Orica Limited · ASX:ORI
Orica — FY2015 Earnings Presentation
52 slides from Orica's earnings presentation, Nov 18, 2015
Slide 1: 2015 Full Year Results
For personal use only 2015 FULL YEAR RESULTS 18 November 2015
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: Agenda
AGENDA For personal use only Alberto Calderon Overview Managing Director & CEO Thomas Schutte Financial Performance Chief Financial Officer Alberto Calderon Improving Shareholder Value Managing Director & CEO Alberto Calderon Looking Forward Managing Director & CEO Questions 3 © Orica Limited Group
Slide 4: Safety and Environment – A Core Value and Competitive Advantage
SAFETY AND ENVIRONMENT – A CORE VALUE AND COMPETITIVE ADVANTAGE For personal use only Total Recordable Injury Frequency Rate1 • No fatal accidents during the year Per 1 million hours worked • Strongly aligned to our customers’ focus 3 on safety 2.5 • Injury rate (TRIFR) fourth lowest of ASX 100 comp
Slide 5: Our Guiding Principles
OUR GUIDING PRINCIPLES For personal use only • Reduced, sustainable cost base Performance • Increased efficiency and return on capital • Execution excellence through common purpose, Collaboration trust, knowledge and good practice Transparency • Open and honest communications • For our stakeholders,
Slide 6: FY15 Summary
FY15 SUMMARY For personal use only • Total AN product volumes of 3.76 million tonnes, in line with outlook provided on 7 August • Statutory net profit after tax (NPAT)1 was a loss of $1,267 million (pcp: $603 million) • Non-cash impairment of $1,692 million2 • NPAT3 of $417 million (pcp: $564 millio
Slide 7: Financial Performance
For personal use only FINANCIAL PERFORMANCE Thomas Schutte Chief Financial Officer
Slide 8: Financial Result
FINANCIAL RESULT For personal use only Full year ended 30 September ($m) 2015 2014 % Continuing Operations1 Sales revenue 5,653 5,722 (1) EBITDA2 978 1,132 (14) EBIT3 685 863 (21) NPAT4 417 564 (26) NPAT and individually material items (1,274) 564 nm Interest cover (times)5 8.3x 7.5x 0.8
Slide 9: Geographic Diversity Provides Flexibility
GEOGRAPHIC DIVERSITY PROVIDES FLEXIBILITY For personal use only Explosives sales volumes Benefits of global diversification % change FY14 to FY15 • Weakness in Australia offset by growth 6 in North America 2 0 0 (1) • Volumes flat in Latin America with growth in Peru and Argentina offset by (8) lowe
Slide 10: Improved Net Debt Position
IMPROVED NET DEBT POSITION For personal use only Full year ended 30 September ($m) 2015 2014 Movement in net debt (A$M) FY14 to FY15 EBITDA 995 1,230 Movement in trade working capital (84) 51 2,237 (652) Movement in working capital 9 (20) Net impact $19m 369 2,026 Net interest & tax paid (288) (353)
Slide 11: Measured Investment
MEASURED INVESTMENT For personal use only Capital Expenditure Depreciation and amortisation3 $m FY15 to FY16 forecast 780 204 18 ~300 293 (32) 504 217 443 12 151 75 9 116 85 126 Growth capital 82 87 243 186 155 FY15 Impact of Burrup Support Manufacturing / FY16 FY13 FY14 FY15 FY16 D&A impaired start
Slide 12: Sound Balance Sheet
SOUND BALANCE SHEET For personal use only Movement in total equity (A$M) Full year ended 30 September ($m) 2015 20141 $ change FY14 to FY15 Trade Working Capital 507 646 (139) 424 (1,692) 4,399 Net Property, Plant & Equipment 2,918 3,795 (877) (410) 399 (133) Intangible assets 1,633 2,389 (755) 2,98
Slide 13: Carrying Value Reflects Market Conditions
CARRYING VALUE REFLECTS MARKET CONDITIONS For personal use only In the context of the ongoing challenging conditions facing the mining sector and the oversupplied ammonium nitrate market, the Company has recognised a non-cash impairment charge of $1,692 million1: Asset Impact Category Impact Comment
Slide 14: Improving Shareholder Value
For personal use only IMPROVING SHAREHOLDER VALUE Alberto Calderon Managing Director & CEO
Slide 15: Improving Shareholder Value
IMPROVING SHAREHOLDER VALUE For personal use only 1 A year of resets – responding to industry headwinds 2 Laying the foundations to position Orica through the cycle 3 Well positioned to improve long term shareholder value 15 © Orica Limited Group
Slide 16: Resilient in Challenging Markets
RESILIENT IN CHALLENGING MARKETS For personal use only Orica Group EBIT – Continuing Operations ($m) FY14 to FY15 1,000 Net impact $81m (9%) 950 Market impacts self help 52 (33) -$248m +$175m 900 881 (135) 863 850 175 (9) 800 (81) 800 (57) 750 (33) (1) (55) ~80% 700 sustainable 685 650 600 550 500 E
Slide 17: Explosives Volumes Expected to Recover
EXPLOSIVES VOLUMES EXPECTED TO RECOVER For personal use only Explosives volume impact 881 (135) Impact on Orica Group EBIT ($m) Expected to recover (10) (42) (23) (36) (135) (33) (144) 9 Mine Mine Onsite Manufacturing Contract AusPac / Other Group closures planning Services underutilisation losses A
Slide 18: Forward Contract Book Strengthened
FORWARD CONTRACT BOOK STRENGTHENED For personal use only Explosives pricing impacts 881 (135) Impact on Orica Group EBIT ($m) • Australia and Indonesia impacted by continued pricing pressure (57) (35) (15) (7) (57) • Strategic price for term Australia Asia Other Total arrangements /Pacific regions n
Slide 19: Cyanide Remains Strong Through the Cycle
CYANIDE REMAINS STRONG THROUGH THE CYCLE For personal use only Cyanide margin impacts 881 (135) NaCN: Price pressure NaCN price1 pressure Exposed to mining cycle Result flat with volume offsetting (57) -9% price weakness: AUD • Cyanide sales up 7% driven by a (1) -32% combination of new business and
Slide 20: Ground Support More Exposed to the Mining Cycle
GROUND SUPPORT MORE EXPOSED TO THE MINING CYCLE For personal use only Ground Support margin impacts 881 (135) Net volume and price impact Volumes:($48m) FY14 vs. FY15 ($m) • Steel volumes down 13%; resins and powders down 18% (18) Prices:($7m) (57) (27) • Lower pricing in North (10) (55) America; ot
Slide 21: Improving Shareholder Value
IMPROVING SHAREHOLDER VALUE For personal use only 1 A year of resets – responding to industry headwinds 2 Laying the foundations to position Orica through the cycle 3 Well positioned to improve long term shareholder value 21 © Orica Limited Group
Slide 22: Customer Centric Operating Model
CUSTOMER CENTRIC OPERATING MODEL For personal use only World class leadership team with deep industry and business experience and a proven ability to deliver targeted outcomes to drive performance Operating regions accountable for end-to-end customer service delivery, operational performance and EBI
Slide 23: Taking Decisive Action
TAKING DECISIVE ACTION For personal use only New management team and operating model – driving accountability and performance Transformation program – sustainable benefits delivered at the top end of target range Rationalised Ammonium Nitrate supply – Australia’s east coast supply balanced S
Slide 24: Good Progress on Transformation
GOOD PROGRESS ON TRANSFORMATION For personal use only Transformation initiatives 881 (135) Actual benefits relative to original target 175 ($m) FY15 FY16 (57) Incremental Target Actual Target (1) (55) One-Off Costs 60 - 70 81 40 - 50 Gross benefits 140 -170 175 90 - 100 Net benefits 80 - 100 94 ~50
Slide 25: Sustainable Benefits Delivered
SUSTAINABLE BENEFITS DELIVERED For personal use only 881 (135) Gross Key initiatives 175 benefits ($m) • ~70% of supplier contracts successfully Procurement (57) renegotiated • Rationalisation and optimisation of (1) (55) Orica’s extensive AN and Initiating Supply System networks 60 efficiencies Sou
Slide 26: Improving Shareholder Value
IMPROVING SHAREHOLDER VALUE For personal use only 1 A year of resets – responding to industry headwinds 2 Laying the foundations to position Orica through the cycle 3 Well positioned to improve long term shareholder value 26 © Orica Limited Group
Slide 27: Commodity Volume Growth Forecast
COMMODITY VOLUME GROWTH FORECAST For personal use only Commodity Volumes Commodity Prices Global Volume Index (2015=100) Global Pricing Index (2015=100) 120 300 115 110 250 105 200 100 95 150 90 85 100 80 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 50 2010 2011 2012 2013 2014 2015 2016 20
Slide 28: Strong Energy Growth in Asia
STRONG ENERGY GROWTH IN ASIA For personal use only India electricity generation and CO2 intensity Global Population Distribution TWh and gCO2/kwh (1990-2040) There are more people living within the circle than outside it • There are more people living inside the Asian hub than • Coal is the lowest c
Slide 29: Diversified Global Business
DIVERSIFIED GLOBAL BUSINESS For personal use only Diverse geographic portfolio By mining commodity By product / services offering1 % of FY15 revenue % of FY15 revenue % of FY15 revenue 9% 3% 14% 12% 18% 22% 29% 18% 5% 15% 9% 6% 29% 17% 16% 16% 20% 27% 7% 8% Australia Pacific North America Thermal Co
Slide 30: Unrivalled AN Manufacturing and Sourcing Capacity
UNRIVALLED AN MANUFACTURING AND SOURCING CAPACITY For personal use only North America North America AN manufacturing cost curve 2015 producer gate total cash costs (USD/mt) • Cost effective, long term AN supply • 15 year agreement with CF Industries; gas-backed supply with tier 1 cost profile Yazoo
Slide 31: Burrup – A Natural Fit for a Growing Pilbara Market
BURRUP – A NATURAL FIT FOR A GROWING PILBARA MARKET For personal use only Pilbara region iron ore province Global iron ore total cash cost curve US$ / tonne 2015 Iron Ore Mine, Global All, Total Cash Cost Grouped by Mine and Ranked by Total Cash Cost Burrup 330ktpa AN Australian Suppliers Total Cash
Slide 32: Technology Investment Strategy
TECHNOLOGY INVESTMENT STRATEGY For personal use only Initiating Systems product maturity curve Drive significant customer productivity Life Cycle Analysis improvements • Unprecedented energy utilisation via electronic timing – electronic blasting Low • Removal of wires and the constraints Orica Mark
Slide 33: Productivity from Advanced Blasting
PRODUCTIVITY FROM ADVANCED BLASTING For personal use only Cost of Explosives as % Ore value Improved Mill Latin America example Throughput Improved % 5.0 fragmentation 4.5 Maximum recovery 4.0 Lower vibration 3.5 Increased bucket and 3.0 truck factors 2.5 Increased throw 2.0 Reduced energy 1.5 usage
Slide 34: Looking Forward
For personal use only LOOKING FORWARD Alberto Calderon Managing Director & CEO
Slide 35: FY16 Outlook Assumptions
FY16 OUTLOOK ASSUMPTIONS With the benefits from self-help initiatives, recovery in volumes anticipated by market forecasters1, and For personal use only subject to the forward price and volume curves for key commodities largely holding, some improvement in EBIT in FY16 is expected as earnings stabil
Slide 36: Our Value Proposition
OUR VALUE PROPOSITION For personal use only Our market position Our customer value proposition • #1 or 2 in key mining markets • Unrivalled global manufacturing Market Security of footprint and flexible sourcing • Unrivalled geographic, leadership and supply commodity, customer diversity • Strategic
Slide 37: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION
Slide 38: Explosives Volumes
EXPLOSIVES VOLUMES For personal use only FY15 volumes Variance – FY15 volumes vs. FY14 volumes ‘000 tonnes AN1 Emulsion Total AN1 Emulsion Total products 2 products 2 Australia/Pacific 319 798 1,117 (5%) (9%) (8%) North America3 825 424 1,249 5% 8% 6% Latin America 254 417 670 1% (1%) (0%) EMEA 35 3
Slide 39: Australia Pacific
AUSTRALIA PACIFIC For personal use only • EBIT of $448 million, down 19% FY15 Revenue FY15 Revenue by • Explosives volumes down 8% by category commodity – Eastern coal market down 10%; weaker market conditions, mine planning changes and contract losses 6% – Iron ore down 14% impacted by subdued dema
Slide 40: North America
NORTH AMERICA For personal use only FY15 Revenue FY15 Revenue • EBIT of $123 million. Including the contribution from by category by commodity Global Hub activities, EBIT was $249 million 1% • Explosives volumes up 6% – Increase in iron ore markets 16% 16% 3% – Increase in coal market volumes with m
Slide 41: Latin America
LATIN AMERICA For personal use only FY15 Revenue FY15 Revenue • EBIT of $70 million. Including the contribution from by category by commodity Global Hub activities, EBIT was $118 million 4% • Explosives volumes remained flat 11% 12% 9% – Higher volumes in Peru and Argentina offset by lower volumes i
Slide 42: EMEA
EMEA For personal use only FY15 Revenue FY15 Revenue • EBIT of $95 million, up 15% by category by commodity 3% 3% • Explosives volumes flat 13% – Growth in Nordics and Africa offset by lower volumes in Turkey 24% • Advanced products and services contributed 15% of total explosives revenue – New proj
Slide 43: Asia & Other
ASIA & OTHER For personal use only FY15 Revenue FY15 Revenue by • Asia & Head Office EBIT of ($45) million by category commodity • Explosives volumes up 2% – Reduced volumes in Indonesia due to weak coal 13% demand, lower strip ratios offset by higher bulk emulsion volumes into India 37% 14% • Lower
Slide 44: Ground Support
GROUND SUPPORT For personal use only FY15 Revenue by region • Australia/Pacific <1% – Volumes reduced; weak coal demand, site closures and increased competition • North America – Volumes down due to weaker demand 42% 42% • EMEA – Ground Support volumes lower due to customer closures and slowdown in
Slide 45: FX Exposure
FX EXPOSURE For personal use only EBIT Composition FY15 FX movements EBIT Sensitivity to FX (FX Translation) (% change) Movement (%) 1% change +/- Asia ASIA USD 1.8 m 5% EMEA 13% EMEA CAD 0.5 m Australia Latin 37% LATAM 0.8 m America LATAM 12% EMEA 0.9 m Canada CAD 7% United ASIA 0.5 m States 26% US
Slide 46: Cash Conversion
CASH CONVERSION For personal use only Full year ended 30 September ($m) 2015 2014 Consolidated Group1 EBITDA 995 1,231 TWC movement (84) 51 Sustaining Capital2 (193) (203) Cash Conversion 718 1,079 Cash Conversion %3 72.2% 87.7% Cash Conversion %3 (continuing operations) 81.0% 86.9% 1. Includes disc
Slide 47: Interest Cover
INTEREST COVER For personal use only Change Full year ended 30 September ($m) 2015 2014 ($) Consolidated Group1 EBIT before individually material items 689 930 (240) Net financing costs 2 82 116 34 Interest cover (times) 8.4x 8.0x 0.4x Interest cover (times) excluding capitalised interest 5.8x 6.5x
Slide 48: Debt Profile
DEBT PROFILE For personal use only Facility Headroom Drawn Debt Maturity Profile A$m A$m 4,500 Average tenor at September 2015 - 5.8 years $3,970 $4,053 700 Average tenor at September 2014 - 5.7 years 4,000 600 3,500 1,553 3,000 1,670 500 2,500 400 2,000 300 1,500 2,300 2,500 200 1,000 100 500 0 0 S
Slide 49: Environmental Provisions
ENVIRONMENTAL PROVISIONS For personal use only Provision Spend Profile ($m) Environmental Provisions ($m) FY15 FY14 $46m $43m Botany groundwater remediation 64 59 9 16 Botany HCB remediation 34 35 21 $21m Deer Park remediation 33 2 12 $16m 6 1 3 2 2 2 Yarraville remediation 32 17 13 13 13 13 Other 4
Slide 50: Non IFRS Reconciliation
NON IFRS RECONCILIATION For personal use only Full year ended 30 September ($m) 2015 2014 % Continuing Operations 1 Statutory profit after tax (1,274.4) 563.6 nm Add back: Individually material items after tax 1,691.6 - Underlying profit after tax 417.2 563.6 (26) Adjust for the following: Net fin
Slide 51: Non IFRS Reconciliation
NON IFRS RECONCILIATION For personal use only Full year ended 30 September ($m) 2015 2014 % Consolidated Group 1 Statutory profit after tax (1,267.4) 602.5 nm Add back: Individually material items after tax 1,691.6 - Underlying profit after tax 424.2 602.5 (30) Adjust for the following: Net financ
Slide 52: Disclosures and Definitions
DISCLOSURES AND DEFINITIONS For personal use only Term Definition Statutory profit after tax Net (loss) / profit for the year attributable to shareholders of Orica Limited as disclosed in Note 16 within Appendix 4E - Orica Preliminary Final Report EBIT Profit/(loss) before individually material item