Orica Limited · ASX:ORI
Orica — H1 2021 Earnings Presentation
42 slides from Orica's earnings presentation, May 13, 2021
Slide 1: 2021 Half Year Results
2021 RESULTS HALF YEAR 13 MAY 2021 SANJEEV GANDHI, 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: First Half Summary
FIRST HALF SUMMARY SANJEEV GANDHI, MANAGING DIRECTOR AND CEO 2021 HALF YEAR RESULTS 3
Slide 4: Strong fundamentals
FIRST HALF OVERVIEW Market factors impact results, fundamentals remain sound Market share maintained Strong fundamentals Core business remains strong Successful Exsa • Key competitive advantage and points of differentiation still intact: integration – Global market share has been maintained in a com
Slide 5: Earnings impacted by challenging external environment
FIRST HALF RESULTS Earnings impacted by challenging external environment AN volumes 1 Statutory NPAT 2 • Ammonium nitrate (AN) volume restricted by market constraints 1.8mt $76.7m • Severe impacts to margins including: (9%) (54%) – East Coast Australia and Indonesian manufacturing cost recoverie
Slide 6: Safety remains our top priority and we continue to embed sustainability
OUR SUSTAINABILITY APPROACH Safety remains our top priority and we continue to embed sustainability in our critical business priorities GLOBAL FORCES OUR APPROACH DIGITAL • Zero fatalities TRANSFORMATION • Serious Injury Case Rate (SICR) returns to pre COVID-19 levels at 0.20 with continued efforts
Slide 7: Focused on execution and resilience
STRATEGY FOR CLIMATE ACTION Focused on execution and resilience 1. • Increasing exposure to technology; continued diversification into future-facing commodities EMBED CLIMATE IN • Perform commodity scenario analysis, including a Paris-aligned scenario with outcomes OUR STRATEGIC informing risk manag
Slide 8: Geopolitical issues and soft Indonesia market constraining EBIT
AUSTRALIA PACIFIC & ASIA Geopolitical issues and soft Indonesia market constraining EBIT VOLUMES AN VOLUME (KT) REVENUE ($M) • Pilbara AN volumes up on the pcp in strong iron ore market • East Coast Australia and Indonesia coal volumes down on the pcp due to: 907 949 1,111 1,137 995 1,057 1,008 814
Slide 9: Significant impact from China trade tensions
AUSTRALIAN THERMAL COAL Significant impact from China trade tensions China trade tensions commenced in second half of calendar year TRADE FLOWS OF AUSTRALIAN THERMAL COAL VARIANCE TO PCP 2020 and worsened towards the end of that year BY IMPORT COUNTRY 1 (METRIC TONNES, MILLIONS) • Australian thermal
Slide 10: Looking to stabilise after difficult market conditions
NORTH AMERICA Looking to stabilise after difficult market conditions VOLUMES AN VOLUME (KT) REVENUE ($M) • Canada AN volumes down on the pcp from a contract loss and some slower mine production 783 808 801 • Mexico volumes remain low due to COVID-19 and mothballed mines 560 568 559 464 506 675 627 •
Slide 11: Exsa in line with business case in a region heavily impacted by COVID-19
LATIN AMERICA Exsa in line with business case in a region heavily impacted by ongoing COVID-19 pandemic VOLUMES AN VOLUME (KT) REVENUE ($M) • Lower AN and initiating system demand on pcp, excluding Exsa, due to: – COVID-19 impacts in Colombia and Peru 519 – Social unrest in Peru and strikes in Chile
Slide 12: Steady performance in the CIS undermined by COVID-19
EUROPE, MIDDLE EAST & AFRICA Steady performance in the CIS undermined by COVID-19 in Europe and the Middle East VOLUMES AN VOLUME (KT) REVENUE ($M) • EBS slightly higher than the pcp from demand in Norway and Sweden • AN volumes impacted by COVID-19 disruptions with projects postponed 258 490 in Nor
Slide 13: Orica Monitor: Strong EBIT growth despite COVID-19 challenges
ORICA MONITOR Strong EBIT growth despite COVID-19 challenges REVENUE REVENUE ($M) EBITDA ($M) • Increased demand for locally positioned leased radar systems and remote monitoring geotechnical services 18 19 • Continuing COVID-19 challenges negatively impacting radar and 52 52 46 53 16 17 45 laser sa
Slide 14: Minova: Firm result and cash positive
MINOVA Firm result and cash positive REVENUE REVENUE ($M) EBITDA ($M) • Resin and steel volumes lower than the pcp due to decline in the US coal market and geopolitical tension between Australia and China • Decline in resin bulk revenues in Australia driven by customer losses, 291 304 17 263 15 lowe
Slide 15: The cyanide business continues to present growth opportunities
CYANIDE The cyanide business continues to present growth opportunities GOLD PRODUCTION (T) AND CYANIDE DEMAND (KT) 1 Favourable market outlook Cyanide Demand CAGR20-25 4.0% • Favourable market outlook for key cyanide demand drivers: – Gold production: Prolonged period of elevated prices incentivised
Slide 16: Financial Performance
FINANCIAL PERFORMANCE CHRISTOPHER DAVIS, CHIEF FINANCIAL OFFICER 2021 HALF YEAR RESULTS 16
Slide 17: Lower earnings reflecting market challenges
FINANCIAL RESULT Lower earnings reflecting market challenges Half year ended 31 March ($m) 2021 2020 Change Sales revenue 2,623 2,880 (9%) Underlying EBITDA 1 362 480 (25%) Underlying EBIT 2 152 309 (51%) Underlying NPAT 3 73 165 (56%) Individually significant items after tax 4 - 100% Statutory net
Slide 18: Net positive result from individually significant items
INDIVIDUALLY SIGNIFICANT ITEMS Net positive result from individually significant items Gross Tax Net Half year ended 31 March 2021 ($m) (before tax) (after tax) Environmental provision expense (39.3) 11.8 (27.5) Operating model restructuring (22.2) 6.5 (15.7) Gain on sale of Villawood site 40.8 5.7
Slide 19: First half performance impacted by market factors
EBIT BRIDGE First half performance impacted by market factors ORICA GROUP EBIT 1H20 TO 1H21 ($M) 1 1. Includes lower recoveries from reduced sales volumes 2021 HALF YEAR RESULTS 19 Confidential
Slide 20: Disciplined approach to capital expenditure
CAPITAL EXPENDITURE Disciplined approach to capital expenditure Overall reduction given that Burrup and SAP projects approaching completion CAPITAL EXPENDITURE ($M) 1 Growth 472 • Spend in Australia to support new technology based contract win 424 78 • Increased spend in Brazil, Africa and the CIS t
Slide 21: Improved trade working capital driving strong operating cash
CASH FLOW Improved trade working capital position driving strong operating cash and cash conversion NET OPERATING CASH FLOW ($M) CASH CONVERSION 1 (%) 746 138.6 90.5 562 277 62.9 169 184 158 108 FY19 FY20 FY21 1H19 1H20 1H21 1H 2H 1. (EBITDA add / less movement in trade working capital, adjusted for
Slide 22: Improved operating cash flow and net debt despite weaker earnings
NET DEBT Improved operating cash flow and net debt despite weaker earnings NET DEBT 1 & GEARING ($M, %) MOVEMENT IN NET DEBT 1 ($M) (87) 36.4% 34.9% 35.4% 10 1,821 56 1,734 1,821 1,734 (153) 1,621 FY19 FY20 1H21 FY20 Dividends Net Foreign 1H21 net debt paid cash exchange net debt (ex lease utilised
Slide 23: Balance sheet and liquidity profile
FINANCIAL POSITION Balance sheet and liquidity profile CASH & COMMITTED UNDRAWN DEBT COVENANTS 1 • Liquidity position remains strong with $1.9 billion of available liquidity CREDIT FACILITIES ($M) • Gearing is comfortably within 30-40% target range and provides Gearing (%) significant headroom again
Slide 24: Continuing to review non-strategic assets and non-core land holdings
ASSET PORTFOLIO OPTIMISATION Continuing to review non-strategic assets and non-core land holdings Focus remains on core mining business and expansion of technology offerings Review begun with decision to commence sale process of Minova business for value • Minova is an attractive global leader in it
Slide 25: Strategic Priorities
STRATEGIC PRIORITIES SANJEEV GANDHI, MANAGING DIRECTOR AND CEO 2021 HALF YEAR RESULTS 25
Slide 26: An experienced and diverse executive leadership team
EXECUTIVE TEAM An experienced and diverse executive leadership team Sanjeev Gandhi Managing Director & CEO Germán Morales Christopher Davis Delphine Cassidy President – Australia Pacific & Asia Chief Financial Officer Chief Communications Officer James Crough Angus Melbourne Adam Hall President – No
Slide 27: Staying on course towards our strategic objectives
LEADERSHIP FOCUS Staying on course towards our strategic objectives Manufacturing Reduced Improved reliability overheads operating model Achieving sustainable economic growth Technology & Portfolio Organic growth innovation optimisation 2021 HALF YEAR RESULTS 27 Confidential
Slide 28: Immediate focus on building on our strong fundamentals
KEY PRIORITIES Immediate focus on building on our strong fundamentals 3 Strategic priorities Step change to occur following • Operating model SAP stabilisation 2 Innovation focus Strong digital result in H1; • Technology technology delivery to ramp up in 1 • Focus on speed to H2 Cost reduction & mar
Slide 29: Scope and capability to contribute to the mining value chain beyond blasting
TECHNOLOGY STRATEGY Scope and capability to contribute to the mining value chain beyond blasting A COMPREHENSIVE MINING SERVICES COMPANY Orebody Intelligence Blasting Monitoring Real-time measurement and interpretation Accurate and repeatable execution of blasts Real-time monitoring of critical of h
Slide 30: Outlook
OUTLOOK SANJEEV GANDHI, MANAGING DIRECTOR AND CEO 2021 HALF YEAR RESULTS 30
Slide 31: COVID-19 uncertainty remains
OUTLOOK COVID-19 uncertainty remains EMEA COVID-19 IMPACT TO CUSTOMER ACTIVITY 1 NORTH AMERICA • Moderate impact in CIS • Early mine disruptions in • Lower Q&C in Norway Canada now recovered • UK, Spain and Belgium • Minimal impact to activity restricted customer operations in • Projects delayed in
Slide 32: Advancing with caution through ongoing uncertainty, fundamentals sound
OUTLOOK Advancing with caution through ongoing uncertainty, fundamentals sound The performance of the underlying business has improved with volumes in the second half expected to be better than the first half. There is some uncertainty from continued COVID-19 related disruptions and Australia/China
Slide 33: Supplementary Information
SUPPLEMENTARY INFORMATION 2021 HALF YEAR RESULTS 33
Slide 34: Explosives volumes
SUPPLEMENTARY INFORMATION Explosives volumes Half year ended 31 March 2021 volumes vs pcp 4 ‘000 tonnes Emulsion Emulsion AN 2 Total AN Total products 3 products Australia Pacific & Asia 276 511 787 (9%) 9% (3%) North America 257 249 506 (13%) (5%) (9%) Latin America 1 115 328 443 15% 50% 39% Europe
Slide 35: Segment analysis
SUPPLEMENTARY INFORMATION Segment analysis Half year ended 31 March 2021 2020 Variance $m Revenue 1 EBIT Revenue 1 EBIT Revenue EBIT Australia Pacific & Asia 1,008 109 1,057 170 (5%) (36%) North America 627 47 801 95 (22%) (51%) Latin America 447 13 456 22 (2%) (41%) Europe, Middle East & Asia 414 4
Slide 36: Diversified global business
SUPPLEMENTARY INFORMATION Diversified global business REVENUE BY REGION 1 REVENUE BY COMMODITY 1 REVENUE BY PRODUCT/SERVICE TYPE 1 2% 4% 8% 14% 7% 15% 22% 15% 36% 6% 15% 7% 4% 30% 20% 17% 13% 17% 22% 18% 8% Australia Pacific & Asia North America Thermal Coal Coking Coal Iron Ore AN/ANFO Bulk Emulsio
Slide 37: Manufacturing reliability
SUPPLEMENTARY INFORMATION Manufacturing reliability PLANT MAINTENANCE TURNAROUNDS DURING 1H21 CONTINUOUS AN PLANT OEE (%) Plant Completed 93% Kooragang Island ammonia Nov 2020 90% 84% 84% Yarwun cyanide Dec 2020 68% Yarwun nitric acid plant 3 Feb 2021 PLANT TURNAROUNDS PLANNED FOR 2H21 Kooragang Yar
Slide 38: Foreign exchange translation
SUPPLEMENTARY INFORMATION Foreign exchange translation Currency 1H21 1H20 Var 1H21 1H20 Var Top 5 by EBIT impact Average rates Spot rates at 31 March 2021 USD – US Dollar 0.7520 0.6706 12% 0.7598 0.6165 23% CAD – Canadian Dollar 0.9657 0.8921 8% 0.9592 0.8728 10% RUB – Russian Rouble 56.59 43.67 30%
Slide 39: Debt and liquidity profile
SUPPLEMENTARY INFORMATION Debt and liquidity profile GROUP LIQUIDITY ($M) DRAWN DEBT MATURITY PROFILE ($M) 2,431 Average tenor at March 2021 – 4.7 years 700 1,858 600 1,510 500 869 400 300 200 921 989 100 0 Sep 20 Mar 21 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY29 FY31 Undrawn committed facilities Commi
Slide 40: Environmental and decommissioning provisions
SUPPLEMENTARY INFORMATION Environmental and decommissioning provisions As at ($m) 31 Mar 2021 30 Sep 2020 Botany groundwater remediation 212 201 Botany hexachlorabenzene (HCB) waste 33 31 Burrup decommissioning 59 57 Initiating systems network optimisation decommissioning 29 28 Deer Park remediation
Slide 41: Non-IFRS reconciliations
SUPPLEMENTARY INFORMATION Non-IFRS reconciliations Half year ended 31 March ($m) 1H21 1H20 Variance Statutory net profit/(loss) after tax 77 165 (54%) Add back: Individually significant items after tax (4) - (100%) Underlying profit after tax 73 165 (56%) Adjust for the following: Net financing cost
Slide 42: Definitions
SUPPLEMENTARY INFORMATION Definitions Term Definition AN Includes ammonium nitrate prill and solution as well as emulsion products including bulk emulsion and packaged emulsion Capital expenditure Comprises spend on property, plant and equipment and intangible assets, on an accruals basis for FY20 o