Orica Limited · ASX:ORI
Orica — 1H20 Earnings Presentation
41 slides from Orica's earnings presentation, May 8, 2020
Slide 1: Half Year Results
HALF YEAR RESULTS 8 MAY 2020 ALBERTO CALDERON, MANAGING DIRECTOR AND CEO CHRISTOPHER DAVIS, CHIEF FINANCIAL OFFICER
Slide 2: Disclaimer
Disclaimer 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 intended to be used a
Slide 3: Operating safely and responsibly
SUSTAINABILITY Operating safely and responsibly Safety is our priority. Always. • Safety remains our priority, with the latest quarterly Serious Injury Case Rate at its lowest level in the last three years • Strict protocols in place to protect our people and communities in OPERATING response to COV
Slide 4: Varying COVID-19 impact across the globe
COVID-19 Varying COVID-19 impact across the globe Mining activity permitted in most countries across the globe: • Continued focus on supporting our customers: • limited impact in Australia, USA and the CIS – all continuous AN manufacturing plants • significant impact in Quebec, Mexico, and parts of
Slide 5: Strong underlying result
RESULTS SUMMARY Strong underlying result Total AN product volumes up 4%, led by strong growth in Australia and the CIS AN VOLUMES EBIT EBIT up 2%, or 5% after adjusting for the China business structure change, despite bushfires and 1.95mt $309m extreme weather in Australia and COVID-19. This is a
Slide 6: Holding firm in the face of temporary challenges
AUSTRALIA PACIFIC & ASIA Holding firm in the face of temporary challenges AN volume EBIT and EBIT margin VOLUMES (kt) ($m, %) • AN volume 5% higher than pcp 884 907 215 – increased AN market share from new contracts 208 742 775 814 174 170 in Australia, despite bushfires and extreme 167 212 204 weat
Slide 7: Production commenced at Burrup plant
BURRUP PLANT Production commenced at Burrup plant CURRENT STATUS • Rectification works required to commence production completed • High quality tonnes produced • Yara ammonia plant recommenced production in March 2020 OUTLOOK • Priority remains to service customer contracts • Positive contribution g
Slide 8: Steady performance continues
NORTH AMERICA Steady performance continues AN volume EBIT and EBIT margin VOLUMES (kt) ($m, %) • AN volumes in line with the pcp from: 98 98 – growth in USA, mainly in Q&C 560 553 560 568 559 94 95 88 – offset by ~20% lower volumes in Mexico due to continuing geopolitical issues and COVID-19; expect
Slide 9: Strong underlying business underpins results
LATIN AMERICA Strong underlying business underpins results AN volume EBIT and EBIT margin VOLUMES (kt) ($m, %) • Strong AN volume growth in Peru, one of the leading copper and gold markets in Latin America 387 24 25 • AN volumes impacted by 331 319 22 301 317 – customer business model change in Colo
Slide 10: Solid performance led by growth in the CIS
EUROPE, MIDDLE EAST & AFRICA Solid performance led by growth in the CIS AN volume EBIT and EBIT margin VOLUMES (kt) ($m, %) • Continued AN sales uplift in key growth markets particularly in Russia and Kazakhstan, offsetting 258 38 slowed demand in Europe 227 235 228 36 216 33 • EBS sales growth was
Slide 11: GroundProbeTM continues to deliver
ORICA MONITOR1 GroundProbeTM continues to deliver Revenue EBIT SALES ($m) ($m) • Record sales month in March for radar and laser systems 52 52 13 • New laser products now gaining foothold in civil 45 41 tunnelling market 9 9 • Remote geotechnical monitoring revenue more 26 6 than doubled over past t
Slide 12: Continued sustainable growth
MINOVA Continued sustainable growth Revenue EBIT and EBIT margin SALES ($m) ($m, %) • Powders volumes up 20%, led by 40% growth in EMEA from new customers in Russia 11 291 304 • Revenue down 10% from pcp as coal sector 280 8 263 7 4% volumes in the USA were impacted by low natural 239 1% 2% 3% gas p
Slide 13: Christopher Davis, Chief Financial Officer
CHRISTOPHER DAVIS, CHIEF FINANCIAL OFFICER 2020 HALF YEAR RESULTS | 13
Slide 14: Strength in underlying business driving a positive result
FINANCIAL RESULT Strength in underlying business driving a positive result Half year ended 31 March 2020 ($m) 1H20 1H19 Change Sales revenue 2,880 2,829 2% Underlying EBITDA 1 480 437 10% Underlying EBIT 2 309 301 2% Underlying NPAT 3 165 167 (1%) Statutory net profit /(loss) after tax 165
Slide 15: A focus on what Orica can control has driven an improved result
EBIT BRIDGE A focus on what Orica can control has driven an improved result Orica Group EBIT – 1H19 to 1H20 ($m) 5 309 3 18 4 301 (7) 294 (7) 7 (15) EBIT China Sub- Inflation on Volume Mix & Manufact- Burrup Adjacent Other EBIT 1H19 total Overheads Margin uring businesses 1H20 2020 HALF YEAR RESULTS
Slide 16: Continued capital investment in critical projects
CAPITAL EXPENDITURE Continued capital investment in critical projects CAPITAL EXPENDITURE EXCLUDING BURRUP Capital expenditure1 Excluding Burrup, capital expenditure of $206 million included ($m) increased investment in the SAP project as it reaches its final phase of delivery prior to launch in 2H2
Slide 17: Cash conversion remains positive and in line with expectations
CASH FLOW Cash conversion remains positive and in line with expectations Net Operating Cash Flow 1H 2H Cash Conversion1 ($m) (%) 746 90.5 615 66.5 62.9 562 586 184 108 29 FY18 FY19 FY20 1H18 1H19 1H20 1. (EBITDA add / less movement in trade working capital, adjusted for acquisitions and disposals) /
Slide 18: Continued reduction in gearing
NET DEBT & GEARING Continued reduction in gearing Net debt & gearing Movement in net debt ($m, %) ($m) 38.1% Net impact ($199m) 1,903 34.9% 33.7% 282 1,621 123 1,621 1,903 507 199 AASB 16 1,422 1,768 Leases 282 185 1,621 impact Net debt 1,621 excluding leases 1H19 FY19 1H20 1 FY19 Dividends Capital
Slide 19: Strong Balance Sheet positions Orica well in uncertain times
BALANCE SHEET Strong Balance Sheet positions Orica well in uncertain times • Balance Sheet strength provides significant Cash and committed DEBT COVENANTS headroom against debt covenants undrawn credit facilities ($m) Gearing • Limited near term refinancing requirement with (%) average drawn debt te
Slide 20: Alberto Calderon, Managing Director and CEO
ALBERTO CALDERON, MANAGING DIRECTOR AND CEO 2020 HALF YEAR RESULTS | 20
Slide 21: Orica strategy centred on our core and high growth engines
ORICA STRATEGY CENTRED ON OUR CORE AND HIGH GROWTH ENGINES Disciplined approach to assessing opportunities in core capital and high growth engines OPPORTUNITIES FOR GROWTH RECENT EXAMPLES Mergers and acquisitions supporting existing core markets CORE Expansion of existing products into new GROWTH ap
Slide 22: Transaction completed; integration plan in place
EXSA ACQUISITION Transaction completed; integration plan in place STRATEGIC ACQUISITION OF EXSA1 • Strategic acquisition of Exsa, a Peruvian-based, leading manufacturer and distributor of industrial explosives, consolidating Orica’s market position in Latin America and transforming its Initiating Sy
Slide 23: Value add acquisition with significant synergies
EXSA ACQUISITION Value add acquisition with significant synergies By the third full year of ownership we expect to achieve ~US$18 million run rate synergies, with approximately US$20 million capital expenditure requirement Material manufacturing synergies • Network savings from latent capacity in th
Slide 24: Growing customer uptake of technology solutions
BEST-IN-CLASS TECHNOLOGY Growing customer uptake of technology solutions WIRELESS BLASTING - WEBGENTM WebGen™ Global Adoption • Continued market interest for wireless initiation technology (units) – 750+ blasts fired globally – BMC Poitrel phased introduction underway – some new trials on-hold due t
Slide 25: Good progress in next generation underground automation technology
BEST-IN-CLASS TECHNOLOGY Good progress in next generation underground automation technology UNDERGROUND AUTOMATION Underground automation program progressing well: • Collaborative partnership with Epiroc for mechanised development charging • Successful trials of fully mechanised drawpoint hang-up bl
Slide 26: Alberto Calderon, Managing Director and CEO
ALBERTO CALDERON, MANAGING DIRECTOR AND CEO 2020 HALF YEAR RESULTS | 26
Slide 27: Well positioned for when normalised mining activity growth returns
OUTLOOK Well positioned for when normalised mining activity growth returns COVID-19 mining activity disruption commenced FY19 FY20 FY21 Following industry expected normalisation of global mining activity, Orica AN volumes are expected to return to long term trend growth. This will be complemented by
Slide 28: Supplementary Information
SUPPLEMENTARY INFORMATION 2020 HALF YEAR RESULTS | 28
Slide 29: Relative control of COVID-19 in Australia to date allowing cautious optimism
AUSTRALIA PACIFIC & ASIA – COVID-19 Relative control of COVID-19 in Australia to date allowing cautious optimism COVID-19 impacts by jurisdiction AN volume contribution 1H20 India initial State of Australia Pacific 3-week emergency Asia lockdown enacted in extended. Japan Mining shutdown excluding P
Slide 30: Mexico continues to present challenges
NORTH AMERICA – COVID-19 Mexico continues to present challenges COVID-19 impacts by jurisdiction AN volume contribution 1H20 Quebec province and remote sites most USA affected in Canada, with the Quebec Canada government ordering the mining industry to Mexico reduce to minimum operations (lifted on
Slide 31: Varied impact with mine closures in some countries
LATIN AMERICA – COVID-19 Varied impact with mine closures in some countries COVID-19 impacts by jurisdiction AN volume contribution 1H20 Peru Mines closed since late March in Colombia & Chile Panama Brazil Colombia Other No significant Most mining companies effect in Brazil in Peru evacuated in 75%
Slide 32: Lower demand due mainly to restrictions in Europe
EUROPE, MIDDLE EAST & AFRICA – COVID-19 Lower demand due mainly to restrictions in Europe COVID-19 impacts by jurisdiction AN volume contribution 1H20 Swedish mining activity continuing, National lockdown extended in Europe & Middle East while neighbouring Denmark, Russia with stricter measures CIS
Slide 33: Explosives volumes
SUPPLEMENTARY INFORMATION Explosives volumes Variance – 1H20 volumes Half year ended 31 March 1H20 volumes vs. 1H19 volumes AN 1 Emulsion Total AN 1 Emulsion Total ‘000 tonnes products 2 products 2 Australia Pacific & Asia 324 490 814 4% 6% 5% North America 307 252 559 8% (9%) - Latin America 111 20
Slide 34: Segment analysis
SUPPLEMENTARY INFORMATION Segment analysis Half year ended 31 March 1H20 1H19 EBIT % $m Revenue 1 EBIT Revenue 1 EBIT change Australia Pacific & Asia 1,057 170 995 174 (3%) North America 801 95 783 94 2% Latin America 456 22 451 19 16% Europe, Middle East & Africa 490 33 440 30 9% Orica Monitor 52 9
Slide 35: Diversified global business
SUPPLEMENTARY INFORMATION Diversified global business Geographic portfolio By commodity By product/service offering % of 1H20 revenue 1 % of 1H20 revenue 1 % of 1H20 revenue 1 9% 3% 2% 16% 8% 16% 24% 34% Thermal Coal AN/ANFO 16% Australia Pacific & Asia 5% 14% Bulk Emulsion Coking Coal North America
Slide 36: Interest cover
SUPPLEMENTARY INFORMATION Interest cover Half year ended 31 March ($m) 1H20 1H19 Change EBIT before individually significant items 309 301 8 Net financing costs 63 56 7 Interest cover (times) – debt covenant 1 4.9 5.4 (0.5x) 1. EBIT before individually significant items / Net financing costs (incl
Slide 37: Foreign exchange exposure
SUPPLEMENTARY INFORMATION Foreign exchange exposure EBIT composition (FX transaction) 1H20 FX movements EBIT sensitivity1 % of 1H20 EBIT % change from pcp +/- $m per 1% change 3% United States 10% 6.7% 24% Australia Latin America (3.6%) United States 18% Latin America Canada 5.9% $2.4m Canada 2 EMEA
Slide 38: Debt and liquidity profile
SUPPLEMENTARY INFORMATION Debt and liquidity profile Group liquidity Drawn debt maturity profile ($m) ($m) Average tenor at March 2020 – 4.0 years 1,000 900 1,198 800 700 1,534 600 500 400 1,165 300 200 413 100 0 Sep 19 Mar 20 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY31 Cash and cash equivalents Un
Slide 39: Environmental and decommissioning provisions
SUPPLEMENTARY INFORMATION Environmental and decommissioning provisions As at ($m) 31 Mar 2020 30 Sep 2019 Botany groundwater remediation 169 171 Botany hexachlorobenzene (HCB) waste 38 41 Burrup decommissioning 36 22 Deer Park remediation 23 22 Yarraville remediation 21 25 Other provisions 34 36 Tot
Slide 40: Non-IFRS reconciliation
SUPPLEMENTARY INFORMATION Non-IFRS reconciliation Half year ended 31 March ($m) 1H20 1H19 % Statutory net profit/(loss) after tax 165 33 >100% Add back: Individually significant items after tax - 134 (100%) Underlying profit after tax 165 167 (2%) Adjust for the following: Net financing costs 63 56
Slide 41: Definitions
SUPPLEMENTARY INFORMATION Definitions Term Definition AN Includes ammonium nitrate prill and solution as well as emulsion products including bulk emulsion and packaged emulsion Comprises total payments for property, plant and equipment and intangible assets, as disclosed in the Statement of Cash Flo