Orica Limited · ASX:ORI
Orica — H1 2011 Earnings Presentation
60 slides from Orica's earnings presentation, May 2, 2011
Slide 1: 2011 Half Year Results Announcement
For personal use only 2011 Half Year Results Announcement 2 May 2011
Slide 2: Presentation outline
Presentation outline For personal use only Group performance Graeme Liebelt Divisional performance Noel Meehan Balance Sheet & Cashflow Noel Meehan Strategic priorities Graeme Liebelt Outlook Graeme Liebelt Orica Half Year Results 2011 Page 1
Slide 3: Group safety and environmental performance
Group safety and environmental performance For personal use only Half Year Half Year 2011 2010 Fatalities 1 - 1 AWRCR 0.53 0.73 Distribution incidents 16 13 2 CO2e emissions (million tonnes) 23 2.3 1 All Worker Recordable Case Rate is calculated as the number of injuries and illnesses per 200,000 ho
Slide 4: Results Overview
Results Overview For personal use only • EBIT1 up 1% and NPAT1 up 5% • Disciplined p cost management g FINANCIAL • Continued improvement in TWC management • Strong balance sheet • Improved demand conditions in some mining markets OPERATING • Modest pricing benefits • Bontang project over 80% complet
Slide 5: Divisional Performance and Capital Management
For personal use only Divisional Performance and C it l M Capital Managementt
Slide 6: Group EBIT from continuing operations
Group EBIT from continuing operations EBIT 1% For personal use only A$M 525 25 (27) 500 25 (17) 475 (17) 32 (15) 450 437 431 425 400 2010 EBIT Net Volume Margin Productivity / Costs Change/ FX Monclova Plant Ammonia Lag 2011 EBIT Improvement Synergies D&A/Corporate/ Closure R&D/Other Orica Half Ye
Slide 7: EBIT by business
EBIT by business Mining Services Minova For personal use only 1,000 25% 200 20% 800 20% 16% 150 EBIT MARGIIN EBIT MARGIN EBIT A$M EBIT A$M 600 15% 12% 100 400 10% 8% 50 200 5% 4% 0 0% 0 0% 2008 2009 2010 2011 2008 2009 2010 2011 1st Half EBIT 2nd Half EBIT EBIT Margin 1st Half EBIT 2nd Half EBIT EBI
Slide 8: Orica Mining Services EBIT
Orica Mining Services EBIT 1% Sales $1,825M; EBIT $335M; Average Operating Net Assets $2,808M For personal use only A$M 450 20 (25) 400 26 (17) 28 (15) (11) (2) 0 335 350 331 300 250 200 2010 EBIT Volume Net Price Productivity Fixed Costs / Monclova AN / Ammonia R&D / Other FX 2011 EBIT Depn. Plan
Slide 9: Minova EBIT
Minova EBIT 16% Sales $411M; EBIT $55M; Average Operating Net Assets $1,560M For personal use only A$M 80 3 (14) 6 70 66 (6) 60 55 50 40 2010 EBIT Volume Productivity / Synergies Price FX 2011 EBIT Stronger volumes from improved market Negative impact to margins from rising input conditions in
Slide 10: Chemicals EBIT
Chemicals EBIT 1% Sales $749M; EBIT $95M; Average Operating Net Assets $810M For personal use only A$M 115 (9) 2 110 4 4 105 (7) 7 100 95 94 95 90 85 80 2010 EBIT Mining General Watercare Productivity FX Cyanide 2011 EBIT Chemicals Chemicals Uprate p Continued strong market conditions for sodium
Slide 11: Corporate centre and other support services
Corporate centre and other support services For personal use only Half Year ended 31 March (A$M) 2011 2010 $ Corporate centre costs (23.8) (23.9) 0.1 Other support costs (23.8) (36.0) 12.2 Total costs (47.6) (59.9) 12.3 Corporate Centre Other support costs In line with p prior yyear Prio
Slide 12: Cashflow
Cashflow 1 Half Year ended 31 March (A$M) 2011 2010 $ For personal use only EBITDA 547.2 615.6 (68.4) Net interest paid (67.8) (65.5) (2.3) Net tax paid (129.7) (114.5) (15.2) Trade working capital movement (108.6) (12.3) (96.3) Non trade working capital movement (65.9) (118.9) 53.0 FX mv
Slide 13: Rolling TWC to Rolling Sales %
Rolling TWC to Rolling Sales % For personal use only 20.0% 19.0% 18.0% 17.0% Rolling TWC / Sales % 16 0% 16.0% 15.0% 14.0% 13.0% 12.0% 11 0% 11.0% 10.0% HY03 FY03 HY04 FY04 HY05 FY05 HY06 FY06 HY07 FY07 HY08 FY08 HY09 FY09 HY101 FY10 1 HY111 Progress continues on management of TWC 1 Excludes DuluxGr
Slide 14: Capital investment (excluding M&A)
Capital investment (excluding M&A) For personal use only Planned 2011 capital expenditure ACT HY11 EST 2011 Major expansion capital projects >A$10M: M ining Services Bontang Nanling 85 290 Kooragang Island M inova China Chemicals plant 2 20 Chemicals Mining Chemicals - cyanide plant uprate 95ktpa 22
Slide 15: Capital management – key measures
Capital management – key measures For personal use only Half year ended 31 March 2011 2010 1 Net Debt (A$M) 1,318.2 1,228.9 Net Interest Expense (A$M) 62.5 67.6 Interest Cover (times) 5.4 6.4 Operating Cash ($) 141.8 156.2 2 Cash Conversion (%) 65.4 82.8 Rolling TWC to Rolling Sales (%) 13.0 13.8 1
Slide 16: Drawn Debt Maturity Profile
Drawn Debt Maturity Profile For personal use only 500 450 400 350 300 250 200 150 100 50 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2022 2025 2030 Average tenor on drawn debt of 8.0 years Orica Half Year Results 2011 Page 15
Slide 17: Hedging for 2011 2nd Half
Hedging for 2011 2nd Half For personal use only Major EBIT currency hedges include: Currency Effective Effective Exposures % Hedged Hedge Rate • AUD/USD 80% 0.9702 • AUD/CNY 43% 6.5000 • AUD/NZD 80% 1.3084 • AUD/SEK 80% 6 5360 6.5360 Total cost of options undertaken for EBIT currency hedging for 201
Slide 18: Environmental provisions
Environmental provisions For personal use only Environmental Spend (A$M) ACT HY11 EST 2011 EST 2012 EST 2013 EST 2014 Major environmental spend: Botanyy Groundwater remediation 5 11 11 11 11 HCB remediation 1 25 45 12 2 2 Botany mercury remediation 13 35 10 - - Other 2 10 10 10 5 T t l environmental
Slide 19: Establishment of the OMS Global Hub
Establishment of the OMS Global Hub For personal use only • Orica Mining Services is moving to a centrally managed business model out of a global hub located in Singapore • The hub encompasses Intellectual Property, Procurement, Supply Planning, Manufacturing and Logistics • The g global hub takes r
Slide 20: What does the global hub mean for segment reporting?
What does the global hub mean for segment reporting? For personal use only • The Orica Mining Services business will now be reported as 5 segments (previously 4): • Mining Services Australia/Asia • Mining Services North America • Mining Services Latin America • Mining Services Europe • Mining Servic
Slide 21: Strategic Growth Priorities
For personal use only St t i Growth Strategic G th Priorities P i iti
Slide 22: Orica's business strategy remains unchanged
Orica’s Orica s business strategy remains unchanged For personal use only • Capitalise on and extend global leadership in the provision of high service, critical consumables to the mining and infrastructure markets • Focussed on attractive segments of the mining value chain • Leveraged to increases
Slide 23: Attractive industry characteristics
Attractive industry characteristics For personal use only • Attractive industry structure – considerable consolidation lid ti over ththe llastt d decade d • High growth in commodity volumes, driven by industrialisation and urbanisation • Declining ore grades and increasing strip ratios • Strong grow
Slide 24: Multiple avenues for growth
Multiple avenues for growth For personal use only EXPANSION IN MANUFACTURING • AN expansion – Indonesia and Kooragang Island (KI) PROGRESS DURING THE PERIOD • Initiating systems - China • Bontang AN plant nearing • Sodium cyanide expansion - Yarwun completion • Resin and bolt capacity expansion • Fu
Slide 25: Major Projects Update: Bontang 300ktpa AN Plant
Major Projects Update 2007 Bontang – 300ktpa AN Plant in Indonesia For personal use only • Construction of a 300ktpa AN plant at Bontang, East Kalimantan,, Indonesia • Strategically located to ammonia feedstock • Product will be sold out domestically and will substitute imported p p product 2010 • P
Slide 26: Major Projects Update: Bontang Financial Contribution
Major Projects Update Bontang – Financial Contribution For personal use only • Financial returns from the Bontang project are partly delivered from: • the manufacturing margin on Bontang production, and • additional margin from placing tonnes previously shipped to Indonesia in alternative markets. •
Slide 27: Kooragang Island Ammonia Uprate
Major Projects Update Kooragang Island Ammonia Uprate – 65ktpa Capacity Uprate For personal use only • 65ktpa capacity uprate at the Kooragang Island ammonia plant plant, taking total plant capacity to approximately 360ktpa • Uprate expected to be complete in July 2011 • Project costs expected to be
Slide 28: Nanling Initiating Systems facility
Major Projects Update Nanling – Initiating Systems facility in Hunan Province, China For personal use only • Construction of a non-electric detonator facility (40 million unit annual capacity) for supply into the local Chinese underground mining and tunnelling markets • Joint Venture with Nanling Ex
Slide 29: Yarwun Sodium Cyanide Uprate
Major Projects Update Yarwun Sodium Cyanide – 15ktpa Capacity Uprate For personal use only • Uprate at the Yarwun sodium cyanide plant increasing capacity by 15ktpa to 95ktpa • Uprate completed in the first half 2011 • Plant operating at output rates of 95ktpa from March 2011. Due to the extended sh
Slide 30: Summary
Summary For personal use only • Another solid result in challenging conditions • Strong balance sheet to support growth • Growth projects tracking well with benefits to flow through from 2012 • Significant growth opportunities with strong market outlook Orica Half Year Results 2011 Page 29
Slide 31: Outlook
Outlook For personal use only We expect Group net profit after tax (pre individually material items) in 2011 to be higher than that reported in 2010, on a comparable basis, subject to the rate of global economic recovery and extent of further adverse movements in exchange rates. Orica Half Year Resu
Slide 32: Supplementary Information
For personal use only Supplementary I f Information i
Slide 33: Group financial performance overview
Group financial performance overview For personal use only Half year ended 31 March (A$M) 2011 2010 % Sales 2,949.3 2,739.8 7.6 Gross margin 1,323.0 1,254.2 5.5 EBITDA 1 547.2 541.2 1.1 EBIT 1 437 0 437.0 431 0 431.0 14 1.4 Net profit after tax pre individually material items 263.8 251.2 5.
Slide 34: Safety Benchmarking
Safety Benchmarking For personal use only All Worker Injury Recordable Case Rate (per 200,000 hours worked) Note: Only Orica, BHP Billiton & Rio Tinto data available for 2010 2.5 2 1.5 1 0.5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Orica BHP Billiton Rio Tinto DuPont Dow BASF Continu
Slide 35: EBIT contribution by business platform
EBIT contribution by business platform 1 For personal use only March 2010 March 2011 Chemicals Chemicals Group Group 17% 20% Minova 12% Minova 11% Mining Mining Services DuluxGroup Services 12% 59% 69% 1 Excludes Corporate costs Orica Half Year Results 2011 Page 34
Slide 36: EBIT contribution by geography
EBIT contribution by geography For personal use only March 2010 1 March 2011 Other Other Europe 1% Europe 1% 11% 10% Latin Latin America America 12% 13% Australia 43% Australia 51% North America 12% North America 16% Asia New Zealand Asia 10% New Zealand 4% 12% 4% 1 Includes DuluxGroup Orica Half Ye
Slide 37: Gross sales by geography
Gross sales by geography For personal use only March 20101 March 2011 Other Europe 1% Other 11% Europe 1% 11% Latin America Latin Australia Australia 13% America 34% 43% 15% North America New Zealand 16% North 4% Asia New Zealand America Asia 10% 6% 19% 16% 1 Includes DuluxGroup Orica Half Year Resu
Slide 38: Gross margin growth
Gross margin growth For personal use only A$M 3,200 2,800 2,400 2,000 1,600 1,200 +16.9% -4.6% +14.5% +5 5% ((1)) +5.5% 800 +7.1% +18 1% +18.1% -2.1% +10.5% +7.8% 400 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Compound average growth rate since 2002 is 8.5% 1 Growth % on a comparable basis (e
Slide 39: Productivity - Half year
Productivity 1 - Half year For personal use only 85% 84.1% 80% 78.8% 77.4% 75.5% 75 9% 75.9% 75% 73.5% 71.9% 71.2% 70.9% 70% 68.1% 65% 60% 2 2 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1 Productivity is measured as fixed costs (includes depreciation and amortisation) as a percentage of gross
Slide 40: Net profit after tax
Net profit after tax 1 For personal use only A$M 700 600 500 400 300 200 +15.0% +11.0% +13 1% +13.1% 5.0% +5 0% (2) 100 +13.8% +39.3% +20.6% +26.0% +4.8% 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Compound average growth rate since 2002 is 14.1% 1 Pre individual material items 2 Growth % on
Slide 41: Orica Mining Services
Orica Mining Services For personal use only Half Year ended 31 March (A$M) 2011 2010 % Sales 1,825.2 1,661.2 9.9 EBITDA 408.0 404.4 0.9 EBITDA margin (%) 22.4% 24.3% (7.8) EBIT 334.5 331.2 1.0 EBIT margin (%) 18 3% 18.3% 19 9% 19.9% (8 0) (8.0) Orica Half Year Results 2011 Page 40
Slide 42: Orica Mining Services by geography
Orica Mining Services by geography For personal use only Australia/Asia North America 500 30% 140 15% 120 400 25% EBIT MARGIN 100 EBIT MARGIN 20% 10% EBIT A$M EBIT A$M 300 80 15% 60 200 10% 5% 40 E E 100 5% 20 0 0% 0 0% 2008 2009 2010 2011 2008 2009 2010 2011 1 t Half 1st H lf EBIT 2 dH 2nd Halflf E
Slide 43: Minova
Minova For personal use only Half Year ended 31 March (A$M) 2011 2010 % S l Sales 410 8 410.8 395 4 395.4 39 3.9 EBITDA 69.8 81.4 (14.3) EBITDA margin (%) 17 0% 17.0% 20 6% 20.6% (17 5) (17.5) EBIT 55.4 66.1 (16.2) EBIT margin (%) 13 5% 13.5% 16 7% 16.7% (19 2) (19.2) Orica Half Year Resu
Slide 44: Acquired Minova business – integration
Acquired Minova business – integration For personal use only 2011 Cumulative Integration cost category (A$M) Actual Actual Integration costs 08 0.8 62 6.2 Synergy implementation costs 0.4 17.5 Redundancies 0.1 4.2 Transitional salaries/other 1.8 9.2 Total integration costs 3.1 37.1 Project office co
Slide 45: Chemicals
Chemicals For personal use only Half Year ended 31 March (A$M) 2011 2010 % Sales 748.8 711.0 5.3 EBITDA 113.4 111.6 1.6 EBITDA margin (%) 15 1% 15.1% 15 7% 15.7% (3 8) (3.8) EBIT 94.7 93.6 1.2 EBIT margin (%) 12 6% 12.6% 13 2% 13.2% (4 5) (4.5) Orica Half Year Results 2011 Page 44
Slide 46: Cash Conversion
Cash Conversion 1 For personal use only Half Year ended 31 March (A$M) 2011 2010 EBITDA 547.2 541.2 TWC movement (108.6) (25.1) Sustenance (80 7) (80.7) (67 9) (67.9) Cash Conversion 357.9 448.2 Cash Conversion % 65.4% 82 8% 82.8% 1 2010 excludes DuluxGroup. Orica Half Year Results 2011 Page 45
Slide 47: Foreign Currency Exposure
Foreign Currency Exposure For personal use only Transactional Translational Approx. 60% of 2011 Group EBIT is “Natural hedges” are identified and expected to be from offshore entities exposures are netted tt d Hedging is generally undertaken using bought Residual transactional exposures may
Slide 48: Changes to 2010 Segment Information – Mining Services
Changes to 2010 Segment Information – Mining Services 2010H2 2010H2 2010H1 2010H1 For personal use only EBIT 2011 Segment 2010 Segment 2011 Segment 2010 Segment Australia/Asia 255 246 192 190 North America 55 78 51 50 Latin America 58 62 60 59 Europe 55 51 33 32 Global Hub 14 - (4) - OMS TOTAL 437 4
Slide 49: Net interest expense
Net interest expense For personal use only Half Year ended 31 March (A$M) 2011 2010 $ Net interest expense 62.5 67.6 (5.1) Comprising: Interest on net debt 75.3 63.1 12.2 Add: Unwinding of discount on provisions 4.9 3.7 1.2 Add M Add: Major j external t l fi finance lleases 06 0.6 08 0.8 (0
Slide 50: Interest Cover
Interest Cover For personal use only Half Year ended 31 March (A$M) 2011 2010 $ Financial expense 1 101.0 86.1 14.9 Financial income (20.2) (18.5) (1.7) Net financing costs 80 8 80.8 67 6 67.6 13 2 13.2 EBIT 437.0 431.0 6.0 Interest Cover (times) 5.4 6.4 (1.0) 1 Financial expense for 201
Slide 51: 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$M Reported net profit 277 2 277.2 Less: Net profit attributable to non controlling interests (13.4) After tax distributions to SPS holders 2 (10.2) Adjusted net profit 253.6 Weighted av
Slide 52: Impact of SPS – gearing
Impact of SPS – gearing (A$M) For personal use only Reported per SPS Accounts Adjusted Current borrowings 40.9 40.9 Non-current borrowings 1,574.2 1,574.2 SPS adjustment 2 - 250.0 Less: Cash (296.9) (296.9) Net Debt 1,318.2 1,568.2 Parent entity equity 1 3,453.6 3,453.6 Minorityy interests 109.7 109
Slide 53: Reconciliation of net profit after tax
Reconciliation of net profit after tax ($M) For personal use only 2011 2010 Continuing Discontinued Consolidated Continuing Discontinued Consolidated EBIT 437.0 - 437.0 431.0 64.9 495.9 Net financing costs (62.5) - (62.5) (67.6) (3.0) (70.6) p Profit before income tax expense 374.5 - 374.5 363.4 61.
Slide 54: Rebased dividends following DuluxGroup demerger
Rebased dividends following DuluxGroup demerger1 For personal use only 2011 2010 1HY 1HY % 1HY 1HY % 2HY 2HY % Full year EBIT EBIT from continuing operations 431.0 100.0% 431.0 86.9% 578.0 95.5% 1,009.0 D l G DuluxGroup - - 64 9 64.9 13 1% 13.1% 27 5 27.5 4 5% 4.5% 92 4 92.4 Total EBIT 431.0 495.9 6
Slide 55: Debt Profile (as at March 2011)
Debt Profile (as at 31 March 2011) For personal use only Drawn a Debt ebt Other, $32M Debt Maturity Profile Bank Loans, $118M A$M Drawn Undrawn Total Export < 1 year 41 515 556 Finance, $93M Commercial 1 – 2 years 131 1,172 1,303 Paper, $20M 2 – 5 years 310 512 822 > 5 years 1,133 25 1,158 Total 1,6
Slide 56: Individually material items after tax and non-controlling interests
Individually material items after tax and non-controlling interests For personal use only Half Year ended 31 March (A$M) 2011 2010 Pharmaceuticals tax case - (191.8) Mercury remediation environmental provision - (31.5) HCB remediation environmental provision - (12.7) Minova/Excel integration costs -
Slide 57: Global commodity growth outlook remains strong
Global commodity growth outlook remains strong For personal use only Global Commodity Growth Rates CAGR - 2011 to 2014 7% 6.5% 6% 5% 4.7% 4.2% 4.4% 4% 3.5% 3% 2.6% 2% 1% 0% Coal Copper Gold Iron ore Nickel Q&C, Tunnelling Market CAGR Above GDP growth forecast for most commodities Sources: Brook Hunt
Slide 58: Strip ratios and ore grade
Strip ratios and ore grade For personal use only Consumption of Orica products is impacted by volume of material moved not volume of commodityy extracted Trend to higher strip ratios and lower ore grades will drive growth higher than growth in underlying commodities The growth rate in global gol
Slide 59: AN growth versus mine output - Australia
AN growth versus mine output - Australia For personal use only AN Demand versus Mine Output * ((Base = 100)) 1200 CAGR 8% 1000 800 AN Demand 600 Mine Output p 400 CAGR 4% 200 0 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 Higher growth in AN demand
Slide 60: 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