Orica Limited · ASX:ORI
Orica — FY2008 Earnings Presentation
56 slides from Orica's earnings presentation, Nov 10, 2008
Slide 1: Full Year Results Announcement
Full Year Results Announcement 10 November 2008
Slide 2: Presentation outline
Presentation outline • Group performance Graeme Liebelt • Divisional performance Noel Meehan • Capital management Noel Meehan • 2009 priorities Graeme Liebelt • Outlook Graeme Liebelt Orica Full Year Results 2008 2
Slide 3: Group performance
Group performance Year ended 30 September (A$M) 2008 2007 % Sales 6,544.1 5,527.2 18.4 Gross margin 2,874.6 2,474.1 16.2 EBITDA 1 1,188.8 995.9 19.4 EBIT 1 970.1 812.7 19.4 Net profit after tax pre significant items 572.3 497.8 15.0 Net profit after tax after significant items 539.6 487.7 10.6 Opera
Slide 4: Divisional EBIT
Divisional EBIT Year ended 30 September (A$M) 2008 2007 % Mining Services 635.6 575.1 10.5 Minova 1 150.1 61.6 143.7 Chemicals Group 146.1 127.4 14.7 Consumer Products 2 122.6 101.6 20.7 Total Businesses 1,054.4 865.7 21.8 Corporate Centre 3 (46.1) (39.3) (17.3) Other Support Costs 4 (38.2) (13.7) (
Slide 5: EBIT growth
EBIT growth A$M 1,100 197 1,050 (38) 1,000 (24) 970 (22) (8) (4) 950 900 56 850 813 800 750 FY07 Excel Underlying Foreign One-off Ammonia Cancellation A&R/ FY08 EBIT Contribution Business Exchange Employee Lag of 5% Chemnet EBIT Growth Bonus/ Preference Divestment Insurance Shares Result Underlying
Slide 6: Significant items
Significant items Year ended 30 September (A$M) 2008 2007 Chemicals restructuring & rationalisation costs (14.7) - Dyno Nobel integration costs (9.0) (33.4) Minova/Excel integration costs (9.0) - Marplex restructuring & rationalisation costs - (16.4) Adhesives & Resins profit on sale - 23.7 Tax inde
Slide 7: Return on shareholders' funds
Return on shareholders’ funds1 30% 24.0% 25.6% 25% 18.0% 19.3% 19.2% 20% 19.6% 16.9% 15% 10% 5% 0% 2002 2003 2004 2005 2006 2007 2008 1 Calculated as follows: NPAT for period 1 October to 30 September / Average Shareholder Funds Orica Full Year Results 2008 7
Slide 8: Orica's approach – value drivers
Orica’s approach – value drivers Orica Full Year Results 2008 8
Slide 9: SH&E - Safety
SH&E - Safety Full Year Full Year 2008 2007 AWRCR 1 0.72 0.60 Recordable cases 142 104 Distribution incidents 24 28 Fatalities - 1 1 All Worker Recordable Case Rate is calculated as the number of injuries and illnesses per 200,000 hours worked. Orica Full Year Results 2008 9
Slide 10: Gross margin growth
Gross margin growth A$M 3,100 +16.2% 2,900 2,700 +16.4% 2,500 2,300 +7.6% 2,100 +4.3% +13.9% 1,900 +8.2% +0.1% 1,700 1,500 2002 2003 2004 2005 2006 2007 2008 Compound average growth rate since 2002 is 10% Orica Full Year Results 2008 10
Slide 11: Productivity
Productivity1 100% 95% 90% 85% 78.9% 80% 75.1% 74.0% 73.2% 75% 72.8% 69.8% 69.0% 70% 65% 60% 55% 50% 2002 2003 2004 2005 2006 2007 2008 Continuous improvement in productivity 1 Productivity is measured as fixed costs (incl. depreciation and amortisation) as a percentage of gross margin. Orica Full Y
Slide 12: Net profit after tax
Net profit after tax A$M 600 +15% 550 +30.9% 500 450 400 +11.8% +20.5% +4.4% 350 300 +13.0% +283.8% 250 200 150 100 50 2002 2003 2004 2005 2006 2007 2008 Compound average growth rate since 2002 is 16% Orica Full Year Results 2008 12
Slide 13: Divisional Performance
Divisional Performance
Slide 14: Orica Mining Services
Orica Mining Services Year ended 30 September (A$M) 2008 2007 % Sales 3,552.1 3,111.2 14.2 EBITDA 767.8 697.9 10.0 EBITDA margin (%) 21.6% 22.4% (3.6) EBIT 635.6 575.1 10.5 EBIT margin (%) 17.9% 18.5% (3.2) Return on net assets (%) 25.5% 25.6% (0.5) Average operating net assets 2,491.5 2,243.4 11.1
Slide 15: Orica Mining Services EBIT and margin
Orica Mining Services Sales $3,552M; EBIT $636M; Average Net Assets $2,492M, RONA 25.5% A$M 700 20% 1,000 600 18% 23 16% 74 EBIT MARGIN 500 14% 900 EBIT A$M 283 400 12% 10% 800 300 8% 200 6% (213) 4% 700 (40) 100 2% (35) 636 (22) 0 0% 600 (9) 575 2005 2006 2007 2008 500 1st Half EBIT 2nd Half EBIT E
Slide 16: Orica Mining Services by geography
Orica Mining Services by geography Australia/Asia North America 400 25% 120 12% 100 10% EBIT MARGIN EBIT MARGIN 300 20% EBIT A$M EBIT A$M 80 8% 15% 200 60 6% 10% 40 4% 100 5% 20 2% 0 0% 0 0% 2005 2006 2007 2008 2005 2006 2007 2008 1st Half EBIT 2nd Half EBIT EBIT Margin 1st Half EBIT 2nd Half EBIT E
Slide 17: Acquired ex Dyno business performance
Acquired ex Dyno business performance EBIT (A$M) 2008 Underlying trading performance of Ex Dyno Businesses 61.3 Synergies delivered 92.0 Amortisation of intangibles (9.0) 2008 EBIT 144.3 Synergy benefit of $92M has been delivered during 2008 – 12 months ahead of schedule Integration fundamentally co
Slide 18: Acquired ex Dyno business - integration costs
Acquired ex Dyno business - integration costs 2008 2007 Integration cost category (A$M) Actual Cumulative Cumulative Actual Actual Asset write-offs – non cash - 52 52 Redundancies 1 46 47 Transitional salaries/other - 13 13 Synergy implementation costs 9 14 23 Total Integration costs 1 10 125 135 Pr
Slide 19: Minova
Minova Year ended 30 September (A$M) 2008 2007 % Sales 794.2 332.1 139.1 EBITDA 179.9 75.1 139.4 EBITDA margin (%) 22.6% 22.6% - EBIT 150.1 61.6 143.7 EBIT margin (%) 18.9% 18.5% 2.2 Underlying EBIT 1 151.7 68.2 122.4 Return on net assets (%) 2 13.6% 9.1% 49.7 Average operating net assets 1,389.4 67
Slide 20: Minova EBIT
Minova Sales $794M; EBIT $150M; Average Net Assets $1,390M, RONA 13.6% A$M 180 5 160 27 3 150 (12) (1) 140 66 120 100 80 62 60 40 20 FY07 Excel Minova Tunnelling AIFRS Acquisition FX FY08 EBIT EBITA Growth Projects Amortisation EBIT Completed acquisition of Excel – New business being won from combin
Slide 21: Acquired Minova business performance
Acquired Minova business performance EBIT (A$M) 2008 Underlying trading performance of Minova Businesses 162.4 Stock acquisition adjustment (1.6) Synergies delivered 10.5 Amortisation of intangibles (21.2) 2008 EBIT 150.1 Synergy Benefit 1 (A$M) 2008 2009 2010 2011 Current View 11 25 39 45 1 EBIT sy
Slide 22: Acquired Minova business - integration costs
Acquired Minova business - integration costs 2008 Cumulative Integration cost category (A$M) Actual Actual Integration costs 2.9 3.0 Synergy implementation costs 4.3 4.3 Redundancies 0.6 0.6 Transitional salaries/other 2.3 2.3 Total Integration costs 10.1 10.2 Project office costs (acquisition costs
Slide 23: Chemicals
Chemicals Year ended 30 September (A$M) 2008 2007 % Sales 1,406.1 1,329.5 5.8 EBITDA 178.3 154.2 15.6 EBITDA margin (%) 12.7% 11.6% 9.5 EBIT 146.1 127.4 14.7 EBIT margin (%) 10.4% 9.6% 8.3 Underlying EBIT 1 146.1 123.5 18.3 Return on net assets (%) 19.3% 17.4% 10.9 Average operating net assets 758.3
Slide 24: Chemicals EBIT and margin
Chemicals Sales $1,406M; EBIT $146M; Average Net Assets $758M, RONA 19.3% A$M 160 12% 180 19 140 10% 160 (9) 120 14 EBIT MARGIN (8) 146 8% EBIT A$M (6) 100 140 13 (4) 127 80 6% 120 60 4% 40 100 2% 20 80 0 0% 60 2005 2006 2007 2008 40 FY07 Watercare Chemnet Mining Cash FX Depreciation A&R / FY08 1st
Slide 25: Orica Consumer Products
Orica Consumer Products Year ended 30 September (A$M) 2008 2007 % Sales 875.4 826.3 5.9 EBITDA 136.3 115.8 17.7 EBITDA margin (%) 15.6% 14.0% 11.2 EBIT 122.6 101.6 20.7 EBIT margin (%) 14.0% 12.3% 13.9 Underlying EBIT 1 122.6 111.1 10.4 Return on net assets (%) 47.0% 43.7% 7.6 Average operating net
Slide 26: Consumer Products EBIT and margin
Orica Consumer Products Sales $875M; EBIT $123M; Average Net Assets $261M, RONA 47% A$M 140 14% 160 120 12% 4 3 140 10 100 10% EBIT MARGIN 24 EBIT A$M (11) 123 (6) 80 8% 120 (3) 60 6% 102 100 40 4% 80 20 2% 0 0% 60 2005 2006 2007 2008 40 FY07 Volume/ Yates Yates Env. Cash Marketing & China FY08 1st
Slide 27: Corporate centre and other support services
Corporate centre and other support services Year ended 30 September (A$M) 2008 2007 $ Corporate centre costs 46.1 39.3 6.8 Other support costs 38.2 13.7 24.5 Total Costs 84.3 53.0 31.3 Corporate Centre Other support costs Cancellation costs on 5% Discretionary one-off bonus for all Preference Shares
Slide 28: Capital management - key measures
Capital management - key measures Year ended 30 September 2008 2007 Net Debt (A$M) 1,020.5 1,305.7 Net Interest Expense (A$M) 157.7 122.6 Interest Cover (times) 6.1 6.6 Operating Cash ($) 736.9 524.3 Cash Conversion 1 (%) 80.0 81.8 Rolling TWC to Sales (%) 14.5 14.6 Gearing (%) 19.1 33.2 Gearing Adj
Slide 29: Bank Debt refinancing – update
Bank Debt refinancing – update • Renewed A$1.0B of 1 year facility in September 2008 • Have A$1.1B of 2 year and 4 year facilities • None of above bank debt facilities drawn at year end • Benefit of Orica’s strong banking relationships • Multi currency, flexible and cancellable at Orica’s option • M
Slide 30: Net debt and gearing
Net debt and gearing Target gearing range shaded 2,200 50 Gearing and Adjusted Gearing % 1,800 40 Net Debt (A$M) 1,400 30 1,000 20 600 10 200 0 HY01 FY01 HY02 FY02 HY03 FY03 HY04 FY04 HY05 FY05 HY06 FY06 HY07 FY07 HY08 FY08 Gearing Adjusted Gearing Gearing 19.1% Adjusted gearing1 23.8% 1 Gearing rec
Slide 31: Cashflow
Cashflow Year ended 30 September (A$M) 2008 2007 $ EBITDA 1,188.8 995.9 192.9 Net interest paid (148.5) (108.3) (40.2) Net tax paid (190.0) (141.4) (48.6) Trade working capital movement (29.9) (49.2) 19.3 Non trade working capital movement (83.5) (172.7) 89.2 Net operating cash flows 736.9 524.3 212
Slide 32: Cash Conversion
Cash Conversion1 Year ended 30 September (A$M) 2008 2007 EBITDA 1,188.8 995.9 TWC movement (29.9) (49.2) Sustenance (207.4) (132.1) Cash Conversion 951.5 814.6 Cash Conversion % 80.0% 81.8% 1 Cash conversion is calculated as EBITDA add/less movement in trade working capital less sustenance capital s
Slide 33: Rolling TWC to Sales %
Rolling TWC to Sales % 19.00% 18.00% 17.00% Rolling TWC / Sales % 16.00% 15.00% 14.00% 13.00% 12.00% 11.00% 10.00% HY02 FY02 HY03 FY03 HY04 FY04 HY05 FY05 HY06 FY06 HY07 FY07 HY08 FY08 Steady progress continues on management of TWC Improved second half performance Orica Full Year Results 2008 33
Slide 34: Hedging
Hedging • In 2008 overseas earnings represented 55% of Group earnings • Orica has exposures to a basket of currencies from around the globe given its geographical spread • The basket of currencies creates a portfolio effect on our exposures • Transactional and translational (EBIT) exposures are hedg
Slide 35: Major Currency Hedges
Major Currency Hedges Major currency hedges include: Currency Exposures % Hedged • AUD/USD 68% • AUD/CAD 90% • AUD/SEK 89% • AUD/CLP 89% • AUD/NZD 50% Net impact on EBIT of a 1% move in exchange rates on a diversified basket of currencies is approximately A$2.0M – A$2.5M Orica Full Year Results 2008
Slide 36: Capital management - 2009
Capital management - 2009 • Priority for 2009 – continue to focus on improving trade working capital management and cash generation • Credit Rating – committed to BBB+ • Close monitoring of sustenance and growth capital Orica Full Year Results 2008 36
Slide 37: 2009 Priorities
2009 Priorities
Slide 38: Outlook
Outlook Orica’s businesses have performed strongly and we are confident they will continue to do so. Accordingly, Group net profit (before significant items) in 2009 is expected to be higher than that reported in 2008. This is subject to global economic conditions and particularly their impact on de
Slide 39: Growth priorities - Mining Services
Growth priorities Business Strategic growth opportunity Mining Services - Strength of resource cycle continues - Lowest cost AN sourcing - Capitalise on tightening AN market conditions - Electronic blasting systems (EBS) - Enhanced product offerings (BBS) - Small bolt-on M&A Orica Full Year Results
Slide 40: OMS – AN expansion
OMS – AN expansion • Progressing Bontang – On track at this stage – Land reclamation completed – Progressively ordering key plant items – EPC contract tenders are being assessed – decision expected in December 2008 • Latin America – Market demand supports a new plant – Assessing feasibility of impor
Slide 41: Growth priorities - Minova
Growth priorities Business Strategic growth opportunity Minova - Integration of Excel and other bolt on acquisitions – deliver the synergies - Atlas Copco global distribution agreement - Geographic and organic growth including small M&A opportunities Orica Full Year Results 2008 41
Slide 42: Growth priorities - Chemicals
Growth priorities Business Strategic growth opportunity Chemicals - Capitalise on expanded sodium cyanide capacity - Progressive move into water treatment value added offerings - Advanced Water Technologies (MIEX) - Ongoing growth in Latin America - Improved customer service Orica Full Year Results
Slide 43: Growth priorities - Consumer Products
Growth priorities Business Strategic growth opportunity Consumer Products - Continued investment in marketing and R&D - Ongoing establishment of a platform in Asia Orica Full Year Results 2008 43
Slide 44: Productivity priorities
Productivity priorities • Metric is trending to expectation • Productivity includes revenue and cost focus • Each business is responsible and accountable for improving productivity • Ongoing delivery of Minova and Excel synergies • Chemicals merger • Complete Yates restructure Orica Full Year Result
Slide 45: SH&E - Environmental
SH&E - Environmental • Botany Water – Plume is contained – Recycled water being utilised – looking to increase volumes • Hexachlorobenzene – Work continues on plans to export Hexachlorobenzene waste – Encapsulated waste remediation to start in 2010 • No other significant matters identified in curren
Slide 46: SH&E - Sustainability
SH&E - Sustainability • Challenge 2010 targets established • Improved performance on all measures in 2008 • At or below 2010 targets on water consumption, energy usage and waste generation • Greenhouse gas emissions – globally approx 4.0 million tonnes of CO2E, Australia approx 3.0 million tonnes of
Slide 47: Summary
Summary • Solid underlying business performance • Market leader in most of our markets • Improved cash flow performance • Strong balance sheet • Well placed for ongoing profitable growth Orica Full Year Results 2008 47
Slide 48: Supplementary Information
Supplementary Information
Slide 49: EBIT contribution by business platform
EBIT contribution by business platform1 September 2007 2,3 September 2008 Chemicals Chemicals 14.2% 13.9% Minova 9.2% Minova 14.2% Consumer Mining Products Mining Services 12.4% Services 60.3% Consumer 64.2% Products 11.6% 1 Excludes corporate costs 2 Minova earnings adjusted to reflect 12 months co
Slide 50: EBIT contribution by geography
EBIT contribution by geography September 2007 September 2008 Other Other Europe Europe 0.8% 0.3% 15.3% 16.0% Latin America Latin America Australia Australia 9.5% 10.8% 44.8% 45.5% North America 12.0% North America 17.8% Asia New Zealand New Zealand 9.3% Asia 6.2% 4.5% 7.3% Orica Full Year Results 20
Slide 51: Gross sales by geography
Gross sales by geography September 2007 September 2008 Europe Other Europe Other 13.3% 0.8% 13.1% 1.0% Latin America Latin America 11.8% Australia Australia 11.9% 42.3% 44.5% North America 14.4% North America 18.3% Asia New Zealand New Zealand Asia 7.9% 7.3% 5.6% 7.8% Orica Full Year Results 2008 51
Slide 52: Net interest expense
Net interest expense Full year ended 30 September (A$M) 2008 2007 $ Net interest expense 158 123 35 Comprising: Interest on net debt 172 113 59 Add: Unwinding of discount on provisions 8 10 2 Add: Major External Finance Leases 2 0 2 Less: Income on the Excel Net Investment Hedge -24 0 24 Net interes
Slide 53: Impact of SPS – earnings per share
Impact of SPS – earnings per share Reported per Accounts A$M Reported net profit from continuing operations 567.3 Less: Net profit attributable to minorities (27.7) After tax distributions to SPS holders 1 (28.1) Adjusted net profit 511.5 Weighted average ordinary shares on issue 320.0 Earnings per
Slide 54: Impact of SPS – gearing
Impact of SPS – gearing (A$M) Reported per Hybrid Accounts Adjusted Current borrowings 266.4 266.4 Non-current borrowings 1,075.4 1,075.4 SPS adjustment 2 - 250.0 Less: Cash (321.3) (321.3) Net Debt 1,020.5 1,270.5 Parent entity equity 1 4,221.5 4221.5 Minority interests 96.9 96.9 SPS adjustment 2 -
Slide 55: Impact of SPS – interest cover
Impact of SPS – interest cover (A$M) Reported per Hybrid Accounts Adjusted Financial expense 1 227.8 227.8 Financial income (68.1) (68.1) SPS distribution adjustment 2 - 20.8 Net borrowing costs 159.7 180.5 EBIT 970.1 970.1 Less net profit attributable to minorities - (28.2) Adjusted EBIT 970.1 941.
Slide 56: Debt Profile
Debt Profile USPP, $1,053M Debt Maturity Profile A$M Drawn Undrawn Total < 1 year 235 150 385 1 – 2 years - 1,038 1,038 2 – 5 years 278 1,137 1,415 > 5 years 829 - 829 Other, $76M Total 1,342 2,325 3,667 M edium Term Notes, $75M Commercial Paper, $138M Average maturity on drawn debt is 4.7 years Inv