Good morning to all in Sydney and to those joining us via teleconference and webcast. Welcome to Orica's results presentation for the full year ended 30th of September 2011. I'm Graeme Liebelt. I'm the Managing Director and CEO of Orica, and I'm joined by our Executive Director Finance, Noel Meehan. In line with our normal practice, today's presentation is being webcast via the Orica website, and all handouts provided, in addition to an analysts' compendium, have been posted on our website and lodged with the Australian Securities Exchange earlier today. Today, we'll break the presentation into three parts. I'll start by providing some highlights of our 2011 full year performance. Noel will present a summary of the financial results for each business and talk about some of the key financial metrics.
I'll come back to provide some brief details on the status of a number of our growth projects and the outlook. Of course, we'll be happy to take questions at the conclusion of the presentation. Following the Q&A session, for those here in Sydney, there'll be an opportunity to speak to some of the Orica management team. This year, we've delivered good results in what I've described as mixed external circumstances. Before I discuss the financial results, though, I'd like to first look at our safety performance for the year. The health and safety of our people and the environments within which we work are Orica's highest priority, and we've made some good progress in several areas this year. In our half year presentation in May, I reported the sad death of a Minova employee in November 2010.
He was a passenger in a small truck being driven by one of our contractors and was involved in actually a low-speed traffic accident in China. As you know, we consider this to be unacceptable, and we fully investigated the incident. I'm pleased to report that there have been no fatalities since that accident in China last year. This year, we recorded Orica's lowest ever all worker recordable case rate of injuries and illnesses. That number is 0.47 per 200,000 hours worked. An excellent outcome by any standards, demonstrating the clear focus and priority that all our employees place on operating safely. Safety will continue to have the highest profile in Orica, and we still strive to achieve our aspirational goal of no injuries to anyone ever. We did have an increase in the number of distribution incidents compared to 2010, with 30 incidents recorded for the year.
We continue to put an awful lot of effort into this area, and we remain committed to implementing better and more consistent transport safety procedures, not just across our group, but also within the transport service providers. We've continued to reduce our emissions of CO2 equivalent on top of the significant achievements made from the Challenge 2010 program. As you may recall, this program, which ran over about a four-and-a-half-year period, resulted in a significant reduction, 57%, in our greenhouse gas emissions per ton of production. This year, we've achieved a further 15% reduction in our CO2 equivalent emissions per ton of production. As we disclosed previously, the introduction of the Australian government's carbon pricing regime will cost the company about AUD 8 million per annum based on existing emissions, but we do have further opportunities to reduce those emissions even further.
Before leaving this slide, I should say a few words about the incident at Kooragang Island on August 8th. It happened in the restart of the ammonia plant after a prolonged shutdown for maintenance and for uprating. There were some shortcomings in the design of the upright and the startup procedures. They caused a release of water vapor containing chromium-6 on the site and to an extent into the Stockton community. There are no enduring health effects to anyone as a consequence, but we very much regret the incident, and we've undertaken a number of investigations to be sure that we can restart the plant safely. The timing is, in fact, in the hands of the regulators, and we're hopeful of being able to restart the plant in the next few weeks. Meanwhile, ammonium nitrate production continues based on imported ammonia. Okay, turning briefly to financial performance.
Orica has delivered its 10th year of underlying profit growth. As we reported in the first half, we've faced some reasonably challenging conditions during 2011, and I think our people have responded very well. Conditions improved in the second half and combined with continued discipline in managing the business, we've delivered, I think, some pleasing results overall. Net profit after tax and before individually material items for the period was AUD 642 million. That's up 4% on the previous year, excluding DuluxGroup. Underlying this was growth in earnings before interest and tax, EBIT, which was up 2%. EBIT growth was driven mainly by an improvement in volumes in some of our markets, some improved pricing, and continued focus on productivity. Adverse foreign exchange movements, net of hedging, worked against us to the tune of AUD 60 million. Gearing's 26.6%.
Adjusting for the step-up preference shares as only 50% equity, gearing would be 31.4%. The balance sheet continues to be in good shape, and our banking facilities ensure liquidity. Noel will cover the numbers in a bit more detail shortly. In terms of operating conditions, we've seen actually a strong recovery in demand, particularly in the second half in some of our markets. Coal and metals markets in North America and Latin America have shown good growth, which has helped our mining services business. Coal markets in southeastern Australia and the Western Australian market generally have been strong. Northeastern Australia, which suffered from the rain, has also recovered well in the last quarter of our financial year, recovering from those heavy rains in the first half. We've seen only very slow growth in the quarry markets in North America and across markets in the Nordics, Europe, and CIS.
Subdued economic conditions in many countries continue to weigh on overall demand. A mixed picture in total. There have been benefits from improved pricing delivered in mining services. Overall, the pricing environment in the year was relatively weak, and part of that is due to the appreciation of the Australian dollar. Disciplined cost management and the relentless focus on productivity continue to be particularly important, as we are now seeing inflationary pressures in our fixed cost base in some of those markets where demand is improving. We've achieved good productivity benefits across all business platforms, and productivity and synergy improvements were AUD 36 million across the company. We've maintained our focus on trade work and capital management. Rolling TWC to rolling sales is now at 13.2%. This remains at levels very similar to 2010 and consolidates the improvement that has been made since 2005.
I think that's a great example of the benefits of staying committed to disciplined management over a long period of time. Minova obviously has had a very difficult year, particularly in the steel business in North America, where pricing pressures have continued to be very intense. Chinese volumes also were disappointing due to customers facing mining conditions which required less injection chemicals, and the rising input costs in Europe were not completely recovered in pricing either. That being said, we think the business has bottomed out in the second half of the year, and we expect to see growth in productivity, sorry, in profitability in Minova in 2012. We faced some operational challenges during the period from exchange, weather, some difficult markets. But overall, I believe we've got good momentum going into 2012, and we've continued to position the business for longer term growth.
I'll come back to this later in the presentation, that just concludes my introductory remarks, I'll hand over to Noel to cover the results and some of the key financial metrics in more detail.
Thanks, Graeme, good morning to everybody. Today, I'll touch on the underlying drivers of our earnings growth for the period and briefly talk through the performance of each of our businesses. I'll also talk through our cash flow performance and some of our key balance sheet metrics. As usual, I'll try to keep my comments reasonably brief, with additional detailed information contained in the profit report in the appendix to the presentation. At a group level, EBIT from continuing operations was up 2% on the prior year. A good result in light of rising input costs, some soft conditions in some market segments, headwinds from foreign exchange movements, and some adverse weather conditions. As Graeme indicated, overall volumes was up with an improvement in demand conditions in a number of our markets.
This was a very good outcome in light of the impact of the floods and heavy rains in Australia and Asia, which negatively impacted volumes during the first half. Disciplined management of our gross margins and continued underlying improvements in productivity, which combined delivered EBIT improvement of AUD 82 million, also contributed positively to the result. The strong Australian dollar has adversely impacted our translated earnings. Hedging benefits partly offset this impact with a net adverse movement of AUD 60 million for the year. Inflationary factors, high depreciation, and amortization costs after foreign exchange have continued to contribute to an increase in our fixed cost base. During the period, we also increased spending on research and development by approximately AUD 9 million over the previous year.
The unfavorable lag impact on the recovery of ammonia and ammonium nitrate cost increase have impacted earnings by AUD 17 million, while the prolonged shutdown of Kooragang Island ammonia plant has had an earnings impact of AUD 21 million. Overall, the result is pleasing with the factors within our control managed well, and we were able to deliver benefits which more than offset those external factors and the adverse impact of those. At a business level, we again saw record full-year results in both mining services and chemicals. Margins, however, were slightly down for both businesses, partially due to the Kooragang Island ammonia plant shutdown, the lower sodium cyanide production in chemicals due to a planned plant shutdown at Yarwun to uprate capacity, and obviously the impact of foreign exchange. Minova delivered an EBIT down 29% on the prior year.
This is a disappointing result, reflecting very challenging market conditions and strong competition in Minova. However, we believe that Minova has now bottomed out, and we can expect to see some improvements coming through in the following year. Just turning now to the businesses in some more detail, starting with mining services. Mining services delivered a record result. EBIT up 6% to AUD 817 million. There has been improved mining volumes globally, particularly in our second half, with continuing strong demand conditions from coal and metal markets in North America, Australia, and Latin America. Price and productivity improvements continue to positively impact earnings and provided an offset to the effect of rising fixed costs, inflationary pressures, the lag in the recovery of input costs, and the extended shutdown of Kooragang Island, and obviously the unfavorable impact of foreign currency.
The transfer of specific commercial functions from our North American business and Latin American business to our global hub in Singapore have resulted in a modest EBIT decrease in both businesses and an increase in the global hub. If we exclude the effect of the global hub, underlying earnings in North America and Latin America improved by 5% and 12% respectively. If you back it out year on year, that was the underlying improvements in both of those markets. The impact of the stronger Australian dollar was modest at only AUD 18 million due to the benefit of the hedging program that was put in place. Global ammonium nitrate volumes were up 9% with improved demand in the coal and metal markets in North America, Australia, and also Latin America. Ammonium nitrate volumes in Australia-Asia were up 9%.
This was due to stronger volumes in Southeast Australia and the Western Australian market generally, and a strong recovery in the second half from the heavy rain in the first half in northeastern Australia, partially offset by ongoing rain in Indonesia. Turning to North America. North American volumes were up 7% on the previous period, reflecting the underlying demand growth in the coal and metal markets in that region. Volumes in Latin America were up 14% on the previous year, whilst in Europe there was some evidence of some improved demand. However, strong competition in the European markets negatively impacted margins. Pleasingly, again, we saw very strong growth in our Electronic Blasting Systems, with volumes up 19% over the previous year. EBIT margin for the mining services group decreased marginally from 21.3% to 20.7%, mainly due to the impact of the foreign exchange and the rising input costs.
Summing up mining services result for the year, a continued strong demand conditions, margins well maintained along with productivity benefits which over the course of the full year have offset the impact of the weather, the lag in recovery of the rise in input costs, and the increased cost due to the extended shutdown of Kooragang Island, which cost us AUD 21 million. Overall, a very good result. Just turning to Minova. As we've said in our introduction, the Minova result is disappointing. EBIT down 29% to AUD 105 million, due mainly to compressed margin as a result of continued strong competition in North America and parts of Europe, as well as a AUD 22 million adverse impact on earnings from foreign currency translation effect. Chemicals and steel bolts volumes were both up in North America. However, pricing pressure and higher input costs significantly impacted the margins.
You can see there the negative AUD 30 million year on year on price. Markets in the CIS and the Czech Republic demonstrated modest growth, as did some coal and hard rock markets in Australia. The volumes in China were down during the year due to customers experiencing favorable mining conditions, which reduced demand for our injection chemical products. We did see strong growth in South Africa from the penetration into the wider African steel market. We did, as I say, see some volume growth in the Australian coal and hard rock markets. As a result of all of this, EBIT margins have deteriorated from 17.6% down to 12.8%. Clearly a disappointing outcome. However, we believe that we've seen the worst and expect Minova to improve next year. Just talking about chemicals. As you can see, chemicals reported EBIT of AUD 196 million, an increase of 4%.
This was mostly achieved through strong demand in mining markets, particularly sodium cyanide. Higher global caustic prices result in improved margins for our manufactured caustic, offsetting the impact of the unfavorable exchange rate movement of AUD 20 million. Volumes in our general chemicals business were improved both in Australia and also New Zealand. In Australia particularly, we did see some very good growth in some of our minor markets, whilst New Zealand had a good dairy season, which combined with efficiency gains, resulted in improved performance. Our Latin American chemicals business experienced strong growth across all market segments, and throughout the business margins were well managed. Volumes overall in mining chemicals were down 6% due to the lower production volumes following the planned shutdown at Yarwun to uprate sodium cyanide capacity earlier on in the year.
Demand from gold markets remained strong, also the emulsion input costs which were reduced following the installation of some new raw material manufacturing capability in the business. Costs in this business has continued to be managed well. EBIT margins reduced marginally to 13% from 13.2%, that decrease mainly is due to the impact of that foreign exchange. Overall, despite headwinds of foreign exchange and the lower sodium cyanide production, this was a terrific result. You should note that we do expect, obviously, to get the full benefit of the sodium cyanide production uprate to coming through in the 2012 financial year. Just a comment or two on the corporate center. As you can see, corporate costs were AUD 42 million, in line with the previous year.
Other support costs were 7% lower at AUD 48 million, mainly due to lower environmental expenses, insurance settlements, and mark-to-market valuations of hedging options. Now moving to cash flow for the period. Including the DuluxGroup in the prior year, net operating cash flow was down AUD 46 million to AUD 758 million. This was mainly due to EBITDA reduction of AUD 88 million, in part due to the demerger of DuluxGroup, a lower cash inflow in the movement of trade working capital of AUD 3 million, an increase in outflows from non-trade working capital of AUD 17 million. If we exclude the DuluxGroup, net operating cash flows improved by 2% over the previous year. Net investing cash flows were AUD 766 million, AUD 68 million higher than the previous corresponding period.
This is mainly due to higher sustenance capital of AUD 49 million, including the turnaround spend on Kooragang Island, which cost us about AUD 33 million during the period, as well as some increased spending on growth projects such as Bontang, Kooragang Island, Nanling, and also a slight reduction in the spend on acquisitions during the year. Just touching briefly on trade working capital to rolling sales. As you can see on the chart, rolling trade working capital to rolling sales is 13.2%, generally in line with last year's number of 13%. The period-end trade working capital balance remained relatively constant with the 2010 year and only increased by AUD 5 million. As has been the case in a number of years, I'm pleased to also report that as well as being able to get the metric to consolidate at that 13%-type level, we also incurred no significant bad debts during the year.
This following slide on growth capital just tries to outline as best we can our growth CapEx profile. As you can see, in 2011, we spent AUD 452 million on growth capital, progressing a number of projects across our businesses, the most significant of which are detailed on the slide. This was generally in line with our predictions earlier on in the year that the spend on capital growth projects in our second half would be higher as we near completion of the Bontang project and progress a number of smaller projects, particularly in mining services. We spent a further AUD 241 million on sustenance capital during the year, including the AUD 33 million on the turnaround on the Kooragang Island ammonia plant. Looking into 2012, we currently expect to spend around about AUD 600 million on growth and sustenance capital.
Pleasingly, I'd like to report that our major investment on Bontang, we expect to come in under our previous guidance of $550 million by approximately 10%, and that should be online later this calendar year. Just some brief comments on our balance sheet. We remain very pleased with the strength of our balance sheet. Adjusted gearing at 30 September stood at 31.4% and net debt at AUD 1.4 billion. We have announced our intention to buy back the step-up preference share, which will be executed on the 29th of November. If you adjusted gearing on a pro forma basis for that, gearing would be 36%. We have over AUD 2.3 billion of committed bank facilities and have only drawn AUD 0.3 billion at the end of September.
In July, earlier this year, we successfully refinanced AUD 2.1 billion of our existing bilateral bank facilities to now have a weighted average tenor on our bank facilities of 3.1 years. These new facilities also reflect lower commitment fees and margins compared to the previous facilities that were put in place in 2009. Our interest cover is 6.4 times. If you look at it with the effect of the capitalized interest, it actually moves up to 8.3 times. Either way, well above our covenant requirements of two times and our internal target of at least five times. Average funding costs remain at 7.1%, inclusive of all commitments and other fees, which is a decrease from the previous year, which was 7.9%. We've gone down to 7.1%. If you exclude the commitments and other fees, our underlying funding cost runs at about 5.5%.
Our cash conversion, you'll recall at the half year, was below where we'd like it to be, and I'm pleased to be able to report that for the full year cash conversion was in excess of 80%-81%, down from the prior year, which did include DuluxGroup, and the main reason for the decline there has been the increased spending on sustenance and obviously the lower inflow on trade working capital this year. From a balance sheet perspective, again, we're in good shape and our credit metrics are good and we remain committed to maintain the balance sheet to support our BBB+ credit rating. Looking at our drawn debt maturity profile from 2012 till 2030. We did complete our USPP in October 2012, which has increased the average tenor of our finance facilities and smoothed out our maturity profile, which you can see from this chart.
The average tenor of our drawn debt is approximately just over seven years. Briefly talking about our foreign exchange exposures and our hedging program. Approximately 60% of our total foreign currency exposures have been hedged for the 2012 financial year. This hedging includes the protection of our foreign currency earnings as well as transactional exposures. To reduce the impact of adverse currency movements to our earnings, we undertake hedgings for a large proportion of our foreign currency exposures using options. The major foreign currency exposures we have and the hedges we have in place are detailed on this slide. The total cost of all of our hedging for 2012 is approximately $26 million, which is in line with that cost that we incurred in 2011. Our single largest foreign currency exposure relates to the US dollar against several currencies.
As shown on this chart, we've hedged around 74% of this exposure. A large portion of our total currency exposure relates to the translation effect of foreign currency earnings back to Australian dollars. 85% of our US dollar EBIT exposure has been hedged back to Australian dollars at a strike rate of AUD 0.98. To try and put that into context, we've paid the $26 million for both the transactional and translation effect. We've locked in 85% of our EBIT translation exposure at that AUD 0.98. In 2011, our EBIT hedge rate for translation was AUD 0.97. If you overlay our transactional exposure, it was probably low 90s. We've probably got some headwind of exchange going into 2012, but I don't believe it's as near as significant as what we've experienced in 2011.
Given where we have our hedging program, a 1% unfavorable move in the Australian dollar versus all currencies would have a negative impact on our earnings of approximately AUD 4 million on an annual basis. Without the hedging program, the impact would be AUD 8 million. Turning to environmental issues. As been the case in previous presentations, what we've attempted to do on this slide is to provide you with the expected cash drain on the company over the next few years as we deal with legacy environmental issues, as opposed to accounting nuances about recognition of provisions. As at 30 September, we carried AUD 227 million on our balance sheet for environmental provisions, with around AUD 139 million relating to remediation activities at our Botany site in New South Wales. This includes hexachlorobenzene waste treatment, Botany groundwater remediation, and Botany mercury remediation.
The groundwater treatment plant at Botany continues to operate at a level required to contain the plume. The cash spend on operating this treatment plant is expected to be AUD 11 million this financial year, with costs around this level going forward. You see that AUD 11 million each on the top line. We've made some good progress on the on-site remediation of the encapsulated HCB waste, and remediation work has commenced and is expected to be complete in early 2012. In terms of our hexachlorobenzene stockpile at Botany, we have been delayed in our plans to export this waste. As you recall, late in 2010, after initially providing consent to receive 6,100 tons of our stockpile of HCB, the Danish government stated that for political reasons, it would not accept the shipment.
Orica continues to safely store the HCB waste in fully licensed and secure facilities at our Botany site. At the same time, all options are being evaluated by us for the safe and environmentally sound destruction of this waste. As a result, no estimate can be provided on the time of expected cash flow associated with the remediation project beyond current storage costs at Botany. If you look at that second line, HCB remediation, you can sort of see we'll spend the AUD 22 million in 2012 on the car park encapsulation, and then it drops off then into 2013 and 2014, and that relates to the ongoing storage costs. The mercury remediation project has been halted on Botany due to unsatisfactory results in the pilot's washing project on soil.
In conjunction with the authorities, we are assessing alternative approaches to managing the mercury, and in the meantime, the area continues to be enclosed in a sealed shed to contain any vapors. That's why you see the AUD 23 million was the estimate for 2012, and then that drops off then to zero in 2013 and 2014. There are other environmental issues we're currently working on to resolve across our business, and spend on these projects is expected to be in the order of AUD 15 million in 2012, dropping off to that AUD 7 million in 2014. Much of this expenditure is aimed at cleaning up sites around the world, which we aim then to dispose of. I guess summing up my comments for the year. 2011, as Graeme said, represents the 10th year of consecutive underlying profit growth. Operating cash, excluding Dulux, improved by 2%.
Trade working capital sales held constant at that 13.2%. The balance sheet is in very good shape. We could always do better, but overall, it's been, I guess, I think a very good year. That concludes my comments for now, and I'll hand back to Graeme.
Thanks, Noel. I'd like to spend a little time looking at our strategy briefly, the significant growth opportunities we have before us, and why we think we're well-positioned to make the most of those opportunities. Firstly, it's useful to recap on where we've come from. Today, you see a markedly different Orica to that which existed even five or six years ago. Over that time, through a series of acquisitions, investments, and divestments, we've sharpened our focus on providing high-service, critical consumables to the global mining and infrastructure sectors. As you know, this is not new. It's been a very deliberate strategy to position ourselves as the global leaders in markets offering long-term, sustainable, above-GDP growth. Today, Orica has evolved to be focused on the mining and infrastructure sectors to the point where 90% of our earnings are generated from these sectors.
We aim also to deliver earnings that are relatively resilient through market cycles. For that reason, our mining businesses are focused on the mining and processing segments of the mining value chain. Activity in these segments is largely influenced by production volumes and has relatively low volatility, even in times of economic slowdown. This has proven to be the case over the long term, and most importantly, during the prolonged period of slow economic growth that we're experiencing presently. We operate in an industry that's very attractive and has seen considerable consolidation over the last decade. On the supply side, much of it driven by us, of course. While there has been some volatility in markets over the last few years, we remain very optimistic about the strong long-term growth drivers in the industry.
In the foreseeable future, our business's growth will continue to be driven by high growth in commodity demand, especially from the larger developing countries, declining ore grades and increasing strip ratios, strong growth in tunneling, stricter safety regulations and standards, and a greater focus on efficiency and productivity. As demand for commodities increases, particularly from China and India, our customers are increasingly looking to extract their products as efficiently and safely as possible, and all this in an environment of diminishing accessible resources and increasing safety regulation. They need more of our product, combined with quality advice and support. To that end, we see growth coming from technical and service innovation. Orica's commitment to research and development, both directly and in partnership with a wide range of research bodies, has made us a clear market leader in product and service innovation.
Investment in research and development continues to be substantial, with a further 23% increase in 2011 over the previous year. We continue to see growth in new products. As Noel mentioned, Electronic Blasting Systems, where volumes were up 19% versus the prior year. To some of the growth projects. Firstly, let me say, we have a significant pipeline of opportunity to expand our manufacturing capacity. There's work currently underway on various expansion projects across our businesses. They include, of course, the Bontang project in Indonesia; ammonium nitrate expansion at Kooragang Island in Australia here; new AN emulsion plants at both Kurri Kurri and in the Pilbara; progression of an AN proposal in Peru; expansion of sodium cyanide capacity through debottlenecking existing facilities; and the construction of a non-electric detonator facility in Nanling in China.
Of course, some of these growth opportunities also increase our geographic footprint and support our growth in emerging markets. While we're global market leaders by some margin in the explosives business, we are underrepresented still in some of the higher growth markets of Africa, China, Eastern Europe, Latin America, and Western Australia. Let me give you a quick update on some of the bigger projects. Excuse me. Starting with Bontang. The project was sanctioned in 2008 for the construction of a 300,000 tonne per annum ammonium nitrate manufacturing facility. It's favorably located next to ammonia feedstock, as you know. The project complements Orica's already strong market position in Indonesia and will support our participation in further market growth. Product from the plant will be sold out domestically in Indonesia and will substitute for imported product. Currently, over 90% of the ammonium nitrate consumed in Indonesia is imported.
Local production will provide customers both higher quality product and increased security of supply. We've been very pleased with the progress of the project. It's currently in the commissioning phase, and we've achieved an outstanding safety record on the construction of the plant with over 10 million site hours worked and only one recordable injury. Initial production is expected in the first half of our 2012 financial year. As Noel mentioned, project costs are expected to come in at around 10% below that initial estimate of $550 million. For some time, we've been looking at opportunities to build ammonium nitrate capacity in Peru. An initial project to build in cooperation with CF Industries has been postponed. Orica's currently undertaking pre-sanction activities on a proposed ammonium nitrate plant in its own right.
The proposed plant will reduce dependence on imported product and support the very extensive growth plans for the region. With a sanction target of the first half of 2013, that's for sanction by our board, current activities include the acquisition of land, both for the initial facility and with capacity for further expansion. We've undertaken initial public consultation as well as progressing environmental impact assessments. We're targeting an operational date for that plant in the first half of 2016. The Kooragang Island ammonia plant uprate to take capacity up to 360,000 tonnes per annum was completed in conjunction with the plant turnaround in July of this year. As I mentioned earlier, during the start-up of the ammonia plant, we experienced an incident when an amount of sodium chromate containing hexavalent chromium was released. As a consequence, the plant was shut down at that time.
We're working with the regulatory authorities to allow a satisfactory restart of the plant. The additional capacity will initially be used at Yarwun and substituted for ammonia imports from third parties. Following the proposed increase in ammonium nitrate capacity at the plant, that is at the Kooragang Island plant, the ammonia will be consumed at Kooragang Island. The AN uprate of KI from 430,000 tonnes to 750,000 tonnes, that's the AN uprate. It has received initial approvals. We've ordered long lead time items, and the project, frankly, is being progressed as quickly as possible for commissioning late in the 2014 calendar year. In China, we've progressed the construction of a non-electric detonator facility which will supply up to 40 million units into the local Chinese, mostly underground mining and tunneling markets. First production from the facility is expected in the second half of our 2012 financial year.
Due to the commissioning challenges of a multi-staged assembly line that this plant is, full production is not expected until around 12 months after that, so well into 2013. The project's actually significantly behind the original schedule, but total project costs are expected to be approximately AUD 100 million, and that's in line with or a little below our initial estimates. The project will deliver returns which meet our target 15% internal rate of return. Just to round out the picture on growth in a sense, I've shown on this chart some forecasts for growth in the demand for coal and various other minerals over the next few years, and they've been assembled from a number of different sources, which are shown at the bottom of the chart. As you can see, the forecasted growth rates are strong, mainly above GDP.
The reality is that if we added up our individual customer plans, taken together, they'd present an even stronger picture. In fact, a much stronger picture. While there may be some ups and downs due to economic uncertainty, we think this is a very positive backdrop to the company's growth plans. To sum up, we've achieved another solid result in 2011 in what we think are fairly challenging conditions. The result demonstrates the strength of the business's strategic direction and I think our focus on the fundamentals. We've maintained a strong balance sheet and are well-positioned to pursue plentiful growth opportunities that we see in front of us. We progressed a number of key manufacturing projects which will realize EBIT benefits from 2012 onwards.
The market outlook and long-term demand is robust, driven by strong growth in commodity volumes, declining ore grades, increasing strip ratios, and increasing mine safety standards and regulations. We think we're well positioned strategically and operationally to participate in that market growth. To the outlook statement, we expect group net profit after tax, pre-individually material items in 2012 to be higher than that reported in 2011, subject to global economic conditions. Thank you for your attention, and now Noel and I will be happy to answer any questions. We'll adopt the usual procedure of starting here in Sydney and then alternating with the phone until we run out of questions. Thanks.
Hi, Brian. It's Mark from Deutsche. Could you just comment on what you're currently seeing in volumes across your major regions? Any changes with that? Also coming from a high base, particularly in the Americas and also Australia. I guess if you could address just the rate of recovery in Northeast Australia as well.
Yes, thanks for the question, Mark. Look, overall for the year, we've shown our growth rates for ammonium nitrate, which were in the Australia-Asia region in total, 9%. I think 7% in North America, in fact 14% in Latin America. Latin America will sound very strong to you, and it is actually. There's been a good recovery in the second half, but we've also won some market share there. We've won a piece of business in Colombia that's making a significant difference to those numbers. The bottom line is that growth in all of those regions, excluding Europe, is strong. To specifically come to your question about the Northeast. In total for the year, our volumes in the Northeast were actually down a little, probably 2%, something like that. The last quarter has shown really some considerable strength, and that's reflecting a recovery from the rains.
To turn to other volumes just briefly, I'm sure you're really focused on ammonium nitrate, but the other volumes, generally were Minova in Australia and North America, reasonably strong. Thinking mid-single digits, perhaps even a little stronger. Weak in Europe and China. China will improve going forward. Europe might improve slowly going forward, and I'd expect continued growth in both of North America and Australia-Asia. In the chemicals businesses, actually, volumes in mining chemicals were weak because of the outage. We didn't have the available manufactured tons. That will come right now, so 2012 will see the benefit of the outage. That's the main effect in chemicals. The rest of the chemicals group, not too bad, actually, but a bit patchy in places.
We do have one on the phone.
One on the phone?
First question comes from Andrew Peros from Credit Suisse. Your line's open. Please go ahead.
Good morning, everyone. Can you hear me okay?
Yes. Thank you, Andrew.
Just a few quick questions around Minova. Presumably the North American business was the bulk of the earnings decline throughout the year. Are you able to maybe give us a feel for what % of earnings came from the Minova China business? Maybe even quantify the earnings decline there due to weak volumes?
In the Minova China business, it's 10% or less. We had a particularly weak year in China for the reasons Noel described, which was that our customers were in actually very good ground and therefore didn't have the usual requirements for injection chemicals. North America you can think of as being roughly 30% of the business, you can also think of it as being the main area in which we suffered from that price pressure.
China is expecting a resurgence. More normalized conditions or volumes?
The last month or two, we've seen some improvement in that area.
Okay. Last but not least, can you remind us how much goodwill you're carrying in the business?
I know the potential. What's the goodwill?
Yeah. Good day, Andrew. Noel, mate, let me answer it this way. If we look at our total carrying value in Minova, it runs at AUD 1.5 billion. That was basically two acquisitions, so roughly 50/50 between chemicals and steel. With the U.S. in particular, the type of growth rate we need going forward to avoid any sort of issue on impairment on goodwill is about 3%, using a discount rate for discounted cash flows of 9%.
Okay, thanks.
The next question comes from Matthew McNee.
We-
No, we're doing Paul.
Okay. Michael, go.
Hi, Michael Ward from CBA. You made some positive comments around pricing in the explosives business. Can you just talk through how much that might be emulsions related?
Sorry, how much?
Emulsions related.
Emulsions related. Yeah, look, you're talking about 2011, Michael?
Yes.
Yeah. The 2011 result, we saw some improvement in pricing, which was not as significant as in previous years, and you'll see that in the variance analysis that we've shown for the business. I don't have a breakdown of emulsions versus ammonium nitrate, but emulsions would be a bigger proportion of it than was seen in previous years. AN pricing's up a bit. Emulsions will therefore provide an important part of that upgrade. We'd have to give you the numbers separately, though. I don't have them here.
Okay. Just in regards to an overview, you made some comments that you think the worst is now behind you.
Yeah.
Can you just sort of elaborate on what you mean by that? The trend is not really your friend at the moment.
No, the trend is not our friend, if you look at the first half, we made about AUD 55 million. Look at the second half, we made AUD 50 million. As we're seeing the business now, we think that the pricing pressures that we're seeing in the U.S., I can't describe them as improving a lot, but they're not getting worse. I think we're going to see some improving conditions in China and some growth elsewhere, and that's why I say I think we've bottomed out in the second half.
Do you think has the change in industry ownership made any difference in the U.S. yet?
I couldn't say that I've seen it yet.
Just finally, maybe one to Noel. The minority's expense in the P&L was down quite a lot. It was AUD 36 last year. It was AUD 20 this year. Can you tell us why that was?
Off the top of my head, I think what it is, Michael, in a couple of cases, we bought out some of that minority, a percentage of it, so we control more now. The other one would've been the business that probably has year on year, sort of not performed, has been our Turkish JV.
Go to the telephone.
From Paul Chance from Austock.
Hopefully, you go back to Matthew McNee as well. I think one of his questions was missed. I've just got a few questions. Also I'd like to underline that we're not hearing the questions off the floor. Maybe if the mic could be moved or volume turned up. Just onto my three quick questions, if I can. Graeme, with the returns and all the metrics around that and the IRR, we're pretty clear on that. Just maybe your thoughts as to the growth rate that you expect in the medium to longer term with Orica, because obviously with all these projects you've got, yes, you look at them on their merits, but is there an underlying sort of growth that you expect medium-term with this group, with the volumes and things going forward?
Paul, I'm obviously not going to give you a profit forecast. The sort of numbers that we aim at, in terms of our ambition of trying to get to be a top quartile performing company, are that we seek to grow the gross margin line, not the revenue line, but the gross margin line by roughly double digits. We seek to improve our productivity by in the order of 1% per annum on average. That won't happen every year, but through the journey, that's what we're seeking to do. The arithmetic works out that that gives us the sort of EBIT growth that we expect will give us top quartile performance. If you look at the next couple of years and look, again, with that caveat about global economic conditions, we think the growth rate looks reasonably robust for two reasons.
One is that the markets in which we're participating look pretty good. We're carrying a fair bit of momentum, I think, into 2012. That secondly, we've got investments that we've already made, which will add to the bottom line. In general terms, we feel pretty positive about that.
Just to follow on from that, with the growth and obviously the lion's share now in mining services, can you see a period in two, three years' time, perhaps, where you would report on geographic basis rather than a product type basis?
Look, it's not out of the question that over a period of five years or something that the company would get restructured and that the reporting would be changed, but we have no intention like that at the minute.
Okay. Just the final question is a bit of minutia around the U.S. quarrying construction. You mentioned that it's very flat. You've restructured the business there. When do you see growth in that quarry construction site in North America, please?
We expect to see small growth in the 2012 year, but I don't want to exaggerate that. It's off a low base, and it won't be much.
Okay. Thank you very much, Graeme. Thank you.
Thanks, Paul.
The next question comes from Andrew Evans from Taylor-
No. Hang on. We'll take a question here in Sydney again first, please.
Morning, Graeme, Noel. Ramoun Lazar from UBS. Just a couple of questions on the explosives business. There was a few comments in the release about the proposed 150,000 ton emulsion plant in the Pilbara and also a similar plant in Kurri Kurri. Can you maybe just comment on the cost of those plants, potentially volume off takes, and the sort of returns you expect? Secondly, maybe just comment on the KI expansion in light of your main competitor's announcement last week, potentially entering the New South Wales market, and the potential implications on demand and supply on the East Coast.
Yeah. Thanks, Ramoun. Can I just check that we heard that question on the phones? Andrew? Maybe it is quicker if I just repeat the question. The question is twofold. One is, what is the amount of production coming out of the two new AN plants that we mentioned, in the presentation, and about how much do they cost? Secondly, what is the story with the AN upright at KI in the light of our major competitor making an announcement that it is looking at a further expansion in that area themselves. Taking the emulsion story first. Plants of that size, typically will cost you AUD 30 million-AUD 50 million to build. It will vary according to the exact size and where you are building it and so on. That is the sort of order of magnitude, Ramoun.
As to volumes, I believe the initial volume coming out of the Pilbara plant, for example, is a capability in total of probably 90,000 tons. We would expect to shift 60,000 tons or thereabouts, in the early part. As you say, that can be expanded a bit, not to 150, I don't think, but more like 120. The KI expansion, our major competitor has announced that it is looking at expanded capacity on its Kooragang Island site. I don't think they gave timings, and I don't think they have given costs and so on. It is at early stages. I think there are fairly big hurdles to jump there and a fair amount of water to pass under the bridge. The exact timing of that plant is still unknown to us at this time.
I guess all I can say to you is that we are pushing ahead with ours absolutely as quickly as we can. We have spent a very significant amount of money. The board has given support for the project. We have ordered long lead time items and so on. We are building as fast as we can because the market is growing very strongly and needs the product. Without that KI upright, if you take a year like 2017, let's say, based on reasonably robust growth rates, that whole eastern side system is short of about 300,000 tons, even with our upright.
The next question comes from Andrew Evans from Taylor Collison. Please go ahead.
Hi. My question's already been answered. Thank you.
Thanks, Andrew. We're coming back to Sydney for those on the phones.
Good morning, guys. John Purtell here from Macquarie. Had a couple of questions, all related on pricing within the mining services business. Graeme, you talked about higher inflationary costs emerging, and pricing not really sort of being that strong, particularly in the second half. Is your expectation for stronger pricing as we move forward into FY 2012? Could you comment on what areas or what regions particularly you'd be more optimistic on than others? Thank you.
John, my comments about pricing were not specifically directed at the second half. If I gave you that impression, I apologize. I'm saying that if you take the year as a whole, the pricing environment was reasonably weak. As we look forward, though, we have been predicting this for a while, it's clear that the ammonium nitrate market is tightening up very substantially. I think as you can see from our competitor's announcement, there's a reasonable expectation that prices will begin to rise towards reinvestment economics. I think that needs to happen in order to generate the capacity that's required. That being the case, I think we're headed into a generally stronger pricing environment in the Australian market, certainly. I think I can say the same about the North American market.
I think it's tightening and the pricing environment there has been not too bad actually through the year, but is also going to be firm going forward. Latin America, pretty well steady as she goes.
Within the mining services business.
Graeme, you talked about higher inflationary costs emerging, and pricing not really sort of being that strong, particularly in the second half. Is your expectation for stronger pricing, as we move forward into fiscal 2012? Could you comment on what areas or what regions particularly you'd be more optimistic on than others? Thank you.
John, my comments about pricing were not specifically directed at the second half. If I gave you that impression, I apologize. I'm saying that if you take the year as a whole, the pricing environment was reasonably weak. We look forward, though, and we have been predicting this for a while.
Within the mining services business.
Graeme, you talked about higher inflationary costs emerging, and pricing not really sort of being that strong, particularly in the second half.
Is your expectation for stronger pricing, as we move forward into fiscal 2012? Could you comment on what areas or what regions particularly you'd be more optimistic on than others? Thank you.
John, my comments about pricing were not specifically directed at the second half. If I gave you that impression, I apologize. I'm saying that if you take the year as a whole, the pricing environment was reasonably weak. As we look forward, though, we have been predicting this for a while, it's clear that the ammonium nitrate market is tightening up very substantially. I think as you can see from our competitor's announcement, there's a reasonable expectation that prices will begin to rise towards reinvestment economics. I think that needs to happen in order to generate the capacity that's required. That being the case, I think we're headed into a generally stronger pricing environment in the Australian market, certainly. I think I can say the same about the North American market.
I think it's tightening and the pricing environment there has been not too bad actually through the year, but is also going to be firm going forward. Latin America, pretty well steady as she goes, reasonable pricing environment. Europe, I would expect to be weak. That brings us to Asia, and Indonesia's the biggest player there. It all depends, frankly, on at what price we can get product out of China into Indonesia. That determines the pricing regime in that market, and all the indications are that those prices are firming too. I think we're headed into a generally stronger pricing environment. Anyone on the phone?
Graeme, Andrew Scott from RBS. Just a couple on KI, if I can, just on the ammonia side and the disruption there. Firstly, once you do get the regulatory go-ahead, can you let us know how quickly you can actually ramp up? Secondly, my understanding was that the issues, I guess, were part process and part plant. We can sort of get an idea of the operating cost at the moment, but is there a material CapEx component that's going to be required or has been required? Finally, just on KI, just any ongoing costs that you expect going forward in terms of reporting and monitoring, which I expect will have to sort of step up.
Yes. All good questions, Andrew. Thank you. First of all, your question about ramp-up. An ammonia plant typically takes something like seven or eight days to ramp up. Once we get the go-ahead and assuming everything goes smoothly, we should have the plant up to pretty good operating rates in that sort of timeframe. It's only a week or two. As to your question about the capital costs on the plant, there have been some additional capital costs because Part of the problem here was that there were some shortcomings in the design, and so we've had to make some modifications to that design, and that's been a few million AUD. It has not been significant. As to your final question about reporting and so on, I think we will face a slightly tougher regime going forward.
The laws that are in the parliament would suggest that we're going to have to report more quickly and that sort of thing. I don't think that will have a very material impact on costs.
Thanks, Graeme. Maybe two quick ones for Noel, if I can. First of all, Noel, I think first significant item-free result for over a decade. Obviously, these things can't always be predicted, looking forward, I can't see any reason why we wouldn't see that remain the case. Secondly, just on Minova, I saw the small Atlas Copco acquisition. It was small, but interesting given the usual rule that you won't invest in a business that's not making its 18% return.
Good morning, Andrew. I think the first one, let me say thank you for your compliment on no significant items in 10 years. I've been CFO for six, first one I've had with no significant items. Look, the accounting standards will determine whether or not we have those type of things, I was pretty pleased to have a clean result. In terms of Minova, the Atlas Copco was something that had been on the books for a while in terms of negotiations behind the scenes. The dollars involved were very small, I guess part of the rationale in our minds was it was a short payback, we thought we didn't want to be hard and fast on the 18% on Minova on that sort of case when we got small businesses to expand the customer offering.
I think you're right to say, we generally sort of look and say, business has the right to grow. We're keen to continue to have that discipline, we'll make the odd exception, and that was an exception. Is there any more questions? Oh, one more.
The next question comes from Matthew McNee from Goldman Sachs. Please go ahead.
Yeah, Graeme, I just had a question in relation to Bontang and the potential impact on Yarwun. Firstly, what export volumes did you export out of Australia in the last year to supply Indonesia? Will you still be doing some exports out of Australia, over and above Bontang's capacity? Really trying to get a feel for where that additional volume's going to go, or do you have a good feel for, is the growth in the Northeast going to pick up the slack, or do you have to slow Yarwun down, or what's the likely outcome there?
Yeah. Thanks, Matt. First of all, Bontang will be all sold domestically, as I said. Your question also plays into that issue with Moranbah coming on during the course of the next few years. We still expect that the Moranbah plant will cause the East Coast, Northeastern region, I should say, to be long. Previously we had said, I think, that we would expect it to be long by about 100,000 tons in 2013 and 100,000 tons in 2014. That's now looking like being a bit less, because the growth outlook is a bit stronger than we were anticipating at that time. To come back to your specific question as to what we exported in this year, we exported, I think, just under 190,000 tons, about 20,000 tons less than last year.
We are getting clearer, actually, that we're going to be able to place the tons out of Yarwun within the system that we've got in front of us, it's less likely as time goes by that we're going to have to turn Yarwun down.
Hi. Scott Hudson from CLSA. Could you just comment on your Peru plans in light of, I guess, Enaex's expansion plans as well, in terms of timeframe, where do you sit in the market post that?
Yes. Well, Enaex has already operated one plant, but you're talking about the one that they're talking about in conjunction with the Brescia family in Peru. I think it's quite unlikely that both plants will ultimately get built in the short term, although if you look out to 2020, both plants are likely to be required. The situation is that we're progressing our plant. We think it's the best of the projects. We've got a very clear plant project program now, and importantly, one that's within our own control. What we're suffering from a bit with the CF project was that it was partly dependent on CF's plans, and of course, they've had other things on their agenda, and that slowed us down a little bit. We now have a project that's in our control, and we're pushing it on as fast as possible.
There may come a time when we talk about supplying the other party, or they talk about supplying to us. I don't think both projects will be built in the short term, as I said, both are required by 2020.
Is that the same location, or was there a change in-
No, there's a change in location. We're moving. We were in Marcona, we're moving further south.
Okay, great. Thanks.
Okay. Yeah, one there.
Thank you. Larry Gandler, Credit Suisse. Nice to meet you guys.
Yeah.
New to the stock. Being new to the stock, I was just wondering if you can elaborate on the circumstances that led to the aggressive pricing in Minova, in that industry. Obviously, supply exceeded demand, but maybe there was a catalyst like falling raw materials or something like that.
Thanks, Larry. Welcome. The Minova story is this, that interestingly enough, the structure in the U.S., which is what we're really talking about here, is that, if you go back a few years, we had about 45% market share, perhaps 44. A company called Jennmar had 45. Between the two of us, quite a large market share. There was a company called DSI, still is actually called DSI, which had the balance. We found that DSI was quite aggressive on pricing under some previous ownership. Initially, we allowed our market share to decline. Our share declined from about 44 down to about 40. Ultimately, we had to draw a line in the sand, and I think Jennmar actually responded probably even sooner than we did in terms of this.
It's degenerated into, I don't know the technical definition of a price war, but it looks like a price war to me. Unfortunately, even though industry growth is okay, we're in a very price-competitive environment. Those are the circumstances that arose. Nothing more on the phone, I'd take it. Anything more in Sydney here? Thanks.
Graeme, just, again, coming to the Peruvian AN plant-
Yes.
Would that be based on imported ammonia?
Yes. Okay. Nothing more in Sydney? Don't want to sound like an auctioneer, but I think I'm going to close it down. Okay. Thanks, everybody. Again, thanks for your attention.