but they're usual in a new plant, what are the actual steps that you need to undertake from here, do you think, to get WALA to that level of reliability?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [22]

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Yes. Thanks for that. I mean I think it's not significantly different, although the new plant does make it a little bit trickier in the sense that you tend to discover new reliability problems that in an older plant you've solved. Clearly, the more we run, the more vulnerabilities we uncover. But actually, we believe we've uncovered quite a few of them, and really when we do the turnaround would be when you'd expect to have much greater certainty on day-to-day reliability operations. But we wouldn't expect another one of the same magnitude that we've seen this year, but it really is about a very detailed analysis and finding ways to solve it. Unfortunately, sometimes, the reliability issues are solving old problems. And so we need to be very robust, and we're dedicating more of our engineering resources for reliability focus as opposed to they had been focused on creeping plants up to 110% of nameplate. Instead of actually trying to hit new records on a daily spot basis and risking reliability, we're actually getting them focused on running each and every day.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [23]

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So should we expect progress towards that 40 to 50 to sort of more in line with the turnarounds as they are executed?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [24]

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I think that's what makes it slightly more back-end loaded than front-end loaded, but I would expect to see improvements earlier than the turnaround outage. Many of the fixes won't require turnarounds. And so a lot of the plans will be able to be done online, will be implemented, but some of them will require a turnaround. So post turnaround, you'd expect a better uptick, but you would expect to see improvement soon.

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Operator [25]

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Our next questioner is from Richard Johnson from CLSA.

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Richard Johnson, CLSA Limited, Research Division - Research Analyst [26]

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Jeanne, I just wanted to ask about North America which obviously had an excellent margin performance in the half. But I'm particularly interested in the top line and your commentary around volume and Q&C in particular. The aggregates producers in the quarter that had just reported had very strong growth, with strong volume growth. So I'm just trying to get a greater sense of what the run rate looks like if we thought about the first quarter versus the second quarter? And what you're seeing in the current quarter from a volume perspective?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [27]

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Yes. Thanks for that, Richard. Yes, I think if you look -- you're probably looking at Martin Marietta and Vulcan. They both are showing very high numbers. But part of their numbers are flattered by some of their acquisitions that they've taken as well as market share. They continue to buy up these smaller quarries. And so some of their volumes are not the underlying industry volumes. We think 5% to 10% is more reflective of the underlying industry volume as well as growing market share on that. It was a slow start to the season, but the demand is very high. And really, the question in the industry has really been about how much can you make up given that there's limited equipment and skilled labor to go after given the slow start-up to the season. So that's why we think a 5% to 10% for the year is a good measure, but we have seen that uptick in volumes just recently, which is late, but it has kicked in now.

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Richard Johnson, CLSA Limited, Research Division - Research Analyst [28]

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Great. And just staying in the U.S., could you run me through again your thinking around the strategic benefits of maintaining a presence in U.S. fertilizers?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [29]

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Yes. I mean there are sort of 2 reasons. I mean first of all, we're clearly in the nitrogen value chain. And the nitrogen value chain, the biggest customer's in the ag space. We have 2 -- 1.5 facilities that support that. So Cheyenne, which is a big underpinning for our AN market, for our Explosives business also makes ag products. So it makes sense to be able to be in the ag business in order to sell that production off. We don't, as you know, have a proper fertiliser business downstream like we do here in Australia, it's really more of a commodity place manufacture and placement.

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Richard Johnson, CLSA Limited, Research Division - Research Analyst [30]

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Great. And then just on -- apologies for going back to Moranbah, but just 2 questions there. I know contract renegotiations, in very simple terms, have 3 components, which is volume, price and tenure. I was wondering if you could talk at all about when are we going to go through this all again.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [31]

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Yes. I mean I think the important thing, Richard, is that we see this recontracting season as really quite unusual because of the foundation customer and the long-term nature of the contracts that have all been coming up in the last year and this year. So most of the contracts are all staggered from here on out. But most of the new contracts are being done in that more typical 3- to 5-year period, which we would expect to maintain its closeness to the market in real time, which hopefully as the excess volume gets absorbed by the growing demand, that will tighten up over time.

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Richard Johnson, CLSA Limited, Research Division - Research Analyst [32]

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That's great. And then just finally, the spot volumes at Moranbah you were talking about no longer servicing anymore, can you just clarify whether you had any value-added services that were hanging off those tonnes which now drop away?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [33]

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Yes. Very good, Richard, a great question. And no, they were all commodity purchases. We retained all the business that we wanted, and the volume is what we chose to forgo, quite honestly, even in the last year, those spot purchases were more under the money than in the money. So it was really sensible to pull back on those volumes and to forgo those commodity volumes.

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Operator [34]

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Our next questioner is from Sophie Spartalis from Merrill Lynch.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [35]

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Jeanne, just a quick one from me just in terms of the operational excellence program, if you could just maybe go through the cost to get that operational excellence? Obviously, you've got a number of new people now onboard to drive this program. And then also, a second part of that question just in regards to now an increased focus on preventative reliability maintenance, what does that mean for your sustaining CapEx going forward?

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Frank Micallef, Incitec Pivot Limited - CFO [36]

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Sophie, it's Frank here. In terms of the cost -- on additional cost, if you like, is what I'm imputing in your question on the manufacturing strategy going forward, there's some marginal increase -- in people costs. We're -- as Jeanne said, it's about having the right people in the right positions, so there's been some restructuring. Those costs are very small and not significant overall. They're embedded essentially in the business unit and corporate costs as per normal. So there's not a lot to see at all there that's going to affect our numbers going forward. And I just want to be reminded on the second part of your question, please.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [37]

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Yes. The trend on the sustaining capital line?

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Frank Micallef, Incitec Pivot Limited - CFO [38]

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No. We don't see any observable up or down actually on capital flowing from this. This is about spending the money and our time on the right things rather than throwing more resources into that task. So it's about focus, not about more.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [39]

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Okay. And then if I can, just on Gibson Island, thank you for the extra detail there. Just in terms of the negotiation, what do you need to see? Is it just around the price of that gas? Is that really what it's all boiling down to? And if you can maybe just give us some insight in terms of the quantum that is potentially there or that you would accept.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [40]

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Yes. Sophie, yes. I think the important thing on GI is merely its gas price. It's actually down to that. It's very clear what the gas price we need to make it worth our while to keep it open and to underpin some of the strategic value it has to us. We're expecting to be able to make a decision in the very short term because we're very clear on the parameters with all the parties that we're dealing with on what we need in order to justify it staying open. So we'd expect an answer in the very short term, but I really couldn't give you what the quantum is.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [41]

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Okay. If I can just understand the commerciality of these negotiations, but just in terms of the base case where we are today, it seems as though, and correct me if I'm wrong, that the plant is costing even more than what it was previously under the old assumption. So does that mean that, that final gas price that you're looking for is even lower than what you anticipate or that what you're paying today? Or you are accepting that it will be higher than what you're paying today?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [42]

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Yes. I mean I think it's important because, of course, when we did the 1-year extension, it was to keep the option open. We're now looking for a 3-year extension which has to justify an upfront investment in capital for a turnaround. So therefore, by definition, it requires a lower gas price than what we had for a single year in order to justify it.

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Operator [43]

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Our next questioner is from John Purtell from Macquarie.

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John Purtell, Macquarie Research - Analyst [44]

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Jeanne and Frank.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [45]

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John, we can hear you.

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John Purtell, Macquarie Research - Analyst [46]

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Look, just had 3 quick questions, please. Just picking up on Dyno Asia Pacific. Jeanne, you've mentioned in the presentation that broadly the customer renewals in terms of contracts were in line with plan. So that sort of implies that the price-volume tradeoff was more or less where you thought. Just to clarify, you sort of mentioned outside of -- sort of you mentioned commodity volumes coming off. But outside of that, have you been prepared to reduce volumes in some cases?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [47]

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Yes. John, and I think that's why we -- this was prolonged contract negotiations. We had multiple conversations on price versus volume, which gave us really good line of sight to what the going market prices were as well as what the ideal volume was for us given that. So like I said, we locked in exactly the volume that we needed to underpin, and we're happy that the commodity price was optimal for us.

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Frank Micallef, Incitec Pivot Limited - CFO [48]

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Yes. John, I mean I think the only nuance there, if I kind of read into the word prepared to give volume up, what I'd say is we actually wanted to give some up, not being prepared, but we actually wanted some lower volumes to get that better profile.

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John Purtell, Macquarie Research - Analyst [49]

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In relation to being oversold, Frank?

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Frank Micallef, Incitec Pivot Limited - CFO [50]

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In relation to being not as oversold but more certain on the profile throughout the whole year. So where we are contracted to have less swinging on customer sort of optionality or variable demand.

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John Purtell, Macquarie Research - Analyst [51]

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Yes. Got it. Just 2 more if I can. Jeanne, again, in the presentation as far as the strategic priorities, you talked about potential for minor inorganic growth opportunities and geographic expansions to leverage technology. Are you able to provide some color in terms of broadly what you're sort of thinking about there? And where things might look sort of on a sort of medium-term to longer-term view?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [52]

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Yes. John, I think as we think about our call on cash, we're obviously thinking that, first of all, it's sustenance capital, and then we're looking at some of our high returning organic options and then some minor inorganics after that. And really, it's really about being close to our core competence. We're looking at being able to leverage our premium technology in other geographies whatever way that might make sense but also underpinning some of the investments that I talked about today, in providing the equipment and the manufacturing facilities to service our customer growth demand. So those are the kinds of things that we're looking at in the short and medium term.

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John Purtell, Macquarie Research - Analyst [53]

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And just the last one, just in terms of the cash flow was less negative than what we've seen in prior years, which was pretty good effort, notwithstanding all the issues in the first half. But just in terms of the degree of build for the season, maybe a question for Frank there, you're sort of assuming I think sort of a below-average season here. What have you sort of prepared for in terms of that working capital build?

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Frank Micallef, Incitec Pivot Limited - CFO [54]

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Actually, the working capital build, John, was almost exactly the same in dollar terms as the previous year. So we're hoping for a good season, a normal season. Yes, it's been dry in the first half. We've had some breaking rains through a lot of Southeastern Australia. And if we get the follow-up rains, we can sell a lot of ureas. So don't think it's -- apart from the lower volumes in the first half, we're not set up in a different way for the second half from normal.

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Operator [55]

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And our next question is from Niraj Shah from Morgan Stanley.

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Niraj-Samip Shah, Morgan Stanley, Research Division - Equity Analyst [56]

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First, just a follow-up on fertilizers. There's reasonable benefit from value chain optimization in the half. I just wanted to understand what specifically drove that $13 million uplift? What businesses within sort of fertilizers that, that shows up in? And lastly how we can think about that going forward?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [57]

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Thanks, Niraj. The value chain optimization is really being driven by much closer communications all the way from the end customer back through our international trading arm that can see pricing commodity movements and optimize inventories and take more calculated bets on how much inventory we should have, when we should buy and when we should sell. So really, those value chain optimization is those decisions. And while kind of over time we'd expect that to continue and to grow, it will be somewhat lumpy depending on the opportunities that the market provides and the amount of volatility there is in the value chain.

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Frank Micallef, Incitec Pivot Limited - CFO [58]

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The other thing we're working on as we go forward, and Jeanne mentioned this earlier as well, is we are looking to develop and push specialized products and services in fertilizers as well, and things -- many things that fall into that bucket, but also to ensure that our distribution centers can clear product really quickly when customers are demanding so that we're the preferred place for people to come when -- because what happens in these situations is when it rains, everybody wants to get fertilizer yesterday, and we want to be the one that can provide it faster than anyone else. We want to be able to add value, putting the coatings and specialty products into the market that our customers are looking for, and that helps as well.

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Operator [59]

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And the next question is from Belinda Moore from Morgans.

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Belinda Moore, Morgans Financial Limited, Research Division - Senior Analyst [60]

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Thanks very much for all the increased disclosures today. It's very helpful on the outlook. Jeanne, if I can ask you, first of all, just checking the WA BHP emulsion contract, that's all been renegotiated now. And then, secondly, just looking at your second half GAAP and ammonia assumptions, you're clearly assuming prices improve from here. And then, lastly, Frank, how should we think about your tax rate medium term, please?

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [61]

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Hey, thanks, Belinda. Unfortunately, I can't comment on any individual customer and any individual contract. But I will say that the guidance given on the impact of all of our recontracting is inclusive of all of the big and major long-term contracts. Regarding the ammonia pricing, the ammonia pricing, unfortunately, has been weaker than we would want. The industry has the last tranche of ammonia production coming online and lining out, and it's also been hit in the North America in particular due to the wet season that has not allowed the planting that you would normally see, although we do expect some delayed demand there. But the long and short of it is the ammonia price where it is today is quite low. It's actually pretty close to its theoretical bottom. There's -- I wouldn't be surprised if there's another month or 2 that's at a quite a low level, but then we should see some seasonal uplift like we do in every other season. But we don't expect it to be an extremely bullish uplift this year. It will be more in line with season or slightly softer. But the important thing is we do still expect the ammonia price to be firming over the next several years from this bottom, but we are at a fairly low point right now. Frank, did you want to talk about tax?

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Frank Micallef, Incitec Pivot Limited - CFO [62]

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Yes. In terms of tax rate, Belinda, the guidance we've given for this year is essentially between 18% and 20%. Now as we go forward, and obviously subject to the changes to tax legislations in the jurisdictions that we operate, but I would see that sort of climbing into the low 20s in the next couple of years, into that sort of low to somewhere below the mid-20s. And then beyond that, it gets a bit hard to look into the crystal ball and say what governments are going to do.

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Operator [63]

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(Operator Instructions) Our next questioner is from Michael Bors from Challenger.

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Michael Bors, [64]

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I'm just interested in the swing in the nontrade working capital. The large benefit you've got there, is that something that's quite sort of maintained in the second half? And just more generally, can you talk about where you're sort of factoring? I don't think I've seen that previously. Could you give some quantum around that, please?

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Frank Micallef, Incitec Pivot Limited - CFO [65]

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Yes. Thanks, Mike. It's disclosed in the profit report, all of that information. We separate out the trade facilities from the underlying working capital to make sure that everyone's got visibility on what's going on. So you can see from the disclosures, for example, the point I made earlier that the trade working capital underlying number is very similar to the first half last year. And obviously, managing the cash flow impacts of the one-off events, we have various trade facilities at our disposal. Some of those we have a very high-quality customer portfolio, and we're essentially able to sell off those receivables to mitigate cash flow impacts. We will use those in variable amounts. We watch closely any cost impact of doing that and obviously with our high-quality customers, it's usually almost no cost impact of factoring debts, and that's what is normally the case. I wouldn't necessarily expect us to use it going forward to the same extent in every period, but we remain -- important thing for us is we are flexible, and we'll use that as a lever to manage our business.

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Michael Bors, [66]

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Are you able to give like a dollar value of what the factoring was of the down spread? Or...

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Frank Micallef, Incitec Pivot Limited - CFO [67]

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That pretty much shows up in the cash flow statement. So just from memory, I think it was about $240 million.

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Operator [68]

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And our final question from today is from Scott Ryall from Rimor Equity Research.

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Scott Ryall, Rimor Equity Research Pty Ltd - Principal [69]

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Firstly, thanks for the detail on your strategic initiatives. It was quite interesting. And I wanted to ask just in that sort of vein of medium to long-term outlook. Frank made some comments around the -- wanting on your Fertiliser business to be the guys that can provide volumes whenever the rain comes yesterday, I think was his terminology. So I was wondering if you could speak to the medium to long-term resilience of your Fertiliser business. Leave out Gibson Island because it's pretty clear what you're doing there. You've mentioned the one-in-a-100-year flood, we had one-in-a-100-year flood earlier this decade in Southern Queensland, so that seems to be, if you talk to the insurance companies, increasing proportion of one-in-a-100-year events coming. You've talked to the impact around demand on when rain comes and when it doesn't. Could you just talk to how you're thinking about increasing the resilience of that business, whether it be transportation and making sure you can get volumes to market despite rail outages, anything else? That would be wonderful. And that's my only question.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [70]

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Very good. Well, thank you for that. It's a good point on the resilience of the business. I mean clearly, a lot of the actions we're taking on both the value chain optimization as well as the differentiated products are trying to drive a more stable outcome from the commodity swings, and we'll continue to look at those kinds of opportunities to do that. Given the other piece of resilience, outside of the impact of the commodity pricing, is really the mitigation of risk, such as the rail outage. And we have spent a good deal of time and effort obviously on the back of this outage to actually have multiple backup scenarios that would mitigate any future outages of the rail line. And so that involves very flexible ability for a quality storage and all terms of logistics based on different scenarios. And so we feel as though we've done that both at -- for Queensland rail as well as any other risks that we could see hitting us. So we've spent quite a lot of time and have detailed plans now about how we will look at the resilience of the business.

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Frank Micallef, Incitec Pivot Limited - CFO [71]

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The other important point is clearly we have a strong market share on the East Coast of Australia, the market relies on us to get a lot of fertilizer out. So our distribution business does have a very good position, and we're working really hard to make sure we can get the product out and that we're flexible. Very, very small projects and capital additions around even just things like final point loading facilities and truck queuing facilities that make it easier for people to turn up and get out as quickly as possible. And we are actually seeing the customer satisfaction through Net Promoter Scores and other things reflect those small improvements we make to ensure that more people turn to us than not when they need some fertilizer.

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Operator [72]

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There's no more further questions at this time. I'd like to hand the call back to our speakers for any continuing remarks. Thank you.

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Chris Opperman, Incitec Pivot Limited - General Manager of Group Finance & IR [73]

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Thank you, operator. And on behalf of Jeanne, Frank and myself, thanks for joining the call. And with that, we close the meeting.

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Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Director [74]

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Thanks.