Orica Limited · ASX:ORI
Orica — FY2006 Earnings Presentation
43 slides from Orica's earnings presentation, Nov 13, 2006
Slide 1: Full Year Results Announcement 13 November 2006
Full Year Results Announcement 13 November 2006
Slide 2: FY 2006 presentation outline
FY 2006 presentation outline • Overview of results Graeme Liebelt • Strategy • Business performance • Cashflow • Balance sheet Noel Meehan • Environmental update • Review of recent activity • Minova acquisition • Business portfolio mix Graeme Liebelt • Outlook 2
Slide 3: Highlights
Year ended 30 September 2006 Highlights Financial highlights • Sales Revenue +5% • EBIT +9% • NPAT +12% • EPS +1% Operational highlights • Record result in Mining Services & Chemical Services • Improving cashflow performance • Integration of Dyno proceeding well • SH&E performance improved with lowe
Slide 4: Financial summary
Year ended 30 September 2006 Financial summary 2006 20051 % Change Results including significant items: NPAT including significant items A$M 539 208 159 Significant items after tax A$M 159 (132) Underlying Results: Sales Revenue A$M 5,359 5,127 5 EBIT (excluding significant items) A$M 658 601 9 NPAT
Slide 5: Significant items (A$M)
Full year ended 30 September 2006 Significant items (A$M) 2006 2005 Legacy Issues Botany HCB Waste (NSW) (49) - Villawood (NSW) (23) - Cockle Creek (NSW) (14) - Botany Groundwater (NSW) - (18) Restructuring & Rationalisation Chemnet (35) - IPL - (31) Corporate - (11) Chemical Services - (5) Seneca (
Slide 6: Shareholder scorecard
Year ended 30 September 2006 Shareholder scorecard 2006 2005 % Change Results (before significant items) Earnings per share cents 125.5 124.6 1 Return on shareholders' funds % 19.3 25.5 Results (after significant items) Earnings per share cents 177.8 76.3 133 Return on shareholders' funds % 27.3 15.
Slide 7: Orica's approach – value drivers
Orica’s approach – value drivers 7
Slide 8: Orica – our culture
Orica – our culture • SH&E • Commercial Ownership - Working Capital - Supply chain improvement - Manufacturing efficiency • Creative Customer Solutions - Customer driven - Technology • Working Together “Deliver the Promise” 8
Slide 9: Orica's strategy
Orica’s strategy Three key principles: • Market leadership • Earning the “right to grow” • Growing “close to the core” No change to existing strategy 9
Slide 10: Business performance, Cash flow, Balance sheet, Environmental update
Business performance Cash flow Balance sheet Environmental update 10
Slide 11: Financial results: NPAT and ROSHF
Year ended 30 September 2006 Financial results 400 30 380 350 25 340 300 326 20 NPAT (A$M) ROSHF % 250 270 200 239 15 150 10 100 5 50 62 0 0 01 02 03 04 05 06 Expanded capital base impacted ROSHF • Pre significant items 11 • Pre 2005 not AIFRS adjusted
Slide 12: EBIT performance
EBIT* performance Past Performance Orica Today 700 650 600 550 500 450 EBIT $AM 400 350 300 250 200 150 100 50 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Earnings less cyclical going forward 12 * Excluding corporate costs
Slide 13: NPAT analysis
Year ended 30 September 2006 NPAT analysis A$M 420 8 12 400 18 (18) (3) 3 (7) 380 380 37 (8) (2) 360 340 340 320 300 Other 2006 NPAT 2005 Mining Chem Acq. Corp. Interest Chemnet OCP IPL Growth NPAT Services* Services Business Initiatives Projects (incl. Dyno) 9 NPAT up 12% 9 Lower interest expense 9
Slide 14: Mining Services
Mining Services Sales $2,621M; EBIT $412M; Average Net Assets $1,644M; RONA 25% 450 18 A$M 600 26 6 400 EBIT MARGIN % 350 17 56 550 300 EBIT A$M 16 165 250 500 200 15 150 450 (132) 100 (24) 412 14 (10) 400 (15) 50 0 13 340 350 2003 2004 2005 2006 300 Other 2006 2005 Price Net Vol Dyno Kimit Var Fixe
Slide 15: Dyno performance
Dyno performance* EBIT Category 2006 Actual (A$M) Underlying trading performance of Dyno businesses 21.5 Synergies (1) 12.0 Underlying performance post synergies 33.5 Lost contribution from businesses sold (2) (2.1) Adjustments for Orica reporting purposes (3): - Australian consolidation accounting
Slide 16: Dyno integration costs
Dyno integration costs Integration cost category 2006 Actual (A$M) Asset write-offs – non cash 45 Redundancies 41 Transitional salaries 5 Synergy implementation costs 4 Other 3 Total Integration costs 97 Project office costs (acquisition costs) 18 Total significant items (pre tax) 115 • Largest asse
Slide 17: Dyno integration – next steps
Dyno integration – next steps 2007 and beyond… • Successful implementation of project plans to deliver A$90M in synergies • Integrate the management and financial systems of the two businesses in all countries • Expand IS manufacturing capacity at Gyttorp, Sweden following the decision to close Troi
Slide 18: Consumer Products
Consumer Products Sales $785M; EBIT $97M; Average Net Assets $219M; RONA 44% 120 14 A$M 120 EBIT MARGIN % 100 4 EBIT A$M 80 13 110 2 4 60 101 100 (9) 40 12 (1) 97 (4) 20 90 0 11 2003 2004 2005 2006 80 2005 Net Price Volume Efficiency Marketing/ O'Connor Other 2006 first half ebit second half ebit EB
Slide 19: Chemical Services
Chemical Services Sales $477M; EBIT $67M; Average Net Assets $380M; RONA 20%* A$M 80 18 80 70 EBIT MARGIN % 60 75 2 16 3 EBIT A$M 50 (1) 70 8 40 (4) 67 30 (2) 14 65 20 61 10 60 0 12 55 2003 2004 2005 2006 50 2005 Net Price Volume Aluminates Enzymes Other first half ebit second half ebit EBIT MARGIN
Slide 20: Chemnet
Chemnet Sales $987M; EBIT $58M; Average Net Assets $376M; RONA 15% A$M 90 10 80 90 EBIT MARGIN % 70 8 80 79 60 EBIT A$M 6 50 40 70 (8) 4 30 (7) 60 (2) 4 58 20 2 (4) 10 (4) 0 0 50 2003 2004 2005 2006 40 2005 Volume Asset Forex Port Kembla Other Fixed 2006 first half ebit second half ebit EBIT MARGIN
Slide 21: Corporate centre and other support services (A$M)
Corporate centre and other support services (A$M) 2006 2005 $ Change Corporate Centre (36.3) (35.9) (0.4) Other Support Costs Corporate initiatives (8.4) (26.5)* 18.1 Growth projects (6.0) (0) (6.0) (14.4) (26.5) 12.1 TOTAL (50.7) (62.4) 11.7 Corporate Centre Other Support Services 9 Corporate costs
Slide 22: Cashflow A$M
Year ended 30 September 2006 Cashflow A$M 2006 2005 % Change EBITDA 815 741 10 Net interest paid (90) (82) (10) Net tax paid (102) (104) 2 Disputed tax assessment -- (105) Trade working capital (213) 175 Non-trade working capital 4 (249) Net operating cash flows 414 376 10 Net investing cash flows (
Slide 23: Underlying trade working capital
Underlying trade working capital A$M 119 800 750 53 700 82 650 (45) 631 (151) 604 (32) 600 550 500 450 400 2005 TWC A-IFRS Dyno IPL Underlying Underlying Underlying 2006 TWC (As Reported) adj Debtors Inventory Creditors (As Reported) • Underlying working capital improvement of $24M • Underlying work
Slide 24: Sustenance capex
Sustenance capex 160 120 140 100 Sustenance Spend A$M as % of depreciation 120 80 100 80 60 60 40 40 20 20 0 0 2002 2003 2004 2005 2006 Sustenance % of depn Sustenance capex steady (excluding major turnarounds) 24
Slide 25: Balance sheet (A$M)
Year ended 30 September 2006 Balance sheet (A$M) Sept March Sept 2006 2006 2005 Trade working capital 630 875 604 Net property, plant & equipment 1,603 1,774 1,606 Net other assets 737 1,392 422 Net debt (302) (1,423) (1,112) Net Assets 2,668 2,618 1,520 Orica shareholders' equity 2,617 2,431 1,328
Slide 26: Net debt and gearing
Net debt and gearing Target gearing range Adjusted Gearing% 1,600 shaded 50 1,400 40 1,200 Net Debt (A$M) 1,000 30 800 20 600 Gearing% 10 400 200 0 FY03 HY04 FY04 HY05 FY05 HY06 FY06 z Book Gearing 10.2% z Adjusted Gearing 18.4% (hybrids notionally 50/50 debt & equity split) z Pro forma book gearing
Slide 27: Environmental provisions update
Environmental provisions update • Carrying amount 30 September 2005 $186M • Provisions made 2006 $169M - HCB $70M - Seneca $31M - Villawood $33M - Cockle Creek $28M - Port Kembla $2M - Other $5M • Cash Payments made 2006 ($49M) - Botany Groundwater $30M - HCB $9M - Other $10M • Reductions through di
Slide 28: Summary
Summary • Strong result despite weakness in some business platforms • Record Mining Services and Chemical Services result • Dyno integration on track • Financial discipline and improved cashflow performance • Strong balance sheet capable of funding future growth A disciplined and consistent approach
Slide 29: Review of recent activity, Minova acquisition, Business portfolio mix, Outlook
Review of recent activity Minova acquisition Business portfolio mix Outlook 29
Slide 30: Orica – the past twelve months
Orica – the past twelve months Sept 05 Dec 05 - Feb 06 Feb 06 May 06 Orica announced Raised A$1bn Qenos sold to Sale of 70% stake Dyno acquisition of capital China National in Incitec Pivot Chemical Corp May 06 August 06 August 06 October 06 EC approval and Yarwun expansion Sale of A&R Orica announc
Slide 31: Acquisition of Minova
Acquisition of Minova • Rationale: - expand into a high growth niche market segment - adds further growth to Orica’s portfolio - Minova is a highly cash generative business • The acquisition meets Orica’s strategic criteria: - market leadership - grow “close to the core” - earning the “right to grow
Slide 32: EBIT contribution by business platform
EBIT1 contribution by business platform 2005 (A) 2006 (A)2,3 Orica Mining Services 51% Orica Mining Services 59% Orica Incitec Pivot Orica Consumer Consumer Ltd 13% Products Products 13% 15% Chemical Services Minova Chemnet Chemnet 11% Chemical Services 9% 12% 8% 9% 1. Excludes corporate costs 2. As
Slide 33: Gross sales by geography
Gross sales by geography 2005 (A) 2006 (A)1,2 Australia Australia 48% 60% Other 5% Other Asia 12% Americas 7% Asia 26% New Zealand 7% Americas 10% New Zealand 18% 7% 1. Assumes FY06 annualised revenue contribution from Dyno 33 2. Includes Minova CY2006F Sales
Slide 34: Summary
Summary • Market leadership in chosen businesses • Strong financial discipline, strong returns on capital, ongoing earnings growth and less cyclicality • Strong balance sheet capable of funding strategic growth opportunities and capital management A disciplined approach to growing shareholder value
Slide 35: Outlook
Outlook Subject to global economic conditions, group net profit before significant items in 2007, is expected to be higher than that reported in 2006, as we look forward to a full year contribution from the acquired Dyno businesses and recently commissioned ammonium nitrate expansion at Yarwun, in a
Slide 36: Full Year Results Announcement 13 November 2006
Full Year Results Announcement 13 November 2006
Slide 37: Supplementary information
Supplementary information 37
Slide 38: Foreign currency - sensitivity
Foreign currency - sensitivity Orica has a net exposure to an appreciating AUD. As a guide: Every one cent movement in the USD/AUD exchange rate will impact EBIT by approximately A$1.6M* Dyno has increased Orica’s currency exposure 38 * Does not included Minova
Slide 39: A-IFRS FY 2005 (pcp) reconciliation
A-IFRS FY 2005 (pcp) reconciliation Year Ended 30 September 2005 AGAAP Adjustments AIFRS $M $M $M Sales Revenue 5,127 5,127 Share Based Payments (11.6) Goodwill amortisation 35.5 Other expenses (1.0) Share of associates’ net profit/(loss) 0.8 equity accounted EBIT 577.2 23.7 600.9 Interest Expense 0
Slide 40: Efficiency - cost productivity
Year ended 30 September 2006 Efficiency - cost productivity 2006 2005 Increase $M $M $M % Sales revenue 5,359 5,127 232 5 Variable costs 3,234 3,151 83 3 Gross margin 2,125 1,976 149 8 Gross margin/sales % 39.7 38.5 Fixed costs (incl D&A) 1,547 1,445 102 7 Fixed costs/gross margin % 72.8 73.1 Whole
Slide 41: Efficiency – capital productivity
Year Ended 30 September 2006 Efficiency – capital productivity 2006 2005 2004 Disciplined Capital Management TWC / Sales % 11.8 11.8 16.6 Inventory Turns (times) 5.6 3.8 3.6 Sales/Operating Net Assets 1.7 1.8 1.8 Sustenance as % of Depreciation 101.7 108.0 106.2 Expansion Capex ($M) 215 214 53 M&A A
Slide 42: Mining Services by geography
Mining Services by geography* Australia/Asia North America 250 22 90 12 80 EBIT MARGIN % 10 200 21 EBIT MARGIN 70 EBIT A$M EBIT A$M 60 8 150 20 50 6 40 100 19 30 4 50 18 20 2 10 0 17 0 0 2003 2004 2005 2006 2003 2004 2005 2006 1st Half EBIT 2nd Half EBIT EBIT Margin 1st Half EBIT 2nd Half EBIT EBIT
Slide 43: Environmental provisions
Environmental provisions Environmental Provisions As at 30 September 2006 (A$M) HCB waste processing 127 Botany groundwater 61 Dyno Nobel1 33 Villawood 33 Seneca 31 Other 12 Total Environmental Provisions 297 • Botany groundwater and HCB waste processing comprise the majority of Orica’s environmenta