Orica Limited · ASX:ORI
Orica — H1 2017 Earnings Presentation
37 slides from Orica's earnings presentation, May 16, 2017
Slide 1: 2017 Half Year Results
For personal use only Loading blast holes, Andacollo, Chile 2017 HALF YEAR RESULTS 16 May 2017 Alberto Calderon, Managing Director and CEO Tom Schutte, Chief Financial Officer
Slide 2: Disclaimer
DISCLAIMER For personal use only Forward looking statements 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
Slide 3: Agenda
AGENDA For personal use only Alberto Calderon Overview 4 - 11 Managing Director & CEO Thomas Schutte Financial Performance 12 - 16 Chief Financial Officer Alberto Calderon Business Improvement Initiatives 17 - 22 Managing Director & CEO Alberto Calderon Outlook 23 - 24 Managing Director & CEO Questi
Slide 4: Safety and Environment
SAFETY AND ENVIRONMENT For personal use only Safety Performance • Tragically we have had two fatalities: - One in the first half on a customer mine site in Peru - Post half year (May), there was another fatality at our 3 production facility in Gyttorp, Sweden Total Recordable Injury Frequency Rate 1
Slide 5: Major Hazards Initiative
MAJOR HAZARDS INITIATIVE For personal use only Major Hazards Initiative (MHI) - a company-wide identification of site major hazards and verification of key controls; implemented in response to the EHM plant explosion in September 2016 • Hazard awareness - Hazard identification workshops conducted at
Slide 6: Continued Focus on Core Disciplines Delivers Sound Result
CONTINUED FOCUS ON CORE DISCIPLINES DELIVERS SOUND RESULT • Total AN product volumes of 1.78 million tonnes (pcp: 1.71 million tonnes) For personal use only • Stabilised underlying EBIT of $314 million (pcp: $317 million) – EBIT margin of 12.9% (pcp: 12.4%) • Underlying EBITDA of $446 million (pcp:
Slide 7: Australia, Pacific & Indonesia: Improved Volume & Efficiencies Support Increased EBIT
AUSTRALIA, PACIFIC & INDONESIA: IMPROVED VOLUME & EFFICIENCIES SUPPORT INCREASED EBIT • +10% growth in volumes and EBIT in highest margin For personal use only AN volume and EBIT margin region 657 638 622 624 566 • AN volume up 10% 22% 22% 22% - Improved volume from normalisation of mine plans and 1
Slide 8: North America: Improved Product Mix and Initiatives Offset Headwinds
NORTH AMERICA: IMPROVED PRODUCT MIX AND INITIATIVES OFFSET HEADWINDS For personal use only AN volume and EBIT margin • AN volumes stable – Quarry & construction (Q&C) markets remained strong due 646 to continued infrastructure projects 603 594 575 572 – Higher AN volumes into Canadian gold markets o
Slide 9: Latin America: Unfavourable Sourcing Costs Impact EBIT
LATIN AMERICA: UNFAVOURABLE SOURCING COSTS IMPACT EBIT • AN volume in line with pcp For personal use only AN volume and EBIT margin 359 - Higher explosives volumes in Colombia and Brazil from 311 311 mine plan changes and new business; offset by lower 304 304 demand in Peru and Argentina and from te
Slide 10: Europe, Africa & Asia: Improved Demand and Lower Cost Support EBIT Increase
EUROPE, AFRICA & ASIA: IMPROVED DEMAND AND LOWER COST SUPPORT EBIT INCREASE For personal use only AN volume and EBIT margin • AN volumes up 3% - Improved demand in CIS, Turkey, Norway and Estonia, offset by reduced volumes in Africa 288 287 276 271 268 - Lower volume in tunnelling markets in Asia an
Slide 11: Minova: Turnaround Continues
MINOVA: TURNAROUND CONTINUES For personal use only Revenue and EBIT margin • Improved conditions in Australia and North 295 271 America; Europe and Africa slightly down 211 196 212 4% - Steel volumes up 8% due to higher demand from coal 1% customers in North America and higher utilisation in civil a
Slide 12: Financial Performance
For personal use only Mobile Manufacturing Unit (MMU), Malaysia FINANCIAL PERFORMANCE Tom Schutte Chief Financial Officer
Slide 13: Financial Result
FINANCIAL RESULT For personal use only Half year ended 31 March ($m) 2017 2016 % 2 Sales revenue 2,437 2,553 (5) $ EBITDA1 446 450 (1) $ EBIT2 314 317 (1) $ NPAT3 195 190 3 # NPAT after individually material items 195 149 31 # Interest cover (times)4 9.5x 7.0x 2.5x # Effective Tax Rate5 28% 27% 1pt
Slide 14: Initiatives Offset Pricing Impact
INITIATIVES OFFSET PRICING IMPACT For personal use only Orica Group EBIT ($m) HY16 to HY17 14 © Orica Limited Group
Slide 15: Disciplined Capital Expenditure
DISCIPLINED CAPITAL EXPENDITURE For personal use only Capital Expenditure1 • Continued disciplined approach to capital $m management - All licence to operate capital expenditure (safety, 504 environment, regulatory) has been approved 443 - Ranking of capital prioritised across the Group 151 75 ~$300
Slide 16: Reduced Debt
REDUCED DEBT For personal use only Cash Conversion (%) • Continued focus on working capital and Orica’s Capital and Investment Management Framework 72 74 • Cash conversion decreased in HY17 57 - Higher sustaining capital spend on scheduled planned maintenance shutdowns at Kooragang Island and Yarwun
Slide 17: Business Improvement Initiatives
For personal use only Kooragang Island, manufacturing facility BUSINESS IMPROVEMENT INITIATIVES Alberto Calderon, Managing Director and CEO
Slide 18: Driving Efficiencies and Adding Value
DRIVING EFFICIENCIES AND ADDING VALUE For personal use only This phase of Business Improvement Initiatives takes a holistic view of the business considering all factors that create value, so that we can: 1. Buy better; 2. Produce more with less; 3. Add value for our customers; and 4. Deliver value t
Slide 19: 1. Buying Better
1. BUYING BETTER Focuses on leveraging Orica’s global network to lower unit costs For personal use only Examples of initiatives delivered: Initiative Benefit • Identified that 3rd party supplier cost of AN to Orica was not optimal Reduced • Key driver was ‘expensive’ ammonia feedstock for supplier a
Slide 20: 2. Producing More with Less
2. PRODUCING MORE WITH LESS ONE MANUFACTURING Focuses on operational performance, quality, and commercial outcomes to support the regional businesses For personal use only • All plants will run their business in the ‘Orica Manufacturing Way’ Key benefits: Standardisation using standard measurement a
Slide 21: 3. Adding Value to Our Customers: Wireless Initiation
3. ADDING VALUE TO OUR CUSTOMERS WIRELESS INITIATION For personal use only • Successful commercial trials of the industry's first remote wireless initiation system - 2 underground trials completed in North America and Australia - 535 shots fired - ZERO misfires • Significant value demonstrated Recov
Slide 22: 3. Adding Value to Our Customers: Intelligent Blasting
3. ADDING VALUE TO OUR CUSTOMERS INTELLIGENT BLASTING For personal use only • BlastIQ for data enabled intelligent blasting ~20 TLS sites - Blast design management 8 sites with tools to customer crews ~800 monitors, - Blast assurance management 5 pilot sites with Smart MMU mostly Nordics - Vibration
Slide 23: Outlook
For personal use only unitronic 600, Malaysia OUTLOOK Alberto Calderon, Managing Director and CEO
Slide 24: 4. Delivering Value to Our Shareholders: Outlook and Looking Forward
4. DELIVERING VALUE TO OUR SHAREHOLDERS OUTLOOK AND LOOKING FORWARD For personal use only • There has been some normalisation of mine plans and we anticipate that this process will be gradual. We will continue to focus on business improvement initiatives that improve profitability and drive sharehol
Slide 25: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION 25 © Orica Limited Group
Slide 26: FY17 Outlook Assumptions
FY17 OUTLOOK ASSUMPTIONS (FROM FY16 RESULTS IN NOVEMBER 2016) We will continue to focus on business improvement initiatives that improve profitability and shareholder value. For personal use only Key assumptions for FY17 are: Explosives • Global AN product volumes in the range of 3.5 million tonnes
Slide 27: Explosives Volumes
EXPLOSIVES VOLUMES For personal use only HY17 volumes Variance – HY17 volumes vs. HY16 volumes ‘000 tonnes AN1 Emulsion Total AN1 Emulsion Total products2 products2 Australia/Pacific and Indonesia 249 375 624 6% 13% 10% North America 337 238 575 (6%) 11% 1% Latin America 95 209 304 (20%) 13% 0% Euro
Slide 28: Segment Analysis
SEGMENT ANALYSIS For personal use only HY17 HY16 $m Revenue1 EBIT Revenue1 EBIT EBIT % Change Australia/Pacific and Indonesia 754.2 162.4 766.0 145.2 12% North America 662.4 97.0 693.4 101.7 (5%) Latin America 435.4 28.9 470.5 36.1 (20%) Europe, Africa and Asia 507.5 53.6 559.4 49.9 8% Minova 211.8
Slide 29: Diversified Global Business
DIVERSIFIED GLOBAL BUSINESS For personal use only Diverse geographic portfolio By commodity By product / services offering2 % of HY17 revenue¹ % of HY17 revenue¹ % of HY17 revenue¹ 3% 9% 8% 16% 16% 25% 30% AN/ANFO Thermal Coal 12% 20% Australia/Pacific & Indonesia Coking Coal Bulk Emulsion Packaged
Slide 30: Cash Conversion
CASH CONVERSION For personal use only Half year ended 31 March ($m) 2017 2016 EBITDA 445.5 450.1 TWC movement (93.1) (58.7) Sustaining Capital (96.6) (60.0) Cash Conversion 255.8 331.4 Cash Conversion %1 57.4% 73.6% 1. Cash Conversion/EBITDA 30 © Orica Limited Group
Slide 31: Interest Cover
INTEREST COVER For personal use only Half year ended 31 March ($m) 2017 2016 Change EBIT before individually material items 314.2 316.5 (2.3) Net financing costs 1 33.0 45.5 (12.5) Interest cover (times) 9.5x 7.0x 2.5x Interest cover (times) excluding capitalised borrowing costs 6.0x 5.1x 0.9x 1. Fi
Slide 32: FX Exposure
FX EXPOSURE For personal use only EBIT Composition FY17 FX movements EBIT Sensitivity to FX Movement1 (FX Translation) (% change from pcp) 1% change +/- (%) Asia USD USD 1.2 m 7% Canada 8% Latin United EMEA EMEA 0.6 m America States 8% 38% LATAM 0.2 m LATAM CAD 0.3 m EMEA CAD 19% ASIA 0.3 m Australi
Slide 33: Debt Profile
DEBT PROFILE For personal use only Facility Headroom Drawn Debt Maturity Profile A$m A$m Average tenor at March 2017 - 4.7 years 2 $3,546 $3,644 600 500 1,650 1,767 400 300 200 1,896 1,877 100 0 Mar-17 Sep-16 FY17 FY18 FY19 FY20 FY21 FY23 FY25 FY26 FY31 Drawn Undrawn Committed Bank Facilities Export
Slide 34: Net Debt Position
NET DEBT POSITION For personal use only Half year ended 31 March ($m) 2017 Movement in net debt ($m) EBITDA 446 FY16 to HY17 Movement in trade working capital (93) Movement in non trade working capital (23) Net impact $5m Net interest & tax paid (123) 1,549 (155) 89 1,554 Non cash items & foreign ex
Slide 35: Environmental Provisions
ENVIRONMENTAL PROVISIONS For personal use only Provision Spend Profile Environmental Provisions ($m) HY17 FY16 ($m) 62 Botany groundwater remediation 64 64 9 49 Botany hexachlorobenzene (HCB) 39 35 remediation 14 7 39 3 1 Deer Park remediation 31 37 14 32 17 15 7 Yarraville remediation 31 31 6 2 7 9
Slide 36: Non IFRS Reconciliation
NON IFRS RECONCILIATION For personal use only Half year ended 31 March ($m) 2017 2016 % 2 Statutory profit after tax 195.2 149.0 31 Add back: Individually material items after tax - 41.0 Underlying profit after tax 195.2 190.0 3 Adjust for the following: Net financing costs 33.0 45.5 (27) Income tax
Slide 37: Disclosures and Definitions
DISCLOSURES AND DEFINITIONS For personal use only Term Definition AN volume Includes Ammonium Nitrate (AN) prill and solution and Emulsion products include bulk emulsion and packaged emulsion Equivalent to net profit for the period after income tax expense before individually material items attribut