Orica Limited · ASX:ORI
Orica — H1 2010 Earnings Presentation
53 slides from Orica's earnings presentation, May 3, 2010
Slide 1: Half Year Results Announcement
For personal use only Half Year Results Announcement 3 May 2010
Slide 2: Presentation outline
Presentation outline For personal use only f Group performance Graeme Liebelt f Divisional performance Noel Meehan f Balance Sheet & Cashflow Noel Meehan f Strategic priorities Graeme Liebelt f Outlook Graeme Liebelt Orica Half Year Results 2010 Page 1
Slide 3: Group financial performance
Group financial performance Half year ended 31 March (A$M) 2010 2009 % For personal use only Sales 3,226.0 3,960.2 (18.5) Gross margin 1,522.8 1,596.1 (4.6) EBITDA 1 615.6 594.5 3.5 EBIT 1 495.9 469.4 5.7 Net profit after tax pre individually material items 293.2 264.2 11.0 Net profit after tax afte
Slide 4: Demerger of DuluxGroup
Demerger of DuluxGroup For personal use only f 100% of DuluxGroup shares to be distributed to eligible Orica ordinary shareholders f Orica shareholders to retain existing Orica shares Orica Half Year Results 2010 Page 3
Slide 5: Group safety performance
Group safety performance For personal use only Half Year Half Year 2010 2009 1 AWRCR 0.73 0.63 Recordable cases 83 66 Distribution incidents 13 17 Fatalities - 4 1 All Worker Recordable Case Rate is calculated as the number of injuries and illnesses per 200,000 hours worked. Orica Half Year Results
Slide 6: Sustainability
Sustainability For personal use only Challenge 2010 Targets Energy consumption 9 Greenhouse gas emissions 9 Water consumption 9 Waste generation 9 On track to achieve Challenge 2010 targets Orica Half Year Results 2010 Page 5
Slide 7: Divisional Performance and Capital Management
For personal use only Divisional Performance and Capital Management
Slide 8: Group EBIT
Group EBIT EBIT 6% For personal use only $M 600 580 15 (56) 17 560 34 540 (14) 520 40 (5) (4) 496 500 480 469 460 440 420 400 HY09 EBIT Margin Productivity / Net Volume US Steel Lag Foreign Costs Change Ammonia Lag Corporate & HY10 EBIT Improvement Synergies Exchange Support Orica Half Year Results
Slide 9: EBIT growth by business
EBIT growth by business Mining Services Minova 800 25% 160 20% For personal use only 700 20% 140 600 16% EBIT MARGIN 120 EBIT A$M EBIT MARGIN 500 15% EBIT A$M 100 12% 400 10% 80 300 60 8% 200 5% 40 100 4% 20 0 0% 0 0% 2007 2008 2009 2010 2007 2008 2009 2010 1st Half EBIT 2nd Half EBIT EBIT Margin 1s
Slide 10: Orica Mining Services EBIT
Orica Mining Services EBIT 4% Sales $1,661M; EBIT $331M; Average Operating Net Assets $2,764M $M 550 For personal use only 172 (125) 500 450 400 (34) 28 (15) (9) 350 (5) 331 319 300 250 HY09 EBIT Productivity Variable Price/Mix FX Volume Fixed Ammonia Lag HY10 EBIT Costs Costs/Depn /Other 9 Continue
Slide 11: Minova EBIT
Minova EBIT 13% Sales $395M; EBIT $66M; Average Operating Net Assets $1,841M For personal use only $M 90 4 (14) 4 5 80 15 (7) 70 66 60 59 50 HY09 EBIT Steel Price China Synergies Price FX Volume HY10 EBIT Under- Volume recovery 9 Non-recurrence of prior period under- È Unfavourable impact from forei
Slide 12: Chemicals EBIT
Chemicals EBIT 8% Sales $711M; EBIT $94M; Average Operating Net Assets $805M $M For personal use only 110 2 (8) 2 6 (6) 100 12 94 90 86 80 HY09 EBIT General Mining Watercare Synergies FX Caustic HY10 EBIT Chemicals Growth Growth Growth 9 Steady recovery in automotive, industrial and 9 Delivery of pl
Slide 13: DuluxGroup EBIT
DuluxGroup EBIT 6% Sales $486M; EBIT $65M; Average Operating Net Assets $299M For personal use only $M 75 2 (4) 70 7 (1) 65 65 61 60 55 50 HY09 EBIT Volume/Mix Net Price Marketing/ Other HY10 EBIT Development Projects 9 Market share gains in decorative paints È Yates adversely impacted by soft marke
Slide 14: Corporate centre and other support services
Corporate centre and other support services For personal use only Half year ended 31 March (A$M) 2010 2009 $ Corporate centre costs (23.9) (23.0) (0.9) Other support costs (36.0) (32.5) (3.4) Total costs (59.9) (55.5) (4.3) Corporate Centre Other support costs È In line with the prior year 9 Prior y
Slide 15: Cashflow
Cashflow Half year ended 31 March (A$M) 2010 2009 $ For personal use only EBITDA 615.6 594.5 21.1 Net interest paid (65.5) (68.7) 3.2 Net tax paid (114.5) (125.4) 10.9 Trade working capital movement (12.3) (78.4) 66.1 Non trade working capital movement (154.5) (104.7) (49.8) Net operating cash flows
Slide 16: Rolling TWC to Rolling Sales %
Rolling TWC to Rolling Sales % For personal use only 20.0% 19.0% 18.0% Rolling TWC / Sales % 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% HY02 FY02 HY03 FY03 HY04 FY04 HY05 FY05 HY06 FY06 HY07 FY07 HY08 FY08 HY09 FY09 HY10 Steady progress continues on management of TWC Orica Half Year Results 201
Slide 17: Capital expenditure (excluding M&A)
Capital expenditure (excluding M&A) 2010 Capital Expenditure (A$M) ACT HY10 FCT 2010 For personal use only Major expansion capital projects >A$10M: ► Mining Services Bontang Nanling 100 440 Kooragang Island ammonia plant uprate Hunter Valley emulsion plant ► Chemicals Chemicals Australia – Chlorine
Slide 18: Capital management – key measures
Capital management – key measures For personal use only Half year ended 31 March 2010 2009 Net Debt (A$M) 1,228.9 1,477.0 Net Interest Expense (A$M) 70.6 71.5 Interest Cover (times) 7.0 6.6 Operating Cash ($) 268.8 217.3 1 Cash Conversion (%) 86.2 73.4 Rolling TWC to Rolling Sales (%) 13.5 14.6 Gear
Slide 19: Hedging for 2010 2nd Half
Hedging for 2010 2nd Half For personal use only Major EBIT currency hedges include: Effective Currency Exposures % Hedged Hedge Rate f AUD/USD 70% 0.8865 f AUD/CAD 69% 0.9465 f AUD/NZD 66% 1.2247 f AUD/SEK 70% 6.3052 EBIT currency hedging for the 2nd half of 2010 has been undertaken using options at
Slide 20: Environmental provisions
Environmental provisions 1 Environmental spend (A$M) ACT 2009 ACT HY10 FCT 2010 FCT 2011 FCT 2012 For personal use only Major environmental spend: Botany Groundwater 12 8 12 13 10 HCB remediation 15 7 20 82 15 Botany mercury remediation - - 30 15 - Other 12 4 30 41 7 Total environmental spend 38 19
Slide 21: Strategic Growth Priorities
For personal use only Strategic Growth Priorities
Slide 22: Orica's business evolution
Orica’s business evolution f Major acquisitions, investments and divestments of non-core assets For personal use only have sharpened Orica’s focus on the mining services sector Note: Years refer to Orica’s financial years (ending 30 September) Orica Half Year Results 2010 Page 21
Slide 23: Orica's earnings mix – a mining focus
Orica’s earnings mix – a mining focus f Orica’s portfolio is now predominantly focused on mining services For personal use only sectors EBIT (2005) EBIT (2009) Other Non‐ Other Non‐Mining Mining 11% 32% Mining 53% Mining 77% DuluxGroup 15% DuluxGroup 12% Orica Half Year Results 2010 Page 22
Slide 24: Orica's business strategy – remains unchanged
Orica’s business strategy – remains unchanged For personal use only f Capitalise on and extend global leadership in the provision of high service, critical consumables to the mining and infrastructure markets f Focussed on attractive segments of the mining value chain f Leveraged to increases in pro
Slide 25: Strong long-term industry growth drivers
Strong long-term industry growth drivers For personal use only f Growth in commodity volumes f Strong growth in Asian infrastructure f Higher strip ratios f Lower ore grades f Stricter safety regulations f Gradual move towards underground mining Strong strategic position Orica Half Year Results 2010
Slide 26: Strong long-term commodity outlook – Australia
Strong long-term commodity outlook – Australia 2010-2015 For personal use only 13.0% 11.0% 11.0% 9.0% Volume growth % CAGR 7.1% 7.0% 6.4% 5.2% 5.0% 4.6% 3.9% 3.4% 2.7% 3.1% 3.0% GDP (3%) 1.0% 2005-2010 ‐1.0% ‐0.1% ‐1.9% ‐1.6% ‐3.0% Thermal coal Gold Copper Nickel Iron Ore Met coal 2005‐10 2010‐15 St
Slide 27: Urbanisation in China a strong driver of commodity growth
Urbanisation in China a strong driver of commodity growth Tiered city structure – 2005 For personal use only 1 Urbanisation rate for selected countries 2 3 Percent Tiered city structure – 2025 1 2 3 •Tier 1 city defined as registered population >4.5 m and GDP/capita >USD3,000, •Tier 2 city defined a
Slide 28: Tunnelling and infrastructure
Tunnelling and infrastructure For personal use only f Of the ~1,070 km/year of planned global tunnels for the next 15 years ~37% will be constructed in China, which equates to ~6,000km of road and rail tunnels f Other national projects require major tunnelling and underground construction, including
Slide 29: AN consumption impacted by strip ratios and ore grade
AN consumption impacted by strip ratios and ore grade For personal use only f Australian AN demand CAGR of approximately 8% over 30 years approximately double the rate of mine volume f AN and explosives consumption impacted by volume of material moved not volume of commodity extracted - therefore st
Slide 30: Well positioned to leverage industry growth
Well positioned to leverage industry growth For personal use only f Installed manufacturing capacity in key markets f Secure AN supply positions through long-term supply arrangements f Strong competitive position through leading technologies and continued investment in innovation f Strong focus on e
Slide 31: Extend and consolidate strong market positions
Extend and consolidate strong market positions in existing markets For personal use only f AN manufacturing expansion opportunities – Indonesia, Kooragang Island, LATAM, Yarwun f Sodium cyanide expansion at Yarwun f Expansion of coal bolt facilities f Continued growth in EBS and BBS f Continued inve
Slide 32: Increase exposure to high growth commodities
Increase exposure to high growth commodities For personal use only Orica Revenue Exposure to Key Total Material Moved of Key 1 Commodites Commodities 1 Iron Ore Iron Ore Met Coal Gold Met Coal Gold Copper Copper Thermal Thermal Coal Coal Significant opportunity to increase penetration of high growth
Slide 33: Increase exposure to new geographies
Increase exposure to new geographies For personal use only Orica Revenue Exposure 1 Total Material Moved 1 China China LatAm Europe Africa Africa India India LatAm NAFTA Australia Australia Europe NAFTA Opportunity to selectively increase penetration of China, Eastern Europe and Africa 1. 2010F Oric
Slide 34: Summary
Summary For personal use only f Strong result from disciplined cash and cost management f Significant long-term growth opportunities, leveraged to: f Increasing volumes f Increasing strip-ratios f Falling ore grades f Increased exposure to high growth commodities f Increased penetration of new geogr
Slide 35: Outlook
Outlook For personal use only There are some early signs of recovery in demand in a number of the markets in which we operate and our businesses are performing well. We continue to expect Group net profit after tax (before individually material items) in 2010 to be higher than that reported in 2009,
Slide 36: Supplementary Information
For personal use only Supplementary Information
Slide 37: EBIT contribution by business platform
EBIT contribution by business platform 1 For personal use only March 2009 March 2010 Chemicals Chemicals Group Group 16.4% 16.8% Minova Minova 11.1% 11.9% Mining Mining Services Services DuluxGroup 60.8% 59.6% DuluxGroup 11.6% 11.7% 1 Excludes corporate costs Orica Half Year Results 2010 Page 36
Slide 38: EBIT contribution by geography
EBIT contribution by geography For personal use only March 2009 March 2010 Other Other Europe Europe 1.1% 1.2% 11.4% 11.2% Latin Latin America Australia America 40.3% Australia 14.4% 13.0% 42.4% North North New America America Asia Zealand 16.1% New Zealand 17.4% Asia 6.3% 4.4% 9.1% 11.6% Orica Half
Slide 39: Gross sales by geography
Gross sales by geography For personal use only March 2009 March 2010 Other Other Europe Europe 1.0% 1.3% 11.7% 11.7% Australia Latin America 37.0% Latin America Australia 15.2% 13.9% 42.5% North North New Zealand America America Asia 5.5% 15.3% New Zealand Asia 18.8% 10.8% 5.7% 9.6% Orica Half Year
Slide 40: Orica Mining Services
Orica Mining Services For personal use only Half year ended 31 March (A$M) 2010 2009 % Sales 1,661.2 2,215.6 (25.0) EBITDA 404.4 395.8 2.2 EBITDA margin (%) 24.3% 17.9% 35.8 EBIT 331.2 319.0 3.8 EBIT margin (%) 19.9% 14.4% 38.2 Orica Half Year Results 2010 Page 39
Slide 41: Orica Mining Services by geography
Orica Mining Services by geography Australia/Asia North America 450 30% 140 15% For personal use only 400 120 25% 350 EBIT MARGIN 100 EBIT MARGIN 10% EBIT A$M 300 20% EBIT A$M 250 80 15% 200 60 150 10% 5% 40 100 5% 20 50 0 0% 0 0% 2007 2008 2009 2010 2007 2008 2009 2010 1st Half EBIT 2nd Half EBIT 1
Slide 42: Minova
Minova For personal use only Half year ended 31 March (A$M) 2010 2009 % Sales 395.4 503.2 (21.4) EBITDA 81.4 77.6 4.9 EBITDA margin (%) 20.6% 15.4% 33.8 EBIT 66.1 58.5 13.0 EBIT margin (%) 16.7% 11.6% 44.0 Orica Half Year Results 2010 Page 41
Slide 43: Acquired Minova business – integration
Acquired Minova business – integration 2010 Cumulative Integration cost category (A$M) Actual Actual For personal use only Integration costs 0.1 4.6 Synergy implementation costs 2.1 12.4 Redundancies 0.1 2.8 Transitional salaries/other 1.3 5.6 Total integration costs 3.6 25.4 Project office costs 0.
Slide 44: Chemicals
Chemicals For personal use only Half year ended 31 March (A$M) 2010 2009 % Sales 711.0 810.8 (12.3) EBITDA 111.6 102.8 8.6 EBITDA margin (%) 15.7% 12.7% 23.6 EBIT 93.6 86.3 8.4 EBIT margin (%) 13.2% 10.6% 24.5 Orica Half Year Results 2010 Page 43
Slide 45: DuluxGroup
DuluxGroup For personal use only Half year ended 31 March (A$M) 2010 2009 % Sales 486.2 469.2 3.6 EBITDA 74.4 69.4 7.3 EBITDA margin (%) 15.3% 14.8% 3.4 EBIT 64.9 61.1 6.2 EBIT margin (%) 13.3% 13.0% 2.3 Orica Half Year Results 2010 Page 44
Slide 46: Cash Conversion
Cash Conversion For personal use only Half year ended 31 March (A$M) 2010 2009 EBITDA 615.6 594.5 TWC movement (12.3) (78.4) Sustenance (72.4) (80.0) Cash Conversion 530.9 436.1 Cash Conversion % 86.2% 73.4% Orica Half Year Results 2010 Page 45
Slide 47: Foreign Currency Exposure
Foreign Currency Exposure For personal use only Transactional Translational f Approx. 65% of 2010 Group EBIT is f “Natural hedges” are identified and expected to be from offshore entities exposures are netted f Hedging is generally undertaken using bought f Residual transactional exposures may be fC
Slide 48: Net interest expense
Net interest expense For personal use only Half year ended 31 March (A$M) 2010 2009 $ Net interest expense 70.6 71.5 (0.9) Comprising: Interest on net debt 66.1 66.4 (0.3) Add: Unwinding of discount on provisions 3.7 4.1 (0.4) Add: Major external finance leases 0.8 1.0 (0.2) Interest on net debt cal
Slide 49: Impact of Step-Up Preference Securities – earnings per share
Impact of Step-Up Preference Securities (SPS) – earnings per share 1 For personal use only Reported per Accounts A$M Reported net profit 72.0 Less: Net profit attributable to minority interests (16.9) After tax distributions to SPS holders 2 (7.1) Adjusted net profit 48.0 Weighted average ordinary s
Slide 50: Impact of SPS – gearing
Impact of SPS – gearing (A$M) For personal use only Reported per SPS Accounts Adjusted Current borrowings 523.9 523.9 Non-current borrowings 978.6 978.6 SPS adjustment 2 - 250.0 Less: Cash (273.6) (273.6) Net Debt 1,228.9 1,478.9 Parent entity equity 1 3,589.7 3,589.7 Minority interests 120.7 120.7
Slide 51: Impact of SPS – interest cover
Impact of SPS – interest cover (A$M) For personal use only Reported per SPS Accounts Adjusted Financial expense 89.3 89.3 Financial income (18.7) (18.7) SPS distribution adjustment 1 - 5.8 Net borrowing costs 70.6 76.4 EBIT 495.9 495.9 Interest Cover (times) 7.0 6.5 1 Represents 50% of the SPS distr
Slide 52: Debt Profile
Debt Profile For personal use only Drawn Debt Debt Maturity Profile Other $63M Bank Loans $190M A$M Drawn Undrawn Total < 1 year 524 - 524 1 – 2 years - 784 784 Commercial Paper $244M 2 – 5 years 205 1,366 1,571 USPP $1,006M > 5 years 774 - 774 Total 1,503 2,150 3,653 Average maturity on drawn debt
Slide 53: Disclaimer
Disclaimer For personal use only This presentation has been prepared by Orica Limited. The information contained in this presentation is for informational purposes only. The information contained in this presentation is not investment or financial product advice and is not intended to be used as the