Dyno Nobel Limited · ASX:DNL
Dyno Nobel — Incitec Pivot — Credit Suisse Asian Investment Conference 2008
45 slides from Dyno Nobel's conference presentation, March 2008
Slide 1: Incitec Pivot Limited - Credit Suisse Asian Investment Conference
For personal use only Incitec Pivot Limited Credit Suisse Asian Investment Conference March 2008
Slide 2: Disclaimer
For personal use only Disclaimer This presentation has been prepared by Incitec Pivot Limited for professional and sophisticated investors. The information contained in this presentation is for information purposes only and does not constitute an offer to issue, or arrange to issue, securities or ot
Slide 3: Investment Thesis
For personal use only Investment Thesis • Leverage to the global soft commodity super cycle • Robust outlook for global fertiliser industry • Low cost manufacturing assets close to key markets • Leading market position in Australia • 11 March 2008 - proposed A$3.3bn acquisition of Dyno Nobel (hard c
Slide 4: Incitec Pivot - Overview
For personal use only Incitec Pivot - Overview 4
Slide 5: Incitec Pivot - snapshot
For personal use only Incitec Pivot - snapshot • ASX listed company (ASX:IPL) • A$7.5bn (1) market capitalisation - S&P ASX100 and MSCI index • Australia’s largest integrated fertiliser manufacturer and distributor 9 Operations across the fertiliser value chain 9 World class integrated manufacturing
Slide 6: Low cost manufacturing assets
For personal use only Low cost manufacturing assets 1. Intensive • Major Manufacturing and Distribution Sites horticulture & sugar • Distribution Sites Southern Cross Fertilisers: • • Phosphate Hill: 970ktpa MAP & DAP Mt Isa: 1,000ktpa Sulphuric Acid Townsville: MAP & DAP distribution & export facil
Slide 7: Balanced exposure to Australian agriculture
For personal use only Balanced exposure to Australian agriculture TAS Export Manufactured products tonnes SA QLD Ammonium phosphate 970,000 Urea 280,000 Ammonia (anhydrous) 100,000 VIC NSW Ammonium sulphate 270,000 Single superphosphate 780,000 Total manufactured 2,400,000 Imported products Summer C
Slide 8: World scale ammonium phosphate production at Phosphate Hill
World scale ammonium phosphate production at Phosphate Hill For personal use only • World scale asset • Bottom of the global cost curve • Low cost rock deposit • Low cost sulphuric acid • Low cost ammonia (underpinned by long term gas contract) • Nameplate capacity 970,000 tonnes per annum 8
Slide 9: Outlook - Global Fertiliser Demand
For personal use only Outlook - Global Fertiliser Demand “ the 4 F’s ” 9
Slide 10: Demand is growing
For personal use only 10 Demand is growing
Slide 11: Food
For personal use only Food • Population growth and economic prosperity in developing countries is increasing demand for food • Global net population growth ~200,000 people per day • Step change in quantity and quality of food consumption as GDP/capita increases to between US$3k - US$5k Strong popula
Slide 12: Feed
For personal use only Feed 3500 600 total Production of Grain (106t) total Production of meat (105t) 3000 total Production of milk (104t) 500 total Production of egg (104t) 2500 400 2000 300 1500 200 1000 100 500 0 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 Compared to 1980,
Slide 13: Feed
For personal use only Feed Meat Consumption Per Capita North America Developed World • Meat consumption in developing Latin America world lags developed world World Developing World average Asia Africa • Rising per capita income drives 0 10 20 30 40 50 60 70 80 90 100 110 120 130 kg / person / year
Slide 14: Feed
For personal use only Feed Cereal stocks are at record lows, equivalent to just 25.0 10 weeks’ production 20.0 15.0 13 weeks 11 weeks 10.0 5.0 Surplus Squeeze 0.0 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 2000 '01 '02 '03 '04 '05 '06 '07 Source: FAO, British Sulphur Consultants 14
Slide 15: Fuel
For personal use only Fuel Bil Bu U.S. Corn Used for Fuel Ethanol Production 4.0 40% • Recent dislocation in 3.5 35% nutrient demand has been Source: USDA and Mosaic 3.0 30% driven by biofuel 2.5 25% • Government mandates 2.0 20% underpinning demand for 1.5 15% renewable fuels 1.0 10% • Corn, sugar,
Slide 16: Fibre
For personal use only Fibre Cotton Consumption (million tonnes) • Demand for plant fibres will continue to be strong • Cotton production is forecast to stay at the currently elevated levels Source: UNCTAD, based on: "Cotton: World Statistics - International Cotton Advisory Committee (ICAC)" 16
Slide 17: Constraints – arable land
For personal use only Constraints – arable land Population Growth & Arable Land Per Capita 9 0.6 8 • Arable land per capita is Arable land ha/person 0.5 7 World population (billions) 6 0.4 declining as population 5 0.3 increases 4 3 0.2 2 • Crop yields must increase to 1 0.1 meet increased demand fo
Slide 18: Outlook – Ammonium Phosphate Supply
For personal use only Outlook – Ammonium Phosphate Supply 18
Slide 19: Top five rock exporters = 76% of global trade
For personal use only Top five rock exporters = 76% of global trade There is a high concentration in the phosphate rock / phosphoric acid/ammonium phosphates, particularly in the export markets 80% share of global rock exports 70% 60% 50% 40% 30% 20% 10% 0% OCP, JPMC, Gecopham, Ferphos, Phosagro, Mo
Slide 20: Global ammonium phosphate industry
For personal use only Global ammonium phosphate industry Industry Production Major producers & exporters 28% Traded Mosaic (USA)(1) 9.5mt Volume OCP (Morocco) 3.8mt Phos Agro (Russia)(2) 3.0mt CF Industries (USA) 2.2mt GCT (Jordan) 2.0mt 72% Local China(3) 15.4mt Conversion Industry volume: Lead tim
Slide 21: Phosphate rock prices should remain strong
For personal use only Phosphate rock prices should remain strong There has been a fundamental shift in the value of phosphate rock. US$/t • Limited planned new 300 capacity additions to Phosphate Rock capacity 250 • 4-year lead-time for new 200 capacity in an increasing capital cost environment 150
Slide 22: Step change in outlook for other input costs
For personal use only Step change in outlook for other input costs Natural Gas Prices: Henry Hub US$ MM Btu 20 Daily Cash Price Index Increasing Cost of Natural Gas 18 16 Source: Enerdata • Natural gas is a key determinant 14 of cost, price and margin 12 10 • Step change in global energy 8 6 costs.
Slide 23: Escalating cost of new capacity
For personal use only Escalating cost of new capacity Index % change Chemical Engineering Plant Cost Index (year on year) 550 (CEPCI) 12% 525 500 10% 500 468 8% 444 450 6% 402 4% 396 400 2% 350 0% 2002 2003 2004 2005 2006 2007 CEPCI Index % Change - year on year change • Higher construction costs co
Slide 24: Non-integrated Ammonium Phosphate producer costs to set floor price
Non-integrated Ammonium Phosphate producer costs to set floor price For personal use only DAP production - input & conversion costs $US/t 1,200 $1,126 Conversion 1,000 $143 Ammonia Sulphur 800 $308 Phosphate Rock DAP Composition 600 $520 + 1.7t Phosphate $680 Rock (Morocco) 400 + 0.44t Sulphur $282
Slide 25: Global Ammonium Phosphate Trends
For personal use only Global Ammonium Phosphate Trends 1,100 Current spot $1,100/mt 1,000 IPL 2008 Forecast Step change in pricing 900 Ave DAP FOB/t $US760 800 • Demand (4 F’s) pulling 700 600 2007 Average prices DAP FOB/t 500 $US362 400 2006 Average DAP FOB/t • Global cost curve has $US263 300 move
Slide 26: Growth - IPL's Recommended offer for Dyno Nobel
For personal use only Growth - IPL’s Recommended offer for Dyno Nobel “ the other 2 F’s ” 26
Slide 27: Dyno Nobel – Overview
For personal use only Dyno Nobel – Overview • ASX listed company (ASX:DXL) • Leading supplier of industrial explosives and blasting services for mining, quarrying and construction industries • #1 in North America (worlds largest explosives market) • #2 in Australia (worlds 3rd largest explosives mar
Slide 28: Dyno Nobel – A value accretive acquisition
For personal use only Dyno Nobel – A value accretive acquisition • Proposed A$3.3bn acquisition of Dyno Nobel • Unanimous recommendation from the Dyno Nobel Board • Implementation by Scheme of Arrangement • Price of A$2.80 per share for outstanding shares(1) • 75% scrip, 25% cash mix (with mix and m
Slide 29: Attractive offer for IPL and Dyno Nobel shareholders
Attractive offer for IPL and Dyno Nobel shareholders For personal use only Creates value for all shareholders 9 Meets IPL’s 15% IRR investment criteria 9 Acquisition premium of 25.7% to Dyno Nobel’s 1-month VWAP(1) 9 Share in the value creation and growth of the merged group 9 Scrip-for-scrip CGT ro
Slide 30: IPL and Dyno Nobel are a natural combination
IPL and Dyno Nobel are a natural combination For personal use only • The combination is about FIT and FLEXIBILITY • Fertilisers and explosives FIT together because of the commonality in underlying chemical processes and inputs 9 Nitrogen-based chemical manufacturing is at the core of both companies
Slide 31: What is the strategic rationale?
For personal use only What is the strategic rationale? • The super cycle is driving demand in both hard and soft commodities 450 400 ¾ Chinese/Indian economies 350 Indexed consumption by volume (%) driving the mining boom 300 250 ¾ Growth in China and India per 200 150 capita GDP driving a step 100
Slide 32: Combined business is positioned for growth
For personal use only Combined business is positioned for growth • Building on strength ¾ #1 or #2 in chosen markets • Step change in market capitalisation and business size ¾ Able to fund larger projects ¾ Creates economies of scale in corporate ¾ Creates manufacturing critical mass • Capital struc
Slide 33: Shape of the expanded business
For personal use only Shape of the expanded business Geographical diversification(1) 24% 28% N. America Australia + = / Asia 100% Australia 76% 72% Australia N. America / Asia IPL Dyno Nobel Combined Product diversification(2) 6% N. America 48% Fertiliser Fertiliser(3) 100% Fertiliser + 94% Explosiv
Slide 34: Summary of key terms
For personal use only Summary of key terms • Implied A$2.80 per share offer for the remaining circa 86.8% of Dyno Nobel’s ordinary shares not owned by IPL Offer ¾ Scrip component of A$2.10(1) (75%) per Dyno Nobel share ¾ Cash component of A$0.70 (25%) per Dyno Nobel share • All-cash and all-scrip op
Slide 35: Financing the proposal
For personal use only Financing the proposal • IPL has secured a A$2.4bn acquisition facility from a consortium of leading commercial banks ¾ 364 day multi-currency (A$ / US$) acquisition bridge • The facility will be used to ¾ Fund the A$500m cash component of the offer consideration ¾ Refinance IP
Slide 36: How do we deliver > 15% IRR?
For personal use only How do we deliver > 15% IRR? Improve Dyno Nobel business efficiency • Acceleration and delivery of current efficiency program IPL’s track • Manufacturing improvement record of • Overhead rationalisation delivery • Swing of production between fertilisers and explosives • Proven
Slide 37: Incitec Pivot - Growth platform
For personal use only Incitec Pivot - Growth platform 37
Slide 38: Proven track record of delivery
For personal use only Proven track record of delivery A$m EBIT Step change in EBIT and NPAT 800 700 - 730 700 • Tardis efficiency program 600 $131.8M 500 400 • Supply chain engine - $150M 313 300 200 reduction in trade working capital 126 100 78 0 • Acquisition of Southern Cross – a 05 06 07 08F* wo
Slide 39: Global platform for growth
For personal use only Global platform for growth Existing Operations Canada DXL Presence #1 Re-entry market opportunities United States DXL Presence #1 China / South East Asia DXL Presence Fabchem JV South Africa DXL Presence Sasol DN JV Australia / NZ IPL Presence #1 DXL Presence #2 A leading nitro
Slide 40: IPL Strategy for Growth
For personal use only IPL Strategy for Growth Lowest Cost Base Own the Product Position the business to generate Generate exposure to most profitable adequate returns in all conditions part of the industry value chain – manufacturing – while maintaining Achieved: financial discipline 9 Savings and b
Slide 41: Q&A - Appendix
For personal use only 41 Q&A Appendix
Slide 42: Earnings Sensitivities
For personal use only Earnings Sensitivities • +/- US$10 DAP price = A$11.9m EBIT • +/- US$10 Urea price = A$5.5m EBIT • +/- AUD/USD 1c ~ A$8m Assumptions: • Based on 2007 reported earnings • 970kt DAP sales at base price US$364/t @ 81.3 cents • 460kt urea/urea equivalent sales at base price US$264/
Slide 43: Nitrogen chemistry
For personal use only Nitrogen chemistry Additive Finished Product End Market Fertiliser / Ammonia Industrial + Carbon Urea Fertiliser Dioxide Natural / Synthetic Ammonia Ammonium Fertiliser / + Nitric Acid Gas Nitrate (AN) Explosives Urea / Ammonium Nitrate Fertiliser (UAN) + Phosphoric Ammonium Fe
Slide 44: Feed
For personal use only Feed Demand for grains used for animal production may not be met in the future – different scenarios 12 Grain Demand 10.6 U.S. Scenarios 3.8 10 3.2 8 Develop 2.6 1 9.2 as current speed 8 1.9 8 Limitation by (108 LU) 7.6 1.4 7 resources 6 9 6.6 Chinese 4.1 nutrition 4 standard 1
Slide 45: China
For personal use only China 9% of world arable land 22% of world population 31% of world fertilizer consumption 50 00 6400 0 45 00 F ertiliz er 5900 0 G ra in P ro du c tio n Amount of fertilizer（0000 tones nutrient） 40 00 5400 0 Grain procduction（0000 tones） 35 00 4900 0 30 00 4400 0 25 00 3900 0 2
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