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Edited Transcript of IPL.AX earnings conference call or presentation 9-Nov-20 11:30pm GMT

·68 min read

Full Year 2020 Incitec Pivot Ltd Earnings Presentation Melbourne, VIC Nov 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Incitec Pivot Ltd earnings conference call or presentation Monday, November 9, 2020 at 11:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Chris Opperman Incitec Pivot Limited - General Manager of Group Finance & IR * Jeanne M. Johns Incitec Pivot Limited - MD, CEO & Executive Director * Nicholas Stratford Incitec Pivot Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Alexander George Philip Karpos Goldman Sachs Group, Inc., Research Division - Equity Analyst * Andrew Geoffrey Scott Morgan Stanley, Research Division - Executive Director * Ben Brownette CLSA Limited, Research Division - Research Analyst * Brook Campbell-Crawford JPMorgan Chase & Co, Research Division - Analyst * Grant Saligari Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director * John Purtell Macquarie Research - Analyst * Nathan Reilly UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials * Richard Johnson Jefferies LLC, Research Division - Equity Analyst * Sam Teeger Citigroup Inc., Research Division - Head of the Australian Small Caps Team & Director * Scott Ryall Rimor Equity Research Pty Ltd - Principal ================================================================================ Presentation -------------------------------------------------------------------------------- Chris Opperman, Incitec Pivot Limited - General Manager of Group Finance & IR [1] -------------------------------------------------------------------------------- Good morning, ladies and gentlemen, and welcome to Incitec Pivot Limited's Results Presentation for the Financial Year ended 30 September 2020. I'm joined this morning by Managing Director and Chief Executive Officer, Jeanne Johns; and Chief Financial Officer, Nick Stratford. The materials we will be covering today have been lodged with the Australian Stock Exchange and can be found on the ASX and Incitec Pivot Limited's website. At the end of the presentation today, we'll have time for questions from the audience and an audio recording of this presentation will also be available on the company's website. Finally, I'd like to draw your attention to the disclaimer found on Page 2 of this presentation. Thank you. And I'd now like to hand you over to Jeanne Johns. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [2] -------------------------------------------------------------------------------- Thank you, Chris, and good morning to everybody who's joining us today on the phone call. As I'm sure everyone on this call recognizes, FY '20 has certainly been the most unusual of years. Our business has been quite resilient and proactive in these challenging times and we've delivered a very solid operating performance from our Explosives and our Fertilizers businesses. We've also made great progress on our strategic agenda, which I will speak to later. I'll shortly cover our performance and our financial metrics. But first, I want to cover safety. There has never been a more important time to live our #1 value of Zero Harm. And we've seen significant improvements across our key safety metrics. Two years ago, we refocused our efforts on Zero Harm and set ourselves a total recordable injury frequency rate target of 0.70 by FY '21. I'm really pleased that not only have we delivered this target a year early, but we've exceeded it, with an FY '20 recordable of 0.57. This is our lowest on record. We've also seen a significant reduction in process safety incidents, down to 24 compared to 33 last year. And Zero Harm, of course, applies as much to our impact on the environment as it does to safety. And pleasingly, we've seen a reduction in our significant environmental incidents from 3 last year to 1 this year. Our response to the pandemic has been both proactive and comprehensive, with the safety of our people, customers and communities our primary focus. Our safety culture and our strong risk management capabilities have served us well as we've responded to COVID-19. Our teams across the business have done a fantastic job of implementing additional COVID controls and protocols. And this has enabled us to continue to operate across all of our operations, keeping our people safe and delivering uninterrupted supplies and service to our customers. Before I move on, however, I want to acknowledge the tragic incident I shared with you at half year. We were all devastated in April when 2 people, including 1 of our employees, died in a multi-motor vehicle accident on a public road in South Carolina. This tragic loss of life is a stark reminder that our work on safety is never done. We will continue to step up our efforts to embed Zero Harm across our global business in everything we do. Turning now to our overview of our FY '20 year. Earnings before interest and tax increased 23% to $375 million. As you will recall, our performance last year was impacted by a number of significant one-offs. Our improved EBIT result this year actually includes a net negative $100 million impact from commodity prices and ForEx that are not in our control. The strength of our financial and operating performance is underpinned by significant underlying business improvements in manufacturing, which saw reliability up to 86% and continued momentum in our core premium technology products. Our customers continue to adopt our solutions at their mine and quarry sites due to the efficiency and the safety benefits our products deliver. We've also significantly strengthened our balance sheet with our net debt-to-EBITDA ratio now at 1.4x, reflecting the benefits of the capital raising and improved cash generation during the year. Looking now at the strength of our businesses. As we noted in August, both of our businesses service essential industries, which have been an important aspect of their resilience this year. Clearly, our Dyno Nobel business generates the majority of our earnings and operates in 2 of the best mining markets in the world. The strong earnings margin reflects the quality of our business that is underpinned by the best premium technology and our high-quality customers. During the year, we made the decision to retain our Fertilizers business following a strategic review. The performance of the business has turned a corner, thanks to improvements in the underlying business, the continued strength of the distribution platform and vastly improved weather conditions. We expect both our Explosives and our Fertilizers businesses to grow and the contribution from Fertilizers is expected to improve further as the business continues to recover from the recent historic drought and record low commodity pricing. And not only have we delivered a solid FY '20 performance, our broader strategic agenda is progressing well and we've seen improvements across safety, technology and manufacturing as well as financial returns. As I mentioned earlier, reliability at our key manufacturing plants is now running at 86%, up from 80%, and we are particularly pleased with the second half performance at Phosphate Hill and Moranbah, which delivered a record production this year. Our technology continues to grow in key markets and we're making good progress on our entry into Chile. And our Fertilizers business is producing strong distribution margins on greater volumes. A strong return focus is key to our strategy. And while it's clearly too low, our ROIC has improved despite considerable commodity price headwinds. I now want to talk about how our strategy will drive value in the years ahead. And before I do that, I want to point out the good progress that we've made in the past year. Our explosives technology underpins the strong margins in our Americas business and has generated $13 million of earnings in our Australia and our Asia Pacific business. We grew domestic fertilizer volumes 14% with improved margins this year and we delivered $20 million of cost reductions from our response plan. This provides us both the platform and the track record from which to deliver significant upside in FY '22 and '23, with FY '21 likely to be a year of transition as we adapt to a COVID-normal environment. There's an additional $40 million EBIT uplift coming from our response plan by FY '22. On Manufacturing Excellence, we're confident of our target earnings uplift of $40 million to $50 million by FY '22, with the upcoming round of turnaround driving a further improvement in reliability. I've touched on the quality of our Explosives business and the technology that will continue to drive growth in earnings. Importantly, should conditions continue to normalize in FY '22, we are well-placed for 10% growth on FY '20. There's also a lot of upside in our Fertilizers business, which is well-positioned to benefit from improved demand and a recovery in commodity prices. I'll now hand over to Nick to talk you through the financial metrics. -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, Jeanne. It's nice to be back in Australia, through quarantine and enjoying some of our newfound freedoms here in Melbourne. As you discussed, I'd like to start by providing an update on how we're tracking against our response plan. In our August investor briefing, we provided details of the plan. And pleasingly, we have delivered on the first phase and completed the majority of the actions that will underpin FY '21. We are confident of achieving a sustainable reduction in our cost base of $60 million by FY '22. Looking at FY '20, we've achieved a reduction of $20 million in costs, predominantly in our North American business and the corporate office. Some of the savings made in FY '20 were one-off in nature as we cut discretionary expenditure. However, I expect to more than offset that in FY '21 with sustainable cost decreases across all areas of the business. We've incurred $47 million or $30 million in cash costs to complete actions for the response plan related to FY '20 and FY '21. This is in line with the guidance we provided in August this year. And will represent a cash payback of well under a year once we see FY '21 cost reductions accounted for. For accounting purposes, this has been treated as an individually material item. As we look to FY '21 and FY '22, we are confident to deliver the remaining $40 million of cost reduction based on the detailed planning and actions taken over the past 3 months. Our commitment is then to make the cost reductions sustainable. And how do we plan to do that? We've revamped our business efficiency program to ensure that process efficiencies will pay for CPI increases beyond FY '22. And we've also got a process in place where cost increases greater than CPI are treated as an investment, not dissimilar to how we look at growth capital. To increase the cost base, a strong business case is needed to justify the investment, which is usually based on Zero Harm or a positive EBIT outcome. Looking at FY '20 EBIT, excluding IMIs, the business had a solid year considering COVID and commodity price headwinds. Pleasingly, we have seen a strong recovery in manufacturing with $186 million of improvement attributable to a recovery from the 2019 Phosphate Hill rail outage and improved uptime at Phosphate Hill, Moranbah and Waggaman, Louisiana. As discussed, we have seen $20 million of cost reductions hitting the bottom line, predominantly in North America, in an early response to the COVID market impacts and the systemic coal market downturn, which Jeanne will cover in more detail as she reviews business performance. For DAP, the West Australian contract impact is in line with previous market guidance. And pleasingly, we've seen the net recontracting impact for DAP come in $15 million, which is favorable to our previous market guidance, despite the headwind of price impacts from the completion of the recontracting of the Moranbah legacy contracts. This has been driven by positive earnings growth and technology-driven share gains and product mix improvements of $13 million. The IPF distribution business had a strong year, as it sold, 2.2 million tonnes of fertilizer domestically, up by over 250,000 tonnes, as farming conditions improved as the drought broke on the East Coast of Australia. We've seen improvement in all areas except cotton. We remain optimistic that [Wandjina] will provide farmers the water they need to increase their crop in FY '21. The IPF business also benefited from lower gas costs at Phosphate Hill and GI, as new contracts replace interim agreements that were in place in the prior year. Moving to the NPAT performance of the group. Borrowing costs were lower for the year as a result of a slightly lower average debt balance following the equity raising in May and the refinancing of some of IPL's long-term bonds at lower rates. Tax expense and the effective tax rate both increased in line with an increase in earnings from the Australian businesses. And for IMI, we've discussed the $47 million related to restructure costs earlier, and in addition to this, there was a further $41 million relating to the impairment of superseded mine-blasting technology and software products. Since the business successfully released the latest version of Nobel Fire in June this year, we determined that some of the older product code was redundant and therefore, impaired the associated asset value. And for dividends, IPL made the decision not to pay a dividend for the FY '20 year, in light of ongoing uncertainties due to COVID-19 and the equity raising that was conducted in May this year. And this is as an exception to our dividend policy, which is to pay between 30% to 60% of NPAT. Moving to our balance sheet. As you can see, we've seen a $662 million reduction in our net debt balance, largely as a result of the equity raising earlier this year. In line with the reduction in net debt, we've also seen our credit metrics improve, with net debt-to-EBITDA down to 1.4x. And today, we have announced the repurchase of $200 million of long-term bonds. This is being done to optimize the debt portfolio and doesn't change our net debt position, but it gives us a better balance between capital and bank debt in our funding structure. It is expected that the payback on the repurchase cost will be less than 3 years for bonds that have 6 years remaining on their life. If we are successful in completing the repurchase, our restated debt headroom will fall from $1.5 billion to $1.3 billion at 30 September 2020. The cash flow, where we are starting to see -- we're seeing the start of improvement from our free cash flow focus over the past year. Operating cash flows were up $130 million or 41%, driven by a higher EBITDA. Investing cash outflows were relatively flat. We saw a reduction in sustenance capital to $218 million, which is approximately 70% of depreciation and at the lower end of the market guidance range we provided earlier this year. And finally, financing cash flows improved significantly due to proceeds from equity and lower dividend payments. The financial framework slide is a refresh of what I presented in the August Investor Day and I wanted to provide an update on how we have progressed and where we are headed. On balance sheet strength, we remain committed to maintaining a lower net debt position via improved cash flows. And as you can see, we've applied the proceeds of the equity raise exclusively to reduce our debt position. In addition, the significant improvement in our underlying trade working capital position has been implied to reduce the utilization of our trade working capital facilities by $135 million. So overall, we have significantly less leverage than we were a year ago. In August, I talked about simplifying our balance sheet hedging structures and we remain committed to doing that as the hedges expire in 2 years or before that, where it makes financial sense. And we will continue to hedge our transactional FX earnings exposure for U.S. dollar-denominated sales from our Australian manufacturing plants. This program will continue to be based on risk management. For free cash flow generation, this remains a primary focus. We discussed the role of the response plan to help improve cash flows via reduced costs, improved trade working capital and reduced sustenance spending based on capital project efficiency. We've seen an immediate impact of this year, with $131 million improvement in free cash flows and we'll continue to see that reset through the next 2 years and sustainably maintained after that. The other key driver here is our Manufacturing Excellence program. Improved plant reliability will help improve cash flows from our plants, but also in the medium term, help reduce our maintenance spending by a sustainable reduction in sustenance spend and moving from reactive to preventative maintenance program. And finally, targeting higher returns. Ultimately, our progress here will be reflected by our ability to improve ROIC in the medium term. ROIC improvement will be driven from improving the earnings and cash generation of our existing asset base, in particular, the Australian manufacturing plants, and from the growth investment decisions we make for the future. In regards to improved operating performance, many of the free cash flow actions we've just talked about will drive significant improvement. For growth capital, our future investment is going to be strongly biased towards a capital-light investment approach in our commercial businesses. It will help our customers and reward our business with higher margins. Given we are further advanced with our technology program in explosives, you can expect a bias towards that part of the business. However, we are committed to keeping our IPF distribution business as the leading fertilizer distribution business in Australia and maintain our position by moving it towards a soil health value proposition. Importantly, a portion of the executive team's incentives are aligned to the objectives outlined above. In FY '21, the short-term incentive plan will include the delivery of the response plan and cash flow outcomes. And the FY '20 and FY '21 long-term incentive programs have included a target to significantly improve the ROIC metric. These incentives provide a good alignment between the executive team and shareholders. And with that, I'll hand back to you, Jeanne. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [4] -------------------------------------------------------------------------------- Thank you, Nick. And before I go into each of the segment's financial performance, I'd like to start with an overview. Generally, our end markets have been pretty resilient. COVID temporarily impacted operations in the U.S. and Indonesia and we also saw a structural impact on thermal coal demands from very low natural gas pricing in the U.S. In Australia, we've seen strong demand in our Explosives business and the decline in EBIT largely reflects our contract rebasing. In Fertilizers, while the first 4 months were impacted by drought conditions, we saw good demand over the last 8, with a strong distribution performance. As I said earlier, there was a negative net $100 million impact from commodities and ForEx and we've also seen good manufacturing performance and have taken costs out of the business as part of the response plan. I'll now take you through our individual businesses, starting with Dyno Nobel Americas Explosives. Given the structural decline in the coal market, we are pleased with the performance of our Americas Explosives business. EBIT was down 11% to USD 121 million or in Aussie dollar terms, down 7%. Our margins continue to be strong, reflecting the value of our premium technology. Covering our key sectors, I'll start with our largest, Quarry & Construction, which represents more than 40% of our business in North America. It's our premium sector for which our technology is particularly well-suited. Volumes increased marginally this year, up 1%. COVID negatively impacted volumes in the third quarter and while there were some firming in the fourth quarter, they were impacted by wet weather in Texas and in the Southeast. Turning now to Base & Precious Metals, which is our second-largest sector and represents 35% of our Explosives business. Our volumes were down 9%, reflecting lower international volumes on the back of COVID in the Canadian Arctic and in Mexico, the majority of which have reopened and are now operating at pre-COVID levels. U.S. iron ore mines were also impacted by COVID and U.S. auto sales weakness. But those mines have reopened and are running back at rates similar to pre-COVID. Turning to coal, which makes up just 22% of our revenue, we saw a 24% decline in coal volumes, consistent with industry trends due to the incredibly low U.S. natural gas pricing. Recent gas pricing in the U.S. is above the coal-to-gas switching point, leading industry forecasters to expect a small improvement in demand next year. Importantly, our business remains approximately 100,000 tonnes oversold in ammonium nitrate. Albeit in structural decline, we expect coal to remain a required source of energy in the U.S. through 2030 and beyond. Moving on to our end markets. For the Quarry & Construction and the Base & Precious Metals, our premium technology positions us well to serve these growing sectors. In Q&C, the outlook continues to be positive. In the short term, demand will be underpinned by the building growth in the residential sector due to the increased demand for low-density housing. In the medium term, demand is expected to be driven by nonresidential and infrastructure needs and potential stimulus. In Base & Precious Metals, COVID-impacted mines have restarted as confidence has grown in the ability to operate in a COVID-normal environment. And iron ore demand is recovering in the U.S. as vehicle sales have rebounded. A great example of how our premium technology helps us to win new business is a new gold customer that we signed up late last financial year. After a successful trial, they signed up for our full premium technology offering, which shows our technology's value in an end market with strong global demand growth. And now to coal, where we have a much smaller exposure. Our plants are well-located to our customers and their high-quality, low-cost competitive mines. And we are well-positioned in the medium to long term, given our oversold position I mentioned earlier. If need be, however, we also have the flexibility to convert our Cheyenne plant to partially service the agricultural sector in the longer term, with a modest capital outlay. Turning now to the earnings growth potential of our Americas Explosives business over the medium term. We are very proud of this business as a market leader. While our margins this year have been impacted by coal and COVID, we expect FY '21 earnings and margins to return toward pre-pandemic levels, anticipating that we will be operating in a COVID-normal environment. Our strong margins have been underpinned by our customers in the Q&C and Base & Precious Metals sectors, who understand the value difference that our premium technology makes. We will continue to focus on this winning proposition, diversifying our earnings and leveraging our technology into new markets like Chile. The positive customer feedback that we've received from customers in Chile gives us increasing confidence in our ability to both compete and build a strong presence in this attractive copper market. The strength of our position in these markets gives us confidence to rebound the impact of the COVID as well as underpinning the approximate 10% technology growth by FY '22. Now I'll turn to our Asia Pacific Explosives business. EBIT was $149 million, down 17% on last year. Our volumes in Australia have remained strong and we've continued to grow our premium technology offering. Our operating performance at Moranbah has been particularly impressive with record production in FY '20. The earnings decline is reflective of the contract rebasing, which I talked to you about at half year and in August. We've now completed the Moranbah foundation customer recontracting and expect a $12 million impact for FY '21 to be roughly offset by the technology growth. I'd like to note that we have now provided a growth figure on the contract rebasing to give you additional insight into the value of our technology offering, which I'll turn to next. For our key sectors we service, our outlook remains positive, with strong demand from our Australian customers expected to continue in both metallurgical coal and iron ore, based on demand in China, India and the rest of Asia. Turning now to how our growth in technology will show through from FY '22. We're confident of rebuilding earnings after our contract rebasing due to the significant uptake that we've had in the adoption of Electronic Detonators and Premium Emulsion. This has occurred despite some COVID-related delays in trials. The increase in uptake from the -- to the bottom line has been masked by the impact of our contract rebasing but will flow through from FY '22. The technology growth of $13 million that we've seen in FY '20 will continue as we convert existing customers and win new ones. We will also see a positive $11 million EBIT impact in FY '22 from the expiration of the Western Australia supply contract. Western Australia provides a market where our Delta E is well-suited for growth and where we're well-placed to continue to grow EDS market share. And as we said in August, we're looking at new, low-capital ways of leveraging our leading technology to grow in new geographies. This gives us the confidence and a strong platform to build growth in the future. Turning now to Waggaman, which delivered an EBIT of USD 32 million, up 59% on last year, where we had some significant disruptions to production. The plant ran better, delivering 83% reliability and running at 91% of nameplate capacity. FY '21 production is expected to be lower due to Waggaman's first turnaround and the impact of widespread power outages from Hurricane Zeta that occurred late in October. We are now in the midst of restarting the plant. Looking now at our performance at the Agricultural & Industrial Chemicals business, we had an EBIT of USD 1 million, up from a slight profit last year. We have seen improved plant production and efficiencies at St. Helens compared to the same time last year. And the improvement in gas price was largely offset by the lower commodities product pricing. The St. Helens turnaround will have an earnings impact in FY '21, which sets us up well for reliability improvements in future years. Now I'll turn to our Fertilizers business, where we reported an EBIT of $26 million, up from a loss of $80 million last year. Our Distribution business had a strong performance with an EBIT increase of 37%. In manufacturing, Phosphate Hill delivered a very good performance with reliability of 93% and proved profitable even at bottom-of-cycle commodity pricing. Our overall manufacturing earnings, however, were impacted by the net negative impact of commodity pricing and ForEx of $88 million, from high Australian gas pricing and by the turnaround at Gibson Island. In the second half, commodity prices started to firm and we saw a significant improvement on the first half loss of $33 million, with a manufacturing EBIT of $7 million. Moving now to the growth opportunities in our Distribution business, which has a strong position across Eastern Australia as it serves farmers across a wide range of crops. Expectations of good weather conditions continue, which should support solid fertilizer demand and distribution margins in FY '21. As Nick mentioned, we've seen improvements in all areas except cotton and we're optimistic this will be addressed by [Wandjina]. We've also recently announced our new strategic partnership with Precision Agriculture. This will help drive growth through intensive soil testing, which is required by farmers to achieve better and more sustainable soil outcomes. In order to improve our fertilizer profitability, we're focused on our manufacturing performance. Growth here will also be underpinned by recovering commodity prices. The cost of gas into Gibson Island resulted in the plant recording an EBIT loss for the year and this continues to remain an area of focus for the business. At Phosphate Hill, sulfur supply and cost security has been underpinned following the Queensland government support to assist the ongoing operation at Glencore's Mount Isa copper smelter. At Gibson Island, the plant is set up for improved efficiencies and a clean run after the March turnaround this year. We expect the plant to be roughly cash breakeven over the next 2 years. The Australian government's East Coast gas reset could provide the plant with life beyond the end of 2022, if internationally competitively priced gas is available. We are working with gas producers and the Australian government to access the gas required as well as having contingency plans in place if we're unsuccessful. The recent Central Petroleum announcement of a restart of exploration work on our tenement is one possibility for Gibson Island, depending on gas timing and volume. Regardless, this tenement is good for our business, underpinning our manufacturing profitability and is good for the manufacturing sector in Queensland. Of course, overall profitability of our manufacturing sites is very dependent on commodity pricing. We're seeing fertilizer prices recovering from this year's lows. DAP pricing is now about $50 a ton higher than our FY '20 average realized prices. And urea has recovered from lows during the year with prices now up around 20%. And as you can see here, there is significant upside as commodity prices recover and we're well-positioned to benefit. Now I'd like to talk to 2 of our key strategic drivers, starting with Manufacturing Excellence. Our Manufacturing Excellence strategy is progressing well and we're on track to deliver the $40 million to $50 million EBIT uplift by FY '22. We're continuing to shift the mindset across our business to run for reliable production every day, not short sprints. This is producing good results, and at Phosphate Hill, a strong second half performance produced at the equivalent production level of 1 million tonnes. Waggaman delivered its second-longest ever in uninterrupted production run of 210 days during the year. We are well on track to deliver our reliability target of 95% by FY '22. Now I'd like to take a closer look at our FY '21 turnaround schedule, which is a relatively heavy one this financial year. Pleasingly, we've already successfully completed 2 of the 4: 1 in St. Helen's in the U.S. and the other in Mount Isa here in Australia. These were the first turnarounds completed with strict COVID testing, controls and protocols in place. The strong performance at these 2 sites provides us confidence as we plan for the turnarounds in Waggaman and at Moranbah later this year. Waggaman's first turnaround in January '21 will be an important milestone, providing the opportunity to address reliability issues that haven't been able to be resolved without a full shutdown. Through the upcoming turnaround cycle, our Manufacturing Excellence program will take substantial steps towards delivering world-class manufacturing performance to deliver our growth ambitions. And now I'd like to turn to our second key strategic driver, technology. As I've stated before, we believe we've got the best technology in the market today and what gives us the edge is our customer focus. It's not technology for technology's sake. We deliver solutions that are easy-to-use and fit our customers' needs. And it's our technology that will underpin an expected 10% explosives EBIT growth by FY '22 and also underpins our resilience during tough market conditions. Our Electronic Detonator systems gained market share in Asia Pacific and we saw continued conversion in the Americas. And there's further room to grow, given that the EDS market is still less than 15% of the total detonator market. And to support our success with Delta E, our truck fleet also expanded to 114 trucks, up from 42 back in 2016. We are successfully applying our Delta E technology, now in 5 countries, across all the sectors we serve. And this is what gives us confidence to grow. Now I'd like to talk about our technology strategy and the significant progress we've made in bringing our future vision to life. Our incredibly talented teams continue to make rapid advancements throughout the entire value chain. Our vision is to create an integrated and connected digital bench underpinned by the advanced products that I just talked to you about. Central to this is our next generation of Nobel Fire digital platform, which I'll turn to now. We're excited about the successful commercial launch of Nobel Fire, which will enable end-to-end blasting automation of the connected bench. This is about taking the best of what we do today, but doing it with higher accuracy and repeatability, with better data capture to inform faster-learning feedback loops. This improves future blast designs and execution, driving the improvements in safety and productivity outcomes that our customers want and will reward us for. Now I'd like to turn and look at our sustainability agenda. Our focus on sustainable growth continued to increase during the year and we've made progress in a number of key areas. In FY '20, we increased our efforts on climate change and have committed to a medium-term 5% absolute reduction in our global emissions by 2026. This is approximately 200,000 tonnes of CO2 equivalent, the same as taking more than 43,000 passenger vehicles off the road. This actionable and accountable goal will be included in key executives remuneration incentives to ensure that we progress the projects required to achieve the target. Our emissions target follows the adoption of our climate change policy last year. And in FY '20, we also completed a $2.7 million solar hydrogen feasibility study. Supported by ARENA, the study looked at the feasibility of large-scale renewable ammonia production at Moranbah. Moving now to our workforce commitments. We've also made progress on increasing diversity, with women now making up 18% of our global workforce, a year-on-year improvement. And we've also now committed to our first modern slavery statement. Before questions, I'll summarize how we'll deliver our strategic agenda over the next 3 years and beyond. But first, I'll cover our outlook. I've highlighted the key market outlooks as we've gone along this morning and I believe the detail on this slide is fairly self-explanatory. Post FY '20, October has continued to show the resilience of our business and markets. Our Fertilizers business has not been impacted by the COVID environment, with improvements in performance driven by weather and commodity prices. Our Asia Pacific Explosives business remains largely unaffected by the pandemic and our Americas Explosives business is seeing a return toward pre-COVID levels and is focused on adjusting our mix of earnings growth given the structural decline in coal. Across our businesses, we are seeing resilience in our end markets and the firming in commodity prices. I now want to cover our strategic priorities for FY '21. As we operate in a COVID-normal environment, safety remains our #1 value. Our vigilance responding to the pandemic will remain as well our commitment to year-on-year improvement on our Zero Harm scorecard. We are focused on returning our Explosives business to growth using the pull of our market-leading technology. Our technology trials have already recommenced at both current and potential customer sites and this will accelerate following the temporary pause that occurred this year due to COVID. Our Fertilizers business will leverage our distribution footprint to provide leading products to drive farmers' productivity and sustainability. And we'll deepen our partnership with Precision Agriculture to move towards our soil health vision. Delivering on our response plan targets will be a key focus for FY '21 as we'll be successfully executing our 2 remaining major turnarounds to underpin our Manufacturing Excellence strategy. Executing against these priorities will set us up well for the future, which I want to take a closer look at now. Focusing on our earnings growth in FY '22 and beyond, our response plan will contribute a total of $60 million in annual savings. Improved reliability from delivering our Manufacturing Excellence strategy is a $40 million to $50 million EBIT uplift. Our premium technology will underpin the growth in our Explosives business and we're targeting earnings growth of 10% by FY '22. Importantly, by diversifying our end market exposures, we're creating a base for continued sustainable growth to the business beyond FY '22. Our Fertilizers business will build on a strong distribution network and be in a position to capitalize on improved commodity pricing. We're very focused on building shareholder value and you can clearly see the upside in the business from the execution of our strategy. Thank you for your time this morning and now I'd like to turn to questions. With that, I'll hand over to the operator. Tara? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from Ben Brownette from CLSA. -------------------------------------------------------------------------------- Ben Brownette, CLSA Limited, Research Division - Research Analyst [2] -------------------------------------------------------------------------------- I was just wondering if you could talk a little bit more about the recontracting in Australia around price and what else you saw from volume? And then what you expect to see going into next year? Because just quickly looking at what you said this time last year, the recontracting EBIT decline is actually a little bit worse. Or did I miss something there? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [3] -------------------------------------------------------------------------------- Yes. I think the confusion may be on the gross versus net. This is the first time we've shown the gross number instead of the net number from -- the net number takes into account the technology sales from both EDS and mix changes that can come as a result of the contracting. And so what we said at half year was the net number would be around $17 million, $19 million, and we came in at $15 million. So I believe it's lower than what we forecast. But what we tried to do this time is to provide that better clarity so that you can see what the gross number is for the pricing impact of the recontracting and the mix and technology aspect that helps to offset that. And so for FY '21, as I said in the speech, we're expecting them to be roughly the same number at roughly $12 million. And that completes the foundation -- more of a foundation customer recontracting. -------------------------------------------------------------------------------- Ben Brownette, CLSA Limited, Research Division - Research Analyst [4] -------------------------------------------------------------------------------- Okay. And can you please talk a little bit about volumes in the second half in Australia and in the U.S. with respect to coal and how those -- and how and why those 2 markets were different? And then potentially, in any of your discussions with customers more recently when you were recontracting or there were existing contracts up for bid, how those customers approach that and what they were looking for in reference to any contracts you may have lost recently? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [5] -------------------------------------------------------------------------------- Yes. I mean I think that -- I mean the market in Australia, we've purposely, versus past years, looked to sell out our Moranbah, but we did not look to sell beyond that. And so some of the moderation in volumes is clearly a result of that strategy, not the underlying strength of the market. There's clearly, the domestic market in Australia clearly has some long domestic customers that are trying to place AN product, so it's made it unfortunately, a very competitive market, leading to the repricing. So obviously, with our Moranbah foundation customers, those are 10-year contracts. And so those, those have large adjustments to get to market conditions today. We continue to hear positive things from our customers as well as industry experts on volumes in Australia, in both our key markets, which is -- our key markets are iron ore, Met Coal and other precious metals. So people remain optimistic, cautiously optimistic, about volumes in Australia. I mean in the U.S., the coal market is a bit different. It is a thermal coal market and it competes head-to-head with natural gas pricing. And with the natural gas pricing that got extremely low, over the midyear, it reduced the industry coal volumes by 24%, 25%. And so our volumes dropped in line with that. Given the stronger natural gas pricing there, most industry analysts expect a small recovery in FY '21, as gas price and the competition is really on a price basis there. So it's a very different market and different outlook, but I think it's important to remember that our coal volumes is a fairly small percentage of our overall business in the Americas and it is our lowest margin business as well. And so we're continuing to see good uptake in other markets like that, the gold win that I mentioned earlier, which pays late in the financial year, so will mostly show through next year. -------------------------------------------------------------------------------- Ben Brownette, CLSA Limited, Research Division - Research Analyst [6] -------------------------------------------------------------------------------- Okay. So can I just circle back to the Met Coal volume? So second half Met Coal decline of about 3%, somewhere around there. In terms of when you look at some of the coal export data out of Dalrymple Bay, for example, like it's massive double digits. So is there anything you're seeing in particular in relation to your clients, maybe around Moranbah, say, versus some of the lower-quality PCI stuff that's maybe sort of just slightly outside that area? Like are you doing better than the market? Or are you winning share? Is there anything you can tell us about that market specifically? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [7] -------------------------------------------------------------------------------- I think we're competing well in that market and we have the volumes that we want in the Met Coal volume -- market. We're not seeing any weakness or our customers aren't forecasting any weakness to us in market. Okay, so I think the customers that we supply are high-quality customers with high-quality ores and they continue to be optimistic of their ability to place that volume. -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [8] -------------------------------------------------------------------------------- Yes. And I think, Jeanne, the fact that Moranbah sold out, our volumes in the Bowen Basin won't always reflect market. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Our next question comes from John Purtell from Macquarie. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [10] -------------------------------------------------------------------------------- Jeanne, Nick, I just had a couple of questions. Page 18, Dyno Americas there, where you've broken out some of the COVID impact and it looks like your assessment is that your earnings were basically flat ex COVID. I mean just to understand how you've assessed, what's sort of COVID impact and what's not? Is sort of, obviously, coal was coming down regardless of COVID, so how you sort of thought through that? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [11] -------------------------------------------------------------------------------- Yes. Thanks, John. I think the -- I mean we did go through in quite a lot of detail to determine what was in COVID. Fundamentally, what we put in there was some of the Mexican mines, the Arctic mine closures, the iron ore that, on the back of low car sales that shut down or pulled back. And then only a fraction of the coal volumes would be seen as COVID-related. There was some demand drop in electricity seen in the U.S. during the midst of the shutdown early in the COVID impact. But most, as you say, most of the coal volume decline we have is a structural decline and have characterized it as such. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [12] -------------------------------------------------------------------------------- Jeanne, just a related question. You've indicated that you expect DNA earnings to grow in '21 versus '20. So presumably, that's all about the U.S. getting back to sort of pre-COVID activity levels, but also improved performance in international, that did appear to sort of drag things down in that second half. So you're expecting things to recover there? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [13] -------------------------------------------------------------------------------- Yes, that's right. I mean I think what we tried to do is really give strong confidence and strong guidance for FY '22. I think we absolutely expect an improvement in FY '21, how close -- how much of that bounces back, the trajectory of that line is, I think, where we're -- is dependent on those things you just talked about. I mean I think pleasingly, the COVID impact that I just talked you through, when we look -- as we sit here today and we look at those numbers, those seem to have bounced back, as we sit here today, but we do have a number of months here yet to go. And like I said, we're planning for and hoping for a more COVID-normal environment. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [14] -------------------------------------------------------------------------------- And just the last one, in terms of, again, your outlook comments there for fertilizer distribution here. You've indicated margins expected to be sort of largely in line with '20. Just trying to understand that a bit better given you would expect sort of margins potentially to improve as we're sort of entering the second year of drought recovery. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [15] -------------------------------------------------------------------------------- Yes. I think we experienced fairly good margins last year. I think that they could improve. I mean obviously, we've got our eye on the cotton region. That's the one area we haven't seen recovery in. And we're hopeful for modest improvement as the [trials] happens, but most of -- we had a pretty good planting season last year. And so we're expecting the -- any improvement to be relatively modest outside of the cotton. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Our next question comes from Richard Johnson from Jefferies. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [17] -------------------------------------------------------------------------------- Can I just start with 2 questions on the turnaround, first to Jeanne and then for Nick? So Jeanne, what can you do looking forward to ensure that we don't get, or you don't get, 4 turnarounds again all compressed into a single year? Or should we just assume in 3 or 4 years, we're going to have the same issue once again? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [18] -------------------------------------------------------------------------------- Yes. I mean I think that there's no doubt that the pandemic played into it a bit. Originally, we were going to do the St. Helens turnaround last year, but it was right in the [maximum] uncertainty of COVID, and there's a lot of supply chains that we couldn't be as secure of that we wanted to. So we chose to delay that into this year, which did put it into a very heavy year. So I think this is unusual, and we wouldn't have 4 in future years. But we're glad we did that because it allowed things to normalize in the U.S. We now have 8 months of operating in COVID. We've put in place rigorous testing and track and trace and other protocols that have been tried and tested that allowed us to carry that turnaround out without any delays or any interruptions. And so these turnarounds in the U.S., you bring in hundreds of people from all over the country. And so obviously, there are areas of concern for local communities to make sure that you can do them in a COVID-safe way. So I think we're pleased that we made the decision to delay. But as you say, unfortunately, it does put 4 turnarounds in this year. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [19] -------------------------------------------------------------------------------- Got it. And then Nick, can you just take me through the math behind the $25 million impact at Waggaman, because presumably, that's more than just a volume impact, please? -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [20] -------------------------------------------------------------------------------- Yes. Thanks, Richard. Yes, it's $20 million in margin and $5 million in increased depreciation. So being the first turnaround we've had at Waggaman, there's obviously a higher-than-normal investment back into the plant, which will increase the depreciation charge for $5 million for the financial year, higher, obviously, on an annualized basis. And then the $20 million margin impact, so we have 2 -- the 2-week outage we're just coming out of due to the hurricane power outage in New Orleans; then we have 7 weeks turnaround. So that's in total about 140,000 tonnes of lost production. Now if you took that at the variable margin, you'll get to $20 million. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [21] -------------------------------------------------------------------------------- Okay. Got you. That's fair. And then I think I saw somewhere that you've hedged for gas. And I forget whether you've done that previously, but in my mind, I think you haven't. I'm just wondering what the thinking around that is and what are the practical implications of it? -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [22] -------------------------------------------------------------------------------- Yes. We've put a collar around it. It's risk management, not necessarily a hedge I would say. We're in the range at the moment. It's a small percentage of our gas. We did that earlier in the year when we, looking at the gas markets, we were concerned with the associated gas coming off, we were concerned that gas prices would spike. It looks like it's potentially going to happen, so we have some coverage, but it's not a major change in how we do things. I think we look at our hedging book as being risk management and that's what this is. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [23] -------------------------------------------------------------------------------- Great. That's very clear. And then just finally, and I'm looking forward to the day when we don't have to ask this again, around the balance sheet hedge. Can you just set me through the accounting around the mark-to-market and then the cash outflow and really, what the future cash flow, outflows, or what's left to happen with regard to eliminating the hedge completely? -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [24] -------------------------------------------------------------------------------- All right. Look, I think you're referring to Slide 13 of the pack. So we tried to be -- well, it's always been disclosed, we're trying to be very, very transparent here in regards to what it looks like. It's the line fair value of hedges, which is $287 million for September 2020. This is all noncash. So it's a 2-way hedge. We hedge the asset and the debt. And so that hedge is restated to the hedge rate at the end of the year and that has the impact, given that, that rate is in the 80s, that has the impact of reducing our reported debt number. So look, as I said just a bit earlier, we're looking at that and it's got 2 years to run. So our commitment is in 2 years it will be gone and if we can do it before, then we will. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [25] -------------------------------------------------------------------------------- Got it. That's it for me. And I'd just call out your improved disclosure, which is fantastic, thank you. -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [26] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [27] -------------------------------------------------------------------------------- Thanks, Richard. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- Our next question comes from Andrew Scott from Morgan Stanley. -------------------------------------------------------------------------------- Andrew Geoffrey Scott, Morgan Stanley, Research Division - Executive Director [29] -------------------------------------------------------------------------------- Just one question from me. Just if you could talk to us about the sulfur supply at Phosphate Hill and the potential extension there at Glencore. I know we saw some press leading into the election, but I'm uncertain whether that has actually been confirmed by Glencore, that they will extend the life. Can you tell us what you've been advised? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [30] -------------------------------------------------------------------------------- Yes. Thank you, Andrew. And yes, we've absolutely been confirmed that Glencore has committed to the [re-breaking] of their furnace next year which will extend their next cycle. So that's been confirmed. And so we were very pleased about that. -------------------------------------------------------------------------------- Andrew Geoffrey Scott, Morgan Stanley, Research Division - Executive Director [31] -------------------------------------------------------------------------------- And then just following on, I know you went down this path, but you've now got that extra certainty at Phosphate Hill. You've got a better DAP price. I know you've cited COVID as one of the reasons you put the -- you didn't put the divestment of Ferts on the back burner, you actually said you'd ceased the process. But could these things see you revisit that if we do see a return to -- a removal of COVID and a return to travel? Is it something you would consider down the track? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [32] -------------------------------------------------------------------------------- Yes. I mean I think we announced that we were going to retain the business. And so we're now committed to improving the results of that business. We think it's got a good distribution footprint and a lot of potential upside. So that is what our plan is. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Our next question comes from Grant Saligari from Crédit Suisse. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [34] -------------------------------------------------------------------------------- Jeanne, Nick, just first question, you did call out expectations FY '22 for seeing improvement in Western Australia post the current supply contracts. So my recollection is that the impacts in Western Australia that you've called out are largely due to the additional volume commitment under the current contracts. And therefore, other things equal, under any reset where the volume commitment is brought back, those impacts that we've seen should largely reverse out. But I was just wondering whether you could confirm if that's the correct interpretation or whether there's an alternative interpretation there? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [35] -------------------------------------------------------------------------------- Yes. I think there was sort of 2 pieces I tried to call out on Western Australia. The one, as you say, is the reversal in that expiration of the contract. And so that's really that long-term contract that we've been living with a couple of years, which lock in unfavorable off-market pricing. And so that will fall off. And so that's what comes back in FY '22. We also see Western Australia as a key area for our technology growth and our explosives growth. And so those 2 pieces, we think, will lead to the growth in the Western Australia business. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [36] -------------------------------------------------------------------------------- And the impact of the volume commitment, though, is that a material component of the impacts from Western Australia that you've been calling out over the last several years? That's what we're trying to understand. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [37] -------------------------------------------------------------------------------- Yes. I'm trying to make sure that I'm answering the right question. That $10 million and $11 million is what we've been calling out consistently over the last 2 years. It's that EBITDA uplift across our Explosives businesses is the new expectation for FY '22 that we've indicated today. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [38] -------------------------------------------------------------------------------- Okay. All right. That's -- I guess that's helpful. And just second one on Australia. I thought the $10 million -- so I'm just looking at your transition waterfall for Dyno Nobel Asia Pacific, the $10 million impact that you called out for market volumes seems quite high in the context of the decline in revenue from international. So international revenue declined around $20 million. But the market volume impact on EBIT you've called out is about $10 million. So clearly, there goes the [interim] sort of call-out, in one for one. So I'm just wondering whether you could elaborate on that market volume impact, please? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [39] -------------------------------------------------------------------------------- Yes. Those market volume impact on the EBIT waterfall for the Dyno Nobel Asia Pacific is tied to the Indonesia business and our international business, our international business, mostly Indonesia this year. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [40] -------------------------------------------------------------------------------- And so you're saying a $10 million reduction in EBIT was caused by a $20 million reduction in revenue for that international business. That just seems like an extraordinary margin. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [41] -------------------------------------------------------------------------------- Just checking out the revenue numbers. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [42] -------------------------------------------------------------------------------- It went from $131 million to $111 million; $131 million in FY '19 to $111 million in FY '20. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [43] -------------------------------------------------------------------------------- Yes, let's -- yes. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [44] -------------------------------------------------------------------------------- Maybe it's something to clarify offline. It did seem quite a high incremental margin to me. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [45] -------------------------------------------------------------------------------- Yes. I think we'll look at that offline and get back to you. -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [46] -------------------------------------------------------------------------------- Yes. The element of FX in here as well. So we can (inaudible). It's not a 50% margin business. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [47] -------------------------------------------------------------------------------- Yes, I didn't think so. -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [48] -------------------------------------------------------------------------------- No. There's the FX element and there's some sourcing elements, but it's -- it's all linked to demand. -------------------------------------------------------------------------------- Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [49] -------------------------------------------------------------------------------- Yes. And just sort of finally, just on Waggaman and the promise of improved performance. So you are targeting, as you said, 95% utilization by FY '22. You're at 91% at the moment and you've highlighted that the turnaround will enable you to address a number of issues. I guess I'm surprised by the 91% in the second half, given you've had such a long run of continuous performance from the plant. So I'm just wondering whether you can actually elaborate on the specific issues that are going to be addressed. And I guess just a related question to that, is that external factors like hurricanes are causing power outages and we know they're external factors, but they happen every year. So I'm wondering whether there is some mitigating action that you can take, such as on-site power generation, that would put that plant in maybe a better position. So if you could just elaborate on the path to the 95%, that would be helpful. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [50] -------------------------------------------------------------------------------- Yes. No, it's a great question. Unfortunately, our second-longest run was interrupted late August, early September. It was a site-wide power issue that happened. And as you say, and it also exposed some of the logic on our large rotating equipment and the reaction to a very temporary blip in power. And so some of that logic we'll be able to address during the turnaround that has a better balance of making sure we continue to, to protect the integrity of the large rotating equipment, but it's not quite as sensitive to small blips that you'd want. It was just programmed a little bit more conservatively and that's what happened. So I think that what we are doing is a, we're going to do that during the turnaround as we look at that programming; as well as we are also working with Cornerstone and Entergy, which is the third-party energy provider and they're installing a second lead of power into the chemical complex. So that will provide 100% redundancy of power into the complex and give us a much better chance of being able to even outride a hurricane. But when you have a direct hit of a hurricane on New Orleans, that's going to be a tough one to mitigate. But I think some of the other electrical blips that we've seen in electrical storms, we should be able to ride those out. So those are the actions that we're taking and gives us good confidence, outside of a direct hit of a hurricane, to be able to ride out the power issues. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Our next question comes from Sam Teeger from Citi. -------------------------------------------------------------------------------- Sam Teeger, Citigroup Inc., Research Division - Head of the Australian Small Caps Team & Director [52] -------------------------------------------------------------------------------- Can you talk about over how many years do you expect to see the decline of the U.S. coal market play out? And perhaps how that thinking has changed following the U.S. election? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [53] -------------------------------------------------------------------------------- Yes. I mean I think the industry analysts have put out numbers of different projections and they go out very -- many years. But they tend to have pretty big drop-offs, like we've seen in this year, that there'll be a strong drop-off and then they stabilize and then they have another drop-off. So we see it over tens of years, not single-digit years, but actually predicting that is very difficult. I mean I think on the election results, I mean I think that it's really too early to tell, but the industry analysts that have looked at this had predicted in advance that outside of a clear mandate to the Democrats, where it was -- they controlled both houses, that it wouldn't be much different between a Trump administration and a Biden administration. Like I said, it's too early to tell, because it does depend on policy, but clearly, there hasn't been a clear mandate and the Senate is still controlled by the Republicans. So the view of the market experts is that it's more likely to be determined by the ongoing pricing issue. Gas pricing continues to be very competitive and over time, that will continue to push coal out of the mix. -------------------------------------------------------------------------------- Sam Teeger, Citigroup Inc., Research Division - Head of the Australian Small Caps Team & Director [54] -------------------------------------------------------------------------------- Got it. That makes sense. And can you talk about how you guys are seeing demand and supply across global phosphate and nitrogen markets heading into 2021? There's been kind of some mixed views out there recently. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [55] -------------------------------------------------------------------------------- Yes. I mean I think the -- we've obviously seen good strength in phosphate from the 13-year lows that we saw early in the financial year, about a year ago today. You'll see that the market leader, Mosaic, was a bit more optimistic than Nutrien was on that. I think -- I don't think we have stronger insights. I think what's positive about the phosphate market is demand is very strong and that has really held up. But there has been some supply additions and so it's difficult to say exactly, but we're hopeful that the lows that we saw last year won't return. In the nitrogen space, I think that's a slightly different equation. The good news on the nitrogen space is there's been very little capacity additions there. Now with nitrogen prices having been relatively low for a couple of years, so supply additions are reasonably low. What's held it back from actually gaining strength is the small part of it that goes into industrial demand. The vast majority goes into ag and that's looking pretty good. There's a small portion that goes into industrial demand and that was a bit weaker this year with some of the economic weakness due to COVID. I think that supply-demand picture is really starting to tighten up. And so I think that -- I think we see a lot, especially on ammonia prices, I think we see "more upside than downside" there as we look forward. But it is a delicate balance on supply and demand. -------------------------------------------------------------------------------- Sam Teeger, Citigroup Inc., Research Division - Head of the Australian Small Caps Team & Director [56] -------------------------------------------------------------------------------- That's helpful color. And then last question in that UNC -- sorry, the U.S. Q&C market, some of the large aggregate players have reported some pretty decent declines in volumes over the last quarter. But your commentary seems to be a bit more bullish. Can you just talk about maybe what you're seeing in that market from your customers and what you see driving the growth going forward? And any potential impact from new infrastructure bills? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [57] -------------------------------------------------------------------------------- Yes. I mean I think we're definitely bullish in the medium term on Q&C. The long-term trends are all very good. The U.S. needs a lot of infrastructure. It's just about getting it funded. And certainly, as we hopefully, we'll see the end of the pandemic in the shorter versus longer term, the need to boost the economy, I think we'll get that funding in place. And I think that both residential and nonresidential building, there's some pent-up demand there. So I think in the medium term, we're very bullish. I think that in the short term, what we're seeing driving that is really some residential housing. With the pandemic, we've seen a lot of the urban population moving, a lot of housing prices have really jumped in attractive locations outside of the urban areas. And fundamentally, existing housing has sort of been bid up and is pretty much full up. And so now people are starting to break ground on new communities. And that's what's driving the shorter-term demand. The Quarry & Construction business is always a difficult one to forecast because it's actually quite a fragmented business throughout the U.S. There's many, many different nodes of that and different things impacted as well as stockpiles. So any given snapshot in time doesn't provide a very good picture, because weather impacts it. I think our biggest customer talked, and what we saw as well, is there was a lot of wetness in Texas and Southeast. And that just slows down, it's just a physical thing, it slows down construction. It doesn't get rid of demand. The demand is still there and as soon as the weather gets better, they'll go building the roads and the infrastructure. So I think Q&C is probably a difficult market to predict in the very short term. But I think over the medium term, all the drivers are there for continued growth. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- Our next question comes from Nathan Reilly from UBS. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [59] -------------------------------------------------------------------------------- Jeanne and Nick, just following on from, I guess, those market outlook comments in relation to ammonia and DAP. In particular on DAP, I guess, one of the key topics in that market has been the U.S. investigation around countervailing duties on those Moroccan and Russian imports. I'm just curious how, I guess, all the IPL sort of house view on that, but also the extent to which the reallocation of trade flows might be impacting the economics of your phosphates business? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [60] -------------------------------------------------------------------------------- Yes. I mean we don't have a house view on the countervailing duties, but obviously, we're well aware of those. I think what it has provided some opportunistic ability for us to place some DAP, actually more MAP than DAP, into the U.S. market because we're obviously one of the markets that doesn't have countervailing duties against it. So fundamentally, generally, our view is that countervailing duties just reallocate the tonnes around the world and repositions it. But it does provide us an opportunity to provide DAP and MAP into the U.S. market, which has seen a bump in the commodity prices as a result of those countervailing -- the threat countervailing duties. -------------------------------------------------------------------------------- Operator [61] -------------------------------------------------------------------------------- Our next question comes from Alex Karpos from Goldman Sachs. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [62] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [63] -------------------------------------------------------------------------------- Yes. Alex, go ahead. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [64] -------------------------------------------------------------------------------- Perfect. Just a couple on my end. First of all, on the final dividend, a bit surprised on my end that given the cash flow looks so strong, that, that was kind of held back over the period. Can you walk us a little more through your rationale there and the thought process on the deferment? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [65] -------------------------------------------------------------------------------- Yes. No, thanks for asking that. I mean it obviously was an area of a lot of debate and thought. We felt that given the capital raising that we did earlier this year on the back of the market uncertainty due to COVID, was -- is still in place and that paying a dividend right now wasn't in the right interest of our commitment to a strong balance sheet and the uncertainty. Obviously, the important thing here is our dividend policy does remain in place. And if things continue to operate in the COVID-normal way, that we would expect over the next 6 months, like I say, our dividend policy does remain in place. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [66] -------------------------------------------------------------------------------- Perfect. And maybe just one more on the turnaround side. You obviously just completed 2 turnarounds in the past couple of months. Can you maybe walk us through how those turnarounds went versus expectations and how you feel heading into the upcoming ones at the 2 big assets in FY '21? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [67] -------------------------------------------------------------------------------- Yes. I mean I think we're really pleased because we've changed -- as part of our Manufacturing Excellence, we changed our turnaround strategy to provide much more local ownership for it and making sure that we address the reliability concerns so that post turnaround, we don't take shortcuts on the turnaround that end up costing us downtime afterwards. And so these are the first 2 turnarounds that we did under that new strategy. And they -- that local ownership made a big difference. They both fundamentally went to plan. Any time you do a turnaround, the whole point of doing it is for discovery work. You do a lot of inspections, you find things and you fix them. That's why you do them. And so there were some discovery work, but it was all within what I would consider the normal level of discovery work and we fix things and that gives us confidence that we can get the kind of reliability rates that we promised post turnaround. -------------------------------------------------------------------------------- Operator [68] -------------------------------------------------------------------------------- Our next question comes from Brook Campbell from JPMorgan. -------------------------------------------------------------------------------- Brook Campbell-Crawford, JPMorgan Chase & Co, Research Division - Analyst [69] -------------------------------------------------------------------------------- Just one on in the current environment, are you still seeing some level of constraints getting on-site to help with the sort of training and conversion of customers to premium technology? You commented on the call there's been an improvement. Just wondering the extent to which there still are constraints and if there's differences across the 2 regions as well. That's the first question. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [70] -------------------------------------------------------------------------------- Yes. I think there is still some reluctance to bring in a lot of people on to sites in the COVID environment. We do see that becoming -- well, I think there's 2 things I'd say. They are easing up and we're seeing that resumption of technical services on the ground today. I'll also say that during the process, I mean we learned how to do a lot of support remotely and therefore, be able to rely on our people on the ground to do a lot more of the support. In Indonesia, we started up Delta E and did Delta E support. In our Helidon detonator facility, normally, we bring in experts from South Africa to help with the expansion of the line there. And they did all that remotely. And all those things were successfully done. So I think that we've found, through COVID, that we've been able to do more support remotely with those experts and get things done. But there's still some restrictions, but they are diminishing over time. -------------------------------------------------------------------------------- Brook Campbell-Crawford, JPMorgan Chase & Co, Research Division - Analyst [71] -------------------------------------------------------------------------------- That's interesting. And then second question, just around sort of near-term growth CapEx expectations. You talked in the past about expanding geographically, maybe with emulsion plants. Also potentially buying (inaudible), JV partners, et cetera. What should we really expect from these initiatives over the next 6 months, for example? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [72] -------------------------------------------------------------------------------- Yes. I mean I think that we've been averaging -- I mean we don't target an annual capital growth rate because we want the returns to drive how much we invest in growth. Our normal level is $50 million to $60 million. That's kind of the usual amount of growth we would see. But certainly, if there is an opportunity with good returns, we certainly have the capability and the appetite to invest in those opportunities. -------------------------------------------------------------------------------- Operator [73] -------------------------------------------------------------------------------- Our final question comes from the line of Scott Ryall from Rimor Equity Research. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [74] -------------------------------------------------------------------------------- Hopefully, they will be fairly easy questions to answer. You mentioned the ammonium nitrate oversell in the U.S. of about 100,000 tonnes. I can't find anywhere easily attainable, what -- could you just remind me what the proportion of total volumes that would be, please? And then just in answering that question, you mentioned that you had the potential to transition Cheyenne. Could you just remind us what proportion of ammonium nitrate that you sell in the U.S. that produces, please? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [75] -------------------------------------------------------------------------------- Yes. I mean I think the oversell is about 15% of our total demand. So that's kind of how much of it, it is. Cheyenne, the ability to, at fairly low capital levels, to convert part of that production into the ag business is a nice flexibility to have, because those incremental tonnes are all produced from imported ammonia. So the EBIT impact would be negligible and so it's really on a capital cost basis. So it's a nice option to have if we end up being long and we don't want to have to push those down into the marketplace, to divert those into the agricultural industry would be a better outcome. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [76] -------------------------------------------------------------------------------- Sure. And what proportion of your total North American volumes are from Cheyenne, sorry? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [77] -------------------------------------------------------------------------------- Yes. I'm not sure we said that. Yes. So -- but it's -- I don't think we've released that. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [78] -------------------------------------------------------------------------------- Okay. All right. And then could you just remind us for Moranbah, your contract to end, please? And what are you doing? You've talked a lot about Gibson Island over the last couple of years and the gas contracts and your issues there, which I think are well understood. What are -- are the issues all the same for Moranbah, albeit a little bit further in advance -- sorry, a little bit further in the future? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [79] -------------------------------------------------------------------------------- Yes. I mean I think Moranbah is a slightly different market. It's -- I mean right now, it's not kind of connected to the whole East Coast grid. But we're already working on options. Obviously, 2026, it seems like a long ways away, but for gas, it's not that far away. And so we're looking to make sure we have 2 or 3 good options to make sure there's competition. And I think if there's competition, we'll be able to get a reasonable price there for the gas. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [80] -------------------------------------------------------------------------------- Yes. Okay. And then just on your greenhouse gas emissions, your target of 5% in absolute terms over 5 years using 2020 as a baseline. Look, I know we're all in a kind of transition phase on greenhouse gas reduction targets and I think it's great that you've put out a target. So thank you for that. It doesn't seem overly ambitious to me, 5%. You guys have done a pretty good job with N20 historically. I just wonder if there's anything that you can do to accelerate that further? And I guess in answering that, is the 5%, do you envisage that coming mostly from North America or mostly from Australia? Or is it kind of split fairly down the middle in terms of your production? -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [81] -------------------------------------------------------------------------------- I think on your first point, I think the way I would look at it is this is a very actionable and accountable target. This is something that has to be delivered, not something decades in the future, when all of us will be somewhere else. So I think that's what we feel is the right thing for us at this time, is to do an actionable and accountable target. I think the second piece is that we have obviously a number of different potential projects to do. And so hence, the '26, because it takes a couple of years to get a project properly engineered and implemented and it takes some time. And we have a couple of different ideas of how we would go about doing that and which ones we would go ahead with. And so some of those are in the U.S. and some of those are here in Australia. And so when we finalize which one we'll commit to, then we'll be clearer on the geography of that project and where those reductions will be. -------------------------------------------------------------------------------- Operator [82] -------------------------------------------------------------------------------- Just a final follow-up question from the line of Richard Johnson at Jefferies. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [83] -------------------------------------------------------------------------------- I forgot to ask this last time. Nick, there's been lots of speculation, and again today, about Peabody going back into Chapter 11. I was just wondering whether there are any implications if that occurs from that, that are different to last time this happened a couple of years ago? -------------------------------------------------------------------------------- Nicholas Stratford, Incitec Pivot Limited - CFO [84] -------------------------------------------------------------------------------- Yes. We can't talk to speculation, Richard, but I mean we -- obviously, we got through the last time it went through Chapter 11, fairly unscathed or largely unscathed. And I think when we look at the U.S. coal market, the U.S. coal market needs Peabody's production. So I think you've seen other major producers announce scale-backs in recent times. There's a need for coal ongoing and PRB remains the lowest-cost provider. So we'd expect to work with their customers through that again. -------------------------------------------------------------------------------- Jeanne M. Johns, Incitec Pivot Limited - MD, CEO & Executive Director [85] -------------------------------------------------------------------------------- Okay. So I think -- yes. I think that's the end of the questions. So I'd like to thank you, operator, and thank all of you for joining us today. And enjoy the rest of your day. Thank you for your time. -------------------------------------------------------------------------------- Operator [86] -------------------------------------------------------------------------------- Thank you so much. Ladies and gentlemen, that does conclude the call. Thank you for attending. You may now disconnect.