Orica Limited · ASX:ORI
Orica — FY2007 Earnings Presentation
55 slides from Orica's earnings presentation, Nov 12, 2007
Slide 1: Full Year Results Announcement
For personal use only Full Year Results Announcement 12 November 2007
Slide 2: Presentation outline
Presentation outline For personal use only • Group performance Graeme Liebelt • Divisional performance Noel Meehan • Capital management Noel Meehan • 2008 priorities Graeme Liebelt • Outlook Graeme Liebelt Orica Full Year Results 2007 2
Slide 3: Group performance
Group performance For personal use only Year ended 30 September (A$M) 2007 2006 % Sales 5,527.2 5,359.2 3.1 u Gross margin 2,474.0 2,125.2 16.4 u EBITDA 995.9 814.6 22.3 u EBIT 812.7 657.7 23.6 u Net profit after tax pre significant items 497.8 380.3 30.9 u Net profit after tax after significant ite
Slide 4: Divisional EBIT
Divisional EBIT For personal use only Year ended 30 September (A$M) 2007 2006 % Mining Services 575.1 412.0 39.6 u Minova 1 61.6 - - Consumer Products 2 101.6 97.3 4.4 u Chemical Services 68.7 67.1 2.4 u Chemnet 58.7 57.7 1.7 u Fertilisers - 74.3 100.0 v Total Businesses 865.7 708.4 22.2 u Corporate
Slide 5: EBIT growth
EBIT growth For personal use only A$M 900 62 850 78 813 800 (80) 95 750 700 658 650 600 FY06 EBIT Ex-Dyno Underlying Minova Divested FY07 EBIT Business Businesses Growth Orica Full Year Results 2007 5
Slide 6: Significant items
Significant items For personal use only Year ended 30 September 2007 (A$M) Restructuring & rationalisation – Marplex 1 (16.4) Dyno Nobel expenditure – integration costs (33.4) Adhesives & Resins profit on sale 23.7 Tax indemnity – Crop Care 16.0 Total significant items after tax and minority interes
Slide 7: Divisional return on net assets (RONA)
Divisional return on net assets (RONA) For personal use only RONA (%) Average Net Assets ($) Year ended 30 September 2007 2006 2007 2006 Mining Services 25.6 25.1 2,245.6 1,644.2 Minova 1 10.1 - 905.6 - Consumer Products 2 43.7 44.4 232.6 219.2 Chemical Services 3 17.4 17.7 394.2 379.7 Chemnet 4 16.
Slide 8: Return on shareholders' funds
Return on shareholders’ funds For personal use only 30% 25.5% 23.9% 25% 19.6% 19.3% 19.2% 20% 18.0% 15% 10% 4.5% 5% 0% 2001 2002 2003 2004 2005 2006 2007 Orica Full Year Results 2007 8
Slide 9: Orica's approach – value drivers
Orica’s approach – value drivers For personal use only Orica Full Year Results 2007 9
Slide 10: SH&E - Safety
SH&E - Safety For personal use only Year ended 30 September 2007 2006 AWRCR 1 0.60 0.57 Distribution Incidents 28 18 Fatalities 2 29 4 1 All Worker Recordable Case Rate is calculated as the number of injuries and illnesses per 200,000 hours worked 2 There were two fatal incidents during the year – C
Slide 11: Gross margin growth
Gross margin growth For personal use only A$M 2,600 16.4% 2,400 2,200 7.6% 4.3% 2,000 13.9% 1,800 8.2% 0.1% 6.1% 1,600 1,400 1,200 1,000 2001 2002 2003 2004 2005 2006 2007 Cumulative average growth rate since 2001 is 8.3% Orica Full Year Results 2007 11
Slide 12: Productivity
Productivity For personal use only 100% 95% 91.8% 90% 85% 78.9% 80% 75.1% 74.0% 73.2% 72.8% 75% 69.8% 70% 65% 60% 55% 50% 2001 2002 2003 2004 2005 2006 2007 Productivity is measured as fixed costs (incl. depreciation and amortisation) as a percentage of gross margin. Orica Full Year Results 2007 12
Slide 13: Net profit after tax
Net profit after tax For personal use only A$M +30.9% 500 +11.9% 400 +4.4% +20.5% +13.0% 300 +283.8% 200 100 0 2001 2002 2003 2004 2005 2006 2007 Cumulative average growth rate since 2001 is 41.4% Orica Full Year Results 2007 13
Slide 14: Divisional performance
For personal use only Divisional performance
Slide 15: Orica Mining Services
Orica Mining Services For personal use only Year ended 30 September (A$M) 2007 2006 % Sales 3,111.2 2,620.9 18.7 u EBITDA 697.9 506.0 37.9 u EBITDA margin (%) 22.4 19.3 16.1 u EBIT 575.1 412.0 39.6 u EBIT margin (%) 18.5 15.7 17.8 u Return on net assets (%) 25.6 25.1 Average operating net assets 2,2
Slide 16: Orica Mining Services EBIT bridge
Orica Mining Services Sales $3,111M; EBIT $575M; Average Net Assets $2,246M; RONA 26% For personal use only A$M 700 20% 700 18% 600 16% 650 35 EBIT MARGIN 500 14% 49 EBIT A$M (29) 400 12% 600 (18) 575 10% 53 (17) (5) 300 8% 550 6% 95 200 500 4% 100 2% 450 0 0% 412 2004 2005 2006 2007 400 350 1st Hal
Slide 17: Orica Mining Services by geography
Orica Mining Services by geography For personal use only Australia/Asia North America 350 24% 90 12% 22% 80 300 20% 10% 70 EBIT MARGIN 18% EBIT MARGIN 250 60 8% EBIT A$M EBIT A$M 16% 200 14% 50 12% 6% 150 10% 40 8% 30 4% 100 6% 20 50 4% 2% 2% 10 0 0% 0 0% 2004 2005 2006 2007 2004 2005 2006 2007 1st
Slide 18: Acquired ex Dyno business performance
Acquired ex Dyno business performance For personal use only EBIT (A$M) 2007 Underlying trading performance of Ex Dyno Businesses 59.7 Synergies delivered 70.4 Amortisation of intangibles (8.9) 2007 EBIT 121.2 Synergy Benefit (A$M) 2007 2008 2009 Current View 70 90 90 March 2007 50-60 80-90 90 Orica
Slide 19: Acquired ex Dyno business - integration costs
Acquired ex Dyno business - integration costs For personal use only 2006 2007 Cumulative Integration cost category (A$M) Actual Actual Actual Asset write-offs – non cash 45 7 52 Redundancies 41 5 46 Transitional salaries/other 7 6 13 Synergy implementation costs 4 10 14 Total Integration costs 97 28
Slide 20: Minova
Minova For personal use only Nine months ended 30 September (A$M) 2007 Sales 332.1 EBITDA 75.1 EBITDA margin (%) 22.6 EBIT 61.6 EBIT margin (%) 18.5 Underlying EBIT 1 68.2 Return on net assets (%) 2 10.1 Average operating net assets 905.6 1 Underlying EBIT excludes the $6.6M one-off acquisition acco
Slide 21: Minova EBIT bridge
Minova Sales $332M; EBIT $62M; Net Assets $906M; Pro forma RONA 10.1% For personal use only A$M 80 75 3 10 70 (7) 65 62 61 (4) (1) 60 55 50 FY06 Business Cost AIFRS Acq FX Amortisation FY07 EBIT Pro-rata Growth Synergies Accounting EBIT Adj 9 Underlying EBIT growth of 12% 9 Result includes AIFRS one
Slide 22: Chemical Services
Chemical Services For personal use only Year ended 30 September (A$M) 2007 2006 % Sales 425.1 477.0 10.9 v EBITDA 87.8 85.0 3.3 u EBITDA margin (%) 20.7 17.8 15.9 u EBIT 68.7 67.1 2.4 u EBIT margin (%) 16.2 14.1 14.9 u Underlying EBIT 1 65.8 59.1 11.3 u Return on net assets (%) 17.4 17.7 Average ope
Slide 23: Chemical Services EBIT bridge
Chemical Services Sales $425M; EBIT $69M; Average Net Assets $394M; RONA 17% For personal use only A$M 80 18% 80 2 4 70 16% 14% 75 60 6 EBIT MARGIN (5) EBIT A$M 12% 50 70 69 10% 67 (4) (1) 40 8% 65 30 6% 20 4% 60 10 2% 0 0% 55 2004 2005 2006 2007 50 FY06 EBIT Mining Miex Watercare A&R Watercare Wate
Slide 24: Chemnet
Chemnet For personal use only Year ended 30 September (A$M) 2007 2006 % Sales 927.7 987.4 6.0 v EBITDA 66.4 66.0 0.6 u EBITDA margin (%) 7.2 6.7 7.1 u EBIT 58.7 57.7 1.7 u EBIT margin (%) 6.3 5.8 8.3 u Return on net assets (%) 16.9 15.4 Average operating net assets 346.4 375.6 Underlying EBIT in lin
Slide 25: Chemnet EBIT bridge
Chemnet Sales $928M; EBIT $59M; Average Net Assets $346M; RONA 17% For personal use only A$M 90 12% 75 80 1 1 10% 70 11 70 EBIT MARGIN 60 8% EBIT A$M 65 50 6% 60 59 40 58 (12) 30 4% 55 20 2% 10 50 0 0% 45 2004 2005 2006 2007 40 1st Half EBIT 2nd Half EBIT EBIT MARGIN FY06 EBIT Fixed Latin Profit on
Slide 26: Orica Consumer Products
Orica Consumer Products For personal use only Year ended 30 September (A$M) 2007 2006 % Sales 826.3 785.0 5.3 u EBITDA 116.3 111.5 4.3 u EBITDA margin (%) 14.1 14.2 0.9 v EBIT 101.6 97.3 4.4 u EBIT margin (%) 12.3 12.4 0.8 v Underlying EBIT1 111.1 97.3 14.2 u Return on net assets (%) 43.7 44.4 Avera
Slide 27: Orica Consumer Products EBIT bridge
Orica Consumer Products Sales $826M; EBIT $102M; Average Net Assets $233M; RONA 44% For personal use only A$M 120 14% 125 11 100 12% 120 10% 115 (4) (1) EBIT MARGIN 80 EBIT A$M 13 8% 110 60 6% 105 (10) 102 40 (4) 4% 100 97 20 2% 95 90 0 0% 2004 2005 2006 2007 85 1st Half EBIT Yates Restructure Impac
Slide 28: Corporate centre and other support services
Corporate centre and other support services For personal use only Year ended 30 September (A$M) 2007 2006 $ Corporate centre costs 39.3 36.3 3.0 v Other support costs 13.7 14.4 0.7 u TOTAL COSTS 53.0 50.7 2.3 u 9 Qenos doubtful debt provision reversal È Takeover defence and unsuccessful ($8M) – non-
Slide 29: Capital management - highlights
Capital management - highlights For personal use only Year ended 30 September 2007 2006 Net Debt 1 (A$M) 1,305.7 302.1 Net Interest expense (A$M) 122.6 92.2 Interest Cover (times) 6.6 7.1 Cash Conversion 2 (%) 63.8 52.5 Rolling TWC to Sales (%) 14.8 16.6 Gearing (%) 33.2 10.2 Gearing adjusted (%) 3
Slide 30: Cashflow
Cashflow For personal use only Year ended 30 September (A$M) 2007 2006 $ EBITDA 995.9 814.6 181.3 u Net interest paid (108.3) (90.3) 18.0 v Net tax paid (141.4) (101.6) 39.8 v Trade working capital movement (49.2) (212.6) 163.4 u Non trade working capital movement (172.7) 3.8 176.5 v Net operating c
Slide 31: Net debt and gearing
Net debt and gearing For personal use only Target gearing range shaded 1,600 50 Gearing and Adjusted Gearing % 1,400 40 Net Debt (A$M) 1,200 30 1,000 800 20 600 10 400 200 0 HY01 FY01 HY02 FY02 HY03 FY03 HY04 FY04 HY05 FY05 HY06 FY06 HY07 FY07 Accounting gearing 33.2% Adjusted gearing 39.6% (SPS sec
Slide 32: Cash Conversion
Cash Conversion1 For personal use only 100% 87.8% 90% 80% 75.2% 68.1% 70.2% 70% 62.2% 63.8% 60% 52.5% 50% 40% 2001 2002 2003 2004 2005 2006 2007 1 Cash conversion is calculated as EBITDA add/less movement in working capital less sustenance capital spend. Orica Full Year Results 2007 32
Slide 33: Rolling TWC to Sales %
Rolling TWC to Sales % For personal use only 25.0% TWC Project started May 2006 20.0% 15.0% 10.0% 5.0% 1 2 3 4 5 6 7 t'0 t'0 t'0 t'0 t'0 t'0 t'0 p p p p p p p Se Se Se Se Se Se Se Continuous improvement Reduced from 17.5% in May 2006 to 14.8% in 2007 Orica Full Year Results 2007 33
Slide 34: Capital expenditure
Capital expenditure For personal use only 160 120% Sustenance Spend A$M as a % of depreciation 140 100% 120 80% 100 60% 80 40% 60 20% 40 0% 2001 2002 2003 2004 2005 2006 2007 Sustenance % of Depreciation Sustenance capital $139M and Depreciation $153M in 2007 Orica Full Year Results 2007 34
Slide 35: Capital management - 2008
Capital management - 2008 For personal use only • 2008 Focus – cash generation • Restoring gearing to our target range • Credit Rating – committed to BBB+ Orica Full Year Results 2007 35
Slide 36: Results summary - 2007
Results summary - 2007 For personal use only • Record result • Quality of underlying earnings • Growth and productivity • Margin improvement • Cash conversion Orica Full Year Results 2007 36
Slide 37: 2008 priorities
For personal use only 2008 priorities
Slide 38: Growth priorities
Growth priorities For personal use only Business Strategic growth opportunity Mining Services - Organic and geographic growth – resource cycle - Lowest cost AN sourcing - Electronic blasting systems (EBS) - Enhanced product offerings - Small bolt-on M&A Minova - Integration of Excel – deliver the sy
Slide 39: Excel acquisition
Excel acquisition For personal use only • Strategy behind the acquisition: – Complementary to Minova – Resource sector growth – Underground mining growth – Safety focus • Established 2 teams to deliver the synergies - commercial and operational • Tax and finance structuring synergies already deliver
Slide 40: Productivity priorities
Productivity priorities For personal use only • Each business is responsible and accountable for improving productivity • Ongoing integration of ex Dyno businesses • Increasing utilisation of Six Sigma • Complete Yates restructure Orica Full Year Results 2007 40
Slide 41: Culture priorities
Culture priorities For personal use only • Roll out Deliver the Promise to Minova and Excel • Investment in our people: – INSEAD program – Ongoing roll out of development plans – Graduate program – expanding internationally Orica Full Year Results 2007 41
Slide 42: SH&E - Environmental
SH&E - Environmental For personal use only • Botany – Groundwater Treatment Plant - operating well – Plume is contained – Recycled water being utilised • Hexachlorobenzene – Appeal process • No other significant matters identified in current year Orica Full Year Results 2007 42
Slide 43: SH&E - Sustainability
SH&E - Sustainability For personal use only • Challenge 2010 targets well established • Carbon Trading manager appointed • Working on solutions globally as markets continue to evolve • Initiatives being developed to reduce emissions from major manufacturing facilities Orica Full Year Results 2007 43
Slide 44: Outlook
Outlook For personal use only Subject to global economic conditions, we expect Group net profit (before significant items) in 2008 to be higher than that reported in 2007. This is a result of an additional three months contribution from Minova, 11 months contribution from Excel Mining Systems and im
Slide 45: Supplementary information
For personal use only Supplementary information
Slide 46: EBIT contribution by business platform
EBIT contribution by business platform1 For personal use only September 2006 2 September 2007 3,4 Chemnet Chemical Chemnet 9% 7% Services Chemical 8% Services 11% Minova 9% Consumer Products Mining Mining Consumer Services 15% Services Products 64% 65% 12% 1 Excludes corporate costs 2 September 2006
Slide 47: Gross sales by geography
Gross sales by geography For personal use only September 2006 1 September 2007 Europe Europe Asia 7% 13% 8% Asia 8% Latin America 10% Australia Australia 49% Latin America 45% 12% North America 17% North America New Zealand 15% New Zealand 9% 7% 1 September 2006 sales exclude IPL Orica Full Year Res
Slide 48: Net interest expense
Net interest expense For personal use only Year ended 30 September (A$M) 2007 2006 $ Net interest expense 123 92 31 u Comprising: Interest on net debt 113 101 12 u Less: Capitalised interest (1) (14) 13 v Add: Unwinding of discount on provisions 11 5 6u Net interest expense 123 92 31 u Interest on n
Slide 49: Impact of Excel – gearing
Impact of Excel – gearing (A$M) For personal use only Rating Pro-forma Agency Post Excel Current borrowings 582.7 582.7 Non-current borrowings 1,093.7 1,868.7 SPS adjustment 2 250.0 250.0 Less: Cash (370.7) (370.7) Net Debt 1,555.7 2,330.7 Parent entity equity 1 2,566.8 2,566.8 Minority interests 60
Slide 50: Step-Up Preference Securities (SPS)
Step-Up Preference Securities (SPS) For personal use only • SPS treated as 100% equity for financial reporting purposes • SPS distributions are treated as dividends and NOT interest • EPS calculation adjusted for SPS distributions on an after tax basis • Rating agencies treat SPS as 50% equity / 50%
Slide 51: Impact of SPS – earnings per share
Impact of SPS – earnings per share For personal use only Reported per Accounts A$M Reported net profit from continuing operations 513.4 Less: Net profit attributable to minorities (25.7) After tax distributions to SPS holders 1 (30.5) Adjusted net profit 457.2 Weighted average ordinary shares on iss
Slide 52: Impact of SPS – gearing
Impact of SPS – gearing (A$M) For personal use only Reported per Rating Accounts Agency Current borrowings 582.7 582.7 Non-current borrowings 1,093.7 1,093.7 SPS adjustment 2 - 250.0 Less: Cash (370.7) (370.7) Net Debt 1,305.7 1,555.7 Parent entity equity 1 2,566.7 2,566.7 Minority interests 60.9 60
Slide 53: Impact of SPS – interest cover
Impact of SPS – interest cover (A$M) For personal use only Reported per Rating Accounts Agency Financial expense 157.4 157.4 Financial income (34.8) (34.8) SPS distribution adjustment 1 - 19.5 Net borrowing costs 122.6 142.1 EBIT 812.7 812.7 Less net profit attributable to minorities - (25.7) Adjust
Slide 54: Debt maturity – long term debt
Debt maturity – long term debt For personal use only A$M 300 275 250 225 200 USD 175 NZD 150 EUR 125 CAD 100 AUD 75 50 25 0 2008 2009 2011 2013 2015 2016 2017 2019 Average term of debt is approximately 7 years NB: The time scale on the table above is not linear, as some years have no debt repayment
Slide 55: Foreign currency - snapshot
Foreign currency - snapshot For personal use only Material exposures include: Offshore EBIT (Translation) Transactional Exposures • North America • AUD/USD • Europe • USD/LATAM region • New Zealand • USD/CAD • LATAM • NZD/USD • Nordics • NOK/SEK Net impact of a 1% move in exchange rates on a diversi