Good morning, ladies and gentlemen. My name is Delphine Cassidy for Investor Relations at Orica. Welcome to our 2015 full year results presentation today. Welcome to those that we've got here in the room. Welcome to those on the line and those who are joining us on the webcast also. Today's presentation will be in the order of Alberto giving us a summary, followed by Tom Schutte, our new CFO, giving us an update on our financial results, and Alberto will come back again and talk to us about strategy. There'll be ample time for questions after the presentation, and we'll take questions both from the floor and from the line. I do ask when it's question time from those on the floor for the fairness of the people on the line, I will bring a microphone across so everyone can hear you. I'll hand over to Alberto.
Thank you, Delphine. Good morning to all. I'll show you the usual disclaimer that you will read very quickly. Done. Let me probably in the agenda start. I want to talk to you today about four key themes. The first one will start with the principles and behaviors that will guide all of Orica in the interactions with its employees, its shareholders, analysts, all of its stakeholders. Secondly, Tom and I will talk about in detail about the past. The past 12 months, the past 24 months, and we'll try to guide you to why we think what happened and how that will shape a bit of the future. The third part of my presentation will be along the lines of the present. What have we done in the past six months to prepare the organization for the current very tough environment?
The fourth and last part of the presentation will be about the future. Again, what is the consensus with McKinsey, all of that, of what's going to happen with volumes into the future? What does that mean with Orica, and why are we confident about Orica's future? As always, we start with safety. 12,000 employees, 1,000 contractors, no fatality, and one of the lowest injury rates in the whole industry. It is something we can never be complacent about, but we are happy to celebrate in this year as we finish the year with that. It is as we know, every company, especially in this safety, everything starts with safety. A company in control and well really run is a safe company. Obviously, it's also good business.
It is very aligned with what our customers demand and want. This is a never-ending battle, and we will continue to deepen our strides to safety excellence. There's two at the bottom, two sort of notes we have. We continue to map the major hazard analysis, and we will continue to deepen the identification of the critical risks, because we all know that that is one injury. One ankle is one too many, but we need to probably understand and have even higher visibility of the probably much smaller number of critical risks that we face, and to ensure that everybody at the ExCo is contributing to understanding that they're in control. That process will continue. We talk a bit, we don't talk about the environment.
We have made strides on the main sites, but probably the most important thing has been the completion of environment plans for 400 of our 450 smaller sites. We're quite happy also with the progress on environment and safety. If we go into our guiding principles that will guide everything, we'll start at the bottom of the pyramid. I think this should be for any company, but these are the ones that will guide us, and we repeat time and time again, and you start with respect. Respect for our stakeholders, the environments, the communities, safety, respect for our employees. Overall, in all the interactions, respect is at the bottom of the pyramid. Transparency, open and honest communications. What does that mean? For example, with our employees, we did in the first time in three years, an engagement survey, a very comprehensive engagement survey.
We've given them, "This is what you're thinking about us. This is what you like about it. This is what you don't like about us." Open and honest communications with our shareholders, with our investors, starts with probably having the balance sheet that we think we have. It's not good news, but you will see what we believe, Tom and I believe is there, and you will get it as unfiltered as possible. Collaboration is always important, but in the new operating model, it becomes even more important because you have these regions empowered to run today, but then they have to work with the functions, marketing and technology group, the supply group, the manufacturing group, which are run more like functions as we will see. That collaboration has to become one of the leading, again, values that guide us. Then finally, performance.
You can only demand performance from people if they're accountable and empowered to do so. It was very evident that we couldn't really have a culture of performance if we didn't change the operating model. We will hear more about this at a later stage, but it was very important that we have the people with the right delegation of authorities. EBIT does not sit any longer at the CEO like it did six months ago. There's regions accountable for EBITs. Functions have much clearer understanding of what their objectives and their performance metrics are. We will move to a much, probably fact-based, number-based, KPI-based organization than we have been in the past. Turning to the results.
2015 was a challenging year for Orica, for our industry, for our customers, but one in which we demonstrated that at its core, Orica is a resilient and sound business. That decisive action taken during the year in response to the industry headwinds helps position Orica through the cycle. I will talk about this more in detail. Our AN volumes guidance that we gave at half year were roughly vital, pretty much on 3.76 million tonnes. Our EBIT of AUD 685 was in line with what we said in August, not at the mid-year, but probably a bit above. We talked about AUD 660, we're happy to be slightly ahead. It was down AUD 180 million from the previous year.
The net impact, as we will see, is AUD 80 million after taking into account the market impacts of pricing and volume shifts, and also all the work that we have done to counteract those impacts through the benefits of the transformation program. The remaining difference, and we will see this in great detail, was due to the one-off transformation and other costs. From a relative performance, I think it is a credible result, this EBIT of AUD 685. That doesn't mean that we are happy. We're far from happy, and that we have obviously the full determination to do much better than this in the future. I will go, as I said, more in detail after Tom's presentation on the EBIT charts. Pleasingly, our transformation program delivered AUD 175 million in sustainable benefits, 80% of which we sort of calculate are baked into the long term. Why not 100%?
Part of it are the supply contracts we believe can be made permanent, but some of those that are due to renegotiate before September of 2016, we've deemed for the moment as non-sustainable. At the impairment announcement in early August, we stated that the share buyback was under review. Following discussions with our stakeholders, including investors, lenders, and rating agencies, and obviously our own deliberations with the board, we have come to the determination to cease the continuation of the share buyback. Strengthening our balance sheet, especially in the current volatile times, maintaining a strong cash flow, and our shareholder dividends were the three critical priorities in coming to this decision. I am pleased to say that the board has declared a final dividend of AUD 0.56 per share, unchanged from last year.
More importantly, and I will discuss this more fully later, I believe that fiscal year 2015 is at the bottom of the trough of Orica. While 2015 year 2016 will still be challenging, we expect to see an improvement in EBIT from then and even more so in 2017, subject obviously that the current market views implicit in the, for example, forward curves of coal, iron ore, and copper sort of stay roughly where they are today. I will now hand over to Tom shortly, but before that, let me just say that Tom will go into a lot of detail in the impairment. I don't want to repeat that, but I do feel obliged to say some words. It is a massive amount. It is something, again, that we, from a company point of view, are deeply disappointed about.
What we can promise is that we will, and again, Tom will talk about, we will comprehensively improve and change our capital management practices, processes. We need to have what a company like Orica deserves, the processes of investment committees and peer reviews and independent checks and post-impacted reviews, none of that which is currently in place, but Tom will talk about that. Now I'll hand over to Tom. Before he stands up, many of you know Tom, but for those who don't, he obviously has all the qualifications and experience to be a CFO, but he's much more than that. His knowledge and his experience, strategic, commercial, and even more importantly, operational, make him a pretty unique CFO, but it is a CFO that Orica needs.
I believe that only through that deep understanding of operations can we get the change in financial performance that I believe Orica deserves. With that, Tom, over to you. Tom, please don't mess up my papers. Okay.
Thank you. Thanks, Alberto, for that kind introduction. Good morning to all. Before I go through the numbers, I thought I'd just share with you some observations of my first two months in the role. I think I'm in the fortunate position to be viewing Orica both from an internal and an external perspective. As Alberto just mentioned, over the last 20 or so years, I had some time in financial, commercial, and operational roles. I think I've got some level of understanding of our customer base. From my brief review, it has become clear to me that Orica's footprint, its security of supply, its focus on safety, technology-based solutions, and so on, are core to its competitive advantage. As a CFO over the last couple of months, I was quite impressed by the structure and the underlying strength of the business itself.
This mining downturn has been the most dramatic we've experienced in over two decades. Within this backdrop, my view is that whilst down from the previous year, Orica has delivered a result which is probably reflective to some extent broadly of the sector, supported by some self-help initiatives that the company has embarked on. However, the reality is, though, that there's still a lot to do. One of my immediate priorities will be to re-look at our capital management, Alberto mentioned it earlier, to have a look at it from a commercial and financial efficiency perspective. We need to really focus on specific measures, like return on capital and so on, specific processes, like post-implementation reviews and other similar metrics. We need to do this to ensure that our capital management program delivers attractive returns to our shareholders over time. We really need to sweat every dollar. Very important.
We also need to develop a report on range of P&L balance sheet measures, whether it's cash conversion, return on shareholder funds, and so on and so forth, that we can relentlessly drive within the organization, we'll do that. With that, onto the results for 2015. Today I'm going to talk to you a bit, Alberto started, it's a tough set of results, albeit realistic and a reflection of the wider industry. At Orica, we've got a flexible footprint. Our balance sheet has some reserves. I'll talk about how our balance sheet valuation has been affected and is now positioned to take advantage of the future. Just a point to note on this slide, that the numbers presented in the table are on a continuing operations basis, that's following the sale of our chemicals business earlier this year.
That is reported on discontinued operations at the bottom end of that slide. I would like to start off with the sales revenue, AUD 5.6 billion, which is approximately 1% down on a global basis. This decrease was primarily driven through lower AN volumes in Australia, through lower ground support volumes across most markets, and lower average pricing for explosives, mining chemicals and ground support services. The decreased Australian volumes were offset by some increases in AN volumes in North America and Asia, some higher initiating systems and cyanide volumes. Growth in revenue from advanced products and services and favorable gains in foreign exchange movements also contributed to this. What this tells us is whilst we held volume and revenue, our margins were impacted due to changes in product and regional mix, which I am sure you would be aware of, and impact of pricing pressure.
On a continuing operations basis, the NPAT before individual material items, AUD 417 million compared to AUD 564 million last year. This was a 26% decrease, but in line with what we had indicated earlier in August, as Alberto mentioned. As we will discuss later, we took an impairment charge of AUD 1.69 billion this year, which is reflected in the net profit after tax and material items, which is a loss of AUD 1.274 billion. I will talk more about the impairment charges towards the latter part of my presentation. Interesting to note, though, that our interest cover is still healthy at 8.4 times, which is well above our banking requirements of two times and our own internal targets of five. Another note is on tax. Our tax has increased from 22% to 29%.
This was mainly due to a reduction in foreign tax deductions, prior year undercharge relating to foreign tax payable, a reduction in non-taxable profit from asset sales due to utilization of capital losses, lastly, of course, there is a change in geographic mix of our products. The indication is the effective tax rate going forward should be slightly below this year, but not as low as the historical numbers. As you are aware, Orica operates in various different countries around the world, and accordingly, its effective tax rate is not only sensitive to performance of the business, but also to the geographic mix of where we sell. Let us look at the global diversity in a bit more detail. This is slide nine. The benefits of Orica's global diversification strategy is evident in these results.
In a year of so many challenges, Orica's volume decreased by around 1%. This overall weakness in Australia, as you can see on there, was offset by other regions. As mentioned, the Australia Pacific AN volumes were down due to soft market conditions. That was caused by mine planning changes in iron ore and coking coal and metal market sectors as well as contract losses occurred in the period. This was offset by continued growth in North America, where explosive volumes are up some 6%, the regional EBIT for that area up equivalent of 35% you will see on the slide. Quarry and construction volumes are mixed with moderate growth in the U.S.A., offset by lower construction and infrastructure projects in Canada.
The metals market was also up, driven by primarily increased volumes of precious metals in Canada and increased volumes through indirect channels. In Latin America, volumes were essentially flat, with some growth in Peru and Argentina offset by some volumes in Chile and Colombia. With regards to EMEIA, the volumes were relatively flat, with growth in Nordics and Africa offset by lower volumes in Turkey. Lastly, explosives in Asia increased by 2%. Despite these market headwinds on iron sales, there was solid growth in India. That, once again, offset by weaknesses in Mongolia and the Philippines. On EBIT, the overall take here is that pricing pressure in the area, for example, Australia, can be accommodated, or shall I say partially repaired, through regional product mix changes.
Alberto will show you later that we've proactively entered into strategic price for term contracts with our customers, which to some extent buffers Orica from the pricing impact. I'll show you now a detailed slide for our improved net debt position and what we did with our cash. It's a complicated slide, so I'd like to show you some. On the left-hand side of the slide is our net position. On the right-hand side of the slide is our movement in debt. Regarding the movement in trade working capital, which you see there's a negative impact of AUD 84 million. This is largely due to the chemicals business, which was recovered in the sales price. On an Orica continued operational business, the movement in net working capital is essentially around AUD 1.5 million decrease annually.
I'd also like to focus your attention on the waterfall chart now to the right and walk you through these movements. As you can see in the first two bars, you'll see that we received AUD 652 million from our chemicals proceeds and paid out about AUD 53 million in our share buyback program. Alberto has confirmed that this has now been canceled. In the next three bars show operating cash generation of AUD 739 million, offset then by net investing cash flows of AUD 386 million and our dividend payments of AUD 372 million. At this point, our net balance of debt is about AUD 1.657 billion. That's some AUD 580 million lower than at the start of the year. As you probably know, about $1.3 billion-$1.4 billion of our debt base is US dollar based.
With the average exchange rate, US dollar, AUD dollar exchange rate depreciating by roughly 20% during this year, that's had a significant non-cash impact on our debt position. Our debt went up by about AUD 370 million, which brings our year-end net debt position to about AUD 2 billion. As I mentioned, you saw that we invested back into our operation. During the 2015 financial year, Orica spent AUD 443 million on CapEx. That's down 10% from the previous year. This was made up of AUD 155 million of expenditure in sustaining capital programs across our key manufacturing sites, and these include Kooragang Island, Yarwun, and Carseland. Also some scheduled plant turnaround as well as IT system upgrades.
AUD 87 million or so was spent on customer-facing contract capital. This capital typically involves spending on mobile delivery equipment, on small bulk emulsion plants, and on-site storage requirements in line with our customer contracts. AUD 75 million was spent this year in the Burrup iron plant in the Pilbara region. Alberto will talk more about Burrup a bit later. As I mentioned earlier, one of my key priorities is to reevaluate our approach to capital management. We need to ensure that growth delivers value through the cycle to our shareholders. With that in mind, I would like to take the necessary time to review the proposed capital expenditure for 2016. Therefore, I am not putting out a full forecast number. However, from a high-level review perspective, I believe that CapEx for next year should not be higher than it is in what we had spent this year.
That is given the market conditions and large parts of our prior year capital, like Burrup, that still needs commissioning. I want to touch for a moment on depreciation and amortization. As a consequence of the impairment, Orica will have a reduced depreciation charge of approximately AUD 32 million. However, it is important for cash flow models that we have several other projects that are coming on board from the prior years. This includes AUD 9 million potentially for Burrup, AUD 12 million for the likes of SAP customer technology initiatives, AUD 15 million or so for manufacturing and customer-facing projects. The estimated D&A for next year will be around AUD 300 million. Obviously, we have to think of our future CapEx in this light as well. What has happened to our balance sheet? Slide 12 for those on the line.
A point to note here that the 2014 numbers presented in this chart includes the chemicals business, just so that you know from a comparative perspective. Once again, I am not going to go through all the items on the slide, but I would like to draw your attention to the trade working capital. After excluding the impact of the chemicals business, which is around AUD 143 million, there was also foreign exchange movements of about AUD 62 million. If you exclude that as well, the underlying trade working capital decreased by AUD 58 million. The reduction in net plant property and equipment and intangibles was largely due to the impairment, which I am discussing in my last slide. Before I get to that, gearing remains within the Orica target range of 35%-45%.
Whilst the net debt reduced, as I showed you earlier, the impact of the impairment obviously had a result that the gearing increased to 40.4%. We are well within our debt covenants here as well. The balance sheet remains relatively healthy and flexible for future growth. With that, onto our impairment. As we flagged in August, we conducted a full review of the carry value of our business and the challenges that are faced in the said sector. On completion of this review, we recognized AUD 1.69 billion after-tax impairment, which is slightly more from the top of the range that we had indicated during our August briefing. The majority of this movement is due to FX. What I also did when I came in is to cast my eye across the business as well, across the assets. We looked at stress testing the business.
We had a look at the calculation methodology for the impairment. In that process, we impaired some other minor assets as well. As I said, the bulk of it was Forex. The most notable impact of the impairment includes AUD 848 million for Ground Support business, which has been reestablished as a separate business and a reportable segment. While this business still faces some fairly challenging environment, it remains cash flow positive. Alberto will talk more about that at a later stage. To be very clear, I think as management, we recognize the magnitude of this impairment. We recognize the impact it has on our shareholders. We recognize the impact it has on our market. It's a reality that we have to face up to. This is in order to place Orica in its rightful position to capitalize on the future.
We are comfortable at this point in time, under the current market conditions, with the carrying value or the market value of our assets. With that, in summary, I'd just like to say Orica has delivered results in line with our August expectations indications. This is a decrease from prior periods but reflects what happened in the broader market. The results are positively supported by some self-help initiatives. Our operating cash flow and our balance sheet remains reasonably strong and flexible. We will reevaluate our approach to capital and ensure that it delivers value in the business through the cycle. With that, I want to hand back to Alberto. To make sure that I don't drop your slides off here.
Thanks, Tom. I will now, moving to slide 15, want to talk to a year of resets, about the past, what's happened in the past 12 months. I will talk about laying the foundations, what we have done in the past six months. I'd like to note that it is not tinkering at the edges. The operating model changes have probably affected the top 2,000 people of the organization, how they report, how they work, how they manage things. It is a pretty profound sort of deep into the organization change. The third one about the future and why we believe we are well positioned to improve long-term shareholder value. Slide 16, resilient in challenging markets. I'll spend a bit of time. The first section will all link back to this slide.
The way I want to do it is I will start with the two extreme columns, the one on the left and the right. I'll start working in a sandwich. In this slide, I will cover the ones outside of the yellow rectangle, which are sort of the one-offs. In the next slides, I will go in depth into each of the significant columns that are in the middle of the presentation. If I start on the extreme left, EBIT of AUD 863 million. To normalize it and put in an apples and apple basis, we account for the impact of Forex on our EBIT, but also discount the impact of one-offs. I've said it in the past, these were like line sales, macro-driven sales .
We don't expect as we go into the future to be having nearly the amount of sales that were in the past. That's why we discount them as one-off effects that won't happen in the future. For matters of comparison, for us, the relevant number, the adjusted EBIT, structural EBIT, if you call for 2014, is AUD 881 million. Now I go to the extreme right. We started the EBIT of 2015, AUD 685 million. The big adjustment is the one-offs. We've said that we want to make sure that the one-off costs do not go in, and that when we talk about sustainable, one of Tom's main sort of tasks is to ensure that it's kept off the balance sheet. It's off the P&L. That's why we discount the AUD 81 million, because they were one-offs precisely.
There were probably also catch-up one-offs that we had to do in the past six months, environmental provisions, closures of offices and all of that we also deem probably expenditures that we are also of a temporary nature. The two numbers that will guide the rest of the presentation are the AUD 800 million adjusted EBIT in 2015. I would see that if we don't do anything, that should be sort of There are impacts that we will see on that, but let's say an adjusted EBIT of 2015 of AUD 800 million versus an adjusted EBIT of 2014. That's what we call the market, the total drop of AUD 81 million. That's the one that we, how we are trying to explain it as the one that really is the impact of the tough times on Orica. On a structural basis, we're about AUD 81 million.
It would have been much higher if we didn't do the self-help, the transformation. The real impact is then if you go to the light blue market impacts. The total market add impacts that we'll explain again in detail is around AUD 248 million. We managed to compensate almost all, not all, through self-help, and that is the AUD 175 million of transformation. As I repeat both, I will go into those two numbers in detail. You see four big columns. There's an explosives volumes of AUD 135 million, which will be the next slide. There's an explosive pricing impact of AUD 57 million. And the other very significant impact is the impact of ground support. Those three brought EBIT down, and then bringing EBIT up is the AUD 175 million of gross benefits. As I repeat, we will look at those in great detail.
Why are we giving this amount of level of detail and disclosure, which is for Orica, is unprecedented? We believe we need to reset the base in many ways and trying to at least convey what has happened, how we see that it has happened, and again, how do we see things going forward. I'll now go into the first column, big column, which is the explosives volume. That's how this works. The explosives volumes impact was AUD 135 million. How much of that do we see in the long term saying of how much do we see it sort of coming back in the medium term? We go again into details. Mine closures of our existing customers were not that high. Again, in the scheme of things, there was probably much more worry than anything. There was AUD 10 million are costs.
What we did see was significant operational changes. There's some very significant, where they reduced their strip ratio from 2 to 1. Overall, all mining companies deviated from their optimal mining plans, and reduced the quality of their exports, reduced in some way, or altered their strip ratios. We see it internally. The impact of that's what we call mine planning reconfiguration, was AUD 42 million. When will that come back? I don't know. We don't know if it's 12 months or 18 months. Certainly, it can't be held. All of the miners who have been in the mining industry understand that you can't hold that for much longer. We're not predicting when it will come, but we're just saying we expect that to recover sometime in the medium term.
From those, when you have that level of decrease in your waste volumes, it has an impact on manufacturing utilization, and it also has an impact on onsite services. Of the AUD 135 million, we deem about AUD 100 million that will come back in what we call the medium term, and we're not specifying a time frame. We did lose contracts. It's always you win some, you lose some. I probably hate much more losing. It hurts more than anything else. We haven't lost lately, to be honest, in the past month, but we have losses of AUD 33 million. We will do everything in our power to get them back. That will take a little bit more time. I go to the last bullet point. It's important. In other regions, you would be surprised why is it only AUD 9 million plus.
That's how you build these charts and these bar graphs. You have to isolate events. You just isolate the impact of greater volumes. The real benefit in North America, you have to understand it together with the transformation, which is dealt elsewhere. Just in the sourcing in North America, we get a positive EBIT of about AUD 40 million. That's part of the AUD 175 million. That's why this is only isolating the impact of the volumes, but the real impact and the benefit of North America, and you see it growing, you have to look at it in complete context with the transformation benefits that flow into North America. That's the impact of the explosives volume, the greatest impact that we felt in our EBIT. We go now to the second one, which is the pricing impact.
I'd have to say, we were probably part to blame, this would be I would expect lower than what the market would expect, probably we ourselves, I myself, when we revised this number significantly, and it is probably on the low side of what we expected. The other crucial thing is we do lose AUD 57 million on price. We gain a significant amount. We decrease the risk in our contract profile. You see it in 2016 in Australia, 88% of the volumes for 2016 have already been negotiated. That means they are under long-term contracts with identifiable prices. I'll probably repeat what I've said before. How strong are these contracts? They are strong. They are not take or pays. If the market, it pulls those to AUD 38, which we think it's not, obviously, you would see mine closures.
If a mine is going to produce, it needs to buy the explosives from Orica. Similarly, we haven't showed this, in North America, good also strengthening of the contract profile, and we haven't seen a lot of price reductions in North America. I will just add one thing that we have at the end of the outlook, and there's a reason for it. We do expect to see a flow-in effect into 2016 in price resets of between AUD 55 million and AUD 60 million. Out of that, about half of that is flow-in effect from these numbers, and half are contracts that we know that we lost, and they're just starting to be binding in 2016. We expect a sort of similar number for 2015 in terms of the impact of price reductions.
In the scheme of things, it's probably, to use Tom's word, I think it's quite credible and with a de-risking. All in all, I'm satisfied with that. I now go into the industries, the cyanide, and the ground support. Cyanide, it follows mining and, well, you always need hard work and a bit of luck. The luck here is the exchange rate, and it's quite interesting how that has benefited cyanide. It also gives you probably an illustration of the weakening of exchange rate, how it's also probably benefiting a lot of the mining. My own personal sort of view is that we still, all of us in this community, and when we look at things, we underestimated the enormous impact of the weakening of exchange rate in all of the Australian operations.
That gives me a bit of more probably, I don't know if optimism, but the resilience of the industry with this weakening of exchange rate certainly is quite different. You see it in this graph. We managed, and the team did a great job in terms of reliability of the cyanide operations. We had sort of roughly average records of production. Our cyanide sales went up by 7%, but our prices went down by 32%. That is the outcome of the competitive landscape. When you translate it into AUD, it's only 9%. That's when you, all in all, the contribution of this group, which we don't disclose separately, what I'm saying is the contribution of the EBIT of this group to the company stayed the same, which is in the current environment and with something that tracks so closely mining is a good result.
I'll probably say the average right now utilization in the industry is about 85%. It's not that it is tight, but it's still at a reasonable level. We believe that we will sell probably a bit more into the coming years and that it should still keep contributing into sort of cash flow to Orica. The fourth column and the big fourth big effect of reduction on EBIT is ground support. We mentioned it in all of our previous interactions. We lost AUD 55 million of EBIT versus 2014. It is a very significant number. I would probably say that in North America, we probably could have been a bit better if we had had more focus, but there you have an explanation in terms of the underground industry being significantly affected. In Australia, I'm quite disappointed about that result.
The market share of all the companies in Australia, we're the only one that lost market share. Clearly it was an evidence. One of my points of sort of the determination to say we need to have a focus management on this. The times are very difficult. It is exposed to the mining cycle, but we certainly can do better. We now have a turnaround strategy. We have a fantastic guy. He's called Alexander, a very experienced 25-year, 30-year veteran, he has a very good CFO, we're now taking care of it. It does produce cash flows. It will produce around AUD 30 million or AUD 40 million of cash flow, we will reinvest a bit of that money. It will still produce cash flows to the corporation, it needs to get a little bit of care.
It will require in customer-facing resources and others, we need to have some investment and some determination. That turnaround, how long will it take? Maybe two, maybe three years, I believe that in time, this will become an interesting contributor. Is this in the long term for Orica? Not necessarily, we're not going to give it away. It's not hindering under the current management structure. It works fine. I'm happy to invest and happy to nourish it, and happy to receive the cash flows that it will start giving to the corporation. That is the focus on the past. We go now into the present. What we've done is nothing innovative. You've all read the Jim Collins book, you start by the who, you start by facing the brutal facts. That's sort of what we've done.
If there's one thing I'm quite happy about in the past months, it's about the team that we've managed to build. I'm grateful to Tom and to many of the executives that have come in from Schlumberger, from Rio, from BHP, and the many executives in Orica that we've promoted. We're bringing in younger people. There's very good people in manufacturing and all over in the regions that we have promoted. The team is in place, and in the end, it's all about the people. Obviously, those people need to have the right model, we'll see the right operating model. We have also taken in the present, the self-help, the transformation that we'll see. This is point 2, we start with the new operating model, and it all is built around the customer.
We have a world-class team, but I start at the center with the customers. They are at the center of everything we do, we do need to, more than words now with actions, really ensure that our customers see us as the most important customer in this field that helps them to add value. We do have the technology. We have the people. We just need probably to do a bit more better improving the processes and improving the training. I believe that with the right empowerment, the regions focus on this, we can be close to the customer and demonstrate that we can add more value than any other explosives company in the world. Close to the customers, the regions. Now what you see, I've talked before, with the operating models, the regions are now accountable for EBIT. It's not sits at the CEO.
They have the right levels of delegated authorities, and they are empowered for everything they need for day-to-day decisions. This doesn't mean you go to the past where they were independent republics. The regions are empowered for day-to-day, but they will still be under strict guidance for the medium, long-term investment guidelines and so on from the group functions. The group functions, there's a significant mindset that they have to shift from doing things to really setting standards and procedures that the regions need to abide by. If they want to build a small emulsion plant, this is the blueprint for the emulsion plant. This is how you need to maintain it.
If they want to, in HR, you're accountable for your level Ds, your level Es, you need to have these type of processes of identifying talent, of identify the top of group, of promotions, et cetera, and so on and so forth. In finance, very strict sort of control of treasury and of the key capital allocation will be absolutely critical still at the center. That's the new customer-centric operating model. Even though it's in place, we'll still be working six or eight months in writing those standards and procedures. You want them to be very narrow, very crisp, enforceable, and that's what we will be spending the time. This is a summary of what we've done.
We have taken decisive action in these months in a new management team, in a new operating model, in the transformation program, deepen it, making sure that it is tracked to the P&L. We've rationalized the ammonium and basically brought into equilibrium the East in ammonium nitrate. We strengthened the contract profile. We sort of also probably stabilized all around the contract sort of changes. We separated ground support. We put in a management team. It has now focus, and we believe this would allow it to sort of stabilize and in time to improve. We have realigned the balance sheet, which Tom spoke about. On the last point, on the present, we've acted to offset headwinds by delivering sustainable benefits through transformation initiatives.
Initiatives to improve our efficiency and effectiveness are underway across all parts of our business, with value being delivered from reviewing our sourcing activities, leveraging our scale to deliver the improved processes and labor productivity, and optimizing manufacturing processes and our global footprint. You see the numbers just to clarify on something that I just read before we started. The target that was in place was AUD 100 million of gross and AUD 40 million of net. We've increased the 2016 target by 50% roughly. The target was AUD 40 million. We now have a target of AUD 60 million that we want to make sure we achieve. That takes the gross benefits to about AUD 275 million for these two years. If we go to the sustainability of the benefits delivered of the AUD 175 million, around one-third are from supply efficiencies, two-thirds from manufacturing and support cost programs.
In procurement, we have assessed our procurement spend, and to date, renegotiated 70% of our contracts. We have to continue to rationalize and optimize our extensive AN and IS networks, reduce our stock keep units by around 25%, with more to come, and increase cargo sizes and better utilization of charter value. This, like all of us in the world we live in, being more efficient, being more effective will be, again, the name of the game in the months and years to come. People were talking about a reduction of about 828 this year. The total number now for the past 16, 18 months is around 1,200, or something like that. As I said, we make sure that they stay. There's a tracking at the center that ensures that even in the new operating model, the regions don't have autonomy. They have autonomy to main people.
They don't have autonomy to increase the size of their functions or all of that. Again, all the controls to make sure that all of this stays in place. We go to the last part, the future. Why do we believe we are well-positioned for the future? This is a typical graph. You've seen it. Obviously, by Wood Mackenzie. It's basically saying volumes will continue to go up, not as before, but sort of rough, off by 3%. Commodity prices will sort of maybe go up a bit, but nothing like we've seen in the past. This sort of translates to, I said, it's the end of the mining price boom, but not of the volume boom. There's a reason as to why this is. The miners, the big miners, the medium miners, have put AUD billions of infrastructure in the ground.
The only way they can increase their returns is by reducing their cash cost per ton. With the exchange rate that we talked about before, in Australia, the only way, and you will see it, is with increasing the volumes. That's what we see sort of unanimously across, I would say, all of the commodities. Maybe some even copper, whatever, some where they may be delaying a bit, even though it has the best long-term fundamentals overall. That's what we see at Orica at the moment. That's what we see in the last months across the world, North America, Asia, Latin America, and Australia. It's sort of things are happening as per our forecast, as we will see. Coal, we just wanted to put something around coal. Coal will still be dominant.
Again, if you look at the facts and not the myths, India is going to keep increasing. The IEA or whatever it's revised, will still grow at about 2% per year. There's 1.3 billion people in the world that lack energy, and that will mostly 50%, 60% of that will come from coal. I thought that's a nice slide. You see that circle, slide 28. There are more people living inside that circle than outside. That as an Australian, adopted Australian, it just tells you how well-situated Australia is. I think it's a quite remarkable slide, but it does tell you there's a lot still going in this world, and it's not the price boom, but everything is relative, but there's a lot of volumes that will still be needed to feed this. We know that, and we're not predicting. We're actually saying still 2016 is sufficient.
Is it 2017? Is it the end? Nobody knows. Will it come? At some point, it will come, and we will be ready. There's two effects that we will see. Physical volumes going up, and also the ratio of waste volumes will also improve, because I've talked before about normalizing sort of mining plans and strip ratios and quality of commodities and all of that. Both we will see at some point in the future. I repeat, we're not forecasting it, but we know it will come, and we will have the right company to deal with that, where we have unrivaled and unique geographic portfolio. You see 29% in Australia, but 27% in North America, 20% in Latin America. That's where any company would want to be, and we have a very significant presence.
In mining commodity, yes, we're exposed to coal, 22% on revenue in coal, but 20% in coking coal, in gold, I'm sorry, and copper 15%, in quarry 16%. Very diversified by geography, by commodity. The last one by sourcing value of services offering is interesting. There's always a focus on what is probably easiest, which is AN. AN for us is 18%. IS is almost the same in revenue and obviously much higher in profit. The fact that we have in revenue 16% in IS, 29% in bulk emulsion, and we will see that's where the margins are, just again tells us that we have the right company, the right mix to deal with what will come in the future. We have also, apart from diversity, an unrivaled AN manufacturing and sourcing capacity. Again, we talk mostly of Australia.
We talked recently, James spoke to you about North America, but I just want to take from this presentation. Look at where all of our sourcing of our 1.2, 1.3 million tons of AN come from. From the lowest end of the cost curve. A gas-pegged contract, 700,000 in Yazoo City from CF, and Carseland also clearly a C1 in the lower end of the cost curve. Our business in North America, very light CapEx relatively, but very strong moats. Very good partners. We are very happy about that. Latin America, it's also quite fascinating because when you look at it, our sourcing from Russia, and then our logistics. When you put it on the ground, it is even now with high density explosives, as competitive as any producing asset in the ground. We have a full strategy, full steam ahead on Latin America.
Nothing is easy, but we have the right type of sourcing that allows us to be competitive. You have the footprint in Australia and Indonesia, multi-plant network, and Kooragang Island being by far the best plant in the region in terms of gas-pegged and in terms of efficiency. The new kid on the block is Burrup. It's the latest addition. I won't focus on the short run. I want to focus on the long run. It is 94% completed just to probably open for a moment the short run. Will it be completed next year sometime? Yes. Sometime during next year will be completed. What I'd like to focus on, look at where that plant is located.
It is in the heart of the Pilbara, in a region in the Pilbara, we'll see the cost curve, which will reach about 660,000 tons by 2018 and will keep growing at about 8% per year. These are Wood Mackenzie analysis, but CRU would have the same. Basically in two years, you will have production in the region double to the size of Burrup. It is a 30-year asset. We will have it fully loaded. We're confident of that. Is it 2017 by fully loaded or beginning of 2018? At this stage, I can't tell you. I'll tell you more when you know about it, but it will be fully loaded. It will generate cash flows at current prices, very interesting cash flows for Orica. In time, it will become a crucial asset in diversifying asset and generating cash flows.
Look at the curve on the right, it is an interesting one. Coal, iron ore as opposed to coal, probably it's a much more capital-intensive, low operating cost industry. High CapEx, low OpEx. You see all of the ones and how competitive they are. Which means that they will remain open even under much lower prices. We don't believe that they're going to fall from, let's say, the 40s, but even then they would stay open because they're so competitive from an operational point of view. Two slides before I finish. This one on technology. We do have a unique competitive advantage. Again, this is the facts show we out-invest by a factor of three our closest competitor. This curve we haven't showed before, so I'll spend a little bit of time. On the X-axis, it has maturity.
Very mature on the right, at the beginning, very unmature. In-market development. You have product margin on the Y-axis. I know this is consultant speak to confuse you because you really want to be on the lower left-hand side, which is usually the opposite from these graphs. You want to be in the high margin with something that is unique and that nobody else can compete with you. That's really what this S-curve is telling you about. The facts that we're putting is that you can see our market share, how we have on the most commoditized ones, that could be electric detonators. We have a market share of 2%. When you go down the S-curves on the non-electric, we have market share of 35%-40%. There's still interesting EBIT margins, in time, it will become commoditized.
When you go to EBS, we have a 60%-70% market share. When you still go down the newest one, the one that we're very excited about is wireless. It will take some time, we do believe that it will have a significant impact in the industry, that we're talking about at 100% market share at this stage. The point I want to make is technology will probably even be more important part of Orica's future and of the proposition of why we add value to customers. Those numbers, again, it's Orica who can really show them. What does this translate to in? We've talked about advanced blasting, we probably want to go a bit in more detail. What does this mean? When we talk about adding value to our customers, how do we talk?
This is the type of conversation we are having with all of our customers. On the left-hand side, we just say, look, the cost of explosives as a percentage of your ore. In gold, it's 1%. In coal, it's 3.5%. It is not significant. Obviously, every dollar in the current environment counts. The important thing is that what may be 1% or 3% has an impact on 60% of their cost. That is then the conversation. What does this mean? Improve fragmentation. We have the technology to improve your fragmentation. Where does it go? It goes to reduce energy usage. We have the technology to lower your vibration. Where does it apply? Lower vibration maximizes the recovery and increases your earlier economic return. Increased flow in dragline operations obviously goes for earlier economic return.
When you have consistent perimeter, what is that? That will improve wall control. You're allowed to have steeper walls and hence reduce costs, and then you have reduced dilution too. It is not only for hard rock, it can be for license to operate, or it can be even for coal operations. There's a different discussion, and those are the ones we're having. That's why I think as I see and I talk to our customers, we're beginning to be more and more successful in talking about how we can be a partner in this, that we all need in this sort of very difficult times. Looking forward. I'll just read this because all of these outlook is contingent on this qualification.
With the benefit from self-help initiatives, recovery in volumes anticipated by market forecasters, subject to the forward price and volume curves for key commodities largely holding, we expect some improvement in EBIT in fiscal year 2016. As earnings stabilize, we expect a further improvement in fiscal year 2017. In that guidance, explosives, 3.8 million tons, plus or minus 100,000 tons. A year ago, we talked about plus or minus 200,000 tons. Why are we tightening the range? This is probably important. Because of the contract profile we have. If coal stays, the future is at AUD 52 or something. If coal goes to AUD 45, Or AUD 40, we may have mine closures. I repeat, subject to what we're seeing all of that, which is a P50 world.
In a volatile world, you have a target, and you say, all of the analysts and the market and the market curves show you this. Subject to this, we would have some level of confidence that we would be within plus or minus 100,000 tons or 3.8 million tons. Australia, we say a bit down. The reduction will be maybe 3% or 4%, not like 8% like last time. Just a bit down. North America, a bit up, though not as high as others. All in all, that is what we are guiding in explosives. We will have a negative impact of AUD 55 million-AUD 60 million on price resets, as we said in the past. Sodium cyanide, I would say probably by 5%, probably I would see it, and then we have to continue to increase efficiencies in cyanide.
Ground support, more of a stabilizing year. We will invest. I wouldn't expect a further deterioration in EBIT, but probably not also. We will need to invest a bit. From a cash flow, I wouldn't expect either an increase. Transformation program, I repeat, we have increased our target by 50%. We're talking about a net transformation benefit of around AUD 60 million. The other, total cost, interest depreciation, about AUD 300. This is to help you on your models effective tax rate. Probably it's not gonna be 29, but around 27 or something. In capital, in line with 15, but with significant change, as Tom said, processes rigor in the processes in our ability to invest. I go to the last slide of the proposition. Why invest in Orica? That probably is the summary of what we're talking.
We are the number 1 or number 2 in all the mining markets in the world where any explosives company would want to be. We have an unrivaled geography, commodity, customer diversity. Even in spite of the downturn, everything starts with explosives. You build a road, you build a tunnel, you build aluminum, what we have here. Whatever it is starts, and the world will keep needing them. We are in a business at the point in the business where our products are needed. We have fantastic technology. We out-invest and out in quality, probably, are the type of technology that can demonstrate that we add value to our customers. Hence, this is what our customers see in us. This is what we're seeing now. With this customer-centric approach, they're seeing, we like your security of supply. We like that you have safety in operations.
We like the technology in your products. I think they will like with the right people in the right places, I believe that we have a bright future in front. Thank you. With that, I will open to questions.
Alberto, it's Mark Wilson from Deutsche Bank. Just wondering, if you want to go back to slide 16. Just wondering what you would call out within these fiscal 2016 numbers as to what are the true one-off non-recurring costs that we should be disregarding.
I'm sorry, on which one?
Yeah. On this slide.
Yeah.
Just looking at probably the far right. Just within those one-off costs, what are the real underlying costs?
Tom will have more details, but there were closure of office like Chadwick[uncertain]. There were environmental provisions. We sort of caught up to date in environmental provisions, things that should have been done that hadn't been done in the past. Even though there is a level of things that you do, all in all, we've gone through everything, and we probably made a catch up to date. That's the type of things. There's other very small things.
I think I would have covered it in terms of the ones that are in there, that full AUD 33 million will be once off in terms of those types of provisions.
Sure. Just following on from that, you are referring to the AUD 800 million as your core underlying EBIT. When your reference point is 2016, is it the AUD 685 or is it the AUD 830?
It is at the AUD 800. We have price resets. Probably I would say we have, it is somewhere in the position. We do have also inflation. That is all we have to do. Probably for your models, we have around AUD 40 million of inflation and other things. From the point of view of your models, we have transformation that goes against, will be led favorably, you have the price resets, you have inflation.
Great.
That is 2016.
Thanks very much.
Hi, Michael Ward from CBA. Just sticking on that slide there, slide 16, obviously, in this year, you talk about volumes costing 135. There's a regional issue there and a product mix issue. That I understand. In the context of the guidance that you've given for 2016 around volumes with Australia down, North America up, is it wrong to assume that the volume impact is going to be negative again next year?
Yes, it is, because it would imply, let's say this is comparison of 2015 to 2016, so it has already happened in 2015. If nothing else happened, you shouldn't see a further decline. In prices you do, because it's the timing of when it is. You shouldn't see any significant impact on volumes from that point of view.
I mean, the margin, even just the simple logic of saying, well, Australia earns a margin of 20% plus and North America earns a margin of 10, one's going up, one's going down.
Oh.
Surely that's going to have an EBIT impact.
It could, but it's about 3%, the decrease in volumes. Probably, I don't want to fine-tune in the models. The drop in volumes is not the 8% drop in Australia.
Okay.
It's a much smaller drop that we forecasted.
I might just ask two more, if that's okay. Corporate costs were really high this period. I can't quite remember the number off the top of my head, but what type of level should we expect into 2016? Because it feels like there's a hell of a lot of noise in that number this year.
There's costs that are cost for the transformation program-
Yes
that are probably in there.
It's AUD 115. There are costs of transformation, there's some redundancies and so on in that number.
A lot of redundancies, a lot of closure costs and all of that's in that corporate. It is with noise, but that's part of the-
Okay. If we strip the noise out, what is sort of the starting point for 2016?
We are probably going to have to incur some more costs in the current year to strip all the costs out. Not more than that level, though.
Right. Okay. Just finally, the transformation benefits you talk about, you have given us a net number there. Are they predominantly going to fall into the explosives business, or is there going to be a big whack of benefits coming through in ground support as well?
We have not probably put anything on ground support yet because they are just in the process of really doing the strategy. I expect to see some benefits, but right now they are just probably stopping the downward slide down there. There is nothing there in ground support.
Thank you.
G'day. John Purtell here from Macquarie. Just had two questions. Firstly, for Tom, just on CapEx. You mentioned that CapEx won't be higher in 2016 versus 2015. Perhaps you haven't ruled this out, but surprised that CapEx is not clearly lower in 2016 given the completion of Burrup and what would appear to be a winding back in your requirements for growth capital, given where we are in the cycle. Are there any other factors just to be aware of there?
There aren't any other factors. Of course, there is still Burrup capital that will come through this year. As you know, it's not been completed yet. What I have to do is actually have a look through the whole sustaining capital level and the whole growth capital side, and that's why I said that I'd actually come back in April with regards to Or in our next release with regards to that. There aren't any other specific surprises. Certainly, growth capital still has to be spent. There's nothing new on the horizon.
If you look at capital, we have to improve significantly on the processes, conceptually, I do think the way of thinking, what you've seen in the past was Burrup, very significant. There was issues of, again, catch up on license to operate, which was a lot was put in KI and all of that because of the issues that happened. That's the safety component. We will still scrutinize because our experience, both of Tom's and ours, that when you restrict capital, everything becomes safety. Safety is a given. Whatever we need to spend, we will. The last one is sort of growth related with relatively low CapEx. These are emulsion plants that usually pay for themselves in 9-15 months.
If the case is demonstrated, and it passes our investment process, we will invest in those, because those have enormous rates of return. That's the third one. There's nothing out of those three buckets that are significant for it.
Just a final question, just further to Michael Ward's question around AN volume. Here in Australia, just would appear that given that Australian AN volume fell through the course of 2015, you're at a lower starting point, obviously, than you were at the beginning of this year. You're making an assumption for 2016 that your underlying volumes pick up from current levels. Just want to confirm that that's the case, and if so, what would be the driver of that?
No. If you take the total number of Australian 2015, we're saying it's going to drop slightly. That's more the consequence of the Peabody Energy contract and other contracts that are really kicking into 2016. Again, it's a slight number. Overall, I would say it's sort of rough the same. We are not assuming in those numbers a pickup in strip ratios. We're not assuming a pickup in anything that I talked about the volumes. We're not. In some sense, it just comes from our existing contracts. That's why we can sort of give a narrow range that we have done in the past. It's always dangerous. That was in discussion. I just personally felt that if we put 3.8 ± 200, everything is sort of. Maybe in the future, we'll have to do it again.
I think that at this level, we have that level of educated guesses that we can put that out. As I said, maybe in six months we'll come out and said coal is at AUD 40 and this is what happened. What I probably don't want to come in six months is coal at AUD 55, iron ore at AUD 60, and we revise volume down. Hopefully that's the scenario that I'm saying I believe we have enough confidence that we won't have to.
Morning. It's Ramoun Lazar from UBS. Just another question on slide 16, Alberto, just AUD 175 million of gross benefits. Going forward, should we be assuming that 80% of that rolls into 2016? Is that the assumption?
Yeah. Thank you. That was the fourth element of the models for your models. Yeah, 80%.
Then on top of that, there's a AUD 40 million-
Yes
cost headroom?
Yeah.
Another AUD 40 million.
Yeah
cost inflation?
Yeah. There's cost inflation, but that's just a normal inflation on things.
That's normal inflation.
You have four elements, which is, there's 30%, 20% of that is about AUD 35 million that is not repeatable for the time being. There is AUD 55 of AUD 60 of resets. There is AUD 60 of net transformation. There is about AUD 40 of inflation that we will try to keep down, but overall world inflation.
Okay. Just one on Burrup. Just your thoughts again. I think previously you've said it'll be a slower ramp-up to the 330,000 tons. Just want to get your thoughts around what you expect that ramp-up profile to be, then I guess given the current environment, do you expect there to be continued pricing pressure on the west compared to the east, which is now being right-sized in terms of supply-demand?
Look, the truthful answer is we don't know. We're comfortable that it will be full. If it's in 2017 or 2018, at this stage, we don't know. We don't know is because a bit. We have very good contracts, but the strip ratio, if you look at the one of our large contracts, they're saying publicly our strip ratio will go back. If it goes back, the volumes will be there. If it doesn't go back and they manage to stay longer with the strip ratio, then that's. We don't want to call out for so long something we don't have privileged information. What we do know, and that's what I'm trying to tell you, I know, again, for the models, but from a big picture, we are again at this stage happy to have that plant. It will be an important part of Orica.
If it's full in 2017 or 2018, at this stage, nobody will know. It will be full, and it will make cash at the current prices. Your prices on coal, it's still a very good business, but obviously prices have come down from when there was excess of demand.
Alberto, it's Andrew Scott from RBC. Just wanted to focus on Indonesia and the Bontang part. That's why if we just get an update on that business. Secondly, I think when you mentioned the impairments earlier in the year and you flagged there would be impairments there, you said you were considering the strategic alternatives there. Can you just let us know what's baked in the impairment you've taken, what the intentions are, I guess, in the next little while? And then once Burrup comes on and the ability to siphon those tons, what are the plans from then on?
Burrup actually is looking a bit better than probably the last time we spoke. It is looking a bit better. Bontang, I'm sorry. Bontang is looking a bit better than the last time we spoke, for two main reasons. One, the China incidents have closed explosives coming into Indonesia. We are seeing some pickup, even though Indonesia is the coal industry is challenged. We're seeing some pickup in demand. That sort of, even though we will stop when Burrup comes in sending in, it will still have positive cash flows, which I said before. The other thing that's happening that's probably doubled our, probably in turn alone, EBIT something, and it's from slow basis, but it's still significant, is that the ammonia price is starting to come down. That's something interesting that you would have all probably be looking at it.
What's happening in the U.S., where the U.S. used to be a 5 million ton a year importer, it's now a 2 million ton importer, and it's got to go seasonality to zero. What we start to see in the dynamics is that Trinidad is setting the marginal cost in the U.S. in ammonia. The marginal cost of Trinidad is AUD 300, and it's displacing tons from Russia that comes in like AUD 330. We've started to see, again, this is all sort of educated guesses, but we started to see that ammonia price coming in, and that has a positive impact for Burrup and for Bontang. Yeah, our guy in Indonesia is very happy. He's seeing, not that it's going to make any sort of significant difference, but it's going better than we forecasted.
The carrying value is AUD 248 or something like that going forward, which we believe is fine in the current environment. In time, in the future, we would maybe contemplate the possibility of turning half of it into fertilizers, but that's down way into the future. Nothing in the short to midterm. Thank you.
Richard Johnson from Citi. I've just got two questions on ground support, and perhaps there's one for Tom. Can you help me with what the written down value is or the ongoing carrying value?
The ongoing carrying value for ground support, I think it's AUD 325. It's AUD 880 or something. AUD 880. That's about all, thanks.
From a pure operating perspective, how should we think about the business, particularly in the U.S. in the current year? I mean, obviously commodity steel prices are still under very significant pressure. I'm just trying to understand whether that's a net negative for you this year or whether you can hold the losses where they are at the EBIT line.
I think we can hold. We believe we can, at the cash flow. This right now is being dealt like a private equity thing for cash. That's where I'm probably caught. When I review it with Scott, which I do on a weekly basis, it's only on a cash basis, and it has positive cash. North America is still under pressure. Will it fall more? Maybe a bit more. Europe is pretty good. We should do much better in Europe and certainly in Australia. As I said, Australia, we're completely profitable. All in all, I expect to see at least a flat, but certainly not what we saw this year in terms of change.
Just finally, you've obviously made a lot of management change in a very short space of time. I'm just wondering whether that process is now towards the end or whether there's more you need to do around the world.
It's probably that the executive team is in place. I've spent a lot of time in the next level, which is about 60 people. There has been a continuum. We've been probably not public, but there has been a lot of, again, promotions and also the same continuity and renewal and bringing people from the outside. That's where I'm spending a lot of my time. If you look again into the new marketing and technology team of Nick, it's really Well, I get excited, but you have these guys in their 30s. Ed Yu, who's our expert in ammonia, comes from the business of fertilizers. You have Todd P., David Cross. Very talented guys over there. That next level in the end is critical.
At the same time, we bring into supply with Richard Hogarth, Chris Crozier, who is a very experienced guy on supply, and he will be the cornerstone of the whole new supply function. I think I would say we're 100% in the second level and 90% on the third.
That's great. Thanks very much.
Hi, Alberto. Scott Hudson from Citi. I'm just looking at slide 18 and the contract profile in your key regions. I see you've still got about 30% of the Australian market to renegotiate heading into 2017. I guess my concern is what risk is there of further negative price impacts heading into 2017?
Look, the market is where the market is. I think if you look at the excess supply on demand, we're probably at the worst right now, and it starts to get better in 2017. I wouldn't see, let's say, our trends, any reason why we would be down from the current price levels where we are. Just again, we're talking about 2016, so that's a bit off.
Thanks. Secondly, just on, I guess, on ramp. I guess steel capacity globally is fairly excessive. We're potentially starting to see some capacity closures in China. If we do see significant capacity rationalization in global steel production, would that dent your confidence in the potential returns of on ramp?
You have to trust some type of analysis and look at the cost curve. You would think that others would cut way first. That's the point of that cost curve. They are really on the lower end of the cost curve. Now, if the price of iron ore goes to 35, well, we will have a different conversation. That's why I put the caveat. If it stays right now 48, 50, 47, with this cost curve, they should keep producing. Again, we have a base case. That's the best way we deal with educated guesses. We're giving a very transparent way of how we're thinking about it.
Great. Thanks.
I'm going to the phone. Sorry, have you been waiting for an hour? I haven't seen you, we're going to the phone.
Ladies and gentlemen, for our telephone audience, if you wish to ask a question, please press star one on your telephone. Your first question comes from the line of Keith Chow from JP Morgan. Your line is open. Please go ahead.
Good morning, Alberto and Tom. Just a couple of quick ones for me. First one's a follow-on from Richard Johnson's question for ground support in Australia. Just wondering if you can give me a bit more detail with respect to where market share is sitting at the moment, where it's dropped from, and where you think it can improve to. I understand the strategy is still being developed, any color on that would be helpful.
I just have in my mind the graph without the numbers. I'm sorry, I can give you. The graph was pretty awful. The graph has the other three guys with a flat market share and us dropping from the highest and crossing through them. I don't remember exactly the numbers, we should get back to it. We have dropped market share. I think again, it was we just didn't drop the prices, didn't understand really because the business was hidden inside, and you couldn't really ask about numbers, because then you would need to impair them. I think nobody was seeing it. Look, I think that was an anomaly. I can't tell you again how long will it take, we will fight again on the beaches on this, we will increase market share, because we can resist much more.
There's some maybe consolidation going on that space in other regions, that will be probably interesting if it improves a bit, the market structure. We'll be monitoring that too.
Okay. Then perhaps to follow on, Alberto, you mentioned that you're willing to spend or invest to regain market share, not only in ground support, perhaps also in mining services as well. The customer-facing CapEx component of your total CapEx, is that likely to continue to increase? I just note that in FY 2015, it came above previous guidance. It seems as though if there's any part of that CapEx component to rise, it would be customer-facing CapEx. Would I be correct in assuming that?
Yes. It will all be tied again. It's all interrelated to the flow of demand. If we start seeing that demand that we've seen coming in and the strip ratio coming in, we'll quickly react. What we do need to have is again, I repeat ad nauseam, a much better process of evaluating them. A lot of these small plants, we built one in Brazil on time, on budget, AUD 8 million or AUD 9 million, and it just paid for itself very quickly. I can tell you, when those opportunities come and we have the very clear contract and it pays for itself, we will invest. That is a priority. Those are very high returns. To get back to your question, if we see the world we're describing, we should be investing more on those fronts.
Okay. Thank you very much.
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Thank you. I just wanted to ask a question. Alberto, I think it was in August, you gave a couple of quick comments on how you saw the mix of the year turning out between first half and second half. I think you said first half would probably be a bit tougher and second half would be a bit better. Is that still how you see the fiscal 2016 year moving?
I'm sorry, when did I say that? I just don't
I think it was in August. I think when you gave the update on August 7, I think you said broadly, you expected the second half, I guess, to be where we would see most of the improvement. Is that still what you're thinking?
I remember talking about 2015, not about seasonality in 2016. Anyway, I think the seasonality that you saw in 2015 will be sort of similar in 2016. Usually, we had a stronger seasonality. I think as we go more into other regions of the world, as you see, as the revenue sort of Australia relatively sort of goes down and even though it's still dominant, we should see a more even. Still more in the H2 than H1, but I would probably see it in along the lines of 2015. That would probably be my best guess.
Great. Thank you. Just a question on the contract profile that you've given for the various regions. I presume that's based on these Wood Mackenzie volume forecasts that you're using or volumes that you've had this year. There's no actual volume protection in the contract. If, for example, we did see commodity prices fall and a number of customers shut mines, you wouldn't achieve that volume profile. Is that the way to think about it?
Yes.
They're not take-or-pay contracts.
I would excuse because I probably expressed myself in a bad way because that's what I thought I had said. Anyway. What I tried to say before was exactly they are not take-or-pay, but if the customer is going to produce, they have to buy from Orica. They do offer an enormous protection except if they have to close the mine, in which case they don't have an obligation to buy. That is what. It is very important, the caveat of the curve, but that's again for any of us. We just have a line. I think the forward curve, I repeat, is the best sort of, it's a good guideline. It's clear for all of us. If the prices behave along that, we should be pretty well protected.
It is in that spirit that we talk about the plus or minus 100,000.
Okay. Excellent. Thank you.
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We go back here. That's it. Thank you very much.