Orica Limited ($ORI)

Hello. Good morning, everyone, and thank you for joining us for Orica's First Half 2026 Results Presentation. My name is Natalie Worley. And joining me here today in Melbourne are Sanjeev Gandhi, Managing Director and CEO; and Jamie Crough, CFO. Both Sanjeev and Jamie will be presenting shortly before we move to Q&A. Before we start the presentation, I kindly ask you take a moment to read the disclaimer on Slide 2. And with that, I'll pass over to Sanjeev. Thank you.

Thank you, Natalie, and welcome all. Thank you all for joining the call. Let me start with our #1 priority, safety. We are, at Orica deeply saddened by the fatal vehicle-related incident involving one of our colleagues in North America in late November 2025. Our thoughts and deepest condolences continue to be with their family, friends and colleagues. We have now completed a full investigation and are implementing critical learnings across our organization that such events do not happen again. Our people are the foundation of our company. We remain absolutely committed to the prevention of harm and to supporting the physical and psychosocial well-being of our people and our stakeholders. While our serious injury case rate remains on target, we are focused on preventing high-risk events, particularly through our major hazard management and next-gen safety leadership programs. On sustainability, we achieved our 2026 emission reduction targets of 30% decrease in net Scope 1 and 2 emissions, and we continue to progress towards our longer-term ambition of net zero by 2050. Turning now to Slide 5 and our key first half highlights. We have delivered a record first half financial performance. Earnings momentum continued from the last financial year with EBIT and NPAT pre-significant items up 5% and 8%, respectively, versus the PCP. This reflects ongoing strategic execution, business resilience, the strength of our global manufacturing and supply network and the outstanding delivery by our people. This has translated into higher shareholder returns with the Board declaring an interim increased dividend of $0.285 per share, which is well within our 40% to 70% payout range and the completion of the $500 million on-market share buyback program. Return on net assets improved to 14.7%, which is a 13-year high, reflecting our disciplined approach to capital management and efficient asset utilization. Our balance sheet remains strong and provides us with resilience and capacity to support further investments in our strategic priorities. Leverage at 1.53x is near the lower end of our target range. Importantly, we progressed several strategic priorities to strengthen Orica's platform for sustainable growth in this half. The Nelson Brothers and Danafloat acquisitions align with our strategy and reflect our commitment to disciplined growth and building high-quality earnings over time across our 3 business segments. We continue to see strong demand for our high-margin premium products and technology solutions, underpinned by solid fundamentals across our core gold and copper markets and critical commodities. While these conditions remain supportive, we are not complacent. During the half, Orica commenced a cost reduction program targeting at least $100 million of annualized savings over the next 3 years. This program is focused on structurally lowering costs and improving how efficiently we operate while continuing to prioritize safety and support future growth. We also made progress towards securing long-term diversified ammonium nitrate supply in North America, while removing ongoing uncertainty and settling the U.S. litigation. This shift will strengthen Orica's resilience and support security of supply for our customers. Moving on, I'll briefly touch on the key highlights of each region. Australia, Pacific and Asia delivered EBIT of $332 million, demonstrating strong resilience despite external impacts, including a temporary reduction in coal production quotas in Indonesia and unfavorable foreign exchange movement. In Blasting Solutions, earnings grew 4% when you exclude the $15 million of one-off carbon credit sales in the prior period, driven by sustained demand for higher-margin premium products, advanced technologies, a very successful contract renewal cycle and strong commercial discipline. In Digital Solutions, exploration activity remains very high with listed exploration companies raising record new funding in Q4 2025, supporting strong demand for Axis Mining Technology, while the Geosolutions business benefited from cross-selling across the portfolio. In Specialty Mining Chemicals, Yarwun continued to perform strongly with new reliability and production benchmarks, and we are seeing positive early sales momentum in the OptiOre mining chemicals range, supporting our strategy to grow beyond sodium cyanide. Turning to North America. EBIT of $113 million increased by 18% year-on-year, reinforcing the region as a key growth market for Orica. In Blasting Solutions, demand for premium products continued with strong adoption of WebGen wireless blasting, supported by disciplined cost management. However, this was partly offset by the appreciation of the Australian dollar. Earlier today, we successfully closed the acquisition of the Nelson Brothers Mining Services business. I'll speak a bit more on that later. In Digital Solutions, earnings growth was driven by strong uptake of blast measurement products like FRAGTrack, increased cross-selling and growing demand for geotechnical sensors and heap leach monitoring services in copper and gold. In Specialty Mining Chemicals, we completed the planned safety upgrades at Winnemucca site with all production lines now running reliably and at capacity. Turning now to Europe, Middle East and Africa. Across our business, we are not experiencing any material constraints related to the conflict in the Middle East so far, but we continue to monitor the situation very closely. EMEA delivered EBIT of $51 million, up 3% on the prior period. Blasting Solutions delivered a strong underlying earnings performance, supported by increased mining activity in key regions, including Africa and Central Asia and a continued focus on cost management. In Digital Solutions, we saw increased adoption of blast measurement products and radar sales and momentum in key regions such as Africa and Turkey. In Specialty Mining Chemicals, we continue to expand our footprint into jurisdictions with major gold basins. And with the acquisition of Danafloat, we have broadened exposure to copper and zinc going forward. Latin America EBIT was $47 million, up 1% on the prior year. In Blasting Solutions, earnings were supported by continued demand for high-margin premium products, emerging new growth opportunities and disciplined cost management. In Digital Solutions, we are building on OREPro's strong performance in gold, seeking increased uptake with copper customers and have partnered with a large driller in the region, creating further growth potential for Axis products. In Specialty Mining Chemicals, we expanded into new high-growth mining regions in Latin America, supported by strong gold fundamentals. Turning now to Slide 7. I will talk about the 3 reporting segments. Starting with Blasting Solutions. The underlying Blasting business performed exceptionally well with earnings up nearly 4% across all regions, except for Indonesia, which was down due to the temporary reduction in coal production quotas mandated by the Indonesian government. We continue to see strong momentum in the adoption of premium products and advanced blasting technology, notably increased use of our wireless WebGen systems and 4D tailored explosives. Quality of earnings continued to improve, reflecting a successful contract renewal cycle and strong commercial discipline and cost management. Manufacturing performance across our continuous plants remained consistent with the major Carseland turnaround underway and progressing to plan. As previously disclosed, we recently settled the U.S. litigation, removing uncertainty and allowing Orica to establish a new customized diversified supply chain in North America. Moving now to Slide 8. I will provide further details on our strategic actions in North America. North America is a critical growth market for Orica, and we have taken decisive actions to strengthen our position significantly. Firstly, the acquisition of Nelson Brothers' explosives business significantly expands our exposure to the U.S. quarries and construction sector and provides Orica direct channels to market and a platform for further cross-selling opportunities across the 3 segments. Nelson Brothers' explosives business includes a suite of high-quality assets that are strategically located near key end markets. The transaction is expected to be EPS accretive in the first full year of ownership and provides an annual earnings before interest and tax contribution of approximately $35 million once fully integrated. I'm very excited to welcome the 400-plus people from Nelson Brothers into the Orica family and to work even closer together to serve our U.S. customers. We have already made progress towards securing long-term diversified ammonium nitrate supply in North America. This process will run for the next few months with a view to have new supply contracts in place during the second half. We are very encouraged by the interest to date, and this remains a top priority for the North American business. Collectively, these actions strengthen resilience, security of supply and customer outcomes in the North American region. Turning now to Digital Solutions on Slide 9. The Digital Solutions segment continued to scale rapidly, underpinned by growing contracted recurring revenues and strong customer retention in line with high-growth, high-margin mining technology benchmarks. Digital Solutions EBIT was $51 million, up 25% on the prior period, reflecting sustained customer adoption and operating leverage as the business scales up. Performance was broad-based across the portfolio, highlighting the depth, diversification and synergies of the Digital Solutions products. In orebody intelligence, elevated exploration activity and our improved driller and geology integrated workflow increased the installed base of Axis Gyro, while Axis Connect is now at 190 projects already within 18 months of launch, positioning us for further adoption across the exploration workflow. In blast design and execution, growth was driven by strong gold and copper fundamentals and continued adoption of OrePro grade control and FRAGTrack measurement solutions. Geosolutions performed very well on ongoing demand for slope stability monitoring. The new Series 5 GroundProbe radars extend our technology leadership in safety critical monitoring and Terra Insights continues to outperform the original investment case, demonstrating the scalability and channel synergies of our geotechnical offerings. This year, we have provided additional information to illustrate the quality and sustainability of Digital Solutions earnings. Turning now to Slide 10. Recurring revenue is now over 60% of Digital Solutions revenue, improving earnings stability and cash flow predictability. Hardware sales and leasing at 67% create a physical and data embedded footprint at customer sites and delivers differentiated mission-critical insights. This is complemented by software at 23%, enabling improved decision-making and services at 10%, supporting sustained value delivery, altogether driving margin expansion and deeper long-term relationships. Cross-selling into our core blasting customer base remained a key growth driver. During the half, cross-selling increased by a further 3% with significant opportunity to expand share of wallet as customers adopt multiple digital solutions over time. Ongoing investment in next generation of technologies will continue to expand our addressable market, extend contract duration and support long-term earnings growth, also driven by new technologies like AI. Moving now to Specialty Mining Chemicals on Slide 11. The Specialty Mining Chemicals delivered EBIT of $57 million, up 20% on the prior period, above our medium-term forecast despite the unfavorable foreign exchange impacts. Sodium cyanide sales were strong, reflecting robust demand and our focus on reliable production and operational execution across our 3 continuous manufacturing plants in the U.S. and Australia. We also continue to unlock customer synergies across the blasting and the sodium cyanide business. During the half, we successfully completed planned safety upgrades at the Winnemucca solids plant, and the plant is now operating reliably and at capacity. We continue to see new mine developments, which are supportive of potential future capacity expansions, both at Winnemucca and the Yarwun sites in the midterm. In April, we announced the acquisition of the Danafloat product range, a suite of high-performance collectors with an established mining industry customer base across EMEA and Lat Am. This expands Orica's portfolio beyond our leading position in sodium cyanide for gold into sulfide ore processing, including copper and other future-facing commodities. It aligns with structural demand for copper and future-facing commodities driven by electrification, the energy transition and AI-related infrastructure build-out. Danafloat is highly complementary to our proprietary OptiOre range, together offering a differentiated suite of solutions tailored to specific ore mineralogy and circuit conditions. This diversifies specialty mining chemicals beyond sodium cyanide into copper, zinc and other future-facing commodities. I will now hand over to Jamie to talk about our financial performance in detail.

Thank you, Sanjeev. Good morning, everyone, and thank you again for joining us on the call today. I'll move to the key financial metrics shown on Slide #14. Consistent with our first half business update provided in March, continued strong business performance throughout the first half is reflected in our key financial metrics. While top line sales revenue was marginally lower than the first half of 2025, our earnings before interest and tax has risen to $512 million, an increase of 5% compared to the prior corresponding period. I'll provide more details on this in the coming slides. Net profit after tax, pre-individually significant items increased by 8% to $283 million. As previously announced in March, significant items totaling $284 million have been recognized during the half, primarily relating to litigation costs and settlement expense of the CF Industries litigation, incremental supply costs following the 5th of November incident at the CF Industries Yazoo City facility and restructuring costs associated with the organization-wide cost-reduction program. This has resulted in a statutory net loss after tax of $1 million. Net operating cash flow was again strong during the half, finishing at $231 million. Continued strong cash generation across the business was partly offset by movements in foreign exchange and U.S. litigation costs that have now been resolved and temporary higher sourcing costs in North America. Return on net assets improved to 14.7%, an increase from 13.1% in the prior corresponding period. And approximately 1% of the increase is a result of increased earnings with the balance a result of changes in rolling net operating assets. Our strong first half results have enabled us to deliver continued improvement in EPS, pre-significant items, to $0.607 per share, an increase of $0.067 per share or 12% versus the prior half. Turning now to Slide #15. We shared our refreshed capital management framework in March of last year, and this half is a good demonstration of the framework in action. We've delivered resilient operating performance despite ongoing geopolitical and market volatility with this half earnings the highest in over 20 years. Continued operating efficiency and capital productivity is evidenced in our improved return on net assets. Our business delivered another strong operating cash and trade working capital result, supported by consistent disciplined allocation of capital expenditure. Our balance sheet remains strong, and importantly, we continue to increase returns to shareholders. This half's interim ordinary dividend is the highest paid since the target payout ratio was introduced in 2016. In March, we successfully completed the $500 million on-market share buyback, the first to be fully completed in over 10 years. In terms of capital and portfolio management, during the half, we've progressed the sale of surplus land at our Deer Park site in Victoria and also entered agreements to acquire the Nelson Brothers' explosives and Danafloat chemicals businesses, as Sanjeev detailed earlier, with both acquisitions expected to deliver returns well above risk-adjusted weighted average cost of capital. Turning now briefly to Slide #16. Pleasingly, the strong alignment between improved earnings, strong cash generation and application of our framework has translated into increased returns to shareholders with underlying growth in earnings per share and ordinary dividends during the half outpacing growth in earnings. This demonstrates sustained positive momentum from the prior year and also continued successful execution of our strategy and the financial resilience that we continue to build across the business. Turning now to the EBIT bridge on Slide #17, where you can see underlying earnings growth this half has continued across all segments. Starting with the Blasting Solutions segment. Volume, mix and margin increased by $24 million, normalizing for $15 million of proceeds from the sale of carbon credits recognized in the prior half and movements in foreign exchange. This was driven by continued demand for our higher-margin premium products, advanced blasting technologies, a successful recontracting cycle and continued strong commercial discipline. Margin growth from our blasting solutions technology product range increased by 16% versus the prior period, with continued strong demand for the safety, efficiency, environmental and cost benefits delivered to customers through our WebGen wireless blasting, 4D and Fortis specialty emulsion ranges. In the Digital Solutions segment, earnings increased by 25% to $51 million versus the prior period. The segment continues to scale rapidly, underpinned by contracted and growing recurring revenue and strong customer retention. And pleasingly, growth in the half was ahead of plan, driven by significant customer demand for our FRAGTrack, OREPro and OREPro 3D digital platforms, together with the rapid scale-up of our Axis Mining Technology business, supported by an acceleration in global exploration activity, particularly in the gold and copper segments. Within the Geosolutions business, early customer demand for the recently launched Series 5 radar has been strong. The segment continues to realize cross-selling benefits, leveraging our core blasting customer base as a key growth driver. In the Specialty Mining Chemicals segment, again, growth in the first half was ahead of plan. Earnings increased by 20% to $57 million versus the prior half. Volume mix and margin increased by $5 million as strong gold fundamentals persist and continue to drive robust demand for sodium cyanide. The Yarwun and Winnemucca solids plants are fully utilized as sales opportunities are outrunning production availability with earnings increasing by $5 million as a result of improved manufacturing performance during the half. And we've commenced very early engineering works to explore debottlenecking opportunities at Yarwun and Winnemucca, with the business currently securing third-party tonnes to support new sales opportunities across the global network. And multiyear supply agreements are also being made at improved pricing as strong demand growth continues. Global Support costs decreased by $3 million versus the prior half, reflecting ongoing disciplined cost management, including savings generating from the recently announced organizational-wide cost-reduction program. In summary, this is a very pleasing half year result. We've continued to deliver earnings growth despite a number of challenging external market factors. These results demonstrate the resilience of our business and our focus on broad-based earnings growth that is sustainable through the cycle. Turning now to trade working capital on Slide #18. Encouragingly, the improvements that we focused on over the past 2 years have continued into the first half of 2026. Total trade working capital cycle days on a 12-month rolling basis have reduced by 2 days from September 2025 and are in line with the prior half. Days sales outstanding improved to 45 days, reflecting our sustained commercial discipline. And important to note, this was achieved in an environment of continued higher product pricing. Pleasingly, days payable outstanding improved to 52 days despite shorter product payment terms in some regions. Days inventory held remained consistent with September and increased 2 days relative to the prior half, in part due to critical prestocking ahead of the April and May Carseland turnaround and also seen as a prudent measure given current geopolitical and energy market uncertainty and the continued premium placed on security of supply. Absolute trade working capital finished at $677 million, a decrease of $6 million from the prior corresponding period. Foreign exchange had a favorable impact of $31 million, partly offset by $25 million underlying increase as at 31 March. This result reflects our continued strong focus on working capital efficiency, and this remains a key focus area for the organization. Turning now to Slide #19. Total capital expenditure for the first half was $165 million, broadly in line with the prior corresponding period. Of this, $105 million was allocated to sustenance capital expenditure, and this included successful completion of 3 turnaround events within the specialty mining chemicals business at our Winnemucca, Alvin and Yarwun sites. We also continue to prioritize investment in our downstream businesses, including 4D technology enhancements to our global mobile delivery fleet. $60 million was also directed towards growth capital expenditure, in line with strategy, with this supporting continued strong growth in the Digital Solutions earnings, manufacturing efficiency improvements at our Yarwun and Lurin sites and further investment to expand our advanced blasting technology product range. And during the half, we also made a further investment in our strategic partnership with Alpha HPA, directing growth capital expenditure towards the build-out of supporting infrastructure at the adjacent Yarwun facility. As outlined in our business update in March, we anticipate existing business capital expenditure will be more heavily weighted towards the second half with total spend for the 2026 financial year to be broadly in line with 2025. Turning now to Slide #20 on the balance sheet and liquidity. During the first half, we successfully refinanced or extended $359 million of existing committed bank debt facilities for an average period of 5 years. We also established a new senior unsecured syndicated loan facility of $500 million in the Asian term loan market, a new loan market for Orica, comprising a $225 million 5-year revolving credit facility and a $275 million 7-year term loan facility. The average tenor of our total committed debt facilities at 31 March was 4.7 years. Net debt increased by $237 million from September to approximately $2.2 billion. This increase was driven by cash outflows of $312 million, partially offset by a favorable foreign exchange impact on net debt of $75 million. Consistent with our capital management framework, our leverage ratio at 31 March is 1.53x EBITDA within the lower half of our target range of 1.25 to 2x. Our liquidity position remains robust with cash of $769 million, supported by undrawn committed bank debt facilities of $1.6 billion at 31 March. In December 2025, Standard & Poor's reaffirmed Orica's BBB stable investment-grade credit rating. As previewed in our announcement on the 15th of March, a one-off cash payment was made on the 30th of April of USD 169.5 million in full settlement of the CF Industries litigation. This matter is now resolved, and it's anticipated that our leverage ratio will finish the 2026 financial year at a similar point to that of 31 March, as I outlined earlier. In summary, our balance sheet is strong. It positions us well to manage external market volatility, execute on Orica's strategic priorities and long-term growth plans and importantly, continue to deliver increasing returns to shareholders. Turning now to Slide #21. During the half, we've commenced an organization-wide program to deliver an enduring step change in the cost base of the business to best position the company for the next phase of sustained profitable growth. This program will deliver at least $100 million of annualized cost savings over the next 3 years relative to our September 2025 cost base. Through the program, we've concentrated on the most efficient ways in which we go to market across all of our operating segments, benchmarked best practice cost to serve and supply chain costs, together with lean functional structures to support this. Cost savings delivered from the program are expected to be realized progressively from the second half of this financial year, with the majority of savings expected to be realized throughout 2027 and beyond. Turning now to the dividend slide on Page #22. Under our capital management framework, we have maintained our target dividend payout range of 40% to 70% of underlying earnings. The Orica Board of Directors today have declared an interim ordinary dividend for the 2026 half year of $0.285 per share, unfranked, representing a dividend payout ratio of 46.6%. This represents a $0.035 per share or 14% increase on the prior year interim dividend. Pleasingly, our consistent and improving financial performance and strong balance sheet continues to translate into meaningful increases in total shareholder returns. And with that, I'll now hand back to Sanjeev.

Thank you, Jamie. Now turning to Slide 24, progress on our strategy. Our strategy is supporting sustained momentum and market leadership through delivering innovative solutions that create real long-term value as we always strive to be our customers' preferred partners. Through disciplined execution, successful acquisitions and continued deployment of advanced technology, we continue to deliver consistent performance improvement. Orica today is an innovative company with a resilient business model and continues to deliver shareholder value going forward. Turning now to Slide #25, our key growth drivers and priorities. We are increasing exposure to resilient commodities such as gold and copper, while reducing reliance on thermal coal, aligning the portfolio with long-term trends, including urbanization, electrification and artificial intelligence. Our strategic priorities remain fully aligned with the growth drivers I've discussed. We continue to grow our core Blasting business. We drive adoption of Digital Solutions and grow recurring revenue. And we expand our specialty mining chemicals offering and grow beyond sodium cyanide. We are continuing to progress our strategic targets. Safety is our top priority, and we remain absolutely focused on preventing fatalities. Following the fatality in North America, we have taken the critical learnings and are implementing these across the organization. On sustainability, we have successfully achieved our 2026 emission reduction target ahead of schedule, with further reductions planned by 2030 and 2035, supporting our long-term ambition of net zero by 2050. Turning to our financial targets. Our 3-year average RONA is tracking within the target range of 13.5% to 15.5%. Turning now to the outlook for the remainder of 2026 on Slide 28. We have entered the second half of this financial year with good momentum. Looking ahead, while we remain vigilant to geopolitical and market volatility, demand remains robust. We continue to see opportunities to grow earnings through supply security, adoption of premium products, technology and continued disciplined execution of our strategy. The full year 2026 underlying EBIT is expected to increase across all segments and all regions versus the prior period, subject to no new unforeseen factors impacting the business given the very volatile external environment we are experiencing today. As stated earlier, we are not directly experiencing any immediate material constraints related to the conflict in the Middle East, and our products are generally not transported through the Strait of Hormuz. We will continue to closely monitor any potential external impacts such as those related to future geopolitical and market volatility and any future movements in foreign exchange. Balance sheet strength will remain a key focus, and we expect leverage to operate comfortably within the target range. The existing business capital expenditure is expected to be broadly in line with 2025. Net operating cash flow is expected to be lower than 2025, and that's primarily driven by FX movements and the impact of significant items that we have previously flagged. Depreciation and amortization should come in at the lower end of our range of $520 million to $540 million guidance. Net finance costs will be slightly higher year-on-year and noncontrolling interests are expected to track broadly in line with last year. Our effective tax rate should sit slightly below 2025, reflecting the regional earnings mix. Looking beyond 2026, we see continued positive momentum and growth for Orica. Our medium-term outlook remains unchanged, and our focus stays firmly on maximizing total shareholder returns over time. Turning now to the last slide, 30. Let me close with 5 takeaways from today's results. First, we delivered a record first half performance and entered the second half with solid momentum. The quality of our earnings and margin improvement reflects strong commercial discipline across the business and the overall resilience of our business. Second, we are making meaningful progress in portfolio diversification, increasing significantly our exposure to the U.S. quarries, construction and civil market and expanding into copper processing chemistry, markets with attractive long-term growth potential. Thirdly, we maintain a positive outlook underpinned by our global manufacturing and supply network. This strong foundation ensures we are very well positioned to support our customers and deliver ongoing continuity of supply across all markets globally. Fourth, we have launched an organization-wide cost reduction program targeting at least $100 million in annualized savings to support sustainable future growth. And finally, our balance sheet remains strong with a clear capital allocation framework. We are returning value to shareholders through a strong interim dividend and the completion of our $500 million on-market share buyback. In summary, earnings momentum, strategic progress, a resilient supply chain, structural cost improvement and increased shareholder returns. Orica is executing well and is well positioned for the future. With that, I now open to Q&A.

[Operator Instructions] First question comes from Niraj Shah from Goldman Sachs.

Just coming back to the earnings bridge, you called out the $24 million volume mix margin benefit within Blasting Solutions. I'm just keen to understand what the volume drag may have been within that to assess, I guess, momentum on premiumization and cost efficiencies, please?

Yes. Thanks for the question, Niraj. In terms of volume, if you look at our results over recent years, you'd see that total AN and sales volume have been tracking down, but margin earnings has been increasing. That is a consistent trend in these results. At the headline, broadly, total volumes in the first half were around 3% to 4% down, and most of that was coming from the permitting reductions in Indonesia and some wet weather in Australia.

I appreciate the color. And just one more. How should we be thinking about, I guess, the CF supply disruption cost below the line in the second half? And if you have any color on conversations you've had with potential suppliers over the last little while, that would be helpful, too.

Thanks, Niraj. I'll take that. So just keep in mind that we had the supply interruption in -- I think it was November when we received the force majeure notice and then we had to go spot into the market to ensure continuity. So we purchased more than what we would normally need because we had to build up inventory for the Carseland shut, which started 1st of April and will continue for the whole of May. And then we will start up Carseland sometime in June. It also depends on what our partner, the Nutrien with their ammonia asset and their timing. So we have to align all of that. So this means that we had to build up inventory and procure product in the spot market, and we had to procure more than normal because we had to build up for the lack of Carseland supply. And you know Carseland is more than 500,000 tonnes capacity. It's a big plant. Now once the Carseland plant starts up in June, we should then get a bit of relief in terms of the supply tightness that we've had. Meanwhile, what we have been doing is we've been obviously talking to every potential supplier, and we've been testing spot volumes and checking the supply chains. The way I look at it is we are in a unique position because we have got this one-off opportunity of redesigning a supply chain in the United States, which is fit to purpose. So the contract that we've had so far is more than a decade old. At the point that when it was conceived, it was obviously very relevant to our needs, but the market changed. Our business changed meanwhile. And today, we have a very, very different business to what we had 12 years back. So we've now had the opportunity of leveraging our own manufacturing network, the existing contracts we have outside of the U.S. in terms of sourcing as well as setting up a new supply chain within the United States. And not to forget, we've acquired 4 emulsion assets with Nelson Brothers, and they are very, very strategically located and they need to be fed. So we are now in the process of basically whiteboarding the entire U.S. demand and supply situation. And we have been testing supply chain with multiple sources to see what is the most cost-optimized way of doing this. Once we land on a solution, and hopefully, that's the ideal solution, Plan A, Plan B, Plan C, we then tend to -- we then intend to start finalizing longer-term supply agreements. So at the moment, it's -- you can call it a trial phase where we are testing the resiliency of -- the resilience of a new supply chain. This will also incorporate, by the way, swaps and supply from Carseland and from our existing supply network outside of the U.S. So it will take a few more days, weeks, months. And then hopefully, within this half of the financial year, we would have landed at something. But once Carseland starts up, our purchase needs will reduce because we'll already start to leverage the internal supply network we have. So we were not able to do that in March and April and May, unfortunately, because the plant was shut. I hope that answers, Niraj, the question.

Got it, yes.

Next, we have John Purtell of Macquarie.

Look, just the first one, just building on Niraj's question there. So obviously, around North America. So I suppose just a broader question is, obviously, a couple of months ago, you sort of highlighted your confidence in being able to find a long-term supply solution in North America. Obviously, we've had the Middle East wars sort of in between that or starting up at the same time. We hope it ends soon. But the essential question is, is there any change to your confidence in being able to find that long-term solution, notwithstanding the conflict?

Yes. Thanks, John. Obviously, the conflict is an issue, right, because it's causing uncertainty, it's causing short-term volatility and all of the other things. Keep in mind that in the United States, we are a very large procurer of nitrogen, outside of the ag industry. And the big benefit of Orica is that our demand is consolidated. We know where the outlets are, including now the new network of consuming sites we've got from Nelson Brothers. We pay on time, and our demand is not seasonal. So it goes around and it's very stable. So obviously, we have quite an attractive customer to the nitrogen market in the United States, and we were not accessible to third-party suppliers over the last 12 years. We are now back in the market. Our initial conversations, which have been started since November, obviously, when we entered the market to buy spot tonnes after the force majeure announcement have been very, very positive. And we are in the process of now looking into what are the alternatives, what are the opportunities and how can we best -- as I said earlier, how can we best design a supply chain that is resilient for the next 10 years. So the confidence has even improved. The sourcing is working as we speak. So even though Carseland is down, we've had a continuity of supply. And if the situation gets better as soon as Carseland starts up because we can supplement with the internal network. So yes, we feel pretty good about it. But we are taking our time because, as I said, in a mature market to redesign a supply chain is a unique opportunity. It doesn't come every day, and we don't -- we want to get it right. So we'll take our time, and we are engaging with multiple sources at the moment, and it looks very positive.

And just the second question in relation to APAC. Obviously, with the tightness in the market, logically, IPP prices are moving higher. What does the contracting cycle look like for you this year? And you're seeing any improvement in Indonesia as well given some of the dynamics in coal and energy markets?

That's absolutely correct, John. Coal is at 52-week highs, whether it's Indonesian coal or Australian thermal coal, and that's a direct impact coming out of the energy crisis because of the Middle East issues we are having there. Now the Indonesian government did announce that they're relaxing the coal. So it was a 20% cut on coal output, and that is directly reflected in our volumes being down, and that's significant. You know, we are the biggest player in Indonesia. We've got Bontang manufacturing, and we've got the network of continuous and discrete manufacturing sites across the country. But the first information inputs coming in from customers is, yes, they're all reviewing now their plans. They all would like to ramp up production. There is still this shadow of royalty. So most of our coal customers are still having those conversations with the relevant departments and the ministries in Indonesia, but they're all preparing to ramp up. So my expectation -- and when you ramp down, you cannot just ramp up overnight. You have to mobilize people, resources, supply, all of the other things. So that's work in progress. So my expectation is, yes, we'll see a pickup in demand in this half, hopefully starting sooner rather than later. And then this should continue because I don't think energy prices are going to correct downwards even if the ceasefire holds in the Middle East. So I expect a stronger outlook from Indonesia for the next year, obviously, the second half and the next year. In Australia, demand is holding up. Obviously, coal pricing is -- all commodity pricing is pretty healthy. We had unfortunate interruptions. So Kooragang Island was down for 10 days. That was a trip led to -- because of a power outage. And we are still under supply constraints because of the Western Australian force majeure. So we've sourced the volumes, obviously, at higher costs. Expectation is that the Burrup facility for ammonia will start up in the latter half of this month, and then we should go back to normal in terms of supply. The last time we spoke of IPP, I mentioned $900 to $1,000, give or take. At the moment, it is significantly above the $1,000 level, given the tightness in the market overall.

Next question comes from the line of Daniel Kang from CLSA.

Just looking at Slide 32 and the pipeline of scheduled maintenance and turnaround works in the next 18 months. I'm just thinking how should we think about the earnings impact of these planned works? And will the cost savings program be able to offset this impact?

Yes. Thanks, Dan. Sorry, there was a bit of -- okay. I hope you can all hear us. So there are 2 major events. At the moment, we are in the middle of the 2-month Carseland shutdown, and I said that we expect the plant will start up in June. So that work is done. It's running well. No issues, no concerns, no safety problems. seems to be on time, on schedule, on cost. We've obviously built up the inventory. So the supply continues. The next big event is October, November. It's a 2-month shut of Kooragang Island. And as you know, Dan, it's an important site for us. So we've got now 3 or 4 months to build up inventory to ensure continuity of supply. Now the big advantage here in Australia is because of the network with Burrup and with Yarwun, we are then able to move product around. And then Bontang can always step in and support us if we need additional volume. So all of that has been prepared and planned. So I don't expect too much -- yes, the cost of the turnaround, the cost of the fact that the plant is not operating for 2 months and some additional supply chain costs, sourcing costs will come through, but we don't think that is quite -- that is material. The intention of the cost-out program of $100-plus million was different. You know that over the last 5- to 6-year tenure, we have been building -- we are on a journey of building our portfolio. We've got now the 3 segments. We have done M&A across the 3 segments. And we've grown the organization. We've grown revenue. We've grown bottom line, and we've added resources. After Nelson Brothers, we'll be close to 15,000 people globally in a growing organization. It's obviously something you need to drive growth. That's all positive. But I think time has come now to start looking at our structures. Meanwhile, we have built up infrastructure. We've got now an offshoring center in Philippines, where we have more than 800 employees. Six years back, we had less than 60. So we have significantly scaled that up. We are in the process of deploying AI across the board to automate a lot of those tasks. And we are looking at delayering and to see where the efficiencies are. And that's the reason why we've also changed the approach into the regional organizations where now they are the platform to sell products across all the 3 segments. So we don't have dedicated teams for Blasting and Specialty Mining Chemicals and Digital Solutions. We are now selling across the platform and the portfolio. All of that gives us the opportunity to structurally look at our costs and see whether we can go above and beyond managing inflation, which we have done quite well over the last 5, 6 years. So that's got nothing to do with the turnarounds. The turnarounds happen every year. Last year, we had our turnaround cycle. This year, we've had the turnaround cycle. We'll have another one next year. It's just the unplanned ones that can impact us because obviously, we've not prepared for this and we've not planned for this. Also, when suppliers announce force majeure, that's not very helpful. So the turnarounds were not the major driver for this program. It was just the right time to do it. And with the available technology and the opportunities we have, we feel pretty comfortable with that.

And maybe one for Jamie. Just in terms of seasonality of profits. Typically, Orica's profits is skewed to the second half. Can you help us with how we should think about the second half skew for this year?

Yes. Thanks, Daniel. So obviously, it's been a very strong first half result. We expect the business to continue to perform well through the second half. I can't really provide guidance now, but the split won't be too dissimilar to prior years. It might be a little bit closer to even if you look at first half, second half. As Sanjeev said, just to remember, we do have the Carseland turnaround that's happening through April and May. We are hearing noise around increased permitting in Indonesia, but a number of those mines are on reduced rates. So it's a question of how long it will take for them to ramp up. And we are working through the Burrup outage, which is expected to restart this month. And also important to remember is foreign exchange, right? So we had a -- if you follow foreign exchange, it sort of started to spike around December into January. So we've had only a few months in the first half. Looking today, it's at $0.72 plus. There'll be a full 6-month impact in the second half. So that's roughly how you can think around first half, second half split.

Next, we have Lee Power from JPMorgan.

Just on the Indonesian piece, Sanjeev, can you -- I know it's hard, but can you give us some sort of color on how much of a drag that would have been for APAC? And then am I right in your -- in reading your comments and what Jamie just said in response to John's question that the guidance includes some recovery in Indonesian volumes. So you're assuming the quota does go your way? Only because you obviously were flat for the region half-on-half.

Thanks, Lee. So when you look at the APAC business, it's Australia, a little bit of Pacific and then it's Asia. So we've given some direction there. We'd be saying in the first half, the Asian business outside of Indonesia grew earnings. Australia was very strong in terms of earnings growth and Indonesia was down. Now the quota cut -- the production quota cut was 20% of coal volumes. That's significant volumes. And we are the largest service provider in the Indonesian market. So we had a direct impact on volumes going into our coal mining customers. Now we obviously did not have any impact on Bontang because Bontang ran full throughout the period of low demand because we just put the product into the network and use it everywhere. And obviously, our own manufactured product always gets priority over purchased product because of the better margins. But Indonesian earnings did get impacted. Now with the energy crisis, with the spike in coal, obviously, the Indonesian government had second thoughts, and now they've said that they want to be more relaxed and allow more production. But as I said earlier in my comments, there is still a discussion amongst at least some of our customers on sharing the royalty benefits, the benefits of more production with the Indonesian government. So that's not landed fully. Some of them have already started to ramp up, some others will. But also, as Jamie mentioned, it takes time to mobilize because people were expecting this to be maybe a 6-, 9-month program of reduced production. So they were starting to demobilize to save costs and now to get the people back and most are remote mine sites in the islands in Indonesia. So it's not easy. So it's going to take time. I do expect some positives in this half, but I do expect a much stronger Indonesia in the next financial year. So that's going to be a nice upside to look forward to because we were also planning for a reduced demand in the country, but things have changed clearly.

Okay. That's good color. And then just on Danafloat business, like how -- can you give us an idea of the scale and maybe how that's been tracking versus the high single-digit medium-term targets you have for your own equivalent business?

Yes. So we have always said that we keep looking for chemistry to support the copper processing industry because Orica has the manufacturing capability, but not the IP. And the other challenge in that industry is that the customer approvals take a very long time. So it's a very sticky business, which is great. We like sticky business. Our Blasting business is very sticky, so is a digital business. But it takes a long time for a new entrant to come in. So the opportunity came. Danafloat belongs to FMC, which is a big chemical company headquartered out of the United States, and they have operations in the Nordics where they make these highly specialized IP-protected formulations that go into copper ore recovery. And obviously, it was not strategic for them. It's clearly strategic for us because we are the largest service provider to the copper industry globally in the Blasting and the Digital space. So we've been having conversations with them and with several others who own the chemistries, but don't have the market access. And then FMC decided that they were happy to sell the business to us. We have not acquired any assets. We have not acquired any people. So it's obviously capital light. We've acquired the IP and most importantly, we've acquired the customer approvals. And it's a running business with customer base -- existing customer base in Europe, Middle East, Africa and Lat Am. And the idea is that -- and obviously, we have supply agreements, interim supply agreements with them. They'll support us so that the business doesn't get interrupted. But the idea is to take that IP and the manufacturing know-how, bring it into the Orica manufacturing network. So all our continuous manufacturing sites handle chemistry and then start production in-house. And then as soon as we've got our own product, obviously, we take the business and scale it globally as we do with everything else we acquire. So it's a very, very exciting business. It's a niche proprietary high-value, very low volume, high-margin business, which is exactly the space we want to work in, and it's low capital, and we are very, very excited about it. It's our first foray into copper chemistry. You know we are #1 in gold chemistry. It's our first foray. We want to duplicate the gold model into copper, and we will continue to look for these kind of bolt-ons. The idea is to grow the business quickly, scale it up quickly and make it global and then obviously leverage our access to more than 500 mine sites globally and see where we can scale the business up.

Next, we have Ramoun Lazar from Jefferies.

Just a couple of questions from me. Maybe one, just on the supply impacts. And if you could help us sort of get an understanding of what those costs could be into the second half, particularly the below line items. I expect you're going to take those below the line, Jamie, in the second half. So any guidance there? And then also, how should we think about the treatment around the Burrup outage as well?

Yes. Thanks, Ramoun. I'll take Burrup and then Jamie can take the U.S. sourcing cost impacts. So Burrup was unfortunate. Again, it was caused by a power trip, which led to the ammonia plant tripping and then they were not able to restart this. Expectation is in the second half of this month, the plant starts up. We've already sourced the volumes. They are sitting in our tanks, either as ammonia or as ammonium nitrate so that there's no supply interruption. There is obviously additional costs because these were material tonnes that we brought in. But we feel comfortable that the [ ASPAC ] business has got enough headroom that we will not have any impacts on margins, and we'll find a way to mitigate that. So there's no material impact on earnings in Australia because of that -- of the impact. And the expectation is that the plant starts up and we are back to normal. So yes, it's unfortunate, but these things happen. Kooragang Island also tripped for 10 days because of a power outage, and we just had to live through it. All of these add cost to us. But again, we are handling multiple manufacturing assets globally, and we know how to manage that. A quick comment on the U.S. sourcing costs before I hand over to Jamie. As I said earlier, we had to source more than we normally would because of the Carseland shut because we had to build up inventory and the force majeure came at the wrong time, unfortunately, in November. So second half, once Carseland starts up, we'll get the supply. That's a world-scale plant. It's 500,000 tonnes plus, and we have some capacity there. So that's going to help us to mitigate a lot of those sourcing costs that we had in the first half. Obviously, some of that will be passed through to customers, and there might be a few remnant remaining there, but I'll let Jamie handle -- answer that.

Yes. Thanks, Sanjeev. Thanks, Ramoun. Look, consistent -- I mean you need to think about net costs, right? So they're difficult to sort of estimate. It depends on the level of pass-through to customers. So to date, the team in the U.S. have done an outstanding job working their way through that. And as Sanjeev said, in the second half, we will have more internal network tonnes coming out of Carseland post the turnaround. In terms of the accounting treatment, I mean at the moment, we're focused on the RFP. So that's open and obviously, the near-term supply to customers. So the RFP is progressing well. We expect that process to complete towards the end of this month, and we'll have a better idea on supply opportunities probably early June. And really, the accounting treatment will follow that. So that's something that we're working through in the second half, but we'll be in a better position to provide an update on that later in the half.

Okay. Got it. That's helpful. All right. And then just noting some of the comments around the cyanide business and debottlenecking opportunities. It sounds like you're sold out at both those plants now. Is that right? And then also, just if you could shed some color on what that potential debottlenecking could look like in terms of freeing up additional tonnes?

Thanks, Ramoun. So demand -- and that's not a surprise to anybody, is very, very strong. Our challenge with the 2 assets we -- obviously, Yarwun, and I called it out in the [ ASPAC ] update. Yarwun has run at record rates, and we've got fantastic output. The plant is running beautifully. So absolutely no concerns there. The challenge with both Winnemucca and Alvin was private equity owned. So we had to catch up with maintenance. We had to catch up with reliable. So the priority was, and I said that earlier when we did the acquisition and multiple times. First priority was safety. So we spent a lot of time and effort to bring both Alvin and Winnemucca to Yarwun standards, Orica standards or safety standards. That took some time. The second step was reliability because the plants were operating equipment to end of life, which is a terrible way to operate a chemical plant. So there was no preventive anticipatory maintenance happening. So we've changed that approach. We've trained the operators so that we do not run plants to end of life, which means that the plants were operating, say, maybe 2 weeks, 3 weeks and then shutting down and then equipment had to be changed or fixed or repaired and then they were starting up. So we were losing a lot of capacity out of that, and we wanted the plant to run 365 days continuously unless it's a plant shut. So we focused on reliability, instrumentation, upgrading, and we've done that for both the plants. Now the plants are operating at the capacity at which they were designed for. And it has taken us nearly 2 years to get there. The third step, which I've also called out is, as we always do with our chemical plants, we have done this with the AN plants, with the nitric acid plants with the ammonia plants and with the Yarwun sodium cyanide plant, we are looking at debottlenecking. So this is not high capital. This is low capital, very smart, clever, either capacity freeing up or improving reliability, so we get more output from the same assets. And this potential is huge. As an example, as a reference, when the Yarwun plant was designed, it was built 25 years back with 30,000 tonnes capacity. Today, we can make more than 100,000 tonnes out of that plant. So we are now going back with all that expertise we have of managing and running continuous plants to look at Yarwun and to look at Winnemucca to see how much more can we squeeze out at the lowest capital cost. And some of those projects can take weeks because the operators know where the bottlenecks are. It's a matter of giving them capital and allowance to do the work. Some might take longer if you've got long lead items and you want to change out a compressor or add a column or build a new tank to improve capacity and throughput. So we have a plan. The plan is being worked on as we speak. We know when we'll get there. And to prepare for that future capacity debottlenecking, we are already buying third-party tonnes to -- you can call it premarketing, but it's already an existing market from players in Asia so that we -- whenever the capacities are available, the additional capacity, we'll then move immediately to own manufactured product. So that's something we do very well all the time, and that's exactly what we'll do with the sodium cyanide assets we've acquired.

Next, we have Jakob Cakarnis from Jarden Australia.

Hopefully, you can hear me clearly. It's been a mixed line for all of us, I'm sure. Just the first one, Sanjeev, on the U.S. supply dynamic and the RFPs that are out. Just 2 questions there. Is the idea that you'd be at a net neutral margin outcome for the business, just making sure that there's good availability for customers? And then I guess the second part of that first question, are you precluded from working with CF Industries again? And in the RFPs, are there considerations for international supply as well, please?

Thanks, Jakob. No, we're not precluded. We work with every supplier. And as I said earlier, we are an attractive customer for the nitrogen industry in the U.S. So the cost basis of the U.S. nitrogen industry is all back to Henry Hub. So based on Henry Hub gas, you either make ammonia and then ammonium nitrate or you buy ammonia, which is produced of Henry Hub, there's very limited trade going into the U.S. for nitrogen. There's some coming in from Russia and other sources. And we will now obviously bring in some product from Carseland, which we were not allowed to do because of the exclusivity. But there's very limited trade. So it's all based off the same cost base. The big challenge in the U.S., it's a big country, expensive logistics. It's all railcars and long distances is the cost of supply chain. So the idea now is to not be dependent on a single supplier to have a diversified network of suppliers. You have to remember that our business model has changed from catering to a handful of big customers in the coal industry to the Q&C and the civils market, which is basically in multiple states across the United States. So sourcing from a single supplier and taking product long distances gets very, very expensive. Every kilometer you go further away from your source, you add logistics cost, leasing costs for railcars, handling costs, all the other stuff. So the idea now is to come up with a theoretically perfect supply chain where you source close to where your demand is. And now we've got the 4 emulsion plants from Nelson Brothers. And our second joint venture also has a couple of emulsion plants. So that's the network we have to feed. That's where the product goes. So we are now working with different suppliers in the nitrogen industry to say, which is the most competitive and the least lead time supply chain that takes us and gets us the best landed cost and that makes us more efficient. So that's basically the target. If we are cost neutral, great. My hope and ambition is we should be even better in terms of supply chain cost with a diversified supply chain. But that's a challenge for my U.S. team. And you can imagine there's a dedicated team of experts working on this and dealing with them. So we'll keep all of you posted where it lands, and that should happen in the near future.

I suppose the concern of the market was that there'd be those added costs, but that's good color. Just a simple one for Jamie, please. Could you just give us a sense of the FX sensitivities just on translation, either at the revenue line or the EBIT line?

Yes. I'll just hand over to Jamie, Jakob. Just to remember this, and we have this everywhere. These were traded tonnes. The U.S. tonnes were not own manufactured tonnes. This was not Carseland or Kooragang Island or Yarwun or Bontang or Burrup. These were traded tonnes, like we have traded tonnes in EMEA, like we have traded tonnes in Lat Am. So the margins were traded margins. So it's an important raw material, nitrogen in the U.S. for us, but you have to all remember this that these are traded tonnes. So these were not owned manufactured products with the margins we enjoy when we produce back to gas or ammonia. Jamie, over to you.

Yes. Thanks for the question. So my rule of thumb is plus or minus $0.01 in the AUD to the USD is around AUD 4 million to AUD 5 million in terms of EBIT. So we have somewhat of a natural hedge in rise and fall. So as raw material pricing or other costs move, they'll move through the revenue line. If you think about the balance sheet, so we have cash -- foreign cash holdings in other parts of the business across the globe. That currency relative to the U.S. as that moves, that will move through interest. But on the other side of that, you'll have the impact on the balance sheet through working capital. So that sort of nets out. What we don't do is hedge the translation of foreign earnings, for example, U.S. earnings. We don't speculate on that. So we have somewhat of a natural hedge. But if you think translationally, $0.01 is roughly $4 million to $5 million in terms of EBIT.

You saved us all some time tonight, I'm sure.

Next, we have Mark Wilson from RBC.

Jamie, just a quick question. Where you are experiencing higher third-party ammonia and AN costs, are you able to pass that through to your customers across the board? And generally, what is the time lag?

Yes. Thanks, Mark. So if you look at the indices, which are published, you've got Tampa, you've got the European indices and you've got the Asian indices for ammonia. And you'll see that ammonia is now trading anywhere. It depends on whether it's FOB or CIF or delivered, anywhere between USD 600 to USD 800 per tonne. Go back 5 months before Middle East or 4 months before Middle East happened, they were trading at $200 to $300. So they more than doubled the ammonia indices. And obviously, all of our rise and fall contracts are especially the traded ones, right? Because the manufactured ones, obviously, we've got control -- better control on the input cost, which is gas and ammonia in certain cases. The traded tonnes were always passed through because this is a service we offer to customers. It's not something that we do to make margins. It's basically a raw material we buy for our emulsions and for our bulk explosives, and then we offer ammonium nitrate traded tonnes to customers as a service. So that goes directly through to our customers. Time lags on an average are 3 months. After the last Russia-Ukraine, I can't say it's over because it's still ongoing. But once the Russia-Ukraine crisis started, we went through the entire contract book, especially for traded tonnes, and we tried to compress those cycles to make it even shorter than 3 months. So at best, we might have a 3-month lag before the pass-through comes. But in most cases, we're able to pass through in 1 or 2 months. So it's not anymore a big issue. That's why we never call it out for the last 3 or 4 years. The lags we have never called out really because they have not become -- we found a way to manage them.

Okay. That's helpful. And then where there have been the plant outages at CF and Burrup, where does liability lie? Are you bearing some of the costs? Or does that go back to the manufacturer? How is that all working through?

It depends on the kind of sourcing contracts and supply contracts we have. We do have an obligation for quite a few, and this is industry standard, quite a few customers where we need to keep minimum stock levels, not necessarily ammonium nitrate, but basically detonators and emulsion and whatever else they need on a day-to-day basis. So -- and something we are really proud of is that we have never shut a mine site down for supply. And that's the strength of Orica because our customers know we've got multiple sources. We've got redundancies. We make and buy nearly 5 million tonnes of nitrogen equivalents in the market. So we are the largest in the market. And we do this on a global basis with more than 25 different suppliers, plus the internal network. So we have managed the force majeure in the U.S. We have managed the force majeure in Burrup, and we have not let a customer down, but obviously, costs come through. Now some of those costs we can pass through because the timing -- it's unfortunate, but the timing helped because we also saw the indices go up. So that helped us to pass the higher sourcing costs through. In some cases, we are not able to pass through. So we have to find smarter ways of managing those costs so that the margin doesn't get impacted. In the first half results, you've seen both North American business has grown earnings and the Australia business has grown earnings. So you have not seen that negative impact. So I think we've now got unfortunately enough experience to manage these kind of outages, and the team does a great job in ensuring that margins stay protected.

Next, we have Sam Seow from Citi.

Just a quick question on cash, particularly around, I guess, significant items. Maybe the easier way to ask the question, is there like a total second half kind of outflow amount you expect encompassing the settlement, supply issues and I assume further restructuring costs from your cost out? And then maybe even if a net amount from proceeds from land as well?

Yes. Thanks for the question, Sam. I mean it's a good question. So our cash flow was strong in the first half. And obviously, it was impacted by foreign exchange and significant items. We are normally weighted towards the second half in terms of cash generation. There's a few reasons for that. We do have a bit of regional seasonality in the business. If you think about the Northern Hemisphere and some of the larger Blasting businesses are a little bit more second half biased. We do have some large payments that normally go out in the first half like employment payments and prepayments and insurance costs and whatnot. And we are carrying a little bit more inventory leading into the Carseland turnaround that we spoke about before. I'm very happy with where the leverage ratio is at the moment. In terms of the second half, obviously, we have the settlement of the U.S. litigation that will go through significant items. Ongoing litigation costs have stopped because that dispute has finished. We'll work through the supply costs into the U.S. as we spoke about before. And then the restructuring costs will finish at the end of September. We'll make all the structural changes that we're making. There won't be any further restructuring costs, I don't think in 2027. If you normalize for that, I think our net cash performance this year will be on a par, if not possibly better than last year. But there is -- as you said, there's noise in there with the significant items.

Okay. And then just quickly, the result a bit ahead of the update you gave, which was pretty late in the period. Just perhaps could you talk us through if there was something that went a little bit better than expectations, I guess, towards the end of the half. Just want to check if there's anything there you'd flag to us, I guess, from an exit rate point of view.

Yes. Sam, we did say when we came out in March to say that it will be slightly better earnings, and that's what we have delivered, slightly better earnings than our original plan for the half. What worked very well was the sourcing efforts the team did for Kooragang Island and Burrup because obviously, that was a bit of a curveball. The team in the U.S. has done an outstanding job in ensuring that we get the most cost optimized tonnes that feed into our manufacturing sites there. So that's been good. The turnarounds are always risky because you could always have incidence issues, cost overruns, delays. Knock on wood, the 3 turnarounds in the first half went well. We always build a little bit of a buffer there because these are big machines and things can go wrong once you open them up. So we -- the teams have done an outstanding job there. A bit of tailwind coming obviously from the market tightness. Clearly, there is some concern in the market about supply and reliability and commodity prices are still very attractive. Copper, $12,000 plus; gold, $8,000 plus; iron ore, about $1,000 -- about $100. Coal prices have come up. So obviously, nobody wants to slow down production. So the concern on supply reliability helps. And then the recontracting cycle that we started, I said we are starting a new recontracting cycle after the last one was successfully completed, has had a great start. We've had some very, very good wins with a nice uptick in margins. And then obviously, the rise and falls comes through. So overall, demand -- underlying demand is strong. Sentiment is positive. Commodities are doing very well. Cost inflation is a real concern. I mean we also consume in, for example, in Australia diesel. We've got a big fleet of MMUs and trucks and vehicles. So we have to find smart ways of managing that. But I think we've got now some expertise doing this over the last 4, 5 years. Inflation is not new. We've been tackling inflation since the last 6 years now. It's getting worse, unfortunately. But I think we've gotten good at finding ways to ensure that the margins continue to grow. The key has always been upselling the technology. So we've sold more units of WebGen. We've sold bigger volumes of 4D. We've sold our premium products. You see the digital business is all margin, the SMC business with better cost because our manufacturing sites are working very well. Supply chain has been optimized now across 3 sites rather than just Yarwun. All of that is margin for us because for the customers, it makes no difference, but our costs come down. And finally, the cost-out program and our efficiency programs, we have been doing quite successfully. All of that helps, and that's why it's been slightly better than maybe what you might have expected.

Next, we have Harry Saunders from E&P.

Just a follow-on, firstly, on the impact of sourcing the short-term tonnes in the second half. Is it fair to say you're sort of indicating the impact could be lower on a net basis in the second half? And then just a follow-on to that, given you're indicating still getting a second half skew, would that be with taking this below the line or above the line or either in terms of still seeing a sort of second half skew? And maybe just for context, I think last year, if you ex out the one-off carbon credit, is a sort of 52% second half skew.

Yes. I think Jamie mentioned that. He said it would be a bit more balanced the first half, second half for the only reason being that we've got the major Carseland shut in April and May. So that's fully in the second half. And you can imagine a big plant going down for maintenance has an impact. So that's the one thing to watch. Seasonality-wise, the Northern Hemispheres with the winters coming out now, demand is strong. Underlying business is looking good. So the SKU will be there, but it will not be that prominent. In terms of the financial treatment of the sourcing cost, it's difficult to say today. We have not taken any decision. So whenever I mention business is strong in the second half outlook, it's all underlying business, right? And then the financial treatment has to go through the normal process with the auditors and the Board. The problem is we can't quantify that today because my expectation is we'll need to buy less. But in the end, we have to see where the tonnes are, what the additional costs are, how can we mitigate that by blending it with our own manufactured product. And remember, we've got sourcing contracts also in North America outside of the U.S. So it's not single source Carseland. We've got multiple contracts already, but they were never in the U.S. because in the U.S., we were exclusive with a single supply. So we've got a lot of opportunity, and we've got a lot of options, and we have to work through all of it. It's complex because logistics in the U.S. is not easy. That's the biggest cost factor. The cost of the product is what it is. It is back to natural gas, Henry Hub, and it's kind of a level playing field. It's the biggest element and the biggest challenge in the United States is getting your logistics right because handling costs of nitrogen in the U.S. are quite high. So that's what we are focused on. So at the moment, difficult to say. We'll see where the RFP lands. We'll see where the multiple quotes we are expecting land, and then we'll have a better feeling the magnitude. All I can tell you is my hope and expectation is that we'll buy less third-party tonnes in the second half than we bought in the first half, just because we are now able to leverage the internal network.

Great. And maybe just following on from that then. If you're buying less, clearly, spot prices are higher at the moment. Just following on what you were saying earlier, so these are traded tonnes. Does that mean you're effectively just passing through whatever the market price is doing? Or is there more nuance than that?

We've always done that. Everywhere, wherever, we buy tonnes, we pass them on. But you have to remember that most of the tonnes we bought were contracted tonnes. Spot tonnes, you pay a premium, right? So we have been able to pass on quite a bit because the markets are short, right, and customers need supply, but not 100%. And that's why we had -- what was the number, Jamie, $17 million, $13 million in the first half that we took below the line because these are one-off costs. So yes, whenever we have traded tonnes contracted, the price goes through straight off. Because as I said, we use most of those traded tonnes for our own needs to make emulsions and bulk. And then whatever we supply to customers is like a service to them. So we don't make much money off them, but we obviously pass the cost through.

Great. Just wondering if you could provide a bit more color on the phasing of the cost-out program as well. Just any benefit within this financial year and then perhaps how much in '27? I noticed the comments, it seemed to be the majority comes in '27, unless I misread that and maybe how it sort of fits across those 3 buckets?

Yes, happy to, Harry. So look, we've had a very strong focus on discretionary cost and what we call nonbillable costs for some time now. So this program has been in the planning, as Sanjeev mentioned earlier, for some time. We've been focusing on acquisitions, integration, delivering investment cases. Now is the right time to look at our nonbillable cost base. So there was a small amount that was realized in the first half throughout the business, and that will be more material throughout the second half. In terms of where are the cost savings going to be realized, if you look at the slide in the materials, roughly, and this is very rough, around 40% of the savings will be in structural and overhead reductions. Around 30% will be in what we call cost to serve, and 30% roughly in procurement and sourcing savings.

Harry, just to give you a couple of data points. So it's not all about headcount reduction. Obviously, our business is growing, and we need the best people in the industry. So the big focus is on the structure and how we deliver our products and services to our customers. As one example, we are in the process of consolidating manufacturing discrete manufacturing where we make the detonators. In Latin America, we got the big -- so we have the hub-and-spoke model in our discrete manufacturing where we got one big site, and then we got the satellite sites where they do the final assembly and take the product to the customer. So Lurin is a big hub in Peru, and then we've got sites in Brazil and Argentina and Colombia and everywhere else, Chile. We are in the process of consolidating 1 or 2 of those smaller sites and shutting them down to get scale in the existing sites, which is going to take significant cost out because every site needs safety, security, maintenance, people and it adds cost. So we're just consolidating that footprint and getting a more optimized supply chain, and that's going to help us to remove significant cost out. Another example in Asia, we are operating in something like 11 countries. We don't have to be everywhere at the same time directly. So in one of those countries, we are going to shut down our direct operations. We had a manufacturing site there. We are going to stop that, and we are going to hand the business over to a distributor who will then distribute Orica products, but we'll take significant cost out. So these are just smart clever ways. And the other one is obviously leveraging our lower-cost manufacturing sites. We've got big manufacturing in India. We've got major manufacturing in China. Obviously, the labor costs are much lower there. So our unit costs go down when we source from those sites. The market price stays the same, but our margin goes up. So we are using all of these very smart things because we can. We have a global network, and we are able then to optimize cost based on the lowest landed cost delivered to customers. And they don't feel this in pricing, but we feel this immediately in terms of margin benefit. So that's the rationale behind this program. So it's going to be structural. It's going to be quite consequential and it's going to have a significant reset of our cost base over the next couple of years.

That's really helpful. Just one more follow-on. So on that, presumably, this is gross cost out. So any sort of inflationary impact to be aware of? And also just wondering Danafloat acquisition, what's the expected contribution here? Or is it relatively immaterial at this stage until you sort of grow out the opportunity there?

Yes. So these are pre-inflation. We have inflation, obviously, every year, like everyone does on our cost base. This is pre-inflation. We've said the program will be at least $100 million in terms of what we realize. And the intention is to at least offset inflation and more than that, obviously. In terms of Danafloat, and I think your question is around the acquisition price and earnings. Probably a key to take from that is you'd notice in our financial statements, we didn't disclose this. And if you think of -- as a subsequent event, and if you think about a materiality, that will give you a bit of a guide around the acquisition price. The -- probably the first 1.5 years or 2 years of benefits will be offset by integration costs. As Sanjeev mentioned earlier, we'll move the manufacturing equipment to Deer Park to pick up the synergies of the manufacturing savings there. And then the opportunity is to scale up across the customer list to cross-sell, importantly, leverage our current copper and gold position. In terms of earnings, roughly, just think about sort of mid- to high single-digit EBITDA once we get through integration.

Okay. Got it. Sorry. And just to be clear, when you said pre-inflation, $100 million intention to at least offset, you're saying is then to preserve the $100 million uplift. Presumably, you're not talking about offsetting the whole $100 million with inflation.

No. As I said, we have inflation every year. That comes at a certain cost. The intention with the program is to at least offset inflation or deliver more cost above that. And if things change externally in our external environment, then we'll push harder if we need to.

Next, we have Brook Campbell-Crawford from Barrenjoey.

Maybe just 2 quick ones. Firstly, you talked about recontracting in Australia going well lately. Just how much of your East Coast AN book is up for renewal over the next 12 months? That's the first question. And the follow-up just around copper processing in general. Do you have an idea of the total size of that opportunity over time in the segments that you're looking to participate in to sort of the total addressable market number? That would be super helpful.

Thanks, Brook. So the recontracting globally has been quite successful for us. So Australia, obviously has been -- we've renewed some big contracts. You know, Brook, I don't talk about wins and losses. For us, that's business as usual because normally don't highlight that. But we've had a couple of very big renewals, a couple of big wins globally in all parts of the world. So it's been very successful. Now obviously, the environment is helping us. We got a bit of leverage at the moment. So that supports this. Our normal -- and I've said this before, our average global order book renews between 25% to 30% every year. In Australia, we had the big renewals already. You know this in Western Australia a year back. We've had another major one that will be renewed next year. So this year is more average. So it's not a lot of big renewals here in Australia. So I would say 20% to 30% or even a bit lower than that, Brook. In terms of Danafloat and the copper market, obviously, we understand the market very well. We've been looking at it now for the last 5 years. The market potential is huge. A lot of this is relatively new chemistry. It's black box chemistry. It's patented chemistry. Every processing plant is different. It's not off the shelf. So you basically go into a processing plant and then you optimize the recipe, make to order and then you get contracts long term. So the business is very, very sticky. Nobody wants to change. It's very risky. So -- and we've -- with Danafloat, we've acquired customer approvals. So that's the exciting part. Now we just have to get the manufacturing and supply chain in place, scale it up and take it to all other copper sites. The total addressable market is in, I would say, very rough, anywhere up to USD 5 billion globally. So it's a pretty big market, and the market will grow based on the requirements for copper and obviously, the quality of the grade that is being processed. So it's a very, very -- that's why I keep talking about copper chemistry and we want to get in there. It's a very attractive market for us. The big challenge for the existing chemical companies there is they don't have access to the mining industry. So the supply chain for them is a big challenge. The remote mines, they don't understand how that works. We do because we are operating those sites. So for us, the supply chain part, the difficult part is already tackled. It's just getting that IP scaling the production up and taking it to customers and then the business should start to show good returns there.

Next, we have Scott Ryall from Rimor Equity Research.

Sanjeev, I just want to pick up on your comments around no immediate material constraints regarding the Middle East. And I think you mentioned that your assumption there is the ceasefire holds or there's not a worst-case scenario of sort of fighting resuming. You would obviously contemplate a worst-case scenario, though. So I was wondering if you could just give us a sense of what key inputs or components that you're monitoring the most closely. Ammonia is an obvious one, but specifically, can you also comment on sulfuric acid, please, which you contemplate to go into the Danafloat acquisition in any case? And what your exposure is to the sulfuric acid, please?

Yes. Thanks, Scott. Sulfuric acid is mission-critical, but Orica is not exposed to sulfur. We are one of the largest global producers of nitric acid, which is again back to ammonia and gas, but sulfuric acid is mission-critical for copper, clearly. And the Middle East and China are big sources of sulfuric acid. And so our concern is indirect. If our copper customers are restricted in processing, then obviously, they might have to slow down mining. I don't foresee that happening because obviously, you can inventory the ore until the sulfuric acid supply chain normalizes. But that is a bottleneck for the copper industry. It's a concern for the copper industry. So it's an indirect issue that we've been monitoring very, very closely. And now that with Danafloat, we've got a bit of more insight on to the use of sulfuric acid in copper processing, we are also learning here about the intricacies of that supply chain. But the direct impact of sulfuric acid is on Orica's none because we don't handle the product. Our focus is mainly on nitric acid, so we don't do sulfuric acid. Other risks, there is one -- we have a manufacturing site in the Emirates, which is now working at half the capacity for safety and security reasons, obviously, sensitive product. So the Ministry of Defense there has asked us to reduce capacity and demobilize people. So that we have done for the last -- since the Iran issue started, we have done that. That clearly has an impact, but it's not material. That site is dedicated to the Emirates, predominantly for the construction business there. So that is a direct impact. Everything else is a fall-on effects of gas, oil that comes through the environment. As another example, a secondary effect, we buy a lot of plastics for our detonators. And people know this plastics are made out of the cracker, ethylene, ethylene feedstock comes from the Middle East. Ethylene prices have gone up, naphtha has gone up, so plastic prices are going up, availability is constrained. So we are scrambling to source enough of the resins to make our detonators, which creates a bottleneck in supply and increases costs. That's just one effect. So there are multiple secondary and tertiary effects, but there is no direct effect. The only direct effect I can call out is shipping costs have gone up globally, container costs, freight rates, charter vessels, shipping insurance. So logistics costs have gone up significantly, but it goes up for everyone, and we just have to pass it on to our customers.

Last question comes from Nathan Reilly from UBS.

Quick one, just around Deer Park Stage 2. Can you give us a guide on how much cash you're expecting to release from that transaction, please?

Nathan, so we're working through that now. So we are getting close to working through to the preferred purchaser. There will be cash flowing in the last quarter of this year. So I think there will be a deposit that comes through. And then the balance of the proceeds will come into the 2027 financial year at this stage. In terms of the total value of the sale, this is a smaller site, which I think I've said before, it's about 15% smaller than the land size for Phase 1. So it will be somewhere around $200 million gross proceeds when the transaction closes.

Thank you all for the questions. This concludes today's Q&A session and the conference call. Thank you for participating. You may now disconnect.