Orica Limited · ASX:ORI
Orica — H1 2016 Earnings Presentation
43 slides from Orica's earnings presentation, May 9, 2016
Slide 1: 2016 Half Year Results
For personal use only 2016 HALF YEAR RESULTS 9 May 2016
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 Decisive Action Managing Director & CEO Alberto Calderon Looking Forward Managing Director & CEO Questions 3 © Orica Limited Group 3
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 • 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 accountabil
Slide 5: Resilient Result Despite Market Environment
RESILIENT RESULT DESPITE MARKET ENVIRONMENT For personal use only • Total AN product volumes of 1.71 million tonnes (pcp: 1.86 million tonnes) • Over 80% of revenue from down the hole and value add services • Underlying EBIT1 of $317 million (pcp: $330 million) • Underlying EBITDA1 of $450 million (
Slide 6: Regional Performance: Australia, Pacific & Indonesia
REGIONAL PERFORMANCE: AUSTRALIA, PACIFIC & INDONESIA For personal use only AN volume and EBIT margin • AN volume down 9% – Mainly due to lower demand in coal in Australia, partly offset by improved volume in Indonesia 800 30% • Volume and customer mix ($36m) 600 20% – Predominantly mine closures/car
Slide 7: Regional Performance: North America
REGIONAL PERFORMANCE: NORTH AMERICA For personal use only AN volume and EBIT margin • AN volume down 5% – Lower volumes in US coal markets partially offset by higher volumes in Canadian metal markets 800 30% – Q&C growth in US market; Canada and Mexico 600 slightly down 20% 400 • Volume and customer
Slide 8: Regional Performance: Latin America
REGIONAL PERFORMANCE: LATIN AMERICA For personal use only AN volume and EBIT margin • AN volume down 15% – Volume down 2% 2H15 vs 1H16 400 30% – Lower volumes in Chile and Colombia; offset by improved volumes in copper and gold in Peru and 300 Brazil 20% 200 • Volume and customer mix ($8m) 10% – Pre
Slide 9: Regional Performance: Europe, Africa & Asia
REGIONAL PERFORMANCE: EUROPE, AFRICA & ASIA For personal use only AN volume and EBIT margin • AN volumes flat – Higher volumes in Africa, offset by lower volumes in Asia 300 30% – Improved demand in CIS and Turkey; flat volumes in Europe 200 20% • Volume and customer mix of $9m – Mine closures/care
Slide 10: Market Volatility Impacts Volumes
MARKET VOLATILITY IMPACTS VOLUMES For personal use only Commodity price movements • Substantial commodity price volatility since October 2015 to March 2016 October 2015 affecting customer production 120 volume: – Iron ore price declined to a low point of 25% – Oil declined to a low point of 33% 110
Slide 11: Financial Performance
For personal use only FINANCIAL PERFORMANCE Thomas Schutte Chief Financial Officer
Slide 12: Financial Result
FINANCIAL RESULT For personal use only Half year ended 31 March ($m) 2016 2015 % Continuing Operations1 Sales revenue 2,553.4 2,809.4 (9) EBITDA2 450.1 472.1 (5) EBIT3 316.5 330.0 (4) NPAT4 190.0 211.0 (10) NPAT and individually material items 149.0 211.0 (29) Interest cover (times)5 7.0
Slide 13: Resilient in Challenging Markets
RESILIENT IN CHALLENGING MARKETS For personal use only Orica Group EBIT – Continuing Operations ($m) HY15 to HY16 A$M Net impact $67m (18%) 450 Market impacts self help -$120m +$57m 400 48 (12) 376 (50) 350 10 330 (43) 57 (4) 309 (5) 13 317 300 (3) (24) 250 200 EBIT FX Business One-offs Adjusted Exp
Slide 14: Business Improvement Benefits Above Target
BUSINESS IMPROVEMENT BENEFITS ABOVE TARGET For personal use only FY15 1H16 Original Revised Actual Actual FY16 FY16 incremental target incremental target One-Off Costs 81 5 40 - 50 ~70 - 80 Gross benefits 175 57 90 - 100 Net benefits 94 52 ~50 - 60 • Business improvement program progressing well – F
Slide 15: Business Improvement Benefits Above Target
BUSINESS IMPROVEMENT BENEFITS ABOVE TARGET For personal use only Gross benefits Key initiatives ($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 In
Slide 16: Net Debt Position
NET DEBT POSITION For personal use only 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 exc
Slide 17: Disciplined Approach to Capital
DISCIPLINED APPROACH TO CAPITAL For personal use only • Establishment of a capital and investment Major Growth management framework: – Improve overall governance and rigour in capital Financial metrics: investment evaluations GROWTH Contractual Growth • Capital Index1 – Supported by a formalised Inv
Slide 18: 35% Reduction in Capex (Excluding Burrup)
35% REDUCTION IN CAPEX (EXCLUDING BURRUP) For personal use only 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 B
Slide 19: Decisive Action
For personal use only DECISIVE ACTION Alberto Calderon Managing Director & CEO
Slide 20: Decisive Actions in a Challenging Environment
DECISIVE ACTIONS IN A CHALLENGING ENVIRONMENT For personal use only 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 $137 HY16 Previous Revised FY15 HY16 Revised Forecast Forecast Forec
Slide 21: Minova Turnaround Progressing Well
MINOVA TURNAROUND PROGRESSING WELL For personal use only Revenue and EBITDA • Cash flow positive, working capital reduction and ($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
Slide 22: Burrup Commissioning in CY16
BURRUP COMMISSIONING IN CY16 For personal use only 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
Slide 23: Pursuing Manufacturing Efficiencies
PURSUING MANUFACTURING EFFICIENCIES For personal use only 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 Austr
Slide 24: Disciplined Approach to Capital
DISCIPLINED APPROACH TO CAPITAL For personal use only 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 Mai
Slide 25: New Dividend Policy
NEW DIVIDEND POLICY For personal use only 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 divi
Slide 26: Good Progress Over Last Months
GOOD PROGRESS OVER LAST 12 MONTHS For personal use only 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 Intr
Slide 27: Looking Forward
For personal use only LOOKING FORWARD Alberto Calderon Managing Director & CEO
Slide 28: Declining US Coal Demand and Its Impacts
DECLINING US COAL DEMAND AND ITS IMPACTS For personal use only 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 warme
Slide 29: Energy Growth in Asia to Continue
ENERGY GROWTH IN ASIA TO CONTINUE For personal use only Coal demand growth: 2015-2035 1,000 • +11% average 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
Slide 30: FY16 Outlook Assumptions
FY16 OUTLOOK ASSUMPTIONS For personal use only Market conditions deteriorated more than we anticipated during the half, marked by increased volatility. It is expected that the market will remain challenged for the foreseeable future. Regardless, our continued focus will be on business improvement in
Slide 31: Looking Forward
LOOKING FORWARD For personal use only 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 g
Slide 32: Supplementary Information
For personal use only SUPPLEMENTARY INFORMATION
Slide 33: Explosives Volumes
EXPLOSIVES VOLUMES For personal use only 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%
Slide 34: Diversified Global Business
DIVERSIFIED GLOBAL BUSINESS For personal use only 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 Aust
Slide 35: FX Exposure
FX EXPOSURE For personal use only 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
Slide 36: Cash Conversion
CASH CONVERSION For personal use only 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 C
Slide 37: Interest Cover
INTEREST COVER For personal use only 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 cos
Slide 38: Debt Profile
DEBT PROFILE For personal use only 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 $3,707 3,500 500 3,000 1,411 1,670 400 2,500 300 2,000 1,500 200 1,000 2,296 2,300 100 500 0 0 Mar-16 Se
Slide 39: Environmental Provisions
ENVIRONMENTAL PROVISIONS For personal use only Provision Spend Profile ($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 $19m Yarraville remediation 31 32 3 4 4 2 2 1 2 Oth
Slide 40: Depreciation and Amortisation
DEPRECIATION AND AMORTISATION For personal use only Depreciation and amortisation1 FY15 to FY16 forecast ($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 40 © Orica Limited Group
Slide 41: Non IFRS Reconciliation
NON IFRS RECONCILIATION For personal use only Half year ended 31 March ($m) 2016 2015 % Continuing Operations1 Statutory profit after tax 149.0 211.0 (29) Add back: Individually material items after tax 41.0 - Underlying profit after tax 190.0 211.0 (10) Adjust for the following: Net financing cos
Slide 42: Non IFRS Reconciliation
NON IFRS RECONCILIATION For personal use only Half year ended 31 March ($m) 2016 2015 % 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
Slide 43: Disclosures and Definitions
DISCLOSURES AND DEFINITIONS For personal use only 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 S