Dyno Nobel Limited · ASX:DNL
Dyno Nobel — Incitec Pivot — Merger or Acquisition (May 2006)
36 slides from Dyno Nobel's merger presentation, May 9, 2006
Slide 1: Incitec Pivot – New Horizons
Incitec Pivot – New Horizons Julian Segal Managing Director Chief Executive Officer James Fazzino Finance Director Chief Financial Officer 9 May 2006 1
Slide 2: Disclaimer
Disclaimer This presentation has been prepared by Incitec Pivot Limited for professional and sophisticated investors. The information contained in this presentation is for informational purposes only and does not constitute an offer to issue, or arrange to issue, securities or other financial produc
Slide 3: 1. Company Overview
1. Company Overview 3
Slide 4: Australia's #1 Fertiliser Player
Australia’s # 1 Fertiliser Player Corporate History Antecedent Merger of Incitec Appointment of Acquisition of SCF companies of Incitec Fertilizers Ltd and Julian Segal and exit of Orica as established Pivot Ltd as MD & CEO majority shareholder 1919 1923 2002 2003 2005 2006 Pivot established Divesti
Slide 5: Competitive Operational Position
Competitive Operational Position f # 1 market position with 65% market share Strong Market Position f Consolidated market – largest two participants supply in excess of 90% of market volumes f Sale to farmers via network of preferred fertiliser retailers Farmers’ f Farmer preferred distribution asse
Slide 6: Value-Driven Strategic Focus
Value-Driven Strategic Focus Multi-channel approach to secure base volume f Significant independent market share won and retained f ELF supply agreements signed February 2006 Value Commercial discipline: focus on value, not just volume Focused f Sales force education and training Sales f Sales price
Slide 7: 2. Overview of Transactions
2. Overview of Transactions 7
Slide 8: Summary of Transactions
Summary of Transactions f Incitec Pivot will acquire Southern Cross Fertilisers (“SCF”), Australia’s only producer of di-ammonium phosphate (“DAP”) and mono-ammonium phosphate (“MAP”) Purchase price of $165 million(1) including transaction expenses Acquisition expected to provide average 18% RON
Slide 9: Summary of Transactions
Summary of Transactions f Combined transactions anticipated to be significantly EPS accretive(1) Existing New Existing Orica Shareholders Shareholders Shareholders 70% 30% ~ 65% ~35% Incitec Pivot Incitec Pivot Existing Assets Existing Assets SCF (1) Refer pp 19 & 26 for illustrative accretion calcu
Slide 10: 3. Acquisition of SCF
3. Acquisition of SCF 10
Slide 11: Acquisition of SCF
Acquisition of SCF f Australia’s largest producer of ammonium phosphate fertilisers SCF f Vertically integrated from mine to production f Supplier to domestic and international markets f BHP Billiton commenced structured sale process in December 2005 Acquisition f SCF was non-core to BHP Billiton, i
Slide 12: Acquisition Strategy and Benefits
Acquisition Strategy and Benefits Opportunities for Incitec Pivot to generate value from SCF ; f Integration of manufacturing and distribution In FY05(1), Incitec Pivot purchased 319kt (34%) of SCF production ; f Natural extension of Incitec Pivot’s core manufacturing capability Past experience
Slide 13: SCF – Asset Overview
SCF – Asset Overview Phosphate Purchased Sulphur Inputs Ore Sulphuric Acid Sulphur Dioxide Natural Gas 30 year mine life Mt. Isa Copper Smelter Head HeadOffice, Office, Mine and Sulphuric Acid Storage Storageand and Beneficiation Plant Plant Shipping Shipping Production Phosphoric Acid Townsville Am
Slide 14: Reliable Production Facility
Reliable Production Facility f Nameplate capacity of 975ktpa; 943kt production in CY05 Reliability of production has significantly improved in recent years following debottlenecking initiatives Opportunities to further improve reliability and efficiency f Production is lower in years when major
Slide 15: Integration of AP Manufacturing and Distribution
Integration of AP Manufacturing and Distribution f Incitec Pivot has historically purchased up to ~50% of its AP requirements from SCF f Contractual arrangements to continue with other East Coast domestic distributors f Excess SCF supply to be marketed into export markets (predominantly Asia Pacific
Slide 16: AP Price
AP Price US$ DAP Price – Last 10 Years f Import parity pricing implies significant earnings (US$ per tonne FOB) sensitivity to: 280 10 year average = US$191 US$ DAP price 250 220 Ocean freight differential 190 A$/US$ exchange rate 160 130 f DAP price currently trading at historical high May-96
Slide 17: Historical Financial Performance
Historical Financial Performance Revenue / DAP Price f Revenue and earnings have significantly ($ in millions, DAP price in US$/tonne FOB) improved in recent years reflecting: 179 221 247 Increased production 331 336 261 Higher average DAP prices and ocean freight differential f Stable cost base
Slide 18: Capital Expenditure Requirements
Capital Expenditure Requirements f Historical capital expenditure ($ in millions) Sustenance Shutdown Facilities built by WMC Resources at cost of in excess of $800 million 38 Average annual sustenance spend of $13 million f $20 million expenditure for gypsum cell in FY2007, with further expendi
Slide 19: Pro Forma Earnings Impact of SCF Acquisition
Pro Forma Earnings Impact of SCF Acquisition f Analysis based on Incitec Pivot’s FY06E consensus earnings and SCF’s FY05 financial performance Illustrative Pro Forma EPS Accretion Illustrative Sensitivity to DAP Price(4) ($ in millions) IPL Consensus FY06E NPAT 77.7 f Sensitivities assume reversion
Slide 20: Key Risks of SCF Acquisition
Key Risks of SCF Acquisition Earnings f Import parity pricing links earnings to changes in global commodity prices, exchange rate Sensitivities and ocean freight differential f DAP price currently trading at historical high in US$ terms Peak Cycle f Softening anticipated as further supply comes onst
Slide 21: 4. Selective Buyback
4. Selective Buyback 21
Slide 22: Selective Buyback Overview
Selective Buyback Overview f Agreement with Orica to undertake a selective buyback of Orica’s residual 15% holding(1) f Selective buyback price agreed at Orica selldown price f Number of shares bought back will be adjusted so that maximum Buyback Price consideration is not more than $165 million, wi
Slide 23: Benefits of Selective Buyback and Orica Selldown
Benefits of Selective Buyback and Orica Selldown ; Allows greater access to capital markets to fund growth ; Delivers earnings per share accretion ; Creates a more efficient capital structure ; Further enhances free float and expected trading liquidity following Orica sell-down fLikely to be conside
Slide 24: 5. Transaction Funding and Pro Forma Financial Impact
5. Transaction Funding and Pro Forma Financial Impact 24
Slide 25: Transaction Funding and Separation Costs
Transaction Funding and Separation Costs Sources and Uses f Fully underwritten debt funding Sources of Funding 5 year unsecured term debt facilities Debt Funding $335 million Total Sources $335 million f Expected increase in ongoing costs of $2 million as a result of Orica separation Uses of Fundi
Slide 26: Pro Forma Earnings Impact of Combined Transactions
Pro Forma Earnings Impact of Combined Transactions f Analysis based on consensus FY06E earnings outlook for Incitec Pivot and FY05 earnings for SCF Illustrative Pro Forma EPS Accretion Illustrative Sensitivity to DAP Price ($ in millions) ($ in millions) IPL Consensus FY06E NPAT 77.7 DAP Price (US$)
Slide 27: Capital Structure
Capital Structure f Analysis based on 31 March 2006 reported balance sheet and consensus FY06E earnings outlook ($ in millions) 31-Mar-06 Adjustments Adjustments 31-Mar-06 (1) (2) AIFRS for SCF for Buyback Pro Forma $M $M $M $M Net Debt 138 165 170 473 Equity 532 (170) 362 Net Debt / FY06E EBITDA 0.
Slide 28: Conclusion
Conclusion f SCF is a strong strategic fit with Incitec Pivot Natural extension of Incitec Pivot’s core manufacturing capability Expected to deliver average 18% RONA through the cycle 100% debt funded f Selective buyback of up to 15% is attractive 100% debt funded f Combined transactions are
Slide 29: 6. Timetable to Completion
6. Timetable to Completion 29
Slide 30: Indicative Timetable
Indicative Timetable f Explanatory Memorandum dispatched Late May f Shareholder meeting to approve selective buyback Late June / Early July f Selective buyback completion and proceeds to Orica Late June / Early July f Settlement of SCF acquisition By end July 30 Anticipated completion of transaction
Slide 31: Appendix Industry Overview
Appendix Industry Overview 31
Slide 32: Australian Fertiliser Demand By Region & Use
Australian Fertiliser Demand By Region & Use Australian Fertiliser Consumption East Australian Fertiliser Consumption by State (1) by Use (1) (2) Summer Crops QLD Extensive (Jul-Oct) 12% Pasture NSW 12% (Spring / 24% Autumn) 22% WA 26% Intensive Winter (3) Pasture Crops (all year) (Mar-Jun) 15% Vic
Slide 33: East Australian Fertiliser Participants
East Australian Fertiliser Participants Importer / Wholesale Distributors (1) Retail Channel (1) Other Impact Graincorp Ruralco 5% 3% 3% 4% Landmark Hifert (2) 12% 27% Incitec Pivot Elders Independents 65% 68% 13% f Industry dynamics changed in 2005 when Elders f Fragmented market with 1,000 indepen
Slide 34: Appendix Risks
Appendix Risks 34
Slide 35: Key Risks Associated with Incitec Pivot
Key Risks Associated with Incitec Pivot Exposure to f Rainfall is a key factor in determining demand Weather f Partially mitigated through diversity of customer base f Demand for fertiliser is impacted by rural incomes, soil moisture profiles and crop Agricultural Risk selection and rotations which,
Slide 36: N GRAN Green
N GRAN Green Incitec Pivot “lege babes Liquifert’ ; a. 4 Because the land is your life.