Orica Limited · ASX:ORI
Orica — Macquarie Conference ANZ Corporate Day 2016
36 slides from Orica's conference presentation, Sep 9, 2016
Slide 1: Macquarie Conference ANZ Corporate Day 2016
MACQUARIE CONFERENCE ANZ CORPORATE DAY 2016 Hong Kong and Singapore 7-9 September 2016
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: Our Competitive Advantage: Global Reach and Footprint
OUR COMPETITIVE ADVANTAGE: GLOBAL REACH AND FOOTPRINT 3 © Orica Limited Group
Slide 4: Our Core Value and Competitive Advantage: Safety and Environment
OUR CORE VALUE AND COMPETITIVE ADVANTAGE: SAFETY AND ENVIRONMENT Total Recordable Injury Frequency Rate1 • Strongly aligned to our customers’ focus on Per 1 million hours worked safety • Top quartile safety performer on the Australian 3 Stock Exchange2 2.5 • Improved accountability, with SHE3 manage
Slide 5: Diversified Global Business
DIVERSIFIED GLOBAL BUSINESS Diverse geographic portfolio By commodity By product / services offering1 % of HY16 revenue % of HY16 revenue % of HY16 revenue 4% 8% 16% 18% 25% 23% 31% 12% 14% 4% 6% 25% 18% 21% 15% 15% 26% 7% 12% Thermal coal Coking coal AN/ANFO Bulk Emulsion Australia Pacific & Indone
Slide 6: Balanced Commodity Exposure
BALANCED COMMODITY EXPOSURE Australia Pacific Indonesia North America Other Other Q&C 10% Thermal coal 17% 4% 15% Coking coal Copper 2% 6% Thermal coal 40% Iron ore Q&C 12% 19% Gold 27% Gold Coking Copper 18% coal 12% Iron ore 10% 8% Latin America Europe, Africa & Asia Coking coal 1% Other Thermal T
Slide 7: Resilient in Challenging Markets
RESILIENT IN CHALLENGING MARKETS Orica Group EBIT – Continuing Operations ($m) HY15 to HY16 A$M Net impact $67m (18%) 450 Market impacts self help -$120m +$57m 400 48 (12) 376 (50) 350 10 330 (43) 57 (4) 309 (5) 13 317 300 (3) (24) 250 200 EBIT FX Business One-offs Adjusted Explosives Explosives Cya
Slide 8: Strong Margins Across All Regions
STRONG MARGINS ACROSS ALL REGIONS Australia Pacific Indonesia North America 800 30% 800 30% 600 600 20% 20% 400 400 10% 10% 200 200 0 0% 0 0% 1H14 2H14 1H15 2H15 1H16 1H14 2H14 1H15 2H15 1H16 AN volume (mt) (LHS) EBIT margin (RHS) AN volume (mt) (LHS) EBIT margin (RHS) Latin America Europe, Africa &
Slide 9: Business Improvement Benefits Above Target
BUSINESS IMPROVEMENT BENEFITS ABOVE TARGET FY15 1H16 Original Revised Actual Actual FY16 FY16 incremental target incremental target One-Off Costs 81 5 40 - 50 ~70 - 80 Gross benefits 175 57 90 - 100 Net benefits 94 52 ~50 - 60 • Business improvement program progressing well – Further rationalisation
Slide 10: Business Improvement Benefits Above Target
BUSINESS IMPROVEMENT BENEFITS ABOVE TARGET Gross benefits Key initiatives ($m) • Cost reductions through contract renegotiations and general tenders on inputs into Procurement bulk explosives and initiating systems • Rationalisation and optimisation of Orica’s AN network and Initiating Systems Suppl
Slide 11: Disciplined Approach to Capital
DISCIPLINED APPROACH TO CAPITAL Capital Expenditure Ranking Maximise shareholder value Cumulative capital spend (RHS) through growth and cash High returns Deferred /Cancelled capital spend Maximise cash flow Deliver acceptable returns on Efficient cost base investments Rank Maintain an investment gr
Slide 12: 35% Reduction in Capex (Excluding Burrup)
35% REDUCTION IN CAPEX (EXCLUDING BURRUP) Capital Expenditure1 $m 780 204 504 443 307 151 75 ~320 150 183 80 137 90 - 100 269 32 203 185 45 140 - 150 60 FY13 FY14 FY15 HY16 FY16 Group Group Continuing Continuing Forecast Operations Operations Sustaining Capital Growth Capital Burrup AN Plant • Burru
Slide 13: Decisive Action
DECISIVE ACTION
Slide 14: Decisive Actions in a Challenging Environment
DECISIVE ACTIONS IN A CHALLENGING ENVIRONMENT Self help initiatives deliver above forecast benefits 35% reduction in capital expenditure (excluding Burrup) Net benefits $m $m ~$70 - 80 $443 $52 ~$50 - 60 ~$320 $137 HY16 Previous Revised FY15 HY16 Revised Forecast Forecast Forecast FY16 FY16 Burrup A
Slide 15: Minova Turnaround Progressing Well
MINOVA TURNAROUND PROGRESSING WELL Revenue and EBITDA • Cash flow positive, working capital reduction and ($m) capital containment 400 15 • Operating costs reduced by $14m 10 200 • Reinvested in new management team and 5 dedicated salesforce 0 0 • Successfully transitioned to a stand-alone 1H15 2H15
Slide 16: Burrup Commissioning in CY16
BURRUP COMMISSIONING IN CY16 Pilbara region iron ore province • Plant construction plant near completion Burrup 330ktpa AN – Plant in commission phase; first nitric acid production this month – Handover from contractor expected in 2HCY16 – Production to be ramped up over 12-18 months in line with ma
Slide 17: Pursuing Manufacturing Efficiencies
PURSUING MANUFACTURING EFFICIENCIES Cumulative manufacturing improvement savings $m Security of Supply - taking a global perspective • Indigenous manufacturing and assembly close to markets 40 – Local partnering to minimise Orica’s capital spend e.g. 30 Thales boosters in Australia 20 Efficiency imp
Slide 18: New Dividend Policy
NEW DIVIDEND POLICY Historic dividend and payout ratio • Progressive dividend policy replaced with payout ratio policy within range of 40% - 70%: cps % 100 100 – Prudent approach to delivering sustainable returns through the cycle – Balance to be weighted towards the final dividend 75 75 – 58% avera
Slide 19: Good Progress Over Last 12 Months
GOOD PROGRESS OVER LAST 12 MONTHS New operating model in place – Clear regional and functional accountabilities and responsibilities – Improved transparency Net contract wins globally Surpassed sustainable business improvement expectations EBIT margins maintained Introduced capital discipl
Slide 20: Looking Forward
LOOKING FORWARD
Slide 21: Declining US Coal Demand and Its Impacts
DECLINING US COAL DEMAND AND ITS IMPACTS US Coal by Basin • US Coal Demand (mt) – Long term decline expected; however even steeper decline in short term: 500,000 • At least 15% reduction in main power generation markets 400,000 (Southeast, Mid Atlantic and Central) due to warmer winter 300,000 • Hig
Slide 22: Energy Growth in Asia to Continue
ENERGY GROWTH IN ASIA TO CONTINUE Coal demand growth: 2015-2035 1,000 • +11% global coal demand growth expected from 2015 - 2035 800 • Coal is the lowest cost energy to meet the fast 600 growing energy demands of Asia, and particularly India TPED Growth (Mtoe) 400 • In addition to domestic coal mini
Slide 23: Looking Forward
LOOKING FORWARD Continue to control what we can … Sustainable reduction in cost base Increase manufacturing efficiency Improve cash conversion, reduce debt, strengthen the balance sheet Deliver +20% RONA on all new growth projects Benefit from external forecast volume growth1 in the medium t
Slide 24: Supplementary Information
SUPPLEMENTARY INFORMATION
Slide 25: Market Volatility Impacts Volumes
MARKET VOLATILITY IMPACTS VOLUMES Commodity price movements • Substantial commodity price volatility since October 2015 to March 2016 October 2015 affecting customer production 120 volume: – Iron ore price declined to a low point of 25% 110 – Oil declined to a low point of 33% • Impact on Orica expl
Slide 26: Explosives Volumes
EXPLOSIVES VOLUMES HY16 volumes Variance – HY16 volumes vs. HY15 volumes ‘000 tonnes AN1 Emulsion Total AN1 Emulsion Total products2 products2 Australia/Pacific and Indonesia 234 332 566 3% (16%) (9%) North America 358 214 572 (16%) 22% (5%) Latin America 119 185 304 (13%) (17%) (15%) Europe, Africa
Slide 27: FX Exposure
FX EXPOSURE EBIT Composition FY16 FX movements EBIT Sensitivity to FX (FX Translation) (% change from pcp) Movement1 (%) 1% change +/- Asia Bloc USD LATAM 5% USD 1.0 m Bloc 10% USD EMEA EMEA 0.4 m 31% CAD 11% CAD 0.3 m CAD EMEA LATAM 0.3 m Bloc LATAM 12% AUD ASIA 0.2 m 31% ASIA TOTAL 2.2 m -20% -10%
Slide 28: Cash Conversion
CASH CONVERSION Half year ended 31 March ($m) 2016 2015 Continuing Operations EBITDA 450.1 472.1 TWC movement (58.7) (55.8) Sustaining Capital (60.0) (77.4) Cash Conversion 331.4 338.9 Cash Conversion %1 73.6% 71.8% Cash Conversion %1 (Consolidated Group2) 73.6% 54.9% 1. Cash Conversion/EBITDA 2. In
Slide 29: Interest Cover
INTEREST COVER Change Half year ended 31 March ($m) 2016 2015 ($) Consolidated Group1 EBIT before individually material items 316.5 338.3 (21.8) Net financing costs 2 45.5 48.0 (2.5) Interest cover (times) 7.0x 7.0x n/c Interest cover (times) excluding capitalised borrowing costs 5.1x 5.2x (0.1x) Co
Slide 30: Net Debt Position
NET DEBT POSITION Half year ended 31 March (A$M) 2016 Movement in net debt (A$M) FY15 to HY16 EBITDA 450 Movement in trade working capital (59) Net impact $152m Movement in non trade working capital (43) Net interest & tax paid (127) 161 2,178 (124) Non cash items & foreign exchange (89) 2,054 2,026
Slide 31: Debt Profile
DEBT PROFILE Facility Headroom Drawn Debt Maturity Profile A$m A$m Average tenor at March 2016 - 5.4 years 4,500 Average tenor at September 2015 - 5.8 years $3,970 600 4,000 $3,707 3,500 500 3,000 1,411 1,670 400 2,500 300 2,000 1,500 200 1,000 2,296 2,300 100 500 0 0 Mar-16 Sep-15 FY16 FY17 FY18 FY
Slide 32: Environmental Provisions
ENVIRONMENTAL PROVISIONS Provision Spend Profile ($m) Environmental Provisions ($m) HY16 FY15 $63m Botany groundwater remediation 64 64 11 Botany HCB remediation 34 35 $40m 18 $39m 8 10 Deer Park remediation 30 33 2 3 19 10 10 $19m Yarraville remediation 31 32 3 4 4 2 2 1 2 Other 38 44 13 13 13 13 2
Slide 33: Depreciation and Amortisation
DEPRECIATION AND AMORTISATION Depreciation and amortisation1 FY15 to FY16 forecast ($m) 293 (32) 6 ~285 14 4 FY15 Impact of Burrup Manufacturing Support FY16 D&A impaired start-up functions Forecast assets D&A 1. From continuing operations 33 © Orica Limited Group
Slide 34: Non IFRS Reconciliation
NON IFRS RECONCILIATION Half year ended 31 March ($m) 2016 2015 % 2 Continuing Operations1 Statutory profit after tax 149.0 211.0 (29) Add back: Individually material items after tax 41.0 - Underlying profit after tax 190.0 211.0 (10) Adjust for the following: Net financing costs 45.5 48.1 (5) Incom
Slide 35: Non IFRS Reconciliation
NON IFRS RECONCILIATION Half year ended 31 March ($m) 2016 2015 % 2 Consolidated Group1 Statutory profit after tax 149.0 222.1 (33) Add back: Individually material items after tax 41.0 - Underlying profit after tax 190.0 222.1 (14) Adjust for the following: Net financing costs 45.5 48.0 (5) Income t
Slide 36: Disclosures and Definitions
DISCLOSURES AND DEFINITIONS Term Definition AN volume Includes AN prill and solution and Emulsion products include bulk emulsion and packaged emulsion Statutory profit after tax Net profit for the period attributable to shareholders of Orica Limited as disclosed in the Income Statement within Append