Orica Limited · ASX:ORI
Orica — Non-Deal Roadshow (May 2006)
52 slides from Orica's roadshow presentation, May 2006
Slide 1: Half Year Results Roadshow Slide Pack
. Half Year Results Roadshow Slide Pack 23 May – 2 June 2006
Slide 2: Orica – snapshot
Orica – snapshot • Australian owned publicly listed company trading on the Australian Stock Exchange (ORI) • Market capitalisation of approximately A$7.3bn* • Ranked in top 50 Australian companies based on market capitalisation • Operates in about 40 countries - 11,000 employees • Comprises four bus
Slide 3: Orica - creating value for shareholders
Orica - creating value for shareholders ORI ASX 200 Fix up, clean up, grow 3
Slide 4: Orica – business dimensions (inc. IPL)
Half year ended 31 March 2006 Orica – business dimensions (inc. IPL) ORICA Sales Revenue $2.5Bn EBIT $276M Operating Net Assets $2.6Bn Employees 10,000 + 0% 20% 40% 60% 80% 100% Mining Fertilisers OCP Chemical Services Chemnet 4
Slide 5: Orica – business dimensions (exc. IPL)
Half year ended 31 March 2006 Orica – business dimensions (exc. IPL) Sales Revenue EBIT Operating Net Assets Employees 0% 20% 40% 60% 80% 100% Mining OCP Chemical Services Chemnet 5
Slide 6: Financial summary
Half year ended 31March 2006 Financial summary 2006 2005 % Change Results including significant items: NPAT including significant items A$M 123 125 (1) Significant items after tax A$M (23) (3) Underlying Results: Sales Revenue A$M 2,599 2,384 9 EBIT (excluding significant items) A$M 276 245 13 NPAT
Slide 7: Shareholder scorecard
Six months ended 31 March Shareholder scorecard 2006 2005 Change Underlying Results Earnings per share cents 49.5 46.9 6% Returns to Shareholders Dividends - interim cents 26 25 4% Franking per share cents 9 8 - Payout ratio % 52.5 53.3 (1%) Increased returns for shareholders 7
Slide 8: Orica’s approach – value drivers
Orica’s approach – value drivers 8
Slide 9: Orica’s strategy
Orica’s strategy Three Key Principles: Market leadership Earning the “Right to Grow” Growing “Close to the Core” No change to existing strategy 9
Slide 10: Cost productivity
Half year ended 31 March 2006 Cost productivity 2006 2005 Increase $M $M $M % Sales revenue 2,599 2,384 215 9 Variable costs 1,589 1,442 147 10 Gross margin 1,010 942 68 7 Gross margin/sales 38.9% 39.5% Cash fixed costs 692 644 48 7 Cash fixed costs/gross margin 68.5% 68.4% Depn and amortisation 74
Slide 11: Capital productivity
Half year ended 31 March 2006 Capital productivity 1H 2006 FY 2005 FY 2004 Major Plant Capacity - ktpa Yarwun AN 295 295 275 Yarwun Sodium Cyanide 60 60 50 Kooragang Island 430 * 400 290 Expansion Capex - $M 178 207 53 Sustenance Capex - $M 103 147 146 Active Capital Management - $M Share Buy-Back N
Slide 12: Sustenance capex
Sustenance capex 160 120 140 Sustenance Spend A$M 100 as % of depreciation 120 80 100 80 60 60 40 40 20 20 0 0 2002 2003 2004 2005 1H 06 Sustenance % of depn Sustenance capex steady (excluding major turnarounds) 12
Slide 13: Orica’s culture
Orica’s culture Safety, Health & Environment Commercial Ownership “Ensure our future - No injuries” “Run the business as if its your own” • Take care of yourself & others • Achieve great financial results • Meet the needs of our • Relentless pursuit of best customers and community business outcomes
Slide 14: Business performance, Cash flow, Balance sheet
Business performance Cash flow Balance sheet A-IFRS 14
Slide 15: ROSHF
Half year ended 31 March 2006 Financial results 160 25% 140 146 20% 120 122 128 NPAT (A$M) 100 ROSHF 15% 97 80 80 60 10% 40 5% 20 30 0 0% 01 02 03 04 05 06 Expanded capital base impacted ROSHF • pre significant items 15 • pre 2005 not AIFRS adjusted
Slide 16: NPAT analysis
Half year ended 31 March NPAT analysis 4 160 3 7 -6 150 -4 18 146 A$M -4 -1 140 130 128 120 1H05 Existing SLB Acquisitions QGC Interest Insurance Elders case Other 1H06 NPATBSI Businesses NPATBSI 9 EBIT up 13% 9 Sale and Leaseback 9 Record result for Mining Services and 9 Contribution from acquisiti
Slide 17: Mining Services
Mining Services Sales $1,134M, EBIT $151M, Net Assets $1,387M A$M 400 15 260 350 7 240 EBIT MARGIN % 20 300 14 220 EBIT A$M 250 77 200 200 13 150 180 100 12 160 151 -72 -6 50 140 131 -5 -1 0 11 120 2003 2004 2005 2006 100 1H05 Price Net SLB Variable Fixed KI Shut Other 1H06 1st Half EBIT 2nd Half EB
Slide 18: Mining Services by geography
Mining Services by geography Australia/Asia North America 250 22 80 8 70 EBIT MARGIN % EBIT MARGIN % 200 21 60 6 EBIT A$M 20 EBIT A$M 150 50 19 40 4 100 18 30 50 20 2 17 10 0 16 0 0 2003 2004 2005 2006 2003 2004 2005 2006 1st Half EBIT 2nd Half EBIT 1st Half EBIT Margin 1st Half EBIT 2nd Half EBIT 1
Slide 19: Fertilisers (now divested)
Fertilisers (now divested) Sales $396M, EBIT $42M, Net Assets $745M 120 12 A$M 80 100 10 9 EBIT MARGIN % 70 11 80 8 EBIT A$M 60 6 60 13 40 4 50 -24 14 42 20 2% 40 -8 -1 0 0 28 30 2003 2004 2005 2006 -20 -2 20 1H05 EBIT M’nfg Import Restructure QGC Volume Elders Other 1H06 EBIT Margins Trading Case 1
Slide 20: Consumer Products
Consumer Products Sales $402M, EBIT $48M, Net Assets $236M 120 16 A$M 100 14 52 2 12 2 EBIT MARGIN % 80 50 49 EBIT A$M 10 -1 48 48 60 8 -3 -1 6 46 40 4 20 44 2 0 0 42 2003 2004 2005 2006 40 1H05 EBIT Yates Net Price Efficiency W.A. Depreciation 1H06 EBIT 1st Half EBIT 2nd Half EBIT 1st Half EBIT Mar
Slide 21: Chemnet
Chemnet Sales $505M; EBIT $29M; Net Assets $425M 90 12 A$M 80 45 10 4 70 EBIT MARGIN % 60 8 40 38 EBIT A$M 50 6 40 35 -7 30 4 -2 20 30 29 2 -3 -1 10 0 0 25 2003 2004 2005 2006 20 1H05 EBIT Price / Mix Volume Cash Restructure Other 1H06 EBIT 1st Half EBIT 2nd Half EBIT 1st Half EBIT Margin Fixed Cost
Slide 22: Chemical Services
Chemical Services Sales $231M; EBIT $32M; Net Assets $387M 90 18 A$M 80 16 35 2 EBIT MARGIN % 70 14 3 1 32 60 12 -2 EBIT A$M 50 10 -1 30 4 40 8 30 6 20 4 25 25 10 2 0 0 2003 2004 2005 2006 20 1H05 EBIT Net Restructure Aluminates Enzymes Volume Other 1H06 EBIT 1st Half EBIT 2nd Half EBIT 1st Half EBI
Slide 23: Corporate centre and other support services
Corporate centre and other support services (A$M) 2006 2005 $ Change Corporate Centre (17.7) (19.9) 2.2 Other Support Costs (6.8) (6.7) (0.1) (24.5) (26.6) 2.2 Corporate Centre Other Support Services 9 Lower head count 8 Higher insurance costs 9 Lower corporate initiative spend 23
Slide 24: Cashflow A$M
Half year ended 31 March 2006 Cashflow A$M 2006 2005 Change EBITDA 350 312 38 Net interest paid (49) (44) (5) Net tax paid (52) (154) 102 Trade working capital (223) (170) (53) Non-trade working capital (44) (76) 32 Net operating cash flows (17) (133) 116 Net investing cash flows (1,151) (166) (985)
Slide 25: Balance sheet (A$M)
Half year ended 31 March 2006 Balance sheet (A$M) March Sept March 2006 2005 2005 Trade working capital 875 604 949 Net property, plant & equipment 1,774 1,606 1,560 Net other assets 1,392 422 433 Net debt (1,423) (1,112) (1,441) Net Assets 2,618 1,520 1,501 Orica shareholders' equity 2,432 1,328 1,
Slide 26: Capital raisings 1H 2006
Capital raisings 1H 2006 Renounceable Rights Issue $508M 1 for 8 renounceable share issue at $15 Hybrid Equity $491M Priced at 135 bp over 6 month BBSW Other $113M DRP and executive share options exercise TOTAL $1,112M Capital raisings successfully completed 26
Slide 27: Net debt and gearing
Net debt and gearing 1500 60 1400 Target gearing range shaded 50 1300 1200 40 Net debt (A$M) Gearing % 1100 30 1000 900 20 800 10 700 600 0 HY02 FY02 HY03 FY03 HY04 FY04 HY05 FY05 HY06 z Book Gearing 35.2% z Adjusted Gearing 41.3% (hybrids notionally 50/50 debt & equity split) z Interest cover 5.0 t
Slide 28: Environmental provisions update
Environmental provisions update Carrying amount 30 September 2005 $186M Provisions made 1H 2006 $31M - Cockle Creek $28M - Botany Ground Water $3M Cash Payments made 1H 2006 $24M - Botany Ground Water $16M - HCB Management $3M - Other $5M Carrying amount 31 March 2006 $193M $48M of $193M car
Slide 29: A-IFRS 1H 2005 (pcp) reconciliation
A-IFRS 1H 2005 (pcp) reconciliation Year Ended 31 March 2005 AGAAP Adjustments A-IFRS Sales Revenue 2,384M - 2,384M Share Based Payments (9.8M) Goodwill Amortisation 17.8M EBIT 236.9M 8.0M 244.9M Tax Expense (9.2M) Minority Interests (1.4M) NPAT before significant items 130.7M (2.6M) 128.1M Signific
Slide 30: Summary
Summary Strong half year result despite weakness in some business platforms Record Mining Services and Chemical Services result Resilience to cost increases Financial discipline and improved cashflow performance Strong balance sheet capable of funding future growth A disciplined and consis
Slide 31: Outlook
IPL divestment Chemnet restructure Dyno acqusition Outlook 31
Slide 32: IPL divestment
IPL divestment Rationale - less earnings volatility going forward - allows each entity to pursue an independent strategy Orica capital management - Capital projects relating to existing businesses - M&A across remaining businesses Gross proceeds from sale $857M After tax gain $399M (to be bo
Slide 33: EBIT contribution by business platform
EBIT contribution by business platform Including IPL Excluding IPL EBIT by business platform 2005 EBIT by business platform 2005 Chemicals Services Chemnet Chemnet Chemicals 13.5% 9.2% 11.8% Services Consumer 10.5% Products 15.2% Consumer Products 17.4% Fertilisers 12.6% Mining Mining Services Servi
Slide 34: Gross sales by geography
Gross sales by geography Including IPL Excluding IPL Gross sales by geographic area 2005 Gross sales by geographic area 2005 Other Other 11.4% 14.3% Americas 17.9% Americas 22.4% New Zealand 9.4% New Zealand Australia 51.5% Australia 11.8% 61.3% Continuing the “internationalisation” of Orica 34
Slide 35: EBIT performance (exc. IPL)
EBIT* performance (exc. IPL) Past Performance Orica Today 700 650 600 550 500 450 EBIT $AM 400 350 300 250 200 150 100 50 0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Current Business EBIT EBIT as reported Earnings less cyclical going forward 35 *
Slide 36: Chemnet restructure costs
Chemnet restructure costs A$ millions (before tax) notes Cash Non Total Cash Cost Redundancies 10 10 Asset Rationalisation 1 3 30 33 General transition costs 5 5 Total Restructuring costs 2 18 30 48 1. Includes warehouse and site rationalisation, and product line exits 2. Will be disclosed as indivi
Slide 37: Dyno acquisition - update
Dyno acquisition - update Dyno businesses already transferred to Orica: Venezuela Thailand Slovakia Switzerland Philippines Papua New Guinea Indonesia Chile Transferred businesses represent 16% of Dyno revenue We remain confident of achieving synergy targets 37
Slide 38: Dyno acquisition - update
Dyno acquisition - update Integration Progress to Date: – 10 person integration team based in London – Appointed MD’s of EMEA & Latin America – No loss of customers from Dyno businesses – Safety performance maintained We remain confident of achieving synergy targets 38
Slide 39: Outlook
Outlook After the divestment of Incitec Pivot Limited, and excluding earnings from newly acquired Dyno Nobel businesses, earning growth in 2006 compared with 2005, influenced by general economic conditions. 39
Slide 40: Supplementary information
Supplementary information 40
Slide 41: Balance sheet – excluding IPL
Half year ended 31 March 2006 Balance sheet – excluding IPL* March Sale of IPL Proceeds Orica excl IPL 2006 Trade working capital 875M (263M) 612M Net property, plant & equipment 1,774M (312M) 1,462M Net other assets 1,392M 15M 1,407M Net debt (1,423M) 0 799M (624M) Net Assets 2,618M (560M) 799M 2,8
Slide 42: Profit & Loss – excluding IPL
Half year ended 31 March 2006 Profit & Loss – excluding IPL* March 2006 Sale of IPL Orica excl IPL Sales Revenue 2,599M (396M) 2,203M Underlying Results EBIT 276M (42M) 234M Net Interest (56M) 4M (51M) Tax (61M) 8M (53M) Minority interests (13M) 9M (5M) NPAT and minority interests 146M (21M) 125M Re
Slide 43: Mining Services - overview
Mining Services - overview • Offers commercial explosives, initiating systems and advanced mining solutions to the mining quarrying and construction industries • The global Explosives market is currently estimated at ~$9.5bn • The market displays a mix of global and regional characteristics but dire
Slide 44: Consumer Products - overview
Consumer Products - overview • World class technology • Leading marketer of branded and private label paints and stains, dry powder coatings, paint preparation and associated hardware products, sealants and adhesives, car care and garden care products • Category development through innovation • Dist
Slide 45: Chemical Services - overview
Chemical Services - overview • Divided into three business units: • Watercare • Industrial Chemicals • Mining Chemicals • Strong asset position including state-of-the-art operating plants and a flexible manufacturing capability • Leading technology including MIEX® water treatment • Strong focus on S
Slide 46: Chemnet - overview
Chemnet - overview • Orica’s chemical trading solutions business, supplying the market from all sources including: • own manufacture • external manufacture • as a distributor or agent • Largest chemical trading business in Australasia • Strong asset position with manufacturing plants and supply chai
Slide 47: Dyno transaction structure
Dyno transaction structure Creative structure used to secure key growth assets 1. Macquarie consortium acquires 100% of Dyno Nobel in the first instance 1. 2. Macquarie consortium on-sells MACQUARIE European, Middle Eastern, African, CONSORTIUM Asian and Latin American ♦ North America businesses to
Slide 48: Strategic & financial rationale
Strategic & financial rationale A clear and unique strategic fit for Orica Mining Services and a financially compelling case • Increased exposure to the resources & infrastructure sectors • Expansion of global footprint • OMS transforming acquisition with manageable risk • Earnings diversification f
Slide 49: Significant cost savings
Significant cost savings To be achieved from… EBIT cost savings by type EBIT cost savings by geography 17% 18% 24% 27% 8% 15% 43% 48% (27%) Rationalisation of administration (24%) Latin America (48%) Rationalisation / optimisation of plants (15%) Asia (43%) EMEA (8%) Improved logistics / purchasing
Slide 50: Foreign currency - snapshot
Foreign currency - snapshot $A Call Options: Hedging of USD exposure as at 31 March 2006 Offshore Business Manufactured Hedge Sales Nitrogen Product Premium Year Cover Strike Cover Strike expense A$M Rate A$M Rate A$M 2006 54 67 cents 44 68 cents 4.5 2007* - - 22 68 cents 0.8 No further hedging of o
Slide 51: Foreign currency - sensitivity
Foreign currency - sensitivity (Excluding IPL) Every one cent movement in the USD/AUD exchange rate will impact EBIT: 2006 +/- $0.5M 2007 +/- $1.0M 50% of Orica’s AUD/USD exposure came from IPL 51
Slide 52: Important notice
Important notice This presentation has been prepared by Orica Limited. The information contained in this presentation is for informational purposes only and does not constitute an offer to issue or arrange to issue, securities or other financial products. The information contained in this presentati