incitec pivot for personal use only september 2008 limited · the mining boom • china/india per...
TRANSCRIPT
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Incitec PivotLimitedInvestor Presentation
JP Morgan Investment Conferences
Asia & EdinburghSeptember 2008
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Disclaimer
This presentation has been prepared by Incitec Pivot Limited for professional and sophisticated investors. The information contained in this presentation is for information purposes only and does not constitute an offer to issue, or arrange to issue, securities or other financial products. The information contained in this presentation is not investment or financial product advice and is not intended to be used as the basis for making an investment decision. The presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person.
No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of Incitec Pivot Limited, its directors, employees or agents, nor any other person accepts any liability, including, without limitation, any liability arising out of fault or negligence, for any loss arising from the use of the information contained in this presentation. In particular, no representation or warranty, express or implied is given as to the accuracy, completeness or correctness, likelihood of achievement or reasonableness of any forecasts, prospects or returns contained in this presentation nor is any obligation assumed to update such information. Such forecasts, prospects or returns are by their nature subject to significant uncertainties and contingencies.
Before making an investment decision, you should consider, with or without the assistance of a financial adviser, whether an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. Past performance is no guarantee of future performance.
The distribution of this document in jurisdictions outside Australia may be restricted by law. Any recipient of this document outside Australia must seek advice on and observe any such restrictions.
In particular, this presentation does not constitute an offer to sell, or a solicitation of an offer to buy, securities in the United States or to any “U.S. person” (as defined in Regulation S under the U.S. Securities Act of 1933, as amended (“Securities Act”)). The securities referred to in this presentation have not been and will not be registered under the Securities Act or under the securities laws of any state in the United States. Securities may not be offered or sold in the United States or to, or for the account or benefit of, any U.S. person, unless the securities have been registered under the Securities Act or an exemption from registration is available.
INCITEC PIVOT LIMITED ABN 42 004 080 264
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Overview
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Strategy to leverage global supply / demand dynamics
30-year investment thematic
• Chinese/Indian economies driving the mining boom
• China/India per capita GDP growth driving a step change in food consumption (quantum and source)
• Fertiliser and explosives both key “inputs” to soft and hard commodities production
• Input side returns are typically higher and less volatile (“pick and shovel” investment thesis)
• Leverage IPL’s nitrogen based manufacturing capabilities
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Index
USA Japan China
Copper intensity of use = consumption per unit of GDP
5 01 0 01 5 02 0 02 5 03 0 03 5 04 0 04 5 0
1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7
C ru d e O il C o p p e r O re a n d C o n c e n tra te S o y b e a n s
Inde
xed
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umpt
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by v
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e (%
)
China Consumption
China Consumption
Copper Intensity of Use = Consumption per unit of GBP
Source: Citigroup; USGS; US Dept of Labour; GCDC; Smith Barney estimates
Source: Bloomberg and WASDE
Inde
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by v
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Fertiliser and explosives are a natural combination
• The combination is about FIT and FLEXIBILITY
• Fertilisers and explosives FIT together because of the commonality in underlying chemical processes and inputs
Nitrogen-based chemical manufacturing is a core competence
Manufacturing drives profitability
Incitec Pivot manufactured both fertiliser and explosives pre-2003
Dyno Nobel manufactures and sells fertiliser in North America
• FLEXIBILITY is about the ability to optimise production by selling into both fertiliser and explosives markets
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IPL overview
• Incitec Pivot is a leading global chemicals company with nitrogen manufacturing at its core
• World scale, bottom of the cost curve ammonium phosphate manufacturing
• ASX top 30 listed company (IPL.AU); market capitalisation of A$9.7bn(1)
• Leader in its chosen downstream markets:
• Fertiliser: #1 position in Australian market
• Explosives: #1 position in North America, #2 in Australia, #2 globally
• Well positioned for growth based on exposure to global demand for both soft & hard commodities
• Investment grade balance sheet & credit metrics
• Experienced management team with track record of delivery
(1) As at 29 August 2008. 60,861,528 shares, at A$159.62 per share
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IPL history & evolution
Transition of business exposure
Antecedent companies of Incitec Fertilizers established
1919
Established as the Phosphate Co-operative Company of Australia
1920 2006
Acquisition of Southern Cross for A$155.3m and exit of Orica Limited as majority shareholder
Incitec Pivot admitted to the S&P/ASX 200 index
2007
Incitec Pivot admitted to the S&P/ASX 100 index
2008
Incitec Pivot announces merger with Dyno Nobel (A$3.6bn)
2003
Merger with Incitec Fertilizers Limited
Listed on the Australian Securities Exchange
Incitec Pivot acquires 13.2% stake in DynoNobel
1920
Incitec Pivot admitted to the S&P/ASX 50 index
Prior to the Southern Cross and DynoNobel acquisitions, Incitec Pivot was an Australian based manufacturer and distributor of fertiliser products…
….Now strategically positioned as a low cost manufacturer of fertilisers, explosives, and related products and services, with international trading and distribution capability
Manufacturing45%
Distribution / Trading
55%
2005
Manufacturing80%
Distribution / Trading
20%
2007Distribution / Trading
19%
Manufacturing 81%
EBIT Evolution
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IPL corporate strategy
Underpinned by performance culture and strong financial discipline
Lowest Cost BasePosition the business to generate acceptable returns in all conditions
Supply ChainHandling of millions of tonnes of bulk commodities per annum generates opportunities to magnify efficiency savings across a large base
Trade / DiversifyReduce volatility of returns by increasing exposure to more products and markets and increasing scale
Own the Product / Own the ResourceGenerate exposure to the most profitable part of the industry value chain – manufacturing –while maintaining financial disciplineTrade /
Diversify
Lowest Cost Base
Own the Product / Own the Resource
Supply Chain
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How are fertilisers & explosives made?
+ CarbonDioxide Urea Fertiliser /
Industrial
+ PhosphoricAcid
AmmoniumPhosphate (AP) Fertiliser
+ Sulphur AmmoniumSulphate Fertiliser
+ Nitric Acid AmmoniumNitrate (AN)
Fertiliser /ExplosivesNatural /
SyntheticGas
Ammonia
Fertiliser
Additive Finished Product End MarketFertiliser / Industrial
Urea /Ammonium Nitrate
(UAN)
Ammonia
Nitrogen chemistry is at the core of IPL’s business
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IPL business structure
Global nitrogen based manufacturing core to IPL strategy
GLOBAL MANUFACTURING Australia (7 plants)• MAP and DAP – Phosphate Hill (QLD)• Sulphuric Acid – Mt. Isa (QLD) • Urea, Ammonia, Ammonium Sulphate
– Gibson Island (QLD) • Ammonium Nitrate – 50% JV, QNP
(QLD) • Superphosphate – Cockle Creek
(NSW), Geelong (VIC), Portland (VIC)
North America (6 plants)• Urea – St Helens (OR)• Ammonium Nitrate – Cheyenne (WY),
Battle Mountain (NV), Maitland (ON), Lomo (MO), Donora (PA)
Global IS (6 plants)• US: Carthage (MO), Wolf Lake (IL),
Graham (KY), Port Ewen (NY), Simsbury (CT)
• Mexico: Dinamita
GLOBAL TRADING BUSINESS• Global trading platform• Optimises product and raw material
sourcing and product sales
AUSTRALIAN FERTILISER BUSINESS• No 1 distributor of fertiliser in
Australia• East Coast Australian market share
of approximately 60%• Manufacturing assets in close
proximity to key agricultural markets• Balanced exposure to Australian
agriculture
GLOBAL EXPLOSIVES BUSINESS• No 1 – US explosives market• No 1 – Canadian explosives market• No 2 – Australian explosives market• Other major markets include –
Mexico, South Africa, Indonesia, Turkey and China
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Extensive manufacturing platformNameplate Capacity
Core manufacturing - phosphates & nitrogen
MAP/DAP 970ktpa • Bottom of the global cost curve― low cost rock deposit― low cost sulphuric acid― low cost long term A$ gas
contract
• Global MAP/DAP price leverage – no forward price contracts
• Low cost inputs• Global and local market
Product Comment Value drivers
Nitrogen Urea AmmoniaAmmonium Sulphate
280ktpa300ktpa 200ktpa
• Back to gas Urea production― low cost long term A$ gas
contract
• Nitrogen fertiliser demand• Local weather conditions
SuperphosphateGeelong Portland Cockle Creek
450ktpa 250ktpa 250ktpa
• Located close to footprint demand • Phosphate fertiliser prices• Local weather conditions
• Back to gas ammonium nitrate production • JV with CSBP (division of Wesfarmers Ltd)
• Coal mining activity― North Bowen Basin
coalfields
Ammonium Nitrate
Ammonium Nitrate Cheyenne Lomo Maitland Battle Mountain Donora St Helens UreaUAN
520stpa 300stpa 220stpa 150stpa 150stpa 111111 150stpa 70stpa
• Strategically located near Powder River Basin and Apache Coal Basin
• Linked to 23 bulk emulsion facilities
• Coal mining activity
Phosphate Hill (Queensland)
Gibson Island (Queensland)
Newcastle, Geelong, Portland (NSW, Victoria)
QNP JV (50%) (Queensland)
North America (AN and Urea)
Global IS Initiation systemsCarthage, Wolf Lake, Graham, Port Ewen, Simsbury, Dinamita
N/A • Global mining activity• Complementary value adding to bulk AM
300ktpa
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Dyno Nobel integration
Dyno Nobel integration is on track
Rationale
Leader in chosen markets
Strong growth profile – leverages IPL to soft and hard commodities
Diversification of earnings mix
Creates scale & centre of excellence for nitrogen chemical manufacturing
Enhanced financial strength / increased investor relevance
Integration Progress
Dyno Nobel’s manufacturing operations have been combined with Incitec Pivot’s manufacturing operations
Dyno Nobel’s marketing, sales & distribution businesses, regional operations, explosives services and R&D activities have been combined into a single unit in Salt Lake City
Merger Summary
Approved by Dyno Nobel shareholders on 22 May 2008
Completed 16 June 2008
75% script / 25% cash
Approximately A$3.6 billion total consideration
Meets IPL’s 15% IRR target
Combined Business
Pro-forma 2008 consensus (1) (2):
EBIT A$884 million
NPAT A$579 million
(1) Consensus as at 2 September 2008(2) Dyno Nobel acquired June 2008
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Geographic & product diversification
Diversified earnings base
EBIT Geographical diversification(1)
Product diversification(2)
(1) Based on IPL FY08 EBIT mid-point of guidance (6 March 2008). Dyno Nobel FY08 EBIT based on analyst consensus(2) Product diversification based on actual FY2007 revenues for IPL and Dyno Nobel; A$/US$0.813
Australia100%
North America72%
Australia/ Asia28%
Australia/Asia76%
North America
24%
Incitec Pivot Dyno Nobel Combined
=+
sification2
Fertiliser100%
Fertiliser6%
Explosives94%
Fertiliser48%
Explosives52%=+
Increase in revenue from fertilisersattributable to step change in fertiliserpricing and increase in volume (e.g., Cheyenne expansion in 2008)F
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Australian Fertiliser Business
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Incitec Pivot is Australia’s largest integrated fertilisermanufacturer and distributor
Australian Fertiliser Business – overview
Incitec Pivot’s fertiliser business is based on three core platforms:• Manufacturing - the operation of seven manufacturing facilities, which generated 81% of Incitec Pivot’s
EBIT in FY2007- Phosphate Hill (MAP and DAP)- Mount Isa (sulphuric acid)- Gibson Island (ammonia, urea, ammonium sulphate)- Geelong, Portland and Newcastle (single superphosphate)- Fertiliser manufacturing contribution to profit enhanced following the acquisition of Dyno Nobel
and the inclusion of the St Helens and Cheyenne plants• Distribution – Australian manufactured and imported fertiliser products are sold through an extensive
eastern Australian distribution network, where pricing based upon import parity• Trading – established as a wholly owned subsidiary in 2007, Southern Cross International is IPL’s
trading arm focused on:- Sales to Australian distributors & importers of fertilisers- Export sales to Asia-Pacific, India, Indo-China & Latin America- Procuring raw materials for Incitec Pivot’s manufacturing plantsF
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Leveraging low cost manufacturing assets
Incitec Pivot is the only domestic manufacturer of ammonium phosphates and urea
Note:•
Cockle Creek:Superphosphate: 250ktpa
Kooragang Island:Bagging & distribution
Geelong:Superphosphate: 450ktpa
Portland:Superphosphate: 250ktpa
1. Intensive horticulture & sugar
3. Broadacre& cotton
2. Improved Pasture
Southern Cross Fertilisers:Phosphate Hill: 970ktpa MAP & DAPMt Isa: 1,000ktpa Sulphuric AcidTownsville: MAP & DAP distribution & export facilityGibson Island:- Urea: 280ktpa- Ammonia: 300ktpa- Ammonium Sulphate: 200ktpa
•••
••
•
Major Manufacturing and Distribution SitesDistribution Sites•
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World scale ammonium phosphate production at Phosphate Hill
• World scale asset
• Bottom of the global cost curve
• Low cost rock deposit
• Low cost sulphuric acid
• Low cost ammonia (underpinned by long term gas contract)
• Nameplate capacity 970,000 tonnes per annum
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A balanced exposure to the Fertiliser business
Fertiliser Sales by Agricultural Sector
Fertiliser Sales by Region
3,400,000Total Sales1,000,000Total Imported200,000Potash300,000Ammonium Sulphate500,000Urea
Imported Products
2,400,000Total Manufactured780,000Single Superphosphate270,000Ammonium Sulphate100,000Ammonia (anhydrous)280,000Urea970,000Ammonium Phosphate
Manufactured Products
3,400,000Total Sales1,000,000Total Imported200,000Potash300,000Ammonium Sulphate500,000Urea
Imported Products
2,400,000Total Manufactured780,000Single Superphosphate270,000Ammonium Sulphate100,000Ammonia (anhydrous)280,000Urea970,000Ammonium Phosphate
Manufactured Products(1)
(1) Nameplate capacity and SSP footprint demand
Export
QLD
NSWVIC
SATAS Export
QLD
NSWVIC
SATAS
Extensive Pasture
Intensive Pasture
HorticultureSugarWinter Crops
Summer CropsExtensive Pasture
Intensive Pasture
HorticultureSugarWinter Crops
Summer Crops
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Fertiliser distribution
Distribution Channel Description
Independent agent / Dealer Network
(~ 65% of revenue(1))
Comprises over 800 outlets throughout Eastern Australia
7 out of 10 farmers prefer to purchase through independent agents and dealers which have longstanding relationships with farmers
Most efficient services and last mile logistics to farmers
Corporate Dealers(~ 30% of revenue(1))
Includes sales to RuralCo, Elders, Landmark, ABB Grain and affiliated independent dealers operating under corporate banner arrangement
Typically bulk sales direct from the Company’s distribution facilities
Provide a full range of agri-business services
Direct to farmers in Tasmania (~ 5% of revenue(1))
Where retailers alone cannot deliver the most efficient service
Based on longstanding individual relationships with farmers
Distribution network pulls through manufactured product(1) Revenue of the Australian Fertiliser business
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Global Explosives Business
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Global Explosives Business – Dyno Nobel Overview
• A global leader in the supply of commercial explosives
• # 1 in North America (worlds largest market)
• # 2 in Australia (3rd largest market)
• Development, production and distribution of full range of explosives products and services through 36 manufacturing and operations facilities in North America, Australia, Mexico, Indonesia & PNG
• 2007 sales of US$ 1.398 billion
• Over 3,600 employees worldwide
• Active in major markets (U.S., Canada, Mexico, Australia, Indonesia, South Africa, Turkey and China)
Offers exposure to global hard commodities
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Growing demand for explosives
Sustained global drivers for mineral consumption
Note: * 1 January 2008 real US dollarsSources of data: CRU Quarterly Reports (January 2008); Brook Hunt Aluminium Metal Service (February 2008); IISI – Steel Statistical Yearbook (December 2007); World Bank (World Development Indicators Online Database, February 2008); BHP Billiton analysis
US$ expenditure (per capita)
10
20
30
40
50
GDP per capita (US$’000)*
10 20 30 40
Aluminium
Copper
Iron Ore
Coking Coal
China: $2,000 per capita
Mineral consumption increases with GDP
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Dyno Nobel is number 1 in the North American market
Strategically Located Facilities
2007 Market Revenue: ~ US$2.0 – US$2.5bn
2007 Market Demand: ~ 2.9m tonnes
Powder River Basin
Appalachian Coal Basin
• 5 AN plants service key markets (~ 1.3m tonnes pa)
• 1 Urea/UAN plant• 6 initiation systems facilities• Broad packaged product offering• Extensive internal logistics operations • Five distribution channels
Market Leader• North America is one of the largest
explosives market in the world• No.1 in USA & Canada• North American revenue, by:
- Geography: 16% Canada, 84% USA/Mexico
- Product: 60% AN based explosives, 23% Initiation systems products, 9% boosters and dynamite, 5% packaged products & 3% other
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Explosives - North America
Ammonium Nitrate Manufacturing in North America – short tonnes
The market leader North America explosives
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Dyno Nobel is number 2 in the Australian market
2007 market revenue ~ US$1.1bn
2007 market demand ~ 1.1 – 1.2m tonnes
Pilbara (Iron ore)
Hunter Valley(Coal)
Bowen Basin (Coal)
Surat Basin (Coal)
Goldfields (Gold, Nickel)
Strategically located facilitiesStrong second player
• Third largest explosives market in the world
• Serviced by two key players
• No.2 market position in consolidating industry
• Customers supportive of a second strong player
• Strong demand for products and services
• Moranbah AN project to underpin competitive position in Australia
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Explosives revenue analysis
2007 North American Revenue End User Segment
2007 North American Revenue Product Category
Quarry &
Construction, 38%
Private Label, 2.5%
International Other, 4.5%
Metals Mining, 12%
Agricultural Chemicals, 8%
Coal Mining, 35%Quarry &
Construction, 38%
Private Label, 2.5%
International Other, 4.5%
Metals Mining, 12%
Agricultural Chemicals, 8%
Coal Mining, 35%
Ammonium Nitrate, 60%
Other, 3%
Packaged, 5%
Boosters & Dynamite, 9%
IS, 23%
Ammonium Nitrate, 60%
Other, 3%
Packaged, 5%
Boosters & Dynamite, 9%
IS, 23%
2007 Asia Pacific Revenue End User Segment
2007 Asia Pacific Revenue Product Category
Coal Mining, 35%
Metals Mining, 65%
Ammonium Nitrate, 64%
IS, 15%
Boosters, 4%
Packaged, 2%
Other, 15%
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Moranbah AN project
• Compelling strategic fit– Nitrogen based chemistry– AN sales into both explosives and fertiliser markets
• Located in the heart of large existing and new coal projects
• Exposure to high growth ‘Met’ coal from Bowen Basin in Queensland
• Fully integrated back-to-gas ammonia, nitric acid and AN complex
• Fully costed A$935m project (mechanical completion Q1 calendar 2010)
• Compelling competitive position– 15 year, low cost gas supply contract– Lowest cash cost position in plant footprint– Bottom of the global cost curve
• Project exceeds IPL’s strict financial criteria
Low risk, controllable shareholder value creation
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Industry supply balance
Forecast growth of 9% = a balanced AN market by 2013
Queensland AN Demand & Supply Balance - 2000 to 2020
-
250
500
750
1,000
1,250
1,500
1,750
2,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Tonn
es, 0
00's
QNP Moranbah Yarwun Demand Growth at 9% Demand Growth at 12%
Longer-term supply deficit
Note: Based on nameplate capacity
Queensland AN Demand & Supply Balance – 2000 to 2020
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Industry pricing
A step change in AN pricing
Spot AN Import Parity PriceFree-in-store Moranbah
$500
$550
$600
$650
$700
$750
$800
$850Ja
n-05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
A$ AN/t
weekly spot price Calendar year average
Spot price 24/7/08: A$821/t
Source: IPL - constructed IPP price based on Fertecon AN Baltic/BlackSea FOB
Spot AN Parity Price Free in-Store Moranbah
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Global TradingBusiness
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Trading business
Fertiliser marketsAustraliaAsia PacificIndian subcontinentIndo ChinaLatin AmericaOther
Other Fertilisermanufacturers
Explosive marketsNorth AmericaAustraliaChina/South East AsiaSouth AfricaOther markets
Southern Cross International
Product
Product
Raw materials
Raw materials
Product
Manufacturing
The Trading business, Southern Cross International, focuses on optimising product and raw material sourcing and product sales
Product sourcing and sales are optimised to key markets
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Outlook -Global Fertiliser Demand
“ the 4 F’s
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Fertiliser demand is growing
• Fertiliser demand is being driven by the “4 F’s”:
• Food
• Fibre
• Feed
• Fuel
• Population growth and economic prosperity in developing countries is increasing demand for food
• Step change in quantity and quality of food consumption as income increases to US$3-5k per capita
Demand is growing
World Nutrient Demand through to 2010
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Food
0
2
4
6
8
10
2007 2050
Bill
ion
peop
le
Developing
Developed
• Population growth and economic prosperity in developing countries is increasing demand for food
• Global net population growth ~200,000 people per day
• Step change in quantity and quality of food consumption as GDP/capita increases to between US$3k - US$5k
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat (2007), Incitec Pivot
Strong population growth in developing countries….
….and increasing economic prosperity
China 9.8% 9.0%India 7.7% 7.0%Argentina 6.0% 3.5%Indonesia 5.8% 5.5%Brazil 4.6% 3.6%Source: Economist Intelligence Unit
Country 2008 GDP Forecast
2009 GDP Forecast
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Fibre
• Demand for plant fibres will continue to be strong
• Cotton production is forecast to stay at the currently elevated levels
Cotton Consumption (million tonnes)
Source: UNCTAD, based on: "Cotton: World Statistics - International Cotton Advisory Committee (ICAC)"
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Feed
Source: China Agriculture University, Beijing, 100094 P.R.CHINA
0
500
1000
1500
2000
2500
3000
3500
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
0
100
200
300
400
500
600
total Production of Grain (106t)
total Production of meat (105t)
total Production of milk (104t)
total Production of egg (104t)
Compared to 1980, grain production increased by 89%, while the production of meat, egg and milk increased 6.4, 11.2 and 20.8 times respectively in 2005
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Feed
Source: China Agriculture University, Beijing, 100094 P.R.CHINA
Demand for grains used for animal production may not be met in tDemand for grains used for animal production may not be met in the future he future ––different scenariosdifferent scenarios
1950 1960 1970 1980 1990 2000 2010 2020
1LU=1000kg live animal weight
0
2
4
6
8
10
12
(108
LU
)
year
Limitation by resources Chinese nutrition standard
U.S. Scenarios
4.1
7.6
6.6
10.6
2003 yr2003 yr
9.2 Develop as current speed
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FeedF
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Feed
• Meat consumption in developing world lags developed world average
• Rising per capita income drives demand for complex protein (meat)
• Meat producing animals consume a lot of grain
• Chinese meat consumption has tripled in past 7 years
Meat Consumption Per Capita
0 10 20 30 40 50 60 70 80 90 100 110 120 130
Africa
Asia
Developing World
World
Latin America
Developed World
North America
kg / person / year
Usable Protein Yield Per Acre of Land
356
261
211
192
138
82
78
45
20
0 50 100 150 200 250 300 350 400
Soybeans
Rice
Corn
Other Legumes
Wheat
Milk
Eggs
Meat (all types)
Beef
Pounds of useable protein
Source: USDA: FAO/WHO/UNICEF Protein Advisory Group (2004) Diet for a New America (John Robbins)
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Feed
0.0
5.0
10.0
15.0
20.0
25.0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09F
Surplus
Squeeze
Cereal stocks are at record lows, equivalent to just 8 weeks’ production
Source: FAO, British Sulphur Consultants
13 weeks
10 weeks
8 weeks
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Fuel
• Recent dislocation in nutrient demand has been driven by biofuel
• Latest US official data still projects dramatic increase in corn used for ethanol
• Government mandates underpinning demand for renewable fuels
• Corn, sugar, palm oil are nutrient intensive crops
US Corn used for Ethanol Production
Note: Planting year starting September 01 - Source: USDA, Feb 2008
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Billion Bushels
0%
5%
10%
15%
20%
25%
30%
35%
40%
Actual Projection % of Total Core Use
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Constraints – arable land
0
1
2
3
4
5
6
7
8
9
1950 1960 1970 1980 1990 2000 2010 2020 2025 2030
Wor
ld p
opul
atio
n (b
illio
ns)
0.0
0.1
0.2
0.3
0.4
0.5
0.6
Ara
ble
land h
a/pers
on
• Arable land per capita is declining as population increases
• Crop yields must increase to meet increased demand for food
• Increased fertiliser consumption will support increased yields
49
7585
117
157 161182 189 194
0
50
100
150
200
250
Australia NZ
IndiaBrazil US
ChileFra
nceChina UK
Fertiliser Consumption Per Hectare (kg)
(kg
/h
a)
Population Growth & Arable Land Per Capita
Source: IFA
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49
75
85
117
157
161
182
189
194
Australia
New Zealand
India
Brazil
US
Chile
France
China
UK
27
45
96
169
116
132
188
58
44
31
42
60
88
81
160
Argentina
Canada
China
India
EU
Russia
US
Brazil
Used Potential
Maximum Potential Farm Land Fertiliser Consumption per Harvest Area(millions of hectares) (kilograms of fertiliser per hectare)
Source: IFASource: Yara
Australian Fertiliser Demand vs Rest of World
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Improvement in land use efficiency
Population Supporting capacities in Developing Countries
Location Million Acres
Africa 7,109 780 2,488 12,867
Southwest Asia 1,672 265 301 318
South America 4,372 393 1,399 12,373
Central America 672 215 289 1,297
South East Asia 2,218 1,937 2,462 6,343
TOTAL 16,043 3,590 6,939 33,198
Sustainable Increase in Population 3,349 29,608
Source: Compiled by Economic Reserch Service (1996)
Low Inputs High Inputs
Potential Population(Millions)
Potential Population(Millions)
2000 Population
MillionsTotal Land Area
Current Inputs
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Outlook –Ammonium Phosphate
Supply
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Top five rock exporters = 76% of global trade
There is a high concentration in the phosphate rock / phosphoric acid/ammonium phosphates, particularly in the export markets
Source: British Sulphur Consultants – A Division of CRU
0%
10%
20%
30%
40%
50%
60%
70%
80%
OCP,Morocco
JPMC,Jordan
Gecopham,Syria
Ferphos,Algeria
Phosagro,Russia
shar
e of
glo
bal r
ock
expo
rts
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Fertiliser supply - global ammonium phosphate industry
World scale ammonium phosphate production at Phosphate Hill
Major producers & exporters(1)
Mosaic (USA)(2) 9.5mt OCP (Morocco) 3.8mtPhos Agro (Russia)(3) 3.0mtCF Industries (USA) 2.2mtGCT (Jordan) 2.0mtChina(4) 15.4mt
Notes (1) 2007 global industry production(2) Formed in 2004–merger of IMC & Cargill fertilisers(3) 8.5% export tax announced Q1 2008(4) 135% export tariff Apr-Sep 08. 120% export tariff for Oct-Dec 08
72%Local
Conversion
28%Traded Volume
Industry volume:Approx 63MTPA
Lead time for new capacity:Approx 4 years
Industry Production(1)
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UREA and DAP – historic prices
Step change in fertiliser pricing
US$/tonne US$/tonne (calendar year average)
Source: Fertecon
DAP (ex Tampa) Granular Urea (ex Middle East)
Source: Fertecon
DAPex Tampa
150
350
550
750
950
1,150
1,350
2005 2006 2007 2008
US$/tonne
$/tonne FOBGranular Urea ex Middle East
100
200
300
400
500
600
700
800
2005 2006 2007 2008
US$/tonne
$/tonne FOB
US$/tonne US$/tonne (calendar year average)
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Non-integrated ammonium phosphate producer - cost curve underpins the global price
Ownership of raw material inputs = value leverageNote - 4 Sep 08 cost comprises CFR spot costs for: phosphate rock US$480/t + sulphur US$590/t + ammonia US$765/t + conversion US$50/t
DAP Composition+ 1.7t Phosphate
Rock (Morocco)+ 0.44t Sulphur+ 0.22t Ammonia+ Conversion
(labour/Overhead)
$816$680
$145 $145 $340
$260$264
$168
$132
$1,294
$1,126
$282 $310
$520
0
200
400
600
800
1,000
1,200
1,400
Sep 06 Mar 07 Sep 07 Mar 08 Sep 08Spot
$US/t
ConversionAmmoniaSulphurPhosphate Rock
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Escalating cost of new capacity
• Higher construction costs coincide with hard commodity boom
• Higher long-term commodity prices required to generate required rates of return
Note - Construction cost index includes completed projects only
Chemical Engineering Plant Cost Index(CEPCI)
396 402
444
468
500
525
350
400
450
500
550
2002 2003 2004 2005 2006 2007
Index
0%
2%
4%
6%
8%
10%
12%
% change(year on year)
CEPCI Index % Change - year on year change
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Summary
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Investment highlights
• Strong market dynamics in terms of supply and demand
• Leading market positions in key products
• Diversity by product and geography
• World scale, bottom of the cost curve ammonium phosphate manufacturing
• Strong organic growth opportunities
• Experienced management with proven track record
• Disciplined capital management & investment criteria
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Appendix
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Financial highlights
Notes* Not restated for AIFRS (1) 12 month rolling, excludes individually material items(2) Excludes debt to fund shareholding investment in Dyno Nobel(3) EBIT divided by Interest expense excluding non-cash unwinding of discounts
Financial Year / A$m 2004* 2005 2006 2007 H1 Mar 07 H1 Mar 08
Sales Revenue 1,135.6 1,073.9 1,111.2 1,373.2
348.6
312.5
202.5
22.8%
Underlying Net Debt / EBITDA(2) N/A 0.9x 1.7x 0.5x 1.9x 0.5x
Underlying Interest Cover(3) 22.5x 8.3x 9.8x 10.9x 6.0x 20.1x
749.3
EBITDA(1) 167.2 108.4 159.4
543.6
102.1
83.9
49.6
269.0
15.4%
EBIT(1) 121.9 77.9 126.2 250.0
NPAT(1) 80.9 47.9 82.8 171.1
EBIT Margin 10.7% 7.3% 11.4% 33.4%
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Profit & Loss
Financial Year, $m 2004 2005 2006 2007 H1 Mar 07 H1 Mar 08
Sales Revenue 1,135.6 1,073.9 1,111.2 1,373.2
348.6
312.5
Net Borrowing Costs (5.4) (9.4) (12.9) (28.8) (16.4) (16.7)
Tax (35.6) (20.5) (30.5) (81.2) (17.9) (62.2)
NPAT(1) 80.9 47.9 82.8 202.5 49.6 171.1
205.3
749.3
EBITDA(1) 167.2 108.4 159.4
543.6
102.1
83.9
269.0
57.2
EBIT(1) 121.9 77.9 126.2 250.0
NPAT(2) 75.0 14.5 46.7 169.8
(1) excluding individually material items(2) including individually material items F
or p
erso
nal u
se o
nly
56
Balance Sheet
Financial Year, A$m 2004 2005 2006 2007 H1 Mar 07 H1 Mar 08
Total Current Assets 460.9 358.6 597.4 909.0
730.3
1,639.3
1,104.3
535.0
824.2
Total Non-Current Assets 510.4 486.6 707.1
530.1
722.6
1,252.7
860.3
999.6
392.4
Total Assets 971.4 845.2 1,304.5 1,823.8
Total Liabilities 339.9 285.3 924.5 1,249.4
Total Equity 631.5 560.0 380.0 574.4
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Pro-forma Financial Summary
A$mIncitec Pivot
pro-formaDyno Nobelpro-forma
Pro-formaAdjustments
Merged Group pro-forma
Sales Revenue 1,429.3 1,666.7 - 3,096.0
EBITDA 387.3 275.9 - 663.2
Depreciation & Amortisation (1) (36.1) (61.6) - (97.7)
Net Borrowing Costs (2) (189.0) (189.0)
Tax (3) (113.0) (113.0)
EBIT 351.2 214.3 - 565.5
NPAT - 263.5
Summary Pro Forma Results for the Year ended 31 December 2007 (as disclosed in Dyno Nobel Scheme Booklet, March 2008)
Notes:(1) This excludes the amortisation of any identifiable intangible assets to be recognised on implementation of the Share Scheme and any increased depreciation of tangible assets stepped up on implementation of the Share Scheme. Further depreciation and amortisation charges are expected to arise upon completion of the Merged Group's acquisition accounting review.(2) Interest has been calculated based on estimated average borrowings for the year of A$2.1 billion against a new facility at an average interest rate of 8.99%(3) Tax has been assumed at a rate of 30%
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Pro-forma Balance Sheet
A$mIncitec Pivot
pro-forma30 Sept 2007
Dyno Nobelpro-forma
31 Dec 2007
Pro-formaAdjustments
Merged Group pro-
forma31 Dec 2007
Total Current Assets 909.0 471.0 (555.1) 824.9
Total Non-Current Assets 730.3 1,258.8 2,065.4 4,054.5
Total Assets 1,693.3 1,729.8 1,510.3 4,879.4
Total Liabilities 1,104.3 1,093.0 676.2 2,873.5
Total Equity 535.0 636.8 834.1 2,005.9
Summary Pro Forma Balance Sheet for the Year ended 31 December 2007 (as disclosed in Dyno Nobel Scheme Booklet, March 2008)
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Financial performance
(1) excluding individually material items(2) EBIT/Underlying Interest Paid (excluding interest on debt used to fund shareholding in Dyno Nobel)
Historical EBITDA Performance (1)
Historical Revenue & NPAT Performance (1)
Underlying Net Debt/ EBITDA(2)
Underlying Interest Cover (2)
1,136 1,074 1,111
1,373
749
80.9 47.9 82.8202.5 171.1
-100100300500700900
110013001500
2004 2005 2006 2007 H1 Mar 08Revenue NPAT
167.2
108.4
159.4
348.6
269
050
100150200250300350400
2004 2005 2006 2007 H1 Mar 08
0.9
1.7
0.5 0.5
N/A0
0.5
1
1.5
2
2004 2005 2006 2007 H1 Mar 08
22.5
7.210.3 11.5
20.
0
5
10
15
20
25
2004 2005 2006 2007 H1 Mar 08
1
A$, M
A$, M
Times covered
Times Covered
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Disciplined capital management
Step change in capital efficiency
TWC
to Rolling S
ales -%
Trade Working Capital TWC to Rolling Sales
335
255263
205
16%
20%
26%
29%
200
250
300
350
400
2005 2006 2007 2008
Trad
e W
orki
ng C
apita
l -A
$M
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
25146
Trade Working Capital for Southern Cross in 2007
• Strong EBITDA conversion to cash
• Increased working capital efficiency
• Comfortably inside the Net Debt / EBITDA target ceiling of 2.5x
Working capital efficiency
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$M Delivered (A$m)
Total TARDIS 1 38.0
TOTAL AS AT SEPTEMBER 07 143.1
TARDIS 1FTE 13.8
Operational Optimisation 16.2
TARDIS 2
Southern Cross 44.6
Manufacturing Efficiency 16.1
Gibson Island Gas 26.3
Supply Chain 18.1Total TARDIS 2 105.1
Quick Wins 8.0
Tardis efficiency savings
Track record of delivering on efficiency commitments
• Project Tardis is embedded throughout Inctec Pivot’s operations – a core competency
• Project Tardis has delivered a step change in efficiency
Annualised benefit of efficiency improvements achieved 2006 to 2007
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Earnings sensitivities
• +/- US$10 DAP price = A$11.9m EBIT
• +/- US$10 Urea price = A$5.5m EBIT
• +/- AUD/USD 1c ~ A$8m
Assumptions:
• Based on 2007 reported earnings (excludes Dyno Nobel earnings translation)
• 970kt DAP sales at base price US$364/t @ 81.3 cents
• 460kt urea/urea equivalent sales at base price US$264/t @ 81.3 cents
• AUD/USD base price 81.3 cents
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Share price
$0
$25
$50
$75
$100
$125
$150
$175
$200
28/07
/2003
20/10
/2003
12/01
/2004
5/04/2
004
28/06
/2004
20/09
/2004
13/12
/2004
7/03/2
005
30/05
/2005
22/08
/2005
14/11
/2005
6/02/2
006
1/05/2
006
24/07
/2006
16-O
ct-06
8/01/2
007
2/04/2
007
25/06
/2007
17/09
/2007
10/12
/2007
7/03/2
008
4/06/2
008
28/08
/2008
$/share
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Volume
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