Orica Limited (ORI) Earnings Call Transcript & Summary

Thank you for standing by. And welcome to the Orica Announces Strategic Acquisition of Digital Orebody Intelligence Business Axis and Equity Raising Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Sanjeev Gandhi, Chief Executive Officer. Please go ahead.

Good morning, everyone. Thank you all for joining us on what is a very exciting day for Orica. Joining me on the call is Chris Davis, our Chief Financial Officer; and Delphine Cassidy. Today, we announced the acquisition of Axis. The acquisition will be funded by a fully underwritten institutional share placement of $650 million and non-underwritten share purchase plan capped at $75 million. This strategic acquisition further strengthens our digital solutions vertical and expands our orebody intelligence portfolio upstream. The proceeds from the capital raising will be used to fund additional access and to provide additional balance sheet capacity in the context of previously flagged supply chain disruptions that are expected to persist over the medium term. Hopefully, you should all have a copy of our ASX announcement and the accompanying presentation deck, both of which can be found on the ASX website. You can find the disclaimers on the next few pages. Moving now to Slide 6, which outlines the details of the presentation. In order to leave enough time for questions, I don't intend to go through every slide. I will run through the key points of the transaction, how it fits into our refreshed strategy and then go into more details about the acquisitions. Chris will then go into the details of the equity raise. We are happy to take questions at the end. There's a lot more information contained in the appendices, which I encourage you to read, and we are, of course, happy to answer any questions that you may have in the coming days. Let's turn now to Page 8, contains the transaction overview. Orica's strategic purpose is to sustainably mobilize the resources. And as Angus Melbourne, our Chief Technology Officer, spoke about at last week's Investor Day, achieving this starts with a better understanding of the orebody at the start of the mining messaging. Mines are mechanized and materially improving their orebody knowledge, throughout the mining life cycle, will be a key source of value creation. Axis is a highly strategic acquisition and a valuable addition to Orica's digital solutions platform, creating an industry-first leading full-service orebody intelligence business and positioning Orica to become the industry's first integrated end-to-end mine-to-mill solutions provider. This acquisition has been a bilateral process. We've had the opportunity to get some of the business and management over the course of a comprehensive due diligence program. We have been very impressed by the technical capability and market success they have, and the growth has been successfully delivered over the past several years. Orica and Axis technology positions are highly complementary. And the strength of the combined footprint and customer relationships will support future growth plans for the Orica Digital Solutions business. The acquisition of Axis and the further development of Orica orebody intelligence capability, is also expected to deliver significant benefits to our core blasting capability and ultimately to our customers for blast optimization and efficiency perspective. The acquisition is expected to be EPS accretive for the first full year of ownership, which is 2023. Chris will go through this later in the presentation. We've also agreed to pay up an additional $90 million in purchase price consideration to key management. They can earn none, some of it or all of it based on agreed EBITDA growth targets being achieved. And earn-out is payable in early 2025. The Axis management team are very excited about joining Orica, and we are very excited about welcoming them into the Orica family and integrating them into our business. We expect the transaction to be completed latest by October 2022. Turning now to Slide 9. This, as you know, is our refreshed strategy that we launched last November. Axis is a natural fit in orebody intelligence with the Digital Solutions vertical, which is a nice segment, the next slide on Page 10. Orica's Digital Solutions with its core principles of being open, secure and integrated dispositioning Orica to become the industry's first end-to-end solutions provider. This journey started 5 years ago and, through our own development and acquisitions, Orica Digital Solutions business harnesses data, science technology and domain expertise to fundamentally change the way our customers will operate in future. Access to the high-growth, high-margin business with very low capital intensity. As I mentioned at the half year results, our intention is to show the contribution of our Digital Solutions business separately from the next financial year onwards. Turning now to Slide 12. There are a number of key megatrends driving the resource industry right now, including growth in global production of gold, which is expected to continue supported by elevated prices, future-facing commodities are forecast to demonstrate the fastest growth in the medium term. This includes copper across all regions and other future-facing commodities such as nickel and [ lithium ] in many countries, including here in Australia. Axis largely serves today copper and gold customers and its geospatial technology will play a key role in positioning Orica to better capitalize on these key megatrends, hence, a highly strategic acquisition for Orica. There is a new emerging application of this technology in the tunneling and the Q&C segment, which will also help us drive future growth of the business acquired to our corporate strategy. Turning now to Slide 13. The combination of Axis geospatial technology with Orica's global network and well-established digital solutions business is strategically compelling. Axis is a global player capable of providing a complete suite of technology products, including smart phones, instruments for customers with an already established presence in 30 categories, including Australia, Latin America, North America and has become good relationships. Our aim is to unlock networking global growth opportunities for both businesses by significantly upselling and cross-selling across the combined customer network, leveraging Orica's global distribution platform and relationships network to increase Axis' market penetration and scale and drive incremental growth, particularly in underrepresented regions. And utilizing Axis technology to enhance existing Orica orebody intelligence products and core blasting technology portfolio. This will strengthen our capabilities across the mining value chain and our customer proposition, which you can see in the next few slides, #14, 15 and 16. In light of time, I'll give you a quick overview of Axis operations, which you can see now on Slide 18. Axis technology offering is primarily exposed to gold, copper and other future-facing commodities and leverage to strong long-term industry trends. Importantly, Axis management team are leaders in the industry for over 60 years of combined experience and have committed to ensuring the successful integration of the business with Orica. It is a vertically integrated operations incorporating R&D, manufacturing, marketing, distribution and aftermarket technology support and repair. Axis distributes products globally to over 30 countries, operating a direct and outsource distributor model. Axis generates revenue through product rental, optional product insurance and direct sale of tools. Historically, Axis has achieved strong revenue growth of greater than 50% CAGR from 2016 to 2021. Putting all of this together, it's a high growth and margin business with low capital intensity. The next page gives us a preview of their products and services. Now turning to outlook on Page 21. The earnings outlook for the '22 financial year remained unchanged from the last time we spoke at the half year results in May and at the Investor Day last week. For the year so far, results have been in line with our expectations, and we expect this to continue to the end of this financial year. Like every other business around the globe, continued inflationary pressures, higher energy costs and supply chain dislocations will remain an ongoing challenge at least for the next 18 months or beyond. We will try to implement cost and efficiency initiatives to help offset some of these impacts. We will remain extremely focused on commercial discipline to avoid any kinds of value degrade leakage across our customer partners. I now would like to hand over to Chris to talk about the equity raise.

Perfect. Thanks, Sanjeev. Turning to Slide 23. As Sanjeev mentioned earlier, the acquisition of Axis Mining Technology will be funded through a pretty underwritten institutional net placement of $650 million. The underwritten institutional placements will be conducted at $16 per new share, which represents a 7% discount to the last traded price of $17.20 per share on the 2nd of August. The institutional placement will result in approximately 40.6 million new shares being issued, representing approximately 9.9% of Orica's existing issued capital. The institutional placements will be entitled to existing and potentially new eligible institutional shareholders. Following the completion of the institutional placement, Orica will offer eligible shareholders in Australia and New Zealand the opportunity to participate in a non-underwritten share purchase plan subject to an aggregate cap of $75 million. If we look at the sources and uses of funds on Slide 24, just under 60% or $368 million of funds are aided through the institutional placement will be used towards the following: the initial purchase consideration of $250 million for Axis, the maximum deferred earn-out payments of up to $90 million payable to the shareholders of Axis upon delivery of cumulative EBITDA profile; and the associated acquisition and placement costs. The remaining funds together with proceeds from the non-underwritten share purchase plan will be used to provide additional balance sheet capacity, which I'll talk to you on the next slide. Turning to trade working capital requirements on Slide 25. As I've previously mentioned at the half year results presentation and the recent Investor Day, the impact of rising input costs on inventory valuation and trade receivable values, that impacted the first half of the year, is expected to continue impacting higher working capital and cash conversion over the balance of the 2022 financial year. The increase in trade working capital is driven by the significant increase in industries associated with ammonia, a primary raw material in the production of ammonium nitrate, a significant increase in other raw material input costs as a result of inflationary pressures, as well as the need to secure additional and alternative sources of inventory, as a result of global supply chain dislocations. Whilst the impact of these increases can be passed through to the majority of our customers through the contractual rise and fall mechanisms, allowing us to recover the movement in input costs and therefore does not impact earnings, it does have an impact on inventory and trade receivables value and the use of cash. Additionally to ensure our customers demand requirements are met during this uncertain times, we have used our extensive supply network to increase inventory levels, and we have contracted with new sources of supply of ammonium nitrate, albeit on shorter payment terms impacting our payables balances. Given the impact of the increase in trade working capital is expected to persist for some time, and we do not expect a short-term downward correction. We believe our actions in raising additional capital is appropriate in the current environment and consistent with our capital management framework. So doing this will provide us with the capacity to respond to continued and ongoing supply chain disruption at a time of heightened inflationary pressures and an uncertain geopolitical outlook that is driving an increase in trade working capital. This alliance with our demonstrated previous approach towards balance sheet management and the retention of our investment-grade credit rating. Turning to the pro forma balance sheet on Slide 26. Following the completion of the acquisition of Axis and the associated equity capital raising that will result in Orica's gearing reducing to the lower end of our target gearing range. This is very much aligned with our objective of ensuring we have sufficient funds to fund the earn-out payment as well as address Orica's increase in trade working capital and maintain our investment-grade credit rating. Looking specifically at the Axis balance sheet, negative cash and cash equivalents of $267 million constitutes the upfront payment consideration for the shareholders of Axis as well as estimated acquisition costs. Looking at the timetable on slide 27. The placement book build will take place today at 3rd of August 2022, with settlement of the new shares to take place on Monday, 8th of August, 2022, and issuance of shares under the placement to occur on Tuesday, 9th of August, 2022. The share purchase plan will then follow and is scheduled to open on Wednesday, 10th of August, 2022, closing its past year in Melbourne time on Friday, 26th of August 2022. Under the share purchase plan eligible Orica shareholders will have the opportunity to file for up to $30,000 of new shares at the lower of the placement issue price and a 2% discount to the 5-day volume weighted average price of Orica share up to and including the closing date of the share purchase plan. This will be free of any brokerage, commission and transaction costs. With that, I'll now open up to questions that you may on mind for Sanjeev or myself. Thank you.

[Operator Instructions] Your first question comes from Daniel Kang with CLSA.

Just interested in the background to the Axis acquisition. Who are the ultimate owners or shareholders? How long has Axis been on your radar? Or was it an opportunity that came to you? That's the first question.

Daniel, I'll ask -- thanks for the question. I'll ask Andy, our Chief Development Officer to answer that question.

We made a comprehensive review of the landscape in the digital mine to mill [indiscernible]. And of course, this particular target has been on our peripheral vision for a number of months. We entered into a strategic conversation, a bilateral strategic conversation, a couple of months ago ahead into this mining juncture. In terms of the management team, it's a pricey healthy business today, ran by 7 key executives that will maintain their longevity in the business at least for 2025, and we're really pleased with that.

Great. And Sanjeev, you spoke about the high growth of Axis. Can you elaborate on that with regards to revenue and EBIT growth over recent years?

Yes. So the business over the last 5 years, Daniel, has been growing at a compounded average growth rate of around 50%. So it's been a very fast-growing business, gross margin in the range of 70%. So very, very profitable. And also importantly it's a asset-light, capital-light business. So it fits all the ticks in the box that we wanted. And obviously, we've been quite prudent in terms of offering a fair valuation but also getting the promoters of the business to stay with the business so that all the future emissions and plans and the scale-up that Orica has enabled and also the complementary offerings with our own digital platform, all of that will create top line synergies, which we have not factored in so far. So all of that will come on top.

Great. Great. Just the last one, if I can, before I pass it on. In terms of -- you spoke about revenue synergies -- can you elaborate on that as well as potential revenue leakage or risk of revenue leakage?

Yes. So first of all, obviously, we gain access to each other's customers. So there's the opportunity to upsell and cross-sell. Secondly, the geographical reach of Orica, we are active in more than 100 countries. We will enable that it's easier for the Axis technologies to reach out to our existing customers, but also to new customers. in all geographies, specially the difficult geographies like Africa, Latin America, emerging Asia, where there'll be new opportunities. So that's the other top line synergy. The third, obviously, is the exposure to future-facing commodities on the Axis business is predominantly exposed to gold and copper which you know is our strength, but we have opened Axis to a mine site all over the world, and we will be introducing the new technologies, to all -- the miners all across the globe. So that's the mixed opportunity to scale the business up. And then I talked briefly in my speaking notes on a potential for this technology to extend into tunneling and Q&C. As you know that we are a global leader in this market, and we will then obviously introduce and scale that technology up into new applications in that field. So there are several, in terms of top line synergies, I don't see much potential for any kind of leakages. We've not identified anything during the due diligence, so I don't see much of this there.

Your next question comes from Scott Ryall with Rimor Equity Research.

I was wondering to ask about the integration. I think it's a bit further to the questions just been asked. You talk about the earnout being payable based on cumulative EBITDA over a couple of years. I was wondering if that cumulative EBITDA represents growth from the $22 million that you've indicated that's the run rate at the moment? And then how -- one of the slides there, I figure which one had a map of -- Slide 10 showed the acquisition activity in this area has definitely stepped up in the last couple of years. And I guess, further to what you presented at the investor briefing a week or so ago, how good are you at integration of both businesses? Obviously, haven't, as a company, haven't covered yourselves in glory in terms of how you've implemented SAP. So I'm just wondering how you actually go about bringing the company within Orica and making sure that the broader benefits accrue to Orica and I guess, don't just encourage behavior that maximizes an earnout payment as opposed to maximizes the value of the acquisition for the company.

Scott, I'll take the second question. I'll hand the first one over to Daniel ((sic)) [ Andy ]. I thought you would give us a little bit more credit for doing a decent job in integrating GroundProbe with everything else we have done ever since. We've used the same model. Basically, what we do is we bolt on these acquisitions. We keep that entrepreneurial spirit. We have retained all management that we've acquired over the last 5 years, and we have successfully scaled that business. GroundProbe as an example, is today the global leader in monitoring and we continue to invest in that business and we continue to grow that business. We've done the same, by the way, to Exsa, which is not a topic of today's discussion. And remember, we've done this in a virtual environment during COVID when we could not travel and Exsa is now basically hitting and exceeding all our expectations there. So I was hoping you would give us a little bit of credit for that. But talking about the new business, it will be the same model as GroundProbe. We will bolt them all into our existing Orica Digital Solutions business. In fact, in this one, what we are doing is we are going to remove our own orebody offering, which is basically, I don't think we can take into the Axis business because Axis is much bigger, and they will then form the core of orebody intelligence, and then we'll start upselling, cross-selling and then leveraging heavy synergy and reach that Orica has in terms of scaling, that will move up. The management team is committed to stay with us and which is fantastic. We're getting more than 60 years of experience here of our industry-leading technology. And now it's all about scale of rapid expansion and maintaining the high profitability of the business. To your first question, I'll hand over to Andy, our Chief Development Officer.

In terms of the [ feasibility unit ] earnout target, that is a vendor forecast, and it absolutely maintains the growth momentum that the business has seen in past. And again, as Sanjeev mentioned, we will work there shoulder to shoulder with the business to unlock the revenue synergies that we've set forth.

So, Scott, you're thinking about success and their success is our success now since we are now 1 team deal to everything to make that a massive success and for our shareholders.

Yes. Understood. And then could you just maybe comment, I know you're probably putting words into their mouths, but why did Axis want to join up with Orica side?

I'll hand this over to Angus, our CTO, who you met last week.

Yes. Thank you. So I mean they've done a great job building the business over the last 5 or 6 years. But they've reached their distribution capacity, particularly they've done a great job in Australia and North America, they're using some third-party distributors into other parts of the world. And they see that the next step for their growth and scale really requires a partner like Orica with the global footprint and distribution to take it into some of the key markets, particularly the copper and gold exposure, Latin America and Africa are key growth areas for us. And they also bored into the overall digital solutions strategy of building an orebody intelligence business. And now we'll be building that on the spine of Axis, so I think it will be the half of their Q1.

Your next question comes from Richard Johnson with Jefferies.

Sanjeev, just firstly, can I just clarify that this is the only acquisition you're actually working on at the moment, please?

Richard, as the business as usual, we normally screen between 10 to 12 targets every year, but we've been very disciplined. We are very stringent with our internal reserves and this is the only one that we are able to realize. There's nothing else in the horizon that we can talk about today. But again, we want to have a seat at the table whenever there's an opportunity if it fits in to our financial expectation. This is part of the strategy. We continue to screen all the time.

Perfect. That's very helpful. And then secondly, this might be one for Chris, the last bullet point on the front page of your release mentions your RONA target. And that the acquisition would hit that. Should we use that as a starting point for what the EBIT contribution from the business will be in '23?

Yes. Richard, you can -- if you can bear in mind '23, your asset base is about $260 million. And as you get to the third year, there's a potential uplift because of the earn out payments.

Got it. But clearly for '23 we could see...

Richard, the RONA is as an accounting number. So that already takes into account an estimate the purchase price adjustment for amortization of goodwill.

Okay. Is it possible to know what that number is?

Sorry, what -- which number?

The amortization.

It's probably, it's single digit sort of towards the top end. It's not going to finalize that, we have 12 months to finalize it.

Got it. And then finally, I mean, I think this was probably a slide presentation, but just to double check, in all your assumptions, you haven't assumed any contribution from the SPP, is that right?

Correct.

Your next question comes from Daniel Peters with Spheria Asset Management.

Just wondering if you could talk through the rationale for acquiring this type of technology versus, say, licensing it. And I suppose on a similar note, what it would take to develop this type of thing internally, noting there is a fair bit of expertise within the group already in this sort of domain.

Yes, I'm happy to take that, it's Angus again. So over the last 5 years, we've been setting up the Digital Solutions business, which started anchored in blasting and this is sensors, software and data science applications. And we've also have it moving upstream and downstream in adjacencies. The first move was downstream with the acquisition of GroundProbe and some internal developments around their own investment technologies like FRAGTrack. We also flagged as part of that strategy, the importance of moving upstream into orebody intelligence, particularly because of the key link between geotech information and blasting. Over the last couple of years, we've acquired and built internally measurement capability, geotech measurement capability. And the missing piece in the overall intelligence puzzle was the geospatial information, and that's what Axis brings to the table. So now with Axis, combined with our existing orebody intelligence, geotech measurement capabilities, we've now got a full suite of offering in the orebody intelligence space.

And why -- I mean why couldn't you have licensed the product, I suppose, then you still would have filled in that same piece of the puzzle?

Yes. Look, I think Axis has got some really great technologies that they've packaged, particularly they've moved from the more traditional EMS or the multi shop to a north seeking gyro capability, and they've developed a great product and got a great position in the market.

Your next question comes from John Purtell with Macquarie.

Can you hear us?

John, you'll have to speak up louder because you're very faint.

Sorry, is that better Sanjeev? Yes. Just a couple of comments -- questions, please. Just in terms of the synergies, are you able to sort of indicate what the multiple might look like? The 11.8 pre might look like on a post synergy basis?

And no, the number that we have put out there is on pre-synergies, we do not expect much in terms of cost synergies. We do expect a lot in terms of top line synergies, I think I referred to that earlier. Expanding geographical scope of the business, expanding commodity mix, investigating potential technology applications and confluency. So all of that is top line, but it is -- nothing is factored in. Obviously, the growth plan for the future, the next 3, 5 years we will develop and scale the business and the technologies up and we try to make a growth of business, but we have not yet considered that in the valuations.

Okay. And just a question for Chris. In terms of Page 25 of the presentation where you talk to supply chain dislocations and trade working capital, which of the 3 factors there, Chris, would be most impactful on the working capital side?

The big one will be the impact on the value of inventory because of the increase in the ammonia prices, but that also impacts on dead sales is just so you're aware because dead sales. obviously, inventory translates into a sale. And then secondly, the other component is the increased inventory that we're holding as a result of the supply chain disruption. They're probably similar in value.

And John, just a reminder, everybody at the second half normally of the financial year is a seasonal high for Orica. So obviously, that also has an impact, which means more throughput, more volumes, but also more need for feedstock and raw material. All of that adds up.

Got it. And just the last question, if I can. Just in terms of the guidance comment there and the commentary around ongoing inflationary and energy costs will remain a challenge in '23. There's no mention of sort of offsetting price. So I mean you still broadly expecting price recovery to offset these pressures?

Yes. John, look, just a reminder to everybody that we are in a very difficult global environment. We have geopolitical uncertainties, we have supply chain disruptions, we have inflation. All of this is ongoing. And don't forget we still struggle with COVID in some parts of the world. So we have managed to tackle all of those challenges, we have managed to mitigate those inflation. We've had internal cost reduction programs, we've been very disciplined commercially. Nothing was changed. So we'll continue to be very disciplined. We continue to mitigate as much as we can. But this is just a reminder to all of us that we are in a very volatile environment. Let's not forget that. And obviously, Orica, now, has experience, we are more readily in the organization. Our pricing discipline is now hardwired into the organization, into the system. With our DRP, we'll continue to do that. But it's a constant challenge. I call it as an equivalent, I'd say we are running on a treadmill and we're trying to do everything we can to keep our heads above water. But this has got nothing to do with the underlying business. So I feel very comfortable where we are. But it is just to remind everybody that there will be other uncertainties in the future and what is our focus on what we can control and endure as we have done in the past 12, 24 months.

Your next question comes from Nathan Reilly with UBS.

A question for Chris. Just how much inventory are you carrying right now? I think you had about just over $800 million back in March. Can you give us an idea of how much you're carrying right now?

Look, we don't typically disclose it. It's suffice to say I had indicated at March, there was a number of prepayments to secure inventory and hold a nontrade working capital that will flow through. So we're expecting clearly there'll be increase as we go into the second half. That's a seasonal impact with the higher volumes.

Okay. So what, over $1 billion?

I'm not going to quote that number.

Okay. So can you maybe just give us an idea of what you're planning for in terms of FY '23 inventory balances as well relative to where you're sitting at the moment? Would you be expecting them to be holding steady? Or do you -- I mean, obviously, it's going to be dependent on price, but maybe just from more around a inventory supply and a volume point of view?

I mean the slightly uncertain variables. I mean where the price are and where you're going to go, what's going to happen on geopolitical tension. If the situation today continues, we expect that our trade working capital will remain at current levels. But at some point, we would expect this to come down in the future, and then we should normalize to the right level of about 10% to 12% of revenue. What I'm comfortable is that from a debtor's perspective, we don't have an overdue debtors problem, but are comfortable from an inventory perspective as we don't have old and owned and long-dated inventory. Stocks are being used and making sure our customers' needs are being met. It has no impact on our earnings because of the rise and fall mechanism. It's just an absorption of cash at the moment as we maintain security of supply.

And just to add to that, all the inventory that we built up is either presold or contracted. We are not building up inventory on speculation because it's obviously already very challenging to get everything that our customers need. And as I have mentioned in the past, our manufacturing assets are running flat out. So it's not that we have been building up inventory quite discriminately -- indiscriminately. It's all either presold or contracted, but obviously, it has an impact on data vision.

Your next question comes from Richard Johnson with Jefferies.

On Axis, if I may, please. I was on mute. Firstly, I'm just trying to understand that as you grow the business geographically, in particular, is there any structural reason why the margin -- the gross margins you mentioned will change at all, either up or down?

No, Richard. In fact you'll see, we have no reason to believe the margins will arise in that market.

I mean, Richard, there's only one impact Axis has been using a lot of distribution to reach geographies where they do not have direct access to a set up things. But in the future, they're going to use the network. We have people on the South, all across the globe in every geography, on every mine site possible. And obviously, they leverage our mining structure. This also includes warehousing capability, stock points all over the globe, something that I talked about last week, in terms of our geographical range. So Axis team will fully leverage this. And that obviously helps in terms of margin leakage.

Great. So it's all intents and purposes, it wouldn't be right to say that they've done the work at actually opening up the market and then using to take it to the next level? Or do you need to -- or are there opportunities for you to go into markets where they're not present at all?

Both are correct statements. So we obviously cross-sell, upsell on both sides. So we have access to their customer base. They have access to our customer base. And obviously, we're also going for new geographies. More importantly, new commodities where we are active, they are not necessarily active today. And then obviously, I talked about Q&C and the other opportunities in the agencies. So there's a lot of...

And then just finally, Sanjeev, excuse my ignorance here, and I apologize if you touched on it, but could you just give me a sense of who their customers actually are?

Their current exposure is predominantly to gold and copper customers all across the globe. And there is obviously some overlap with the Orica customer base because you know we are very strong with gold and copper in our own commodity exposure. So there is some overlap, but there are also new customers at their end, and there are obviously a lot of customers that are in waiting for this kick off.

Okay. So the customers, the mine owner rather than the operator or could be both, right?

Both.

Your next question comes from Scott Ryall with Rimor Equity Research.

Just to follow up on that. I guess you mentioned in the answer to one of your questions that Axis. And I might be putting words in your mouth, I apologize, but it rounds out your product suite in orebody intelligence. So leaving aside internal capability development and working with customers and those sorts of things, is this -- is what you're trying to say is this gives you a more holistic suite of products? And I can interpret that as saying you feel pretty complete in terms of going into customers now with the 3 products that you mentioned on Slide 15.

Yes, absolutely. I think there's a couple of basis to this because there's -- and today, in the orebody intelligent space, like much of the mining value chain is quite fragmented. So customers are buying these measurements today. And so with the inclusion of the heat technologies plus now the Axis technologies we've got both geotech measurements and the geospatial measurements. The inclusion of the rig technology gives us the wild drilling infrastructure because we see an evolution, these measurements are taken today on wireline and on drill, but they will increasingly move to a wild drilling environment. And so the rig infrastructure is really important for that. So when I say complete suite, we've got geotech measurements, now geospatial, plus some infrastructure to migrate to wild drilling environments.

Okay. Great. And then just to follow up on the questions that Chris was answering on the inventory. I would imagine that all of your competitors have the same pressures on inventory at the moment. So is part of the thinking behind the additional capital to just cover off on the inventory actually put yourself in a better competitive position for the near term?

Yes, that's absolutely right. If you look where the predominant inventory problems are from an additional sourcing perspective, that Latin America and EMEA business, where we don't have our own manufacturing capacity in countries like Australia and in particular, in North America, we have the capacity or that becomes more a rate of advantage for Orica equation because the inventory is going out. It helps with the equation over years.

Your next question comes from Nicholas Rollinson with Jefferies.

I was just wondering what proportion of Axis' revenue is exploration and what proportion is production. The business is a key competitor for INDEX, and INDEX is 80% exploration. So just wondering if there are any key differences that you'd call out?

So there's a balance between exploration and development proportion between both. So there's exposure to both sides.

There are no further questions at this time. I'll now hand back to Mr. Gandhi for closing remarks.

Thank you all for joining. I know this is short notice. We are obviously available today and the next days to answer any other questions and to give you further insights as necessary. We -- Orica is very excited to welcome the Axis team. And as we promised you all in the next reporting cycle, hopefully, in May next year, we'll start talking about the financials Orica Digital Solutions, and you will obviously get more insight into this very fast-growing, high-margin exciting business, which is part of our strategy. Thank you all for joining, and we look forward to further discussions as we go ahead with this. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.