Thank you for standing by, and welcome to the Incitec Pivot Limited Market Update. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key, followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Jeff McMurray, General Manager, Investor Relations. Please go ahead.
Good morning. Welcome to Incitec Pivot Limited's market update regarding the fertilizer sale process. I'm joined today by our CEO and Managing Director, Mauro Neves, and our Chief Financial Officer, Paul Victor. Also joining the call is the President of our Incitec Pivot Fertilizers business, Scott Bowman. The announcement we'll be covering today has been lodged with the Australian Securities Exchange and can be found on the ASX and Incitec Pivot Limited's website. At the end of the presentation, we'll have time for questions. An audio recording of this presentation will also be available on the company's website. Now I'd like to hand over to Mauro.
Thanks, Jeff. Good morning, and welcome, everyone. As you would have seen from our announcement this morning, we confirmed that we have ceased negotiations with PKT for the sale of the IPF business. It was not an easy decision, but it follows careful consideration of how to achieve the company's strategic objectives and maximize shareholder value, while balancing the risks of completing the transaction within a reasonable timeframe. Throughout the process, while we have maintained the view that a value-accretive deal was achievable, we were also focused on achieving certainty for our shareholders, for our employees, and other stakeholders. We have determined we are unlikely to achieve this outcome with PKT in an acceptable timeframe, and as a result, we made the decision to cease negotiations with them.
I'm pleased to say that now the process has concluded, we are able to commence our own on-market share buyback program of up to AUD 900 million. Although we will continue to assess options for the structural separation of our two industry-leading businesses, in the near term, we'll be prioritizing the buyback. We will continue to manage the Dyno Nobel and IPF businesses separately going forward. For IPF in particular, we will focus on continuous improvement, we'll prioritize safe operations, improving post-turnaround reliability, extending the life of the mine, and value-accretive market share growth for our distribution business. For Dyno, we'll be focused on delivering our strategy to expand its position as a leading global premium explosives business that provides its customers with safe and innovative technology solutions and services.
We are well advanced into the scoping phase of the Dyno Nobel transformation, and we'll provide more detail at our upcoming Investor Day in September, noting that we'll move into implementation soon after. Today's announcement removes the distraction of the sale process and allows the executive team and wider workforce to progress the strategies of both business, while also allowing us to advance our previously deferred capital return program. I'm happy to confirm that our fiscal year 2024 earnings outlook, both of our business, remains in line with the statements we made at the half year. Specifically on fertilizers, the distribution business continues to show improvements in margins and market share. Our task force at Phosphates is achieving good results. However, the full-year production volume are now likely to be around the lower end of the previously indicated range.
That concludes my opening remarks today, and I'll be more than happy to take any questions now. Operator, over to you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Daniel Kang with CLSA. Please go ahead.
Good morning, everyone. Just a couple questions from me, if possible. Firstly, just on the Phosphate Hill plant, just wondering if you can tell us at current spot DAP and gas prices, whether the plant is profitable? Secondly, can you just remind us of the timing of the next major turnaround for Phosphate Hill, the expected costs, and how it compares to, you know, potential closure costs? Thank you.
Thanks, Daniel. Lots, lots of questions there. Let me start with the gas, which is probably the one that the market would be, you know... The other price is probably, you know, there's this is market-available information, but the gas is very specific. So the position we took in half-year as the year-on-year comparison stays the same. We're still managing the gas price to a position where we still think that year-on-year, we should be an improvement of about AUD 30 million on our cost position. So that's unchanged from where we were on half-year. So in general, the trading of the business has been very consistent to what we described in half-year.
As per the turnaround and the information you asked, I'll hand over to Paul to give us an update on that.
Yes. So basically, with regards to your question, whether we are kind of profitable at current spot prices, the answer is yes. And Phosphate Hill is always depending on how much production is produced. So-
produces around that 80,000 tons of product per, you know, per month. The plant at the current DAP prices should be profitable. Whether it's cash positive, it's always depending on the amount of capital that you spend at any given period of time. So but that's not your question. So, so definitely, definitely it's profitable at these levels. The second question on closure costs, Daniel, can you maybe just repeat that?
Down the row. Down the next row.
Twenty-six.
Oh, yeah, 26. I think we have provided that information to you guys when we released our presentation results for Daniel. Nothing has changed since then.
Okay, thanks, Paul.
Thank you. Your next question comes from James Wilson with Jarden Australia. Please go ahead.
Hi, guys. I was just wondering if you'd able to sort of talk us through your plans around the longer-term sulfuric acid supply at the plant, conscious that there's a bit of risk with Glencore's closures?
We have actually disclosed that point to you guys and say until 2030, that's our conversation with Glencore, this shouldn't be an issue. So ultimately nothing in that position has changed. So the availability of the gas through the normal process is there. I know Glencore has made those announcements previously in terms of closure of certain of the operations. It's unaffecting this position, so we should be good for the years up till 2030. So that position hasn't changed as well.
Okay, great. And just another one from me. I mean, in terms of the sort of longer term strategic plan for the fertilizers business, would you guys be open to selling the distribution business as a discrete unit and retaining Phosphate Hill? Or do you see really a fertilizer sale as needing to contain both the manufacturing and distribution businesses?
Look, James, for the time being, we really want to have some clean air in front of us to prosecute the buyback, which has been now in the cards for quite some long time. As you would appreciate, our teams are dealing with all scenarios. We're really open to rethink structurally the business, and more important, how we can maximize value in the next months. We'll be really working hard to structurally find any opportunity to improve the financial position of the fertilizers business, continue the good work that Scott and the team have been doing.
I prefer not to speculate on any particular transaction structure, but for the next period of time, we really want to get ahead with the buyback and the teams will be looking at a range of options for the future.
Okay, great. And just one final one from me, guys. Are you able to talk us through maybe how the basic explosives business is performing as well over the half?
The business is performing very consistently to what we described in half year. So, the business is performing really, really pleasingly consistent to the conversation we had just a few weeks ago.
Thanks, guys.
Thank you. Your next question comes from Reinhardt van der Walt with Bank of America. Please go ahead.
Good morning. Thanks for taking my question. So can I just ask just the, probably the most obvious question first here: Can you just confirm that you actually can start the buyback as early as basically today? Because you've already got the sort of the 10-12 rule crossed off with the previous shareholder approval.
Yes.
Right. Perfect. Then just on the fertilizer business in itself, I mean, can you give us any insight into sort of really what some of the sticking points around the negotiation sort of were? You know, just in terms of the bid-ask spread, was it really just kind of coming down to sort of term and risk-sharing and the gas contract on Phosphate Hill? Is there any insight you can give us there?
No, I'm afraid I cannot give you that detail, Ryan, other than say that the same risk factors that we discussed with the market in half year are the risks of the business, the same as we just discussed now. We were in advanced negotiations in half year, as we collectively announced with the counterpart, but we—I think we failed to get confidence that we would be able to close the transaction on a timely manner. So hence the decision to stop the negotiation and get going with the buyback.
Understood. No, that's fair enough. And if you mentioned that you're gonna continue fertilizer business separately, can you just give us a sense of what that actually means in practice, just sort of at a practical level, I mean, how much management time or how much senior management time, you know, is being allocated to that part of the business now?
Look, I think through the new operating model discussions that myself and Paul have updated the market, and there's more to come, and now on Investor Day in September. We came, I would say, to the final workings on really have most of the management team, and I say most because obviously myself, Paul, Tatiana, from the legal standpoint, obviously still have to dedicate a proportional amount of time to the fertilizers business. But if you think about the likes of Greg Hayne and Rob Rounsley and his new growth portfolio, or even Braden in technology, those guys are 100% focused on Dyno.
So we have easily more than half of the management team that have nothing to do with IPF and have not dedicated any of their time into meetings or any of their bandwidth in trying to manage the fertilizers business, and equally, Scott is fully dedicated to maximize value on the fertilizers business. So there's a few of us that will still dedicate the proportional amount of time, but we really made the point to separate the businesses, to undo any shared costs as much as we can, to facilitate that the business will be run as independently as they can.
Got it. Perfect. Thank you. So and I, I presume that, you know, you have got the structural separation already effectively sort of in place now. So it's fair to say that you're still committed to, at least in the medium to long term, to actually selling off that fertilizer business. That's, that's still very much the strategic plan for, for IPL as a collective, right?
Yeah, the strategy hasn't changed. We will have to find another way to execute it, but you're absolutely right. And we haven't changed the strategic direction at all.
Yep. Got it. It's just the case now that you're not gonna be running an active process to try and market the asset? Or are you to try and run at least some form of maybe lower touch process to market the asset?
No, we are not. We just want to, as I said, have that clean air ahead of us to allow us to move on with our capital management, announce the capital management. That doesn't mean that... Obviously, there's a few people in the business that think about corporate development as their day business. They will be doing what they do, but the company is not actively engaged in any negotiations as we speak.
Understood. Maybe just one final question. Could I just get an update on Perdaman Urea, just your expectations around the ramp-up rate for that plant and your offtake contract there?
Look, there's no news. We're working closely with them and monitoring the development of the operation, preparing our commercial plans to be ready to get going when the volumes are available. So really, there's no updates other than we remain confident that that's a value-accretive play for IPL.
Perfect. Thanks a lot, Mauro. Appreciate it.
Thank you.
Thank you. Your next question comes from Owen Birrell with RBC. Please go ahead.
Yeah, good morning, guys. Can I just ask around the, the, I guess, the move to demerge these businesses now, I'm assuming, becomes, I guess, front of mind. And why the decision to, I guess, continue with the buyback into that dynamic? I would have thought it would have been better to sort of, I guess, include that AUD 900 million capital return essentially as part of a demerger structure, rather than trying to demerge the businesses with, you know, with gearing associated with the two. Can you give me a sense of how you're thinking about that demerger scenario, in a position with, I guess, the levels of gearing associated with each of the two assets?
Look, I'll invite Paul to comment on the balance sheets, but I just want to be clear: the AUD 900 million buyback has been announced last year, and the proceeds associated to that and the balance sheet position is not related to the fertilizers transaction. It's related to the Waggaman transaction and things that have been now are constrained for quite some time, hence the decision to get on with that right now. And I just want to be clear, the demerger, using your words, is not in the cards. So the structural separation of the business and the potential transaction of the fertilizers business is still the strategy. The structural separation doesn't mean any works at this point in time to do any demerger.
So the capital management we're doing now is consistent to what we announced last calendar year, which has to do with the proceeds of the Waggaman transaction. But, Paul, you may want to comment on the balance sheet and gearing.
Yeah. No, I understand where your question is coming from, and and just two steps back in this, during the time that we did consider the demerger, there were some concerns from shareholders about capital, the synergies, the strength of the balance sheet, the two independent kind of risk profiles of the two balance sheets, but we long have moved on from that. And we're still managing one IPL balance sheet, where capital will be allocated to businesses to the two businesses, and that process will not change. We still work within the ambit of this balance sheet being managed at 1.5 times net debt to EBITDA, and that will continue.
We've, we've set that very clear, and we'll manage the kind of the debt levels always around this this level on the balance sheet. We will keep the balance sheet at investment grade because that's the other fundamental, and we'll always retain a sufficient cash resources. Now, within all of this, we have made the commitment on the AUD 900 million buyback. The AUD 900 million buyback will be executed within the the framework of maintaining within 1.5x net debt to EBITDA. We believe that the allocation of that capital to shareholders is the best way of return, the highest level of value to it.
So there's no reason on the fundamental decisions, the way that we manage balance sheet and balance sheet risk, that has changed for us, and hence, the continuation of the execution of the buyback things is kind of a no-brainer, and offers the best value to shareholders at this point in time.
Okay, so just to confirm, the commentary around structural separation is purely just to run these two businesses internally, separately, and then the proposition of a demerger is no longer on the table? Is that correct?
Yes.
Thank you.
Thank you. Your next question comes from Brenton Saunders with Pendal. Please go ahead.
Good morning. Apologies, I was battling getting in early, so if I've missed something, I apologize. I mean, as shareholders, I guess you'll forgive us for being a little bit schizo about this whole thing, because it has had a number of incarnations over time with a number of different management teams, so it's been quite hard to follow. So, maybe you can just explain to us: Was the decision to abandon the sale transaction more a function of shareholder pressure to get on with the buyback, or was it that the transaction was not doable?
Brenton, Mauro speaking here, and I fully appreciate the feedback, and I take that with respect and appreciation for your support. In regards to where we are in moving forward, we made a decision on the basis of value. You know, it's the only decision we have. When we look forward, and we look at the balanced probabilities, whether we had a likely transaction that, you know, adds value to the business, or we would be in a better position to go on with the capital management, we thought that the better value proposition would be the capital management. But I appreciate the frustration, and I appreciate your position in terms of various interactions.
You can rest assured that we are very, very motivated to deliver on the strategy that we described in half year. The three stages, the first stage being completing this structural separation, in which we're still committed to do, then really transforming the explosives business to the global powerhouse it can be, and potentially on a third stage, looking to consolidate the industry of explosives. But the conversation today is really about our inability to complete stage one at this stage. It doesn't mean that the strategy has changed. Appreciate the feedback.
Yeah. So it's not so much feedback as just a question. So, like, some of what you said doesn't make that much sense to me, because you've now said you're closing any negotiation with any other prospective buyers, but you still intend to separate. I mean, for us as shareholders, we are concerned, among other things, about the fact that this business is a bit of an orphan now, right? So it's. I would imagine for any management sitting in that business, it would have been very uncomfortable for a long time now, not knowing what the future held. And I would imagine the potential for deferments of capital in the business was also a consideration, given that you were probably looking to divest in it.
So I'm just trying to understand, when you chose to go exclusive on this transaction, presumably you had line of sight to value. So I'm not quite clear on the value comment. And then secondly, my understanding was it wasn't an exclusive process at the outset. There were other parties in the room. So why, given there's no change in the strategy, is there no intent to re-engage with the underbidders in this process?
Look, just to be clear, it's about value and it's about certainty. It got to a point that our ability to... And again, it's a judgment call, and with the information that we had in the process that we undertook since having announced the advanced negotiations, we couldn't be satisfied that there was a good prospect for an outcome with PKT, hence the cessation of negotiation that we announced today. As for whether we're gonna engage with other potential bidders, we didn't want to be in an eternal deal mode. We really wanted to create some clean air to be able to do what we believe now to be the best value opportunity for us, which is the buyback.
But as I said before, that doesn't mean that our business development teams are not actively, you know, talking to the market, open to conversations, but we're not doing any negotiations now. We cannot be in a state of firm negotiation to try and do a deal. I appreciate that, you know, people will have different ways to think about that, but the way we are thinking about that is really, you know, we tried, it didn't work. We are pulling back from the negotiation mode. And this... We need to be clear, the reason why we believe we can do the buyback is because we don't have any information that wouldn't be available to the market right now. There's no negotiation on the way.
That doesn't mean that we won't keep open to conversations and the teams that are dealing with corporate development won't be doing their jobs. But there's no open negotiation. I need to be clear, there's no ongoing negotiation as we speak.
Thank you.
Thank you. Your next question comes from John Purtell with Macquarie. Please go ahead.
Good morning. Just a question for Paul around balance sheet, and you partly answered it before. But just, Paul, just around the balance sheet in terms of your ability to pursue growth initiatives for Dyno going forward. Is that sort of unchanged in your view?
Yes, John. I think again, the approach is the AUD 900 million buyback will need to continue. The balance sheet has that capacity to facilitate the AUD 900 million. Of course, if there is any, you know, kind of any future allocation of cash in the organization to weigh up whether it is going towards a buyback or whether it's going towards a growth initiative. And again, maybe just to remind, when we look in terms of our balance sheet, we will always look at, you know, kind of growth, which organic growth can be, you know, facilitated off the balance sheet. We through the cycle allocate capital to these growth projects that kind of make sense.
It's really the inorganic growth where we have to make the decision whether, you know, that is going ahead versus a buyback, and that decision we only make at that point in time. So where we are now, I think the message to shareholders are that the balance sheet's capacity will be utilized to allocate to the buyback. We are allocating money towards organic growth opportunities so that we are continuously focused on adding value for these opportunities that are manageable and sizable, and any inorganic opportunity in the future will effectively be considered at that point in time. I think I just wanna reemphasize the message that Mauro sent and shared with shareholders during our latest results release.
The order in which we do things is firstly to make sure that now the buyback comes, we, execute Project Ignite, which is the transformation project, which is really kind of the key focus. Only then after, we will consider inorganic opportunities. So I think it really will go in, in that, in that order.
Thank you.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Neves for closing remarks.
Thanks for the questions, and look forward to catching up with many of you in Salt Lake City in our mid-September Investor Day. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.