Good morning, ladies and gentlemen. I'm Delphine Cassidy, Investor Relations at Orica. Welcome to today's half year results for 2015. Welcome to all of those in the room, and I also welcome those who've joined us on the webcast and those on the teleconference. Presenting today is Alberto Calderon, our Interim MD CEO, and Craig Elkington, Executive Director of Finance. We also have in the room Nick Bowen, Global Head Mining Services. Today's presentation, Alberto will first present, followed by Craig, and there'll be ample time for questions, both from the floor and from on the line too. Alberto, I'll hand it over to you. Thank you.
Thank you, and good morning. Thank you for being here this morning. Let me just sketch the order of presentation. I will give a brief summary of the first half results, then Craig will go into the details of the financial performance, and then I will take you through the outlook of 2015, and then a story of how we believe we're being resilient in the middle of these difficult markets. I always like to start with safety when we're in this sector, mining services, for two reasons. Not only is safety the foundation of our company and the safety of our people a core necessary condition of our company, but also because it is the best indicator of operational excellence. You can really not have operational excellence if you are not excellent in safety.
The trends and the numbers of Orica are really world-class. If you compare them, they're among the best in Australia and therefore Australia is among the best in the world. It's with quite pride to be leading a company that has that excellence. Now, nevertheless, we have to continue our journey to what we call no accidents today. Last month, we had four accidents, relatively minor, but still the push is for every single one of our employees to go home safely every day. Resilience in challenging markets. The numbers have been out there since this morning. Our EBITDA roughly down 5%, EBIT down 9% more depreciation. Craig will talk about that from older projects coming in.
More importantly, to my mind, NPAT, which is in the end what goes to our shareholders, almost flat, down 3% in what I, what all of us see every day is probably the most challenging times of the last 20 years in the mining industry. I think that's a pretty resilient outcome. Net operating and investing cash flow is strong. Our volume's basically flat, which is also an indicator of resilience. We're quite satisfied and we will talk about it later, about our increased penetration in advanced products and services. We will talk also about the transformation program. We've decided to maintain the dividend, which tells you a lot of how we are seeing things, a capacity in the current market to maintain a significant dividend. By the way, the blackout, I'm sorry, the on-market share buyback has initiated as we promised the market. The blackout period ends today.
With this, I hand it on to Craig to go into the details of the financials.
Thanks, Alberto. Good morning, everyone. Welcome also to those who are joining us on the webcast. This morning I'll provide details of the company's financial performance for the first six months of FY 2015. Just a reminder that the profit report and analyst compendium both contain further details of these results, and they can be found on the Orica website and have been lodged with the Australian Securities Exchange earlier today. Into the group financial performance. From a total company headline perspective, statutory net profit after tax for the period was AUD 222 million, and this is down 8% versus the comparative period in 2014 of AUD 242 million. I must point out, though, that the end of February, as we announced to the market, the company successfully completed the sale of the chemicals business.
What I've done throughout this presentation is to separate performance into continuing and discontinued operations just to assist in providing more meaningful comparatives. On a continuing operations basis, that is without chemicals in both periods, net profit after tax, as Alberto said, was AUD 211 million, and this is down 3% on the comparative result. While sales revenue was relatively flat year-on-year, we did see an unfavorable margin mix as we saw higher volumes in the Americas really offset lower volumes in the higher margin Australia Pacific market. In combination with increased pricing pressure in some markets, this caused EBITDA to decline 5% to AUD 472 million, again, on a continuing operations basis. Higher depreciation charges resulted in overall reduction in EBIT of 9% to AUD 330 million.
From a shareholder's point of view, earnings per share moved generally in line with reduced profit result to around AUD 0.57 per share on a continuing basis. Excluding AUD 680 million of proceeds relating to the chemicals sale, an underlying positive net operating and investing cash result of AUD 110 million was recorded during the period, and this brought company gearing level to a well-funded position of 29.4%. As Alberto said, despite slightly lower earnings, the directors have determined to maintain an interim ordinary dividend profile in line with last year at AUD 0.40 per share, and this has been franked at AUD 0.14 per share. Just for completeness, net profit after tax from discontinued operations was AUD 11.1 million.
This includes five months contribution from the chemicals business as we owned it at that time, and also it was offset by a book loss after tax on divestment of AUD 9 million. In my view, this scorecard represents a pleasing level of earnings and cash flow resilience with a solid funding position in very challenging market conditions. For more detail on the group EBIT waterfall. I've broken down the performance into two areas. Firstly, the market factors and what as a company we're doing to offset these impacts. Then secondly, once off or non-recurring items that we've had to incur to reset our operations. On this basis, you can see that in the first six months, benefits from the company's previously announced transformation program have more than offset external market impacts that would otherwise have more significantly reduced company earnings.
Those adverse market impacts are primarily driven by, as I said earlier, a negative impact of the regional shift in volumes from Australia to the Americas, increased pricing pressure for explosives products, particularly in Australia and Asia, and lower pricing across global sodium cyanide markets. I'll go into these items a bit more detail in later slides. As far as non-recurring items go, one-off implementation and restructuring costs of AUD 64 million were incurred as part of a transformation program, and a AUD 12 million profit from asset sale was recorded this period. The net impact of all of these factors delivered the AUD 330 million EBIT from continuing operations. In terms of global AN volumes, total volumes were generally resilient in the first half, being up 3% year-on-year. I'll now go through the regions. Starting with Australia Pacific, AN volumes were down 5%.
Volumes to eastern coal markets were down 8%. This was impacted by changes in mine planning, mine closures, and contract losses. Changes in waste stripping drove Pilbara volumes down 16%, while increased volumes to third party and competitive channels offset some of these impacts for our company. In North America, explosive volumes were up 10%. This was primarily on the back of an increase in volumes to the coal market. Strong volumes to our U.S. coal joint ventures reflected an improving production profile, particularly in the Powder River, and recently won new business both in the West and in the East. Metal mining markets continued to be solid at 4% growth, while quarry and construction volumes were somewhat mixed, with the U.S. being slightly up and Canada being slightly down. In Latin America, volumes were up 9%.
Trading performance across the larger markets being Chile, Peru, and Colombia were all up during the first six months, with another highlight in this region being an increase in increasing take-up in advanced blasting products and services. This was up 17% year-on-year. In EMEA, Europe, Middle East, Africa, volumes were relatively flat across both the major subregions of Europe and Africa. We had 6% growth in the Nordics and Western Europe markets and 3% in the CIS, and this was offset by lower volumes in Turkey. While in Africa, Zambia volumes were up slightly, albeit a bit slower than we expected with some of the ramp up of new accounts being a bit slower than we expected, as I said, offset by lower volumes in Ghana.
Asian explosive volumes were down 3%, mainly due to a 6% reduction in Indonesian domestic volumes as a result of a weak coal market and reduced stripping ratios. North Asia volumes were down, offset by a stronger India performance. You can see a real mixture across the region. To cover off on the other market factors, as I said, what as a company we are doing to offset these impacts. Sodium cyanide volumes were up 28% as compared to the prior year. Gold market stabilized and new business was contracted. This was against a backdrop, if you recall, of the first half 2014, where customer destocking programs took place. Ground support volumes were down 14% as underground coal markets continued to face difficult operating conditions, particularly in the Eastern U.S. and Western Europe.
Explosives pricing pressure increased in the period, particularly in Australia and Asia, and this resulted in an AUD 29 million decline in earnings as prices were reset in a more competitive pricing environment. These conditions also extended across the global cyanide markets as contracts also expired or were proactively renegotiated in the period. Ground support pricing was relatively stable. The delivery of the transformation program is on track with benefits of AUD 79 million being realized in the period across a range of labor, manufacturing, and supplier efficiency initiatives. These benefits, in fact, these programs will continue to be critical in resetting and repositioning our business to counter market challenges going forward. Alberto will provide more detail on this shortly. Finally, an FX upside of approximately AUD 17 million occurred across the broad basket of currencies, with a lower Aussie to the U.S. dollar being the largest contributor.
During the six months period, AUD 191 million was spent on capital expenditure, and this was down 9% on the previous corresponding period and was at a run rate well within previously communicated levels. During the period, AUD 64 million was spent on sustaining capital programs across our major nitrogen plants at Kooragang Island and Yarwun, and across our extensive network of initiating system plants globally. AUD 33 million was spent on customer-facing contract capital relating to mobile delivery equipment, bulk emulsion plants, and on-site storage requirements. This spend level generally runs in line with our customer contract profile and is really important in extending our already global delivery network. The largest items this year were on-site emulsion plants in Russia and Brazil to support new business. AUD 53 million was spent on growth capital, the largest project being AUD 28 million spent on upgrading and standardizing our global IT systems and related processes.
Finally, AUD 30 million was spent on the Barrow Bay AN Plant. As far as the full-year CapEx goes, our forecast has been revised down from the previous assumption of AUD 520 million to a range of between AUD 400 million-AUD 430 million for continuing operations. Moving to cash and debt management, which remain a positive story for our company. Excluding net cash proceeds of AUD 680 million from the sale of the chemicals business, a solid net operating and investing cash flow profile of AUD 110 million was generated. This result, combined with the proceeds from sale, delivered a 20% reduction in net debt to just under AUD 1.9 billion, reducing company gearing to under 30%. At this level, gearing remains below the target range of 35%-45% for the company.
Interest cover remains healthy at 7 times, and this is above both banking covenants requirements of 2 times and company's internal target of 5 times. Net interest expense was lower by AUD 12 million to AUD 48 million due to lower average debt levels, lower rates, as well as higher capitalized interest associated with the Burrup Ammonium Nitrate Plant. Capitalized interest was up AUD 4 million to AUD 17 million for the period. Average funding costs remain low at 4.4%, inclusive of commitment and other fees, and the effective tax rate was slightly lower than last year. In summary, the company has a robust balance sheet, which provides a solid foundation for a range of potential operating conditions, as well as providing future capital flexibility, and of course, including the execution of the on-market share buyback program of up to AUD 400 million over 12 months, as announced in early March. Thank you.
I'll now hand back to Alberto.
Thanks, Greg. I'll have 1 slide of the outlook and then on building resilience. The global market conditions continue to be very tough. As I said before, this must be the most difficult times in the past 20 years. We have updated, with 2 more months of data, our latest forecast. We started with explosives. We achieved 1.85 million tons in the first half and are expecting to be around 3.75 million for the full year, ±100,000. That's a slight fine-tuning of the forecast volumes of 4%. Most of the decline in the first half was Australia. We're also giving another sort of outlook modification. We're saying that we believe that the second half Australia tons are going to be similar to the first half. That's just not a usual trend.
If you will see in your models, that means that we're assuming that we continue to have increases in the other regions of the world because 3.75 is roughly the same as 2014, with restated volumes that we've had. 2014 was 3.78, so we're basically assuming a similar profile, which is equal to 2014, down in Australia, up in the rest of the world. Sodium cyanide, we'll talk much more about that. Sodium cyanide is becoming a better story after a significant adjustment on supply-demand dynamics. Price has been reset. We're quite happy, and we'll talk about that, how we've been able to grow our tons 28% this semester. Ground support, unfortunately, is a different story that remains extremely challenging, and we will keep focusing on reducing costs, but don't really count at this stage anything more or on outcomes for the future. It is a challenging industry.
We'll talk in this presentation significantly more about operating costs and some slides showing what do we mean by sustainability transformation. Capital, Craig has touched, so I won't say much more, except that we will continue and increase across all aspects of the company, our relentless focus on capital discipline in areas where good capital return can be secured. The full range of CapEx, as Craig said, is between AUD 400-AUD 430. That's on the outlook. The rest of the presentation is divided in three parts. It's about building resilience in challenging markets. The first one is recognizing the structural shifts and the margin headwinds that we face. This is probably a bit more information that we traditionally give. I personally believe that greater transparency makes good commercial sense.
I think in the sense that risk is sufficiently high, that if at least we can tell the market and tell you who are the analysts, how we're viewing things within ranges, I think that in the end, and tell us what we're doing and tell the story, a longer-term story, that, as I said, in our view makes good commercial sense. That's what we're doing in the first section. In the second section, what are we doing to react, in several places, in contract profile, in transformation, and then the inherent characteristics of Orica, which makes it so resilient. The third will be beginning to talk about the long term. This is an interesting graph, to not be accused of inconsistency. In September, I was invited to give a keynote address way before I was CEO of Orica.
I did talk, some of you may remember that. I've been asked by someone who said, "Well, you said the end of the boom." I said, "Well, the title was 'The End of the Pricing Boom,' not 'The End of the Mining Boom.'" That is a different story, and you see it in this chart. Iron ore falling by more than 50%. The collapse across the different commodities is amazing. I'd like to pinpoint, this is a Wood Mackenzie forecast that we are in the eye of the storm. They're forecasting now, and this goes significantly up. We just got it in 2016. I do believe that we are, in terms of prices, in the eye of the storm in the mining industry.
As par for the parcel with the end of the pricing boom, look at volumes in iron and in thermal coal, and we'll see a forecast later on. The volumes are holding pretty well. Yes, in Australia, there's issues. In iron ore, there's been exposures. Overall, it's quite incredible, and it's a tribute to what's happening with the exchange rate and to the competitiveness of Australia that the volumes are holding on. You've heard the Rio Tinto coal person, for example, saying, "The next four years are going to be difficult, but we continue to produce." For the mining industry is, well, I want to ensure that I have positive operating margins. It may not be a great business, but our volumes will be there. As long as the volumes will be there, Orica will be there to service them.
If you look more broadly at the cycle of mining, it's exploration, construction, production. In construction, if you look the past 10, 15 years, more than AUD 1 trillion has been put into mining. That number you need to amortize, basically sweat the assets. That's really what BHP or Rio are doing. They're really expanding brownfield expansions and sweating their assets, and that's why volumes are growing. They need to amortize the AUD billions of investments they've put in the system. We were not expecting to see massive in exploration or massive in construction, but we do keep believing that in production, we'll keep seeing volumes growth, and we will see that later on. Yes, this is quite dramatic. Yes, this causes margin compression. Yes, this causes pressure we will see on the mining services companies to reduce prices.
We, in turn, pressure suppliers, there will be a complete reset of the cost base, but the volumes are still there. For the industry we're in, issues are a bit compounded by the fact that there is a volume oversupply. These are the facts. It's however interesting, look at this. This is global, dark blue, and this is Australia. 5% in Australia in 2011, 2012, and 2013. It's going to peak at 15%, and by 2017 it'll be 10% or 9%. There will be oversupply, but I personally think if you're around 5%, that is sort of the equilibrium state. By 2017, we should be on our way to adjusting, and we will do our part to optimize supply if we have to. This is Australia. The rest of the world, probably I should have started by that, is also in oversupply.
That for a company like Orica that produces half but sources half is an opportunity. If you look at the rest of the world and where we buy roughly about half of it, let's say 1, 2 million tons, a significant part of the benefits of the transformation has been that ability to source more efficiently, to switch from ammonia to gas base and other sort of characteristics. What is a problem in one sector of the world is a benefit on the other one. Let me focus, and a lot of the focus is in Australia, of what can we do.
I can't say this is work in progress, but if you take the east Yarwun, there has been no decision yet, but there are possibilities of running Yarwun with 1 nitric and 1 acid plants, versus today's operation that will save around AUD 8 million a year, and we would run it up to 90% or something. That's something we are exploring. As I said, we haven't taken any decision, but we could rebalance supply in the east by something like that. If you go to the west, Burrup, a lot of sort of has come up lately in the press. Burrup is a 40-year plant. It's two-thirds loaded. The Pilbara is increasing.
You have to read the papers every day and sort of the issues between the big iron ore producers to understand that the Pilbara is growing and will keep growing, and that asset is uniquely positioned to basically take the majority of the shares, so of the market share in the Pilbara. It's a long-term gain. It's not going to be immediately filled up, but in due time, we're quite comfortable that it will take the lion's share of the Pilbara. Bontang is a more difficult case. We're exploring different options, our marketing team, Nick's team is in the Philippines, is in Africa trying to see how we can increase that. Hopefully in six months, we'll have a better view of what we do.
With all of this, I'm just saying we have options to flex plant capacity to balance both coasts, we do recognize that this is part of the issue. As we will see later how we are managing with contract profiles and others. The challenges I spoke before of ground support. Why have they become just even more challenging? It's the shift from production from the Central Appalachian Basin, which is underground mine, heavy user of ground support, to the Illinois Basin. That is long wall. It uses about 80% less of ground support. That has only deepened the issues, and as you can see, the number is 40% reduction overall in ground support. Continues to be challenging. We do our best to manage it. It is positive in cash flow.
We will continue to do the best we can, marketing conditions are challenging. That's as far as we can say. The cyanide is, as I said, a different story. We've won new market share. We've increased our volumes with existing customers. We grew it by 28% in this semester. We expect to grow overall by about 10% for the full year. Even though prices has gone down, the weakening of the Aussie has significantly cushioned the impact. The price reduction is only 11%. I think a better story on cyanide. Those are the main headwinds as we see them. What are we doing to deal with them? I'll talk about six. Some of them we're doing, some of them is just the inherent characteristic of Orica as a company. We have never showed this one.
This is the first time we show a contract profile, see it in terms of the debt markets like a duration. This is what we've done in the past 12 months. We've completely changed the nature. We have 90%, this is Australia, of the volumes in 2015 are locked in in long-term contracts. We doubled that amount in 2016. We doubled that amount in 2017, we multiplied by three in 2018. Yes, that is the outcome of negotiations with our customers, where they've come and said, "Help us in the short run. We need price resets." I will say, "Well, we will help you, we need to have a win-win situation." This is not just a one-sided option. We can do something on price. You can do something on term, this is the outcome of this.
As I look forward, it's a much more secure and better profile for Orica in Australia. One thing I want to make very clear, at least in our own contract negotiations, we have not seen any evidence of delinking between purchasing parity and import parity pricing and our final prices. That's just an important comment I want to make. That's the first reason for resilience as we go into the future. A second one is this transformation, benefits and how they're being delivered to the bottom line in the future. I think it's very important we talk about things we have done and delivered probably more than what we will do in the future. We have delivered AUD 80 million. I'll tell you more in detail, but it's basically in supply, in labor, and in optimizing manufacturing.
What I'd like to sort of illustrate is this is the number, the same number we manage inside the company. It is sustainable. It goes through an assurance A process to ensure the sustainability. What do I mean by that? This is not petrol went down, and I was told not to say that, but there was an old mining company that I'm not going to say the name, not my former company, but they did have a big part of their transformation was petrol going down. These are real sustainable transformation in how we do business, in how we source business, in how we do logistics. When I look at this number in NPV, this is a one term 64, this is multiplied by 10. This has significant impact in the value that we add to the company. Examples of the sources.
About half up to now of the benefits are in supply and these are the areas of engineering and plants, in IS manufacturing, in logistics and in nitrates. We focus on these two. What are examples? Swapping from ammonia back supply to lower cost ammonia supply. There's concrete sustainable ways how that impacts our bottom line, optimizing the network of operations, reducing freight storage costs, sourcing new capacity, basically cheaper capacity to feed our emulsion plants in EMEA and Latin America. There's about 120 different project items that are tracked by the ExCo, by Nick here, by Craig, by everybody at the ExCo to make sure again, that those AUD 79 million that we have delivered, the AUD 140-AUD 170 we've said 2015, flow into the bottom line and are sustainable. Roughly the other 40% of the benefits are on labor. Again, completely tangible.
It's important where does this labor come from, reductions? Mainly it comes through into support functions, just by becoming better at what we do and more efficient. In manufacturing, about 9% of that reduction, and that is basically by automation projects. There's a significant automation going on in plants like I visited like in Carseland, that allows us to become a bit more efficient. This is where we've put the least of the pressures on mining services and this is because that would be contrary to our goal of becoming a much more customer-focused, customer-intensive organization. It's important where we cut. The second, we've talked about contract profile transformation. Third reason for resilience. It's a well-known fact, but sometimes, and with all due respect, this is all focused on Australia and what's happening in Australia. Our business has changed significantly.
A significant part of our EBIT is still Australia, that is quickly changing. Australia, we feel the adjustment versus the previous year. We are saying we're basically maintaining at the same level, but the other rest of the world, we're increasing 10% in North America, 9% in Latin America and so forth. This is becoming more and more a strength and a reason for resilience of Orica. The fourth and fifth reasons are commodity exposure. You hear a lot about thermal coal. Yes, it's important, but it's 24% of our revenue. We're exposed. There's no other company that comes close to the diversity in terms by product or to the diversity, I'm sorry, by commodity or by product.
The other area of focus is ANFO, 15% is initiation, 12 on site, eight packaged explosives, so this is a much more broader company than ANFO which is sometimes the focus. This gives us the resilience. Finally, in terms of resilience, this is an interesting forecast by Wood Mackenzie. Look at the volumes for all the commodities. This is again, as I said, the eye of the storm. They're continuing to grow in line with GDP. It makes sense. As I said, the investments have been made, so it makes sense that iron ore, coal, copper and so on, met coal will keep growing in Australia and in the rest of the world. Another factor that is interesting, you've seen results of one of the big single commodity producers and if you look at it closely, it said volumes up 20%, overburden down 25%.
That you can do for one year. It's not sustainable in the medium term. The same with exploration and drilling. A lot of that in the very near term we expect will continue and with volumes again, that we'll be where we as Orica will be ready to service. That's another reason in the medium. This is not the long term, but the relatively medium term of our resilient. The third and final part of this presentation, the longer term. What are we doing? What do we need to do more to add value to our shareholders in the long run? We've spoken about efficient operations and about improving efficiency. There will be another waves and you will hear for the next years, this is not the end. Transformation is not a one shot. We will have a second wave and so on and so forth.
This will be continuing. Optimizing supply work network will be continuing, the focus on very efficient capital deployment. That's all part of how we do business. Today, I'd like to just focus on these two of partner of choice. A little bit of what we have done on advanced blasting, and then this journey of going from supplier to partner, which is we have a long way to go there. You've seen this footprint, but if you want to be the partner of choice, it is very difficult to replicate what we have, the experience we have in 450 sites with about half of our employees on site. If you talk to Nick, for example, there's a company in the middle of Africa, needs to do some trials on blasting.
We are the only one that can deliver through hundreds of kilometers through Africa, the explosives for that. We do have a footprint that is uniquely situated to be a partner of choice. I'll spend a little bit about on this graph, because I think it is quite exciting. We've spoken about advanced blasting in the past. It is becoming a reality. 24% of our revenue now is advanced blasting. It's grown by 9%. Even in the middle of this difficult year, we've been able to grow advanced blasting by 9%. What does advanced blasting really mean? The first one is an example, real example of a copper, the second one of a coal one. On hard rock fragmentation, that's probably the area where I see the most possibilities of working of, let's say, of enhancing value with our customers.
This is an example of electronic initiation of high-energy explosives to get fragmentation to the right level. In this case, we want passing under one inch, went from 18% to 45%. What does that entail? An increase in throughput of 6.5% and therefore a decrease in power energy consumption of 4.6%. That bill, reducing 4.6%, will be much more expensive than the cost of the explosives. The ability for win-win in that type of segment in copper and gold companies with companies who have the leading edge technology like we do is quite exciting. A second now, this is not a one-size-fits-all. For coal, it's different, for soft rock recovery, there will be examples like for license to operate. What do we mean by that?
In places, and this is more and more demanding, where you need to control sound of the blasting, dust of the blasting, we have the ability with blast patterns and dual deck loading to, and this is again, a real one, reduce dust by 85%, reduce vibration by 30%, and reduce noise by 5%. That's examples of why we are being able to increase the penetration so quickly of our advanced blasting services. The second-to-last slide, the journey, I won't spend much on this, but we do have still a journey quite long to go in the next years from moving from supplier to partner of choice to really get our customers to embrace that we can have win-win sort of situations with advanced blasting, that we can have partnerships moving from supplier to partnership. What does that mean?
Where we can help them say, "You need to have a perfect spec drilling," and we have the technology to do that. We don't do the drilling, but we'll help you to identify how can we have, let's say, the most efficient explosive possible. We want our customers to feel and say, "You're easy to do business with." That has not been in the past sort of the main feedback. You're easy, you're quick, you're efficient. Finally, this is all summarized in a customer-focused culture that Nick and the team and all of us are determined to move the company in the next years. With this, in conclusion, Orica embedded advantages of diversity by geography, by customer, by products, by services, is being extended through focused execution in managing what is under our control.
We are resetting and will continue and enhance the resetting of our cost base. We rationalize and will continue to optimize our manufacturing footprint. We've extended customer relationships. We have increased the duration of the contract profile. In sum, Orica is acting to become simpler, faster, more flexible. The headwinds will continue in the short run, but in the very medium term, the volumes will continue to grow, and we will be then ready to partner with our customers. With this, I open to Q's and A's. Yeah.
Can you just repeat the mic, sorry.
Hi, Alberto. Michael Ward from CBA. Firstly, on Australia, you talk about the volume pressure, and you've sort of given some comments around that being market related and actually contract loss related. I was just wondering if you can give us a bit more detail around some of the contract losses.
We've put a lot on the table, I don't think we're ready probably to talk about particular customers. What I can say-
I'm sorry. Maybe I'll ask in a slightly different way.
Yeah. What I can say is that some of the big ones we've lost, sometimes it's better to lose them. That's why I say we will, and in all of our contract renewals. The benchmark, we don't want any delinking between purchasing power priority and our final prices. That's probably as far as I can say.
Sorry, I guess some of the bigger ones that you refer to, can you maybe comment whether or not they were tier 1, tier 2, tier 3 style customers?
Some of them were important customers. Again, some of the big customers we lost in Australia, we gained very big footprint in North America.
Okay.
Look, this is how it's in the current market it's going to be. We have a very clear sort of how we run our book. We understand that it's challenging times and we have to reflect market prices, but there's limits to what we define as market prices. We have, again, got some very big wins in, as I repeat, in North America with very significant customers. We've had some losses here where we've said, "It's better we lose it at those prices." That's probably what I can say.
Okay, thank you. Just secondly, on Yarwun, you made the comment in the sort of third part of the presentation around potentially rebalancing that to significantly lower production levels. Can you just explain to me how that would actually. Did you say that that would actually increase earnings from Yarwun by AUD 8 million?
We produced 155 in this last semester. If we go to 145, which is 290, yeah?
Yeah.
We do that on a sustainable basis by idling and only run one nitric plant and one acid plant, our cost would go down. That's what I was referring. Versus today, our cost would go down.
Right. Just so I understand, on an annualized basis, Yarwun's only producing at about 300,000 tons versus its capacity of 500,000.
Yeah. We would put that in.
Yeah. It's probably a bit higher than that. As typically you get a second half higher volumes.
Yeah
there, which I know in our guidance we said outlook, we said no, probably first half and second half will be similar. It would be in the low 300s, 320, 330.
Okay
at this stage.
Kooragang Island has increased significant, for example, from last year. It's running very well.
Yeah. The consideration for us is obviously making sure that we've got enough security of supply over the remaining sort of six-month period.
That's an important part, and that's why it's difficult to Sometimes we study things and there's questions, and we try to ask them as honestly as possible. There are some things where we have a supply-demand, and we need it for some time, but we forecast we won't need it. That's why I'm saying it's a possibility, but we haven't decided it yet.
Sorry, just one further one as a point of clarification. That chart that you give us showing the potential oversupply coming through in 2017, does that assume Yarwun's running at 300 or does that assume Yarwun's running at 500?
That would assume Yarwun is running at full capacity.
Yeah, because that wasn't your numbers. They weren't your numbers, were they?
No, that's Wood Mackenzie numbers.
Right. Thank you.
Richard Johnson from Citi. Just to follow on from Michael's question about Yarwun. Can you just update us, I know you talked previously about opening up the supply line to Latin America out of Yarwun, and I think you've talked previously about applying to double the shipment size into Latin America. Just wondering where that's got to, if anywhere.
No, I don't think.
Yeah, I'll have a go at that if you want, Alberto.
Okay.
Yeah, look, we continue to explore all of those options. Logistics is really important to us now, particularly as Alberto said. We sell 4 million tons. We make less than 2 million tons. You can imagine that shipping, logistics, through port, regulations, relationships are really critical. To your specific point, yeah, periodically we do run trial shipments to make sure that we can extend those footprints as far as we can, through either shipping sizes, through different freight logistics arrangements and so forth. That's an ongoing piece of work.
Right. Sorry, I'm being a bit slow. Just to clarify, if you run Yarwun one nitric acid plant, what's the effective capacity?
290. We're running at 290.
290 with one nitric acid plant.
Yeah.
Thank you very much.
We explore options, but we can't, again, there's no. The sourcing in Latin America, we have very good sourcing worldwide, and there's always a decision of buy versus make. We have wonderful supply, very cheap supply sources from Russia that we're putting into Latin America. The U.S. contract we have is absolutely fantastic with CF. The buy versus make is always something that we keep running, and that's part of our strength. I would not see a permanent solution. That's again, it's better to call things by their name.
Good morning, it's Romain Lazar from UBS. Just got a question on pricing. I think you said that the first half impact is about AUD 28 million in terms of net pricing, and then you've given us the charts just showing your contract profile in Australia. I was just wondering, I guess, what % of that contract profile or your existing contract profile do you think now factors in the lower pricing environment for AN in Australia?
Those are good questions. We've given you a significant amount of data, and we've recognized obviously, because this, if you take six months. We've been renegotiating. You can calculate yourself an expected one of what is, let's say, assume that we contracted one month, whatever, and they get an average. Yes, the number in the second half will be higher than the AUD 28 million. We're not saying exactly how much, but the full amount will be.
I get is it going to be higher again than the first half of 2016?
No. We have finished, and that's it. For the foreseeable future, we have finished the price resetting. What you see in the second half, that's what we'll extend. There's not another tail coming in the first half of 2016.
Okay, great. Just to follow on from Richard's question on the AN. I guess, the comments about potentially adjusting capacity signal a shift in the strategy away from protecting market share to protecting margin. Is that the right way to read through?
Look, not really. We have a very strong market share. We will continue to defend it, and one way of doing it is understanding market prices. We are not in our resetting of contracts. We've said, yes, we've reset some prices, but understanding where the market price is. We will continue to do that, but what we won't do is destroy value by, let's say, piercing the IPP or something like that. That's more important, the message of anything. We would just sometimes, as the leading market and the leading producer in the region, you have to balance supply and demand, that's sort of the message more than anything. We will continue to defend our market share. We were, again, quite happy with the plus 40% in North America, in Australia, and South America.
If you look back over time, Romain, if you've been tracking us for some time, this hasn't been a change. We've always been around optimizing and doing what's right for shareholders. We've taken capacity out over time, over many years. If that's what's required to generate an optimized return for shareholders, we'll do that. No change there. What we are doing, however, in the customer-facing part of the world, is to really making sure that we align ourselves with those customers that, obviously we need to make money in all of this. The more that we're able to move our arrangements to a full service office, that's really consistent with our strategy, and they will be accounts that we will specifically target and have been successful in winning.
Alberto, it's Mark Wilson from Deutsche Bank. Just a couple of quick questions about the transformation program. Just wondering, as being a member of the board, you presided over that. I'm just wondering whether you are going to make any adjustments to that, whether it's a completely appropriate strategy, or is this a case of being in the chair that you can see some additional opportunities?
Look, what I've been focused, I have this ability on what was initiated, my own focus since the first day is on execution. This, you always have targets, but execution and delivering on what you say you're going to do is more important than anything. What I can tell you is we're very focused on the second semester. If you look at the guidance, it's exactly the one we gave last time. I can tell you that we'll do everything to be quite well in that guidance. You will probably, in the future, hear more of what we have done and not what we will do. That's just a matter of style. The focus of the whole company is, as I said, on not only, let's say, the existing wave, but another wave.
I think the low-hanging fruits in a way have been taken, but there is very exciting projects of increasing capacity utilization across the whole IS network. There's in manufacturing, again, a lot of projects around that. Again, in Helena, for example, there's a particular project that is in initiating systems that is close to it was the third day that I started, and they had it in the pipeline, but it hadn't been executed. They have identified that of their stock units, of their SKUs, they have 400. Seventy delivered 96% of the benefit. Now, because we're a customer-facing organization, we said, "Well, we need to have a 400." The issue is that we were having 330 for 4% of the EBIT with a very significant cost. What we're defining is, and this is about, for example, colors of stock sort of units.
We say, "Well, you should really take yellow, but if you want red, it's going to cost you." We need to work on that. That takes a little bit of change, but there's a lot of those type of more efficient running projects, and that's why I talk about second and third waves in that. I don't want to call it transformation. It's just running more efficiently, running more effectively. This will be a part of what we say every six months. Let's move on because there's.
Thanks. Just very quickly on the contracting position in Australia, is there an optimal point when we look out two, three years' time as to where how much of your volume you would like to be contracted?
Look, why we showed this today was more of saying the market knew more of the price resets. They had really no knowledge or understanding of what this had done to our contract profile. There's not a we Continuously are on participating in direct negotiations, in tenders. The average duration is around, Nick, five years? Something like that.
Three to five years.
Three to five years. We'll continue to do that when we can. This was just a particular sort of a reaction to a very difficult year for the miners and us reacting, saying, "Okay, let's try to look for a win-win opportunity." That's why we're showing that. Yeah.
John Patel from Macquarie. Had a couple of questions. Firstly, on Latin America, the segment result was down a fair way there. Obviously, the hub portion was up. What you're seeing in that Latin American market, and in terms of the Australian business, obviously, Pilbara volume's down 16%. Is your expectation there that that continues in the second half, and that's part of the reason for the reduction in, or the, I guess, stable second half volumes versus first?
Look, Craig can comment more, but on Latin America, Venezuela is a significant part of this. That has happened. We all know what's happening in Venezuela. We're pretty confident that we'll get part of that money out, but there's issues around that, so we've actually stopped production. With Venezuela, let's say normal, we would have had a more reflective outcome of the reality, which is that we were able to increase our volumes by 9%. I don't know on that.
Yeah, look, too. We've probably made it a little bit difficult to line them up with the chemicals sale as well. There were AUD 3 million worth of contribution on products that moved across with the chemicals business. That wasn't included in discontinued operations. If you add that back, and there was some minor asset sales in the year before. All up, you could take about a AUD 5 million sort of apples and apples adjustment, John. If you take that and include the hub, you're talking something like, I don't know, 5% up or something, which is more reflective of what we see underlying.
Then on Pilbara, Australia was on the east on coal. It was sort of all over. Our contract profile, we'd like to grow. That's one of Nick Bowen's KPIs, of growing our iron ore sort of penetration into the large miners. Our exposure, I don't know if we've revealed that. Sometimes my problem is I don't know what we've talked or not. Our exposure is not on iron ore to the largest miners. The small ones, we have been affected by that. We are looking to increase, as I said. We are confident that with Burrup and its natural footprint, we will be able to have an increasing share of that market. Yes. Hmm? I'm sorry. I've ignored your instructions. Let's take one from the
We will now begin the question and answer session. If you'd like to ask a question, please press star one on your telephone. Once again, if you wish to ask a question, please press star one on your telephone. Our first question is from the line of Grant Felegati from Credit Suisse. Your line is open. Please go ahead.
Thank you. Good morning. First of all, just did want to compliment you on the additional disclosure because I think that's helpful and does set a standard. Having said that, I've got a question around your comments on pricing in the Australia Pacific market. I'm just trying to detect the consistency here because I think you're suggesting that pricing is sort of bottoming. From what I observe, you've got an industry with, by your own numbers, excess capacity. A competitor that relies on imports is actually building market share, which suggests to me that the real issue is not import parity pricing, but it's actually that the domestic market is still carrying quite a substantial premium for locally sourced supply.
Actually, your own forward contracting curve suggests that as well because normally, if you thought you were at the bottom of the market, you wouldn't be pushing out your forward profile of contracts. In fact, you'd actually be short going into the next couple of years and ride a perhaps a stabilizing or improving price curve. If you could maybe comment on that because I'm a little confused on the consistency of those pricing comments as they pertain to the Australian market, please.
Okay. Thank you for your first comment. Look, there were premiums in the past and those price resets that we've spoken about and you've seen the impact on the bottom line is precisely referring to the adjustment from the premiums to a more market-reflecting world where IPP benchmark probably comes more into focus than in the past. What I've been trying to be very clear is that we understand the market situation. We understand both the needs of the miners, of our clients, and the realities of the AN market. At the same time, we're also very disciplined in how we go. We basically recognize that the premiums have been reduced, but we're still very adamant in maintaining that link. Nick, I don't know if Nick can help him.
Yeah. Is that on? Just worth adding one comment on that. I mean, people take this simplistic view that our pricing in Australia is dictated by AN pricing. Just remember, it's sort of 20% of our offering.
Yes, AN pricing's come down, but when we're negotiating contracts, it's a package of work. It's AN, it's bulk emulsion, it's IS, it's on-site services, it's advanced blasting, and it's security of supply. You don't win contracts just because there's surplus AN. It's about the whole package of offering. As Alberto said, we've been able to negotiate the majority of the contracts that we expected, and you'll see more success in the next six months because they're all that close to being finished. All of those have been done on that complete offering. There's been an adjustment in the AN, but AN, as I said, is 20% of our pricing. It isn't a simplistic, straight surplus AN means all the prices come down.
Thank you, Nick. I think that's a very important comment. I won't say the name of the customer, but we recently won one that you've told me was like 11 participants competing. We won it at a quite interesting price, slightly above our, let's say, market intelligence tells us, several other competitors. Why? It's because of the offering. It's because part of that offering has our technology advanced blasting services, because part of it is security of supply, because part of it is supply. I think it's a very important reminder. We try to simplify, but it's a very complex offering. In the end, it's a risk for companies when they go to trading companies that don't have the footprint and don't have the reliability that Orica has. That's what we hear more and more. Thanks for that, Nick.
Yeah, I think that's really helpful comment. Thanks for that. Could I just ask one other question if I could? Just on the transformation program. I appreciate that a lot of the benefits seem to be being captured in the first half, and then obviously come through in the second half. In the previous presentations, there's actually been some guidance around FY 2016 benefits, which were a step-up on FY 2015. I'm just wondering whether that's prudence on your part, and I can understand some setting of expectations or whether there's actually been a change in the program or the ability to deliver internally over the last number of months, please.
I think it's the former. I prefer to move on to, there's really no change. There's no reason to change the 2016. We're just not putting it because, again, I prefer that we discuss it again in six months. I am quite confident about how things are going. We've delivered AUD 80. As Craig demonstrated, they've flown to the bottom line. We want to talk to you again in six months and tell you, "This is what we've done." We have to continue, as I've said. I would, yeah. Just more of prudence and of delivery, and that's more of style thing.
Okay.
I can tell you is that our focus is on, if I may say, in over-delivery.
Okay. I appreciate your comments. That's it for me. Thank you.
Again, Lucy. We have another one from-
Your next question is from the line of Ben Chan from Evercore Partners. Your line is open. Please go ahead.
Oh, yeah. Hi. Look, just a couple of quick ones from me. Just a little bit of color on advanced blasting, if I could. I think last year you said it made up of 7% of new contracts, and this half it grew by 9%. Presumably, it's becoming quite a meaningful share of revenue. I suppose it's just hard to see the margin benefit from that, if there is any. I just wanted your comments, Alberto, or your view, whether you think this is just more about defending existing positions at the moment rather than the margin comes later.
That's an interesting question. We don't open it up, but I can say it's all of the above. Again, there is a penetration initial, let's say, commercial judgments that we have to make. When our customers realize the advantages that we have, I think we will be able to realize in time a very interesting EBIT margin. It is a journey, but as we're able to, again, consolidate that presence and that understanding, we're quite confident that it will have, let's say, the IRR of those investments are going to be very significant. I didn't say much about this, but this is a pipeline that is always there, and we will all be focused on how we can bring those to commerciality.
We didn't talk much about wireless, but I can say we're quite excited about what a week ago, 10 days ago, we had the first explosion on a customer underground mine 800 meters. It worked flawlessly. That's still some way. We continue in the pipeline. It's just that mentality that is important. It penetrates, we get the results, we make sure we get the returns from it. We continue.
Could I just have a quick follow-up just on Bontang? Is Bontang a similar to the line process of Yarwun? If Indonesia demand did continue to deteriorate, you would have that opportunity to scale in that backlog you spoke about with Yarwun?
I don't think it's as easy as that. It's a bit more complex. Nick?
No, we can't do the same as we can at Yarwun. We can campaign projects like that. You can run them on and off if you need to.
Yep.
Thanks very much.
We go back to the floor.
Hi, Scott Hudson at Citigroup. Just following on from Ben's question, is Burrup in a similar position to Bontang, so you can't adjust the production process?
Burrup is different. We have two-thirds loaded, if we can run it on a continuous basis, we have 70%. It will take 18 months. We think we're going to be there to be able to run it continuously at 70%, and then we have a ramp up to grow on the Pilbara. That's sort of the current plans.
Thanks. Then just in terms of growth in the Pilbara with the, I guess, the tier 1 customers, when does Rio Tinto's existing contract with Kwinana or CSBP end?
'17.
All of the major contracts in the Pilbara come up for renewal over the next four years.
Yeah. Most of it is 2017.
All of it.
Yeah. Okay, that's great. Thanks.
Just in terms of ground support, does it make sense to get out of any of the more commoditized products entirely? I guess the experience has been to pull them and integrate them more into the business and cross-sell, but are they sort of unattractive on an individual basis?
Look, we all the time, have to review different segments of the business. There's no decision. Today we're flagging it. It is difficult, and it seems to be structurally difficult. We just have to keep doing the best we can and then analyzing what's the best. There's no right now. The focus, you will understand, is on the very short-term and on executing. What, Delfin? What is this? It means-
No more.
Oh, no more from there? You can't ask any more, Delfin orders. Can I? Oh, that's fine. You can.
Alberto, just going back to the transformation benefit, I just wanted to clarify. Should we be using the AUD 140-AUD 170 as a base for your transformation benefits or the AUD 200-AUD 250 from FY 2016, as has previously been announced?
For 2015, it's AUD 140-AUD 170 should go onto gross. That's what we're indicating today, and then I'll talk about more in six months.
You're not committing to the AUD 200-AUD 250 as yet?
I've said basically that I have no reason to sort of come back on 2016 except the style that I prefer to sort of tell you this is what we're going to do and to do it. There's a lot of projects and things that need to be done. I can tell you, I'm quite optimistic of what we can do in different ways. It's not an issue that I'm restating anything. It's just that the focus is on 2015. If you look, we've delivered AUD 80 million. The guidance is AUD 140 million-AUD 170 million. You can multiply by two and say where we're going to be in the range. I hope to, as I say, in six months, come with even better news. It's an issue of style.
Okay. I'm just trying to get my head around this contract profile relative to your comments around cost. If I just look at that slide and then look at, say 2017, where you've got 63% of your contracts-
Yep
locked in or your volume is locked in, does that suggest that 63% of your volumes have been rebased, but the other 35% still remains to be, I guess, repriced? Is that the right way to read that chart?
No. It is, Nick, it is that we have, of our volumes we expect for 2017, 63% in Australia are under long-term contracts. That's what that means.
Yep. Obviously, if we've taken it from 27 to 63, we've renegotiated a lot of contracts. Part of our profile is always spot. You add another 10% to that. That's why 15 is 90, because 15 is really 100. In effect, 73% say of 2017 is already locked away and it's on pricing that we're comfortable with and the customer's comfortable with.
The other 30 has raised.
Well-
to 25.
Yeah. It's up for renewal, but it may not mean it has to be repriced.
Sure.
Yep.
How much do you expect that to extend, the duration to extend as with the increase?
You'll see an improvement in that in the next six months as well.
I think, one last question. One, two, three. Thank you very much.