Dyno Nobel Limited (DNL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Incitec Pivot Limited's investor briefing. I'm joined this morning via video link by Managing Director and Chief Executive Officer, Jeanne Johns; Chief Financial Officer, Nick Stratford; and select executive team members of Incitec Pivot. The materials we'll be covering today has been lodged with the Australian Stock Exchange and can be found on the ASX and Incitec Pivot Limited's websites. [Operator Instructions] And an audio recording of this presentation will also be available on the company's website after we conclude today. Finally, I'd like to draw your attention to the disclaimer found on Page 2 of this presentation. Thank you. And I'd now like to hand over to Jeanne.

Good morning, and welcome to our investor briefing. Today, we'll have a different COVID-safe virtual format rather than our usual in-person Investor Day. I'm here at home in Melbourne. And for those of you who may be wondering, we're all in separate locations to ensure compliance with the new restrictions. The purpose of today is to tell you about our strategy and why we're excited about the next 3 years of the business and the growth potential that we see ahead. I'll now like to take you through our plans for this morning. I will start with my update on our strategy. I'll then turn over to our new CFO, Nick Stratford, from Salt Lake City, and he will take you through our financial framework, our business update and our response plan. I'll then cover our Explosives business and our technology-led growth options before we hear from our Incitec Pivot Fertilizer President, Stephan Titze in Melbourne. For those of you who haven't met Stephan, I'll tell you more about his background when we get to the fertilizer strategy. We'll then hear from Tim Wall out of Brisbane on the progress we've made to our Manufacturing Excellence. After which, I'll wrap up and we'll move on to questions. During the Q&A session, we will be joined by our Chief Technology Officer, Rob Rounsley; and Dyno Nobel Asia Pacific President, Greg Hayne, both of whom are in Brisbane and both of whom you've -- many of you met last year at our Investor Day. I'm also delighted to have our newest executive team member, Dr. Braden Lusk, who's joining us from Salt Lake City for the Q&A. As we announced, Braden took on the Dyno Nobel Americas President role in July when Nick became CFO. Braden's been with us since 2018 and brings into the role 2 decades of mining and explosives industry experience. He has a fantastic combination of practical on-site skills and explosives expertise, and I'm excited that we have someone of his caliber in the role. So let's now get underway with the presentations. I'd like to start by talking about our 2 businesses, 2 great businesses servicing our partners in the resources and the agricultural industries, both of which have been very resilient, operating in a COVID environment. We are well- placed to grow in our chosen markets and beyond through our strategic growth agenda. We have market-leading positions, great brands and strategically located assets in these 2 vital industries. Our global Explosives business has strong positions in 2 of the best mining markets in the world, Australia and the U.S. And it has well-located assets to service high-quality customers. These customers are leaders of the resources industry and are demanding our premium technology, the best in the market today. We have partnered with leading miners to create blasting products and services that produce quality results tailored to individual site needs. This technology edge is reflected in our strong explosives margins. We have the advantage of diversification across geography, customer base and high-quality commodities. The vast majority of our global explosives revenue is driven by base and precious metals, the quarry and construction sector and metallurgical coal. There's a lot more upside, both from our existing technology, our technology pipeline and strategically expanding into select high-quality markets that I'll talk about a bit more later. Turning to our fertilizer business. It is the largest in Australia and the market leader on the East Coast. Earlier this year, following a strategic review of our business, we made the decision to retain the business and improve its performance and returns. The business is known for its exceptional customer service, providing Australian farmers with quality products and services to grow high yield, diversified crops. This business is made up of 2 parts: distribution and manufacturing. The manufacturing business provides domestic supply security, the value of which has been heightened by COVID. Importantly, our biggest plant at Phosphate Hill is above breakeven even at current low pricing of phosphate fertilizer. Our Manufacturing Excellence program and our increased focus on cost will further improve the performance and the plant's competitive position. Stretching across much of Eastern Australia, the distribution business is a large platform, robust margin business with reliable earnings. And it goes beyond delivering fertilizers with our world-class agronomy offering providing value-add services for farmers across diversified crops. We will continue to grow with the recovering East Coast agriculture market and the significant upside in the business when commodity prices improve. Now I'll turn to how we support the underlying long-term growth in these 2 great businesses and deliver shareholder value. As I said earlier, the purpose of today is to share with you our vision for the next 3-year period on how we will deliver growth and shareholder value. Firstly, the mining and the agricultural sectors have compelling macro drivers and resilient end markets, something that has been tested and proven throughout COVID. Global commodity prices have been the biggest impact that we've seen from COVID. And we are taking decisive action via response plan to create more resilience across the business and expect to deliver $60 million per annum in savings by FY '22. In explosives, our Dyno Nobel brand is unrivaled, and both our Americas and Asia Pacific businesses will grow over the 3-year period from FY '21. This will be underpinned by our best-in-market premium technology, which will enable us to continue to grow in high-value sectors and markets. These are capital-light, high-return investment opportunities. Our Manufacturing Excellence program previously announced is on track to deliver the $40 million to $50 million earnings uplift by FY '22 through improved reliability. And our fertilizer business consists of an unmatched platform, which will be leveraged through bringing new and advanced fertilizer products and solutions to the market. And its manufacturing portfolio is well-positioned to benefit from any recovery in commodity pricing. Important, our recent capital raise has put our balance sheet in good shape, and we'll continue to focus on strong cash flow generation, which Nick will talk about next in his section. I would now like to touch on some of the compelling long-term macro trends that underpin our end markets and which have been key to our resilience throughout COVID. We've been able to continue to service the essential mining and agricultural industries. And demand for food will only increase, and the outlook for raw materials remains robust. A growing global population and middle class underpins demand for protein and high-quality agricultural crops that Australia is renowned for. Digitization is fueling demand for minerals. And infrastructure and urbanization will -- continues to drive the quarry and construction sectors. In fact, one of our biggest Q&C customers in the U.S., building material supplier Martin Marietta, last week noted the underlying strength of the sector. Along with the need for additional infrastructure, the trends of the increased demand for detached dwellings will be a positive for aggregate volumes in the medium to longer term. There is also expected to be benefits from the nonresidential sector from the trends on reshore. For mining customers, they continue to demand the increased productivity as the ore bodies they are trying to access becomes harder to extract, a trend that will create a pull-through for our leading technology solutions. All of these trends support the resilience of the markets to which we're exposed. Turning now to our track record of execution on strategy. I'd like to start with Zero Harm, which has been especially critical during a global pandemic. We swiftly moved to implement a range of COVID-specific safety controls, which has allowed us to continue to operate throughout. Looking at our overall Zero Harm scorecard, we're pleased with the progress that we have made. We set ourselves a recordable target of 0.7 by FY '21. And I'm very proud of the organization that we're now tracking toward delivering this full year early with our recordable rate at 0.58 through the third quarter of this year. Our Manufacturing Excellence strategy with the $40 million to $50 million price driven by reliability targets is also on track. Our plant reliability is up 7% since last year. And we've seen substantial improvements at both Waggaman and Phosphate Hill. For FY '20, we expect approximately 30% of the reliability improvement from our baseline will be delivered. And the target level of improvement will come after the next round of turnarounds. On technology, there's no doubt in my mind that we have the best technology in the market. In the last 3 years, we've leveraged our explosives know-how and technology to grow our business in the U.S. and to win the business of premier mining companies in Australia. The volume growth across the product portfolio speaks for itself. Our technology pipeline will clearly provide upside, but already, we're delivering the practical technology solutions that add value for our customers today. And looking for growth, our focus has been on leveraging this premium technology to grow market share and margin through low capital and high-return opportunities. In North America, we've also increased our footprint by investing in distributors and joint ventures to go direct to customers as well as new capital-light emulsion plants, a model we adapted to Chile for low-capital organic growth in a new attractive market. I'll now hand over to Nick Stratford, our new CFO, who's known to many of you from his time as President of our Explosives business in North America. Under his leadership, the business has seen both sales volumes and margins increase. And over the past 3 years, profitability has grown by more than 40% in U.S. dollar terms. Many of you will also know Nick from his time based in Melbourne, where he began his career with IPL as group Financial Controller and General Manager of Investor Relations. I'm thrilled that he'll be bringing his strong commercial acumen and deep financial background as the CFO. I'm also happy that we'll have him back in his hometown in Melbourne very shortly. Currently in Salt Lake City, Nick will now take you through our financial framework, our business update and the response plan. Over to you, Nick.

Thanks, Jeanne. I appreciate the introduction. I've been the CFO overall for just over a month now, and I'm looking forward to moving back to Melbourne, as you said, in 6 weeks' time from now once our family has served our time in quarantine. But before I talk about my new role, I'd like to reflect on my past 7 years in the Dyno Nobel Americas business. It's a great business with great people, and I have huge confidence in the business' future. And with Braden Lusk moving into the President's role, the business is in really good hands. Braden and I have worked together for the past few years, and we share a view on the business' potential and a vision for its future. Braden's background puts them in a unique position to further drive the offering to their customers, and therefore, continue to grow the earnings of the business. So turning to the CFO role, given this is the first time I'm presenting, I'd like to share my key priorities with you. And they are balance sheet strength, free cash flow and targeting higher returns. Starting with the balance sheet. IPL has always had a commitment to investment-grade credit rating, and that will continue, albeit with a more conservative approach to debt leverage. And to that point, I can confirm that the proceeds from the recent equity raise have been applied to pay down debt, and that we'll be looking to extend our SFAs early in the new financial year to maintain the conservative level of debt headroom and further extend the average maturity profile of the group's debt facilities. Another area we'll look to work on is to simplify our debt funding structures. Given the arrangements in place, we'll look to do that over the next 18 months. At sustenance capital, our objective is to run sustenance CapEx at below depreciation each year, which I can confirm that we will achieve while completing a heavy turnaround schedule over the coming 2 financial years. This will be delivered by capital planning and capital efficiency measures we have in place. Turning to free cash flow. I'd like to talk about our approach to drive a better sustainable cash performance outcome for IPL. Of course, our objective is to ensure that the business cost is set appropriately to the activity level and profitability of the businesses and to keep costs sustainably low at all times through the cycle. For working capital, we'll have a strong focus on reducing underlying working capital levels. In regard to our working capital facilities, they'll be reviewed in line with our objective to simplify the funding of the business. Sustenance capital. We've discussed target levels a bit earlier. However, the key to achieving this will be an improvement in our capital efficiency where we will look to further improve project management to help our budgets go further. As we will discuss later, we have a response plan which will make an immediate impact in all these areas. However, the important point here is to ensure those gains are sustainable. And I have confidence in this for 2 reasons. Firstly, we spent a considerable amount of time as an EC debating what the right sustainable level of program is, which is [indiscernible]. And secondly, we have controls in place that once the saving has been made, they will remain and any investment we put back into the cost base will have a defined benefit to the group. Finally, on this slide is a target of higher returns in our growth capital. And while IPL's ROIC metric is clearly too low, we have recently seen good growth investment returns from the explosives businesses driven by investments linked to our premium technology offering. And when we look forward to future growth capital and investments, a bias will be towards capital-light projects that have a short cash payback period. Finally, based on all the actions outlined on this slide, we expect to achieve a significant improvement in ROIC over the next 3-year planning cycle. Moving to the next slide. During the unprecedented times, we wanted to provide a high level performance update for the 9 months ended 30 June 2020. Overall, IPL is well-placed, being a supplier to the essential industries of resources and agriculture. We have seen Australian volumes largely unaffected, whereas in North America, where the pandemic has been more widespread, we saw demand bottomed out in May and recover in June and July. And more specifically, in DAP and in Australia, base and precious metal volumes were up 12% year-to-date while met coal volumes were down 4%. And the 4% decline in met coal is due to first half weather impacts, not COVID. Our smaller international businesses, we have seen a combined volume decrease of 12% compared to a 10% decrease in half year, and this was largely due to the impact of thermal coal volumes in Indonesia. Moving to DNA. Quarry & Construction volumes are 1% up year-to-date, which shows an impact of a dip in demand in May. Base and precious metals were 6% behind last year, which is in line with where we were at half year. Third quarter performance was a result of the temporary shutdown of the [ Arctic ] mining customers at the start of the COVID pandemic and reduced demand from the U.S. automotive sector, which saw a temporary closure of U.S. iron range mines that are now beginning to reopen. Both these negative factors were partially offset by strong volume growth from our gold customers. And finally, coal volumes are down 21% year-to-date, which is in line with the structural industry decline and has been exacerbated by recent low gas prices. Moving to the IPF distribution business. Volumes are 16% ahead of the prior year, which reflects the improvement in market conditions from the drought-like conditions we saw in the previous years. And for manufacturing, Tim will discuss this in more detail later in the presentation. We've seen an improvement in reliability, which is up 7% to 88% year-to-date June. And most pleasingly, as of today, WALA has run at full rates for the past 199 days. So as you can see, we are in a relatively strong position with our business demand in the COVID environment. However, it would be remiss not to call out the impact low commodity prices are having on business results. We have seen a further $18 million reduction in Q3, reflecting lower commodity prices, partially offset by the lower Australian dollar. Turning to my final slide. This provides details of our response plan. At half year, Jeanne provided details of a $20 million cost savings. Since then, we've expanded the program to a $60 million cost-reduction program, which will be realized in full by FY '22. To explain the details on this slide, we will see a $20 million reduction in FY '20, an incremental $30 million reduction in FY '21 and a further incremental $10 million in FY '22. The cash cost of the program is estimated to be $30 million, to be recorded in the FY '20 financial results. While the inception of the program is based largely on discretionary spending, as we expanded it, it now includes business efficiency program, which will drive lower costs in all areas and spend categories of the business. The program will also include initiatives to drive improvement in trade working capital and capital efficiency. So I'd like to conclude by highlighting that you can expect a strong level of financial rigor from IPL in the years to come, which will underpin the growth agenda of the business that you'll hear more about from my colleagues today. On that note, I'd like to hand back to you, Jeanne, and I look forward to any questions you may have.

Thanks, Nick, and we're looking forward to seeing you back in Melbourne quite shortly. As you explained, we've been in a privileged position during COVID, servicing the essential resources and agricultural industries. And we're seeing -- taking action in response to ensure a sustained low cost base. Now I want to focus on what today is all about, and that's the future, what we're excited about and our 3-year look-in. First, I'll start with a deeper dive into our Explosives business. Taking a look at our explosives growth opportunities first, both our Americas and our Asia Pacific businesses will grow from FY '21 over the 3-year period, and I want to give you an outline on how we will achieve this. In the Americas, we are confident that we can continue to outgrow the market. Our premium technology positions have continued growth in the Q&C and the base and precious metals, and this will more than offset the decline in the coal sector. As an example, we recently won a new customer in the Canadian gold sector after a trial of our premium technology there, and subsequently, winning the head-to-head contest on the quality of the blast outcome, with our technology once again proving its superiority. To support our growth, we have been building and commissioning transportable emulsion plants across the North American business. Over the last 4 years, we've commissioned 8 of these new plants to service both new business contracts and to support the conversions of existing customers to our premium technology. And we see Chile, the biggest copper market in the world, as another excellent way of leveraging these transportable emulsion units and our premium technology into a new and attractive market. The investment is consistent with our capital-light, high-returns focus. And our Delta E technology is ideally suited to the copper market in Chile. And we've had excellent feedback from our customers from trials in March. However, further trials were put on hold because of mining shutdowns as a result of COVID. The majority of these mine sites are now back up and running, and we have more customer trials scheduled next month. And we're confident that demand will build on the back of this next round of trials. And we have the ability to scale up our capacity as demand builds with more of these transportable emulsion plants able to be delivered into the market with relatively short lead times. And as witnessed in the North America market, this is a business model that we have a lot of experience with, so it's about just applying this model to a new geography. Now moving to the Asia Pacific. We're committed to rebuilding our earnings following recontracting resets over the past 2 years. Our recontracting work has created a solid platform in which to grow our Australian business over the next 3 years and beyond. As I said at the half year, we will do this by assuming that the Moranbah expansion stays on hold as the East Coast does not need these extra tonnes. Outside of the response plan contribution to this rebuild, we will focus on continued technology pull-through through FY '22. In Australia, the ongoing growth of our electronics and emulsion business is helping to transform our business here to be more capital-light, technology-heavy. This holds us in good stead as we work through and exit our unfavorable Western Australia; AN position over the next 18 months. We've also revamped our underground emulsion value proposition, resulting in market share and earnings growth in Western Australia. We're doing this by partnering with existing customers and converting them from more traditional to sophisticated emulsion-based methods. Outside of Australia, our Delta E technology is ideally suited to hard rock and the quarry and construction sector. This creates a number of opportunities for us to partner into new Asia Pacific markets with a capital-light approach, [indiscernible] our technology investment. Now turning to a more detailed look at our Americas Explosives business. The map here shows just how broad our business is across North America, which is reflective of the large and diversified nature of our business and our customer base. This network has been built up over many years and is well-located, proximate to high-quality customers and the Q&C and mining sectors. This diversity has been our strength, allowing us to build share in high-value sectors as market dynamics have changed. In the last few years, our earnings have grown impressively, increasing by more than 12% from 2016 to 2019, and we've been able to achieve this because we have the best technology offering in the market. And our margins prove that we have done this by focusing on value, not volume. The premium market of the Q&C is now 39% of our revenue, with growth underpinned by our premium technology, which is well-suited to hard rock. Our base and precious metals exposure has also significantly increased and now accounts for 36% of our revenues. As Nick mentioned earlier, the coal market decline has been exacerbated by the very low gas prices. But it's important to understand that our earnings from thermal coal are much more about manufacturing utilization than about retail volumes. And our plants are expected to operate at full capacity in FY '21. At the same time, we're very confident about our ability to continue to grow our business despite the decline in coal by increasing our market share growth in other sectors. We have a track record of growing market share in a value-add way. We're focused on winning the right business while maintaining and growing margins. I'd now like to turn to our Explosives business in Asia Pacific. And Australia is a very different market from the U.S., being much more concentrated with fewer players, many of whom are the largest and most sophisticated mining companies in the world. You can see from the pie chart at the bottom that we're well-represented in all the key explosives sectors except for thermal coal. We've significantly grown our base and precious metals business, and we focus on value-add, this sector being a great fit with our premium technology offering. In FY '13, it accounted for 30%, but now our volume exposure has grown to 41%. As I said earlier, our focus in Asia Pacific is to rebuild our earnings, underpinned by leveraging premium technology. FY '20 will be impacted by the contract resets and FY '21, the Moranbah turnaround. And the growth in the premium technology will start to pull through on earnings from FY '22 from leveraging our strong business platform across all sectors. You can see the success of our electronic detonators through the growth in sales. And while we are the market leader, we see a lot more upside to come. We continue to support our existing customers in converting to our market-leading electronic detonator systems and expect to see strong growth trends continuing over the next 12 months as we roll out our new differential GPS feature. We also recently signed an electronic supply agreement with another world-class miner, securing them as a customer here in Australia. As you can see from the graph, our premium emulsion business in Australia has grown very strong. We see this increased customer demand continuing, and we are expanding our emulsion plants to respond to this demand. Over time, we're creating a strong platform for growth as our customers convert from more traditional emulsion offerings to Delta E. And along with growth from existing customers, we're gaining market share in the underground mining market. And as I mentioned earlier, we're doing this as we convert existing customers to more sophisticated emulsion-based blasting methods. Australia is one of the most sophisticated mining markets in the world and the success of our premium offerings here prove that they're market-leading. I'll talk more about our current technology and its pipeline a bit later. I'd now like to turn to Waggaman, which is a world-class asset in a large domestic market that's a net importer of ammonia and expect it to remain so beyond 2025. It sits in the first quartile on the cost curve, has access to low-cost gas and is fully contracted under long term arrangements. We've been really pleased with the plant's recent performance, and it's now in its second longest run. As Nick mentioned earlier, it's been operating at full rate for the last 199 days. And the focus on reliable production every day of our record sprint is what our Manufacturing Excellence strategy is all about. And you can see that Tim and his team are starting to see real progress in the strategy. And you'll hear more about this from Tim later. After Waggaman's first-ever turnaround in January of next year, we expect the plant to be able to consistently perform at first quartile performance. On top of this, it's easy to see significant earnings upside if prices will return to levels seen just 18 months ago as a number of reputable external parties are now forecasting. Regardless, even at current pricing of ammonia, the facility produces consistent earnings and cash. I'd now like to move on to the explosives technology. And as we talk about right upfront, we've got the best premium technology on the market today. And where we see our edge is in our technology philosophy that puts the customer at the center and focuses on the quality of the blast and the rock on the ground. This has led us to develop technology solutions that are easy to use and fit the customer needs, things that customers sees real value. Our generation 4 electronic detonator systems are robust, reliable and powerful. As customers in Australia have been trialing our electronic detonators over the last couple of years, they've been testing them head-to-head with the other detonators on the market. And our feedback and I think our sales results have been very positive. With new harness technology and powerful features like differential GPS, we're continuing to develop our leading technology in the market to very discerning customers. For example, the benefits of the differential GPS allows that during loading, you get precise blasting times allocated to detonators with sub meter blast hole location accuracy, which allows for better quality control and it facilitates our automation agenda. It's important to understand that the detonator market in the mining industry is a very big market with significant volume still from older technologies like [ nonmineral ] detonators. That's why there's still a great opportunity to convert this market to higher-value products by focusing on lowering the total cost of mineral extraction for our customers. And no one else in the market has our Delta E bulk product and delivery systems, which produce improved blasting outcomes by customizing blast at different levels in every layer of rock. Our premium technology offering of Delta E and gen 4 electronic detonators has underpinned our ability to establish ourselves as the market leader in the U.S. and work with the highest-quality customers in Australia. This includes partnerships with some of the most sophisticated mining companies in the world. It's also underpinned our ability to grow in the high-value Quarry & Construction sector, and to play for value, not volume, which you can clearly see coming through in our margins in the U.S. This value selling point is in stark comparison to the price focus many of our competitors play on. And it's clear that as our sophisticated mining partners look for better productivity, safety, environmental outcomes, the demand for our leading technology solutions will grow. I'd now like to show you a video of our technology in action. [Presentation]

And so what you're watching is some of the blasts where we've been blasting with about 6,000 electronic detonators being fired. I think you'll see that it's a pretty impressive blast, but it's important to note that we've been able to achieve much bigger. In fact, we set 2 world records for electronic blasts in the last 7 months, thanks to our premium technology that offers precision timing and exceptional results. In December of last year, we produced a world blast at a mine in the Queensland's Bowen Basin. When we -- 8,144, DigiShot Plus 4G electronic detonators were safely fired in a single blast. The blast involved loading more than 2,000 tonnes of bulk explosives into almost 4,000 blast holes. And then just in July of this year, we broke our own record at our North Queensland mine site, where more than 12,000 of the same premium electronic detonators were safely fired. Customer feedback has been excellent. The technology was simple to use and worked seamlessly. And the real advantage for our customers is reducing the mine site downtime. As you can imagine, when you do a blast, you need to shut down the site, and one large blast is always going to result in less downtime than 2 to 3 smaller ones. Moving on to our premium technology pipeline. Because while we're winning in the market today, we have a lot more room for growth. This is both with our existing customer base and the broader market. We listen to our customers, and it is their future needs that's driving our new technology pipeline. We are proud of our customer partnerships, which are creating practical solutions and not technology that remains stuck in the lab for years on end or that we need to push sales onto customers where they don't really see the value application. We have an alliance with the world's largest miner, and across all of our customer base, we're creating tailored solutions to suit their needs and solve their problems. Our focus on the practical solutions means our technology can get to the market quicker, be more easily adopted by our customers and lead the market in improving mining efficiency and productivity. As part of our commitment to customers to be a full-service provider, we've developed a unidirectional through-the-ground wireless detonator. Our CyberDet product is in the field trials today. And you can see from the photo on the right how it's being trialed from Mark -- from our team in Queensland. You can see that Mark is applying the product in an underground up-hole hard rock application. We developed CyberDet because our customers are telling us that this will be useful in certain applications, those that are not particularly price sensitive. And although they indicate that they do see niche applications for it, they also indicated it's relatively small part of their needs for the foreseeable future. However, we see this product as meeting the specialty challenges of our customers, and therefore, underpinning our full-service model. What our customers are really excited about is automation and the safety and the consistency benefits it offers. Our customers want to achieve safe, automated explosives loading and remove people from dangerous locations in the mining process. Increased automation is therefore a key part of their and our vision for the future. This is what our customers really want from us, and they're willing to pay for practical solutions that can be used in real applications. And so therefore, we have our next-generation of 2-way wireless detonators for autonomous mine applications under development and importantly, the system is built on our world-leading gen 4 system so that it doesn't require a complicated new supply chain and will facilitate rapid market penetrations based on a proven technology. We will also provide autonomous loading, blasting and measurement for our customers, linking it all together with a digital platform. We are investing in our semi and fully autonomous trucks with prototypes moving to customer sites this year. COVID-19 has been -- further fueled the need for less labor and more automation on sites, and these are the themes that we're delivering to. Now I'd like to show you a video that shows both our existing technology in action and a closer look at the automation we're developing. [Presentation]

You'll see John from our team testing one of our semiautonomous trucks at our automation research facility in Queensland. Do excuse the amateur footage, but due to the COVID safety requirements, we provide on-site film. Turning to our fertilizer business. I'm very pleased to introduce you to Stephan Titze, the President of Incitec Pivot Fertilizer. Stephan took on the role in January of 2019 after working with Netafim, the world's leading irrigation company, where he was Head of the Asia Pacific Division and Chairman of Netafim China based in Shanghai. Originally from Switzerland, Stephan has traveled the globe working in a number of international agricultural roles and speaks 6 languages. But don't be fooled by the accent, his Australian roots are strong, having studied agriculture at the University of Queensland during his 20s. His Asia Pacific market expertise includes a career with the leading agricultural company Syngenta, where he had held several senior roles in crop protection and seeds, including Indonesia President and General Manager in China during the highest growth phase of that business. He also served as Vice President on the Swiss Chamber of Commerce in China, and in 2011, won the prestigious Swiss CEO Entrepreneur of the Year award. In taking on the role of President of our Fertilizer business, he leads a strong and experienced leadership team. Our decision to retain the fertilizer business was backed by his strong team and our confidence in their ability to deliver a compelling strategy with growth opportunities. I'll now hand over to Stephan to explain more. Over to you, Stephan.

Thank you, Jeanne. Good morning, ladies and gentlemen. It's my pleasure to address you for the first time today and talk to you about the strategy for the Incitec Pivot Fertilizer business. I joined IPL in January last year, and you could describe it a bit like a rollercoaster, starting in a challenging time with flood disruption, droughts and later on, low commodity prices. This was followed by very good early rains and rapid demand growth and record fertilizer sales in the distribution business despite COVID-19. Throughout this testing time, my team has been resilient to deal with everything put in front of us and optimizing our results. What attracted me to joining IPL was its size, scale and strong reputation in the Australian markets. Fertilizer is the largest input for farmers, having a huge impact on yields and also production costs. I've dealt with agrochemicals, seeds and irrigation before in a number of countries, and my aim was to return to my beloved chosen home country, Australia, and apply my experience to a new business and turn it into a forever competitive, innovative, profitable and sustainable business. That ambition has not changed. And despite the headwinds which we have been facing, we remain resilient and determined to achieve this goal and benefit IPL shareholders from the important agriculture -- Australian agriculture industry. I would like to start by talking about how we think about the fertilizer business and its potential. We are the leading and only integrated supplier of premium fertilizer solutions in the attractive East Coast markets. The Australian agriculture market has been growing for a number of years, particularly with exports to Asia, to satisfy the ever-growing demand for high-quality safe products for the growing Asian middle class. This demand is forecast to continue to grow, which will underpin the continued growth in demand for premium fertilizers. The Australian agriculture sector is forecast to grow from $60 billion to a $100 billion industry targets, and we believe that this represents a great opportunity for future growth, as we will need more plant nutrition products to support the growth of the industry. We anticipate that the Australian fertilizer market will grow steadily based on the need to replenish nutrients in the soil and from growing more high-value crops and also constant improvements in farm productivity. As many industries, we are currently experiencing impact from COVID with low global commodity prices. However, the demand for fertilizers here in Australia has been strong in 2020, following better rainfalls, which has led to a 16% increase in volume. Our fertilizer business is made up of 2 key parts, manufacturing and distribution. We are the largest and only significant manufacturer of fertilizers on the East Coast, producing phosphate and nitrogen products locally and we are focused to improving our costs with the Manufacturing Excellence program that Tim will talk about more later. We are very pleased with our progress at Phosphate Hill, which is profitable despite the current low DAP price and which positions us well to benefit when commodity prices recover. For the first time this year, we are reporting separately about our distribution business in Australia, which delivered stable earnings and is proving resilient even during the droughts due to our wide exposure to [ many ] market segments. We distribute an average volume of 2 million tonnes per annum, and we estimate our market share of 55%. We have strong trading capability and the broadest distribution footprint on the East Coast. With our industry-leading importing and logistics operation, we are able to supply dealers and farmers with high service levels, and we regularly achieve Net Promoter Scores of greater than 40. We do not achieve such high service scores simply by selling commodity fertilizers. We also help agronomists and farmers to get the best results from our products. IPL owns and operates Australia's leading soil testing laboratory called Nutrient Advantage. We have developed software which can translate the soil testing to fertilizer recommendations to fit the exact nutrient requirement for different crop and optimize farmers' yields and costs. Our team of specialist agronomists provides industry-leading plant nutrition advice to both dealer agronomists and farmers. We have a strong distribution business and team. We have an unrivaled platform to bring new value-added plant nutrition products and solutions to our customers, which will support margin expansion and improved profitability. We have started a number of new growth initiatives in liquid fertilizers, efficiency-enhanced fertilizers, renewable biofertilizers and new soil testing and precision agriculture services. I would like to first talk about our manufacturing business. As you know, we have 2 major manufacturing plants, at Phosphate Hill and at Gibson Island in Queensland. Phosphate Hill is the only phosphate fertilizer facility in Australia, and phosphate fertilizers are essential for Australia's grain industry. It's a great asset, and it provides security of supply for our customers. The importance of security of supply has never been more clear than in a COVID environment. And it's been terrific to be able to provide that security to farmers who are worried about supply chain disruptions in recent months. We managed to meet a strong upside demand with very little delays, of which we are very proud. Phosphate Hill is profitable even at the cyclically low commodity prices, and we aim to improve it further. Our Manufacturing Excellence strategy is delivering higher output and more efficiency and strong cost control. We have identified further cost savings in order to make the operation even more resilient and ready to benefit from a price recovery of phosphates in the future. DAP prices have recovered more than 15% since the lows in the first half of 2020, and a slow and steady recovery is forecast. We have a long-term economical gas supply and are constantly working on optimizing our value chain, including transport. Turning to Gibson Island. Gibson Island continues to be challenged with high cost of gas on the East Coast of Australia, lower global urea prices and reduced demand for our big end products as the drought in the cotton areas and low water levels in cotton dams continue in Northern New South Wales and Southeast Queensland. We are working now to secure economical gas to continue the operation of our Gibson Island plant post 2022. It's a great site with a very strategic location for imports and to serve adjacent markets, which gives us the option of importing nitrogen products in case we cannot secure economical gas. The distribution business is a source of stable earnings for IPL. Our imports are linked to FOB commodity price indices, and we have an experienced trading team managing our risks. Our sources of imports are diversified to balance supply risks as well. Even in times of drought, the business is very resilient, as one can see from our sales volumes of around 2 million tonnes. We have 15 strategically located product distribution centers with more than 800,000 tonnes of storage capacity and the ability to dispatch up to 25,000 tonnes of fertilizer, which is more than 1,000 trucks per day. We have an experienced sales and marketing team and a strong logistic organization to manage the variations in demand and minimize inventories. We also have a strong blending capability in our distribution centers, where we create customized fertilizer blends based on the farmers' needs from a soil test, and this allows better margins for IPL and better plant nutrition outcomes for farmers. Strong rains in early 2020 have seen increased planting areas for broadacre crops and strong demand for planting phosphate fertilizers with distribution volumes up 16% and margins holding steady at robust levels. The rainfall outlook from the Bureau of Meteorology has improved for the remainder of the calendar year, with greater chance of above-average rainfall forecast for many areas. However, water levels in cotton dams remained low and a significant rainfall event is necessary to lift those water levels, which could then lead to increased planting areas and a potential recovery of the cotton nitrogen business. ABS outlook for Australian agriculture and exports remains solid. However, prices for some commodities such as livestock products have softened from their historic highs. The Farmer's Terms of Trade are forecast to remain stable, which is a good basis for our distribution business. One of the most important trends driving the fertilizer market in future is the combination of growing food demand from population growth, coupled with the limited amount of arable land there is in the world. We will see an ever-increasing demand for fertilizers to help improve yields. At the same time, sustainability and reducing environmental impact and nutrient losses are becoming more important. As a result, like many industries, fertilizer markets are changing with new technology, changing customer needs and requirements for greater competitiveness. In order to advance our competitive position, we have been working over the last 18 months on a strategy to transform into a business which sells more value-adding products and plant nutrition services. Our strategy is firmly built on leveraging our strong distribution platform, soil testing laboratory and our existing sales and back office teams. This means that we can grow with minimal additional capital and costs and improve our earnings. We already have some unique and differentiated products, and we have more in development. Liquid fertilizers provide significant convenience to growers, and we are confident that we can grow this market rapidly and profitably. IPL has a strong supply position and port storage to build a strong liquids business based on its well-established nitrogen product, Easy N. We plan to work with dealers and farmers to refurbish an existing tank network in the field and add further value-adding products such as phosphorus, potassium and biologicals to the liquid range. Liquids can also be used in precision agriculture applications to provide more accurate plant nutrition solutions to growers. Second, we are developing more efficiency-enhanced fertilizers which reduce nutrient losses and provide benefits to farmers and offer opportunities for IPL to improve margins. Several products such as Entec, Green Urea and eNpower are already being promoted by IPL today. We are also adding carbon products and silicon to our range to improve nutrient availability in soils. In our Nutrient Advantage laboratory, we have already developed new soil tests, helping farmers to understand and measure the health of their soil, their most important assets. We are newly engaged with the precision agriculture company to provide intensive soil testing for farmers and create maps and software which allows tractors and spreaders to apply variable-rate fertilizers and more precise nutrient application. On our journey towards a soil health company, we have made a recent feasibility study with a biofertilizer company, which has shown promising results to create a new category of renewable fertilizers. We have created products made 30% to 40% from organic waste, combined them with inorganic fertilizers and added carbon to stimulate soil microbes and improve soil health. We are quite excited about these new products, which are more sustainable and also profitable and could be a major advancement in fertilizer sustainability. However, it is still early days, but this new seed may develop into a major growth opportunity in the future. IPL has a unique position in Australia with its strong infrastructure and fertilizer knowledge and is well placed to bring new products and solutions to Australian farmers. In conclusion, Incitec Pivot Fertilizers operate in the Australian fertilizer market, which has strong long-term fundamentals. Commodity prices are forecast to remain challenging but are predicted to increase from the bottom of the cycle to more sustainable levels. In manufacturing, we will focus on adjusting our cost base and improving our production and reliability to be ready to take advantage when the cycle inevitably turns. We have a strong and resilient fertilizer distribution business with an unrivaled platform, and we plan to take full advantage on the market recovery post the drought. We will leverage our strong distribution platform and bring new products and services to our customers and deliver improved margins to our shareholders. We have planted the seeds for growth in liquids, efficiency-enhanced fertilizers, renewable biofertilizers and advanced plant nutrition services. Our core strategy is to continue to manage our base business well and with modest investment, transform the fertilizer business to the leading soil health company in Australia, helping Australian farmers to manage their most important assets, the soil, and optimize yields and profit in a sustainable way. Thank you very much, ladies and gentlemen. And very important to our fertilizer, and of course, overall strategy is our Manufacturing Excellence program in our plants. I would like now to hand over to Tim Wall to update you on our significant progress in this area.

Thank you, Stephan, and good morning, everyone. It's a pleasure to speak with you today to provide an update on our global manufacturing excellence strategy and performance. When we spoke last year, I emphasized the critical organizational and process changes we have implemented to deliver global best practice informed by external benchmarking with site accountability for execution. As you can see on the slide, our Manufacturing Excellence strategy remains focused in 4 priority areas: Zero Harm, reliable operations, cost competitiveness underpinned by people, culture and our high-reliability mindset. Zero Harm is more important than ever in the global pandemic. We have put in place strict protocols to protect the health of our workforce and their families, and this has enabled us to continue operations at all manufacturing plants globally during this challenging time. Equally importantly, I remain passionate about the link between reliability and safety. Reliable plants are safer plants, and a relentless focus on operating discipline improve safety, compliance and reliability performance. To demonstrate the strategy in action, let me share examples from our recent Zero Harm and reliability performance. LTIFR rate between '17 and '19 average just over 1. This year, for global manufacturing, LTIFR rate is less than 0.5 on a 12-month rolling basis and less than 0.4 year-to-date, a substantial improvement. Also in process safety, our incidents are down 40% this year compared to the '17 to '19 average. Reliability is not just about solving the technical and engineering challenges. It's about fully understanding how each plant operates using data and setting the right strategy across maintenance, operations and engineering. We continue to leverage across our global footprint. A great example is a recent success at Moranbah that I'd like to share with you. A challenge the site took on was to leverage the approach we adopted at Waggaman to help keeping the plant online every day. This resulted in a subtle but important change in the operating strategy for the Moranbah ammonia plant in March, which is now seeing this plant achieve its longest-ever continuous run. As our reliability improves, our cost and efficiency will also improve, but in the current low commodity price environment, we have placed greater urgency on accelerating delivery of sustainable cost reductions. We continue to utilize external benchmarking. We set challenging but achievable target for fixed and variable costs at each plant and to drive improvements in project and turnaround efficiency. All of these targets, along with our reliability and Zero Harm improvements, are managed through a single plan which each site manager is accountable to deliver. Now I'd like to move on from the strategy and talk about the results we've delivered this year, including the very strong results delivered in the June quarter at Phosphate Hill and Waggaman. At Phosphate Hill, production has improved 30% compared to the previous corresponding period. And more importantly, we are back to 2016-2017 production levels, including just over 0.25 million tonnes in the June quarter. The plant at Phosphate Hill has performed extremely well, the upside limitation this year being sulfuric acid supply due to a short rail outage earlier in the year and a couple of long rail outages at the Glencore smelter. Equally importantly, as Stephan said earlier, the plant remains profitable at the current low DAP price, and we have further plans to optimize the cost base to ensure we remain globally competitive to take full advantage of future upside in ammonium phosphate prices. We continue to implement our detailed reliability improvement plans at Waggaman, and as you can see, this is also delivering strong results, with a 17% increase in production compared to the previous corresponding period and over 200,000 metric tons in the last quarter. Earlier this year, we successfully transitioned operation and maintenance personnel across to Dyno employees. The support and engagement with these teams has been excellent, and this has accelerated the human performance and operations-focused improvements, which are a key part of our reliability plan. Additionally, we've engaged our internal data scientists to provide new insights to further drive reliability improvements. Prior to this year, our longest continuous run was 285 days from mid-2017 to mid-2018. And the second longest run was 91 days in the latter part of 2018. In FY '20, we've only had 2 plant trips, both due to external power issues that had a broader impact than just our plant and have since been resolved. With 0 plant-initiated trips this year, we've reset the record for the second longest run twice, with a 117-day run up to December 2019 and the current run since mid-January, which is approaching 200 days. Moving to our Initiating Systems plants. We continue to add low-cost capacity at the Helidon Initiating Systems plant in Queensland to match the growing demand from our Australian mining customers. We've automated final assembly equipment for our U.S. plants, which will be commissioned during FY '21. We've also finalized plans for further automation of Helidon, with anticipated commissioning in 2022. These low-cost capacity additions and the automation will continue to support the rapid growth of our premium Initiating Systems technology and deliver further reductions in unit cost. Moving to turnarounds and projects. We've used benchmarking, both internal and external, to develop our improvement plans for turnarounds and projects. We're well progressed with a number of initiatives targeted at turnaround effectiveness and efficiency. And for projects, it's about doing 4 things well: doing the right projects at the right time with a fit-for-purpose process depending on size and complexity, and as Nick said, driving improved returns from our capital spend. So moving on to our 2022 targets. We are very much on track to deliver the reliability improvements we've committed to and the increased production tonnes, with strong improvements already flowing at Waggaman and Phosphate Hill, which contribute most to the EBIT uplift. Year-to-date June, our capacity weighted average reliability is 88%, up 7% on the previous corresponding period. In addition to the gains this year we've made at Waggaman, the first turnaround for this plant in January 2021 is a critical step in executing key upgrades to ensure sustainable high-reliability operation. I've been in manufacturing for over 30 years, and I'm confident that Cheyenne, Moranbah, Phosphate Hill, and of course, Waggaman have quality assets that can deliver sustainable first-quartile performance. In addition, as I said earlier, in this low-commodity environment, we have accelerated delivery of sustainable cost reductions as part of the response plan. So in summary, we are delivering significant improvements in our Zero Harm performance, including protecting the health of our workforce whilst maintaining operations through COVID. Our reliability improvement plans are on track with strong momentum evident in our FY '20 year-to-date results. Performance will continue to improve as we leverage across our global portfolio where we continue to operate world-class and strategically located manufacturing assets in the best mining markets. 2021 and 2022, as Nick said, are significant turnaround years. And I'm confident our site accountability model and new global turnaround process will not only deliver improved results to the turnarounds, but also set up each plant to deliver on our safety and reliability commitments over the next few years. And finally, we're accelerating delivery of sustainable cost reductions informed by internal and external benchmarking across our plants. So thank you, and I'd now like to hand back to Jeanne to conclude.

Very good. Thanks, Tim and the team, for the significant progress being made on our reliability agenda. I'd now like to turn to our last slide before we open it up for questions. I want to remind you of the privileged position that we've been in all during the COVID pandemic. Our business operates across 2 of the best industries of our times, resources and agriculture. We have proven our resilience to COVID, and there's been a strong growth outlook with these essential industries, which are backed by attractive macro drivers and resilient end markets. We're continuing to build our own resilience to tackle the challenges of global commodity pricing. Our response plan is about taking decisive action to drive sustainable cost savings from FY '20. We're taking a disciplined and targeted approach to growth, focused on low capital, high returns, while maintaining a strong balance sheet. And we have a proven track record of delivering on our strategies across Zero Harm, Manufacturing Excellence and technology. We have the best premium technology in the market today. It already is and will continue to drive our explosives growth agenda. And in our fertilizer business, there's a lot of upside from new products and solutions that we will bring to the market as well as being well positioned to benefit from recovery of commodity prices. We are positioned well as we go into the future.