Our community support throughout this crisis has been a good example of a broader strategic repositioning of our global investment program that is underway, which aims to address issues at the local level, particularly around economic development and vulnerable populations.

Orica also takes its responsibility to the environment very seriously. I am pleased to report we have had no major environmental incidents in the half and our greenhouse gas emissions intensity was steady, keeping us on track to meet our fiscal year '20 target. We're also on track to align our corporate governance and climate risk disclosure with the recommendations of the Task Force on Climate-related Financial Disclosures.

Moving to Slide 4, which details the impact that coronavirus has had on our business. It has been gratifying to see mining activities confirmed as an essential service in most countries around the world. As a result, we have limited impact in Australia, the United States and CIS countries. Across these regions, approximately 90% of our volumes have remained intact, which is very fortunate compared to the impact many other industries have suffered. However, strict government mandates have led to varying demands in countries, including Québec, Mexico, parts of Latin America, Asia and Europe. I want to clarify, these are all related to quarantine measures, not demand measures.

Based on this, we currently expect the second half volumes to be somewhere between 10% to 15% below the expected pre-COVID-19 volumes for the second half of fiscal year 2020.

Throughout this, our commitment to our customers has been undiminished. Our manufacturing teams have gone above and beyond the call of duty to deliver, with all our continuous plans achieving overall equipment effectiveness of at least 80% in the half. More precisely, our -- it's -- Carseland and Kooragang Island have been in the 90s and the others around the 80s percent. And our supply chain management team has tirelessly worked to support our ongoing operations albeit at increased freight cost and other supply increase cost.

While there has been great uncertainty on so many fronts, we continue to control what we can. We are being prudent and control on cash whenever we can, including reducing discretionary expenditure within our control. We have maintained strong liquidity and capacities to debt covenants. Chris will talk more about this later.

We are now running more frequent supply-and-demand planning reviews as customers continue to adapt their mine plans, and with that, we are managing inventory tightly. In simple terms, we're getting ourselves -- we are setting ourselves up to hit the road running once conditions begin to normalize.

On Slide 5, you will see our strong underlying financial results for the half. Let me start by saying that we are delighted with the results. And it is -- they are strong results in spite of what have been very strong headwinds. And just to summarize, we've had the start of the year in the Australia with the bushfires and extreme weather conditions in the east led us to lose about 30,000 to 40,000 tonnes. We have the cyclone hit Burrup right in the middle; that delayed us several weeks. Gas prices continue to hinder the competitiveness of all the industry and we actually started feeling significantly coronavirus in the second half of March that took away about $7 million of EBIT.

So when you take all the headwinds, and we still delivered probably slightly above consensus, we are delighted with these results.

Total AN volumes were up by 4%, led by strong growth in Australia and the CIS. EBIT was up 2% to $309 million or, probably more realistically, 5% up on a normalized basis after adjusting for the ownership structure change in the China business as announced last year. This is a strong result, as I stated before.

This earnings growth has come from strong volume demand from new and existing customers, further improvements from Minova and the cost savings we have put in place over the half. I'm delighted to confirm that the Burrup plant is now operation -- operational. I'll talk more about that shortly.

Positive cash flows are ensuring strong liquidity, and our balance sheet remains strong. Chris will speak more about that later. The interim dividend will be $0.165 per share, unfranked, which represents a 40% payout ratio. Whilst many companies have canceled their dividend in this uncertain world, the strength of our balance sheet, our view of the mining activities and the commitment to our shareholders have allowed us to pay this dividend.

I will now go through the performance of each region, starting with Australia Pacific and Asia on Slide 6. Starting with APA. Overall, this is a pleasing result for half. AN volume is up 5% on the prior corresponding period driven by an increase in our market share from new contracts despite, as I mentioned before, the impact of the bushfires and severe weather in Australia early this year, which reduced volumes by some 30,000 to 40,000 tonnes, with some of it being in the Australian East Coast coal sector, and these are very high-margin tonnes.

Thanks to strong customer conversion, we have been able to deliver an 18% increase in Electronic Blasting Systems, in EBS, with a large percentage of this being in the East Coast of Australia. We continue to see further successful adoption of WebGen and other technology products at many existing and new sites in the region, including at Newcrest's Cadia mine, which I will talk about later.

Since 2018, Orica and Roy Hill have collaborated in an innovation-focused partnership committed to developing a smart mine of the future. Over the coming months, Orica and Roy Hill will continue to integrate measurement up and down the mining value chain and increase the value delivered away from the blast and the pit.

So far, Roy Hill has seen improvements in dig rates and continues to investigate further benefits. We are very excited by these partnerships with some of our key customers as we realize the full potential of the innovative technology solutions that we have created and implemented.

EBIT was 1% up excluding the accounting change from the China JV formation in the second half year. This growth was due to higher volumes and increased uptake of more advanced products and continued improvements in manufacturing. However, EBIT was impacted by higher cash costs on the Australian East Coast, which is reflective of the continuing gas industry issues in Australia and the loss of volume due to weather issues, as I mentioned earlier.

Let's move now to the slide on Burrup. Burrup is now producing ammonium nitrate tonnes, as you see from the picture that I was very glad to receive. The rectification works required to commence production are now complete, with no major issues to date. And it was encouraging to see Yara's ammonia plant over the fence recommenced production in March.

Looking forward, the outlook is positive. We expect a positive contribution in the second half, and we anticipate the plant being fully loaded in fiscal year 2021, with current secured contracts. As you know, this plant is very strategically placed near to our customers in the Pilbara region of Western Australia. It will be a key asset in the years ahead.

Production for the half year will exceed 100,000 tonnes. We should quickly get up, within some 2 or 3 months, to 80% of production.

But the plant was already producing around 90% yesterday, but in the first month, it is taking -- the average is lower because of commissioning issues. But it is running very well.

North America. Onto Slide 8. North America, where our steady performance continues. Volumes of AN were in line with the same period last year, with growth in the United States mainly in quarry and construction. However, this was offset by lower volumes in Mexico due to ongoing political unrest and the shutdown of the majority of mines due to COVID-19. Right now, it looks like this uncertainty will continue through the second half of the financial year.

In Canada, we have delivered a 5% increase in EBS from new contract wins and the exit of a competitor from the Eastern Canadian market. In addition, Canada continues to lead on the conversion of nonelectric detonators to electronics.

Across the region, EBIT increased by 2% in the half. In the U.S., we delivered growth in AN volumes and saw some upside in currency fluctuations. This was partly offset by customer consolidation in the gold sector, which impacted pricing and lower margin from increased wholesale sales to JV partners. Fortunately, despite the devastation in some parts of the U.S., mining activity in our largest market in this region has only been marginally impacted by COVID-19, with continued demand particularly in quarry and constructions.

In Canada, we saw positive product mix, thanks to the increase in EBS sales, I just mentioned. However, there was an impact from COVID-19 in the second half of March, with the Québec provincial government order shutting down all mines. This has subsequently been lifted, with most mines having restarted in the later part of April.

In Mexico, unfortunately, we have seen lower product volumes and no spot sales of cyanide compared to the same time last year.

We next turn to Latin America. Strong AN volume growth continued in Peru, which is the one of the leading copper and gold markets in Latin America and where our recent strategic acquisition, Exsa, has a strong market position. AN volumes were down by 4%, mostly due to a Colombian customer's changing business model, where they shifted their requirements from AN to services. This was partly offset by new customers' wins in Peru and higher demand from our customers in Brazil.

The outbreak of COVID-19 in the region did result in significant disruption to mining activity in some parts of the region, particularly in Peru, Colombia and Argentina, where mining activities were completely closed. As a result, volumes in these countries were down in March by 20,000 tonnes and continued with a similar impact in April.

While Peru has been slowly ramping up during April, some mines in Argentina were authorized to open in late April, and Colombia will only resume in May.

More positively, EBS sales were up 14% with significant market conversion, particularly in Peru, Colombia and Brazil. Cyanide volumes were 30% higher from new customers' wins in Brazil and Argentina, plus higher demand from our customers in Peru.

Altogether, EBIT grew by 16%, 1-6 percent over the prior period from an improvement in service margins, strong cyanide sales, improved product mix and cost efficiencies. This is a very good result given the COVID-related volume impact, as mentioned earlier.

We now move to EMEA and the CIS. We've seen a continued uplift in the AN sales in our key growth markets, particularly Russia and Kazakhstan, which was driven from both new contract wins and higher demand from existing customers. This has more than made up for lower demand across Europe.

The positive trend in Electronic Blasting Systems in the region has continued with strong customer conversion in Europe, particularly in Norway. Sales are up 7%, which come on top of what has already high growth last year. In addition, we have increased cyanide volumes to high-margin customers in Europe. Similar to other regions, COVID-19 has impacted this region and quite strongly. We have seen some lower EBS sales, particularly in the Nordic countries as several tunneling projects were temporarily stopped. We expect this to continue in the second half.

In terms of earnings, EBIT improved by 9% from the previous half. This was underpinned by sustained volume growth in the high-margin CIS region from both new and existing customers. As just mentioned, the lower demand in Europe, particularly in Norway, impacted the result and is expected to continue into April and May. A continued focus on cost efficiencies remain a key priority for the region, delivering lower fixed costs for the period.

On to Orica Monitor division. More and more of our customers are no longer seeing these monitoring systems as a nice to have, but as a must have, and that is translating into positive commercial outcomes. I'm delighted to let you know that March was a record sales month for both GroundProbe's radar and laser systems. In particular, our new laser products are now gaining a foothold in the civil tunneling market, with units deployed in Australia and Asia.

GroundProbe's EBIT remains ahead of our initial investment case, even with the higher costs associated with investing in strategic growth initiatives in LatAm and Australia and Asia. Included in this segment is Nitro Consult, a blasting consulting company in Sweden, which is undertaking some restructuring in underperforming areas and impacted earnings in the half. Going into the second half, we expect a temporary increase in supply chain costs, particularly in freight costs, as a result of COVID-19.

Next on Slide 12 is Minova. Sales of powder volumes were up 20% overall led by a remarkable 40% growth from new customers' wins in Russia. Revenue was down 10% over the period as a result of lower natural gas prices in the U.S., impacting coal sector volumes. The outbreak of COVID-19 has had some impact on steel and resin volumes in mid-March. And we expect this to continue in the second half, although we think this will also be temporary.

However, we did see an uplift in EBIT across geographies, actually, around 60%, supported by better product mix and improved pricing and an improvement in manufacturing cost efficiencies from plant rationalization and a continued reduction in overheads.

I will now hand over to Chris to talk about financial performance.

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Christopher Roger Davis, Orica Limited - CFO [2]

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Thanks, Alberto. Looking at the key financial metrics on Slide 14. Sales revenue of almost $2.9 billion was up 2% from the prior period, with growth across all segments of the business from a combination of higher volumes from increased demand and new contract wins, increased service revenue and favorable FX. This has been partially offset by lower revenue from Minova, the impact of pricing as a result of customer consolidation in the North American gold sector, and the impact of the change in ownership of the China business.

Underlying EBITDA has increased 10%. Adjusting for the impact of the new lease accounting standard, which reclassifies operating lease expenses to depreciation and interest, EBITDA is up 2%. Underlying EBIT has increased 2% over the same period. Excluding the impact of the China business, which is now equity accounted and no longer consolidated, EBIT is up 5% on the prior period.

Underlying NPAT of $165 million is 1% below the prior period, driven by higher interest expense as a result of the impact of the adoption of the new lease accounting standard and foreign currency translation of U.S. dollar interest expense at a lower exchange rate.

Statutory NPAT of $165 million was significantly higher than the prior period, driven primarily by the non-repeat of significant items that occurred in the first half of 2019.

The effective tax rate of 32% was in line with expectations.

At $0.429, earnings per share is down 2% on the prior period, driven by a lower underlying NPAT and an increase in issued shares during the period following the equity raising to support the acquisition of Exsa in Peru. The interim dividend of $0.165 per share will be unfranked and represents a payout ratio of 40%. Whilst this is at the low end of our target dividend range, it is appropriate given the uncertain external environment as it relates to COVID-19.

Turning now to the EBIT bridge on Slide 15. As a reminder, in the second half of 2019, Orica formed a new explosives initiating systems and blasting services joint venture in China with Guizhou Julian Industrial Explosives. The effect of this is that $7 million of EBIT previously consolidated is now treated as an after-tax equity accounted investment at 49%. This one-off impact reduced the year-on-year EBIT contribution by $7 million.

Inflation on overheads had an adverse impact of $15 million, which is in line with our expectations.

Volume had a positive impact of $7 million. Ammonium nitrate volumes increased by almost 4%, driven by new business and higher demand from existing customers in Australia and the CIS countries. Specifically in Australia, AN volume growth was underpinned by strong demand from existing customers in the Pilbara, new contract wins in the East Coast coal markets, and increased sales to competitors. Increased demand in the CIS countries was driven by new customer contracts and expansion at existing customer sites.

This was partially offset by lower volumes in Colombia following a change in supply conditions whereby the customer directly sources its own AN and a continuation of unfavorable operating conditions and political uncertainty in Mexico, reducing demand from mining customers.

Sales volumes of our higher value and more advanced Electronic Blasting Systems increased 8% over the prior period, specifically in the Australia Pacific Asia business, Latin America and EMEA due to continued conversions by customers to more advanced products.

Net mix and margin increased by $18 million. Improved margins, most notably in Latin America, North America and Australia, has contributed positively to EBIT. Within the Latin America business, this has been delivered through higher service margins in Colombia, Chile and Peru, as the business focuses on a full-service offering to customers. This has been aided by a lower cost structure as the business focuses on driving cost efficiencies.

The improved performance of the joint ventures in North America and the focus by the Australia business on reducing raw material costs in cyanide have contributed to improved margins. In addition, increased sales to higher-margin cyanide customers in Africa has driven an improvement in EMEA. Additional benefits have been achieved through favorable FX, impacting margins.

These benefits have been partially offset by the impact of price on contracts in the North American gold sector following a consolidation in the key players and a known lag in the pass-through of higher gas costs in Australia via contract mechanisms.

Global manufacturing impacts. Improved reliability and performance and cost management across the continuous manufacturing plants has contributed $3 million in EBIT compared to the prior period. This reflects the continued focus on operating discipline and efficiency to ensure our manufacturing plants are able to meet our production requirements. It is our expectation that in the second half of the 2020 financial year, a number of planned client shuts are expected with a view to managing down inventory levels. I will discuss the impact of this further at the end of my presentation.

In terms of the Burrup plant, Alberto has previously given a comprehensive update on the rectification works and plant commissioning.

From the negative $7 million impact in the first half of 2020, some $4 million represents the ongoing impact of increased arbitration costs. The arbitration with the contractor continues, and we are pursuing recovery of costs associated with the rectification works. The balance of the adverse impact includes environmental provisions and overheads.

Adjacent businesses includes Orica Monitor and Minova. Whilst GroundProbe continues to deliver in line with expectations, the impact of restructuring costs within Nitro Consult has meant that Orica Monitor has delivered a similar EBIT to the prior period. We remain pleased with the performance of Minova business, which has delivered a further increase in EBIT of $4 million over the prior period. This improvement has been driven by higher demand for injection chemicals and powders, improved pricing in key sectors and manufacturing cost efficiencies and further reductions in overhead costs.

Finally, savings in overheads has resulted in a benefit on the prior period of $5 million. The net result is that EBIT finished the half at $309 million, despite the impact of COVID-19, which had an adverse impact to EBIT of approximately $7 million in the last 2 weeks of March, as a result of lockdowns that occurred in a number of countries within North and Latin America and EMEA.

Looking at capital expenditure on Slide 16. As mentioned over the past few years, we will ensure that capital allocations related to safety and environmental obligations are not restricted. All other capital requirements continue to be subject to financial metrics and a rigorous review and approval process. Excluding the $72 million of capital expenditure to replace the defective Burrup assets, total capital expenditure for the half year is $206 million, marginally above our expectations due to the impact of FX on offshore capital spend.

Included in the total spend is $67 million of capital associated with the final ramp-up of the SAP project, which is expected to go live in the second half of the financial year. In total, the implementation of the single SAP project is expected to cost $340 million.

Growth capital expenditure at $39 million includes spend on new customer contracts in the CIS countries, Peru and Asia; further investments in the commercialization of new technologies that contribute to an increase in future earnings, such as the Bulkmaster 7 units, WebGen and BlastIQ; and investment in new GroundProbe units to support their leasing market revenues. Sustaining capital expenditure of $100 million reflects spend on compliance and efficiency capital at Kooragang Island, Yarwun, Carseland, Brownsburg and continued replacements of the older MMU fleets on existing customer contracts.

The spend on the rectification works at the Burrup plant is progressing well, with the plant now producing its first tonnes in May 2020.

Our disciplined approach to capital expenditure continues to be a key focus area to ensure we maintain a strong balance sheet. In 2020, capital expenditure is expected to be in the range of $380 million to $400 million, excluding the spending on the Burrup rectification works. The increase of $10 million on previous guidance is driven by the capital expenditure requirements for the recently acquired Exsa business.

Including the impact of the new lease accounting standard, which has resulted in leases being brought on to the balance sheet in 2020, depreciation and amortization is up 26% on the prior period. This includes $53 million increased depreciation as a result of the new accounting standard. For the full 2020 year, it is expected that depreciation and amortization will be up to 30% higher due to the impact of new lease accounting standard, the commencement of depreciation on our investments in IT systems and the commencement of depreciation on the Burrup plant in the second half of the 2020 financial year.

Moving on to Slide 17, entitled cash flow. The generation of strong cash flows remains a key priority for the business. As I previously reported in the 2019 Investor Day presentation, and as part of our full year results presentation in November 2019, we expected a decline in cash conversion and cash generation in 2020, and these numbers presented are in line with that expectation.

Despite this, cash generation remained positive, with net operating cash flow generation of $108 million and cash conversion of 62.9%, driven by an increase in trade working capital of $178 million compared to that as of 30th of September, 2019. The increase in inventory levels and creditors balance was in line with expectations as we built inventory at Burrup to ensure our customers' needs are met in advance of the plant commencing production, as we plan an appropriate increase in inventory safety stock levels as a conservative contingency in advance of the new SAP system, and as we achieve discipline, simplification and standardization across our supplier base on contractual terms as well as an improvement in our payment processes aligned with the implementation of a single SAP system.

The increase in debtors that occurred in the first half was driven by an associated increase in sales volumes, and a temporary delay in debtors payments as a result of lockdowns in certain countries in late March that resulted in customers being unable to process their payments. Importantly, we monitor debtors' balances closely and have no reason to believe payment commitments will not be met going forward.

As previously flagged, we expect cash conversion in 2020 to remain at around 70%, returning to between 90% and 100% in future years.

Turning to net debt and gearing on Slide 18. Our balance sheet remains strong. Net debt at $1.9 billion includes the translation impact of $199 million resulting from FX on our U.S. dollar-denominated debt and the additional $282 million of lease liabilities, which are now treated as debt under the new lease accounting standards.

Despite the inclusion of lease liabilities as part of reported net debt with effect from the 2020 financial year, we continue to reduce our gearing, which is now 33.7% and is comfortably within our target range of 30% to 40%.

The final slide I will talk to today is Slide 19 on our financial strength. The actions we have taken in the past to strengthen our balance sheet have positioned us well as we navigate these difficult times. We have strong liquidity available as demonstrated by the $1.2 billion of undrawn committed bank facilities and a further $1.2 billion of cash, noting that $300 million has subsequently been deployed as planned via the settlement of the Exsa acquisition on the 30th of April, 2020.

Over the past year, we refinanced and proactively prefinanced $855 million of committed debt facilities with existing group relationship banks to extend our debt maturity profile. In February of this year, in a pre-COVID-19 environment, we extended a number of key facilities for periods of 4 and 5 years without any adverse changes in terms at favorable financing costs. Our all-in cost of funds is currently 4.3%. Our average drawn debt tenor is 4 years.

Available liquidity and our refinancing activities positions us well in terms of options to refinance our next bond maturity of $410 million due in October 2020. Our 2 debt covenants, namely gearing and interest cover, are comfortably within range.

Our focus in the near term will remain on cash preservation with a specific focus on inventory management. In this respect and balancing the requirements of both the Burrup commissioning and the single SAP go-live, we are planning some temporary site closures to maintain inventory at responsible levels given the reduced demand we are experiencing in a number of countries within EMEA, Latin America, Asia and Canada.

Whilst this will see cash flow benefits through a reduction in absolute inventory levels, it will have an adverse impact on EBIT in the second half of the year as a result of lower recoveries through the manufacturing plants.

With the increase in supply chain costs associated with COVID-19 that is currently being experienced and that is expected to continue in the second half of the year, we are focused on accelerating operating efficiencies and have placed a hold on discretionary spend. Additional focus areas include the utilization of leave balances, the suspension of hiring activities, the review of contractor workforce and the use of furloughs. In addition, we also focused on a review of the operating model to accelerate the benefits of the single SAP implementation post go-live. We're also looking at a reduction in overhead costs at manufacturing plants that are subject to temporary shutdowns.

Finally, we continue to review our capital expenditure for opportunities for deferment. That said, we will not sacrifice capital related to safety or environmental obligations, and we'll continue with the completion of both the Burrup plant and the single SAP system.

We expect to maintain our strong BBB investment-grade credit rating and remain committed to maintaining a strong and flexible balance sheet as we go through these unprecedented times.

It is important to note that we entered this current COVID-19 crisis in a position of strength with ample cash and available liquidity. This also places us in a good position for our business to be ready to support growth and be ready for when customer demand returns to normalized levels.

With that, I'll now hand you back to Alberto. Thank you.

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [3]

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Thanks, Chris. Moving now to Slide 21 and recapping Orica's strategy, which centers on our core and high-growth engines. We will continue to explore M&A activity that supports our existing core markets.

We will expand our existing products into new applications and commodities, for example, the way we have expanded WebGen from underground to surface applications.

We will continue to optimize our existing product line as we are currently doing with WebGen 200 and continue product development in both oil extraction and monitoring and measurement across such products as BlastIQ and Bulkmaster 7.

We will seek opportunities to supplement our customer offerings with technology capabilities, including GroundProbe, and we will invest in key upgrades of our systems, processes and product lines with our current SAP project and SKU rationalization programs being familiar to all of you.

In summary, we will continue to take a disciplined approach to assessing opportunities in our core capital initiatives and growth engines where the asset base, market dynamics and financial returns justify further investment.

We now turn to Slide 22. As a reminder, Exsa is Peru's leading manufacturer and distributor of industrial explosives. The acquisition makes us the #1 player in the country, consolidates our position in the broader Latin American market and transforms our entire initiating systems, manufacturing capability, our worldwide capability.

I am pleased to confirm that we have now completed the acquisition of 83.5% of the shares and anticipate completing the tender process for the outstanding shares by the end of the calendar year as planned. So far, everything has gone extremely smoothly and while Peru has been significantly impacted by COVID, being with most of the population under a night curfew and a day lockdown, we have been able to progress our plans in line with our schedule.

Last week, we formally welcomed the Exsa team into the Orica family with a town hall gathering that I was able to address remotely. We have formed an integration management office comprised of experienced members from both companies, which is executing our comprehensive integration plans.

Under Germán Morales' leadership, we feel confident that we are well prepared to hit the ground running and remain on track to meet or exceed the significant synergies that are expected to be achieved from the integration of Exsa with Orica.

Moving to Slide 23 to recap the synergies. Central to the acquisition of Exsa's new initiating systems manufacturing facility is Exsa's new initiating systems manufacturing facility at Lurín, Peru. Not only does it utilize state-of-the-art technology, but it is considerably underutilized. The facility currently manufactures around 11 million caps per year, which can be increased to around 55 million caps per year and, with no capital requirements, can deliver an estimated net cost savings of around USD 0.12 per cap.

The plant also has further potentials to increase capacity to approximately 60 million to 70 million caps per year, which is enough to service Orica's demand across the entire Americas. Furthermore, the Lurín facility integrates the manufacture of almost every component of a detonator on site, meaning we don't have to source them externally, which will deliver significant efficiencies to Orica's local supply chain.

Once Exsa's assets are fully integrated into Orica's operation, we expect to realize significant synergies. By the third full year of ownership, we anticipate run rate synergies of around USD 18 million each year, with approximately only $20 million capital expenditure required. These savings will come predominantly from material manufacturing synergies and reduce supply chain cost by improving Exsa's supply chain and optimizing the combined IS production.

As you can see, this is a game changer for operations in the region. Consistent with our strategic drivers, the integration of Exsa into Orica will build on our strong foundations in Latin America, will strengthen our entire global initiating systems manufacturing footprint and will grant us access to the Peruvian underground market.

Turning now to the technology slide. We're continuing to see an increase in awareness and interest of our new technologies from both existing customers and new customers across the industry, which is leading to growing customer uptake and adoption of our innovative solutions.

WebGen, the world's first fully wireless initiating system, capable of firing blasts through hundreds of meters of rock, air and water, is continuing to gain traction in the market. We have now fired WebGen in over 750 blasts in both surface and underground mines around the world and have seen a fivefold increase in the number of units fired in blasts over the last 12 months.

Following successful initial trials at BMC Poitrel, the mine is now moving into a phased introduction of WebGen technology, a trend we are seeing among customers trialing the product. Customers are identifying and validating the value of this game-changing technology to their operations.

We are preparing to launch our next-generation WebGen 200 product with significant improvements that will open new markets and possibilities. It will feature improved safety and reliability as well as enhanced security to support new and complex mining operations.

WebGen 200 will consist of several product variants, opening new market applications and opportunities, including large volume surface market and enabling the first stages of automation of blasting.

FRAGTrack uptake continues to grow globally and customers are confirming value delivered. Remote installations will enable adoption growth to continue through COVID-19. It is now operational in some of the world's harshest conditions across all continents.

We have also recently completed the first fully remote installation of FRAGTrack at a customer's site in Australia. This enables us to adapt to COVID-19 restrictions and continue to release the product to new customers without having to be on site to do so.

Our BlastIQ digital platform adoption is on track. It is enabling remote workers during COVID-19 and we are starting to see our customers integrate blast data into their operational systems to discover insights and make data-driven decisions at a whole-of-mine level.

BlastIQ, our digital blast optimization platform, is now active across 59 sites globally and delivering significant value to our customers. Our cloud-based BlastIQ technologies are also supporting our customers' remote employees and operations during COVID-19, providing them with digital licenses and products to ensure they can continue to operate. Continuous improvement and releases are also supporting acceleration of adoption of our digital products.

Moving on to Slide 25. In the automation space, we are making good progress and have advanced with 2 key partnerships to make the automation of drill and blast a reality. In November '19, Orica and Epiroc announced a collaboration partnership to deliver a semi-automated explosives delivery and charging system, leveraging the unique capabilities of WebGen.

A prototype of the system is currently in development, which will enable the explosives charging at the development tunnel face in underground mining. The partnership brings together experience and expertise from 2 global organizations with the goal of addressing the growing demand from customers mining increasingly more hazardous and challenging underground operations.

A customer-led collaboration between Newcrest, Orica and MacLean Engineering successfully applying the WebGen wireless technology to develop a tele-remote solution to safely remove human exposure and bring down block drawpoints and block cave mines, that is a reality. Hang-up blasting is a major challenge for block and sublevel cave minings, where up to 30% of all draw points can be unavailable due to oversized material and exposes employees and equipment during removal.

The size of this problem we are solving for here in block and sublevel caving mines is significant. In one particular mine I can think of, they have approximately 6,000 block drawpoints each year, 4,000 of which require blasting to open up. In a positive step forward, trials were successfully completed in March this year, with the first fully mechanized drawpoint hang-up blasting solutions at Newcrest Cadia mine in New South Wales, Australia, demonstrating the capability of drilling and charging up to 8 blast holes remotely using WebGen wireless technology.

For Newcrest, this has improved safety dramatically with no need to tie in detonators and eliminating exposure risk to employees. It has also improved production rates and enabled full automation through remote management of ore hang-ups and oversized rocks. The entire industry is moving rapidly towards a digital and automated future and the introduction and adoption of WebGen BlastIQ and FRAGTrack and other products signifies that we are serious about being a big part of the future.

Let's move to outlook. As we prepare for the COVID-19 recovery, our immediate priorities remain on continuing to keep our people safe and ensuring our manufacturing plants remain operational and our customer requirements continue to be met. We are running as fast as we can while maintaining best practice principles and operations and setting ourselves up to hit the ground running when the situation normalizes.

Earlier in the presentation, I spoke about the varying impact of COVID-19 on our business across the globe and the expected impact to be somewhere between 10% to 15% below the expected volumes for the second half of fiscal year '20. We continue to analyze the impact of this pandemic on commodity production in the medium to longer term in conjunction with external research. According to Wood Mackenzie, as of Q1 2020, global production of commodities Orica is most exposed to, is forecast to increase by an average of 3% between 2019 and 2021, resulting in a positive growth in material-moved outcomes. Just to clarify, this is a post-COVID estimate by Wood Mac.

Taking this 3% forecast and adding the continued benefit of increases in strip ratios and our known situation with new and existing contracts, we expect Orica's AN growth of around 4% to 5% between 2019 and 2021.

This will be complemented by a number of factors. First, Burrup, which as I mentioned earlier, is now operational and will deliver a positive contribution in the second half. Based on our current contracts in the Pilbara regions, we expect the plant to be fully loaded in fiscal year '21 and with its strategic location alongside our customers will give us significant competitive advantage. A full deployment of 4S will be a game changer for Orica, giving us truly transformational operational insights and efficiencies.

In addition, we will continue our focus on achieving efficiencies across the board through improved manufacturing reliability, supply chain efficiencies, product and footprint rationalization, streamlined overhead structure and cost reductions following the deployment of 4S. And the full integration of Exsa will establish Orica as the #1 player in Peru, Latin America's highest-growth market, transform our entire initiating system footprint, increase our exposure to gold and copper, and offer significant cross-selling opportunities to introduce our products and services to Exsa broad customer base. We are firmly on track to integrate Exsa's operations, and we will meet or exceed the synergies by 2022.

The commercialization of our unrivaled technology suite will ramp up, affirming our leadership in this high potential growth area. We will increase penetration of our best-in-class technology, and alpha testing of our new=generation WebGen 200 product is the start of our next phase of growth in this area. And we will continue to improve our manufacturing sites, ensuring reliable, safe and efficient production. In summary, our platform to deliver continued profitable growth remains unchanged.

That concludes our presentation. Chris and I are now happy to answer any questions you have. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Alex Karpos from Goldman Sachs.

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Alexander George Philip Karpos, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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Just 2 on my end. First, if we could dive a little more into what you're seeing in the U.S.A. Surprising to not see more impacts there on the business. Just maybe, one, what you're seeing COVID-related? And two, just a little more color on that commentary around gold contract pricing in the period.

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [3]

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Yes. Thanks, Alex. So look, we were also pleasantly surprised. And I can tell you, this is March data, April data versus our plans before COVID, they have been very much on track on the United States. So that has been pleasing. Our biggest impact has been Mexico. So Mexico is about 25% of our EBIT of the region. And that has -- with -- as you know, all costs are of almost fixed in the short term. And so that's probably where we have been hit very, very significantly. And that Québec also hit us quite hard in April. So we expect Mexico to continue to not perform, but we expect U.S. and Canada to be close to normal quite soon.

Now look, the gold -- so this consolidation of gold companies again and the leverage that they have on all suppliers is not a surprise. And so that -- we just -- it's part of business as usual. Now I do want to say something on the other hand. We have been able to renew worldwide, for the largest gold mining companies in the world, and copper mines, and in Australia for 2 to 3 years now. So all in all, we're quite happy with the performance of our marketing team in that area. We've actually been able to increase our contracts in Australia, contracts that we didn't have with one of the largest local producers. And in Peru, for example, all of our very large customers, all of that has been renewed 100%.

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Alexander George Philip Karpos, Goldman Sachs Group Inc., Research Division - Equity Analyst [4]

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And just a bit of clarification on the guidance and more on Latin America, specifically. So when you're guiding to your volume outlook and you look at a region like Latin America, where you've talked about Peru's restarting, Argentina's restarting, Colombia's coming later this year. Is your assumption that when you come out of those 4 shutdowns, you go to that normalized kind of trend level? Or will it take a bit of time to get to normalized rates? And is that what's embedded in the guidance here?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [5]

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Look, it will take time. So you can see, for example, take Colombia, so Cerrejón is restarting, but they are restarting at 10% of production, and it will take them months up to ramp to where they were. So this guidance was particularly difficult, Alex, because of the uncertainty. We -- if I look at what I'm seeing in May, we would think that by July or August, things would be much better. But there are some -- many things you don't know. What happens if there's a second wave and all of that? So it's just very, very uncertain. Even though in spite of that uncertainty, I think one thing is COVID and one thing is mining activities. And we don't believe that we would see something in mining worse than April. So that gives me some confidence that the guidance that we give has a reasonably high probability, let's say a P80. But then again, if you have a -- it will all depend on the quarantines of the different countries. But -- so we just -- that is our best estimate as of today. It implies a slow normalization. But then we are getting to around October or November, close to where we would have been before COVID. That's the current conventional wisdom. And that sort of also illuminates the guidance we gave for 2021.

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Operator [6]

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Your next question comes from Grant Saligari from Crédit Suisse.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [7]

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Alberto, I wondered whether you could talk a little more around Europe. And I guess one of the things we're trying to think about is the impact on public spending and private spending, for that matter, on various forms of construction, and the impact that that could have on your quarrying volumes there. So I wonder whether you'd just talk a little bit about what the exposure is there to quarry in Europe and the degree to which, I guess, the cost structure could potentially flex to mitigate some of that impact?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [8]

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Look, the European and Middle East region is about 30% to 40% of the whole region. And if you take the first 3 weeks of April, it was very badly hit in Europe, not surprising. But in the last week of April and the beginning of May, starting to see actually some activities in several countries in Europe. And one point we haven't incorporated into our forecast, but there's a lot of debating this is infrastructure. What we -- that is still -- we do hear that governments in the United States, in particular, in Canada and in many places in Europe, will have to -- sort of to compensate for the unemployment, will have to increase infrastructure spending. So that would not be in our current estimates. But that could really help the normalizations. And as you say, Europe is basically quarries for construction and infrastructure and tunneling. So we would be very much depending -- to have a full normalization, it would have to pass by increases in infrastructure spending, we would think.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [9]

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And Mexico has been a problem. And it's factors completely outside your control. But could you talk -- are you able to indicate approximately what the level of investment that Orica has in Mexico? And could this be a long-term situation where there is either any risk to the capital that's invested there or that the cash flow gets to a point where it's -- you have to reconsider the position of that market?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [10]

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Look, the level of investment is very small and Chris could -- I will ask him to elaborate on the level of investment they have in Mexico. Respecting to the longer term, Mexico has 3 probably characteristics, and I hope none of my Mexican friends are hearing. It has hit by COVID. Mining is not ever -- it's not that big, so it's not deemed as essential. And it has a president who really doesn't know what he's doing. So you put those 3 together, and the animal spirits there in Mexico are not very good. So we do expect -- and part of the guidance, Mexico is about 25% of the EBIT of the region, but it doesn't take much to wipe that EBIT with a 20% down or 30% down in volumes and you sort of wipe that EBIT up. And so that's what we've seen in April.

And so I -- very difficult to call. And so basically, our assumption is that for many months, Mexico still stays doing not well. What we will do and what the president of North America is really tasked doing is if we start seeing an 8 or 10 weeks the situation not improving, we can pull fixed costs down relatively quickly, and we will do that. So we will probably give it some weeks, but there is no -- we have no, let's say, patience to start, for example, bleeding cash or anything. And there are levers we can pull to reduce that pretty quickly. So that's part of the analysis that we're doing. It may not give us much profit, but it will not lead us to, let's say, negative cash depletion. And so those are all works that are in progress as we speak. But now I'll pass to Chris to talk about that.

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Christopher Roger Davis, Orica Limited - CFO [11]

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Yes. So just on the assets that you spoke about, we don't have a significant capital investment. What assets we do have on the ground are by and large movable assets. So to the extent that they were moved out of Mexico, we could redeploy them to other parts of the business. And then Alberto is right, we've already identified what operating costs we would take out if the need arose, so we could respond fairly quickly.

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Grant Saligari, Crédit Suisse AG, Research Division - Head of the Consumer Staples, Discretionary Retail & Agriculture and Director [12]

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Okay. That's helpful. Just one quick one, if I could. Just Yarwun tonnes, now the Burrup is up and operational, has there been any change, I guess, in the opportunity to place the freed-up tonnes in Yarwun now?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [13]

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We -- so our contract profile right now is quite good in the sense that we're quite -- we have very high percentage of contracts, contract is almost 100% for the year; and for next year, about 85% contracted. But a lot of small, medium sort of competitors are coming up. So we will use those funds to compete in that market. The -- probably the disappointment is that those 40,000 tonnes that we lost in the east would have come from Yarwun. And so it has gone -- it's been below what we would have wanted. The capacity of Yarwun for 2021 would be around 450, 470. And that's where we were preparing it to be. But at the same time, we want to make sure that we have a good understanding of prices and next best alternatives and all of that. So we are preparing with Burrup now coming in, we are preparing to displace some of those tonnes into the market, but in a thoughtful way.

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Operator [14]

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Your next question comes from Richard Johnson from Jefferies.

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Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [15]

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Could I just start with a question for Chris, please. I'll give you a rest, Alberto. Chris, I apologize if I've missed this, but could you take me through or step me through all the moving parts of AASB 16 on the first half numbers?

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Christopher Roger Davis, Orica Limited - CFO [16]

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Yes. So Richard, the 2019 numbers that are presented there remain the same as what we presented last year. So there's no impact to 2019. When you look at 2020, how you've got to look at this is there's $35 million of operating lease expenses that were previously above EBITDA, that now gets reclassified. You get an increase in depreciation of $33 million and an increase in interest of $5 million.

Now that doesn't quite balance out, and that's really a function of the fact that the depreciation and amortization on the assets that we've recognized as linear, whereas the impact on the interest is weighted towards the front end of the lease arrangement. So in the first 3 years of the leasing standard, we actually get penalized at an NPAT level. And in the years after that, it starts improving, if that makes sense.

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Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [17]

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It does and I've got that. It's very helpful. And then just 2 quick questions on the operations. Alberto I'd like to return to the U.S. quickly. And I would be interested to get your view on what -- or how you're seeing U.S. coal, in particular, and what that means for your JV partners.

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [18]

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Yes. Look, at a macro level, in U.S., we are up actually in volumes, but that's because we -- the copper, the gold, the quarry sectors have been very strong. You are right that we have seen -- beginning to see some decrease in the coal. And the -- or the one that is mostly feeling it is Minova. So Minova in April and it will probably, we flagged it out in somewhere in May, the underground coal is particularly the first thing they cut is this like exploration. So it's sort of similar level of thought in Minova products. So we're seeing more sort of reductions in those type of expenditures. So that's basically it. We don't, however -- so all in all, when I take U.S., it is still positively growing. That's on the U.S.

I want to comment also, Richard, to thank you for your question to Chris because it makes his day. He loves these topics of accounting and all of that. So thank you for that.

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Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [19]

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That's a pleasure. And then on similar sort of question on Bontang, and I was just sort of curious as to how you're seeing that. And whether you've changed or are taking a different view on potentially increasing the capacity there?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [20]

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Bontang actually was -- I think that was the other one that was up a very high OEE in the 90s-percent. Look, with so much expenditure, we are still going to increase that by 25,000 to 30,000. But at this stage, probably, that was one that will slowed down a bit in terms of when we look at all of our CapEx. As probably Chris said, we prioritize 4S, Burrup and any sustaining CapEx, but that one was pushed up a little. But we're still keen on increasing debottlenecking that by 25,000 to 30,000.

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Operator [21]

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Your next question comes from Sophie Spartalis from Bank of America.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [22]

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I might ask another accounting question to Chris, given he likes it so much. Just in terms of the cash conversion, 62.9%. You talked through some measures to improve that. Can you just maybe expand on those points a little bit more as to how you think you can get to an average of, I think you said 70% in FY '20 and then up to 90% in '21?

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Christopher Roger Davis, Orica Limited - CFO [23]

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Yes. So from the 62.9% to 70%, that's really going to be a function of taking back the debtors that didn't pay at the half year, and there'll be some tightening of the inventory. As I said, we were going to slow down the plants, so that should get you back up to the 70%. Then going forward, once we have the stabilized level from a creditors' perspective that I mentioned, you won't have further absorption or decrease in creditors' balances, plus you'll have inventory back at the right level. So theoretically, in a stable market, you should be generating about 90% to 100%: 100% in a stable market; 90% in a growing market. Did that answer your question, Sophie?

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [24]

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Yes. No, that's fine. So just in terms of the debtors, can you maybe provide some color as to which region you're getting impacted by most?

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Christopher Roger Davis, Orica Limited - CFO [25]

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In terms of the lockdowns, it was predominantly in Latin America. We had some impact in Europe, and we had some impact in Canada and a little bit in Asia to some degree. But those payments subsequently came in shortly after year-end. We continue to watch our debtors' balances every week to make sure that we don't have any risk as a result of the COVID situation, and we monitor it very closely with our customers.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [26]

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Okay. And then just in terms of COVID, Alberto, just in terms of any lasting impacts. You talk about the expectation to normalize by October, November this year, with FY '21 back to normalized levels. But can you see, whether it be positives or negatives, any lasting impacts coming through that we need to consider?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [27]

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Look, at this stage, we don't see any. But it all will depend on the -- really, on what happens to mining. So let me tell you by sector. I think iron ore with Vale issues and all of that, I think that should be fine. Copper is interesting. You would have seen all the forecasts, copper was getting back to probably 6 months from now at $2.80 or something like that per pound, and many have shifted up to around $2.20. But as long as copper is, I mean for 6 months, above $2, we don't foresee any problems in the sense that the mines are still, most of the mines, let's say, 90% would be cash positive, and hence, they would remain open. So the issue is, if in any sector, the price goes to such levels for 6 months that the mine starts closures, in which case we would be affected. At this stage, we would not see that. But that's going to be really the secondary effects of this COVID and what nobody -- we don't know what is factoring.

One thing that was encouraging if you saw J-S's comments on Rio Tinto, China getting back to normal. That's what we see, too, and China is 50% of the market, of the world market of all of these. And then Asia, in particular, also would be on thermal coal is very, very important for thermal coal, in particular. So the long answer is we monitor these very quick -- very closely. But at this stage, if we believe that the prices reflect the expected views of the next 12 or 24 months, we would be fine. And hence, there would be enough end demand, so that the operations remain open.

Now exploration, expansions, investment, that's probably, at this stage, probably would go much slower than usual. But the ongoing operations at this stage seem to be going as business as usual. When I talk to the CEOs of the large companies, they are very, very committed to keeping the lights on and to keep producing as much as they can. So that's as much as we can tell you today. But that's the -- yes, I can tell you that in a 10% world, yes, something could happen in some of these sectors. But in a P80 world, if I could put it that way, we -- I think we're fine.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [28]

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Okay. And then on the positives in terms of the way you've looked at this internally in terms of the cost outs, is there any sustained cost outs or reprioritization of factors that you can see Orica benefiting from the way you've dealt with the virus or the way you've dealt with the situation?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [29]

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Look, I think the working from home and the teams that work and all of that has been very, very interesting. And there's different teams and different results, and the productivities in some places have actually increased. So we do have some visibility into -- and it has given us some important insights. I probably won't -- I like to comment things when we do them and not that we are going to do them. But as you may have heard Chris say, we are completing our 4S. That's a big investment, and we will have to sort of -- it will increase our efficiency and our effectiveness. And that will entail some implications. But that's -- so all of those works, there's a lot of work around how can we improve after going live, and that will happen sometime in the third quarter of this year, and then we will start seeing the benefits in 2021. I've spoken probably about it in the past. So we are thinking a lot about that, but I prefer to say things when they are done.

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Sophie Spartalis, BofA Merrill Lynch, Research Division - VP and Senior Resources Analyst [30]

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Okay. And then just a final one on Burrup. You mentioned that you'll get to full capacity by FY '21. Does that mean that it's 100%? Or we need to factor in like the 330,000 tonnes or we need to factor in shutdowns?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [31]

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Look, on average, these plants, they never run at 100%. But I would say, on average, that plant should be producing between 20,000 and 23,000 tonnes per month. That's the expectations, and we should get there within 3 months is the expectation. So after that, that's what I would expect from the plant. There are still some works to be done on the plant. There's stage 3 remediation. And after that stage 3 remediation, that will last around 6 months, probably we would like that plant to be at 25,000. But for now, after 3 months, something between 20,000 and 23,000 is where I would expect the plant to see. So we can sell those plants (sic) [volumes] today. We don't have to wait until 2021. The demand is there today for that. So when we talk about that, is that in 2021, let's say, you can take 21,000 or 22,000 and multiply it by 12, and that's what we would expect Burrup to produce in 2021.

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Operator [32]

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Your next question comes from Sam Teeger from Citi.

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Sam Teeger, Citigroup Inc, Research Division - Head of the Australian Small Caps Team & Director [33]

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Alberto and Chris, the first question. Can you please provide a bit more insight around the softness in EBIT per tonne in APAC and Asia? I guess, besides for the gas prices, what other additional costs were incurred during the period? And when do you expect both the gas prices and any of these other costs, these cost increases to start falling away?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [34]

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Just to -- so we had in Australia, the first one just was a pure accounting issue. That was a China JV. That was $7 million that was not accounted anymore in the Australia numbers. So that's the first one. Then we did have the gas increases. And those contracts, you don't have an immediate pass-through. So we have flagged that, but that hit us in about $10 million in increases in gas that we have not been able to pass them through. So that is a second one. And then we had the bushfires and the East Coast, high-margin tonnes, about 30,000 to 40,000 tonnes that -- and that you will see that reciprocated in -- probably in the reports of the miners and all the heavy rains. That was January, February; basically January and February. And so when you factor all of this, you -- let's say, we try to look at it, but the margins -- the see through margins of all of this, and we would have actually increased the EBIT margins.

Probably one thing that is important, when you see the gas costs go up, let's say that we remain, EBIT is the same in the long term, but revenues go up because of the pass-through. So the EBIT margin will go down even though the EBIT is unaltered. So that's just a factor of the very sizable component of the gas cost in the formula. So that's not necessarily a bad thing, it's just how it's calculated.

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Sam Teeger, Citigroup Inc, Research Division - Head of the Australian Small Caps Team & Director [35]

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Understand. And just wanting to clarify the guidance. So when you're guiding for second half '20 volumes to be 10% to 15% below your pre-COVID expectations, is it fair that your previous expectations were 5% growth. So we should be expecting group second half '20 volumes to be down between 5% to 10%?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [36]

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Look, in numbers, it is about north of 300,000 tonnes that we expect to lose, versus a 5% increase.

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Sam Teeger, Citigroup Inc, Research Division - Head of the Australian Small Caps Team & Director [37]

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Got it. Great. And then kind of more of a medium- to long-term question. Just how are you thinking around trading off volumes versus price over the medium to long term, given you probably have joint goals of market share but also profit?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [38]

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Look, we have a very rigorous sort of view on what the next best alternative is, and we are market leaders. And so we will privilege, obviously, profits over anything else. So we will lose a contract, if it's just not the right thing. But up to now, I would say that if you -- our track record in the last 6 months on contracts is probably on standard, so way north of 90% of contract retention. So I'm pretty happy how that has been. And that contract retention has been not a price sort of issues, but more based on technology and others. We did have, as I flagged, where we had the only place where we had issues was with the big gold miners, and that's just because of the clout that they have in those -- they did worldwide renegotiations. So we did lose a little bit of that in some. But it's part of business as usual. And I said a long time ago that that's -- if that happens, we just have to swallow it.

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Operator [39]

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Your next question comes from Nathan Reilly from UBS.

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Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [40]

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Just a quick one around the -- I guess, the updated second half volume guidance. I'm just curious to try and understand actually the implied narrative there around Australia, particularly just in terms of what level of demand disruption you'd be anticipating in Australia in the second half and I guess, also in the broader APAC region? And I guess also in the context of Australia, the extent to which you'd be sort of comping those weaker or weather-related volume disruptions from the first half?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [41]

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So just to be clear, the -- so Australia, you have the Australia Asia. If you take only Australia, we have seen no disruption because of COVID. We have seen costs going somewhat up, just logistics costs, supply chain and all of that. But our volumes in April and in May are expected to be on plan pre-COVID.

United States, it's the same thing. We are on plan in April and May pre-COVID. So that's quite good. What it tells you is that the volumes in other places are much more than -- so the 10% or 15% is an average. So those 300,000 tonnes that I said before are being lost, obviously, in many other places that are not those 2.

So you take Asia, for example. Asia is roughly 25% of the EBIT of the Asia-Pacific region, Australia-Pacific, Asia region. And there, we have, today, India closed. We have our operations in Limay going at 30%. We have Oyu Tolgoi, we have -- yes, even though it's open, it's not at the level it was. And we're having -- actually, our crew in Oyu Tolgoi has been 4 weeks stranded over there. So there's a lot -- even though we sort of have a relatively calm demeanor, there's a lot of mad sort of paddling underneath like the swan. And so there's a lot of very good work done by our teams in Asia under very difficult situations.

You go then to EMEA, and then you have Africa also in -- we are facing significant issues in many of the places. In Europe, April, first 2 weeks was very bad, then it's started to get better. And then we have in North America, Mexico continuing to be bad. South America starting to get better in Colombia, in Peru, but Argentina is still pretty much closed. And so that's -- it's just -- we thought it would be very difficult to give up no forecast region per region. It becomes impossible. I think by the laws of large numbers, I'm sort of confident that we will end up between that 10% and 15% volumes. So that's -- we thought that was just a better way of dealing with it, and we sort of have learned to understand how you guys model things. So I think that will -- I would not put too much science into that except 300,000, our average EBIT margins and then maybe 20 more million in terms of supply costs.

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Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [42]

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Okay. And just also picking up the comment in relation to slowing down the plants just to manage the inventory build. Can you just give us a bit more detail around what the plan is around those plants? How long do you think you'll be needing to slow those down for? And whether there's any opportunity to bring forward any shuts or maintenance?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [43]

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So this is more around initiating systems and not around continuous manufacturing. And in initiating systems, we have some plants that we're operating at capacities of around 60%, 65%. So when we see the demand go down, there's probably an opportunity to ramp up some plants and then ramp down some others and then furlough people, and that's -- our unit costs may go up in some places. But our cash, it's sort of a perverse thing that we reduce inventory, but our unit costs go down. So from a cash perspective, it's good, but our EBIT goes slightly down. But right now, we are privileging in that scenario, probably cash preservation over anything else. We think it's in the best interests of the company. It's not massive, but that's what we're trying to do.

The other thing that is happening is with Exsa coming in, that's also coming into play. And this may accelerate part of the synergies in the sense of some plants being permanently closed, and that was factored in and spoken about, about the synergies on Exsa. So there are opportunities, but this is just work that we are just starting to do.

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Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [44]

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Okay. And picking up that point around cash management, just in the context of the interim dividend, with the payout ratio coming in below your typical sort of target range, appreciating the logic behind that, just given the uncertainty with what we're sort of facing at the moment. But if that level of uncertainty does subside through the balance of the year, is there potential for the -- from a full year perspective for that payout ratio to normalize towards your typical payout ratio for that to be more of a catch-up coming through on the final dividend?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [45]

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That's absolutely the intention and the plan. We debated this long and hard. It was an interesting discussion. And I have to say we got a bit worried when we saw all the big banks canceling the dividend. And we thought, well, they have a strong balance sheet and they're canceling the dividend and what should we do. But we were confident, as we said before, in the strength of our balance sheet and the strength of our cash flows, and we recognize that this was uncertainty. So the message we wanted to send just then to send it explicitly to our shareholders is we understand how important the dividend is and we just wanted to continue to pay this dividend. And if things go as we are forecasting, that, that means a normalization of mining, yes, the plan would be to get back to the levels of normality of -- and much higher payout ratios in the month of November.

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Operator [46]

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

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Scott Ryall, Rimor Equity Research Pty Ltd - Principal [47]

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Alberto, you commented on some of the lost volume was with respect to gold companies doing global contracts. Is that -- have I heard that correctly?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [48]

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It wasn't lost volumes, it was lost prices in the contracts.

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Scott Ryall, Rimor Equity Research Pty Ltd - Principal [49]

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Right. Okay. That's fine. That answers my question then. And then the second one I had is on the SAP implementation. You've obviously highlighted there's a fair bit of capital that has gone into that project internally. Where will we see the benefit come through? And you mentioned a number of things in a qualitative sense. In a quantitative sense, and maybe this is a question for Chris, but where will I see it come through in your P&L, your cash flow, those sorts of things? Can you just give me some color, please?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [50]

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Look, I've said before, I prefer to talk about things when we have done them. I can tell you the following, which is we will spend around $300 million in that system. And like any investment, it needs to make other returns, and the returns, let's say, will be north of 15%. So in 2 to 3 years, we should be seeing that returns in the EBIT, and we expect to see some of that returns already in 2021. I for some reasons, obvious reasons, maybe they're not so obvious, I don't want to give more color at this stage. But I can give you the magnitudes, and our commitment to get that return.

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Scott Ryall, Rimor Equity Research Pty Ltd - Principal [51]

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All right. Yes, that's not so obvious. If I look at your major 2, just on a consolidated basis on your major 2 cost items, raw materials and inventories, I wouldn't expect a huge impact there. And then your employee benefits expenses is around about that half of that amount because they're the big 2 cost items by quite some way. Presumably to get anywhere near a 15% return, you have to be hitting one or both of those cost lines. Is that -- just thinking at it from a high level, is that a fair assumption to make that your revenue productivity ratios or something like that should be getting better over time as you become more efficient utilizing the systems that you're putting in place?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [52]

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The big benefits will be -- obviously, there's benefits on supply chain. There's benefits on procurement. There's benefits around planned maintenance. We're also -- our systems are from the 1990s, they're 40 years old. There's a lot of manual work across the world in our reporting. Our reporting is pretty poor. And so the level of productivity and efficiency that we'll get into how we do things will increase significantly. So probably, we won't -- yes, so that will -- yes, we will probably do more with less. But at this stage, I can only probably tell you that we have a lot of detailed understanding of how we will get those numbers. And we have a commitment to the Board to deliver them.

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Operator [53]

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Your final question comes from John Purtell from Macquarie Group.

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John Purtell, Macquarie Research - Analyst [54]

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I just had a few quick questions. Alberto, just to clarify Burrup production in terms of the second half of '20. I think you said greater than 100,000 tonnes for the second half. Just wanted to clarify that.

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [55]

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Yes, that's what I said. So John, it just came in at the beginning of May. As I said before, it produces between 20,000 and 23,000, so north of 100,000 for 5 months.

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John Purtell, Macquarie Research - Analyst [56]

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And again, just your comments on APA. You've probably answered this, but are you seeing -- on APA, are you seeing any underlying slowdown in demand due to lower coal prices?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [57]

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No. I'm sorry. That was not the meaning. And thank you. Let me clarify. No, we are seeing no reduction in demand. We're actually seeing increases in demand. In the United States, there is an impact, but not in Australia. We are seeing, up to now, no reduction in demand. Australia, actually, as I said in April, and our expectations of May are above -- slightly above our, what we call, our S&OP, which is our forecast for the month.

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John Purtell, Macquarie Research - Analyst [58]

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Okay. And just following on APA. You've talked in the past around the potential for price improvement as your book opens up in fiscal '22. Do you still see an opportunity to improve net price realization locally in line with where IPP is?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [59]

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We do. We definitely do. So we -- as we renew contracts, the current price where it is, it's much higher than our average contracts. So yes, we do. But that's -- I said, it's going to be only small -- relatively small percentage in '21 and a much higher percentage in '22.

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John Purtell, Macquarie Research - Analyst [60]

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And just a last one. You've obviously outlined the volume impacts you expect in the second half. How should we think about potential offsets in terms of additional cost out or other mitigating factors? You've obviously called out some overhead reduction in the past. Is that being accelerated, so we should expect to see some form of mitigation there?

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [61]

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Okay. Chris will help us with this one.

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Christopher Roger Davis, Orica Limited - CFO [62]

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John, what we -- as I said, we would have some impact from the lower recoveries in manufacturing. And then we've got some increased supply chain costs, as you appreciate. A lot of the stuff that we're putting on hold is really stuff like discretionary spend, putting people on furloughs, pushing leave forward, those kind of things. Those are temporary in nature because they are short term. What you should expect is about half of the negative impact through manufacturing and through supply chain is offset by those benefits, if that makes sense.

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Operator [63]

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There are no further questions.

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Alberto Calderon Zuleta, Orica Limited - MD, CEO & Executive Director [64]

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Thank you all for your time today.