Orica Limited · ASX:ORI
Orica — H1 2014 Earnings Presentation
55 slides from Orica's earnings presentation, May 13, 2014
Slide 1: 2014 Half Year Results
For personal use only 2014 Half Year Results 13 May 2014 Ian Smith, Managing Director and CEO Craig Elkington, Chief Financial Officer © Orica Limited Group
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: Overview
For personal use only Overview 3-6 Financial Performance 7 - 17 Business Update 18 - 23 Strategy Update 24 - 27 Outlook 28 - 29 3
Slide 4: Safety
Safety For personal use only 2013 Total Recordable Injury Frequency Rate Data (per million hours worked, excludes December Y/E companies) WorleyParsons Ltd 0.1 Perseus Mining Ltd 1.5 Nufarm Limited 2.2 Orica Ltd 2.7 YTD is 1.95 (as at end March 2014) Transurban Group 3.5 Amcor Ltd 3.5 Newcrest Minin
Slide 5: Environment - Yarwun
Environment - Yarwun For personal use only Following stormwater and effluent discharges at the Yarwun site in early 2012, Orica has: Completed 7 major projects to improve stormwater management and removal of legacy waste materials from site Conducted an independent review of the practices and proced
Slide 6: Results
Results For personal use only Good progress in delivery of strategy Differentiation of products and services Capital light approach to business Growth in new markets - Africa, CIS and Pilbara Improvement in net operating cashflow and gearing Achievement of ground support integration benefits X Lower
Slide 7: Financial Performance
For personal use only Overview 3-6 Financial Performance 7 - 17 Business Update 18 - 23 Strategy Update 24 - 27 Outlook 28 - 29 7
Slide 8: Group Financial Performance
Group Financial Performance For personal use only Restated1 % Half year ended 31 March (A$M) 2014 2013 EBITDA2 552.8 570.9 (3) EBIT3 402.4 434.4 (7) NPAT4,5 242.1 262.5 (8) Net Operating cash flow 312.6 281.9 11 Earnings per share (cents) 66.0 72.4 (9) Dividends per share (cents) 40.0 39.0 3 1. 2013
Slide 9: Group EBIT
Group EBIT For personal use only A$M 500 450 434 (32) 18 (7) 20 (17) (18) 4 402 400 350 300 HY13 EBIT Mining Services Mining Services Ground Support Depreciation/ Chemicals FX Other HY14 EBIT Volume Price / Mix Optimisation Amortisation Lower Mining Services volumes and reduced profit contribution f
Slide 10: Explosives Volumes
Explosives Volumes For personal use only H1 2014 - Movement versus H1 2013 30% 22% 20% 10% 5% 0% -2% -10% -7% -6% -20% -20% -30% 1 Australia / Pacific North America Latin America EMEA Asia Total Market share growth in the Pilbara region X Weaker demand from coal markets in Strong growth in emerging
Slide 11: Explosives Pricing & Product Mix
Explosives Pricing & Product Mix For personal use only Pricing Change in Explosives Modest price increases for bulk explosives Contribution per Tonne1 in North America and various European countries 40% X Pricing pressure in Australia, Latin 30% America and Indonesia H1 2014 vs H1 2013 % change 20%
Slide 12: Ground Support & Mining Chemicals
Ground Support & Mining Chemicals For personal use only Volume Weaker demand for ground support products particularly steel with volumes down 11% and resins and powder volumes up 1% Sodium cyanide volumes down 17% due to customer destocking Price Pricing pressure in most ground support markets Sligh
Slide 13: Chemicals
Chemicals For personal use only First half earnings of $38.6million H1 2014 Chemicals Revenue Represents 8% of group EBIT 1 Manufactured Chemicals 19% Earnings down 32% on H1 2013 Strategic review of business expected to be completed during 2014 First half earnings impacted by $11m in rationalisatio
Slide 14: Investing Activities
Investing Activities For personal use only Actual Forecast Capital Expenditure1 HY 2014 FY 2014 Sustaining 89 195 Customer Facing Contract Capital2 32 115 Growth 33 100 Burrup3 57 162 Total 211 572 FY14 forecast spend is below the original budget 1. Excludes capitalised interest. 2. Capital expendit
Slide 15: Capital Management
Capital Management For personal use only Restated 1 Half year ended 31 March (A$M) 2014 2013 Net debt (A$M) 2,370 2,562 Net interest expense (A$M) 60 66 Operating cashflow (A$M) 313 282 Trade working capital (A$M) 753 834 Gearing (%) 36.5 43.1 Interest cover (times) 2 6.7 6.6 Cash conversion (%) 72
Slide 16: Debt Profile
Debt Profile For personal use only Facility Headroom Drawn Debt Maturity Profile Average tenor in March 2013 - 4.5 years A$M A$M Average tenor in March 2014 - 6.3 years 4,672 4,445 600 2,115 1,881 400 200 2,557 2,564 0 1 '14 '15 '16 '17 '18 '19 '20 '21 '23 '25 '26 '31 Sep-13 Mar-14 Financial Year Un
Slide 17: Environmental Provisions
Environmental Provisions For personal use only Key Provisions as at 31 March 2014 (A$M) Botany groundwater remediation 60 Botany HCB remediation 35 Botany mercury remediation 11 Other 70 Total environmental provision 176 Actual Full Year Forecast Environmental Spend (A$M) HY 2014 2014 2015 2016 2017
Slide 18: Business Update
For personal use only Overview 3-6 Financial Performance 7 - 17 Business Update 18 - 23 Strategy Update 24 - 27 Outlook 28 - 29 18
Slide 19: Burrup Ammonium Nitrate Project
Burrup Ammonium Nitrate Project For personal use only 330ktpa capacity AN plant on the Burrup Peninsula, Western Australia, in joint venture with Yara and Apache (Orica share: 45%). Unique project and capital structure $110M entry fee 45% of project capital 100% marketing rights for all AN Provides
Slide 20: Apatit Emulsion Plant - Russia
Apatit Emulsion Plant - Russia For personal use only Contract for provision of products and advanced blasting services over 10 years Operations comprise 3 open cut and 2 underground mines Construction of 40ktpa emulsion plant & 8 Mobile Manufacturing Units Capital cost of $USD 25M (including mobile
Slide 21: Integration of Ground Support
Integration of Ground Support For personal use only Global volumes in H1 – steel down 11% and resins and powders up 1% Achieved an uplift of $18M – integration benefits of $12M and the avoidance of $6M of integration costs from H1 2013. A further $11-13 million of integration and optimisation benefi
Slide 22: North American AN Agreement
North American AN Agreement For personal use only Entered 10 year agreement with CF Industries Inc to supply up to 800,000 tonnes for North American operations Commencing in January 2017 with an option for Orica to extend for further 5 years until end 2031 AN sourced from Yazoo city facility in Miss
Slide 23: East Coast Australia Gas Supply
East Coast Australia Gas Supply For personal use only The total annual gas requirement for Kooragang Island and Yarwun is 17.5PJ Annual gas requirements for east coast from 2014 – 2016 are covered by current agreements Orica’s forward-looking Australian east coast gas supply strategy now provides fo
Slide 24: Strategy Update
For personal use only Overview 3-6 Financial Performance 7 - 17 Business Update 18 - 23 Strategy Update 24 - 27 Outlook 28 - 29 24
Slide 25: Delivery of Strategy
Delivery of Strategy For personal use only Leverage New Removal of functional duplication Operating Cost control and efficiencies Model Supply chain and manufacturing excellence Disciplined Capital light approach to manufacturing Capital Disciplined approach to project management Allocation Minimise
Slide 26: Helping Customers
Helping Customers For personal use only Five pathways that help improve customer performance 1. Data for optimisation (collection and modelling) 2. Noise, vibration and fume mitigation 3. Underground high speed development 4. Soft rock recovery 5. Hard rock fragmentation Orica is the only company th
Slide 27: Cost and Productivity Initiatives
Cost and Productivity Initiatives For personal use only External Environment Subdued mining markets Requirement to enhance our approach on margins and cost discipline Initial Outcomes Reviews Underway Focus Areas Optimisation of ground support Optimisation of operations geographic footprint Procurem
Slide 28: Outlook
For personal use only Overview 3-6 Financial Performance 7 - 17 Business Update 18 - 23 Strategy Update 24 - 27 Outlook 28 - 29 28
Slide 29: 2014 Outlook
2014 Outlook For personal use only Group net profit after tax before individually material items in 2014 is expected to be in line with, or exceed, the restated FY2013 NPAT of $592.5M influenced by the following assumptions: Expectations for Mining Services in H2 FY 2014 Improved volumes, versus H2
Slide 30: Supplementary Information
For personal use only Supplementary Information 30
Slide 31: Where We Are
Where We Are For personal use only Carseland, Bontang, Indonesia ~14,400 Employees Orica Coverage Operations in 50 countries Customers in over 100 countries 31
Slide 32: What We Are
What We Are For personal use only 1. World’s largest provider of commercial explosives to mining and infrastructure markets with 28% global market share. 2. Largest supplier of chemical products to mining, water treatment and other industrial, food and cosmetics markets in Australia and New Zealand
Slide 33: Geographic & Commodity Diversity
Geographic & Commodity Diversity For personal use only 92% of Group EBIT1 is generated H1 2014 Mining Services Revenue by Commodity from Mining Services 14% 25% Broad mining exposure – from coal and iron ore to base and precious Thermal Coal metals and diamonds Coking Coal 16% Gold Wide geographic s
Slide 34: H1 2014 Explosives Volumes
H1 2014 Explosives Volumes For personal use only H1 2014 Volumes Variance – H1 2014 vs H1 2013 Volumes ‘000 Emulsion Emulsion Tonnes AN1 Products2 Total AN 1 Products2 Total Australia/ Pacific 176 402 578 32% (4%) 5% North America 415 192 607 (10%) 1% (7%) Latin America 118 204 322 (12%) (3%) (6%) E
Slide 35: EBIT Contribution by Business
EBIT Contribution by Business1 For personal use only H1 2013 H1 2014 Chemicals Chemicals Group Group 12% 8% Mining Mining Services Services 88% 92% 1. Excludes corporate centre and other support costs 35
Slide 36: EBIT Contribution by Geography
EBIT Contribution by Geography For personal use only H1 2013 H1 2014 Europe Other Other 5% 1% Europe 3% Latin America 11% 9% Latin America 7% North America 11% North America 10% Asia 9% Australia/ Australia/ Pacific 65% Pacific 53% Asia 16% 36
Slide 37: Gross Sales by Geography
Gross Sales by Geography For personal use only H1 2013 H1 2014 Europe Europe 11% 13% Australia/ Australia/ Pacific 38% Pacific 36% Latin America 17% Latin America 17% North America 16% North America 17% Asia Asia 17% 18% 37
Slide 38: Net Profit After Tax
Net Profit After Tax1, 2 For personal use only A$M 700 DLX 600 500 400 300 +10.9% +15.0% -10.0% -4.0% +3.6% 200 +13.2% -7.8% +29.1% +22.8% 100 +4.8% 0 3 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1st Half 2nd Half Compound average growth rate from FY2004 to FY2013 is 7.1% 1. Net profit f
Slide 39: EBIT by Business
EBIT by Business For personal use only Mining Services Chemicals A$M A$M 1,200 20% 120 10% 1,000 16% 100 8% 800 80 12% 6% 600 60 8% 4% 400 40 4% 20 2% 200 0 0% 0 1 0% 1 2011 2012 2013 2014 2011 2012 2013 2014 1st Half 2nd Half EBIT Margin 1st Half 2nd Half EBIT Margin 1. 2013 numbers have been resta
Slide 40: Mining Services
Mining Services For personal use only 2014 Restated % Half year ended 31 March (A$M) 2013 Sales 2,801.7 2,754.9 2 EBITDA 550.2 545.6 1 EBITDA margin (%) 19.6% 19.8% (1) EBIT 418.9 427.3 (2) EBIT margin (%) 15.0% 15.5% (3) 40
Slide 41: Mining Services Australia Pacific
Mining Services Australia Pacific For personal use only Regional Revenue H1 2014 Revenue by Commodity H1 2014 6% 5% 7% 11% Ground Support 3% 6% Mining Chemicals 5% 34% NZ and PNG Thermal Coal 13% Other Coking Coal Pilbara Gold 16% 13% West Iron ore South East Copper 24% North East Q&C Others 22% 13%
Slide 42: Mining Services North America
Mining Services North America For personal use only Regional Revenue H1 2014 Revenue by Commodity H1 2014 21% 29% 40% Thermal Coal US Coking Coal Canada Gold Ground Support Iron ore 27% Mexico Copper 17% Q&C 6% Others 19% 14% 8% 16% 3% Revenue is based on external revenue 42
Slide 43: Mining Services Latin America
Mining Services Latin America For personal use only Regional Revenue H1 2014 Revenue by Commodity H1 2014 3% Central America and 11% 14% 2% Caribbean Ground Support 6% 40% Chile Thermal Coal Peru Gold Brazil Iron ore 11% 20% Copper Colombia Q&C 10% Argentina Others 9% Venezuela 8% 3% Mining Chemical
Slide 44: Mining Services EMEA
Mining Services EMEA For personal use only Regional Revenue H1 2014 Revenue by Commodity H1 2014 5% 6% 19% 25% Nordics Thermal Coal Africa 13% 13% Coking Coal Europe Gold Turkey Iron ore 19% CIS 3% Copper 7% Ground Support Q&C Q&C and distributors 8% Others 10% 28% 43% Revenue is based on external r
Slide 45: Mining Services Asia
Mining Services Asia For personal use only Regional Revenue H1 2014 Revenue by Commodity H1 2014 7% 32% 16% Thermal Coal Ground Support Coking Coal North Asia Gold India 46% Iron ore Indonesia 38% Copper Ground Support 12% Q&C Others 2% 15% 11% 17% 1% 4% Revenue is based on external revenue Mining C
Slide 46: AN Imports into Australia
AN Imports into Australia For personal use only Australian demand for AN in 2013 was approximately 1.9 million tonnes Imports have remained steady over last 18 months after excluding Orica’s Bontang imports AN Imports into Australia kt 180 160 140 120 100 80 60 40 20 0 H1 2012 H2 2012 H1 2013 H2 201
Slide 47: Revenue by Category Type
Revenue by Category Type For personal use only Mining Services Sales Revenue A$M H1 2013 H1 2014 Ground Support 12% AN / ANFO 16% AN Emulsion Mining 46% Products Chemicals 54% 6% Other 2% H1 2014 Services 11% Emulsion Products 30% AN Emulsion Packaged 45% Products Explosives 8% 55% Initiating System
Slide 48: AN Imports Into Australia monthly volume
For personal use only 48 Source: ABS - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 Tonnes Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Monthly Volume (minus Bontang) Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Bontang Imports Jan-13 Feb-1
Slide 49: Chemicals
Chemicals For personal use only Restated % Half year ended 31 March (A$M) 2014 2013 Sales 591.4 613.8 (4) EBITDA 53.8 71.5 (25) EBITDA margin (%) 9.1% 11.7% (22) EBIT 38.6 56.6 (32) EBIT margin (%) 6.5% 9.2% (29) 49
Slide 50: Cash Conversion
Cash Conversion For personal use only Restated Half year ended 31 March (A$M) 2014 2013 EBITDA 552.8 570.9 TWC movement (54.7) (113.5) Sustaining capital1 (99.4) (125.1) Cash conversion 398.7 332.3 Cash conversion %2 72.1% 58.2% 1. Includes a component of customer facing contract capital to the exte
Slide 51: Net Interest Expense
Net Interest Expense For personal use only Restated $ Half year ended 31 March (A$M) 2014 2013 Net interest expense 60.2 66.2 (6.0) Comprising: Interest on net debt 72.1 71.8 0.3 Add: Unwinding of discount on provisions 0.9 2.7 (1.8) Add: Major external finance leases 0.2 0.2 - Less: Capitalised int
Slide 52: Interest Cover
Interest Cover For personal use only Restated $ Half year ended 31 March (A$M) 2014 2013 Financial income 17.5 19.4 (3.3) Financial expense1 (77.7) (85.6) 9.3 Net financing costs (60.2) (66.2) 6.0 EBIT 402.4 434.4 (32.0) Interest cover (times) 6.7 6.6 0.1 1. Financial expense in 2014 includes the im
Slide 53: Debt Profile
Debt Profile For personal use only Bank Debt Maturity Profile (as at 31 March 2014) Loans Other1 $54M $91M Export A$M Drawn Undrawn Total Finance $83M < 1 year 522 376 898 Commercial Paper 1 – 2 years 463 1,180 1,643 $462M 2 – 5 years 483 325 808 > 5 years 1,096 - 1,096 USPP Total 2,564 1,881 4,4451
Slide 54: Non IFRS Reconciliation
Non IFRS Reconciliation For personal use only 2014 Restated % Half year ended 31 March (A$M) 2013 Statutory profit after tax 242.1 262.5 (8) Adjust for the following: Net financing costs 60.2 66.2 (9) Income tax expense 87.4 96.6 (10) Non-controlling interests 12.7 9.1 40 EBIT 402.4 434.4 (7) Deprec
Slide 55: Disclosures and Definitions
Disclosures and Definitions For personal use only Term Definition Net profit for the period attributable to shareholders of Orica Limited as disclosed in the Income Statement within Appendix 4D Statutory profit after tax – Orica Half Year Report. EBIT Profit from operations as disclosed in the Incom